The Best Reserve Currency in The World

“The U.S. is our favorite market,” Hiromasa Nakamura, a bond investor in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of about $42 billion, said Dec. 12 in a telephone interview. “The level of debt is high but I think they will deal with it,” he said. “Financial dislocations are continuing and investor money is flowing to the reserve currency, the U.S. dollar.”

Transparency

Banks should be forced to reveal more data about their financial reserves so that they can’t conceal poor management decisions and excessive risk-taking, global regulators said. Lenders should “disclose the full list” of instruments that they are counting toward meeting their required minimum capital levels, the Basel Committee on Banking Supervision said in an e- mailed statement today.

Risk Premium

A risk premium is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset, in order to induce an individual to hold the risky asset rather than the risk-free asset. Thus it is the minimum willingness to accept compensation for the risk.



- Posted using BlogPress from my iPhone

a problem of knowledge

We live in a world full of contradiction and paradox, a fact of which perhaps the most

fundamental illustration is this:that the existence of a problem of knowledge depends on the future being different from the past, while the possibility of the solution of the problem depends on the future being like the past.-Knight

Inherited Capacity

From the standpoint of absolute ethics, most persons would probably agree that inherited capacity represents an obligation to the world rather than a claim upon it.-Frank Knight

Economic Calvinism?

For Knight, a sort of economic Calvinist, labor was not a mere disutility but gave life purpose. People did not always act out of self-interest, nor were their preferences somehow generated internally, nor were those preferences consistent over time. Where he and so many others saw a breakdown in the market order, or of "bourgeois society," Knight alone attributed it to a breakdown in people's morals. To him, social problems are almost always moral in nature, not structural or political. Ultimately, Knight supported the market on moral grounds, not efficiency ones; he believed freedom was itself the ultimate good, enabling people to trade with one another irrespective of their religious or cultural differences, based on their reasoning as to what is important and worth pursuing. What was missing from defenses of free markets, he thought, was a fundamental, moral brief supporting this social arrangement. He believed economists had failed to provide one because their concerns and methods did not allow them to see that their attempt to be "value free" was a sophisticated delusion driven by scientism.[4]

As Stigler writes about the place of economics in Knight's view of the world, its primary function "is to contribute to the understanding of how by consensus based on rational discussion we can fashion liberal society in which individual freedom is preserved and a satisfactory economic performance achieved. This vast social undertaking allows only a small role for the economist, and that role requires only a correct understanding of the central core of value theory."

Legacy of the Chicago School

Knight is clearly the intellectual godfather of the Chicago school. Even students who disagreed with him on many issues relate that he was the professor who most influenced them during their days at the University of Chicago. The Chicago school is far from some monolithic set of beliefs to which all its members subscribe. Knight's extreme skepticism and lack of slavish deference to authority became the twin pillars of the school's long and storied approach to theory and policy, and that is Knight's enduring legacy.

— Robert L. Formaini

Senior Economist

The Direct Approach....

Like David Hume, he rejected the view that the solution of social problems is to be found by the direct approach to them. And like Adam Smith, he had little hope that social reformers or "do-gooders" would solve problems and he thus was willing to allow the markets to solve them.-Ransom & Breit

Ethics and Economics

The competitive economic order must be partly responsible for making emulation and rivalry the outstanding quality in the character of the Western peoples who have adopted and developed it. The modern idea of enjoyment as well as achievement has come to consist chiefly in keeping up with or getting ahead of other people in a rivalry for things about whose significance, beyond furnishing objectives for the competition itself, little question is asked. It is surely one function of ethical discussion to keep the world reminded that this is not the only possible conception of value and to point out its contrast with the religious ideals to which
the Western world has continued to render lip-service-a contrast resulting in fundamental dualism in our thought and culture.

Stocks will rally?

Wall Street has never been more sure that stocks will rally in 2011, even as lower-than-estimated data on manufacturing and service industries fueled concern that the nation will slip back into a recession. Chief strategists at 13 banks from Barclays Plc to UBS AG see the S&P 500 surging 17 percent through Dec. 31, according to the average estimate in a Bloomberg survey. Their projection that the index will reach 1,401 hasn’t budged in four weeks.

Quantum Performance

While Quantum has returned about 20 percent a year, on average, since 1969, when its predecessor was started, according to a person familiar with the firm, the fund’s performance has suffered in the last 18 months. In the first half of this year, Quantum lost about 6 percent, the person said, following a gain of 2.5 percent in 2010. Other macro funds have returned 5.6 percent in the last year-and-a-half, according to Chicago-based Hedge Fund Research Inc.

The Debt Ceiling debate on Talk Shows

A wise investor will do way better buying United States treasuries like the U.S. 30 year bond then buying bad paper from Wall Street.

Last time I looked it was the United States government that bailed out Wall Street and banks all over the world. Now the same people who were bailed out are whining about US debt levels and the government's ability to pay. The real question is how soon will these whiners be asking for another loan when markets correct?

Store of Value

Store of value

A recognized form of exchange can be a form of money or currency, a commodity like gold, or financial capital. To act as a store of value, these forms must be able to be saved and retrieved at a later time, and be predictably useful when retrieved.

Storage of value is one of several distinct functions of money. The other functions are the standard of deferred payment, which requires acceptability to parties owed a debt, and the unit of account, which requires fungibility so accounts in any amount can be readily settled. It is also distinct from the medium of exchange function which requires durability when used in trade and to minimize fraud opportunities.[1]

With money being a storage of value was the start of monetary inflation cycles where the under and over abundance of market goods can lead to price instability.

Common alternatives that act as stores of value are:

real estate - actual deeds in protectible land

gold - once the basis of the gold standard

silver - once the basis of the silver standard

precious stones, and precious metals

collectibles, e.g. original art by a famous artist or antiques

livestock (see African currency)

stock

While these items may be inconvenient to trade daily or store, and may vary in value quite significantly, they rarely or never lose all value. This is the point of any store of value, to impose a natural risk management simply due to inherent stable demand for the underlying asset. It need not be a capital asset at all, merely have economic value that is not known to disappear even in the worst situation. In principle, this could be true of any industrial commodity, but gold and precious metals are generally favored because of their demand and rarity in nature, which reduces the risk of devaluation associated with increased production and supply.

Profit Margin

Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue.

Net profit Margin = (Net Income / Revenue) x100

The profit margin is mostly used for internal comparison. It is difficult to accurately compare the net profit ratio for different entities. Individual businesses' operating and financing arrangements vary so much that different entities are bound to have different levels of expenditure, so that comparison of one with another can have little meaning. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss, or a negative margin.

Profit margin is an indicator of a company's pricing strategies and how well it controls costs. Differences in competitive strategy and product mix cause the profit margin to vary among different companies.

Margin in Economics

In economics, a margin is a set of constraints conceptualised as a border. A marginal change is the change associated with a relaxation or tightening of constraints — either change of the constraints, or a change in response to this change of the constraints.

Zero Sum Game

a zero-sum game is a mathematical representation of a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero. Cutting a cake is zero-sum game, because taking a larger piece reduces the amount of cake available for others. In contrast, non-zero-sum describes a situation in which the interacting parties' aggregate gains and losses is either less than or more than zero. A zero-sum game is also called a strictly competitive game. Zero–sum games are most often solved with the minimax theorem which is closely related to linear programming duality.

Philosophy of Economics:

http://plato.stanford.edu/entries/economics/#3

Valuing Domain Names

Using a Capital Budgeting Techniques to Value Domain Names


Intelligent real estate investors make strategic long-term decisions and capital budget advertising as part of the real estate investment process.

Capital budgeting is similar to security evaluation where future cash flows are estimated risks and are appraised and reflected in a cost of capital discount rate,
all cash flows are put into a present value basis, and if a projects NPV is positive, it is accepted.


Cancunvillas.com gets 4500 visitors a year. If we had to pay for advertising in search engines we would have to pay between 50 cents to $1.50 a click.

So roughly cancunvillas.com generates $4500 in advertising for it's owners every year. This is basically a risk free investment.

We use NPV (net present value) to value and compare investments.

Current yield on a 1 year t-bill is .27%.

$1,000,000 t-bill would pay $2700 after one year.

To earn $4500 at the risk-free rate you would need invest 1,666,666.67= $4500 = 1/.0027

Many consider the US Long bond as a better predictor of long term inflation and the risk premium.

Interest rate of 4.6%:

$4500.00 • 1/.046 = $97,826.09

Some may think there is more risk involved and demand a higher hurdle rate like 12%:

$4500 • 1/.12 = $37,500


We believe it is worth more because the email lists generate high net worth leads as well.

Peter Lynch Principle #8

When yields on government bonds exceed the dividend yield of the S&P 500 by 6% or more, sell your stocks and buy bonds.

The 10 year is at 3.39% and the S&P 500 yield is 1.73%.- 4/28/2011

3.39-1.73 = 1.66.

1.66/1.73 = 96%

The yield on Govt. bonds is 96 percent higher.

Steinhardt's Track Record

Steinhardt Partners achieved a performance track record that still stands out on Wall Street: 24% compound average annual returns – more than double the S&P 500 – over a 28-year period. What's more amazing is that Steinhardt accomplished this record with stocks, bonds, long and short options, currencies and time horizons ranging from 30 minutes to 30 days. There were few investment instruments over which Michael Steinhardt did not wield some mastery.

Soros Investing Philosophy:

His basic theory of investing is that financial markets are chaotic. The prices of stocks, bonds and currencies depend on the human beings who buy and sell them, and those traders often act out of highly emotional reactions rather than coolly logical calculations. Opportunities can be found by carefully studying the value and the market prices of assets. He focuses on a theory of "reflexivity," which is based on the premise that individual investor biases affect market transactions and the economy.

People Smarter than George Soros

A mere $1000 invested in 1969 when Soros established the Quantum Fund would have been worth $4 million by the year 2000. During that time he achieved a cumulative 32% annual return.

It is only logical on a planet with almost 7 billion people that there are "many" investors smarter than Soros. You can start with small businessmen and entrepreneurs.

Rational Decision Making

"But Prof Cochrane correctly identifies consistency as the most prized virtue in economic reasoning. If I am faced with the same menu of options, I will always make the same choice. This is the premise on which rational choice models are based. Such models not only dominate economics but have been widely used across the social sciences."- John Kay

But people are incapable of making rational choices if important information is withheld. In most cases paradigms have no relation to reality; this is because most people claiming to be financial advisors are salesmen.

Simple Supply and Demand

Knight often despaired at the general public’s inability to understand even simple economic truths. In his 1950 presidential address to the American Economic Association, Knight said:

Of late I have a new and depressing example of popular economic thinking, in the policy of arbitrary price-fixing. Can there be any use in explaining, if it is needful to explain, that fixing a price below the free-market level will create a shortage and one above it a surplus? But the public oh’s and ah’s and yips and yaps at the shortage of residential housing and surpluses of eggs and potatoes as if these things presented problems any more than getting one’s footgear soiled by deliberately walking in the mud.

The Great Information Hairball: Why U.S. Productivity fell under Alan Greenspan's Fed

Unpublished Ideas backed by data that led to high returns for the prescient in an era of Incompetent American leadership.

In this era of unprecedented noise, we talk about the clear signals that can make you money.

Seminar is available at a rate of $300 an hour.

Economy Tweets IPhone Test

The Internet creates incredible opportunities for creative people.

This blog is being updated from my pocket computer. I would like to thank the people at iPocketComputer.com for their training!

It is interesting that the yield on high-grade corporate bonds was 4.4% in 1962! Wall Street is incredibly cynical these days. Rates are too high. Inflation is not an issue in the U.S. Economy.

Everyone keeps talking about food and oil. The problem is speculators are pushing up those prices while real estate is in a free fall. Decreases in personal income and government spending are also deflationary.

The Formula- Benjamin Graham

In The Intelligent Investor, Benjamin Graham describes a formula he used to value stocks. He disregarded complicated calculations and kept his formula simple. In his words: “Our study of the various methods has led us to suggest a foreshortened and quite simple formula for the evaluation of growth stocks, which is intended to produce figures fairly close to those resulting from the more refined mathematical calculations.”

The formula as described by Graham in the 1962 edition of Security Analysis, is as follows:

V = Intrinsic Value
EPS = Trailing Twelve Months Earnings Per Share
8.5 = P/E base for a no-growth company
g = reasonably expected 7 to 10 year growth rate

Where the expected annual growth rate “should be that expected over the next seven to ten years.” Graham’s formula took no account of prevailing interest rates.

He revised his formula in 1974 (Benjamin Graham, “The Decade 1965-1974: Its significance for Financial Analysts,” The Renaissance of Value) as follows:

Graham suggested a straight forward practical tool for evaluating a stock’s intrinsic value. His model represents a down-to-earth valuation approach that focuses on the key market-related and company-specific variables.

The Graham formula proposes to calculate a company’s intrinsic value V* as:

V: Intrinsic Value
EPS: the company’s last 12-month earnings per share
8.5: the constant represents the appropriate P-E ratio for a no-growth company as proposed by Graham
g: the company’s long-term (five years) earnings growth estimate
4.4: the average yield of high-grade corporate bonds in 1962, when this model was introduced
Y: the current yield on AAA corporate bonds

To apply this approach to a buy-sell decision, each company’s relative Graham value (RGV) can be determined by dividing the stock’s intrinsic value V* by its current price P:

An RGV of less than one indicates an overvalued stock and should not be bought, while an RGV of greater than one indicates an undervalued stock and should be bought.

Because of the measures it uses, difficulties may be encountered in evaluating both new and small company stocks using this model as well as any stock with inconsistent EPS growth. It is efficient because of its simplicity but it also limits it: the model doesn’t work well for every stock.

Thus, the calculation is subjective when considered on its own. It should never be used in isolation; the investor must take into account other factors such as:

• Net Current Asset Value in order to determine the financial viability of the firm in question
• Current Asset Value in order to determine short-term financial viability of the firm
• Debt to equity ratio
• Quality of the Current Assets.

The Chicago Boys

The Chicago Boys (c. 1970s) were a group of young Chilean economists who trained at the University of Chicago under Milton Friedman and Arnold Harberger, or at its effective offshoot in the economics department at the Catholic University of Chile. The training was the result of a "Chile Project" organised in the 1950s by the US State Department and funded by the Ford Foundation, which aimed at influencing Chilean economic thinking. The project was unsuccessful until the early 1970s. The Chicago Boys' ideas remaining on the fringes of Chilean economic and political thought, even after a 500-page plan based on the Chicago School's ideas and bearing the provacative title Ladrillo -- "The Brick" -- was presented as part of Jorge Alessandri's call for alternative economic platforms for his 1970 presidential campaign. Alessandri rejected Ladrillo, but it was revisited after the 1973 Chilean coup d'état on 11 September 1973, and became the basis of the new regime's economic policy. Eight of the 10 principal authors of "The Brick" were Chicago Boys. Although the coup was described as a military coup, Orlando Letelier, Salvador Allende's Washington ambassador, "saw it as an equal partnership between the army and the economists".

Juan Gabriel Valdés, Chilean foreign minister in the 1990s, described the Chile Project as "a striking example of an organized transfer of ideology from the United States to a country within its direct sphere of influence... the education of these Chileans derived from a specific project designed in the 1950s to influence the development of Chilean economic thinking." He emphasised that "they introduced into Chilean society ideas that were completely new, concepts entirely absent from the 'ideas market'".

Austrian Economics

"Pretend you know nothing about the market, and ask yourself this question: how can society's entire deposit of scarce physical and intellectual resources be assembled so as to minimize cost; make use of the talents of every individual; provide for the needs and tastes of every consumer; encourage technical innovation, creativity, and social development; and do all this in a way that can be sustained?"

http://mises.org/etexts/why_ae.asp

Collectivism

Collectivism is any philosophic, political, economic or social outlook that emphasizes the interdependence of every human in some collective group and the priority of group goals over individual goals. Collectivists usually focus on community, society or nation. Collectivism has been widely used to refer to a number of different political and economic philosophies, ranging from communalism and democracy to totalitarian nationalism.