Repo Man

Money market mutual funds, which many regard as safe investments, lend cash to banks, brokerage firms and asset managers for one day at a time.  The next day by mutual consent, the loans are turned over.  The "repo market" is a huge $4.6 trillion.  Everything is cool until it's not.  Using short term borrowing to cover long term investments such as mortgages is inherently vulnerable to changes in expectations.  If one party becomes nervous and does not renew, the market collapses as it did for Lehman and Bear Sterns five years ago.
Sorry, but markets are not automatic and wonderful.

(For background see NYT, Sept. 13, 2013.

Leadership?

A survey of voters after the Presidential debate says  Romney is the best leader. But, with respect to the economy he has never said exactly what he is leading us to except that the market is magic.

Coffee Prices at Mercy of Speculators

Hedge funds and other speculators are drving up the price of coffee (as they have done with gasoline) much more than warranted by fundamentals of supply and demand. The government should prohibit futures markets and let the gamblers play at the casino where they can't harm the rest of us.
Futures markets are a means by which coffee processors can lock in the price of future deliveries, but this benefit is not worth its cost. Lots of businesses live with uncertainty--sometimes the acutal price in the future is more than the expected price and sometimes less. A prudent company can survive these fluctuations and thrive on the averages.

The Big Casino

If you are looking for evidence that the stock market is one big casino, note the yo-yo pattern of the markets this week. Up 600 points, down 600, and repeat. If this casino were isolated from the real economy, no one would care, but it is not. To reduce this problem, four European countries have banned negative bets against financial stocks--selling securities that you do not own in hope of buying them back later for less. This is a pure gamble not unlike betting on the horses.
Another casino dealing in petroleum futures accounts for a similar yo-yo pattern in gas prices at the pump. Our lives seem to be at the mercy of gamblers' whims.

Recession & Jobs

An Associated Press writer says that businesses to retain earnings "become more productive; they found ways to produce the same level of goods or services with fewer workers." I thought the competitive market forced firms to do than all the time, not just when earnings fall. Could it be that economists need a more refined behavior model to explain this? Could it be that firms satisfice most of the time, until some frame makes them breakout of the status quo?
LSJ May 14, 2010