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StandUp Economist: 10 Principles of Macro-Economics

Wednesday, February 28, 2007 | 05:42 PM

Mankiw's 10 principles of economics, translated for the uninitiated. Presented at the AAAS humor session, February 16, 2007.

Transcript and additional details can be found here.

Print version:

Mankiw’s Principles

#1. People face tradeoffs.
#2. The cost of something is what you give up to get it.
#3. Rational people think at the margin.
#4. People respond to incentives.
#5. Trade can make everyone better off.
#6. Markets are usually a good way to organize economic activity.
#7. Governments can sometimes improve market outcomes.
#8. A country’s standard of living depends on its ability to produce goods and services.
#9. Prices rise when the government prints too much money.
#10. Society faces a short-run tradeoff between inflation and unemployment.



#1. Choices are bad.
#2. Choices are really bad.
#3. People are stupid.
#4. People aren’t that stupid.
#5. Trade can make everyone worse off.
#6. Governments are stupid.
#7. Governments aren’t that stupid.
#8. Blah blah blah.
#9. Blah blah blah.
#10. Blah blah blah.


via Stand Up Economist

Wednesday, February 28, 2007 | 05:42 PM | Permalink | Comments (9) | TrackBack (2)
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Market Events & the Blogosphere

Wednesday, February 28, 2007 | 09:10 AM

I'm heading into the office, so I won't get to GDP until later today. I wanted to get to a comment in a post last night that asked "How big was spike in site traffic today?"

That's a fascinating question, and it raises all sorts of interesting issues: What is the role of blogs in reporting/commenting on fast breaking news events, what does this mean for the role of the mainstream media, is this a significant realignment, etc.

To answer the initial question: Traffic went up about 80% as compared to our typical weekday, and up about 50% relative to the past 5 weekdays. Between 15-20k individuals swing by here most work days, and these folks view about 25k pages. Yesterday, about 31k people came buy and looked at almost 46,000 pages. (You can play with the various ways of depicting stats over at sitemeter).

Weekly Unique Visitors and Page Views


Monthly Unique Visitors and Page Views


As far as the MSM is concerned, there are numerous ways to intepret this. On the one hand, many readers rely on blogs as a filter for the MSM: I don't buy into the argument that blogs make the media redundant; My sense is that many readers think: Show me what I need to see, and save me the time of sifting thru 100s of other sources. A post like this morn's Around the World in 24 Hours is just that sort of overview. For many news consumers, media is important, with blogs acting as a filter/redirector.   

Yet at the same time, most of the generation born after the 1987  crash doesn't like to get ink on their hands. They get nearly all of their news from the web, and almost never touch a physical paper.

I don't reach any major conclusions on this, other than noting the MSM needs to stay interactive to remain relevant to its future consumers. Media is clearly in a period of transition, and how they handle it will determine how relevant -- and profitable -- they will be in the future . . .   


UPDATE: February 28, 2007 10:29am

Most of the market related blogs are reporting a 50% in traffic yesterday, with several noting all time page view highs  . . .

Wednesday, February 28, 2007 | 09:10 AM | Permalink | Comments (18) | TrackBack (1)
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Around the World in 24 Hours

Wednesday, February 28, 2007 | 04:48 AM

Three interesting follow ups to Tuesday's messy trading: 

First off, computer errors didn't cause the sell off -- they only delayed the reporting of the trades.

If anything, these delays made the sell off look more orderly than it really was. Contrary to what you may have read elsewhere, the glitch only made the selloff look more mild (orderly and less severe) until it turned more wild as the delays spooled out and unwound. I have seen several early news reports and comments that got this exactly ass backwards.

Anyone who will uses this as a false excuse for Tuesday is a weasel.

The graphic below does a very good job explaining the situation:


Chart courtesy of WSJ


Secondly -- and this is more along the lines of our earlier "Don't Blame China" discussion, go check out the interactive map at the WSJ (its free).

Scroll over any country, and you get their Bourse performance for Feb 27th.

click for interactive global bourse map

Map courtesy of WSJ

If China was the root cause, why was most of the Pacific Rim down so mildly?

Malaysia and Singapore got tagged pretty good, but the rest of Asia was off between 0.5% and 1.5%. Korea and Japan, arguably the most important countries economical in the region with China, were down mildly.

If China was to blame, why then such a mild response in her own backyard? Here are the closing numbers for 2/27, with China down 8.8%:

Australia -0.74%
Hong Kong -1.76%
India -1.25%
Indonesia -1.12%
Japan -0.52%
Malaysia -3.09%
Pakistan -0.14%
Philippines -1.44%
Singapore -2.29%
S.Korea -1.05%
Sri Lanka -0.53%
Taiwan 0.02%
Thailand  -0.69%

Note that the European countries were down much worse than Asia -- particularly after the US economic data was released.  Most European Bourses opend down 1% to 2%, and then saw their selling accelerate after 8:30 US time.

Lastly, note that Japan opened down 700 points on 2.28.07. Did it take them 24 hours to figure out what happened in China, or might it have been intervening events?

click for live Nikkei chart

Map courtesy of Yahoo!

Lastly, check out the Asian markets as of 2/28/07. As of late last night, they were pretty ugly

click for updated prices:
Table courtesy of WSJ


After a Rough Morning, A Data Backup Jolts The Blue-Chip Average
WSJ, February 28, 2007

Markets' Slide Spotlights Risks
Chinese Shares Tumble, And Investors Reassess
U.S. Economic Outlook Fleeing to Safe Treasurys
E.S. BROWNING and CRAIG KARMIN in New York, and JAMES T. AREDDY in Shanghai
WSJ, February 28, 2007

Stocks Slide World-Wide
Global Map
WSJ, February 27, 2007

Yahoo! Finance, Feb 27, 2007 10:58pm EST 

Wednesday, February 28, 2007 | 04:48 AM | Permalink | Comments (24) | TrackBack (1)
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Technorati Profile

Wednesday, February 28, 2007 | 12:06 AM

Technorati Profile

Wednesday, February 28, 2007 | 12:06 AM | Permalink | Comments (2) | TrackBack (0)
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Media Appearance: Kudlow & Company (2/27/07)

Tuesday, February 27, 2007 | 04:15 PM
in Media



Back in the studio tonite, at 5:00 - 5:45pm

The topics will include China, the global sell off, and the US market correction, the soon to be revised downwards GDP, and Q4 earnings.

The full show is on the Markets, and include a stellar collection of panelists: Herb Greenberg, Arthur Laffer, John Rutledge, Quentin Hardy, Robert Hormats, Lakshman Achuthan, Gary Shilling.

When I saw the futures this AM, I tagged the producer -- something I never do -- and said I've been Larry's whipping boy everytime there is a 100 point rally. Howabout some payback?

We will be going over some of the details of this.

UPDATE: February 27, 2007 10:59pm

Kudlow starts the show with the famous J.P. Morgan quote: Prices will fluctuate. I respond that we haven't seen much volatility, and prices have only moved in one direction for the past 8 months.

Larry corrects me, emphasizing the word "fluctuate." 

My response:

"We got fluctuated pretty good today,"  thus ending my TV career . . .

Tuesday, February 27, 2007 | 04:15 PM | Permalink | Comments (54) | TrackBack (0)
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Its not China, its the Economy (Stupid!)

Tuesday, February 27, 2007 | 03:30 PM

NOTE:  This Market Commentary alert was originally emailed to subscribers at Ritholtz Research & Analytics on Tues 2/27/2007 11:15 am;

This is posted here not as investing advice, but rather as an example of a trading call for potential subscribers. We expect to post future advisories in a similar manner -- after the call, but in the correct chronological location on the blog.


The consensus seems to be that "pressures by a big drop in the Chinese stock market" is behind today's market plunge. The Shanghai's Composite Index plummeted 9%, widely described as the "biggest decline in a decade." 

Getting the blame? "Efforts by investors to cash in on big gains and avoid any government attempts to cool the markets." As a reminder, the Fed did not attempt to do the same in 1999 / 2000.

Now, why the drop in China's benchmark stock index on fears of increased margin requirements should impact the US or Europe is food for thought. 

Quite frankly, I don't believe its that.

What's more likely is the growing recognition that inflation remains "worrisome," that growth is slowing, and that the sub-prime mortgage housing  debacle will no longer remained "contained."

The market is fortunate that sentiment levels are only frothy, and not completely exuberant. Also potentially containing this pullback: The support levels for the Nasdaq 100 remain steady.

Two recent research pieces discuss these elements in detail: Our Sentiment Review, and the most recent update of the Nasdaq 100 Composite.

Both research pieces can be found at the site here.


Source: WSJ

UPDATE: February 27, 2007 12:30pm

Consider the following headlines, dominated by today's news:

Freddie Mac to Tighten Subprime Rules -- (2.27)

See also: Video: Freddie Mac chairman and CEO Richard Syron discusses new subprime mortgage standards, which will be implemented September 2007.

Orders for Durable Goods Tumble  (2.27)
A key barometer of business-equipment spending -- orders for nondefense capital goods excluding aircraft -- fell by 6.0%, after increasing 3.6% in December.

No Worries: Banks Keeping Less Money in Reserve (2.27)
Every Dollar Set Aside Can Cut Into Profits

Subprime Game's Reckoning Day (2.27)
Risky Lending Fallout Threatens to Spread;
Uncertain ARM Strength

Home Lenders Cut the Flow of Risky Loans (2.26)
Default Fears Drain Subprime Pool, Adding To Pressures on Prices 

Mortgage Hot Potatoes (2.15)
Banks Try to Return High-Risk Loans To the Originators

Default Jitters Batter Shares of Home Lenders (2.9)
Risky Mortgages Spark Concerns, Uncertainty About Fallout on Bonds


If you want to believe that some bureaucrat in China changing the margin requirements for local speculators as the cause of the US selloff, then go ahead.

Me? I prefer to believe what is right before my eyes: Decaying economic fundamentals, a complacent market that is overbought and way overdue for a correction. Add to that the single biggest positive contributor to the economy over the past 4 years – Housing – showing no signs of being anywhere near a bottom. A few more jiggles on the screen, and we there will be significant technical deterioration.

China? Yeah, I guess its China . . .

Tuesday, February 27, 2007 | 03:30 PM | Permalink | Comments (44) | TrackBack (1)
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NYSE Collars Triggered

Tuesday, February 27, 2007 | 01:50 PM

The move down through 180 points on the NYA (NYSE Comp) triggered the trading collars fro the first time in I don't know how long.

Here's the NYSE's infographic on the Circuit Breakers:


OK, trivia time:  When was the last time these were triggered?


UPDATE February 27, 2007 2:58pm

A retail broker with a tendency to panic just sent this to our office.

Play Sound.mpg

(I don't know him well enough to say whether or not this is a contrary indicator).

Tuesday, February 27, 2007 | 01:50 PM | Permalink | Comments (20) | TrackBack (0)
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Fear and Greed In Markets

Tuesday, February 27, 2007 | 09:10 AM

We have mentioned the astute work of James Montier previously, and suggested his Fear & Greed index should replace Citibank's silly Euphoria measure in Barron's Trader column.

Montier is a research analyst at Dresdner Kleinwort in London, and is the author of Behavioural Finance: A User's Guide. There is a good biographical sketch of Montier as an iconoclast/maverick here.

Recently, his F&G Index hit an all-time high. This was noted as yet more evidence that ” investors’ euphoria is truly out of control.” Of course, he wryly adds, “this warning is likely to be about as effective as yelling ‘cliff-edge’ to a herd of thundering lemmings.”



Marketbeat noted a few details of this sentiment index:

"The F&G index, compiled by Dresdner Kleinwort, is a risk-adjusted price momentum measure comparing global equities (as gauged by the MSCI World Index) to global bonds (represented by J.P. Morgan Chase’s index). The gauge has typically traded between +1 and -2 since its inception in 1986 — but was as low as -3 just four years ago, a sign that “the end of the world is nigh,” and therefore a time to buy stocks and sell bonds. But as the market has turned upward in recent years, the index has shot up above +2 into the “irrational exuberance” area, a sign to sell equities and buy bonds. 

Still, he suggests that “the prudent investor should be shipping out beta and junk, and buying quality defensives.” Even better, Mr. Montier says, “holding cash seems like a good idea,” noting that U.S. mutual funds currently have a mere 3% to 4% in cash. To paraphrase Warren Buffett, he says, “holding cash is painful, but not as painful as doing something stupid.”

Note that this tends to be an early warning system, and is not a precise (hours, days) timing measure. Think of it as a 90 day warning of trouble potenitally heading your way.



Fear and Greed In Markets
David Gaffen
WSJ, February 22, 2007, 3:26 pm

Tuesday, February 27, 2007 | 09:10 AM | Permalink | Comments (20) | TrackBack (0)
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Asian Markets' Closing Prices

Tuesday, February 27, 2007 | 06:49 AM

China's main stock market is under pressure this morning; We should expect some spillover across Asian Markets, Europe and the US.

The WSJ observed:

"Shanghai's benchmark stock index plunged nearly 9% on Tuesday, its biggest drop in more than 10 years, as investors unloaded shares to lock in profits after recent gains. Asian-Pacific markets ended mostly lower.

The Shanghai Composite Index tumbled 8.8% to close at 2771.79, its biggest single-day decline since it fell 9.4% on Feb. 18, 1997, just after the death of Communist Party elder Deng Xiaoping. The Shanghai index had gained 1.4% on Monday to 3040.60, extending a spate of record high closes."

Here are the closing prices throughout most of Asia and the Pacific Rim:

Australia 5977.60-44.30-0.74%
Hong Kong 20147.87-360.08-1.76%
India 13478.83-170.69-1.25%
Indonesia 1764.01-19.94-1.12%
Japan 18119.92-95.43-0.52%
Malaysia 234.67-7.48-3.09%
Pakistan 11378.02-15.67-0.14%
Philippines 3331.29-48.71-1.44%
Singapore 3232.02-75.90-2.29%
S.Korea 1454.60-15.43-1.05%
Sri Lanka 2996.49-15.83-0.53%
Taiwan 7901.961.760.02%
Thailand 683.95-4.75-0.69%
Sources: Dow Jones, Reuters

China's Market Slides Nearly 9%;
Regional Indexes End Mostly Lower

WSJ, February 27, 2007 5:52 a.m.

Tuesday, February 27, 2007 | 06:49 AM | Permalink | Comments (18) | TrackBack (1)
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GM Chrysler Deal

Monday, February 26, 2007 | 05:28 PM

This sums up my feelings on the proposed deal precisely:


Daryl Cagle via Welling@Weedon

Monday, February 26, 2007 | 05:28 PM | Permalink | Comments (10) | TrackBack (0)
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