22 July 2014

I Still Hate Neil Irwin

The morning, during the week, begins with a reading of briefing.com, via Yahoo! Finance, then a toddle off to the newstand for The Times and thence to the coffee place to inhale both. Most often, these toddles involve creating the rough draft of one of these missives. Since I don't put one up every day (it just seems like, at times), most never get past that stage.

Today's puzzlement: why do the mainstream pundits remain puzzled that interest rates remain low? It's as if, and likely so, that none of them ever read up any physics or chemistry. They view returns on investment in purely fiduciary terms, a fact which goes a long way to explain why few saw The Great Recession coming. That Giant Pool of Money was sitting out there in Y2K, and Masters of the World in the C-suites had no use for it. They simply couldn't figure out profitable, enough, ways to turn moolah into machines. So, the banksters ginned up fiduciary instruments in sufficient quantity to sop up the Pool. The Pool hasn't gone away, and the MotW still don't have any idea what to do. Share buybacks are the current new idea. That and sub-prime car loans. Read up on the latter, you'll get a chuckle.

The essay was nearly complete, in noggin, when I got Irwinned (a term, alas, that I'll be using a lot I suspect). OK, go read it. Just remember, you've read it all, save the quotes of course, here before. I don't run in the same circles, alas.

I do find him naive`, on a few points, though:
If companies increased their spending enough to close that gap, it would mean an extra $220 billion in annual economic activity and perhaps a couple of million more jobs. But there may be even more important and lasting consequences for this lack of spending by businesses.

Capital spending improves worker productivity. And worker productivity improves living standards.

The implication: as productivity rises, so do wages. In the Adam Smith notion of free market economics, yes. But the data are overwhelmingly contradictory over the last 4 decades. Little to none of productivity increases have ended up in wages. Employment doesn't, overall, go up. Just as the Foxconn guy intends to replace cheap Chinese hands with robots, so too do American capitalists. When 5 workers can build a robot which replaces 100 workers in use, you see that the arithmetic favors the MotW. And so it has happened. The Great Migrations, from farm to factory, in the 19th and 20th centuries, were based on unskilled labor moving to another unskilled labor. Given the leverage involved, with the current notion of income distribution, increasing STEM graduates will only create a larger pool of disenchanted and unemployed smart people. The MotW have shown little inclination to buy more STEM folks than they need, and they don't need all that many, especially when they can get them nearly for free from India. Guess who those Eastern European cybercriminals are? Yup.
"As manufacturing approaches full capacity, wage pressures will build and many businesses will be forced to redirect their profits away from stock buybacks and toward actual physical investment, which will help bolster U.S. GDP," [Scott Anderson, chief economist of Bank of the West] writes in a research note.

I gotta get me a pair of them rose colored glasses.

The real impetus for physical investment is better productivity, making more widgets cheaper; we're long past the time when ditches are really dug by hand. The MotW will only make such physical investments if they have, or foresee, unmet demand. But with the 99%'s share of income at best stagnant, there is no macro- unmet demand. Remember all that talk about 450mm silicon wafers? Hasn't come to be, has it? Productivity gains, from the perspective of MotW, depend on a) unmet demand with current capital and b) freezing out labor from the gains. The problem is that the MotW have gotten b) in spades but, as Your Good Mother said, "what happens if everybody behaves like you?" As the MotW squeeze out labor, and we don't get a new theory of income distribution, demand sags.

As demand for consumer widgets sags, so too does demand for more efficient capital. I think that's called a death spiral. Whee!!!!

They're Still Freedom Fries

The missives in these endeavors generally aren't reactionary to other posts out in the blogosphere; that behavior is mostly directed to news organs (I'm talking to you, Irwin). But today brings a reference post to a post, on the subject of income inequality. In this case, Tour de France winnings. What's amusing, and futile to my way of thinking, is the effort expended in attempting to find a quant model to fit these data. Ain't gonna happen.

Winnings, in any sport outside of table stakes poker (and you can name others, I suppose), are determined by the policy of the sponsors. First gets 100 units, second gets 10 units, and so on down the line. At one time, though I'd have to look it up, memory tells me that professional tennis players forced the purse distribution to be *more* unequal (here's a report on the current method). That's it. That the "winner take all" (yup, the girls) approach (and, yes, I'm talking to you, LeBron) in sport has infected normal enterprise goes a long way to explaining the global economic malaise. Why is an extra two points per game actually worth an extra $4 million/year; or whatever? That's the distribution function; set by the sponsors based on whim. In what rational world are boys and girls who play games awarded vast amounts of moolah, over folks who actually produce? What value do they provide? None, of course. Well, a bit of reflected shine on the owners.

The money comes from sponsors, TV, gate receipts (none of those, that I know of, for the Tour), and whatever. That money comes from the revenue of the sponsors, which is to say Ma and Pa Kettle who buy the sponsors' widgets. The widget buyers don't get to decide how much of the price of a widget should go to LeBron or Lance. (Aside: in today's NYT Business section is a piece on corporate boards, which asserts that boards have decided that boards shouldn't truck with shareholders, much less the public. I think that's a working definition of oligarchy.)

Policy trumps data, when they disagree. Good luck finding a general quant model of income distribution in sports. Just look up the formula for the sport/event you're curious about. Then go have a micro-brew.

17 July 2014

And Now For the News

Today has to be the sort of day that makes your average Wall Street quant want to jump out of a 30 story window. Separatists/Russians/Satan shoot down a 777, and Mr. Market goes all bananas. Not just the nowhere near ripe greenish kind of nanner, but the fully brown squishy ones that melt in your hand. Not in your mouth.

To make matters worser, at 12:27pm, Briefing.com had this tidbit:
No sooner did we post a Floor Talk comment at 11:14 a.m. ET noting the otherwise resilient nature of the equity market in the face of worrisome-sounding headlines about new sanctions being levied against Russia that selling interest picked up in noticeable fashion.

Here's a bit from 11:14 am:
The overnight buzz revolved around the new sanctions the US Treasury Department imposed on entities in Russia's financial, energy, and defense sectors. That was a step up from prior sanctions that targeted individuals and ratcheted up the diplomatic standoff between the US and Russia over Ukraine.

Data is driven by policy. And the errant grey swan. Capitalists are Patriots only when they figure they can make more money that way. "Sanctions on Vlad!!! But, but, but... he's our good buddy with all that petro!! We can do business with him, just like Dubya said he could! Look deep into his soul; he's our kind of guy. Leave our good buddy alone!!" Daddy Warbucks, indeed.

16 July 2014

The Answer is Yellen in the Wind [updated]

By now y'all have heard about the Yellen remark that small cap biotech is over-valued:
Valuation metrics in some sectors do appear substantially stretched -- particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year.

As it happens, that wasn't in the speech, but in this paper with the speech.

What she said in the speech got little notice (the Times guy did, though):
"Accordingly, we are closely monitoring developments in the leveraged loan market and are working to enhance the effectiveness of our supervisory guidance."

In other words, we're keeping an eye on the banksters. Doesn't get much play, alas.

The thing is, small (esp. micro-) cap biotech is heavily a retail playland, where plungers are hoping that their ship will come in; Foobaz Oncology really does have The Cure and the smarter-than-the-pros plungers will get their 10-bagger. Fact is, Idera did that (go multi-bagger, not cure cancer, to be clear), and more over the last year and a bit. Went from $.19 to about $6.50; fallen back to Earth since. So, yes there are multi-baggers to be found in *-tech. GT Advanced Tech when Saturn lift vehicle when it was announced that Apple had paid it to make sapphire. Turns out, Apple didn't quite to that, and GT has too fallen back to Earth.

But, the report is quite right: because *-tech is in the business of doing new things, the FOTM respawns quickly, and the plungers go off and chase a new one with some frequency. The result is ludicrous valuations, using standard metrics. And, of course, standard metrics don't mean much in most small cap *-tech since they're not yet producing anything. One is betting, more explicitly than with other sectors, on a compound or widget that might never exist or, if it does come to exist, never work. How's your Apple Newton doin'.

[update]
Seems one can't win for losin'. One Mark Schoenbaum takes issue with "Yellen" and is quoted thus, from CNBC:
"When I look at P/E ratios in biotech, I'm really asking the question, 'Are we in a bubble?' 'cause I think what the Fed perhaps - and I'm not a Fed observer - but I'm told what the Fed is looking for perhaps is signs of bubble."

I don't watch CNBC, so I'll take the report as accurate. As explained before, Yellen didn't say what Schoenbaum says she did. She didn't say it at all. The statement was in a staff report. Moreover, as Schoenbaum conveniently ignores, the report didn't talk about biotech globally, but small-cap biotech. For an analyst, he's some combination of sloppy, stupid, and lying.

To see that the Fed might just be right, go to Yahoo! finance (or whatever) and run a two year compare chart with PBE and the S&P 500. As the signs say in the NYC subways, "Mind the gap!!"

15 July 2014

Apple of My I

Here's what's interesting about the Apple and IBM deal: if they're really building new apps for the devices, and if the server platform is built by IBM, will IBM go for server side (aka, RM) control, or keep doing the COBOL/VSAM gig via java/etc.? This may well be the last, best chance for the RM/RDBMS centric model. Or will the Kiddie Koders finally win it all? Time will tell.

14 July 2014

Fool Me Once

Buried in a Motley Fool piece on IBM's death (OK, it doesn't say death, just implies it) is this tidbit:
To buttress my point, Microsoft inked a deal with Violin Memory in April that will introduce Violin Memory's Windows Flash Array to servers in a bid to speed up popular Microsoft applications. Violin's Flash Array is a 64TB storage array, modified to run Windows Storage Server 2012 R2, and includes RDMA, or Remote Direct Memory Access, and SMB, or Server Message Block, direct on the flash array.

Beta tests carried out on the flash array have revealed performance gains for Hyper-V, SQL Server, and Microsoft VDI. According to Enterprise Strategy Group analyst Brian Garrett, what the two companies have accomplished could have far-reaching implications for the future of flash storage, since it might do away with the need for app servers.

Note the last eight words of the quote. If we can rid ourselves of app servers, we can rid ourselves of ORMs. And if we can rid ourselves of ORMs, we can implement client-agnostic Organic Normal Form™ databases. Yum.

10 July 2014

What A Buzz Kill

Buzz Aldrin got reported in Daily Tech from Reddit. I don't do Reddit (a major character flaw, I know), so I'll content myself with the DT quotes. That's all I need, anyway.
OUR resources should be directed to outward, beyond-the-moon, to establishing habitation and laboratories on the surface of Mars that can be built, assembled, from the close-by moons of Mars. With very little time delay - a second or less. Much better than controlling things on the Moon from the Earth. So when NASA funding comes up for review, please call your lawmakers to support it.

Buzz, according to the Wiki is a West Point grad in mechanical engineering. May be that's why he doesn't get it.

The reason NASA, and everybody else, has lost interest in space "exploration" after getting to the moon is simple physics and chemistry: the moon is as far as one can move humans in tin cans using chemical rockets. Fueling humans to Mars simply isn't possible with known chemistry. We know how much throw weight we can move past the moon, and it ain't much more than a Beetle. And the Area 51 aliens haven't yet divulged the secrets of Warp Drive. Even if we could get to Mars, there's no there, there. Once Again, Gertrude nails it. We'd have to ferry all life support from... somewhere? The Area 51 aliens haven't shown us how to make that Replicator, either.

We know where "earth like" planets are, and they ain't accessible with chemical rockets. And what, exactly, was the benefit of going to the moon? We just beat the Russians. BFD.

Buzz, how about we clean up our act here? Recognize that we really live in one of these, and make the best of it. We all live "Under the Dome".