Ask an Economist #3

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Well, it is logical, because most of the earned money are spent within the country where good is produced: salaries, raws (if imported it is the same as local company buys it) and there are also different taxes which are going to government of the country, so what multinational is a net profit which is not that high for most sectors (and also locals are also free what to do with their net profit, they can move it outside of a country, so both ways are more or less equal in my opinion).
Over the long term, it’s been some 30 years since the United States exported more than it imported in a given year.

There are 20,000 U.S.-owned affiliates in various international markets around the world. It’s through these affiliates that U.S. firms deliver their products. Much more so than they do through exportation unless they're Boeing. Customer proximity is the key for multinationals.

Take the iPod for instance. The 30 gigabyte video iPod is manufactured in China by a Taiwanese firm. It sells for around $224 (wholesale), with China, the master assembler, receiving $3.70 from the total price. The bulk of the profits flow to Apple, even though the product bears the "Made in China" logo.

Though foreign investment in China is dwarfed by US investment in say Ireland the US companies have over 30 times more affiliate business in China than China has in the US.

Which country could coca-cola be produced in? Brazil? India? Germany?
All of them. Ship the secret ingredient and sell the product locally. Coca Cola recently bought the largest juice company in China and has considerable market share on soda already. This in turn puts Pepsi at a distinct disadvantage since they need to figure out what snacks the Chinese prefer like watermelon seeds and peanuts. Potato snacks are not quite so prevalent so Pepsi's chips are packaged as Peking Roast Duck and Spicy Crab.
Hello. I just started my (401 k) 2 years ago. Last January 2008; I had $18,000 invested on MFS International fund (MIDAX), By June 16 I peaked at $27,000 (employer match contributions included) Today I am down 59.5 % at only $13,200... What options do i have, i believe it is too late to change it into a more conservative fund. Is there a chance that i might lose all of it?

My company's 401 K program is very good; matching 50 % of the first 6 % we save, plus giving us a bonus contribution a little bit larger than the employer match. Nearly $8,000 dollars came from my employer contributions in the last 2 years.

Thanks in advance.
Keep at it but diversify your holdings (Right now you have 100% in international small company and developing markets firms) which by nature are the most volatile in price but often ceases to see reality. Not a bad thing for someone young but time not timing will make the difference. Some emerging market companies are extraordinarily cheap now and may get even cheaper but over time that cheapness will find price discovery.

In the meantime, rather than changing that particular fund have new your new contributions and match spread amongst the other funds available.

IE Large company dividend fund, balanced, US mid/small cap and even large company international.

Here's a small tidbit. According to Jeremy Grantham (renowned value investor who called for the outlier of (1.1) % real returns in US equities Sept 1998 ago (he only missed that projection by 3 additional days of trading in October) and 10.9% for emerging markets (they were 12.8%).
US stocks are just now at fairly value based on a dividend discount model in the US for the first time since 1994 but as he says when bubbles break they are usually very painful.

His assessment for the next ten years would be (broadly speaking)
2% real returns on US stocks
1% for bonds (likely assuming the Lehman bond aggregate index)
4-4 1/2% for high quality dividend paying US stocks. Dividends on the S&P 500 are the highest since 1991 so this would make sense. (IE Pfizer pays over 7% dividend to just hold the shares.)
5% for developed markets (companies are valued cheaper in Germany, UK etc vs. US)
7% for emerging markets (growing faster with low valuations and better GDP potential).
These numbers assume you can't add alpha (return above expected).

See his comments here. Not very pretty especially for China and the US.

http://www.gmo.com/websitecontent/JGLetter_ALL_3Q08.pdf

I think his quote on the recent crisis is quite appropriate for these times...

“We will learn an enormous amount in a very short time, quite a bit in the medium term, and absolutely nothing in the long term. That would be the historical precedent.”
 
Where do I go to sell currency futures? I've been googling all afternoon but to no avail! I want to sell Yen futures, and invest in somewhere with high interest rates, like NZ. I'm looking for 3 month or 1 yr contracts.
 
You need to open a futures trading account. Be careful since margin is quite a bit different than a regular investment account because one contract controls so much yen (12,500,000 yen). Marking to market in a "limit down" market will destroy you.

So for instance, the futures contract moves in 1 point increments, or $.000001 per Japanese yen which equals $12.50 per contract. All contracts are standardized and I believe the futures for yen expire in March, June, Sept. and Dec.


Here's a place right off the top I pulled up in the UK.

http://www.etradeprofessional.co.uk/
 
Which do you prefer of these two: Financial Times or Wall Street Journal?
 
You need to open a futures trading account. Be careful since margin is quite a bit different than a regular investment account because one contract controls so much yen (12,500,000 yen). Marking to market in a "limit down" market will destroy you.

So for instance, the futures contract moves in 1 point increments, or $.000001 per Japanese yen which equals $12.50 per contract. All contracts are standardized and I believe the futures for yen expire in March, June, Sept. and Dec.


Here's a place right off the top I pulled up in the UK.

http://www.etradeprofessional.co.uk/

Thanks Whomp. This is what I plan on doing, can you tell me if it works that way?:
The contracts are for 12.5m Yen, so if I sold that contract, I would receive 12.5m Yen (or the GBP equivalent) in my trading account. I don't want to invest the whole 12.5m Yen, and, being scared of rate changes, I keep 11.5m as Yen by buying Yen and just keeping it in the acc't or something. The other 1m Yen I use to buy bonds with similar (shorter) maturity but higher yield, in some other currency. When the bonds mature, I settle the Yen future.

But all that sounds like an awful lot of risk...

Ideally I would just want to borrow like £3,000 in Yen at 2% or w/e and put it in a savings acc't at 7%. And I think the Yen will weaken in the next few months as well, all of which combined will just give me free money (i.e. with none of my own money put down), assuming I'm right of course. If I'm wrong I figure I'd lose a couple hundred at most. But the only way I can think of borrowing Yen would be to sell Yen futures. Problem is that's a lot more Yen than I want to risk...
 
Given that Greenspan made mistakes, and probably there was some bad political pressure and all, should the economic advisor position to the Fed actually consist of a court? Say modeled after the US Supreme Court?
 
Given that Greenspan made mistakes, and probably there was some bad political pressure and all, should the economic advisor position to the Fed actually consist of a court? Say modeled after the US Supreme Court?

The Fed has a "board of governors" already. The chairman is the only one more people ever hear about, and is the most important one. But he does not make decisions entirely on his own. However, by tradition the Chairman is never on on the losing side of a board vote. So if a chairman is dead set opposed to the majority, some member of the majority is likely to give in and change a vote.
 
Thanks Whomp. This is what I plan on doing, can you tell me if it works that way?:
The contracts are for 12.5m Yen, so if I sold that contract, I would receive 12.5m Yen (or the GBP equivalent) in my trading account. I don't want to invest the whole 12.5m Yen, and, being scared of rate changes, I keep 11.5m as Yen by buying Yen and just keeping it in the acc't or something. The other 1m Yen I use to buy bonds with similar (shorter) maturity but higher yield, in some other currency. When the bonds mature, I settle the Yen future.

But all that sounds like an awful lot of risk...

Ideally I would just want to borrow like £3,000 in Yen at 2% or w/e and put it in a savings acc't at 7%. And I think the Yen will weaken in the next few months as well, all of which combined will just give me free money (i.e. with none of my own money put down), assuming I'm right of course. If I'm wrong I figure I'd lose a couple hundred at most. But the only way I can think of borrowing Yen would be to sell Yen futures. Problem is that's a lot more Yen than I want to risk...
Sounds like you want to pick up nickels (pence) in front of a freight train.
What you're talking about is the "carry trade" that every housewife in Japan was doing with great success...until...they didn't.

I would research this in much greater depth before using your cash.
 
So apparently President Obama is going to go back to demand-side economics with his proposed stimulus package, such as temporarily increased funding for unemployment benefits, increased funding for food stamps, as well as infrastructure projects.

What exactly is the track record of this as compared to supply-side economics, anyway? History lesson please! :love:
 
Would you agree with the following points by NN Taleb:

"Why is it that an economics degree make people stupid, dangerously stupid?"

"I am now convinced that an (advanced) economics degree lowers one's ability to understand the difference between absence of evidence and evidence of absence."
 
I *suppose* too much focus on abstract interpretations might make #2 true, but I wouldn't accuse people with advanced degrees of being stupid. EDIT: I think that any advanced degree should touch on aspects of controlled experimentation, statistics, and honest analysis of real data, and I believe economics does do that, at least from reading Jericho Hill's posts.

No clue about #1, but I wouldn't make that accusation either; The only person I knew with an economics degree was actually pretty bright, bright enough to learn another career field and advance to management in it.
 
I *suppose* too much focus on abstract interpretations might make #2 true, but I wouldn't accuse people with advanced degrees of being stupid.
Depends on the degree. I'd find anyone with an advanced degree in women's studies to be stupid.
 
I am unsure if this is the fastest way to get an answer so i am only witting it here because i think it is likely i would get a faster and better answer here than if i opened a new thread.

What is the difference with the Keynesian school of economics and Neoliberalism ? Can you explain me what is in general the Keynesian theories and the neoliberal ones.

A bit of a hard one , What would be the result if neoliberal policies where not followed the last 25 years and instead capitalism was more regulated ?

Thanks . I also have no problem if anyone other than Jericho Hill wishes to answer my questions . In fact i encourage it ! Thanks in advance to anyone willing to answer my questions though it will take time for them to do so.
 
What is the difference with the Keynesian school of economics and Neoliberalism ? Can you explain me what is in general the Keynesian theories and the neoliberal ones.

The key difference is that each uses a different BS narrative to justify their guesses.
 
Would you agree with the following points by NN Taleb:

"Why is it that an economics degree make people stupid, dangerously stupid?"

"I am now convinced that an (advanced) economics degree lowers one's ability to understand the difference between absence of evidence and evidence of absence."

I absolutely disagree with both statements. It is a valid criticism of many practitioners of many social sciences and of many natural sciences, but the acquisition of a degree demonstrates the acquisition of some new, beneficial knowledge, ergo, the first quote must then be false if we added to our knowledge stock. The second comment may be true of an undergraduate degree, but is patently false in graduate studies. Taleb, who adores fact-finding and experiments (per his own biography), is contradicting himself here, big-time.


So apparently President Obama is going to go back to demand-side economics with his proposed stimulus package, such as temporarily increased funding for unemployment benefits, increased funding for food stamps, as well as infrastructure projects.

What exactly is the track record of this as compared to supply-side economics, anyway? History lesson please! :love:

Supply side economics is fairly discredited on the macro-scale today (Honestly, its just much trickier to pull off and politicians have little ability to control economic nuance...)

I *suppose* too much focus on abstract interpretations might make #2 true, but I wouldn't accuse people with advanced degrees of being stupid. EDIT: I think that any advanced degree should touch on aspects of controlled experimentation, statistics, and honest analysis of real data, and I believe economics does do that, at least from reading Jericho Hill's posts.

No clue about #1, but I wouldn't make that accusation either; The only person I knew with an economics degree was actually pretty bright, bright enough to learn another career field and advance to management in it.

For an advanced degree in economics, most of your classwork is spent on proper methods of data collection, experimental design, and statistical properties / corrections, so yes, it's alll there.

If Taleb is going to be used to critique all acquisition of further knowledge, which is where Fifty is going, then I think Taleb would be very upset at such a legacy where EDUCATION is considered a bad thing. Fifty's not thinking through his consequences.

I am unsure if this is the fastest way to get an answer so i am only witting it here because i think it is likely i would get a faster and better answer here than if i opened a new thread.

What is the difference with the Keynesian school of economics and Neoliberalism ? Can you explain me what is in general the Keynesian theories and the neoliberal ones.

A bit of a hard one , What would be the result if neoliberal policies where not followed the last 25 years and instead capitalism was more regulated ?

Thanks . I also have no problem if anyone other than Jericho Hill wishes to answer my questions . In fact i encourage it ! Thanks in advance to anyone willing to answer my questions though it will take time for them to do so.

I'm not going to try and answer a counterfactual of 25 years of a different model as that's something for an economic historian and 400 pages to answer. There is no easy 5 paragraph answer. In short you already answered your question, in that NeoLib has a less active government than a Keynesian model. As to where we would be with more or less regulation, the straw on the camel's back occured in the last 10 years, not the last 25.

The key difference is that each uses a different BS narrative to justify their guesses.

If you can't say anything nice, don't say anything at all. Economics and its study and application has done alot of good for this work. The market framework created a huge expansion of wealth throught social strata which have enable governments to provide large social safety nets. There are flaws or problems, and we deal with those, but surely you will not argue for a return to mercantilism and command economy?

Honestly folks, if you're not going to attempt to give an honest answer, then don't give an answer.
 
I'm not going to try and answer a counterfactual of 25 years of a different model as that's something for an economic historian and 400 pages to answer. There is no easy 5 paragraph answer. In short you already answered your question, in that NeoLib has a less active government than a Keynesian model. As to where we would be with more or less regulation, the straw on the camel's back occured in the last 10 years, not the last 25.

I think you are assuming i know more about this stuff than i am showing . Actually i don't. So... Let me ask what happened the last 10 years that did not happen in the previous ones ?
 
The short version is that the way we bought homes changed (from normal 10% or 20% down payments and fixed rate loans to crazy 100% financining and Variable rates and a whole mess of crud, and that change led to all sorts of other effects, in effect, being a contagion agent into our economy's health. It is the housing bubble bursting, NOT a credit crisis, that is the root of the problem for America right now


Why were appreciating home prices NOT a problem during the 1990s? Real Income was rising! In the 2000s, Real Income has stagnated.

http://www.prospect.org/csnc/blogs/...se_name=its_the_housing_bubble_not_the#110778

From Dean Baker
This is truly incredible. Homeowners have lost more than $5 trillion in housing wealth. There is a very well established wealth effect whereby $1 of housing wealth is estimated as leading to 5 to 6 cents of annual consumption. This implies that the loss of wealth to date would cause consumption to fall by $250 billion to $300 billion annually (1.7 percent to 2.0 percent of GDP). If you add in the loss of around $6 trillion in stock wealth, with an estimated wealth effect of 3-4 cents on the dollar, then you get an additional decline of $180 billion to $240 billion in annual consumption (1.2 percent to 1.6 percent of GDP).

These are huge falls in consumption that would lead to a very serious recession, like the one we are seeing. This would be predicted even if all our banks were fully solvent and in top flight financial shape. Even the soundest bank does not make loans to borrowers who it does not think can pay the loans back (except during times of irrational exuberance).

Obviously the problems of the banking system make the situation worse, but the real cause of the downturn is the collapse of the housing bubble, and the reporters who talk about the economy should know this. (Of course, they should have seen the housing bubble too.)
 
What about the whole toxic loans or toxic organizations , that huge organizations invested In meaning getting loans that they could not pay or investing in unhealthy bussiness generally the whole situation with the several American banks and bussiness closing (AIG for example)? I am led to believe that a credit crisis happened also.

Plus i am speaking internationally not necessarrilly only about the American economy since i am a European though i am led to believe the problem was with the decisions of American enteprices banks that "infected" European ones due to the fact that they bought shares in them.

Did a credit crisis really not happen ? What do others believe ?

Thanks.
 
No, there was a credit problem too, but its not the root cause of the problems. It's an accentuating factor.

Europe has its own housing bubble and problems.
 
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