The Economist calls out President Obama

... for pouring silicone into the wealth-creating engine of capitalism:

YOU can be fairly sure that when a government slips an announcement out at nine o’clock on a Friday night, it is not proud of what it is doing. That is one of the only things that makes sense about Barack Obama’s decision to break a commitment he, along with other G20 leaders, reaffirmed last April: to avoid protectionist measures at a time of great economic peril. In every other way the president’s decision to slap a 35% tariff on imported Chinese tyres looks like a colossal blunder, confirming his critics’ worst fears about the president’s inability to stand up to his party’s special interests and stick to the centre ground he promised to occupy in office.

This newspaper endorsed Mr Obama at last year’s election (see article) in part because he had surrounded himself with enough intelligent centrists. We also said that the eventual success of his presidency would be based on two things: resuscitating the world economy; and bringing the new emerging powers into the Western order. He has now hurt both objectives.

Detroit - Where Houses are Cheaper than Cars

Economics Professor Mark Perry, from the University of Michigan-Flint, tracks house prices in Detroit. In a recent post, he reports that the average year-to-date price fell to $11,596 in July. The average had peaked in 2003 at $97,850; the current prices represent an 88% decline.

Benefit costs rising more slowly than direct pay

Medical and pension benefits are a victim of the recession:

As the [second] graph shows, though, that decline isn't the result of any serious slowdown in medical inflation. No doubt there's a lot of shifting of costs onto employees going on, either in the form of dropped coverage or higher co-pays.

As we pointed out in our July 13 issue, a substantial portion of the rise in consumption over the last couple of decades has been driven by spending on medical care. With all this apparent cost-shifting from employers to employees going on, pressures on household budgets have been increasing -- another reason to wonder where any sustained consumption revival can come from.

Moving patents to higher-valued uses

Buyers come in all flavors, both strategic and financial:

...Of the financial ones, some hope to profit from the market’s relative youth and illiquidity, seeking out undervalued patents and taking advantage of pricing inefficiencies (and the difficulty of valuing such a complex asset) to sell them at a hefty mark-up.

Others are longer-term holders, pejoratively referred to as “patent trolls”, who are looking for an income stream from collecting royalties. Ugly they may be to those they harass, but lazy they are not. Such investors typically undertake exhaustive analysis of the relevant technologies and the firms that may be using them. Negotiations with those they deem to have breached a patent can be tortuous. Even by the standards of alternative investors, this is esoteric stuff. But the returns can be handsome and, with a broad enough portfolio, fairly predictable.

As the market evolves, its supporting infrastructure grows more sophisticated. New brokers are popping up. Like estate agents, they package together information—on the patent’s validity, infringement by others and so on—and try to maximise proceeds for clients. iPotential has helped some clients get more than ten times the initial asking price. ICAP Ocean Tomo, another broker, began running patent auctions in 2006, and this year an affiliate set up an IP exchange. Its index of patent-rich shares is tracked by several exchange-traded funds. IP is moving out of the lab and into the financial mainstream.

Day trading is back

If you buy a stock, sell it, and earn money on the trade, you might mistakenly infer that you have above-average stock-picking ability. So you try it again.  And as long as the market keeps rising, you will be successful, more often than not.  This is the kind of feedback loop that leads to bubbles:

Trading volume surged 14% or more last month from July at online brokerage firms Charles Schwab Corp., TD Ameritrade Holding Corp. and E*Trade Financial Corp. Electronic trader Knight Capital Group Inc. also posted a 7.7% increase.

Buffett: "there is nothing new under the sun"

Buffett did an interview this week, reflecting on the credit crisis….not the greatest interviewer but not too terribly bad, either…what I really like best is in the last 40 seconds, where the interviewer asks, what did YOU, Warren Buffett, learn from this crisis?  And he talks about how there’s nothing new under the sun, that the behaviors that caused the last bubble have always happened in the past…the dangers of leverage, mass belief in a hot asset class, and joining the crowd b/c the crowd has been making money (rather than b/c the crowd is doing something that is sound fundamentally).

http://paul.kedrosky.com/archives/2009/09/buffett_more_le.html

Second edition out today

 

  

Managerial Economics: A Problem-Solving Approach, 2nd Edition

Luke M. Froeb - Vanderbilt University
Brian T. McCann - Purdue University

ISBN-10: 1439077983  |  ISBN-13: 9781439077986
352 Pages   Casebound  
© 2010   Published  

Praise for Managerial Economics:
“I used the first edition of Managerial Economics: A Problem Solving Approach with great success. The more I used it the more I appreciated the focus on the rational actor paradigm… students shared my appreciation… [they] see how decision rights, incentives and information flows affect decisions where they work and [have] examples based on first-hand experiences.
-Professor Edward Millner, Chair Department of Economics, Virginia Commonweatlh University

 “Managerial Economics: A problem solving approach is sophisticated… teaches the students what they need to know, and integrates well with the MBA curriculum. The students love it!”
-Professor Eduardo Zambrano, Department of Economics, Cal Poly.

Is the decline in spending permanent?

John Mauldin draws inference from the growing gap between essential, and non-essential spending:

A gap this wide looks like a real structural shift in spending behavior, as austerity becomes the new normal. Though Americans have shaken off bouts of prudence before, like that of the early 1990s, with consumer credit constricted, household balance sheets ravaged, and labor income weak, it's probably going to take some time before anything resembling extravagance returns. 

"free" as a business model

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