An "Austrian View" Approach To Equity Prices

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Fri, 12/23/2011 - 17:44 | 2008326 DaveyJones
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Happy Holidays everyone. Leave with this CNBC / Onion Headline:

The good news is that Wall Street experts think stock prices will rise more than 10 percent next year. The bad news is that they expected big gains in 2011.

Fri, 12/23/2011 - 17:46 | 2008332 russki standart
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More BS from money managers who get paid even as clients get fleeced. I could only see this scenario manifesting if the dollars drops 10% and/or trillions are 'printed'

Fri, 12/23/2011 - 17:55 | 2008347 Cheesy Bastard
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How to avoid a Fema camp:  I pledge allegience to the fag of the United States of America, and to the banana republic for which he stands, one nation under arrest, indefensible, with liberals and "just us" for all.  Merry Christmas

Fri, 12/23/2011 - 18:20 | 2008381 MillionDollarBonus_
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The Austrian school makes a fatally flawed assumption about equity prices. Namely that they should be determined by the subjective preferences of market participants. There is in fact a far better and more objective means of price discovery - create a central body to set equity prices according to the mathematical models of professional economists.

The optimality of the price of equities can be modelled by the following equation:

              U(price) = SUM( w1x1 + ... + wnxn )

Where

              wi = intelligence of market participant i

               xi = proportional influence of market participant i on price

Letting Wmax = MAX( w1,...,wn ),we find that:

              Max{U(price)} = SUM( w1x1 + ... + wnxn ) | wi = Wmax for all i

                                            = Wmax * SUM ( x1 + ... + xn)

                                            = Wmax

Therefore, for maximum prosperity only the most intelligent professionals should be setting prices.

 

Fri, 12/23/2011 - 18:54 | 2008447 WonderDawg
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That. Is. Awesome.

The only problem is, I don't see the component of human nature in the equation. If market particpants A-Z decide they don't want to pay the price that the "most intelligent professionals" have set, then what?

Fri, 12/23/2011 - 19:27 | 2008503 MillionDollarBonus_
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They will simply have to pay this price, since it will be mandated by law. But in any case, a failure to agree with the optimal price is a clear demonstration of ignorance, and the resulting social ostracism should be enough to enforce compliance. 

Fri, 12/23/2011 - 19:36 | 2008517 Snidley Whipsnae
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MDB... "But in any case, a failure to agree with the optimal price is a clear demonstration of ignorance, and the resulting social ostracism should be enough to enforce compliance."

..................................

If 'social ostracism' is the only necessity for compliance, why does the US have more people in jail than any other country on earth?

One would think that shame of wrong doing would stop all crime... especially crimes against humanity which bankers/pols commit daily.

 

Fri, 12/23/2011 - 19:41 | 2008522 Kali
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It's a shame, but there is no shame anymore.

Fri, 12/23/2011 - 20:38 | 2008570 AldousHuxley
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austrian view may be correct, but in an austrian world austrians would be dirt poor without government subsidies and world competition.

 

ron paul knows better that his entry into politics came from money and reputation of being a doctor and not a butcher or a car mechanic. But in a real world without government subsidy to doctors (50% of labor costs) and AMA lobbying to keep the profession supply less than demand, doctors wages and reputation would not warrant ron paul to run for elite political position.

 

Remember Doctors don't create cures, they just distribute them to you.

Also austrian and free market is brutal and cut throat. Do westerners really want to compete with BILLION Indian and Chinese youths?

Fri, 12/23/2011 - 21:13 | 2008601 lasvegaspersona
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Only 17% of American physicians are AMA members. It is now a left wing insurance company selling health and life policies and behaving more like AARP than a union for doctors. 

They have lost their way and now only a few academics or power hungry (or should I say a few who enjoy being pictured with politicians at social gatherings) doctors belong. Most who want helpful political input go with Docs4patientcare. The AMA has been useless for 40 years...make that dangerous.

Fri, 12/23/2011 - 21:56 | 2008648 Hohum
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Be that as it may, government out of health care completely would lead to a plunge in doctors' wages.  How could it be otherwise?

Fri, 12/23/2011 - 22:29 | 2008685 Michael
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The Ron Paul grassroots crew's creativity never ceases to amaze me. Check this out;

Pauled the Iowa Mall and Best Buy today! Submitted by storm on Fri, 12/23/2011 - 22:23.

Was at the largest mall in Iowa today. Went into the Apple store and turned the computers into Ron Paul. Opened to dailypaul.com and ronpaul2012.com changed the home pages loaded Ron Paul YouTube video. Also changed the backgrounds to the Top Tier Military donations picture. Here's the kicker, some of the computers already had the home page set to ronpaulronpaul.com :) we are winning! I just went over to Best Buy and did the same thing. Now I am Pauling the parking lots with Super Brochures..Go get em!

http://www.dailypaul.com/195599/i-think-i-did-something-awesomeon-accident

Sat, 12/24/2011 - 00:24 | 2008808 Oh regional Indian
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I think I have a new expanded form of QE.

Quite Elevating! Question is what happens when they QE (Quit Elevating)?

I think we are seeing a with-drawal of liquidity around the edges.

India is jittery, because it knows all that dollar slosh can be GONE in a heartbeat and in fact IS currently looking to go home. WHen it does, the whoosh and thud in India and other QE dependent markets (most of th edeveloping world) will be awful.

ori

/fractal-animal-hypnotic/

Sat, 12/24/2011 - 01:09 | 2008867 Harlequin001
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My family and I would like to wish everyone on these pages all the very best for Christmas and the New Year, may the coming year bring you health, wealth and happiness, and that extends to our Muslin, Jewish, Hindu, Buddhist friends and every other creed, race and faith.

Have a good one...

 

Sat, 12/24/2011 - 01:24 | 2008876 navy62802
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Hahaha! That's brilliant. The best part of this story is where some of the computers had already been "Pauled." It's like there's a secret underground network that exists without you knowing about it.

Sat, 12/24/2011 - 02:13 | 2008899 ActionFive
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Why not just report them to the terror/watch programs- now they are guilty.

Fri, 12/23/2011 - 21:54 | 2008643 Hohum
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A pure free market is brutal and will hurt most.  But who said that isn't fair ;)? 

Fri, 12/23/2011 - 22:30 | 2008687 blunderdog
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Remember Doctors don't create cures, they just distribute them to you.

Some do.  There's huge variation between different specializations in terms of what they can get away with.  Surgeons probably have the greatest leeway.  If they can get someone with a severe medical issue to sign the right forms, surgeons can try cutting off just about anything as "treatment."

You're right about pharma and biotech development, though.

Fri, 12/23/2011 - 23:43 | 2008771 TrulyBelieving
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Competition is very good.  Let others be encumbered with a controlled market and let us have a free market, we'll outcompete every time.

Fri, 12/23/2011 - 23:49 | 2008780 GMadScientist
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China disagrees for 245 billion reasons (in 2010).

 

 

Sat, 12/24/2011 - 01:14 | 2008871 TrulyBelieving
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China disagrees because they see using slave labor as a way to gain the system. Crony capitalism disagrees because they see stealing and control as a way to gain the system. Now why is it you disagree?

Sat, 12/24/2011 - 11:02 | 2009097 AldousHuxley
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slave labor due to low labor standards.

 

America learned long time ago about what happens when you lock in women workers in a garment factory so that one owner can increase profit by 5%.

 

Chinese are new to capitalism and materialism. They will accept horrid labor conditions as long as they can buy stuff but in due time will realize that sacrifices made are not worth the materialistic way of life.

 

Americans will soon become Europeans...after spending all public tax dollars in fueling elite's ambition for global dominance in world wars, labor will demand more. The Iraq vet guy at the pizza shop will stop beliving that capitalism will make him happy.

 

Hope was all American middle class had after Reagan, Clinton x 2, Bush x 3, and Obama crushed that hope with horrifying realism that America after all is a corrupt oligarchy no different than Russia or China.

Fri, 12/23/2011 - 23:46 | 2008776 GMadScientist
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Remember, these are the folks that want "free" markets...but fences to keep out the illegals.

Sat, 12/24/2011 - 00:46 | 2008830 TrulyBelieving
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There is but one reason to be against a free market , and that would be the desire to gain the system. Just so you'll know, border protection is a Constitutional responsibility of the Federal Govt.

Wed, 12/28/2011 - 14:28 | 2016737 Stax Edwards
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game the system

Fri, 12/23/2011 - 23:57 | 2008787 A Nanny Moose
A Nanny Moose's picture

Digging below the surface of this is innovation, and it's natural nemisis, mercantilism. This begs the question whether government is even necessary, since they are the engine of mercantilism, and stifle innovation through regulation.

In the end, what do they (china/India) have, that I really need?

Sat, 12/24/2011 - 04:23 | 2008951 delacroix
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so who creates the cures? jonas salk wasn't a doctor? how about linus pauling?

Sat, 12/24/2011 - 06:23 | 2008983 ffart
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Is this guy a bot or just drunk.

Also,

Also austrian and free market is brutal and cut throat. Do westerners really want to compete with BILLION Indian and Chinese youths?

What choice do people have? Rapidly growing population vs declining energy source, and NO will to come up with alternatives since the government heavily subsides the least efficient ones. Maybe we could print our way to Keynesian prosperity because if the last 10 years have shown there's NO downside to that. What a fucking rube, must be from europe.

Sat, 12/24/2011 - 10:46 | 2009081 Mulletpower
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Oh...so you think price contol by the government in medicine is to subsidize doctors.  You are incorrect sir.  Try again..

Sat, 12/24/2011 - 10:49 | 2009082 Mulletpower
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dp - troll

Sat, 12/24/2011 - 14:01 | 2009292 NumberNone
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Austrian's what do they know about economics?  All I hear from them is 'G'day Mate' and 'Throw another shrimp on the barbi'.  

Fri, 12/23/2011 - 21:37 | 2008621 scatterbrains
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The reason so many more are in jail in this country is because we pour more tax payer funds into ensuring that only our bosses should profit from the drug trade.  "The War on Drugs"  really means "maintain control of the flow"  

 Sorry don't mean to offend your sensibilities.

 

 

 

Fri, 12/23/2011 - 22:04 | 2008659 WonderDawg
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If "The War on Drugs" wasn't so profitable, it would be over by now.

Fri, 12/23/2011 - 22:38 | 2008696 Xkwisetly Paneful
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If "The War on Poverty" wasn't so profitable, it would be over by now.

Fri, 12/23/2011 - 19:59 | 2008542 Dugald
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Fit this man with a tracer tag....he bears watching!!

Fri, 12/23/2011 - 20:20 | 2008558 nmewn
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"They will simply have to pay this price, since it will be mandated by law. But in any case, a failure to agree with the optimal price is a clear demonstration of ignorance, and the resulting social ostracism should be enough to enforce compliance."

You're almost as good as the original MDB.

Isn't everything you just said human action?

You present yourself as a blue blooded, ringlelted dandy with psychopathic tendencies seeking to insure his own lifstyle at the expense of others. You now realize you're going to have to sell those overvalued equity positions among yourselves don't you? 

One wonders at what prices...don't look down...lol.

I will go out on a limb here (not really) and say the prices will be considerably lower when I come back around & pick through the ashes for those rings of yours.

But thanks for the laughs & your brand of Christmas cheer anyways ;-)

Fri, 12/23/2011 - 23:08 | 2008735 Piranhanoia
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They shall pay the discount rate master. Retail does not exist.

 

Fri, 12/23/2011 - 22:25 | 2008454 economics1996
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Sounds like LEONID VITALIYEVICH KANTOROVICH was reincarnated in MDB.

Fri, 12/23/2011 - 18:57 | 2008455 tom
tom's picture

Thank you professor Million for your brilliant contribution. I'm sure we can implement this plan as soon as we get funding through the appropriations committees.

It's also interesting to observe that at least six ZHers are completely incapable of recognizing even the most obvious possible sarcasm. I suggest we need more experiments in this potentially very fruitful field.

Fri, 12/23/2011 - 19:01 | 2008462 economics1996
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Sorry if it was sarcasm.  My bad.

Fri, 12/23/2011 - 22:07 | 2008662 Bicycle Repairman
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Not all was lost. I learned a bit about Leonid.

Fri, 12/23/2011 - 23:51 | 2008781 youLilQuantFuker
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Do you have an appetite for discrete analysis?

Here's a video about linear threshold predicates and approximation resistance.

http://sms.cam.ac.uk/media/1097440

Fri, 12/23/2011 - 20:48 | 2008584 youLilQuantFuker
youLilQuantFuker's picture

"at least six ZHers are completely incapable of recognizing even the most obvious possible sarcasm"

I'm sure they we're in shock from MDB_'s butchery of linear optimization.

Fri, 12/23/2011 - 19:05 | 2008469 ihedgemyhedges
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You're crazy dude.  From my life experiences, Austrians are far more often right about things than wrong and they have a great outlook on life.  In fact, I'm working on my 4th Foster's right now................

Fri, 12/23/2011 - 19:45 | 2008524 Paul Kemp
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Did you just mix up Austria and Australia or was that just one sarcasm corner i didn't take?

Fri, 12/23/2011 - 20:03 | 2008546 Dugald
Dugald's picture

You drink Foster's cooo errrr! now that really is poor taste!

Fri, 12/23/2011 - 20:40 | 2008574 AldousHuxley
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Fosters is Australian.....Arnold Schwarznegger is Austrian.

Fri, 12/23/2011 - 21:08 | 2008596 el Gallinazo
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Cut him a break.  He's on his fourth and they can come in really big cans.  The Sperminator is from California.  Hitler was from Austria.

Fri, 12/23/2011 - 21:50 | 2008635 Crisismode
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Hitler was from Australia

You idiot.

He was a whelp of an Abo and a marmoset

Fri, 12/23/2011 - 21:50 | 2008636 Crisismode
Crisismode's picture

Hitler was from Australia

You idiot.

He was a whelp of an Abo and a marmoset

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