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What to read #7: Money

Money: An Unofficial Biography of Money by Felix Martin

Restored by restorephotos.io

When I was 15, I received a¬†gift from my best friend, Max‚ÄĒa¬†book that would shape my understanding of¬†money. From that day on, my friends knew that books were the¬†way to¬†my heart.

Yap Island’s Unique Currency: Giant Stones and a Trust-Based Economy

In the remote Yap Island, found a hundred years ago, an extraordinary monetary system thrived. The inhabitants used enormous coin-like stones with holes in the center, known as Rai stones, as a form of currency. These stones were immovable, some as large as cars, and were quarried from distant islands and transported with great effort.

What made this system work was an intricate web of trust and communal understanding. Ownership of the stones could change without them physically moving. If someone wished to buy something, like 10 kilograms of fish, they would simply declare the transfer of ownership to the fisherman. Everyone in the community would acknowledge the new ownership and the transaction was complete.

The stones didn’t even need to be seen to hold value. In one legendary tale, a Rai stone was lost at sea during transport, but the community continued to recognize its value, and it remained part of the island’s currency system.

This unique approach to money, rooted in social trust and shared belief, challenges conventional economic thinking and provides a fascinating glimpse into how value can be ascribed and exchanged in diverse cultures.

The Birth of Forwards and Futures: Lyon, 1535

In the bustling market town of Lyon, France, in 1535, an extraordinary transformation was taking place. Amidst the cacophony of sellers peddling meats, fruits, and tools, one man stood out. He had no physical products, just a fountain pen, paper, and an idea that would revolutionize trading.

This man began selling the future by signing contracts to buy wheat at predefined prices and reselling them at higher rates. This practice, known as Forwards or Futures, was a radical departure from traditional commerce. It attracted attention, skepticism, and eventually imitation. Other traders started following suit, and soon, Lyon’s market was flooded with these future contracts.

The city’s reputation grew, attracting merchants and financiers from far and wide. Banks and financial institutions took notice, and Lyon became a hub for innovation in finance. By the end of the century, it was not only France’s financial center but also the heart of Europe’s burgeoning capital market. The man with the fountain pen had set in motion a wave that would eventually shape modern stock markets.

Eric’s Adventure: Risk, Profit, and the Birth of Joint-Stock Companies

Across the sea, in the small but ambitious trading nation of the Netherlands, a Dutch trader named Eric had a vision. He dreamed of building ships to explore and trade with distant lands, but his ambition was larger than his credit. Banks and friends lent what they could, but it was never enough.

Undeterred, Eric took a novel approach. Instead of seeking credit, he asked investors to buy a share of his profits. This was a new concept, and it attracted adventurous and like-minded individuals who saw the potential in overseas trade.

Eric’s first voyage was a resounding success, bringing in profits that exceeded all expectations. Word spread quickly, and more people clamored to invest in Eric’s next expedition. His fleet grew, and so did his reputation.

However, managing the growing number of investors became a Herculean task. There were disputes over ownership, profits, and investment terms. The government, too, struggled to track who owned what and how much tax was due.

The¬†solution was as¬†innovative as¬†Eric‚Äôs trading model‚ÄĒa¬†centralized exchange where shares in¬†his ventures, and¬†those of¬†his competitors, could be bought and¬†sold. This was the¬†genesis of¬†the¬†joint-stock company and¬†the¬†stock market, concepts that would define global commerce for¬†centuries to¬†come.

With each new voyage, risks and rewards were shared among an ever-growing pool of investors. The idea spread across Europe, laying the groundwork for modern corporations and investment structures. Eric’s vision had not only opened new trade routes but also charted a course for the future of business and finance.

John Law: The Gambler Who Shaped France’s Monetary System

John Law, a charismatic Scotsman, was a gambler, banker, and economist whose ideas would leave an indelible mark on France’s monetary system. Sentenced to death in Britain for killing a man in a duel, Law escaped to Europe, where his financial acumen caught the attention of France’s regent.

France was in financial ruin after years of war, and Law proposed a radical solution: replace gold and silver with paper money backed by land. He believed this would stimulate the economy and reduce the national debt.

In 1716, Law founded the Banque Générale, issuing paper money that could be exchanged for coins. His ideas were initially successful, and Law’s influence grew. He took over the Mississippi Company, controlling French trade with the Americas, and his paper money fueled a speculative bubble.

However, Law’s success was short-lived. Doubts about the real value of the paper money led to a loss of confidence, and the bubble burst. Law was forced to flee France in disgrace, his innovations leading to financial chaos.

Yet, despite the catastrophic end, Law’s ideas were ahead of their time. He foresaw the potential of a centralized banking system, fiat currency, and the complex interplay of economics and psychology. His story is a cautionary tale about innovation, ambition, and the fragile nature of economic systems, but also a testament to the power of ideas to shape history.

These expanded sections provide a more comprehensive view of the unique currency system of Yap Island and the complex story of John Law. By delving into the details, the narrative paints a vivid picture of these historical phenomena, offering readers a deeper understanding of the diverse and often surprising world of money.

Beyond the Stories: A Rich Exploration of Money

‚ÄúMoney: An¬†Unofficial Biography of¬†Money‚ÄĚ by¬†Felix Martin goes beyond the¬†fascinating stories of¬†Yap Island, Lyon, Eric‚Äôs adventures, and¬†John Law. It dives into the¬†complexities of¬†debt, the¬†art of¬†printing money (seigniorage), the¬†ideologies of¬†capitalism and¬†communism, the¬†evolution from the¬†gold standard to¬†fiat currency, and¬†the¬†prominence of¬†the¬†U.S. dollar.

This article was edited by¬†ChatGPT, which assisted me in¬†crafting the¬†storytelling, paraphrasing sentences, and¬†verifying facts from both the¬†book ‚ÄúMoney: An¬†Unofficial Biography of¬†Money‚ÄĚ by¬†Felix Martin and¬†my own memory. The¬†collaboration has helped shape a¬†more engaging and¬†accurate representation of¬†the¬†book‚Äôs rich exploration of¬†money and¬†its multifaceted history.

Aug 9   Books   Business and Economics   english

Q&A with chatGPT: accessories

My blog is primarily about finances, architecture, and programming. But sometimes I want to share something important that we must know to improve ourselves. For example, the accessories that make you look charming.
I collected my 3 recent questions to ChatGPT.

I am a¬†20-year-old male. I have to¬†find 2 scents. One for¬†work¬†‚Äď business and¬†business casual style, and¬†the¬†second for¬†a¬†date. What can you recommend?

For¬†a¬†work scent, you might want to¬†consider something that is sophisticated and¬†subtle. A¬†classic, woody fragrance with notes of¬†sandalwood, cedar, or¬†amber would be a¬†good choice. These types of¬†scents are subtle enough to¬†wear to¬†the¬†office, but¬†still have enough character to¬†make an¬†impression. Some examples of¬†woody fragrances that would be suitable for¬†work include Dolce &¬†Gabbana‚Äôs ‚ÄúThe¬†One for¬†Men,‚ÄĚ Guerlain‚Äôs ‚ÄúTerre d‚ÄôHermes,‚ÄĚ and¬†Yves Saint Laurent‚Äôs ‚ÄúL‚ÄôHomme.‚ÄĚ

For¬†a¬†date scent, you might want to¬†choose something that is a¬†bit more bold and¬†romantic. A¬†floral or¬†spicy scent would be a¬†good choice. Floral scents can be soft and¬†feminine, or¬†they can be more bold and¬†exotic. Some examples of¬†floral fragrances that could be suitable for¬†a¬†date include Marc Jacobs‚Äô ‚ÄúDaisy,‚ÄĚ Dior‚Äôs ‚ÄúJ‚Äôadore,‚ÄĚ and¬†Gucci‚Äôs ‚ÄúBloom.‚ÄĚ Spicy scents can also be very romantic, with notes of¬†cinnamon, cloves, and¬†other warm spices. Some examples of¬†spicy fragrances that could be good for¬†a¬†date include Dolce &¬†Gabbana‚Äôs ‚ÄúLight Blue,‚ÄĚ Yves Saint Laurent‚Äôs ‚ÄúLa Nuit de L‚ÄôHomme,‚ÄĚ and¬†Burberry‚Äôs ‚ÄúThe¬†Beat.‚ÄĚ

How to tie a tie

The Four-in-Hand Knot: This is a simple, classic knot that is easy to learn and suitable for most occasions. https://www.youtube.com/watch?v=gVYkE1DHnJ4
The Half Windsor Knot: This knot is slightly more formal and works well with medium to wide ties. https://www.youtube.com/watch?v=x1LbKfOv6TE
The Full Windsor Knot: This knot is more formal and works well with wide ties. It is a bit more complicated to tie, but it creates a large, symmetrical knot. https://www.youtube.com/watch?v=7TZKX9y-RVQ
The Pratt Knot: This knot is similar to the Four-in-Hand, but it creates a neater, more symmetrical knot. It is suitable for most occasions and works well with medium to wide ties. https://www.youtube.com/watch?v=2sV14T4T-8s

How to wear a scarf

The Basic Loop: This is a simple, classic way to wear a scarf that works well with most types of scarves. https://www.youtube.com/watch?v=dO-cKZ6UJwE
The Parisian Knot: This knot is a bit more stylish and works well with long, thin scarves. https://www.youtube.com/watch?v=nSfZlDV7Kj4
The Ascot Knot: This knot is suitable for more formal occasions and works well with thicker, more luxurious scarves. https://www.youtube.com/watch?v=MQ-JgvB_Mxw
The Shawl Drape: This is a simple way to wear a large, rectangular shawl-style scarf. https://www.youtube.com/watch?v=uNp-bV7jK0Q

2023   english   OpenAI

Dress code for Diplotamic meetings

Rules:

The suit is only dark blue or dark gray. Black is allowed only at evening events with the black-tie dress code, as well as at funerals and weddings.
The¬†jacket is single-breasted, with two or¬†three buttons. Length ‚ÄĒ up to¬†the¬†middle of¬†the¬†palm of¬†a¬†freely hanging hand. The¬†fabric is solid, dense, without iridescence (chameleon effect), and¬†gloss.
Trousers of a classic cut, with arrows. The length is up to the middle of the heel with one front fold above the shoe.
The shirt is white, plain, opaque (not transparent), and without pockets. Cuffs with one or two buttons are acceptable, but French cuffs are preferable, with medium-sized cufflinks of laconic shapes. The cuff should peek out from under the jacket by 1-1.5 cm.
The tie without glossy gloss, plain, muted colors (dark red, dark blue, dark gray, graphite). Small geometric patterns or contrasting stripes are acceptable. The tie should not be too wide, and its knot should not be too large. The length should reach the middle of the belt.
The belt is only made of smooth matte leather with a classic laconic buckle. The color of the belt matches the color of the shoes.
Shoes ‚ÄĒ oxfords or¬†derbies made of¬†smooth matte black leather. Brown shoes are only allowed in¬†the¬†heat. The¬†sole is thin, the¬†heel is 3-5 cm.
Socks up to the middle of the calf, are selected in the color of shoes or trousers. White or multicolored socks are not allowed.

These are generally accepted rules. But some politicians deviate from the rules and add their own corporate identity: Trump wears a bright red tie and printed socks; Putin most likely has higher heels. Macron sometimes wears a turtleneck under the jacket. Canadian leader Trudo wears socks with ducks and star wars. Some civilizations are also wearing traditional costumes, e. g., the Saudi Arabian prince wears a thawb (or dishdasha).

The¬†suits are meaningful. For¬†example, Marcon wears a¬†turtleneck under the¬†jacket if he expects changes from the¬†politician‚Äôs decision. The¬†clumsy oversized non-ironed costume can mean that person does not¬†care about the¬†public¬†‚Äď Trump is one of¬†them. Obama, at¬†the¬†conference against terrorists, wore a¬†beige suit, that seemed too informal in¬†a¬†context of¬†a¬†speech on¬†such a¬†serious issue. A¬†light suid is only used at¬†weddings and¬†on¬†the¬†beach.

Brands:
Putin wears Brioni and¬†Kiton (4000-8000‚ā¨). Macron wears a¬†local brand, Jonas et Cie, for¬†just 380‚ā¨. Biden wore Ralph Lauren at¬†the¬†inauguration. Hart Schaffner Marx and¬†Hickey Freeman produce suits for¬†presidents for¬†3000-5000‚ā¨. So, the¬†price of¬†the¬†suit may be any: 400‚ā¨, 3000‚ā¨, 8000‚ā¨¬†and¬†higher.

Source: RBC.ru

2022   Business and Economics   english

Crash of Russian housing sector

After the mobilization at the end of October, housing luxury prices dropped 40%. Prices stabilized at the 15% discount compared to August 2022. Why did it happen and what to expect in the future?

Theory

The housing market can’t be shorted. It is an advantage over the stock market. That means you can’t borrow a house, sell a house and buy it back when the price for this house falls. The problem is that all houses are unique, and the lender expects to get back the same house. The person to whom you sold a house will not sell you a house cheaper than you borrowed it.

The lender may give a set of houses that he will accept from a borrower. Usually, such houses are better than borrowed ones. Such practice is not popular due to the complexity and does not affect the housing market the same way as stocks shorted by institutions for trillions of dollars affect the stock market.

Low liquidity of housing. Stocks are sold fast with a low spread between ask and bid prices. This is because all stocks of a company are the same, information is open, and the stock price is affordable. Also, buying stocks requires a low commission, and the contract is created automatically (in reality it is not so easy and you don’t own shares when buying stocks through a broker, but it is a long irrelevant story).

Buying a house is a long process of finding the right prices by analyzing hundreds of parameters, negotiating, and signing documents with help of a realtor and a lawyer.

To sell a house immediately, seller agrees to sell a house for the bid price, and to buy it, the buyer pays the ask price without negotiations. The spread may be huge, moreover, if too many people sell a house, sellers give huge discounts.

What happened when mobilization started

300k people were drafted in one week. After the announcement of the mobilization, people had three days to leave the country not to be drafted. Plane ticket prices raised from an average of 300$ to 5000$. The last tickets were sold for 15000$ in the economy class. (at that time I was also leaving the country, but I am an EU resident and I paid nearly 500$ to get to Austria by carpooling, plane and bus).

People were scared to¬†get back to¬†Russia. Leavers sold everything they had. They sold houses in¬†one day in¬†exchange for¬†foreign cash. Sellers gave a¬†40% discount, which was incredible¬†‚Äď a¬†luxury house for¬†a¬†price of¬†an¬†economy-class house. Tip: in¬†crisis keep cash to¬†make the¬†best deals.

When all leavers left, the housing prices went up, because there is no need to sell the house fast anymore. That is why the prices bounced. Moreover, the demand for housing dropped, because those who needed a house already bought it, or took a mortgage if it was applicable. Some people who wanted to buy housing may be decided to keep the money in foreign currency to be ready to flee. That is one of the reasons, why the US dollar costs 67 rubbles in cash and only 57 rubles on market (because it is not possible to withdraw money from a bank account, except for SWIFT).

Why prices will continue dropping

There are two reasons for that: Mortgage restrictions and uncertainty. Since the start of the mobilization, the banks stopped giving mortgages to males, except for programmers, who have a right to a 2% mortgage by law. Programmers can’t be drafted by the law.

Due to the risk, that a person will be drafted and won’t be able to pay for a mortgage, banks are not ready to provide the mortgage.

Also, the credits and mortgages, that were taken before the militarisation on the 21st of September, will be automatically discarded if a person dies. That means, the family will keep a house without liabilities, and banks will get huge losses. As for now, the government will not support banks with money and will not compensate for losses. Small banks are f*cked (benefit for big banks).

Eventually, mortgage rates will increase, fewer people would like to take mortgages, and the demand for houses will also fall.

Signal to fall now

40% of¬†newly built houses is not¬†sold. It is bad for¬†construction companies¬†‚Äď they should pay off the¬†credits asap, but¬†if there are not¬†enough customers, the¬†manager has 2 variants¬†‚Äď sell now cheap and¬†close the¬†credit or¬†keep a¬†small debt, or¬†wait till the¬†best times and¬†pay a¬†lot for¬†a¬†debt. Sometimes firms wait too long and¬†become bankrupt. The¬†banks notice such a¬†situation and¬†increase the¬†credit rates for¬†companies.

The companies stop building new housing if the credit rates are high and the demand is low. Some companies freeze construction. It helps to meet supply and demand, and stabilize prices. If there is no risk of losing the attractiveness of a neighborhood or a city itself, it is the best time to buy housing. However, in times of events like a war, the risk is uncountable and the price may fall even higher.

2022   alternative investment   english   Real Estate   Russia

Projects

List of Koveh.com projects.

Austrian Boxes

Investments:¬†‚ā¨20 000 to¬†continue a¬†project

The goal is to construct Bike lockers suitable for courtyards, shopping centers, office buildings, universities, and hotels all around Europe. In the presentation for investors below, you may find features of the bike lockers.
Presentation

Austrian Boxes b2b for investors Author: Daniil Kovekh.

Video

We started this project as a university project with four other members. We made a business model of box sharing. We planned to produce and place the bicycles by ourselves like it does another Austrian startup, which, how it appeared in the future, have not produced even ten boxes in 10 years. This model was too slow.

I was standing for¬†the¬†franchise plus retail model. We start with the¬†retail model. We will improve the¬†boxes and¬†develop an¬†app in¬†this timeframe, which appears to¬†be a¬†huge deal. I consulted with the¬†technical engineer of¬†Sberbank to¬†understand how to¬†do the¬†IoT handle to¬†open the¬†box with a¬†smartphone and¬†understood that the¬†price for¬†this work will be 5k‚ā¨-8k‚ā¨ and¬†it must be made only with senior IoT developers due to¬†the¬†high responsibility and¬†need to¬†create server, database and¬†the¬†IoT dev.

The franchise must be started when the product will be ideal against the most threats, and the application will work stable.

I chose three main customers: business centers, small businesses, and hotels. Customers must situate all of them not far from the production point to make the delivery costs not higher than 10% of the cost.

For now, I am looking for team members; you may find the job posts soon. Ideally, it will be an unpaid internship since many students are ready to work for free to get one more line in a CV.

If you are interested in this project, send an email to Daniil@koveh.com or comment below.

Coldcaller.ru 2019

Due to the domain loss, Coldcaller is not available for registering and using the profile. This happened because I set PHP and SQL for coldcaller.ru. Most of the project files are still available, so I can set everything as it was before.

Bookchange.org 2018

An online bookcrossing p2p and b2c platform. The target audience: Russian population, 14-30, 45-65 years old, living in big cities.

What people do on Bookchange
On Bookchange, people find books, bookstores, bookcrossing points, libraries, and readers’ clubs. Bookchange is also a place where people buy, sell, give away, and rent books. Bookstores sell books in case if the book is not available on the p2p platform.

Goals of bookchange
Bookchange aims to create a community of readers, make reading less expensive, and protect our nature.

How to monetize the project
Money comes from advertisements in bookshops (online/offline), libraries, and cafes.
Furthermore, we can advertise publishers, books, audiobooks, and podcasts.

Bookchange can be responsible for rent and trading activities, where we guarantee to receive full payment.

What happened with the project

Unfortunately, I have suspended the project since 2019. I did not have enough knowledge to start with design and end with the backend alone. I am still willing to continue this project but in Vienna. The bookcrossing infrastructure here is more developed than in Moscow.

bookchange.org (link to the mirror of a site)

Guitar AI 2018

project of self-playing physical guitar that I made as a school project. I used C, Arduino, Bluetooth technology, and web programming to make it work.
Due to¬†financial restrictions, the¬†project‚Äôs total cost was less than 35‚ā¨, so the¬†main part was the¬†code.

Why high mortgage rate is dangerous

If the mortgage rate is high, more people would prefer renting apartments instead of buying a house. That drives rent prices up. The problem is that due to the high inflation, the price of a house also rises.

The price for housing also rises when the mortgage rate is low. Then it is much easier to take 30-year long mortgage and get your own housing instead of paying expensive rent and getting nothing at the end of the rent term. Then more people will buy a house with a mortgage. With higher demand comes higher price. So the price for housing rises.

Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, September 13, 2022.

In some countries, government incentivises taking a mortgage. Military servants usually get lower mortgage rates. In UK if a person above 18 buys his first house for less than 500k$, he pays only half of a house price. In Netherlands, government insures mortgages, meaning, if a person is insolvent to pay for a mortgage, government will buy a house from a bank, and return money from mortgage payments to a person. The government will also give a discounted rent for a person (I will check this information, I can be mistaken). Therefore the prices for a condo in Amsterdam tripled (if i don’t mistaken). All of these incentives drive prices for housing up.

Real estate market has a¬†huge problem¬†‚Äď it is hard for¬†prices to¬†fall. Not¬†only because of¬†scarcity of¬†land, higher price for¬†materials and¬†labor costs. There are no¬†market mechanisms to¬†make prices fall. In¬†the¬†stock market, it is possible to¬†short stocks¬†‚Äď sell the¬†stock that you don‚Äôt own, and¬†buy it back when price falls, making the¬†profit in¬†the¬†difference. Short selling works with stocks, because the¬†stocks of¬†one company are identical, their value is always the¬†same.

It is not possible to find 2 exactly the same houses, even Soviet flats have different views, neighbors, and house condition. Therefore, short is not really possible.

To¬†lower the¬†housing price, either the¬†place should loose the¬†attractiveness or¬†the¬†new technologies should make housing cheaper. That what happens in¬†the¬†US market. New housing for¬†the¬†mid-class household became simplier and¬†smaller than before. Remember the¬†housing in¬†Manhattan and¬†Brooklyn of¬†20th century¬†‚Äď the¬†red brick houses with fire stairways on¬†the¬†fa√ßade. Compare their quality and¬†design with new housing: the¬†cheap coloured ventilated panels with studio apartments.

How 9/11 affected housing prices

The example of attractiveness loss was on 9/11. Based on the Federal Reserve Bank of New York, most of the employees who worked nearby moved to other parts of New York City or New Jersey. The rent prices for an office in Manhattan dropped from 52.5$ to 50.75$ per square foot. By November 2001, 57 million square feet near Trade Center were traded on market just for 41.81$ (Pearson, Macroeconomics, page 54). but that happened with offices. What about the households?

More people started to buy one-family houses near New York. The prices went up 10-15% comparing with previous year. Even thought, the average price of one-family house in the US has fallen.

Mortgage crisis

After looking at the graph, we see that there was only one fall of housing in the Mortgage crisis of 2008-2009. The crisis basically happened, because banks gave too much mortgages to people, who had a huge risk to become insolvent.

Thousands of¬†people couldn‚Äôt pay off the¬†debts. Their houses were put for¬†a¬†sale. The¬†supply of¬†houses was so high, that the¬†prices went down. Construction companies stopped building houses, just because there were not¬†too much people who could afford houses and¬†not¬†so much banks would give mortgages. For¬†construction companies it is very bad¬†‚Äď they should sell nearly 70% of¬†housing as¬†fast as¬†possible to¬†pay off the¬†debts. Therefore, a¬†lot of¬†companies became bankrupt and¬†ceased the¬†construction of¬†objects.

Such situation lasts till the supply is covered by demand. Meaning that prices fall to a fair price. When it is happened, the construction continues.

2022   english   Finance   Real Estate
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