Thursday 16 September 2010

Internet Bubbles: easy steps to loose money

The Internet Bubble
The Internet has revolutionised the world, business included. From around 1995 to the early 2000s there was a sort of strange aura around internet companies leading to 'stock bubbles', companies were pumped up to be huge with nothing but a web address then collapsed with no capital to reply their creditors.

This is simply how it works:
-Internet company is founded with an idea
-Someone finds out about this and is also convinced it is a good idea
-Internet firms of the past have jumped up stock market… so people assume this will
-people buy stock
-people recommend buying the stock
-more people hear about it and see the stock price rising (increased demand) so they buy (further increasing demand)...
-Shares soar!
-Baffled owners of the company release more stock to make a profit for them selves
-Demand for stock is still insainly high and people continue buying forcing the price up (even though supply is increasing)
-Owers of the company rease more and more stock
-The company is not actually that good.. (E.g: Netscape, fanstiastic but then wiped out by Microsoft.)
-Stock plumits down
-Company is struggling but has no stock left to release
-Company goes bankrupt.

Just demonstrates the stumbling block of economics... sometimes people aren't that rational.

Wednesday 1 September 2010

Review of Panic! 'by' Michael Lewis

Panic! (The History of Modern Financial Insanity) is like no book I have read. This is not surprising considering it is written by ex-bond sales man Michael Lewis, a man who used to work for Saloman brothers playing the market for millions until he quit to expose the insanity of the system. That is what this book is all about.
While Lewis has written many books before such as liar's poker (that i am yet to read) this book is a general overview of the history of financial market: "the story of modern financial insanity". How ever the book is not actually 'written' by Lewis, he chooses to tell the story through many peoples perspective. The book is simply a book of articles masterfully arranged with Lewis being the narrator. One article would tell of how everything is up, the next a prediction of down fall, the next a story of what the government is doing the next a renegade traders account.

The book is split into 4 parts.
Part 1: A brand new kind of crash - the market crash of 1987
Part 2: foreigners gone wild - the asian crisis and subsequent recessions.
Part 3: The New New Panic - the internet bubble
Part 4: the peoples panic - the resent US subprime collapse

At the start of the book at Part 1 the book may seem of little economic relevance but stick with it, the information gathered on the markets and how they work is very useful to know and it gets more directly economical later when the markets start to affect the economy as a whole.

Part 2 is my favourite part, detailing the rise and fall of the asian markets, and how when they were thrown into recession it rippled across the world. There is a fantastic article by Paul Krugman from Fortune magazine, september 7, 1998 called Saving Asia that goes in-depth into different macro economic policies.
Throughout the book it tells of how again and again people make the same mistakes and how the history of markets have shaped the economic world.

“In Octorber 1987, the markets took power from people who traded with their intuition and bestowed it upon the people who traded with their forumlas. In Austust 1998, the markets took power away from the people with forumlas who hoped to remain detached from the market place and bestowed it upon the large wall street firms that oversee the market place.” –How the Eggheads cracked, Michael Lewis, the new york times, 1999. (and we know now that in 2008 it took power away from the big firms with the fall of Lehman brothers)

In summary this is a fantastic book if you want to be filled in on resent economic and market history and equally useful if you want to understand markets. How ever due to the nature of the book some parts are very difficult to read, some of articles assume knowledge of the reader. Overall if you are the persistence to get through difficult articles, this book is well worth the read.
Advanced so A level although could be useful for business students as well as economics

Review of Tescopoly by Andrew Simms

At first look the book Tescopoly may seem like a book of slander against tesco but having read it, it is much more. The book details the rise of the supermarket industry in particular tesco but it goes further than that. It analyses how the rise in the supermarket industry and the retail giants has destroyed the local economies across the country, how they also are destroying society as a result.
Simms often refers to local economies as ecosystems, saying that when their are lots of small shops there is lots of diversity and thus ideas flourish. With many shops comes competition but also other advantages to the consumer such as human connection and "social glue". He states supermarkets as invasive that destroy the economy and wipe out the local diversity.
He details the anti-competivie practises of tesco and other supermarkets arguing that actually they use their monopoly status and 'tricks' to get to the top and ruin the consumer. Talking about how by 'freeing' the markets of restriction you actually destroy the 'free market'. While the book is persuasive and heavily rooted in Simms opinions, he uses a wide range of data and arguments to back up his points. Simms brings in quotes and theories from various economist, placing economists like Maynard Keynes and Adam Smith on his side. He uses lots of facts and data from various sources to prove his point, even when quoting politicians he ensures he quotes a Labour MP then next page a Conservative and before long a Lib Dem and so on.
By the end of the book i found my self totally won over by Simms, having a strange urge to run into Tesco shouting "what have you done to those farmers (african and british) and josephine the now ex shopkeeper!!!"
I certainly recommend this book, it is easy to read for economists and none economists, its interesting can be easily dipped in and out of but also ties together like a story. It contains lots of Macro Economics that will serve well in exams.
I'd say GCSE + A Level Friendly