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As I was shredding financial paperwork, I came across this gem from Citigroup / SmithBarney, Fourth Quarter 2007. The author: Mark Rickabaugh, then of Anchor Capital Advisors LLC. "The above information was provided by the Fiduciary Services Manager indicated above. Smith Barney makes no judgment." So, you know, attribution and all.

"The stock market has been more difficult and volatile since mid-year 2007...Our view is that corporate profits will be weaker than expected and may actually decline in 2008."

Yay! Got that one right!

"Consumer spending will continue to be pressured by higher living costs including food and energy, the end of easy credit and the probability that employment trends worsen."

Understatement, sure, but basically, again, got that right!

"the investment sector of the economy ... is unlikely to cause the same level of job and profit growth in 2008 as in 2007."

Three. In. A. Row.! Wow!

So that's all good. They take a swipe at leveraged hedge funds. Mention sovereign wealth funds. And then they say:

"We will ... avoiding investment in companies where earnings declines could be negative enough to harm valuations or the business franchise. Our efforts will be focused on holding equities of businesses that are continuing to grow and remain at fair valuations."

I'm sure it seemed reasonable at the time, and I certainly did not think it was wise then, nor does hindsight indicate that selling everything and going to cash at that point would have been smart. But they clearly missed several of the popular plays of the time (US treasuries and gold being the obvious ones.)
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Unemployment is very low, and yet by all measures, there isn't any wage pressure to speak of. That means the measurements are wrong. I've been explaining it like this: boomers (who are at the end of their career, have tons of experience, and are thus expensive) are finally retiring. Millenials (who are at the beginning of their careers, have education but little experience and who are desperate for employment and are thus cheap) are being hired to replace them. The net effect is negative or nothing in terms of wage growth. But not in a bad way. Finally, someone officially is saying the same thing! Yay!


With statistics!

They are so much smarter than me, so even if you think I am full of shit, maybe you will show them the respect they deserve.

This could go on for a long while. As it happens, it will have several effects. While we will lose the benefit of decades of experience on the part of retirees, we will gain in education (as the replacement Millenials are being hired with the ridiculous expectations created during the bust) -- and innovation energy. And all of this will happen with no net cost to corporations or the economy. This should continue to fuel what is turning out to be The Longest Boom Evah. Great reference in the article to the "Silver Tsunami".
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I loved Levinson's _The Box_, even though it took me years to get around to reading it. I had bought it in hardcover for my husband around the time it came out, and then promptly quit reading things in paper. Despite that, it took me a while -- altho only months, not years -- to convince myself to take a flyer on _An Extraordinary Time_. Levinson's book is about the immediate post war decades, but his perspective is to show how odd those decades were by comparing them to what came before and after. And since the after is my entire life, I've got some pretty strong feelings about those decades and I haven't run into a lot of economists or economic historians who agree with me much. I didn't want to find out that Levinson was just another one of Them.

Lucky me! I love this book.

Naturally, when I read something that runs along lines that I already think, I am predisposed to like it. Aren't we all. Actually, this is not entirely true. I can get hypercritical of stuff I like a little too much. But honestly, that didn't really happen here, either, because Levinson focuses on telling the story: what happened, what were the policy responses, what happened after the policy responses, how did various investigators, whether bureaucrats or academics, interpret the policy responses and the results of the policy responses.

And it is actually pretty impossible to entirely agree with the way I have thought about the world in which I grew up, because I've changed my mind far too many times. From a world in which I hated Reagan and Thatcher, to an age where I don't think what they did really worked in any larger sense but I can now really understand what they were reacting to, it's difficult to imagine how one could reconcile those very divergent opinions, each of which I have held in turn. And yet, Levinson's analysis is so measured, he can describe the outrageous demands being made and the dire economic circumstances, the bizarre and not particularly consistent ideologies subscribed to by supply siders and Conservatives in the UK, and come out the other side basically saying, well, you definitely couldn't keep doing what had been the status quo, and the new stuff didn't work either, but . . . it's not at all clear that anything was really going to make that much of a difference anyway.

If it all sounds kind of dry and non-committal, it didn't feel that way reading it. To me, it was like watching a sped up version of the background of my life, and along it unreeling the many ways I have tried to understand it. Behind it all, Levinson does really _get_ that this all went the way it did because of two underlying factors which are not handled in great detail. First, technological change and progress which initially was compatible with full employment but later was not. Second, different societal goals that arose over time that were not well captured by economic statistics (environment, especially, but others as well). Significantly lacking in the background is a sense of the massive demographic changes -- if I have a complaint, it would be that. Backgrounding the technological changes and the What Do You Measure problem does not bother me; backgrounding the demographics leaves me with a chicken and egg problem.

It's a great book. I have no idea what it would be like to read this book if you are significantly older or younger than me, nor do I have any idea what it would be like to read this if you've never explored an economics perspective on history. I can readily imagine that reading this with a different life span to measure it against, or with a different sense of economics could result in a very, very different opinion of the book.
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McBride couches his endorsement in the context of historic moments where being wrong impacted people's reputations going forward: Kudlow saying No Bubble Here in 2005, the (second) war in Iraq. He believes that supporting Trump will be another such litmus test, and despite being a registered Republican, he is supporting HRC.

I was surprised to read this excellent post, largely because (as McBride notes) he does not often get into politics. He makes his case succinctly and well, and the future will show whether he is, once again, correct in believing that supporting the de facto Republican nominee at this point will look Real Bad in the future.

McBride does not mention what about Trump has led him to this conclusion (he's spoiled for choice, really). However, I would point to this article as some excellent reasons (skip the video):


Without getting into the question of whether printing money is a bad idea (I would imagine many economists and informed amateurs might want to know how much money you were planning on creating and what you were then going to do with it before weighing in definitively), the zooming back and forth between positions as incompatible and extreme as "we'll pay it back -- at a discount" and "we'll just print whatever we need" is disorienting and hardly inspires trust, which is, in the end, sort of important when it comes to money.
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Shawn Osborne works for a group of hospitals and is responsible for pharmacy services. His budget is sensitive to large price movements in drugs and small price movements in large numbers of drugs. He has gotten the group of hospitals he works for to put $$$$$ next to expensive drugs (expensive in absolute terms and/or expensive relative to other options for the condition) at the point where a doctor is entering a prescription, because the doctor may have no other pricing feedback. I think that is a perfectly reasonable thing to do, and probably should have happened a while ago. Here is why I think regulation is probably worth thinking about:

"Osborne said he now pays as much attention to news about pharmaceutical mergers and acquisitions each week as he does to academic articles about medicines."

If purchasers are paying attention to M&A to anticipate budget affecting price movements UP, then that would seem to be a significant indicator that the M&A in question is anticompetitive. Our entire antitrust system uses as a metric price paid by end consumer.

Of course, there is an alternative antitrust path: civil suit. Maybe that's the plan? Make the hospitals sue the pharma companies?
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Last December, Bloomberg was producing an article about how Maine purchasers of electric vehicles were bummed about the performance degradation in cold weather (hey, I agree -- it is a bummer).


Now, there's a video and article out suggesting that plug-ins could be a big enough deal in the 2020s to cause the same kind of mismatch between oil supply and demand that the most recent oil crash was caused by (in the 2014-6 case, it was oversupply; in the plug in case, the idea would be a decrease in demand).



This is an interesting thesis. While the video gently mocks the Peak Oil thesis of years gone by, what it fails to note is that the Peak thesis had embedded in it two components. The dominant theme was too great demand and a failure of supply to respond -- and then a failure of demand to down-adjust. In its typical presentation, it was a stupid idea. Of course we were going to down-adjust. When the price of gas spiked in 2007-9, everyone started driving the lowest gas mileage car in the household, buying old good gas mileage cars, etc. I traded in my first Honda Fit for a second Honda Fit -- and the trade in value I got on the first Fit was _greater_ than the amount I paid for it when I bought it. Fits were _that_ highly desired in the market (partly due to low availability).

The primary theme had a lot of people betting on how the world would down-adjust. But a secondary theme was the idea of peak demand accompanying peak oil -- things weren't going to get that out of whack, the world would not end as we drove our gas guzzling SUVs to our subprime mortgaged exurban palaces until some sort of zombie apocalypse happened. A lot of the adjustments anticipated by that crowd indeed came to pass: a generation of people who had a variety of options where to live decided to opt for places with shorter commutes and better access to public transportation. MPG numbers became very important on new car sales. Etc.

Since putting the panels on the roof (thank you, SolarCity, and the Commonwealth of Massachusetts and the feds for various tax credits and financial engineering that made the whole process ludicrously easy and a no-op in terms of cost) and buying the i3 (hey, I was due for a midlife crisis car), I've been pondering what happens if a whole bunch of other people do something similar (probably more along the lines of a Leaf, than a Tesla, but still). The tax credits were due to run out, and they got renewed at least once. The utilities have a tough problem on their hands, trying to manage a completely different pattern of usage than they are accustomed to, which requires re-engineering the grid to manage diffuse inputs -- and re-engineering the fees they charge to better reflect the services provided (power management, not just power supply). And while batteries steadily improve, there is no question that the i3 is no car to be driving long distances on a well below freezing day.

The Bloomberg article is an interesting way to think about the effect of plug ins -- which don't have to be pure play electrics. The Bolt, for example, could be a true game changer.

If it is going to take years for the oversupply to work itself out, and demand is expected to weaken in the face of plug-ins (never mind the slow to seep out effects of changes in CAFE regulations), will the oversupply _ever_ work itself out?
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I was about to post this on FB when I went, naw. This is gonna turn into one of those gigantic link fu posts. Expect edits at the end.

Today I asked myself: Hey, What Are the Democratic Candidate's positions on minimum wage, and why? Here is Slate with an answer from a few months ago. I had never heard of Alan Krueger before this. Because I have only lived in Very Expensive Places, I think $15 is kinda low for a minimum wage. However, because I have visited Much Less Expensive Places, I recognize that $15 is kinda high for a minimum wage. This makes deciding on a national minimum wage very, very difficult. After reading this, I understand why HRC is not supporting $15 nationally. HOWEVER, I can't help but wonder if maybe we could create some sort of index off the local (county or state) median income or similar, to make a national minimum wage that wasn't a dollar amount that needed to be revisited in the law every little bit, but rather something that went up (or even down!) naturally and in a locally sensitive way. That's probably a little too nerdy for politics, however.



Alan Krueger, who is mentioned in the Slate piece, does interesting work in general.


Here is the paper with David Card mentioned in the Slate piece:


Here is a Hamilton Project paper about setting state/local (county and city) minimum wages as a fraction of local median income with adjustments for cost of living (regional CPI), etc. It is NOT by Krueger.

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Obvs, it's nonstop why did the market go up after FOMC? Why did it go down today?

Let's ignore that. There was someone ("I'm a credentialed economist. I can prove this to you." Srsly.) claiming that there just HAD to be a high end surprise on inflation and thus hikes next year. Argument came down to, "I think that $45/barrel of oil is a conservative estimate for the end of next year." plus Wage Pressure Will Finally Occur It Has To.

This is an interesting argument, and clearly, the Fed has gone over all the data he has (because he's basing his conclusions off THEIR BEIGE BOOK). The interviewer gently (they are always so gentle) pointed out that he failed to consider which members of the committee would be voting over the course of next year and which dots on the chart corresponded to them and thus what the actual rubber meets the road estimate of next year's inflation was. (He had not factored in who votes next year. *head desk* Might be an economist. Isn't a politician of any sort.) But in no way did this redirect him. He CANNOT IMAGINE wage pressure not getting worse over the next year.

Let us ignore, for the moment, how many happy dances we will all be doing should inflation actually creep up to 2% next year. How much more possible it will be for people to borrow and thus spend. How lovely it would be for workers to be paid more. How lovely it would be for more people to have jobs who want jobs. (Because his paranoid vision of It's Worse Than You Think is actually GRAND news for the economy. He's got a bankrupt system of morals -- hey, he's a trained economist! -- and lives in upside down world.) We will ignore all that.

Instead, let us contemplate how you could reduce unemployment and NOT have wage pressure. *a quiet moment for you to think about it* Here, I'll give you a hint.


Basically, the workforce has been aging for a while now. And the Great Recession aggravated that. Should the older workers feel comfortable retiring, and the younger folk who want jobs be hired to replace them, it is quite conservative to assume that the younger workers will be paid quite a lot less than the older, experienced, etc. workers who they replace.

And thus, wage pressure is significantly attenuated by a trend that is all but inevitable and has, in fact, been widely predicted.


ETA: I ignored his $45/barrel prediction, because I've already discussed oil pricing in the context of Worrying About OK Earthquakes -- no, not okay earthquakes. Oklahoma earthquakes. Everyone wants oil to stay cheap. Thus, we will overproduce to keep it cheap. Thus, there will be no price turnaround until we get better behavior out of the people we are punishing. We are -- surprisingly! -- a patient people. This could go on for a while. I would say I'm not sure why he doesn't understand it, however, I have already observed that he is no kind of politician. So never mind.
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Beginning with the "something to worry about": Oklahoma has a lot of earthquakes, probably because they have wastewater reinjection wells (they suck stuff out of the ground and then pump some of it back in, keeping the money making part. The scale this is happening on is so vast it causes seismic activity). Fine, whatever, but they _also_ are the location for where all the oil is stored waiting for the price to go back up. That oil is stored in above ground tanks (really huge ones) in and around Cushing. There was this period of time during the fall in the price of oil when people started drawing graphs of How Full Is Cushing, to try to calculate when this last support for the price of oil would go away. Cushing is now Full, and then some. A big quake, like the New Madrid long ago, would have apocalyptic consequences if it affected Cushing.


Why is there so much oil stored there? Well, because we're making more oil than the world needs. Why are we making more oil than the world needs? That is a complicated geopolitical question. But the simple answer is that commodity producers tend to be persistent: they reliably overproduce until the bust is bad enough to force people out of production and then things adjust. Normally, OPEC or a similar organization would get everyone at the table and production would be reduced, dammit, to get the price back up, however, ISIS and Russia both fund their governments with oil production so they are _not_ going to cut back and it is in everyone else's interests to keep the amount of money they get per barrel absolutely as low as possible. So the overproduction is somewhat politically driven, in that political measures to reduce overproduction are de-motivated. (We are making too much oil so that it is cheap so as to put the squeeze on people we don't like. Basically. Where "we" is a diverse group of countries with wildly variant interests that happen to agree on this one point.) Anyway. Extra oil goes somewhere, and Cushing is basically the place where you can park oil, that isn't an aging tanker parked in the North Sea somewhere. The gods of the internet have not yet turned off "cushing oil storage" in images search at google, so you can get a sense of what the place looks like that way. (They may yet do so -- a lot of people are also worried about other kinds of risks at Cushing.)

Now for some good news! For everyone except Shkreli. He's the guy you love to hate for jacking the price on some obscure drugs, and can never remember his name. He has finally been arrested.


Couldn't happen to a more deserving person!

I apologize for the lack of juicy zoning stories. Maybe I'll find some later today.
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You may recall that Turing Pharmaceuticals/Martin Shkreli (you know, the guy whose name you can't remember partly because he has terrible social skills, partly because of the red haze of rage associated with reading any article about what he did, partly because you've never heard that name before) raised the price on a generic that they were the sole manufacturer of.

Well, there are a lot of ways to describe what happened to him next, but it wasn't effective regulation. Because I used to work for the guy most associated with this phrase, I like "Your Margin is My Opportunity". But I'll take Commodity Hell, Low Barriers to Entry, Invisible Hand or Supply and Demand as well. Same old, same old.

Even better, "Imprimis Pharmaceuticals, Inc., a specialty pharmaceutical company based in San Diego, announced today that it has made an alternative to Daraprim that costs about a buck a pill—or $99 for a 100-pill supply." has produced an improved alternative -- combining the drug in question with another one to reduce its primary negative side effect.
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All right, let's start by pointing out a few really obvious things.

(1) If you know any teachers, you know that they almost never get raises. Their salaried compensation is surprisingly low compared to the amount of training and accreditation they must get in order to be eligible for and retain their positions spending time in a room full of appalling young people, many of whom would rather be anywhere else. The life of a teacher is not an easy one, and by their salary numbers, they are woefully underpaid.

(2) If you know any teachers, or you live in the Northeast and go to your town's school budget meetings, you may also be aware that teachers live in a completely different galaxy from most other people you know (well, unless you are a teacher, in which case you mostly know other teachers) in terms of their co-pay and deductibles. That is, many teachers' unions have successfully lobbied for zero cost (to the employee) or very low cost (to the employee) health care plans. Employee contribution to premiums is often on the order of 10% of the total premium. Co-pays are sometimes as low as $5. Etc.

(3) Not very many people have "Cadillac" health plans. Of the people who _do_ have "Cadillac" plans, most are people whose compensation is NOT in the six figure range. In fact, quite a lot of "Cadillac" plans are the result of detailed and vigorous union negotiations, especially for teachers and other public sector unions. These are not rich people, and since their health care has _barely held even_ for the last 1-2 decades, and they haven't seen any pay raises over the same time period, it boggles their highly educated and wildly intelligent minds that they could have a "Cadillac" plan.

What we have here, is a failure to communicate. While the rest of the insured families in this country have experienced soaring co-pays and deductibles, increasing percentages of premium responsibility for the employee, and "discounts" for participating in "wellness" programs, not so for people who have "Cadillac" plans, who have "benefited" invisibly to them from status quo bias in negotiations and huge positive feelings in the country as a whole about the fact that teachers are highly educated, intelligent, motivated and organized people who are willing to educate our children. (I know, honestly, we should just give them everything because who among the rest of us could possibly stand the idea?)

Worse, because most bargaining agreements last for a period of years, and because the 40% over the threshhold "Cadillac" tax will take effect in 2018, and because while most companies have already made changes to their health care plans to avoid this tax, the only people who are likely to trigger it are teachers and other unions who are good at preserving really amazing health care plans. Some districts are starting to try to communicate to the affected union members what their total compensation is, and let me tell you, a teacher whose taxable pay is $4x,000 who is told that her total compensation is over $100,000 has a tendency to opt for paranoid conspiracy thinking before it occurs to her that there might be a reason why she is paid so little and her husband paid so much -- but they always use _her_ benefits, not his.

Look, this is a huge women's issue, and not in the obvious way. Women are teachers, and teachers have "Cadillac" plans. So women teachers get a lot of disrespect from their better paid spouses, even tho their total compensation is equal (or the woman's total compensation is greater!), BECAUSE THE HEALTH CARE MONEY IS INVISIBLE. The 40% over the threshhold excise tax was intended to do a lot of things, not least expose this invisible money, and get unions to direct their considerable power and efforts to something a little more worthy than maintaining a zero or very low cost health plan for their senior members.

Bernie Sanders and Hillary Clinton are both nakedly pandering to ignorance and union power by promising to do away with this tax. It's a terrible idea. This tax has a lot of power to reduce the growth in premiums (by a lot). It has the power to redirect union energy away from an incredibly narrow focus on a fundamentally regressive goal (go read any SEIU story about people working in hospitals that can't afford health care, and you'll grasp the basics of how regressive zero and low cost health plans are as a focus for public sector union politics), and hopefully towards something more useful (oh, I don't know: maybe more transparency and better governance on pension funds for public sector employees? Pressure for better financial regulation in general? Better recognition of all the hours teachers spend that aren't in the classroom but absolutely necessary for the classroom to function? I'm sure actual teachers will come up with better actual programs. But heck, union pressure on the Washington state legislature to pass income tax of some sort to fix what the WA Supreme Court has been yammering about for years would be pretty amazeballs).

Worse, Sanders and Clinton, by framing it as a Chevy vs Cadillac issue (when we all know perfectly well that union members are driving Hyundais, Kias, Hondas and Toyotas like the rest of us), they are pointing everyone's attention at the rear view mirror. Rip that fucker out and throw it out the window. That's where we _were_. Govern so we get to where we want to _be_.

Or at least pay attention to what's right in front of the damn car.
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Now that we're past the immediate OMG HOW COULD THEY response to VW, people are starting to think about how the lessons we are learning there might apply to other stocks/companies/the economy in general. Here is a so-so piece on the topic at FT Alphaville:


It has a real clunker in the middle of an otherwise competent piece. Here is the clunker.

"2. Vastly increased complexity: in the past, it used to be possible to do a few simple things to fix car engines – such as DIY (do-it-yourself) cleaning the spark plugs to improve running. Now, car engines are so complex a computer engineer is often needed to fix problems when they (far more rarely) arise. The question is can test regulators understand engines to the same level of complexity as the best auto engineers? If not, engine performance regulation is a virtually impossible job and something like this could happen again."

To be a regulator in the first place, you have to be persistent, socially skilled and optimistic enough (alternatively, foolish enough) to believe that it is possible to create rules that capture public values and then to enforce those rules. Not surprisingly, regulators tend to focus on black box/end point testing for enforcement purposes, and they also have a tendency to create the simplest testing regime possible that accomplishes their goals.

The clunker here is that it confuses the vague and largely useless concept of complexity with the much more useful concept of testing as part of an offense/defense dynamic. "Complexity" and phrases like "understand engines to the same level of complexity as the best auto engineers" are designed to make people throw up their hands and go, it'll never happen! Boooo! What VW has actually done is exploit an oversimplification in the testing regimen. It wasn't that hard to detect the exploit: slap a cuff on the tailpipe and then measure what's coming out while driving around vs. put the car in a rig and then measure or (worse!) have the automaker install self-diagnostics and periodically dump the data. _Activist_ groups were able to deploy the reality test and were able to repro the results enough to pressure the regulators to replace their oversimplified testing regime with one that better matched Real World Use of a car and also detect the problem. From there, figuring out how the exploit worked was something you handed off to "the best auto engineers". But spotting the results of the exploit in no way required "the best auto engineers" or really _any_ understanding of how things worked in the car.

Now, if you _did_ know how diesel engineers were fixing the nox problem in other makes, you could have looked at a parts list for a VW diesel and go, wait, they are missing this whole subsystem (mumble urea mumble turn nox into nitrogen and water mumble). How are they fixing the nox problem? And then you maybe would have known that something funny was going on and you could have sicced "the best auto engineers" on it -- or just slapped a cuff on the tailpipe and drove around with a testing rig.

_Testing_ people know this stuff. It's not _easy_, but it's not as hard as this article might lead you to believe.

Besides, if you need crazy smart people to measure stuff, we're all fucked anyway. If it's important, we have to simplify it down to us norms.

Regardless, I'm happy to see that some of the more immoral/amoral market theorists are finally caving on this whole idea that values don't matter to the market, only Profit does. It's no good making a Profit, if the entire population is chasing after you with pitchforks, tar, feathers, etc. Profit is money, and money is the reification of Other People Collectively Owing You. If everyone hates you, the IOU is probably not collectible.
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Calculated Risk/Bill McBride is The Best Source Evaaaah for economic indicators. If you're tracking the business cycle and you aren't reading him at least most days, you're a fool.

Occasionally, there are little remarks that make the otherwise neutral and therefore dry summary of various indicators quite ... lively. One of today's posts was on coincident indicators from the Philadelphia Federal Reserve Bank (Investopedia definition of Coincident indicator: http://www.investopedia.com/terms/c/coincidentindicator.asp. Basically, if it isn't a leading indicator and it's not a trailing indicator, it's a coincident indicator. Think: employment, hours worked, stuff like that that comes out week to week). Only a few states did poorly in August, and here is McBride explaining why:

"The worst performing states over the last 6 months are West Virginia (coal), North Dakota (oil), Alaska (oil), Oklahoma (oil), New Mexico, and Kansas (self inflicted policy errors)."

Obvs, between the low point in the commodity cycle (Euro not doing great, China doing pretty bad all things considered) and the transition away from fossil fuels to renewables, the affected states are mostly ones that were reliant on fossil fuels and especially on expensive oil, which isn't expensive at all right now. But Kansas, ah, Kansas.

Self Inflicted Policy Error indeed!

One of the worst things I can say about Hillary Clinton is, years ago in her efforts to reach across the aisle, and when Brownback was a Senator rather than governor, she tried real hard to get along with him. I thought it was a mistake then, because he's too fucking crazy to make a deal with. I guess this proves it! (The policy error in question is a change Brownback made to the tax code that has NOT gone well at all, which was pretty obvious at the time to anyone who was not diagnosable. For reference purposes: http://www.khi.org/news/article/governor-signs-tax-cuts-law/)
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Obvs, the strongest argument _against_ the idea that Silicon Valley or some portion thereof is experiencing a bubble is the enormous quantity of people asserting that publicly and at some length. Here is a recent sample of We Are In A Bubble, People, How Could You Have Any Doubts coverage:


In much the same way someone assembled a bunch of Wow Amazon Is Kind of a Tough Environment stories and used them to argue something or other along the lines of Amazon is Teh Evil and Must Be Something Or Othered, Nick Bilton here has taken a number of stories involving SF being more expensive than other places, and foolish people having a bunch of cash for the first time in their lives and turned it into a morality story of Yes It Is All Going To Crash. Again. (Apparently, people building really tall buildings is a sign of incipient bubble popping. Who knew?)

On the other hand, there are some odd bits of commentary out there that make me feel like some generally sensible people seem to be collectively losing their mind whenever they talk about companies like Uber.


Basically, Uber will get into carpooling and they will Make A Ton of Money Doing So. Self driving cars. Not _actual_ self driving cars, and no one addresses what happens to the car when the car poolers get out of the car at their destination (how is this not ZipCar, anyway? Or maybe ZipPool?). In much the same way that El Jefe got a little confused by the margin on used books back in 1996/7, Thompson is a little confused about per mile costs and how you should calculate them. (Heck, I was just complaining this morning about Planet Money misunderstanding the Law of One Price.)

These are easy mistakes to make. And it's okay to make mistakes. But bubbles happen when people forget that mistakes will be made and start valuing things based on permanent perfect performance. I don't think we're there yet, but commentary of this sort gives me pause.

Of course, it is sort of important to an investor whether we are in a bubble or no, and if so, the extent and nature of the bubble. And it is important to _everyone_ what public decision makers and the investors conclude and what they do based on their conclusions. For example, nearly everyone in favor of the bubble theory has a single goal in mind: Raise Interest Rates. Raising interest rates will starve the bubble of fuel (no more free money and no more unicorns). Of course, starve a bubble of fuel and it doesn't stabilize or deflate slowly or "come in for a soft landing". It's ugly. That's what raising interest rates tends to do: cause a recession.

I have observed before that there is a specific group of people that _desperately_ wants to raise interest rates (when I'm mean about it, I call them "parasites" and "the olds" -- these are retired or would be retired people who have amassed a pile of money or very conservative investments and they are pissed that in the current free money environment they cannot get any return for the risks they are prepared to take, forcing them to "sell principal" -- goddess, I cannot tell you how much I hate that investing meme -- in order to have money to live on/play with). It is my firm belief that most of the bubble talk exists because this audience is slavering for proof of a bubble -- or a bubble in its early, formative stages -- or really, any kind of fucking asset appreciation at all, so that interest rates will rise and they can leave their money in CDs and Treasuries and similar, and live of the few percent they get annually. Asset inflation! Oh, woe! Or, perhaps, Oh, whoa.

Are assets increasing in value inappropriately? Let us imagine a three bedroom house which is served by adequate to good schools at a reasonable commuting distance from a stable and increasing source of jobs. If that particular house is located in certain neighborhoods in, say, Seattle, the owner of the house is experiencing a whole lot of pain. Every year, their property taxes go up (my sympathy is limited -- the millage in Seattle is very low, especially when you consider all the amazing services you get, like good public pools). Worse, around them, houses are being torn down and replaced by multiple houses, often connected together. The yards are going away, traffic is getting worse and honestly, the sewer is a hundred years old and was not designed for the number of people now living in the neighborhood.

This is a bubble, if you are an idiot and think that the only measure of a bubble is an increase in price. But that's not the only measure of a bubble. The real measure of a bubble is _oversupply_. That fucker pops not because the price soared to some insanely high level. That fucker pops because the buyers either lost interest at that price point -- or lost interest, period.

Let us consider these in order. The buyers lose interest, period. In this case, Seattle becomes a bit of a ghost town after the crash: Will the Last Person Leaving Seattle Please Turn Out the Lights. The second case: the buyers lose interest at the current price, in which situation the price drops until buyer interest resumes. There was a really good reason why that sign got posted in Seattle, and it was experienced by urban neighborhoods full of nice houses served by adequate to good schools at a convenient distance to a stable and increasing source of jobs all over the country. That was white flight. Is white flight happening in a city near you?

I didn't think so.

The only time a seller gets burned when they cannot find buyers at a price point is when the price point is higher than what the seller paid (with some fudge factor to account for transaction costs and a few other odds and ends). In order for that to be a significant problem for ordinary people, there has to be a lot of flipping. Which I am not seeing. Are you?

Let us now turn this framework and point it at Unicorns. Let us take the canonical unicorn: Uber. Who wants to see Uber go away, and is not a medallion owner? Precisely. There is, I am sure, a lot of room to maneuver around the value of a given share of Uber, but should Uber IPO (wait, has it already? No, no it has not), I am reasonably certain there are a lot of people who want to own Uber at _some_ value. Will that value be higher or lower than what people paid for Uber shares in the private market? An interesting question! And if it is lower, will it be enough lower to really hurt? Yeah, I didn't think so either.

Much less clear is the case of the House No One Wants At Any Price. Supposedly, an Italian town is giving away houses (there are a lot of qualifiers on this), and of course there is always Detroit (but honestly, given Detroit's millage, people should be _paid_ if they are willing to take that burden on). Which Unicorns are Detroit houses?

I don't know. I'm sure there are at least a few of them. But Bubble or No, a smart investor is supposed to be buying houses they'd be happy living in for a period of several years. If you buy a house intending to flip it for a profit quickly -- or you buy shares, intending to sell them for a profit quickly -- then you are not a bull (like me) or a bear (like Robert Shiller). You are a pig.

And pigs get slaughtered.

In the meantime, the idea that we should be raising interest rates when there is zero indication of inflation (and some risk of deflation) and some parts of the world's economy are already in fucking free fall is offensive at the core. Suck it up, do your due diligence, and try to discourage your more foolish friends from participating in penny stock schemes or whatever the Fraud of the Month is. We do not need to cut everyone off from cheap/free money just because someone, somewhere is being rewarded for innovation that is making a whole bunch of people's lives better (at the expensive of some others, obvs).

ETA: Further evidence that there might be some kind of tech bubble: I now receive emails (clearly automated) trying to get me interested in jobs on offer. Given that I have been retired since 1998, and this hasn't happened for over a decade, it is clear that the tech sector is enjoying a high degree of employment.
walkitout: (Default)
I apologize for this, but I cannot find the transcript for this episode. I was sort of annoyed that I actually had to listen to the whole thing.


This is a Planet Money episode/podcast about retail arbitrage. Specifically, it is about people who go to big box stores such as Target and Toys R Us, buy stuff retail, and then warehouse it for later sale through Amazon as 3rd party sellers/FBA at a sufficiently higher price to justify the activity (cover costs of driving around, storing, shipping, fees to Amazon, their time vs. whatever other job they could get, etc.). Planet Money mentions that this appears to be a violation of the Law of One Price. Here is the wikipedia entry on that idea from Econ:


They discuss _why_ someone might pay $45 for a Big Box of Wipes from Toys R Us, vs. driving to the store and buying it for less than $20. Here, in case you didn't pay attention or didn't look at the wikipedia page, are the relevant qualifiers:

"Assume different prices for a single identical good in two locations, no transport costs and no economic barriers between both locations."

Okay, so right there. "No transport costs" meas that it costs _someone_ gas/time to move the Big Box of Wipes to the desired location (the address the buyer on Amazon supplies, presumably). Let's assume that the person buying the $45 Big Box of Wipes on Amazon either lives in an very urban area (lots of bodegas where you can buy tiny packages of wipes for $20) or a very rural area (where it will take at least 3 hours to drive to the nearest Toys R Us, and the nearest C store is an hour away and again, either carries no wipes, or only very tiny packages, or ones which have a fragrance or wtf which is objectionable) or on a military base (an APO, FPO, etc. address) in a country which sells small packages of wipes for an astronomical price, if at all, and which ordinary shipping of a Big Box of Wipes would be > $20.

And now we are done! The Big Box of Wipes is actually a screaming deal in all these locations! Did Planet Money enumerate any of these? No, they assume that people buying shit for pets and babies are relatively price insensitive because They Just Need the Gosh Darned Wipes. Which, I will admit, is possible. And as long as we are exploring that territory, let us contemplate the prototypical Prime customer of long standing: above median income, two full time jobs, hiring some amount of help around the house (typically cleaning and some child care). I didn't know this before I was hiring child care on a regular basis that some times, the child care actually isn't there to care for the kiddo, but actually to do things that desperately need to be done and which you cannot do because the kiddo is sick or objecting to going grocery shopping or whatever. Given the choice between paying someone to care for the kid while you go to the store or sending the person to the store with a list, it's almost a coin flip what's gonna happen on any given occasion (unless there is live flame shooting out of the baby's orifices in which case, def sending the help to the store).

Let me tell you a little secret: it is almost always cheaper, and it is _always_ more likely to get you precisely what you wanted rather than whatever the person doing the shopping saw first, if you have _Amazon_ employees pick stuff out and ship it to you, versus sending someone to the store to do your shopping. Even if you pay $45 for a package of wipes (which I do not believe I have ever done, altho I certainly overpay for my fragrance free shampoo and conditioner, and am happy to do so because it takes way too many phone calls to find it on the shelf at any actual store, never mind driving there and finding out they are out of stock).

So. No violation of the Law of One Price. Most people paying $45 for a Big Box of Wipes which they "should" have paid $20 for are actually getting a huge price break, because they didn't send the doctor/lawyer/dentist/engineer parent who would really rather go for a bike ride on a special run an hour each way to Costco to buy more wipes, never mind the health care savings down the road when the manager/accountant/administrator is in good shape because they got enough exercise and thus doesn't have to spend a bunch of money on water pills, statins and a personal trainer to get _back_ into decent shape.
walkitout: (Default)
There are two kinds of BK in this country: the it's done kind, and the work-it-out-with-the-judge-and-creditors kind. Planet Money did a recent podcast about the latter, and where it comes from, what it looks like for one particular company that went through it, and how other countries are slowly starting to move their laws in the direction of ours.


I'm a nerd, about money, about governance, about railroads, so I knew a fair amount of the story about where this form of BK came from. I'm really happy to see it described in an accessible, relatable way. BK -- whether consumer or corporate -- triggers very strong feelings, but the way we do things in this country is designed to make the future as good as it can be for everyone, and our laws reflect that. I know, it can be hard to believe that, and sure, there are areas where we need to improve. It's still nice to see this covered simply and clearly.
walkitout: (Default)
I've been thinking, on and off, about posting about wage pressure and a couple things happened today to cause me to do so. (1) There are a _lot_ of misconceptions floating around about the minimum wage increases that have been in the news lately. (2) We got an economic report that was specifically about wage increases.

I'm going to start with the second of those. All year (and, hey, for several years now that we've been sitting at the zero lower bound) there has been rampant speculation about when will the Fed raise interest rates. Let's briefly review why one might raise interest rates: because inflation. Do we have inflation? Not really. In fact, with the price of oil plummeting for some time now, and supply taking a long time to adjust downward, the states in our country which _were_ growing the fastest and had the fastest increases in cost of living are now in actual recession (that would be you, North Dakota, as an example). As the lower cost of oil percolates outward, it reduces the prices of all commodities, because mines and crops and everything else require tons (literally) of oil to do what they do. We really don't like deflation (okay, those of us sitting on piles of money think it's the shit personally, but most of us are smart enough to recognize that outright deflation is a terrible, terrible thing that we never ever want to see again, because The Great Depression led to war and because those months in the Great Recession where we thought we might be headed that way were absolutely terrifying), and policy options are greater when there is slow but steady growth. Intelligent, educated people can disagree legitimately on what slow but steady growth might be (or whether it is even possible) but the Fed has a 2% inflation target and we are below it (the EU has a similar target and they are also chronically below it). We won't raise rates until we believe we are about to rise about that target, and since all our metrics are Rear View Mirrors, the goal is to slowly raise rates as the information rolls in that inflation is about to occur. With commodities dropping like ... things that fall rapidly, about the only possible remaining source of inflation is wage increases.

So, since Everyone (not me, everyone else. Okay, not Krugman, either) is committed to the inflation theory, and since the only possible source of inflation is wage increases, everyone has been waiting for indications that wages are rising. Do you know anyone getting a pay raise? No? Neither do I. And I know people with some pretty high tone jobs. You'd think they'd be the ones with the power to get a pay hike. And they aren't getting ones (okay, that's not totally true, but they are COLA and they are very low and they are the first in years and years).

Here is today's data about US Worker Pay:


"The 0.2 percent advance was the smallest since records began in 1982 and followed a 0.7 percent increase in the first quarter, the Labor Department said Friday. The agency’s employment cost index, which also includes benefits, also rose 0.2 percent in the second quarter from the prior three months."

There is no wage pressure here.

So you might be legitimately wondering, well, what about all those minimum wage increases?

WHAT minimum wage increases? I know, I know. Something about Seattle. Something about New York. Something about California or Minnesota or something or other. Yes, the Mayor of Seattle did sign a thing that the Council passed, but it is going to be phased in over the next 4-7 years. (ETA: Want the gory details? Enjoy! http://murray.seattle.gov/minimumwage/#sthash.LlZ2LfGF.dpbs) Nothing has taken effect yet. (ETA: I got that slightly wrong. Seattle went to $11 this year.) The New York thing was a _governor's commission_ making recommendation. Nothing has passed there. There is no minimum wage increase. So if you're reading a bunch of stuff about how automation is going to lead to a lot of layoffs or if you're reading about how restaurants in Seattle are already closing because they cannot afford the labor, well, IT IS NOT BECAUSE OF MINIMUM WAGE LAWS. (ETA: Don't believe me? Here, I'll let this guy mock you, rather than put any additional effort into this: http://www.seattletimes.com/seattle-news/local-facts-no-match-for-national-fiction-on-15-minimum-wage-issue/)

Have some restaurants closed? Restaurants close all the time. I remember with vast sadness when the Scotch bar (I know, right?) on Cap Hill (there was one) called Hopscotch _which was walking distance to where I lived_ shut down. Why did they shut down? Because all their waiters were going to write HTML at various companies and they couldn't hire replacements. Not a minimum wage issue. Similarly now. By the time that Seattle Council passed minimum wage takes effect, everyone will already be making more than that anyway, or the people who wouldn't pay the freight will have closed down.

When the stock market is rising -- a bull market -- insiders call it "climbing the wall of worry". Every possible negative thing is chewed over and swallowed and regurgitated and shared around the community. And the market rises anyway. The crash happens when people _quit_ worrying and become collectively convinced that there is nothing bad that can possibly stop this Avalanche of Awesomeness (probably a direct effect of sharing all those germs with the chewing and the cud and the regurgitation). Part of that process has always played out in speculation about the Fed (where "always" is defined as "as long as the Fed has engaged in active monetary policy", for our purposes, since roughly the end of WW2, and feel free to argue about that. Should be entertaining).

The hurdle of "but wage pressure!" has just been cleared. Wonder what the next one will be?
walkitout: (Default)
Subtitled: The End of an Industry, the Turn of the Century, and the Patient Zero of Piracy
Published by Viking, an imprint of what Nate over at The Digital Reader likes to call the Randy Penguin.

Excellent, super, amazeballs non-fiction. Honestly. Go buy it now and read it. Here, I'll give you a link to the kindle edition:


In any many ways, I should _not_ have liked this book so much. Witt has several axes grinding (he belabors the lead up to saying that Dell Glover destroyed an entire industry so he could pimp out a car that a few years later he found embarrassing -- he belabors it so hard that by the time the punch line arrives, I was like, finally, we can abandon that buildup). And he doesn't explicitly depict his research (I prefer non-fiction in which the author and their research process is a front-and-center part of the story. I'm not asserting this is _better_. I'm saying I like it more).

Nevertheless, I bought the book because, despite living through the mp3 format start to finish, and being quite aware of it from many different perspectives (right down to wondering whether I should do more about the co-worker ripping on company time and using company internet resources, or whether I should just ignore it because the dude was way productive and I didn't want to lose him), I had a whole bunch of questions about just how extensive piracy really had been and whether it had decreased or not and, if so, why (if you believe this guy, Spotify is why).

Anyway. If you've ever wondered what the hell that "Vevo" meant that popped up on a ton of music videos on YouTube a few years ago, and why the majors quit suing everyone for using pop music in their wedding videos on YouTube right around the same time, well, This Book Will Answer Your Questions. And many more, if you're like me.

What the book won't do is answer any questions about what the next format is going to be (altho it's worth pointing out, as my friend M. did, that when you buy from the Apple iTunes Store, you probably aren't actually getting an mp3; you're getting AAC, just not the lossless version).

But especially, if you've been wondering why people assert you can't tell the difference between an mp3 and a CD when you know perfectly well that it's actually quite easy to tell the difference on any kind of decent sound system, this book will introduce you to all the psychoacoustics research that led to the compression of music formats that made possible Our Streaming World (and music locker world, too, for that matter).

Fun stuff. Read it. It's really, really, really good, and the information is helpful.
walkitout: (Default)
My husband, in particular, keeps mentioning it.

Here is Wikipedia on the topic:


Right there, that's a problem. If the interest payments you make to your creditors are tax free regardless of where the person holding the debt lives, you are for damn sure not going to have trouble selling bonds. And so, apparently, Puerto Rico does: their towns sell debt, the top level of the government sells debt. They use that debt for _operating expenses_, not to do infrastructure like roads, or to get out of a temporary hole because of an economic downturn. The governmental equivalent of buy groceries on credit and only making the minimum payment.

They have a demographic problem also: low birthrate, and because everyone born in Puerto Rico is a US citizen, a lot of them move to the mainland.

I'm sure there are inefficiencies in the government (come on, what government doesn't have waste) and I'm sure there are problems with tax collection (ditto). Maybe even some serious ones (if you can't get income tax collection right in a world where W-2s are available, you are doing something seriously wrong). But I think the real problem here is that holding Puerto Rico debt was just too damn tax advantaged for the good of Puerto Rico.

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