08 February 2016

Dee Feat is in Dee Flation, part the thirty first

Well, the shit keeps hitting the fan:
Treasuries Rally on Risk Aversion

U.S. Treasuries are starting the week on a strong note as European equity indices move to multi-year lows and the German 10-year Bund yield declines 5 bps to 0.25%. The S&P 500 is indicating down 1.14% to 1,856.5 and WTI crude is down 2.85% to $30.01/bbl. The U.S. Dollar Index is up 0.19% to 97.22 and gold is up 1.75% to $1,178/troy oz., a fresh multi-month high
Yield Check:
2-yr: -2 bps to 0.70%
5-yr: -3 bps to 1.21%
10-yr: -3 bps to 1.81%
30-yr: -2 bps to 2.65%

briefing.com 8 Feb 2016, 7:38am

07 February 2016

Deductive Reasoning

Among the most interesting, if heinous, ideas of the 1% is that healthcare is just another consumption good, and if "we" make it more expensive, then people will spend less on healthcare. And the rich will get richer, of course. The notion, of course, is nonsense. Only the 1% could ever afford tummy tucks and silicone boobs and such. The rest of us only seek healthcare when something bad happens. There have been studies (you can find them, if you're interested) which find that preventative healthcare makes no difference to overall health of a population. That should be obvious: how many health problems do you know of that show up in an annual (or biannual) physical? Vanishingly few.

One of the core ideas of the save-money-by-making-healthcare-expensive is high deductible plans. Again, the notion that such plans are both less expensive and offer better health is grounded in the notion that the 99% are visiting doctors like corner ice cream shops. Of course not. Sure, there are a few hypochondriacs, but the gross effect is to deny vital healthcare when it's a matter of life or mortality/morbidity.

Today is a report on a study bringing some data to the issue. I expect you'll find it illuminating.
The hospital offering the $3,000 M.R.I. might lose enough business that it will lower its price.

I picked that particular sentence, since The Tyranny of Average Cost™ is generally couched in terms of what happens to the price of MRI scans if far fewer are done. The notion that MRI scans are highly price elastic makes no sense: the cost is almost entirely amortization of the machinery. There's not much else to pay for. Fewer MRIs at $3,000 mean that the MRI scan now costs $4,000 or $5,000, depending on how many are removed from the accounting.

Anyway, a large, unnamed company instituted a high deductible plan, and was followed by some academic researchers.
Amitabh Chandra, an economist at Harvard, and one of the researchers, said he was convinced the study would prove the value of deductibles, at least for well-off and well-educated workers.

He was wrong.
Mr. Chandra said he was no longer convinced that deductibles turned patients into good consumers. "The best case was the theoretical case," he said. "I was all for high-deductible plans before I wrote my paper."

And, of course, the punchline is stated explicitly:
"There's essentially nothing they can do to prevent the likelihood they'll have high-cost health events," [Dr. Peter B. Bach] said.

Well, just die early. Which is the whole point, of course.

31 January 2016

Strange Bedfellow

Greg Mankiw isn't on my list of favorite pundits. Forced to assign him to a list, it would certainly be Plutocrat Panderer. But then he goes and writes this piece. What makes the piece amusing is its backhanded swipe at the puffed up quants.
So if looking at contemporaneous economic conditions is not a reliable way to judge presidents, how should they be graded?
Similarly, a better way to judge presidents is by the policies they pursue, not the outcomes over which they preside. This task is harder than merely looking at unemployment, inflation and the growth of gross domestic product. It requires having a view about what policies are best at fostering prosperity and acknowledging that the experts are often divided on that question.

IOW, if not the proximate data, then what? Well, how well do you reward your friends and punish your enemies? Policy changes.

21 January 2016

Fools on Errands

Wanting one's cake and eating it too is a common syndrome in humans. In corporations, it's epidemic. With all the chatter about the US's healthcare expenditures being the highest, and general population health nowhere near that, high amongst that chatter is that "it cost $X billion to get a new drug to market!!" I'm among those who blame drug companies for continuing to throw good money after bad. After all if they didn't, the CxO class wouldn't be able to keep their million dollar sinecures.

Today Alkermes reports it's latest trial bit the big weenie. Or, as Adam Feuerstein put it:
Alkermes argued Thursday that hints of efficacy in the failed clinical trials means ALKS 5461 isn't dead yet. A third phase III study in depression is still underway.
"We are steadfast in our commitment to developing new medicines for serious CNS conditions where there is a clear and compelling need for new treatment options for patients and their families," said Richard Pops, Alkermes CEO, in a statement.

IOW, "I'll keep beating this dead horse until my second house in the Hamptons is finished". Oh, and the company is really in Waltham, MA, but inverted to Ireland in 2011. So, you the taxpayer get to pay for that house even more directly. Failure couldn't happen to a better bunch of knuckleheads.

20 January 2016

Retro Progress

There's a new book out that I guess I have to read, and Eduardo Porter has a bit of review, and reporting on it. I'm curious to see whether Gordon ties his thesis to science and engineering reaching an asymptote, or just crunching latter data against previous. Porter's commentary suggests the latter.
Americans like to think they live in an era of rapid and unprecedented change, but this kind of comparison -- pitting the momentous changes of the mid-20th century against the seemingly more modest progress of our present era -- raises a critical question about the nation's future prosperity.

Of course, Gentle Ben gives sort of backhanded support to Gordon's thesis
Ben S. Bernanke, the former chairman of the Federal Reserve who is now at the Brookings Institution, points out that long-term interest rates have been declining for a very long time. This is in response partly to the accumulation of savings in China and other developing economies, which have been buying Treasury bonds hand over fist. But it also suggests that investors, whether they realize it or not, may agree with Professor Gordon's proposition.

"People who invest money in the markets are saying the rate of return on capital investments is lower than it was 15 or 30 years ago," Mr. Bernanke said. "Gordon's forecast is not without some market reality."

My take on the surge in progress through the mid-20th century continues to rest on two points:
1) our collective scientific and engineering knowledge of the real world became nearly complete; today's science is either sub-atomic or cosmological and is highly unlikely to give us new products
2) the 50s and (less so) 60s were led by public and private leaders still embued with a war time socialism, creating a large middle class, thus a large TAM for product

Someone observed that software was going to eat the world. May be so, but that works only so long as the exchange rate betwixt coding and farming/manufacturing remains asymmetric. That will only last so long. I guess many haven't noticed that 2nd and 3rd world coders have eviscerated much of the coding middle class.

There's no question that productivity has burgeoned over the last couple of decades, and as automation continues to displace labor in the production of physical widgets people want to buy, the reckoning will come: as the upper X% become the TAM for widgets, prices have to rise, since the capex to make those widgets can't be laid off the way humans can.

Two new data points from today's news.

- Total CPI dipped to -0.1% (Briefing.com consensus 0.0%) in December
- "There has been concern that consumers are less enthusiastic about the feature and performance gains with the latest iPhone 6s/6s+ models," UBS continued. "Indeed, more consumers appear to be opting for last year's iPhone 6 models that are priced $100 lower." here

The (1 - X%) aren't spending much, and when they do, "good enough" rules. Of course, The Giant Pool of Money continues to demand ever higher returns on government instruments. IOW, a transfer of wealth from taxpayers (only the little people pay taxes) to the X%.

18 January 2016

A Bit of a Problem

If you like what OPEC means for oil prices, you'd love what the gold standard would do to financial markets.
-- Michael Feroli/2011

Well, Bitcoin is back in the news, and not, it seems, in a pleasant way. (There was a time, perhaps still is, when bitcoin was called the new gold.)

For those who've read history, 19th America was a 100 years' war, of sorts. Those with wealth waged war on those without it. Deflation/depression/panics were the order of the day. The country was in one most of the time. Those who had specie liked that, since they got a "return" on their positions without any investment risk. What could be better? And some wonder why I've concluded that the same motive and incentive™ exists with today's cash holders: corporations, hedgies, and 1% individuals. The Giant Pool of Money is still out there, and growing. Really new innovation in the consumer arena (the only one that matters, supply side ideation notwithstanding) is stalling out. Not least because battery chemistry has run up against the limits of the periodic table. A really Godzilla depression is the holders' best chance of risk-free return. American housing didn't work out so well.

So, here's why bitcoin is worse than gold:
Like many of the programmers who took an early interest, Mr. Hearn admired the rule-bound nature of the system. Only 21 million Bitcoins would ever be created. And the distribution of new Bitcoins was clearly laid out, relying on mathematical algorithms that left no room for human meddling.

Two points to keep in mind:
1) with a strict limit on the number of "specie" in circulation, deflation in prices has to result with any level of expansion of an economy -- this is the 19th century experience
2) bitcoin, by design, is a pyramid scheme

OK, 2) isn't obvious. The fundamental meme of a pyramid scheme is two points:
1) first entrants get (nearly) all profits
2) late entrants bear (nearly) infinite cost

That's bitcoin in a nutshell. The mining of bitcoin is, by (not necessarily intentional) design, more expensive for each succeeding unit, so that the first 100 bitcoin were orders of magnitude cheaper to acquire than the next 100 from today.
According to my calculation, a single Bitcoin transaction uses roughly enough electricity to power 1.57 American households for a day.
The Bitcoin protocol will continue to increase the difficulty of the cryptopuzzles to keep rewards constant, continuing the arms race until the last block is mined.

That's a pyramid scheme.

Now, the current report deals with enabling cheaper mining and network management. Needless to point out: the early entrants who got their bitcoin on the cheap don't want to lower the cost today; that's giving away the farm. And, needless to continue, the point of a specie currency is that it levels the field for all participants. And, of course, the incumbents retaliated against the liberators (bitcoin XT).

When that last bitcoin is mined, not in our lifetimes,
But since the last Bitcoin block is projected to be mined around the year 2140, adopting Bitcoin as a major (or world) currency anytime in the next few decades would just exacerbate anthropogenic climate change by needlessly increasing electricity consumption until it's too late.
life won't be so nice. Given the restriction, so far, on coinage rate and the increasing cost of mining, bitcoin may both drive deflation (should it ever gain specie status, and long before coinage exhaustion since new bitcoin approach infinite cost soon) and end the global warming problem by consuming all electricity. Ain't capitalism grand?

13 January 2016

Da Wave Boss, Da Wave!! [update]

Here comes the Money Tsunami again!!!!!!
[briefing.com 13 January, 2016 1:35 pm]
Elsewhere, at the top of the hour, the Fed''s $21 bln 1-year note reopening was met with robust demand, showing the highest bid-to-cover since since December of 2014 and the highest indirect bid since February 2011. The auction drew a high yield of 2.09% on a bid-to-cover of 2.77.
This just in from Al Sleet, the Hippy Dippy Forecaster.
Expect a 90% chance of inversion over that Manhattan Island and the Treasury building down in DC. It's an unusual inversion, being it happens at two different places at once. But, hey, I know how that is. Half the time my brain is in Haight-Ashbury and my body is in Fresno. Be prepared for being hot and cold at the same time. Don't spend it all in one place!