18 May 2017

The Life of Riley

If you're old enough, you've seen (likely in mid-afternoon re-runs on over-the-air TeeVee in the 60s) "The Life of Riley", in which William Bendix played a lazy middle aged white guy who's just stupid, IOW your typical Neville Chamberlain Trump voter. So, why bring up such a long ago past? Because Derek Lowe has another takedown of TrumpCare FDA "Now This Is A Drug That Does Not Work":
And I think add this every time we have a big drug trial wipe out: keep in mind, that under a safety-only regulatory regime, that people would have been taking this drug (and paying for it, one way or another) for the last few years now, and it would have done them no good at all. When they could have been actually taking something that might help them. We do not know enough about investigational drugs to approve them without efficacy data.

If you're a biostat anywhere, public or private, the Gottlieb cabal isn't your friend. But you've read that sort of thing here before. Quant in the various venues of human rule making (FIRE, in particular) is less useful than reading the NYT. But quant dealing with God's Laws is another matter altogether. There's real value there. And the CxO brigade would just as soon not have to prove their compounds and devices actually benefit patients.

Your Order is Shipping

During the campaign Neville Chamberlain Trump made a point of criticising Obambi for his use of Executive Orders. Obambi, by such talk, was the prime abuser of executive power in all the history of the country. Here's a list and you can see that Neville Chamberlain Trump is way, way ahead. On an annual basis or term basis since Truman, Obambi is at the bottom. Another big lie.

And, BTW, the count for the first 100 days is 32 for Neville Chamberlain Trump which puts his annualized total at 116. Another big lie.

Who said we're a data driven society?

17 May 2017

What The Doctor Told Me

Dr. McElhone used to say, "the answer is obvious to even the most casual observer." That was how he reacted to knuckleheads. But, then, he was Ph.D. in math stat, which isn't an easy thing to do anywhere. And it's really not easy at Iowa State.

So, today, yet again, we get more leaks; that Flynn told the WH that he was under investigation by the FBI on 4 January, weeks before he got his NSA appointment. The talking heads were beside themselves, at least the left heads, with the question: what's the attraction twixt Neville Chamberlain Trump and Flynn???? And the answer has been staring at the rest of us since Flynn became publicly attached to the campaign. Neville Chamberlain Trump is batshit nuts. Flynn is even more batshit nuts. So, Flynn whispered sweet crazies in Neville's ear, and Neville got a massive hard on. Neville just misses those hard ons. It's just that simple. Loonie birds flock together.

16 May 2017

De Spot Boss, De Spot

As President I wanted to share with Russia (at an openly scheduled W.H. meeting) which I have the absolute right to do
-- Neville Chamberlain Trump/2017

Spoken like the true despot he is.

All Juice and No Seeds

My youth was somewhat misspent, in that I gravitated to activities found with a somewhat older generation. Music, in particular. While my peers were into R&R, I was into modern folk, and especially "The Limeliters". The true folkies hated the modern versions as being inauthentic, and Lou, Alex, and Glenn made much of their living singing in saloons. Big ones, but not coffee houses. They had their last concert on my birthday in 1963.

They reunioned in the mid 70s, and continued in smaller venues with, and without, Glenn for nearly another decade. They got less folkie and more lounge act along the way. One of their signature tunes in the time was "Vasectomy", which deals with the subject you think it does, and has the most memorable lines:
Like a sun-kissed orange,
I've been squeezed,
'Cause its all juice and there's no seed!

Now, comes reporting that your main squeeze will be your phone!
HTC's new philosophy is that smartphones are stagnating: every generation is just a spec update to the previous model, and the only thing that drives the industry is related to new interaction methods and ways of streamlining the use of a device. Hence the squeeze: by holding the U11 naturally and squeezing between the thumb and the other side of the hand, the squeeze action will do a number of things.

Again: read Gordon's book. Whether keeping abreast in the market with a gentle squeeze is the answer, only the customer will tell.

14 May 2017

I'm So Wasted

The battle betwixt the AdBlock folks and the ad pushers continues apace. The argument by the blockers is quite simple: I've never, nor ever will, clicked on one of your silly ads, so you lose nothing from my rebellion. Plus, I save bandwidth and avoid malware of various kinds. You ad pushers are just scamming your clients by claiming that "impressions" (a term, of course, from newspapers and magazines and such olde style) are a meaningful measure. You claim to be smarter than the olde dayes, but you're not. Just as WYSIWYG/Windows/GUI pages are implemented using pixel versions of radios and Chinese restaurants.

So, today brings us a post via r-bloggers which makes, in a slightly different venue, the same argument:
The telephone had rung when Jean was watching her favorite TV Show. It was a call center selling newspaper, so she got really upset. This situation is not unpleasant just for Jean. The call center is losing too! By calling a person the will never buy whatever is been sold, the call center is wasting money.
[my emphasis]

I don't, BTW, have any opinion of whether the quant suggested actually works.

12 May 2017

At Your Service

A current argument over on "Seeking Alpha" is what Moore's Law means to the notion of innovation. Moore didn't want "Law" associated with his observation.
Despite a popular misconception, Moore is adamant that he did not predict a doubling "every 18 months." Rather, David House, an Intel colleague, had factored in the increasing performance of transistors to conclude that integrated circuits would double in performance every 18 months.

This is what he actually wrote
The complexity for minimum component costs has increased at a rate of roughly a factor of two per year (see graph on next page). Certainly over the short term this rate can be expected to continue, if not to increase. Over the longer term, the rate of increase is a bit more uncertain, although there is no reason to believe it will not remain nearly constant for at least 10 years. That means by 1975, the number of components per integrated circuit for minimum cost will be 65,000.

In simple terms, he observed that the cost of a given circuit halved over time. Since the structure of such circuits obey the laws of physics, which don't change (they are further understood at times, but none have been discarded outright in a very long time), their implementation (generally, TTL) doesn't "improve" per se. But with more transistors available per mm2 to produce such a circuit, that was the easy surrogate for the cost curve. So, Moore's became that. It never was. These days, we've seen that ever smaller nodes have been at escalating cost of R&D and the machines to make such nodes.
A Skylake transistor is around 100 atoms across, and the fewer atoms you have, the harder it becomes to store and manipulate electronic 1s and 0s. Smaller transistors now need trickier designs and extra materials. And as chips get harder to make, fabs get ever more expensive. Handel Jones, the CEO of International Business Strategies, reckons that a fab for state-of-the-art microprocessors now costs around $7 billion.

In all, innovation doesn't necessarily follow the accepted wisdom. These endeavors yapped about the notion of growth for some time, but impelled by Gordon's book, have yapped ever more, and what steps governments can take to produce more of it. And see that it gets to the majority, rather than the 1%. Solow has been mentioned as the standard issue economist who ignores distribution issues in growth. There has been an exception, and from Solow's generation, William Baumol. He just passed away. I read him in grad school, but haven't paid any attention to him in decades. Too bad. I just rechecked my Gordon, and he does mention Baumol on page 173. It was Baumol's later writing that leads to that reference (from the NYT obit):
For example, he said, it takes exactly the same number of people and the same amount of time to play a Beethoven string quartet today as it did in, say, 1817. Yet the musicians who spent years studying and practicing -- and still have to eat and live somewhere while doing that -- cannot be paid the same as their 19th-century counterparts. Their wages, too, will rise, even though they are no more productive than their predecessors were. As a result, their work eventually becomes increasingly expensive compared with more efficiently produced goods.

So, what happens when Moore and Baumol meet? Ever slowing productivity, which means that there's ever less increase to worry about distributing:
"What this says is that the quality of life 30 years from now could deteriorate," Professor Baumol said in 1983, "because many of the services that we associate with quality of life will become relatively more expensive while mass-produced things become cheaper and cheaper."

And it gets worser:
"The real danger is that the nation, mistakenly thinking it must rein in runaway costs, will curtail valuable health services and render them inaccessible for the less affluent. Well-meaning reformers may take the same misstep in education, law enforcement and other handicraft services."

What is striking, to me for sure, is that the notion of service sectors not being on a productivity curve was obvious for some years. Yet I hadn't been aware of Baumol's writings from those years. At least, not consciously. I do remember that "priming the pump" isn't my idea.

The Moore's Law side of things devolves from the observation that much of PC software (the three primary ones being wordprocessing, spreadsheets, and wordprocessing) hasn't led to increases in service sectors' productivity since their original release. The primary reason, which I expect Baumol would agree with, is that such computing doesn't actually maker the user smarter (i.e., productive): I offer up Alt-A loans and London Whales as proof.
His insight about the low productivity growth in services also helped explain why overall growth in an economy increasingly dominated by services can stagnate.

One of the prime notions, again which I think is mine but who really knows, is that FIRE has been the private sectors' way to absorb the college educated in non-productive overhead labor. It may be that Baumol had figured that out too 30 years ago, although perhaps not in such inflammatory words. My bad.

Ya think Orange Julius Caesar, Laffer, or Bannon can figure that out? Don't bet on it. Just dig more coal and make our city air just as bad China cities'. Wonderful.

I Pledge Allegience to the United States of Trumpistan

I told you so.
I told you so.
I told you so.
I told you so.
I told you so.
I told you so.
I told you so.
I told you so.
I told you so.
I told you so.
I told you so.
I told you so.
I told you so.

11 May 2017

Uh Oh!

The title says it all. Here's the latest Q Poll on Orange Julius Caesar. Not that he cares, of course.
The most common responses -- "idiot," "incompetent," and "liar" -- did not reflect well on the president, whose approval ratings from the same poll are near record lows.

The most common words were:

1. "Idiot," 39 times
2. "Incompetent," 31 times
3. "Liar," 30 times
4. "Leader," 25 times
5. "Unqualified," 25 times
6. "President," 22 times
7. "Strong," 21 times
8. "Businessman," 18 times
9. "Ignorant," 16 times
10. "Egotistical," 15 times

Knee Deep In It

This post from r-bloggers demonstrates what many, humble self included, have suspected about the younger generation of quants: in the vast majority of cases (75% here) they're best at bullshitting. And are proud of it. What a country!

10 May 2017

Thought For The Day - 10 May 2017

Well, we now know how this works out. Orange Julius Caesar issues pre-emptive presidential pardons to all his turncoat minions. And the obsequious Congress let's it pass. Through further election manipulation, the Right Wingnuts solidify control of Congress, ensuring that Orange Julius Caesar and his chosen successors run the USofA for the benefit of the Billionaire Boys Club.

You read it here first.

The Oracle Gets It Right

A day later, at least in the press I see, and a dollar better. This gem from Buffett:
Everything in valuation gets back to interest rates.

A good proportion of the quant, certainly macro, musings in these endeavors goes back to growth, and how that happens. Which consideration is over and above distribution, that ultimately determines whether growth is sustainable. The short answer to the latter is: if it's hogged by the hogs it dies out soon enough.

When I first mentioned Gordon's book, I was forthright in saying that the asymptote of progress was a concept I'd seen coming for a long time and had mused about in these endeavors. Gordon, between the lines, makes the same argument, which is that the globe is finite in resources and laws of nature. We've certainly found the latter, and are close to the former in the areas that matter. Real growth in economies results from new technologies which boost both productivity and output. An economy grows more prosperous, on the whole, by spreading around that additional output from tech progress. That's where the real interest rate comes from.

The theory of interest, in econ terms, rests on a static view of an economy where holders of wealth choose between consumption and (real) investment on the basis of time preference, not productivity gains. Which term boils down to: how much extra moolah does the holder demand for deferring consumption for the time of the loan? This is a zero sum game, without tech progress; aggregate consumption in the current period (and subsequent term periods) is diminished by the aggregate interest paid. Pure fiduciary investment is the version we have today. And, it's not a one-sided process. The holders of wealth may well want 10 or 20 percent return for the use of their moolah, but they'll only get that vig if the borrowers can make at least that much from real world use of the funds. And that can only happen, in the aggregate, if better mouse traps keep being made. Is the problem getting clearer?

Monopoly is the most convenient, and crude, way to generate the vig. Not so good for the public weal, however. Moreover, in the real world of investing, the base return/interest rate is the risk-less government bond. For some decades that's been the Uncle Sugar Bond. Being not entirely stupid, at least in recent perspective, said bonds are sold on auction with a fixed payment, not fixed rate. When, in times as these, there's a tsunami of idle moolah, the auction pricing driven up by excess supply of moolah drives down the interest rate. So long as that tsunami continues to circulate, governments can try to raise those fiat interest rates that they have, precious few and very short term, but there's nothing they can do about long term. The long term rate, if you follow the bread crumbs back to ground zero, is set by tech progress. As Gordon and Your Humble Servant have said, the perimeter of our knowledge of the physical world is, at most, within eyesight. At worst, we're already there, but just haven't felt the bump.

You'll know that the plutocrats have taken total control when they push through law mandating US Treasuries sell at a fixed rate.

09 May 2017

The Oracle Gets It Wrong

Warren Buffett had this to say
He said if you go back to about 1960, corporate taxes were about 4 percent of GDP and now they're about 2 percent of GDP. At that time, healthcare was 5 percent of GDP and now it's 17 percent of GDP. "So when American business talks about taxes strangling our competitiveness," he said, "they're talking about something that as a percentage of GDP has gone down from 4 to 2." Meanwhile, medical costs have exploded. "So medical costs are the tapeworm of American economic competitiveness," he said.

In some other reporting, he also said that healthcare would kill the economy. What he ignores, of course, is that healthcare has been, and is, a very strong employment driver. IOW, healthcare does good by doing good. Or, to put it another way, your taxes drive wages and thus inflation by producing un-consumables as nucular bombs and aircraft carriers. Healthcare, OTOH, produces a consumable product. A virtuous circle, as different from the vicious cycle of defense spending.

This time, the Oracle is wrong.

08 May 2017

On Death and Taxes

They are said to be the only two unavoidable events in life. Well, your friend and mine Raul Labrador had his 15 minutes of fame this past week, by uttering this gem:
nobody dies because they don't have access to health care.

Funny thing is, morality aside (and economists and Right Wingnuts do so at all times), he's mostly right. Most of the money spent on keeping coggers alive for a few extra months before cancer or heart disease kills them, fits his statement. With or without healthcare, they'll die of the disease that healthcare can't actually cure. "We can't afford it!!!!" Some, Right Wingnuts especially, point to the increase in life span since 1900 (or some similar year) as the reason that Social Security and Medicare must soon collapse. The problem with that assertion is that it's totally false. Yes, average life span at birth is up by a couple of decades since some earlier date, but that increase is almost entirely due to childhood vaccination and antibiotics getting more folks to maturity. In other words, the average/mean life span went up just because more people make it to 65 (pulling the average to the right of the graph), rather than people at 65 living lots of more years.

For those not in the Medicare cohort, mandatory service means that if a 30 year old ghetto junkie gets hit by a bus, he'll be treated at some sort of hospital ER. He may not survive such quality healthcare, and he may spend the rest of his worthless life in destitution being forced to pay back for that service. But he did get healthcare when he needed it. So Labrador isn't fully wrong. The quality of life of those without real healthcare is lots worse than it is with healthcare, but the 1% don't give a shit. And there's a practical reason for that.

This core problem is subtle. As many, including Your Humble Servant, have said, the AHCA is a charade. Rather than being a serious attempt to do what Orange Julius Caesar promised, "everyone, better, cheaper" than Obamacare, it's a bait and switch ploy to give $1,000,000,000,000 in taxes back to the rich folks. Recall, Obamacare included a bit of a tax increase on the upper brackets to defray the subsidies for the poor. Further, Congress has budget rules which make it difficult (modulo another Nuclear Option as Gorsuch) to pass a tax cut without certain preconditions. In sum, by "refunding" the onerous taxes on the rich from Obamacare, the really big cut promised the rich by Orange Julius Caesar is procedurally greased. Who would have thought an avowed Populist would be so thoughtful to the rich? Shit kickers in the Empty States sure didn't, of course.

Here's the subtlety. A progressive tax system works, the populace buys into it, when most of the money rests with the middle class. They largely are the ones paying for the Damn Gummint services. The rich pay some bit more, but not enough to piss them off. As the income distribution skews ever further right, pulling the average ever higher than the median, the middle contributes a declining amount to the total since they have a declining part of the income pie. The rich, who can and do afford what have historically been public services, have rebelled. Why should they pay for a ghetto junkie's rehab or yet another ghetto kid or a bridge in the Rust Belt that's about to fall down?? It just ain't fair.

Yet more subtlety. If you go spelunk the FRED data, you'll find that the US GDP distribution by sector has changed mightily over the last few decades. In sum: in the past the rich put up with progressive taxation since their businesses depended on the poor having enough moolah to buy the stuff they sold. A quasi-symbiotic relationship. But, these days the GDP is skewing evermore toward services "consumed" mostly by rich folks. The rich are more and more making stuff that is sold only to the rich themselves. Why put up with income transfer if none of it comes back? So, yet another reason to opt out of taxation.

And, Orange Julius Caesar, neo-Populist, and Right Wingnut Congress are happy to oblige. Will the shit kickers in the Empty States ever realize they were lied to and care? Don't bet on it.

03 May 2017

Watch Your Head [update]

Not for the first time, I suppose, but a question: isn't 99.44% of quant work just overhead, not output? And for the .56% that is sold output, well that's just sold to MegaCorp to do overhead tasks that MegaCorp chooses not to do in-house.

The recent United fiasco and Southwest mea culpa got me to cogitating, not for the first time, about whether we're actually making much "progress" in both the technical and cultural meanings; have the last couple of generations of invention produced anything as meaningful as the steam engine or washing machine? Gordon's book gets it right.

My current bete noir is dealing with some tracking of mandatory healthcare consumption, specifically my annual physical. The insurer decided I have to have one, despite the evidence (and more each day) that there's really not much value to an annual physical, as commonly executed; certainly the one I get.
The unequivocal conclusion: the appointments are unlikely to be beneficial. Regardless of which screenings and tests were administered, studies of annual health exams dating from 1963 to 1999 show that the annual physicals did not reduce mortality overall or for specific causes of death from cancer or heart disease. And the checkups consume billions, although no one is sure exactly how many billions because of the challenge of measuring the additional screenings and follow-up tests.

Of course, the fact that I did have said physical, all with Windows based software tracking each and every move, didn't get from my doctor's office to the insurer and/or from the insurer to the third-party nanny nagger. Many a slip twixt the cup and the lip. And, of course, the insurer threatens to charge multiple hundreds of dollars per month for failure to have the physical. Sounds like an opportunity much like Catch-22. Losing notifications along the way is to the insurer's advantage. I wonder whether how many quants in Hartford are calculating how many notifications to lose and stay under the regulatory radar? Do the quants get paid on a commission-only basis? Said commission on the penalty charges?

With cheap diagnostics of mortal conditions (pan can, for example), then annual (or so) screenings make sense. As it is, the resting EKG I got is utterly worthless as a diagnostic of my underlying cardiac health.
The test is not useful in routine checkups for people who do not have risk factors for heart disease such as high blood pressure or symptoms of heart disease, like chest pain.

So, the insurer pays this third-party to track whether I've done my Good DooBees each year. The doctor's office tells the insurer, who tells the third-part, who then tells the insurer. I think that's a decent definition of a circle jerk. Which they've managed to screw up, so to speak.

The whole point of quant, in the profit making world at least, is that the cost of a quant exercise brings greater value than the cost of the exercise. We see, may be, this with the overbooking scandal. On the one hand, airlines claim they overbook, and do some calcs to set the percent of such overbooking:
Ms. Owens, along with her main job of setting various fares on a single flight, tweaks the overbooking numbers. Then, each week a report comes out that lists all US Airways flights that bumped 10 or more people. The analyst with the most flights on the report is stuck with a stuffed toy crow for the week. And occasionally they hear from angry airport workers who handled the bumping.
On the other hand, the airlines sell "unbooked" seats through discount brokers, which pretty much guarantees more butts than seats. That text is from 2007, if you noticed, so perhaps the quants have gotten more stats since then, but I doubt it. There's really no penalty for not doing the job smart. Well, a toy crow isn't much punishment.

Not the best use of all the data available as mentioned in an earlier missive. The airlines know that the consumer traveller, with those early and last minute bought tickets, are in no refund land. The discretionary no shows are nearly always business junket guys (and, I suppose, gals) on expensive tickets, so they'll lose far more than just the revenue of the high priced ticket: the cost of the bump has to be included. Not to mention that those steeply discounted broker tickets don't come close to making up the difference.

Could the airlines be bumping out Ma and Pa Kettle who just got excess, cheap tickets from a broker to accommodate Mr. Master of the Universe who just found out he has to get to Orlando for a sales meeting and is willing to pay full freight? What do you think?

So, back to the healthcare situation. In my callow youth, I worked on a Progress application called Optimed (it was bought a few times since I left and before it was sold by the company that bought it, so I don't know if it's still around) which was (is?) a pre-qualification screener. The clients would add rules for certain procedures, based on some, sort of, established criteria shipped with the application. The point, of course, was an ever more elaborate ring-around-a-rosy to justify denying services. Welcome to health as profit. So, the value of quant in this sort of case is cost avoidance. I remain convinced that, modulo fraud avoidance, it's likely cheaper to allow physicians to be doctors, and fire all those $100K/annum quants. YMMV.

The idle educated keep taking more of GDP for nothing gained. What a way to run a country?

Turns out, the subtitle of one version of these endeavors (penned nearly a decade ago, BTW), "It's the Distribution, Stupid" is gaining some traction:
"The 'jobs of the future' are likely to be performed by robots," said Nathaniel Borenstein, chief scientist at Mimecast, an email company. "The question isn't how to train people for nonexistent jobs. It's how to share the wealth in a world where we don't need most people to work."

01 May 2017

Fruit Pies

Let's do some dot connecting.

1 - United Airlines has some rent-a-cops manhandle a elderly doctor out of his seat and off the plane. United eventually settles for an, as yet, undisclosed sum.

2 - Southwest says it will cease overbooking. The same report also says that, at 15,000, Southwest had more passenger bumps than any other airline.

3 - Airline reservation systems, computer division, go back to the 1950's, but the most well known, ACP (some might argue SABRE, but that's just a specific implementation), goes back to the mid-1960s. Of note, it continues today, in much modified form, as TPF.

The distinguishing feature of both ACP and TPF is that they're, at heart, assembler programs with bespoke "transactions" embedded in OS files. Very lean, very fast. According to reports from 2001, SABRE was going to port to Compaq machines.

Much has been made here about the many failures of quant methods when dealing with human systems/processes. When doing data from Mother Nature, who doesn't change the rules every now and again, quant works rather well. In the human realm we get The Great Recession.

So, the dot connecting exercise leads one to conclude that the quants doing computer reservation haven't paid much attention for the better part of 60 years. It's an exercise one might (well, can, actually) find in an upper-level undergraduate program (11.128): on a per-flight basis, calculate the percent overbooked such that only 5% or 1% or 10% of flights actually bump passengers. What might be called low hanging fruit.

The airlines have all the data needed to accomplish the exercise. They know the actual load for each flight going back forever. They know the external factors which affect variability of load: holidays, weather, conventions, and so on. So, why the United and Southwest experiences? The only logical answer is simple: airlines have found that they can get away with not paying attention. Where's a competent data scientist when we need one?

28 April 2017

Dee Feat is in Dee Flation - Part the Thirty Second

It's been many months since the last entry in this subject. My bad. The fact remains: all that TARP and QE money still hasn't generated inflation. You can only get wage push or demand pull inflation if the newly printed moolah ends up in the hands of the underclasses. Period. That is also, as it happens, how you get growth. Growth is caused by increasing demand, and that only happens when new moolah gets to the hands of those who buy stuff with that new money. The 1%-ers who got the QE moolah weren't and didn't. The "supply side" notion has been disproven every time it's been tried. It was never anything more than an excuse to send moolah to the 1%. As you will see below, producers do all they can to constrain output. Cartels are one fairly well known mechanism. Deflation is still the big bad bear; it stifles both production and demand. And, once again, Neil Irwin reads my mind.
There is a worldwide glut that includes oil wells, steel plants and eager would-be workers, and it will take more than a United States presidential election and a few months of solid global growth to fix it.

So, why don't they just stop producing? That nasty capital albatross: they gots to pay the Piper no matter how much they produce, so they're boxed into generating any cashflow they can. And who's the Piper? All those 1%-ers with idle cash they want return on. Get a job, for crying out loud.

As has been mentioned by a few of the saner mainstream pundits: since the 1980s, manufacturing output has about doubled with about a third less labor. It wasn't China or Mexico, but automation that took the jobs. Everywhere.

All the trickle down folks, including by default Obambi/Bernanke, simply ignore that handing out Bongo Bucks to the .1% who already have more than they can spend doesn't do anything for GDP growth. On a zero-sum basis, well, some win and others lose. But nothing good happens overall. The Revenge of Laffer is in the Mnuchin propaganda.
The Republican tax-cut plan is designed to reduce the tax burden for the very rich, and, since this is a highly unpopular thing to do, Republicans are going to spend a lot of time lying about it. Treasury Secretary Steve Mnuchin was dispatched to do the round of morning shows, and his first attempt at lying did not go especially well.

Back to I Still Hate Neil:
... many of the biggest forces in the economy don't announce themselves with an election or a central banker's announcement, but through shifts in the underlying forces that make the global economy tick. And those don't change overnight.

Here, Neil is a bit too naive`: the Great Recession did announce itself pretty much to those paying attention. And the Trump tax cut, if it happens as now stated, will generate the Permanent Depression. Of course, Orange Julius Caesar is certainly on the way to starting a War, if only to install himself as dictator. It's happened before, you might know.

We'll really know the Right Wingnuts are worried when they demand the Damn Gummint pay them more interest on bonds than they can get from private investment.

26 April 2017

That Capital-Labor Ratio

A long standing meme in these endeavors, both quant and macro, is that capital is constraining vis-a-vis labor. You can't lay off your capital; you have to pay for it, no matter what. So long as output remains steady, or better increases, going all in on capital makes sense. But it doesn't always work. This is especially true if you overpay for that capital:
Last year, the network's new nine-year agreement with the NBA to televise pro basketball games took effect. The reported cost to ESPN: somewhere around $1.5 billion per year, a massive increase over the previous deal. That's on top of deals the network already had with the NFL ($1.9 billion annually), various NCAA conferences and the College Football Playoff (well over $1 billion), and Major League Baseball ($700 million).

All of those contracts aren't the usual kind of capital, but they really are. So, having lost tons of subscribers (and the ESPN set have the advantage of being in the default delivery for most services).
[C]able and satellite companies including Comcast and Time Warner Cable say they have to do something to keep cash-strapped customers from cutting the cord.
In order to keep costs down, it won't have ... ESPN, ESPN2...

What kind of economy do we have if the default cable bill is too much for so many folks? The canary just died.

So, in order to pay for all that capital, ESPN is chopping up to 100 heads. Is that anywhere near enough to finance all those $$$ billion contracts? Not even close. Most, from what's been published so far, are regional/specific sports reporters. The only two general faces so far are Ed Werder and Jay Crawford. The latter has always been the most intelligent presence on the network. Figures.

21 April 2017

Thought For The Day - 21 April 2017

The Right Wingnuts are forever pointing at Unicorns to justify all manner of divide-and-conquer manuevers. Chief among such is that "college doesn't matter, just look at Bill Gates!" The Unicorn Theory of Success. Is and always was nonsense, but even most of the Unicorns find it useful to justify both their paths and also the constriction of access to various paths for the less fortunate. Gates was born with millions in trust funds. Not exactly a bootstrap tale.

Well, another research study puts the lie to the Unicorn Theory:
We found about 94 percent of these U.S. leaders attended college, and about 50 percent attended an elite school. Though almost everyone went to college, elite school attendance varied widely. For instance, only 20.6 percent of House members and 33.8 percent of 30-millionaires attended an elite school, but over 80 percent of Forbes' most powerful people did. For whatever reason, about twice as many senators - 41 percent - as House members went to elite schools.

Where did Devin Nunes go?
After receiving his associate of arts degree from the College of the Sequoias, Nunes graduated from Cal Poly San Luis Obispo with a bachelor's degree in agricultural business and a master's degree in agriculture.

And what about that associate's degree? oops!
WASC placed the college on "show cause" status in early 2013 and required to demonstrate to WASC that it should remain accredited. In early 2014, the accreditation status of COS was changed to "warning" as many of the original deficiencies were corrected but others remained; a follow-up report is due in October.

A shit kicker in Congress.

18 April 2017

Thought For The Day - 18 April 2017

Does anyone else find the new Old El Paso "taco party" commercials just this side of porn? I mean, in the usual context, I prefer tacos over hotdogs. But not as food.

See The Dots, Connect The Dots

Work with me on this one.

We know that Empty Counties are Red just because they're white, uneducated, unskilled, and unemployed. Incestuous hollers. Enough Empty Counties in a state, and it runs Red.

We know that cities are Blue just because they're polyglot, educated, skilled, and employed. Enough cities in a state, it's true Blue. Have you noticed that mongrel mutts are almost always tractable and smart? Same with people. Thoroughbred horses are a nightmare. Same with people.

We know that Red states aren't pure Red, but dotted (or swamped, in some cases) with Blue cities. All that matters is who breeds faster (I'll leave that as an exercise for the reader) and who is dumb enough to believe lots of things that aren't true. And who actually votes.

So, today we find that real estate experts (or some, anyway) expect city rents to decline due to overbuilding. But that this will last only a year or two, since liberals and progressives and the smart and employed continue to flock to cities.

In a few years, not even the Red-est of states will be able to find enough votes in their Empty Counties to overwhelm their Blue cities. Oh the irony of it!! The real Tea Party happened in that most socialist city of all, Boston.

The KKK's worst nightmare.

17 April 2017

Eventual Data

Another in the grab bag of tricks with these endeavors: events drive data, and not the other way round. Of course, one can find hundreds of books on Amazon with the search 'financial engineering'. 6,296 as I type this. That's a bunch. Beginning, in earnest, with Samuelson, my initial profession of economics slid down the rabbit hole of quant. Political economics has always been about policy, which is just a polite way of saying, "how do I kill my opponents and reward my allies?" Orange Julius Caesar as President should dispel any notion of a higher purpose.

Well, surprise. The announcement of the second tier international economics award comes as a big surprise. Or, perhaps not. These missives have oft mentioned Gordon's book the last few months. His approach is very much the wordy approach to analysis that Samuelson and Solow attempted, successfully, to kill off.
The economics association highlighted Mr. Donaldson's interest in historical research, an unusual focus for a leading economist. In one paper, Mr. Donaldson found that the spread of railroads in 19th-century India increased prosperity by increasing trade. A subsequent paper reached a similar conclusion about the United States.

Study the events, and you'll see why the data turned out as it did.
The economics association also highlighted Mr. Donaldson's research techniques. It said he had "formed and become the principal practitioner of a distinctive style of research, based on important conceptual questions, careful data work and credible identification combined with state-of-the-art structural methods."

One might dismiss such as reactionary, but given Trumpism and Creationism and Isolationism and Populism and the like, why not?

Finally, the real surprise to anyone who's kept track of econ research and punditry over the last decade,
Mr. Donaldson, 38, was born in Canada. He graduated from Oxford University with a degree in physics and then earned a doctorate in economics at the London School of Economics. He joined the faculty at Stanford in 2014.

When I was at UMass, I opted into then out of, the Ph.D. program and took the participation trophy MA rather than put up with just such graduate program professors. They could spit derivatives off the end of the chalk (yes, it was that long ago) with supreme confidence, but hadn't much of a clue about economics. Not a one of them would have written what Donaldson has. Not even as punishment for high crimes.

Small Victories

One of the quant-ish memes in these endeavors is its use in the field of pharma. Should NHST be used? Should Bayes be used? Should single arm trials be allowed? And so on. But one of them has to do with the gaming of the system. There are as many ways to attempt that as there are the stars in the sky. Over the last decade or so, one of the most popular has been Orphan Drug designation.

You can read up the wiki article for all the gory details, but the summary is that Orphan Drug designation blesses the sponsor with lots of additional profit making opportunities. One of the more subtle, and not necessarily obvious, during the application process: can/will the drug, if approved, be easily moved into a wider population than the orphan indication? The orphan benefits, by current law, follow the drug into such indications. Some mainstream pundits have kvetched about that and about the number of potential patients which define orphan, currently 200,000. That's a lot.

Well, today's briefing.com brings some good news. If you think spiking the cheating is good news:
6:01 am CytoDyn announces that its application for Orphan Drug Designation was not granted by the Office of Orphan Products Development of the FDA 'because PRO 140 appears to have the potential to treat more than just the subset of multi-drug resistant HIV patients for which the designation was requested'

I wonder how much they'll send along to Jared or one of the Wonder Kinder to have FDA change its mind?

14 April 2017

Thought for the (Good Fri)day - 14 April 2017

Just when you thought Orange Julius Caesar was going to Make America Great Again (whenever, and for whomever, that might be), we get the CPI summary that can, reasonably, be his alone.
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.3 percent in March on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today.

Some of that was gas went down (it's been rising since that data was collected), but
The index for all items less food and energy fell 0.1 percent in March, its first decline since January 2010.

Of course, that month was still a Great Recession month, despite what some BLS wonks have said. Falling prices, aka Defeat is in Dee Flation, are the canary in the coal mine keeling over just before it blows up. Welcome to Trump Crater, where the Billionaire Boys get richer and the poor die sooner. The imploding Middle Class (what's left of it) doesn't have lots o moolah to push up prices. If that all sounds like you've read that here before. Well, you have.

10 April 2017

Times A Wastin'

Have many stopped to consider why Orange Julius Caesar is so hot to trot with his "disruptive initiatives"? You might notice that most of the damage is coming from his anti-American agency heads. Pruitt (yeah, it's a tort law firm link, but it was the first one that came up with a money quote, which is what matters) declaring asbestos benign.
Hon. Mr. Pruitt: Asbestos has been identified by the EPA as a high-priority chemical that requires a risk evaluation following the process established by the Lautenberg Act to determine whether conditions of use of the chemical substance pose an unreasonable risk. Prejudging the outcome of that risk evaluation process would not be appropriate.

As if the effects of asbestos were unknown? DeVos expressly denied holding all schools to equal performance metrics
Betsy DeVos admits to Sen. Tim Kaine that she does not support holding charter schools "equally accountable" as public schools.

Of course, Orange Julius Caesar and DeVos made millions fleecing vulnerable folks and the Federal government. I spent about a year "teaching" for one of those for-profit schools (not, so far as I know, owned by either). No diploma? No GED? No problem. We'll turn you into a MultiMate expert in a few months. [If you've ever heard of MultiMate...] Just sign here.

One could go on for hours listing the cynical anti-American exploitation of this crew over the course of just three months. But the underlying question is why the need? Orange Julius Caesar knows, for sure, how much collusion there was between himself, his helpmates, and the Russians. He likely knows how far along the FBI (with help from NSA and CIA) investigation is. He's counting the days until his perp walk. Time's a wastin'.

What he's too dumb to figure out: the sooner he craters the country, the longer the electorate lies prostrate into the 2018 election. And, thus, the greater the threat to the Right Wingnut control of Congress. Even shit kickers in Empty States know when they're being kicked in the face while they grovel in the mud. The Obambi employment surge has past, so good luck.

06 April 2017

Who Was That Masked Man?

In a NYT interview published yesterday, Kim Jong-Don had this to say about Susan Rice:
I think the Susan Rice thing is a massive story. I think it's a massive, massive story. All over the world. It's a bigger story than you know in terms of what other people have done also. The Russia story is a total hoax. There has been absolutely nothing coming out of that.

She's been on various "news" chat shows, and didn't say what needed to be said. I offer up this example of how to do it.
Trump is either an idiot or a pathological liar; likely both. His assertion amounts to saying that the National Security Advisor receives these reports with names of US citizens covered by a piece of tape with "US Person" printed on it, and then the Advisor peels off some of those tapes to see who is named. The further assertion that the Advisor was using these reports to "spy" on Trump and associates requires that the Advisor know, beforehand, that a Trump or associate name is under the piece of tape. That's nonsense, of course. If a report, during the campaign, mentioned Russians and election fiddling, then it would be my job to determine which US citizens were colluding with Russians. That these US citizens just happened to be Trump and his associates is just tough luck for them. Caught red handed. Boo hoo.

In order "unmask" a US citizen name (which is the text "US person number X" and such), the Advisor can only request the name of the US citizen from the originating agency, which may or may not oblige. The Advisor cannot "unmask" unilaterally.

That's what she should have said.

05 April 2017

Thought For The Day - 5 April 2017

Been in another peeing contest with a Bayesian. They're as bad as the tea baggers in believing so many things that just ain't so.

The fundamental flaw in Bayes is the assumption that investigators are both objective and honest. Humans always have an agenda. In the pharma world, sponsors will do most anything to get a drug approved, even glossing deaths. FDA, on the other hand, will renege on agreements (SPA, generally) if they see new data that is worrisome.

Since there are an infinite number of priors available to any study, there's every reason to believe a sponsor will choose the one which best fits the agenda. Good luck with that.

03 April 2017

Orwell Got It Wrong

Two ways of using quant have been, to my mind, wrong: financial engineering because it's been the source of collapse since the beginning of the Nation, and psychoquant which uses data to manipulate the rest of us to the advantage of the few. Well, Noam Scheiber goes long in today's NYT with a detailed expose` of how Uber does it. It should give you the willies. May be not. What the story doesn't tell you: Uber, despite these very expensive efforts to manipulate its "contractors", is massively underwater.
Uber exists in a kind of legal and ethical purgatory, however. Because its drivers are independent contractors, they lack most of the protections associated with employment. By mastering their workers' mental circuitry, Uber and the like may be taking the economy back toward a pre-New Deal era when businesses had enormous power over workers and few checks on their ability to exploit it.
[my emphasis]

The point, of course, is to re-institute the indentured servitude (or, in the extreme, slave) model of the 19th century. For those who think that immigration in the century was the result of National magnanimity, well no. Various folks, generally on a racial basis, were imported to deal with specific projects. Asians building railroads likely the best known. As explained many times previously, as capital substitutes for labor, the less there is for the capitalist to gain from squeezing the workforce. And it matters not whether they're "employees" or "sub-contractors".

The destruction of employment will, in all likelihood, have some predictable effects. Healthcare will devolve to the pre-New Deal model where it's just another consumer spend, and quality will devolve to that level. The reason healthcare evolved so rapidly in the post WWII period was just because of all that moolah injected into the system. Most of the basic tech that was implemented was known before the War. There just wasn't much money coming from the 1% to finance progress. In other words, money can't buy you love or better health. It takes a bit more than a few village people to fund R&D in healthcare.

Retirement funding, similarly. And, by the same mechanism: divide and conquer. The Right prefers the verbiage of "freedom to choose", but, of course, the only way to fend off the powerful few is if the many merge together.

The Editors, most likely, buried the lede to the last graph:
"You have all these players entering into this space, and the assumption is they'll do it through vast armies of underemployed people looking for extra hours, and we can control every nuance about what they do but not have to pay them," said David Weil, the top wage-and-hour official under President Barack Obama.

When you stop to consider the enormous cost advantages, Mr. Weil said, "it says to me this is an area that will grow fast."

Take the time to read the whole piece. It will curl your hair, if you're among those who've not been paying attention to this quant space.

29 March 2017

Location, Location, Location [update]

One of the recent themes of these endeavors is that substituting capital for labor leads to covert side effects. Note, I did not say unintended or unanticipated. I said covert, and mean it. As the share of labor decreases, the need to ever more drastically cut out labor costs, in order to maintain capital return improvements, increases. Saving 10% on 80% of cost is vastly different from saving 10% on 15% of cost. That ole asymptote problem.

One of the long known glitches in the American form of healthcare is that a given billable item will have a different value, depending on the location where the item was delivered. It's also been long known that the doctor's office is, was, and will remain the least expensive. Full fledged hospitals, the most expensive. And with good (well, sorta) reason: hospitals have all that plant and equipment to amortize. See where this might be going?

Well, of course you do. Today's reporting puts some hard numbers to the problem. And their source is the Billionaire Boyking's pals, the corporate hospital.
When my wife fell on the ice a few years ago, she thought her wrist was broken. She went to see her doctor, who advised her to have an X-ray taken in the same building. Since her wrist was still crooked months later, she had a second X-ray done at an imaging facility nearby.

Afterward, her health insurance company sent the "explanation of benefits" for each X-ray. The initial one was billed at $1,200, while the second one cost only $100.

Figures don't lie, but liars figure. A couple of things are going on here. First, the hospitals seek to amortize all that plant and equipment they've bought. One way to do that is to exploit differential payments, which is further explained in the article. It's assumed that service "in hospital" will, some times, require further hospital service due to complications or further information gleaned from the initial procedure. This is the excuse used by anti-choice zealots to require clinics to be, or have immediate access to, full hospitals.

Second, corporate hospitals are vacuuming up physician practices to eliminate the competition. The wonderfully efficient free market in healthcare working its invisible hand magic. More like a handjob, if you ask me. Given a largely free hand to spend like drunken sailors, hospitals incur ever more fixed cost, in the belief they'll be allowed to charge whatever they want. And they do.

OK, Kim Jong-Don fix this:
"Across the country hospital systems are scouring the market in attempts to acquire physician groups," said Medical Billing Advocates of America in an article on its website. "This has contributed to increased costs so far, because some of the services and procedures that were formerly billed as doctor visits are now being billed as outpatient services -- even if it is the same office. In one year, this [facilities fee] added up to $1.5 billion more in charges to the Medicare program."

Medical Billing Advocates referred to this practice as "a real cash cow for hospital systems."

Of course not. Just put a stop to corporate hospital concentration. How about it Kim Jong-Don?

An older link, may have been offered up, which details the problem and a long standing solution.
In 1964, New York became the first state to enact a statute granting the state government power to determine whether there was a need for any new hospital or nursing home before it was approved for construction. In 1974, the federal government tied funding to CON programs. The 1974 federal Act required all 50 states to have structures involving the submission of proposals and obtaining approval from a state health planning agency before beginning any major capital projects such as building expansions or ordering new high-tech devices. By 1975, 20 states had enacted CON laws; by 1978, 36 states had enacted them. Eventually, all states except Louisiana enacted such laws.

25 March 2017

Thought For The Day - 25 March 2017

OK, so I have to make some thoughtful thoughts on the collapse of AHCA. Just one: Kim Jong-Don and the Tea Baggers finally figured out that neither was the round hole for their square peg. The Tea Baggers saw Kim Jong-Don as easily maneuvered from his "Populist" rhetoric to their outright fascism, while Kim Jong-Don figured that the Tea Baggers would actually swallow whatever not-leftwing projects he tried.

Watching the "negotiations" from the original RyanCare to its final RandCare form, made it crystal clear that the Tea Baggers would accept nothing less than complete capitulation. Kim Jong-Don kept up the "terrific" drumbeat, even as basic services were excised. Ryan is no lefty softy, but he also knows that even toothless shit kickers figured out they'd been had. 17% accepted the final version. 6% strongly accepted. "better, cheaper, everybody" turned into, "get sick, die sucker!!"

Campaigning for the 2018 mid-terms starts this fall. Blowing your brains out with a 12 gauge just in time is not the smartest way to ensure the permanent Right Wing Government.

17 March 2017

Nashville Skyline

Regular reader will recall that, in the post-mortem of the election, I asserted that even Red states really aren't. They're all dotted with Blue cities; some, of course, large enough to stave off the cretins. Some, not.

Today's Times brings us a first person tale of one such situation, as you might expect from the missive's title, Nashville.
I believe my people elected the greatest threat to American democracy since the Third Reich, but I haven't been able to work up a real us-versus-them way of thinking about my own friends and family.

Wow!!! On both counts.
Tennessee is a blood-red state, but Nashville is a blue city, an arrangement that works roughly the way living with an ex in the same house might work. Every time Nashville passes a law to increase inclusion, or decrease idiocy, the State Legislature passes a law that overrides it. Last month, when Nashville residents took to the streets to protest the president's executive order on immigration, a state representative named Matthew Hill proposed a bill protecting drivers from civil prosecution if they happen to run down a protester.

Yep. They are deplorables.
Meanwhile on the other side of the road, the Ecumenical Franciscan was holding his ground right in the middle of the Trump supporters waiting for the line to move. "Beat swords into plowshares -- where does it say that in the Bible?" one guy called out, passing by. "Two different sources," Father Boylan said, turning to speak to him. But his heckler was already gone.

Not too surprising that the Bible thumpers don't even know the basics of the religion. The phrase comes from Isaiah. Yes, while I knew the term from childhood, I had to look it up to find the original source.

12 March 2017

The Asymptote of Progress - part the third

We're getting closer. Even a (nearly) lunatic Right Wingnut, N. Gregory Mankiw the NYT token Rightist, takes up a number of themes of these endeavors likely opaquely to himself, in today's edition. He suggests that Kim Jong-Don talk to an actual economist (not mentioned is that it should be Stiglitz, but that's a bridge too far) to get answers to economic questions. Not that any Freshwater economist would have anything new on offer to Kim Jong-Don. Mankiw does offer up some real facts, which is a miracle on its own.

So, here are some bits from Mankiw.

But a large expansion in the aggregate demand for goods and services is not what the economy needs right now.

Of course, since Kim Jong-Don claims that the "real" unemployment rate is in the neighborhood of 40%, the only possible way to get those millions of unemployed into jobs is to push up aggregate demand. Unless, of course, you just want to leave those out of the labor force hanging out on meth and heroin. Mankiw is taking the 5% reported as globally true. Kim Jong-Don is right that U3 is too narrow a measure for the current circumstances; of course, he's nuts to say it's 42%, which number is generated from total employed divided by total population. Only a lunatic would offer such a number.

According to a recent paper by Mr. Jones and three co-authors, the number of Americans engaged in research has increased more than twentyfold since the 1930s, yet there has been no similar explosion in productivity growth. Their interpretation is that big ideas are just getting harder to find. Unfortunately, there is no sign that this is about to change.

That is, directly, the asymptote of progress. I claim previous invention.

Mr. Trump's victory can be attributed largely to the support of white working-class Americans.
The question is whether Mr. Trump can alter these disturbing trends. Few economists point to flawed trade agreements as the main source of the problem, as the president often does. More important is what economists call skill-biased technological change.
The solution is to increase the skills of the labor force through better education and training. Yet this is easier said than done.

Well, we're back to the solutions presented in previous missives in this series:
1 - you're just stupid and should never have earned such high wages, aided and abetted by evil unions; suck it up and make do with nothing (which is basically what the Right said to unemployed Northern union workers as jobs went South over the last decades)
2 - you're just stupid, but you're Real Americans and thus deserve sinecure for the rest of your life and those of your spawn (who will grow up just as stupid with Red State reactionary education, and then their spawn; repeat)

Mankiw isn't the bloody mouthed Bannon, but even a bit of sanity seeping into the Right is welcome. Whether there'll ever be enough is the critical question. The last billionaire to actually care about the underclass was called FDR. Kim Jong-Don ain't no FDR.

11 March 2017

Risky Behavior

Yes, one should not speak ill of the dead. Today, the NYT has the obit of an award winning economist, Stephen Ross. This is notable not just because he was an economist, taught at MIT, and earned his doctorate at Harvard. A saltwater economist. No, what is notable is that the obit lauds him for his bad news quant theory. Not that most in the profession consider what he did a bad thing. Econ has been on a quant jag for decades.
Professor Ross relished marshaling complex theories honed in the academic world and applying them to Wall Street, where they could be used to address practical problems. His contributions to the finance industry earned him the Deutsche Bank Prize in Financial Economics in 2015.

Jürgen Fitschen, a co-chief executive of Deutsche Bank at the time, said in a statement that Professor Ross's work was the "foundation for all the risk-factor models we use today."

Of course, the use of exotic derivatives were what brought down the world in 2008. And, we now know, that Deutsche Bank got caught washing Russian rubles, provided Kim Jong-Don lots of moolah, and fueled the Great Recession.

I wonder if one can posthumously return an award?

Risky Business?? Where's Scientology when you really need it?

10 March 2017

Clippy Versus Terminator

That didn't take long. Bill Gates said the unsayable. (Here's the original).
Bill Gates, who has done more to propel the world into the high-tech age than almost anyone, recently called for taxing robots. That has provoked enough negative feedback to fry a motherboard, with critics decrying him for wishing to hold back progress.

And here's the FRED graph of labor's share of GDP from last week:

Gates himself said robot job killers risked provoking a Luddite backlash among their victims. But as the humans in the "Terminator" movies found out, stopping the rise of the machines is very difficult. As Lind noted, increased automation is a very strong trend that Gates has done much to feed.

What can we speculate, or infer, from these two "data points"?

Recall the 1%'s standard refuge, Pareto Optimality, which amounts to an "intellectual" defense of the status quo: you can only make A better by making B worse. Even, it can be argued, that making A better out of growth harms B if the re-distribution impacts B's previous slice of the growth pie. That's some catch, that catch 22.

As Obama/Bernanke/Yellen's trickle down monetarist approach to recovery demonstrated, a rising tide doesn't raise all boats. And, thus, income concentration continues to increase, growth stagnates, and inflation never seems to appear. Again, recall that there's three sources of inflation: wage push, cost push, and demand pull. The QE exercises never fueled inflation, outside the asset markets, because all that QE money never made it to either wages or general incomes of the middle and lower classes; it ended up on the balance sheets of corporations and the 1% who then plunged it into fiduciaries, having no cause to buy goods and services. It is curious that the beholden econ and business pundit class never seem to call out cost push when raw materiel, like oil, go shortage (real or imposed), and end user prices rise. They always call for Volker Vengeance on those evil wage slaves.

Of course, taxing robots doesn't hold back progress. As discussed in other recent missives, Kim Jong-Don fed the uneducated, unskilled, unemployed from the Empty States a line of bullshit. Which they ate up by the wheelbarrow full. I pointed out that turning an unemployed 50 year old assemblyline drone into a London Whale isn't such a good idea, even if it could be done. Turns out
Advocates for automation contend that, while some jobs are destroyed, others that pay better are created. The question is whether the number of new jobs will be sufficient to offset the ones rendered obsolete. Another concern: Can low-skilled, poorly educated employees be retrained for the new, more data-driven work arena?

As to the first and second sentences, we already know that automation, unlike the farm to factory migration of the late 19th and early 20th centuries, isn't a one-for-one (or better) bargain. As to the rest, if all one needed to be a London Whale was a GED and a bit of re-training, the tsunami of applicants for such positions would unleash a catastrophic race to the bottom for wages of such work. That ultimate catch 22: supply exceeds demand. Not to mention the psychic scars inflicted on all those Harvard MBAs who find out that all their study and bureaucratic ladder climbing was pointless. They only needed to take a three month remedial quant course at the local community college after high school graduation to earn 90210 wages.

Of more interest, of course, is the question of macro-economic effects of falling labor share and automation. It's not too far a stretch to infer that the falling share is, at least partially, the result of automation to date. We do know that income has been concentrating at an accelerating rate over the last few decades. It's also clear that income concentration yields lower to negative growth, just because at some point there's really nothing more that you want. And, more to the point, income concentration means fewer buyers for whatever the 1% wants to buy. Ferrari doesn't sell as many units as Ford.

The problem with ever more automated production, whether goods or services, is that machines can't be laid off or fired. You bought it, you'll pay for it no matter the level of demand for your widgets. And that's a significant problem for capital. Have you ever wondered why oil output never seems to drop very much? Yes, at times new sources are scarce, but producers always seem to run their equipment at 110%. Why? Because they have to pay for it no matter what. While the MBA types focus on average cost, as production becomes ever more capitalized, producers increasingly submit to marginal cost because they have to: sunk costs are irrelevant to decision making, as the econ types say. In practice that means you are forced to accept any cash flow that helps pay off your machines. You can't fire them.

In time, and it may be less than the current generation, demand collapses without a new and revolutionary method of income distribution. Whether the 1% will realize this before the implosion? Given human's penchant for time horizons that stretch to the end of his nose and no farther, more likely not. A permanent Greatest Depression, imposed by a global police state, is the most likely. Production will be geared to the wants of the global 1%, which will require what the Right has always opposed (as demonstrated by Brexit and "Make America Great Again"): a universal global currency. Such is necessary to ensure that the 1% of, say India, have equivalent buying power to, say that of the USofA. Currency manipulation by governments will be anathema to capitalists (they want those rupees to be worth as much as bucks), so they will see to it that it can't happen. Bitcoin style currency could be the vehicle; too early to be definitive.

Thought For The Day - 10 March 2017

The venerable James B. Stewart tells us about the proto-Trumps today.

What Mr. Stewart and his interviewees ignore: running a democratic government has a diametrically opposite purpose from running a corporation. For the corporate CEO, the goal is to transfer wealth from the many (customers, workers, suppliers) to the few (management, shareholders). Democratic governance, on the other hand, is about equitably governing the whole populace. For some definition of equity, of course.
"I feel many of these chief executives are responding to a public longing for a strongman, or woman, a strong leader," Mr. Gergen said. "There's a sense that's why Trump got elected. You're seeing the same thing in Europe, in Asia, in a long list of countries. People are dissatisfied with standard politicians. Military types and business people with a strong track record offer an attractive alternative."

This is a rather precise example of cognitive dissonance. The "standard politicians" have been in the pockets of the 1% and serving their interests. In other words, behaving like CEOs. Putting a "real CEO" in charge will lead to a better life for the average Joe Sixpack? Defend your answer. Show your work.

09 March 2017

Thought For The Day - 9 March 2017 [update]

It's Thursday, so BLS releases the weekly unemployment number. It's increased 20,000 poor souls. The Kim Jong-Don effect has set in. Sugar high, depression crash. Which got me to thinking about some other dots that appear to be connected.

The first dot. Bannon is an avowed Leninist, not to be confused with Marxist. You can visit the Wiki for all the details you might want. The motivating thrust of Bannon, though, is quite specific. He intends, and has already put into motion, the destruction of the professional Federal civil service. He and his acolytes have called this body of workers "the dark state". His point was described to me by Dr. McElhone way back in the mid-70s this way: the only thing that kept the government running during the Nixon fiasco were the civil servants. They didn't depend on who owns the White House or Congress. Now, the Federal civil service resulted from the assassination of Garfield. Up to that time jobs were parceled out to campaign supporters. We had to kill a president to figure that might not be such a good idea.

The second dot. At least the State department is purging experienced professional staff. The nature of Kim Jong-Don, and his zealots, is to reject anyone or any idea that doesn't comport with established bias. They're getting rid of the "dark state" that knows more than they do. Wouldn't want any voices saying it might not be such a good idea to enable Putin's oil grabs, land grabs, or killings.
Elliot Abrams, Tillerson's top choice to be his deputy, was rejected by Trump after the President learned that the former deputy national security adviser had criticized him during the campaign. No replacement has yet been named.

The third dot. It's widely assumed that the DC metro is the locus of Federal employment. Turns out, not so much. Certainly there a lot of Federal civil servants, but they're not the largest percent of the metro area of all such areas. More to the point, they aren't the ones with the grand mansions in McLean and Bethesda. Those are owned by the lawyers and lobbyists. I know. I lived in DC on a civil servant's pay. Civil servants live in Levittowns or one room apartments in town. Leaving Boston was a bad economic decision.
[update hot off the press]
President Donald Trump's daughter and son-in-law are renting a house from a foreign billionaire who is fighting the U.S. government over a proposed mine in Minnesota.

The Wall Street Journal reports that Ivanka Trump and Jared Kushner are renting a $5.5 million house in Washington's Kalorama neighborhood from Andrónico Luksic. One of the Chilean billionaire's companies is suing the federal government over lost mineral right leases for a proposed copper-nickel mine in northeastern Minnesota.

The fourth dot. I can't speak for all folks who have, or do, work in government, but in most cases it is for public service reasons. Getting a Federal job isn't easy (or, at least, it wasn't). You have to show you know what you're doing. That you have appropriate education and skills. By those criteria, Kim Jong-Don and Bannon and the rest wouldn't be allowed in. That's their point, of course: they are the outsiders who know how "the real America" works. Right. Billionaires who live off the sweat of others. But Bannon is right, although I doubt he understands the reason. Folks who choose to do public service are, by nature, more interested in supporting those who need support than those who don't. Coddling the rich isn't the natural instinct of public service. Which makes them deep enemies of Bannon and the billionaire buddies. Off with their heads.

So, this is a quiet, not quite silent, coup. Remember, Kim Jong-Don's "mandate" came from 77,000 shit kickers in Empty Counties. With Sessions getting to his main duty, voter suppression, Kim Jong-Don may well get the ability to pass on the levers of power to his son. Just like the North Korea version.

08 March 2017

Ingrates United

Eduardo Porter, econ/quant/analysis guru at the NYT has generally been reliable, from my point of view. Not so much today. His article is an attempt to blame the Trump win on clueless coastal Liberals.
So while most beneficiaries of welfare programs are white, many working-class whites perceive them as schemes to hand their tax dollars to minorities.
[my emphasis]

He spends his time blaming Liberals for not getting it with regard to lower class and lower-middle class whites. What's to get is simple racial hatred. It's no longer, post 1965, a Democratic strategy to race bait. Before the Civil Rights and Voting Rights bills, yes, the Dixiecrats mined white hatred of minorities below the Mason-Dixon, but Reagan took that meme without much contention from the rest of the Democrats.

There's really only two responses to the dirt kicking uneducated, unskilled, unemployed angry white folks plaint:
1 - the standard Right wing one of, "it's your own damn fault you're stupid; and why do you continue to vote for union busting Republicans"
2 - an income redistribution scheme to keep them in middle class wages forever

As to 1, well that was the response when the poor were mostly urban and mostly dark, although were mostly silent on the second part (they giggled about it amongst themselves). Now that the poor are increasingly white, suburban, and rural "we must do something about this carnage!!!" One of the nasty secrets of the Empty States is that, since before Scopes and still today, the quality of education in those places has been hidebound to a hideous degree. "It's your own damn fault you're stupid." One can't really expect people taught that the earth is 6,000 years old, people frolicked with dinosaurs, and the Bible is true history to be capable of doing 21st century work. Now, can one?

As to 2, well that's what the likes of Kim Jong-Don and Manchin and such are demanding. But no one in the Republican Congress supports any such thing. Neither does Kim Jong-Don, really. He imports foreigners at slave wages. And, of course, he imports foreign steel and other materiel. They didn't feel that way when the job losses were in unionized manufacturing in Blue states, of course.
... given the only beneficiaries of his decisions to go with cheaper Chinese metals for his construction project are Trump and his family, he is not someone who ever attempted to lead by example by only buying products made in America. He filled his bank accounts with millions of dollars that could have gone to blue-collar workers, many of whom now believe he is the man who will bring back the jobs that he secretly helped to destroy,

An MIT report from just after the election makes the case for redistribution:
The Rust Belt epicenter of the Trump electoral map says a lot about the emotional origins of his appeal, but so do the facts of employment and productivity in U.S. manufacturing industries. The collapse of labor-intensive commodity manufacturing in recent decades and the expansion in this decade of super-productive advanced manufacturing have left millions of working-class white people feeling abandoned, irrelevant, and angry.

Just suck it up and admit that you're lack of education and skill only got you good wages because Rust Belt unions did the heavy lifting. You elected Reagan, and he saw to it that such support would end. Vote against your self interest. Don't bitch about the result.
In fact, the total inflation-adjusted output of the U.S. manufacturing sector is now higher than it has ever been. That's true even as the sector's employment is growing only slowly, and remains near the lowest it's been. These diverging lines--which reflect improved productivity--highlight a huge problem with Trump's promises to help workers by reshoring millions of manufacturing jobs. America is already producing a lot. And in any event, the return of more manufacturing won't bring back many jobs, because the labor is increasingly being done by robots.

Remember: the CEO of UTC, which is the real Carrier company, said (after Pence and Kim Jong-Don and the cameras left) that the $16 million would be invested in more, not less, automation at the facility, and
"We're going to ... automate to drive the cost down so that we can continue to be competitive," Hayes said. "Is it as cheap as moving to Mexico with lower cost labor? No. But we will make that plant competitive just because we'll make the capital investments there. But what that ultimately means is there will be fewer jobs."

What does the Bible say about worshipping false idols?

06 March 2017

Thought For The Day - 6 March 2017

The mainstream pundit class seems non-plussed by Kim Jong-Don's tweet storm about his being wiretapped during the "sacred" election. By the way, if it were so "sacred" he shouldn't have colluded with Putin to bend the result. But I digress.

Mentioned, or alluded to, here in the past is the fundamental difference between Kim Jong-Don and any other pol in memory: he's spent his adulthood living the life of mini-dictator. His "business" is, structurally, exactly like the candy store that was on the street I walked twice a day (back then, grade schoolers were sent home for lunch; really) as a child. He has no shareholders. He has no BoD. He's The Decider. So, in that upbringing, if *he* wanted to wiretapp an enemy, he'd just snap his little fingers and it would be done. Now that he's the Dictator of the USoA, he just assumes that such is the way things are done. If Congress, right wing as its ever been, rolls over for him, he will be Dictator. Roberts sure isn't going to spike is tires.

05 March 2017

The Truth, The Whole Truth...

Mostly likely because I did my grad work in Econ rather than MBA (we mostly viewed them as incompetent empty suits; subsequent recessions caused by this cabal makes the case), I've viewed financial quant with a very jaundiced eye and said so a few times in the course of these endeavors. On the one hand, financial quants spend a good deal of time looking for loopholes in laws and regulations to exploit (CDS), and when loopholes are in short supply, bending such laws and regulations into pretzels (subprime and Alt-A loans). For their sole benefit, of course.

High on my list of foolishness is the notion that quant can actually predict stock prices. Now, that is distinct from having access to money flows data, which allows the holder to front run the lemmings into or out of particular companies or sectors. If you're a large enough holder, you can *be* the leader of the lemmings. Just note the Hunt brothers. They nearly got away with it. My guess is that a similar attempt under the Kim Jong-Don administration will succeed.

Well, in any case, comes a post by another skeptic.
There is a significant body of literature trying to forecast prices and to prove (or not) that financial markets are efficient in pricing publicly available information, including historical prices. This is the so called efficient market hypothesis. I have studied it, tried to trade for myself for a while when I was a Msc student, advised several graduate students on it, and the results are mostly the same: it is very difficult to find a trade signal that works well and is sustainable in real life.

In other words, events move prices, and not the other way around. And, of course, there's that fine print in finance/broker adverts, which goes something like, "pass results are no guarantee of future performance". If data drove prices, they wouldn't have to scuttle behind that mulberry bush. Events aren't predicted by data. Mostly. And, even more mostly, never soon enough for the retail plunger to see them.

Now, testing share predictors on indexes or subsets of same is nearly cheating: over time, large bundles of stocks (or bonds, for that matter) reflect the market rate of interest. Which fact is bedevilling the hedge funds these days.
Since January [2016], investors pulled some $7 billion in assets from so-called multi-manager funds, data from research firm eVestment show. This marks a sharp reversal for a strategy whose promises of diversified strategies and strong returns drew in $56 billion in new cash in 2015.

And, of course, Buffett has something to say
Buffett told investors last Saturday that low-cost index funds are a better option for most than paying higher fees to managers who often underperform, specifically hedge funds.

Now, marry "you're not going to beat the market rate of return" with "you're at the flat part of the asymptote of knowledge", and what you end up with is a zero-sum game twixt consumption and saving (without tech progress, there's no surplus generated by investment over redirected consumption, so that return comes out as diminished consumption). Couple that to an historic low proportion of GDP going to earned income and you see a dark future. The recent rebound? Not going to be sustained.

So, the post's conclusion?
The main results of this simple study are clear: prophet is bad at point forecasts for returns but does quite better in directional predictions.

Which, one might argue, amounts to front running, a bit, money flows. See? I told you so.

01 March 2017

The Asymptote of Progress - part the second

Another in the desultory series on the flattening of the knowledge and progress curves that determine our lives. Battery tech has been mentioned a few times, and it's come up again. This time reporting from the Mobile World Congress. Some of it is just funny:
For sure, there are fancy new phones, internet-connected gadgets (including, for some unknown reason, a toothbrush with artificial intelligence) and enough driverless car demos to sink a battleship ...

A toothbrush? Perhaps it will be used to inject signals into the brain?

Anyway, the bit that caught my eye as it relates to the progress thing:
There's a new bunch of smartwatches on show at the Mobile World Congress, but the biggest selling point is that the batteries of these new devices will last up to a month. That longevity, however, requires turning off almost all of the "connected" services: So companies have basically created, well, a normal watch, but one with a $400 price tag.

Bitten in the asymptote, yet again.
Q: When will longer testing batteries be available? Ones that don't catch fire!
You've hit on the holy grail of mobile technology, and it has come up a lot at the Mobile World Congress. Samsung's recent problems with Galaxy Note 7s that kept catching fire are only one example of how batteries have become a major obstacle to advancement in smartphones.

How long will it take to get longer-lasting batteries? It's hard to say, though my colleague John Markoff wrote recently about "solid state" lithium batteries that could be safer and give engineers greater flexibility. People here in Barcelona say that's years away.

It's worth remembering that this problem isn't new. Here's what Thomas Edison had to say in 1883: "The storage battery is one of those peculiar things which appeal to the imagination, and no more perfect thing could be desired by stock swindlers than that very selfsame thing."

Here's the link to the Markoff piece. These are safer lithium batteries, but no mention that they're higher energy density. Oh well.

26 February 2017

All Hail the US Buck

From time to time in these endeavors, I've weighed in on the question of the USofA foreign trade deficit. From the quant point of view, narrowly, the question boils down to: is having US dollars floating out on the planet a good thing (that can only happen if the US runs a deficit), and if so, is there a limit to how much is too much of a good thing?

My argument has steadfastly been that from the beginning, Bretton-Woods, when the buck became, nearly, de jure New Gold to now, when it has become de facto New Gold with the repudiation of the Bretton-Woods agreements; the USofA must run a trade deficit with RoW if global growth is to be sustained. If we don't, then global deflation and depression result. But, but, but... The lunatic rightwing goldbugs bleat that the global economy should be run only on specie anyway, so reverting to the 19th century model is a good thing. It was just the sporadic gold supply that caused deflation and depression over that century. Even the substitution of silver was opposed by the goldbugs.

But, of course, they neglect to mention that 19th century America, and everywhere pretty much, was a miserable mess of deflation, depression, and privation for all but the era's 1%. Mark Twain wrote "The Gilded Age" for a reason. And praise wasn't it. And for perspective, its publication date, 1873, was nearer the beginning of the period rather than the end. In other words, Twain was as much seer as chronicler.

A bit of innterTubes searching, whilst waiting for one of my few Redneck Pleasures to begin (Daytona), I came across this recent article. Another bandwagon, another rider.
In the foreign exchange market, the dollar rules. More than 85% of forex trading involves the U.S. dollar. Furthermore, 39% of the world's debt is issued in dollars. As a result, foreign banks require a lot of dollars to conduct business. For example, during the 2008 financial crisis, non-U.S. banks had $27 trillion in international liabilities denominated in foreign currencies.

Of that, $18 trillion was in dollars. That's why the U.S. Federal Reserve boosted its dollar swap line -- to keep the world's banks from running out of dollars. (Source: "Is the Role of the Dollar Changing?" The Federal Reserve Bank of New York, January 2010.)
[check the original for the links]

Concern that China and Russia don't want to be tied to the US Buck:
Prior to the crisis, in March 2009, China and Russia suggested the world adopt a single global currency. The goal would be to create a reserve currency "that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies." In other words, China is concerned the trillions it holds in dollars will be worth less if dollar inflation sets in.

That, of course misses the point. Bannon, Trump, the Chinese, and the Russians all assume that one can create a global (not under the control of a country) fiat currency which grows in total nominal value to just match global economic expansion (avoids both ruinous inflation and deflation), is not tied to physical specie which is limited to what might be dug out of the ground at any given time (of course, since it's fiat), and will nevertheless benefit them preferentially as opposed to their economic/political enemies. A multi-nationalist might suggest the UN, of course. Not going to happen.

Without a US foreign trade deficit, global trade collapses. That's the basis of American Exceptionalism in today's world.

Jump on My Bandwagon

Finally, someone has joined my epithet bandwagon. It's Linda Stasi of the New York Daily News, which is a left-leaning tabloid. Perhaps the only one on the planet.
How in hell do the American people think this is OK? It's never OK to bar the press in a society that guarantees freedom of the press. Who is Donald Trump? Kim Jong Un with a combover?

The drum major marches on.