29 June 2014

Gaol in Bermuda

My beloved Bermuda, based on just one trip and following the news remotely, has been, to my mind, a life-size petri dish for the Right Wingnuts in the USofA. Not least because Bermuda continued on its support for The Rebel Cause of 1861 for more than a century. The on-line 'Gazette' is the one I follow.

I don't visit every day, so this tidbit isn't absolutely fresh. But it sure does lend credence to my view of Bermuda as petri dish for Right Wingnuts goals. Scary place to be black.

As one of the comments points out, Dickens still lives. Someplaces.

25 June 2014

The End of The Road

John Barth, for those reading fiction in the 60s and 70s, was a minor cult hero. Kind of the Pynchon a half a generation before Pynchon. Not as prolific, and most fun from his first three books, late 50s: "The Floating Opera", "The End of The Road", and "The Sotweed Factor". And, of course, "Giles Goat-Boy", his most known work.

But, while I recommend the first three, we're here not to praise Barth, but to segue the title of his second book. Some have questioned the notion that real innovation, discovery of new science, is on its last legs. The usual response is very Rumsfeldian, "we don't know what we don't know". But in science, that's never been true. Scientists have always known what they don't know. They just ascribed the events or conditions to God. The structure of the universe is finite and knowable. The extent of the universe is another matter, so to speak. But the rules of engagement are fixed and finite, and as we approach the point of exhausting our ignorance, we must needs question the twin notions of innovation/discovery and of growth.

In the past, growth was driven by having more mouths to feed, which led to improvements in agriculture, and with cities, primitive forms of industrialization. In order to fight for resources, armies were needed, so gay times were banned. You can only stick where a soldier, or more brood stock, might emerge. We now use machines, more or less autonomous, to kill the folks we don't like, so massed armies aren't as important. Not to mention, The Bomb.

Economic growth driven by more humans is an anachronism. As more and more of our stuff is generated by fewer and fewer humans, creating yet more of them in privation is foolish. Not to mention evil. We need to find a way to distribute ever more stuff made by ever fewer humans to a more or less stable population. This isn't Iron Age Mesopotamia.

The 19th century filled out much of our knowledge of physics and chemistry, of the macro-world, and led to all manner of devices which we now assume as part and parcel of Modernity. I wonder whether most of us realize how little difference, in kind, our lives are from 1900? The main difference is more stuff, yet that stuff is largely miniaturized versions of what Grand Pappy had.

Do we really need yet more non-productive jobs, as we have in the financial services sector? In fact, yes. Finance, and gummint, have been sopping up excess man-hours for some decades. Finance creates its own myth of production, but really only serves one purpose: to marry those with excess moolah with those having a dearth of same. That large wages are accrued for this simple task is a puzzlement. But, what, exactly, will all those STEM students be figuring out in twenty years? What phenomena of today's world do scientists name God (or, equivalently, "we've no freaking idea!") as the cause? Should we be spending our time writing apps such a "Yo" (look it up)? Yes, it seems so.

24 June 2014

Who's Your Big Brother?

To answer the question, in general it ain't the damn Gummint.

23 June 2014

A Capital Idea

This posting, yet another attempt to game the market, asserts that QE is, to some degree, responsible for the mess we're in:
I am open to the idea we have entered a period of structurally low volatility due to increased regulatory burden and flow on effects from the decline of institutional FICC trading. Or it may just be a function of QE, and post-tapering we will see a return to higher levels.

FICC trading is the evil spawn of the whole financial services sector. That it would disappear, we'd all be better off. But what finally motivated me to track down some specific data was the whack at the QE pinata. It's been my sense, just watching the market news, that corporations as a whole are just not investing in productive activities. That the Great Recession was triggered by rogue, on a mammoth scale, fiduciary investing is the elephant in the room. Corporations simply would rather engineer moolah than build productive capacity. The simultaneous destruction of middle class demand for goods just might have something to do with it.

But, is there some quantitative measure of physical investment over some period of time? Well, Virginia, yes there is.

Here's a posting showing core capital goods, the kind we're interested in. It's the sixth graph. From this graph we get:
1990 - $36 billion (appr.)
2013 - $68 billion (appr.)

About double, if we assume that these are price adjusted. Rather less, if not.

But absolute value isn't what we should care about. Rather, physical investment as proportion of the USofA economy makes for a more accurate picture of what the 1% are doing with all that moolah they've squirreled away. So, then, what are the GDP numbers?

Here's one graph of them.
1990 - $ 5,979 billion (appr.)
2013 - $16,799 billion (appr.)

1990 - .6%
2013 - .4%

So, there's your answer. To answer the poster's question: QE hasn't much to do with it. The level of real investment has cratered, thus driving the 1% to fiduciary loophole mining to get their well deserved 10% return on their moolah. And, since it's clear that physical investment opportunities are either scarce as hens' teeth or too poor in return to be viable at the desired 10% return, the monetary interest rate must fall to meet the real return on real investment. IOW, with or without QE, we're facing (or, more likely, amidst) a long period of investment stagnation brought on by both stagnant middle class demand for goods, and ever diminishing real innovation in science and engineering. A Brave New World, so to speak.

12 June 2014

The Origin of Specie

Some may recall these endeavors' reporting a few months back on the so-called myth of Dr Copper: it appeared, according to reports, that Chinese businesses were using copper stores as surrogate specie. Some saw the fall in price as an omen of larger collapse. Well. The reasoning is that copper has actual industrial uses, and its price is therefore a simple surrogate for manufacturing. Kind of like an anecdotal copula; skip the hard data collection, and just watch the price of copper. The correlation is tight as a drum, don't you know?

Turns out the Chinese may have a general commodities issue. Could be Ponzi, could be pyramid, could be simple fraud. "Beautiful Redhead in the third at Suffolk. Can't lose!!"

Oh, and by the way, while I only read the headline various places, Steve Forbes is on his gold standard LSD trip again. Why? Well, as one of those .01%-ers with mucho moolah, with no idea how to invest it productively, and demanding the God given right to 15% return on his moolah, deflation looks like the best deal available. Go read the economic history of 19th century USofA, and you'll see a hundred's year war of the money holders against everyone else. Deflation and wealth concentration was the course. Rand would be giddy, naturally.

Regular reader can see a rotating (and a few permanent, so far) set of quotes that top these endeavors. Here's the one apropos to this missive:

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

10 June 2014

Square Dancing [update]

More often than not (and, likely, more than I should) I'll expound, "inferential stats is just about squared differences, and all the other stuff is just... stuff". Or words to that effect.

Well, I came across this post, which contains a turn of phrase nearly as dismissive.
...[there] may be a cognitive bias in me that prefers old-skool solutions along the lines of "just log everything and do a t-test, it'll be about right and then you can go home early" (a strange attitude in one who spends a lot of time doing Bayesian structural equation models).

One might wonder, might one, whether Nate takes such issues into consideration?

Eric Cantor, come on down!!!

05 June 2014

Serial Killers

In the bad old days, Bill Gates would try to parry the monopolist meme by saying that MicroSoft needed to be left alone so it could "innovate". Nevermind that from day one it co-opted and/or stole everything it made. BASIC came from Dartmouth. DOS came from Seattle Computer. Office was made under contract to Apple. Windows came from Apple, which stole it from PARC. Apple's operating systems are cadged from BSD, in the main (BSD, unlike linux, permits its own theft). So much innovation, yet so few places to steal it. The hypocrite's dilemma.

What's worser, sometimes, is to read a turn of phrase that impels one to slap one's face with vigor. "I wish I'd said that!!" It gets worser, still, if the kernel of the statement has been in one's lexicon and musings for sometime, just not as elegantly. Oh, the horror. Much more heft in that slap. Damn, my face is sore.

Today is such a day. Sigh.

Jesse Eisinger weighs in on Valeant/Allergan, and opens with this sentence:
On Wall Street, financial engineering masquerades as vision.

Boy, do I wish I'd said that. Of course, I have. Just not quite.

The story of Valeant's assault on Allergan is worth understanding in its own right, so please go read the story. If not, here's the crux of that matter:
J. Edward Ketz, an accounting professor at Penn State University, took the company's cash flow and adjusted it for all the spending from acquiring companies and paying the restructuring costs. By Professor Ketz's reckoning, Valeant has sent more than $1 billion in cash out the door each of the last four years and was negative $5.4 billion in 2013 alone.

This strategy isn't unique to Valeant or bio-pharma generally. But it does highlight a recently repeated lament: these corporate CEOs are paid the big bucks, supposedly, for their ability to allocate capital productively. Fiduciary manipulation, which is what financial engineering really is, can have short term micro benefit, but doesn't increase either micro or macro productivity, since it's just a case of moving moolah from Peter to pay Paul. But, as your Good Mother used to yell at you when you did something stupid and foolish, "What would the world be like if everybody behaved like you??!!". An economy based on finance and tax evasion and big fish eating little fish (and then spitting out the bones and guts) fails spectacularly soon enough.

03 June 2014

Is It a Bull, Or Is It a Steer?

Bull or bullshit??? Of late, the market pundits have been making noise with two assertions:
1) longest bull market in history
2) active investing is stupid

Well, let's see. Here's a graph of the Dow from January, 2003 to June, 2014. Notice anything interesting?
(I got this one from 5yearcharts.com)

Look closer. You'll note that the pre-Great Recession trend is re-intersected only last year. Not exactly a raging bull market, especially from the perspective of the passive pundits. And even more especially true of the passive pundits who advise "individual investors", i.e. the 401(k) crew to just buy Mr. Market. And all will be well.

Not so much. If such a passive had retired in early 2008, some/much/all of his nest egg disappeared during those four years. And given that such a passive needed moolah to house, clothe, and feed himself, just leaving it there to re-build itself wouldn't have been an option. Unless such a passive had massively over-saved, he's now living in an SRO in Watts. Those who wanted to retire in 2009 to 2014 could have avoided, nay had to avoid, doing so, in order to rebuild that nest egg. But, now they know that they've no control over when or how well they can retire. Further, given that capital is fleeing from real investment, pyramiding of fiduciary investment is the name of the game. Hello, housing!

The whole point of defined benefit retirement plans is countervailing power. Professional, active management keeps track of Mr. Market. The advantage is that booms build the capital base, while avoiding busts. The notion that the Mr. Market, long term, always gets bigger is based on a much smaller planet. Smaller in absolute population, but also, and more importantly, vastly smaller in middle class demands. Not to mention, that we're running out of resources, water and arable land in particular.

The 401(k) scam is simply that the financial sector found a way to extract evermore baksheesh from workers. With managed plans covering thousands, and even tens of thousands, of individuals, the opportunity is far smaller. Divide and conquer.

From dictionary.com:
noun, plural steers ( especially collectively ) steer.
a male bovine that is castrated before sexual maturity, especially one raised for beef.