20 July 2016

Thought For The Day - 20 July 2016

If one drop of blood means you're just Black, and Melania's speech is 7% Michelle, does that make Melania Blacker than many Hi Yellas?

15 July 2016

He's Got It!!

... By Jove, he's got it!! Krugman, and very nearly. May be 99.44%. Here's today's column.

Continuing in the vein of events driving data.

But polling suggests that a majority of self-identified Republicans still haven't noticed that surge, and believe that stocks have gone down in the Obama era.
Blind stupidity meets blind greed.

So, here is where he makes the next long stride:
Second, they [stock prices] also reflect the availability of other investment opportunities -- or the lack thereof.

A reading of these endeavors over the last bit, or Gordon's book, will lead to the inevitable answer as to why this is so. Krugman doesn't address the "why" only the "what", but that is progress. We've hit the asymptote of low hanging tech fruit. Much of "tech" over the last couple of decades is implementations of infotainment and such. The holders of all that moolah expect the Damn Gummint to pay them 10% per annum on their hoard. Bah.

But, there is the clear implication for the future of the financial quant: it's not pretty.
But why are long-term interest rates so low? As I argued in my last column, the answer is basically weakness in investment spending, despite low short-term interest rates, which suggests that those rates will have to stay low for a long time.

In other words: Bernanke/Yellen/Obama have engaged in trickle-down economics, aka, pushing a string. Granted, the Right Wingnut Congress left no other option. And, of course, those same Right Wingnuts complain about "asset bubbles", all the while reaping unto themselves the cap gains of said bubble.
Instead, profits come from some kind of market power -- brand position, the advantages of an established network, or good old-fashioned monopoly. And companies making profits from such power can simultaneously have high stock prices and little reason to spend.

Remember a few essays past, about the result of "investing" SSA monies in the private sector? Fascism in flight. The enabling just mentioned is only a hair's width removed. If there's no 21st century steamboat to invest in, sitting on the moolah is rational. The question which then arises: do we accept a Permanent Dark Age of castes in tech stasis? Or do we grow through distribution? After all, if most folks have most of the moolah, there's more folks to buy marginally different widgets.

So, why is the likely unfolding future bad for the financial quant and financial engineering? Reading past data to predict future data only works when the rules of the game are stable and not manipulable. Thus, physics and math and real engineering work all the time in all places. When any of them appears to fail, it's the result of we humans not having fully grokked God's laws, not because the rules have changed. When some players can change the rules as the game goes on, as we've seen with The Great Recession, LIBOR fiddling, and the London Whale past data doesn't mean anything. It's all "once in a lifetime" anomalies. They just keep happening. Better to read the NYT business pages to see who's got his fingers on the scales, and react accordingly.

06 July 2016

Mea Culpa

Those that took, and remember, Freshman English Composition also likely remember the First Rule: Never, ever, begin an essay with "I".

I was wrong. And, it turns out, that's a Good Thing, by some small measure. Not being of Europe, I follow USofA news sources, and until the Brexit mess, coverage of the EU dealt with it as a monetary union, and even implied that it was such only. Some may recall musing in these endeavors that such a single-sided union, with Germans calling the tune for the other 27, was destined to fail. Just as the USofA ships moolah from rich corners to poor corners through fiscal policy, a German controlled solely monetary union benefits Germany and subjugates 27.

Or so I thought. Turns out, with some on-the-ground reporting from USofA news, that the EU does ship moolah from rich corners to poor corners.

Quoting as much of the article in order to bolster my earlier musing, would mean putting nearly all of it here. Just go read it. The unambiguous point: the ingrate poor corners have cut off their noses to spite their faces. Stupid redneck Brits are just as easily gulled as the USofA variety.
But many of the poorer places in Britain that receive the most aid from Europe also voted decisively to leave. Promises were made by the leaders of the so-called Leave campaign that exiting the European Union would lead to a bonanza of money no longer being sent to Brussels, the seat of the European government. After the vote, they almost immediately retreated from those promises, leaving the future of aid programs funded by Europe in peril.

And, just as USofA rednecks believe, Muslims were the problem.

At the end of the day, we're an island. We can take only so much population.
Of course, all nations are islands. Some are hemmed in by water, and some by surveyors' chains. The USofA Right Wingnuts still view this land as virgin territory to be taken from heathen red people. Most of what isn't populated can't ever be. And a lot of what is shouldn't be. The largest share of USofA electricity goes to air conditioning. None of that, and no Atlanta or all of Texas. Most of the southwest is desert. With golf courses.

Social Insecurity

Every now and again, there's a report that Social Security is dying, "dying I say; we must stop squandering moolah on unproductive oldsters!!!" Well, the Trumpian versions aren't quite as authentic, of course. Trumpian versions are various sorts of lies.

Then again, some business reporter does the homework, and debunks the lies. Most often, such reporting occurs obscurely. The main takeaway from the piece is one that these endeavors have spoken to ofttimes: money into Social Security is "invested" in Damn Gummint fiduciary instruments. It isn't invested in private physical investment (or public infrastucture investment, either). This "investing" merely moves moolah from one of Uncle Sugar's pockets to another, with an added bit.

While that arrangement seems silly, as I've written before, the alternatives are worse. The piece has a trenchant rundown. I like it.
If the Social Security trust fund invested in something other than U.S. bonds, what would it invest in and where would the money go? A review of the list of possible investments shows serious challenges with any one of them:
If the Social Security trust fund invested in U.S. corporate stocks or bonds, or bonds of state and local governments, the money would get spent, as noted above. And if the fund owned too large a slice of U.S. corporations' stocks and bonds, or state and local bonds, you might call it socialism or communism.

Bank CDs? Current CD interest rates are lower than the rates the fund currently earns.

The trust fund could buy commercial or residential real estate, but that would put it in the business of selecting and managing these real estate investments -- once again, raising concerns about socialism or communism.

There's always international stocks and bonds, but you can imagine the outcry if the trust fund bought European or Chinese stocks or bonds?

I'd call it fascism, but that's because the Damn Gummint would be required, as an investor, to support all manner of questionable activity. What if Social Security had been a major investor in Enron or CountryWide? Think about that.

05 July 2016

Grossly Stupid

It is a millenillia long fact that the rich think they're the smartest folks in the room just because they're rich. It's also a fact that most (total) wealth is inherited over genertions, with most of it acquired on auto-pilot after the first generation; The Donald would be quite richer if he simply collected the market rate of return on his original inheritance. Accidental emporers being an exception through no fault of their own, although small in number of the rich.

I've been sitting on this bit for about a month, waiting for the bile to stew sufficiently. The stew is ready.

Gross is plain stupid. He asserts (in so many words), as do the Right Wingnut Rich, that the Damn Gummint owes them their risk-free 10% on idle money. As if that's what Adam Smith propounded. Sure he did.

Any econ text from 101 to Ph.D. level tells you that rate of return on investment (i.e., interest) only comes from increased production in a more efficient fashion. All of those fancy time-series and copulas and other high priced quant exercises are quite worthless; if they worked, there couldn't have been a Great Recession. Events drive the data, not the other way round. Lots of London Whales the world over get paid megabucks to masturbate (metaphorically, at minimum) over their Excel spreadsheets, blindly typing in numbers. Bah. Paying interest without increased productivity is simply time-shifting of consumption, from the present to the future. Most texts call this the rate of time preference: how much consumption later is worth today. The notion is that deferring consumption requires paying the (delaying consumer) some premium for that delay. No one actually knows, of course. Killing current consumption in a time of excess savings only poisons the well further. Do the arithmetic.

So, anyway, Gross calls for Armageddon over low and negative interest rates. As demonstrated, going back at least to "The Giant Pool of Money" piece, excess moolah chasing risk-free return drives up instrument prices (and realized interest rate down, down, down). Just works that way. As American corporations (and the rest of the global ones likely have as much or more) sit on $1.45 trillion in idle cash, look out below. But one need not even seek to dig out the free cash amount; the bidding on Government instruments is sufficient to reveal the excess cash. You can only buy what you have the cash to pay for.
Rather than spurring economic growth, low rates are promoting asset bubbles as investors reach for higher yields while punishing individual savers and industries that rely on interest rates, such as bank and insurance companies, according to Gross.

The hypocrisy of that statement lies in this: the Grosses of the .1% continually weep for ever lower capital gains taxes. Now, asset bubbles pay off faster than interest, and itsy bitsy cap gains tax drive more moolah into instrument prices. This mess all started not with the Damn Gummint, but the concentration of idle moolah in the hands of the few.
The fault, dear Peter, is not in our poor, but in ourselves, that we are mendacious.

04 July 2016

What To Watch on The TeeVee, 4 July 2016

As asserted here in these endeavors a few times, Anthony Bourdain's "Parts Unknown" is the best show on the TeeVee. Alas, Orlando coverage compelled CNN to cancel the last season's last episode (Buenos Aires). But, there's a mini-marathon of re-runs on tonight, and you must watch the 8 pm (EDT, anyway) show from Massachusetts, my home state. The show is set mostly in two of the parts of the state (legally, a commonwealth; extra points for knowing the number of "states" in the USofA that are not "states", without looking it up) that most attract me: Provincetown (and far Cape Cod) and far northwestern towns. I grew up in Springfield and did grad work at UMass in Amherst (on the southeast edge of the far Berkshires); which was then the only UMass.

Turns out these two opposite ends of the state share a common characteristic, and with Bourdain: drugs. The show was first aired in November, 2014, and thus predates much of the recent hoopla of white, suburban, soccermom addiction meaning we should view drugs as a public health issue rather than police issue. Somehow, Bourdain's cooking shows extravagantly transcend, with prescience of the wider world, just food. You must watch.

OK,for those that can't, won't, or missed it, here's a page with the best bits.

28 June 2016

I Still Hate Neil Irwin, part the fifth

As time goes by, Irwin gets ever closer to the obvious truth: income and wealth concentration aided and abetted by the tech asymptote is the cause of diminished economic growth. Today, he has another go at it.
Remember back in December when the Federal Reserve raised interest rates? That day, 10-year Treasury bonds were yielding 2.3 percent. Those bonds had fallen to 1.74 percent by Thursday (the Fed controls short-term interest rates directly, but longer-term rates are set in the open market).

It's so rare for a business/economics reporter to tell that kernel of essential truth: the Fed doesn't set the market rate of interest, Mr. Market does. The Fed only, directly (well, sorta), controls the Fed Funds Rate:
But the Fed really doesn't have that kind of control over interest rates. It can't simply make interest rates whatever it wants them to be.

The Fed certainly has limited influence over short-term interest rates, but to say it has some kind of ironclad control over rates is surely incorrect.

There's a whole spectrum of interest rates, even in the short-term market, and the Fed has the most influence over the one that it targets: the federal funds rate.
[and this from the Heritage Foundation, would you believe?]

So, no, the Fed doesn't even get to set the Fed Funds rate by fiat. Don't you just love a central bank that can't act like a national bank. Here's a neat bit of history. The USofA (well, the Redneck parts of it) remains stuck in the 18th century. The punchline: the Rednecks killed it.

So, back to Irwin. What he, and he's hardly alone, fails to do is follow the money. Why is it that all that idle moolah is chasing Treasuries rather than making new plant and equipment? Why is a lot of that idle moolah being used to buy back corporate shares? And so on. The answer boils down to two:
1 - there just isn't much new under the Sun. case in point: AstraZeneca wants orphan drug status for Crestor.
2 - the CxO class can't find anything new under the Sun.

The result is simple: it's a zero-sum society. The financial sector runs interminable adverts on the TeeVee telling us that we have to save more. But without growth to drive interest return, all we get is deferred consumption. Which is to say, reduced consumption in the present. Which leads to recession and depression as demand flickers out like a dying candle in the wind.

The Right Wingnut cabal remains stuck in the agrarian mindset, that economic growth must be driven by population growth. Much of the rhetoric in support of mass migrations, mostly to developed capitalist countries seeking cheap (but local) labour, is that migrants have always been good for the economy. And, yes, through the end of the 19th century in the USofA, that was mostly true. But 19th century USofA was a vast land of untapped (by white folks, anyway) resources. It's not often mentioned in such propaganda that the USofA population has doubled since 1950. For those still wondering where the middle class went, it didn't go anywhere. What's happened is that the resources of the planet can sustain only so many middle class folks. Double the population, while keeping the number of middle class static, and you see a vanishing middle class. It's all about resources. We had two World Wars in the 20th century over who gets to control such vital resources. We're likely to have more as the per capita level of such resources drops. Have a nice day.