Links for 16th May, 2019

  1. “The other risk of a huge centrally planned response to climate change is that of a huge centrally planned response to anything: clumsy megaprojects chosen for their political or bureaucratic acceptability rather than because they deliver the biggest results for the lowest cost.”
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    In which the ghost of Pigou is found to be giving a contented chuckle. Pigouvian taxes is a term you should learn about, and read this article to find out how and why the idea continues to resonate.
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  2. “With casuals being the next wave of streaming adopters, their impact will increase. But despite being ‘more valuable’ they will also reduce royalties, because more streams per user means revenue gets shared between more tracks, which means lower per-stream rates. The music industry thus has an apparently oxymoronic challenge: it is not in its interest to significantly increase the amount of media consumption time it gets per user, but instead it will be better served by getting a larger number of people listening less!Current market trajectory points to more streams per user, which – for subscriptions, where royalties are paid as a share of revenue – means lower per-stream rates.”
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    Have you read The Long Tail, by Chris Anderson? Read it (or about it), and then read this article to learn about the problems that will arise in a world full of long tails.
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  3. “The answer is no and yes. The views of Piketty and Blanchard can indeed be reconciled, because they are talking about different interest rates. While Blanchard focuses on the rate on low-risk government bonds, Piketty is concerned with the return on risky capital investments. Because the two interest rates are separated by a risk premium of roughly five percentage points, it is entirely possible for the rate on government bonds to be below the economic growth rate, while the rate on capital is above it.”
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    Barry Eichengreen on the return (as he puts it) of fiscal policy. A short article, but a useful one to understand macroeconomics better.
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  4. “When historians in the distant future look back at our era, the name Alfred Sauvy may appear in a footnote somewhere. Sauvy was a French demographer who coined the term “third world” in a magazine article in 1952, just as the Cold War was heating up. His point was that there were countries not aligned with the United States or the Soviet Union that had pressing economic needs, but whose voices were not being heard.”
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    The always excellent Tim Taylor on the nomenclature for “third world” countries – how it came about, what it means, how it might change going forward – and ends with a clarification about how it may not have been what we have thought all along!
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  5. “I have to tell you, I’m a pretty lazy person, I don’t work more than 40 hours per week. What I’ve discovered helps me is to not compartmentalize – because if I thought of my life as, “there’s teaching, there’s research, there’s writing on my blog, there’s X, Y and Z…” then you very quickly run out of hours in the day. But almost everything I do spills over into almost everything else I do. So I’m constantly looking for ways to take whatever I do and get it to serve three or four or five purposes.”
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    A fascinating interview with Aswath Damodaran – a person you must know more about if you want to study finance. The entire interview is worth reading – but this excerpt is for you even if you are not a student of finance – his view about what qualifies as work, and what doesn’t.
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Links for 13th May, 2019

  1. “There should be limits, too, on the rights investors can sign away. In recent years, some companies — such as Smartsheet and Twilio — have done dual-class issues in which the extra voting rights expire after a certain number of years. These sunset provisions preserve the potential benefits of leaving initial control in the hands of founders, while avoiding the risk of creating a dynastic birthright. That’s a sensible compromise. The Securities and Exchange Commission, or the exchanges it oversees, should make such provisions mandatory.”
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    A very useful article to help understand how to think about IPO’s, Uber, Lyft valuations, mandatory disclosures from firms and how they try to get around the issue – and the excerpt above is yet another example of a favorite adage of mine: the truth always lies in the middle.
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  2. “We find that between 1300 and 1400 a 10 percentage point higher Black Death mortality rate was associated with a 8.7 percentage point fall in city population, but between 100 and 200 years later, the impact of mortality was close to zero. When we examine the spillover and general equilibrium effects of the Black Death on city populations, we similarly find negative effects in the short run, and no effects in the long run. Cities and urban systems, on average, had recovered to their pre-Plague population levels by the 16th century.”
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    A worrying article, especially towards the end, but two major takeaways for me: cities matter, and trade matters. But my major takeaway is there is (yet more) cause for worry.
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  3. “Unfortunately, the world’s most prominent specialists are rarely held accountable for their predictions, so we continue to rely on them even when their track records make clear that we should not. One study compiled a decade of annual dollar-to-euro exchange-rate predictions made by 22 international banks: Barclays, Citigroup, JPMorgan Chase, and others. Each year, every bank predicted the end-of-year exchange rate. The banks missed every single change of direction in the exchange rate. In six of the 10 years, the true exchange rate fell outside the entire range of all 22 bank forecasts.”
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    Forecasts are useless. I cannot be more serious when I say this. Forecasts are useless. But foxes are better at the impossible then the hedgehogs – this article helps you understand these terms, and their usefulness. This blog is about becoming a better fox!
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  4. “Again, one can argue that the amount of redistribution should be larger. But it would be untrue to argue that a significant amount of redistribution–like doubling the after-taxes-and-transfers share of the lowest quintile–doesn’t already happen. ”
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    The always informative Timothy Taylor on taxes, their composition, their effectiveness and the resulting redistribution in the United States of America. Also, read the book that is reviewed in this article – the entire book is worth your time, but the chapter on income tax is what I was reminded of.
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  5. “When Paul Romer expresses an opinion, it is always worthwhile to listen because it is always well-considered. In an opinion piece in the New York Times, he puts forward a proposal to restore what he terms is the “public commons” of the provision of information in support of democracy. He actually puts forward two linked proposals: one for a target on targeted ads by digital platform companies and a proposal that the tax is progressive (which may be a check on dominance). The latter is interesting but I will just focus on the former here.”
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    I do not recollect if I linked to the Paul Romer piece that is linked to in the excerpt above – in case I did not, please go ahead and read it. The rest of the current article speaks about why Romer’s proposal is a good idea, but not necessarily implementable right away.

Links for 10th April, 2019

  1. “In an ideal world, you shouldn’t have to amortize. The prices will all be reflective of reality, there will always be a rational buyer at a rational price if you want to sell. In an ideal world corporates will not rollover their liquid fund investments every day either – they will know how much money they need, and they will only withdraw that much, leaving enough back in the liquid fund.”
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    The always excellent Deepak Shenoy explains the how, and some of the why when it comes to amortization in debt funds. If you are interested in corporate finance, finance in general, or policy-making when it comes to finance, this is well worth your time.
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  2. “Within the overall context of having asset allocation in an individual’s portfolio, passive investments will play an important role. It will increase overtime as a complementary strategy. It will not be just be plain vanilla passive but smart beta products. Look at these three benefits. Better returns profile, lower risk profile and wider diversification as compared to normal other products. So, it is a clear cut thing from the growth perspective.”..
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    An interview on Bloomberg Quint about smart beta products. As with the first link, a must read if you are a student of finance, especially from India.
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  3. ““If you wanted a snapshot of all your financial assets in one place on your mobile or to share information securely with a lender, it was previously not possible,” says Atluri Krishna Prasad, chief executive of Onemoney, one of the five entities that have secured in-principle approval from the Reserve Bank of India to operate as an account aggregator. “Now, if you give Onemoney your consent, we will fetch all your financial information from different sources, aggregate it and give you a single window with the consolidated information.””
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    If you were worried about data privacy in India, we’re only just getting started. A nice article in FactorDaily that explains how more data sharing between financial organizations will soon be on it’s way.
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  4. “Here, as in so many cases, the analysts haven’t got beyond an intuition that Johan Cruyff, the Dutch father of Barcelona’s football, had nearly 50 years ago. Cruyff played for Barça in the 1970s, coached the team from 1988 to 1996 and largely invented the passing game that the club still play. He could rhapsodise for hours about players who were “turned” the right way. He cared much less about a player’s size and speed.”
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    Just one of many excerpt-able snippets from a fascinating article about how a sporting club is using every last little bit of information about, well, everything to make Barca (for that is the football club in question) even better.
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  5. “He’s agreed to forfeit about $50m. It’s not clear what’s happened to the other $73m, but Rimasauskas was a prolific and baroque money-launderer who squirreled cash away in Cyprus, Lithuania, Hungary, Slovakia, and Latvia. Google has said that “We detected this fraud and promptly alerted the authorities. We recouped the funds and we’re pleased this matter is resolved.”Rimasauskas will be sentenced on July 29. He faces up to 30 years.”
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    One of those articles that truly help you understand Coase/Demsetz and industrial organization overall. But if I am to be honest, a great read in its own right.

Links for 1st April, 2019

  1. “For many in technology, New & Improved means faster with more of every measurable parameter. More memory, more pixels, more storage, more bandwidth, more resolution. In devices, the tendency has been to communicate “new & improved” through an increase in screen size. We are subject to this to such an extent that phones are becoming unusable with one hand, stretching screens to the edge of the device and then wrapping those screens around the edges and then even folding the screens so that we have to unfold or unroll to use the product. Maybe an origami phone is in the works.But there is a parallel movement where “New & Improved” means smaller. This is the trend to miniaturization. Smaller is better because it’s more portable, more conformable. Things sold by the ounce are better than things sold by the pound. The best computer, the best anything, is the one you have with you and having it with you is more likely if you can take it with you. So that which you can take with you is the best. QED.”
    On the face of it, a review of the iPad mini. But the excerpt above is also a useful way to think about improvements in general – how much of learning, for example, has become better because of ‘miniaturization’?
  2. “It is yesterday once more. The Reserve Bank of India (RBI) has put forth an old solution for a perennial problem. It has suggested, through a discussion paper, the need to create ‘Wholesale & Long-Term Finance Banks’. The discussion paper argues that with the “deepening of the financial sector” there is a need to evolve a structure where apart from universal banks, “differentiated banks provideservices in their areas of competitive advantage”. The thesis is that this would enable fulfilling long-term financing needs of the growing economy.”
    This is from a while ago – nearly two years ago, in fact, but is worth reading, especially if you are a student of finance in India. The article is a good summary of the many, many efforts made by the government to arrange for long term financing in India – and how they just haven’t worked out – and are unlikely to work out in the future as well.
  3. “And what might Rodgers and Hammerstein themselves have thought of Ms. Grande’s song? Todd S. Purdum, the author of “Something Wonderful: Rodgers and Hammerstein’s Broadway Revolution,” said the masters of musical theater enjoyed being in the thick of popular culture. But most important, he said, they were never ashamed of commercial success.“They would love the ka-ching of it,” Mr. Purdum said.”
    Have you heard the song seven rings? I haven’t, although as the article goes on to tell you, if you do go ahead and hear it, two long dead musical geniuses from the past will become richer. Copyright, property rights, music, licensing rights, streaming, the economics of music – all in there.
  4. “Then with the Kindle and the iBooks coming along, that allowed me to start treating books like I treat blogs. When I go to blog, I’ll actually skim through lots of articles until I find one that looks really interesting and then I’ll read that whole article all the way through and maybe take notes. Now I treat books the same way. I’ll skim through a large number of books. I’ll put them down. I’ll jump around, back, forward, middle, until I find a part that’s interesting. Then I’ll just consume that piece. I won’t feeling guilty about having to finish the entire book.I just view it as a blog archive. A blog might have 300 posts on it and you could read just the two, three, five that you need right now. I think you can think of a book the same way. Then that opens the world wide web of books back open to us instead of it being buried somewhere.”
    Books as a series of blog posts is a remarkably useful, and dare I say it, comforting idea. It probably is a more useful way to think about reading books, and about not reading them. I didn’t finish reading the entire transcript, but hope to get around to listening to the podcast soon.
  5. ““In a fight between a fly and a lion,” he wrote, “the fly cannot deliver a knockout blow and the lion cannot fly.” Using conventional methods “have at best no more effect than a fly swatter. Some guerrillas are bound to be caught, but new recruits will replace them as fast as they are lost.”I know very little about Kashmir, and I am aware of how little I know every time I read a little bit more about it. But this particular analogy leaped out at me, and helped me think about not just the insurgency problem in Kashmir, but about guerilla warfare in general. The entire article is worth reading, by the way. Multiple times, in fact.