• Tyler Cowen on the Economy
    Posted by on August 25th, 2008 at 10:02 am

    From Saturday’s NYT:

    Emerging from the current slowdown isn’t just a matter of political will or smart central banking. If the recipe for success requires smooth adjustment into new growth sectors, more savings from disposable income, cleaning up the housing mess, well-functioning energy markets, and more effective financial intermediation — all in the right combinations and in the right sequences — neither the government nor the Federal Reserve can control this process. The Fed can add regulatory and monetary clarity, but there isn’t any magic bullet. Beware of anyone who tells you there is.
    The Japanese failed to break out of their recession quickly because they didn’t promptly close down or clean up their problem banks. So far, the Fed and other regulators show no signs of making this mistake; they have been vigilant in resolving crises as they occur. But that’s not enough to guarantee a successful transition. The American economy will be tested for its deftness — and the test will be difficult precisely because there isn’t a single enemy on which to focus.
    HAVE you ever tried to undo a bunch of tangled wires or cords? If you don’t pull on the right wires in the right order, the mess becomes worse. If you pull too hard, the whole thing can break. But if your first pulls are good ones, the untangling becomes easier with each move.
    That’s like our economy’s situation today. If we expect too much too quickly, we’ll make matters worse. But there is a way out of the mess, and it lies in our hands.
    Be careful, and start pulling.

  • Ben Stein Watch
    Posted by on August 25th, 2008 at 9:50 am

    Felix Salmon regularly skewers Ben Stein’s incoherence in each week’s New York Times. (For the record, Stein’s the one who appears in the NYT, Felix writes on his blog). This week, Felix finds this sentence:

    They walk in rows of three, each on a cellphone, not even talking to the people next to her.

    You truly do not want to know the context. What caught Felix’s eye is that, up until that point, no female had been referenced. The “next to her” just appeared out of nowhere, which leads Felix to conclude that no one at the Times bothers to read his columns.
    My take is that there was a previous sentence that had been edited out which had referred to the female, and the following sentence hadn’t been fixed. I have to think that the reason for the deletion and the female reference are related, but I could be wrong.

  • Best Line of the Day
    Posted by on August 25th, 2008 at 9:46 am

    Paul Kedrosky finds this gem from a French banker in 1907:

    The U.S. is a great financial nuisance.

    The Panic of 1907 was pretty ugly for investors. Here’s what I wrote last year on its 100th anniversary.

  • The Weekend Is Here
    Posted by on August 22nd, 2008 at 5:27 pm

  • Gas Prices Around the World
    Posted by on August 22nd, 2008 at 1:46 pm

    Here’s a cool map looking at gasoline prices around the world. I’m glad I don’t live in Turkey ($11.17/gallon). On the other hand, I’m not about to move to Venezuela ($0.12 a gallon) either.

  • Defending Shorts
    Posted by on August 22nd, 2008 at 11:42 am

    Doug Kass has an excellent article in the FT defending shorts:

    Yet short-sellers have served as financial watchdogs, as many of their warnings have been spot on. The delusional dotcom boom in the late 1990s brought Cassandra-like utterings from the short-selling cabal that proved insightful but were largely ignored. After the subsequent 75 per cent collapse of the Nasdaq, a bull market in corporate fraud emerged and short-sellers such as David Rocker, founder of Rocker Partners, highlighted accounting problems at companies such as Sunbeam, Tyco and Lernout & Hauspie. Kynikos’ Jim Chanos played a role in uncovering the largest fraud in history when his contrary-minded analysis warned of Enron’s accounting shenanigans – which were emulated (but ignored by investors) in the banks’ recent dalliance with structured investment vehicles.

    Short sellers have done the work that governments won’t and can’t. It’s absurd for governments to limit their opportunities. .

  • Investors Pulling Out of Russia
    Posted by on August 22nd, 2008 at 10:10 am

    In January 1980, the gold market peaked just a few days after the Soviets invaded Afghanistan. Now it looks like the commodities market has again peaked with a Russian incursion, this time into Georgia. In the short-term, it was a strategic victory for Putin, but the long-term might not be so kind. The BBC reports that investors are pulling out of Russia.

    Russia has seen foreign reserves decline, a sign that the market is more nervous about investing in the region since the recent conflict in Georgia.
    Central Bank figures show reserves were sharply down in the week ending 15 August, marking a fall of $16.4bn (£8.8bn) from $597.5bn a week earlier.
    Tensions with the west have also been strained by Russia’s objection to the US placing a missile defence in Poland. Georgia has urged the west to invest in the region as it seeks to rebuild.
    According to the Financial Times, the latest drop in capital reserves is the largest “since comparable figures began” in 1998, though similar funds were taken out during the currency crisis.

  • Quote of the Day
    Posted by on August 22nd, 2008 at 9:48 am

    From Mr. Buffett:

    “You always find out who’s been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach,” said Buffett, who was called the world’s richest person by Forbes magazine.

  • Random Observation
    Posted by on August 19th, 2008 at 1:04 pm

    Is it me or is everyday either a good day for commodities and commodity stocks and a rotten day for financials and value stocks, or an awful day for commodities and commodity stocks and a good day for financials and value stocks?

  • Flashback from 1998: NYT: Commodities’ Price Slide Victimizes Economies of Several Nations
    Posted by on August 19th, 2008 at 11:39 am

    On December 10, 1998, the price for oil reached a low of $10.72 a barrel. That was the lowest price since 1986, and it turns out, it was the beginning of a huge turnaround for the price of crude.
    So the low prices were good news, right? Well, not exactly. The New York Times was able to find the downside: Market Place; Commodities’ Price Slide Victimizes Economies of Several Nations:
    Victimizes?

    What worries analysts now is that the recent decline is a signal that prices will not turn around soon.
    Matthew J. Sagers, the director of the energy service of Planecon, a consulting group specializing in the former Soviet Union and Eastern Europe, said the consensus on oil prices ”is that we are going to be here for several years.”
    Mr. Brainard and other analysts argue that an extended period of lost economic growth and lower governmental revenues stemming from the drop in commodity prices will raise the pressure on many already troubled governments and economies. That could intensify investor concern and weaken currencies. To defend those currencies, central banks would have to raise their interest rates — which would mean even slower growth.
    The impact on Russia, for example, has been stark. The country’s $87 billion in 1997 exports included $21.9 billion in oil, $16.4 billion in gas and $14 billion in metals — about 60 percent of the total.
    But the prices of every one of these commodities have fallen sharply and are still declining. The price of platinum, for which Russia is the second major supplier, has dropped almost 12 percent just since July. The price of oil plunged 36 percent — from around $22 a barrel in October 1997 to around $14 in August — and has fallen another 23 percent, to $10.72, since November.

    At the time, Kofi Annan approved oil sales to Iraq for “humanitarian goods,” which apparently including several palaces for Saddam. According to a CNN article from 1998:

    But Benon Sevan, executive director of the program, turned down Iraq’s request to improve its telecommunications system, saying Baghdad had not answered an October 30 letter requesting information on the subject.
    Annan’s endorsement also excluded $20 million to upgrade Iraq’s banking system, a new item Baghdad had not previously discussed with the United Nations, according to a letter Sevan sent to Iraq’s outgoing U.N. ambassador Nizar Hamdoon.

    Mr. Sevan unfortunately couldn’t be with us today. It turns out that according to the Volcker Report, he was taking cash bribes from Saddam.