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starbucks4ever (97.75)

December 2008

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The Dutch disease

December 31, 2008 – Comments (7)

People think the Dutch disease is something that's limited to oil-producing countries like Russia and Venezuela. That's literally true. But if you adopt the broader definition that looks at the essence of the phenomenon, things become more interesting. In the broader context, one can define the Dutch disease as deindustrialization due to a lager inflow of unearned money from an ARBITRARY source, not necessarily oil-related. In the Roman Empire, it was cheap slave labor, in Spain it was the Aztec gold, and in Holland it was oil. The specific source of easy funding is not that much relevant. The point is that traditional industries die off because with so much easy money everywhere, it makes no sense to put any effort in the old boring manufacture.  [more]

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Keeping up with the Joneses, or do you own your fair share of national wealth?

December 30, 2008 – Comments (2)

Have you ever wondered, "how much real estate or equities should I own"?  [more]

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Grossly distorted picture

December 29, 2008 – Comments (3)

I have mentioned before that the horror story of Japan's deflation has been grossly exhaggerated by people who ignored the demographic trends that make American GDP numbers look better than they really are. Here is a nice article in The Economist to prove that great minds think alike. Unfortunately, The Economist ignored the issue of hedonic adjustments of the American GDP. Had it accounted for that adjustment as well, Japan's advantage would have been even more pronounced.   [more]

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Here's why hyperinflation is very likely

December 29, 2008 – Comments (2)

Suppose, for the argument's sake, that we start the economy with 10 banks having $1 trillion each. Through the magic of fractional reserve banking, each bank creates another 9 trillion of credit thus leveraging itself 10 to 1. So now each bank owes 9 trillion to lenders (which often means other banks) and owns 10 trillion of assets - cash, bonds, mortgages, debt swaps, futures, options, options on futures and other such crap. For a while crap seems a reliable asset because as long as banks create credit to buy crap, the price of crap is going up. Eventually, though, banks leverage themselves to the tilt and then halt.  [more]

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Cutting the tail by pieces

December 28, 2008 – Comments (0)

With his constant attempts to prop asset prices, Hank Bailout Paulson is like that owner who pitied his cut tail dog and instructed the veterenary to cut its tail in a series of gradual steps to reduce the shock.   [more]

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Once again on the imaginary horrors on deflation.

December 26, 2008 – Comments (6)

Like any great speculative bubble, inflation has its winners and losers. Once those on top have counted their gains, their worry is that the party might stop some day. While the best response to this possibility is the sobering realization that the society doesn't owe you any guaranteed return on your investments, it's naive to expect the majority to be capable of such intellectual honesty. When the danger of diminishing returns looms large, the next natural response is to start telling everyone around you that the world will end tomorrow if the market trend doesn't go your way.  [more]

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Liquidity crisis on an uninhabited island

December 23, 2008 – Comments (12)

The original source is in Russian, and it in turn sounds like an adaptation from a Western original, so the excerpt below could well be a reverse translation, but anyway...  [more]

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Capitalist values=socialism+corruption

December 23, 2008 – Comments (3)

The outcry from homeowners who believe they somehow "deserve" a perpetual 10% appreciation of a commodity product that is as cheap in production as a pickup truck and is itself composed of commodities such as clay, limestone, lumber, metal, and plastics, exposes the falsehood of the system of values that pretends to be capitalist but in fact is not.  [more]

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A 401K reform that I want

December 18, 2008 – Comments (1)

This article mentions one proposal to reform the 401K system: institute something like TIPS with a fixed 3% yield. Actually this wouldn't be bad at all. Beating inflation by 3% year after year after year is more than you can realistically expect of the stock market. Incidentally, this is why I don't think there's a slightest chance of the government accepting this proposal. I mean, a deal where you don't get robbed and where the government has to actually pay you back with interest? Come on, get realistic.  [more]

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Who says we have any deflation?

December 16, 2008 – Comments (5)

The only reason newspaper headlines are able to spread lies about the supposed danger of deflation is that gasoline has got cheaper. Without gasoline, deflation would be like 0.1%, and non-adjusted for hedonics, it would be about 0. Yes, inflation has stopped temporarily, but there is nothing to celebrate. Those who think this deflationary move is sustainable are wrong. The long-term link between money base and inflation is indisputable. On the other hand, the $3 drop in gasoline prices was a one-time event because gas prices cannot not go negative like the Fed Funds rate.  Therefore when weighing the probabilities of deflation vs. Bernanke, you should still be putting your bets on Bernanke. The bottom line is that deflation has shot its wad, whereas Bernanke is still printing.  [more]

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Could this be the most moronic comment ever?

December 16, 2008 – Comments (12)

I am sick and tired of Ben Stein. The guy sounds too much like a hungry RE broker, I don't know from whom else you can hear this kind of whining that tries to present itself as optimism. But this Steinism really takes the cake:  [more]

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Send Bernanke to Moscow

December 15, 2008 – Comments (0)

An interesting fact: while the ultra-capitalist Bernanke is printing money like he's trying to overtake Zimbabwe, the Russian Central Bank's monetary policy is actually quite conservative. Their response to the crisis was to slow down the printing presses, and they actually raised the funds rate by two percentage points after the crisis started. Their rationale: to encourage capital to stay in the country, rates should be above the rate of inflation. Wow! A sensible macroeconomic policy in a country where you'd least expect it!    [more]

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People are not cheap

December 15, 2008 – Comments (3)

A previous poster suggested that we have a buyer's market in people. I couldn't disagree more.  [more]

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Consumer on steroids

December 14, 2008 – Comments (4)

Everybody knows now that the cause of the current deleveraging is the perennial American habit of living above one's means.    [more]

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The Pouper, the Millionnaire, and the Consumer

December 12, 2008 – Comments (1)

Here is an archtypical situation that summarizes the essence of the bubble known as US economy.  [more]

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A frog named Madoff

December 12, 2008 – Comments (0)

A lady returns home from work when a croaking human voice that seems to originate from a nearbby pond reaches her ears. The lady approaches the pond and sees a frog, who says to her: "I am a securities broker, who was turned into a frog by a wicked magician. However, if a lady kisses me, I will regain my human shape". The lady picks the frog and puts it into her purse. "Wait, the frog cries, why don't you kiss me?" "Why would I? - the lady replies. -A talking frog is worth more nowdays than a securities broker".  [more]

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another reason deflation is not a threat

December 11, 2008 – Comments (3)

is that loss of appetite for credit is only dangerous to economies like Russia, Brazil, or India, which suffer from a lack of capital to retool their capital-intensive industries. The United States of America has the opposite problem. It suffers from an over-abundance of capital, which is so plentiful that it can't be absorbed by the few legitimate industries still left, which leaves speculative bubbles as the only conceivable application for that capital. This is not a situation where the lack of credit can cause trouble.  [more]

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Now it's Armageddon

December 11, 2008 – Comments (3)

"The governor chided the legislature for failing to heed his call last month to come up with a plan to rein in spending and increase revenues to deal with the tide of red ink. He said in a press conference Wednesday in Sacramento that the deficit keeps increasing at the rate of $40 million a day, and that if nothing is done the state will run out of cash by the end of February. "We're heading towards a financial Armageddon," the governor said."   [more]

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imaginary horrors of deflation

December 10, 2008 – Comments (2)

The chorus of voices from people with vested interest in inflationary growth (most notably, homedebtors, mortgage bankers and their sympathizers in the media) is bombarding us with horror stories about Japan's "lost decade". So I looked up the statistics to see if deflation is really as tragic as it is rumored to be.  [more]

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Sky is the limit for the gas monopoly, or Could this be the worst-run company ever?

December 08, 2008 – Comments (0)

What does it take to sell gas to Western Europe and squeeze a few pesos of legitimate profit? If you are the CEO of Gazprom, the answer is to give yourself a new 396-meter-tall HQ building.  [more]

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Corporate office: the last holdout of the incompetent manager?

December 07, 2008 – Comments (5)

This is inspired by a certain message board post about Cemex, which talked at length about the beusutiful corporate office they had. Not that the author of the post concurred with me in his estimate of the situation (on the contrary, he took it as a sign of reliability - to him, the luxurious office was a proof that these people can be trusted), but his post made me think once more about this corporate disease called addiction to fancy office space. As everyone knows, Cemex is facing some difficulties, to put it very mildly, and I just think that a company that is facing a real risk of insolvency next year should not be owning or renting the best office building in the city.  [more]

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Show me a bailout recipient, and I'll show you a millionnaire

December 01, 2008 – Comments (15)

I am sick and tired of these pathetic Californians crying for a bailout. Why is it that Nebraska can balance its books, Oklahoma can balance its books, Loisiana can balance its books, every illiterate redneck state where pigs outnumber voters 100 to 1 and where an IQ test won't reveal any difference anyway, still manages to balance its books, and only the richest state in America and, I bet, in the world, cannot collect enough taxes?  [more]

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