soros

QUESTION: Europe is still in deep recession. What are we doing wrong? What is it that we can learn from the United States to overcome the crisis?

SOROS: First of all, the euro crisis is a direct consequence of the financial crisis that started in the US in 2007. And it has to do with the design of the eurozone, which is fundamentally flawed. The global financial crisis revealed some of those flaws, though some are not properly recognized even today. So the US is, in fact, doing better. Europe now has to solve its own crisis, which is, of course, a combination of a financial crisis and a political crisis.

ROB Shiller he is the best in the world

Robert shiller in Yale is inspiration to students in the developing world , i dont think he knows that,  i am his student though not directly i have listened and read him closely.

Economist Robert Shiller has argued in favor of the "genuine beauty" in finance.

He believes that financial instruments can contribute to a better society because humans have an innate tendency towards generosity.

In an interview published by Credit Suisse he says that that finance recognizes "the egotistical side of human nature. This presents potential for conflict."

But these are things that he argues neuroeconomics will help shape in coming decade. Here is an excerpt from the interview:

You want to use financial instruments to contribute to a "good society," a better world. That sounds, diplomatically speaking, rather bold.

Not at all. During the last two years, many innovations in the sector have served to support the "good society." Social impact bonds in the UK, for example. Let's take the Peterborough Prison in northern London, which has extremely high rate of recidivism. The non-profit organization Social Finance reached an agreement with the government for a payment of six million British pounds if recidivism declines to a clearly defined level within a certain period of time. Social Finance then issued a bond. Using the capital raised, measures were taken with the goal of reducing recidivism. If the goal is met, the six million will be distributed to investors. That is a private solution to a public problem. There are numerous other examples.

Traditional theories of economics assume a rational, utility-maximizing person. One who is not necessarily interested in "good society.

Decades ago, the economist Kenneth E. Boulding showed how far removed we are from homo oeconomicus. People are much more dependent upon each other than the pure utility function would indicate. Generosity also seems to be an inborn trait, as Ernst Fehr at the University of Zurich has shown. People are generous and kind to people who they perceive as such. We want a society that reflects the golden rule: "Do unto others as you would have them do unto you." Of course, people aren't always good, but when generosity is fostered, they become better. Financial instruments can help with this, too.

Your wife is a psychotherapist. How do your ideologies differ?

She always thinks I need therapy (laughs). Seriously, my original understanding of economics has significantly changed and now includes more psychological components. We have been married for 36 years, we spend a great deal of time together, and we tend to read the same books. Right now, we are very interested in neuroscience, in particular in the subdiscipline of neuroeconomics. These approaches will shape our ideas in the coming decades.

...For example?

Ernst Fehr*, whom I just mentioned, scanned the brains of people playing an aggressive game. He found areas of the brain that are active during the feeling of schadenfreude. Many things are preprogrammed in our brains; we function much more automatically than we would like to think.

Back in 2011, Robert Shiller wrote of a coming Neuroeconomic Revolution. Neuroeconomists, he said, tried to develop economic theory by linking them to specific structures in the brain.

It appears he's increasingly convinced that this will be a very important area of study.

*Ernst Fehr is Professor of Microeconomics and Experimental Economics at the University of Zürich. He is known for his contribution to neuroeconomics and behavioral finance.

India Hydrocarbons

From pricing woes to hurdles in clearances and long-standing disputes, challenges the oil and gas sector in India faces are galore. Little wonder the country produced around 176.9 million

tonnes (mt) of crude oil in the 11th five-year Plan period ended March 2012 against a projected 206.8 mt. On the other hand, crude oil imports increased dramati-cally by 149 percent to 184.5 mt in a decade to 2012-13, making it a more complex story.

Most blocks auctioned out under the New Exploration Licensing Policy (NELP) are yet to start production. The major production booster came from Reliance Industries Ltd's KG-D6 block in 2009 but has witnessed a sharp declines in gas volumes over the last two years. Even the minor increase in oil production is due to the higher output from the Barmer fields, a pre-Nelp block,

in Rajasthan. In the last two years, the country’s natural gas production has also dropped at nine per cent on an year-on-year basis. The average natural gas production in 2011-12 was about 130 million standard cubic metre per day (mscmd) and was estimated at 117.8 mscmd for 2012-13. “We are going to become more dependent on imports.Even if there needsto be a slight increase in production, the government has to incentivise exploration activities.Moreover, the ownership issues and other disputes need to be sorted out

swiftly,” says R S Sharma, former chairman of Oil and Natural Gas Corp Ltd (ONGC). While the environment, defence and petroleum ministries are working on faster clearances for blocks, another battle is on between the finance,fertiliser and oil ministries —

over pricing. Suggestions made by the Rangarajan committee on pricing gas are facing heat from various corners.

According to the Rangarajan formula, the base price of domestic natural gas would goup to $8.8 a million British thermal unit from the $4.2 currently applicable for gas produced from the KG-D6 and a host of other fields.If the Rangarajan formula is implemented, the power ministry expects an impact of around ~43,360 crore annually,while the fertiliser ministry sees~16,992-crore annual subsidy

outgo. On the other hand, the finance ministry had even sug gested an alternative formula,which also takes into account well-head prices of suppliers inQatar, Oman, Abu Dhabi andMalaysia.

Even the industry players such as Reliance Industries Ltd,BP Plc, ONGC and Cairn IndiaLtd had expressed their reservations regarding the Rangarajan formula.“Additional activity in the  (exploration and production) sector would help Indiaachieve energy security and create a supply certainty for the government and consumersalike,” says Sashi Mukundan, country-head (India), BP Group Companies, and co-chairman of Confederation of Indian Industry’s national committee on hydrocarbons. “An energypolicy linked to market-determined prices would spur activity in the Indian E&P sector,bring in investment, along with cutting-edge technologies, and create supplementary employment."BP is RIL's 30 per cent partner in KG-D6. According toexperts, one of the major challenges the natural gas sectorfaces is the rapid drop in production from KG-D6, off the Andhra coast. The production from the block has declined to

17.3 mscmd, compared with the estimaed 80 mscmd. “KG-D6 isa huge disappointment. If pricing is an issue, it should be sorted out by the government immediately. There must be some policy changes and the government should show some political will,” believes Bhavesh Chauhan, senior research analyst at Angel Broking.Adds Sharma, the former ONGC chief: “While companies are seeking higher price, those in power and fertiliser sectors are looking for a lower pricing regime. I do believe gas pricingshould move towards market rates soon. Otherwise, it would dissuade further investment from coming to India.”

The recent clearances by the Cabinet Committee of Investment (CCI) has offered some hope to the industry. Till now, a total of 31 oil and gas blocks,worth investments of about $13.42 billion, have been cleared by CCI. “While pricing remains an area of concern, through CCI,the government has given fresh life to the industry. To attain energy security, clearances must be done on a faster pace,” says T K Ananth Kumar, director(finance), Oil India Ltd.

Sharpe and Fama

Expected return can be defined as follows: Consequently, in order to raise the long-term rate of return, it is simply necessary to increase the beta, considered as a new measure of risk. Besides the difficulty of measuring it with precision, the beta changes constantly, solely in relation to market fluctuations. Furthermore, use of beta assumes that the upside potential and downside risk are equal, although this is not necessarily the case in practice.It was demonstrated in 1992 by Fama and French10 that there is no relation between securities' return and their beta, which does not therefore seem to be a decisive factor. Ratios such as the Price to Earnings Ratio (P/E) or the Price to Book were much more effective in explaining differences in returns between securities. These results were confirmed in a study by Malkiel a few years later.11 Furthermore, “recurring anomalies between expected and actual returns, attributed to pockets of market inefficiency, are demonstrated by various empirical studies”. Thus, he identified that with an equal beta, the shares of small capitalisation companies got an average return significantly higher than large-cap stocks. Similarly, “growth companies' stock (low book-to-market ratio), for the same beta, got a lower return than value companies' stock (high book-to-market ratio)”.12 Certain risk factors are therefore not completely taken into account by the beta. It would seem that beta is not an adequate measure of risk, as other elements influence market risk; it depends on a large number of macroeconomic variables, such as interest rates, inflation, changes in GDP, etc. Other than the difficulty of selecting an index that can be regarded as representative of the market, the market rate of return is difficult to estimate and it is an ex ante return. At this stage, is it also worth noting that the CAPM is often used to determine the cost of equity, one of the components of a company's cost of capital. This is the rate of return required by shareholders, but it is difficult to estimate in practice.
I believe that investors should focus on the factors that influence price fluctuations and try to determine the forces that cause prices to rise or fall. Therefore, the sole criterion of volatility or reactivity in relation to the market is too simplistic as a measure of risk.