Wikio Blogs - business

[Business] "Cherished myths fall victim to economic reality" (naked capitalism)

naked capitalism — Wed, 23 Jul 2008 14:07:07 GMT

This comment by Paul De Grauwe in the Financial Times, deserves more discussion that I can provide at this juncture (I am about to do a face plant), but I trust readers will find it a worthy offering. De Grauwe focuses on sacred cows that have been gored in the credit crunch. He has written before, i n more technical terms , on central bank reliance on models that deviate in key ways from observable reality. Nevertheless, despite his view that these constructs are taking a mortal blow, he also acknowledges that they still play a central role due to lack of obvious replacements. From the Financial Times : The financial crisis continues to create victims. Not only people but also some of our most cherished ideas risk falling by the wayside. Take the hugely influential idea that financial markets are efficient. Its proponents told us that when financial markets were left free, they would work miracles. Savings would be channelled to the most promising investment projects, thereby boosting economic growth and welfare. In addition, these financial markets would spread risk around over a large number of participants, thereby lowering the risk of doing business, again boosting growth and welfare. In order to achieve these wonders, financial markets had to be freed from the shackles of government control. The country that embodied these principles most was the US. Helped by the missionary zeal of successive American administrations and pushed by international financial institutions, country after country freed their financial markets from pernicious government controls, hoping to share in these economic wonders. The credit crisis has destroyed the idea that unregulated financial markets always efficiently channel savings to the most promising investment projects. Millions of US citizens took on unsustainable debts, pushed around by bankers and other “debt merchants” who made a quick buck by disregarding risks. While this happened, the US monetary authorities marvelled at the creativity of financial capitalism. When the bust came, a large number of Americans who had been promised a new life in their beautiful homes were told to move out. This boom and bust cycle cannot have been an example of efficient channelling of savings into the most promising investment projects. The fact that unregulated financial markets fail to deliver the wonders of efficiency does not mean that governments should take over. That would be worse. What it does mean is that a new equilibrium must be found in which tighter regulation is reintroduced, aimed at reducing the propensities of too many in the markets to take on excessive risks. The need to re-regulate financial markets is enhanced by the fact that central banks, backed by governments, provide an insurance against liquidity risks. Such insurance inevitably leads to moral hazard and excessive risk-taking. The insurer cannot avoid monitoring and regulating the be haviour of those who obtain this insurance. There is a second idea that is likely to become the victim of the financial crisis. This is the idea found in macro economic models, that individuals are supremely well-informed creatures. In these models that are now being used in central banks and universities, individuals understand the most complex intricacies of the world in which they live and they have no disagreement about this. All these individuals understand the same “truth”. If we have learnt one thing from the credit crisis it is that individuals did not understand the “truth” and, it must be admitted, neither did economists. Individuals who sold the new financial instruments did not understand the risk embedded in these instruments, nor did the buyers. When the bubble started many interpreted the happy turn of affairs as permanent and took on massive levels of debt that turned out to be unsustainable. When the bubble burst, they did not understand what had happened and nor did most experts. Our world is one of a fundamental lack of understanding of the “truth”. But that is not the world of the macro economic models that are now in use in central banks. The world of these models is one of supernatural and God-like creatures for which the world has few secrets. These creatures can perfectly compute the risks they take and estimate with great precision how an oil price shock will affect their present and future production and consumption plans. They may not be able to predict each shock, but they know the probability distribution of these shocks. Thus the risk involved in financial instruments is correctly evaluated by individuals populating these models. These superbly informed individuals want the central bank to keep prices stable so that as consumers they can optimally set their consumption plans with minimal uncertainty, and as producers they can set prices equal to marginal costs (plus a mark-up). If the central banks keep prices stable, these individuals, helped by well-functioning markets, will take care of all the rest and ensure that the outcome is the best possible one. This is a world in which free and unfettered markets are always efficient. This is also a world where individual agents cannot make systematic mistakes. Their consumption and production plans are optimal. They will never build up unsustainable debts. In the world of these macroeconomic models financial crises should not occur. And if they do, it cannot be because of malfunctioning markets. Governments that impose silly constraints on rational individuals are messing things up, and central banks that do not keep their promises to maintain price stability are the source of macroeconomic instability. This intellectual framework helps to explain the single-minded focus of many central bankers on inflation. Clearly, inflation is important and maintaining price stability is an important task of the central bank. It is not the only task, though. Financial stability is equally important. But this dimension is completely absent from the macroeconomic models now in use. In addition, since financial stability these days also depends on avoiding deep recessions, stabilising the business cycle should also be of the concern of the central bank. Inflation in the euro area stood at 4 per cent in June. That is a problem. But is it an acute problem, compared with the disequilibria in the financial markets and the banking sector? When the European Central Bank raised the interest rate two weeks ago it took the view that inflation is the most important problem we face. No wonder the intellectual frame imposed on one’s mind by current macroeconomic models said that inflation is the number one enemy. There is a danger that the macro economic models now in use in central banks operate like a Maginot line. They have been constructed in the past as part of the war against inflation. The central banks are prepared to fight the last war. But are they prepared to fight the new one against financial upheavals and recession? The macroeconomic models they have today certainly do not provide them with the right tools to be successful. They will have to use other intellectual constructs to succeed.

Financial Time : Cherished myths have fallen victim to economic reality ...
Real Time Economics : Secondary Sources: Myths, Infrastructure Stimulus, Modest Proposal ...

blogs : Real Time Economics,Financial Time,naked capitalism...
(3 posts, last update: 23/07/2008 16:07)

[Business] Strike Culture (Ten Percent)

Ten Percent — Wed, 16 Jul 2008 18:40:10 GMT

Dave @ Complex System of Pipes has a great report of strike action happening today, he tours around Manchester and gets the goods- First we went to a council office in Gorton. Unison steward Phil Moth said they’d had a very good response to the picket line. This was borne out by the honking of supportive [...]

BBC News : Council workers walk out ...
Tory Heaven : The old lie that wage increases create inflation ...

blogs : Ten Percent,BBC News,Tory Heaven...
(3 posts, last update: 16/07/2008 20:40)

[Business] Somerfield, Co-op and the High Street (Hapless band of staff and regulars)

Hapless band of staff and regulars — Wed, 16 Jul 2008 15:22:12 GMT

In the last month Somerfield opened a new store on the High Street in Lincoln. Today we hear that the company has been sold to the Co-operative Group. The question I have is, “what will happen to the store on the High Street'”. Lincolnshire is awash with Lincolnshire Co-op’s (different to the Co-operative Group, who are owned [...]

BBC News : Co-op buys Somerfield for £1.57bn ...
Politics for People : Co-op to buy Somerfield. ...

blogs : The Guardian,Hapless band of staff and regulars,BBC News,The Herald ,Politics for People...
(5 posts, last update: 16/07/2008 17:22)

[Business] In 26 Years… (Eye on Williamson)

Eye on Williamson — Wed, 16 Jul 2008 17:45:50 GMT

In the continuing series first called, In 17 Years.., about the current stat of the economy in the US. Inflation hasn’t gone up this much in one month since St. Ronnie was president, US inflation rate at 26-year high. There’s also this from USA Today, Consumer prices jump in June. Consumer prices shot up [...]

BBC News : US inflation rate at 17-year high ...
BBC News : US inflation rate at 26-year high ...

blogs : Times Online,News Scotsman,Boston Globe,Biodun Iginla's Weblog,Democratic Underground...
(33 posts, last update: 16/07/2008 19:45)

[Business] Merrill: US May Face "Financing Crisis" (naked capitalism)

naked capitalism — Wed, 16 Jul 2008 11:48:00 GMT

Ambrose Evans-Pritchard appears to be trying to corner the market in apocalyptic financial news. But his sources aren't evangelicals, survivalists, or even goldbugs. The experts he cites are with respected financial firms, meaning they don't sound alarms casually. Even more significant, the terms they are using to describe what might be coming are uncharacteristically dire. The latest bad tidings in that the Fannie/Freddie turmoil may lead our favorite foreign credit sources to dial down their purchases of Treasuries and agencies a tad. We've become so dependent on foreign credit that a mere tightening of the spigot would have significant consequences. Tim Price, a UK based investment manager, gives a long-form treatment of a theme I've mentioned: we are way way outside known historical patterns. That is troubling to anyone, but it is particularly unnerving to the order-liking mindsets of analysts and central bankers: That stock market price action has been so consistently dreadful with such little evidence of a sustainable floor despite flurries of ostensibly positive news (Santander / Alliance & Leicester; some form of formal pastoral care for Fannie Mae and Freddie Mac) could be interpreted as a sign that many investors remain trapped at the “denial” stage of this particular market disaster. Or perhaps many investors, institutional and individual alike, are now mulling their deliberative options. And some, presumably, have already reached the decisive phase, and already pulled the plug on much of their market exposure and initiated the dash for cash. This may or may not prove to be the prudent strategy; only time will tell. It certainly seems to show the merit in the advice that if you’re going to panic, panic early. We would merely hazard the following suggestion: the current market environment is flushing out those investors (supposedly “professional” and individual) who are congenitally unsuited to be making substantial portfolio allocations to the equity mark

The Telegraph : US faces global funding crisis, warns Merrill Lynch ...
Climateer Investing : U.S. Faces Global Funding Crisis: Merrill Lynch ...

blogs : The Telegraph,Climateer Investing,China Confidential,The Mess That Greenspan Made,naked capitalism...
(5 posts, last update: 16/07/2008 13:48)

[Business] Price comparison traffic up 37% thanks to economic downturn (Hitwise)

Hitwise — Tue, 15 Jul 2008 11:30:00 GMT

With prices rising and the credit crunch biting, consumers are taking more time to find the best deals online. Last week we contributed to an Experian Footfall report which highlighted the downturn on the high street and in out of town shopping centres, compared with the increase in online retail traffic. Although the high fuel prices are clearly contributing to this trend, the major benefit that internet shopping has over bricks and mortar is the ease of browsing multiple outlets to find the cheapest price. As the chart below illustrates, UK Internet traffic to our Shopping and Classifieds: Rewards and Directories category - which consists primarily of price comparison engines, affiliates and voucher sites - has increased by 37% over the last 12 months. Rewards and Directories sites sent over half of their downstream traffic to other retailers in June. As the table below illustrates, the biggest beneficiaries were sites within our Department Stores and Appliances and Electronics retail sub-sectors. Over the last three months the category has received traffic from 929,000 distinct search terms, illustrating the variety of goods included within their systems. Aside from the most popular price comparison brands and retailer names (e.g. ‘ebay’, ‘tesco’, ‘argos’), the top product searches refer to gadgets, with ‘wii fit’, ‘wii fit in stock’ and ‘mobile phone reviews’ currently the most popular. A clear growth area is fashion: the amount of traffic the category sends to Apparel and Accessories retailers has increased by 60% over the last year, and ‘primark’ is now the second most popular retail brand name sending the category traffic. One of the interesting data points in the table above is the amount of traffic that Rewards and Directories sites send to their competitors: 13.4%. This implies that UK consumers are not only using price comparison sites to check prices, but actually browsing multiple price comparison sites for the find the best deal. And they seem to stick what they know: the table below contains the top 10 Rewards and Directory sites in June, a list that hasn’t changed much during the last few months of market growth.

Financial Time : UK inflation surges to 3.8% in June ...
Tom Jackson Online : CPI Climbs Again ...

blogs : Hitwise,Tom Jackson Online,Financial Time...
(3 posts, last update: 15/07/2008 13:30)

[Business] WSJ: Treasury's Vulcan Strategy for Fannie/Freddie (Infectious Greed)

Infectious Greed — Sun, 13 Jul 2008 22:37:03 GMT

So much for the rumored $15b Treasury infusion into Fannie Mae and Freddie Mac. That is one message you could take from a story on the WSJ front page right now, essentially saying that later today Treasury will instead make a "statement of facts designed to reassure markets". What is Treasury Secretary Henry Paulson, a lapsed Vulcan? He thinks logic and carefully-reasoned argument are just what the market has been waiting for. While I applaud his optimism, the market's response to reason will be anything but predictable. The FT has more , with Paulson, NY Fed head Tim Geithner, and Fed chair Bernanke having met over the weekend to come up with a firm U.S. government stance in advance of Asian markets opening Monday. Trouble is, according to the FT, the situation remains "fluid", and while some sort of agreement has been reached, it could all change before the day is done.

FT.com - Europe homepage : US mortgage crisis summit ...
naked capitalism : Announcement for Fannie, Freddie in the Works (Updated) ...

blogs : The Irish Times,Infectious Greed,FT.com - Europe homepage,naked capitalism...
(4 posts, last update: 14/07/2008 00:37)

[Business] TROUBLE WITH FANNIE AND FREDDIE... (Tangled Blog)

Tangled Blog — Sat, 12 Jul 2008 09:04:00 GMT

Hi folks! Been away all day so quick catch up with events. I was reading that shares in US mortgage firms Freddie Mac and Fannie Mae have fallen by as much as 50% in volatile trading in New York amid concerns for their future. Investors are concerned that the government may have to step in to rescue them, a move that could wipe out the value of existing shares. But the US Treasury said it would back the firms in their "current form". The companies are behind half of all US mortgages and have been hard hit by the slowdown in the US housing market. This is worrying news but I hope that the US Treasury is not so foolish as to do a "Northern Rock" and assume State ownership of these deteriorating assets. That way lies something much worse than economic woes, that way lies socialism! Beware.

BBC News : US mortgage firms' shares slump ...
The Streeb-Greebling Diaries : Crash ...

blogs : The Streeb-Greebling Diaries,ziomal.biz,BBC News,Courrier Mail,Seattle Post-Intelligencer...
(10 posts, last update: 12/07/2008 11:04)

[Business] Telegraphing doom and gloom (The Mess That Greenspan Made)

The Mess That Greenspan Made — Fri, 11 Jul 2008 13:50:00 GMT

Boy, if you think the media in the U.S. is a bit too gloomy, have a look at what's appearing over in the U.K. in the Daily Telegraph. Ever the doubter, Ambrose Evans-Pritchard is downright cheery (at least in the headline) as compared to Edmund Conway who blares: Slide in house prices worst since the Great Depression By Edmund Conway Britain is now in the midst of the worst housing slide since the Great Depression, economists declared after house price inflation dropped to the lowest level since comparable records began. Figures from Halifax, the UK's biggest mortgage lender, showed house prices have fallen by 8.7pc in the year to June, confirming that the property crunch is more severe than the last housing crash in the early 1990s. Hours before, the Bank of England voted to leave rates unchanged at 5pc. The Halifax figures - which showed prices dropped 2pc last month, following a 2.5pc slide in May - indicate that the scale of the crash now rivals the falls in UK home values in the 1930s. In the three months to June, house prices were 6.1pc lower than the comparable period last year - described by Halifax as the "annual change". House prices have never fallen by more than 10pc over a year in recorded history, except in 1931, when Britain left the gold standard. ... Alex Vitillo, of Fathom Consulting, said that the downturn was already more severe than the early 1990s, where, according to figures from Nationwide, prices dropped by around 20pc over a number of years. He said: "As the UK housing market downturn gathers pace, it is common for analysts to argue that this downturn will not be as bad as the early 1990s vintage. It looks like it will be worse, perhaps far worse. And here's Ambrose, talking about a "crunch" in the headline which quickly turns into "lifeblood" that is quickly "draining away" and "debt deflation": Monetarists warn of crunch across Atlantic economies By Ambrose Evans-Pritchard The lifeblood of countries' economies is draining away - with grim consequences for us all. The money supply data from the US, Britain, and now Europe, has begun to flash warning signals of a potential crunch. Monetarists are increasingly worried that the entire economic system of the North Atlantic could tip into debt deflation over the next two years if the authorities misjudge the risk. ... Paul Kasriel, chief economist at Northern Trust, says lending by US commercial banks contracted at an annual rate of 9.14pc in the 13 weeks to June 18, the most violent reversal since the data series began in 1973. M2 money fell at a rate of 0.37pc. "The money supply is crumbling in the US. There was a very sharp lending contraction in the second quarter lending. If the Federal Reserve is forced to raise rates now to defend the dollar, it would be checkmate for the US economy," he said. Leigh Skene from Lombard Street Research said the lending conditions in the US were now the worst since the Great Depression. " Credit liquidation has begun ," he said. The Fed's awful predicament does indeed have echoes of the early 1930s when the bank felt constrained to tighten into the Slump in order to halt bullion loss under the Gold Standard. Investors - notably foreigners - dictated a perverse policy. Over 4,000 US banks collapsed. This time a de facto "Oil Standard" is boxing in Ben Bernanke. Benign neglect of the dollar has started to backfire. It is pushing up crude, with multiple leverage. There is certainly a lot of "flation" out there - how much of it is de-flation and how much of it is in-flation will probably be known before the year is out.

The Telegraph : Slide in house prices is the worst since the Great Depression ...
Mish's Global Economic Trend Analys : Spain Implodes, UK Home Slide Most Since Great Depression ...

blogs : Mark Wadsworth,The Telegraph,Mish's Global Economic Trend Analys,The Mess That Greenspan Made...
(4 posts, last update: 11/07/2008 15:50)

[Business] Interest rate call - no movement (theRatandMouse)

theRatandMouse — Thu, 10 Jul 2008 18:25:24 GMT

As expected, the Bank of England votes to keep interest rates at 5%. Technorati Tags: London, property, real estate...

BBC News : Bank holds interest rates at 5% ...
Balanced News Blog : Bank of England Holds Firm at 5% ...

blogs : theRatandMouse,Daily Star,Balanced News Blog,BBC News,The Independent...
(8 posts, last update: 10/07/2008 20:25)

[Business] ITM Power now has a demonstration house with home hydrogen station (Driive)

Driive — Thu, 10 Jul 2008 16:42:59 GMT

Filed under: Hydrogen We've written about ITM Power and their plans to build a home hydrogen generating station several times before. The British company now has a prototype unit running in a Sheffield along with a Ford Focus that has been converted to run on hydrogen. The hydrogen generator includes an electrolyzer to produce H2 from water, and the hydrogen in the demonstration house is being used as a vehicle fuel, as well as for heating, cooling and other functions. Powering the generator is possible through the use renewable sources such as wind and solar energy. Honda is developing something along the same lines that it calls the Home Energy station . The HES however, reforms natural gas to produce hydrogen and then uses the hydrogen both to fuel a vehicle as well as a fuel cell that provides electricity and heat to the home. ITM, for some reason, has chosen to use a hydrogen fueled internal combustion engine to drive a generator to provide electricity to the home. The losses going from renewable electricty to hydrogen and back would greatly outweigh any benefits. At least the Honda system skips the electricity-hydrogen-electricity loop. On the plus side, ITM believes it can sell its hydrogen generator for about $4,000 and hopes to produce it by the end of this year. You can check out the video report at the BBC site. [Source: BBC ] Read | Permalink | Email this | Comments

BBC News : Should children be banned from weddings? ...
MARRIAGEDEBATE.COM--MAIN BLOG : SHOULD CHILDREN BE BANNED FROM WEDDINGS': BBC News Magazine ...

blogs : BBC News,Driive,MARRIAGEDEBATE.COM--MAIN BLOG...
(3 posts, last update: 10/07/2008 18:42)

[Business] Brigitte Nielsen broadcast her plastic surgery live on German TV (Cele|bitchy)

Cele|bitchy — Wed, 09 Jul 2008 18:03:56 GMT

In May, we told you about washed up actress/model Brigitte Nielsen’s plan to pose for Playboy to commemorate the first time she did it 20 years ago. Back then, she went on and on about all the plastic surgery she was going to have to prepare herself. It looks like the boozy blond D-lister has [...]

Daily Mail : Sly Stallone's ex-wife Brigitte Nielsen has a boob job - live on German TV ...
Dlisted : Gitte Gets "The Demi" ...

blogs : Celebrity Smack!,Dlisted,Cele|bitchy,Daily Mail,The WOW Report...
(6 posts, last update: 09/07/2008 20:03)

[Business] More Evidence: Speculators Don't Cause Volatility (CARPE DIEM)

CARPE DIEM — Wed, 09 Jul 2008 12:27:00 GMT

Prices were outrageously volatile. While traders attributed the sharp market movements to supply and demand, most politicians in Washington were sure that speculation was the culprit. The U.S. public became incensed. The year was 1958, the commodity in question onions. Congress held long and sometimes tumultuous hearings in which Everette Harris, then president of the Chicago Mercantile Exchange, tried to convince lawmakers that the futures market for onions was not the cause of the volatility. “We merely furnish the hall for trading . . . we are like a thermometer, which registers temperatures,” Mr. Harris told a hearing. “You would not want to pass a law against thermometers just because we had a short spell of zero weather.” But such arguments were ignored and in August of that year the Onion Futures Act was passed, banning futures trading in the commodity. Exhibit A: Notice in the top chart above that the price volatility for onions looks greater AFTER futures trading was banned than it was before. Exhibit B: The same patterns exists for the second chart of wheat futures - there was greater price volatility WITHOUT futures trading than with futures. Exhibit C: Research by Lehman Brothers shows that prices for metals that are not traded in exchanges, such as chromium, molybdenum or steel, have risen faster than prices for metals traded in exchanges, such as copper or aluminium (see bottom chart above). In addition, some of the commodities markets in which pension funds hold the largest share of outstanding contracts, such as hogs, have seen price drops. Source: Financial Times

Financial Time : The usual suspect: Are financial investors driving up the cost of commodities? ...
Peak Energy : Speculators and Onion Prices ...

blogs : Peak Energy,CARPE DIEM,Financial Time...
(3 posts, last update: 09/07/2008 14:27)

[Business] Snouts in a $750 million trough (Not PC)

Not PC — Tue, 08 Jul 2008 20:27:00 GMT

What species of persons would meet together to discuss exploding food prices, food shortages and the sacrifice of world industry to the goddess Gaia while troughing down more food than a small African country could consume in a year? Answer: politicians. The political leaders of the world's eight wealthiest countries (known as 'the G8') have gathered together in Hokkaido, Japan to glad-hand, be photographed, and to suck up luxury in a summit costing NZ$750 million, augmented by course after course after course of rich food. Rich, in more ways than one . In a questionable public relations move, the summit’s Japanese organisers proudly displayed to the press the menus for a sumptuous eight-course banquet laid on last night and a five-course lunch a few hours earlier. The leaders tucked into truffle soup and crab as they discussed Zimbabwe and aid to Africa’s poorest people. The evening feast of 19 separate dishes included diced fatty flesh of tuna fish and milk-fed lamb with aromatic herbs. Tomorrow, after working up an appetite discussing soaring food prices, the leaders will enjoy a £200 dinner of giant crab, £50-a-kilogram langoustine and sweet clover ice cream... It is all in keeping with a summit that has cost a total of 60 billion yen (NZ$750 million) - enough to have bought 100 million mosquito nets to save Africans from catching malaria... [Meanwhile], on Sunday, Gordon Brown advised householders at home not to waste food as the world copes with a shortage. And on Monday, these same G8 leaders emerged to announce their agreement to so strangle their countries' industry that 'emissions' will plunge by fifty percent by 2050. Renunciation and sacrifice -- only a politician can do it as they do it with a straight face.

Times Online : G8 leaders feast on 8 courses after discussing world food shortages ...
PETA Europe's Blog : Eight-Course Meal for G8: The End of Hunger (For Them) ...

blogs : Times Online,POV,Not PC,PETA Europe's Blog...
(4 posts, last update: 08/07/2008 22:27)

[Business] Volvo planning more small models, more diesels (Autoblog)

Autoblog — Thu, 03 Jul 2008 21:55:18 GMT

Filed under: Coupes , Economy , Hybrids/Alternative , Green , Hatchbacks , Volvo click above image for high-res gallery of the Volvo C30 Efficiency In the wake of rapidly diminishing sales of large and not-particularly fuel efficient cars, Volvo is doing what only seems rational: introducing smaller vehicles with more fuel efficient engines. The company reportedly has plans to introduce three new diesel powered vehicles by the fall. We are unclear on where Volvo intends to target with its little green men cars besides emerging markets such as China and Russia, but we'd love to see some more stylish and fuel efficient options in the U.S. It's too early to speculate on what vehicles Volvo is referring to, but that's never stopped us before. The C30 is currently the Swedish automakers smallest vehicle and at last year's Frankfurt Motor Show , Volvo showed off its C30 Efficiency concept . We'd say that the timing certainly appears right for a production version of just such a machine. After all, who wouldn't appreciate the 52.26 miles per gallon from its 105 horsepower 1.6L turbodiesel engine? Gallery: Volvo C30 Efficiency [Source: Just-Auto - sub. required] Read | Permalink | Email this | Comments

Just Auto : SWEDEN: Volvo plans new diesel and small models ...
AutoblogGreen : Volvo pinning hopes on small cars, diesels ...

blogs : AutoblogGreen,Just Auto,Driive,Autoblog...
(4 posts, last update: 03/07/2008 23:55)