Here's the graph we viewed in class today, with some notes from the Paul Krugman lecture: http://www.marginalrevolution.com/marginalrevolution/2007/09/the-great-compr.html
Some interesting(loose use of the word)posts below the excerpt. There is also some fair criticism of Krugman's style and some assumptions.
Tuesday, November 4, 2008
Income inequality in Australia
The next couple entries will direct you to a range of organisations whose primary concern is finding solutions to the problems that inequality creates in our society.
ACOSS - www.acoss.org.au
The Brotherhood - www.bsl.org.au
St Vinnies - http://www.vinnies.org.au/UserFiles/File/NATIONAL/Social%20Justice/2005%20May%2029%20-%20The%20Reality%20of%20Income%20Inequality%20in%20Australia.pdf
What solutions do these organisations propose?
ACOSS - www.acoss.org.au
The Brotherhood - www.bsl.org.au
St Vinnies - http://www.vinnies.org.au/UserFiles/File/NATIONAL/Social%20Justice/2005%20May%2029%20-%20The%20Reality%20of%20Income%20Inequality%20in%20Australia.pdf
What solutions do these organisations propose?
Monday, September 29, 2008
Make sure you hunt around for different presentations regarding basic investment options
http://www.count.com.au/investor_education/Principles/Investment_Types.htm - from AUS.
http://www.sorted.org.nz/home/sorted-sections/investing/investment-types - from NZ.
http://www.westpac.com.au/internet/publish.nsf/content/PBISLAUI+Types+of+investment - Aussie banks offering education and direct links to their products.
This is the basic stuff.
Has anyone else got better suggestions? Specific or more detailed explanation of costs, benefits, risks, most appropriate times in life or parts of the economic cycle when one type is preferable to another???
http://www.sorted.org.nz/home/sorted-sections/investing/investment-types - from NZ.
http://www.westpac.com.au/internet/publish.nsf/content/PBISLAUI+Types+of+investment - Aussie banks offering education and direct links to their products.
This is the basic stuff.
Has anyone else got better suggestions? Specific or more detailed explanation of costs, benefits, risks, most appropriate times in life or parts of the economic cycle when one type is preferable to another???
An example product statement...
Here's a type of structured investment that is available on the market at the moment. I would like you to read the simple statements about cost, benefit, risk and who suits this kind of investment:
http://personal.macquarie.com.au/personal/products/specialised/capital_protected/equity_linked_note_detail.htm
http://personal.macquarie.com.au/personal/products/specialised/capital_protected/equity_linked_note_detail.htm
History of the ASX
Here's a fantastic little graph of the Australian share market's movement over this last century. Be careful making assumptions about scale of movements from the graph - look across to the right to see the logarithmic scale that pertains to the value of the index.
http://www.asx.com.au/products/pdf/share_price_movements.pdf
It looks pretty stable and smooth recently doesn't it! But look at the scale on the right and you realise than movements of a few hundred points would hardly register now, yet were very significant 30+ years ago...
Keep reading through what the ASX website offers - it is a great resource... http://www.asx.com.au/about/asx/history/share_performance.htm
http://www.asx.com.au/products/pdf/share_price_movements.pdf
It looks pretty stable and smooth recently doesn't it! But look at the scale on the right and you realise than movements of a few hundred points would hardly register now, yet were very significant 30+ years ago...
Keep reading through what the ASX website offers - it is a great resource... http://www.asx.com.au/about/asx/history/share_performance.htm
Where's all the money gone?
Australians have experienced an unprecedented era of stable political conditions, growth, low unemployment, and low interest rates over the last decade and a half. In this environment they have been able to borrow more for investment and consumption. Households, Banks, NBFIs and Government have all had access to cheap credit and this has pushed up the 'value' of several asset classes - creating a property boom and up until a year ago a share market bubble. We as economists are very careful when making decisions, as you can not make assumptions about future performance, based on historic performance. Here's the kind of information which is useful to ascertain the type of performance we've seen - and useful for your current work!http://www.asx.com.au/products/pdf/russell_investments_report.pdf
But times change! It is possible that the ramifications of the 'credit crunch' which started last year will continue to filter through our markets for years to come - certainly this next year and a half that you are studying economics. If the media is suggesting 10% reductions in housing prices this year, and we are seeing volatility and losses on the stock market - where is all the money going? And for those of us who are interested - where did it all come from to start with?
I will talk about the relationship between debt and wealth early next term, but hope that you'll ask your parents what they know in the mean time. If they know nothing, then ask them what their experience has been over the last 20-30 years - regarding access to debt/credit, growth in the value of their 'assets'(equities, bonds, cash, houses - art...?)
But times change! It is possible that the ramifications of the 'credit crunch' which started last year will continue to filter through our markets for years to come - certainly this next year and a half that you are studying economics. If the media is suggesting 10% reductions in housing prices this year, and we are seeing volatility and losses on the stock market - where is all the money going? And for those of us who are interested - where did it all come from to start with?
I will talk about the relationship between debt and wealth early next term, but hope that you'll ask your parents what they know in the mean time. If they know nothing, then ask them what their experience has been over the last 20-30 years - regarding access to debt/credit, growth in the value of their 'assets'(equities, bonds, cash, houses - art...?)
Friday, September 19, 2008
Government website: Personal Economics
www.understandingmoney.gov.au/content/default.aspx
The site provides some useful tips on topics such as budgeting, saving, investing, controlling your debts and superannuation. It is a fairly simple site but is definitely worth a visit for those who need a bit of basic knowledge or want to direct a family member to such information to help them get started.
The site provides some useful tips on topics such as budgeting, saving, investing, controlling your debts and superannuation. It is a fairly simple site but is definitely worth a visit for those who need a bit of basic knowledge or want to direct a family member to such information to help them get started.
Eureka report: thankyou Alan
Eureka Report Articles
Since our last edition Scott Francis has contributed another two articles to Alan Kohler's Eureka Report. Click on the links below to be taken to these items:
3rd September - Losing your money, for a fee - Performance data shows that managed funds failed to protect investors from the market downturn.
8th September - What price Wesfarmers? - Depending on the research, the true value of Wesfarmers shares is above $46 or below $23. The market says $31, which seems fair.
Click here to be forwarded to Scott's Eureka Report Articles
Since our last edition Scott Francis has contributed another two articles to Alan Kohler's Eureka Report. Click on the links below to be taken to these items:
3rd September - Losing your money, for a fee - Performance data shows that managed funds failed to protect investors from the market downturn.
8th September - What price Wesfarmers? - Depending on the research, the true value of Wesfarmers shares is above $46 or below $23. The market says $31, which seems fair.
Click here to be forwarded to Scott's Eureka Report Articles
Risk: a criteria for economic decision making
Risk Premiums across Business Cycles - Can you time your entry into risk premiums?
Scott's Financial Happenings Blog - Posted Thursday 4 September I had the pleasure of joining a presentation from Mr Inmoo Lee (Ph.D.) a Vice President from Dimensional Fund Advisors in the United States. Inmoo along with two other colleagues from Dimensional has conducted research into the relationship between risk premiums and business cycles looking at whether there are systematic patterns and if so whether investors can effectively access better returns utilising these patterns. (The following is my own summary of the presentation and not that of the researchers.)
Before getting to the results let's first step back and define a couple of key concepts. For those who have followed our website and our underlying investment philosophy you will be aware that we subscribe to the academic research behind the three factor model as identified by Fama & French. Fama & French found that there are areas of investment markets where risk premiums exist over the long term. In particular, small and value companies, taken as a group, hold higher levels of risk for investors and therefore investors expect compensation for taking on that risk. i.e. higher risk leads to higher return in the long run. (Take a look at our Investment Philosophy and Our Research Based Approach pages for more details)
However, these risk premiums are not present all the time and over short run periods, small and or value companies may under-perform the index. Currently the Global Value fund that we use in portfolios has underperformed the Large Company fund year to date but has out-performed over 5 years.
Therefore, based on these presumptions which are supported by academic research, the question to ask is can you time your entry and exposure to the risk premiums so that you make the most of periods when the risk premiums are being realised and minimise the exposure when the risk premiums are not being realised and the index (and growth stocks) are performing better.What Inmoo and his colleagues have done is to look at business cycles as a source of prediction. Let's stop here and break off for a brief economics lesson first. The business cycle basically tracks the periods of expansion (growth) and contraction (recession) in an economy. Throughout history economies move through this cycle moving from periods of expansion, reaching a peak and then contracting, reaching a trough from whence the economy starts to expand again.Intuitively we should expect that the risk premiums (expected future returns) are greatest at the bottom of contractionary periods (troughs) and worst at the top of expansionary periods (peaks). The theory being that at the bottom of the market cycles, riskier investments such as small companies and out of favour companies (value) will be sold off the furthest. Therefore the expected future return is the greatest as these investments are at relatively low prices.So theoretically, the best time to be buying into risk premiums is at the bottom of the business cycle and selling out at the top of the business cycle. Inmoo's research actually found that some relationship did indeed exist with small and value areas of the US market out-performing the market going forward from the bottom of the business cycle and under-performing after the cycle reached the peak.Everyone should be getting excited now as there seems to be an opportunity to trade in and out of the premiums and thus achieve greater returns. Unfortunately there is a big BUT. A major problem is that it is very difficult to identify exactly when the business cycle reaches its peak and trough. The National Bureau of Economic Research in the US has the task of doing just that. They identified the last peak as being reached in March 2001. Unfortunately they were only able to make this determination in November of that same year. i.e. 8 months later. Similarly they identified that the last trough in the business cycle was November 2001 and this was determined in July 2003, some 20 months later.If an organisation which has this task as its primary focus takes so long after the fact to make a determination, what hope to make the determination beforehand. This is the key problem.Now some might say well what does it matter if you miss the peak or trough by a month or two you should still end up with a better outcome. Inmoo and his colleagues took this very consideration into account. They found that if you missed your timing either coming in or going out the benefit of the timing decision was statistically non-existent. Basically the conclusion was that you had to be lucky twice with your timing decisions. You would have to pick the precise month going in to the risk premium and then precisely time the month when to get out of that area of the market.Yet again it seems the probability of greater performance is stacked against the "market timers". A much better approach is to determine your ideal portfolio exposure to risk factors i.e. the market, small companies and value companies, and hold this exposure through time.If you would like more information about our approach to structuring investment portfolios please take a look at our Building Portfolios page.
Regards,Scott Keefer - A Clear Direction
used without permission by 'Economicsiscool'
Scott's Financial Happenings Blog - Posted Thursday 4 September I had the pleasure of joining a presentation from Mr Inmoo Lee (Ph.D.) a Vice President from Dimensional Fund Advisors in the United States. Inmoo along with two other colleagues from Dimensional has conducted research into the relationship between risk premiums and business cycles looking at whether there are systematic patterns and if so whether investors can effectively access better returns utilising these patterns. (The following is my own summary of the presentation and not that of the researchers.)
Before getting to the results let's first step back and define a couple of key concepts. For those who have followed our website and our underlying investment philosophy you will be aware that we subscribe to the academic research behind the three factor model as identified by Fama & French. Fama & French found that there are areas of investment markets where risk premiums exist over the long term. In particular, small and value companies, taken as a group, hold higher levels of risk for investors and therefore investors expect compensation for taking on that risk. i.e. higher risk leads to higher return in the long run. (Take a look at our Investment Philosophy and Our Research Based Approach pages for more details)
However, these risk premiums are not present all the time and over short run periods, small and or value companies may under-perform the index. Currently the Global Value fund that we use in portfolios has underperformed the Large Company fund year to date but has out-performed over 5 years.
Therefore, based on these presumptions which are supported by academic research, the question to ask is can you time your entry and exposure to the risk premiums so that you make the most of periods when the risk premiums are being realised and minimise the exposure when the risk premiums are not being realised and the index (and growth stocks) are performing better.What Inmoo and his colleagues have done is to look at business cycles as a source of prediction. Let's stop here and break off for a brief economics lesson first. The business cycle basically tracks the periods of expansion (growth) and contraction (recession) in an economy. Throughout history economies move through this cycle moving from periods of expansion, reaching a peak and then contracting, reaching a trough from whence the economy starts to expand again.Intuitively we should expect that the risk premiums (expected future returns) are greatest at the bottom of contractionary periods (troughs) and worst at the top of expansionary periods (peaks). The theory being that at the bottom of the market cycles, riskier investments such as small companies and out of favour companies (value) will be sold off the furthest. Therefore the expected future return is the greatest as these investments are at relatively low prices.So theoretically, the best time to be buying into risk premiums is at the bottom of the business cycle and selling out at the top of the business cycle. Inmoo's research actually found that some relationship did indeed exist with small and value areas of the US market out-performing the market going forward from the bottom of the business cycle and under-performing after the cycle reached the peak.Everyone should be getting excited now as there seems to be an opportunity to trade in and out of the premiums and thus achieve greater returns. Unfortunately there is a big BUT. A major problem is that it is very difficult to identify exactly when the business cycle reaches its peak and trough. The National Bureau of Economic Research in the US has the task of doing just that. They identified the last peak as being reached in March 2001. Unfortunately they were only able to make this determination in November of that same year. i.e. 8 months later. Similarly they identified that the last trough in the business cycle was November 2001 and this was determined in July 2003, some 20 months later.If an organisation which has this task as its primary focus takes so long after the fact to make a determination, what hope to make the determination beforehand. This is the key problem.Now some might say well what does it matter if you miss the peak or trough by a month or two you should still end up with a better outcome. Inmoo and his colleagues took this very consideration into account. They found that if you missed your timing either coming in or going out the benefit of the timing decision was statistically non-existent. Basically the conclusion was that you had to be lucky twice with your timing decisions. You would have to pick the precise month going in to the risk premium and then precisely time the month when to get out of that area of the market.Yet again it seems the probability of greater performance is stacked against the "market timers". A much better approach is to determine your ideal portfolio exposure to risk factors i.e. the market, small companies and value companies, and hold this exposure through time.If you would like more information about our approach to structuring investment portfolios please take a look at our Building Portfolios page.
Regards,Scott Keefer - A Clear Direction
used without permission by 'Economicsiscool'
Sunday, August 24, 2008
Recent industrial action from around the world
Tafe teachers in Victoria seeking fair pay (Australia).
NSW railworkers planned this one to coincide with the Pope's visit!
Boeing workers seeking a greater share of company profits (Seattle - USA).
Electrical and telecommunications workers in USA also seeking better conditions and incentives to work.
In each of these cases, what is being asked for and why do workers feel entitled to it at this time?
Monday, August 4, 2008
Industrial Conflict
Pilot's Strike:
One of the worst and most costly industrial disputes in Australia's history was the Pilot's Strike of 1989:
http://www.vision.net.au/~apaterson/aviation/pd89_document.htm
Patrick's v.Wharfies:
The MUA was involved in another major Australian IR conflict, here's part of their story: http://www.mua.org.au/war/.
Ofcourse, that's one perspective, here's a response to War on the Waterfront: http://www.cpa.org.au/booklets/mua.pdf
One of the worst and most costly industrial disputes in Australia's history was the Pilot's Strike of 1989:
http://www.vision.net.au/~apaterson/aviation/pd89_document.htm
Patrick's v.Wharfies:
The MUA was involved in another major Australian IR conflict, here's part of their story: http://www.mua.org.au/war/.
Ofcourse, that's one perspective, here's a response to War on the Waterfront: http://www.cpa.org.au/booklets/mua.pdf
Wednesday, July 30, 2008
The current state of unions
Unions have played a critical role in establishing safe workplaces with fair pay. However, statistics in Australia show a decline in membership and support for the union movement. Check out the ABS:
http://www.abs.gov.au/Ausstats/abs@.nsf/7d12b0f6763c78caca257061001cc588/592d2f759d9d38a9ca256ec1000766f7!OpenDocument
A quick glance of recent news headlines shows that the traditional support labour government might have given to unions is flailing:
http://www.smh.com.au/news/nswbudget2008/workers-its-your-sacrifice/2008/06/03/1212258826237.html
more to come...
http://www.abs.gov.au/Ausstats/abs@.nsf/7d12b0f6763c78caca257061001cc588/592d2f759d9d38a9ca256ec1000766f7!OpenDocument
A quick glance of recent news headlines shows that the traditional support labour government might have given to unions is flailing:
http://www.smh.com.au/news/nswbudget2008/workers-its-your-sacrifice/2008/06/03/1212258826237.html
more to come...
Monday, July 21, 2008
Workplace Health and Safety
Safety is critical in every workplace - some more than others.
What experience have any of you had, or that your parents can recount to you, regarding safety issues and training in the workplace?
If you'd like to find out more about obligations of employers and employees:
http://www.business.gov.au/Business+Entry+Point/Business+Topics/Occupational+health+and+safety/
http://www.deir.qld.gov.au/workplace/index.htm
http://www.business.gov.au/Business+Entry+Point/Business+Topics/Occupational+health+and+safety/
http://www.deir.qld.gov.au/workplace/index.htm
Monday, July 14, 2008
Week 1 - welcome to the blog
Hey, economists, what experience do you have with Blogging?
We're about to embark on a test run, enquiring into the usefulness of Blog sites for our learning and communication as a group. I will check weekly who uses this, as it is important for me to monitor how you are approaching your homework and preparation.
Tell me, is logging in weekly to this Blog going to be an issue for anyone?
How do you think we can use this?
NB - There are marks and rewards for those who use this well and regularly.
c u l8r!!!
We're about to embark on a test run, enquiring into the usefulness of Blog sites for our learning and communication as a group. I will check weekly who uses this, as it is important for me to monitor how you are approaching your homework and preparation.
Tell me, is logging in weekly to this Blog going to be an issue for anyone?
How do you think we can use this?
NB - There are marks and rewards for those who use this well and regularly.
c u l8r!!!
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