marți, 1 mai 2012

Seth's Blog : Volatility and value

Volatility and value

The fine art market continues to generate headline-making sales. This year, paintings by Warhol and Munch are expected to sell for more than $50 million each.

What makes a painting famous enough to sell for that much money?

Threepaintings

Consider the Mona Lisa. The reason that it's the most famous (and arguably the most valuable) painting in the world is that it was stolen in 1911. (Even Pablo Picasso was questioned as a possible suspect). For two years, it was a media sensation--precisely when newspapers were coming into their own. For two years it was front page news. As the world media-ized itself, we needed an icon to stand for "famous painting" and the Mona Lisa was it.

Media cycles have gotten shorter and shorter since then, and ironically, it was Andy himself who predicted that one day we'd all be famous for fifteen minutes. The thing is, being famous for fifteen minutes isn't sufficient to make your painting worth $80 million.

Andy never had his own tv show, wouldn't have had the most viral video on YouTube and wasn't focused on the fast pump of fame. It turns out that get big fast (and then fade) doesn't build a reputation that pays.

Media volatility makes more people and more ideas famous for ever shorter periods of time. What the fine art market shows us, though, is that real value isn't created by this volatile fame. Consistently showing up on the radar of the right audience is more highly prized that reaching the masses, once then done. This works for every career, if you've never touched a brush.



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luni, 30 aprilie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Ron Paul vs. Paul Krugman: Fed ‘Reckless’ to Allow High Jobless Rate, Say Krugman; "Mission Impossible" says Mish

Posted: 30 Apr 2012 09:54 PM PDT

I listened to the debate today on Bloomberg between Ron Paul and Paul Krugman.



Link if video does not play: Krugman Says Fed 'Reckless' to Allow High Jobless Rate

I do not feel Ron Paul did a very good job at making his points, and I certainly wish Ron Paul was a more charismatic speaker.

However, Paul Krugman made at least one preposterous statement. In contrast, Ron Paul simply failed to drive home his points clearly and precisely.

Said Krugman "The reckless thing is to allow mass unemployment to continue".

The statement is absurd. Although the Fed does have a dual mandate on employment and inflation, as I have pointed out on numerous occasions, the Fed's Dual Mandate Is Mission Impossible
Here's the deal.

1. The Fed can control money supply but it will have no control over interest rates (or anything else).

2. The Fed can control short-term interest rates, but then it would have no control over money supply (or anything else).

That is the full and complete extent of the Fed's "control". Note that neither price stability nor unemployment is in either equation. The reason is the Fed controls neither.

The result of all the recent Fed printing is a big yawn, otherwise known as excessive reserves as the following chart shows.

Excess Reserves of Depository Institutions



Does that chart look like the Fed is in control? If so, control of what?
Excess Reserves Then and Now

The above "Mission Impossible" snip was written August 27, 2009. Excess reserves now look like this.



Printing More Money Likely to Cost Jobs

The Fed could print another $trillion tomorrow and I highly doubt if it would do anything but cost jobs. Yes, that's right "cost jobs".

How so?

It would likely increase speculation in food and commodity futures, especially energy. It would drive down interest rates on CDs further robbing those on fixed income who would have less to spend.

If commodity prices rose  but demand did not (which is what I expect would happen), it would add to cost pressures at businesses which in turn would likely fire workers.

The idea that the Fed can create jobs is ludicrous (the housing bubble and subsequent crash are proof enough) but that does not stop fools from preaching the message.

For more silly debates involving Krugman, please see Bernanke Calls Krugman "Reckless"; Krugman and Bernanke Both in Academic Wonderland Somewhere Deep in Outer Space

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


Ludicrous Proposal by Harvard Economics Professor to Force Taxpayers to Buy Spanish Bonds; Mish's Five-Point Alternative Proposal

Posted: 30 Apr 2012 12:20 PM PDT

As the economic crisis lingers on, the number of ludicrous proposals to deal with the crisis rises every month.

I have lost count by now of preposterous ideas and who made them (does anyone have the complete list?), but a proposal by Harvard Economics professor Martin Feldstein to force taxpayers to buy Spanish bonds surely makes the list of top-five ludicrous proposals.

Martin Feldstein, writing for the Financial Times says Taxpayers must backstop Spain's budget
Spain is rapidly approaching a liquidity impasse. Markets are nervous because it's not clear how the government will finance its budget deficit and the rollover of its maturing bonds. To meet its financing needs, the Spanish government needs the confidence of foreign and domestic investors.

Building investor confidence during this process requires a plan to avoid a Greek-style default.

One part of such a plan is to negotiate access to the European Stability Mechanism, the €700bn fund created to protect member governments from default. But if the refinancing shortfall from private sources is very large, Spain will need to supplement the funds from the ESM.

Raising those additional funds by increasing taxes would push the Spanish economy into a deeper recession and would weaken the supply-side incentives needed to stimulate long-term growth.

An alternative emergency approach would be to mandate, on a temporary basis, bond purchases by Spanish households and businesses. Here's how such a plan might be implemented.

The Spanish government could use the income tax system to levy a temporary "lending surcharge" on individual incomes. In exchange for those surcharge payments, the households would receive an interest-bearing government bond with a maturity of five to 10 years. A similar surcharge could be levied on businesses based on corporate profits or the businesses' value added.

The Spanish government should therefore move quickly to enact such a plan before it is overcome by its current liquidity problems.
Earth to Feldstein

For starters, Martin Feldstein correctly points out that "increasing taxes would push the Spanish economy into a deeper recession".

Unfortunately, Feldstein then left planet Earth with his proposal for "Spain use the income tax system to levy a temporary lending surcharge on individual incomes", as if that would not have precisely the same effect as a tax.

Highway Robbery

Feldstein's proposal would take money out of taxpayers' pockets to feed government programs just as a tax would, yet amusingly he warns against weakening "supply-side incentives needed to stimulate long-term growth".

Feldstein proposes giving taxpayers interest on their forced loans to the government. Let's assume 4%. Under Feldstein's proposal (highway robbery is a more apt description than a tax), taxpayers would have access to at most 4% of their money deposited into the scheme.

Somehow "using the income tax system" to take money away from consumers (with a promise to pay it back later) will not cause a drop in consumption, but a tax would. With that idea, Feldstein left planet Earth for some unknown, academic wonderland, alternate universe.

Unfit to Teach

Precisely why should taxpayers bail out banks that made stupid loans? Feldstein never bothers to say.

Are bondholders never, ever to take a loss?

Feldstein's proposal is so preposterous and so devoid of rudimentary thinking about taxes (by whatever name) that it should be clear that he is unfit to teach.


Mish's Five-Point Alternative Proposal

  1. Spain should plead for emergency funds from the ECB, IMF, EMU, wherever it can get them.
  2. Spain should declare a bank holiday and announce a return to the Spanish Peseta
  3. Spain should issue a statement to the ECB, IMF, EMU to the effect "anyone stupid enough to lend us money deserves to lose it at least two-thirds of it. All debts in Euros will be repaid 1-1 in Pesetas."
  4. Spain should then devalue the Peseta by 65%. Should Europe, the IMF, and EMU threaten sanctions, Spain would counter with a threat of 100% default on all external debt rather than 65% of it.
  5. Spain should lower the VAT, lower corporate income taxes, and make it easier to hire and fire workers.

Point number one is a bit tongue-in-cheek as it is tantamount to purposeful fraud. However, the rest of the points can easily stand on their own merits.

In regards to point number three, Spain can be much more diplomatic in its statement to the ECB, IMF, and EMU, but the bottom line would be the same regardless of how Spain phrases the statement.

Results

  • Spain would immediately be relieved of 65% of its foreign debt obligations. 
  • The threat to not pay back any of its external debt if Europe of the IMF retaliates (perhaps coupled with a promise to pay back another 15% if everyone plays exceptionally nice) would prevent retaliation.
  • A lower VAT and lower corporate income taxes would encourage growth
  • At a huge discount to the Euro, Spain would become a tourist mecca
  • Spain's products would be far more competitive on the global economy

Effectively, I propose Spain do what Iceland did. The Icelandic economy is in recovery now, while Greece, Spain, Portugal, and Italy flounder.

In contrast, Feldstein proposes more bailouts of banks by taxpayers, while playing preposterous word games with the definition of  "tax".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


Illinois Borrowing Costs Rise by 22.5%, Expect Conditions to Worsen; Sideline Cash Nonsense From Nuveen

Posted: 30 Apr 2012 10:27 AM PDT

Illinois borrowing costs are poised to rise about 22.5%. The nominal increase is about .34 percentage points as reported by Bloomberg.
Illinois plans to sell $1.8 billion of general-obligation debt tomorrow as its relative borrowing costs may increase by almost a quarter.

The tax-exempt deal for the state, rated lowest by Moody's Investors Service, includes a 10-year segment that underwriter Jefferies & Co. plans to offer to investors at 1.85 percentage points above benchmark AAA securities, according to a person familiar with the sale.

Illinois's last general-obligation sale was on March 13 for $575 million, with 10-year securities priced to yield 1.51 percentage points above benchmark tax-exempts, according to data compiled by Bloomberg. That's 0.34 percentage points below tomorrow's tentative pricing plan, or a difference of 22.5 percent.

The state has the lowest-funded pension in the U.S., with assets equal to 45.5 percent of projected obligations, Bloomberg data show. Its backlog of unpaid bills to vendors and Medicaid obligations is more than $9 billion.

Investors should get more yield than 1.85 percentage points given those fiscal challenges, John Mousseau, a portfolio manager at Vineland, New Jersey-based Cumberland Advisors, which has $1.2 billion of municipal debt. It doesn't own Illinois general-obligation bonds.

"The state's debt should be trading even cheaper," Mousseau wrote in a report released today. "At some point it is a buy. Not yet."
More Sideline Cash Nonsense

I side with Mousseau expecting much higher yields.

However, Tom Spaulding at Nuveen Investments Inc. in Chicago says "With a lot of cash out there, I just don't see it having a problem getting done at these levels, and can probably get done a little bit better," he said.

Pray tell where is that cash that Spaulding speaks of? Certainly corporations like Apple have a lot of it, but most of that alleged "cash" is nothing but debt on the balance sheets of corporations.  Sorry Tom, but counting cash that is spoken for is simply wrong.

There is also $1.5 trillion of excess reserves at the Fed. However, those reserves, have an associated liability as well. Even if that was not the case there would be a problem of duration match. Do investors want to load up on Illinois debt at 1.85% for 10 years.

Nuveen might, but that does not make it an intelligent thing to do. I see no value here at all.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


Damn Cool Pics

Damn Cool Pics


Avengers-Inspired Eye Makeup

Posted: 30 Apr 2012 04:26 PM PDT

It seems like everyone is getting into the Avengers mood as the release date of the movie which is May 4, 2012 quickly approaches. Finnish makeup artist Jangsara was so excited about the film that she decided to create this amazing Avengers-themed eye art, coming up with looks that reference Thor, Iron Man, The Hulk, and even big bads like Loki.




11 Types of Facebookers

Posted: 30 Apr 2012 04:11 PM PDT

No one knows what forces people to act this way, but there are plenty of such users on the pages of the giant social network. Which one are you?






















Via: Eatliver


The Original McDonalds Menu

Posted: 30 Apr 2012 12:58 PM PDT

Check out the prices for McDonald's original menu back in the 50s. Back in the day, McDonald's loved adjectives even more than secret sauce.


Via: flickr


The Ancient Origins of Plastic Surgery [infographic]

Posted: 30 Apr 2012 12:53 PM PDT

Plastic surgery has come a very long way since the days it began which some historians date all the way back to 1213 B.C. These days it is no trouble to nip this and tuck that in just a matter of minutes with certain cosmetic surgery procedures.

Have you ever stopped and thought about the history of plastic surgery for just a second? The folks at The Plastic Surgery Institute of Southeast Texas put together this great infographic piece depicting the history of cosmetic plastic surgery into a visual timeline.

Click image to see a larger version.


Shared Web Hosting Showdown [Infographic]

Posted: 30 Apr 2012 11:51 AM PDT

Is your hosting company costing you too much? Ever wonder what web hosting company will give you the most for your money or how big the company really is? We set out to try and find these answers for you. Find the major difference between all of this and more for ten of the biggest web hosting companies out there. After seeing this you might be inclined to make the switch!

Click image to see a larger version.
Shared Web Hosting Showdown

Via: Hosting Reviews.com


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