Saturday, February 20, 2016

The Republican debate was something like this

I have to admit, I watched about 20 minutes of a Republican debate sometime this past week or so. I figured that since I was drunk at the time, it would be kinda fun.

And, distressingly, Donald Trump came across as by far the most reasonable candidate.

Anyway, the debate wasn't this one, but this is still tres hilaire belloc:

Friday, February 19, 2016

Two Friday newsblobs

New Deal Demoncrat - why the US is not in recession. Hey, remember the people who were saying there is a corporate profit recession? Yeah, well it turns out they were lying. There is none.

BI - core inflation rises by the most in four years. Hey, what if Janet Yellen (chair of the Federal Reserve, eminent economist, has breakfast with a Nobel winning economist every morning) has the right read on future inflation after all, and the media (generally retards, no university education, you're lucky if they even have diplomas in journalism) were wrong all along? I'm only saying it's something worth considering.

In any case, the complete lack of a "OMG core inflation is proving Janet right, sell sell sell!" reaction this morning is a bit of a market tell, I think.

Friday videos, traditional Cuban vacation edition

Since it's mid-February, the time of year when absolutely anyone in Canada with $500 goes to Holguin for a week of boozing and warm weather (which wisdom is now recognized by none greater than Barack HUSSEIN Obama), here's some Blondie:

And of course people like Marco Rubio and Ted Cruz are against a thaw in US-Cuban relations: it's yet another demonstration of twenty years of collapse of Russian influence worldwide, and guess which kleptocratic mass-murdering Nazi failed state Rubio and Cruz get most of their campaign money from?

Thursday, February 18, 2016

And some interesting evening news

Tim Duy the science guy - FOMC minutes and more.  Quote:
The Fed may be turning toward my long-favored policy position - the best chance they have of lifting off from the zero bound is letting the economy run hot enough that inflation becomes a genuine concern. That means following the cycle, not trying to lead it.
Which would be nice, since that'd mean Kruggers can dust off his DAD/DAS notes and lecture us some more about the significance of generating expected inflation in a deflationary environment: i-sub-e is an important thing, and maybe part of the negative-rates problem is just that expected inflation hasn't existed? I mean, except for the lunatic fringe, and even Republican hedge fund cokeheads have given up on that now.

Duy thinks this ultimately turns out bad as the Fed eventually find themselves falling behind the curve on inflation and responding with fast rate hikes to cause a Volcker recession.

I still don't think there will be any inflation. Except for inflation-expectations-inflation. There's too much money in the world trying to lend, and nobody's left who can borrow anymore. Except, y'know, governments, and it's not as if they're ever going to bother even meeting depreciation costs on public capital ever again, much less spending when they can borrow billions for 10 years at under 1.8% nominal.

Because that's communism.

Polemic's Pains - short-squeeze or base, or both? Well, Gary Wordsalad's 1750 S&P target hasn't been reached yet, and the goldbugs are crowing about how the Saviour's second coming is finally nigh, so I'd say this is the base, and the panty-piddling should be done shortly. And here's some wisdom for the idiots:
Now I am a great fan of charts but there comes a point where a chart is no longer relevant because it is of somewhere else and not where you are. Sure, 2008 patterns can be overlaid and extrapolated but they are not of these parts. 2008 was completely different. The banking system had frozen up and economies were collapsing. Now of course if you wish to follow that chart whilst we have no problem or anticipated problem of money transmission (shhh now in the cheap seats. We don’t), nor do we have a collapsing economy despite the markets trying to tell us we should, you can. But US data is far from recessionary and it doesn’t look as though Europe is in trouble either. Certainly not to the extent that would justify modelling the current markets on 2008. Following the chart of 2008 is like trying to navigate London using a GPS loaded with the Shanghai road map from 1946.
Too bad that idiots are exactly the sort of people who will never read wisdom because they're too busy linking their shitty blogs to the Ludwig von Mises Institute.

AP - IS faces budget crunch. The mass-murdering Islamic child-raping lunatics in Syria and Iraq have had to cut salaries, and while sure some of it might be due to American bombing (and not Russian bombing, which mostly targets the nefarious deeds of Doctors Without Borders), another big contributor has been the collapse in oil prices.

Which is funny, no? Ain't it really funny that all of the most despicable subhuman enemies of freedom in the world (e.g. Russia, Iran, Islamic mass murdering child rapists, the Republican party, Alberta) can be brought down just by a drop in the price of oil? Now it turns out they were just a bunch of fucking devolved mongrel-races all along, and they simply confused sheer luck in resource endowments with intellectual superiority.

I dunno, to me that's funny.

Speaking of which....

Speaking of which...

Man, I do save my best turns of phrase for my withering criticisms of Zerohedge. Like

The thing about running an aged blog....

Sometimes I get these weird bursts of interest in a blog post from over two years ago:

click to enhugeify

and even more rarely it's a good article and god knows why they care cos it's still 2 years old and if you're managing billions in AUM, Omega, I would hope that you already know that zerohedge is a Russian propaganda site whose boss' dad was a Bulgarian agent in the cold war, because otherwise money management is one hell of a lot stupider than I give it credit for.

EDIT: And even more rarely, the minute I try to add a link to the article, my whole blog becomes inaccessible....

NDD on the (fake) economics of the minimum wage

New Deal Demoncrat - thoughts on the minimum wage. Long quoting alert, cos I have a lot to add:

Most people who argue against the minimum wage assume labor demand is elastic, meaning the amount demanded will disproportionately change relative to price changes. Here's a simple supply and demand chart to illustrate:

In the above chart, the government increases wages from P to P2 and demand drops from Q1-Q2. In this example, the line Q1-Q2 is longer than P-P2, meaning the increase in price had a large impact on demand.

The additional paleoconservative dogwhistle we're fed is that the minimum wage also increases unemployment, by drawing extra people into job-hunting who would like to be paid the above-equilibrium minimum wage. Which kinda begs the question of how a country with a minimum wage can ever operate at "full employment", no?

And though he'll get to in a bit, I have to point out that one big problem with the above simplistic model is that there's no scale on the axes. Good luck finding a first - or second-year prof who will actually point that out, though.

However, what if demand is inelastic? In that case, we'd be looking at the following chart:

Above we see the quantity demanded decrease slightly relative to the larger increase in price. This means that even if wages increase, we still demand a certain amount of labor.

The second chart is actually far more realistic. Consider the following fact pattern: a store currently has 100 employees. Because they're a profit maximizing entity, they are already using the optimal amount of labor (give or take say 5-7 employees). Let's assume they cut their workforce by 25% because of the increased wages they must now charge. At this level of cuts they'll see shelves stocked less frequently, fewer employees helping customers finding items and longer check-out lines. This will actually decrease their sales; customers will get tired of not being helped and will become frustrated with the longer lines.

And the elasticity is important because labour is also the economy's consumers: if you can raise the minimum wage to reduce employment a bit but the net pay to all labour (area under the curve between L=0 and equilibrium) is increased, then you've just improved general welfare and boosted consumption.

Guess what? That increased consumption then feeds back into labour demand, and suddenly the equilibrium goes back above the minimum wage, and so you end up at full employment and free-market equilibrium again.

Also, when you ignore the Benjamin Bunny Preschool static model shown above and start looking at labour dynamics, you see a lot of other weird things happen. Yes, there's price stickiness in wages; part of that, though, is due to labour hoarding, which is what happens when your company faces reduced demand during an extreme economics downturn but you refuse to fire your top engineers with 20 years' experience because you've invested so much in their human capital.

Kinda hard to model that human capital in a simple supply-demand model.

It's all a lot more complex than the bullshit X diagram we get in 1st and 2nd year econ. But the paleoconservative doctrine demands teaching us kiddies that Adam Smith's 18th-century philosophical noodlings count as "economics", and that all wages just vanish into a black hole somewhere - kinda like government spending.

Another big problem with the simple "perfect competition" model lies, actually, on the supply side. At the top, the supply curve actually bends backwards, as high-paid workers trade extra hours for more leisure: this is pretty standard teaching in late-2nd year microfoundations.

But the bottom changes direction as well: each worker has to meet a minimum level of autonomous consumption to survive, and so the supply curve bends back outwards at the bottom as well. At which point you get negative externalities that reduce labour demand further. The job of a minimum wage, then, is to cut off the lower half of the supply curve to ensure the lower equilibrium is avoided.


The underlying reasoning is based on the production function, another basic micro-econ concept:

The horizontal line shows the total amount of labor while the vertical lines shows total output. Notice that as L decreases, so does output.

So, the model's argument goes, the perfect competition demand curve is entirely a function of marginal product of labour: the store supposedly hires workers just up to the point at which the wage cost is exactly paying for profit. So, no, the store won't lay off 25% of employees if the savings in wages is offset by losses in sales. Yay free markets!

(This model fails to explain why, say, black university graduates face an unemployment rate several times higher than white highschool dropouts. I mean, wouldn't black university graduates have a higher marginal product of labour than inbred toothless West Virginia trailer trash? But that's what happens when you aggregate all labour into one "aggregate worker", as in this model.)

But the important thing to note is that this simplistic supply-demand model only works for perfect competition (and I guess monopolistic competition with some modification), yet perfect competition doesn't actually exist in the real world. In the case of labour demand, labour generally faces an oligopsony: for most jobs, there are a limited number of hirers in any market, and they tend to "collude" in the wage offered.

"Collusion" in this case doesn't have to mean some sort of conspiracy, btw; it can be as simple as saying "a middle-aged mom working part-time as a cashier shouldn't make more than $X an hour", or "I don't care how good a programmer you are and how the dozens of scripts you've written have improved productivity at our office, there's no way anyone in your position gets paid more than $Xk per year." Or even paying employees wages within a band determined by job classification. Face it: if you're making the company $500k/yr in profit, you're not going to get your fair share.

So, similar to how a monopsony buyer's market power means they can pay significantly less in wages than the employee's marginal product, an oligopsony that successfully colludes will also pay workers far less than their marginal product. So the demand curve doesn't look like the above. In fact, the labour buyer is a price-maker.

That means there is no demand curve.

So the tl;dr is that NDD killed a bunch of helpless electrons for nothing?

Well, he wrote a basic criticism of the labour supply-demand model, which is maybe enough to get von Mises-worshipping clowns thinking. Thing is, there is even more bullshit to the model than NDD let on. It really is a worthless piece of trash, which is why anyone with any sense should be worried this is all that engineering and finance and business majors learn about labour markets in their 2 or 3 intro econ classes.

In fact, the reason there's so much paleolithic, incompetent, truly dangerous pseudo-economics out there is because universities like teaching this garbage to all their first and second year students.

And that's why countries like the USA are as fucked-up and economically crippled as they are. Because economics departments are purposefully destroying the country.

Wednesday, February 17, 2016

oh and Obama also kills children

More on the topic of Obama and Russian propaganda:

Almost looks like a Republican party ad and not a Russian propaganda commercial, eh?

Also proof that looking stylish and cool doesn't insulate you from being a vacuous obedient puppet of a fascist kleptocratic regime. Then again, the smart people all left Russia 20-25 years ago.

I await the charges that Obama's also behind endemic Russian alcoholism, or Russian child pornography, or Russian sex slavery, or Russian drug abuse, or Russian homosexual gangrape in the armed forces. Or, y'know, blowing up apartment buildings and blaming it on the Chechens.

BREAKING: Foo Fighters' Dave Grohl looks exactly like the drummer from Nirvana

OK, this is just silly, but therefore funny:

Jeffy Currie's tune is getting a bit old

BI - Jeffy Currie at GS says (guess what) short gold. He's still sticking to his $1000 call:

Currie has a three-month target of $1,100 per ounce and a 12-month target of $1,000.

And the problem I see with your call, Jeffy, is that

a) you've been wrong for 2 years now, and

b) nobody with a brain is going to short gold anymore now that it's demonstrated the ability to fly up 20% off its lows in the space of 2 months; that's not the sort of potential faceripper that you want to go to bed with if you have any concerns about the long-term viability of your prop desk, speaking of which:

Looks like GS just spent two months underperforming against gold. That's sad.

Tuesday, February 16, 2016

GDP is what, now?

GDPNow - this week's 1Q16 forecast. Um, it looks like this:

That's 2.7%, above the blue chip consensus even, which means all the stupid recession blather should be going away a few weeks from now.

So what's everything else looking like?

New Deal Demoncrat - new hires makes a new high. Which means new hires failed to peak, which means the US is still in an expansion. Even means Janet might be right after all that there is an acceleration coming in wage inflation.

New Deal Demoncrat - indicators continue to get less worse. USD especially has swung from bad to neutral. Which means an end to Lael's exogenous tightening.

Calculated Risk - LA port traffic hits record in January. Um, that's a good thing too, isn't it?

Or, of course, you could believe the blather of the doomers.