Tuesday, May 31, 2016
Star Tribune - losing your middle class is the first step on the path to imperial collapse.
As an aside: why are interest rates so low? It's because all net wealth creation of the past few decades has enriched the kleptocratic elite. Who then want to earn money on their savings but can't, because there is no demand from the masses.
And as a second aside: know why growth is so low? Because the US federal, state and local governments used to contribute 3% to GDP growth in the 50s, then 2% in the 80s, and now they're contributing only 1%.
And why's that? Because the kleptocratic elite want to eliminate government, because less government means less taxes on the rich.
Well imagine my surprise when I see today that 2L grapefruit juice, normally $3, is on special for $1.44.
And 1L honey, which was going for $10, has now been cut to $6.99.
And Minute Maid FCOJ, normally $1.50, is on special for 79 cents. I haven't seen these sorts of prices for years.
Over the past year we've seen Canadian groceries go up in price tremendously, but now they're coming back down. What happened?
Well, when oil crashed, the Canadian dollar crashed with it too. Our groceries seem to all come from the US nowadays, so all the American suppliers must have decided to jack up their Canadian grocery prices by a third to make up for the one-quarter drop in CAD.
But guess what? The value of CAD didn't drop because of inflation: it dropped because the price of oil dropped, so there was less demand for CAD.
Canadian consumer staples purchasing power, in other words, didn't go up by a third as CAD dropped. In fact, the drop in oil was a recessionary shock for us: purchasing power has actually decreased in CAD terms in some parts of the country, and Canadian consumer staples purchasing power in USD terms has still dropped by a quarter.
So the American suppliers who jacked up our prices by a third to maintain profitability in USD terms saw their demand dry up. The only people buying their shit anymore were idiot yuppies who don't know how to manage their grocery bill. Meanwhile, I guess the Americans didn't bother to scale back production, or cut exports to Canada, so e.g. in the case of FCOJ, they're now stuck with a billion cans of frozen Minute Maid sitting in storage in an Oakville food terminal just as this year's crop of oranges is coming down the pipe.
And the substitution away from higher-priced goods has caused a loss in consumer utility that isn't warranted in purchasing power terms: I guess you could call it a temporary disequilibrium in utility? No-name producers see that there is potential demand still there, the prices are just too high: so then they brutally undercut name-brand producers to gain market share, to clear out their own inventory backlog. Suddenly we get a race to clear backlog across all brands.
And prices go back down.
To where they should have been all along, because Canadian consumer staples purchasing power never changed.
I can't wait til Canadian apples and peaches hit market: at that point all American fruit will have to drop in price to maintain market share, or else all demand will switch to Canadian fruit growers.
Well, my actuarial math class is getting fun: now all of a sudden we're learning IRR, NPV, discounted payback period, and so on. Turns out all that "discounted present value of an annuity due" tedium was just basic background, and now we can build useful stuff on that.
This was the stuff I really wanted to learn in economics; but instead, economics class has been all about idiotic classical theory invented by 19th-century British armchair philosophers.
I might still continue on in econ: I want to see what the 3rd year international trade and finance classes are like. They're taught by a couple new young profs from overseas, so I'm hoping we get to learn sensible grown-up econ from them instead of more Classicalist stupidity.
But if I continue to be disappointed, I'll dump econ and get a degree in Actuarial instead. It'd mean a guaranteed $100K/yr Toronto job, and an Actuarial degree can also still get me into a decent graduate program in Economics.
Problem is, about the only grad school I'd want to go to is Berkeley.
Berkeley's got a Murderer's Row of econ faculty: Maurice Obstfeld, Barry Eichengreen, David Card, Emmanuel Saez and Gabriel Zucman, Romer & Romer, George Akerlof, Alan Auerbach, Hal Varian whose micro textbook is godly, and Brad DeLong whose website looks like crap.
I can just imagine some retard from Chicago pitching against that order. He wouldn't make it out of the inning.
Honestly, so far I've found no other faculty in the world that has so many top names. UC Berkeley is like an army of aliens, swooping through the field of economics to collect prize human specimens for some sort of economics human zoo.
UofT and McGill economics look like third-world dumps compared to Berkeley, and those are Canada's top schools. Fuck, I'd rather go to CUNY and be in the same building as Krugman once a year, rather than failing to learn anything pertinent in Toronto.
Problem is, grad school at Berkeley would cost me about $75k/yr CAD. That's just too damn much, even if I weren't on a TSA list due to all my past terrorist affiliations.
So I guess I'll never go to Berkeley.
Sunday, May 29, 2016
As a positive, Bespoke says that whenever stock market sentiment has been this low, there have been outsized gains for the following year.
That's the good news.
Then there's this:
BBC - Trump has caught up to Clinton. Ha ha, Clinton's fucked, and so is the USA.
BBC - ex Nevada governor Johnson to run as Libertopian candidate. Hey, maybe he can siphon away some Republican votes, then?
BBC - UK will vote for Brexit, and then the Conservatives will implode, handing power to UKIP. Well, I've always wanted to see V for Vendetta become a documentary. And here's what fascists usually do to their country:
Bloomberg - typical for a Putin ally, Hungary's been handing central bank money to Orban cronies. I especially like this part:
“Checks and balances are a U.S. invention that for some reason of intellectual mediocrity Europe decided to adopt,” Orban told Bloomberg in 2014So I guess Hungarians are fucking ass-stupid to have voted him in, then. OK, fine, we'll soon see the US and UK become as stupid as fucking Hungarians.
Saturday, May 28, 2016
Tim Taylor - most corporate stock is in untaxed hands. Quote:
It used to be that most US corporate stock was held by taxable US investors. Now, most corporate stock is owned by a mixture of tax-deferred retirement accounts and foreign investors. Steven M. Rosenthal and Lydia S. Austin describe the transition in "The Dwindling Taxable Share Of U.S. Corporate Stock," which appeared in Tax Notes (May 16, 2016, pp. 923-934), and is available here at website of the ever-useful Tax Policy Center.
The gray area in the figure below shows the share of total US corporate equity owned by taxable accounts. A half-century ago in the late 1960s, more than 80% of all corporate stock was held in taxable accounts; now, it's around 25%. The blue area shows the share of US corporate stock held by retirement plans,which is now about 35% of the total. The area above the blue line at the top of the figure shows the share of US corporate stock owned by foreign investors, which has now risen to 25%.
Great. So with the corporate tax system shot full of loopholes, and with capital gains essentially untaxed, who's left carrying the entire US tax load?
Noah Smith - 101ism, overtime pay edition. He extends John Cochrane a professional courtesy where none is warranted:
John Cochrane wrote a blog post criticizing the Obama administration's new rule extending overtime pay to low-paid salaried employees. Cochrane thinks about overtime in the context of an Econ 101 type model of labor supply and demand. I'm not going to defend the overtime rule, but I think Cochrane's analysis is an example of what I've been calling "101ism".
In the Econ 101 model of labor supply and demand, there's no distinction between the extensive and the intensive margin - hiring the same number of employees for fewer hours each is exactly the same as hiring fewer employees for the same number of hours each. But with overtime rules, those two are obviously not the same. For a given base wage, under overtime rules, hiring 100 workers for 40 hours each is cheaper than hiring 40 workers for 100 hours each, even though the total number of labor hours is the same. That breaks the 101 model.
With overtime rules, weird things can happen. First of all, base wages can fall while keeping employment the same, even if labor demand is elastic. Why? Because if companies fix the hours that their employees work, they can just set the base wage lower so that overall compensation stays the same, leading to the exact same equilibrium as before.
Overtime rules can also raise the level of employment. Suppose a firm is initially indifferent between A) hiring a very productive worker for 60 hours a week at $50 an hour, and B) hiring a very productive worker for 40 hours a week at $50 an hour, and hiring 2 less productive workers at 40 hours a week each for $25 an hour. Overtime rules immediately change that calculation, making option (B) cheaper. In general equilibrium, in a model with nonzero unemployment (because of reservation wages, or demand shortages, etc.), overtime rules should cut hours for productive workers and draw some less-productive workers into employment. In fact, this is exactly what Goldman Sachs expects to happen.
Now, to understand the true impact of overtime rules, we probably have to include more complicated stuff, like unobservable effort (what if people work longer but less hard?), laws regarding number of work hours, unobservable hours (since the new rule is for salaried employees), sticky wages, etc. But even if we want to think about the very most simple case, we can't use the basic 101 model, since the essence of overtime rules is to force firms to optimize over 2 different margins, and S-D graphs represent optimization over only 1 margin.
Using 101 models where they clearly don't apply is 101ism!
Um, Noah, I think John Cochrane knows all this. He's not ignorant of economics; he's simply pretending to be ignorant in order to convince the uneducated to support radical right-wing kleptocratic policies like opposing overtime pay for the poor. That's why he says "most economists" agree with him when you've quite easily demonstrated that they don't.
There's a reason his post came out right after Obama proposed new overtime regulations.
You should quit extending professional courtesy to queers from the Cato Institute who write "economics"-based right-wing disinformation. Professional courtesy is for professionals only.
Friday, May 27, 2016
Thursday, May 26, 2016
Bonddad - hooray, sort of, for new home sales. He notes the numbers do tend to get severely revised later. But still, here's the interpretation from someone who actually fucking knows the business cycle and doesn't dwell on fucking semi book-to-bill bullshit:
As you probably already know, April new home sales blew out to the upside, making a new 8 year high at 619,000 annualized. *If this holds up,* it is very important positive economic news, since new home sales tend to peak even before housing permits, so much so that they are more of a mid-cycle indicator than a long leading indicator! In fact, it would be the single most positive news of the year to date.Thus the market goes up.
Calculated Risk - chem barometer increased in May. Another input to the US economy showing strength.
Tim Duy the Finance Guy - more on the Fed raising rates. And yet, Tim, one month of economic news will change the story entirely. That's what happens when the inflation target is set at the top of the noisefloor.
Reuters - "Darkies oot" campaign maintains lead in UK. By the way... since we know Cameron is against leaving the EU, we can assume that a successful leave vote won't mean the UK leaving the EU. As a Canadian, I'm familiar with bullshit spineless separatist populism, and so I predict a successful leave vote will simply be followed by Cameron offering to negotiate a "new deal with Europe that's fairer to UK interests and also keeps the fucking darkies out".
Reuters - IMF, EU, Greece reach debt deal. Hm... wasn't it leaked a month ago that the Germans were going to try to precipitate a crisis in the EZ by sabotaging the debt deal come July? Maybe they're scared of an imminent depressionary shock due to the coming Brexit vote?
Reuters - new Fed survey lays bare economic divide. Half of Americans can't pay an unexpected $400 bill. By the way, things end up this way because right-wing economists refuse to recognize the existence of the entire demand side of the economy. Because demand side management is Keynesian, and therefore sociamalist. Enjoy your eternal economic depression, fucktards.
Astoundingly, I got 33/35 on my actuarial test. I say astoundingly, because I spent 40 minutes on one single question and still didn't get the right answer. I guess the teacher is just extremely generous with marks.
Now we're moving on to bond and equity valuation, which is more fun. Strange that I'm learning more economics in actuarial math than I am in economics, eh?
Anyway, catching up on some news:
Calculated Risk - new home sales increase sharply. If there's new sudden strength in US equities, it certainly ain't because of stupid fucking semiconductors; housing is a much larger share of US GDP. It's also a large chunk of US investment, and investment is the part of GDP that really drags the whole rest of the economy around.
So if housing's going to print a new post-crash high, that means the S&P has a long way up to go yet, and there's a year and a half of equity selling that's now revealed to be wrong-footed.
No reason to sell US equities til you hear Kyle Fucking Bass is 200% long S&P 500.
Tuesday, May 24, 2016
Fortune - Kyle Bass sucks. Quote:
While Bass made 212% returns on his bets against subprime mortgages in 2007, his bet on the oil market isn’t doing nearly as well. Two years ago, the hedge funder began buying into several oil producers with the hopes that the price of oil would rebound in 2015 and 2016. Prices did come back a bit at the beginning of this year, but they have been dropping again lately. As of Monday, U.S. oil slipped to $48 a barrel amid a persistent supply glut that began in 2014. Meanwhile, Iran and OPEC in general have still yet to agree on cutting production.Well, at least he's done better than the S&P 500, right?
For Bass, the low prices have resulted in a 7% loss in his main fund this year, and the biggest losing streak in the history of his Hayman Capital, the Wall Street Journal reported.
In the same period, the S&P 500 has gained 1.3%.Oh.
Well, he's probably in this position for the long-term, right? I mean, he must have known oil was going to go this low, he just had to move a lot of money in:
“I had no idea crude would fall so low,” Bass said in an interview with the Journal,Oh.
Well, I guess at least he can feel assured that even though he loses money hand over fist for his idiot investors, at least he can still collect the same old 2% & 20%, y'know, as long as his investors don't flee his shitty funds en masse, right?
at 12:51 PM
New Deal Demoncrat - road to the next recession. He explains what to monitor for a recession signal. Quote:
So a reasonably likely road map to the next recession looks like this:Or you could just read Gary Wordsalad's blog. I mean, he called the massive repudiation of debt and the coming apart at the seams of a dishonest system back in June 2013, didn't he? I guess that explains why he quit advertising his newsletter's performance around that time. Can't have anything to do with him failing to make a fucking penny during a 2-year S&P bull market.
1. Interest rates continue to fail to make new lows.
2. House prices and stock prices stop meaningfully appreciating.
3. Inflation picks up to 2% or more as energy prices begin to go up again.
4. Maybe - the Fed raises rates in response to increased CPI readings, perhaps enough to invert the yield curve.
5. Corporate lending stalls, housing turns down, and consumer spending begins to turn down, resulting in a recession.
Simon Wren-Lewis - I don't think the EU is dying. Then again, "dying" doesn't mean "flying apart as the result of a crisis": Rome was dying long before Larry & the Visigoths. In the EU's case, it's slow suffocation at the hands of the Germans that'll put the EU to sleep.
Hell, maybe I'm too much of a pessimist: maybe the EU will find new life as a transnational fascist dictatorship once Germany and France ultimately follow the lead of Hungary, Poland, Finland, and Austria.