23 January 2015

The End of the Road, Part the Second

It was some time ago, in fact my SlickEdit told me I had already a file with the title (I had forgotten, and fortunately tried the same title. phew.), that "The End of the Road" appeared in these endeavors. And the last offering made reference to the subject with the words, "we humans are on the ever flattening asymptote of knowledge of the real world". Both pieces sprang from some part of the lower brain stem of memory. I always suspected that some famous writer had figured it out. But, try as I might, I never found patient zero, so to speak.

Well, I tried again a few minutes ago, and there it was, right at the top of the search list. Damn. That's patient zero from the point of view of nowadays innterTubes. The piece is a ten year retrospective of his book, "The End of Science". I recall reading neither before typing the first End of the Road piece. The book was the better part of two decades ago, so it is possible that I've read it. If so, lost to the bowels of that lower brain stem.

The arguments in his 10 year article are completely in line with my conclusion. For the quants out there, it matters for this reason. Economic evolution, particularly in the USofA in the 19th century through WWII, was built on resource discovery, exploitation of said resources, and scientific expansion of knowledge to make further use of said resources. Without them stuff in the ground, we'd still be hunter-gatherers on the plains. You may notice that there are places on the planet without them stuff in the ground, and the folks live pretty much as hunter-gatherers. It's not that they're backward. It's that Mother Earth gives them so little.

Without the science and engineering of organic chemistry, including figuring out the periodic table and such, that black goo at Titusville would be no more than nasty dirt on Momma's carpet. But we know all that now. Back then, scientists knew that they didn't know what physical matter consisted of. It was this ignorance that propelled us to the Bohr model. That was 1913; a rather long time ago.

While Horgan never uses these words, the point of new discovery in science or engineering is whether there will be commercial use of same. In the 19th century, sure. Today, not so much.

Here's a history of element discovery. Note how dominant the 19th century is. One could argue that plutonium (1940) was the last element of consequence. Boom?

For the macros, what all this means: that rising tide isn't out there anymore. Tracing economic history up to 1950, mid-century, or perhaps to 1970, one could argue that progress in science and engineering led to old materials, methods, and product being displaced by newer. And thus, expanding economies and employment. That's not true now. Ok, some might waffle and say, "not so much". The point is: new science and engineering means new industries. Name one since WWII? You can't. All you can do is name industries that have been miniaturized by silicon and software. The growing industry is finance, and that's a zero-sum game (or less, if CDSs dominate); skimming its revenue and profit off the real economy.

22 January 2015

Ain't No Science Like Old Science

What has become a recurring theme, or warning, in these endeavors: it is foolish to view the future as pure extension of the past. This is particularly true of anything science or engineering related. As I have described more than once (and referenced the writings of those more famous than I), we humans are on the ever flattening asymptote of knowledge of the real world. We already know, pretty much, exactly how the (macro) world works. We even know, pretty much, how the molecular (atomic) world works. We may have some things to learn about the cosmologic and sub-atomic worlds, but I'm not sure even there that anything we do learn will be economically significant. The upshot of that: there are fewer and fewer groundbreaking discoveries to be discovered. In other words: those quants/micros out there thinking they can extend their financial models based on the last X years in Y industry are morons. It ain't 1850 with a vast land of resources and new science to be uncovered.

There is no Mr. Fusion sitting the back of a DeLorean in our collective future.

One the sectors of the economy I find fascinating, which perplexes me still since I abhored biology in high school and never took such a class in college, is biopharma (or, whatever they call it these days). There are two aspects of the sector which have emerged in the last few years. One is the exploitation of the orphan drug act, where companies spend money to garner approval for drugs which may, or may not, make much difference to patients with "rare" diseases (the legal definition makes rare not so rare; that's part of the problem) at exorbitant prices. The HepC arena is gaga over the issue as we speak. And, how much of that accounting number assigned to a drug's existence was actually spent in the lab? Hmmm?

The other, more pernicious perhaps, is the active destruction of what R&D is left in companies as motivation for M&A. Derek Lowe (who merely has some of his blogging copied) has a piece on SA today, bemoaning recent events. One of the excuses given, no cite off the top of my head on offer, for the rush to China for manufacturing is that the USofA no longer has the feeder companies necessary to support large scale assembly/manufacturing, and China does. Of course, which is the chicken and which the egg? Here in South Butt Plug CT, the small metal working companies died out when the large companies to which they had been selling decamped for The Red States and The Red Country. It wasn't the other way around.

Turning all American corporations into financial firms will, sooner or later (and, be prepared for sooner) fail. Financial services is merely a matter of moving moolah from one pocket to another, or robbing Peter to pay Paul. It is non-productive. All value derives from some underlying activity. All finance profit derives from skimming off some part of that activity's value. We saw with the Great Recession that moving massive amounts of capital to housing failed because the underlying "asset" produces no saleable product, so the vig had to be paid out of the real earnings of mortgage holders. Since said earnings have been, at best, stagnant for at least a couple of decades, the whole edifice had to fall. The banksters got to keep most of what they'd taken, of course. The large builders made out like bandits, since they got the moolah up front. Once sold, the house and mortgage were somebody else's problem.

For the STEM folks? Well, some say we should be making more of them in school. But, why would a kid sign up for the brain warping hell of electrical engineering, in the face of such jobs being shipped to India (or some such)? The alternative, of course, is to do Business Administration and learn how to design the next liar loan!! Not so much strain on the brain cells, and lots more moolah for the effort. Kids may be high on dope all day, but that doesn't mean they have lost all touch with reality. They, by and large, aren't dumb enough to take out loans (which all but the top .001% of students have to) to learn an occupation which will never employ them. And, we know what happens when a country generates more STEM graduates than it has jobs for: Eastern Europe is the center of cyber crime for a reason.

Obambi said that all kids should learn to code? Yeah, right. Just what we need; a bunch of kids dreaming of grabbing the brass ring (look it up) of WhatsApp (they'll end up finding their wage driven down by IIT kids in Mumbai). Could that be worse than dreaming up liar loans? Or will we just build a domestic cyber mafia? Stay tuned.

10 January 2015

In Praise of Free Enterprise

As reported today:
Meanwhile, Transportation Minister Ignasius Jonan cracked down on five airlines Friday, temporarily suspending 61 flights because they were flying routes on days without permits. Earlier, all AirAsia flights from Surabaya to Singapore were stopped after it was discovered that the low-cost carrier was not authorized to fly on Sundays.

Jonan also sanctioned nine more officials for allowing the AirAsia plane to fly without permits, bringing the total to 16.

Governments only interfere with profit making. Fie on them.

07 January 2015

Fly Like an Eagle

Plummet like a turd. Too strong? May be. Here's another attempt to explain the bond and interest rate problem.

Here's what the Right Wing used to say, this from the St. Louis Fed:
The cost of government borrowing is the "crowding out effect": Investment funds mobilized by the government cannot be used in the private sector.

Of course, now these morons want "risk free" interest to be higher, since the Masters of The World can't figure out how to turn fiduciary capital into real capital.

None of these folks address the obvious question: why are corps accumulating so much moolah, and demanding that the taxpayer send them more in interest? If they were really of Darwin, Smith, and Rand (sounds like a bad law firm?), they'd be happy that the opportunity cost (buying Treasuries instead) of building new real capital was so unprofitable. Low government interest rates, which are determined at auction by the way, should be the life-blood of a True Capitalist.

I guess not.

06 January 2015

Early Adapters

No, that's not a typo. It's a pun. Here's the punch line.

The plummeting of oil shares, with the attendant fall in the price of crude, distillates, and such should give the quants, micros, and macros pause. Yet again.

The notion of an unfettered Rand-ian society rests on a basic assumption: that humans can adapt to any change before it's too late to avoid catastrophe. Yet, each time there's been a popping oil bubble, due to a miraculous (that's sarcasm, just so ya know) increase in supply, Mr. Market and his attendants go berserk within weeks, if not merely days. "We can't live with $X dollar oil!!! We need $Y dollar oil!!! We'll lose so much profit!!!" And so on. X < Y, of course. The same thing, in the other direction, happens whenever the Peak Oil Pundits appear to be right. Wealth share flows to the Oil Patches, just as now it is flowing to everybody else. The best thing that could happen for Apple, and such, all that more discretionary moolah in what's left of the middle class. All those Red States that have been living high on the hog for the last decade or so, not so much. Does it really make sense to pay some knucklehead in North Dakota tons of money to do brain dead manual labor? Of course, all those knuckleheads getting paid tons of money drives up the price of whatever it is they want to own. Localized inflation is a real phenomenon. Ask anyone's who's lived in the DC area. May be not Congresspeople and lobbyists, of course; they get to not only live high on the hog, but own most of them too.

30 December 2014

The Winning Incentive

Today's NYT has a bumper crop of new data/facts surrounding the overarching themes of these endeavours. So, with minimal gloat, here they are.

First, there continues to be the Rightwing cabal trying to pin The Great Recession on the Dems. For the record, once again, Bush was President, Rehnquist/Roberts ran the Supremes, the House for the whole time, and the Senate save for 2 years. So, the mess is squarely Rightwing. I didn't keep a cite, but one knuckledragger asserted that The Great Recession was caused by QE. That's one deeply stupid pencil neck, or just vigorous liar.

One of the enduring myths from the Right was that the housing mess was caused by the Dems, citing the CRA quite often. What they don't admit is that the mortgage companies, CountryWide spectacularly, weren't banks and thus had no recourse to the CRA. Another myth was that the GSEs led the pack. Again, it was the privates, MGIC and the like, which led and the GSEs, seeing market share eroding, took up the sword.

What is new today, is documentation of how deeply corrupt the investment banks were in creating these loans. As asserted here, a lot, whenever the data don't make sense, follow the incentives. In the case of The Great Recession, it was the need to sop up all that idle money when American CxOs couldn't, or wouldn't, put fiduciary capital to work as physical capital.
Now, though, a trove of emails and confidential documents, filed in court, reveal the extent to which one of Wall Street's leading banks, Morgan Stanley, actively influenced New Century's push into riskier and more onerous mortgages, and brushed aside questions about the ability of homeowners to make the payments.

Who were these loans defined by and created to benefit? The answer to both isn't folks of marginal wealth and income. It's the CxOs.
But the bank remained an important backer of New Century to the bitter end. In March 2007, after other banks had withdrawn their credit lines from New Century, Morgan Stanley gave it $265 million in financing. Soon after that, Morgan Stanley withdrew the money. New Century filed for bankruptcy a few weeks later.

Should we blame all of the investment banks, commercial banks, mortgage companies, and private mortgage insurers? Getting close to, "Hell, yes".

Second, the USofA isn't the only country with a housing/investment problem. China's had one for a long time, for somewhat different reasons. It's long been the case, and known but not often mentioned in the mainstream press, that Chinese have fewer ways to get vig. Housing has been one, and by all accounts with the encouragement of Beijing. Generally, the only one. "60 Minutes" has video of ghost towns. Now, Joe Plunger (I don't know the Mandarin equivalent) can bet on stocks more easily. The inevitable result, of course, is more like a chain letter.
Although the Chinese leadership has long hoped to see a rebound in the country's stock markets, the current frenzy carries risks that could stick investors with heavy losses. Much of the trading is also being done on margin, or by using borrowed funds to buy shares. So the boom could unwind even faster if sentiment sours.

Not surprisingly, since China's capital market is largely closed, housing prices have moved in the opposite direction. It's largely the same Giant Pool of Money (again, no Mandarin), so the seesaw swings.

Third, is domestic, for now, Chinese smartphone market. Thanks to Foxconn, and the like, China is a major (if not majority) manufacturer of smartphone parts. Apple makes none of the parts in an iPhone, just so ya know. With all that capital sunk into part making, the time would come when marginal and variable cost pressures would win. Xiaomi is the result.
Xiaomi, founded in 2010, has overtaken both Samsung and Apple in China by offering inexpensive, high-quality phones through clever online marketing campaigns that appeal to China's growing ranks of young and affluent consumers. Around 500 million smartphones are expected to be sold in China in 2015, more than three times as many as will be sold in the United States, according to the research firm IDC.

Apple has always, at least since Jobs II, ignored all but the upper X% of demand. But you can't run an economy or even a sector that way. Especially in a time of out of control automation of production. Fixed costs eventually overwhelm materials and labour, so the need to shift widgets at any price rears that ugly head.
But the start-up smartphone maker's fast growth, competitive pricing and innovative marketing have struck a chord with Chinese consumers. The company hopes this approach will translate into success in overseas markets, too. Mr. Lei and his co-founders, who include the former Google executive Lin Bin, Xiaomi's president, are considering expansion into large developing markets like India and Brazil.

Correlation isn't causation, necessarily. Sometimes, but not always. For the quants, micros, and macros far less often than any of them would prefer. After all, a magic algorithm would be as valuable as Rumpelstiltskin. Data helps in predicting gross money flows, but even then, the meandering of that flow is caused by changes, generally implemented by those who stand to benefit first and most, in the rules/incentives. The only way to know you will spin straw into gold is if you know about the new incentives before anyone else. Just like the mortgage companies invented Liar Loans, and took their winnings up front, leaving the occupants and insurers up a creek without a paddle. All of those who chased the new rules were just lemmings headed off the cliff, although lemmings aren't actually that dumb. Disney made it up.

26 December 2014

Marky Mark

No, not Wahlberg, although you should see "The Departed" if you've neglected it. No, this musing is all about real books, and how to really highlight them.

Years ago, I grew tired of the huge Marks-A-Lot type with the felt tip which broke down soon enough. I used the Pentel Data Checker for a long time, but they're harder to find in the flesh these days. I've got a supply of the yellows, if anyone's interested. I used them "upside down", using the back of the chisel to draw through the text.

I discovered that Noodlers make highlight inks (the page is for firefly yellow, which isn't called out in the swatches) for fountain pens. But two issues: only firefly is a bit fluorescent, and it fades rather quickly. The others are "just" semi-transparent inks, so far as I can see. The other thing is that the others are dark enough that the drawn line stands out enough from the page as to be distracting. I haven't found a pen/nib that I'm willing to pay for that's as wide as a traditional highlighter, so one highlights through the text, not over it. Firefly does blend well enough with white book paper that the meandering line still highlights but doesn't distract.

As to how to apply? Pelikan offers up broad nibs, but the pens are obscenely expensive, and may not ship with the broadest nib; purchase separately(!). Well, the M205 is a bit cheaper, if double broad is OK. Both way more than I wanted to spend, so I've ended up with Lamy AL-Stars with broad nib. I don't remember where I got them, but Goulet is an alternative to Amazon at about the same price.

I tired of the Noodlers firefly fading, and stumbled on Pelikan yellow. Now, that's more like it. Very bright, hasn't had a fading issue, so far.

Go read a real book. You'll feel better in the morning.