Confirmation Day, Part the Second

While there are bunches, I'll leave it at this. I've seen her on Maher's show once or twice, and been impressed. Since she stole my title, in essence anyway, I'll stay pissed for a day or two.

We'll Need a Bigger Boat

Why did/do flunked out math and physics PhD candidates go into finance/business admin/economics? The quants. Follow the money. They started in earnest in the 1970s, and became the Mongol hoards (or a school of squid?) which cratered the global economy a couple of years ago (we are past that, right?). Now that the pillaging is done with, Wall Street has turned off the money spigot, yes? No. See here. Not all that newsy, in that the previous year wasn't much different.

Between 2009 and 2011, compensation in the securities industry grew at an average annual rate of 8.7 percent, outpacing 5.3 percent for the rest of the private sector.

Note that the main data refers to 2011; we don't yet know what the numbers will be for 2012, but...

Some 48 percent of 911 Wall Street employees surveyed by eFinancialCareers.com said they felt their bonuses this year would higher than in 2011.

OK, so they've done so much better by the world's economy, they need yet more moolah. But here's the real problem:

Financial jobs accounted for nearly a quarter of all private sector wages paid in [New York City] last year, even though they accounted for just a fraction, 5.3 percent, of the city's private sector jobs.

One of the real conundra of the financial services sector is the assumption that it's driven by computers and quants and superior smarts. Put another way, in the industrial sector, wages have been falling in deference to capital. Earlier posts have discussed the fall in labor as input to production. In the finance world, not so much. With all the talk of double secret probationed HFT computers, it's the Boys in the Boiler Room who get most of the moolah. Moolah that, could, be used to buy plant and machinery for physical production. All that money just to partner savers with borrowers? My, my.

Nearly half of all revenue on Wall Street is earmarked for compensation; in 2009, Morgan Stanley, which was hit harder during the crisis than most of its rivals, found itself paying out a record 62 percent of its net revenue in compensation and benefits. That number has since come down.

What Would Jesus Think?

The subtitle of this endeavor, "It's the Distribution, Stupid", emphasizes the reality: The Great Recession is just the latest manifestation of laissez faire capitalism, which has few winners and many losers. And, given the lotto mentality foisted on stupid people ("I'm gonna by an NBA star, and make lots of money") by the Right Wingnuts, the majority end up blaming the plumber rather than themselves for the dishrag stuck in the drain.

I thought I was among a diminishing minority. And I may be. On the other hand, The Christian Science Monitor (despite the name, a truly Right Wingnut paper) prints this editorial. Neither the editors, nor any of those quoted, have the gonads to be forthright and just state the obvious: with burgeoning capital productivity and diminishing wages, letting capitalists decide who gets paid what will lead to destruction of all, including said capitalists.

The World Bank, too, sees a need for many countries to avoid the model of export-led growth that has long relied heavily on wealthy consumers in Europe and the United States. A slowdown in richer nations means poorer nations must look more to their own markets or neighboring countries.

They're talking to you, China. Listen up. Oh wait:

China ... needs to rely more on its internal market.

In other words, be self sufficient. Pay those Foxconn workers (I know, Foxconn isn't real Chinese) enough that they can buy all those trinkets. Export dependence is still dependence. If it were heroin, the Right Wingnuts would be up in arms.

When Good News Happens to Bad People

Back in February, there was "Lies, Damn Lies, and the BLS", which you can find in any of the various incarnations of this endeavor. At the time, the numbers came out better than the pundits predicted. It happened again this week (for September), but since it is the second but last run of the numbers before the election (Election Day is Tuesday the 6th, while the numbers day is Friday the 2nd) with enough time to get all piqued up.

And did the Right Wingnuts get all piqued!!! To repeat: the data come from sample surveys, two not a single integrated survey. And if you read the fine print, as I suggested back in February, then you'll see that the estimates have plenty of room to waffle. I don't recall any articles in February that went into the details. Well, this time there is. Worth reading up. The on-line version is graphier, and therefore more useful.

As to the GOP stroking out: the BLS folks who make the decisions are Supergrades (here for explanation), who, in all likelihood, got to these positions of authority under BushII. If there's any conspiracy, it's among geeks who live in Fairfax County with a stay at home wifey and three kids in Christian School. I spent a decade working with those sorts (not at BLS, for the record).

Let's Get Physcal

A recurring theme in this endeavor has been that the Euro was doomed from the beginning, since it was wrapped in a straitjacket monetary policy with nothing more to show for the effort; at least The Emperor was merely naked. And when The Great Recession arrived, it all went to hell in a handbasket. Monetary policy is pushing the string; fiscal policy is pulling it. That monetary policy generally fails should come as no surprise. Not that the Right Wingnuts here in the USofA have permitted much fiscal policy to deal with our bit of The Great Recession.

Imagine my surprise to see in today's news that the adults have spoken up. It's hardly a done deal, but the Northerners have to deal with the Southerners Over There (Over There), just as we have to deal with Mississippi. The Eurofolk have the advantage of not having that purely American straitjacket, the Electoral College.

This appears to be the paper. The Reuters' piece is off by a couple of months in reporting when the paper appeared. Searching yields other documents, some from September. In any case, sanity is recovering.

Many Happy Returns

Today brings not one, but two, cautionary tales. The reason for doing quants, either for anonymous blogging or mucho dinero, is to deal with issues which can only be answered with data, not policy. I'm on record that policy trumps data every time, but with the proviso that the policy can be enforced *despite* the eventual collapse. Greenspan's crashing of interest rates was a policy which motivated The Great Recession; he almost fully admitted it after the fact. There was clear data that the collapse was in the making, but ignored by both policy makers (who wants to admit error?) and participants (who wants to be first to miss the boat?). Capital's need for real return, and the consequent need for monopoly, appears in disparate stories today.

To recap. The justification for real physical investment is to make, and sell, either more product at constant price or current/less product at lower cost. This productivity delta is the real return. The Great Recession(s) come about when fiduciary capital is placed in other fiduciary instruments, rather than physical investment. Returns on real estate, whether residential or commercial, can only come out of the income streams of the underlying entities, households or businesses. Residential housing provides no financial returns, in use; paying the vig either comes out of rising incomes (there weren't any during Bush II) or consumption shifts (the volume of moolah needed couldn't be supported by that, although some apologists asserted so). In almost all commercial cases, the same is true. One might argue that a Park Avenue address will attract more business than one in Alphabet City (do they still call it that? and is it still a slum?), in greater proportion to the rent differential; but I'll consign that to outlier status.

So, real return to real capital requires making more and better stuff. Banksters tend to ignore that. AnandTech has another Haswell piece posted today.

If all mainstream client computing moves to smartphones, and Intel doesn't take a dominant portion of the smartphone market, it will be left in the difficult position of having to support fabs that no longer run at the same capacity levels they once did. Without the volume it would become difficult to continue to support the fab business. And without the mainstream volume driving the fabs it would be difficult to continue to support the enterprise business.

There's more background in the text, but it amounts to this: Intel needs to keep its fabs running full blast to get the return on the cost of the fabs. In order to do that, it needs to produce chips which move like hotcakes. You sorta have to get it right.

On the other side of the world, we get the Chinese solar problem. The title: "Strategy of Solar Dominance Now Poses a Threat to China" in my dead trees copy, the title on-line is different.

But now China's strategy is in disarray. Though worldwide demand for solar panels and wind turbines has grown rapidly over the last five years, China's manufacturing capacity has soared even faster, creating enormous oversupply and a ferocious price war.

Trying to generate that real return? You betcha. Does it work, by default? Not hardly.

In the solar panel sector, "If one-third of them survive, that's good, and two-thirds of them die, but we don't know how that happens," said Li Junfeng, a longtime director general for energy and climate policy at the National Development and Reform Commission, the country's top economic planning agency.

We have to do something about that Ruinous Competition!!! Wind turbines? Same thing.

The Chinese government also wants to see the country's more than 20 wind turbine manufacturers, many of which are losing money, consolidate to five or six. "Wind does not need so many manufacturers," said Mr. Li, who in addition to drafting renewable energy policies is the president of the Chinese Renewable Energy Industries Association.

Capitalists continually assume that they deserve outsize returns, but every time they try it, chaos results. Will they never learn?

The modest cutbacks in production barely put a dent in China's overcapacity problem. GTM Research, a renewable energy consulting firm in Boston, estimates that Chinese companies have the ability to manufacture 50 gigawatts of solar panels this year, while the Chinese domestic market is on track to absorb only 4 to 5 gigawatts. Exports will take another 18 or 19 gigawatts.

The enormously expensive equipment in solar panel factories needs to be run around the clock, seven days a week, to cover costs.

Both Intel and the Chinese alt energy sectors are the poster children for fiduciary "investing": while fiduciary "investing" is faux, the return is largely controlled, in the short run (which is all they care about), by policy. The residential home builders made out like bandits, literally, while mortgage companies, banksters, and MacMansion buyers got the shaft. As always, one needs to follow the money. The Chinese alt energy companies (and the government) can't, or won't, find buyers for its shiny new toys. One might argue, and the government surely did, that investing in some fiduciary capital in product producing entities is better than investing only in infrastructure. Infrastructure, as MacMansions, is difficult in the same way: how does one impute (much less collect) real returns? For infrastructure, the return is explicitly societal. PhD candidates have been writing dissertations on the problem for decades. Eisenhower's "National Defense Highway System" was the earliest in my lifetime. The official name became "Dwight D. Eisenhower National System of Interstate and Defense Highways" under Bush I. What's it worth? Well, Ike wanted it because he saw the difficulty (to the Allies) caused by Germany's Autobahn; it was intended to be a network to move men and materiel during the coming wars. Just as DARPAnet was all about the military and turned into a commercial enterprise we call The Web. Who gets the return?

Death Spiral

They just won't listen. Mainstream pundits, and capitalists alike, have decided "Weakening demand is forcing new and accelerated cost reductions at companies from Bank of America and Hewlett-Packard to Staples and Eastman KodakCo, dimming the outlook for an already struggling U.S. labor market." That's what greeted my on the Yahoo! Finance Home Page, the link to a Bloomberg story.

The .1% keep slicing off filets of the Golden Goose (aka, middle class), and wondering why it keeps getting smaller. These are The Smartest Guys in the Room?? I doubt he was the first to say it, in one form or another, but the au courant expression of reality comes from Krugman: "my spending is your income, and your spending is my income" (from here, and others). The only ones, of course, who benefit from deflation, induced by unemployment and recession/depression, are the .1% holding moolah. They get (I can't bring myself to type 'earn') truly 'risk free' return on that moolah. Talk about lazy welfare queens.