Monday, January 26, 2015

A Cost Of War

From Banksy:

Central Banks "control inflation"

...and other tales to help you sleep at night in a complicated world.

welcome to a world of dis-inflation...

The enemy of my enemy will be my enemy one day

Economic policy works with lags that are long and variable. Foreign policy works with lags that are long and unpredictable. Reagan championing 'freedom fighters' opposed to Soviet tyranny in Afghanistan suffered under the truly unforgiving tyranny of Alzheimer's by the time the September 11, 2001 terrorist attacks occurred. Would his belligerently naive and Manichean world view have changed in hindsight of the terrorists his foreign policy spawned?
For the full text of Robert Fisk's article on Osama Bin Laden go here.

Saturday, January 17, 2015

US Equity Returns: Are You Risk Neutral or Risk Averse?

The reality is that we are human; we like the idea of profits and markets gaining to the upside and hate losses and markets losing ground. Our reaction is asymmetrical and once capital is lost do most of us have the stomach to be invested again in the hope that markets will rebound? Recent US equity market history (post 1999) is useful in this regard with losses occurring in 2000, 2001, 2002, and 2008. Any investor would have had a sense of regret after witnessing the depletion of capital. It isn't enough to hear those who state the efficacy of "time in the market", the reality is that many drivers are responsible for such returns --many beyond the realm of fundamental investing-- so a key question becomes: can you sleep at night without worrying about your investments. As the chart below shows, and as we should know, equity returns and returns of financial assets in general, are not normally distributed.
Chart Source: Marketwatch

Friday, January 16, 2015

Wednesday, January 7, 2015

Je suis Charlie...

Qui plume a, guerre a. Ce monde est un vaste temple dédié à la discordeTo hold a pen is to be at war. This world is one vast temple consecrated to discord.
  • Voltaire letter to Jeanne-Grâce Bosc du Bouchet, comtesse d'Argental (4 October 1748)

Cartoon by Ruben L. Oppenheimer
Cartoon by Rob Tornoe

Don't let the religious fanatics silence us.
If satire is gone today then your freedom will be gone tomorrow.

"I'd rather die standing than live on my knees"

Tuesday, January 6, 2015

Oil - how low can you go?

As Ronald W Cotterill has written in his letter to the Financial Times:

Sir, Coverage of the oil price bust is missing a critical insight. Full costs for shale oil are around $50 per barrel, and full cost for the tar sands and most deep water oil are even higher. Yet, as prices drop the supply glut worsens.This is an example of the overproduction trap that commodities with high sunk (fixed) costs face. As long as the price of oil is above a company’s short-run variable cost of production, it can make a contribution to covering its sunk costs. Rather than cut production because price is below full cost, it will increase production to reduce its losses. Prices drop even more.The focus on the reduction in drilling of new wells, which comes when price is forecast to be below full long-run cost, is misguided if one seeks to determine when the oversupply of oil will end. Research on the short-run variable cost of oil production by various producers and countries is needed to identify the price bottom.Ronald W CotterillEmeritus Professor of Agricultural and Resource Economics,University of Connecticut, US
(Bold emphasis added)

Don't bottom feed yet if you are an investor, keep in mind that crude oil still can still lose 50% of its value from today's closing
Breakeven for major projects
Estimated global oil and extraction costs (Source: Joseph Freeman Jones)
Comparing Oil Patch Costs, Canada vs United States
History of crude oil prices

Monday, January 5, 2015

Policy Rates are staying low....

No need to repeat what has been stated on this website for the last few years, we remain in an environment bereft of the need of so-called "rate normalization". Any steps the US Federal Reserve takes in that policy direction will need to be reversed over the short term -- we know policy lags are long and variable but deficient effective demand cannot be easily turned around in an increasingly uneven recovery.

Sunday, January 4, 2015

Will your job be computerized in 20 years?

Read the source report and full list of occupations by clicking on the hyperlink: "The Future of Employment: How Suceptible are Jobs to Computerisation?"
By Carl Benedikt Frey and Michael A. Osborne (September 17, 2013).

Saturday, January 3, 2015

Princes Of The Yen

You can learn more from this documentary than the tripe on Japan in the financial press.
It is based on Richard Werner's book "Princes Of The Yen" and is updated to take account of the Eurozone crisis.