Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, October 08, 2005

Easy Shorts!!
(it's not what you think)

If you can predict which companies will go downhill over the next few years (or months), now is a good time to sell their stock. If you do not own any of their stock, sell the stock short.

That is what Mahalanobis is referring to with "easy shorts."

[If] you are paying over 5 times the market clearing wage [and if] you also suffer absenteeism of about 10% [and if y]ou also have 46 job classifications that make it costly to reallocate labor from one task on the shop floor to another [, it s]ounds like the union negotiated a great deal! Unfortunately, you can bet that a firm in Mexico or Japan, or a non-union shop in Alabama, will have a much lower cost base. Result: you lose money, serially reduce your workforce, and eventually go out of business.

So it's really no surprise that Delphi (symbol: DPH, see graph for price move thru today) is just about to declare bankruptcy before the October 17th deadline (after which, a law change in the US will make bankruptcy a harder on debtors).

As long as people think they are immune to market forces, firms with inferior business models will burn money, and provide me with easy shorts. [emphasis added].
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