October 3, 2012
Fears and expectations of youth in turbulent times

The European Youth, of which I am a member, is clearly experiencing a transition period. They used to refer to us as the “lucky generation”, the one who got everything without fighting for it or simply those who did not have to work hard to obtain what we enjoyed and still, however, enjoy. We have the opportunity to study what we want, our lives are made easier thanks to the new technologies, especially referred to communication and transportation. At some point in the recent history something changed and we realized that, after all, we were not that lucky. I would not say it is all about the global financial crisis and its consequences for the economy. Some issues, such as contract work (in the meaning that it brings unstable conditions and no certainties), the “abuse” of interns, the underdevelopment of certain regions, are problems that have been there even before the official beginning of the crisis in September 2008. However, it is clear that the economic circumstances brought about by the so-called “great recession” have aggravated the condition of the European Youth, causing that feeling of uncertainty and fear that characterizes us young people.


If I am asked to make a list of what is problematic for me, as an individual, finishing studies and entering the labor market nowadays, I would mention as first the high level of youth unemployment. The current situation also requires mobility, that is being in the right place where my expertise/skills/knowledge is required. Another issue is the fact that entry level jobs pay very little and, what is more, the value of a student is not rewarded (whether I have the best grades or not, corporations will look at the CV and not at my transcript of academic record). In addition, raising the retirement age does not encourage the generational turnover and, in such a limited labor force demand, one should spend more time networking with the right people who might help you rather than developing other skills.


The institutions involved in solving such issues are, among others: Governments (local and national level), relatively to boosting the economy through public spending, undertaking labor law reforms that promote hiring young people; central banks, through the effects of “easing” monetary policy that make the coming out of the crisis easier and overturn the fate of high unemployment; Ministries of Education, in cooperation with the Private Sector, in order to promote hiring the most talented students.


However, a young person might choose to find the strength inside him/herself and try harder to solve these issues for his/her personal best, and not wait endlessly for institutions to solve everything. In this case it is necessary to activate the brain, try harder, wait for the right moment and occasion, even if it would represent a cost for the family. If the mobility is now a must, one should start looking for information about perspectives and job opportunities in other regions, countries or even continents. Important would be accepting the risk related to moving away from the motherland. Relatively to low salaries, one can try to negotiate (trying, at least, is still for free) or wait before earning more. If the value of a student is not “automatically” recognized, one should learn how to “promote” his/her own person , perhaps studying how to perform at job interviews or how to write excellent CV and cover-letters. After all, seeking success without the help of institutions, might represent big gains, such as: learning how to cope with tight budgets, learning how to look and get a job (in the future one will need to find other jobs anyway), learning not to take things for granted, learning how to have connections. Learning but also taking advantage of the opportunities that the turbulent time offers, such as the push to move abroad and enjoy a life experience.


Making a personal balance and comparing costs of waiting for institutions with the gains I get from having a problem related to turbulent times, I say that I prefer taking a step forward, consciously understanding these gains and taking advantage of them. There is already some level of cooperation between institutions that prepare students to the mobility issue. Programs such as the European Union’s Erasmus allow students to experience living and studying for a period abroad. It is a great chance to explore a new country, investigate its job opportunities, its quality of life. Secondly, if I see opportunities of self-development on one side, and endless blame on institutions on the other, I say that, especially during such economic situation, the second option is fool.


The personal path undertaken during the workshop that guided me to this conclusion had a specific turning point: writing down the words “my-self”. A deep analysis of the issues that I am facing was helpful, as well as confronting my ideas with others’ opinions. However, when I had to confront my-self with “my-self” written on the paper, something changed. It became clear that institutions are just a mean and if I fear the future under turbulent times, the best would be to roll up my sleeves and decide for my-self.


Social movements are not for me. Trying to have an influence, in this particular way, on the government or other institutions decisions would be, I believe, a big distraction from what the real point is: developing my-self and seeking the best. There is no time to waste.


Another word convinced me: “consciously”. I believe that a personal analysis of the problem, a “conscious”  understanding of it and of my personal solutions, works even better than the good advices and motivation provided by parents or friends. Or, at least, such consciousness works as a strengthening of those exhortations.


I have already taken part of the risk of moving away from my family and my motherland. As soon as I realized that there were no perspectives for me there, I decided that moving abroad would be the first step. I enjoy the international cooperation between Universities that is facilitated by EU programs. As soon as I finish my studies I already know who my potential employers may be. If asked whether I am “consciously” undertaking actions and activities towards my goals I answer: yes. I already knew I was, but reminding my-self from time to time is helpful in fighting the fear and uncertainty of the present time. A deep analysis of the problem, if a problem is definable, helps delineate the issues and find a realistic solution. 

Gianmarco Costanzo

September 2012

September 28, 2012
Buy the iPhone 5 and then complain about the crisis

You can borrow or spend your money to buy what you want, and thank God that is so (the opposite is the planned economy). One assesses what he/she can afford and what not and I believe I can’t afford an iPhone, being it the 3, 4 or 5 it doesn’t matter.

Personally, I do not complain openly about the crisis, if anything I write academic papers on the sovereign debt crisis, and my phone cost me €100 (internet, email, FB and twitter, WhatsApp, and so on.)

So what? Am I wiser? Who can say? I’m OK with what I bought, I do not envy those who have a smartphone more expensive by about 700% than mine. I don’t even judge who buys the iPhone 5 and then complains about the crisis.

However, staying in a queue for days, come on… I would do it only for a concert of The Beatles,  if Lennon resurrected and played one more time.

1:16pm  |   URL: http://tmblr.co/ZekHVvUEIgL4
Filed under: iPhone economics 
September 26, 2012
The era of vicious circles

http://www.bloomberg.com/news/2012-09-26/rajoy-bets-italian-woes-may-ease-spain-rescue-terms.html

Spaniards say “Italy seeks aid, we strengthen our bargaining power”

Italians say “Spain seeks aid, we all enjoy of a renewed investors’ confidence and we won’t need to seek any aid”

In the economic era of “vicious circles”, here is another.

April 27, 2012
Spain

UEFA Champions League: Real Madrid and Barcelona eliminated

S&P: Spain downgraded from A to BBB+

any relation or just cruel destiny?

April 25, 2012
Ben Bernanke

"To be good voters and good citizens, people need to understand what the Fed does".

(Ben Bernanke, chairman of the Federal Reserve, at today’s press conference)

April 23, 2012
Facebook

by Gianmarco Costanzo (88 words)

Facebook applied to list on NASDAQ.

It’s official, we’ll be waiting for the date to be published soon. To be sincere I’m so curious to see how the whole deal will be managed, how it will change financial equilibria, since it will easily attract capitals and generally attention otherwise destined somewhere else.

Facebook has been able to make people stop living real lives and start living events in order to share them on their “timelines”. Will it make investors focus mainly on its stock trends?

Details here:

http://www.bloomberg.com/news/2012-04-23/facebook-reports-sales-growth-indicates-shares-valued-at-30-89.html

April 21, 2012
Financial markets news of the day (April 20)

by Gianmarco Costanzo (65 words) from www.bloomberg.com

http://www.bloomberg.com/news/2012-04-20/aviva-mistakenly-fires-1-300-employees-at-investment-unit.html

Aviva apparently laid off 1300 of its employees at Investment unit. They eventually said it was a mistake. Just one employee was intended to be fired. The suspect is, have they possibly tried to test the reaction of the Stock Market to such an information? By the way, their shares have gained 2% today. “Sorry about that, we’ll try and be more careful next time”

April 20, 2012
Hope not to lose a soccer game

by Gianmarco Costanzo (557 words)

Does the Stock Market or the Economy react to soccer outcomes?

Should we really care about the results of our national soccer team?

Last Wednesday, while I was watching the UEFA Champions League semi-final game between Chelsea and Barcelona, this thing came up to my mind: how is the loss of Barcelona going to effect the Spanish Economy. Surely people will be frustrated, depressed, less willing to go out and celebrate. But, is a correlation between soccer outcomes and the Economy clear?

Barcelona F.C. is said to be, at the moment, one of the strongest team ever in the history of soccer, but I wonder if Spaniards really enjoy such a claim in terms of economic growth. Nevertheless, the Spanish national team is one of the favorite candidates for  the victory of the UEFA Euro Cup 2012 (which will be held in Poland and Ukraine this summer). Other favorites are, in my opinion, Italy and Portugal (clearly 3 economies facing difficult times due to the sovereign debt crisis in the EU).

My speculation is this: suppose Italy won the Euro Cup, people would go and celebrate, gain confidence, spend (finally) their money. This would imply higher revenues, higher taxes collected, faster recovery of the Government deficit and eventually of the public debt. The market reacts and Italy enjoys a lower spread. Less interests to pay, even faster recovery. 

Let’s give up believing in fairytales and go straight to the scientific research about relations with Stock prices I’ve found yesterday:

Sports Sentiment and Stock Returns”, by Alex Edmans, Diego Garcıa, and Øyvind Norli.

(Here is an abstract from it. The entire paper, which I truly recommend to read can be found at http://www.afajof.org/afa/forthcoming/3096.pdf)

"…Motivated by the abundance of psychological evidence showing that sports results have a strong effect on mood, this paper investigates the stock market effect of international soccer results. We document a strong negative stock market reaction to losses by national soccer teams. The size of the loss effect is economically significant—in monthly terms, the excess returns associated with a soccer loss exceeds 7%. We find a statistically significant but smaller loss effect for international cricket, rugby, and basketball games. There is no evidence of a corresponding reaction to wins in any of these sports. The finding that the effect is not priced into the index when a loss is highly expected leads us to reject the view that the loss effect stems from the reaction of rational investors to cash flow relevant information. Instead, we interpret the effect as resulting from the impact of sports results on investor mood. There are several justifications for this interpretation. First, soccer results have been demonstrated to impact mood but have little direct economic impact. Second, the effect is more pronounced in countries where soccer is especially important, for games in the World Cup, and for elimination games. These important matches are precisely the games with greatest mood impact. Third, the effect is especially large in small stocks…”

To conclude, the impact of soccer outcomes on the Economy is weak. However you should definitely hope that your national team doesn’t lose a game, especially if a soccer game (cricket, rugby and basketball games have less impact), in case you invest in small stocks in countries where soccer is important.

PS: I personally apologize with all Europeans (my-self included) for calling it soccer.

April 18, 2012
Minsky’s “Financial Instability Hypothesis”

by Gianmarco Costanzo (580 words)

How have the economists explained financial crises?

Any favorite economist?

Minsky went straight to the point in a rather comprehensive manner.

In “The Financial Instability Hypothesis” (1992), Hyman Minsky starts with a rejection of the classic precepts of Adam Smith, arguing that, as proven in the history, the economy is not constantly an equilibrium seeking, and that the government intervention had been inept in some of the historical crises. What follows is the explication of the Keynes “veil of money”:

…the actual owners of wealth have claims, not on real assets, but on money… the banking system interposes its guarantee between depositors who lend it the money, and borrowing customers to whom it loans money wherewith to finance the purchase of real assets… the interposition of this veil of money between real assets and the wealth owner is an especially marked characteristic of the modern world…” (J.M. Keynes).

According to this view money is connected with financing through time and therefore the economy is not only characterized by capital assets and labor force, but also by financial relations. What is more, Minsky argued, the financial system is institutionally complex, meaning that there are several layers of intermediation between wealth owners and those who operate and control it, and that the increasing complexity of the financial structure makes the system behave differently than in the past. However, the level of profits is still the key determinant of the system behavior: bankers (financial intermediaries) are, according to Minsky, entrepreneurs who seek innovations to make profits (Schumpeter’s view of entrepreneurship as a innovation driven activity). Banking is taken seriously as a profit-seeking activity.

Said so, the central focus of “The Financial Instability Hypothesis” is the impact of debt on the behavior of the system. Minsky defined 3 types of finance  -hedge, speculative, and Ponzi finance- and identified 3 income-debt relations for them:

a. Hedge financing units are those which have enough anticipated operating income to pay interests and scheduled reduction in their indebtedness;

b. Speculative finance units have enough anticipated operating income to pay interests, but must use cash from new loans to repay the amounts due on maturing loans;

c. Ponzi units don’t even have a sufficient anticipated operating income to pay interests.

If the system is dominated by speculative and Ponzi finance there might be a greater probability that the economy is a deviation amplifying system, and more exposed to financial crises. Minsky elaborated 2 fundamental theorems:

1. “…the economy has financing regimes under which it is stable, and financing regimes in which it is unstable” (if hedge financing dominates it is stable, otherwise it is not);

2. “…over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system” (from hedge to speculative and Ponzi scheme).

To conclude, Minsky identified a pattern that drives modern capitalistic economies: over periods of hedge financing, and prosperity and growth, the confidence resulting drives the system to a structure in which there are more and more speculative and Ponzi finance units. What is more, if the economy is in a inflationary state and authorities try to stop inflation by money constraint (e.g. rise of interest rates), then speculative units become Ponzi units (they can’t repay interests). Thus, in case of severe cash flow shortfalls, they will inevitably try to make position by selling out, which will lead to the collapse of asset values, and makes a financial crisis more likely. 


April 17, 2012
Free introductions are always recommendable

Have you ever been called “cheap”, “thrifty”, “stingy”, just because you care about how to let your money get out of your wallet?

Do you consider the word “saving” as a synonymous of “smart spending”?

Do you, by any chance, study Economics or have already a degree???

Well, if so, we start with the right foot.

If not, my dear extravagant, no one is perfect…

Nevertheless you’ve ended up in a blog which very presumptuously, I should say, assume to provide readers with good and economical (in fact I don’t charge any fee or price) financial/economic tips and, from time to time (not to load you with too much homework to do), with economic hints. 

In the hope you will at least stop and critically reflect about the issues we’ll examine each time -and thus upgrade from “animal instinct” driven to “homo economicus” - I’d like thank you for your kind attention and wish you a pleasant reading.

Gianmarco Costanzo

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