The Whole is Less Than Its Parts

Perhaps anon there'll be more here on the subject. Not sure, yet. But this paper (rather dense econo-speak) makes a by-the-way observation from the data:

In the baseline simulation, the consumption share of the top quintile (capital owners) rises by less than either their pre-tax or after-tax income share. The top quintile consumption share in the model tracks reasonably well with data from the Consumer Expenditure Survey (CES) for the period 1980 to 2010.

In other words: as wealth and income have concentrated, consumption doesn't keep up. In still other words, in due time capital will earn less and less return. The shift to fiduciary investment, rather then physical investment, is the reaction, since actual output isn't, well, actual. Just ephemera, for which any price can be charged. It's the WhatsApp problem.

Another China Syndrome

Much news today about, wait for it... China (and here). Previous entries in these endeavors have remarked on reporting that China's economy is an export junky, dependent of a flexible currency, poor workers, and lazy foreign capitalists. Since there is no social contract, and restrictions on use of savings, it's been well documented that working Chinese have been caught up in a housing Ponzi scheme for some time. Still going on.

What is somewhat new is that there's also a stock market pyramid abuilding. When economies, and China is hardly the first only the latest, segue from productive capital investment to fiduciary investment, the ending is always bloody. The Great Recession was our latest example, although the move to 84 month car loans might be considered the most latest (the macro amounts involved aren't the same, phew!!). Gains on fiduciary investing are by definition Ponzi returns. Nothing substantive exists behind them. Nada. Zilch. Zip.

The effects are already being felt in homes across China. Individual investors own four-fifths of China's stocks, a far higher proportion than in Western markets, where institutional investors predominate.
...
A ninefold increase in so-called margin lending by brokerage firms over the past two years helped fuel the rally.

Much of China's Mr. Market are more like our Blue Book than blue chip. Thus:

Only a third of the Shanghai stock market, and even less of the Shenzhen market, consists of shares in large businesses.
...
Huge increases in percentage terms were possible because shares in hundreds of these companies were cheap a year ago. As their share prices began climbing, they drew in millions of first-time investors who bought shares simply because they were rising fast and seemed likely to continue doing so.

Remind you of Viagra in the home? Yes, yes it is. Price went up yesterday and the day before, so it'll go up today and tomorrow. Data says so. Irony: the copula which abetted the Great Recession was dreamed up by a Chinese.

Fact remains: the giant pool of money which propelled the Dot Bomb, thence the Great Recession, is still out there and continues to grow. Or, to channel Taibbi, an ever hungrier vampire squid. It deserves 10% return for no risk or physical investment, forever. It just does.

A Word to The Wise

Well, the Greek electorate has given a large middle finger to the Germans. We'll see what happens next. Of note is a piece (in my dead trees version it was "tycoons" rather than "billionaires", odd) written before the vote and published before too.

And yet the extremely wealthy do face an abiding risk from festering inequity: The have-nots might finally lose patience and turn upon the haves.

"That's the real danger," Mr. Cohan said. "This little thing called the French Revolution."

Of course, the Leona Crew know that the Powers That Be will send the Army out to kill the hoi polloi, if it comes to that. They have always done so in the past. If the Montana Militia think they can beat F-16s with their AK-47s, they best think again. Unlike Iraq or Syria, the US military doesn't have to schlep materiel thousands of miles.

Clausewitz Does a Headstand

I had forgotten about Clausewitz when I asserted: "The purpose of war, of course, is to force out governance of a people and replace it with the victor's" in a recent essay. For reasons anon, I visited Wiki to find the source of a quote living in the bottom of my brainstem: "War is politics by other means." Turns out, that's a paraphrase.

It was Clausewitz who said, "War is merely the continuation of policy by other means." Pretty close, huh? Of equal interest:

"War is thus an act of force to compel our enemy to do our will."

Which brings us to a Greek who says, today:

Our country is at peace, but the stakes are as high as if we were at war -- a war waged not with battleships, guns and planes but with words and money.

What we have in the Greek (and, in due time, Portugal, Spain, and Italy) situation is: politics is merely the continuation of war by other means.

Clausewitz was Prussian, which is to say, German.

We Are Not Greeks

Well, may be a bit. Yet another piece on the situation has this:

"The point is that Greece may get different conditions, but it has to abide by the rules," Mr. Renzi [Italian prime minister] told Il Sole 24 Ore, according to a BBC translation. "It's not the case that we have taken early retirement pensions away from the people of Italy just to allow the Greeks to have them! We have brought in labor reform, but it is not the case that, with our money, a number of Greek shipowners can continue not to pay taxes. I could go on."
[my emphasis]

Perhaps a bit more than most would acknowledge. The Leona Crew would love to be Greek, I'll tell ya. And Mr. Renzi best watch his mouth. Angela has him on her Naughty List; Santa won't be nice to him.

Of course, those shipowners don't think it's any of their problem.

Five other owners contacted by The Wall Street Journal said they all had a "Plan B" that involves relocating to shipping centers such as London, Monaco, Singapore or Dubai.

Leona would be proud of their strength against oppression. Why can't American corporations be so strong? Lily livered pansies, all.

This Means War

Regular reader likely has noticed that I've characterized much of what's gone on with the Euro and Greece as a bullet-less WWIII, instigated by Germany. Provocative, on purpose. Not that I expected the mainstream pundits to echo such a view.

Until today.

But Greece is not alone in trying to bend or break the rules. Germany and France missed what were supposed to be mandatory fiscal targets in 2003, and France continues to fall short. Neither has been punished.

"There are rules, but some countries are more equal than others," Mr. Lafond, the Paris researcher [EuropaNova], said. "This is obviously unfair. Countries should not be treated differently according to their size."

And the Germans, of course, remain judge, jury, and executioner.

Here is a thorough history. Much of what is obvious, Germans' insistence on fleecing its poorer neighbors and citizens, is documented. Oh well.

But with the advent of the euro, things started to change. Incomes at the top kept rising, with gains for the top 10 percent of earners continuing apace for the next decade as shareholders reaped record profits. At the bottom, however, there was a sharp dip that eventually left incomes exactly where they started at the beginning of the 1990s.

And, I repeat (well, the author does):

But the bankers in Berlin know that each weak country that leaves the eurozone now is likely to push up the value of the euro. This would increase the value of German savings, but it would also harm exports, and at the moment Germany needs them more than ever.

The Germans want to have it both ways:
1) richest nation in Europe, based on exports
2) all the rest of Europe poor and on that fixed Euro rather sovereign currencies

But an exporting nation depends on:
1) poor workers
2) cheap capital
3) rich importers

As production becomes evermore capital intensive, poor workers lose their appeal. There's much less advantage to a 10% reduction in 10% of cost than in 80% of cost. Just ask China.

Germany is caught between, and appears ignorant of, a rock and a hard place. It is never wise to kill that golden goose:

German exports to Greece took a tumble in 2013, final calculations by Germany's statistics office (Destatis) showed Monday.

It said the year's shipments to Greece totaled only 4.7 billion euros ($5.2 billion), marking a 41-percent drop from the volume recorded in 2008 before the peak of the global financial crisis. Back then, German exports to Greece amounted to 8 billion euros.

With Portugal, Spain, and Italy next in line for the gallows, what are the Germans to do? If they keep culling the weak nations from the herd, the hard Euro devolves to stronger (and fewer) hands, thus losing its raison d'etre.

Consorting with The Devil [update]

Well, the R Consortium has been born. Should we be happy, or call an exorcist? Will our beloved R sit in bed, spin its head, and spew green vomit on "the community"?

Consider who man it: M$ and Oracle, among others. M$ has had agita with Open Source at least since linux came along. Oracle, in particular, has a checkered history with java, which is not, legally, open source but was given a rather wide berth when part of Sun. Harmony limped along under Sun, but Larry put a stop to that. Since Larry took over it's become the current corporate COBOL. Given that SAS has refused to mate with some corporate IT behemoth, this IT cartel makes sense when one considers that M$/Revolution's RBAR extension make R syntax compatible with disc/tape data (including the Big species) sorta, kinda transparently. Skip SAS and go RA/R. That's a bit of angst for IBM with SPSS, but they'll get over it. SPSS is dying (or not?) anyway.

If Oracle should win the API case now that the Supremes have punted, Open Source effectively ends. Any software publisher, including the Consortium, *could* do quite the same to R. Will they (if Google loses, again)? Silos as far as the eye can see. Only The Shadow knows.

"An API is a description of what the software is going to do," Cantrill tells us. "You can think of the API as the plot as opposed to the novel. If you're saying that that abstract notion of the plot is copyrightable, then everything is derivative."

One might wonder whether "the community" wants R to become the New SAS the way java has become the New COBOL.

[update]
Turns out, some (most, as I type) of the comments on the announcement at RStudio are, believe it or don't, even more acerbic. Who knew?