27 March 2016

David and Goliath

There are two kinds of quant: the micro (firm/sector) and the macro (country/planet). The concerns of these two are not just different, but antithetical. The micro quant seeks to destroy the rest of the economy, and sweep up all the moolah to itself; while the macro quant seeks to keep the whole running in a long-term stable fashion. It's in the DNA of the micro quant to blame the damn gummint whenever a crash happens. Micro actors can't cause a crash, of course.

Over the years since the Great Recession, central banks including the US Fed have attempted to conduct trickle-down stimulus. The exercise has floated various asset markets, but hasn't had much impact otherwise. One of the problems facing the micro quant, one might argue the only real problem and one he can't do a thing about, is that the US buck continues to be the planet's reserve currency. There are two knock-on effects to the USofA being the global reserve currency. The first is that we have to run a current account deficit in order to keep the flow of Bongo Bucks into the rest-of-world economies, otherwise vicious deflation (what the US experienced for most of the 19th century, up to the end of it) kills off the whole. The second is that exporting 2nd and 3rd (and the occasional 1st) world countries fiddle their currencies downward vis-a-vis the US buck in order to bolster their exporting. One might observe that it's been America's lower class (not the 1%) that has sacrificed in order to raise some 2nd and 3rd world populations out of their poverty. If Trump ever figures that bit out, watch out.

All of that has been offered in these endeavors a number of times. Today we get some data on how even the Mighty Apple can't fight macro forces. Boo hoo.
... Timothy D. Cook, its chief executive, discussed the repercussions during an earnings call with Wall Street analysts. Two-thirds of "Apple's revenue is now generated outside the United States," he said, "so foreign currency fluctuations have a very meaningful impact on our results."

Not incidentally, I'm slogging through Gordon's book. And it is a slog. It reads like a MA econ thesis, with a footnote every sentence or two. But it does provide oodles of data to show that growth is driven by both aggregate demand and tech progress. And both are in short supply these days. Income/wealth concentration merges with mankind's meeting the limits of what can be discovered about the real, macro world. No one invented the elements of the periodic table, only found them. Having found all of them... well, you get the idea. Also in today's Times is a Morgenson piece on stock buybacks.
"You really have to ask why a company's board decides to return a big chunk of capital instead of replacing managers with ones who can figure out how to develop the operations," said Gary Lutin, who oversees the Shareholder Forum.

"If the board doesn't think it's worth investing in the company's future," Mr. Lutin added, "how can a shareholder justify continuing to hold the stock, or voting for directors who've given up?"

Again, more data that the CxO types have run out of ideas for growing their businesses organically. Finally, and you should look it up, is the case study of Valeant pharma. A very nasty bit of business, that.

In the real world, David always loses and Goliath always wins. Happy Easter all you Christians.

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