Assorted links

1. The global trade in meteorites.

2. Offshoring pregnancy and birth to India, and helping workers relocate.

3. The chess player who outsmarted JPMorgan.

4. What happens when a company tries truly transparent pricing?  It is an interesting link.

5. 25 (!) “Propuestas” by XSiM, how to fix the Spanish crisis, in Spanish, how many of the twenty-five do they need?  Consider this one: “19. Meritocracia.


Penneys problem with every day low pricing is predictable for two reasons: 1. It attracted shoppers who were of happy to shop for bargains and during sales--they enjoyed shopping for shopping; and 2. If you are not the low cost retailer, don't do every day low pricing--because your every day low price is still above Walmarts.

Regarding point 1, and to elaborate: penneys customer set was the person who liked sales and the thrill of finding a sale. If the penneys customer liked every day low price, the customer would have already been shopping at Walmart.

Know your customer.

Yeah I was going to write this as well. Everyday low pricing - or even everyday fair pricing - can work very well. However JC Penney had cultivated a shopper base that enjoys and EXPECTS massive discounts on some items - "treasures" - combined with confusing sales/coupons and inflated everyday pricing. When it did not deliver on these expectations, sales fell. Really, JC Penney wants a new customer base - people who liked the Apple Store and don't have time or energy for treasure hunting. Unfortunately some of this demographic has shifted to Amazon (or Zappos, etc.) or at least at Urban Outfitters or some other niche store. I think they may be able to take on Nordstrom/Macy's though. I think Johnson understands that Penney will die over time if he doesn't at least do something to attract younger people to being customers. If they alienate the current base at the same time, they will be in for a few years of hardship, though, unless they can massively reduce everyday prices while maintaining quality.

Maybe they can grow a new customer base? It would take a long time, if ever, and I bet shareholders won't give them the time.

It seemed to work for Saturn for a while, but GM got so much into badge-engineering that it's tough to see how/if it worked in the long run.

Agree with your comment from the perspective of being exactly the type of consumer that JCP is targeting. I want a deal, but am not a shopper. I do shop at Amazon and Wal-mart (and sometimes for clothes). It would be nice to have a place to shop for clothes that are higher quality (and also physical locations), where I would know I wasn't getting price discriminated.

Yet, this is the first I've heard about JCP's new strategy. Maybe they should spend more time advertising on economic blogs.

What percentage of readers of MR know that XSiM stands for Xavier Sala-i-Martin?

I knew of Xavier Sala-i-Martin's name in English but no habla Espanol that much so I had a hard time following the link, which was in Spanish. I admire XSiM because in an interview once where he was asked how he was going to model a simulation that was to find how to best achieve growth in a developing country. Instead of saying (as I expected) that he would model the software from the ground up using first principles such as done by the famous Solow model of growth, or instead of the usual Wall Street answer that the model is proprietary, XSiM simply said: "oh, I'll probably use XYZ number of variables in a linear equation of with constant coefficients and run simulations against historical data and change the coefficients until the coefficients back fit the data" ! I admire that kind of honesty, LOL.

Ray, if you scroll down the post you will see the English version below the Spanish one.

I don't think this is the whole story. It could also be that JCP's buyers are not very good (my theory). But the writer ignores these two counter examples (no pun intended). Wal-Mart competes against JCP at the lower end, and Wal-Mart is mostly an "every day low" retailer. There are some "rollbacks" in the store but it does not focus on those prices in its ads. Target, an "every day low" chain, competes directly with JCP and is doing well. In groceries, the picture is much more mixed. "Every day low" Wegmans is doing very well, while coupon advertiser Giant Foods is struggling. Superstores like Target and Wal-Mart (which adds grocery to the mix) seem to be doing the best.

Does success lead to meritrocracy or meritrocacy lead to success? For every Steve Jobs there is a Donald Trump, for every Springsteen, there is a Snookie... and let's not kid ourselves, in pure economic (profit max for you) terms Salma Hayek is way more successful than von Hayek!

If anything, that should be reassuring to some, insofar as it indicates that there are non-g-loaded means of rising to wealth and/or fame. The proportion of g (general intelligence) determined by genetic lottery is around 0.8, if Steven Hsu is to be believed.

Granted, I'm speaking more of the Donald Trumps than the Snookies of the world, the latter needs no emulation.

I find all the coverage of the JPMorgan affair very confusing.

In particular, the coverage never distinguishes between paper (i.e. mark-to-market) losses, and realized losses. My understanding is that the derivatives in question are based on performance of corporate bonds years in the future. Have the hedge funds actually liquidated their positions and locked in their gains? If so, who is buying their positions? Is it JPMorgan? If so, why; did they decide their bet was wrong, or just too risky, or did they run afoul of regulatory capital requirements, or what? And what's actually going on with the fundamentals underlying the derivatives? The articles don't say.

Can anyone clarify?

The press: almost never your friend

When you're a bank, mark to market losses on securities held for trading go straight to the income statement. This is effectively the same as realized losses with the exception that they still hold the asset. Holding assets that have the potential to fall further poses additional risk. On the other hand, if they tried to unload the asset, the size of their holdings would cause an adverse price response and they'd take it to the chin anyway. If things "improve," they might recover some losses.

As I understand it, Dimon decided to take the loss by closing out positions. He could accomplish this through cash settlement or taking an opposite position. Contracts he couldn't close or offset will settle in the money at expiration. That's why there might be more losses.

Thanks...I actually knew most of that, except for "Dimon decided to take the loss by closing out positions."

That seems to me a big part of the story that is not being told. Why did he decide to close them out? Did he decide that the original bet had been wrong, or that the fundamentals had changed? Or was the original bet not really based on fundamentals, but rather an attempt to use the huge size of JPM to essentially manipulate the market, but the scheme failed? I don't see why the holdings would be any riskier now than when the positions were first entered. Did JPM just decide that their risk management had failed and the positions were simply too large?

And is it in fact even true that JPM is exiting or has exited the trade? The reporting doesn't make that clear. (I often get the sense that the reporters don't really understand the situation they are reporting on.)

at 3: I knew that playing chess was no waste of time:

Some famous chess playing economists: Kenneth S. Rogoff, of "This Time is Different" and IMF fame, Tyler Cowen, who needs no introduction and won the NJ State Championship in 1977, before and after the famous Grandmaster Pal Benko won the same events, Vladimir Lenin, who put Marx's theory into practice and was a strong player, and more tenuously as economists, the Wall Street trader Weinstat who brought down the London Whale, GM Alexander Morozevich who plays in the club Economist in Saratov (south Russia), billionaire and PayPal founder Peter Thiel who is rumored to be at least a strong Expert in ranking, and World Champion Garry Kasparov, who has a few interesting theories about economics, to name a few.

More importantly they failed to price discriminate. Doing that leaves a lot of money on the table.

Comments for this post are closed