02 September 2015

From The Mouths of Bambinos

The Donald prates about the Mexicans, while Carson is hot on his heels. Who would have thunk it? You can look it up, but net migration from Mexico to the USofA has been falling for years, and remains 0, more or less. While Carson pulls yet closer.

There has been, may be gone, the Mexico Moment which was supposed to last longer than, well, a moment.

Turns out, even the winners understand that "It's the distribution, stupid".
"Unfortunately the problem in Mexico is the wage rate, which is enough only to survive," said Mr. Rascón, 48. Unless people have money to spend, he added, the companies that sell to them will never be able to expand the way his has.

The Donald really should go have an anchor baby there, with his foreigner wifey, then campaign for President. He'll fix that economy right up.

30 August 2015

China Syndrome, Part the Fourth

Once again, reporting on the ground belies some/much of what quants think, or at least say, about the China situation. Many wear rose-colored glasses. A large part of the problem is that Beijing is well known to make up macro-economic data. While a fine practice from a political point of view, it leaves decision makers (Chinese citizens, foreigners, and Chinese bureaucrats) in the dark.

More reporting today: zombie factories. Even "60 Minutes" has found the effort to report on ghost towns. But... since so much of Chinese GDP is funneled into "investment", much of it non-producing by the bye, it matters materially what's going on with those investments.

Basically, nothing. What's even more amusing is this:
Like many industrial cities across China, Changzhi, which expanded aggressively during the country's long investment boom, has too many factories and too little demand. That excess capacity, many economists indicate, will have to be eliminated for the Chinese economy to return to healthy growth.
[my emphasis]

One might wonder how that logic is supposed to work? Must be some Austrian economists. The point, of course, is that Beijing has used its fiat over labor to flummox the West out of being productive. This whole, "Beijing is finally steering the economy to domestic consumption" is baloney. Just as the Austrians have provided the Republicans with the excuse for income concentration, so to in Beijing. As it ever was, "It's the distribution, stupid". Neither Beijing nor the RNC want to hear it.

27 August 2015

Yet More Tyranny

Remember The Tyranny of Average Cost™? It exists just about everywhere in production. One the of major irritants of modern life is "paying" for cable channels "I don't want to watch". Interestingly, ESPN's many channels have been the major benefactors of this bundling.

Today brings a new analysis of Apple garroting the cable networks.

The thesis of the piece is somewhat on point, which I'll dwell on. Of interest is many (most? all?) comments, which boil down to: I only want to pay for the channels I watch. TeeVee a la carte, in other words. For those well off enough to eat in classy restaurants, ones that offer both dinners and a la carte menu, know full well that the a la carte meal is far more expensive, and not always superior to the dinners on offer. Again, The Tyranny of Average Cost™ strikes again. With a la carte TeeVee, in due time only the mega channels/networks will survive, and there goes choice. There exists choice of off-the-mainstream TeeVee because all subscribers subsidize the utility. And, despite what the Masters of the World assert, cable/sat TeeVee is a utility.

The author accurately points out that the "smaller" (read: left wing intellectual) channels can exist because they get more funds from bundling than it is expected they would get from a la carte. The result of either/both of unbundling and disintermediation would make a vewwy, vewwy compelling study and experimental design. Suffice to say that the conservatives would expect to see The Science Channel and its God and Guns hating ilk to die, while the liberals would hope that the God, Guns, and Amphetamine set go away. Given that the country, on the whole, is far more urban and liberal (closeted though it be) than right wing, I suppose that the result would surprise the snake handling set (yes, there are channels, "National Geographic" and "Animal Planet" which display such). No more "Outdoor Channel", too.

Production costs don't diminish with burgeoning numbers of channels. On the other hand, advert dollars are spread thinner, per channel. If one views 1960s TV on the Encore set, for example, one sees cheap production values: backlots and sound stages galore. Today, mostly on site, even if within the TMZ. Is it any wonder that the Golden Age of TeeVee profits fell off the table when cable dispersed from midwest farming towns to the Big City? Split three ways is one thing; split 500 is quite another. All that original programming on cable-only channels would disappear overnight. Well, except for the snake handlers, since they'll do it for cameras gratis.

25 August 2015

I'm In Your Debt

You do remember The Joker (Rogoff) and Penguin (Rinehart) of quant econ? What quants and micros never seem to do is get beyond narrow, yet superficial, analytics. All the while spouting such rhetoric as "deep dive", "laser focus", and "it's the Damn Gummint's fault".

What the Right Wing apologists never do is look beyond affirming their agenda, that it's either the Damn Gummint or Little People who pay taxes who are the cause of all that misery.
Every financial crisis, he and his co-author, Carmen M. Reinhart, concluded, stems from the same simple problem: too much debt.

Well, Rogoff is at it again, this time gloating that he got China right long before anybody else. He didn't, really, but did go public early on. Only God knows who was first.

His explanation: too much debt. Yeah, so?

And, of course, that's quite wrong.
...distribution ... of wealth as it is currently produced ... to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.

That's a quote from Eccles, which appears in the preamble to some of the versions of these endeavors. Since the quants and micros only care about maximizing profit for a narrow sector, or even just one corporation, the "winner takes all" meme is more to their liking, and never questioned. That "winner takes all" leads to collapse of the whole edifice, is never considered.

What Rogoff, and his ilk, fail to do is ask the question that matters: why is it that consumers turn to debt to pay for their widgets, rather than out of income???? Hmmm????

The Great Recession happened partly because The Giant Pool of Money demanded high-return, low-risk instruments, which the financial services sector was happy to concoct and provide. The problem, of course, was that the 99% couldn't float the needed mortgages with the existing, standard, protocol. So, the protocol was fudged. A lot. But the needed instruments were created.

One of the side effects of artificially inflated house prices was the Home Equity Loan: "use your house to pay for that dream vacation", and such. So, not only were the poor inveigled into McMansions with teaser APRs, but otherwise sensible folks enticed into making the homestead an ATM. And why not? Wages for the 99% have barely budged over the preceding decades, and this provided more cash flow to consumer goods companies. Do you really think they'd say, No? Of course not.

With the increased concentration of both wealth and income over the last three or four decades, money to buy widgets out of pocket for the 99% just isn't there. So, how do corporations shift widgets? Credit (or DEBT as Rogoff has it), of course. The key to The Great Recession was that mortgage companies, then banks who saw their market share dwindle, understood the real issue: monthly payment. Folks don't buy a $100,000 house, they buy a $750/month house. It's the monthly nut that matters. "Look, the initial payment is within your income. In a few years the payment will reset, but then just sell the house at much higher price, if don't strike it rich. You'll actually be better off."

We see the same scam going on now with auto sales. The 84 month car loan (25% of loans in 2014) is the same scheme: keep the monthly payment within protocol. Auto makers can shift higher cost/profit cars, too boot. Good deal for everybody. The amounts, per household, aren't (one hopes, anyway) as troublesome as the subprime mortgages. One hopes.

Nevertheless, a mini-Great Recession will occur with these car loans, if the job market gets soft. All those cars being repo-ed may well cascade through the economy nearly as evilly as the mortgages did. Folks get laid off. Stop paying for the car. Car gets repo-ed. Without wheels, you can't get work. And so on.

But it's all the fault of those greedy 99%, who won't live on the starvation wages corporations deem them worthy of. Eccles can't be denied, forever.

24 August 2015

Krugman Finally Says It

Some time back, I invented (so far as I know) the phrase "Tyranny of Average Cost"™ to describe the problem faced by capital/fixed cost biased production: in order to make moolah from the investment, one has to shift a lot of widgets at a moderate price or shift just a few at unaffordable price. Apple has, sort of, taken the latter course. Without sufficient demand, the investment never pays off. Without sufficient payoff, investment in physical assets slows, even stops. Economies such as Bermuda exist based on almost wholly fiduciary investment. Some here in the USofA are sore jealous.

Yesterday's missive told the tale of Intel and physical investment. The author of the piece sees superior use of fiduciary capital in finance. The comments, on the whole, argue that Intel (at least) should stay the course of making physical widgets. On the other hand, there is that siren tune of WhatsApp: a handful of guys with PCs getting $19 billion (not really, but it does sound good, doesn't it?). The ROI is outta sight. The problem, of course, is what your Good Mother told you when you were in short pants:
What would the world be like if everybody behaved like you?

Barriers to entry for such Service Economy companies is nil. Which is why WhatsApp got the $19 billion: it was simple extortion. Legal, but extortion nevertheless.

Well Krugman finally says it, almost.
More than a decade ago, Ben Bernanke famously argued that a ballooning U.S. trade deficit was the result, not of domestic factors, but of a "global saving glut": a huge excess of savings over investment in China and other developing nations, driven in part by policy reactions to the Asian crisis of the 1990s, which was flowing to the United States in search of returns. He worried a bit about the fact that the inflow of capital was being channeled, not into business investment, but into housing; obviously he should have worried much more. (Some of us did.) But his suggestion that the U.S. housing boom was in part caused by weakness in foreign economies still looks valid.

This financialization of the USofA economy has been going on for a while. Longer, in fact, than even Krugman admits in today's column.

What both Bernanke and Krugman miss, or are too tired to deal with, is that the glut began no later than the DotBomb. All that moolah to fund .coms like Pets.com (loved the sock puppet; just your average CEO in drag) came from somewhere. The "Giant Pool of Money" should be reviewed at least once a year; it explains most of what's going on. Still.

Which brings us to a new neologism (from your local Department of Redundant Redundancy): The Cudgel of Good Enough™. All producers of tech widgets find themselves facing the same problem: what functionality can be invented that is new, useful, and high margin? The smartphone business is ground zero, of course. The Big Deal with the next iPhone, if all these reports are to be believed, is Force Touch. Doesn't have quite the allure of an iPhone, when none existed, does it?

What's a company to do? On the one hand, income/wealth concentration continues apace, such that any growth in the global economy happens to the 1% (or .1%). For, say, Burberry that's not so much a problem, since selling a man Just The Right Coat For The Occasion™ is what they do. (You should have stayed with coats, Angela, I guess your Plan B makes it low risk?) For an iPhone shifter, not so much. Not even The Donald needs more than one. No, I've no idea whether he really does or not. Thus the Watch, which isn't likely to be a smash hit. Tim would have leaked that by now if it were.

Back to the SA story. The author does have a point: the marginal benefit of semiconductor progress has plummeted since the heady days of the Pentium, while the cost of implementing those benefits continues to increase. The Tyranny and The Cudgel beat Intel like a drum. Remember when the 450mm wafer was just around the corner? Never happened, of course. One might argue that node shrinks have been a substitute, but, if so, at much greater cost. Soon enough, control of power at 10nm (certainly below that) becomes an issue.

Is there a happy ending? As Krugman puts it,
But there's also, I believe, a sort of emotional prejudice against the very notion of global glut. Politicians and technocrats alike want to view themselves as serious people making hard choices -- choices like cutting popular programs and raising interest rates. They don't like being told that we're in a world where seemingly tough-minded policies will actually make things worse. But we are, and they will.

To quote the subtitle of one version of these endeavors, "It's the Distribution, Stupid".

China Syndrome, Part the Third

Well, I guess one can conclude that, if China's domestic hiccup can cause a global financial panic, then it really is a first world country. Sort of.

19 August 2015

A Well Rounded Education

As is well known, I've not been a fan of Jobs, his Reality Distortion Field, or Apple in general. The fact is, Apple has been an assembler of Other People's Parts from the get-go, just like most of the rest of the small computer (and compute device) sector. Unusually adept marketing is their value add.

The iPhone design patent is especially galling. Today it is reported that USPTO may be willing to revisit the blunder.
Now, in a new twist, examiners at the U.S. Patent Office have had second thoughts. In an August ruling, they agreed to consider new prior art evidence, which led them to a commonsense conclusion: the rounded rectangles design is obvious, and should not have been granted a patent in the first place.

Capitalists regularly rant that bureaucrats are stupid, incompetent, low lifes who should be left to starve in the desert. Except, of course, when their stupid incompetence grants market monopoly. And obscene infringement awards.