Friday, December 25, 2009
New Book for Winter Break
I have begun reading "A Room with a View" by E.M. Forester. Though I am only 20 page into the book, it is clear that the writing is excellent. I look forward to more reading. Fiction is a wonderful way of learning about people.
We need More of this Research
NIALL FERGUSON’S FOUR HOUR SERIES “THE ASCENT OF MONEY” FROM WNET.ORG
TO AIR ON PBS BEGINNING JULY 8, 2009
Groundbreaking Series Explores the Financial History of the World, the Evolution of the Global Banking System and the Roots of Current Economic Crisis
June 2009 (New York, NY) – As the world continues to struggle to find its footing amid constricted credit, bank bail-outs and rising unemployment, , WNET.ORG presents Niall Ferguson’s The Ascent of Money. Premiering on PBS on July 8, 15, 22 and 29 at 9 p.m. (ET) (check local listings) and online (pbs.org/ascentofmoney), this groundbreaking four-part series traces the rise of the modern financial system by taking viewers on a global trek through the history of money. (Watch a trailer online.) An initial two-hour version of the documentary, which aired last January, focused on the current economic crisis at the advent of the new Obama administration. (It can be streamed in full on the website.) But this was only part of The Ascent of Money. This four-hour version delves much deeper into how our complex system of global finance evolved over the centuries and how money and financial markets have shaped the whole course of human affairs, from ancient Mesopotamia to present-day Memphis.
Niall Ferguson said, “In the midst of the biggest financial crisis since the 1930s, it is vital for us to have a proper sense of historical perspective. Before we conclude that there’s something fatally flawed with the entire system, we need to see that big financial crises are a recurrent feature of financial history from the earliest times. They are traumatic, that’s for sure, but they are also just temporary interruptions of a long-term upward trend. Finance is crisis-prone, there’s no doubt. But over the long run our system of finance and banking has been responsible for extraordinary economic progress. We’ve come a long way since the Medici! I’m certain the film will give viewers a much better understanding of the on-going evolution of our financial system and how we got to where we are today.”
The film is based on Ferguson’s best-selling book The Ascent of Money: A Financial History of the World, which was written in anticipation of the current economic crisis and was published just as the “great dying” of financial institutions he predicted claimed its most famous victim in Lehman Brothers.
For millions of people, the recession has generated a thirst for knowledge about how our global economic system really works, especially when so many financial experts have been caught unawares. In The Ascent of Money, author and historian Ferguson offers insight to these questions by taking viewers step-by-step through the milestones of the financial history that created this system, visiting the locations along the way where key events took place, and poring over the actual documents—such as the first publicly traded share of a company—that would change human history. Ferguson establishes that the history of money is indeed at the core of all human history, with financial strength determining geopolitical dominance and financial weakness leading to military defeat and social disaster.
Among the places Ferguson visits are Bolivia, where Spain established vast silver mines—still in operation today—and enslaved the indigenous people to create so much currency for the Spanish crown that it eventually became worthless; Italy, where the Medici family transformed the sinful practice of usury into the modern banking system we know today and in the process became as powerful as monarchs; Paris, where Scotsman John Law created a Ponzi scheme tied to the Louisiana territory and brought France to its knees; London, where Nathan Rothschild and his family nearly went bankrupt by helping to finance the British army’s war against Napoleon, and then achieved enormous wealth through the buying and selling of war bonds; Scotland, where two ministers established the first modern insurance fund, and New Orleans, where the limits of insurance was revealed in the wake of Hurricane Katrina.
Along the way, Ferguson interviews some of the true grandmasters of modern finance, including Lord Rothschild, hedge fund titan George Soros, former Fed chairman and now presidential adviser Paul Volcker and World Bank President Robert Zoellick.
Through this history, viewers get to understand the key concepts in modern finance, ranging from bond yields and hyperinflation to collateralized debt obligations and credit default swaps.
They also gain new insights into the way the Chinese economy is rising to rival that of the United States.
Neal Shapiro, the President and CEO of WNET.ORG said, “What is so remarkable about this film, as with Niall’s book, is that it allows us to better understand and appreciate the magnitude of the current financial crisis as well as informing the public about how economies have bounced back during difficult times. Niall is a phenomenal historian who can utilize the past to help all of us better understand the present. He has also created a highly watchable and understandable film about a difficult and sometimes obtuse topic.”
A major outreach campaign will bring The Ascent of Money to teachers and schools across the country, with special focus on high school economics and world history classes. The website will include four lesson plans that go into greater depth on historical and economic issues discussed in the series. Each lesson will tie into national and state standards in world history and economics, and contain downloadable video segments from The Ascent of Money. A teacher’s guide to the series will include an overview on teaching financial history, background information on the four episodes, discussion questions, suggested classroom activities, and lists of resources. An enclosed DVD will contain up to two hours of segments from The Ascent of Money. THIRTEEN, part of WNET.ORG will distribute 6,000 guides free of charge through its partners’ networks, local PBS stations, and promotion via educational newsletters and websites.
Funding for The Ascent of Money is provided by the Ewing Marion Kauffman Foundation, T. Rowe Price, The Smith Richardson Foundation, James and Merryl Tisch, and PBS. Additional funding for educational materials is provided by the Calvin K. Kazanjian Economics Foundation, Inc.
The Ascent of Money is a co-production of Chimerica Media Limited, Channel 4 in the UK and THIRTEEN in association with WNET.ORG – one of America’s most prolific and respected public media providers. Series writer and presenter is Niall Ferguson. Series producer is Melanie Fall. Series director is Adrian Pennick. Executive producer is Simon Berthon. For WNET.ORG, William R. Grant is executive producer. Stephen Segaller is executive in-charge.
About WNET.ORG
New York public media company WNET.ORG is a pioneering provider of television and web content. The parent of THIRTEEN, WLIW21, and Creative News Group, WNET.ORG brings such acclaimed broadcast series and websites as Worldfocus, Nature, Great Performances, American Masters, Charlie Rose, Wide Angle, Secrets of the Dead, Religion & Ethics Newsweekly, Visions, Consuelo Mack WealthTrack,Wild Chronicles, Miffy and Friends, and Cyberchase to national and international audiences. Through its wide range of channels and platforms, WNET.ORG serves the entire New York City metro area with unique local productions, broadcasts and innovative educational and cultural projects. In all that it does, WNET.ORG pursues a single, overarching goal -- to create media experiences of lasting significance for New York, America, and the world. For more information, visit www.wnet.org.
Tuesday, December 22, 2009
New Type of Academic Journal
A colleague and I just discussed a new type of academic journal. I will do an article on the concept after the holiday season.
There are more pressing issues now in terms of proposal writing.
My Web Sites
All of the changes that I have made to my MIT and personal web sites seem to be working as planned.
Folks can access my papers by going to my MIT web site and then to:
As mentioned previously on this blog, I probably will not be adding future manuscripts to may personal web site for open viewing as has been my past practice. What is posted online will remain, accessible through search and links posted on message boards and sent via email.
Please send me an email at:
edmund_w@mit.edu
if you have any questions.
Q3 GDP Revision
The Wall Street Journal reported earlier today, through a single article, that 3rd quarter GDP was revised downward by a significant amount. This is the third estimate for Q3. Initial growth was 3.5% and now the latest estimate is 2.2%, a big change.
Right now, the WSJ online edition shows this news in a single article titled "Home Resales Rise 7.4%; GDP Lowered."
I think combining two important, independent stories into a single story is misleading to readers. It is not good journalism. Each story should stand on its own. Perhaps the holiday staff made this decision.
Investors should be wary - just because Q3 GDP growth (and inventories) were lower than expected does not automatically mean Q4 will show big growth. In addition, any upside for Q4 GDP growth is probably already priced into the market.
I see the market as being stable until Jan., then reality will set in and equity markets will drop absent any outstanding corporate profit growth.
Monday, December 21, 2009
The Next Decade
Two excellent articles appeared in today's WSJ:
Lauricella, Tom (2009), "Investors Hope the '10s Beat the '00s," The Wall Street Journal, Dec. 20.
Zeng, Min (2009), "Ruskin's Rosenberg: No Fed Rate Increases through 2011," The Wall street Journal, Dec. 21.
There is so much I can write about these two articles and the implications for markets going forward into the next decade. I think the ideas introduced in both articles should receive greater emphasis by the WSJ and other business publications.
The decade spanning from 2000 to 2009 saw two asset bubbles for the US economy; one in Internet technology and the other in real estate and housing. The other predominate characteristic of the decade was exceptionally low interest rates post 9/11, something that as a matter of policy will extend into the new decade (see Zeng's article above).
I have often studied US economic history as a way of gaining a deeper understanding of the future. Unquestionably, there is a current, titanic struggle between the forces tending toward equity investment as the optimum path for economic growth and the age-old reliance on debt to finance business.
Economists believe that the success of American GDP growth, and the prosperity that capitalism brings, relates directly to the ability of firms to raise equity funding and the corporate form of organization. With an excessive amount of government intervention in the form of fiscal policy (stimulus) and monetary policy (low interest rates), I think future corporate financing will shift more in favor of debt rather than equity.
This is a huge change. Most believe this is a bad thing because growth financed with debt adds unneeded constraints and reduces the flexibility of corporate finance.
Further, government policies seem to be leading to an elevated valuation of equity going into the new decade. With low short-term interest rates, money has poured into equities and has elevated the DJIA and S&P 500.
The laws of valuation are perhaps the most fundamental of the entire theory of capital markets. Though it will take some time for adjustment, I think worldwide equity prices will settle to the long-term valuation multiples of earnings. Most assume long-term P/E ratios of between 14 and 16. I think the current market is around 20, much too high.
Given tepid prospects for economic growth in 2010, the US government will likely respond with even more stimulus and a continuation of loose monetary policy. The fact that Japan, the U.K. and other countries in Europe continue to fight deflation is an indication of the general weakness of global economies. Even in the US, deflation continues to be a concern in several industrial segments though it has not attained a widespread hold on the economy.
If stock valuations were lower going into 2010, I probably would feel better about the equity price growth prospects for the next decade. However, the current situation leads me to believe there is elevated risk of medium term economic malaise, much like what happened after the collapse of equity prices in 1873 as the railroad stocks crashed. Though the US economy of the time was very much dependent on agriculture, business interests experienced a difficult environment for nearly 20 years in spite of many technological advances and the progress of the American industrial revolution. It is possible that such a pattern will repeat between 2000 and 2020.
I will have more to write about future economic prospects in subsequent blog posts. The themes will include the role of government policy in relation to free markets and the reliance on information technology as a leader in GDP growth and stock price appreciation. These are important issues that every American needs to consider.
MIT Report
This is an interesting report issued by MIT in response to the financial crisis:
It deals with internal changes at the Institute.
The Value of Equity
There is an extremely interesting article in today's WSJ about the decade starting in 2000 being the worst in terms of US stock returns since the 1820's.
Though I did not do the statistics, I have had a similar feeling about stocks for the past several years, namely that investing in US companies has fundamentally changed. This might be an indication of a longer-term trend developing for the US economy.
I do not believe that the WSJ article goes into enough detail regarding this important issue. The choice of equity versus debt is a fundamental aspect of capitalism. This is a story that deserves much greater attention.
I will be writing more on this topic later in the day.
Web Site Changes, www.ed-w.info
I am changing my web sites a bit to make things more streamlined.
Everything will now be hosted through my locker at MIT. This is the address:
The homepage for my former personal web site is at the following link:
Probably in the future I will not be posting manuscripts online as has been my practice.
Regarding the Internet, things have changed a great deal since I opened my personal web site, www.ed-w.info, in Sept. 2002. Facebook and access through MIT servers is a better option for what I want to accomplish going forward.
As things are now, every former file on my personal web site remains searchable through the Interent. However, direct access through random browsing is more difficult by my design.
As always, all of my work is searchable through MIT at the following link:
I thank the many thousands of visitors to my web site over the years. In some cases my individual manuscripts have been downloaded over 200,000 times.
I look forward to many more future visitors to my MIT web site.
Sunday, December 20, 2009
Excellent Article on Data in the NYT
A great article from today's New York Times deals with how a focus on data will transform computing.
The title of the article is "A Deluge of Data shapes a New Era in Computing," written by John Markoff.
Much of the article deals with the topics and themes of the MIT Data Center Program, which is part of the Laboratory for Manufacturing and Productivity. I helped to co-found the program in 2003. The outcome has been the M Language and several applications in agriculture. I see wider opportunities for this technology. Most of the funded research for the program has come form the defense industry.
The MIT Data Center Program is re-forming into different directions and some changes are taking place. I continue to be interested in the area and I am putting together a new research proposal this weekend.
East Coast Snow Storm
There is about three inches of snow in Nashua today, a modest accumulation. To the South, there is a much greater amount of snow. My drive home from MIT early this morning was extremely treacherous. Snow was falling in great amounts.
It is snowing gently in Nashua, and it is beautiful.
Saturday, December 19, 2009
Trip to MIT, Today
I am traveling to MIT this afternoon. I am preparing to stay overnight if necessary. Big snowstorm on the way! I should get a great deal done!
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