Kingnukem

Without Bonuses, Investment Banking Doesn't Work

Without bonuses, investment banking doesn't work? Why pay a salary then? Besides the fact that bonuses totally distort the business goals and these particular businesses have had notoriously sorry results, I have been under the apparently wrong impression that salaries are for the work that someone is hired to perform, and bonuses are for success well above and beyond expectations.

A General Hypothesis on Real Estate Prices

I suggest that the author read Henry Hazlitt's famous "Economics in One Lesson" to correct his views about "inherent value". The author states that "I believe that all goods have an “inherent value.” This is a fictional price where, all things being equal, there is a perfect supply-demand balance and prices are at a level where companies can still make sustainable profits, but not be able to take any abnormal earnings. You might say this “inherent value” is slightly above the costs of production and factors in replacement costs." The author misses the boat on a number of points, some of which he himself identifies. The notion that somehow his "inherent value" affects the price of real estate ignores the impact of high occupancy on the development of new rental property as well as savings by property owners contributing to new economic opportunities. Lastly, he should not confuse the different prices for rentals in different cities with value.

It's Time to Stop the Economic Gloom and Doom

Vienna... let's talk about how best to spend money. You note that you spend it on unemployment and the Americans spend it on the army. True. But why do you think you have the opportunity to skimp on the military? Perhaps because Uncle Sam is carrying your burden? Back in the '50s when the Soviets withdrew from Austria, do you think it happened because of Austrian might, or American pressure? How about the fall of the Soviet Empire - was that due to Austrian unemployment benefits or American strength? So, it appears that you are more than happy to freeload on the Uncle's back. This works until Uncle says "no more" - and I think that time is coming. Get ready.

On Busted Credits and High Income in 2009

A comment on prudentinvestor's comment: the difference between the dividend yield on stocks vs. bond yield is that the bond yield is fixed for the life of the bond, whereas the stock yield should increase as a company grows. If you calculate the present value of the stream of future dividends, the increase in future dividends would drive the present value of the stock up, therefore driving its current yield down, perhaps below the current yield of bonds. Of course, the risk premium offsets this to some extent. In a deflationary model (where I suspect prudentinvestor's history comes from), one can expect stock yields to decrease, and that would flip the above analysis in the other direction. So the fundamental question should be whether or not we are headed toward a deflationary or an inflationary future.

Chicago Standoff, Redefaults Bode Ill for Bank Shares

Amazing. Who really believes that pumping money into any failed business saves anyone's job? Unless the business is Amtrak.