A Tail of Two Pundits

It was the best of times; it was the worst of times. So, today the New York Times put up dueling analyses of Amazon's blitzkrieg on Hatchette publishing. Joe Nocera, staff pundit versus Bob Kohn participant in the battle.

I'll leave it to the reader to judge which is the true pundit and which the puddin' head; but I will highlight (or lowlight, depending) some key sentences.

Kohn:

The monopsony power of Amazon, which has a current market share of 65 percent of all online book units, digital and print, is not just theoretical; it's real and formidable. When Macmillan, the fifth largest book publisher, displeased Amazon in 2010 by proposing certain changes in business terms, Amazon exercised what has been described as its "nuclear option": It promptly deleted the "buy" buttons in the Amazon online store for all of Macmillan's books. In an instant, Macmillan's entire business was in jeopardy.

Nocera:

Over the years, as Amazon became increasingly powerful, publishers began whispering about how someday that power would be abused. Amazon has always pushed hard for the lowest price possible, but what would happen if it truly became a monopoly?
...
No matter what you think of Amazon's tactics, they surely don't violate any laws.

Nocera should stick to political bloviating, since he clearly doesn't understand markets (i.e., which side of the bargain is which) or data.

The Ballad of Casey Jones

Casey Jones was an engineer. A real, live train engineer, not a financial engineer. But, as they did, he crashed and burned. What seems to be the original:

'Twas around this curve he saw a passenger train;
Something happened in Casey's brain;
Fireman jumped off, but Casey stayed on,
He's a good engineer but he's dead and gone--

Too bad some banksters (who couldn't be called 'good') didn't stay on the train they sent 'round the bend. As many, including humble self, have pointed out, the purpose of the financial sector is to marry borrowers with savers, at minimum cost, and not to suck up the savings for themselves. Today we get some reporting from London. Mr. Norris devotes much of his article to the recent history of bank regulation, and lack thereof.

Ms. Lagarde added that "the true role of the financial sector is to serve, not to rule, the economy. Its real job is to benefit people, especially by financing investment and thus helping with the creation of jobs and growth."

Ms. Lagarde, of course, is now managing director of the IMF. It's been the IMF over the last few decades which has had a knee-jerk reaction to countries getting into trouble, which reaction is to punish the poor and reward the rich. The IMF did, quietly, admit it went a bit overboard. Words are nice, but actions are better. IOW, the jury is still out.

This is the end of Mr. Norris' piece:

Mr. Carney, by the way, is a Canadian who got the Bank of England job in part because of a perception that British regulators had been too trusting. The Edelman survey found that only 6 percent of people in Britain thought there was now too much regulation of financial services firms, while 64 percent thought there was too little.

High time the London Whales and other self-serving quants, banksters, hedgies, etc. were called to account.

How to Be a Weatherman

All those amateur algorithmic stock touts on R-bloggers must be experiencing sphinters tight enough to hold a fishing line with a breaching marlin at the other end. Why? Well, as your local TV weatherman puts it, every now and again, predicting the weather sometimes means just going out the door and looking at the sky.

Let me explain.

As these endeavors have argued, somewhat more frequently of late, Mr. Market isn't an example of Brownian motion or any other physical process. Mr. Market does what he's told by those who can manipulate his rules of behavior. Yes, if you're a Daddy Warbucks with access to money flow data before anybody else, you can use that information to front-run the lemming crowd. Stock returns, aka The Real Rate of Interest, are determined by the productivity of physical capital. We got The Great Recession because that Giant Pool of Money (which has grown only larger in the aftermath) couldn't find any real investment offering as much as its owners wanted. Or, to quote Dire Straits, "money for nothin' and chicks for free". Everybody wants a free lunch, but TANSTAAFL. The banksters conjured up "instruments" which offered up glorious returns, weighted by risk (as asserted by the banksters, of course), which didn't require getting one's hands dirty with physical investment. The world was wonderful, until it wasn't.

So, the rate of return on real productive investment sets the floor (or ceiling, depending on how one views the problem) for the interest rate. Without sufficient productive transformations of fiduciary capital into physical capital, the real return on said capital approaches zero. It matters not a smidgen how much the holders of moolah want to be paid for the use of their moolah. Borrowers will only borrow if they can turn around and make/buy hard assets which return more than what the moolah holders demand. Stamping their wittle fooot makes no mind.

I bring this up, because today's news brings shock and awe to the professionals. And Mrs. Peel was the talented amateur.

The yield on the 10-year Treasury note fell to its lowest point in 11 months as investors continued to put money into the bond market, extending a rally that has taken many investors and analysts by surprise. Most market participants had expected yields to climb this year, and bond prices to fall, as the Federal Reserve reduces its multibillion-dollar monthly purchases of Treasury and mortgage-backed securities, and the economy improved.

Look at the windows, fools. Corporations continue to hoard moolah unable, or unwilling, to transform it to physical investment. Now, that's relative, of course. Yes, producers' durables are being bought, and some companies are building/expanding plant. But no where enough to absorb the burgeoning Giant Pool of Money.

"In terms of safety and yield, the U.S. still is the prettiest girl at the dance," said JJ Kinahan, chief strategist at TD Ameritrade.

Ah, yes. The advantage to being the global New Gold, aka international reserve currency. The Almighty Buck is the only port in a storm. Or even a mild breeze.

Good Old Saint Nick

Just a reminder (it's been a while), but you should keep track of Nick Carr. I've been remiss, myself, so face-slap, too. It happens that the current post is a blurb for his next book. Good on him.

Krugman Gets It

For the first time, that I've seen Krugman states the crux of the matter:

The policy mistakes that created the euro crisis -- mainly creating a unified currency without the kind of banking and fiscal union that a single currency demands -- basically had nothing to do with the welfare state, one way or another.

Or, as I've bleated more often than should be necessary: Europe has to carry the dumb Southerners, just as the USofA does, if it wishes to survive united. And that requires a European fiscal policy, which doesn't, and won't likely, exist. Just as here in the USofA, Southerners think their local version of fascism (think Big Daddy, and you can look it up if you don't recognize the allusion) is far superior. In the USofA's case, it goes back to the mid 18th century when most hard currency was acquired by the plantation slave economy. That leverage lasted for many years, and was the fundamental driving force behind the War Between the States, aka War of Northern Aggression, according to many historians. As they say, follow the money, and the money ran through plantations, and plantations could not exist (as profitably, anyway) without slavery. Southerners continue to see such an economy as superior. The Tea Party is really not about Boston, but about Richmond (you can look that up too, if need be). And, not too surprisingly, my beloved Bermuda was a major conduit for contraband. The Brits were largely, though not officially, on the side of the South.

Godzilla [update]

More than once, these endeavors have laid The Great Recession at the feet of The Giant Pool of Money. Yes Virginia, there is a global excess supply of savings over demand for moolah for physical investment. That was true back in the beginning of the 'aughts, and it remains at least as true now. The financial engineers, whose engineering is really only loophole mining, set out to inflate the returns to their overseers whilst sacrificing the sheep, all while not increasing production in the real economy.

We get continuing reports that Chinese money is staying in-country, and driving a domestic real-estate pyramid/bubble. And why not? As physical capital moves toward things compute related, the leverage of Big Capital increases the need for Big Output, since compute related tech remains in the throes of Moore's Law. For how much longer? May be not all that long, but for now those making compute devices face Scylla and Charybdis: increments in physical capital continue to happen faster than product cycles on the ultimate consumer side; there just isn't time to recoup the capital outlay before some new increment pops up. Whack-a-Mole in the C-suite. The result is a steady decrease in total return on an investment cycle. Until the corporations decide not to make the investments, of course.

As the saying goes, "if autos were like computers, a Mercedes would now cost $1.50".

Irregardless of what your macro text told you, the IS/LM construct is fundamentally wrong. The final decider (and it ain't Dubya) of interest rates isn't the Fed, ECB, or the Trilateral Commission, but how much can be earned by physical investment. We're seeing that with the stall in adopting 450mm wafer machinery. Here's an overview (as of 2012) of the tech involved.

The transition to 200-mm wafers increased the wafer area by 1.78. But since lithography accounted for only 25% of the chip cost at the smaller 6-inch wafer size, that area improvement affected 75% of the chip cost and gave a nice 25 - 30% drop in overall cost. The transition to 300-mm wafers gave a bigger 2.25X area advantage. However, that advantage could only be applied to the 65% of the costs that were non-litho. The result was again a 30% reduction in overall per-chip processing costs. But after the transition, with 300-mm wafers, lithography accounted for about 50% of the chip-making cost.

IOW, without unmet demand for chips, there's zero demand for larger wafers. This author gets it!

Second, there must be sufficient demand for the chips being produced to justify a higher volume factory. A 450-mm fab will have at least double the output (in terms of chips) as a 300-mm fab. Thus, the demand for those chips must at least double to justify the building of a 450-mm fab. That's a huge volume of chips, since 300-mm fabs are already exceedingly high-volume.

And, IHS this year had this to say:

Even so, unless wearable electronics or another high-growth semiconductor-based product can be manufactured cheaply and profitably, the 450-millimeter fab is likely to remain a pipe dream for the semiconductor industry. Both Intel and TSMC have put up "shell" buildings that could be equipped for 450-millimeter manufacturing, yet they are letting those facilities go unused at present. Intel is constructing its D1X Module 2 facility in Hillsboro, Oregon, for 450-millimeter development fabrication, which is scheduled for completion in 2015. But even if Intel, Samsung, and TSMC all go full-steam ahead with their 450-millimeter fab plans, it still may not present enough business for the producers of semiconductor manufacturing equipment to justify their research and development expenses for 450-millimeter gear.
...
There are indications that 450-millimeter volume wafer production will be pushed out from 2018 to 2019 or even 2020.

So, we're left with the near certainty that "innovation" in producing compute devices has stopped. There just isn't any money to be made. That leaves fiduciary investment. Ooops. Fact is, despite some economists' efforts to the contrary, value of fiduciary instruments exists only, and solely, in the earning capacity of the underlying real economy. In the case of USofA housing, that's mortgage holder incomes. We saw that once the exotic, backloaded (in terms of burden) types started to re-set in large numbers that the pyramid collapsed. The unearned increase in equity had been burned in consumption, since wages were then, as now, stagnant. They all tried to turnover the mortgage at the same time, and the snowball headed down Mount St. Helens just as it exploded. There wasn't any there, there (to steal from Stein) to continue to gag.

That Giant Pool of Money is still out there. Corporations continue to sit on trillions of $$$, unable to find useful investments. Hmm. Physical investment still isn't generating large returns. USofA housing has, by and large, been cordoned off. Where's the Pool flowing to? Today's news tells us. No real surprise. And the Fed isn't the Bad Guy. The Fed controls, and not with an iron fist, only short term rates in its venue. Real interest rates come from the real economy.

According to [Josh Brown, CEO of Ritholtz Wealth Management], assets under fee-based accounts have swelled to $1.3 trillion in 2013 from $200 billion in 2005. Most of this money is not being actively managed and is being put to work in a methodical, passive fashion each month. This provides a constant bid to the market as wealth managers become less incentivized to jump in and out of stocks and more rewarded to buy, and buy more.

Once again, The Giant Pool of Money is flowing into fiduciary instruments. The difference this time, one hopes, is that the underlying real economy isn't as monolithic as the exotic CDOs and such that led to The Great Recession. To the extent that corporate real investment tracks real returns (and in the final analysis, it must) on real capital, we should expect to see long term increases in asset values to regularize with real returns. IOW, it's not quite a bubble, just price increasing to meet real returns. For those who want to live on coupon money, they'll in due time have to make do with less: only one Mercedes and a smaller camp in Gstad. Pity the poor rich child.

[update]
Another day, another confirmation.

More importantly, the strategist [Tobias Levkovich, chief U.S. equity strategist at Citigroup] believes Robert Shiller's cyclically adjusted P/E ratio (CAPE) is a flawed indicator mainly because it doesn't "normalize" interest rates as it does earnings.

"It's great to normalize earnings to get a P/E but there's also something called the time value of money," he says. "You will pay very different present values depending upon what the discount rate is: At 1%, 5% or 10% you would have very different outcomes on that P/E as well."

While the text isn't exactly what this piece argues, it's nearly the same. Stock/bond prices run inversely to earnable interest. And earnable interest, ultimately, is the result of productive innovation. As real interest rates fall, asset prices will rise. Not to mention all that moolah seeking unearned income. Whether humanity has ever been in such a situation before is a valid question. Some, including your humble servant, view science/technology near, or even at, the point of knowing all there is to know about the planet's resources and their uses. Innovation redefined as financial loophole mining isn't innovative nor does it progress either the economy or society.

There's No Whining in Baseball

Just when you thought (you did, didn't you?) we were safe from bubbles, the Chinese had to go and ruin it all. You've likely read the recent news that their segue from American housing securitizations to domestic ones has come to a bit of a bumpy patch. Turns out, Asia generally, and China specifically, have morphed the trade in old wine vintages. If memory serves, really old wine just turns to vinegar (check the etymology) anyway. So all those Chinese with more money than uses for it are buying pet rocks.

"Bordeaux is the only wine in the world that can provide excellence and quantity," Ms. Mentzelopoulos said. "If you want to buy an '82 Margaux tomorrow you can find it."

"Other wines are based on scarcity," she added, before mentioning two famous California wines. "If you want to have a Screaming Eagle or a Harlan Estates from '05, I don't know you can find it so easily."

Availability is, of course, relative. That '82 Margaux would set you back about $1,100.

I've got a hothouse chock full of tulips, if anyone's interested in getting rich quick.

Conflict of Interest

A theme of these endeavors, which emerged from them rather than motivated their creation, is that when policy conflicts with data, policy wins and data loses. Now, this observation is, generally, not true when data of the physical world is the subject. Brownian motion and microarrays spring to mind. In general, then, one can observe that data about physical processes is mostly unambiguous, in the sense that the data reflect rules which are external to the process of interest. You can't fool Mother Nature (or God, if you're so inclined).

Data about human processes is a whole other story. As The Great Recession demonstrated, both the data and the rules of engagement of the activities behind the data are subject to change by the humans exercising the engagement. Both data and rules are fungible. In such a circumstance, is data analysis even worth the trouble? To earn a paypacket, I suppose so. To understand, better, the real world, perhaps not so much.

I've been making a desultory trip through Kuhn and Johnson and Hastie, et al over the last while. In a nutshell, the former is more narrative while the latter is more algebra.

What's germane here are a couple of snippets from K&J Introduction (some, courtesy of my ten fingers). First, they quote from Rodriguez:

Predictive modeling, the process by which a model is created or chosen to try to best predict the probability of an outcome, has lost credibility as a forecasting tool.

Rodriguez continues his paragraph thus:

Overly simplistic models have failed to account for the sheer complexity of human interaction and the degree to which most people behave irrationally. Most predictive economic models presume that people behave rationally most of the time, a premise which is terribly flawed but which serves as the intellectual foundation of many current economic models (See the Wall Street Journal article on this issue, here).

But they then end the section thus:

While the primary interest of predictive modeling is to generate accurate predictions, a secondary interest may to interpret the model and understand why it works. The unfortunate reality is that as we push towards higher accuracy, models become more complex and their interpretability becomes more difficult. This is almost always the trade off we make when predictive accuracy is the primary goal.

IOW, we know this is crap, but we're going to do it anyway. I'll grant that the authors work in biotech, not finance, so they're (likely) coming at the issue from a justifiable Mother Nature perspective. Still.

This imposed bifurcation didn't exist when I sat my stat and econometrics classes. What was clearly understood then was that human processes aren't Brownian motion, and that prediction was restricted to the range of the independent variable(s). Over the years, quants have been willing to ignore that last restriction and predict way beyond the range of data. It turned out to be a lucrative practice. Until it blew up the world. One of the reasons they gave us The Great Recession. Today mostly looks like yesterday, and so on.

As more failed out physical scientists moved into the social sciences (the maths are easier over here, and many social scientists don't bother to look behind the curtain), they brought with them the paradigm of inviolate rules of engagement. Thus, house prices can continue to rise beyond reason because they have been and there must be some mechanism, which we don't understand and don't need to understand, which makes it all work out just fine. After all, The Invisible Hand is just like Mother Nature, yes? Until it doesn't.

Without understanding, we get leeching to cure disease and virgin sacrifice to palliate The Gods. Which brings us Krugman today.

I've been thinking a lot lately about the power of doctrines -- how support for a false dogma can become politically mandatory, and how overwhelming contrary evidence only makes such dogmas stronger and more extreme.

He's ranting about Republicans and climate change (mostly), but the point is more general. I've long forgotten which class/teacher/professor said it but, "Data doesn't displace a theory, only another theory does that". Or words to that effect. Contradictory data may bring a theory into question, but doesn't replace that theory. The problem with policy and data is that policy doesn't rise to the importance of theory. Policy is merely imposition of will. Sometimes that will is of the majority. Sometimes not.

Tiny Tim

Was out getting the meager needs have we for suppa, when Geithner pops up on "All Things Considered", examined by Robert Siegel. Three doses of self-absorbed tool of the Banksters in just two days!!?? He's flogging his self-defense tome, "Stress Test", the point being his stress, of course.

Sunday had him in the Times Magazine, written by Sorkin. Then, again in the today's Times, a review of sorts (right under the section heading which is "theArts"; a bit Freudian, what?), of the book itself. Until the radio, I had decided to let it all pass. Kind of like a quant/psycho/macro kidney stone.

But then, Timmy had to go and spoil it all. Siegel finally gets around to the point, which no one in the media has in my experience. Timmy had been yapping about how there was a confligration, and he was valiantly trying to put it out, not that he was in any personal danger, unlike real firefighters, of course. Siegel says (paraphrasing, I wasn't carrying my NSA issue recording device), "but the home buyers didn't create these exotic instruments, the banks did for their own benefit". And Timmy just lies! It was all an accumulation of belief that housing was safe. No mention of Viagra at the Home. No mention of gaming Timmy's System. The Banksters did nothing wrong. If I'd had anything left in my stomach, it would have ended up on the inside of the windshield. That's one evil motherfucker.

I have a funny, funny feeling that this attempt to set the record straight isn't going to work out well for Timmy.

Joe Sixpack

The key to those wonderful six-pack abs is a solid core. And light, right eating. How's Apple's core doing? For some time, there's been a continuing argument that either a) Steve died, so did the company or b) Steve took the company out of the world of computing into one of gadgets with the iPod, and this decision is now biting Tim in the butt.

For rather a long time, in these endeavors and elsewhere, I stood alone (so far as my extensive reading shows me) in diagnosing the issue as one of Apple being a toy company, e.g. Mattel rather than some kind of computer company. Alone. So alone. Until Today!!

Well, it was "announced" Thursday that Apple would slurp up Beats for $3.2 billion. And the die was cast. But the slew of journalism got into full song today.

This piece shows up, among a host of others, as one might expect. You can find, if not already, your favorite.

Having broken the ice, Apple now must embrace its newly discovered and more realistic identity as a higher end consumer electronics company and continue to move aggressively to extend complementary offerings.

AKA, it's now Mattel time. The Piketty income concentration evidence is also material to Apple's move, while I really, really doubt that Tim would ever admit it through word or deed. As wealth and income concentration continues apace, the TAM (top 20%, by USofA dollars, of global earners) doesn't grow much, and will eventually shrink. Again, as Dr. McElhone observed, "the world is not linear". Income concentration has a black hole aspect: once it gets its act together, the event horizon expands and accumulation accelerates. The Apples of the world have to move ever more product into, at best, static TAM. Burberry (remember her?) does it by the meme of a coat for every occasion. But only a Burberry is good enough for those with the moolah. Apple doesn't have such a product. No one really needs multiple phones or pads or pods. So, just as Mattel has to keep creating new games to create sales, Apple has to offer yet more devices to soak up the 20% disposable income. The problem for Apple is that Beats phones sound like drek, and on purpose. They're ghetto blasters for your head. If Apple goes through with it, it will end badly.

Mine Is Bigger Than Yours. Don't Look!!

One submeme (if that's a word, which isn't a cylindrical meat sandwich) of these endeavors is that today's "innovative" economy is evermore advert pushers exploding from the body a la Alien (yuck!). Or, in line with Krugman (2005):

In other words, a fuller answer to my former neighbor would be that these days, Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn't seem like a sustainable lifestyle.

Then it was swapping houses. Now, it's an endless loop of advert makers selling adverts for their advert businesses. A horde of whirling dervishes on nicotine, crack, and LSD.

Today's NYT business section has a very long piece on innterTubes adverts. A j'accuse moment, if it were not so terrifying. Innovation boils down to Mad Men? And, I only know the show from hearsay; never had any interest in watching a fictionalized version of real stupidity. The piece is way too long to bother with making a precis' and claiming authorship.

I'll settle for suggesting you owe it to yourself to go read it, and offer up the best bon mots. The ones which echo my previous lamentations.

Turns out that one is, largely, buying a pig in a poke:

But disappointment turned to rage when she read the list of domain names where the ads were running; it included pornographic websites. The team opened one site with an especially lewd name and gaped in horror. "Oh my God," some shouted. Others cursed. Ms. VanHeirseele picked up her phone to call the media buyer in a fury.

I had, before wading through the piece, a vague notion that the advert business is much like Apple: an advert is largely composed of bought in parts, despite the name of seller of the advert pushing service. There is a long list of the kind of companies twixt the advert buyer (i.e., the company whose product is being flogged) and the advert viewer. Even with sharp language in the contracts, your Bible flogging business could end up on a porn site. Maher would be tickled. (No, that's not explicitly in the piece; just my musing. But it tickles me!)

When ads are sold, even the media buyer that was initially given the contract to place the ads may not know where they are running.

Kind of like buying a Gucci purse from a table in the Bowery?

What's the problem? Much like the subprime ARM mortgages buying McMansions, most just want to keep dancing as long as the music keeps playing. They all hope to either get one of the diminishing number of chairs, or squirreled away enough moolah to have gone home already, when the music stops.

"Except for the advertisers, no one has a vested interest in spending less money," said Jeff Semones, president of M80, a direct-marketing company, who was at the conference. "Whether it's the publishers, the ad platforms, the agencies that manage these activities. Right now, it behooves almost no one to clean up this mess."

I guess someone rewound the ARM movie and it's playing to a new crowd. When there's rules to be gamed, they will be. Data? Don't look behind that curtain!!

For nearly two decades, the meme from the In People on the innterTubes was that the innterTubes was a better way to push adverts. Spend only to get the eyeballs of the folks you want. Newspapers? Magazines? Network TV? Pointless legacy. A sniper rifle rather than a shotgun. Turns out, not too surprisingly, not so much. I suspect the NSA knows how well the gag is working, but they're not telling.

The chasm between the value of such ads to brands (negligible) and their value to publishers and ad networks (considerable) is the reason that many say this medium is at an inflection point.

Once again we find that "honest business" is the second most important oxymoron, right behind "happily married".

Things Go Better With Koch

Wow. Lots to babble about today. Let's get to it.

Since Nate left the NYT, the Times has created a group that they call "The Upshot", which has the remit to talk about data, graphics, and policy. Today was the release of April's employment numbers, and the mainstream pundits are aghast. While the job increase number was higher than the pundits predicted, at 288K, the plunge in the participation rate has them spooked. Just as corporations, the ones left in the USofA at least, make mo money by firing employees; so too does the macro-economy. Lower the denominator, and the percentage (employed, the inverse) goes up. Imagine that. The referenced link, among many others, trots out the "retiring baby boomers" meme as explanation. Baloney.

It's going up for geezers. Economists generally only care about the cohort up to 55, and that's the one that's been dropping. So, kind of right, but for the wrong reason. Boomers can't afford to retire early. Been there done that. Not that I have any interest in retiring. Deming worked, if running seminars in one's chosen passion can be called work, well into his 80's. I attended a couple.

So, it was with some amusement that I read my dead trees NYT early, before I saw the BLS reporting. "The Upshot" folks do a decent job of reviewing, as these endeavors have advised more than once, the details. All of this data, and nearly all of the data produced by OECD, and any other first world source one can name, come from samples. You should find a copy of Snedecor's Little Yellow Book on the desks of BLS mavens. About the only population data is the weekly unemployment number. That's a census, and not always squeaky clean.

A couple of other pieces in the Times which bear on the two major themes of these endeavors, data and policy.

First, Floyd Norris takes on interest. In particular, the demand for mo money for lending money. He begins:

When buyers demand something, the supply will be created.

Especially on Wall Street.

He could have mentioned WS's willingness to create toxic mortgage bundles, at that point in the piece. Whatever.

"It is a very favorable time for bond issuers," said Martin Fridson, the chief investment officer of Lehmann, Livian, Fridson Advisors and a longtime analyst of the high-yield market. "There is just a lot of money sloshing around out there. There are simply not a lot of alternatives, and money managers are under pressure to put that money to work."

The problem remains: there are only two sources of cash to pay the vig on a loan; deferred consumption and increases in productivity. The former is a less than zero sum game, and should generally be avoided whenever possible. The latter is true, organic growth. Back in the 19th century, we had a lot to learn in science and engineering, so as we learned we devised ever more productive assets. Not so much today. We've found all of Earth that there is. We know all the elements, and the ways said elements can become molecules (there's a reason organic chemistry, based on carbon, encompasses far more of the field than that of the rest of the periodic table). The reason interest rates are in the toilet has nothing to do with the Fed. If corporations' CEOs actually had the skill for which they are titularly paid, superior asset allocation, then the Fed's assault on short-term rates would have worked. It didn't.

Krugman closes his piece today with:

Meanwhile, powerful political factions find that bad economic analysis serves their objectives. Most obviously, people whose real goal is dismantling the social safety net have found promoting deficit panic an effective way to push their agenda. And such people have been aided and abetted by what I've come to think of as the trahison des nerds -- the willingness of some economists to come up with analyses that tell powerful people what they want to hear, whether it's that slashing government spending is actually expansionary, because of confidence, or that government debt somehow has dire effects on economic growth even if interest rates stay low.

Whatever the reasons basic economics got tossed aside, the result has been tragic. Most of the waste and suffering that have afflicted Western economies these past five years was unnecessary. We have, all along, had the knowledge and the tools to restore full employment. But policy makers just keep finding reasons not to do the right thing.

Back to Norris. In discussing some new, innovative(?), techniques:

The funds also have the freedom to move in and out of different kinds of bonds, which is supposed to produce superior performance -- and will do so if the managers do turn out to be able to call market turns in advance.

Good luck.

Norris is generally pretty laid back. But then adds this zinger, Vulcan mind meld with Your Humble Servant

All this easy credit may not do as much as it could for the economy. Loans that finance corporate acquisitions, or dividends to private equity funds, won't do anything for employment, or at least a lot less than loans that pay for the purchase of new plants and equipment.

Finally, he closes with (making for a Three Musketeers moment)

At least some of the criticism might be better directed at the Congress. Had it been willing to provide more fiscal stimulus, the Fed might not have been forced to follow the course it has.

Once again, whenever data contradicts policy, and policy is controlled by those with the Big Bucks, policy wins.