Saturday, November 18, 2017
Friday, November 17, 2017
Thursday, November 16, 2017
FRBSF - stock market evaluation and the macroeconomy. It pretty much illustrates why economists are so stupid when it comes to markets:
One valuation metric, the cyclically adjusted price-earnings or CAPE ratio for the Standard & Poor’s (S&P) 500 stock index was originally developed by Campbell and Shiller (1998) to help judge whether the stock market is overvalued. The CAPE ratio is computed as the real, that is, inflation-adjusted, value of the S&P 500 divided by the real earnings of companies in the index averaged over the most recent 10 years. Campbell and Shiller found that higher values of the CAPE ratio predicted lower future real returns on stocks over subsequent 10-year periods.
Yes, and Shiller today says not to put too much stock into the CAPE, but you've never listened to him, you've only read about CAPE in university.
A parsimonious set of macroeconomic variables can account for much of the movement in the CAPE ratio over the past five decades. These variables include the “natural” real rate of interest, the growth rate of potential GDP, and the core inflation rate. Reasonable projections for these same macroeconomic variables over the next 10 years can provide a prediction about future movements in the CAPE ratio, which, in turn, will influence the magnitude of future stock returns.
#1, You can't project shit without including political inputs.
#2, r-star is something you made up. It doesn't exist in the real world. Nobody knows the natural rate of interest. And you might want to look under the hood to see what r-star is derived from, as I'll show later....
#3, Whose r-star are you using? The USA's? The entire world invests in US-listed equities, not just the USA. And there's no reason to expect r-star of each nation to converge.
#4, 5 decades is a heterogenous dataset. Regressing on it will be misleading.
A simple regression model can be used to assess how well macroeconomic variables explain movements in the CAPE ratio. Specifically, the model regresses the quarterly average CAPE ratio on a constant, the Laubach-Williams (LW) two-sided estimate of r-star, the CBO four-quarter growth rate of potential GDP, the 20-quarter change in the LW r-star estimate, and the four-quarter core PCE inflation rate. The explanatory variables are each lagged by one quarter in the regression equation to help account for real-time data availability issues.
Figure 4 plots fitted values of the CAPE ratio from the regression model through 2017:Q3. The fit is quite good, accounting for 70% of the variance in the actual CAPE ratio over the past five decades.
So you're finding co-movement between the CAPE and the following:
a) GDP growth and core PCE inflation, which are highly correlated with earnings.
b) Laubach-Williams r-star, which is a made up thing, and probably uses as its inputs things that are highly correlated with earnings, GDP growth and core PCE.
No wonder your R-squared is 70%! If you want to get it higher, maybe you can try dropping Laubach-Williams r-star entirely!
Absent further changes in the ratio, stock prices can rise only as fast as earnings. Over the past 30 years, real earnings for the S&P 500 have grown at an average compound rate of about 4% per year. A decline in the CAPE ratio from current levels would imply that stock prices must grow slower than earnings.
No, it wouldn't imply that. Because despite your graduating with an MA in Finance, Kevin, you've forgotten your basic portfolio theory: stock prices are dependent on supply and demand, and wealth is growing faster than growth in available investments.
Again, here's the simple question that I always ask: where else are people going to put their trillions? Bonds? Real estate? Cash?
WaPo - Democrats win seat in deep-red Oklahoma. Eventually the chickens come home to roost:
Democrats have flipped another statehouse seat in deeply conservative Oklahoma amid growing frustration over years of state budget shortfalls and recent scandals that led to the resignation of Republican incumbents.
Democrat Allison Ikley-Freeman defeated Republican Brian O’Hara in Tuesday’s special election for a state Senate seat representing parts of Tulsa. Complete but unofficial election results show that Ikley-Freeman, who is a therapist at a nonprofit mental health agency, won by 31 votes.
Doesn't sound particularly amazing, til you realize the district went for Trump by 40%.
That's what happens when your party are idiots: eventually everyone gets fed up with you:
The Legislature’s controlling party has failed during an ongoing special legislative session to push through tax increase plans that would bring new revenue to state coffers. Lawmakers now are considering bills that would balance the budget by raiding savings accounts and imposing cuts of about 2.5 percent to most state agencies.
Michael Whelan is a Democratic consultant who helped manage Ikley-Freeman’s campaign and the races of Democratic Reps. Karen Gaddis in Tulsa and Jacob Rosecrants in Norman, who both won Republican-held seats in special elections this year.
He attributes the Democrats’ success to a combination of factors that includes the state’s budget woes, voter dissatisfaction with President Trump and a series of scandals that have led to the resignation of four GOP incumbents this year.
“The formula has been very similar for each of these races,” Whelan said “There are a lot of Republicans out there with buyer’s remorse with President Trump, which naturally suppresses turnout.
“Then you’ve got scandal after scandal happening locally, and I think Republicans are losing faith in their brand a little bit.”
Proof that literally everyone eventually looks in the mirror.
Wednesday, November 15, 2017
Oh, those wacky Russkies. If they weren't trying to subvert democracy and replace it with a worldwide authoritarian kleptocratic plutocracy commanded by Vladimir Tiny-Penis Putin, you'd almost want to hug them for trying so hard:
BBC News - Russkies post screenshot of a video game to prove Americans are helping ISIS. No, really:
Russia's Ministry of Defence has posted what it called "irrefutable proof" of the US aiding so-called Islamic State - but one of the images was actually taken from a video game.
The ministry claimed the image showed an IS convoy leaving a Syrian town last week aided by US forces.
Instead, it came from the smartphone game AC-130 Gunship Simulator: Special Ops Squadron.
What a doomed pathetic nation Russia is.
The Trump news just keeps on Trumping!:
BBC - American government doesn't trust Trump with the nukes. Gee, wonder why:
Some senators present said they were troubled about the president's latitude to launch a nuclear strike.
Chris Murphy, a Democrat from Connecticut, said: "We are concerned that the president is so unstable, is so volatile, has a decision-making process that is so quixotic, that he might order a nuclear-weapons strike that is wildly out of step with US national-security interests."
One of the experts, C Robert Kehler, who was commander of the US Strategic Command from 2011-13, said that in his former role he would have followed the president's order to carry out the strike - if it were legal.
He said if he were uncertain about its legality, he would have consulted with his own advisers.
Under certain circumstances, he explained: "I would have said, 'I'm not ready to proceed.'"
One senator, Ron Johnson, a Wisconsin Republican, asked: "Then what happens?"
Mr Kehler admitted: "I don't know."
People in the room laughed. But it was a nervous laugh.
The same laugh they laughed when Orange was elected, except now with nuclear weapons.
Monday, November 13, 2017
IPE Zone - rotting crops in Cornwall. Yup, apparently the Cornish, who voted to leave because they hate smelly Romanians, didn't realize that those smelly Romanians were the only ones in Cornwall who would pick their crops for a pittance.
Sunday, November 12, 2017
Klendathu Capitalist - Vanadium, the next commodity. He says blah blah supply, blah blah demand. I respond that you don't invest in an iron ore byproduct, and for fuck's sake how stupid do you have to be to listen to Raoul Pal?
This is hilarious:
LA Times - Trump judge nominee, 36, who has never tried a case, wins Federal appointment. Oh don't worry, being a Federal judge is something you can learn on the job:
Brett J. Talley, President Trump’s nominee to be a federal judge in Alabama, has never tried a case, was unanimously rated “not qualified” by the American Bar Assn.’s judicial rating committee, has practiced law for only three years and, as a blogger last year, displayed a degree of partisanship unusual for a judicial nominee, denouncing “Hillary Rotten Clinton” and pledging support for the National Rifle Assn.
Hey! I'm a blogger and not qualified! Can I be a Federal judge too?
On Thursday, the Senate Judiciary Committee, on a party-line vote, approved him for a lifetime appointment to the federal bench.
Talley, 36, is part of what Trump has called the “untold story” of his success in filling the courts with young conservatives.
Hey, I can be conservative too! I can ban gay marriage, have compulsory gun ownership for wife-beaters, and force schools to teach that Jesus rode a dinosaur! Can I be judge?
“The judge story is an untold story. Nobody wants to talk about it,” Trump said last month, standing alongside Senate Majority Leader Mitch McConnell (R-Ky.) in the White House Rose Garden. “But when you think of it, Mitch and I were saying, that has consequences 40 years out, depending on the age of the judge — but 40 years out.”
Civil rights groups and liberal advocates see the matter differently. They denounced Thursday’s vote, calling it “laughable” that none of the committee Republicans objected to confirming a lawyer with as little experience as Talley to preside over federal trials.
“He’s practiced law for less than three years and never argued a motion, let alone brought a case. This is the least amount of experience I’ve seen in a judicial nominee,” said Kristine Lucius, executive vice president of the Leadership Conference on Civil Rights.
Why not go one better? Find a 16 year old mentally retarded pedophile serial rapist, get him adopted by Fred Phelps, and appoint him to the Supreme Court. He'll be turning out conservatism for the next 90 years. Take that, Dems!
The group was one of several on the left that urged the Judiciary Committee to reject Talley because of his lack of qualifications and because of doubts over whether he had the “temperament and ability to approach cases with the fairness and open-mindedness necessary to serve as a federal judge.”
Some conservatives discount the ABA’s rating. “The ABA is a liberal interest group. They have a long history of giving lower ratings to Republican nominees,” said Carrie Severino, counsel for the Judicial Crisis Network, which supports Trump’s nominees.
Maybe Republican nominees are rated lower just because they're all fucking idiots? Like, 36-year-old bloggers who have never tried a case? Might that be a reason they're rated lower? Or is it all a librul conspiracy to... um... stack the courts with people who will defend liberty?