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Economics should think small

I attended a fascinating, if somewhat disturbing talk at the Cranlana Programme by Scott Borg, director and chief economist at the US Cyber Consequences Unit, who is a cyber warfare specialist and economist at the US Cyber Consequences Unit. It included horrible descriptions of the end of the world as we know it, much as


Leverage versus debt

Europe, Japan and America are printing money at an extraordinary rate. It has reduced the cost of debt to negligible levels. Usually this is explained with reference to what is happening in the conventional economy, but I suspect there may be another explanation. The systemic effects of the bizarre financial system that we have created,


The savings heist

One of the puzzles of the global financial crisis has been that there has been no push for debt to equity swaps. In previous crises, most notably the Latin American debt crisis of the 1980s, arguably the beginning of the modern era of hyper usury and financial debauch from globalising Western banks, the situation was


Towards a semiotic economics

The habit in economics of using either tenth rate metaphors (without being aware they are metaphors) or to mathematicise human behaviour has largely doomed the discipline to irrelevance, at least when it comes to uncovering anything remotely resembling the truth. It is a determined effort to avoid a central fact. Markets are animated by humans,


The insufferable conceit

Two problems plague the analysis of the financial system, problems that are related. Let’s call them the twin delusions. One is the persistent use of metaphors to characterise what is happening in the markets by people who do not seem to understand what a metaphor is, so they are seduced by them. The second is


Rules are power

The IMF recently had an earnest discussion about the future of macro economics.  The topics were monetary policy, macro-prudential policies, financial regulation, fiscal policy, exchange rate arrangements and capital account managements. I would add another topic. What is money and what do we want it to do? Because what has been happening is not about ho


Why economics is rubbish, episode 324.

By David James. The inadequacies of economics as it is commonly practiced are obvious enough to any thoughtful observer. The question is: why do so few smell the odour? This was the question that occurred to me when reading an analysis of economic academia by Deidre McClosky, called “The Secret Sins of Economics” (which a


Evil is in charge

By David James. The explosion of “meta-money”, derivatives and the absurdities of high frequency trading, is difficult to categorise in terms of more conventional categories such as debt, equity or property. They are really a form of contract, a debauch with rules. It is hard to avoid the conclusion that it is also an explosion


Cart pulls horse

By David James. Economics may not be a science, but it is an extreme example of scientism: the bane of what is laughably referred to as modern civilisation. Scientism, the religion that science should be applied far beyond what it is devised to do, has in economics been turned into a reversal of what causes


Too complex to succeed

By David James. A common observation is that the financial system got into trouble because of the invention of securities that were too complex for ordinary investors to understand. This is true, but it should be more closely examined. Warren Buffett is no doubt right in noting the sociological implications for the finance and business


The problem with productivity

Many measures in economics require close scrutiny to assess their efficacy. Of course, no measure is a problem in itself. But they are usually attached to popular metaphors that can be very much a problem. Productivity is one such measure/metaphor. Whether it is labour productivity or multi-factor productivity, productivity is an industrial-era measure that tracks


What economics should be

It should be obvious to even the most casual observer that economics is not a science. That this is not obvious to many is clear evidence that epistemology, the philosophy of knowledge, is little understood by economists. There is no possibility of repeating experiments because the “laboratory” conditions keep changing. As a consequence, there is


Is debt free money an option?

An intriguing proposal about how to rethink the global financial system is the notion of debt free money. This idea is typically raised in relation to the fact that the US Federal Reserve is not a central bank, it is a privately owned institution. The documentary “Secrets of Oz” details a long history of battles


How politicians failed us

  The global financial crisis and its subsequent repercussions were the inevitable consequence of governments’ abrogating their responsibility to govern. In thrall to nonsense arguments about “financial de-regulation”, they weakly handed over the job of setting the rules of money to the markets. As previously discussed, this did not result in fewer rules. It resulted


The Growth Myth-Metaphor

  The angst of the day is the prospect that low growth will become a permanent feature of the world economy. Flashman has asked what it would mean if the GFC was permanent? As he notes, the Asian Development Bank is cutting its growth forecasts. Europe and America are struggling to grow at all and


Gunns and the Elites

  An intriguing discussion was had on the Radio National breakfast program this week about the conclusions to be drawn from the demise of Gunns, Tasmania’s biggest paper and pulp mill. It is, sadly, the kind of debate that only occurs in Australia after the fact. People fear creating ripples in a small pond. Plus


Making banks better investments

Australia’s banks may be worth more than Britain’s entire banking sector, but they are not doing enough to satisfy shareholders. At least according to UBS. The broker is arguing for higher dividend payout ratios to justify the current strong share prices presumably. You know, those share prices that make Australian banks worth more than the


Death by financial rules

Surely the greatest misnomer in modern times is the term “financial de-regulation”. For at least 25 years, various business funded think tanks and mono-culture, conformist university economics departments have hailed its advantages, for the most part completely capturing the world’s business press. I know. I am actually a business journalist who was, until recently, in


Another gloomy assessment of the share market

The prospects facing the stock market are not looking especially bullish according to a Deutsche report which notes that whatever China does — initiates reflation or does little, resulting in further weakness in commodity prices — there is good reason for caution. Industrials are still in downgrade mode; all the good signs are coming from


Lend Lease questions

The AFR reported that four senior Lend Lease construction executives have been stood down following the discovery of “discrepancies in the reporting of profits and losses” by subsidiary Abigroup. They relate to two infrastructure projects. The company did not name the executives but the AFR said they include Peter Brecht, the managing director of the


BHP gets leaner

The miners’ push to become more lean is gaining pace. BHP Billiton has sold its 37% stake in Richards Bay Minerals (RBM) in South Africa to JV partner Rio Tinto for US$1.91 billion. Deutsche describes the price as “impressive”. With China’s economy appearing to weaken and the boom in commodity prices looking shaky, the strategy


Algos and mindlessness

  The much predicted impact of high frequency trading is starting to be felt on the Australian stock market. A program on Background Briefing entitled “Attack of the Algorithms” put the level of algorithmic trading at 40% of the turnover. It is on the way to the 70% that is the level on the NYSE.


ASX tracks the ASX

After failing to merge with the Singapore exchange the ASX has languished in the doldrums. For the last year or so  the share price has pretty much tracked itself (the All Ords), which is hardly surprising. Deutsche has a hold recommendation and there seems little reason to disagree. The target price is a very modest $31:


Banks turn off banks

The health of the banks is critical to the direction of the Australian market. Two reports are looking closely at earnings and asset quality, and both raise questions. First, Credit Suisse looks at the accounting treatment of earnings. Since 2010 major banks have adopted increasingly aggressive accounting treatments, with aggregate major bank earnings benefiting cash earnings by


Slowing job ads threaten media

The growing signs of weaker employment growth are not a good sign for media stocks.  Deutsche has a note that ANZ’s job ad market series has fallen, which does not augur well for media stocks: In Aug-12 the online job ads fell by 2.1% mom and 9.0% yoy to 153k ads, the 12th consecutive month of


Shares deliver on low expectatons

As commented in this morning’s Macro Investor, Australia is facing a drop in its national income. The same trend seems to be playing out in company income, at least for listed stocks.  Deutsche Bank notes the drop in income: “Reporting season confirmed that June half profit growth was the worst since the global recession (down 5%


What Is This Money Thing Anyway?

  One of the consequences of economics pretending to be a science, when it is not, is the tendency to attempt to explain financial behaviour from its base constituent parts, rather as a physicist might build up a picture of a compound from its molecules. This repeatedly results in observations that are either banal or


Iron ore stocks lose steel

Iron ore prices are looking pretty dodgy as Houses & Holes has been documenting. JP Morgan has looked at the consequences for the large players and is arguing that Rio is more compelling than BHP and Fortescue needs more funding, which has been the case for some time. Morgan likes Atlas Iron and Grange Resources


Virgin takes lead

The contrast between Virgin Australia’s result and Qantas’ is pretty stark. Qantas recorded a heavy loss while Virgin came in with reported underlying profit before tax  of $82 million and statutory net profit after tax of $23 million. But is it a good enough result to justify investing in airline? The brokers are pretty unenthused, seeing the stock as fairly


Woolworths comes back to the pack

Woolworths reported FY12 net profit of $1.82 billion, down 14%, althogh this included a significant item of $366 million from the sale of Dick Smith. Citi’s core net profit after tax was up 3.6% to $2.2 billion which includes operating earnings from Dick Smith. It is the kind of result you would expect from one