My personal public transport gripe

For work, I have been researching transport, and in particular the motorways. The other student who works with me is researching public transport. Accordingly, many discussions have been had over the relative merits of different public transport systems. The views espoused are generally positive.

However, last week, when I took the bus home, something happened. It was something which both brought back memories and left me rattled.

What I am about to say next will sound like a digression but it actually isn't:

School field trips were great. You used to be able to skip classes without having to get a parent to ring up and say that you were sick, and go to some place that was sort-of related to what you were studying, (usually) with a group of friends. However, there was one aspect of field trips which was always somewhat problematic. This was the bus travel, but not for the reason you think. Most people would probably think that I don't like bus travel because of the perception that I'm a neo-liberal who doesn't believe in public goods. This is not completely true, though public goods do make an economic mess when you're trying to draw them on a graph.

The real issue was the whole two-person-to-a-seat rule on buses. For most of my high school life, I didn't have a best friend at school. Accordingly, this meant that I didn't automatically have the 'right' to sit next to anyone. And after you're about 12, it's a bit weird to ask someone who is your friend but not your best friend "can I sit with you?" without sounding a tad creepy. That's just my opinion. As it happened though, I was fortunate enough to have a group of friends, and I can only once remember having to sit next to a random. Happy times.

So, I guess you could say that my approach to getting a seat on the bus (and a partner) was a bit like the aircraft gas mask approach: help yourself before you help others. Survival of the fittest, to put it less originally.

But, as it happened, finding a partner was never the biggest issue. There were two potential problems that could arise prior to the completion of a successful bus ride. The first is when you're walking down the aisle to get to your seat, and you see someone that you know, who is alone and is looking for a partner. The best way to get around this was to avoid eye contact, which was actually easier said than done, because usually the desperate person would be trying everything to lock in some unsuspecting classmate. Sometimes, in desperation, they would call out your name, and you'd have to say, as quietly as possible "uhh sorry X, I've already promised to sit with Y...." ...meanwhile all the people sitting around are a) witnessing the person's public rejection; and, b) probably thinking that I'm a horrible person. The second situation that could arise was when the teachers realised too late that they had not ordered enough buses, and so would shout out "THREE TO A SEAT!". Anarchy invariably ensued, and if you didn't move quickly enough, you would either have some random assigned to your seat, and be burdened with having to include them in your conversation for the entire journey, or, even worse, some teacher would pull you out and assign you to another seat, and so you would be the burden on some other people's conversation.

And now to get back to what I was talking about. I got onto the 746 at Britomart. I was one of the first people on, so I had my choice of seats. I took the seat behind the second lot of doors at the back of the bus. Before departing, the bus waited for more people to arrive, and by the time we departed, the bus was full. It was so full that everyone had to stand. All the seats were taken. All except one, and that one happened to be the seat next to me. I began to wonder why no one getting on was sitting next to me. Subconsciously, I was probably even staring longingly at each passenger who walked past, trying to make eye contact. But alas, the seat next to me stayed empty for the entire trip.

Don't get me wrong.. there were certainly people on that bus next to whom I would rather not have sat, for example, the lady who looked like she had just done Christmas shopping for a family of twenty, judging by the number of bags she had. Despite this, I was plagued by self doubt. Why did someone choose to sit next to the bag lady and not me? Did I seem unfriendly? Did I look like a criminal?

Or maybe everyone else had organised their partners before they got on the bus.

The Law of One Price, and why Supre is relevant

As you can tell by the title of this post, it's going to be a random walk through topics as I think them up. It's ok. We'll both live with it.

Every weekend, for the last little while, my parents have driven up to Omaha. This is because the beach house is currently being painted, and they want to inspect the progress weekly. Since my exams finished, I too have been dragged up with them each weekend, to look at the beach house. It's very boring; an awkward car ride during which my mother and I have to stay quiet because my father will have some American on the phone (it's still Friday there), and then we get out of the car, and I am forced to make some comment on how great the house looks, even though I can hardly tell the difference between the colour of the house where it has been painted and where it has not.

Last weekend, I decided not to go. I had a birthday party to go to, and I needed to buy the present. When my mother came into my room to wake me up to go, and I told her that I wasn't, she was quite shocked. This amused me, as it was as if she thought I enjoyed it each week. But this is a digression. Anyway, instead of going to Omaha, I decided to take a trip to Newmarket. In particular, I was looking for what I call 'commodity fashion items'. These are generic items like black cardigans, white tank tops, denim cutoff shorts (apparently these are out of fashion now, alas), white plimsols and so on. Just the basic items that everyone has in their wardrobe, and which are sold by pretty much every shop.

In economics, there is an important concept, which has recently (according to some) been debunked. This idea is the Law of One Price. This states that in efficient markets, all identical goods must have only one price. Supposedly, an example of where this did not apply was when Royal Dutch/Shell shares did not price according to the way they had agreed to divide their future profits (60-40).

I think a more obvious example that the Law of One Price does not apply is the Broadway shopping strip. Take, for example, the garden variety acid wash denim skirt:

Price at Glassons: $29.99

Price at Cotton On: $30

Price at Supre: $55

Does anything there stand out to you? In fact, the Supre skirt probably wasn't even real denim. So next time you hear someone complain that "Supre has such high prices for its crap quality" (an oft-heard complaint), tell them that it's more than that. In pricing its products above other similar products, Supre dares to violate the very foundations of the market pricing system that we live by.

Your friends will think you're really smart. Or insane. But when you think about it, the two aren't mutually exclusive. Draw the Venn diagram.

Tutto va bene

I renamed my tumblr. I had been through a few names for it, before settling for salve! Emma nomine., also the title of this blog. I first used it in the 'About Me' section of my myspace page. I guess I just like the way that in Latin you can say "Emma, by name". It seemed like something that an action film hero might say, not dissimilar to "Bond, James Bond".

But as it happened, I figured that I had outgrown the title. It was also probably a bit superfluous, given that my name was listed elsewhere, so, as ends up happening to most superfluous things, it was cut. The new name is tutto va bene. I first came across this phrase in year 11, when I was doing a family history album for a Level 2 History internal (standards 2.1 and 2.2.. I still remember). Anyway, during my 'research', I came across this book about the history of Italian immigration to Wellington. The title was Tutto va bene, which means "everything's going well".

I think it describes my personality and general character development through life quite well. I'm mean-reverting. Where I am and how I feel about life tends to change from time to time, but it always reverts back to one viewpoint and outlook. Particularly since I started Law School properly (2009), I feel like I've been spending too much time panicking/stressing/making work for myself, and not a lot in self-examination (more on this later), and so I entered a bit of a depression/recession etc, but now I'm just reverting back to the mean again. It's quite comforting. Life is good. Tutto va bene.

Also in high school, though not for L2 History, we studied Socrates. I really disliked (Plato's portrait of) Socrates. I just imagined these poor ancient Greeks, strolling through the agora, going about their daily business, when all of a sudden a nutty man in ragged clothing would start questioning them about something. Had I been in Euthyphro's position, I would have been extremely annoyed. All I wanted to do was make a statement on, in Euthyphro's case, piety, and this arrogant fool starts questioning me, seemingly for the sake of it more than anything else. The reason for all of this, supposedly, was that the unexamined life is not worth living. Socrates' badgering meant that Euthyphro had an opportunity to 'examine' his position, so to speak, and rethink it and then improve on it. My year 12 self found this rather dramatic. In fact, I still do. Surely an unexamined life, inferior as it may be, is not 'not worth living'? Excuse the double negative. It also seemed quite self-indulgent. While the Sophists, criticised heavily by Plato for litigious deception, were out seeking excellence in all they did, Socrates and co were examining their lives. I dunno. Something about the former approach seemed a bit nobler to me.

But I think Socrates had a point. While I still wouldn't go as far as saying that the unexamined life is not worth living, I would say that there is huge importance in examining one's life. It's especially important because for the last three years I had been (not so?) happily studying lots of things and now I need to decide what I want to do with my life so that I can plan accordingly. Law honours? Economics honours? Finance honours? Ahhhhhh. I guess I'm actually quite lucky that I have this dilemma, rather than being forced into once path.

That's a bit of a digression though. I guess the point is that sometimes you have to take time and reflect on who you are and what's important. I hadn't self-examined for a while, but now that I have, I've reverted to my 'mean' position. Hopefully, continued self-examination will keep me there. But not too much; I wouldn't want to end up like Socrates. Nutty old fool.

PS: On the subject of mean-reversion. Yes, it does disgust me mildly that I'm describing my personality with a financial term, used to describe market expectations. Never mind.

The first week of December

Hello December,

You have been such a mixed month so far. Here is a brief (this is what I'm hoping for but it probably won't be) list of what has happened:

- I started work at the Business School properly on December 1. So far, I enjoy the job and I like the professors that I've met, but a few of the Ph.D. students are a bit passive aggressive in the lifts. Hahaha. I have an office, which is really cool, and a staff email address and you can look me up in the Business School Staff Directory on the website, which should inflate my ego for a little while.

- I have continued going to the Law Centre on Thursday nights. This is also really interesting, and it feels good to get involved with something in the community. It also makes me want to be a lawyer.

- The result of the above two bullet points was that I was extremely tired on Friday night, and became a bit hysterical. That night it took me forever to get to sleep because I kept thinking about how I was messing everything up etc. I woke up at 7am the next morning and tried to get up and eat my breakfast but I kind of collapsed getting out of my bed, so I guess I was lying on the floor for a little while. An hour or so later I got myself back into bed and went back to sleep, and felt much better for it. I also had an 11-hour sleep the next night, and quite a long one the night after that, too.

- The result of the above point is that I am now feeling much better about life. I have also put on 2kg, which is great.. now only 3kg left to get back to what I should be. Win. I'm starting to notice the difference because I don't feel like falling over all the time.

- I had an epiphany that my previous epiphany was not as bad as I thought it was. Good things always happen to me when I stop trying to force them to happen. Originally, I found this annoying, but I am now happy about it, because, rather than implying that my efforts are in vain, it suggests that I should just relax about things, which is something that I need to do anyway. I am also beginning to accept some realities in a more positive light. Good Emma.

- I have a new interest: going through magazines like the Herald Homes and interior design stores. Even though I won't be able to afford a house for many years, I like planning what it will be like. For some reason, I seem to like Greek Revival architecture. The columns can be a bit much though.

- My SIM card died on Sunday night, when I was at my friend's birthday party. Apparently my parents called me quite a few times because they thought I had been in a car accident that I wasn't back home. I have not had much success with getting a new one yet, but I will attempt again tomorrow. Unfortunately, adding to the problem is that my phone has also decided to die... so my sister is lending me hers for now, but I think that she'll probably want it back soon, so.. who knows what will happen there.

- Law students are a pain. I had to finish enrolling myself in a timetable for next year this morning because all the eager law students had been enrolling and filling up all the good classes, and I didn't want to be left taking something random like 'Contemporary Maori Issues'. I think I will need a time turner next year as there is so much stuff I am signing up/have signed up for. Semester 1: Agency Law, Land Law, Equity, Company Law, Tax Law, International Finance. Semester 2: Agency Law (cont'd), Land Law (cont'd), Equity (cont'd), Law of Evidence, Corporate Finance Law, Legal Research 2. At the moment, International Finance clashes with Tax on one day... so I'll probably need special permission to do that. Also, I don't know how to enrol in Honours, which is a worry, because I really want to do Agency. Furthermore, yes, you did read that correctly. I am taking Tax. Yes, I did swear that I'd never do it. But.. Tax v Treaty of Waitangi... Tax wins.

- On Sunday morning I went to the supermarket in 277, where they were handing out free samples of iced coffee. I have been converted. How could my life have been missing something so fantastic for such a long time?

That was actually not too bad an attempt at brevity.

The cost of certainty

I have been a bit behind on my blogging lately. I had been meaning to post this a few days ago, but I never got the time... holidays are so tiring. They are meant to be a break! Never mind. Here we go:

Last week, I was having one of those fateful (although not on this particular occasion) post midnight MSN conversations, I (half) tried to explain this concept, and it turned out really badly. Then, on Friday, someone said something to me that brought it up again in my mind. I suppose, given the number of times that I practised the proof of the concept for one of my exams, it's really no surprise that it keeps coming up in my head.

As it happens, certainty of cash flows is a big deal in finance, and in particular in the area of risk management. There are obvious reasons for this, like that it helps with financial planning etc, and also less obvious reasons, like that reducing the variance of cash flows means that you can reduce expected tax (think Modigliani-Miller and such). To create greater cash flow certainty, financial managers, and indeed anyone else who feels like it, use a hedging strategy. Hedging strategies commonly involve the purchase (and, generally, sale) of financial derivatives (e.g. futures, forwards, options) so as to give the hedger a price that they are happy with over the volume of whatever the underlying asset they're interested in is.

For example, imagine that I have a business which sells mozzarella cheese (when I was about 14, I had a friend who didn't know how to say my last name, so he called me 'Emma Mozzarella'). The current price of mozzarella cheese is $50/kg , but I am worried that the price will fall to $30/kg in two months' time, when I have to sell it. The current price of a two month mozzarella cheese futures contract is $40/kg (lower than the current price, reflecting the expectation that the price will fall). Therefore, to hedge against the predicted price fall to $30, I sell a two month futures contract at $40. This gives an immediate cash inflow of $40.

One of two things can happen from here.

The first situation that could occur is that my expectations are correct, and the price of mozzarella does fall to $30/kg. Therefore, when I close out my futures position by buying a futures contract in two months' time, at $30kg (the market price = futures price at maturity), I make $10 profit (as I initially sold at $40 and bought at $30). Therefore the price that I receive at maturity for my mozzarella is $30+$10=$40, and, happily, I have protected myself from the extent of the price fall, by hedging at $40 so that I don't have to receive $30 in the market at maturity. What a thrill.

However, sometimes what people expect will happen does not always turn out to be the case. Let's say that I had been living in my own little world, forming my own unobjective and narrow-minded views about the price of mozzarella cheese. Let's say that, having hedged by selling two month mozzarella futures at $40/kg, the price of mozzarella actually increases to $60/kg. Therefore, I sell at $40 (as detailed above), and buy at $60/kg (I buy because I have to close out the futures market position by doing the equal and opposite of my original selling position, and it is at $60/kg as at maturity, spot price = futures price). I make a $20 loss (having sold at $40 and bought at $60).

So I guess the point of my mundane mozzarella example is to say that certainty is not always a fantastic thing. Certainty has a cost. In the second example, even though there is certainty, and I am better off than I thought that I was going to be, I can never be as well off as I could have been, had I not hedged. Because I chose the certainty of $40/kg, it means that when the market turned up, I couldn't take advantage of the $60/kg price.

Life is a bit like this too. We see certainty as a good thing and are always trying to achieve it, if we're unlucky, then this 'certainty' isn't necessarily the great thing that it's cracked up to be.

That said, if/when I do end up in the second position, I shouldn't be too unhappy. After all, I chose the $40.

The worst font in the world

Lucida Handwriting. Seriously, it is disgusting.

Contract notes in the background, btw. Spot the typos.