The Cranky Finance Prof Spouts Off

Now I’m truly going to let my inner dork explode onto the scene and talk about a childhood passion and a hobby I still enjoy: Dungeons & Dragons (D&D). I don’t know that D&D needs to be explained that much anymore, but to give a succinct definition, it is a table-top role playing game (RPG) set in a low or high fantasy world. It’s all about storytelling and adventuring, and pretending to be the big hero – usually. There have been some very fun exceptions. Think the world of Tolkien, whose work served as mighty inspiration for D&D, and of...

By Jeff Oxman Vote1 0

What if current low interest rates and consequently high asset prices are because of both supply and demand problems? Specifically demand and supply in the market for loanable funds. To quickly define terms, supply of loanable funds is what non-economists call saving/investing. Demand of loanable funds is borrowing. The price of loanable funds is interest, and as we can see there are a variety of loanable funds markets conforming to different needs of both investors and borrowers. The price for loanable funds in the developed western world is extraordinarily low and has been for some time. That isn't news. What's...

By Jeff Oxman Vote1 4

Yes indeed. But let's leave it at that. Let's not go down the road of holding them up as symbols of masculinity, as is done here and here. People who hold either of them up as a symbol of masculinity have no understanding of the truth of masculinity or manliness. Manliness isn't just the feature of possessing the male appendage, and it's not the antithesis of womanliness. So no, Bowie and Prince weren't playing with the border between masculinity and femininity - they couldn't. Although I don't dispute they were male, they didn't have a public persona that was manly (although...

By Jeff Oxman Vote2 0

Why is the FOMC statement so important? Why does an occasional announcement from the Fed about what they think the short-term interest rate should be affect the market so much? To read some commentary, it shouldn't matter because the market does its own thing. In this post I want to think through (and likely make some mistakes) Fed policy, policy implementation, and what the announcement means. To begin with, the Fed can implement policy in three ways: (1) adjusting reserve requirements; (2) adjusting the target fed funds rate; (3) open market operations. Note that (3) isn't necessarily the method of...

By Jeff Oxman Vote0 0

As a finance professor, and researcher of so-called asset price bubbles, I have a certain attitude about the word. My attitude is that it’s the most over-used word in finance. Moreso even than synergies by the M&A crowd. In this article, I’m going to define a “bubble” from a financial economics (i.e. correct) point of view. Then I have a few things to say about recent burps in the stock market. sildenafil citrate tablets caverta 100 To begin, we define two values of an asset: the intrinsic value, and the market value. The intrinsic value of the asset is the present...

By Jeff Oxman Vote5 10

First, to define the term. I mean aggression as the antonym of passivity. I don’t mean destruction or bullying, as these would be perversions of aggression. I mean the aggression that is needed to make your way in the world, to get the work done that you need to, to navigate everything from traffic to abusers of your time. Aggression is assertiveness combined with force. And as Frederick Douglass said, “a man, without force, is without the essential dignity of humanity.” viagra generic A lack of force, or a passive attitude, will allow a person to avoid uncomfortable situations in...

By Jeff Oxman Vote3 0

Well, now that the ferocity of semester-end has finished, I can get back to some serious thinking. The following are eight trends I’ve been thinking about for a while now, and in the weeks to come I’ll be expanding on each trend in terms of entrepreneurial and investing opportunities. If there are major trends you believe I have missed, please let me know in the comments and I’ll consider them. These trends are important in the medium- and long-term, but to take advantage of each one there are things to be done in the short-term. Chinese canal through Nicaragua The...

By Jeff Oxman Vote2 2

A new paper has come out in the Journal of Policy Modeling (vol. 37, 189-207) by George Selgin, David Beckworth, and Berrak Bahadir. The paper essentially shows that the fed funds rate was too low relative to the natural (aka neutral) rate of interest. It's a more-or-less neoclassical paper, with a straightforward utility function for a representative household, and a Cobb-Douglas production function. Along with budget constraints, they solve for consumption and derive an expression for the steady state real neutral rate of interest. This is the level the fed funds rate should be set at to maintain a neutral...

By Jeff Oxman Vote3 1

The number one lesson of stock valuation: you are always wrong. To put it statistical terms, when you estimate the current intrinsic value of a firm's equity - that is the present value of future cash flows to the equity holders - your error term is necessarily large. So to deal with that, we do plenty of sensitivity analysis and scenario analysis and see what kind of value range we can obtain under a variety of circumstances. One of the exercises I do that I have found to be particularly useful is to reverse engineer the stock valuation to obtain...

By Jeff Oxman Vote1 6

When I teach class, I feel like a fraud. I'm supposed to know what I'm doing and be able to help them learn tools that can make more sense of the world. The basic tools are easy, but anyone can pick those up online. Check out Khan Academy for Time Value of Money, or Net Present Value for examples. Right now, with negative yields on German government bonds and European corporate bonds, stock prices through the roof and a lack of real economic reason for it, I have no idea what's going on. If I don't know how to make...

By Jeff Oxman Vote0 3

Improve Your Life The D&D Way! Jul 9, 2016

Issue Debt and Have Children! Jun 26, 2016

Bowie and Prince Musical Geniuses? Apr 24, 2016

Thinking Through the Fed Announcement Sep 20, 2015

Don’t ever say “bubble.” Aug 27, 2015

In Praise of Aggression Aug 2, 2015

Sunday Investment Times May 31, 2015

Austrian Business Theory Going Mainstream Apr 26, 2015

Turning Stock Valuation on Its Head Apr 11, 2015

What if I Told Them What I Really Think? Mar 13, 2015