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BI has an article about Nationwide's list of the worst housing markets in the US.


The story is as expected: if the local economy is driven by oil, then everything sucks and, locally, it's a recession or worse. The low, low, low price of oil is great if you have a long commute -- but it really kinda sucks if you live in Alberta or Texas.

BI notes that 8 out of the 10 worst housing markets in Nationwide's ranking are in Louisiana or Texas. I would point out that Asheville, NC is where a lot of people in that region vacation. And Watertown/Fort Drum is suffering from Canada's economy getting hammered by low oil prices, their exchange rate dipping, and fewer Canadians coming over the border to shop in the area (it's a dead zone other than Canadians shopping and the presence of Fort Drum, which is perpetually at risk of closing but never actually seems to close).

Of course, if you live in a region which is suffering, it is hard and my heart goes out to you. On the other hand, what an improvement from some years ago when we learned the hard way how bad it is when financial engineering links the world's real estate into a single bubble, driven by the all too human desire to make risk disappear.
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So the next time you're sitting around complaining about how we haven't kept up on maintenance on the train system or how full public transit is or whatever, and you want to say, "In Europe ...", well, the trains are full in the Netherlands, they are deferring less needed maintenance and pulling old trains back into use in an effort to keep up with demand, as well as trying to get people to travel other than at peak travel times.

Looked at one way, this is an indication of economic distress: people aren't driving, they are riding. Looked at another way, this is an indication of economic boom times: more people are going to work. I'm not sure which is the the case, altho I suspect more of the latter than the former.
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It's a really good argument.

It's also notable, in what it _does not include_, which is anything at all about how this is an unusually bad market for anyone to go public in. For years, that was a required disclaimer/explanation for the persistence of many companies with extremely high valuations to avoid "going public". It's no longer relevant, obvs, and now, it doesn't even rate a mention. Yay!
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I have already noted in some trip reports that I got sort of screwed this year. We based our planning on crowd predictions that were revised upward the day we arrived in Florida, and then ultimately still undershot the reality. TouringPlans is not unaware of what happened.


"Again last week we saw record breaking wait times for this time of year. On Monday for example, At Magic Kingdom we saw a crowd level ‘9’. The same day last year was a crowd level ‘1’."

The Monday being discussed was November 9, 2015; the weather was in the 80s, with a low in the mid 80s and a high of 90.


The previous year's weather:


Solidly 60s, never breaking to 70 degrees.

While obvs the Florida unemployment rate for November is not yet available, the unemployment rate for September 2014 can be compared to the unemployment rate for September 2015: 6.2 vs. 53. (Have fun digging around in this! http://www.floridajobs.org/labor-market-information/data-center/statistical-programs/local-area-unemployment-statistics.)

A glance at the calendar says that in 2015, November 9 was on a MONDAY, whereas in 2014, it was on a SUNDAY.

To sum up: lower visitation on a cold weekend day with higher statewide unemployment; higher visitation on a warm to hot weekday with lower statewide unemployment. Both dates fell within Food and Wine. Both dates fell within the school year.

Factors increasing visitation: higher temperatures, lower unemployment in Florida.
Factors decreasing visitation: Monday vs. Sunday

You actually _can_ argue that Mondays are busier than Sundays at WDW -- people have -- but it always makes me chuckle when people make that argument, so, you know, I'm gonna laugh at you. (People have also tried to argue that Sundays are busier than Saturdays; again, ha ha ha ha ha.)

We've been going to WDW since Xmas week 2009 (I think). We've been going twice a year since 2012 (I think). While we don't always go at exactly the same time of year, we've been going during the first half of November for most of that time, and our spring trip is usually, but not always, during April vacation break. I feel like by this point, we have a pretty good "feel" for what the place feels like during the times that we are there. And this year, I feel like we turned a hockey stick corner.

It's time for the Fed to start raising rates. Not by much. Not very fast. Just 25 basis points at a time, to reassure everyone that, yes, the economy is healthy enough to start crawling off of Zero. Not only do I believe this won't in any way discourage lending to the consumers who could really benefit from easier access to credit. It think it will _encourage_ lending to those consumers, because we'll finally be able to convince ourselves there is a path forward.

ETA: Map of unemployment in the US by state.

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I called Sudbury BMW this morning shortly after my daughter headed off to school, in hopes that I could drop my car off a little earlier than the planned 10:30 a.m. After sitting on hold for a while and talking to several different people, I was told I'd be called back with an answer. That call happened shortly after 10 a.m., while I was driving to Sudbury. And that person asked if I'd ever been to that dealer before, which leads me to believe she thought she was scheduling a new appointment. Yeah, okay. Remember what I said about we're at NAIRU if not past it in Massachusetts and NH? Add this as a data point. FWIW, when I scheduled the check up, I was initially told it would be a two hour wait no loaner, and an _oil change_ (which honestly seemed a little mysterious, given it is an i3 Rex); that was corrected in a same day call back.

So I dropped the car off and, bizarrely, got an i3 loaner -- I think it's a base model i3 Rex (it's definitely a Rex), black. So no speed database, no built in traffic, no draw the letters and numbers thing, etc. Really makes you appreciate your own car, these loaners do. I tried called around 3 p.m., to find out what the ETA on the car was, but wound up in voice mail because no one was answering the phones in service (see, we are seriously at full employment around here). I got a call a little later saying it would be ready in an hour, they were charging it, and I was like, screw that, let's just go over there and get the damn thing I can charge it at home.

The CEL problem this time around is, when the range extender engine comes on, there's an attempted software check of some diagnostics on the engine. That attempted check is suffering a communications failure. No evidence of any problem with the underlying functionality. Software fix is supposed to be available in a month-ish, so I'll be going back then (I'll need to have the state inspection done then, anyway; maybe I can get them done at the same time. THAT would be awesome). I took T. with me, and he was eating popcorn, so the really nice looking, vacuumed interior is now full of popcorn bits.

I am skipping book group, because I am exhausted, coughing and sneezing, and I sort of think it's a head cold rather than just allergies, and I don't want to get all my friends at book group sick.

ETA: If you are reading this thinking, what check engine light problem? What do you mean, this time around? You've been driving around with an intermittent CEL and not calling or bringing it in? Fuck yeah, I have. This is a chronic problem with i3s. It's sort of like all those false positives we had with the smoke alarms. The only thing in the world that can train me to ignore an alarm ... is way too many false alarms.
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We rely on our credentialing system every day. We assume the nurse at the doctor's office has the training and license that is required by law for that job. If we are hiring for a position, and we look up a company's website, call a number on that website to verify employment for a person who says they worked there, we assume that the company is real and the person we are talking to is telling us the truth. If someone applying for a job has educational credentials from a country we are not familiar with, and a certificate from our government authenticating that educational credential, we assume that the person has the degree and the school is real and competent.

What if that stops working?

The Washington Navy Yard shooting exposed one problematic credentialing system: a contracting firm hired to keep track of pesky little things like people with security clearances that maybe shouldn't have them any more wasn't really doing its job.

This was in the Boston Globe recently:


"A Globe review of the documents in the initial 13 cases found common patterns. For example, four filed forms indicating they had licenses from Hawaii, all supposedly signed recently by the same person — a person who, Massachusetts officials later learned, had retired five years earlier. Three claimed to have Oklahoma licenses, each purportedly signed by “Kimberly Glazier”; Oklahoma officials told Massachusetts investigators that Kimberly Glazier does not sign verification forms."

There is now a massive review going on across the state.

It is a global problem, as this NYT article describes:


I started to notice it after a friend told me she knew of places that claimed to get you any job you want: they fake up diplomas from other countries, create websites of fake companies, staff phone lines to supply references and confirm employment and coach customers how to apply for the Position They Desire successfully. This was told in the context of The Squish getting gunshy about applicants from one particular country, because they always look good on paper but then can't actually do the job they are hired for.

If you think that INS would catch this, well, INS may be concerned that they aren't catching it. From the NYT article above: "But the proliferation of Internet-based degree schemes has raised concerns about their possible use in immigration fraud".

When a job requires a certain amount of training, and the pool of qualified applicants has been largely worked over, a would-be employer can either offer more money to attract people who already have jobs, or they can attempt to expand the pool of applicants. A variety of tech companies have been working the latter approach for a long while now. Perhaps more importantly, so have hospitals and nursing homes. What happens when we run out of people with the right training _globally_ to do a job? Especially, what happens when employers decline to hired the truly trained and skilled, in favor of those whose credentials are not what they seem?

The experience with VW (it's cheaper to lie, than to implement) suggests that we had probably better be diligent about enforcement, if we want our regulatory scheme of credentialing to continue to be useful in the future.

ETA: Speaking of catching people in lies, and promises being broken, Bloomberg has a great long piece about bullshit web traffic, the advertising model of the web, etc.:

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Orange faced guy resigns effective end of October. Looks like McCarthy will be the new Speaker altho we won't know for a while. Ryan has already turned the gig down; Hensarling is stalling. Clean CR probably more likely now, altho how long it will extend still up in the air.

Market responded favorably to Yellen's speech last night. And then Orange faced guy resigned, causing massive frenzy of uncertainty. Won't know for a bit, but will probably close down overall.

I attempted to buy a new iPhone today. I had an appointment. Ha! Burlington Mall Apple Store was running a half hour late and I didn't have the time. Plus, I'd already spent a few hours at home doing very little waiting for someone to show up to change the gas meter (MA state law says must be done very seven years whether it needs it or not). I canceled the appointment and ordered the new phone (and my daughter's new iPad which was to be a birthday present) online instead. 1-2 week wait on the rose gold phone; iPad should show up early next week.

While in Burlington, I stopped at the Kohl's. They had left a security tag (on a sale item, no less) at the Nashua store when I went shopping on Monday evening between dinner and book group. They removed the security tag. So, not a total loss. Also, since my route took me past Whole Foods, I attempted to buy a vegan scone of the day (all gone) and succeeded in buying a vegan chocolate cake for my kids' birthday party (one kid guest and I both are allergic to milk products). Almost a win, right there. I have to go back to Burlington tomorrow for the Wegman's sheet cake.

Buried in the WTFery of the Boehner resignation and the Pope's visit is this gem:


Apparently, Putin would like to no longer be the person assigned the blame for all those migrants pouring out of Syria and to wherever anyone will let them go.

"Mr. Putin was not just eager for a meeting, said Josh Earnest, the White House press secretary, but in fact “desperate” for one."

I'm not optimistic about this, because I think Putin is just sick and tired of being ignored and blamed and is attempting to once again Be A Player. He's like one of those recurring story arcs in an evening drama that you start to dread, and think about giving up watching the show over, because he isn't all that plausible as a serial killer or whatever and he's lost any appeal he may have once had and the writers have a tendency to use stressful music and have things jump out at the main characters just to get a rise out of the audience, usually for sweeps week.

We're off to the Xfinity Center tonight! I've never been there, and I haven't been to a big venue music show in so long I don't remember what the last one was. Hopefully the kids won't be too awful to the sitters. Not sure where we're going to dinner; I should probably figure that out next.

I do not recall whether I mentioned the BEA revision to the 2nd quarter GDP: 3.9% annual growth. Kind of amazing! And it matches my sense of the economy: help wanted signs everywhere, you have to wait in line interminably if you are foolish enough to go in person to a store, and when you finally get help, the person is too frazzled to be able to help much because they're already looking at the next person who wants their attention (even at Nordstrom's!) and they are mostly out of stock anyway (which honestly, seem a little weird when it comes to girls sneakers in the middle of September. Why would they be out of stock _then_, unless they under-ordered for Back to School?).

If you think traffic is bad now, look out. It should get unbelievably awful over the next 6-18 months. At least work won't be boring! (<-- SorryNotSorry)
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I was reading some of her remarks over at Calculated Risk:


I was going to point to one sentence, because it made me chuckle, but then I realized the sentence right after it was _even better_.

"Beyond these considerations, a modest decline in the unemployment rate below its long-run level for a time would, by increasing resource utilization, also have the benefit of speeding the return to 2 percent inflation. Finally, albeit more speculatively, such an environment might help reverse some of the significant supply-side damage that appears to have occurred in recent years, thereby improving Americans' standard of living."

Hey, we can't seem to get off zero. Maybe if everyone had a job that would help and, ya know, a little inflation never killed anyone. Sing it!

I love the second sentence even more, tho. "Don't act like those depression era peeps. You need to consume more. Life is short. Enjoy it."

Right on all counts.

I am serious.

ETA: I can't help but wonder if Yellen is out loudly saying they will probably still do the first rate rise this calendar year in part because the markets reacted so negatively to the lack of a rise in September, on some sort of theory that, if the rate doesn't rise, then the world must truly be coming to an end! Which is a bullshit theory on the face of it, but whatev.
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Surprise interest rate cut from Norway's central bank. Because it turns out that Norway is just the Euro version of North Dakota? With a lot more Teslas and better housing.

This is what happens when your economy is so tightly bound to the price of oil. Sure, you look great while everyone else suffers from high fuel prices during the peak of the commodity cycle. But So So Sad when the wheel turns.
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With FOMC coming up (I'm still betting NO on a rate rise in September, and if it happens at all this year, I'd bet drinks but little more that it will be in October; rationale is: by that point, we'll have real data on back to school spending AND we'll have a better idea what the retailers ordered for the holiday season), I'm once again fruitlessly poking around in search of back to school spending data.

NYT has this to say about those insane lists that have become the norm:


No actual data about real spending. I think these lists are disguised school fees that, on the one hand, are kinda sorta progressive (the poors don't actually do the list; people who do supply the contents of the list are helping fund those who don't) but on the other hand are just hiding how much school actually costs, which is rarely good for democracy. School fees are anathema in true public education. We need to provide budget for school supplies. But that is not really what I was looking for.

MasterCard SpendingPulse from early in August: http://www.mastercardadvisors.com/modules/news/steady_growth_back_to_school_sales.html

People price shopping on mobile:


Lots of _predictions_ that back to school would be less than last year. In practice, when I went to buy A. sneakers at Nordstroms, they were out of a lot of sizes/styles. Which struck me as more than a little odd.

CR says the data points to a rate rise this month, but he notes that most people are now predicting NOT, largely because data everywhere else in the world is so terrible. (Raising rates in this global environment would exacerbate the already strengthening dollar problem, hurting our manufacturing sector, energy sector and trade deficit.)
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In this explanation, a bunch of technical traders are blamed for the crash last month.

"Risk parity funds build portfolios around risks: They target a certain exposure to volatility, rather than, say, equities or bonds. That means that when volatility spikes, they sell automatically and indiscriminately.

CTAs meanwhile are typically trend followers, meaning they buy when others are buying and sell when others are selling."

Translation: August is a month when everyone is on vacation and trading is very light. In any other month, kooky stuff gets swamped -- it's noise on top of a lot of signal. But in August, there is no signal, because the signal has gone to the beach.

Explanation for why things will improve?

JPMorgan is quoted: "We don't expect a period of prolonged stress as market volatility normalizes and these technical flows subside."

But that's just a fancy term for, everyone is back from vacation because it isn't August any more.
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Well, it took a while, but the news has finally, FINALLY become totally worthless. Usually this happens around the end of June, certainly no later than July 4th weekend. But boy, howdy, between Greece and a few other odds and ends, there was still nuanced, fact-filled (even mostly accurate) coverage all of kinds of interesting stuff right up until this week. And now? Post Fox News Republican debate, it has gotten beyond sketchy (we're actually parsing ideas as ludicrous as Ranking Republican Presidential Candidate Misogyny? Really? You'd sort of think any one of them would just break the meter and that'd be the end of it, but nooooo. We apparently need to spend minutes at a time on this and inches of text. Whatever.) . So I'm going to take a moment to explain how I think about economic cycles, because when the news _does_ get responsible again, one of the items high on the agenda is going to be another Will They/Won't They round about the Fed raising rates at the September meeting.

First: What IS an economic cycle and why do we care? Basically, there are months and occasionally years at a time where companies have a really hard time finding people to hire and workers can ask for raises without fear of the consequences and service at fast food restaurants gets beyond terrible and traffic is a nightmare. At any given time, there is probably some place you can point to like this (North Dakota had its moment while the rest of the country groaned from lack of jobs, and commutes were, comparatively, a breeze and everyone at Wendy's was friendly, prompt and could make accurate change). There are, by contrast, months and occasionally years at a time where companies are spoiled for choice -- brilliant, experienced candidates willing to work long hours for cheese sandwiches and the hope of access to terrible health insurance they mostly have to pay for themselves, when asking for a raise is inviting your boss to fire you and the service at McDonald's is beyond amazing. And there are the bits in between. So that's it: the booms are when you wait in line to be treated awful at Carl's Jr., but you're making bank -- altho you still can't afford to buy a house because they went right to the stratosphere before you had your chance. The busts are when you are praying to get hired by Subway, because your however many months of unemployment has run out and it isn't going to get extended.

Second: What is the Fed? The Fed is the banks' bank. It's where banks get money. It's where banks deposit money. And the Fed gets to decide the interest rate charged when banks need money, and what they get paid on their money on deposit. If the Fed thinks that the world has gone apeshit, and all those incompetent idiots working fast food are buying McMansions because the banks are giving money in job lots to all comers, the Fed can charge the banks more money to discourage them from doing this. If the Fed looks around and say, traffic is entirely too light, and I think I was just served by a Nobel Laureate at Papa John's, then the Fed can charge the banks _less_ money to encourage the banks to more freely loan money to enterprising people who know what Ruby on Rails is, and have already used AWS at more than one gig.

Under W., the banks went apeshit, and everybody bought a McMansion, but for a variety of reasons, some good, but mostly bad, the Fed was unable the effectively intervene to put a stop to the lending, in part because a lot of the lending to buy the McMansions was not going through the banks; it was going through another part of the economy. Anyway, the crash happened, and then nobody wanted to do anything except hoard their folding green stuff, dollars, gold, etc., and the Fed reduced rates to effectively zero -- they couldn't GIVE money away, literally -- in the hopes that someone, somewhere, would borrow some money, start a business, hire some people, etc., especially that amazingly brilliant logistics person who was pushing a broom at Sorrento's.

Third: What is the September Meeting? Well, along about the middle of September, the people in charge of the various member banks of the Federal Reserve (you know where Wikipedia is. Go read all about it) will get together and have a convo and then they will put out a press release and Janet Yellen will talk to the press. While Yellen has been ridiculously clear that rates can be changed at any meeting, with or without a pre-schedule press avail, there is this idea that a rate change -- the first in YEARS!!! -- will occur at a meeting with a pre-schedule press conference. And a lot of people are utterly convinced that Yellen will announce a rate rise.

Fourth: The rate rise, whenever it occurs, will be tiny. So tiny that it will have effectively no effect, unless a lot of people who aren't talking decide to throw another Taper Tantrum.

Read about that on your own, say, here: http://www.investopedia.com/articles/personal-finance/060415/what-taper-tantrum-and-should-you-fear-it.asp

Fifth: Wait, what?

Remember that the basic idea behind raising rates is because the economy is On Fire and the service at Burger King has deteriorated unacceptably, plus it takes so fucking long to get to work that road rage incidents are on the rise and businesses are having trouble expanding because when they hire the most competent person they can find (until recently, employed as an assistant manager at Little Caesar's), that person turns out to be unable to get along with anyone, erratic about showing up to work on time and prone to lunches involving a lot of alcohol. Is that how the world is working right now?

Crickets. I hear crickets. Loud, loud crickets.

Now, in favor of the rate rise argument are the lovely people of Mountain View, California, who put a cap on new office space. Also, an organization called Save Our Suburbs in Mercer Island which was formed in response to the possibility that the population of Mercer Island might start to rise as a result of Transit Oriented Development around their Link station. It is clear that the economy of Mountain View, and the quiet, heavily patrolled burbs of Mercer Island (don't drive in Mercer Island while black, or, hell, even if you're in a beater car. They'll escort you off if you even look slightly lost and are white) are enjoying an excellent point on the economic cycle.

Against the rate rise argument are BLS statistics indicating absolutely no wage growth whatsoever. Not only are we not at the happy cusp that is NAIRU (look it up -- best reason ever to raise rates, I do in fact worship at the altar of Volcker, while wistfully looking back in nostalgia at how _fast_ runaway inflation ate away at mortgage debt in the 70s that had been priced in the late 1960s), with energy prices plummeting and every other commodity chasing energy downhill, it's not clear we have any kind of inflation at all.

Then why do people expect/want the Fed to raise rates?

I'll tell you why. Our country has a lot of older people in it (you know, like me, only slightly more so). And they are TERRIFIED of investing their money in anything that isn't guaranteed by the US taxpayer six ways or more. And that means that the Fed rate totally determines how much they can take out each year of their retirement (or, if slightly younger, how long they have to wait before they can retire) and they aren't happy about it.

Basically, the olds want the Fed rate to go up, so they can retire. And if that happens on the backs of the middles and the youngs, well, they'll just pretend they don't know that's gonna happen and act all shocked if they get their way and then it does.

Good news! I think the Fed is a lot more clever than they are. But we shall see.

ETA: I have actually left out of this overview an important argument in favor of raising rates. It is important NOT because it is a good argument (it is breathtakingly immoral and also risible) but because the people who emit this argument look like reasonable people and often have business degrees or otherwise look like they might actually know something. Here it is: we should raise rates NOW so that if there's another downturn, we can lower them again.

Of course, given that the single most predictable result of a rate rise or series of rate rises IS another downturn, well, yeah. Immoral. Risible. Now, you might be thinking, wait, they might have a point. To which I will politely refrain from saying, Try, Try Really Hard, To Not Be a Mark, and instead say this. Well, if we have another downturn while rates are effectively at zero, we will just have to resort to ACTUAL stimulus, rather than somehow acting like the central bank is the only person who can possibly do something about a downturn. You know, ACTUALLY FUND INFRASTRUCTURE type of thing. New Deal. Etc. Ideally while avoiding the really bad scenario for jump starting the economy (you remember that one: destroy all the existing everything by having a really comprehensive war. Afterwards, the group with the biggest surviving industrial base makes a ton off of loaning the rest of the world money to buy everything they need to rebuild. Also known as the 1950s).
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Within the coverage is a pointer to coverage at The Hill:


"The budget deficit for 2015 is expected to drop to roughly $425 billion, according to a report released Friday by the nonpartisan Congressional Budget Office (CBO).

That’s down from the $486 billion the CBO projected in March.

If it drops to $425 billion by the end of the fiscal year on Sept. 30, it would be a seven-year low for the government’s annual budget shortfalls."

US Federal Government year ends in a couple weeks -- if the CBO is saying NOW that it expects the budget deficit to be about $425B vs. the March (mid year) projection of $486, there is every reason to believe that they are right. And remember, the C in CBO stands for "Congressional" and both houses are run by Republicans currently, so if you want to assert partisan bias, make sure you get the directionality on that bias statement right be clear about whatever your assertion is and how it relates to hypothetical bias.

On the one hand, you can look at this and go, wow, that is some fiscal responsibility right up there, go Obama. On the other hand, you can look at this like a good socialist and say, holy shit look at all that lost opportunity to stimulate the economy during an era in which sure, some places are complaining about too much growth (yeah, looking at you, Seattle and Mountain View, we have too many jobs and too much growth and everyone should just Go Somewhere Else so our beautiful town/city won't ever change, with a little glance at the Boston area, omg no we don't want the Olympics we have to work on our infrastructure and we certainly wouldn't want more people getting the idea this would be a great place to live and work. That said, I'm all in favor of pushing the Olympics over to somewhere else. Those things are expensive) and the stock market is exploring new altitudes but there is effectively no wage growth and we need to do more to make sure that the economy finishes recovering for EVERYONE not just people who were well-positioned and pretty well off to begin with.

But regardless, better not complain about the budget deficit, because you'll look like a right wing tool, and possibly a not well informed one if you're laboring under a misapprehension that the deficit is not shrinking faster than expected.
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File under D00M! Possibly.

Apparently, 2% of the State of Vermont's budget comes from the "captive insurance industry", and the industry collectively is one of the state's top 10 employers. You know, that can make it tough to regulate an industry effectively, when there is so much riding on keeping the whole thing rolling along smoothly.


There are a lot of things that make me go, hmmm. Like, waiving safeguards. Reducing costs. Legally limiting the possibility of competition. Having origination be through one company but then having everything immediately sold to other, private, opaque, unrated companies.


It isn't a heavily covered topic, however. But you know, you really have to wonder. I mean if a wide swathe of the nation's pensions, labor insurance, and other insurance and reinsurance is all going through these weird vehicles, and they are all in one state and and and.

If someone doesn't exploit the hell out of this and make it blow up in all of our faces at some point, it would be a miracle. OTOH, I love some D00M, so maybe I'm just being paranoid.

A Priceless Paragraph:

"When there’s no property-casualty insurance on the market, or the premiums are too darned high, a company can set up a captive to self-insure its risks. Captives enable a business to price and underwrite its risks as it knows they should be priced or underwritten — not how the insurance industry says they should."

This is right up there with some of the liquid-alt vehicles out there currently that people are complaining about. There's no trading, but there is a last price quoted -- but in the even you actually need to sell, goddess only knows what price you might really get. The "alt" part of the description is right, but the liquid part is entirely a lie when the market has frozen solid.


"They can provide an opaque means of shifting risk off of the balance sheet"

Reinsurance is cheap, because the idea is that the first line insurance will probably pay, and the reinsurer only has to pay if the first line got blown away -- like tranches in all those you know whats. But if you make up a fake insurance company with no capacity to pay and it goes straight to the reinsurer, then the reinsurer is not charging enough. In the event of a wave of claims, the reinsurers would either have to hike rates to the sky going forward to make good their losses, or they would go under and who knows where the risk goes from there.

ETA: The insurance commissioners are trying to get this back under some semblance of control.


I'm not finding this as reassuring as I wish I did.

And this, this right here, this just seems evil.


A Priceless Paragraph:

"David Slenn, a lawyer at Quarles & Brady in Naples, Fla., and the chairman of the American Bar Association’s captive insurance committee, said the push to set up small captives had gotten out of hand. The interest in captives is being driven by lawyers and accountants who are seeking additional fees now that the estate tax exemption has been permanently set and there is not as much annual business, he said."

To be fair, things like this:

"People are marketing captives as a possible substitution for estate planning."

sound less like systemic risk and more like idiots looking to get into serious trouble with the IRS, altho at least one guy went to tax court and won. But really? Evading gift taxes and the remaining estate taxes? Bad behavior.

Okay, so let's assume that we've got two separate captives issues going on here. One, the increasing, substantial and fairly blatant attempt to avoid taxes, probably is NOT a systemic risk of any sort. Hopefully, the IRS will plug that hole at some point. I'm not going to lose any sleep over it (don't be an idiot and set up a captive as an estate planning tool, okay? It's not going to go well). Two, the fact that the entire reinsurance industry appears to have sewn itself together into a black hole, mostly located in and around Vermont [ETA: That's not really true. Reinsurance is centered in Europe. Captives are centered in Vermont. They are related, but not the same.], and if something really gnarly happens with any segment of any primary insurance industry (life, property, labor, etc.), there is massive counterparty risk. That is, when the primary insurer has a really horrible string of months and contacts its reinsurer, they may well find out that the reinsurer shrugs and say, hey, I'll get that money to you ... someday. Or, you know, maybe my bank will give you something to tide you over? I have a letter of credit? That really only has to happen, once? publicly, maybe a few times if it is successfully concealed, before the entire reinsurance industry locks up hard, and the primary companies have to hike rates like You Would Not Believe and Cannot Possibly Afford, because they are no longer able to sell off their tail risk.

This definitely seems like it is worth worrying about. I'm still trying to figure out if it qualifies as D00M, or just something that someone should someday fix and maybe not wait too long about it.


I love that people now write about "model risk" as a thing. Most excellent.

So, in the course of reading that thing at U Chic (shudder), I ran across a financial product I had previously been blissfully unaware of: Contingent Deferred Annuities. Described here, in inappropriately optimistic terms:


(I thought actuaries were supposed to be safe and boring. When did these people become so insane?)

This product is not the most ridiculous financial product I've ever heard of (maybe portfolio insurance, in the late 1970s/1980s?). But no one should sell it. No one should buy it. And we should regulate that fucker right out of existence.
walkitout: (Default)
TL;DR territory here with no executive summary possible. Probably skip this, unless you think listening to wonks is fun.

I'm not blaming the BI person who summarized this (I haven't read the underlying piece, so I'm assuming he has done a competent job -- if I find out otherwise, I'll update this). I'm poking at the underlying analysis that he is summarizing.


No, it is _not_ the horror novelist. It is Chief Economist over at HSBC. I'm getting so irritated at some of these let's-angst-over-the-economy pieces that I think I'm going to start deconstructing them to show why they are so foolish.

There are, in general, two memes? tropes? that economists love to drag out when thinking about "the next recession". (I'm ignoring inflation is coming! because that was stupid and it is now Over, since the Eurozone actually went back into deflation for a while.)

(1) If the Fed can't manage to raise rates, how will they lower them during the next recession? Lowering rates seems to be the only tool imaginable to these economists. You'd think they were living in 1840 or something, with vestigial national governments that did nothing other than collect excise taxes and fund the military, and courts that routinely struck down income taxes as unconstitutional.

(2) Stock prices are generally a multiple of the underlying companies profits (P/E = price to earnings). The multiple is considered a sort of "how do we feel about the future" indicator, so if earnings rise, the price will tend to rise to maintain the same multiple UNLESS people's feelings about the company, the business environment, the economy in general change in a positive (leading to higher multiples) or negative (leading to lower multiples) direction. For a while now, earnings have been rising so the stock market has been going up. The stock market going up in the wake of a bad recession (such as what we had in 2008) triggers all those negative feelings that people have when something _good_ happens, after a major loss (grandma died, type of thing, followed by new boyfriend will tend to make someone superstitious and twitchy that the new boyfriend Can't Last). The meme, in this case, is that current stock prices reflect a belief that corporate earnings will continue to rise (future earnings), and this belief will prove false and stock prices will come back down into line with the "correct" multiple of actual (i.e. trailing) earnings. This particular analysis is focused on the idea that wage growth will cut into corporate profit, reducing earnings, leading to stock prices coming back down, followed by a crash.

Both of these memes are present in this analysis. Here's why these memes are silly.

(1) There are other, better options for juicing the economy, than lowering rates. This hyperfocus on a single, crude intervention is, in fact, the cause of most of our woes, pre-bust and post. We talk about those other, better options, but rarely implement them (viz. infrastructure funding).

(2) If wages rise, then presumably labor will have more money to spend on goods and services. More money to spend on goods and services should translate to more business done by business: more sales, more revenue, more profit. Not all corporations will benefit equally, obviously. But asserting that you could have wage growth WITHOUT increases across the board in sales, revenue, profit is essentially an argument that corporations make the most money when they are selling less and have less revenue. Which is pretty fucking bizarre argument. It can happen in particular companies, but it shouldn't happen across an entire economy. It would be super weird if it did (and would probably imply that we'd crossed NAIRU a long time back and accelerated, so basically, Wage Growth = Lower Profits is a disguised inflation argument).

The argument has a few more points.

"Non-bank financial systems like insurance companies and pension funds will increasingly not be able to meet future obligations. This will cause a huge demand for liquid assets, forcing people to rush to sell despite no matching demand, triggering a recession."

The financial status of insurance companies, pension funds and other Stuff that has future obligations is driven almost entirely by the state of the economy and markets as a whole. If asset prices are low, they go under. If asset prices are high, it looks like no one will ever need to contribute a dime again (see: 2007 coverage of college endowments and how they would have more than enough money forever and ever and maybe they wouldn't even have to collect tuition any more). Saying they will not be able to meet future obligations is roughly equivalent to (a) asserting that we would decline to save our economy if threatened by a Systemically Important institution failing (b) our increased regulation of Systemically Important Institutions has been for naught and (c) there could possibly be any more demand for liquid assets than their already is. None of these three propositions is at all plausible.

"Forces beyond the Federal Reserve's control, including the possibility that China's economy and its currency could collapse. Weak commodity prices could also cause collapses in several emerging markets, as could continued strength in the US dollar."

This one is a little incoherent. First, it's fucking _hilarious_ to think that China's currency could collapse. It can't collapse. If the state quit manipulating it, it might _soar_. This is like sitting on a powerful spring for days and saying you dare not get up off of it, because it might _not_ go SPROING. Silly. Weak commodity prices almost certainly _are_ causing collapses in at least one emerging market (poor Venezuela!), altho it is unclear how that is any kind of risk outside of those particular markets.

Continued strength in the US dollar is an _interesting_ risk to point out. The issue here is that people borrow money in USD (or Euros), even tho they do business in something that sounds like real/rial/yen/yuan/won. That's great, when the real/rial/yen/yuan/won buys more and more dollars on foreign exchange markets. It sucks rocks through a coffee stirrer when the real/rial/yen/yuan/won buys fewer and fewer dollars on foreign exchange markets. Basically, someone might not be able to pay back their dollar denominated debt. I don't _think_ that this is a systemic risk, but I actually don't know. I'll tell you this, tho. You'd be hard pressed to find someone with a lot of dollar denominated debt that didn't also have a lot of Euro denominated debt, and the Euro denominated debt moved in the opposite direction from the dollar debt, so what HSBC's Stephen King is worried about is that a lot of somebodies out there had too much dollar exposure. Doesn't sound so worrisome any more, now, does it? I mean, who the fuck has unhedged risk in Forex these days? (Okay, the Swiss deciding to unpeg _was_ a surprise, so surprises can happen, but this particular surprise seems pretty damn unlikely to be a surprise.)

"The Fed could cause the next recession by raising interest rates too soon, repeating the mistakes of the European Central Bank in 2011 and the Bank of Japan in 2000."

I could almost forgive Stephen King the rest of this nonsense, because _this_ actually is the real risk.
walkitout: (Default)
Apparently, AshleyMadison attempted a Canadian IPO, failed, and is gonna try London next.


Insert comment about the relative evil of consensual sex vs. selling addictive products to children so they'll keep buying as adults (tobacco companies) vs. gun companies.

Apparently while people like making money off of AshleyMadison, they'd rather you did not know.

"Avid Life Media, whose investors are wealthy North Americans who prefer to remain anonymous, registered 45 percent sales growth last year and a profit margin between 20 percent and 25 percent, according to Kraemer, who said the company estimates its value at $1 billion."
walkitout: (Default)
I'm no Babylon 5 fan. I found it pretty excruciating to sit through, and I sat through marathons of that show because my friends were fans. But, you know. It's later; most of the pain is forgotten. But enough memory remained for me to get the references here.


Krugman argues that the reason GE is spinning of its GE capital unit and associated business (they are keeping the finance stuff associated with manufacturing) is because in its current incarnation, GE is a Systemically Important Financial Institution for Dodd-Frank purposes and thus subject to a lot of oversight that it would prefer not to have to deal with. So it's getting rid of the parts that triggered that designation. Krugman asserts:

"what GE is in effect saying is that if we have to compete on a level playing field, if we can’t play the moral hazard game, it’s not worth being in this business. That’s a clear demonstration that reform is having a real effect."

I think he's right. Altho I _also_ think that this kind of restructuring of GE has been a long time coming, as for a decade or more now people have been complaining that GE's stock price does not accurately reflect, well, whatever it is they think is good about GE. I'm betting the SIFI designation helped Immelt make the case for something that he'd been wanting to do for a while anyway.

ETA: His post on wearables is good, too.


"I think wearables will become pervasive very soon ... so the ubiquitous surveillance net can see them, and give them stuff."

Nothing there about ApplePay and the Watch, but a lot of the rest of the points are there: not having to wait, reproducing an elite/wealthy experience for more people, trading off privacy against service, etc.
walkitout: (Default)
The Upshot at NYT has this article saying, how come we can't get detailed information about student debt?


It has a variety of reasons for wanting the detailed information, assertions that privacy can be preserved, it impugns the competency of the Education department, argues we need this data to "help" borrowers before they get into trouble (ha ha ha ha ha -- the way to help most student debt holders who get into trouble would have been _before_ they borrowed that money from that lender to go to that school. Problem is not fixable thereafter). At no point does it get anywhere near suggesting that perhaps the data do not actually exist. However, it has quotes like this:

"David A. Bergeron spent 34 years at the Education Department, ending up as an assistant secretary for postsecondary education. He left in 2013 and is now vice president for postsecondary education at the Center for American Progress, a Washington research organization. Mr. Bergeron says he is frustrated by the incomplete data. “The department releases only very high-level summary statistics, which do not allow us to understand the problems facing individual student borrowers,” he said. “Trying to solve a problem with incomplete information leads you to the wrong solutions.”"

Have we truly forgotten the recent structured debt debacle? Let me tell you my subbasement in the Rainier Bank Building story once again, because I like telling that story and I Am Old so listen up, pups, ya might learn something.

Once upon a time, in the world of paper (gasp! The Horror), every mortgage had a file and that file had to have certain documents meeting certain criteria in that file. When the mortgage moved from the originator (in this case, Rainier Bank) to Someone Else (I have No Fucking Clue), Every Last Freakin' File had to be checked, because That Is Due Diligence. My part of the story involved getting to wear shorts while working in a bank, because (a) there was no AC in these rooms and (b) it was a subbasement, so no customers. I had to painstakingly go through thousands of files that were about to be transferred to make sure they were all right and tight. Did I find errors? Yes! I did. My favorite errors involved neighboring houses in southern California owned by a half dozen or more names. This really did happen more than once, and I assume these were some kind of family business or family compound or extended family occupying two neighboring houses or whatever, but their files were predisposed to confusion and were incredibly difficult to fully disentangle because of similar addresses and similar names.

Or I should say, that _was_ due diligence.

Then, in the early world of electronic documentation, mortgages became entries in spreadsheets and the spreadsheets were transferred _without the files_. But, the law had not caught up with daily practice, so when this stuff landed in court, you had to track back through all the transfers to find the paper. A couple things happened. (1) A bunch of big operations (WaMu, I am looking at your corpse) went under and that made finding paperwork that may or may not have passed through them ... difficult to find and (2) I'm completely convinced that a whole lot of strip mall mortgage brokers just binned the original paperwork and is was never around to be found thereafter. There were efforts to recreate the paperwork, which were generally found to not actually be legal (that was the robosigning part of the scandal, IIRC).

I would like an explanation why this didn't also happen with student loans. Because for damn sure it did. The paperwork is not there to be found, so as long as your loan isn't actually being held by the Feds, you can probably slow-walk all collections attempts and demand the paperwork be produced. They'll never produce it so you never have to pay. (If the Feds have it, they might hold any taxes you were hoping to get back in a refund and do other things, so exercise due caution out there adult children!)

Voila. Problem. Solved. (Not really. But we can dream!)

I am not a lawyer or a financial advisor. This is not advice. This is political speech.

However, other people have been doing this for a while and it seems to work at least part of the time:


The usual debt collection rules apply: go get good advice from a lawyer who practices in this area before making _any_ payment or signing _anything_, especially if it goes to collection and ESPECIALLY if a debt that was removed gets reinstated. You lose a ton of legal rights to question the validity of the debt claim if you make a payment.
walkitout: (Default)
People do this. I KNOW! WHY???? Two reasons: the amount they want to borrow is too high even for a jumbo, or at least a jumbo that they can find (or, see below: there is a benefit for being able to access the money faster than a conventional loan). Or because they can't _get_ a mortgage because they can't show enough income to satisfy current loan requirements.

What's a margin loan? Well, let's say you have an investment portfolio that you have been shoveling all the money that you save into over a period of years/decades (and it's not a 401K or IRA or Roth IRA or whatever, either because you don't qualify for one of those or you've maxed it out or whatever). In that portfolio is a bunch of stocks, funds, bonds, etc. You've carefully crafted a diverse set of investments over time (or you are holding a huge amount of stock in a company that you helped found/work for) and you don't want to (can't because of special insider trading rules that apply to you) sell the underlying stocks, funds, bonds, etc. Nevertheless, even tho you (a) don't have the cash, (b) can't or don't care to borrow the money in the form of a mortgage against the house (see first paragraph) or (c) can't or don't care to sell assets to generate the cash, you still want to buy a (ludicrously expensive) piece of real estate.

The firm you have the assets at is often willing to loan you money _against_ those assets, in exchange for (a) interest and (b) the right to sell those assets and take the money back that way. So instead of borrowing from a bank that can take your house, you are borrowing from an investment company that can take your ... investments. And generally, the scenario under which they would sell your investments to get their money back is ... in the middle of a crash, when they are worth A Lot Less.

Margin loans for real estate are a terrible idea, because they let people spend insane amounts of money -- after all, this tends to happen when stock portfolios are super plump and people are reluctant to sell because, I dunno, no one wants to sell at or near the peak? they always think it's gonna go higher, and it will, until it doesn't -- running up the price on real estate. And then the assets guaranteeing the loan ... shrivel, and are sold at a loss (either by the "owner" or the other owner, that is, whoever you borrowed the money from), thus making an already expensive decision to buy that real estate even more expensive (to be fair, selling the underlying asset to buy the real estate can have the exact same effect, minus some of the drama).

I know, it's terribly funny because it only happens to people who (a) have a lot of money and (b) are stupid. But it is actually a serious problem in a ton of ways, because this is a bubble. And it is really happening. And it will tend to encourage people to want interest rates to rise to slow down the bubble, AND THAT WILL GUARANTEE YOU NEVER GET A RAISE EVER AGAIN (or more hours or a job at all). While you are busy laughing at stupid rich people, crudely managing their stupidity may result in a whole lot of unavoidable pain for everyone else. Let's not do this.

The first step in Not Doing This is understanding that it is happening, talking about it so we all understand it, and then crafting tools to discourage or eliminate the behavior. We are Not There Yet, because this is the quality of advice out there about margin loans and real estate. Is it opposed to the practice? Yes, yes it is. Is it cogent and concise? Not at all.


The argument here is basically, "it's too risky". And if the person whose broker is trying to get them to use a margin loan to buy a house takes "it's too risky" back to the broker, the broker is JUST GOING TO TALK FASTER. And then the idiot will be an idiot. Which may turn out fine, but probably not.

"Margin loans are variable-rate loans. The interest rate will vary among brokers. A quick review of current rates finds great variation. A 15- or 30-year fixed-rate mortgage appears to be a bargain compared with what some brokerage firms charge. Are you willing to move your account to get the lowest margin loan rate?

There are plenty of other risks if using margin to finance your home. Aside from interest rate risk, you face the possibility of a margin call if the value of your investments declines."

Other coverage of margin loans to buy real estate, scary to think this is, in part, what is driving the California real estate market this go-round:


At least _they_ point out that margin call risk is huge and that some people are just using the margin loan to win a bidding war for a house, and will then line up more traditional financing later. But horrifying, that this has become so normal in the last couple years, and this article is mostly about how to do it better, rather than about how it needs to stop.
walkitout: (Default)

The NYT could have taken the easy path and said, hey, we're not above 2% yet, let's wait until we are. We're at the high end of the current belief system about NAIRU, wait until we're at the bottom. But they did not! They reminded everyone about the dual mandate, and then they went a little further.

"The reason the Fed associates falling unemployment with rising inflation is that, theoretically, more hiring leads to higher wages that, in turn, lead to consumer demand for goods and services, pushing up prices.

In practice, it has been several decades since those relationships have held — in part, because the Fed has usually been too quick to raise rates when wages have started to rise. This has led to a long-term decline in the share of income that goes to worker pay and a long-term increase in the share that goes to stockholders and executives."

They are reminding everyone of the theoretical core of NAIRU and pointing out that if you spike that phenomenon as comprehensively as we have in recent decades, you generate wealth inequality, and that is the current problem. So, yay! Concise and cogent!

But what about that asset bubble on the high end?

"In the meantime, it should use its regulatory tools to ensure that low-interest-rate credit is put to productive uses and not speculative bubbles."

Here's my suggestion: see if you can discourage people from taking margin loans to buy expensive property. Make them actually _sell_ the underlying asset, rather than just borrow against it. That should reduce the bubbliciousness at the high end.

The piece concludes with a swipe at Congress. Because, Congress.

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