Saturday, 28 March 2009

The markets this week

Whilst daily updates on the state of the stock markets, and currency and commodity markets can be useful, they can often mask trends.

Therefore, every week (when I remember) I will publish here the change from Friday close to Friday close of the following: FTSE, DOW, $/£ rate, €/£ rate, Oil price, Gold price (using offical $ rates and unofficial translations into £ and €).

FTSE: up 56 points or 1.46%
DOW: up 497.8 points or 6.84%
£: down 1.39 US cents or 0.96%
£: up 1.19 Euro cents or 1.12%
Oil: up 11 US cents, 42 pence or 88 Euro cents
Gold: down $30, £14.55 or €7.81

My view: FTSE flat, DOW up (mostly thakns to $1.2tn toxic asset purchase scheme) are both news of increased optimism on the markets. The falling £ is a bad sign (as I think economic recovery globally would lead to a recovery of the £) - but having said that, the € fell by more, which might imply great market confidence in the US recovery plans.

Oil rising and gold falling are both signs of increased optimism.

F1 - again

To anyone who reads this purely for the Economics... this isn't for you.

Firstly, the grid (with estimated pit lap in brackets):

Front row: Button (20) Barrichello (21)
2nd row: Vettel (18) Kubica (15)
3rd row: Rosberg (18) Massa* (17)
4th row: Raikkonen* (18) Webber (20)
5th row: Heidfeld* (31) Alonso* (27)
6th row: Nakajima (27) Kovaleinen* (31)
7th row: Buemi (25) Piquet* (32)
8th row: Fisichella (30) Sutil (28)
9th row: Bourdais (20) Hamilton*(17) - Hamiton given 5 place penalty for changing gearbox
Back row: Glock (23) Trulli (19) - Toyota cars' times deleted for use of "flexible" rear wings.

*KERS-using cars. Should have an advantage off the line, we'll find out tomorrow how much.

My updated predictions:
Win - Barrichello
2nd - Button
3rd - Kubica
4th - Raikkonen
5th - Heidfeld
6th - Alonso
7th - Vettel
8th - Nakajima

Again, this assumes some failures to finish. Also, it utilises vast amounts of "wishful thinking" - will Rubens ACTUALLY be able to overtake Jenson? Who knows.

The future of newspapers?

Via the Slate, here's an article about the costs of printing newspapers, against the costs of the new Amazon Kindle.

The numbers:
According to the Times's Q308 10-Q, the company spends $63 million per quarter
on raw materials and $148 million on wages and benefits. We've heard the wages
and benefits for just the newsroom are about $200 million per year.After
multiplying the quarterly costs by four and subtracting that $200 million out, a
rough estimate for the Times's delivery costs would be $644 million per year.The
Kindle retails for $359. In a recent open letter, Times spokesperson Catherine
Mathis wrote: "We have 830,000 loyal readers who have subscribed to The New York
Times for more than two years." Multiply those numbers together and you get $297
million -- a little less than half as much as $644 million.And here's the thing:
a source with knowledge of the real numbers tells us we're so low in our
estimate of the Times's printing costs that we're not even in the ballpark.

If those figures grossly understate the difference, what future do newspapers have?

Worrying development

The Economist's Lexington columnist, on his blog, has brought to my attention a potentially destructive proposal at the UN.
The idea is to prohibit the "defamation" of religions, specifically of Islam. The article that Lexington quotes from goes on to mention

Such is the domination of the UN HRC by Islamic states, backed by non-democratic
members including Russia and Cuba, that the human rights agency UN Watch
believes the "adoption of the regressive resolution is a foregone conclusion".

If this were to pass, is there some way I could leave the UN? Stop the world, I want to get off.

Friday, 27 March 2009

Australian GP

I'm officially excited about this race. Found out that the BBC website shows repeats of the practise sessions, so I can ├╝ber-geekily watch everything. is the link for the first session (don't ask me how long it will stay live).

I promised further predictions after Friday practise, so here they are:

Win - Rubens Barrichello
2nd - Nico Rosberg
3rd - Timo Glock
4th - Jenson Button
5th - Fernando Alonso
6th - Kimi Raikkonen
7th - Kazuki Nakajima
8th - Lewis Hamilton

This assumes about a dozen people finishing, something going mildly wrong for Jenson and fairly majorly wrong for Kazuki.

Thursday, 26 March 2009

Shameless plug

My friends at Fun In The Sunglasses would like to promote their Porsche collection. So, if you are looking for high quality designer sunglasses from a very well respected brand, with prices between £120 and £1250 (actually there's only one frame over £225, but still, it is 18ct gold, so I will mention it), please visit the Porsche page at

Australian GP prediction #1

Before Friday practise, I will here predict the points positions. I intend to publish another set before qualifying (ie tomorrow) and YET another before the race. I also fully expect none of them to be right.

Win - Rubens Barrichello
2nd - Felipe Massa
3rd - Jenson Button
4th - Nick Heidfeld
5th - Fernando Alonso
6th - Lewis Hamilton
7th - Mark Webber
8th - Sebastien Buemi

These assume about 8-10 finishers, and a super-quick Brawn car. Tomorrow's predictions will overreact to testing form, whilst Saturday's will forget about reliability issues, most likely.

Wednesday, 25 March 2009

Why are AIG workers quitting?

For those who are angry at those earning "excessive" amounts at nationalised companies, I suggest reading the following resignation letter, from an AIG employee, published (here: in today's New York Times:

I am proud of everything I have done for the commodity and equity divisions
of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit
default swap transactions that have hamstrung A.I.G. Nor were more than a
handful of the 400 current employees of A.I.G.-F.P. Most of those responsible
have left the company and have conspicuously escaped the public outrage.

I suggest reading the whole letter, which puts clearly the point of view of those who feel betrayed by the lack of defence the bosses of these firms are offering.

I must say that it is still easy for him to say, given that he can afford to "give up" $700k. But I still believe such views should be widely heard.

F1 2009 Predictions

Planet f1 have three pages of predictions, whose questions I'll attempt to answer. Firstly:,18954,3265_5098087,00.html
Ferrari: Massa to beat Raikkonen*
McLaren: Hamilton to beat Kovaleinen
BMW: Heidfeld to beat Kubica*^
Toyota: Glock to beat Trulli*^
Red Bull: Vettel to beat Webber
Brawn: Barrichello to beat Button*
Williams: Nakajima to beat Rosberg*^
Renault: Alonso to beat Piquet jnr
Toro Rosso: Buemi to beat Bourdais
Force India: Sutil to beat Fisichella
*disagree with PF1, ^would reverse 2008 result.

Secondly (and thirdly) some more general predictions:,18954,3265_5093910,00.html
Drivers Champion: Barrichello (agreeing with 0/5)
Constructors: Brawn (0)
Button v Hamilton: Button (1)
Melbourne pole: Button (2)
First retirement at Melbourne: Kubica in a first corner accident (0)
Biggest scandal: something related to the collapse of FOTA (0)
Raikkonen v Massa: Massa (2)
Was Brawn's testing pace real?: Yes (3 and 2 kind ofs)
Toyota's breakthrough year?: No (2),18954,3265_5097878,00.html
Points for Force India? Yes (4)
Where will Hamilton first see stewards? Bahrain (0)
Max Mosley re-elected? Yes (Mugabe is more likely to step down willingly) (3)
GP to be axed: Hungary (crisis hits) (1)
Kubica v Heidfeld: Heidfeld (0 - they are VERY dismissive of Heidfeld, who beat Kubica in 2007)
Disappointment of the year? Brawn falling away mid season (0)
Month of Alonso-Ferrari rumours: May (0)
End of Rubens or Giancarlo? Giancarlo yes, Rubens no. (2)
Surprise: Piquet taking fight to Fernando, albeit in midfield
Mistake: Throwing away second place trying to sneak past at the chicane in Monaco (dunno who, but they'll lose a front wing).

If I remember, I'll come back to this page come November. Remind me, if I forget!

Tuesday, 24 March 2009

Did the Kinks predict this mess?

Well, clearly, no. But I was listening to some of their music today, and it reminded me of current news. 20th century man (particularly the middle of it) reminded me of complaints over civil liberties.
The Money Go Round explains in greater detail than a Robert Peston blog how credit derivatives work.
Low budget would be another song to remind of the shift away from M&S towards Aldi and Lidl (and of course, the demise of Woolworths)


Some thoughts on change over the last couple of years.

"Black guy asks nation for change" -
"Formula One teams reject scoring system as FIA performs dramatic U-turn"
"Facebook's redesign: Time to listen to users?"

My personal views on the 3 examples:
1- Almost anyone would have been better than George W. Bush, but I do like Obama, particularly the grandiose way he speaks in public.
2- I know I'll still watch F1 regardless of the rules. I've grown accustomed over the winter to the site of new wings etc. The scoring system isn't the one I'd choose, but then again nor is its replacement. Personally I'd vote for a points system, with 12-8-6-5-4-3-2-1 points available for the top 8 places. But I don't feel that my view carries much weight, and accept that it needn't (as I said, I'd watch anyway, they don't need to draw in my attention).
3- I've not liked any of the major Fb redesigns over the past 2 years. In fact, the Facebook profile of Facebook itself includes photos of previous homepages, and I preferred the oldest, followed by the next oldest, etc whilst my least favourite is the current incarnation. I disliked and dislike the previous incarnation, but find it much better than the new one. I even posted a note expressing similar sentiments in 2006, after (yet) another major change.

Responses to change:
Emotional attachment to the familiar - quite reasonable, particularly if things work well. Can be caricatured as "if it ain't broke, don't fix it" or as being anti-innovative. My view is that innovation is better focused on things that don't work, or are causing harm (eg banking and energy sectors).
Novelty value - The phrase "all that glistens is not gold" or derivations thereupon predate Shakespeare and Cervantes. This source ( indicates that it predates even Chaucer. There is, however, a natural curiosity in most people, such that change can attract interest. I believe that is the principle behind the last 6 years' worth of rule changes in formula 1 and also in the success of Obama in defeating Clinton for the Democratic nomination (thereafter his election was fait accompli, or close to it, in my view). One should be wary, however, as the phrase indicates, since not everything that intrigues is worthy of attention.

I'll end with my advice on the 2nd and 3rd examples (Nation already having welcomed "black guy's" call for change). Formula 1 should stop changing its rules every year. Wins should be more greatly rewarded relative to 2nd and 3rd places than they currently are, but not in the manner currently scheduled for 2010. Fighting for lower places is intriguing, too - especially when it involves a title challenger who is out of position for whatever reason (poor qualifying, poor pitstop, accident at first corner, etc)

Facebook should not stop changing, but should take note of the detail of people's complaints. I, for instance dislike that you can hardly see new friend requests and event invitations and their equivalents in the way pages are currently displayed, however I do support the availability of applications - they are a wonderful way of being able to pre-judge people's intelligence - the more they have, and the more trivial they are, the less intelligent the individual. Like all prejusice this is only correct in some cases, but is something people should consider before asking me which character from Friends I am most like.

Monday, 23 March 2009

Fundamental problems

Axiom 1: Never depend on someone who won't be able (or willing) to help you out in a crisis.
Axiom 2: Fool me once, shame on you. Fool me twice, shame on me.
Axiom 3: There is no such thing as a free lunch.

These clearly aren't all simultaneously true axioms (held as self-evident) as people believed that they could get a free lunch (house prices continuing to rise inexorably) or that if they failed, that someone would be able to help them out (AIG, perhaps?) Finally, the government bailout of banks (some of them are asking for a third dose) which doesn't require change in management (or even fundamental strategy).

Markets, over 20 year cycles certainly can get fooled again (credit crunch, dot-com, LTCM, etc all valued products above any rational analysis).

Some people are now questioning the ability even of governments to pay up. Ultimately, sovereign bonds (loans to countries of various durations) are the safest loans you can make. They even offer "index-linked" loans, so that you can guarantee your final payment in current prices (as the face value of the bond increases with inflation).

If people are now doubting the ability of the USA to pay its debt, then who can you trust? CDS (credit-default swaps) on US bonds currently charge 16 basis points (1.6%, which "usually" is typical of a company, not THE most trusted borrower in the world, ever). Who is buying these products? If the US defaults, do they seriously expect to be bailed out for the fact that their counterparty (the guy/firm/crook) who sold them the insurance (for that is what a CDS is, although it needn't be tied to possession of an asset at risk) to be able to pay out?! Would the dollars they receive be worth anything in a situation as bleak as one in which the US government reneged on its promises to pay? No. So, why buy them? Answers on a postcard (or carrier pigeon, if the postal service collapsed, too).

Dominic on bonuses

Another imported Facebook note, also written in early February. I only wrote two of the planned "mini-blog" notes, which augurs badly for this actual blog, but hey, here it is.

Sorry, another note that fails to include 25 things about me. I'm sure you're all/both devastated. Anyhoo, I'm now going to unleash the second of my "a few" notes in this series. Topic, as in the title is bonuses.

Why bonuses?
Simple, they've been in the news lately.
Bonuses, in my view are a valid tool for persuading people to do their job properly. Not in all situations, but certainly in some. Ultimately, in many jobs, once you're in there's little making you work hard, except the hope of promotion or the desire for a good reference. From an employer's point of view, neither is a great way of making a large workforce work hard. Promotion can only be offered to so many people, and references are what you give to employees who have just left. This is why they offer performance-related pay.

How should they be?
Well, in a situation where your job has a very simple "success" measure (sport: winning trophies, most businesses: making money) then a logical pay scheme would offer you enough money to get by, plus a (hopefully) generous bonus for the profits you bring into the company. So far, so good. The trouble is, that company profits aren't straightforwardly £1 per transaction or £1m per transaction. They take into account costs for which an individual employee isn't responsible. Also, some work is more profitable than others and so forth. Also, not all companies make profits, even if some of their departments do. How do you even define the profits generated by the accounts department?
Therefore, some companies offer bonuses based on the firms performance, whilst others do so more on the basis of individual results. The first case is barely an improvement on basic pay (it has the advantage of being cheaper when times are tough). The latter case will encourage departments to be as profitable as possible (but perhaps at the expense of others). This is where the current situation comes in.

Current situation:
About a month ago, Northern Rock hit the headlines (again) when it offered staff approximately £9m in bonuses. This caused outrage, given the huge debt the bank owes to HM Treasury. It amounted, however, to about 10% of annual earnings for most staff, well down on the 60% that might have been available, according to documents in the public domain 4 months ago. The bonuses were paid because staff were exceding expectations in repaying the debt (allegedly by foreclosing on record numbers of houses, more on that in a minute) and so were rewarded for doing their job well.
Northern Rock famously had a bad set of loans on its books when it was nationalised, so it is only natural that many properties were due for foreclosure. I'm willing to believe that the bank was foreclosing on a lower proportion than usual of "underperforming" loans. Even in the current crisis, debt is debt, and must be paid. Eventually, and to someone.RBS has now raised further ire by offering its (much larger) staff up to £1bn in bonuses. In some cases, its staff are contracted to "minimum 100% bonus" - this I don't understand (why not just increase basic pay?) In other cases, its staff work in highly profitable departments (RBS is a VERY large firm) and in some cases, well, expectations must be met.
Basically, I feel that only some of these can be justified, but even those that can, shouldn't receive their bonus. Ultimately, if the best footballer played for a poor team, they wouldn't win, he wouldn't get his bonus. The team (RBS now, metaphor almost over) is failing, don't give the stars their bonuses.
Having said that, about 100,000 to 150,000 of the 177,000 staff son't actually earn all that much, and who am I to begrudge them an extra £1000 to £3000. An unemployed person, dammit, so begrudge them I shall.

Moral of the story:
Signing contracts you can't fulfill is idiotic. Gettting paid to lose money sounds like a nice job, if you can get it. And, if you get it - won't you tell me how?

Sunday, 22 March 2009

Dominic on Economics

Another note imported from Facebook. Written in early February.

I'll probably be writing a few of these over the next week or two, and they'll probably be about as interesting as each other (ie yes to me, and maybe to some of you). In other words, a blog-lite.

Anyhoo, what with economic crisis affecting much of the world (and providing my first retort to "why are you unemployed") the profession/science/study/field of economics has come under some criticism.

1) Why wasn't the crisis predicted?
Well, it was. There's an old line, that economists have predicted 87 out of the last 5 recessions. This is inevitable in any field of prediction: I personally like to compare it to meteorology. After all, we've had snow predicted for us many times and it doesn't always end up happening. Also, the 1- or 2- day forecasts are usually accurate, whilst the 10-day forecast is only a little better than saying it'll be the same as today's weather forever. In economics, the predictions go slightly longer, but are just as reliable. Not long ago, the predictions for 2009 indicated solid growth. Now they predict a long recession. 2008 was worse than predicted, some years end up better.

2) Internecine fighting.
Forgive me, I wanted to use a long word. Many economists have been suggesting a large "stimulus" package to boost demand across the economy. Others say that the resulting debt will cause more uncertainty and undermine the effort, rendering the stimulus impotent. Unfortunately, media organisations feel the need to report both sides of disagreements (global warming, anyone?) so those advocating little action, or criticising actions are given much media spotlight, regardless of the merits of their case.
Of course, that is not to say that I am in complete support of every action undertaken by the UK (and US, German, French, Japanese, etc.) government(s). However, the question: "was this the right thing to do?" is a tough one to answer. Firstly, as time goes by, more information is uncovered about quite how bad the situation is. Secondly, the counterfactual "what if we hadn't done it?" can never be shown. Imagine, if you choose, that the government had (as suggested by Vince Cable of the Liberal Democrats) nationalised Northern Rock at the first sign of customers queuing outside the building. This would have shown decisiveness, and might have helped. But ultimately, that can never be proven.

3) Economics is not a proper science.
This last point is important to consider when evaluating economics' claim to be a science. No double blind test can responsibly be run on any macroeconomic question*. Microeconomic questions can be studied, using techniques from psychology and so called "natural experiments". Policies can be partially implemented, trialled in certain regions, and the effects of the policy can be controlled against the area or group who felt none of the effects of the policy.
For how to deal with an economic crisis worse than anything in the past 75 years (at latest estimate) how can anyone expect a double-blind proven response? The study of rare medical conditions is probably an appropriate simile here. There are only so many countries, and so many recessions. In all cases, the causes of recession are different (even if similar - high commodity prices, collapse of an industry, war, famine, hyperinflation can happen too).
Ultimately, nobody knows what will happen next, nor do they know the consequences of certain policies in a situation where most banks are crippled by bad debts and Knightian uncertainty (Donald Runsfeld's unknown unknowns). However, some people are in a better positon than others to make "best guesses". These are the experts, the Nobel-prize winners, the professors of economics at the top universities and the chief economists/economic advisors of major organisations (OECD, governments, UN, World Bank, IMF, etc).
Their opinion should be given a stronger weight than that of generic backbench opposition MP. Not the other way around.

4. Study it at university?
I did. Which is why this note reads as it does (I've tried to avoid jargon, and probably failed) and probably why it is being written at all.
I thoroughly recommend it to anyone with the vaguest interest. The current crisis doesn't render all that has ever been learned before meaningless. It does, however offer a chance for more to be learned (and revisited - Keynes et al).
However, having studied it hasn't helped me as much as some other subjects might. Such is life. Given the information I had at the time, I made the right decision. However, I won't† study a Masters. This is because I think a specific professional qualification would be more useful to me now.

Final thoughts:
Like I said, the subject has come under attack of late. That is to be expected (Biology would come under similar attack if millions were mutating, instead of becoming unemployed). Bringers of bad news are seldom welcome, so those predicting disaster aren't usually welcomed (the phrase "don't shoot the messenger" exists for a reason). Discussion and debate are common in any field of study (especially in those so immature as economcs) but these facts do not render the answers brought forth worthless.

As I said at the beginning, there will probably be several of these, addressing fields vaguely related to my "expertise". Read at own risk, no responsibility is claimed for your wasted time, if you so feel. Correspondence will, however, be entered into, so feel free to comment.

* That I can think of, off the top of my head.


This was originally written as a "Note" on Facebook, but I'll republish it here.

Originally written: 06 January 2009 at 22:02 10 things over which I have no significant control, that I believe will happen in 2009.
Sport: 1-Ernests Gulbis to reach year end ATP top 10 (current rank: 53)
2-Lance Armstrong's return to fail (he will not win any of the 3 grand tours, to be specific)
3-16 cars to compete in Abu Dhabi GP 2009 (1st November).

Economy: 4-Bank of England base rate to drop as low as 0.5% (or lower) at some point.
5-£/€ exchange rate to return to €1.20 per £1 (this relies on ECB rates also dropping).
6-DFS to go into administration (an end to those adverts, we can only hope)

Politics: 7-Labour to achieve poll lead (briefly, but recorded by at least 2 different polling organisations)
8-All 3 party leaders (Brown, Cameron, Clegg) to remain in power until 31 December, at least.
9-Italian government to fall.

Other: 10-Weirdo to win Big Brother (okay, so I'm cheating a little on this one...)

If more than 7 are right, I've done well (fewer than 3, badly) methinks....Any alternative predictions?

22/03: Progress report:
1 - Current rank 43. Might make top 20, but top 10 looks unlikely.
2 - He's doing well so far, but it is still quite an ask for him to win a Grand Tour.
3 - Honda were resucitated as Brawn GP, FIA has brought in rules to further cut costs. This won't happen*.
4 - Has happened (1/10)
5 - Currently around 1.06, was as high as 1.148 in early February. Won't rule it out, yet.
6 - Still exists, sadly. Their adverts still grate.
7 - Umm, looks pretty unlikely.
8 - So far, so good. There has been some jockeying for Brown's job, but he still looks fairly secure.
9 - Not happened yet, more's the pity.
10 - I later clarified that this meant the non-Celeb version, which hasn't happened yet.

So, after nearly a quarter of the year, 1 has happened, none are IMPOSSIBLE but 2 look very unlikely and another couple look unlikely. Still think I can beat 3.

End of bulls and bears?

Perhaps we can call these "elephant" markets....

5 year FTSE:^ftse;range=5y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

5 year DAX:^gdaxi;range=5y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined