Archive for September 4th, 2014

Book Review — Zombie Economics: How Dead Ideas Still Walk among Us

September 4, 2014

Just finished reading this book by Prof John Quiggin. As Prof Quiggin is from Australia, perhapsthe book did not become as famous compared to his American counterparts.

Actually this is a book which most experts and media in India should read. The kind of articles people write by simply aping the west is outright silly. And that too after seeing how the west has suffered recently.

In the book, Prof Quiggin thrashes five ideas which like zombies keep coming back despite their ugliness. These ideas were thrashed as crisis started but are again making a comeback:

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Indian govt should care less about rating from credit rating agencies and more about ratings of its people..

September 4, 2014

Ever since the global financial crisis has exposed the finance and its supporting sector, things have only become more laughable.

The credit rating agencies is one such business. When crisis happened, the CRAs shamelessly said our ratings our opinions. We didn’t force anyone to use them? Really?

Instead of becoming more sober and restraint, they continue to release reports on rating agencies of countries and companies. The proble is not with ratings per  se but the seriousness via which these ratings are released. It is as if they really know and want us to believe the true nature of their ratings. They are only good till the next crisis is revealed only to show they had rated the troubled organisations/countries in top bracket.

So, one does not know what to make of such statements on Indian economy. AS if their top rated countries are any better.

UPA-II made a big mistake by hearing all these rating agencies seriously in the secod half. First they said the measures were not takes because of pressure of rating agencies and then when questioned on the measures, said they were taken because of pressure from CRA. Meanwhile, the confidence in public was plummeting and the govt got a huge thrashing in the upcoming polls.

This does not mean we don’t need to lower inflation/deficits. Just that we don’t need rating agencies to tell us. They are as clueless as any of us..

Buy and hold vs market timing portfolio strategies

September 4, 2014

There are certain things which do not make sense when comparing theory with practice. Finance theory shows that simple buy & hold/passive investing wins iver market timing/active investing. But in practice people keep trying to make more returns than markets. Few lucky ones blow their trumpets (and hide their losses when luck becomes dry). The rest keep trying just to waste more and more resources.

Infact theoretically, finance industry should not be as big and profitable. The profits are not made of market timing but via commissions and exorbitant spreads between costs and incomes of providing funds.

Yi Li Chien of St Louis Fed shows in this yet another small note how buy and hold wins over market timing:

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