This and That On dot Net

Is greed good for the movie business? If regulators give their OK, within months movies could be trading on financial markets, with investors placing bets on which films will be the next summer blockbuster. Hollywood has its doubts, with the Motion Picture Association of America and others fighting …

Source: http://www.businessweek.com/investing/insights/blog/archives/2010/04/film_bigs_bid_t.html

At the financial crisis’ epicenter, small-town bankers like Jim Edwards are building their businesses by mopping up the damage to their communities

Source: http://www.businessweek.com/magazine/content/09_45/b4154040731596.htm

Results season is in full swing, and on July 28, it was Spain’s BBVA — Europe’s sixth-largest bank — to face the gauntlet. Compared to most of its rivals, the numbers weren’t half bad. BBVA pocketed €2.8 billion ($4 billion) in net profit over the first half of 2009. That’s a 10% drop on a like-for-like basis over the same period last year, but still ahead of most domestic rivals that are struggling from Spain’s sluggish economic prospects.

BBVA was at pains to stress the positives from the first-half results. The bank’s core capital ratio, a key indicator of financial strength, rose 0.60 percentage points annually to 6.9% — roughly in line with the European average. The Bilbao-based bank also said it trimmed operating costs 2.5% and increased its branch network efficiency by boosting its cost-to-income ratio to 39.4%.

But signs of (potential) problems are on the rise.

Source: http://www.businessweek.com/globalbiz/blog/europeinsight/archives/2009/07/spains_bbva_pos_1.html

This may be too wonky, but here goes…

Remember that earlier this year I was rereading Taleb’s The Black Swan. I drew some conclusions about technology and financial regulation. First, Taleb helped me understand what it means for technological change to be fundamentally unpredictable. Second, I got new insight into the best way to do financial and economic regulation.

In the same vein, I was just rereading Stephen Wolfram’s <em>A New Kind of Science,and I was struck by its applicability to our current situation. Wolfram argues that:

even though the underlying rules for a system are simple, and even though the system is started from simple underlying conditions, the behavior that the system shows can nevertheless be highly complex.

How does this apply to today’s economy? From my perspective, Wolfram shows that a set of simple rules can produce both ‘near-random’ behavior and ‘near-regular’ behavior, depending on the initial conditions and how long the system has been running. Near-regular behavior means that there is some predictability about what’s going to happen next—-the world feels sane and understandable. Near-random behavior means that the near-term future becomes effectively unpredictable—-there are no short-cuts, no rules of thumb about what is going to happen next. The ground feels unsafe.

In ordinary times, the economy and financial markets operate as if the world was near-regular–predictable and understandable, to some degree. Last fall, however, we suddenly fell into a zone of near-randomness, that we are still digging ourselves out from.

Why did this happen? One insight from reading Wolfram: Without changing the underlying rules, it’s possible for a system to evolve from near-regularity to near-randomness, without much warning. Or, it can go from near-randomness into a zone of near-regularity.

I think that we can be safe in assuming that most people and businesses prefer to operate in an economic environment which is ‘near-regular’. That is, where there is some degree of predictability about the future. On the other hand, few people feel comfortable living in a world which is ‘near-random’.

That suggests the role of regulation is to keep the economy and financial markets operating within a near-regular region. If we start drifting into a near-random region, financial and economy regulators have to be able to take action in order to steer back into the near-regular region again.

So what can the regulators do? First, they can simplify the rules of the game so much that the economy and the financial markets become predictable. That might mean moving to a system of ’simple banks’ which can only take deposits and make straightforward loans.

The other alternative is to find a good regulatory strategy by trial and error. Following Wolfram’s insights, we have to actually run the economy and the financial markets under that regulatory system to see if it produces the desired results. There are no short-cuts—unless we are prepared to greatly simplify the financial system.

Source: http://www.businessweek.com/the_thread/economicsunbound/archives/2009/07/wolfram_and_fin.html

AFP – India’s swine flu death toll on Thursday rose to 20, as thousands of schools, colleges and cinemas shut down in and around the country’s financial capital Mumbai to combat the spread of infection.

Source: http://us.rd.yahoo.com/health/news/rss/search/*http://health.yahoo.com/news/afp/healthfluindia_20090813095956.html

Is Ryanair’s business model recession proof? In the past it certainly looked that way as Europe’s largest budget airline cut fares and increased traffic to recently become Europe’s biggest carrier (it’s on track to carry 67 million passengers this year). But this recession is proving tougher than expected.

“It’s going to be a pretty tough winter, fares are going to fall,” chief financial officer Howard Millar said. “There are no signs of recovery in any major economy in Europe; there are no signs of green shoots at all.”

The dire pronouncement came on July 27 as Ryanair reported a massive 550% rise in net profits for the first three months of this financial year to $194 million mainly due to lower fuel costs. Still, the airline warned that plans to slash fares even more aggressively in the months ahead will take a toll on full-year profits which are likely to be at the lower end of Ryanair’s previously forecast between $284 million and $427 million as yields (average revenue per passenger) are likely to fall more than 20%.

In the past, Ryanair has managed to grow its way out of any economic slowdown. But with average fares hovering around $51 Ryanair will have to slash prices further and get passengers once on board to spend more.

The good news, at least for investors, is that CEO Michael O’Leary never seems to run out of money-making ideas. The latest include onboard audio advertisements and smokeless cigarettes. The latter are sold on board ($10 for a pack of 10) and use cartridges of nicotine that are inhaled. A vapor of water resembling smoke is exhaled by the “smoker.” With yields set to fall precipitously, it looks like Ryanair will need a lot more clever money-spinners in the months ahead.

Source: http://www.businessweek.com/globalbiz/blog/europeinsight/archives/2009/07/ryanair_lowers.html