Weak Dollar

At the beginning of each class of my first-year course this year we spend about 15 minutes discussing the major events in the Financial Times.

One of the "big stories" in recent weeks has been the weakening of the dollar relative to major currencies and, not surprisingly, it prompted many questions about the underlying reasons for it.

In class we discussed many things::

1.  Recent decreases in risk aversion reversed the "flight to quality" seen during the peak of the crisis.
2.  Bad monetary and fiscal policy by the Fed and the US Treasury relative to other countries (aka higher inflation).
3.  Sovereign governments diversifying their reserves to securities in other currencies.
   

The last time I was a serious student of macroeconomics was almost 10 years ago. Paul Krugman comes up with a sensible argument, but a smart guy like Barry Eichengreen (link here) is not so sure about the death of the dollar.

GFC and bonuses

This is a really interesting post by Emanuel Derman. I think he is spot on that one of the main problems with the current system is not high profits per se, but actually that these profits are earned largely because of the implied backing given to banks (and the overall market) by the government.

Next week I'll discuss options in class. I think I will use this as an example to talk about puts.

PS - The first time I read GFC I thought it was something like the "Global Fighting Championship" rather than "Global Financial Crisis"...

Why is it so difficult for foreign firms to suceed in China?

The Economist this week is full of interesting articles as usual. One that caught my attention is a piece on why foreign firms face so many difficulties in the country. Language and political regime (a capitalist dictatorship) do not explain as many other countries have the same characteristics.

The article says that firms "... they complain about subsidized competition, restricted access, conflicting regulations, a lack of protection for intellectual property and opaque and arbitrary bureaucracy."

I wonder whether China will ever open their domestic market enough to enable serious competition by foreign firms.

Perfect Memory

A friend send me this amazing story about a woman that doesn't forget anything that has happened to her in the past 30 years. I wonder what "enhancements" to the human body will be available to us in 30-40 years. I've read some sci-fi stories in which we all have neural implants connected to a huge "Google" that enables us to retrieve any information stored on the internet. I wonder if that will require my exams to be more difficult...

Here is the introduction of the article:

 Wouldn't it be great to be able to remember everything? To see all our most important moments, all the priceless encounters, adventures and triumphs? What if memory never faded, but instead could be retrieved at any time, as reliably as films in a video store?

 "No one can imagine what it's really like," says Jill Price, 42, "not even the scientists who are studying me."
The Californian, who has an almost perfect memory, is trying to describe how it feels. She starts with a small demonstration of her ability. "When were you born?" she asks.
She hears the date and says: "Oh, that was a Wednesday. There was a cold snap in Los Angeles two days later, and my mother and I made soup."

Ig Nobel prizes

With the Economics Nobel prize announced yesterday (please don't come with the usual it's-not-an-actual-Nobel-prize story), it is always fun to remember research at the other end of the spectrum.

The Ig Nobel prize awards were announced this month as well, which aim is to reward " research that makes people laugh and then think". I particularlly like the "Growing Diamonds from Tequila" Chemistry award.

Perhaps they should have given Obama an Ig Nobel peace prize too! It surely made me laugh and then think... :)

Cloud Computing and Data Loss

This is scary stuff, with T-Mobile potentially losing all personal data from its Sidekick customers due to a hardware fault.

I think I do a decent job of backing up the data in my office desktop and my laptop, having  two extra HD to store everything about once every couple of months (not to mention the usual syncing between home and work). I've had some friends and co-workers losing important data and losing a year of hard work with it.

With all the talk about cloud computing and firms using the web to outsource their software and storage needs, it is really scary to think how firms can be affected by losing important data, not to mention lawsuits if the firm also loses its customer's data.

I think that T-Mobile might be in trouble but given the small print in US disclaimers,its lawyers will are more than likely to find a way to avoid liability...

Light Blogging

Blogging has been light this week. I've got a few classes to prepare and a conference deadline to meet.

Hopefully the weekend won't be as busy!

It's a Dog's World

Today I read a nice review of a book on how dogs see the world. Personally, I've always a dog person, although I currently don't have a dog. In my parent's house, to my great joy, I have been through some generations of boxers and rottweilers. I haven't read the book, but I surely will during my next vacation.

Inside of a Dog: What Dogs See, Smell and Know is written by Alexandra Horowitz, a psychologist at Columbia with a PhD in Cognitive Sciences.

Here is a small excerpt of the book:

"We humans tend not to spend a lot of time thinking about smelling. Smells are minor blips in our sensory day compared to the reams of visual information that we take in and obsess over in every moment. The room I'm in right now is a phantasmagoric mix of colors and surfaces and densities, of small movements and shadows and lights. Oh, and if I really call my attention to it I can smell the coffee on the table next to me, and maybe the fresh scent of the book cracked open--but only if I dig my nose into its pages.

Not only are we not always smelling, but when we do notice a smell it is usually because it is a good smell, or a bad one: it's rarely just a source of information. We find most odors either alluring or repulsive; few have the neutral character that visual perceptions do. We savor or avoid them. My current world seems relatively odorless. But it is most decidedly not free of smell. Our own weak olfactory sense has, no doubt, limited our curiosity about what the world smells like. A growing coalition of scientists is working to change that--and what they have found about olfactory animals, dogs included, is enough to make us envy those nose-creatures. As we see the world, the dog smells it. The dog's universe is a stratum of complex odors. The world of scents is at least as rich as the world of sight. "

100 best blogs for MBA students

I was browsing the web today and found this blog with an interest post on the "100 best blogs for MBA students".  There are quite a few ones that seem interesting.

 If any of my students read this, I hope you find it useful!

Teaching Duties...

Yesterday I began teaching the 1st year MBAs. The group I'm teaching this year has an even larger mix of nationalities, which really helps when talking about financial markets and what has been happening through the crisis. Everyone can contribute with how it affected their own countries and the measures taken by different governments.

We talked a lot about information asymmetry in markets and how regulation is required to prevent bad behavior to arise. There's been plenty of bad examples: sales teams giving mortgages to people that had no likelihood of repaying their loans, investors putting up their money in investments that promised huge returns with low risk (e.g. Madoff).

The scary bit is that even supposedly "smart" and informed investors made huge bad calls. I'm not really sure whether better regulation would really help these type of investors to avoid making stupid investment decisions.