Wednesday, September 14, 2016

Some news

Apparently, this market selloff has simply been because some idiots were short $VIX even though realized volatility had collapsed, and now they're selling their shorts.

Which is when they should be buying. Except they shouldn't because $VIX futures have been driven down too far. Or so the story goes. Because apparently there's no such thing as a market equilibrium in $VIX futures.

I'd like to buy this market, but there's a binary outcome ahead in the September Fed rate decision. So I'll just stay single-long for now, I think.

Anyway, here's some stuff:

CEPR - where's that supposed bubble, Esther? Quote:
In an article on the prospect of a September interest rate hike by the Fed, the NYT pointed out that Esther George, the President of the Kansas City Federal Reserve Board Bank, expressed concern that low interest rates are fueling financial speculation. She has repeatedly given this as a basis for raising interest rates.

It is worth noting that George has never identified an area where prices are obviously out of line with fundamentals. In the two cases in the last 80 years where the collapse of a speculative bubble led to economic downturns, the stock bubble in the 1990s and the housing bubble in the last decade, it was easy for anyone who looked to recognize the bubbles and that they were moving the economy.

In both cases, the wealth generated by the bubbles led to a consumption boom, which would have been difficult to explain any other way.

Jared Bernstein - my comments on the census data press call. Quote:
You know the old adage, when the economy sniffles, the least advantaged catch pneumonia. Well, that works in reverse too. The benefits of closing in on full employment disproportionately flow to the least advantaged.

So we find in today’s data that while households throughout the pay scale saw real gains, the largest gains accrued to those at the households at the bottom of the income scale. I’m sure you’ve heard the topline income number: real median HH income up 5.2 percent, the largest one-year gain on record in this series, which starts in the mid-1960s, and the first real gain since 2007.

But real HH income went up 8 percent at the 10th percentile and 6 percent at the 20th percentile. Poverty rates for whites fell about one percentage point; the rate for blacks and Hispanics fell twice that much (though from much higher levels).

Meanwhile, income gains at the 90th and 95th percentiles were between 2 and 4 percent, below those of lower income households.
Two things:

1. That's a tailwind for future consumption, because it's the poor who spend every new penny that comes in.

2. Can you see why I make the case that Fed rate tightening is a form of class warfare?

Andrew Batson - about that China infrastructure bullshit. He demolishes a journal article that thought it had made a case about Chinese infrastructure overinvestment:
The authors’ data on individual infrastructure projects tell us that China is basically no worse and no better than the rest of the world in terms of managing infrastructure projects–just like everywhere else, they often run behind schedule and over budget. This is certainly useful information but does not seem like a shocking finding. But if China is no better and no worse than the rest of the world at planning and executing infrastructure projects, it is hard to see how this would lead it into an infrastructure-driven financial crisis. The problem must therefore surely be that China is spending far too much on infrastructure, so that the ordinary problems of project mismanagement are magnified by the scale of its spending.

At this point in the paper I naturally expected the authors to show that China was in fact spending much, much more than other countries on infrastructure. But they don’t. In fact they present absolutely no statistical information about the level or growth rate of infrastructure spending in China. I know, I couldn’t really believe it either. What they do instead is present the usual numbers about the rapid growth of total investment and debt in China, such as the figures on gross fixed capital formation in the national accounts. It should hardly need pointing out that gross fixed capital formation is not the same thing as infrastructure spending; infrastructure is only one component of gross fixed capital formation, most of which is housing and business capital expenditure. (Putting a hard number on China’s infrastructure spending is indeed tricky, but not impossible. According to estimates by the former OECD economist Richard Herd, government and infrastructure sectors have usually accounted for 20-30% of gross fixed capital formation over the past couple of decades.) Since the authors do not establish that China is spending a lot on infrastructure in the aggregate, the conclusion that China’s macro problems from infrastructure spending are much greater than other countries simply does not follow from the micro evidence they present. It would certainly be useful to compare rates of infrastructure investment across countries, but this paper does not do that.
Are economics papers really this badly written?

Chris Dillow - why rich twats aren't actually good at anything but think they are. And of course it's about Cameron:
Phil reminds us of the answer David Cameron once gave to the question, why do you want to be Prime Minister? “Because I think I’d be rather good at it.”

Well, that didn’t work out too well did it? We’ve had plenty of PMs whose policies we didn’t like. But Cameron was, as Owen Jones says, “a failure on his own terms”. He wanted to eliminate the government deficit and keep us in the EU, and failed on both. I’d add that this his counter-productive pursuit of austerity contributed – at the margin – to Brexit by creating a climate of insecurity and xenophobia. In this sense, Cameron’s failure was down to deliberate ineptness rather than to facing insuperable odds. For this reason, he is probably one of our worst-ever Prime Ministers.

This poses the question: what, then, was the basis of his belief that he’d be “rather good” at the job?

It’s not that he had a great grasp of economics or politics. His mindless drivel about a “global race” and the “nation’s credit card revealed utter ignorance of the former. And I’ve long said that Cameron’s government failed to grasp the nature of politics – that it consists in ameliorating problems of collective action.

Instead, his confidence was rooted not in facts but in class. It’s a cliché that going to a top public school often gives one confidence and arrogance which others lack.

And then a bunch of other stuff.


  1. "You know the old adage, when the economy sniffles, the least advantaged catch pneumonia."

    Do you also feel that presidential candidates fall under the least advantaged category?

    1. FFS it was just a stupid lung infection. Trump, on the other hand, has brain worms and end-stage syphillitic psychosis, and yet nobody gives a damn about that.