About this blog

Whether we like it or not, economics, and therefore money, is at the center of our lives. Much of what is seen and heard through the news is grim, at best. What does it all mean? How could this happen to the Greatest Country on earth? Weren't we taught that the "free market" could do no wrong, and that it could right itself? At times it appears that policy makers and citizens alike only talk about the economy when the apparent armageddon is near (hence the "contempt" in Econ-Tempt). While I am by no means a professional economist, hopefully I can help clear the air and encourage continued discussion about the role of the government, the free market, risk allocation, and the average citizen in today's increasingly confusing economic climate. Thank you for your support, and enjoy!

Disclosure: I wrote this blog and all posts myself (unless otherwise notated with hyperlinks/sources). All opinions are solely my own and not representative of my employer. I am not receiving any compensation for these entries, and I have no business relationship with any company or entity mentioned in this blog unless otherwise notated in a specific post. Personal portfolio disclosures will be made in blog posts if relevant.

Thursday, January 16, 2014

[World Economic Forum] Top 10 Risks for the Decade Ahead

Here are the top 10 risks for the decade ahead as outlined by this year's World Economic Forum Global Risks report.

"Here is a list of the top 10 global risks of highest concern in 2014, according to the report:

1. Fiscal crises in key economies

Fiscal crises feature as the top risk in this year’s Global Risks report. Advanced economies remain in danger, while many emerging markets have seen credit growth in recent years, which could fuel financial crises. A fiscal crisis in any major economy could easily have cascading global impacts.

2. Structurally high unemployment/underemployment

Unemployment appears second overall, as many people in both advanced and emerging economies struggle to find jobs. Young people are especially vulnerable – youth unemployment is as high as 50% in some countries and underemployment (with low-quality jobs) remains prevalent, especially in emerging and developing markets.

3. Water crises

Environmental risks feature prominently on this year’s list. Water crises, for instance, rank as the third highest concern, illustrating a continued and growing awareness of the global water crisis as a result of mismanagement and increased competition for already scarce water resources.

4. Severe income disparity

Closely associated in terms of societal risk, income disparity is also among the most worrying issues. Concerns have been raised about the squeezing effect the financial crisis had on the middle classes in developed economies, while globalization has brought about a polarization of incomes in emerging and developing economies.

5. Failure of climate change mitigation and adaptation

Even as governments and corporations are called upon to speed up greenhouse gas reduction, it is clear that the race is on not only to mitigate climate change but also to adapt. Failure to adapt has the biggest effect on the most vulnerable, especially those in least developed countries.

6. Greater incidence of extreme weather events (e.g. floods, storms, fires)

Climate change is the key driver of uncertain and changing weather patterns, causing an increased frequency of extreme weather events such as floods and droughts. The Global Risks 2014 report draws attention to the combined implications of these environmental risks on key development and security issues, such as food security and political and social instability, ranked 8th and 10th respectively.

7. Global governance failure

The risk of global governance failure, which lies at the heart of the risk map, was viewed by respondents as one of the risks that is most connected to others. Weak or inadequate global institutions, agreements or networks, combined with competing national and political interests, impede attempts to cooperate on addressing global risks.

8. Food crises

One of the top societal risks in the report, food crises occur when access to appropriate quantities and quality of food and nutrition becomes inadequate or unreliable. Food crises are strongly linked to the risk of climate change and related factors.

9. Failure of a major financial mechanism/institution

Over five years after the collapse of Lehman Brothers, the failure of a major financial mechanism or institution also features among the risks that respondents are most concerned about, as uncertainty about the quality of many banks’ assets remains.

10. Profound political and social instability


At number 10 is the risk that one or more systemically critical countries will experience significant erosion of trust and mutual obligations between states and citizens. This could lead to state collapse, internal violence, regional or global instability and, potentially, military conflict."

Source: http://forumblog.org/2014/01/top-10-risks-decade-ahead/

Monday, January 13, 2014

[The Economist] It's Back

This thoughtful article in The Economist on the apparent resurgence of securitization gives us the opportunity to think back and reflect. How did securitization hurt the markets and the macroeconomy? How can it help in the future (if used correctly)?

http://www.economist.com/news/leaders/21593457-once-cause-financial-worlds-problems-securitisation-now-part-solution-its 


Monday, January 6, 2014

Book Review: Liar's Poker, by Michael Lewis

I know I am behind the ball, but I just recently finished reading Michael Lewis's first book Liar's Poker. I have long been told it was a must-read first-hand account of what Wall Street felt like in the "good 'ol days" of the Milken-esque, high margin LBO, junk-bond fueled '80's. At it totally is.

First of all, I hope Lewis is no stranger to my roughly 3.1 million (HA) regular readers. With titles including (but not limited to) The Big Short and Moneyball, Lewis is (at worst) a fantastic gateway-drug into the larger world of finance and economics reads, and (at best) a staple of our literary diet. Unlike many financial writers, Lewis's work reads like that of an author interested in finance, rather than a quant trying to info-spam journal editors into publishing an incomprehensible paper, making even Lewis's most sincere and serious tomes feel like page-turning beach reads. Ok, that is a bit of an overstatement (or, understatement?), but the larger-than-life characters in his non-fiction certainly exhibit features of the best constructed literary protagonists.

Onto the actual book. As an aspiring bond-jammer myself...I mean, finance professional (did I just say that?)...it is nothing short of fascinating to read Lewis's first-hand account of his introduction, training, and professional exploits at the (then) formidable Salomon Brothers, first through the newly-created mortgage trading desk (that more-or-less invented the collateralization that led to our most recent recession), and later bond sales in London. While I sincerely hope much has changed in the business since 1986, I fear the sophomoric and fraternal nature of Salomon's associates observed by Lewis is still alive and well in the fast-paced, winner-take-all roulette wheel that is our modern capital markets. In the final chapters of the book, Lewis recounts being paid a quarter-million dollar bonus just months after the crash of 1987, and just two years out of training. Being the sharp guy he is, Lewis knew something was up; should people really be paid that way to do what they did? To jam paper and be the first one to the bank? Lewis even comments (paraphrased) if employee compensation was based on what he contributed to society, he should be fined not paid! Clearly an audacious claim that only an insider-turned-outsider could make.

Endlessly thought-provoking and entertaining, go grab a copy and enjoy!           

[Zero Hedge] Is Inflation Understated

As always from our friends at Zero Hedge, a thoughtful commentary on inflation from the perspective of macro fundamentals, rather than the "headline" (CPI) data.

[Zero Hedge] Is Inflation Understated?


Wednesday, November 27, 2013

Tech Stock Bubble a la '99 - '00? Not according to Forward P/E

With the NASDAQ recently hitting 4000, a number not seen since the year 2000, the tech bubble hoopla is again center stage. However, as it was so eloquently put on CNBC, there is more to the story. Looking at the NASDAQ's forward P/E ratio, we are nowhere near the exorbitant and unjustifiable multiples we saw during the last bubble:


As you can see, even looking at the low end of the Forward P/E range in '99 and '00 and the high end of this year, we are significantly below undisputed trouble. However, as I have said before, we cannot use any one metric alone to judge this complex market. Be that as it may, at least we are not judging the viability of tech companies by "eyeballs" anymore...

[Motley Fool] Be Careful With Forward P/E And PEG Ratios

http://beta.fool.com/thebargainbin/2013/03/05/be-careful-forward-pe-and-peg-ratios/26033/

[Zero Hedge] "Everyone Was Talking About A Stock Bubble... Just Before The Last Bubble Burst"

http://www.zerohedge.com/news/2013-11-27/everyone-was-talking-about-stock-bubble-just-last-bubble-burst