Good read on the changing dynamic caused by the internet.
FT article: Bonds: Anatomy of a market meltdown
Is the bond market becoming increasingly volatile? If so, what are ramifications on your portfolio/superannuation with large bond holding. It seems nothing in the financial world is as safe as people tend to think.
Bob Farrell’s rule #9: When all the experts and forecasts agree, something else is going to happen.
I find this article today. In short, it is complicated.
In my opinion, it is almost insufficient to only consider what the QE3 has brought us without considering the alternative of doing nothing. It is easy, in hindsight, to criticise the Federal Reserve’s QE3 program, but can we really imagine what the world (or the US) would be like without it?
Economists generally love to find a real world example to learn from. In that spirit, I would suggest looking at Europe and Japan. Both, initially, did not embrace aggressive credit stimulus program. Europe is under constant threat of deflation. Japan has been in deflation for a decade. Both central banks are now engaging in programs similar to the QE programs.
Having said this, I am not trying to simplify the difficulty in understanding the usefulness of QE3. Problems for European and Japanese economies are subtle than I have suggested. I simply wish to allude to their money supply problems.
I will write more on the QE programs later.
A friend recently reminded me of this satirical site on Myki and some projects with one of the worse cost escalation. A prime example is Edinburgh Trams which is a 14km tramway in Edinburgh that runs between York Place in New Town and Edinburgh Airport, with 15 stops. Construction began in 2008, but it wasn’t opened until this year in May.
More spectacular is the project cost escalation. Initially, it was budgeted at £375 million, but after interest payments are factored in, it costs roughly £1 billion or 267% of the original estimate. This translates to £71.4 million per km or £714 per cm.
Here comes a nonsensical comparison part. A 16gb iPhone 6 will cost you £539. It is roughly 6.9mm thick, 67mm wide and 138.1mm tall. Here is a crazy idea. Instead of spending £1 billion on a tram project, one can buy 1.86 million iPhones and line them up like dominos with backs touching from York Place. The line will be 12.8 km long, 1.2 km shy of the airport. Alternatively, one can create 4 tracks of iPhones (like the actual tram tracks, two in each direction) The line will be 64.05 km long.
So, what is the point of all this? It is just an idea to illustrate an inappropriate comparison, and perhaps the way scientists’ minds work. We conjure many crazy ideas in the hope that some may turn out to be great ones. An example in my head is that of Einstein. Who would imagine riding on a light beam? But Einstein did, and that was where he drew this amazing insight about general relativity.
Recently, Janet Yellen gave a speech at International Symposium of the Banque de France. I post the speech below for your convenience. She highlighted the need for the monetary and fiscal policies to complement each other in order to stabilise the world economy.
One thing I observed is that she sounds Keynesian. In her words,
governments need to address long-term challenges and significantly improve their structural fiscal balances during good times so they have more fiscal space to provide stimulus when times turn bad.
Reading an article like this reminds me of the work by psychologist Philip Tetlock who studied expert predictions in areas such as economics and politics. What he found was truly shocking. They are on average only slightly better at predicting than random guessings, and are worse than basic extrapolations.