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TM
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18 Mar 2012, 3:23 pm

So, since its Sunday, the markets are closed and there are no major news this weekend, I figured I'd ask the question in the topic title. My interest leans towards finance with a focus on common stock and a little bit of derivatives with both long and short positions in companies of varying size.

Some a conversation starter should anyone bite, what do you think of the global economic climate?



Woofer123
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18 Mar 2012, 3:34 pm

I have a feeling I am starting to get an Interest in economics/finance. It would be greatly appreciated if you could share your interest more. And what sparked your interest in economics?



enrico_dandolo
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18 Mar 2012, 3:45 pm

I do, but mostly economic history. Therefore, I'll be able to participate in that debate in thirty years :)

I'm very interested in maritime trade in the Late Middle Ages and Early Modern Period, but it is more a desire for knowledge than any kind of expertise. Otherwise, I like economic theory in general, but I think my mind just automatically blocks when I try to understand monetarist theory.



Last edited by enrico_dandolo on 18 Mar 2012, 4:14 pm, edited 1 time in total.

Jory
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18 Mar 2012, 3:55 pm

I have an interest in emonomics. It's the study of the exchange of money for goods and services at Hot Topic.



TM
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18 Mar 2012, 4:39 pm

Woofer123 wrote:
I have a feeling I am starting to get an Interest in economics/finance. It would be greatly appreciated if you could share your interest more. And what sparked your interest in economics?


What sparked my interest was a Scrooge McDuck pocketbook I got when I was 12, where Scrooge and his rival John D Rockerduck have a disagreement and start buying up each others companies and in the end they end up owning everything the other one originally had, then they are so miserable because they don't have what they like (their own stuff) that they trade back. That story introduced me to the idea of a stock, bear and bull markets and how an exchange works. I got my first stock when I was 14, held it for over 10 years, low was 14 during the crisis, high was 49 in 2002.

My whole interest sparked from those two things. I'd read the stock market pages in the paper, keep track of the market, without really understanding that much about what made the stocks go up and down, or what the different things like P/E (Projected earnings, calculated by market price / annual earnings per share) , and P/B (Price book value, calculated by dividing Market price with the book value of the company. The first tells you how much you're paying per for the stock in relation to the companies earnings the second tells you how much you're paying extra for the company.

From that I started picking up more and more things, in order to calculate an accurate book value for a share, I had to learn how to read financial statements in 10Ks and 10Qs (Annual and quarterly reports) but to get an edge I had to learn how to investigate holdings by the company to look for hidden assets (assets that aren't reflected in the market price of the share). Then I had to learn things about its competitors to figure out how their margins are in comparison, what their ratios are (P/E, P/B, Acid Test, etc) and so on to see if my stock appears under or over valued based on that. Then was the topic of how one values intellectual properties, which is still a bit of a pain because its usually a combination of marketing and other economic impacts. Well known companies of a certain size and reputation gets better financing, cheaper marketing and services that are largely linked to the reputation of the brand.

Then I had to learn about leverage (debt in comparison to equity), which then again lead me to different ways a company can finance itself, the most common ones are bonds (there are various types), selling shares in itself (emission) and bank loans. This lead me to capital structure, which is how a company finances its assets through a combination of equity, debt or some combination security. A convertible bond is a good example, where the bond itself entitles the holder to X% interest over Y period of time, but the bondholder can convert the bond (or parts of it) into equity under certain conditions.

The convertible bond was the reason I started learning about options, which is the right to obtain a number of shares per option at a specified price. Since options are rights to obtain new shares or shares held by the company in its reserves, that means that given certain conditions there could be more shares outstanding in the future resulting in stock dilution. There are also put options, which allows you to sell a certain number of shares at a set price.

I got interested in macro economics because a lot of sectors are impacted by both national and international factors. It also links nicely with my interest in politics because politics (especially since the financial crisis) have a very large impact on companies and the future of the economy. The interconnectedness of it all is baffling. If the central bank reduces the interest rate, it lowers the value of currency (inflation) by introducing more currency into the system. What we saw in QE 1 and QE2 (Quantitive Easing programs) was that a lot of the excess capital ended up flowing into commodities such as oil, this in turn lead to an increase in oil prices driven by higher demand, this again impacted every company that uses oil, plus every oil using country in the world. This is overly simplified but serves to show a small example of how things are connected.

I could go on for much longer, but perhaps after reading this you have some idea about which field interests you, and I can try to talk about that field. I do warn you though that I'm not as knowledgeable in all areas.



Burzum
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18 Mar 2012, 4:49 pm

Which school of economics do you side with?



TM
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18 Mar 2012, 4:52 pm

enrico_dandolo wrote:
I do, but mostly economic history. Therefore, I'll be able to participate in that debate in thirty years :)

I'm very interested in maritime trade in the Late Middle Ages and Early Modern Period, but it is more a desire for knowledge than any kind of expertise. Otherwise, I like economic theory in general, but I think my mind just automatically blocks when I try to understand monetarist theory.


That's actually quite an interesting time-period for maritime trade, especially the socio-economic impact the trade routes had on European cultural development. Also, what's your problem with monetarism, it makes perfect sense. Isn't it logical that the amount of money that's available in a system has an impact in every level of society?

@Burzum I don't really side with one, I'm influenced in my view by several of them (Monetarism, Keynesian, Behavioral and probably some I don't even realize I'm influenced by.



Woofer123
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18 Mar 2012, 5:46 pm

@TM

I have a number of questions:

Is in your opinion the concept of free markets valid? Do they even work?

I am a social Democrat, what is your view on this?

What about Communism?

Do you see the U.S. coming out of this recession anytime soon?

If I wanted to get into economics/finance, what resources would you suggest?



Master_Pedant
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18 Mar 2012, 6:31 pm

TM wrote:
what do you think of the global economic climate?


I think it's recovering anaemically. There's a chance that multi-national austerity measures cause a second dip.

I'm most interested in macroeconomics an the implications of fiscal policy, btw.


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Woofer123
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18 Mar 2012, 6:47 pm

@ Master Pedant

Tell us about that interest, please...



marshall
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18 Mar 2012, 7:23 pm

I have some interest. I'm quite disillusioned with the various popular "schools" though. In science when one studies a complex system empirical evidence and quantitative models are necessary, not just to make predictions but to break ground in terms of theoretical understanding. I feel the most popular "schools" of economic thought are pseudo-scientific and contaminated with political ideology. A lot of verbal models and arguments are at best baked half-truths trotted out to support someone's agenda. That annoys me. I think any real economic model must incorporate behavior and psychology. Then again, there isn't necessarily a static model of "human economic behavior" either as collective behavior is influenced by culture.



ruveyn
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18 Mar 2012, 8:48 pm

Do you realize that if you laid out all the economists in the world in a straight foot to head to foot etc. you could not reach a conclusion.

ruveyn



enrico_dandolo
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18 Mar 2012, 10:39 pm

TM wrote:
Also, what's your problem with monetarism, it makes perfect sense. Isn't it logical that the amount of money that's available in a system has an impact in every level of society?

It's not that it doesn't make sense, it's just that my brain doesn't save the information. I read about it, and forget the moment I close the book; someone explains it to me, and the explanation doesn't last after the end of the conversation. It is the only thing of all economic theory that I have failed to really understand, for some strange, unknown reason, and I am sure there are many other things I understand which are more complicated.



Awesomelyglorious
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19 Mar 2012, 1:55 am

ruveyn wrote:
Do you realize that if you laid out all the economists in the world in a straight foot to head to foot etc. you could not reach a conclusion.

ruveyn

On a few issues there are general agreements. On others there is little agreement.



Awesomelyglorious
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19 Mar 2012, 2:27 am

I suppose I may count. I do terribly at keeping up with all of the on the ground details though.

I tend to think that there is weak recovery. We're not in a danger zone, but in the US, unemployment is still high and growth is better, but it isn't really that fast. Most of the rest of the world has somewhat of a mess to deal with. The US stock market is not taking any large dumps, which is a good sign.

To answer Woofer's questions to TM:

Quote:
Is in your opinion the concept of free markets valid? Do they even work?

Reasonably so. While we can argue that certain legal rules and institutions are needed for a market to exist, these markets do reflect some decentralized processes that can be effectively called "free". Arguing that the existence of rules denies freedom in markets is about as silly as claiming that laws against yelling "fire" in theaters and a lack of rights to oppress people with religion undercuts human freedom.

Free markets also work. They work amazingly well. They are also very flawed. The last two statements are incredibly vague when you think about them. So, free markets do a LOT better than other possible systems like communism, and in some ways have super-organism kinds of qualities in the immense abilities to process data that they have, and their ability to organize systems in ways that the participants do not expect. They are flawed in that the problems of the individual agents can still negatively impact decisions made, and the competitive process can potentially lead to waste in situations like signalling competitions.

Quote:
I am a social Democrat, what is your view on this?

I'd suppose I'd be broadly opposed. It really depends on your policy views though, as the question in economics is probably LESS about the specific aims and more about the competence of chosen policies. So, I tend to be skeptical about the efficacy of most regulations, particularly given that regulators are not known for their competence in these matters, and sometimes social Democrats pick particularly bad/questionable policies. However, the questions of distribution are often ethical, and reducing inequality appears economically possible.

Quote:
What about Communism?

Generally a bad idea. The problem is that organizing society is immensely complicated. Markets do well partly because they are impersonal prods to organize behavior in line with the behavior of other agents. Communism is very likely to be embroiled in politics, work-place politics, and the signals are likely to be bad for that reason. If a company does crappily, they can hopefully fail, but if a government agency does terrible, they will probably survive and continue to do terribly.

Quote:
Do you see the U.S. coming out of this recession anytime soon?

We're currently coming out. The issue is speed, and that's very hard to predict. A recession lasting 4 years is itself unusual enough to make predictions hard to make.

Quote:
If I wanted to get into economics/finance, what resources would you suggest?

As a job? You'll need a college degree. As a hobby? I'd recommend studying some basic micro, either in a class or at least out of a textbook. From there, discuss the subject with other people, find areas, like blogs, where people with college degrees in the subject, ideally PhDs, talk about the subject. The central issue is to get an economic intuition, which is really just an intuition on how self-interested agents will behave. This intuition is helpful in that it allows for the notion of trade-offs to be fruitfully considered, as often times more altruistic and idealistic models avoid the notion of "economizing", but that's central to economic thinking, even thinking about the economics of altruism.

There are other areas to learn from, but the difficulty is giving sources that are not too ideologically suspect, and avoiding getting bogged down by the existence of too many potential sources to think about.

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And what sparked your interest in economics?

At some point I became gripped by the idea that economics was the central debate in the workings of society. Money makes the world go around. This idea is probably partially made more plausible by the fact that growing up, the idea that proper management of money and pursuit of financial satisfaction as a major goal was promoted by my parents. I likely also had some natural cold-hearted tendencies which made the cold rationality of economic thinking less problematic for me.

At this point I've drifted a bit, mostly because on some level, I recognize that economic problems are likely a bit difficult for me to effectively understand/solve. So, while I am willing to still read and learn a few things, I realize some dependence upon mainstream ideas and opinions.

To answer Burzum's question to TM
Quote:
Which school of economics do you side with?

I think I am eclectic as well. I tend to be a mix of neoclassical, behavioral, and Austrian. I find the Minsky model of recessions to be interesting. I don't think about these matters primarily from the macro view, mostly because I tend to be a bit of a macro skeptic. I think that certain ideas are plausible, however, I do think that rational expectations in some formulations is somewhat reasonable, and that idea tends to undercut the degree to which you think a purely statistical analysis of macro patterns will be useful. However, constructing a macroeconomic model out of microeconomic models may be an implausible task. As such, I'd think that really a much bigger issue isn't fixing the recession, but rather creating a set of institutions that can help us weather recessions and other problems more easily.