Friday, September 11, 2015
Calculated Risk - record hotel occupancy for 2015. Is that a sign of an imminent recession? No?
FT Alphaville - gold monetization in India. It'll never work. The depositor gives up jewelry's premium to melt, and in return earns an interest rate below Indian government bonds which won't compensate him for the policy risk, taxation risk and counterparty risk that he's taking on. Meanwhile it puts banks short gold in rupees: who's going to pay for this? And how do the banks pay "interest" on a deposit that isn't lent? If you say "the government", well okay they've been that stupid before, but in that case it ends up as a massive government gold subsidy.
Wednesday, September 9, 2015
WSJ RTE - in 18 nations, women cannot get a job without their husband's permission. Strangely, one of them is Bolivia. Lotta muslims in Bolivia I guess. Quote:
Out of 173 economies surveyed, all but 18 of them have some form of legal discrimination against women, according to the World Bank’s latest biennial report on Women, Business and the Law.
In 18 economies, the law is gender-blind: Armenia, Canada, Dominican Republic, Estonia, Hungary, Kosovo, Malta, Mexico, Namibia, the Netherlands, New Zealand, Peru, Puerto Rico, Serbia, Slovak Republic, South Africa, Spain and Taiwan.
Ha ha, USA! You suck! Even Namibia is more egalitarian than you!
Wait, why is the USA not on that list?
The U.S. falls short as part of a small group that doesn’t offer paid maternity leave for new mothers. Only three other countries don’t offer paid maternity or parental leave: Tonga, Suriname and Papua New Guinea.
Ah. American bosses are skinflint fascist pigs is why. They're so fucking cheap, and hate women so much, that their country's only three equals are (1) a sparsely populated backwater archipelago, (2) a former Dutch slave colony, and (3) an island whose majority still lives in the Neolithic.
at 11:07 PM
FT Alphaghettios - Here's where that Chinese dollar liquidity went, idiots. Apparently the PBoC have been explaining themselves on the internet:
In short, the FX seems to have gone to Chinese banks to help them manage their FX risk in a more flexible two-way trading environment, and also to help them manage their asset-liabilities balances and effective foreign currency liquidity.
[...] the sales represent the substitution of who owns FX assets in China, not some sort of distressed plugging of a capital or budgetary hole.
Where government hands once invested foreign claims on behalf of the people — in a custodial manner — private hands are now being given the opportunity to make these choices directly, something which is drawing down government managed dollar liquidity and substituting it for privately managed dollar liquidity.
You really have to ask how dumb you have to be to think the PBoC was puking USD into the market to prop up the yuan, but then they suddenly allowed it to drop 3% in a couple days, and now they'll follow that by puking a hundred billion more USD next month to prop it up again.
After all, China probably has about 30,000 Western-trained economics Ph.D.s, in addition of course to the thousands of Chinese spies with econ Ph.D.s working for the US government: you really think that none of them have read about the 1997 Asian financial crisis, and how it's literally impossible to support a currency once the speculators get their teeth in?
Sam Ro - I read Zerohedge so you don't have to. He reads Zerohedge so I don't have to. Better your braincells than mine.
Basically, it's all about risk parity algos and how they were the ones who crashed the market, and they still have to sell for another few weeks, after which they'll stop selling and the market will go up because fuck ain't it great to puke other people's money down the drain and get paid for it eh.
So basically it's not about China or Europe or Greece or Apple or valuations or the Fed or anything.
at 7:40 PM
Reformed Borker (Bork Bork Bork!) - a brief rant about "historical valuation". Thankfully someone has the balls to put the boots to the clowns at Deutsche:
One of the dumbest things I’ve seen this entire summer (no small feat) is this thing where Deutsche Bank says that the combination of stocks, bonds and real estate haven’t been as overvalued as they are now in 200 years.
I’m sure the DB researches are smart guys and that they mean well,
No Josh, they're utterly incompetent idiots who would get flunked out of university if they tried bullshit like this.
but comparing stock and bond and real estate valuations to 200 years ago (or 100 years ago) is as meaningless an endeavor as you can think up. Because a hundred years ago, there were no investors. Just speculators and the company founders who owned the majority of the shares. There was no such thing as retirement, nor were there portfolios or IRAs or 401(k)s.
More generally, the money supply was a lot smaller (in fact, it was fixed to gold) and there was less capital stock per capita. In fact, most wealth back then was tied up in land, not money or stock or bonds, which you know because you've read Piketty, right?
Therefore, of course valuations for these assets had lower baselines in general. There wasn’t a need for hundreds of millions of people to hold onto trillions of dollars’ worth.
You know what your retirement plan was a hundred years ago? You fucking died.
And don’t even get me started on the valuations of two hundred years ago. I know of the guys who originally put this data together. They’re geniuses at the London Business School (Dimson, Staunton and Marsh). Even they would tell you, these historic indices weren’t exactly carved into stone tablets and left in a storage locker somewhere. All of this stuff had to be pieced together and pulled from hugely varying sources with all sorts of restorative methodologies. We have a good approximation of what historical prices were and even some sense of earnings, book value and revenue – but an approximation is not a fact.
Even today we don’t know what real earnings are. 20% of the S&P 500 is made up of tech companies and about half of them play games with GAAP on a regular basis. They pretend that employee and executive comp can be expensed as an item that may or may not appear in future quarters. Cisco does it. Google does it. Anything that might lower reported EPS is treated like a non-recurring freak accident of some sort. And then bathtubs full of stock options are handed out and they do the same thing 90 days later. And then there’s goodwill, and tax-advantaged write-downs and all sorts of other fun stuff that wasn’t going on even a decade ago. And you’re going to tell me you feel good about the PE multiples of railroad monopolies from the fucking Civil War era?
And I won’t even get into the massive differences in profit margins between a company like Facebook, which makes millions of dollars per employee, and the S&P 500 of the 1970’s, which was dominated by steel companies and oil companies and mining companies and other low-margin, capital-intensive “filthy” industries.
To reiterate, even recently as the 1970s, the stock market then was not the stock market now. Nor was the bond market, nor even was money. I'd like to add that nor was the balance of savings and investment the same: in the 1970s we were on the exact opposite end of the investment/savings seesaw, as tens of millions of new fathers struggled to house their families by competing to borrow money from a depleted rentier class whose net wealth was still recovering from the capital destruction of a major international war.
Now, on the other hand, the world is full of rich old fucks who want to earn interest, yet nobody wants to borrow anymore. Not even European governments.
And the savings/investment equilibrium drives the long-run neutral real interest rate, which is the basis for equity valuations (really FFS read Kocherlakota's speech and you'll get a few "ooh" moments, especially when he talks about the effect of low interest rates on future flow valuations).
So of course equities are at a high P/E right now! Why not? Future flows become undiscounted at the zero lower bound, fucktard. When's the last time interest rates were zero?
200 years ago, there was no indoor plumbing or electricity. Married couples had eleven children each with the expectation that only three or four of them would make it to junior high school, after which they’d become chimney-sweeps or horse-dentists or whatever the hell you did in those days.
No similarities with the modern era.
Historical context is excellent for understanding financial markets. But let’s remember that the numbers on a spreadsheet don’t exist in a vacuum. They are a function of what’s happening in the world, as progress steadily mows down the economic realities of the past.
And the clowns at DB would have been fucking flunked out of school if they'd tried to imply utterly false correspondence across history.
Very busy tomorrow - first work, then school. Long day. Let this keep you busy tomorrow:
WSJ RTE - job openings rise to record high. Firings continue to drop, so employers are desperate to keep their existing workforce. But openings are remaining unfilled because employers are too fucking greedy to offer decent enough wages to entice new hires.
Bespoke - JOLTS: total job openings soar. That's supposedly what made the market puke this afternoon. I doubt it. I think it was just third-world dictators selling stock so they can transfer cash from the Isle of Man to some new tax haven account, say in Guernsey.
Mark Thoma - the Fed must act soon? Again Thoma gets his dander all up about a bunch of economists who don't work at U Oregon. Well, at least he reminds us of something I personally forgot about Stanley Fisher:
In any case, if you are a hawk and want rates up, what do you argue at this point? First, that labor markets are tightening (he ignores the secular stagnation point others use to argue labor markets are tighter than they seem), and inflation is just around the corner (as it always is if you are Richard Fisher, go back and look at what he has been saying throughout the crisis -- inflation has always been just ahead)On a sociological note, then, I wonder if the Fed always discounts the blatherings of members who've proven themselves utterly incompetent, even unable to listen to their fellow Fed members who have explained precisely why there is no inflation, such as Ben Bernanke, or even:
Narayana Kocherlakota - public debt and the long-run neutral interest rate. Here's the intro:
In the first part of the talk, I examine the behavior of the yields to Treasury Inflation-Protected Securities (that is, TIPS) and the yields to nominal Treasuries over the past decade. Using this evidence, I argue that, over that period of time, there has been a notable decline in the long-run neutral real interest rate. By the long-run neutral real interest rate, I mean the real interest rate that I expect to prevail when the economy is at maximum employment and inflation is at the central bank’s target.Which, btw, is why I keep giving you links to economists who are screaming bloody murder that all this time governments have been using contractionary fiscal policy and thus keeping their central banks pinned to the ZLB. Anyway, N-to-the-K writes a rollicking good speech here, which Stanley Fisher never bothered to read because he's still freaking out about inflation.
In the second part of my talk, I discuss two costs associated with the decline in the long-run neutral real interest rate. The first cost is that there is an increased risk that monetary policymakers will be constrained by the lower bound on the nominal interest rate. The second cost is that there is an increased risk of financial instability.
Finally, I discuss how fiscal policy can be used to increase the long-run neutral real interest rate.
Interesting to see an organ of the neocon plutocracy talk about this. I guess the elites are starting to get concerned over how long they can keep up the con:
WSJ RTE - the split between productivity and wages. Quote:
In case you missed it, there’s a chart making the rounds that has come to represent, for some, all that is wrong with the American economy.
"For some". As in, like I just finished saying, the kleptocratic rentier class does not need economic growth (viz. increase in consumer spending) as a precondition for continued confiscation of wealth.
The top line shows worker productivity growing by 72.2%, or 1.33% per year, between 1973 and 2014. The bottom line shows median workers’ hourly compensation increasing by 9.2%, or 0.2% annually, over that same period. The gap between them more or less symbolizes the big empty space in workers’ wallets.
The area between those two curves represents the entirety of wealth that has been stolen from the pockets of the workers through 35 years of plutocratic theft.
Passed on to you partially for the sarcasm value:
Francesco Saraceno - and the winner is... fiscal policy! Quote:
So, Mario Draghi is disappointed by eurozone growth, and is ready to step up the ECB quantitative easing program. The monetary expansion apparently is not working out as planned.Yo, F-dog, d'ya think that maybe the moneyed plutocratic class doesn't even fucking care about economic growth? I mean, economic growth is not a precondition for rent extraction.
Big surprise. I am afraid some people do not have access to Wikipedia. If they had, they would read, under “liquidity trap“, the following:
"A liquidity trap is a situation, described in Keynesian economics, in which injections of cash into the private banking system by a central bank fail to decrease interest rates and hence make monetary policy ineffective. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war."
In a liquidity trap the propensity to hoard of the private sector becomes virtually unlimited, so that monetary policy (be it conventional or unconventional) loses traction. It is true that the age of great moderation, and three decades of almighty central bankers had made the concept fade into oblivion. But, since 2008 we were forced to reconsider the effectiveness of monetary policy at the so-called zero lower bound.Or at least we should have…
So, had policy makers taken the time to look at the history of the great depression, or at least to open the Wikipedia entry, they should have learnt that when monetary policy loses traction, the witness in lifting the economy out of the recession, needs to be taken by fiscal policy. In a liquidity trap the winner is fiscal policy. Or at least it should be. Here is a measure of the fiscal stance, computed as the change in government balance once we exclude cyclical components and interest payments.
The vast majority of EMU countries undertook a strong fiscal tightening, regardless of the actual health of their public finances. This generalized austerity, an offspring of the Berlin View, led to our double dip recession, and to further divergence in the eurozone, that would have needed coordinated, not synchronized fiscal policies. Well done guys…
And yet, Mario Draghi is surprised by the impact of QE.
John Quiggin - when did free trade agreements become "reform"? Quote:
[...] it ought to be clear by now that “reform” means “whatever the Oz and IPA wants”. For example, tax reform doesn’t mean taxing mineral rents or carbon externalities or tax-dodging trusts and shell companies. In essence, it means taxing food and giving the proceeds to the rich. Anyone concerned with good policy should stop using this word in a positive sense.
So I'm back at university, thus posting will be less obsessive at least til I get my footing.
My polisci prof seems good though he's just a kid. It's hilarious hearing him talk about "The Cold War" - I was actually there, one of the many teenagers who was a mite pissed off that the US and Russia were (still) threatening worldwide nuclear annihilation and there was nothing we could do about it. The prof, meanwhile, was born after Gorbachev was deposed.
My stats prof is hilarious, which is great motivation for first-year kiddies to go to class... but the room seats about 400 and there's no way I want to go there. No problem, the first month is just sets, Boolean algebra and permutations & combinations - I know all that already so I won't bother going for the next few weeks.
Anyway, enough about me, here's the news:
New Deal Demoncrat - five graphs for 2015, Labour Day update. Continued watching of mortgage refi, hourly wages vs gas prices, underemployment, NILFWAJN, and nominal wage growth. And still over all this time, the only things benefiting the consumer are the gross macro trends (interest rate collapse and oil price collapse). As opposed to, say, wage growth and employment, which are obviously sociamalism and therefore must be stopped at all costs.
Mark Thoma - Fed flying blind into September. Let Tim Duy add some colour and analysis.
Krugginator - Trump is right on economics. Haha! Epic troll!:
Mr. Bush hasn’t focused on what’s truly vicious and absurd — viciously absurd? — about Mr. Trump’s platform, his implicit racism and his insistence that he would somehow round up 11 million undocumented immigrants and remove them from our soil.What's that? You say the Krugginator must have come down with the hydrophoby? Trust me, read the rest of the article and he'll explain himself.
Instead, Mr. Bush has chosen to attack Mr. Trump as a false conservative, a proposition that is supposedly demonstrated by his deviations from current Republican economic orthodoxy: his willingness to raise taxes on the rich, his positive words about universal health care. And that tells you a lot about the dire state of the G.O.P. For the issues the Bush campaign is using to attack its unexpected nemesis are precisely the issues on which Mr. Trump happens to be right, and the Republican establishment has been proved utterly wrong.
Jeffrey Frankel - misinterpreting Chinese intervention in financial markets. Let him explain the recent "OMG yuan devaluation":
China in August gave American politicians an instance of the adage, “Be careful what you wish for, because you might get it.” The widely decried 3% “devaluation” of the yuan was the result of a change by the People’s Bank of China in the arrangement for setting the exchange rate, a change that constituted a step in the direction of letting the market decide. This is what US congressmen have long claimed they wanted and, even now, confusedly still claim they want.And why are Americans piddling themselves anyway?:
The change sounds technical, but is easily described. China’s central bank has for some time allowed the value of the yuan to fluctuate each day within a two per cent band, but has not routinely allowed the movements to cumulate from one day to the next. The change on August 11 was to allow the day’s depreciation to carry over fully to the next day. Thus market forces can play a greater role in determining the exchange rate.
In truth, a 3 percent change in the exchange rate – the size of the so-called “devaluation” against the dollar – is negligible. For example the euro and Japan’s yen have each depreciated far more than this over the last year, against both the dollar and the yuan.There is something to be said though for the fear that China has spent far too much money fighting a trend toward devaluation, thus putting their reserves in danger; and something to be said for the fear that a currency drop, if allowed to continue, would result in a late-90s style capital flight and economic collapse. Then again, the 50,000 economists working for the Communist Party have probably studied the Asian Crisis, y'think? And maybe they know that Malaysia avoided the worst through capital controls that the CP is well empowered to replicate.
Anyway, read that article, it's good.
Monday, September 7, 2015
It's Labour Day, the holiday where traditionally our mothers remind us about how they went through 18 hours of childbirth to bring us into the world, blah blah, and then we reply to them that we damn well didn't ask to be born did we.
And here's some news:
New Deal Demoncrat - US domestic indicators remain strong. NDD thinks the US is maintaining growth in a global recession; I think he's succumbing to the general Lamestream Media panic. Sorry, but China is still growing, Japan's still vaguely growing, and god knows maybe Europe will pull their head out their asses soon.
Speaking of which, a million Syrian refugees in Germany would be a godsend for Europe: it would force the skinflint Germans to finally increase spending, which would be very expansionary for the entire continent. And it's nice to see that Merkel is finally standing up to the Nazis in the Bavarian CSU like Seehofer. Maybe, down deep, there are still a few Germans who wish to spread kindness through the world?
The Krugginator - the Fed should remember the 90s. Quote:
Well, consider the situation in 1997, when the unemployment rate dropped through 5 percent. The Fed did raise rates a quarter point, but then stopped, waiting for inflation to become a problem — which it never did, even though unemployment continued to fall, eventually to 4 percent.Dammit K-dog, please remember that Janet Yellen knows at least as much about macroeconomics as you. She's not dumb.
The lesson is that the Fed really doesn’t know what level of U3 constitutes full employment, and should be very cautious about acting preemptively absent any signs of inflation problems.
Why is this time different? Many people seem to think that the case for raising rates is made stronger by the fact that we’re currently at zero, which seems weird and unnatural. But if you actually think through the logic, it’s the other way around. When the Fed funds rate was 5 percent, there was room to cut if a rate hike turned out to be premature — that is, the risks of moving too soon and moving too late were more or less symmetrical. Now they aren’t: if the Fed moves too late, it can always raise rates more, but if it moves too soon, it can push us into a trap that’s hard to escape.
Reuters - China emphasizes stability at G20. They repeat for the lamestream media all the things that seem to have been forgotten in the rush to puke stocks:
China's overall GDP growth will remain around 7 percent, as predicted earlier in the year, and the new economic normal may last for four to five years, Lou said. The government will not particularly care about quarterly economic fluctuations and maintain steady macro-economic policy, he added.and
it may already take several years to digest excess industrial capacity and inventoriesDid everyone forget about Chinese overcapacity, and that the government was taking steps to shut down the dregs of their economy? Y'know, maybe that would affect electricity consumption, and rail loads, and iron ore demand?