GDP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 11

[DrSpike]

It really depends on what you mean by the valuation of a negotiation. The material here is certainly applicable to such problems, and they may lead you to more specific references that suit you.

Cooperative games look at equilibrium outcomes when 2 or more agents can credibly commit to cooperation. Far more interesting are non-cooperative games, where cooperation still happens, but only as the result of individual optimisation.

From what you said earlier it seems you would find the classic 2 player non-cooperative games (prisoner's dilemma et al) useful, as well as a look at some of the material on Nash bargaining between 2 individuals. It strikes me that it would be easy to assign an expected payoff on the 2 players (you can easily use a distribution if you want) should arbitration be forced, and hence see whether there is a sustainable Nash bargain that yields a higher payoff. This will depend on the relative bargaining power, the expected payoffs should negotiation be successful, and how you model the dynamics. It is far easier for non-cooperative collusion to arise if there is a repeated element to the game.

Let me know how you get on.

[DanS]

The paragraph re 2 player non-cooperative games gives me enough to start, I think.

Thanks again!

[Roland]

"Agenda? Not sure what you mean there. Webster is considered a neutral."

Washington insider. Do you really think he's there to make the market safe for investors - or make it safe for crony capitalists.

"Re the enforcement budget increase, I haven't been following it too closely. Do you have a link?"

NY Times, but IIRC you aren't registered there ?

"I think the system of political punishments doesn't work too badly."

It's close to not working at all. Especially as there is no alternative to the repubicrats in sight.

"Our political system was able to take care of the S&L ~ $1.2 trillion (?) S&L crisis."

Engineering bailouts has been the hallmark of US politics since 1987 at least - but that's mostly Alan's job.

[Sten Sture]

US Fed move today would be a mistake. Economy is actually moving along fine and we don't need another few basis points in easing. Another ease will just make traders play the super steep yield curve and not do the corporate refinancing that is required to improve corporate cash flow. This ease won't help anyone.

[DanS]

Half a point!

Edit: They must have been seeing aweful numbers for the holiday season. Otherwise, why cut, when the GOP might have further stimulus in mind?

[DrSpike]

I sympathise with Sten's point, but a rate cut was the correct decision. After all the purpose of monetary policy is to close the output gap at NAIRU, and rightly so. 50 basis points gave me and my colleagues something to talk about over coffee though.

[Roland]

Does monetary policy work against the follow-up to an easy-money boom ? I don't think so, but the fed has set up a nice macro experiment. It's a once in a lifetime opportunity to watch....

[DanS]

What does everybody think of the ECB's actions (or inaction)?

http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1035873086547&p=1012571727092

For my own unsophisticated part, this seems like a strange zero-sum game for Germany. Growth in other parts of the EU necessitate slow growth in Germany.

[Roland]

"Growth in other parts of the EU necessitate slow growth in Germany."

Where do you get that ?

As for the ECB they should have cut this time. I could understand their policy so far as they seem to have a more positive take on the US economy than me (well, that's not really difficult to have, is it? ).

Btw, until recently the leading indicators looked pretty good, but that was in part fake due to the role of the US PMI in the FT and Handelsblatt indices. Now that they have turned I expect an ECB cut in December or January.

[DrSpike]

Welcome to the world of fixed exchange rates when the countries involved aren't anything like an optimal currency area.

The ECB should have cut anyway though......that's a different point. Just how long a dumbass symmetric 2% target can be maintained I don't know; I can't help but think the 'democratic deficit' sometimes talked about in conjuction with EU institutions is partly to blame here. I don't think what is quite obviously a stupid implementation of modern central banking practice could survive otherwise.

[DanS]

Let me be the first to say that these were interesting cross-posts.

"Where do you get that ?"

If Germany were taken alone and with inflation at a 1.2% rate, they should be cutting rates early and often. No?

"Just how long a dumbass symmetric 2% target can be maintained I don't know"

Well, the German government was maintained in this environment. I was quite surprised about that.

I expected some extra fiscal stimulus to balance this stuff out.

[Roland]

"...aren't anything like an optimal currency area."

Good enough IMO, but let's not have another OCA debate...

"Just how long a dumbass symmetric 2% target can be maintained I don't know; I can't help but think the 'democratic deficit' sometimes talked about in conjuction with EU institutions is partly to blame here."

As you've touched it... why exactly is it "dumbass", what do you mean by "symmetric", and what has it got to do with "EU institutions" ?

Dan:

Inflation. Not growth.

[Roland]

Multiple DanS-ing. Arghh!!!

[DanS]

Does a zebra change his stripes?

"Inflation. Not growth."

What do you mean here?

[Roland]

Inflation in other parts of the eurozone makes it difficult to cut rates, not economic growth.

As a more general point, rate cuts won't have much effect anyway. Also in contrast to the stock market whiners, there is no lack of liquidity. But I'd still say with what I think will come from the US, ECB rates should be 100 bps lower....