Three Down Seven to Go

Rather depressing study finds that what goes up, must come down.

During the booms leading up to crises, it gets easier and easier for people to borrow money — to take on more leverage, in financial speak. Then the crisis hits, it gets harder to borrow, and everybody starts trying to pay back their debts. This is called de-leveraging, and it's what we're living through now.

The period of de-leveraging typically lasts as long as the credit boom that preceded it. The Reinharts suggest that the recent credit boom lasted for about a decade, and ended in 2007

Well, the goods news is that there will be an end. The bad news is that seven years seems like a really long time. Nobody wants to be poor, knowing you are going to be poor for awhile is a downer.

One thing about the Great Depression is that it was not until 1931, when it was painfully obvious that something was going on, that Hoover called it "a great depression. The crash was in 1929, so they were 3 years in before reality sunk in. And they thought it was just another economic downturn. It was not called The Great Depression until years later, 1934, when Lionel Robbins published a book called "The Great Depression".

So it took 5 years from the start to the middle for people to understand the severity of the situation.

Here are some things you didn't know about the Great Depression.

1. Churchill was wiped out by the Great Depression.

In 1924 he returned England to the gold standard, in what he would later call the greatest mistake of his life. This austerity measure was largely deflationary, since it was a dear money policy, and although popular worsened economic conditions.

2. Kennedy made a fortune.

Prior to the crash, Joseph Kennedy moved his fortune into real estate, Hollywood studios and liquor importing, although he may not call it bootlegging. Most of it came from real estate.

The lesson is that fortunes can be made or lost, even now.

Feng Shui & You

Article in the NY Times on dealing with Feng Shui.

Michael Heaner, a partner of the Kaufman Organization, which leases and manages office space in New York, said he had seen many deals fall through because of bad feng shui. For companies that put stock in it, therefore, Mr. Heaner has learned to ask for their feng shui master to examine the space before negotiating a lease. “Frequently you’ll get all the way down the road and figure out that the space really does not have the proper feng shui,” he said.

Penn & Teller are not fans.


107 Feng Shui - Bottled Water
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Life on a container ship

Here is a blog on one man's life working aboard a container ship.

An upcoming reality TV show like Deadliest Catch is not likely. Most of the time at sea you are doing nothing in the middle of nowhere.

When I dip you dip

Place your hand upon my hip ....

Man, this guy is such a downer.

David Rosenberg Interview



Too bad I think he is probably right. Inventory adjustment + government stimulus = unsustainable weak recovery = frowny face.

If you don't believe there's going to be a double dip, it's because the first recession never ended. If there is going to be a double dip, the odds are certainly higher than 50-50.

Labor Vs. Capital

In economics, goods and services come into existence through the production function, that is, the combination of the various intermediate goods required to make things and do stuff.

The components of the production function are: raw materials, capital (machinery, etc), labor, land and the entrepreneur to put everything together.

The combination of these inputs change over time depending on market conditions. One of the most basic is the nature of capital vs. labor since they are somewhat interchangeable.

Technology allows us to produce more output with fewer labor inputs. There are no longer phone operators to place calls for example.

If labor is cheap, you can cut back on capital to increase your profits.

I remember reading something about farms in China paying people to water the crops by hand rather than installing sprinklers, since it was cheaper in the long run.

Here is an interesting paper on an unexpected labor vs. capital decision, one involving the use of the cat and mouse game of captcha's, those screens used to prevent automated machines from posting comments or accessing information indiscriminately.

The capital approach would be to program a computer to be able to circumvent these computer countermeasures, essentially a better mousetrap.

The labor approach would be to pay someone to get around these countermeasures.

The paper suggests that the labor approach is winning, since you can pay somebody in Bangladesh as little as $1 to do 1,000 captcha's. It is quite an intensive study examining the changing nature of prices of labor and capital.

The whole time I am reading it I can only help but think, that spam you get in your inbox is helping to pay the wages for some third world worker. As the world gets more complex it seems like the work people are paid to do gets more and more frivolous.

Topsy-Turvy World

Where borrowing money made you richer than saving it.

NY Times:

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

...

Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. “People got 90 cents for free,” Mr. Combs said. “It rewards immorality, to some extent.”

This is not limited to the residential market eigther.

From GlobeST:

There’s almost no way to keep the volume of US CMBS loans in special servicing from topping $100 billion by year’s end, Fitch Ratings said Wednesday. In a report accompanying the announcement, managing director Stephanie Petosa wrote, “The number of loans transferring to special servicing is growing
exponentially.”

New Silk Road Economies

Article from Businessweek on emerging markets.

The takeaway? Emerging markets are trading with each other and by-passing the United States, which has traditionally served as the middleman.

For the most part, the reason we were needed in the first place is because of our stable currency, adherence to property rights, financial & logistical infrastructure. I suppose these countries are more comfortable with each other than before and don't need the U.S as an intermediary.

Cutting out the middleman is nothing new.

Arab middlemen controlled the spice trade, and their monopoly allowed them to inflate the prices of cinnamon and pepper for years. It wasn't until an Indian ship went adrift in the Red Sea that the Europeans realized there was an easier route to get all those spices they had been craving.

What fascinated me was the reference to the silk road.

The old silk road is a 3,000 year old trading route connecting the ancient civilizations of China, India, Greece, Egypt, Rome and Persia. The trade route exists even today and has been a part of history for as long as there has really been a recorded history.

Literally millions of people over thousands of years, people who don't speak the same language, people who practice different religions, who would hate one another if they ever met, all working together and united in a common cause. To make the world a better place through the exchange of goods and ideas.


The new silk road would be all the developed countries trading with each other directly. Which is easier today than it has ever been, probably in the history of the world.