September 30, 2011

Tell me again why we should tax the rich?

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Probably no one has missed that many countries these days have too much debt. One way to pay back the debt of a country is to raise the taxes the citizens are paying each month. Some argue that only rich people should pay more taxes, while some argue that rich people should pay lower taxes. The reason why they should pay lower taxes is that the rich rather should invest their money in businesses and create jobs. But does that really work?

Some rich people agree that they should pay more taxes. One example is Warren Buffett, and wealthy people in Germany and France agree with him. Italy wants to tax those earning more than $300,000 and France wants to tax those making more than $500,000. But is this really the correct way to go?

History suggests that low taxes on the rich encourage investment and growth. Someone with a lot of money can easily move away to another country with lower taxes and the original country loses the lower taxes the rich used to pay since the rich now, after moving away, now pays 0 in the original country. Rich people already contribute with a lot of money to their countries - the top 10% of earners contribute about 33% of total tax revenues.

It is difficult to answer the question how tax changes affect long-term economic growth. The growth of a country is affected by many other factors as well. But research suggests that at low levels rate increases will lift revenue, but not without a cost in efficiency and short-term growth. An isolated tax increase of 1% reduces real GDP by 3%. Closing loopholes and broaden the tax base are better ways to bring in more money than higher taxes for the rich.

Source: The Economist

September 29, 2011

Africa to Europa: It hurts but do what we did

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The European debt crises continues. Now a couple of ministers from the poorest countries in Africa are saying: "been there, done that" about the European debt crises. President of the African Development Bank Donald Kaberuka said:

"It is not easy, it is painful, and we went through the pain, and the Europeans must be prepared to go through the pain." 

The European countries in crisis needs the same reforms - including the kind of overhauls of public finances and labor markets and other structural reforms - that African nations have used over the last two decades and now have results to show for it. There are still many problems in Africa, but 150 percent of GDP in debt, like some European countries have is a problem as well. Donald Kaberuka thinks that the biggest problem today is the inability or unwillingness of the rich countries to take the decisions needed to return the global economy to growth momentum.

Source: Yahoo News

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September 28, 2011

The Wall Street Protesters are growing

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Watch live streaming video from globalrevolution at livestream.com


People have started to protesting at the famous street Wall Street in New York as seen in the live stream above. The live stream does not cover the protesters 24 hours a day so please come back later if you can´t see live pictures.

They are marching through the financial district each business day to mark the opening and closing bells of the stock market. The aim appears to be to get President Obama to establish a commission to end the influence money has over the representatives in Washington. The protesters have now teamed up with the actress Susan Sarandon who played a role in the movie Wall Street: Money Never Sleeps. This is what has happened so far:
  • About 100 people have camped in a park close to Wall Street
  • The police have used pepper spray
  • 100 people have been arrested

Update:
Found this interesting video about the protesting and their homepage seems to be: OccupyWallst.org/



Source:
 Bloomberg

September 27, 2011

Why is Amazon better than Apple and Google?

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If I ask you to name an innovative company, you are probably going to say Apple or Google. But according to Forbes, the 2nd most innovative company is Amazon. The most innovative company is Salesforce while Apple is at number 5 and Google is at number 7. Innovation is here defined as how much investors have bid up the stock price of a company above the value of its existing business based on expectations of future innovative results. The companies in the list must have $10 billion in market capitalization, spend at least 1 percent of their asset base on R&D and have seven years of public data.

So the people at Amazon are obviously doing more than selling books. This is why Amazon is more innovative:
  • Amazon has a web service which is the leader in cloud computing
  • The streaming service Prime Instant Videos is a Netflix competitor
  • The Amazon MP3 and cloud music offerings have the ability to take market share from iTunes
  • An Appstore for Android
  • The upcoming Amazon table is a mini-iPad with a cheaper price than the original iPad
One can argue from this list that being second is not always a bad thing.

September 26, 2011

Chicken Little

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Chicken Little is a cartoon created by Walt Disney in 1943. It was originally intended for war propaganda but it can easily be translated to the psychology of the stock market. The different characters in the movie are the different characters trying to profit from the stock market where the fox is the market itself. How many times have we not been hearing the equivalent to Chicken Little screaming "The sky is falling!"? Everyone runs around and eventually everyone has been killed by the market.

September 25, 2011

How to save the Euro?

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No one has probably missed the the Euro-cooperation has some problems? The biggest problem today is Greece, but other members in the Euro-zone have problems as well. But it is not just the Euro that is at risk, but the future of the European Union and the health of the world economy are at risk as well. Remember what happened when Lehman Brothers collapsed and that no one thought that the collapse of the bank would spread around the world. But what is the solution?

The Economist believe they have a solution - it is a costly one - but the alternative is far worse. A rescue must involve the following things:
  • Find which of the countries are deemed illiquid and which are insolvent. Give unlimited backing to the solvent countries and restructure the debt of those that can never repay it. People are today guessing whether the countries have good finances - or not. It is important to restore the confidence again. 
  • Ensure that Europe’s banks can withstand a sovereign default.
  • Shift the Euro-zone’s macroeconomic policy from budget-cutting towards growth. Budget-cutting is self-defeating.
  • Begin the process of designing a new system to stop this mess we are in from happening again.

One can also ask if the Euro was mis-sold or whether it was a terrible idea in the first place? Is the Euro worth saving - or would it be cheaper to break it up now?

Source: The Economist

Niall Ferguson: Why is a country rich or poor?

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Niall Ferguson gave a great talk over at Ted.com with the title "The 6 killer apps of prosperity." These 6 apps explains why a country is poor or rich. Why North Korea is poor and South Korea is rich even though both countries used to be one country with the same background. The 6 apps are:
  1. Competition
  2. The scientific revolution
  3. Property rights
  4. Modern medicine
  5. The consumer society
  6. The work ethic
Source: Ted.com

September 21, 2011

Bringing Nothing to the Party by Paul Carr

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Photograph of Paul Carr by Richard Moross

In the book Bringing Nothing to the Party: True Confessions Of A New Media Whore, we follow Paul Carr on his dream to make a lot of money by becoming an Internet entrepreneur. Paul Carr is sort of famous for his contribution to the web site TechCrunch.
In the book we follow him from his first encounter with a computer, through networking events where he meets entrepreneurs like Jason Calacanis, getting drunk, getting arrested, and the various ups and downs he experience while creating different companies. This is not a fact book, but more of a history book where the stories of companies like Google and Facebook are incorporated in the main history itself. The history mostly takes place in London and we get a good insight into the English startup world - most other books on the same subject are describing the startup world in Silicon Valley.

One thing we learn is how to make a PowerPoint presentation:
The essence of such a presentation is: KISS - Keep It Simple Stupid. The following slides is to be included:
  1. Press quote. Quote laundering is your friend
  2. An introduction of who you are and what you have done before
  3. Outline what the site is and who is going to use it. The answer to this question is however always 20-35 year old young professionals. They are members of the "ABC1" socio-economic group. Everyone is part of this group - or aspires to be part of this group
  4. Your revenue and your investment requirements. Here you can say whatever you like about your company - no one will know the truth anyway
    • You have to be able to justify it through maths and you have to believe in it as well
    • Try to reinvent your business model so the users somehow will get sex as a result of using your business. But do not say that you are helping your users to get laid in the presentation - your investors will understand that anyway
    • You are going to attract 800 000 users the first 18 months  
    • Make sure to use USD - the web is international
    • Say how much money you want - not how much money you need

September 19, 2011

The "Real" Mega-Bears

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The people at dshort have a chart showing the S&P 500 compared with the Dow Jones crash of 1929 and the Japanese Nikkei crash of 1989. The chart is updated each week. It is interesting to see that maybe the current Bear Market, if we have one, began in 2000 with the tech-bubble.


Source: dshort.com

September 18, 2011

The very rare black swan formation

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One can say a lot about whether Technical Analysis is working or not - which formations one should look for. Someone at the Elite Trader Forum has found the very rare black swan formation. Notice that the user discovered the formation just before the market crashed in 2008.


Source: Elite Trader

September 17, 2011

David Einhorn is buying stocks

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The hedge fund manager David Einhorn founded the hedge fund Greenlight Capital with $1 million in 1996. The hedge fund is long-short, value-oriented and it has generated more than a 20 percent annualized net return for its partners and investors. David Einhorns is famous for forecasting that Lehman Brothers was about to collapse. He did have a short position when Lehman Brothers finally collapsed in 2008.

 

Greenlight Capital bought some stocks in Q2 2011 so they probably have a small loss at the moment because of the current bear market. They bought 9 stocks:
  1. Best Buy Company
  2. Apple
  3. Ingram Micro
  4. Microsoft
  5. Seagate Technology
  6. Huntington Ingalls
  7. Marathon Oil
  8. Aeropostale
  9. State Bank Finl

Source: Seeking Alpha

September 16, 2011

HFT Is NOT Responsible for Market Volatility – You Are!

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There is a lot of talk these days about HFT - High Frequency Trading - that is computers selling and buying with a time span of less than a second. People argue that these computers are the reason why the stock market is going down. But is that true?
Articles have been written about the increase of market volatility, that computers are a greater share of the market-volume, and that the computers are the reason to the high volatility. Manoj Narang argues that this is not true.
The volatility has increased - but not because of the computers. One can compare data from 2000-2006 to the data from 2007-today. The year 2007 is of interest here because 2007 was the birthday of HFT. Traders have used computers to generate buy or sell signals before 2007 - but they did not use HFT.
The data reveals that from 2000-2006, the S&P 500 moved an average of 0.83% from one day to the next. Between 2007-today the S&P 500 moved an average of 1.06% from one day to the next. But has this increase been caused by computers of the financial meltdown all over the world?
To solve this, Manoj Narang argues that one can look at the volatility of the market when the market is close. The close of the market one day is not the same as the opening of the market the next day because of what has happened during the night in Asia and Europe. And computers can not trade when the market is closed. From 2000-2006, the S&P 500 moved an average of 0.37% per day when the market was closed, whereas from 2007 onward, it moved 0.61% per day during this period. That is a 65% increase. This volatility reflects one thing and that is markets react to news, and since 2007, there has been plenty of news which has caused investors to panic.
One can also say that markets are now less volatile during trading hours than they would otherwise be in the absence of HFT. From 2000-2006, the S&P 500 moved an average of 0.76% between the open and close of the same day - compared with 0.85% since 2007. Volatility during trading hours has increased only 12% when volatility during non-market hours has increased 65%. Volatility is caused by panic behavior. Computers can not panic - only humans can.

Comment by Trejdify
One can also argue that the HFT-computers are also trading in Europe and in Asia - which may influence the opening of the S&P 500 so we still thinks that this subject whether HFT is good or bad is not closed yet.

Source: The High Frequency Trading Review

September 14, 2011

What is a Yield Curve?

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There is a lot of talk these days about the yield curve - but what is it? Here is a nice explanation:



What is a Yield Curve? from Marketplace on Vimeo.

What should Obama do?

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It is not a surprise to anyone that the US-economy needs to improve. President Obama is doing his best and what he thinks is the best way to solve the problem - but are there other ways as well? Unemployment is still around 9 percent and the debt problem is still here as well.

Morgan Housel 
The US-economy should not be delaying infrastructure repairs when it can borrow money at record lows and construction unemployment is near 20 percent. These repairs have to be done in the future anyway, and the longer they are delayed the more costly they become. This is a good opportunity to spend money and in turn reduce unemployment and lower future deficits.
Morgan Housel wants to see a jobs approach that acknowledges where the great majority of new jobs come from: Entrepreneurs creating new businesses. Here there are two problems:
  • The U.S. Patent Office is holding back "millions" of jobs due to delayed patent approvals 
  • Someone has to stand up and say that future jobs are not going to come from an elderly billionaire - new jobs will come from the 20-year-old Stanford kid creating the future 

Alex Dumortier
Obama should create a second fiscal stimulus program to fund infrastructure projects, while at the same time solve the medium- and long-term problems in the US-economy. The government can earn a positive return on well-chosen infrastructure projects and with the returns try to solve the other problems of the US-economy.
Alex Dumortier also wants to reduce the principal on some of the mortgages that are underwater and where the borrowers have a realistic hope of making the lower payments. Some lenders would be forced to take write-downs on these loans - but it is an acceptable trade-off.

Matt Koppenheffer 
Obama needs to address the fact that a big part of the problem is that a large part of the workers in the US-economy are not changing with the economy. Companies such as Apple and Microsoft says that the US has a much more information- and knowledge-based economy as opposed to a factory- and manufacturing-based economy. Forcing job creation is only a very-short-term fix. If the US wants to be a healthy country, US need to make sure workers have the skills needed to succeed in today's economy.

Ilan Moscovitz 
The reason why the unemployment is so high is:
  1. Consumers are not spending because they still suffer from the housing bubble collapse and feel anxious about their job security, or have have no job at all
  2. Businesses are not hiring because consumers are not spending 
Ilan Moscovitz thinks that the best way to fix the problem is to hire unemployed construction workers to rebuild the US infrastructure. These projects have to be completed within the next few years anyway. It is also important to fund schools and find ways to make college affordable for deserving students. Another way to start the recovery is to reduce the debt burden hanging over consumers by refinancing or reducing principal on mortgages for the people and for businesses with weak sales.

Anders Borg
The US-economy has to increase the taxes and cut the spending

Source: FoolE24 (only available in Swedish)

September 13, 2011

Innovation In The World Today Is Between "Dire Straits And Dead"

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The people at the Tech-site TechCrunch currently have an event called Disrupt. The event features many different new companies and different speakers.
Yesterday, they invited Peter Thiel and Max Levchin to talk about innovation. Peter Thiel and Max Levchin are famous for creating the company PayPal. Peter Thiel later invested in Facebook and Max Levchin created Slite which he sold to Google.
The theme of their talk at TechCrunch was that innovation in the world today is actually “between dire straights and dead”. They want to wake up the average American, to the depressing state of deep innovation in the USA. But this is also a global problem - not just an American one.
The problem is that companies are solving small problems, creating features, and few are addressing the world-changing, hard problems. Examples of past world-changing problems are flying to the moon or inventing the first car.

“What’s desperately needed in our society is companies that represent genuine progress, not just frantic change from one fashion to another”

Source: TechCrunch

September 12, 2011

Twitter becomes latest tool for hedge fund managers

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The hedge fund Derwent Capital Markets has started to use Twitter to forecast the direction the market. They collect tweets and analyze if the tweets are positive or negative. Are people happy, sad, anxious or tired? Their software takes a random 10% of all Twitter feeds and uses two methods to collate the data:
  1. Compare positive with negative comments 
  2. Define six moods calm, alert, sure, vital, kind and happy 

"...we realized it was the other way round — that a drop in the mood or sentiment of the online community would precede a fall in the market. It meant we could predict the change in the market and that gives you a considerable edge." 

This is similar to the art project "We feel fine" by Jonathan Harris where you can see the feelings of the world.

If you want to create your own version you can use this Twitter Streaming API developed by 140dev

Source: The Telegraph

September 10, 2011

Entrepreneur Sees Gold Mine in Unused Subway Stations

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An Entrepreneur in London aims to turn 26 unused London subway stations and bomb shelters into shops and tourist attractions. The company Old London Underground Co with the CEO Ajit Chambers have raised 200 million pounds ($319 million) from investors. The first station is to be opened in 2012. The vision of the company is to unlock the value of historic underground real estate that had largely been forgotten.

This has actually happened before in Sweden when the company Bahnhof renovated the old bomb shelter "Pionen" and turned it into a data center with a nice result:


Source: BloombergWikipedia

US money is Taliban's No 2 revenue source

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During ten years of war, the U.S. has paid contractors $206 billion to do such things as building schools and guard diplomats. Recently, a blue ribbon commission put a number on how much has been lost to mismanagement and corruption. The sum is between $30 and $60 billion during the course of the U.S engagements in Iraq and Afghanistan. Examples of waste are:
  • Leasing four-wheel vehicles at "grossly exorbitant rates" of about $40,000 a year 
  • A $124 million prison renovation that was never finished 
  • The pockets of corrupt officials and the enemy 
Except for the opium harvest, U.S. contracts were the Taliban's biggest source of funds. Another investigation estimated $360 million has ended up in the hands of the Taliban.
As many as 260,000 contractors were on the payroll at any one time which is said to be one of the reasons to this situation. They were to many for the U.S. to manage. And more of the same waste is expected to continue as the war goes on.

Source: CBS News

September 8, 2011

Latest news about the Euro crisis

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An interesting picture, probably showing a politician talking about the Euro or the jobless recovery?

I think the painter is Paul Kuczynsk
Via: reddit

September 7, 2011

Quants: The Alchemists of Wall Street

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A documentary about the Quants working in the financial markets. 
Quants are the math wizards and computer programmers who design financial products and are building the systems behind High Frequency Trading - HFT. But is it possible to  create mathematical models trying to quantify human behavior?

Back to (the wrong) school

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In an economy there are:
  • Tradable jobs - making things that could be made somewhere else - building cars
  • Non-tradable - building houses

The US-economy added 600,000 tradable jobs between 1990 and 2008 according to the article. 

"If you do a job where someone tells you exactly what to do, they will find someone cheaper than you to do it."

The article suggests that the schools are producing workers who are trained to work at tradable jobs - jobs where they are told what to do by a supervisor - not to think for themselves.

"Are we going to applaud, push or even permit our schools (including most of the private ones) to continue the safe but ultimately doomed strategy of churning out predictable, testable and mediocre factory-workers?"

Source: Seth Godin´s Blog

September 6, 2011

Business Opportunities in Africa

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The Swedish foreign minister Carl Bildt has written an interesting blog-post about Africa. He says that the African economies have grown with 5 percent per year over the last decade. The continent has potetntial to grow more and faster. 6 of the 10 strongest emerging markets economies during the last decade were in Africa. Everyone knows that some countries in Africa still have big problems but during this year, there have been about 20 democratic elections around the continent.
People tend to focus on the African conflicts, but Carl Bildt says that one should also focus on the opportunities.

"IMF forecasts that seven of the top ten fastest growing economies over next five years will be in Africa - a continent of possibilities."

Source (in Swedish): http://carlbildt.wordpress.com/2011/09/04/fokus-pa-afrikas-alla-mojligheter/

September 5, 2011

What are Eurobonds?

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Some say Eurobonds are the solution to the European debt problems. This is a nice explanation on how they work:



The name's Bond. Eurobond. from Marketplace on Vimeo.

Leaving Microsoft to change the world by John Wood

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The book Leaving Microsoft to change the world is about John Wood who used to work for Microsoft at a high position but decided to quit after visiting a school while on vacation in Nepal. He founded the organization Room to Read. The non-profit organization focuses on building libraries in poor countries and other activities for poor people.
The book is about to take the big step to dare to quit your job and pursue what you want to do in life. It was also interesting to learn how John Wood took what he learned at Microsoft and applied it to a non-profit organization.


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