Monday, March 25, 2013

RS10 - Cyprus

The small country of Cyprus is in a great deal of trouble because they are financially unstable, and are going to drastic measures to bail their country out.  Instead of borrowing money from other countries governments they are trying to set a law where they can go into any Cyprus bank account and take a percentage of the persons savings. The people were outraged and immediately headed to the ATM's to withdraw all they money they could so it would not be taken from them.  The situation in Cyprus is a headline in the news, and it has been for a while.

Cyprus is only as big as as the Bronx in New York, but regardless of its size its become a banking island.  Its such a small island that they cannot afford to export items. So instead they have developed an offshore banking relationship to get their economy going.  They had to compete with other small islands by offering higher intrest rates and to turn the shoulder when it came to where the money was coming from and where it was going.  Thats true for most off shore banks to just turn your shoulder and not ask where the money is coming from or where it is going.

It just does not sit very well with me that saving account owners in Cyprus banks will have money taken from their accounts to dig the country out of trouble.  When people signed a contract to join the bank they were giving the benefit that if the money was ever not there to withdraw, then the government would pay you in full for the money you are owed.  But due to the country going into financial troubles the government has waived that insurance backing and will no longer pay the bank members back in full.  I just dont understand how that is fair, if I were to put my money into a savings account I would expect it to all be there whenever I would like to withdraw it.  If you really think about it though, when you put your money in an offshore bank, how can you have your full trust in the bank to not lose you money or have it spent or anything else that could happen to it.  I personally would never be putting my money in an off shore savings account because of what I am reading here. You cant trust the bank and what the government says because clearly here they went against their prior agreement.

RS9 - Dow Jones

As I listened to the Planet Money podcast about the Dow Jones, I thought to myself why would the Dow Jones even bother posting their numbers throughout the day with all the criticism they receive.  But then I began to realize that when you flip to the news station on the television or even a stock program or go online to look at the stocks and see how they are doing for the day.... the first one you see is Dow Jones. Why? The answer is because of the legacy is has.  Dow Jones has been there for over a hundred years and is known by pretty much anyone who has the slightest sense of what the stock market is about.  

So the past few days the Dow Jones has been on the rise and newscasters are making it look pretty important saying they are breaking all time highs. The Dow Jones uses a much different calculation system then the other major averages who are much more accurate due to the new algorithms they are using.  The system Dow Jones uses is old school and has stayed old school. Also the Dow Jones does not include major companies such as Apple, Facebook, or even Google.  If these three companies are tops in the market and Dow Jones does not account for them then how can you consider Dow Jones a reliable source.  The companies they use are all on the older side and dont show an economy that is becoming more tech savvy due to the younger generations. 

The S&P 500 is a much better average as it takes in five hundred companies rather then just thirty as the Dow Jones operates.  Think about it, what will give you a better feel for how the economy/stock market  is doing? Would it be Dow Jones who averages 30 big US companies, but not including some of the best, or S&P 500 which included tops of five hundred large scale companies.  If more people knew the facts about the Dow Jones, then more people would realize that it literally is useless.  Compared to other averages the Dow Jones is nothing, because it proves nothing.  And it is pretty pathetic that the Dow Jones company gets paid to give people the wrong perception. As Dow Jones goes on to say how positive its been the past few days. If you look at the S&P 500 it is below it's all-time highs in both nominal and inflation-adjusted terms.   So Planet Money has me convinced, Dow Jones is a non-factor when determining how well the stock market is doing.

RS8 - Unemployment

Planet Money did a podcast on the Unemployment rate and it was actually very interesting and also informative on how the unemployment rate has an effect on the stock market.  If you have money to invest you can make a killing by just knowing whether the unemployment numbers will be up or down compared to the last months numbers.  All it takes is for you to know the numbers before they are released and you are instantly rich because you have the inside scoop. 

The Planet Money team did some research through a visit to the The Bureau of Labor Statistics where they keep the records of the unemployment numbers.  This office of the government is a very secure place and even being inside the building you still are not allowed to know much and the employees are not allowed to reveal very much information.  Out of the four weeks in a month, guests are only allowed to be in the The Bureau of Labor Statistics only one week of the whole month.  Reason being that the Bureau is on lock down for the two weeks prior to the statistics being released.  Only certain employees have information about certain numbers, they are sworn to secrecy and not even their fellow employees are allowed to know the information that they are dealing with.  

Listening to the podcast, they described how several years back a economist was on the The Bureau of Labor Statistics website and found a link that was listed as new.  He then went and clicked on the link and brought him to what was the unemployment stats that were supposed to be listed the following day. Instead of taking this information and turning it into a personal profit he changed his analysis and posted it and within seconds was getting calls about it.  What he did was not illegal as it was a mistake by The Bureau of Labor Statistics.  So The Bureau of Labor Statistics had no other option, and had to release their information a day early.  So now they have many upon many security blankets so something like this will no occur again.

Personally if I was the economist who found that information I would have turned it into a personal gain. Through this podcast I learn that knowing this confidential information is pretty key into making financial gains.  It may be unethical but at the end of the day there would be nothing they could do because it is the fault of Bureau of Labor Statistics.

Friday, March 15, 2013


Russ Special number seven was the Planet Money podcast titled "The Price of Lettuce in Brooklyn," they talked about how certain individual items sold at different stores and how they can affect the CPI levels in the economy. CPI stands for the Consumer Price Index, this system produces a monthly report on the prices urban customer pay on certain goods or services.  The CPI affects nearly every American due to the many ways it is used especially the three main things CPI affects.  CPI is used as an economic indicator and lets us know how well our economy is doing or even how bad it is doing.  CPI also is used as a deflator of other economic series.  And the third major thing CPI has affect on is the adjustment of the dollar value. Not only does the CPI take in the purchases in the market place but it also takes in the aspects such as governmental and environmental factors that affect human beings well being.

The people who have the job of going around to these different stores and inspecting the one hundred or so items that are specifically picked by this government agency go in and will find the price of the items and for the some they will also be weighed.  This way you can see the deflation.  In the podcast the planet money person went with one of the CPI analysts and they went to a grocery store and the product they had to look at was lettuce.  They got the price and then they got the weight of the bag.  The lettuce actually went down a significant amount in value. Almost thirty percent the lettuce dropped.  Then they went to the retail clothing outlet and looked for woman's dresses.  The owner of the store came over to the Planet Money lady and said he felt somewhat important because his products actually had some affect on the CPI.  If you think about it the price of one bag of apples or just one article of clothing can be part of an answer to how the economy is doing.  If the price is up then you can make the argument that the economy is struggling because companies need more money so they boost the prices.  Or if the company lowers prices they might be doing well so they can afford to lower the price to get more customers or the answer is actually the reversed answer, meaning the price is lower so they can bring in more customers and create more income then rather sitting at a higher price and not getting the customers because they dont have the money to afford a highly priced item.  

The CPI system is very complicated but very simple at the same time, that is why they have trained employes and a good system set in place allowing the people to do their job effectively. I find the CPI interesting in the way that it works because of the way that through just a few items you can tell how the economy is heading.

Sunday, March 3, 2013

RS6 - Cliffhanger

As I listened to the Cliffhanger, the Frontline presentation of the fiscal cliff and the events that led up to it, I realized one thing.  Politics is a lot more about personal gain rather then making decisions that will be for the good of the people. A perfect example is the fiscal cliff, as the end of the fiscal cliff approached, December 31st, the Republicans and the Democrats could not come to an agreement to solve the situation.  If the fiscal cliff expired without a deal being made the United States would not be able to pay its bills, thus sending it potentially into a depression. 

In the video it explained how John Boehner was meeting with President Obama in secret behind closed doors trying to make a deal just between the two of them because in their eyes the deal had to be made. The secret meetings took place because Eric Cantor and Paul Ryan were coming out and saying how ridiculous President Obama was being due to the fact that he wanted to increase taxes while we are in a recession, they were attacking him because of the fact that he continues to want to spend more money then the United States actually has making it take out loans and having to borrow money.  But with the fiscal cliff approaching they had little to no time to make a deal so they could not wait much longer so the two met in private.  This just shows how self centered someone can be by potentially affecting millions over the fact that two parties cannot agree on certain topics.  It is all about wins and loses for the two parties and who can come out on top.  They are always trying to find flaws in the opposing parties arguments, instead of coming together and making a decision that will benefit everyone. 

I realize that dealing with someone with different views and opinions will be difficult, but at some point you have to come to realize that you just have to swallow your pride and come together as one to make things work between two opposite groups.  And if you look at congress, whichever democratic party has more members for the most part will run the house and make the decisions because they own the vote.  If you own the vote then you have the power to make changes to fit your party’s views and specifications.  When it comes down to big decisions you never can tell if it will be a confident correct decision because the vote will always be split.  You need to have congress be full of people who will vote either way and not side with one party over the other because some peoples vote is just made in order to suit their party and may not suit their personal opinion.  So all in all I believe that politics is more of a popularity contest then making decisions to benefit the people of the country.