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  • Archive for the 'Economics & Finance' Category

    Manufacturing Day

    Posted by David Foster on 2nd October 2015 (All posts by )

    Today, October 2, is Manufacturing Day…”a celebration of modern manufacturing meant to inspire the next generation of manufacturers.”  There are opportunities for plant visits all over the country, many open to the public and some limited to school tours, etc.

    There’s a lot more manufacturing going on in the US than most people seem to realize, but not as much as there should be.

    See my related post faux manufacturing nostalgia, also  myths of the knowledge society and “protocols” and wealth creation.

    Posted in Business, Economics & Finance, Management, Tech, USA | 2 Comments »

    Much Talk These Days About “the Internet of Things”

    Posted by David Foster on 16th September 2015 (All posts by )

    …but few seem to have noticed that the Internet of Very Big Things, aka Positive Train Control, is having some difficulties—and  the consequences could be pretty serious.

    via Cold Spring Shops, which has comments here and here.

    Posted in Economics & Finance, Tech, Transportation, USA | 16 Comments »

    Risk: An Allegory

    Posted by Jonathan on 26th August 2015 (All posts by )

    Here’s an interesting article on CNBC’s website: Katrina anniversary: Will New Orleans levees hold next time?

    The 100-year threshold is also a statistical guess based on data on past storms and assessments of whether they’ll occur in the future. That means the models change every time a new hurricane strikes. The numbers being used as guidelines for construction are changing as time passes.
    The standard also does not mean—can’t possibly mean—that a 100-year storm will occur only once per century. It means that such a storm has a 1 percent chance of happening in any given year. So for example, it’s technically possible for several 100-year floods to occur in just a few years, although it’s highly unlikely.

    One way to look at it is that the engineers need to estimate how high a wall New Orleans needs to protect itself against a reasonably unlikely flood — say, a 1-in-1000-year event. This is the line of discussion pursued in the CNBC article.

    Another way to look at it is to observe that the odds of another Katrina, or worse, within a specified period are highly uncertain. In this case a radical course of action might be called for. You do something like: take the best estimate for the wall height needed to protect against a 1000-year flood and then double it. Building such a levee would probably be extremely expensive but at least the costs would be out in the open. Or you might decide that it’s not the best idea to have a coastal city that’s below sea level, and so you would discourage people from moving back to New Orleans, rather than encourage them by subsidizing a new and stronger system of walls.

    In this kind of situation the political incentives are usually going to encourage public decisionmakers to ignore radical solutions with high obvious costs, in favor of the minimum acceptable incremental solution with hidden costs: probably subsidies to rebuild the levees to, or perhaps a bit beyond, the standard needed to protect the city in the event of another Katrina. And it’s unlikely that any local pol is going to advise residents to move out and depopulate his constituency. Thus, eventually, a worst case will probably happen again.

    Posted in Deep Thoughts, Economics & Finance, Environment, Human Behavior, Markets and Trading, New Orleans Tragedy, Predictions, Public Finance, Statistics, Systems Analysis, Tradeoffs | 14 Comments »

    Here We Go !

    Posted by Michael Kennedy on 24th August 2015 (All posts by )


    I have been pessimistic for several years. That may be just my own psychological makeup but I am not the only one.

    California is getting a bit agitated about what is happening in China.

    Gyrations in the stock market have taken California’s fragile finances for a ride before — when the dot-com bubble burst, when the Wall Street crash sank the national economy less than a decade ago.

    So when the market continued its dive Monday, state officials began glancing around for their seat belts.

    More than most states, California depends heavily on taxes from the wealthy, pulling about half of its income tax revenue from just 1% of residents in recent years.

    California is a top down society because it depends on income tax. Texas doesn’t and its state government is funded by sales tax, which everyone pays, even illegals.

    The Obama Administration has been playing a Ponzi Scheme for years.

    A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator.

    Read the rest of this entry »

    Posted in Big Government, Book Notes, Civil Society, Conservatism, Crony Capitalism, Current Events, Economics & Finance, Leftism, Politics | 5 Comments »

    How Systems Get Tired

    Posted by David Foster on 22nd August 2015 (All posts by )

    This great post by Richard Fernandez  reminded me of a quote from George Eliot:

    The sense of security more frequently springs from habit than from conviction, and for this reason it often subsists after such a change in the conditions as might have been expected to suggest alarm. The lapse of time during which a given event has not happened is, in this logic of habit, constantly alleged as a reason why the event should never happen, even when the lapse of time is precisely the added condition which makes the event imminent.

    (from Silas Marner)

    Posted in Big Government, Deep Thoughts, Economics & Finance, Political Philosophy, Tech | 20 Comments »

    Markets vs Bureaucracies

    Posted by David Foster on 17th August 2015 (All posts by )

    Glenn Reynolds has an article in USA Today:  free markets automatically create and transmit negative information, while socialism hides it.  Excerpt:

    It is simple really: When the “Great Leader” builds a new stadium, everyone sees the construction. Nobody sees the more worthwhile projects that didn’t get done instead because the capital was diverted, through taxation, from less visible but possibly more worthwhile ventures — a thousand tailor shops, bakeries or physician offices.

     At the same time, markets deliver the bad news whether you want to hear it or not, but delivering the bad news is not a sign of failure, it is a characteristic of systems that work. When you stub your toe, the neurons in between your foot and your head don’t try to figure out ways not to send the news to your brain. If they did, you’d trip a lot more often. Likewise, in a market, bad decisions show up pretty rapidly: Build a car that nobody wants, and you’re stuck with a bunch of expensive unsold cars; invest in new technologies that don’t work, and you lose a lot of money and have nothing to show for it. These painful consequences mean that people are pretty careful in their investments, at least so long as they’re investing their own money.  Bureaucrats in government do  the opposite, trying to keep their bosses from discovering their mistakes.

    Indeed, this is an important point, and one that is too rarely understood.  Rose Wilder Lane, the author and political thinker, offered the example of British versus French and Spanish approaches to colonial management:

    The Governments gave them (in the case of the French and Spanish colonies–ed) carefully detailed instructions for clearing and fencing the land, caring for the fence and the gate, and plowing and planting, cultivating, harvesting, and dividing the crops…The English Kings were never so efficient. They gave the land to traders. A few gentlemen, who had political pull enough to get a grant, organized a trading company; their agents collected a ship-load or two of settlers and made an agreement with them which was usually broken on both sides…To the scandalized French, the people in the English colonies seemed like undisciplined children, wild, rude, wretched subjects of bad rulers.

    Yet the English colonies, economically-speaking, were generally much more successful.

    RWL also explained the way in which central planning demands the categorization of people:

    Nobody can plan the actions of even a thousand living persons, separately. Anyone attempting to control millions must divide them into classes, and make a plan applying to these classes. But these classes do not exist. No two persons are alike. No two are in the same circumstances; no two have the same abilities; beyond getting the barest necessities of life, no two have the same desires.Therefore the men who try to enforce, in real life, a planned economy that is their theory, come up against the infinite diversity of human beings. The most slavish multitude of men that was ever called “demos” or “labor” or “capital” or”agriculture” or “the masses,” actually are men; they are not sheep. Naturally, by their human nature, they escape in all directions from regulations applying to non-existent classes. It is necessary to increase the number of men who supervise their actions. Then (for officials are human, too) it is necessary that more men supervise the supervisors.

    And the planner will always demand more power:

    If he wants to do good (as he sees good) to the citizens, he needs more power. If he wants to be re-elected, he needs more power to use for his party. If he wants money, he needs more power; he can always sell it to some eager buyer. If he wants publicity, flattery, more self-importance, he needs more power, to satisfy clamoring reformers who can give him flattering publicity.

    Read  Glenn’s whole article, and  my post about Rose Wilder Lane’s ideas and writing

    Posted in Big Government, Britain, Economics & Finance, France, Leftism, Political Philosophy, USA | 4 Comments »

    Who Is Buying That Crap?

    Posted by Carl from Chicago on 9th August 2015 (All posts by )

    Dan and I follow municipal bonds, which is a bit more exciting than it sounds. The State of Illinois, the City of Chicago, Cook County, and many other entities in which I am a semi-unwitting participant will likely soon be on the front pages of newspapers as it sinks in that we can never repay these debts.

    Back in late 2008, during the height of that financial crisis, the State of Illinois issued debt. In this post I basically asked the question “Who is buying this crap?” and the answer was JP Morgan, showing its solidarity (in a way) with the state of Illinois by buying the ENTIRE issue.

    Puerto Rico is the new problem child of debt failure, and as Dan calls it, a “gapers block” over the entire municipal debt market. There were a lot of good reasons to buy Puerto Rico municipal bonds for many years – it was tax exempt, it had high yields, some of it was insured and / or tied to revenue streams like power or water, and historically there had been few or no failures of large-scale municipal bond issuers. It was great to own this debt and collect the high interest rates, as long as you watched it and got out before it collapsed. In a way this is “momentum investing” of sorts – get in and enjoy the ride up, but make sure you clear the exit before everyone else runs out of the movie theater screaming “fire”.

    But the question in the back of my mind was always “Who is buying that crap”. Not sophisticated investors who knew how to ride the wave up and get out before it collapsed, but people who honestly believed that a set of statements by politicians and / or laws as they were currently constructed would magically allow a tiny and impoverished island to pay inordinate debts while their economy imploded around them.

    A recent NY Times article titled “Pain of Puerto Rico’s Debt Crisis Is Weighing on the Little Guy, Too” provided a timely answer to my question.

    To Lev Steinberg, it seemed like a good place to park his nest egg. Puerto Rico bonds offered high returns and tax-free income. And there was little chance, his broker assured him, that the government would default on its debt. So Mr. Steinberg went all in, investing more than 85 percent of his retirement savings in funds with large concentrations of Puerto Rico bonds.“They told me this was safe,” said Mr. Steinberg, a 64-year-old mathematics professor at the University of Puerto Rico, “that the legal protections to repay the bonds were strong.”

    The NY Times article describes how local brokers and banks created products that leveraged up these bonds with borrowed money and then they were sold to Puerto Rico citizens (they were illegal on the mainland). The article said that 20% of Puerto Rican debt is owed to local citizens, and they bought many of the most “toxic” issuances (those with the least protections, like pension obligation bonds).

    Thank you, NY Times, for helping to answer the timeless question “who is buying that crap”. The answer is gullible citizens, who believed in their government’s promises, and also thought that years and years of high returns could be manufactured endlessly out of thin air without corresponding risk.

    Cross posted at LITGM

    Posted in Big Government, Business, Economics & Finance | 15 Comments »

    Was Ethan Allen a wing nut?

    Posted by Mrs. Davis on 8th August 2015 (All posts by )

    First Bernie Sanders, now this:

    Now that Vermont has a mandate to get 75 percent of its electricity from renewable energy sources by 2032, residents will have to ditch automobiles and embrace a whole new way of life, the state’s top renewable energy CEO says.
    “We’re probably going to have to abandon the car,” David Blittersdorf, president of All Earth Renewables, told Addison County Democrats in a recent presentation titled “Vermont’s Renewable Energy Future.
    “The idea that we’re going to be flying around in airplanes — it’s one of the worst consumers of energy and emitting carbon. … I tell my kids … if you’re going to travel, travel now. Don’t wait 50 years. It’s going to cost you 10 times as much for every one of those flights.”

    It’s as though Julian Stanley never lived.

    Posted in Economics & Finance, Energy & Power Generation, Environment, Just Unbelievable, Leftism | 12 Comments »

    Our Disastrous Energy Policy, Continued

    Posted by Carl from Chicago on 2nd August 2015 (All posts by )

    New Clean Air Act regulations have recently been proposed by the EPA.

    President Obama will unveil on Monday a set of environmental regulations devised to sharply cut planet-warming greenhouse gas emissions from the nation’s power plants and ultimately transform America’s electricity industry. The rules are the final, tougher versions of proposed regulations that the Environmental Protection Agency announced in 2012 and 2014. If they withstand the expected legal challenges, the regulations will set in motion sweeping policy changes that could shut down hundreds of coal-fired power plants, freeze construction of new coal plants and create a boom in the production of wind and solar power and other renewable energy sources.

    What is interesting is that the EPA recently had their ever-expanding mandate struck down by the Supreme court just a few short weeks ago, when their attempt to kill off coal through regulation of mercury and other pollutants was invalidated for not sufficiently weighing the cost of the proposed initiative.

    Read the rest of this entry »

    Posted in Big Government, Business, Current Events, Economics & Finance, Energy & Power Generation, Environment | 28 Comments »

    Socialism is running out of other people’s money

    Posted by Michael Kennedy on 1st August 2015 (All posts by )

    Socialism is on its last legs except for college faculty lounges. Venezuela is now seizing private companies’ facilities.

    “There is an economic war here and this company, Polar, is at the heart of it. They hide products from the population, and inflate their prices!”
    The government had first notified the landlord of plans to expropriate the industrial park in 2013, Nestle spokesman Andres Alegrett said by telephone from Caracas on Thursday. Nestle used the facility to dispatch about 10 percent of its products in the country, supplying sweets and drinks to the western side of Greater Caracas, he said.

    Nestle is no stranger to Socialism. Jonah Golberg noted Nestle’s connection years ago.

    About ten years ago I went on a junket to Switzerland and attended a talk with the CEO of Nestlé. Listening to him, it became very clear to me that he had little to no interest in free markets or capitalism properly understood. He saw his corporation as a “partner” with governments, NGOs, the U.N., and other massive multinationals. The profit motive was good for efficiency and rewarding talent, but beyond that, he wanted order and predictability and as much planning as he could get. I think that mindset informs the entire class of transnational progressives, the shock troops of what H. G. Wells hoped would lead to his liberal-fascist “world brain.”

    Yes, Nestle has a history of cooperation with various do-gooder initiatives although it has kept its eye on profits.

    Read the rest of this entry »

    Posted in Americas, Big Government, Crony Capitalism, Economics & Finance, Leftism, Politics | 5 Comments »

    Civil Wars everywhere in politics.

    Posted by Michael Kennedy on 25th July 2015 (All posts by )

    Tia Oso

    At the “Netroots Nation Conference, while an illegal alien was interviewing Martin O’Malley, a Democrat candidate for president, the stage was invaded by a black convicted felon (embezzlement) named Tia Oso who protested when O’Malley said “All lives matter.”

    Chanting, “What side are you on, my people, what side are you on?” and “Black lives matter,” the demonstrators moved to the front of the ballroom about 20 minutes into the event as Mr. O’Malley discussed proposed changes to Social Security. They remained there, heckling the candidates and posing questions, until organizers shut down the event, one of the centerpieces of the annual Netroots Nation conference.

    The Democrats are going to have serious problems with the black activist movement.

    The black radicals even plan to dig up the remains of General Nathan Bedford Forrest and his wife, law or no law. This sort of lunatic behavior is going to discredit this stuff pretty soon.

    Of course the Connecticut Democrat State Central Committee voted to remove the names Jefferson and Jackson from their annual celebration, so the black radicals not that much more crazy.

    Connecticut state Democrats voted Wednesday to remove the names of former presidents Thomas Jefferson and Andrew Jackson from their annual fundraising dinner, reportedly because of their ties to slavery.

    According to the Hartford Courant, it only took two minutes for the Connecticut Democrat State Central Committee to unanimously pass a resolution stripping both names from the title of the Jefferson-Jackson-Bailey Dinner.

    Party Chairman Nick Balletto proposed the change. He told the Daily Caller the decision, which apparently came under pressure from the NAACP, was about party identity.

    Yup, the lunacy continues.

    Read the rest of this entry »

    Posted in Big Government, Civil Society, Conservatism, Crony Capitalism, Economics & Finance, Elections, Politics | 17 Comments »

    Quote of the Day from Jeff Carter

    Posted by Lexington Green on 21st July 2015 (All posts by )

    Screen Shot 2015-07-19 at 9.42.17 AM

    Quote of the day, from Jeff Carter’s Points and Figures blog, a post entitled “Disrupting Government”:

    Tech initially toppled major corporations. Motorola and Kodak are shells of themselves. Now, technology has the opportunity to eliminate wide swaths of government and all the cronies, cartels, employees and economic imbalances that come with them. As a society, we shouldn’t fight that. We should embrace it. Automation of government will make things cheaper for taxpayers. Elimination of old fashioned out of step government will make things better for society.


    Jeff wrote very favorably about America 3.0.

    And the “Disrupting Government” post is a very “America 3.0” view of the future, which I heartily share and endorse.

    But that is not the only reason I like his stuff. Jeff is a former floor trader, angel investor involved in the start-up scene in Chicago, and all around astute, sensible and articulate observer of politics, business and the economy.

    A few other good recent posts from Jeff include:

    Dodd Frank; Total Fail,

    Hillary Skewers the Gig Economy,

    Greece and Traditional Hierarchy,

    The Third Wave, and

    History Doesn’t Repeat Itself, But Echoes, which said, among other insightful things, “I encourage you to read a book, America 3.0. It charts a realistic way forward given the kind of government we have, and the history our country has had.”

    Be sure to drop by Points and Figures frequently.

    And don’t just take it from me.

    Instapundit frequently links to Jeff’s blog, because it is just that good.

    Posted in America 3.0, Book Notes, Economics & Finance | 4 Comments »

    Oregon Road Trip Part I

    Posted by Carl from Chicago on 20th July 2015 (All posts by )

    Recently I went to Oregon for the first time. In my past work as a consultant and during vacations I’d been to 48 states – but not Oregon or Hawaii. We started out in Portland and traveled around most of the state and it was a good time, with a lot of odd insights.

    The architecture in Portland was spectacular. I am a fan of the “Dwell” type house; a modern look with lots of glass. Portland had many older houses (Victorians) along with a lot of great new construction, especially in the downtown area.

    Oregon in general had many older cars, often in pristine condition. I saw a lot of older pickup trucks off the main roads, still working hard for their owners. Not sure why but generally it must be that they don’t salt their roads.

    Read the rest of this entry »

    Posted in Economics & Finance, Personal Narrative | 8 Comments »

    Sic Transit Gloria China

    Posted by Grurray on 8th July 2015 (All posts by )

  • Shoeshine boy trading club, China chapter

  • There’s an old Wall Street legend about Joseph Kennedy, bootlegger and head of America’s original soap opera political family. At the height of the stock market mania in the ’20s, he received a stock tip from a shoeshine boy. It goes something like this:

    But the boy was not of the timid kind. “Oh yeah,” he yelled back at Kennedy, “well, I got a tip for you too: buy Hindenburg!” Intrigued, Kennedy turned around and walked back. “What did you say?” – “Buy Hindenburg, they are a fine company,” said the boy. “How do you know that?” –- “A guy before you said he was gonna buy a bunch of their stocks, that’s how.” – “I see,” said Kennedy. “That’s a fine tip. I suppose, I was a little harsh on you earlier,” he said, pulling off a glove and reaching in his side pocket for some change. “Here, you’ve earned it.”
    Little did the boy know that Kennedy, a cunning investor, thought to himself: “You know it’s time to sell when shoeshine boys give you stock tips. This bull market is over.”

    This is supposedly how Joe avoided the financial ruin of the crash. He was probably too busy stockpiling whiskey to really care very much, but it does make for a good story.

    We’re reminded of this old saw today with some distant rumblings in the markets. Last week I was wondering what might cause our stock market to break out of its summer doldrums. Over the past few days we may have gotten the answer. While everyone was looking at the Greek crisis, China’s stock market has been crashing.

    The Shanghai Composite Index more than doubled in the last year up until a few weeks ago. All that time it was rising, economic reports indicated the Chinese economy was slowing. Since the peak in mid June, it has dropped over 30%. Last night it was down another 6%, and it would have been more if not for the Chinese government halting trading in most of the stocks. Bloomberg is reporting that Chinese regulators have banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months.

    Investors with stakes exceeding 5 percent must maintain their positions, the China Securities Regulatory Commission said in a statement. The rule is intended to guard capital-market stability amid an “unreasonable plunge” in share prices, the CSRC said.

    This rule sounds like it’s meant to ban bigwigs and fatcats from bailing out on the economy. However, like Kennedy in the ’20s, all the big money already exited and left regular citizens holding the bag. The Chinese always had a high rate of savings, but recently they have been putting more of it into their stock market using margin to to double down on already precarious positions.

    Chinese brokers have extended 2.1 trillion yuan ($339 billion) of margin finance to investors, double the amount at the start of the year. But this often-cited figure is only part of the mountain of debt taken out to finance share purchases. Another 1.7 trillion yuan may have flowed into stock market investment from wealth management products, online lending sites and other sources, according to a Bloomberg survey of analysts.

    This was a good old fashioned bubble, and now it looks like it’s bursting. This will have repercussions all over the world. As of this morning, US stock markets are down over 1%. With the reliance of our industrial and financial industries on the hyper-interconnected global markets, this one probably won’t go down quietly.

    Posted in China, Economics & Finance, Markets and Trading | 21 Comments »

    The “Amazon-ification” of Retail

    Posted by Carl from Chicago on 3rd July 2015 (All posts by )

    A while back I was talking to a friend of mine and he said

    A package from Amazon shows up at my doorstep every day of the week

    At the time I thought my friend was exaggerating, or perhaps a little bit crazy. But now it has moved to the point where I usually receive 1-2 packages each week from Amazon and now the yellow “minion” boxes abound in my condo.

    What happened? I started to realize that with free shipping and the fact that my iPhone is usually nearby, whenever I am “out” of something around the house or need something that is unavailable, I just pick up my phone, type in a description in the App, and buy it immediately. Then I typically forget about whatever it is that I bought until I open up one of the regularly arriving Amazon boxes and go

    Oh, that’s what I needed

    You can buy pretty much everything that isn’t immediately perishable on Amazon, except for a few things like liquor. Thankfully I live near an enormous liquor store (but unfortunately not a high end grocery store, River North lacks a Whole Foods or Mariano’s) so that’s covered.

    Read the rest of this entry »

    Posted in Business, Economics & Finance | 17 Comments »

    Midsummer Reflections on the Stock Market

    Posted by Grurray on 2nd July 2015 (All posts by )

    As we’re all getting ready for the Independence Day weekend, it’s a good time to pause and reflect on how the first half of the year has been going. Many developments have arrived and passed in the news which have caused various actions and reactions. One day it seems nagging, complex issues are about to be resolved just when other more vexing problems take their place. The only constant, as the cliché goes, is the constant of change.

    That is except in the stock market. It’s less than 1% above where it opened the year and has been moving basically sideways in that time. From speculation about the Fed raising rates to languidly growing economy to Greek debt dramas, the market seems to be carelessly bobbing along, flotsam-like, awaiting some direction.

    Asking, ‘how did we get here’, is easy. When you shoot for mediocrity as a country and society, sometimes that’s what you get (or worse). Now might be a good time to ask, where do we go from here?

    Today’s jobs report doesn’t give us much of a clue. The unemployment rate has dropped to 5.3%, close to a level which in the past used to be described as full employment. On the other hand, labor force participation is the lowest it’s been since the 1970s, a time before women were fully entering the workforce and life expectancy for men was below 70 years of age.

    Those that dropped out of the labor force aren’t counted in the unemployment rate, and they aren’t eligible for unemployment benefits. However, they haven’t just disappeared off the face of the earth. Many have passed from a temporary welfare program to the more permanent one of social security disability. Well, more permanent until the program runs out of funds as soon as next year.

    But that’s old news. The complacent collective market sees what it wants to see and has chosen to see the government’s version of economic reality.

    We can look at ways of fundamentally gauging the valuation of the stock market such as price to earnings ratio or the so-called Warren Buffet Indicator of total market cap to GDP ratio. I like to look at the Q ratio which is a simple comparison of the total price of the stock market to the replacement costs of all companies listed. This is the favored metric of billionaire black swan investor Mark Spitznagel, who by the way wrote a most excellent book, The Dao of Capital, about Boydian investment strategies.

  • Q ratio – Pricey but is it dicey?

  • By this measure, the market looks to be at a pricey level compared to other points in time. 1907, 1929, 1937, and 1968 were all years when the stock market peaked and saw a significant decline. The problem is it’s also at the same level as 1997, which had a small pause before marking the half way point in a multi-year rally. We generally have seen regression to the mean in the past, but that doesn’t necessarily suggest it has to ever happen again. We could be waiting a long time for a sanity check to take hold, especially if the definition of sanity has changed.

    A shorter term answer possibly comes from the world’s best econometrics blog Political Calculations. They believe, convincingly in my opinion, that expectations for future dividends drive stock prices in the near future, absent any surprising shocks to upset the apple cart. Those of us who used to watch Larry Kudlow on CNBC (since his show was cancelled there hasn’t been any reason to watch that silly network anymore) remember he used to say ‘earnings are the mother’s milk of stocks’. Well if that’s true than dividends are your father’s pemmican.

    What they do is take values of dividend futures traded on the Chicago Board Options Exchange and apply a multiple (and some other math) to convert them to expected stock prices. Their calculations show a possible slide in prices for the next few weeks to few months. It has worked reasonably well in the past with a few caveats.

    There are different instruments traded for different times in the future. Prices can and do take leaps from one trajectory to the other. It usually happens when someone from the FED talks about raising rates, and then the financial press speculates what specific month or quarter it can happen. In this way, stock prices behave similar to quantum particles bouncing from one energy level to another. It’s not a good way to pin down exactly where stocks are going but just gives a range.

    The other caveat is this measurement only works when the market is in a state of relative order, and not buoyed or rattled by some overly cheery or dreary news. While at a smaller level the market seems to obey quantum mechanics, at the macro level it acts like a natural system, following mathematical probabilities such as those observed in predators hunting or even groups of people foraging. The market moves from more easily observable and predictable periods until the forageables (earnings and dividends) run out, in which case it moves into chaos and unpredictability until new expectations are established.

    What will trigger rapid moves in either direction and out of the current financial horse latitudes is anybody’s guess. There’s a big vote in Greece this weekend, but how many times has that situation reached a cliffhanger? Perhaps too many to matter anymore. As unsatisfactory as it sounds, what usually occurs is something we weren’t expecting, not an event that seems to replay itself over and over again. The best we can really predict is that we won’t be drifting forever, and the time will come when the stock market will move far away from this level. The key is to stay ready for it when it finally does.

    [Jonathan adds: If the right side of the included graphic is hidden on your screen — the date scale should go to 2020 — try right-clicking on the graphic and opening it in a new tab.]

    Posted in Book Notes, Economics & Finance, Markets and Trading | 13 Comments »

    Service Sector Productivity

    Posted by Carl from Chicago on 28th June 2015 (All posts by )

    Recently I went on a diet and began ordering specific drinks ordered a specific way – generally gin with a “splash” of tonic (because tonic has carbs and I want to minimize carbs, but need something to cut against the alcohol). This order, however, has become a running joke among my friends because no matter what I order I usually get the same drink every time – which is a “standard” gin and tonic (see below, the wrong order per usual).

    Unlike most people who would shrug it off or get angry, to me this is really an economics issue and not just a “bad order”. When you work with bars and restaurants and other similar industries, if you do anything “outside the norm” your odds of getting it “right” are often less than 50/50. Which leads us to the title of this post…

    Read the rest of this entry »

    Posted in Business, Chicagoania, Economics & Finance, Management | 20 Comments »

    Obamacare Lives !

    Posted by Michael Kennedy on 25th June 2015 (All posts by )


    UPDATE: The decision is analyzed at Powerline today with quotes from the decision.

    The Affordable Care Act contains more than a few examples of inartful drafting. (To cite just one, the Act creates three separate Section 1563s. See 124 Stat. 270, 911, 912.) Several features of the Act’s passage contributed to that unfortunate reality. Congress wrote key parts of the Act behind closed doors, rather than through “the traditional legislative process.” Cannan, A Legislative History of the Affordable Care Act: How Legislative Procedure Shapes Legislative History, 105 L. Lib. J. 131, 163 (2013). And Congress passed much of the Act using a complicated budgetary procedure known as “reconciliation,” which limited opportunities for debate and amendment, and bypassed the Senate’s normal 60-vote filibuster requirement. Id., at 159–167.

    Therefore, Roberts rewrote it. Nice !

    Today, the Supreme Court upheld the Obamacare state exchange subsidies.

    The Supreme Court has justified the contempt held for the American people by Jonathan Gruber. He was widely quoted as saying that the “stupidity of the American people “ was a feature of the Obamacare debate. This does not bother the left one whit.

    Like my counterparts, I have relied heavily on Gruber’s expertise over the years and have come to know him very well. He’s served as an explainer of basic economic concepts, he’s delivered data at my request, and he’s even published articles here at the New Republic. My feelings about Gruber, in other words, are not that of a distant observer. They are, for better or worse, the views of somebody who holds him and his work in high esteem.

    The New Republic is fine with him and his concepts.

    It’s possible that Gruber offered informal advice along the way, particularly when it came to positions he held strongly—like his well-known and sometimes controversial preference for a strong individual mandate. Paul Starr, the Princeton sociologist and highly regarded policy expert, once called the mandate Gruber’s “baby.” He didn’t mean it charitably.

    Read the rest of this entry »

    Posted in Big Government, Civil Society, Conservatism, Current Events, Economics & Finance, Health Care, Leftism, Medicine, Obama, Politics | 30 Comments »

    The Extraordinary Thing About WWII Is What Happened After

    Posted by T. Greer on 22nd June 2015 (All posts by )

    This video is a bit less than 20 minutes long. It has been making the rounds on Facebook and other social network sites, so it is possible you have seen it already. If you have not, you should. It is incredible.

    Numbers surrounding the Second World War are always ripe for debate, of course, and if you view the comment thread on Vimeo you will see that the debates have already  started. The only revision I would make to the video does not concern the Second World War at all, but the An-Lushan Rebellion (755-753) fought a thousand years before it. This rebellion is often included in lists of the world’s deadliest wars and it shows up when Mr. Halloran compares the Second World War’s death toll to that of earlier conflicts of equal consequence.  

    While it was surely a destructive event, I do not think there is proper evidence to prove that it was that destructive. The 36 million casualties number comes from Tang Dynasty censuses that showed the population of China just before and just after the rebellion, with 36 million being the difference. Many of those 36 million people surely died in the rebellion, but many more fled and moved to safer, more remote locales. The number should be properly understood not as the number of civilians killed, but as a measure for how badly the Tang government’s ability to monitor and control the Chinese population it governed had been damaged. It was a war from which the Tang would never recover. 

    In this sense, it was a very different kind of conflict than the Second World War, a war whose legacy is now seen mostly in the realm of memory. The An-Lushan Rebellion was (from a Chinese perspective) a war that ravaged the known world and involved almost all of the important military powers of its day. While bright emperors like Xianzong (r. 805-820) would try to pull the Tang back together in the decades after the rebellion, the dynasty’s decline was terminal. The forces unleashed by the war eventually led to the complete disintegration of Tang power. This kind of collapse was not seen after the Second World War. The power that suffered the most was to emerge from the conflict as the world’s second strongest. But it was not just the Soviet Union that showed remarkable resilience–humanity as a whole weathered the destruction of two continents and the death of 70 million people barely worse for wear. This is a truly remarkable feat–perhaps one only possible in today’s Exponential Age. The Tang never recovered from the An-Lushan rebellion; Central Asia never blossomed like it did before the Mongol conquests; no new Roman empire rose from the ashes of the old. But the Second World War was not a precursor to a new dark age. Under the old rules of static civilization–where wealth was not created, but taken–catastrophes of this scale required centuries of recovery before old heights could be reclaimed. The history of the post-war world dramatically illustrates that this is no longer the case.

    This post was originally published at The Scholar’s Stage on 6 June 2015.

    Posted in Economics & Finance, History, War and Peace | 12 Comments »

    A Car for $89 / month

    Posted by Carl from Chicago on 12th June 2015 (All posts by )

    For years I was proud to be the owner of a 1998 Altima which ran forever, never broke, and required no upkeep. I passed on the Altima (it is still going strong in our family) and eventually ended up with a 2011 Jetta that I purchased new.

    I knew I had made the right purchase decision when I saw this article in Bloomberg titled

    Jetta Leases as Cheap as Mobile Phones shows VW’s US Travails

    From the article:

    The $89 a month it takes to lease a Jetta at some U.S. dealerships is about as low as the price of using an iPhone on some mobile-phone plans. It’s also a sign of how Volkswagen AG is grasping to turn around its fortunes in the U.S.
    The bargain deal — available after a down payment of about $2,500 on the $17,325 Jetta — runs over a three-year term.

    I paid about $17,000 for my Jetta and it has been a great purchase. It is a roomy 4 door car with solid handling – one time I had to lock up the breaks at 65 mph when a lunatic decided to get off the highway from the left lane and exit – the car saved my bacon and stopped on a dime, straight and clear.

    When I drive people around in the car they are astonished at how nice it is for the money; in most instances a car is a terrible investment and minimizing your initial purchase not only saves you direct costs it also saves you on taxes, service costs, and insurance. Recently I had a tire issue (Chicago has terrible potholes) and I just went and bought all four tires and had them installed for $550 including taxes. I have friends where it costs almost $1000 for EACH tire… much less all four.

    There are many good reasons why you may have to invest a lot in a car; if you have to cart around a lot of kids, or need to transport a lot of equipment or materials in the bed of your truck. Most of the time, however, a car is a status symbol, and people pour money into their car because it seems cool or attracts attention. That logic is fiscally irresponsible and it is interesting to see how much cheaper this Jetta is against the competition when for almost all normal, functional commuting purposes, it functions identically to cars that cost 2-4x.

    Cross posted at LITGM

    Posted in Business, Economics & Finance, Human Behavior | 6 Comments »

    The End of the European Welfare State As a Comparison Point for the USA

    Posted by Carl from Chicago on 31st May 2015 (All posts by )

    For years articles about everything from family leave to medical benefits started with the premise that

    The United States is the only modern Western economy that doesn’t do or provide “X” for their workers

    Thus the premise was the our economies were roughly equivalent and the USA was “mean” or “backwards” because we didn’t provide all those benefits and worker protections that the other countries were (apparently) able to absorb.

    In the Sunday Business of the NY Times we can see where this has finally led, however – in an article about retraining European workers titled “Fake Jobs with Real Benefits” this is the end statistic:

    But in a reflection of the shifting nature of the European workplace, most are low-paying and last for short stints, sometimes just three to six months. Today, more than half of all new jobs in the European Union are temporary contracts, according to Eurostat.

    These jobs don’t have the famous protections for working mothers and stay-at-home dads and for medical benefits and pensions and everything else; they just set you up for a few months at a time and can just not renew your contract for any reason, including if you are legitimately hurt or ill. These are the ruthless “McJobs” that have been decried for years in the USA.

    In parallel, Spain is now lurching into a political crisis similar to what is happening in Greece. Here are some statistics on Spain per this Foreign Policy article:

    The Eurozone as a whole is a disaster. Whereas the United States’ economy is nearly 10 percent larger than it was seven years ago, the Eurozone’s is 1.5% smaller. And Spain is faring even worse; it’s economy is still 5 percent smaller. Nearly one in four Spaniards, and one in two young people, are unemployed. In the European Union, only Greece’s unemployment rate is higher. Many people have dropped out of the labor force (or immigrated to countries where there are jobs to be found). A lost generation is in the making.

    And the governmental statistics are sobering:

    Spain still has the largest fiscal deficit, as a share of the economy; in the entire EU: 5.8% of GDP last year. Public debt as a share of GDP rose by more last year than anywhere else in the eurozone and is set to top 100 percent this year.

    The few remaining permanent full-time jobs are often in the governmental sector; this is closely linked to corruption. In Spain the corruption of the ruling parties contributed to their drubbing in local elections.

    The net of all this is that comparing the USA to Europe is now mostly a fools’ errand. Not only has growth and productivity stalled across most of the EU, the cherished benefits that are held up as the “gold standard” are accruing to fewer and fewer workers as the young frankly have no work at all and many of the adults that do work are on these short term contracts where those protections rarely apply.

    Whether or not the USA should enact various protections to our workers is a good question, with pros and cons on both sides of the ledger. However, the blanket statements that we are the last modern economy to not do “X” should be tossed in the dustbin of history, because it doesn’t apply anymore.

    Cross posted at LITGM

    Posted in Big Government, Economics & Finance, Europe | 8 Comments »

    Trains are Indefensible

    Posted by Carl from Chicago on 17th May 2015 (All posts by )

    I remember as a kid watching “Lawrence of Arabia” where he led Arab raiding parties against the Turkish train lines in WW1.  Per this PBS article about Lawrence:

    With the Ottoman army spread thinly across the empty vastness of the Arabian Peninsula, the Hejaz Arabs found it relatively easy to strike and sabotage Turkish lines of communication and supply. With the Red Sea firmly in British hands, the Turks had no option but to use the Hejaz railway to move their men, supplies and munitions.  

    Lawrence and the Arabs spent much of their two years on the road to Damascus destroying sections of the railway. Small units of men laid charges on the track. Then as the Turks defended the track, Lawrence’s men formed large moving columns capable of rapid hit-and-run operations. 

    In the recent train crash in the East Coast there are discussions of a “projectile” hitting the train and distracting the conductor.  While this hasn’t been confirmed, it is relevant to consider how difficult it would be to secure train lines from attack or sabotage.

    This discussion is much more relevant in the context of “high speed trains”.  There is a broad theme among many that the US is behind because we have not invested large sums of public money in high speed trains, that we are “falling behind”.  Per wikipedia the Japanese high speed trains (similar to the Chinese high speed trains) typically have more than 1000 passengers on each of their trains.

    The USA has far larger distances than the Japanese trains.  If you built a train from Chicago to New York, for example, it would be almost 800 miles long.  This is for a single rail line.  Obviously to connect the major cities of the USA you’d have thousands of miles of train lines.

    How would these train lines be defended?  It would be easy for a terrorist to just cut through the fence somewhere and park a cement truck on the tracks, for instance.  The ensuing carnage would easily accomplish what 5-10 hijackings could accomplish.

    If you think that the Homeland Security plans are over-reaching, just wait to see what it would take to defend hundreds or thousands of miles of track.  Instead of having a bottleneck at the airport, the entire line would be a potential point of attack.  Even if defenses were erected, they would only have to overwhelm them at a single weak link in order to assault the train.

    No one is incorporating this into their cost estimates for high speed trains; they likely have fences and barriers but are not contemplating stopping a determined, armed attack by terrorists.  They should, because after one such attack a giant post-haste effort would emerge kind of like our early days of the TSA.  They should contemplate and include a giant, armed, unionized Federal bureaucracy in their midst and add this into their cost estimates and see how it compares against highways and aircraft.  The numbers, already dubious, would then be far, far in the red.

    Cross posted at LITGM

    Posted in Big Government, Business, Economics & Finance, Terrorism, Transportation | 25 Comments »

    Airline Competition Has Been Crushed

    Posted by Carl from Chicago on 16th May 2015 (All posts by )

    If you’ve flown much in the last few years, you’ve probably seen what I’ve experienced, as well – completely full planes, high prices, and aggravating extra charges for baggage, wi-fi, etc… This is really a symptom of what has actually occurred, which is that airlines have finally moved past an era of competition into an era of oligopoly.

    The real indication of their new status isn’t the high prices and full planes – it is in the stock price.

    Here you can see the major carriers which have survived and consolidated the US market – Southwest, American Airlines, Delta, and United / Continental. For years and years the stock prices of major airlines have languished – per Warren Buffet

    He said that a durable competitive advantage in the airline industry “has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down,” he joked. “The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit.”

    Each of the major airlines has predominantly broken their strong unions and taken medicine from bankruptcy to mergers in order to restore their finances. Instead of a focus on expansion, they are operationally focused in terms of filling every seat on every plane at the highest price possible, in terms of ticket costs and extra fees. Today they charge you for every sort of upgrade; “economy plus” which is a seat that you can sit in and get work done, costs extra, as well as for checking bags.

    There is absolutely nothing wrong with a company doing all they can to maximize profits, especially after savaging investors for many years with poor stock prices and a lack of dividends (and the high risk of total financial collapse). The airlines have finally figured out technology as well – if you want to upgrade any element of your flight experience, from business to first class to economy plus to a daily club pass – it is all right there as long as you are willing to give them your credit card number.

    The airlines have also figured out that their frequent flyer programs provide benefits but also can be a millstone. Rather than rewarding miles, they are looking at the prices of the tickets paid by each traveler which rewards those that actually provide the greatest benefits to the airlines. If you’ve tried to actually use your benefits (except for Southwest), you’ll find that seats are very limited and you need to plan far in advance to receive benefits from these perks.

    Read the rest of this entry »

    Posted in Chicagoania, Economics & Finance, Middle East | 12 Comments »

    “McDonald’s was there for me when no one else was”

    Posted by Jonathan on 7th May 2015 (All posts by )

    This is a nice story that illustrates some important features of free markets:

    -Buyers of last resort, in this case buyers of labor, perform an important role that is not always appreciated by moralists who themselves have better options. To put it differently, McDonald’s is a vulture capitalist that lowballs labor markets and exploits vulnerable low-wage workers who lack better alternatives, and that’s a good thing. Those workers are better off employed at modest wages than unemployed at higher wages, as many of them will soon find out if McDonald’s is forced to raise its entry-level wages to accommodate proposed increases in legal minimums. The author of this piece deserves credit for his insight.

    -There is always a big market for inexpensive products of adequate quality that are made to high standards of consistency. If you are on the road or in a hurry or in an airport, a standardized McDonald’s burger for a buck or two can look pretty good as compared to no food or to an overpriced bagel or sandwich of unknown quality and freshness.

    -Tastes differ. The people who criticize McDonald’s for the quality of its food may not consider that many people actually like McDonald’s food.

    (Via Instapundit.)

    Posted in Business, Economics & Finance | 4 Comments »

    Recent Stock Moves

    Posted by Carl from Chicago on 3rd May 2015 (All posts by )

    Over at Trust Funds for Kids I commented on some recent stock moves and the rally in China…
    Read the rest of this entry »

    Posted in China, Economics & Finance | 3 Comments »