In the case of Jarndyce and Jarndyce Princeton and the Robertsons,
the judge, Neil Shuster, has so far ruled only that Princeton should return
the sum total of $62,500. So far, reports the WSJ’s John
Hechinger, "the Robertsons have spent about $20 million in pursuing
the lawsuit, and Princeton has spent $22 million defending itself."
Yet another example of a government agency refusing to admit defeat: the FTC
still hasn’t given up trying
to block the Whole Foods acquisition of Wild Oats, even now the deal is
done! Interestingly, the chairman of the FTC thinks that enough is enough, but
she was outvoted by three other commission members.
The OECD
counterfeiting report is now public, and only 18 months or so behind schedule!
As you might
recall, there was some pushback from OECD member states when they realized
the report would peg global counterfeiting activity at only $200 billion per
year, which is much lower than previous estimates (which were basically pulled
out of thin air).
As a result, there’s no indication in the executive
summary that the magnitude of international trade might be substantially
less than $200 billion: that’s the only number one finds. But if you actually
plough through the methodology in the 158-page Overall
Assessment, it turns out that the real number is probably much, much
lower. In fact, a quick-and-dirty back-of-the-envelope calculation puts the
amount of international trade in counterfeits as low as $5 billion.
The OECD report is designed to make the counterfeiting problem seem as big
as possible. Here’s the language in the summary:
Quantitative analysis carried out by the OECD indicates that the volume of
tangible counterfeit and pirated products in international trade could be
up to USD 200 billion. This figure does not, however, include counterfeit
and pirated products that are produced and consumed domestically, nor does
it include the significant volume of pirated digital products that are being
distributed via the Internet. If these items were added, the total magnitude
of counterfeiting and piracy worldwide could well be several hundred billion
dollars more.
The question of pirated digital products will be addressed in Phase 2 of the
report, and no one has a clue when that might come out. But if we stick to the
question of international trade in counterfeit goods, the "could be up
to $200 billion" formulation is weak indeed, especially since the report
itself concedes that any credible estimate would be much smaller. But will the
OECD tell us what its best guess as to the magnitude of the problem is? No:
"the approach taken by this exercise is to establish a credible ‘ceiling’,
while addressing the many information deficiencies surrounding the subject,"
we’re told.
Yes, really. All this work went not to estimating the magnitude of the problem,
but only to establishing an upper bound for the magnitude of the problem.
How pathetic.
Still, we can use the OECD’s own data to try to come up with a realistic estimate.
The OECD sent out a survey to try to find out how many counterfeit goods were
seized at customs globally in 2005. The total for 35 economies came to $769
million, or 0.01% of total imports for the economies concerned.
Now the OECD carefully never reveals what percentage of imports are inspected
at customs. But in the US, the number is about 8%. Certainly the number is big
enough that counterfeiters spend quite a lot of time and ingenuity trying to
avoid customs inspections:
Smugglers of counterfeit cigarettes produced in the Far East tried to deceive
customs officials in the United Kingdom by concealing the cigarettes in a
container of rice noodles and by hiding the cigarettes in consignments of
pottery and ceramic items…
Traders are constantly altering shipping routes to avoid detection.
One imagines that they wouldn’t bother if customs seized only 0.5% of counterfeit
imports – but it turns out that in order to make the OECD’s numbers work,
that’s the number which would have to be true. Because the OECD doesn’t do the
obvious calculation, which is to extrapolate from seizures and inspection rates
what the total magnitude of the problem is. The reason they don’t do that calculation
is obvious: it comes up with a number which is far too small.
Let’s start with that $769 million figure. Now it includes numbers such as
$66 million from South Africa, which uses "legitimate item value"
as the basis for calculating the value of its seizures. In other words, if South
African customs seizes a fake Prada handbag which would sell on the street for
$5, and the real Prada handbag costs $5,000, then South Africa reports that
it has seized $5,000 of goods.
So to get a better idea of what the customs seizures are actually worth, let’s
chop the $769 million figure in half: call it $385 million. Now, customs doesn’t
inspect shipments at random: they carefully target imports which they think
might be counterfeit. At the same time, however, they might sometimes inspect
counterfeit goods without realizing that they’re counterfeit, and let them through
unseized despite their being inspected. Let’s assume that these two factors
cancel each other out, and that 8% of counterfeit imports are seized at customs.
If 8% of counterfeit imports are worth $385 million, then the total value of
counterfeit trade is $4.8 billion. A far cry from $200 billion, to be sure.
So how did the OECD arrive at its $200 billion number? Well, for one thing
it first declared that arriving at any number would be all but impossible:
With respect to magnitude, the study notes that promising work has been done
in a number of sectors to measure the extent of counterfeiting and piracy,
but that much more can and should be done… To date, no rigorous quantitative
analysis has been carried out to measure the overall magnitude of counterfeiting
and piracy.
That’s right, the OECD’s 158-page report, complete with very complicated mathematical
equations, still doesn’t count as a "rigorous quantitative analysis".
Actually, they’re right, it doesn’t. Because after sending out surveys to customs
authorities globally, the OECD suddenly changes its mind and decides that it’s
not going use that $769 million figure after all. Instead, the only use they’re
going to make of that data is to get an idea of the relative propensities
of different types of goods to be counterfeited: clothes are counterfeited more
than cigarettes, for example. As for the absolute amount of counterfeiting
going on, they – well, frankly, they pull it out of thin air, again. Here’s
what they say that they do:
This approach was taken by establishing an upper fix-point limit; that is,
an upper limit of counterfeit exports (in percentages) of those products and
economies where counterfeiting and piracy were most pronounced.
And when they say "establishing", they mean "guessing".
Their best guess for this fix-point limit is 5%, but they give no indication
where they get that number from. And then as soon as they alight on the 5% number,
they immediately decide that it’s too low, so they double it:
With respect to the implications given by the model, 5% could be a reasonable
fix-point for establishing the magnitude for trade in counterfeit and pirated
goods; however, it could be higher. As the approach taken by this exercise
is to establish a credible “ceiling”, while addressing the many
information deficiencies surrounding the subject, a fix-point of 10% was therefore
considered.
I’ve been looking at counterfeiting statistics for some time now, and I have
no idea where or how the 5% number comes from; it seems very high to me. But
there’s no reason to simply double it to 10% just for the sake of being sure
you’ve hit your "ceiling".
Now, what happens if you use the 10% number? You get a result of $100 billion,
which clearly is too low. So the OECD doubles it again:
Given a fix-point of 10%, the overall ceiling of counterfeit and pirated
goods in world trade would in 2005 amount to about US$ 100 billion. This estimate
is nevertheless derived from GTRIC at its baseline and does not address the
statistical variability of the index. While taking this statistical uncertainty
into account implies that the ceiling could be lower, it also suggests that
the ceiling of counterfeit and pirated goods in international trade in 2005
could have been as high as US$ 200 billion.
And that, ladies and gentlemen, is where the $200 billion number comes
from. You guess what the maximum amount of counterfeiting is in the countries
where it’s most prevalent, being careful to use no empirical data in the process.
You then double that number, double it again, and apply it to the amount of
world trade: presto, you’ve got $200 billion.
In other words, just like previous estimates, this one is top-down: it takes
the total amount of world trade, and then it assumes that some percentage of
that trade must be counterfeit. If you take a large enough percentage of a very
large number, then you’re bound to end up with something shockingly enormous,
like $200 billion. But if you try to do a bottom-up calculation, and extrapolate
the total amount of counterfeiting by actually measuring the amount of counterfeit
goods which are found or seized, then you can’t get to anywhere near that figure.
Here’s a revealing chart in the OECD report (click for a bigger version):
In order to get to the $200 billion level, the customs interception rate would
have to be 0.5%: as the chart says, 1 in 200 counterfeit shipments would be
intercepted. Basically, the OECD is saying that its own customs agents are complete
and utter morons, who intercept vastly fewer counterfeit shipments than they
actually inspect. Look how that line drops off sharply when you get to much
more realistic interception rates around the 4% to 5% level – and note
how the chart doesn’t even extend as far as the 8% level, which is the actual
inspection rate in the US.
The OECD’s interception rate of 0.5% just isn’t plausible, and I wouldn’t be
at all surprised to find out that the reason this report took so long to be
made public was that some very powerful lobbies didn’t want it made obvious
that counterfeiting is a much smaller problem than they would have you believe.
So the headline number in the report was made as big as possible: $200 billion.
But the best estimate in the report is just a quarter of that number, $50 billion.
And even $50 billion could well be an order of magnitude too big.
Who told the NYT’s Jenny Anderson about Stan O’Neal’s abortive attempt to float
a merger
with Wachovia? She sources her scoop to "people close to the beleaguered
Wall Street firm," which is not very helpful, but it seems clear that she
and her colleague Landon Thomas spoke to one or more Merrill directors.
Why would any Merrill Lynch director leak this story to the NYT? Especially
after all the shenanigans
at Hewlett-Packard, one would think that a director would think twice about
taking such a step. But maybe the board is so packed with O’Neal cronies that
going public like this is the only way for a director unhappy with the CEO to
him.
That said, I’m not convinced that an informal approach to Wachovia is much
of a hanging offense, especially not compared to little things like, oh, losing
$8 billion on toxic structured products. If the latter isn’t going to result
in O’Neal’s ouster, I’m not sure that the former will.
Plans to Increase Transparency, from Greg Ip. Mark
Thoma provides background.
Question of the Day: Yes, they try to teach economics to 6th-graders. And
yes, they do a very bad job of it.
economics of speaking Welsh
right side of reality: Jonathan Birchall on Authenticity:
The fundamentally fake construction of a modern urban “farmers’
market” supports its patrons’ self-identity and is as authentic
an experience as a trip to Disneyland. Products from Kraft cheese slices to
cans of Arizona sweet tea clamour to be “real”, creating a seemingly
limitless supply of inauthenticity.
The New York Post tells us today that 57%
of Goldman Sachs’s 299 new managing directors work outside the US. But how
does that compare to the present cohort? I asked Goldman if they could give
me the goegraphical breakdown of their managing directors overall, and they
did: this is the result.
As you can see, the US is the big loser here: it accounts for 59% of existing
MDs, but just 43% of new ones. The biggest gainer is Asia ex Japan (which is
probably overwhelmingly China).
One shouldn’t read too much into these numbers, of course: if Japan
got 2 new MDs rather than 3, its share would have gone down rather than up.
But the big picture is pretty clear.
Last week, Lance Knobel noted that you
can’t find the FT’s blogs at blogs.ft.com:
that’s the home of just one blog, Martin Wolf’s economists’ forum. Instead,
the official FT blogs page is www.ft.com/comment/blogs,
which points to eight different blogs including the economists’ forum. The problem
is that the FT has many more than eight blogs. For starters there’s the flagship
Alphaville blog, which is basically
the FT’s version of the NYT’s DealBook. And then there are new blogs, too. Tim
Harford started blogging at the FT
last week, and now Willem Buiter is
blogging there too. Neither are listed on the official FT blogs page, although
both have a blogs.ft.com URL – which is more than Alphaville does.
The whole thing is a cobbled-together mess, with inconsistent URLs, atrocious
navigation, hard-to-find (and often mercilessly truncated) RSS feeds, and a
search function which seems to ignore all the blogs completely. It’s also impossible
to tell, from reading any of these blogs or pages, whether or not doing so counts
towards your precious 30-a-month quota of FT stories, after which the website
reckons you’ve had enough free content, sonny, and you’d better start paying.
How this is meant to help position FT.com as an easy-to-use and authoritative
resource for news and commentary is anybody’s guess, but for the time being
I can pretty much guarantee that more people will get to Buiter’s blog via this
entry on portfolio.com than will ever get to it by visiting FT.com directly.
John Authers made the mistake of stepping onto Floyd Norris’s turf in the FT
on Friday. He blamed
Salomon Brothers (in part) for the severity of the 1987 crash:
Rob Arnott, now the head of Research Affiliates, was a global equity strategist
at Salomon Brothers at the time. It was his job to monitor the likely demand
for portfolio insurance. After Friday’s loss, he calculated that portfolio
insurers alone would start the day seeking to sell more than the market’s
average volume for an entire day.
Once he took this to his superiors, Salomon’s response was to order its traders
not to take the other side of the trade. Mr Arnott suspects the other big
Wall Street firms took the same stance. So the effect was as if the portfolio
insurers were selling into a vacuum, with the prices on offer to them marked
down and down.
Now Norris was actually physically present on the Solly trading floor that
day, which gives him license to post a rebuttal headlined "It
Never Happened". In fact, Norris goes further than that: not only did
the don’t-buy order never happen, he says, but in fact Solly was instrumental
in turning the market around by being the very first to buy.
On the trading desk, we heard that the Chicago Mercantile Exchange was considering
whether to halt trading in futures on the Standard & Poor’s 500
stock index because there was no way for traders to value the index with so
many stocks not trading.
It was then that Mr. Shopkorn did an extraordinary thing. He talked to Robert
Mnuchin, the head trader at Goldman Sachs, and they agreed to send word to
the floor that their two firms would buy stock that was being offered in order
to get S.&P. 500 stocks opened. (I did not hear that conversation, but
Mr. Shopkorn told me about it a few minutes later.)
It was just after that word was sent out that the market began to turn around.
I can’t prove it, but I think that was the reason the panic halted.
I trust Norris on this one, if only because I can’t believe that a mere strategist
would be able to persuade an entire trading floor to go no-bid. Traders never
pay much attention to strategists, and are generally much the richer for it.
(Thanks to Kim Benabib for the heads-up)
Tim Price sums up the state of contemporary investment banking in
two quotes:
“I’ve had all the fun I can stand in investment banking”
– Ken Lewis, (current) chief executive, Bank of America.
“Things are going to get a lot worse before they get worse.”
– Lily Tomlin, another high profile comedian.
The WSJ’s Sarah Lueck seems
to say today that the idea of taxing carried interest – forcing private-equity
honchos and hedge-fund managers to pay income tax on their income – is
back. Two new taxes targeted at hedge-fund managers are being proposed by Charlie
Rangel, one on the income-tax front and the other on the offshore-income front.
But Edmund Andrews, in the NYT, covers
the Rangel proposal as basically an idea for the kind of tax code a future
Democratic White House might be interested in implementing, rather than as a
real attempt to change the tax code this year.
So my feeling is that hedge-fund managers are going to be able to sleep well
at night through all of next year, and that Rangel’s proposals have more to
do with the ongoing presidential election campaign than they do with changing
the taxes we all will pay on our 2008 income. But I may be confusing a narrow
proposal on the carried-interest front with a much broader proposal on fiscal
policy more generally. Will it be possible for Congress to go ahead and tax
hedge-fund managers more, perhaps in an attempt to offset the costs of defraying
the alternative minimum tax, while putting to one side the rest of Rangel’s
proposals? And how much power does Chuck Schumer have to prevent that from happening?
Google is now a major – arguably the major – force driving
news sites. As a result, sites’ PageRank is utterly crucial for any business
model. Right now, Google seems to be slashing the PageRank of a lot of blogs,
and some news sites seem to have been caught up in the carnage, most notably
that of the Washington Post, which has dropped to a PageRank
of just 5 from a PageRank of 7 literally overnight.
A PageRank of 5 is atrocious, and essentially means that Washington Post news
stories will not show up in any Google searches – certainly not on the
first page, anyway, which is the only page that matters. PageRank is a little-understood
and precious thing, and it can vary enormously even across the relatively small
universe of authoritative news sites. Here’s some examples:
msnbc.com: PR9
nytimes.com, wsj.com, ft.com: PR8
portfolio.com: PR 7
bloomberg.com: PR 6
washingtonpost.com, forbes.com: PR 5
No one outside Google really knows how these things are calculated: it’s a
very closely-kept secret. But clearly Forbes and the Washington Post are going
to have some very unhappy website managers this morning, who will spend the
next few weeks scrambling to get their old PageRank back.
Update: Fixing this could be as simple as inserting
"nofollow" code into all the links to advertisers on the site, says
Shawn Smith. Let’s hope so, for the Washington Post’s sake!
What is Microsoft meant to do with its 1.6%
stake in Facebook? While it’s easy to get excited about the implied $15
billion valuation for the the social-networking company and start talking about
Mark Zuckerberg’s multi-billionaire status, the fact is that $240 million is
not an enormous amount of money for a company the size of Microsoft, and the
investment probably makes more sense on a strategic level – giving Redmond
control of Facebook’s banner advertising for the foreseeable future –
than it does on a valuation level. After all, it’s more or less unthinkable
that Microsoft would ever want to sell this 1.6% stake.
But the fact is that Microsoft has much bigger ambitions in the internet space
than being a glorified ad-sales company, and it doesn’t seem that this 1.6%
stake gives it much if any control over one of the web’s hottest properties.
As Brad Stone reports,
A person briefed on the discussions said Google had dropped out not because
of the financial terms, but because the proposed deal did not give it enough
say in the development of their joint advertising efforts.
Facebook remains a closely-held and tightly-run ship, with no real need or
desire for outsiders to muscle in on its business plan. That’s why Google ultimately
dropped out of the bidding, it would seem, and that’s why Microsoft still has
very little in the way of online strategy, even after this deal has been signed.
I suspect it’s also why the deal was for only 1.6% of Facebook, rather than
the initially-reported 5-10%. After all, if you’re not going to get any real
control or insider status, you may as well keep your investment on the small
side.
The NYT today fronts a big state-of-the-meltdown
story, keyed off Merrill Lynch’s losses yesterday. It doesn’t quite come out
and say that we’re going to have a recession (David
Wessel does that, in the WSJ), but it doesn’t shy from throwing around some
really big numbers.
At this juncture, economists say the troubles in the mortgage market could,
all told, cost financial firms and investors up to $400 billion.
That is far more than the roughly $240 billion cost, adjusted for inflation,
of the savings and loan crisis of the early 1990s, according to estimates
of the combined financial toll of that crisis on both the federal government
and private sector. The loss in total real estate wealth is expected to range
from $2 trillion to $4 trillion, depending on how far home prices fall, according
to several economists.
That would be significantly less than the losses suffered by investors in
the stock market collapse earlier this decade, which erased more than $7 trillion,
or about 40 percent, of market value.
This is well-phrased, since there are losses, and there are losses. If a stock
goes up and then goes down, you can talk, as the NYT does, of market value being
"erased" – but the only people who actually lose money are those
who buy high and sell low. Similarly, unless and until your house is sold in
foreclosure proceedings, you haven’t really lost money, you just have fluctuating
equity in your house.
Which isn’t to say that people don’t monetize their equity in other ways: there
was the famous "wealth effect" during the dot-com boom, when people
spent more because they were wealthier because their stocks went up. And in
the case of housing the link is even clearer: many people have bigger mortgages
now than they did when they first bought their house, because they’ve been refinancing
at higher valuations, using the proceeds for anything from paying down credit
cards to going on vacation.
So some significant but unknown portion of the drop in real-estate values will
end up causing real pain to people who spent equity they now don’t have. But
the $400 billion number is much more concrete. If you buy $10 million of a security
at 100 cents on the dollar and you mark it to market daily and it’s now only
worth 50 cents on the dollar, you’ve lost $5 million, and that’s a real loss
of real money.
Of course, all these numbers are estimates, with enormous error bars attached.
$400 billion? It could end up being half that, or double. And the real-estate
numbers are fuzzier still: are we aggregating the drop in value of all properties
which have dropped in value? How do you determine how much a property was worth
at the peak of the market? And if all that new construction drops in value because
it’s not new any more, does that get included too? (McMansions have always dropped
in value the minute somebody moves in, although that drop in value can be erased
by more generalized house-price appreciation.)
Direct losses in the housing market are much smaller than the trillions of
dollars of value being erased:
The Joint Economic Committee estimates that the lost of real estate wealth
just from foreclosures on subprime loans will be about $71 billion.
But even so, it does seem as though cash losses in this meltdown might well
exceed those during the dot-com bust, not that either number is really calculable.
Richard Prince is "tacky"
and "trashy".
What, you think that’s a bad thing?
to Cool the Globe: Sprinkle tiny particles in the upper atmosphere!
We should turn the clocks forward,
not back: John Kay likes his daylight.
Storied Name on Sale? Sears is cheap, if you look at enterprise value per
square foot. But is now really the time to be making a real-estate play?
Finally, Ali G goes looking for venture capital:
The WSJ asked UBS to prepare an analysis of bonds backed by Countrywide option
ARMs, and has a
big story about the results today. It’s not entirely clear what information
was available to UBS that wasn’t available to the WSJ, but it does leave the
poor reader not really knowing what to think: at one point, UBS and Countrywide
are flat-out contradicting each other, and the WSJ gives no indication of which
one is more plausible.
By 2006, nearly 29% of the option ARMs originated by Countrywide and packaged
into mortgage securities had a combined loan-to-value of 90% or more, up from
just 15% in 2004, according to UBS.
Of all Countrywide’s option ARMs, including those kept by the bank as investments,
fewer than 5% have had a combined loan-to-value ratio over 90%, a spokesman
said.
There are two ways this discrepancy could conceivably be resolved. The first
would be if Countrywide kept most option ARMs on its own books, and securitized
only the most toxic. But earlier in the article we have already been told that
Countrywide has $27.8 billion of option ARMs, while it securitized $122 billion.
The second possibility is that Countrywide wrote an enormous number of option
ARMs with relatively low LTVs prior to 2004, then saw the proportion with high
LTVs rise to 15% in 2004 and eventually 29% in 2006. But if you add up all the
prior years, it’s still less than 5% overall. This explanation doesn’t really
hold water either, since option ARMs were very much a niche product before 2004.
So we’re left with a question mark hanging over the UBS analysis. And once
it’s there, other numbers spring out, and we ask ourselves whether we should
believe them or not:
Of the option ARMs it issued last year, 91% were "low-doc" mortgages
in which the borrower didn’t fully document income or assets, according to
UBS, compared with an industry average of 88% that year. In 2004, 78% of Countrywide’s
option ARMs carried less than full documentation.
All these numbers are enormous: 91% of option ARMs were basically
stated-income loans? That’s crazy, if it’s true, and would prove that Countrywide
was a particularly lax lender – but now I’m not sure how much I can trust
these UBS numbers.
I’d love to see more detail on all of this. Specifically, since the UBS report
was commissioned by the WSJ, I’d like the WSJ to simply post the report on its
website, so we can read it and judge for ourselves, rather than having to rely
only on the WSJ’s journalists’ précis. Any idea why the WSJ seems to
be keeping the report to itself?
(Thanks to Mark Gimein for calling my attention to the article.)
According to the most recent trades on InTrade,
the chance of Al Gore running for president is 11%, the chance of his receiving
the Democratic nomination is 6.4%, and the chance of his winning the presidency
is 5.7%.
Which means that InTrade’s traders reckon Gore has a 58% chance of getting
the nomination if he runs, and an 89% chance of winning the presidency if he’s
nominated, and an all-over probability of 52% that he’ll become president if
he throws his hat in the ring.
Meanwhile, the favorite for president, Hillary Clinton, has already
thrown her hat in the ring, and is given a 48% chance of becoming president.
(Giuliani’s in a distant second place, on 17.6%.) Which means, I think, that
Al Gore is considered to be the best presidential candidate in America, on a
pure electability criterion.
That said, there is probably some selection bias going on here. Gore won’t
throw his hat in the ring so long as Clinton is looking as invincible as she
looks right now – something very nasty would have to happen to her campaign
first. So Gore’s 52% is contingent on Hillary weakness, while Clinton’s 48%
prices in the possibility of future Hillary weakness.
Still, it’s interesting to see how popular Gore is considered to be, compared
especially to the other front-runners such as Giuliani, Romney (8.1%), and Obama
(6.6%). Basically, the markets are saying that Gore would obliterate any of
them, were he to run.
(HT: Robin
Hanson)
Jim Rogers has been bullish on China for years, and indeed now has a new
book out entitled "A Bull in China: Investing Profitably in the World’s
Greatest Market". So it’s hardly surprising that he sees
the country’s currency rising. What is interesting is that he seems to be
able to simply invest in the yuan:
Jim Rogers, chairman of Beeland Interests Inc., said he is shifting all his
assets out of the dollar and buying Chinese yuan because the Federal Reserve
has eroded the value of the U.S. currency…
The Chinese currency, known as the renminbi, or yuan, is "the best currency
to buy right now," Rogers said. "I don’t see how one can really
lose on the renminbi in the next decade or so. It’s gotta go. It’s gotta triple.
It’s gotta quadruple."
This seems like a good bet to me. Chinese stocks are scary, volatile things,
but the currency is massively undervalued and will inevitably rise strongly
over the long term. Which just leaves one question: How on earth does one go
about buying yuan?
I suspect that it’s very difficult, but that it is possible. (Jim Rogers seems
to be doing it.) Chinese one-year domestic interest rates are 3.87%,
which is high certainly enough to make a yuan investment attractive. So can
someone set up an NYSE-traded ETF linked to yuan deposits, giving US retail
investors the ability to follow Rogers into China? If you go to everbank.com,
as Rogers advises in his book, you can put your money in a Chinese renminbi
money-market account, but annoyingly it pays no interest. Is that the only way
to get pure yuan exposure?
(Also via Yves)
Ron Popeil would be proud. "What am I asking for this subprime loan? Am
I asking 60 cents on the dollar? No! Am I asking 30 cents on the dollar? No!
I’m not even asking 10 cents! All I ask is 6 – yes, folks, you heard that
right – 6 cents on the dollar! And if you make me an offer today, I might
even accept just 3 cents!"
According to Janet Tavakoli, via Diana
Olick, there are indeed subprime loans selling for 3-6 cents on the dollar.
"My average recovery rate assumption of 30% is also currently unattainable,"
she says.
Now I don’t know how widespread these deals are, or whether these loans are
all first lien. But at these kind of rates, it starts making a lot of sense
for property speculators, and not just financial players, to start buying loans
rather than houses. I suspect that there’s a lot of money to be made in distressed
loan portfolios if you’re comfortable with a buy-and-hold strategy and are happy
to end up owning and renting property (maybe even renting it to the present
owner) rather than trying to sell it at firesale prices.
(HT: Yves
Smith)
The strongest argument against a cap-and-trade system for carbon emissions
(or its cousin, the carbon tax) is that emissions wouldn’t actually fall; they’d
just be exported to China. To some extent that’s already happening, but the
trend of heavy industry moving to low-regulation, high-pollution countries would
only increase if the US imposed caps on its domestic carbon emissions. "We’d
love to do it," is the standard delaying rhetoric, "but there’s no
point in doing it unless China does it too".
Well, it looks like China just might call these people’s bluff, and sign
on to a cap-and-trade system itself.
As Charles Komanoff reports, the governments of Brazil and China jointly commissoned
a report
which has come down in favor of some kind of carbon tax or cap-and-trade system.
In the foreword,
Lu Yongxiang, president of the Chinese Academy of Sciences, says this:
Concerted efforts should be mounted for improving energy efficiency and reducing
the carbon intensity of the world economy, including the worldwide introduction
of price signals for carbon emissions with consideration of different economic
and energy systems in individual countries.
This is the clearest indication yet that China is serious about climate issues
– quite possibly more serious, in fact, than the US. It’s good news, and
signals that China might not be quite as much of a problem on this front as
the pessimists would have it. Of course, there will still be fights about the
degree to which China should cap its own carbon emissions given that the problem
was caused not by China but by Europe and the US. But in principle, it seems
that China is aware of the need to be involved, and that’s an excellent start.
Update: David Roberts tells me to slow
down, saying that "China has been signaling its concern about climate
change for years" without actually doing anything about it.
There is absolutely no silver lining to the $8.4
billion in writedowns that Merrill Lynch announced today. Merrill is being
hit from all sides: sell-side analysts, on the conference
call; journalists;
agencies; and, of course, the stock
market. Dana Cimilluca is looking at the magnitude
of the loss and coming to the conclusion that it’s absolutely enormous by
any measure.
But the biggest hit, in the long term, will be to Merrill’s reputation. I’m
old enough to remember when Merrill was the number one debt house in the world:
the Thundering Herd was known and feared across Wall Street as the best of the
best when it came to bond trading. They made the biggest profits, they had the
biggest market share, they earned the biggest bonuses.
Now, however, all that is gone. If Merrill couldn’t even judge the extent of
its losses accurately at the end of September, there’s no reason whatsoever
to believe that it has its act together now. Merrill is now trading on a price-to-book
ratio of 1.54, compared to 2.47 for Goldman Sachs. If Merrill’s share price
is going to recover, its management is going to have to get the denominator
up a lot. Because the ratio itself is going to stay in the doldrums for the
foreseeable future.
The Breaking Views column in today’s WSJ comes up with a
startling figure: Tommy Hilfiger (the brand, not the person) is now worth
$2.5 billion – even as the value of its US franchise continues to steadily
decline.
UK private-equity firm Apax Partners bought Tommy Hilfiger two years ago with
$350 million of equity and $1 billion of debt. Since then, it has allowed Hilfiger’s
US operations to wither and die, while concentrating on the vastly more lucrative
European market. As a result, the value of Apax’s equity has risen from $350
million to $1.65 billion in those two years: a very impressive rate of return
even by private-equity standards.
Brands which are big in their home countries can easily become even bigger
abroad, if the owners have the right vision. Just ask Louis Vuitton, or Porsche,
or Ikea. But historically such brands have come from Europe, not the US. Hilfiger,
I suspect, will be the first of a new wave of US brands which are going to become
more successful abroad than they are domestically: call it the inverse of the
strategy. But it’s worth noting that it took a UK owner to achieve this
vision: US owners are still, generally, pretty insular in their outlook, at
least by European standards.
Chris Masse emails with a good point,
apropos Tyler
Cowen’s blogonomics talk: that if you’re going to measure blog popularity,
there are many ways of doing so. Aaron
Schiff uses Technorati rankings; Brian
Gongol uses public traffic logs; Alexa uses a downloadable toolbar. But
there’s another interesting metric: feed subscribers. That number isn’t the
easiest thing to pin down, but Google Reader makes public the number of subscribers
to any given feed, and, by that metric, Marginal Revolution is insanely popular.
There’s a good reason for this. As Cowen mentions in his talk, and as Masse
also notes, Marginal Revolution is extremely popular among smart, techy non-economists
who work at places like Google. Many of the biggest blogs still have a technology
focus: geeks tend to be early adopters of new technologies and media. And Marginal
Revolution seems to own the "economics for geeks" crowd.
In any event, there’s no doubt that Marginal Revolution and Freakonomics are,
by far, the most popular economics blogs. If you look at their Google Reader
subscriber numbers, Marginal Revolution has 72,378 subscribers, while Freakonomics
has a few different feeds with 78,462 subscribers in total.
Then there’s the second tier. Greg Mankiw has 1,715 Google Reader subscribers;
Brad DeLong has 1,895; Krugman has 1,708; Mark Thoma has 1,309; EconoLog has
1,612. (All these can be considered equal for our purposes: I don’t think the
differences here are significant.)
The third tier would be bloggers like Dani Rodrik (636 Google Reader subscribers),
Nouriel Roubini (524), and Michael Shedlock, or Mish (474).
To put these in perspective, the New York Times’s massive DealBook blog has
2,105 Google Reader subscribers; Barry Ritholtz has 867.
And commenter Tim Worstall has 174, but they’re clearly the right 174, since
he says in the comments that he has managed "to create a freelance career
off the back of" his blog. As Cowen also notes, blogs are often important
at once remove: not because they reach a lot of people directly, but because
they reach journalists and editors at big media outlets.
Update: Talboito, in the comments, notes that MR
(presumably Freakonomics too) is pre-bundled for people coming to Google Reader
for the first time, and that anybody subscribing to the "thinkers"
bundle automatically subscribes to Marginal Revolution. This explains a lot,
I think.
Bovespa stock exchange could raise $3.67 billion in its IPO, on a valuation
of as much as $9 billion.
costs $9.99 per minute to talk to a human at mortgage servicer HFC.
makes a strong case that Basel II may not be perfect, but it’s still an
improvement on Basel I.
Tim Schilling has managed 1
posts on economic concepts in "The Music Man". Sample: "Professor
Harold Hill’s Seventy-six Trombones is his attempt to shift the demand
curve."
of Feminist Economics. For reals.
Who says
the best blog entries are short? Errol Morris has now concluded his three-part
blog series about a pair of photographs taken in the Crimea in the 1850s. (1,
2,
3.)
They add up to 25,775 words in total. But if that’s not enough for you, I think
a part 4 might be forthcoming…
Tyler Cowen may or may not be the greatest economist in the world, but he’s
certainly the best economist in the world to be talking on the subject of the
economics of blogs in general, and of academic – and especially economics
– blogs in particular. So if you have a video iPod and an hour on the
subway, or otherwise can carve out a chunk of your time, and if you are remotely
interested in a masterclass on this subject, then go
here now and watch his talk.
If you don’t have that kind of time, however, I’ve picked out some of the most
interesting bits of his talk for you.
Cowen starts off with a startling number:
On a given day, my estimate would be 400,000 to 500,000 are reading fairly
serious economics blogs.
That’s a huge number, and it’s probably an order of magnitude greater than
the number of people reading blogs devoted to any other academic subject. Cowen
has some interesting analysis of why that might be: he says that the empiricism
of a lot of economics is both naturally bloggable and of naturally interest
to a broad population of smart people online.
Cowen then explains that economics blogs can be, when it comes to relatively
narrow issues, le dernier cri when it comes to academic debate:
Very recently in the blogosphere there was a mini-battle as to the correct
interpretation of the Malthusian model in Greg Clark’s new book "A Farewell
to Alms". Greg weighed in, Bryan Caplen weighed in, I weighed in, about
60 or 70 other people weighed in. Over the span of about three days, there
was a very intense discussion of this one issue, the Malthusian model in Greg’s
book. And no matter what one thinks the settled answer is, this is an extraordinarily
rapid way of processing this question, and it’s probably the most intense
scrutiny the question will ever receive.
He’s good at slogans:
In the blogosphere everything is immediate. The deadline is now.
You get the readers you deserve.
And he’s excellent on the basics of blogonomics:
This is a funny market. The price of reading a blog is as close to a zero
price as you’re going to get in this world. The price of writing a blog is
also zero. Economists are not always comfortable with models where all prices
are zero…
When we ask why people write blogs, the dominant motive is blog as loss leader.
You’re hoping to sell some other attached commodity for a real price. Dani
Rodrik started blogging a few months ago; he has a new book out. Tim Harford
just started blogging, it just so happens that in January he has a book out.
Greg Mankiw has a textbook he wants to sell more of. It’s not a coincidence
that the level of Greg’s blog is aimed at a Principles course.
He also has a generous definition of what a blog is:
Why is Ed Glaeser writing for the New York Sun? Essentially he’s blogging.
Without blogs I can’t imagine it would make sense for Ed Glaeser to do that.
He goes into a lot of detail about how the low cost of moving from blog to
blog means that there’s no time to write long posts:
The cost of going from one blog to another is the smallest cost you can imagine.
Massively quick sampling, blog posts are very short, there’s a premium on
brevity.
I’m not convinced about this, and not only because I’m the kind of person who
writes 5,550-word blog entries
on vulture funds. I do think that Cowen and Mankiw are popular because their
posts are short. But I don’t think that popularity is necessarily the best metric
by which to judge a blog. Is icanhascheezburger.com
one of the ten best blogs in the world? It’s in the technorati
top 10, after all.
But at the same time, Cowen does celebrate the enormous diversity of the blogosphere,
with a very clever model of how you can get pretty much everything you want
just by reading five carefully-chosen blogs. If you choose the five blogs which
most closely mirror your own interests, he says, there’s a very good chance
that they’ll pick up substantially everything you’re interested in.
Again, I think Cowen’s over-egging the pudding here. I read blogs not because
they have the content that I know that I want, but because they have the content
I didn’t know that I wanted. Did I care at all about the
Baltic states’ currency boards before I read Willem Buiter’s blog
entry on the subject? No: which is why it’s such a good blog entry. (And
7,300 words long, to boot.)
Cowen’s excellent, however, on bloggers’ learning curves, especially when he
says that "most people when they start blogging don’t realize how little
real-world reputation matters". Yes, being well-known does give you a massive
headstart on the millions of bloggers who aren’t. But if you have a leaden prose
style, infrequent posts, an unwillingness to link to others, and a general idea
that people ought to listen to you just because you’re an Expert – well,
then you’ll rapidly learn that really, no one cares what you think.
He also has a compelling analysis of the aspirational nature of blogs. Highbrow
blogs often do better than lowbrow blogs, because readers like to think of themselves
as being reasonably highbrow.
I’ll write a post and I’ll say "marginal rate of substitution",
which to an economist is straightforward, but even to a very smart social
scientist who doesn’t know a lot of economics, they might not know exactly
what this means. And certainly the common man won’t know. So when I write
"marginal rate of substitution", why don’t I put in a link to Wikipedia,
or define it in parentheses? Won’t more people read the blog then? I think
actually that more people actually will read the blog when you don’t define
"marginal rate of substitution". By not defining it you make your
blog a smarter blog, it feels to the people who are reading it that they’re
being aspirational, and that they’re learning more. It’s higher demand through
exclusivity. If you link everything to Wikipedia, people think that blog isn’t
so smart after all, it doesn’t feel that wonderful of a club to belong to.
At the end of his talk, Tyler takes questions, and only then answers the number
one question of blogonomics: How much money can you make by blogging?
Every now and then I get a check, but it’s small: it’s much smaller than
you think. When you take into account all your real costs, you’re lucky to
break even.
I think Tyler and Alex should fire BlogAds, if that’s really the case –
but actually I believe him, since it seems that the left-hand ad costs just
a week, while the right-hand ad is only $125
a week. That’s decent pocket money for a pair of economics professors, I
suppose, but I’m sure they could do a lot better if they tried. Sooner or later,
I’m pretty sure that New York Times Digital will be selling their ad inventory,
and bringing in much more money.
Later on in the Q&A section, Cowen says this:
Right now there are 8 major econ bloggers, 8 or 9. It’s a powerlaw market.
Within a field, almost everyone who reads any econ blog will read the 2 or
3 main ones, and maybe 2 or 3 others, and everyone else is fighting for scraps.
Well, there’s no doubt that Marginal Revolution is one of the "2 or 3
main" economics blogs: the only one which even comes close is Freakonomics,
and I’m not sure that Cowen was mentally including that blog in his list: my
guess is that he was thinking that the top 3 were probably Marginal Revolution,
Mankiw, and DeLong.
But if it’s really true that all econ-blog readers read Marginal Revolution,
then how on earth can Cowen say that on any given day half a million people
are reading econ blogs? I don’t know much about MR, but I really don’t think
it’s ever come close to half a million uniques per day.
That’s a niggle, though. This is a fascinating and thought-provoking talk,
and I highly recommend it to bloggers and non-bloggers alike.
Jack Flack reveals
an open secret in the journalism community:
Business journalism sells best when it apes sports journalism, particularly
in framing clear conflicts that elevate the mundane into something more compelling.
That’s particularly true of business television. CNBC struggled until Ailes
focused it on the stock market, which effectively provided a scoreboard that
sets the context for hundreds of little dramas each day. Squawk Box was supposedly
modeled on ESPN’s Sports Center, and each day is neatly summarized by market
"winners" and "losers."
There are two consequences which follow from this fact – and it is
a fact. The first is that important business stories fail to be written, every
day, because there isn’t a nice obvious conflict to drive (readers to) the story.
The second is that very unimportant stories, about the Dow going up
or down a couple of hundred points in one day, take on a massively overblown
importance, because they fit so well into the winners-and-losers paradigm.
As a result, a good test of any business story is to ask yourself whether there’s
an obvious conflict driving it. If there is, then you might want to mentally
downplay it. If there isn’t, then it might actually be very important.
