EUCOM Economic Analysis - Part I

[Firn]

Sorry for not doing much discussing recently, I had to enjoy my holidays.

Economic history makes for an interesting read. One has to keep in mind that the data is very very limited for most of our history and often biased for a certain bono. The growth we witnessed in Europe and in the US in the last hundred years was indeed a great ride. Last year I bought a neat volume on European Econhistory and read a little bit about our local area. It reminds one once again that the massively increased yields/productivity gains in agriculture are the basis of our current living standards.

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To be honest it is also a bit amused to read things like Europe: Burnt and abandoned when you too had a great ride in the stock markets. I did of course not match the DAX, as I had invested more broadly and bonds were a drag but it was a fine year indeed. While some companies did cut the dividends, sometimes completely, the earnings are still strong compared to the price in many instances. A very high ratio of 75% in stocks payed off also in asset growth while I personally invested more with an eye on dividends*. Of course one should not be fooled by success so I have to think if I have to adjust something. Sadly I could not balance away a high percentage of the capital gains by selling stocks at a loss so I will have to do an additional contribution on the budget front.

*For the reasons posted a couple a times in this thread I did not buy a single fresh bond in the last two years. Dividends of good companies have been beating them handily for a couple of years now. This can and will of course change!

[Surferbeetle]

Firn,

No worries on time, the conversation is good and moves at it's own pace.

Thought this article was interesting and it seems to speak to our global adventures in a variety of fields :

Learning to Create the Perfect Cup of Coffee, By MATT RICHTEL, Published: December 31, 2012, NYT, http://www.nytimes.com/2013/01/02/di...general&src=me

The essence of good espresso, of good coffee in general, revolves around three numbers: the amount of quality dry coffee used, the amount of time water flows through it and the amount of coffee that comes out the other end. When the ratio is right, the process extracts the best flavor. If it is wrong, the good flavor never surfaces or is watered down. A mistake in seconds or grams, I am coming to learn, is the difference between something wonderful and awful.

Mr. Baca explains that you have to experiment to find just the right balance of these three elements for each coffee machine and coffee grind, and then replicate them. He has tested the machinery at Sightglass and determined that we want to use 17 grams of high-end coffee and run water for 25 seconds to yield about 30 grams of coffee.

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Economic history makes for an interesting read. One has to keep in mind that the data is very very limited for most of our history and often biased for a certain bono. The growth we witnessed in Europe and in the US in the last hundred years was indeed a great ride. Last year I bought a neat volume on European Econhistory and read a little bit about our local area. It reminds one once again that the massively increased yields/productivity gains in agriculture are the basis of our current living standards.

I would agree. As we have discussed, Jeremy Grantham has been providing some thoughtful 'realtime' analysis on this and continues to do so. Along these lines, I received a copy of James J. O'Donnell's 'The Ruin of the Roman Empire' for the holidays. I find it to be very well written with some excellent insights into economics, governance, war, and the human condition in general. Who is your European Econo-history author?

To be honest it is also a bit amused to read things like Europe: Burnt and abandoned when you too had a great ride in the stock markets. I did of course not match the DAX, as I had invested more broadly and bonds were a drag but it was a fine year indeed. While some companies did cut the dividends, sometimes completely, the earnings are still strong compared to the price in many instances. A very high ratio of 75% in stocks payed off also in asset growth while I personally invested more with an eye on dividends*. Of course one should not be fooled by success so I have to think if I have to adjust something. Sadly I could not balance away a high percentage of the capital gains by selling stocks at a loss so I will have to do an additional contribution on the budget front.

*For the reasons posted a couple a times in this thread I did not buy a single fresh bond in the last two years. Dividends of good companies have been beating them handily for a couple of years now. This can and will of course change!

Newspaper article titles can be, shall we say, 'eye-catching'. The article itself was meat & potatoes analysis to me, but I also keep in the back of my mind the 'micro' (with macro implications) - UK in or out of the EU question that is playing out in the UK media, as well as the macro East & West economic convergence theme being examined.

Equities are fun and familiar, yet it's always good to gain additional perspective. Sheldon Natenberg's book Option Volatility and Pricing has been/continues to be a very thoughtful/exceptional look at things. Derivatives are an exotic & theoretical tool for me at this point, even after a number of years of thinking about them. Bonds are an even further bridge. I still rely on bond index funds for diversification. Any suggestions regarding bond books? Perhaps I will have to look at the FT Guides for bonds...I have some on finance, risk modeling, options, and forex and find them all to be insightful and helpful for my equities focus. School is always good...but i find that i still gotta keep exercising my brain cell in order to survive out here in the retail trading & investing world. Successfully running money out in the professional world has to be another order of magnitude leap...

Going back to the coffee analogy, overall I think much of life is about quality, timing, and a bit of luck. 08' - '12 has been very educational and I made a profit for that time period, primarily on quality Euro stocks. I hope to continue to do so.

[Firn]

Equities are fun and familiar, yet it's always good to gain additional perspective. Sheldon Natenberg's book Option Volatility and Pricing has been/continues to be a very thoughtful/exceptional look at things. Derivatives are an exotic & theoretical tool for me at this point, even after a number of years of thinking about them. Bonds are an even further bridge. I still rely on bond index funds for diversification. Any suggestions regarding bond books? Perhaps I will have to look at the FT Guides for bonds...I have some on finance, risk modeling, options, and forex and find them all to be insightful and helpful for my equities focus. School is always good...but i find that i still gotta keep exercising my brain cell in order to survive out here in the retail trading & investing world. Successfully running money out in the professional world has to be another order of magnitude leap...

Going back to the coffee analogy, overall I think much of life is about quality, timing, and a bit of luck. 08' - '12 has been very educational and I made a profit for that time period, primarily on quality Euro stocks. I hope to continue to do so.

"Live is about Quality, timing and a bit of luck". I think Kahneman got it right when he stated that success = talent + luck and great success = a little more talent + a lot of luck. One of my profs teaching sociology opened once his lecture by stating that he was glad to see such a bunch of winners of evolution. (Had to write a paper about the selfish gene ) And indeed we are just the last in a long line of organisms who arguably had overall a little more talent and a massive lot of luck. If you are an American or a Westernish European all the luckier.

The situation for many in Europe is indeed worse then in the last decade and the Italian South lost just last year, IIRC over 100.000, mostly young. I hope they will have a better future here in the North or elsewhere. It might be heartless but this mobility is needed to make the idea of of a Eurozone (or Italian state) work.

I hope you too will continue to do well and enjoy the mental fun. My maternal grandfather was mentally sharp till his death by swimming his ten km a week and by following the markets. There are worse vices for your brain cells.

In a strange way this song pretty fitted in his case. The name of course especially. This song does so only partly, luckily. For those who were not so lucky I will raise the last beer.

[Surferbeetle]

Lost illusions on Europe, Editorial, January 9, 2013 7:13 pm, Financial Times, www.ft.com

Britain needs to adopt a hard-headed approach founded on the national interest – and hold a referendum

The UK’s troubled relationship is a matter of culture, geography and history. Britain is a post-imperial power with an affinity to other English-speaking countries, especially the US. Mutual incomprehension between the UK and Europe comes down to a basic difference in outlook: while the UK sees membership of the club in economic terms, France and Germany, the co-founders, see the European Union as a political project forged from the ashes of the second world war.

This newspaper has always argued in favour of Britain’s membership of the EU, and we continue to believe it is central to the national interest. Our reasons go beyond a purely economic calculation of cost and benefit. They have to do with Britain’s place in the world. Membership gives the UK influence over the biggest global market. It helps to keep the US relationship special. It amplifies the UK’s sway in a world where economic power is shifting eastwards.

The benefits stretch across national frontiers. Thanks to the single market, the British can live, work, travel and study freely across Europe. Enlargement of the EU southwards and eastwards has consolidated democracy in Spain, Portugal and Greece and created a zone of peace and prosperity in former communist central and eastern Europe. Nonetheless, today’s EU is vastly different from the one the UK joined in 1973, or indeed the one Britons voted to stay in when they were last given a chance to express their views in a referendum in 1975.

[davidbfpo]

Surferbeetle,

The last sentence from the FT article provides the context for my comments:

Nonetheless, today’s EU is vastly different from the one the UK joined in 1973, or indeed the one Britons voted to stay in when they were last given a chance to express their views in a referendum in 1975.

In 1975 I happily voted to remain a member of the European Economic Community (EEC). Somehow the European political elite converted this idea to a single market, with an explosion in bureaucracy and rules - which of course needed a state-like structure, with a parliament, court and more. This structure then became a federal Europe, the European Union (EU).

The EU being democratic oddly forgot to give everyone a chance to vote in national referenda on this decision. Those few national electorates that had the chance to decide and voted 'no' had to hold a second vote to get it right! IIRC Denmark and Ireland.

The European political elite have failed to persuade most voters IMO that the EU - which is a federal state - is necessary, even preferable. Along came the recession plus further weakening public belief in politicians.

In the UK the Conservatives in opposition promised a referenda, but once in coalition with the very pro-EU Lib-Dems David Cameron forgot.

Now I regret voting 'Yes' in 1975, if asked today I would vote 'No'.

[Surferbeetle]

The European political elite have failed to persuade most voters IMO that the EU - which is a federal state - is necessary, even preferable. Along came the recession plus further weakening public belief in politicians.

David,

Appreciate your insights and point that 'the brussels political elite' have failed to convince many that the EU as structured or as proposed can/will provide the highest and most authoritative good for the polis. Here across the pond we also have questions regarding 'the washington political elite' and their (apparent lack) of ability to concentrate on providing the highest and most authoritative good for the polis.

Ran a quick google search and found that France, Ireland, and the Netherlands all have had significant questions regarding the EU Constitution. As you have noted previously, Nigel Farage seems to be one of the stronger/more effective communicators on this topic of late. I am not sure about Taoiseach Kenney's latest. Nonetheless it's reassuring to see that civil discourse and the democratic process (as flawed and messy as it is) are the preferred method to examine and address concerns.

Meanwhile, back at the armchair, I have pulled out my quadrangle graph paper & pen and started drafting up likely trading & investing scenarios involving Brixit and the latest US debt ceiling debacle...

Although you are likely more familiar with the topics at hand than am I, here are a few of this evening's search links that I found to be of interest:

• Plato, Aristotle, and the Purpose of Politics, Dr Kevin M. Cherry, University of Richmond, http://www.cambridge.org/aus/catalog...7021679&ss=exc
  
• French European Constitution referendum, 2005, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/French_...ferendum,_2005
  
• Irish European Constitution referendum, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Irish_E...ion_referendum
  
• Dutch European Constitution referendum, 2005, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Dutch_E...ferendum,_2005
  
• Nigel Farage, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Nigel_Farage
  
• Enda Kenny: “Brixit” would be “disaster”, By Pierre Lemoine in Dublin | Wednesday 09 January 2013, Europolitics, http://www.europolitics.info/europol...346907-46.html
  
• Goodbye Europe, The Economist, Dec 8th 2012, http://www.economist.com/news/leader...ld-be-reckless
  
• Britain needs to lead in a strong, reformed EU, From Mr Roland Rudd, Sir Richard Branson and others, January 8, 2013 10:01 pm, Letter to the FT, www.ft.com
  
• Banks Win 4-Year Delay as Basel Liquidity Rule Loosened, By Jim Brunsden, Giles Broom & Ben Moshinsky - Jan 7, 2013 9:23 AM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...roup-deal.html
  
• Japan’s Abe Urges 2% Inflation as Shirakawa Attends Meeting, By Andy Sharp & Keiko Ujikane - Jan 9, 2013 7:09 PM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...-meetings.html
  
• If the tide goes out, investors beware, By James Mackintosh, January 9, 2013 8:35 pm, Financial Times, www.ft.com

[Fuchs]

This may interest you

http://delong.typepad.com/sdj/2013/0...ecessions.html