Spice and Wolf Economics Explanation

Wednesday, August 19, 2009


Okay, normally I don't really take too much time writing about the anime I watch because one, it highlights how much of a nerd I am and two, anime is supposed to be readily digestible cartoons made for hyperactive children and needs no further elaboration.

Spice and Wolf has continually proven itself as an exception. Set somewhere in a medieval world, the story follows the exploits of a merchant named Craft Lawrence as he moves from city to city to earn money through trade. Joining him is a wolf goddess who wants to go back to her home town in the far north, livening up Lawrence's life along the way.

While the premise is simple enough, the concepts of the anime uses to keep things keep on surprising me, as complex ideas like short selling, marginal profitting, and psychological price resistances are routinely presented to what I can only imagine as a core audience of 14-18 (the likely age where nearnaked cartoon characters should sell the most)

(spoilers and actual explanation begin after jump)

After looking around the internet for some existing explanation for the last few episodes (Season 2, ep 1-6), I couldn't find any. Granted I've been studying the very same things in a more localized scenario lately, I've decided to write down and share what I've been able to make of the show.

The climax of the arc is about Lawrence selling off his partnership with Horo (the wolf girl) to that other merchant Amati (guy with crush on Horo). Amati strangely reminds me of Quatre Winner of the Gundam Wing franchise, actually.

Anyway, all the while a festival is going on in town. In the middle of it, a strange commodity called Pyrite is accumulating demand for the hype brought by a travelling fortuneteller. Hype usually increases the price of a commodity more than its actual production value, the same way trendfags pay wads of cash for iPods that pretty much do whatever other cheaper products do.

Amati, being the trader that he is, planned to gain the amount he needs to pawn off Horo by accumulating a large amount of pyrite early on and waiting for the demand to push the price higher up to a target price that will enable him to sell his stash at a value equal or greater than 1000.

The price Amati is waiting for is called the Target Price or Target Exit Price, and this sort of baseline can be seen even in our modern commodity/stock markets. The behavior exhibited by Amati is called the Target Price Oriented Action Strategy (PAOS)

The town's market in Spice and Wolf has its own primitive commodities/stock market control, similar to our country's Philippine Stock Exchange. The primitive board is actually a display board of the number of people willing to buy/sell a commodity at a certain price.

In case you're wondering what the big board does, here's a breakdown:

One row on the board represents one commodity whose symbol is indicated in the middle. The roman numerals basically display the current price of a commodity if you sell it (highest buying price) on the left and the current price of a commodity if you buy it (lowest selling price) on the right. The wooden bars show the current stocks of merchants willing to sell/buy at that certain price.


Not too different from what we have.


If the stock gets exhausted from buying and nobody is willing to sell at that price anymore, the price goes up to a price where people are willing to sell again. If the buyers are all given what they want and nobody wants to buy anymore, the price lowers until people want to buy again.

For the case of Pyrite, the demand is so high, nobody who holds pyrite wants to let go of their stash. The stock exhaustion kept on happening and the price of pyrite skyrockets. Meanwhile, Amati, having lots of stash at hand, is a happy sunnovabitch.

Craft Lawrence, realizing he's going to get screwed if the trend continues, then devices a plan to "jockey" the pyrite price. To jockey a stock means to artificially introduce stimuli into a market to influence the people, and consequently the price, to behave in a certain way. This concept is widely used even in our existing markets, specially in smaller commodities/company stocks.

His plan is to incite panic to the Pyrite market by making it look like the price is going to crash. While it looks devious, it's perfectly legal in most situations, as long as nobody loses an eye, dies, or gets pregnant.

See, the Pyrite market is already at an "overbought" condition, which is basically what happens when the demand is so high that the price is driven up waaaay beyond the actual price (pryite is just a rock but is currently being sold as a talisman, so we can just imagine how much overpriced this is). When a commodity is already overbought, current holders of the item tend to get antsy to let go of their stashes, because they start to think the price may no longer go any higher (and what doesn't come up will most certainly go down)

The jockeying idea of Craft is to become the first few people to start cashing in at the highest price. When somebody sells, the other merchants may take it as a cue that the price is no longer going up and the second market condition (no more buyers) will drive the price down. Volume helps support this idea, which is why Craft needs a lot of pyrite from Deanna - to make his action more psychologically significant.

Another idea he had as a supplement is to let a kid say something about now being the right time to buy wheat, while in a public area. The logic behind this is that the antsy merchants who are already earning good profits may suddenly think that the underpriced commodity of wheat to be the next place where profit can be made. This commodity exodus can also drive a selling spree which will drive the prices of pyrite down due to overstock.

In the end, Horo helped Lawrence out by dumping her share at the same moment as Lawrence, triggering the price crash that he actually needed.

As for the deal that Lawrence did with Amati where he bought some pyrite on credit, this is what the modern stock world calls Short Selling, which is basically selling somebody a computer you don't have and promise to deliver it after 3 days, and then buying at the last day when a stock is already at a lower price. In effect, you bought stocks today cheaply and sold it yesterday at a higher price, which is kinda like timetravel trading.

For Lawrence's case, he sold pyrite to Amati 2 days before he crashed the market, and then bought pyrite after he crashed the market and gave Amati the stash, telling everybody how to earn even from a market that's already tumbling down. This activity is not contributary to the main story, but it's the author's way of saying LOL I LOVE TRADING

Short selling drives the market even lower, but helps maintain a healthy price movement range. It's illegal in some countries including here in the Philippines.

Alright. That's basically it.

Questions?

10 comments:

Anonymous said...

Nice explanation there ;) It´s great that someone puts down time to help us people who wants a summarise =P

Could you do the same about the plot in season one? the one with the silver coins =3? That would be uber-sweet!

Anonymous said...

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Anonymous said...

i don't expect an answer since time has passed since this thread has been made but if in any case somebody sees this please answer me.
Let me get sth straight about the credit system and tell me if i am wrong.Until the deal with Lawrence and Amanti reaches the ending time where Lawrence must pay the pyrite to Amanti it's like two people share the same thing and can both take advantage of it correct?Lawrence has it on hand(but has to give a big amount of it later to Amanti since the contract says so) and Amanti has it on paper AND I AM NOT SURE(THAT'S WHAT I AM ASKING)BUT HE CAN ALSO TAKE ADVANTAGE OF IT AT THE SAME TIME SINCE THE TIME GAP WHEN LAWRENCE HAS TO GIVE HIM THE PYRITE IS AFTER THE STOCK MARKET CLOSES.It's like two people have 2 things when in reality there is only one correct?If what i am saying it's not a bunch of bull(and i am pretty sure not because that's what banks do at our age) because if he couldn't take advantage of the pyrite Lawrence sold him then Amanti is a retard to make such a deal then:
THE GENERAL QUESTION IS WHY DIDN'T AMANTI SELL FIRST SINCE THE PRICE HAD REACHED A HIGH PRICE SHUTTING DOWN LAWRENCE BY DOING SO,I MEAN WHAT DID HE EXPECT,SINCE HIS MAIN PURPOSE IS TO SHUT OUT LAWRENCE HE SHOULD HAVE SOLD EARLIER ALTHOUGH HE WOULD HAVE MADE LESS PROFIT, LAWRENCE WOULD BE NOW IN HIS SHOES AND THAT WAS HIS REAL PURPOSE,IS HE AN IDIOT?
I don't also understand(LACK OF KNOWLEDGE) that even if he sold a pretty few seconds after Lawrence, wouldn't he also make a big profit or the price of the pyrite drops so fast that if you are just a second late (no more) you lost the game?

REDKINOKO said...

Your post makes sense, and yeah, the story begs the question "Why didn't he sell?"

I can't really remember what happened (it's been a while since I saw S&W), but from what I remember the price did not yet hit a level where the blonde dude could've profited enough to buy out Horo.

As for the case of selling a few seconds later, there were a lot of merchants around, and as with real world markets, when a stock is volatile and going down, the volume of demand is very thin. Nobody in his right mind would buy when everybody knows the price is definitely going down with the exception of those willing "to catch a falling knife". Amati would not be able to sell such a large volume at a price near the peak in such a scenario. Nobody would want such a large amount, and far too many are willing to sell lower.

I hope this helps.

Anonymous said...

Thanks Redkinoko it helped a bit.
But i think Amanti could by far pass the 1000 silver coins but he sucked as a merchant because he had too much pride.After rewatching episode 4,Amanti after receiving 500 coins from Lawrence said that "even if the price of pyrite drops tomorrow evening,i can sell the contract earlier in the day,when the price will be higher.In other words,i can withdraw from the duel anytime i want" which is sth that he also didn't.Consider the profit he could make by doing so plus the extra pyrite he has and he could reach 800 coins.He could also make more profit if he sold before Lawrence and he didn't become greedy about 960 coins with a 20% increase.BUT NOBODY SAID THAT THEY HAD TO FINISH THEIR CONTEST WITH PYRITE(LOL)The only thing that justifies his actions is that he didn't know that Horo had also such a big quantity.

Now if you have any particular knowledge about the following then i have no more questions and i rest my case: You said:"As for the case of selling a few seconds later, there were a lot of merchants around,
and as with real world markets, when a stock is volatile and going down, the volume of demand is very thin.
1)The guy who made this thread said:"If the buyers are all given what they want and nobody wants to buy anymore, the price lowers until people want to buy again" which is pretty logical and i have no question on this.Technically how does it go down exactly?why others sell as well?Did Horo and Lawrence had so much pyrite that the mass afraid that their pyrite would become useless and not in demand?

2a)WHAT I WANT TO KNOW IS THAT IN OUR AGE THERE IS A STOCK MARKET IN WHICH YOU CAN IMMEDIATELY SEE WHAT IS GOING ON.
So maybe i ask too much but how did the stock market was so evolved at that age and had so much info about the demand and offer?
b)The guy who made this thread said:"The wooden bars show the current stocks of merchants willing to sell/buy at that certain price".Why do that in the first place it's like telling everyone how much stocks you have. Then what about Horo who wasn't on the board?And what about Amanti who had a huge quantity And could easily control the market didn't anyone else afraid that when he sold it would be the end for them?(Since the thread maker said that we see who has what in the board)So why did they wait so much?GREED?
3)Does the stock market closes at some time of the day because if so it would be logical that Amanti would like to sell at the last minute.


Sorry for breaking your nerves with these questions,and thanks before if you even bother with my lack of economics knowledge...

redistoolazytologin said...

Oh! Thanks for pointing that out. I can relate to how Amati feels though. Greed gets to you twice out of thrice.

1. The stock market is a lot like haggling. The price goes down because the buyers think the price is too high and wont buy at a higher price and the sellers are so willing to sell that they have to give in to the demands of the buyers (who post lower buying prices). After the price goes down enough, the buyers agree with the sellers and the transaction is made. The higher the price, the more sellers and less buyers. As it goes lower, more sellers and buyers tend to meet agreeing prices and transact. That's usually where the price stops dropping. For Horo's case though, knowing pyrite is dirt cheap and pumped only by hype, that settling price can get really really low.

2. The logic of stocks today is no different from that of the yesteryears, although I think some artistic freedom was used in this case to simplify the plot.

2b. Actually the postings there is not how much you have, but how much you are willing to sell. You can have 1000 pyrites and only post 30 for selling at a certain price. Posting wood as a seller means you're putting your goods up for buying. Posting wood as a buyer means youre putting up how much you want to buy for a price.

When you try playing stocks for yourself, and I mean the 3rd liner stocks that are really volatile, you will feel the urge to get greedy. Imagine your money doubling in a day. That's 10x more than any interest a bank can give you in a YEAR. The same risk that enables that, is the same risk that will enable your money to be reduced to 1/10th of its value. People just get greedy sometimes. That's the one of the points of the episode I guess.

3. In our country the market closes after 3 hours. In other countries they are open the whole day. There's a trick to buying and selling at closing prices during the final minutes of trading, but I guess that's for some other discussion haha.

p.s. Not an expert here, just sharing what I understand

Anonymous said...

best part that some may have missed: pyrite is commonly known as fool's gold

Anonymous said...

As far as the overarching story is concerned relative to Laurence short-selling the pyrite to Amanti, you have a point in saying it was the author going "LOL I LOVE TRADING," however, i think the anime's explanation was Laurence was using that gamble to try and deny amanti the capital to buy the necessary pyrite and make money during the afternoon before Laurence had a chance to crash the market. Amanti, however, accepted it expecting the price of pyrite to rise, and so he could then at the end of the day turn around and re-sell the pyrite immediately for necessary profit. This gives Laurence a solid chance of being able to win the duel because if the market were to crash, Laurence could get the pyrite for next to nothing, and Amanti would be bereft of the money necessary to win the duel.

Anonymous said...

Amazing, Now everything is clear... Thanks dude for taking your time writing this

 

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