16 April 2015


DrCodd and DrKeynes began life as fraternal twins, one dedicated to the RM/SQL and later quant while the other to generally macro-economic topics. Both have a preamble of quotes, which preamble has changed in structure over time. Currently there are a few permanent (until retired) and one cycled out each week (generally Sunday). They were taking too much real estate for a while.

On the whole, the permanent ones are specific to each venue. From today they'll share Eccles' quote, originally from DrKeynes. A bit of explanation.

A post on Seeking Alpha reinforced the notion that macro forces are, most times, more significant to an organization's performance than any quant analysis or datastore infrastructure that it develops. The Great Recession happened just because The Masters of the World couldn't find enough sovereign debt at a rate of return they considered their just due sufficient to absorb the Giant Pool of Money then floating around. That pool has only gotten bigger since, what with QE exercises in the US, EU, and Japan. All those central banks (sort of) pushing a string. Supply side "theory" on steroids, HGH, and LSD.

That piece is about the effect of Google and the various ISPs fighting over market, and how best to serve said market. Defining the market is significant, in that "high speed" and "broadband" have been used to describe just about any data pipe faster than 56K dial-up.

In sum, any attempt to apply quant methods to micro problems (i.e., at the company or even sector level) is most likely to fail, since what matters is the monetary incentives, both in place and expected in the forecast horizon. If the actor under analysis is one that can change the incentive, then the quant doesn't matter. If the actor is the victim of changing incentive, then the quant doesn't matter.

In the end, what happens to the macro-economy matters far more than any decision made at the actor level. Most of the time. Occasionally, an IBM will bend over for a pipsqueak outfit like MicroSoft, and alter the trajectory, but that is also a factor that isn't in any quant model. In the end, we're in a period of hyper-industrialization, with massive capital outlays to gain pittance improvements in widgets. The difference between having a 45" LCD TeeVee and a 21" CRT TeeVee doesn't measure up to there not being any TeeVee at all. With the capital requirements in any part of compute being what they are, only mass consumption of the output can save the day. There's a reason 450mm wafers still aren't in use. There's a reason that the memory sector is still a race to the bottom. And so on. While a single company can get by targeting the top X% of consumers, as Apple does, the manufacturers can't live that way. Should the market for such goods sink to just X%, the entire supply chain collapses. Average cost skyrockets, and even the X% will no longer be able to buy.

Holders of excess moolah seem to believe that they deserve 10% (or so) return on that moolah, no matter what. Doesn't work that way. For decades they whined "Damn Gummint debt crowds out real investment!! Boo hoo!!". Now that real returns in real investment have dried up, these same free market whiners demand that the Damn Gummint offer up debt at 10% (at least) so that they can continue to cruise the Med in their yachts. Poor souls. All that QE money hasn't gone into real investment (M&A, buybacks, subprime car loans, and other marginal financializations have replaced housing; oh joy), and that fact should cause your sphincter to contract, if only a bit.

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