Friday, January 8, 2016

The Krugginator on microfoundations

I was wondering what K-dog had to say about microfoundations, so I googled:

The Krugmeister - the microfoundation thing.

Yeah. He's not a fan. Apparently I'm going to be Langranging up the wazoo all year just so I can learn yet another fantasy sci-fi story. Oh good.

And, even better, here's his 2009 NYT article on how the economists "missed" the 2008-9 financial system ultracollapse and tanks-in-the-streets near-second-Great-Depression, which even made our textbook author Stephen Williamson go all Hulk Smash.

Pretty impressive! I'm personally going to skip the "perfectly rational consumer" bit for myself, though, and just question whether or not any of the model presented in class this year makes sense in terms of the fact the US market is essentially oligopolies and monopsonies, not even remotely competitive markets.

If I get really interested I'll even shoehorn in some Douglass North.

Friday video - The Beatles spinoff band you never heard of

Here's Cibo Matto:

And yeah that's Sean Lennon with the band.

Thursday, January 7, 2016

In case you're wondering what it means to pull someone out from behind a sign

If you've been following the Kruggers discussion with DeLong and some other guy, you might be wondering what's so funny about pulling someone out from behind a sign.

The answer is that K-dog isn't nearly as funny as Woody Allen, at least back when he was making his earlier, funny films:

And if you're wondering what's so funny about mentioning Woody Allen's "earlier funny films", watch this:

But not the rest of the movie because it wasn't particularly funny at all.

More China DOOOOOM news

In case you're still reading idiot bloggers screaming about how there's a domestic foundation to the present US share weakness:

WaPo - what's important about China's stock market hijinx. Quote:
China's markets are dominated by mom-and-pop traders who are prone to fits of fear, greed and even more fear, sometimes all within the space of an hour. So it's not unusual for stocks to be up 3 percent one minute, down 2 percent the next, and then finish the day up 4 percent. That'd actually be a pretty tame day by Shanghai's standard.

The authorities, though, have had enough of this kind of extreme volatility — at least on the way down — and have circuit breakers in place this past week. The way it works is that the market takes a 15-minute break if it's ever down 5 percent on the day, at which point trading resumes — unless stocks fall an additional 2 percent. Then the market closes for the day. What's the problem? Well, anytime stocks start getting close to that first level, say down 4 percent, people race to sell anything they might want to out of fear that they won't be able to if they wait a little longer. That, of course, sends stocks down to the 5 percent threshold, which then gives them 15 minutes to figure out how to sell everything else before the next circuit breaker.

In other words, the rush to beat the circuit breakers made the market more likely to hit them.
Well, if that's the problem, why not get rid of the circuit breakers?

FT Alphaville - China just got rid of the circuit breakers. (With an illustration of how bad Google Translate is at Chinese, and how pathetic the Financial Times is that they can't find a fluent speaker in their office to spend 5 minutes hand-translating this. Not as if China's an important country to the world of finance.) Well, now you've got rid of the circuit breakers, that's your problem fixed then, right?

Sinocism - the problem hasn't even remotely been fixed. Man, his tone has sure changed now that he's living in the beltway, instead of in Beijing around the corner from the lot where the execution vans get parked at night, eh?

CNBC - sources say China wants a short, sharp currency decline. That along with the Shanghai panic makes Whitey freak out. So how much is Whitey freaking out, you ask?

FT Alphaville - BofAML says go long cash and volatility, that's how much. Includes this idiotic shart:
Which notes that the ISM is as low as it was back in 1995, the last time the US Fed began a tightening cycle after a long recovery from a bust, with oil in a bear market. Oh, wait, apparently it doesn't: BofAML interprets this chart instead as proof we're about to fall into a recession. Because they want to prove they can be as fucking retarded as anyone else. And the upshot?

Bespoke - five month low in bullish sentiment. And bearish sentiment has spiked. Now's about the time Gary Wordsalad should start predicting a new US bear market.

WSJ China Realtime - chicken little China predictions. Oh shush, you! Can't you see we're dooming?

If you're a Ron Paul fan, you'll want to see this

Fortune - all the best Putin-themed products you can buy right now. Vladimir Putin cologne, Vladimir Putin Apple watches, Vladimir Putin rings, Vladimir Putin calendars... if only Ron Paul hadn't been wiped out by the gold miners collapse he'd be able to afford all this Putinophilia!

Hey... wait! Maybe that's what the Russians are using to pay Ron Paul?

OMG CHINA DOOM DOOM DOOOOOM: also it's the news

This semester at school is going to be tough: we finally are studying from grown-up economics textbooks. So e.g. I'm apparently going to be learning to do Lagrange optimizations to develop a microfounded macro model, etc.

Here's some news:

Calculated Risk - ISM non-manufacturing DECREASED to 55.3%. OMG! I just saw the word "decreased" in bold italic all-caps! Sell! Sell!

Calculon's Frisk - FOMC minutes show decision to raise rates was a close call. Detailed minutes for all those non-FOMC clowns out there who want to second guess a group of America's most experienced monetary economists. The meat:
Members stressed the potential need to accelerate or slow the pace of normalization as the economic outlook evolved.
I.e., they recognize the need to be empirical and prudent.
Some members emphasized the importance of confirming that inflation would rise as projected and of maintaining the credibility of the Committee's inflation objective.
I.e., they also recognize the need to be prudent and empirical. I wish Larry Summers and Brad DeLong would just fucking accept this instead of assuming that Yellen is dumber than them.

The Economist - our evolving understanding of the liquidity trap. It really boils down to something simple: there is far more savings in the world than there is potential capital investment. Or rather:
a proper, sustainable long-run solution would require a fix to the global savings-investment imbalance. That, in turn, might mean dramatic reforms around the world, much higher rates of immigration to rich countries with shrinking workforces, and heavy borrowing by safe-asset issuing governments.
A zero interest rate environment is a panacea, as long as governments borrow that 0% money to finance the next leg in worldwide growth. Everybody harps on about government capital investment (human and physical), but this guy brings up a good point: why not also invest in transporting ~50 million third-world peasants a year into the developed world? That's also got a positive economic rate of return, and will also create a better world. Zero interest rates are what you always wanted, paleoconservatives: now what are you going to do with them?

FT Alphaville - who woulda thunkit that China would extend its share sale ban? Well, at least it's good sarcasm. But the big story apparently is:

FT Aphidville - CNH sale bomb. CNH-CNY spreads aren't supposed to be a thing, but they're now becoming quite a big thing. I see this and I'm wondering if this is going to be another one of those "the market always wins" currency conflicts along the lines of Soros' breaking of the pound. It's not theoretically impossible for the yuan to get smashed: you just need enough speculative capital lined up against it to be certain of an eventual win.

Gavyn Davies - more on the CNY devaluation threat. It's not so much a "devaluation threat" as it is a "complete loss of central bank control of a currency's value".

But with all that in mind, I'd like to remind you that I'm now on my fifth "China Doom [insert year here]?" tag, and the past four tags all turned out to have been unjustified.

BBC - Donald Trump questions whether Cruz can be president. OK, now I suddenly like Donald Trump. Quote:
Republican presidential front-runner Donald Trump has questioned whether rival candidate Ted Cruz is eligible to become his party's nominee because he was born in Canada.

Mr Trump called it a "very precarious" issue for the party and said that Mr Cruz's nomination could be challenged in court.
Damn! How can I hate this guy now?

Wednesday, January 6, 2016

Some Wednesday news

Congratulations to that guy from Sweden who's now visited this blog 2000 times. Molodets!

Here's some news:

New Deal Demoncrat - watch out for corporate profits. He thinks corporate profits as share of GDP is indicative of a top, I guess. I say that rather, it's indicative of the new trend as the corporate kleptocracy has stolen an ever-larger share of income for themselves. In any case, I guess he doesn't like the S&P right now.

WaPo - millions of Americans think the government is their enemy. I posit that this is because the head of their government is black. Oh, and also, remember this when you read the ravings of the Tea Party loons:
Mother Jones is also reporting that Ammon Bundy's truck repair business benefited from a $500,000 federal small business loan with an estimated cost to taxpayers of $22,000.
Right-wingers are the biggest fucking welfare bums in the country.

IMF - Maury Obstfeld says watch out for EM volatility. Yeah, no kidding? He seems to be about a year behind sentiment here.

Monday, January 4, 2016

HOW TO BECOME A TOP EXPERT AT PREDICTION: you won't predict what happens next!

WaPo - the secrets top experts use to make perfect predictions! I couldn't predict what happened next!:

People are often spectacularly bad at forecasting the future. But they don’t have to be, says Philip Tetlock, a professor at the University of Pennsylvania who has spent decades studying how people make predictions. In a new book, “Superforecasting: The Art and Science of Prediction,” which he co-wrote with journalist Dan Gardner,

New book? Ha! Bet you didn't see that coming....

Tetlock argues that almost anyone can learn to peer into the future.

Earlier in his career, Tetlock conducted a famous 20-year study in which he had a group of experts make a total of around 28,000 predictions about politics, war, economics and other topics over a timeline of one to 10 years. After scoring all of their predictions against what actually happened, Tetlock’s takeaway was that experts were only about as effective at predicting the future as dart-throwing chimpanzees.

I'm honestly surprised. I thought chimpanzees mostly throw poop. Darts is something new from them. I'm worried. Soon it'll be spears, then muskets, then automatic rifles, next thing you know a dozen armed chimpanzees with neo-Nazi sympathies march into a public building in Oregon and demand the overthrow of the Kenyan Islamist usurper.

Oh well. Someone get these chimps credit cards so they can sign up for Doug Casey's newsblather. Maybe he can persuade them to buy some semidesert in Chile instead.

While experts on average didn’t make predictions that were much better than chance, there was a small subset of experts that were actually pretty good at making predictions, a group that Tetlock has come to call “superforecasters.”


After all this research, Tetlock concluded that the superforecasters aren’t necessarily geniuses, math whizzes or news junkies, though all are intelligent and aware. What separates them from everyone else are certain ways of thinking and reasoning that anyone of decent intelligence can learn, Tetlock says — if they’re willing to put in the work.

Then the article goes into detail about what you need to do to forecast correctly. Step one is (gasp) pull your head out of the echo chamber that is your fucking ass and look at some data.

Here's the unsurprising bit:

Another key to being a good forecaster is to try to keep your beliefs from clouding your perceptions. This is a fault that Tetlock and Gardner say is far too common among the talking heads on television and in the newspaper who make the most influential predictions in America, about things like whether the United States can defeat the Islamic State, which candidate will win the Iowa primary, or if the Fed will raise interest rates.

People want answers. As a result, the media gravitate toward those with clear, provocative and easy-to-understand ideas, and audiences tend to believe those who speak with confidence and certainty.

The problem is that those who speak with confidence and certainty and spin a clear narrative are actually less likely to make accurate predictions, say Tetlock and Dan Gardner. And the more famous the expert is, the worse he or she seems to be at forecasting the future. Tetlock’s original study — the one in which he concluded that experts were roughly as effective as chimpanzees — actually showed an inverse relationship between the fame of an expert and the accuracy of their predictions.

OK, so maybe it's a bad idea to give all the chimps with darts a subscription to Casey. Then again, bankrupting them economically may buy us some needed time before the chimp revolution.

Let's Trim Our Hair in Accordance with the Socialist Lifestyle part II: The Trimmening

Here's some hilarious north Korean propaganda about the United States, with translation included:

I guess they figure Koreans are too fucking stupid to notice that each of these starving Americans weighs three times as much as your average north Korean stunted bonerack.

Or to ask why there are adverts for Dell computers when all Americans live in poverty.

Or to ask why there are no black people among America's poor.

Or to ask why that Dell ad at 3:19 is written in Romanian. And... y'know... why all the people look Romanian.

Yet more newsiness

Some more reading for y'all.

Tim Duy - a look into 2016. No recession, no recession, no recession. At least if you look at the data. Especially interesting is that exports (and to a certain degree investment, which is probably also tied to exports) are the one drag on economic growth. So if you think the USD is done moving, and commodities have done collapsing, then you must be bullish the US economy, right?

The Krugginator - elections have consequences. K-dog at his partisan best:
Now, to be fair, some widely predicted consequences of Mr. Obama’s re-election — predicted by his opponents — didn’t happen. Gasoline prices didn’t soar. Stocks didn’t plunge. The economy didn’t collapse..., and the unemployment rate is a full point lower than the rate Mr. Romney promised to achieve by the end of 2016.
That's pretty darn impressive - not managing to outperform a Republican candidate's pie-in-the-sky promises, but rather K-dog still making fun of Romney (and thus also his lapdog Mankiw) three years after the election has passed. Sarcasm really is a dish best served cold!

WSJ China Realtime - China's stock market circuit breaker works. To be fair, this is the Chinese market. We should expect it to be silly. I mean, the Chinese still believe that mammal penises have magical healing properties. I wonder if they're still going to lift the six-month-old share-selling ban this Friday?

WaPo - what do you call a bunch of white guys with guns threatening to overthrow the government? Um... how about "terrorists"? Or, even better, how's about you don't call the "Oregon gunmen" anything, and instead just toss them a couple stun grenades, drag their piddle-soaked asses out of there, and throw them all in jail for 25 years for treason? Or is there no such thing as treason when the president is black?

A few weekly charts to start the year with an interesting perspective

Charts! Some with lines drawn on them!


Whatever else I say about the health of the US economy, I gotta admit that is one big long ominous topping pattern right there.

I would say the August "omgfucksell" collapse is a negative for this chart, since it hasn't been recovered from, which means the market still awaits another one. And what it awaits it usually a-gets.

If I had faith in the intelligence of Wall Street, I would say this toppy chart is a searing indictment of the Fed's decision to raise rates with US output still far below trend and no wage inflation to be seen. Anyone with some Hicks and AD/AS behind them knows that you don't raise rates til Y is above Y-bar, and we're nowhere near that point, and we know because inflation is still way below 2%, and even the Fed knows there's utterly zero wage-push inflation going on anymore now that the working class has been beaten back down into the gutter, and didn't you all want zero interest rates anyway?

But I don't have faith in the intelligence of Wall Street. So either they're all selling US equities to buy Europe (boneheaded), or they're deleveraging (good for future equity market strength), or they're reallocating to money-market en masse (...actually that's about the most convincing explanation to me, but I haven't seen any data).

But if you don't know what the crackheads are doing, perhaps it's best to sit back and watch.


Pretty freaky how the rebound from the August puke ended right at the 20-day Bollinger mean, eh? It's as if the entire market is using that mean line as a sell point.


I'm waiting for the chattering class to realize that the USD hasn't actually done anything in the past year. OK sure, is that a cup and handle forming, which would mean a further jump of 20-30% in the USD is in the cards?

No. It's not a cup and handle forming because there's no reason for the USD to go on another 20% tear like it did in late 2014.

And all thru this fall, gold ex-USD still didn't break down below its support line. So gold only looks bad to Americans. Watch the gold-dollar correlation for warning of a possible gold upmove.

Some news for the new year

Here's what passes for news nowadays:

New Deal Demoncrat - weekly indicators. Real estate loans, M1 and M2, tax withholding, you know the drill. He thinks a commodity bottoming might be in the cards, which definitely would vaporize one honky excuse for selling the S&P.

Calculated Risk - 2015 is best year on record for US hotel occupancy. Therefore sell!

World Complex - on the cost of living in China. Well, I guess they aren't a Western developed market yet after all: you can still afford food in China. That might actually be due to lack of Western-style income supports: here in Canada, it seems prices for consumer staples are jacked up whenever minimum wage or welfare payments go up. I expect if you had no welfare or minimum wage, then businesses would have no option but to sell food for low prices. Then again, a land with no welfare or minimum wage isn't all that great to live in if you're unfortunate enough to be working class.

Verdmont - own oil over gold in case of zombie apocalypse. The rum was apparently flowing liberally in Panama this holiday season:
In our opinion, in order to do the mass killing that these zombies are anticipated to conduct, they will need zombie mobiles and transports to get around. There is no way they can cover that much ground and do so much killing on foot. These vehicles will need to be powered by refined oil products, whereas the demand for gold and how to trade it under such a scenario is questionable.

Now, please be reminded, that our thesis on oil vs. gold completely breaks down if:

1) The zombies turn out to be liberal zombies, as liberals, no matter what form, hate oil. This is a key risk to monitor. There is a good chance that the zombies will be liberal, as liberals will try to appease their attackers, instead of fight them tooth and nail. At this point they will have their brains devoured and quickly be on Team Zombie. This will not be fun for them, as Team Zombie works longer than 4 hours a day, has a performance-based culture, there are no extended holidays and you can never retire, let alone at 40 with full benefits. To add to the misery, Zombies are completely racist. In fact, they are all-consumed by this racism, as their sole mission is to devour humans as we know them.
2) These zombies are predominantly Eastern European, are female and/ or gay males. In this case, point A is remains largely relevant, and furthermore, jewelry demand will remain robust as looking fantastic will remain important. If they are going to kill, this group will want to do it with a certain degree of panache. They will appear much like the zombies in Michael Jackson's "Thriller" video. Tremendously mean, yet at the same time, flamboyantly dressed and incredibly gifted on the dance floor. In such an environment, gold demand should remain elevated.

So, if you are dying to be involved in the commodity complex, own oil over gold. There is tremendous relative value there and oil should outperform under various scenarios.
Zombies can't be liberal, guys, because they are against taxation and social programs. In fact, zombies are most definitely libertarian, since they're utterly fucking pig-ignorant of the tragedy of the commons that is their very existence, and expect the rest of the world to clean up their negative externalities.

Your "short Canadian banks" call still sucks by the way, guys.

First post of 2016

So with exams done I've basically just been living my personal life, banking some sleep, and doing some reading for the upcoming semester, and that's why I haven't really been arsed to post what drivel has passed for news these past two weeks. If you've been paying attention then you already know that the market's gone nowhere in 2015, gold miners still suck, the Fed has begun raising rates, and Whitey has been on one of his crack-fueled market rages. So there's little for me to add.

As an aside, I've been thinking about splitting off the economics discussion to a separate blog, one that's perhaps more "presentable". We'll see. Frankly I'm still learning a load of undergrad econ (turns out that this semester's textbooks are actually written for adults), so I may as well keep all that econ crap here for at least another few months.

Speaking of which, my marks are good enough to earn me some wicked scholarships. Or at least they would have been wicked 20 years ago before academia's parasitic managerial class started jacking up tuition to pay for fancy buildings and inflated salaries: $2000 really would have helped a kid 20 years ago, but now it only pays for half a semester of classes taught by disinterested, underpaid sessionals.

Anyway, given the past 2 years' freaky winter GDP collapses due to statistical screwups, and the apparent expectation of earnings disappointments coming shortly, I doubt there'll be much action to have in the S&P for the next little bit.

As for gold miners, I'm already confident that the traditional January gold miner pop will, yet again, be misconstrued by the idiot goldbug brigade as the start of the new bull market. Until they get proven horrendously wrong yet again, of course. Because it doesn't matter if you're wrong 100 times in a row as long as you get 3 weeks to tout your temporary success at prediction #101.

Some actual news shortly, perhaps.