abu yahya's definitions
(FINANCE) hilarious term used for over a century in the trading of stocks, commodities, etc. A way in which someone who controls much of the outstanding shares of stock can make a lot of money while ruining those who are betting against the stock.
A "short" is traditionally someone with expertise in shorting a stock, i.e., managing to borrow shares and sell them in anticipation of a decline in value. Obviously, if there are many people shorting a particular stock at any given time, and if they are wrong about the future, then a steep rise in value if the share price will not only cause them to lose money, it will force panic purchases of stock as the traders attempt to cover their shorts. If the instigator of the squeeze is successful, he will have a corner, and drive the price of the stock up to absurd levels.
An unsuccessful squeeze of shorts in a copper trust triggered the Crisis of 1907. That, in turn, triggered the Aldrich–Vreeland Act (May 1908).
A "short" is traditionally someone with expertise in shorting a stock, i.e., managing to borrow shares and sell them in anticipation of a decline in value. Obviously, if there are many people shorting a particular stock at any given time, and if they are wrong about the future, then a steep rise in value if the share price will not only cause them to lose money, it will force panic purchases of stock as the traders attempt to cover their shorts. If the instigator of the squeeze is successful, he will have a corner, and drive the price of the stock up to absurd levels.
An unsuccessful squeeze of shorts in a copper trust triggered the Crisis of 1907. That, in turn, triggered the Aldrich–Vreeland Act (May 1908).
The brokers, after awhile, commenced to borrow large amounts of the stock. This convinced the insiders that there was a big short interest somewhere, and they got together in order to squeeze the shorts... They never awakened to the fact that the {president of the company} had sold out on them... {and were totally ruined}
Henry Clews, Victor Niederhoffer, *Fifty Years in Wall Street*, p.149
Henry Clews, Victor Niederhoffer, *Fifty Years in Wall Street*, p.149
by Abu Yahya April 5, 2010
Get the squeeze the shortsmug. *noun*; a method of representing the economy as the sum of many identical individuals and firms, each represented by a system of mathematical equations. The Rational Expectations Hypothesis (REH) takes its name from the premise that economic actors, i.e., everyone, do not make consistent errors about the present or future behavior of markets.
REH was devised mainly as a rebuke to Keynesian economics, and in particular, the strategy of fiscal policy or monetary policy.
According to the REH, fiscal policy does not alter aggregate demand because the "average" person recognizes that her lifetime income is not increasing--so she needs to save rather than spend the stimulus money, in anticipation of higher taxes in the future.
At the same time, monetary policy does not work because it relies on lowering interest rates to make more money available; more money means inflation, but people have to be deceived into thinking prices for their product are going up, so they will expand production. According to REH, people or firms will figure this out, and see increased demand as mere inflation. Instead of increasing output and employment, they'll want to raise prices so they can meet their future bills.
According to REH, both monetary and fiscal policy rely on illusions to work; and since people (on average) will make rational estimates o the future, they will defeat these illusions.
REH was devised mainly as a rebuke to Keynesian economics, and in particular, the strategy of fiscal policy or monetary policy.
According to the REH, fiscal policy does not alter aggregate demand because the "average" person recognizes that her lifetime income is not increasing--so she needs to save rather than spend the stimulus money, in anticipation of higher taxes in the future.
At the same time, monetary policy does not work because it relies on lowering interest rates to make more money available; more money means inflation, but people have to be deceived into thinking prices for their product are going up, so they will expand production. According to REH, people or firms will figure this out, and see increased demand as mere inflation. Instead of increasing output and employment, they'll want to raise prices so they can meet their future bills.
According to REH, both monetary and fiscal policy rely on illusions to work; and since people (on average) will make rational estimates o the future, they will defeat these illusions.
The rational expectations hypothesis states that we can break the realization of a return into an expected return that depends on the current information set and an unexpected component that depends only on new information.
by Abu Yahya March 3, 2009
Get the rational expectations hypothesis mug. the current account balance; the net flow of liquid assets to the citizens of a particular country. The external balance includes the trade balance, net foreign factor income, and net foreign aid *received*. Usually the main cause of an external deficit is a trade deficit.
by Abu Yahya February 14, 2009
Get the external balancemug. (FINANCE) a type of financial derivative; a certificate that gives the owner the right to buy (or sell) a fixed amount of a specific thing for a specific price (the strike price).
An option to buy something else is called a call option; an option to sell something else is called a put option. An option has a strike price, which is the price at which you are entitled to buy (or sell) the underlying commodity, or stock, or foreign currency, or whatever.
Options allow the owner to speculate in the possibility that market prices will change in a certain direction, without actually spending the value of the underlying item. For example, suppose WTI crude is $85.75/bbl. In order to make $1000 off of a $0.25 increase in the price, you ordinarily would need to own 4000 bbls of crude, which you can't afford. So, instead, you buy a call option for 4000 bbls with a strike price of $85.75/bbl (i.e., exactly what it is now). This option will cost a tiny amount of money. If the price goes up to $86.00/bbl, you don't own the oil, but your options are now worth $1000 to somebody who wants to buy that oil.
An option with intrinsic value (for example,a call option whose strike price is less than the spot price) is "in the money." An option with no intrinsic value is "out of the money."
An option to buy something else is called a call option; an option to sell something else is called a put option. An option has a strike price, which is the price at which you are entitled to buy (or sell) the underlying commodity, or stock, or foreign currency, or whatever.
Options allow the owner to speculate in the possibility that market prices will change in a certain direction, without actually spending the value of the underlying item. For example, suppose WTI crude is $85.75/bbl. In order to make $1000 off of a $0.25 increase in the price, you ordinarily would need to own 4000 bbls of crude, which you can't afford. So, instead, you buy a call option for 4000 bbls with a strike price of $85.75/bbl (i.e., exactly what it is now). This option will cost a tiny amount of money. If the price goes up to $86.00/bbl, you don't own the oil, but your options are now worth $1000 to somebody who wants to buy that oil.
An option with intrinsic value (for example,a call option whose strike price is less than the spot price) is "in the money." An option with no intrinsic value is "out of the money."
BILL: So, options are just like gambling, am I right?
ANNA: For most people. But if you're already in the business of buying or selling a particular thing, an option can protect you against a bad price movement.
BILL: But options on stocks? I mean, unless a company wants to reward its own executives, or something?
ANNA: Well, you might need options on stocks to hedge risk, if you're a fund manager. That way you can focus on long-run investing.
ANNA: For most people. But if you're already in the business of buying or selling a particular thing, an option can protect you against a bad price movement.
BILL: But options on stocks? I mean, unless a company wants to reward its own executives, or something?
ANNA: Well, you might need options on stocks to hedge risk, if you're a fund manager. That way you can focus on long-run investing.
by Abu Yahya April 5, 2010
Get the optionmug. World's 3rd largest company (2009 sales: $310 billion); 2nd largest oil company (after Royal Dutch Shell).
Founded by John D. Rockefeller in 1862 in Titusville, PA as Rockefeller & Andrews Oil. Using combination of trust agreement and a holding company based in NJ, grew to totally dominate oil production, transport, and retailing. Standard Oil incorporated 1870.
Trust agreements revoked (court order) 1892; SO holding company broken up 1911 into 35 entities, including: Exxon, Mobil, Chevron, ARCO, Conoco, and Amoco. Amoco and ARCO were absorbed by British Petroleum, while Conoco merged with Phillips, Chevron merged with Texaco, and Exxon merged with Mobil.
Apologies to Urban Dictionary for misspelling the company's name "Exxon Mobile" in the definition for BP, p.l.c..
Founded by John D. Rockefeller in 1862 in Titusville, PA as Rockefeller & Andrews Oil. Using combination of trust agreement and a holding company based in NJ, grew to totally dominate oil production, transport, and retailing. Standard Oil incorporated 1870.
Trust agreements revoked (court order) 1892; SO holding company broken up 1911 into 35 entities, including: Exxon, Mobil, Chevron, ARCO, Conoco, and Amoco. Amoco and ARCO were absorbed by British Petroleum, while Conoco merged with Phillips, Chevron merged with Texaco, and Exxon merged with Mobil.
Apologies to Urban Dictionary for misspelling the company's name "Exxon Mobile" in the definition for BP, p.l.c..
Exxon Mobil operates 37 oil refineries in 20 countries; in the USA, it owns and operates about 12,000 service stations.
Exxon Mobil mostly evaded any significant financial responsibility for the 1989 Exxon Valdez tanker crash, the 2nd worst oil spill in US history (since eclipsed by the 2010 Deepwater Horizon blowout. That disaster cost the company about $4.5 billion, paid out over 20 years (or roughly 2% of profits over that time period).
Exxon Mobil mostly evaded any significant financial responsibility for the 1989 Exxon Valdez tanker crash, the 2nd worst oil spill in US history (since eclipsed by the 2010 Deepwater Horizon blowout. That disaster cost the company about $4.5 billion, paid out over 20 years (or roughly 2% of profits over that time period).
by Abu Yahya July 18, 2010
Get the Exxon Mobilmug. influenced by the economic theory of John M. Keynes (1883-1946); in particular, Keynes' book *The General Theory of Employment, Interest, and Money* (1936). The main point of Keynes' general theory (GT) was that market economies are not usually self-correcting, and occasionally require some sovereign intervention to prevent inflation or depression.
One of the policy prescriptions of the GT for curing recessions was to lower interest rates; another, more potent tool, was to deliberately run a fiscal deficit as a strategy for increasing aggregate demand. The GT was too late to have much of an impact on the Great Depression, but it did have a major impact on the economic policies of the Western Democracies from 1946 to the present.
During the period 1979 to 2001, Keynesianism was supposedly discredited, but national governments continued to use stimulus packages and monetary policy to resolve recessions. The policy has evolved, but remains the cornerstone of actually existing government behavior.
Attacks on Keynesianism: the most famous adversary of the GT was Friedrich von Hayek (1899-1992) of the London School of Economics, who insisted that an authentically free market would be self-correcting if it were only allowed to. Hayek's objections were ideological, but other economists such as John Muth argued that the GT expected people to make irrational, or unreasonable errors.
During the late 1970's, Keynesianism was eclipsed by the Rational Expectations Hypothesis; but REH failed to develop satisfactory policy proposals, while Neo-Keynesian economics evolved to address many of the original REH criticisms.
One of the policy prescriptions of the GT for curing recessions was to lower interest rates; another, more potent tool, was to deliberately run a fiscal deficit as a strategy for increasing aggregate demand. The GT was too late to have much of an impact on the Great Depression, but it did have a major impact on the economic policies of the Western Democracies from 1946 to the present.
During the period 1979 to 2001, Keynesianism was supposedly discredited, but national governments continued to use stimulus packages and monetary policy to resolve recessions. The policy has evolved, but remains the cornerstone of actually existing government behavior.
Attacks on Keynesianism: the most famous adversary of the GT was Friedrich von Hayek (1899-1992) of the London School of Economics, who insisted that an authentically free market would be self-correcting if it were only allowed to. Hayek's objections were ideological, but other economists such as John Muth argued that the GT expected people to make irrational, or unreasonable errors.
During the late 1970's, Keynesianism was eclipsed by the Rational Expectations Hypothesis; but REH failed to develop satisfactory policy proposals, while Neo-Keynesian economics evolved to address many of the original REH criticisms.
The treasury secretary wanted to respond to the inflationary spiral with a Keynesian strategy of tax increases, spending cuts, and interest rate hikes.
by Abu Yahya February 14, 2009
Get the Keynesianmug. *noun*; a school of economic thought prevalent after World War 2; around 1980, Keynesianism was supposedly superseded by monetarism, and then by the rational expectations hypothesis. Theory is named for John M. Keynes (1881-1946), who argued against the then-mainstream view that the economy was "self correcting." Keynes' book introducing his economic theory was The General Theory of Employment, Interest, and Money (1936).
*Basic Concept*
_______________________________________
The basic concept of Keynesianism is that each economy has a level of aggregate demand, which does not respond to price or income levels in the same way that classical economics says it should. Rising income, for example, *does not* lead to a matching increase in consumption or business investment. Business investment is driven by investment opportunity, not {only by interest rates. Savings is driven by liquidity preference, not only by interest rates.
Keynes suggested that, for any economy, there was a marginal propensity to consume that was less than one. Hence, if the national income rose by 10%, consumption would rise by something less than 10%. This would lead to some production not being consumed, waste, and unemployment.
*What Keynesianism Says We Should Do*
_______________________________________
In 1936, when Keynes wrote *The General Theory*, most of the world was suffering from the Great Depression. Keynes recommended that the national government stimulation aggregate demand through a policy of deficit stimulus. In other words, the country should create adequate levels of aggregate demand by spending more than it took in as taxes (fiscal policy).
Also, Keynesianism held that aggregate demand could be stimulated *up to a point* by lowering interest rates (monetary policy).
*Application*
_______________________________________
In the USA and other large industrial countries, fiscal and monetary policy has been attempted often. After 1980, the Federal Reserve chair (Paul Volcker) was a monetarist, who claimed to reject Keynesianism. Nobel laureates in economics almost unanimously attacked Keynesianism as outmoded and wrong-headed, but governments continue to use fiscal stimulus and interest rate cuts in response to recessions.
*Basic Concept*
_______________________________________
The basic concept of Keynesianism is that each economy has a level of aggregate demand, which does not respond to price or income levels in the same way that classical economics says it should. Rising income, for example, *does not* lead to a matching increase in consumption or business investment. Business investment is driven by investment opportunity, not {only by interest rates. Savings is driven by liquidity preference, not only by interest rates.
Keynes suggested that, for any economy, there was a marginal propensity to consume that was less than one. Hence, if the national income rose by 10%, consumption would rise by something less than 10%. This would lead to some production not being consumed, waste, and unemployment.
*What Keynesianism Says We Should Do*
_______________________________________
In 1936, when Keynes wrote *The General Theory*, most of the world was suffering from the Great Depression. Keynes recommended that the national government stimulation aggregate demand through a policy of deficit stimulus. In other words, the country should create adequate levels of aggregate demand by spending more than it took in as taxes (fiscal policy).
Also, Keynesianism held that aggregate demand could be stimulated *up to a point* by lowering interest rates (monetary policy).
*Application*
_______________________________________
In the USA and other large industrial countries, fiscal and monetary policy has been attempted often. After 1980, the Federal Reserve chair (Paul Volcker) was a monetarist, who claimed to reject Keynesianism. Nobel laureates in economics almost unanimously attacked Keynesianism as outmoded and wrong-headed, but governments continue to use fiscal stimulus and interest rate cuts in response to recessions.
Keynesianism held out the prospect that the state could reconcile the private ownership of the means of production with democratic management of the economy.
Adam Przeworski, *Capitalism and social democracy* (1986)
Adam Przeworski, *Capitalism and social democracy* (1986)
by Abu Yahya March 3, 2009
Get the Keynesianismmug.