Economics & Finance

This Time It’s Not Different

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From MarketWatch:

SAN FRANCISCO (MarketWatch) — The liquidation of a big hedge fund or investment-bank trading portfolio is wreaking havoc in some parts of the hedge-fund business, according to managers and investors.
 
Black Mesa Capital, a hedge-fund firm that uses computer models to track down investment ideas, said that at least one large hedge fund or investment bank is liquidating “massive” trading portfolios, according to a letter the Santa Fe, N.M.-based firm sent to investors Wednesday.
 
The warning is causing disruptions and triggering big losses among other so-called market-neutral hedge funds, Black Mesa said in its letter, a copy of which was obtained Thursday by MarketWatch.
 
“Clearly, something is amiss in the markets that few in our strategy, if anyone, have experienced before,” Black Mesa’s managers, Dave DeMers and Jonathan Spring, wrote. DeMers declined to comment Thursday.
 
The firm’s hedge fund, which has about $1.9 billion in long positions and $1.9 billion in short positions, was down roughly 7.5% this month through Aug. 7. Those losses could grow to as much as 10% for August so far, Black Mesa noted.

I love this quote: ‘Clearly, something is amiss in the markets that few in our strategy, if anyone, have experienced before.’

Something unanticipated is always amiss in the markets in these situations. That’s how these situations happen.

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We’re Rats, So We Race

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A New York Times article [via Instapundit] titled, “In Silicon Valley, Millionaires Who Don’t Feel Rich” explores why many people with assets and sometimes incomes in the millions who live in Silicon Valley don’t feel particularly rich. One paragraph gets to what I consider the heart of the effect.

But many such accomplished and ambitious members of the digital elite still do not think of themselves as particularly fortunate, in part because they are surrounded by people with more wealth — often a lot more.

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America’s Corporate Tax & Market Distortions

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One of the most troubling failures of the Republican led congress (which is no more) is their failure to substantially reform the US corporate tax code. I wrote an article that summarizes how the corporate tax is applied at an overview level and the fact that today the US is among the least competitive corporate tax regimes among developed countries. The Economist recently chimed in, too, with an article titled “Tax Reform – Overhauling The Old Jalopy” which does a decent job of summarizing the situation and stating that an average tax rate of 27% without major deductions would accomplish the same thing as our current tax rate of 34%. Not mentioned by the Economist is how this backfired on us with the Alternative Minimum Tax, when a simplified tax methodology with lower rates and a broadly applied based ended up netting millions of middle Americans, including the middle class.

All of these articles miss a more troubling trend, however – the issue isn’t as much the tax methodology applied to EXISTING companies (who have strong incentives to stay in place) but how the tax impacts NEW companies that are choosing where to set up shop and what sort of structure to utilize for their business. This photo is a cornerstone of the Accenture “Headquarters” in downtown Chicago – Accenture is the surviving consulting firm from the Arthur Andersen debacle (grist for a future post as I am an alumni) that chose to locate their headquarters in Bermuda rather than the United States, primarily to minimize their income tax burden.

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Wisconsin Electricity Situation

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First and foremost I would like to thank Jonthan for inviting me to become a part of Chicago Boyz.   I have admired this blog  for a long time and am looking forward to being a contributor.   I have written for a while over at my “home base”, Life In The Great Midwest.   We have  three contributors over there and write on a variety of topics.   I  will keep most of my “cat blogging” over there and try to post  some of the more serious  issues  that I write about here.

 One of the topics we spend a lot of time on at LITGM is energy.    My co-contributor Carl is what  I would consider an expert in the field, having spent many years in various roles that have had to do with energy.   My post here about the current situation in Wisconsin  is in response to his recent post about the woes of  Illinois.  

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Excellent Blogging on Power, Infrastructure and Financial Issues

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I highly recommend Carl from Chicago’s posts on these issues at the Life in the Great Midwest blog. Carl’s posts are easily accessible via the category list on his blog’s left sidebar (click on Economics, Electricity, Social Security or Taxes to start).

Carl’s latest post, on the economics and politics of electric-power infrastructure in Illinois, is here.