Just Like Ali

The financial quants must be getting tired of having their collective bell rung by Beijing's rope a dope. Once again, as always, motive and incentive murder data.

To be honest, no one has a clue where the [Chinese] economy is, and I don't think that it's properly measured.
-- Viktor Szabo/2015

Told Ya So

For some time now, especially since the Germans' assault on Greece, I've been telling ya'll that American corporations bleating about "the strong dollar" hurting their profit positions was the sprinkle before the hurricane. In due time, the BRICs would devalue in order to fend off other BRICs and the $/€.

Told ya so.

Briefing.com --
Overnight, China devalued the yuan by the largest amount on record, sending the USD/CNY pair higher by 1.9% to 6.3249.

We've only just begun.
-- The Carpenters

You Lazy Pigs

The climate change deniers have a thing or two to teach us. Mostly, if you've got the moolah, you can buy whatever data you want. The banksters did the same thing until the Great Recession made the scam impossible to continue.

Now comes Coke: "It's all your fault, not ours!". Read it, then come back. It'll curdle your blood.

Here's all you need to know:

A 12 ounce can of Coke contains 9 1/3 teaspoons of sugar.

To burn that off, you'd need to:
spend 26 minutes walking Spot.

That's just one can of Coke, which most folks will slurp up in a couple of minutes. Here's one example of what Coke will do to you.

To be fair and balanced, booze is worser. Some beer, not so much.

No, They Ain't Worth It

Recently, the usually smart Neil Irwin defended CEO comp in a manner I find puzzling.

...the stewardship of large, complex companies is really important, and anyone who cares about the American economy should want the most capable people in charge of them.

As to why, he says,

There are competing (and not necessarily exclusive) theories as to why executive pay has soared so much.

One is that it reflects self-dealing by corporate boards, mutual back-scratching by corporate elites who overpay one another out of some kind of cultural solidarity.

But then goes on to tell "the other side of the story". Very Pollyanna, that.

Yes, it is a case of a circle jerk. Where's John Stewart when we need him? At least, Maher is back.

On the face of it, stewardship is a reasonable statement. On the other hand, not one study I've seen or seen referenced has found that CEOs make a positive impact.

Across the board, the more CEOs get paid, the worse their companies do over the next three years, according to extensive new research. This is true whether they're CEOs at the highest end of the pay spectrum or the lowest. "The more CEOs are paid, the worse the firm does over the next three years, as far as stock performance and even accounting performance," says one of the authors of the study, Michael Cooper of the University of Utah's David Eccles School of Business.

Or, as I read somewhere (never kept, nor can I yet find, the cite):

If these really capable guys wanted to strut their stuff, they'd take on the basket cases. As it is, a sock puppet could run an American corporation.

Instant Karma

Early in the existence of ourselves as a unit, my colleagues sensing this irritation asked that I talk while they tuned. The theory being to cover one kind of noise with yet another. Well I accepted with a profound sense humility, which was subsequently fully justified. ... I thought things were going swimmingly until Baltimore. In that city at intermission we received backstage an anonymous card, which read as follows, "Lou semi-colon $%#$%. We'd rather here your partners tune up." Well, that was massive trauma. I raced home tearfully. Leaped into bed. Assumed the pre-natal position, and turned the electric blanket up to nine.
-- Louis Gottlieb/1961

That likely describes the situation FDA petty bureaucrats find themselves in today. On the one hand, one of its earliest heroes passed away. On the other, Amarin won its lawsuit. Quaking galore.

Frances Kelsey didn't believe the manufacturer of thalidomide:

"I had the feeling," she wrote after a meeting with company executives, "that they were at no time being wholly frank with me, and that this attitude has obtained in all our conferences, etc., regarding this drug."

Merrell's data wasn't enough to convince her. What's odd is that the thalidomide fiasco is credited with the FDA's emerging efficacy persnicketyness that continues to this day. But the issue with thalidomide wasn't efficacy. In actually did its job quite well, which is why it was widely prescribed in Europe. FDA, from the beginning, had drug safety as its primary remit. It was safety that Kelsey focused on; age old FDA business.

... attention focused on her partly because the Kennedy administration and its allies in Congress wanted to use the case to pass stronger drug regulations. The 1962 law required tighter proof of the safety and effectiveness of new drugs, full disclosure of side effects and generic names, and swift removal of unsafe drugs from the market.

Which brings us to the quaking. It's rather a long and torturous story, but the short version is that Amarin developed a highly purified fish oil, that was shown to lower LDL substantially. The FDA approval was for those with sky-high LDL, which is a small market. Amarin want to expand the label to include more moderate, but still high, LDL; a much larger market. Along the way FDA had said, "leap this hurdle, and you get the expansion". Amarin did so. Then FDA decided that lowering LDL wasn't a meaningful measure of a drug's effectiveness vis-a-vis heart attacks and such, so Amarin wouldn't get its expanded label. Amarin sued, on the basis that it had the First Amendment right to promote the drug with its data.

The preliminary ruling in U.S. District Court could strengthen the pharmaceutical industry's ability to distribute information about drug uses that have not been cleared by the FDA. That issue has been contested for years by the FDA and the companies it regulates.

Hmmm?? See why the quaking?

Now, it has been true for decades, if not forever, that doctors can prescribe FDA approved drugs for use not on the label, "off label" use as they say. But manufacturers and such aren't allowed to promote, advertise, or claim use not on the label. Amarin now has, modulo successful appeal by FDA, the right to actively sell its drug to anyone with high LDL. The ruling sets precedent, certainly not yet tested, for all drug companies to promote any use for which there is "truthful" data. For those who follow drug approvals, drug companies don't always play fair with trials. In particular, they have the habit of cherry-picking sub-groups from failed trials which show stat sig numbers. Strictly speaking, such stat sig results aren't "truthful" because the trial design, in most cases, isn't powered to support such a posteriori sub-groups. Just to be clear, Amarin didn't apply to expand using such tactics. It ran a trial approved by FDA, and met the endpoints. Basically, FDA changed its mind after the fact. Kind of the same sort of sleight of hand used by drug companies.

This will definitely get interesting.

To further the murk, thalidomide is usefully prescribed today for leprosy and cancer.

In the 2000s, the combination of thalidomide and dexamethasone, often in combination with melphalan, became one of the most common regimens for patients with newly diagnosed multiple myeloma.

Irony?

Carnac Predicts, Part the Second

It's not much of a secret that I've little patience with those who've taken as their life's work the manipulation of consumers' psyches for the sole purpose of shifting more of their employers' widgets. Not a righteous use of our collective intelligence. Jobs and Apple being the canonical example.

One side of the situation is "predictive analysis", which ignores all warts in the data in fealty to R². The notion espoused by the predictivists is, all that matters is correlation. Such fealty to old data predicting future data was what allowed the Great Recession to happen.

Now comes a new post on the book's site, and a quote I have to get behind:

A specialist in high content screening might naturally take the ratio of these two features of cells because it makes good scientific sense (I am not that person). In the context of the problem, their intuition should drive the feature engineering process.

In terms of the Great Recession, one might have said

A banker in housing markets might naturally take the ratio of house price to income because it makes good micro-economic sense (danger to the firm) as well as macro-economic sense (danger to the whole economy), and conclude that corruption was afoot.

In the case of cell science, there's God's Laws to obey. In the case of the Great Recession, they're fungible Man's Laws. In the former case, getting wrong will be punished, in the end. In the latter case, not so much.

A Question of Balance, Part the Second

Every now and again, the mainstream pundits catch up with these endeavors. Not often enough, evidently. The major theme has evolved to: when the process under discussion obeys God's Law then data reflects an unbiased reality, if one is careful collecting the data, and can predict the future; but when the process is some Human Endeavor, data means little to decision making while motive and incentive drive these decisions; humans will change the data generation process sub-rosa (to those not in on the scam). The Housing Bubble happened because that Giant Pool of Money (still with us and growing) demanded a high-return, low-risk instrument, so mortgage companies (thence, not first, banks) found cracks in law and regulation which made creation of yet more and larger mortgages a fact. The data, price/income ratio, said this was stupid, but the motive and incentive was to ignore contrary evidence. And so it was. The Giant Pool was happy. Until it wasn't, but the smart money had already exited, so it didn't care.

What's been going on with the Euro follows much the same pattern. Adam Davidson brings forth some new reporting, which is required reading. Once again, the smart money followed motive and incentive, rather than data. The smart money made a bundle, then left the 99% holding the bag.

There is definitive proof, for anyone willing to look, that Greece is not solely or even primarily responsible for its own financial crisis. The proof is not especially exciting: It is a single bond, with the identification code GR0133004177. But a consideration of this bond should end, permanently, any discussion of Greece's crisis as a moral failing on the part of the Greeks.

He goes on to provide a primer on how bonds are "sold", and it's important to understand this mechanism. The US Damn Gummint uses the same method. The interest paid on US bonds is not set by the Fed or Treasury, although perhaps by the Trilateral Commission (yes, it really exists, not merely a co-figment of left and right paranoia). Buyers of such instruments aren't also buying Savings Bonds. They're "sophisticated" investors, with lots of computers to decide what to pay.

So, Greece became a Euro country, and Germany had one more nation where it could export on a hard currency. And Germans won't stand for getting anything less than a full Euro; otherwise Europe with the Euro is just like Olde Europe where countries fiddle their currencies against predators like Germany. Can't have that. Exactly like our Red states with conscripted labor selling into Blue states, with (dwindling) middle class consumers. It will end just as badly, but with more bloodshed in all likelihood. As knuckleheads like Walker kill off his state's middle class, the Red states will find their Total Addressable Market shrink. And don't give me any crap about international exports. The bleating about the "strong dollar" killing profit increases in volume with each quarterly. And that's only the beginning. Just wait for countries explicitly devaluing. "The horror! The horror!"

Davidson brings up Bretton Woods, but you should do, at least, a Wiki journey to learn more if you can't do a five minute Toastmasters' on the topic.

Here's the punch line:

But the bailout broke this virtuous circle, signaling that the bond market would stay safe even when bond buyers were wildly reckless, pouring billions of dollars, for example, into risky subprime-mortgage bonds. The bailout represented a transfer of wealth from the rest of the economy into the bond market -- precisely the opposite of what is supposed to happen.

Ireland, earlier, sacrificed its citizens on the bank altar, so there's reason for Greek bondholders to demand the same.

The IMF said that as a result of the failure to impose losses on bank creditors, "many in Ireland question why Irish taxpayers should be the ones covering the cost of addressing such euro area-wide concerns. A bail-in or other solution that would have 'mutualised' these costs would likely have resulted in more equitable burden sharing."
...
Banks had extended credit heavily to property speculators during the latter stages of the Celtic Tiger economy, between about 2002 and 2006, but the sector collapsed when the global financial crisis hit in 2007 and 2008.

IOW, Ireland crashed, as did the USofA, on the backs of out of control banks. Somewhat different from Greece, certainly.

And, back to Greece.

The institutions that bought that €7 billion in Greek debt in 2009 made a very bad judgment. Even at the time, it was clearly a foolish gamble -- so foolish, in fact, that it can be explained in only one way. They believed that in the event of default, the Germans would bail the Greeks out. And just to be clear: This doesn't mean they believed that the Germans would be kind to the Greeks. It means they believed that the Germans would be kind to the people who owned Greek bonds, a significant percentage of whom were certain to be German themselves.

So, in the end, what mattered to those buying in on GR0133004177 was motive (high-return at little risk) and incentive (failure would be paid by others), not data. As it always is in the venue of human processes.