Friday, November 20, 2015
Here's some Friday night news:
LA Times - this el Nino will be most powerful on record. As long as I don't have to suffer through another fucking deep freeze, the millions threatened by drought can go fuck themselves.
Martin Wolf - corporate surpluses are contributing to the global savings glut. So you know what you should do? Let the government tax retained earnings away, and spend that money on public capital. Either that or slip into a new dark age. I know which choice the plutocrats will go for.
Reuters - Modi's gold deposit scheme has attracted one whole shiny pound of gold so far. And no, it's not because they don't have enough assay labs or refineries. It's because it's not meant to take in gold, it's meant to be a subsidy program for banks.
BI - Bill Ackman's lost 24.5% this year. So why do people continue to listen to this idiot, if he can't even outperform the S&P 500 index?
Wednesday, November 18, 2015
Accuweather - winter 2016 will be warmer than usual across Canada.
Northern Ontario Travel - oh fuck off, Farmer's Almanac.
I would really like it to not be a fucking hideous polar deep freeze this year.
BI - this is what happens when you get your Fed commentary from a website of idiots.
I'm not linking to it because of any contribution from Akin Oyedele, because he's just some idiot with a BA in journalism so he shouldn't be expected to make any intelligent contribution whatsoever.
I'm linking to it because the Fed saw fit to include a discussion on the world real interest rate, r*.
What the hell is r*?
Well, it's a theoretical variable that doesn't actually exist in the real world, which forms the basis of things like the Mundell-Fleming open economy model. Basically, it's the theoretical world real interest rate upon which all other interest rates depend.
And the Fed says right in their minutes that they think it's interesting r* has been negative for ages, and doesn't look like it'll ever not be negative again. Quote:
With respect to longer-run trends, the staff noted that multiyear averages of short-term real interest rates had been declining not only in the United States, but also in many other large economies for the past quarter-century and stood near zero in most of those economies. Moreover, economic theory indicates that the equilibrium level of short-term real interest rates would likely remain low relative to estimates of its level before the financial crisis if trend growth of total factor productivity does not pick up and if demographic projections for slow growth in working-age populations are borne out. Finally, the staff discussed the implications of uncertainty about the level of the equilibrium real rate for using estimates of short-run r* as a guideline for appropriate monetary policy.
This is fucking huge. It means the Fed has finally caught up with reality and are possibly about to change their opinions about very important things. Here's just one of the problems they're now going to be paying attention to:
A lower long-run level of r* would also imply that the gap between the actual level of the federal funds rate and its near-zero effective lower bound would be smaller on average. A smaller gap might increase the frequency of episodes in which policymakers would not be able to reduce the federal funds rate enough to promote a strong economic recovery and rapid return to maximum employment or to maintain price stability in the aftermath of negative shocks to aggregate demand. Some participants noted that it would be prudent to have additional policy tools that could be used in such situations.
I'm going to leave writing any more about this, because I'm only just learning Mundell-Fleming right now, and anyway I still have to polish off my essay. But I can damn well guarantee you that I'll be giving you some links in the next couple days to proper economists who will be explaining just what's so important about the Fed discovering that r* < 0.
In any case, you can be damn fucking sure no hedge fund clown understands the first thing about Mundell-Fleming.
Still not finished my essay, but I have about 4 of 10 pages written, so the rest should fall in line today. It's due at 11:59PM, and late papers are only docked 2%/day in this modern world because nobody wants to hurt the precious snowflakes.
I only really settled on the thesis last night: it's a comparison of cultural realist and post-structuralist interpretations of Samuel Huntington's "Clash of Civilizations" thesis as an explanatory tool for the Russia-Ukraine conflict. I was originally going to write it about the US-Islam conflict instead, but a) recent events and b) I had too many notes on the Islamic bit, while the Ukraine bit is more interesting and c) the Islam slant is too damn easy.
Anyway, here's some news:
New Deal Demoncrat - industrial production only sucks in oil and mining. More invaluable commentary from NDD.
FT Alphaville - if you can be short dollar when all men doubt you. Good god damn, that's going to be a heck of a monster when it unwinds. Now hey, long USD-short EM equity/short commodity/short EM FX is certainly a brainless trade, but that doesn't mean it's so simple that it could accommodate every hedge fund cokehead with a psychosis about how clever he is.
And then they remind us that Fed minutes are coming today at 2PM. Yay!
NYT - which socialist philosopher said government must tax the indolent rich and spend on roads? Well, no other than Adam Smith!
FT Alphaville - the world has a multi-trillion dollar accumulated current account deficit. And the only explanation is that the world's ultra-rich, from the Russian mafia and Latin American politicians to the wealthiest corporations, has accumulated a multi trillion dollar current account surplus, which they've now squirreled away in every private bank in the world.
And guess what? Since that money hasn't been invested in private capital, and since these paleoconservative robber barons demand that governments don't spend the money on public capital, there is thus no possibility for long-run world economic growth in the aggregate. Sorry, neocon criminals, but Y = aF(K,L,[...]).
That is why you need to tax the rich and spend the money on highways and education, assholes. The alternative is to slip into a new millenium-long dark age.
Tim Taylor - why more humanitarian aid should be given in cash. This is actually a well-understood principle within the humanitarian movement already; it's just that the idea leaves the bureaucrats out in the cold.
And since it's Xmas coming up and some people actually care about this charity kind of stuff, I'll let you know that you yourself can give directly to the poor just by going through something like givedirectly.org. It feels more like an Xmas present, and given the insane difference in price levels between our world and the poor world it packs a huge bang for the buck. That $50 you were going to spend on a tie for some asshole would go really, really far in Burkina Faso.
Tuesday, November 17, 2015
I've got an essay to finish, so bugger off.
Bloomberg - debt market distortions go global as nothing makes sense anymore. It's weird enough to freak out Michael Shaoul, and maybe it was one reason for the recent market insanity. Personally, I think if swaps are priced stupidly right now, that's because some hedgefund cokehead plopped half a trillion OPM into a market too small to mop up that size move. Let him get fucking burned. It's not going to destroy Western civilization, just his idiot clients, and they've already taken too much money out of the capitalist system:
Another potential problem is that inverted swap spreads may ultimately cause investors and borrowers to lose confidence in the bond market’s ability to correctly price risk and provide capital to those who need it, according to Steve Major, head of fixed income research at HSBC Holdings Plc.Well, Steve, maybe the problem is that there's no longer enough debt to mop up all the cash out there, and this is what it looks like as the cup finally runneth over. How's about you quit demanding that your governments cut spending, and start rewarding investment in productive capital for once in your fucking lives?
“The role of the bond market is to provide funding at the right rates for the real economy,” Major said. “That’s why the bond market exists -- to help efficiently finance projects, businesses etcetera. If that efficiency is undermined, it’s not going to be a positive thing for the economy.”
Mining.com - Rick Rule just called the bottom on the miners. No really, he did:
With regards to precious metals and precious metals equities, I’m going to go out on a limb and say I think we’ve bottomed.And actually, he has some good points:
The high point in concentration in precious metals and precious metals equities occurred between 1980 and 1981, at the top of that great super cycle in precious metals.Yup, if nobody's owning right now, then maybe they will have to some time in the future?
About 8% of investible assets in the United States at that time were in precious metals or precious metals equity.
The same measurement today is .3%. The median and mean over the last three decades is between 1.5% and 2%. So in order for precious metals and precious metals equities allocations to get to the three-decade mean, they would have to go up 6-fold as a percentage of the total investible assets in the United States. So there is an awful lot of room to the upside.
Then again, most of that drop from 8% to 0.3% wasn't a drop in share allocation, Rick. It came from the stocks dropping 95%.
Sunday, November 15, 2015
Reuters - markets will puke Monday and use Paris as an excuse.
I don't doubt it.
The past 2 days' move looks brutal, $VIX has already gone +3SD, and the last time we had a +3SD VIX on a Friday night, we got a +6SD move on the Monday morning. Remember that?
Yup, that +6SD $VIX move on Monday Aug 24th coincided with a -5SD move on SPY and a -8SD move on QQQ. So it's possible we get to see some silly fireworks Monday morning.
But probably the real worry is this:
Traders with more OPM than brains are convinced the move down in oil is a harbinger of doom - they're even calling it "deflation", as if they know what that word means - and oil is already outside its Bolls. And now it's spilling over into everything else commodityish:
The $CRB is making a new low, and that will screw with a lot of people's heads.
In the long run, dropping commodity prices will be fantastic for US consumers - or, more likely, fantastic for the retail businesses that will fuck them up the ass by refusing to drop prices.
In any case, don't expect Wall Street Whitey to figure it out. He supports neo-Nazi politicians who believe in the gold standard.
Well, the tests are done-ish. I got 30/30 in stats, and 29/30 in micro; dunno what my macro mark is yet but the 10-mark written question was just a silly "here's a formula, let's see if you can substitute the values and realize that IS-LM is supposed to be in equilibrium" type thing. I got that one perfect, but there were a lot of theoretical LM curve questions that I could have gotten wrong.
But now I have a 10-page PoliSci essay due Wednesday night, which I'm doing on a postmodernist reinterpretation of Huntington's "Clash of Civilizations" thesis. So work continues all this week. Then there's yet another goddamn stats test on Saturday, and there's actual stats on this one.
But in the meantime, here's some news to tide you over:
New Deal Demoncrat - weekly indicators. Year-over-year numbers include mortgage purchase applications +18%, real estate loans +6.2%, real M1 +5.5%, real M2 +6.2%, tax withholding +7.2%, gasoline usage +3.3%, GS consumer spending +3.2%. How is that consistent with anything but a continued expansion?
Calculated Risk - US prime working-age population growing again. Demographics trump bullshit, so quit piddling your panties and buy the US.
Jeffrey Kleintop - what earnings are telling us about the economy. Even that permadoomer clown Kleintop has begun to admit that everything's fine in the US.
WSJ RTE - US inventory buildup. It's bad if it's happening. However, Michael Shaoul says inventories are being drawn down, and I trust him more than the WSJ to know the difference between forward and lagging indicators.
John Cochrane - on permazero. He's chuffed that Jim Bullard from the St. Louis Fed gave a presentation (pdf) based on one of his papers. And Cochrane brings up an interesting point:
Just what is so terrible about zero rates and very low inflation? Zero rates are the optimum quantity of money. They have financial stability benefits too. Banks sitting on huge piles of cash don't go under.You've spent decades teaching undergrads that inflation is bad. Well, now you're going to have zero inflation forever. Isn't that what you wanted, economics profession?
Conventional modeling has been treating the zero bound as a "trap," or a terrible outcome to be avoided. But it's a honey trap, at least in these models.
He also notes that long-term growth is still supposed to be based on capital investment and productivity, not on anything monetary. So you can't blame zero growth on zero rates and still hew to classical economic theory.
Conversable Economist - what are Uber's real economic gains? Fucking simple. Traditional taxi systems confiscate a tremendous amount of wealth by generating extreme scarcity, while Uber maximizes consumer surplus by forcing the market into perfect competition. Sorry guys, but there are a million poor people in metro Toronto who need reliable transportation: their welfare is more important than 200 rich Sikhs with plate monopolies.
Jojo - USD breakout could unleash capitulation in PMs. Well, now Jojo's calling for sub-$1000 gold.
The Krugginator - Republicans' lust for gold. Hey, I've got another theory, dude. Maybe all the Republican candidates are paid propaganda stooges of Vladimir Putin and the FSB, like Ron Paul is. That would explain why they're all talking up gold.