Saturday, April 11, 2015

Some weekend reading


Bespoke - Nothing in the Dow 30 is overbought. So it's perfectly reasonable to expect stocks to go up from here.

New Deal Demoncrat - the recent weakness in sales was the result of the weather. Read the article so you can see what looking at data looks like.

Rortybomb - would Jamie Dimon be happy with a larger US budget deficit, then? This is what is known as a bitch-slap:
But the third point is more interesting. Beyond whether or not the rules are too procyclical and unnecessarily restrictive in a crisis, there’s Dimon’s claim that there aren’t enough Treasuries to go around. If that’s the case, why don’t we simply make more Treasury debt? If the issue is a shortage of Treasuries needed to keep the financial sector well-capitalized and safe, it’s quite easy for us to make more government debt. And right now, with low interest rates and a desperate need for public investment, strikes me as an excellent time to do just that. Dimon is correct in his implicit idea that the financial markets, with enough financial engineering and private-market backstopping, can produce genuinely safe assets is a complete sham. This is a role for the government.

And for fun, a fourth point from Ben Walsh: Dimon says one of the biggest threats to the financial markets is that there isn’t enough U.S. debt. From January 2011: “Dimon Says Government Deficits, Spending Are New Global Risk.” We are risking a major rise in interest rates in the years following 2011 if we have trillion-dollar deficits, Dimon warned. How did that turn out?
You go, girlfriend!

NY Times - Wall Street steals $2.5 billion in pension gains. This is organized confiscation of worker money by the kleptocrats, nothing less. Seems like they should fire the hedge funds and just put their fucking money in SPY. Then again, the people managing the pension fund don't give a shit, since it's just the dumb proles' money, right?

FT Alphaville - more whining about the China bubble. Valuations are rich. Then again, in China you'll gain exposure to 6-8% growth per year in the future, and why shouldn't an excess in capital supply result in high prices? Where else should the money go?

IKN - Ha ha says Rob McEwen. McEwen on his mine being robbed in Mexico.

Friday, April 10, 2015

Friday videos: Tove Lo to make you miserable again, junior mining people

This is obviously a very difficult song to sing live, and it's hard to find a live version that does it justice, but at least she doesn't ever resort to autotune like the lazy pop starlets of the USA:

Thursday, April 9, 2015

China: this is not going to end well

China go foom:

 This really really really isn't going to end well.

Some morning news, including pictures for the more clueless out there

I'm not just saying this cos BNN reads my blog, but dammit BNN is so much better a station to watch than CNBC. Holy crap.

One the one station you've got a guy giving you business news. On the other station you've got that clown Joe Kernen blathering on, with special guests usually consisting of ignorant traders spouting off useless opinion.

Anyway, here's some morning reading:

Brett Steenbarger - new tools for a new week. He gives us a chart of SPY flows:

This time is different? Money flow into the SPY index ETF has notably dwindled during 2015 after having tracked price pretty well for most of 2014. Money flow reflects price times the number of ETF shares outstanding. My figures show significant flow differences from sector to sector; I will be posting those numbers this week. In general I've found money flows to be a good (contrary) sentiment measure that is independent of options-related sentiment indicators.
I think it might have been him who identified the super huge year-end SPY flows as possibly indicative of a near-term top in the S&P. Well, it's not a top cos it hasn't gone down, but the SPY definitely did stall. Question is, do flows have to go down from here and make a top before they can fully correct sentiment, or are we okay where we are right now? I think the latter, but I'm also the guy who says the easiest call in the world is go double-long S&P and then do nothing for the next 5 years.

In any case, the chart above shows that even the falloff from end-year SPY flows has still maintained an upward trend in price.

Macro etc. Musings - it's already priced into the market. This is that Beckworth guy who's made a splash by saying (pdf) that there's no such thing as secular stagnation: rather, risk premia have fallen secularly. Which is interesting, and from a philosophical point of view something rather significant if true. Quote:
If we take the New York Fed's estimate of the 10-year treasury term premium and risk-neutral nominal rate as given, then the market is already pricing in a non-secular stagnation future as seen in the 10-year real risk-free treasury yield below:

The red line is a risk-adjusted measure of the expected average real short-term interest rate over the next ten years. Put differently, this measure reveals the expected path of real short-term interest rates and it is pointing up. Since it is risk free, it should only be reflecting the expected fundamentals of the real economy over the next 10 years (see here for further explanation). It started rising in early 2014 and now has been positive for about five months. That bodes well for the economy.
If his argument is "reality has been changing while your mathematical model has stayed the same: your problem is your model, not reality", then that's an argument that Bernanke and Summers really need to take seriously.

FT Alphaville - on Beckworth. An explanation and investigation of the above, with skeptical commentary from Citi's Andrew Haldane. Frankly I would take Beckworth instead of Haldane, because while Haldane trots out the "oogity boogity complex systems" argument, he ignores Systems Theory 101 - the more complex a system is, the more stable it is - so if today we have a "hyperconnective" system, it's much more stable than the one that existed in 1929. But also, more importantly, Beckworth gives us empirical data while Haldane gives us "oogity boogity". Thirdly, Izzy Kamizzy delivers a gotcha from a political perspective on system stability:
From a secular stagnation point of view, one way perhaps to think of it is that if you’re the too big to fail system core holding the rest of the economy hostage — because without you untold chaos would ensue, so we must keep you around even if you stifle the wider system — you benefit from a type of Stockholm syndrome. What’s the risk for the captor if their hostage thinks they can’t survive without them?
Which, funny nuff, sounds very much like the gotcha of a Hegelian Marxist: ha ha, you capitalists thought you were so smart in taking over government, but this means that now you can't make money clipping coupon! You've sown the seeds of your own downfall! Ha ha!

And in any case, if Haldane is right and the fat tail risk of a now-more-unstable system has increased without being recognized, then shouldn't he be... y'know... buying some sort of hedge against fat tail risk? Like... y'know... some sort of yellow metal?

Wednesday, April 8, 2015

Some morning news

Here's some stuff to read and stuff:

Bespoke - jobs open, labour tight: survey (ha ha ha, see what we did there?). Good analysis, and a contrast to the argument that the jobs story is all about the oil patch. Quote:
It’s worth pointing out that last Friday’s low NFP number (126,000 versus 245,000 expected) can be partially explained by employers not being able to find workers that suit their needs, hindering jobs created. Of course, that optimistic outlook doesn’t explain the whole disappointment, but the February JOLTS data very much supports that explanation as part of the larger picture.
A different perspective, anyway.

NY Times - it's hard to lift wages if the Fed doesn't make it a priority. Janet Yellen said this:
“We can never be sure what growth rate of nominal wages is consistent with stable consumer price inflation,” she said in her speech, “and this uncertainty limits the usefulness of wage trends as an indicator of the Fed’s progress in achieving its inflation objective.”
And Jared Bernstein lays the smackdown on her candy ass thus:
Ms. Yellen worries that a wage target wouldn’t work, because all of those other wage-influencing factors will prevent wages from responding to labor market tightening. But globalization and deunionizaton, among other long-term, slow-moving factors, have been influencing wages for many decades. The relevant question for a Fed considering wage targeting is: Given all these underlying dynamics, does the tighter job market still move wage growth in the near term?
So I've just got to ask: has utterly nobody in economics bothered to consider the effect of globalization and anti-labour policies on the employment-wage dynamic? Don't your models include a third world, a labour-export function, and a model to account for political capture by the plutocracy? That's some crappy "science" you guys got there, economists!

Alex Gurevich - the specifics about Wall Street Whitey's stupidity. A great insight article, for all the wrong reasons. Gurevich is "former head of global macro trading at JPMorgan Chase", and yet:
I am throwing in the towel. I don’t know what the Fed will do and Janet Yellen doesn’t know either. What is more important, she is not afraid to say so.
How about if Whitey simply accepts that the Fed path is going to be data-dependent? I mean, how hard is that? Instead:
This is the problem with academics running the Fed: there are afraid to be wrong and act prematurely, so they collect the preponderance of evidence before acting. Traders have no such compunctions.

You see the financial system freeze? Cut right away, don’t talk, just cut! You find out your actions were excessive: tighten back. Nobody was ever able to explain to me what was wrong with the Fed being dynamic and flexible.
The difference, you cunt, is that you're playing with your fat rich clients' money, while a crass mistake by the Fed can destroy millions of lives. Also, your trading fuckup has an immediate effect, while a fuckup from the Fed isn't obvious til 6 months down the road when the effect of the rate move finally percolates through the economy. You're riding a fucking tricycle while Yellen is trying to steer a battleship: your supreme arrogance is comical.

This post gives us a fabulous insight into the average Wall Street Whitey thought process, and it turns out Wall Street Whitey is a crackhead moron.

New Economic Synthesis - German economists trying really hard to justify their position on Greece. And they're failing. Here's a key quote:
Lastly, the authors argue that while the risk of economic contagion from a Grexit is minimal, the risk of political contagion is high, with potentially disastrous consequences. This may be true, but I fail to see how this supports the notion that the path Greece & the troika took from 2010 wasn’t wrong after all; just because the political consequences of admitting this might be harmful doesn’t make this false.
My takeaways? First: yes, Germans are bull-headed assholes who will never, ever, ever admit they were wrong. Surprised?

Second: let's be clear that the term "political contagion" really means a democratic movement to spread power more evenly through the EZ instead of concentrating it in fucking Berlin, okay? That's what the Germans are scared of: that the rest of Europe might someday realize they can outvote Merkel and her puppies.

FT Alphaville - more crowing about the China stock bubble. Wanna know the difference between this bubble and NASDAQ 2000, Keohane? This bubble is happening in China. That's the difference.

Think Progress - is Christianity all about being anti-gay? A florist refuses to sell flowers for a gay wedding, but is totally okay with selling flowers to an adulterer. This "religious freedom" movement is not about staying true to Christian principles, it's about hating gays.

Telegraph - police hunt thieves who stole guinea pigs. Police say the suspects were last seen wearing undersized bowler hats and ponchos, and were carrying a Coleman camp stove and a sack of funny-looking potatoes.

Tuesday, April 7, 2015

Not holding my breath for the revolution

George Monbiot - kleptocrat CEOs are robbing us. Quote:
One of the most painful lessons a young adult learns is that the wrong traits are rewarded. We celebrate originality and courage, but those who rise to the top are often conformists and sycophants. We are taught that cheats never prosper, yet the country is run by spivs. A study testing British senior managers and chief executives found that on certain indicators of psychopathy their scores exceeded those of patients diagnosed with psychopathic personality disorders in the Broadmoor special hospital.

If you possess the one indispensable skill – battering and blustering your way to the top – incompetence in other areas is no impediment. The former Hewlett-Packard chief executive Carly Fiorina features prominently on lists of the worst US bosses: quite an achievement when you consider the competition. She fired 30,000 workers in the name of efficiency yet oversaw a halving of the company’s stock price. Morale and communication became so bad that she was booed at company meetings. She was forced out, with a $42m severance package. Where is she now? About to launch her campaign as presidential candidate for the Republican party, where, apparently, she is considered a serious contender. It’s the Mitt Romney story all over again.
Some right-wing Mankiw clone responded to this post with something along the lines of "well, Fiorina is a highly-skilled failure, that's why she should be paid so handsomely."

Chris Dillow replies:

Stumbling and Mumbling - diamonds or fool's gold? Where he makes a very important point about the general uselessness of the managerial class:
[P]erceived marginal utility, and hence demand, is in part an ideological construct. Imagine a society in which remuneration committees thought: "Corporate growth is largely random and bosses have very little foresight into how their strategies will work. There's no point therefore paying CEOs millions. All we need is a competent administrator paid a respectable professional salary." And imagine this belief coexisted with the idea that people must have dignity in old age and that only a few care workers (to take George's example) have the personal skills to enhance that dignity. In such a world, care workers would be more highly prized. Wage differentials between the CEO and care worker would thus be modest.
And, of course, ideology is constructed by the ruling class.

I'm not holding my breath for the revolution to come, of course.

Holy cow a Bill Bissett documentary

Wow, the NFB did a documentary on Bill Bissett, Canada's greatest living poet as far as I know, not like I have followed the scene in about 25 years.

My public library had a stack of something like 30 or 40 books of his, no lie, including a lot of the stuff he apparently hand-made while in prison. I read most of what they had.

I even got to see him live, back when I was a teenager. He's got an amazing voice to listen to in person.

And what's best, with all the other people falling away, Bill Bissett is still alive. Even crazier, apparently he's in his mid-70s but he's the person uploading this stuff on Youtube.

Here's a young kid reading one of his good ones, don't worry yr hair:

He kinda gets it, but he gets too fast and too angry compared to Bill, but whatever.


IKN - here is a list of all Nolan Watson's many fuckups. And then someone from Sandstorm clicks on his post and gets his ass told.

I guess we can take this as a clue that maybe Nolan didn't know how badly he was fucking up his due diligence until today?

Or, alternately, that he doesn't like being called out on it, the punk?

Another interesting chart - McEwen Mining

MUX US ticker's chart looks interesting today:

Feb to April shows an inverse head and shoulders pattern, which is a bottoming pattern, and it also happens to make a double bottom with the December low.

A break above the neckline ($1.13 or so) will target $1.35 or so, though the volume on the right shoulder isn't that impressive at this moment.

But the peeking above the SMA(50) today is nice. At least it means it's going to try to go up from here.

And I'm more impressed that volume has disappeared after the Dec bottom. Things go up after nobody's left to puke them.

The Canadian chart looks completely different, but Americans are the only people in the world who matter, right Whitey?

Brad Delong tells Kruggers: "strap on a helmet, bitches, cuz I don't want y'all to make a mess when I blow your mind!"

Another interesting couple links for you to click on:

Brad Delong - draft for "Rethinking Macroeconomics". Delong argues for a much larger public sector in the 21st century, and explains it using actual economics so he's certain to be grossly misunderstood by the Republican idiots actually in charge of policy.

The Kruggatolah - woah dude, you blew my mind. Kruggers is commenting on Delong's post, and he goes so far as to say Delong's come up with "original ideas" - which seems to be something exciting in economics. Goodie.

Too bad you guys and your entire profession have failed dismally at educating the public, so that now these policies can never ever come to pass, in even the most progressive of nations, because everyone has gotten the entirety of their economics "education" from the back cover of Atlas Shrugged or the webpage of the Ludwig von Mises Institute.

Politics trumps economics. Get your asses in the trenches, bitches.

A couple morning newsbits

Instead of the ignorant blather of CNBC and the hard-money crypto-racist Russian-puppet end of the blogosphere, here's some real commentary for you:

Bespoke - ISM services inline. So quit piddling your panties.

New Deal Demoncrat - the March jobs report was primarily an oil patch story. Most of the job losses were in Oklahoma and Texas, two states that can go to hell for all we care. Oh, and he also reminds us that today's JOLTS is for February, which (in case you haven't been following things) is a month that already happened, and we know the data was bad, so let's just ignore it, m'kay?

Calculated Risk - US heavy truck sales update. Still nothing to worry about, again quit with the piddling of your panties.

Brad DeLong - Here's what Bernanke is really thinking. An important commentary on something in the recent Bernanke blog posts. Then he goes on to identify in simple terms the difference of opinion re: secstag between Bernanke, Krugman and Summers. Really useful post. As for my opinion:
You may say: A 10-year nominal Treasury bond rate no higher than inflation is supposed to be the current value of the natural interest-rate? Good God! That is absurd! Something is wrong with our economy, and wrong at a much deeper level than a simple shortage relative to demand of the supply of safe-and-liquid-store-of-value assets that can be hoarded! It makes no sense that real capital assets must be at such a premium valuation in order to induce wealthholders not to hoard but rather to invest in the future!

And if you were to say that, you would be Larry Summers.
If Summers is really saying "why oh why is life so unfair for the plutocratic rentier class", his position is objectively wrong. Because there is no justifiable reason in a properly free market for rentiers to earn more than inflation. Now that capital worldwide has expanded to fill its container, there should be no mispriced risk left for anyone to arb a profit from.

FT Alphaville - EM FX and the case for calm. Well, the last EM secular bear market saw major currency crises, so maybe simple recency effect is why we expect future crises in the new EM bear market. But certainly the world is a different place - you can't even call China an EM anymore, for example, and US rates are far lower.

Monday, April 6, 2015

Hey Verdmont! Hey! Verdmont! Verdmont? Hey, Verdmont!

How's that Royal Bank short going, Verdmont?

What's your pain threshold, Verdmont? US$63?

Or $79 in Canadian?

Ron Paul Institute: Russian propaganda website? Yup!

So I was on Zerohedge, everyone's favourite Russian propaganda and anti-Semitism website, and saw a submission from the "Ron Paul Institute for Peace and Prosperity" that was obvious pro-Putin propaganda.

Interested, I did a quick Google and found these other articles:

Ron Paul Institute - House chooses new cold war with Russia. Quote:
The resolution condemns what it claims is a Russian invasion of Ukraine (for which it offers no proof) and Russian violation of Ukrainian sovereignty. But it was the US, by backing a coup against the democratically elected Yanukovich government in February, that first violated that country’s sovereignty. And as far as a military presence in Ukraine, it is the US that has openly sent in special forces and other military advisors to assist the government there. How many times have top US military and CIA officials visited Kiev to offer advice and probably a lot more?
That hits all the Savushkina trollshop talking points, no?

Ron Paul Institute - US sanctions on Russia may sink the dollar. Oh my god that's so fucking rich. And guess what? Since this article was written, the USD index went from 81 to 97. That's some mighty fine economicisizin' there, Ron.

Ron Paul Institute - NATO's Russia border games. Quote:
The message is clear: Russia is about to attack! NATO has, for no understandable reason, found itself in Russia's crosshairs. NATO cannot figure out how it is that Russia could possibly feel threatened by its actions, which, unlike Russia's are not in the slightest provocative.

Russian military plane over international waters 25 miles from the UK coast is "real and present danger" to NATO. Yet...

Yet yesterday US combat vehicles conducted a military parade and show of military force in Estonia just 300 yards -- yards! -- from the Russian border. That is just over 60 miles from downtown St. Petersburg.
That's also quintessentially Russian - it hits the "they're even worse than us!" note and the "we're the real victims here!" note that you get from Russian propaganda flaks today.

Ron Paul Institute - Congress demands war in Ukraine! Quote:
Now titled H. Res. 162, the bill demands that President Obama send lethal military equipment to the US-backed government in Kiev and makes it clear that the weapons are to be used to take military action to return Crimea and parts of eastern Ukraine to Kiev's rule.

Congress wants a war in Ukraine and will not settle for a ceasefire!

The real world effect of this Resolution must be made clear: The US Congress is giving Kiev the green light to begin a war with Russia, with the implicit guarantee of US backing. This is moral hazard on steroids and could well spark World War III.
Again with the foaming-at-the-mouth hyperbole. Oh and the blah blah US-backed coup bit too.

How can anyone miss this? It's a propaganda website run by the KGB. Even better, its articles are reprinted verbatim or linked at Prison Planet, Zerohedge, Lew Rockwell, the Stormfront forum, and the Bitcoin forum. That's called hitting all the typical KGB collaboration targets.

Thankfully, it hasn't gone totally unnoticed. Here's a great article about Ron Paul's new job as a flak for Vladimir Putin's fascist kleptocracy:

Washington Free Bacon - The Ron Paul Institute for Putin’s Priorities. Quote:
Numerous members of the Ron Paul Institute for Peace and Prosperity have spent years as professional spin-doctors for Russian President Vladimir Putin and other leaders of oppressive regimes, according to an analysis by the Washington Free Beacon.

The institute’s namesake, former congressman and failed presidential candidate Ron Paul, recently made headlines when he defended Putin’s invasion of Ukraine. “Actually he has some law on his side,” Paul said on Fox Business Channel’s “The Independents” last week.

Those comments follow the line taken by Paul’s think tank, which has served as a fount of pro-Russian talking points and conspiracy theories about the U.S. government’s and NATO’s role in Ukraine.

The executive director of RPI and several members of its executive board have long ties to pro-Kremlin outfits, including a public relations shop created to restore Russian President Putin’s global image.

John Laughland, a member of RPI’s academic board, serves as director of studies at the Institute of Democracy and Cooperation in Paris, a pro-Kremlin NGO that was founded in consultation with Russian government officials.

The IDC was founded as an effort to “repair Russia’s damaged image in the US and Europe and at the same time extend the reach and influence of the [Government of Russia],” according to a U.S. State Department cable published by Wikileaks.

The group’s creation was first announced by Putin in 2007 and it has published reports defending Russia on human rights issues.

“[W]e expect [IDC leadership] to be energetic, pro-Kremlin public figures when they take up their new duties,” said the U.S. State Department cable.

Laughland told the Washington Free Beacon that the IDC is funded by Russian businesses and private citizens, but declined to name them.

He said he joined the Ron Paul Institute’s board at the request of RPI executive director Daniel McAdams, a former foreign policy aide to Paul. Laughland said the IDC has not contributed money to RPI.

The IDC’s New York office told the Free Beacon that it has no formal connection to the Ron Paul Institute, but “sometimes will send them an article” to publish.

Ron Paul’s Foundation for Rational Economics and Education, which oversees the Ron Paul Institute, did not respond to requests for comment.

Laughland, McAdams, and RPI academic board member Mark Almond also worked for the now-defunct British Helsinki Human Rights Group, a pro-Kremlin NGO that defended dictators against human rights abuse charges.

The BHHRG has no relation to the International Helsinki Federation for Human Rights, a human rights group founded in response to the Helsinki Accords.

The International Helsinki Federation for Human Rights referred to the BHHRG as a “PR flack for a new breed of authoritarian rulers in Europe.”

The Daily Beast reported last year that the BHHRG “regularly advocates positions that regurgitate Russian nationalist talking points, minimize xenophobic and illiberal attitudes prevalent in the former Eastern bloc, or excuse authoritarian tendencies.”

Laughland has come to the defense of the late Serbian President and war criminal Slobodan Milosevic, and denounced the International Criminal Court as a “kangaroo court.”

McAdams and Almond have defended Belarusian dictator Alexander Lukashenko, with Almond calling Lukashenko’s rigged 2006 election victory a “landslide,” according to the Daily Beast.

“This whole thing that Putin is the big cause of the trouble, and yet there’s pretty good evidence that the Europeans as well as the American government had to contrive to have the overthrow of a government that most people say had been elected,” Paul said on Fox Business Network last week.
Anyway, so either Ron Paul is a dumbfuck sucker getting his ass used by the Russkies, or he's an avowed traitor to America. You decide!

US dollar shows its hand and now gold goes to da moon Alice


If it made sense since December for Wall Street Whitey to be short gold to play the long dollar trade, as of today it makes sense for Whitey to go long gold so he can be short USD.

The problem, as I've been saying for months now, is:

the rest of the world ex-US has been going longer and longer gold all this time, as the GLD:UDN chart shows.

The jobs data was bullshit, but I'm wondering: even if it's bullshit that can be fixed in a month, it might still have been a sufficient jolt to close the window on the USD long trade for a while.

A new high on GLD:UDN means say hello to >$1300 gold. Probably for good this time.

Partially because nobody out there thinks that the worst is over for gold. They're all saying "well, we're still bottoming."

And gold goes flying


Sure looks like the lizard people have lost control of gold! Better slam it quick, guys!

Hey... do you happen to remember any bloggers or newsletter clowns writing off the past two weeks' gold action as a simple "gap fill" before a further drop? If so, please leave their names in the comments so we can all mock them together.

One of the bad things about being on TV

One of the problems with being on a TV game show is you have to engage your internal editor to ensure you don't do something like this:

because you end up making it to the Daily Fail:

Daily Fail - Jeopardy contestant really creeps out viewers.

Some more quality reading

So early this morning, I was watching CNBC, where some guy named Reza Ali was failing to explain how his 20 years of experience trading derivatives gives him any qualifications whatsoever in predicting what's going to happen in Greece.

Seriously? A fucking derivatives trader is being asked for his opinions about Greece? Cuz maybe, I dunno, he went there on vacation once? Or met a Greek once? Is that it?

In contrast to that, here's some quality news for you:

Brett Steenbarger - what we can learn from options skew. If this time is like last time:

then it looks like the S&P is just about to explode higher like it did last spring, which btw also saw really poor economic data, as did every Q1 of this recovery, so quit piddling your fucking panties.

FRB Altanta blog - what seems to be holding back the recovery. The data suggests you can put it down to a lack of capital deepening - as noted by Dave Rosenberg, US capital stock is as old as it's ever been. Hey, FRB Atlanta - might that be because your government changed the fucking law to allow companies to hide trillions of dollars in overseas accounts instead of reinvesting it in US production?

Gavyn Davies - Yellen explained perfectly clearly what she's thinking but you dumbfucks weren't listening. The Fed knows exactly what it's doing, but the talking-head morons who you watch on CNBC and read at Business Insider aren't qualified to comprehend it.

Ben Bernanke - Germany's trade surplus is a problem. He explains, clearly and concisely, how Germans are cunts:
First, although the euro—the currency that Germany shares with 18 other countries—may (or may not) be at the right level for all 19 euro-zone countries as a group, it is too weak (given German wages and production costs) to be consistent with balanced German trade. In July 2014, the IMF estimated that Germany’s inflation-adjusted exchange rate was undervalued by 5-15 percent (see IMF, p. 20). Since then, the euro has fallen by an additional 20 percent relative to the dollar. The comparatively weak euro is an underappreciated benefit to Germany of its participation in the currency union. If Germany were still using the deutschemark, presumably the DM would be much stronger than the euro is today, reducing the cost advantage of German exports substantially.

Second, the German trade surplus is further increased by policies (tight fiscal policies, for example) that suppress the country’s domestic spending, including spending on imports.

In a slow-growing world that is short aggregate demand, Germany’s trade surplus is a problem. Several other members of the euro zone are in deep recession, with high unemployment and with no “fiscal space” (meaning that their fiscal situations don’t allow them to raise spending or cut taxes as a way of stimulating domestic demand). Despite signs of recovery in the United States, growth is also generally slow outside the euro zone. The fact that Germany is selling so much more than it is buying redirects demand from its neighbors (as well as from other countries around the world), reducing output and employment outside Germany at a time at which monetary policy in many countries is reaching its limits.
So firstly, the Euro currency union acts as a 25-35% subsidy on Germany's exports. And secondly, instead of spending that money, they stuff it under the mattress like the penny-pinching misers that they are. And all this happens because, instead of leaders who know anything about economics, they have Merkel the failed physics postdoc and Schauble the tax lawyer, but that's fine because they're getting regular advice from that right-wing racist news rag Bild.

BBC - the dystopian lake filled by the world's tech lust. About the economic cost of rare earth mining, which I doubt environmentalists ever factor into their cost-benefit analyses of wind power and suchlike.

Bloomberg - iron ore price collapse accelerates. This is why:
Seaborne supply will exceed demand by 55 million tons this year, rising to 184 million tons in 2018, Morgan Stanley estimates. The world’s biggest mining companies will add 310 million tons of output through 2017, Deutsche Bank said on Tuesday, forecasting that iron ore will average $51 this year.
And meanwhile, Chinese iron mines continue to produce low-quality ore at a massive loss, because the government wants the jobs. Now, what did I say 2-3 years ago about governments subsidizing loss-making mining industries in a secular commodity bear market? Hm? What did I say?

der Spargel - interview with John Cleese. Don't mention the war! He mentioned it once, but I think he got away with it.

Sunday, April 5, 2015

Explaining secular stagnation using the Smurfs

The Long and Short - dude, like... imagine the Smurfs. Here's a highly recommended explanation of "secular stagnation" using the Smurfs.

Here's an excerpt:

There was an awkward silence, and then Hefty Smurf spoke up. “Actually ...”, he said, rather diffidently, “I don’t see why all the money seems to end up with Papa Smurf. In the olden days, we all had a little bit and we all spent it. But as time has gone on, it seems like a bigger and bigger share of the smurf fortune has ended up in Papa Smurf’s bank account. He’s got richer much faster than the rest of us. Papa doesn’t spend the money at the same rate we do, so if he doesn’t invest it in new projects, it just sits there and doesn’t circulate.”

Hefty Smurf has raised the ‘inequality explanation’ here (perhaps he’s been reading Thomas Piketty’s book, Capital in the Twenty-First Century, or Inequality and Instability by James Galbraith, which makes the point more explicitly). The interest rate is one thing every businessman looks at when deciding whether to invest, but it’s not the only – or even the most important – thing.

The most important factor in the investment decision is the fundamental question every business asks every day: are there enough potential customers to buy the product? Poorer people spend a higher proportion of their income than richer people. This is true all along the income distribution scale, right up to the very richest, who spend proportionally the least of all. Thinking in terms of consumer goods, it’s easy to see why a concentration of wealth and income in the top one per cent might break the investment-demand relationship: if the customers of Samsonite luggage get a payrise, Samsonite can expand production and increase its sales. Louis Vuitton, on the other hand, has limited supplies of skilled labour and high-quality leather – all it can do is raise its prices, or watch the queues form for its latest handbag.

However much an economist might prefer the "investment goods deflation" argument, you have to admit that the above still must be a contributing factor. How the fuck can you expect growth after decades of contraction in worker incomes? Who exactly is supposed to buy things? At the ultimate end of every model, isn't there supposed to be a consumer?

On the rising US dollar and EMs

Old article from March 16th, just stumbled across it now, good read:

Neil Irwin - how a rising dollar is creating trouble for emerging economies. Yet another mechanism by which a US secular boom, by causing appreciation in USD, can cause an EM secular bear.

Back to work news

Been off for several days, so it seems, so let's get back to some news reading:

Calculated Risk - on the disappointing jobs report. Funny nuff, he breaks down the data - average hourly earnings, employment-to-pop ratio, part-time for economic reasons, unemployed over 26 weeks, state and local government - and doesn't find one single negative. So how exactly does the headline number get to be 126,000? Can you explain that, Bill?

Bespoke - countdown to liftoff. They seem to think the first rate hike won't be until January 2016. The Bespoke guys have always impressed me with their dispassionate objectivity, so it'll be interesting to watch and see if they get it right yet again.

New Deal Demoncrat - weekly indicators. He's taken up the idea of the world exporting economic contraction to the US. I'd suggest that maybe he tries skating to where the puck is going to be: do we expect the same contraction in the future from the EZ and Japan? Or will things start to turn up?

FT Alphaville - what if the Fed raises rates but then rates go down? Interesting question, especially in light of the "global savings glut" story.

Calculated Risk - mall vacancy rate declined. Hey, by the way: do you remember a few years ago when some clown was saying that commercial real estate was going to collapse, bringing about another 2009-style apocalypse? No? Cuz I do. Whatever happened to that dolt?

FT Alphaville - HSBC on the US dollar. Basically, a long-winded pile of blather from HSBC on how they think the USD move is overextended. Guys, I managed to say the same thing in one sentence a couple weeks ago.

Larry Summers - response to Bernanke on secular stagnation. He notes that secular stagnation can be countered by expansionary fiscal policy, since any public investment with a positive yield will pay its cost in a negative real rates environment, and he's right. I would reply to Summers, though, that if secular stagnation is the result of a glut of savings, that's because the plutocratic class has succeeded in capturing government: and you shouldn't then expect the plutocrats to use secular stagnation for the benefit of the proletariat, who they hate and want to exterminate, or at least enslave.

Ben Bernanke - don't worry, the global savings glut will fix itself. Yeah I dunno. It might fix itself with a global revolution of the proletariat against the kleptocratic elite.

Schwab - Japanese stocks should continue to rise. Michelle Gibley ain't Liz-Ann Sonders, but I guess that's okay now that Liz has turned into a doomer. One big data point here, which I haven't seen mentioned yet, is the massive increase in stock buybacks.

Jeffrey Kleintop - growth imminent in Europe. Yeah that's nice, Jeff, except you've spent the past few months whining that the US market looks toppy. What, now you're saying that US growth will improve because European growth improves? Or will you fucking admit that improved EZ growth will be answered with new austerity in Germany, thus fucking up the entire EZ economy yet again? Asswipe.

FT beyond brics - do windfalls of public funds encourage corruption? Evidence from Bulgaria. And, again, proof that the public spending multiplier tends towards <1 in countries with high corruption, and thus corruption is a drag on growth, and that's why third-world countries go into secular bear markets. Basically, neopatrimonialism is what happens when you graft an industrial economy on a medieval-to-stone-age social structure.