(from Maudlin newsletter, 9.3.2014)
...I contend that Xi and Li are the most radical leaders of the Chinese nation since Deng Xiaoping, with the emphasis being on Xi. He is shaking up the current power structure by going after some of the entrenched leaders for corruption. He has earned rebukes from a former president for his actions in op-eds in the Financial Times. This is extraordinary pushback and clearly shows that what is happening is beyond the normal regime-change shakeups we have seen in China.
for more, see: http://blog.mpettis.com/2014/09/what-does-a-good-chinese-adjustment-look-like/
Thursday, September 4, 2014
Why Chef Blumenthal Shunned New York and Will Open in Melbourne - Bloomberg
Why Chef Blumenthal Shunned New York and Will Open in Melbourne - Bloomberg
“We looked at New York really heavily,” he said yesterday in an interview. “We wanted to open there. I’ve got some good chef mates in the business in New York and they all said the same thing: If you can’t be union-free, don’t touch it.
“We looked at New York really heavily,” he said yesterday in an interview. “We wanted to open there. I’ve got some good chef mates in the business in New York and they all said the same thing: If you can’t be union-free, don’t touch it.
Monday, September 1, 2014
from "Thoughts from the Frontline" - Maudlin (Sept. 1, 2014)
As Maudlin writes in his letter
to readers of “Thoughts from the Front Line” of Sept. 1, 2014
to readers of “Thoughts from the Front Line” of Sept. 1, 2014
"…
This article from this week’s
Economist frames the story:
Economist frames the story:
Over the past
few decades it has become clear that innovation – more than inputs of capital
and labour – is what drives a modern economy. In the developed world, the
application of technological know-how and scientific discoveries by companies,
institutions and government establishments accounts for over half of all
economic growth. Because of its seminal influence on wealth-creation in general
and employment in particular, the manner in which innovation functions –
especially, the way it comes and goes in Darwinian bursts of activity – has
emerged as a vital branch of scholarship.
few decades it has become clear that innovation – more than inputs of capital
and labour – is what drives a modern economy. In the developed world, the
application of technological know-how and scientific discoveries by companies,
institutions and government establishments accounts for over half of all
economic growth. Because of its seminal influence on wealth-creation in general
and employment in particular, the manner in which innovation functions –
especially, the way it comes and goes in Darwinian bursts of activity – has
emerged as a vital branch of scholarship.
What
researchers have learned is that waves of industrial activity, first identified
by the Russian economist Nikolai Kondratieff in 1925, have a character all of
their own. Typically, a long upswing in a cycle starts when a new set of
technologies begins to emerge – eg, steam, rail and steel in the mid-19th
century; electricity, chemicals and the internal-combustion engine in the early
20th century. This upsurge in innovation stimulates investment and invigorates
the economy, as successful participants enjoy fat profits, set standards, kill
off weaker rivals and establish themselves as the dominant suppliers.
researchers have learned is that waves of industrial activity, first identified
by the Russian economist Nikolai Kondratieff in 1925, have a character all of
their own. Typically, a long upswing in a cycle starts when a new set of
technologies begins to emerge – eg, steam, rail and steel in the mid-19th
century; electricity, chemicals and the internal-combustion engine in the early
20th century. This upsurge in innovation stimulates investment and invigorates
the economy, as successful participants enjoy fat profits, set standards, kill
off weaker rivals and establish themselves as the dominant suppliers.
Over the
years, the boom peters out, as the technologies mature and returns to investors
slide. After a period of slower growth comes the inevitable decline. This is
followed eventually by a wave of fresh innovation, which destroys the old way
of doing things and creates conditions for a fresh upswing – a process Joseph
Schumpeter, an Austrian economist, labeled “creative destruction”.
years, the boom peters out, as the technologies mature and returns to investors
slide. After a period of slower growth comes the inevitable decline. This is
followed eventually by a wave of fresh innovation, which destroys the old way
of doing things and creates conditions for a fresh upswing – a process Joseph
Schumpeter, an Austrian economist, labeled “creative destruction”.
Back in the
late 1990s, Babbage noticed that the waves of innovation had begun to speed up
(see “Catch the wave”, February 18th 1999). The industrial waves Kondratieff
observed in the 1920s came every 50-60 years or so. By the late 1990s, fresh
ones were arriving twice as often. Fifteen years on, their frequency appears to
have doubled yet again. Waves of new innovations now seem to be rolling in
every 10 to 15 years.
late 1990s, Babbage noticed that the waves of innovation had begun to speed up
(see “Catch the wave”, February 18th 1999). The industrial waves Kondratieff
observed in the 1920s came every 50-60 years or so. By the late 1990s, fresh
ones were arriving twice as often. Fifteen years on, their frequency appears to
have doubled yet again. Waves of new innovations now seem to be rolling in
every 10 to 15 years.
I think those waves are going to
come at us even faster in the next 20 years, resulting in what I call the Age of Transformation. Literally, our
lives will be transformed, and at an ever-increasing pace of change. The Gartner Group has developed a cool
paradigm that they call the “hype cycle.” They basically see every technology
through the lens of five different phases in this hype cycle: the innovation trigger, the peak of inflated
expectations, the trough of disillusionment, the slope of enlightenment, and
the plateau of productivity.
come at us even faster in the next 20 years, resulting in what I call the Age of Transformation. Literally, our
lives will be transformed, and at an ever-increasing pace of change. The Gartner Group has developed a cool
paradigm that they call the “hype cycle.” They basically see every technology
through the lens of five different phases in this hype cycle: the innovation trigger, the peak of inflated
expectations, the trough of disillusionment, the slope of enlightenment, and
the plateau of productivity.
For the past 20 years, Gartner has produced an annual update
of various hype cycles that provide
snapshots of the progress certain technologies have made during the previous
year, where on the innovation cycle they currently reside, and how long they
will take to reach maturity (if ever). This year’s collection (published on
August 11) assesses the prospects of some 2,000 technologies, grouped into 119
aggregated areas of interest.
of various hype cycles that provide
snapshots of the progress certain technologies have made during the previous
year, where on the innovation cycle they currently reside, and how long they
will take to reach maturity (if ever). This year’s collection (published on
August 11) assesses the prospects of some 2,000 technologies, grouped into 119
aggregated areas of interest.
The chart below is the most
recent hype cycle, published by the Gartner Group last month. See if you can
find a few new technologies that you didn’t know even existed.
recent hype cycle, published by the Gartner Group last month. See if you can
find a few new technologies that you didn’t know even existed.
It would be nice if we could just
sit back and let growth happen. But as it turns out, our government seems to be
doing its best to retard growth. The bureaucracy of government has become what
Newt Gingrich calls “the prison guards of the past.”
sit back and let growth happen. But as it turns out, our government seems to be
doing its best to retard growth. The bureaucracy of government has become what
Newt Gingrich calls “the prison guards of the past.”
In field after field, regulators
feel the necessity to control the spread of technology in ways that are
consistent with the past they seem to want to perpetuate. Neither Newt nor I are
against reasonable regulation (it is a requirement for civilization); but
regulation run amok kills growth and jobs, and in the case of one federal
regulatory body, it is killing people. (Warning: this hits one of my personal
hot buttons.)
feel the necessity to control the spread of technology in ways that are
consistent with the past they seem to want to perpetuate. Neither Newt nor I are
against reasonable regulation (it is a requirement for civilization); but
regulation run amok kills growth and jobs, and in the case of one federal
regulatory body, it is killing people. (Warning: this hits one of my personal
hot buttons.)
This week I was confronted with a
single FDA bureaucrat slowing down a new medical technology by what may be five
months. Doesn’t sound like much time, does it? Except that this is a technology
that will literally save millions of lives per year. Not improve life,
understand: save lives. As in life or death. (Given the provision that the
technology must be proven to work as we expect it to.) Rather than focusing on
what we can do to move this crucial innovation along as fast as possible, the
regulator is forcing this company to spoon feed him information that has
already been provided in multiple forms. Because he evidently didn’t have the
time to read the massive amounts of information provided, he simply came up
with a bogus reason to excuse his inaction and delay further progress. The fact
that the lives of fathers and mothers and daughters and sons and spouses and
friends will be lost evidently doesn’t bother him.
single FDA bureaucrat slowing down a new medical technology by what may be five
months. Doesn’t sound like much time, does it? Except that this is a technology
that will literally save millions of lives per year. Not improve life,
understand: save lives. As in life or death. (Given the provision that the
technology must be proven to work as we expect it to.) Rather than focusing on
what we can do to move this crucial innovation along as fast as possible, the
regulator is forcing this company to spoon feed him information that has
already been provided in multiple forms. Because he evidently didn’t have the
time to read the massive amounts of information provided, he simply came up
with a bogus reason to excuse his inaction and delay further progress. The fact
that the lives of fathers and mothers and daughters and sons and spouses and
friends will be lost evidently doesn’t bother him.
I wish I could say it was just
this one instance, but we all know that this sort of thing happens many dozens
of times a year. The entire process of drug approval is broken. It is rigged to
benefit Big Pharma and largely prevents small startups from succeeding by
dramatically increasing costs beyond what is necessary.
this one instance, but we all know that this sort of thing happens many dozens
of times a year. The entire process of drug approval is broken. It is rigged to
benefit Big Pharma and largely prevents small startups from succeeding by
dramatically increasing costs beyond what is necessary.
If I could wave a magic wand and
change just one thing in our government, it would be to replace the FDA. Not reform it – I don’t want to tinker at the
margins. We need an FDA for the 21st century. I’m not advocating some wild west
scenario either – of course we need a regulatory process for the medical field,
but not one that is killing what should be the leading new technology in the
United States, not to mention delaying lifesaving and life-enhancing
technologies that are so needed. The majority of biotechnological research is
done in the US; but under the current regulatory regime, it is increasingly
likely that the early benefits will not be enjoyed by us, and that jobs that
should be created here will be shipped offshore.
change just one thing in our government, it would be to replace the FDA. Not reform it – I don’t want to tinker at the
margins. We need an FDA for the 21st century. I’m not advocating some wild west
scenario either – of course we need a regulatory process for the medical field,
but not one that is killing what should be the leading new technology in the
United States, not to mention delaying lifesaving and life-enhancing
technologies that are so needed. The majority of biotechnological research is
done in the US; but under the current regulatory regime, it is increasingly
likely that the early benefits will not be enjoyed by us, and that jobs that
should be created here will be shipped offshore.
Energy should not be the leading
job producer in the US – that should be new health and wellness technologies. I
am watching some of the most promising new technology companies involved in
extending life and healing bodies go shopping for venues outside of the US
because the regulatory process is so onerous and time-consuming that the
scientists literally don’t feel they can wade through it and don’t want to
wait.
job producer in the US – that should be new health and wellness technologies. I
am watching some of the most promising new technology companies involved in
extending life and healing bodies go shopping for venues outside of the US
because the regulatory process is so onerous and time-consuming that the
scientists literally don’t feel they can wade through it and don’t want to
wait.
By the time they can get a
process or drug approved, they are already three iterations beyond the original
process for which their applications were filed. The field is literally moving
that fast. We are going to be shipping jobs – high-paying, rewarding jobs –
overseas, along with the new technologies. Dear gods, Japan and other
forward-thinking countries are way ahead of us in the regulatory process. This
is just wrong on so many levels.
process or drug approved, they are already three iterations beyond the original
process for which their applications were filed. The field is literally moving
that fast. We are going to be shipping jobs – high-paying, rewarding jobs –
overseas, along with the new technologies. Dear gods, Japan and other
forward-thinking countries are way ahead of us in the regulatory process. This
is just wrong on so many levels.
Much of the US regulatory process
is actually a fence-building program to protect the current workers or
companies in a field. To use a rather odd example, why do some states feel that
a nail technician needs to have a license that requires a 750-hour training
program (at considerable cost) to learn something that every teenage girl knows
how to do by the time she is 13 or 14? Seriously, do you need 750 hours of
training (that you have to pay for) in order to be able to do a manicure for
which you get paid 20 or 30 dollars?
is actually a fence-building program to protect the current workers or
companies in a field. To use a rather odd example, why do some states feel that
a nail technician needs to have a license that requires a 750-hour training
program (at considerable cost) to learn something that every teenage girl knows
how to do by the time she is 13 or 14? Seriously, do you need 750 hours of
training (that you have to pay for) in order to be able to do a manicure for
which you get paid 20 or 30 dollars?
As I probably don’t have many
manicurists among my readers, I have hopefully not offended too many of you.
But what if I started talking about your profession? Just saying! Many regulatory regimes are simply barriers
to entry for new competition. Current participants basically capture the bureaucracy
they deal with in order to ensure their own positions…
manicurists among my readers, I have hopefully not offended too many of you.
But what if I started talking about your profession? Just saying! Many regulatory regimes are simply barriers
to entry for new competition. Current participants basically capture the bureaucracy
they deal with in order to ensure their own positions…
…The original point I was trying
to make is that the main driver of growth is not monetary policy,
notwithstanding the current fetish for dissecting every utterance of the
Federal Reserve. More important is US fiscal policy. Even more important is US
regulatory policy. I think we have to mention our educational system (which is showing signs of being increasingly
broken and inadequate for the 21st century) somewhere around here. But it’s
crucial that the natural innovative drive that is inherent not just in US
entrepreneurs but everywhere in the world is nurtured and encouraged.
to make is that the main driver of growth is not monetary policy,
notwithstanding the current fetish for dissecting every utterance of the
Federal Reserve. More important is US fiscal policy. Even more important is US
regulatory policy. I think we have to mention our educational system (which is showing signs of being increasingly
broken and inadequate for the 21st century) somewhere around here. But it’s
crucial that the natural innovative drive that is inherent not just in US
entrepreneurs but everywhere in the world is nurtured and encouraged.
is not to say that monetary policy
is not important. Get it wrong and we all lose. We all become poorer for the
impediments to growth misguided monetary policy can create. Burdening a country
with too much debt and crowding
out productive investments in the process is likewise destructive….
Friday, August 22, 2014
Argentina’s Peso Weakening at Fastest Pace Since January - Bloomberg
Argentina’s Peso Weakening at Fastest Pace Since January - Bloomberg
Government spending surged 56.5 percent in June from a year earlier.
Government spending surged 56.5 percent in June from a year earlier.
Sunday, July 6, 2014
Mauldin Economics - Investment, Economic & Financial Analysis, Research
Mauldin Economics - Investment, Economic & Financial Analysis, Research
my family beckons and the grill awaits my magic touch.
Central Bank Smackdown
By John Mauldin | Jul 05, 2014
BIS: The Opening Riposte
Yellen’s Counter-Riposte
The Coming Liquidity Crisis
A Few Thoughts on the Nonfarm
Payroll Number
Nantucket, New York City, Maine,
San Antonio, and China(?)
Yellen’s Counter-Riposte
The Coming Liquidity Crisis
A Few Thoughts on the Nonfarm
Payroll Number
Nantucket, New York City, Maine,
San Antonio, and China(?)
Smackdown: smack·down, ˈsmakËŒdoun/, noun, US informal
1. a bitter contest or confrontation.
"the age-old man versus Nature
smackdown"
smackdown"
2. a decisive or humiliating defeat or setback.
The term “smackdown” was first used by
professional wrestler Dwayne Johnson (AKA The Rock) in 1997. Ten years later
its use had become so ubiquitous that Merriam-Webster felt compelled to add it
to their lexicon. It may be Dwayne Johnson’s enduring contribution to Western
civilization, notwithstanding and apart from his roles in The Fast and
The Furious movie series. All that said, it is quite the useful word
for talking about confrontations that are more for show than actual physical
altercations.
professional wrestler Dwayne Johnson (AKA The Rock) in 1997. Ten years later
its use had become so ubiquitous that Merriam-Webster felt compelled to add it
to their lexicon. It may be Dwayne Johnson’s enduring contribution to Western
civilization, notwithstanding and apart from his roles in The Fast and
The Furious movie series. All that said, it is quite the useful word
for talking about confrontations that are more for show than actual physical
altercations.
And so it is that on a beautiful July 4
weekend we will amuse ourselves by contemplating the serious smackdown that
central bankers are visiting upon each other. If the ramifications of their
antics were not so serious, they would actually be quite amusing. This week’s
shorter than usual letter will explore the implications of the contretemps
among the world’s central bankers and take a little dive into yesterday’s
generally positive employment report.
weekend we will amuse ourselves by contemplating the serious smackdown that
central bankers are visiting upon each other. If the ramifications of their
antics were not so serious, they would actually be quite amusing. This week’s
shorter than usual letter will explore the implications of the contretemps
among the world’s central bankers and take a little dive into yesterday’s
generally positive employment report.
The opening riposte came from the Bank
for International Settlements, the “bank for central banks.” In their annual report, released
this week, they talked about “euphoric” financial markets that have become
detached from reality. They clearly – clearly in central banker-speak, that is
– fingered the culprit as the ultralow monetary policies being pursued around
the world. These are creating capital markets that are “extraordinarily buoyant.”
for International Settlements, the “bank for central banks.” In their annual report, released
this week, they talked about “euphoric” financial markets that have become
detached from reality. They clearly – clearly in central banker-speak, that is
– fingered the culprit as the ultralow monetary policies being pursued around
the world. These are creating capital markets that are “extraordinarily buoyant.”
The report opens with this line: “A new
policy compass is needed to help the global economy step out of the shadow of
the Great Financial Crisis. This will involve adjustments to the current policy
mix and to policy frameworks with the aim of restoring sustainable and balanced
economic growth.”
policy compass is needed to help the global economy step out of the shadow of
the Great Financial Crisis. This will involve adjustments to the current policy
mix and to policy frameworks with the aim of restoring sustainable and balanced
economic growth.”
The Financial Times weighed
in with this summary: “Leading central banks should not fall into the trap of
raising rates ‘too slowly and too late,’ the BIS said, calling for policy
makers to halt the steady rise in debt burdens around the world and embark on
reforms to boost productivity. In its annual report, the BIS also warned of the
risks brewing in emerging markets, setting out early warning indicators of
possible banking crises in a number of jurisdictions, including most notably
China.”
in with this summary: “Leading central banks should not fall into the trap of
raising rates ‘too slowly and too late,’ the BIS said, calling for policy
makers to halt the steady rise in debt burdens around the world and embark on
reforms to boost productivity. In its annual report, the BIS also warned of the
risks brewing in emerging markets, setting out early warning indicators of
possible banking crises in a number of jurisdictions, including most notably
China.”
“The risk of normalizing too late and
too gradually should not be underestimated,” the BIS said in a follow-up
statement on Sunday. “Particularly for countries in the late stages of
financial booms, the trade-off is now between the risk of bringing forward the
downward leg of the cycle and that of suffering a bigger bust later on,” the
BIS report said.
too gradually should not be underestimated,” the BIS said in a follow-up
statement on Sunday. “Particularly for countries in the late stages of
financial booms, the trade-off is now between the risk of bringing forward the
downward leg of the cycle and that of suffering a bigger bust later on,” the
BIS report said.
The Financial Times noted
that the BIS “has been a longstanding sceptic about the benefits of
ultra-stimulative monetary and fiscal policies, and its latest intervention
reflects mounting concern that the rebound in capital markets and real estate
is built on fragile foundations.”
that the BIS “has been a longstanding sceptic about the benefits of
ultra-stimulative monetary and fiscal policies, and its latest intervention
reflects mounting concern that the rebound in capital markets and real estate
is built on fragile foundations.”
The New York Times delved
further into the story:
further into the story:
There is a disappointing element of
déjà vu in all this,” Claudio Borio, head of the monetary and economic department
at the BIS, said in an interview ahead ofSunday’s release of the report.
He described the report “as a call to action.”
déjà vu in all this,” Claudio Borio, head of the monetary and economic department
at the BIS, said in an interview ahead ofSunday’s release of the report.
He described the report “as a call to action.”
The organization said governments
should do more to improve the performance of their economies, such as reducing
restrictions on hiring and firing. The report also urged banks to raise more
capital as a cushion against risk and to speed efforts to deal with past
problems. Countries that are growing quickly, like some emerging markets, must
be alert to the danger of overheating, the group said.
should do more to improve the performance of their economies, such as reducing
restrictions on hiring and firing. The report also urged banks to raise more
capital as a cushion against risk and to speed efforts to deal with past
problems. Countries that are growing quickly, like some emerging markets, must
be alert to the danger of overheating, the group said.
The signs of financial imbalances are
there,” Mr. Borio said. “That’s why we are emphasizing it is important to take
further action while the time is still there.”
there,” Mr. Borio said. “That’s why we are emphasizing it is important to take
further action while the time is still there.”
The B.I.S. report said debt levels in
many emerging markets, as well as Switzerland, “are well above the threshold
that indicates potential trouble.” (Source: New York Times)
many emerging markets, as well as Switzerland, “are well above the threshold
that indicates potential trouble.” (Source: New York Times)
Casual observers will be forgiven if
they come away with the impression that the BIS document was seriously
influenced by supply-siders and Austrian economists. Someone at the Bank for
International Settlements seems to have channeled their inner Hayek. They
pointed out that despite the easy monetary policies around the world,
investment has remained weak and productivity growth has stagnated. There is
even talk of secular (that is, chronic) stagnation. They talk about the need
for further capitalization of many banks (which can be read, of European
banks). They decry the rise of public and private debt.
they come away with the impression that the BIS document was seriously
influenced by supply-siders and Austrian economists. Someone at the Bank for
International Settlements seems to have channeled their inner Hayek. They
pointed out that despite the easy monetary policies around the world,
investment has remained weak and productivity growth has stagnated. There is
even talk of secular (that is, chronic) stagnation. They talk about the need
for further capitalization of many banks (which can be read, of European
banks). They decry the rise of public and private debt.
Read this from their webpage
introduction to the report:
introduction to the report:
To return to sustainable and balanced
growth, policies need to go beyond their traditional focus on the business
cycle and take a longer-term perspective – one in which the financial cycle
takes centre stage. They need to address head-on the structural deficiencies
and resource misallocations masked by strong financial booms and revealed only
in the subsequent busts. The only source of lasting prosperity is a stronger
supply side. It is essential to move away from debt as the main engine of
growth.
growth, policies need to go beyond their traditional focus on the business
cycle and take a longer-term perspective – one in which the financial cycle
takes centre stage. They need to address head-on the structural deficiencies
and resource misallocations masked by strong financial booms and revealed only
in the subsequent busts. The only source of lasting prosperity is a stronger
supply side. It is essential to move away from debt as the main engine of
growth.
“Good policy is less a question of
seeking to pump up growth at all costs than of removing the obstacles that hold
it back,” the BIS argued in the report, saying the recent upturn in the global
economy offers a precious opportunity for reform and that policy needs to
become more symmetrical in responding to both booms and busts.
seeking to pump up growth at all costs than of removing the obstacles that hold
it back,” the BIS argued in the report, saying the recent upturn in the global
economy offers a precious opportunity for reform and that policy needs to
become more symmetrical in responding to both booms and busts.
Does “responding to both booms and
busts” sound like any central bank in a country near you? No, I thought not. I
will admit to being something of a hometown boy. I pull for the local teams and
cheered on the US soccer team. But given the chance, based on this BIS
document, I would replace my hometown team – the US Federal Reserve High Flyers
– with the team from the Bank for International Settlements in Basel in a
heartbeat. These guys (almost) restore my faith in the economics profession. It
seems there is a bastion of understanding out there, beyond the halls of American
academia. Just saying…
busts” sound like any central bank in a country near you? No, I thought not. I
will admit to being something of a hometown boy. I pull for the local teams and
cheered on the US soccer team. But given the chance, based on this BIS
document, I would replace my hometown team – the US Federal Reserve High Flyers
– with the team from the Bank for International Settlements in Basel in a
heartbeat. These guys (almost) restore my faith in the economics profession. It
seems there is a bastion of understanding out there, beyond the halls of American
academia. Just saying…
On July 2, two days after the release
of the BIS report, Janet Yellen took the stage at the IMF conference and
basically said (translated into my local Texas patois), “Kiss my grits.” She
was having nothing to do with risk and productivity and spent her time
defending the low-rate environment she has been fostering in the US. With just
a brief hat tip to the fact that monetary policy can contribute to risk-taking
by going “too far, thereby contributing to fragility in the financial system,”
she proceeded to maintain that monetary policy should “focus primarily on price
stability in full employment because the cost to society in terms of deviations
from price stability in full employment that would arise would likely be
significant.” (You can read the speech here if you have
nothing else to do and your r ecent entertainment options have been limited to
watching the microwave cook.)
of the BIS report, Janet Yellen took the stage at the IMF conference and
basically said (translated into my local Texas patois), “Kiss my grits.” She
was having nothing to do with risk and productivity and spent her time
defending the low-rate environment she has been fostering in the US. With just
a brief hat tip to the fact that monetary policy can contribute to risk-taking
by going “too far, thereby contributing to fragility in the financial system,”
she proceeded to maintain that monetary policy should “focus primarily on price
stability in full employment because the cost to society in terms of deviations
from price stability in full employment that would arise would likely be
significant.” (You can read the speech here if you have
nothing else to do and your r ecent entertainment options have been limited to
watching the microwave cook.)
In other words, Janet has her dual
mandate, and the rest of the world can go pound sand. When she did allude to
the risk of financial instability, she hastened to say that it was not
something that would require a change in monetary policy but
would instead call for what she termed a “more robust macroprudential
approach.” In fact she used that wordmacroprudential no fewer than
29 times. For those not fluent in Fedspeak, what she meant is that we can deal
with financial instability through increased regulation procedures, whatever
the hell that means. Exactly what did macroprudential policy do for us during
the last crisis?
mandate, and the rest of the world can go pound sand. When she did allude to
the risk of financial instability, she hastened to say that it was not
something that would require a change in monetary policy but
would instead call for what she termed a “more robust macroprudential
approach.” In fact she used that wordmacroprudential no fewer than
29 times. For those not fluent in Fedspeak, what she meant is that we can deal
with financial instability through increased regulation procedures, whatever
the hell that means. Exactly what did macroprudential policy do for us during
the last crisis?
Hold that thought as we move on to
Mario Draghi, who piled on the next day, as if to reemphasize that the leading
central bankers of the world are simply not going to pay any attention to
increasing financial instability risk. (Interestingly, the voice recognition
software that I use to dictate this letter insists upon transcribing Draghi as druggie. Given
what he is pushing, maybe it knows more than the typical software package.)
Mario Draghi, who piled on the next day, as if to reemphasize that the leading
central bankers of the world are simply not going to pay any attention to
increasing financial instability risk. (Interestingly, the voice recognition
software that I use to dictate this letter insists upon transcribing Draghi as druggie. Given
what he is pushing, maybe it knows more than the typical software package.)
Immediately following a European
Central Bank meeting, Mario gave us the following statement:
Central Bank meeting, Mario gave us the following statement:
The key interest rates will remain at
present levels for an extended period ... [and] the combination of monetary
policy measures decided last month has led to a further easing of the monetary
policy stance. The monetary operations to take place over the coming months
will add to this accommodation and will support bank lending.
present levels for an extended period ... [and] the combination of monetary
policy measures decided last month has led to a further easing of the monetary
policy stance. The monetary operations to take place over the coming months
will add to this accommodation and will support bank lending.
My friend Dennis Gartman summarized the
actual meaning of Draghi’s comments quite succinctly:
actual meaning of Draghi’s comments quite succinctly:
In other words, European-style
quantitative easing is now the course that the Bank shall take. As we
understand it ... and this is a bit confusing and shall take a while to fully
comprehend what the ECB has done and shall be doing ... the Bank will be making
as much as €1 trillion available to the banks in two early tranches and will
make that money available for the next four years as long as the money is being
used for direct lending operations.
quantitative easing is now the course that the Bank shall take. As we
understand it ... and this is a bit confusing and shall take a while to fully
comprehend what the ECB has done and shall be doing ... the Bank will be making
as much as €1 trillion available to the banks in two early tranches and will
make that money available for the next four years as long as the money is being
used for direct lending operations.
Mr. Draghi made it clear that the new
program is complex and shall take some time for everyone to understand the
program but said that he is quite “confident that banks will quickly
understand” the program’s details and will embrace it.
program is complex and shall take some time for everyone to understand the
program but said that he is quite “confident that banks will quickly
understand” the program’s details and will embrace it.
My own interpretation is that Mario
said, “I’ll see the Fed’s tapering and raise it by €1 trillion.”
said, “I’ll see the Fed’s tapering and raise it by €1 trillion.”
Wow! A double-teamed double smackdown!
Even The Rock would be impressed.
Even The Rock would be impressed.
The next crisis is shaping up to look a
lot like the last one, just with a different cause. It is going to be a
liquidity crisis.
lot like the last one, just with a different cause. It is going to be a
liquidity crisis.
What was the cause of the last crisis?
Everybody points to subprime debt, but that was really just a trigger. What
happened was that everybody in the financial world became distrustful of
everybody else’s balance sheet and so decided to go to cash, but there was so
much debt and so much invested in illiquid assets that everybody couldn’t get
out of the theater at the same time.
Everybody points to subprime debt, but that was really just a trigger. What
happened was that everybody in the financial world became distrustful of
everybody else’s balance sheet and so decided to go to cash, but there was so
much debt and so much invested in illiquid assets that everybody couldn’t get
out of the theater at the same time.
It is happening again today. The
intense drive for yield is driving down interest rates and volatility, pushing
up assets of all kinds, and setting us up for the same song, second verse of
the 2008 crisis.
intense drive for yield is driving down interest rates and volatility, pushing
up assets of all kinds, and setting us up for the same song, second verse of
the 2008 crisis.
While I have been hinting around about
that possibility for some time, it really crystallized for me this morning as I
was reading the latest “Popular Delusions” from Dylan Grice. Let me quote a bit
from the opening of his typically brilliant essay:
that possibility for some time, it really crystallized for me this morning as I
was reading the latest “Popular Delusions” from Dylan Grice. Let me quote a bit
from the opening of his typically brilliant essay:
If the financial market analog to fear
is yield, maybe it’s unsurprising that in today’s world of malleable money,
specially trained sniffer dogs are required to find a trace of either.
is yield, maybe it’s unsurprising that in today’s world of malleable money,
specially trained sniffer dogs are required to find a trace of either.
Take Kenya, for example, which recently
broke the African record for a sovereign debut. After raising $2 billion for
“general budgetary purposes” – infrastructure was mentioned somewhere in the
prospectus – and at a rate lower than expected (6.875% for ten-year
maturities), Aly-Khan Satchu, a Nairobi-based investment manager, was quoted in
the FT: “Kenya’s gotten really, really lucky with the yield…. There’s very
strong global demand for African sovereign paper.” A rally in all things
Egyptian, triggered by recent elections legitimizing military strongman Abdel
Fattah as-Sisia as president, was deemed most bullish for Africa….
broke the African record for a sovereign debut. After raising $2 billion for
“general budgetary purposes” – infrastructure was mentioned somewhere in the
prospectus – and at a rate lower than expected (6.875% for ten-year
maturities), Aly-Khan Satchu, a Nairobi-based investment manager, was quoted in
the FT: “Kenya’s gotten really, really lucky with the yield…. There’s very
strong global demand for African sovereign paper.” A rally in all things
Egyptian, triggered by recent elections legitimizing military strongman Abdel
Fattah as-Sisia as president, was deemed most bullish for Africa….
Meanwhile, in the corporate credit
markets, covenant-lite loans now represent half of all corporate bonds
outstanding, according to Barclays. And in ABS land the spread between AAA and
subprime auto loans is the narrowest since 2007. “People just have to reach
further and further,” says fund manager David Schawel to Bloomberg. “The
objective now is to reach a certain yield target instead of feeling good about
the underlying credit.”
markets, covenant-lite loans now represent half of all corporate bonds
outstanding, according to Barclays. And in ABS land the spread between AAA and
subprime auto loans is the narrowest since 2007. “People just have to reach
further and further,” says fund manager David Schawel to Bloomberg. “The
objective now is to reach a certain yield target instead of feeling good about
the underlying credit.”
Credit markets aren’t the only ones
blurring the “gross yields” with net expected return, a different thing
entirely. The insurance market is caught up in the same mass distortion.
Catastrophe bonds, in which the investor loses his entire principal in the
event of the specified catastrophe occurring, now trade at the lowest spread to
the treasury since 2005, according to Bloomberg, at around 4.7%. The narrative
is that it’s worth paying up for their low correlation to other assets, but
Warren Buffett, himself no stranger to shrewd bond investments, is steering
clear. “If you charge an inadequate premium you will get creamed over time,” he
points out.
blurring the “gross yields” with net expected return, a different thing
entirely. The insurance market is caught up in the same mass distortion.
Catastrophe bonds, in which the investor loses his entire principal in the
event of the specified catastrophe occurring, now trade at the lowest spread to
the treasury since 2005, according to Bloomberg, at around 4.7%. The narrative
is that it’s worth paying up for their low correlation to other assets, but
Warren Buffett, himself no stranger to shrewd bond investments, is steering
clear. “If you charge an inadequate premium you will get creamed over time,” he
points out.
French ten-year bonds (OATS) are paying
1.7%. Spanish (2.68%) and Italian (2.83%) debt are paying roughly the
equivalent of US debt. German debt, at 1.27%, pays less than half of US debt at
2.64%. Somewhere in that equation, sovereign debt is spectacularly mispriced. Rated
ten-year corporate bonds are paying between 3% and 3.4%. That is less than a 1%
premium for bonds that are only single-A. Seriously?
1.7%. Spanish (2.68%) and Italian (2.83%) debt are paying roughly the
equivalent of US debt. German debt, at 1.27%, pays less than half of US debt at
2.64%. Somewhere in that equation, sovereign debt is spectacularly mispriced. Rated
ten-year corporate bonds are paying between 3% and 3.4%. That is less than a 1%
premium for bonds that are only single-A. Seriously?
The life insurance market is creating
special-purpose vehicles (SPVs) for offloading their risk that are then
guaranteed by the parent company. This is the subject of a very sobering report
from the Minnesota branch of the Federal Reserve. Up to 25% of such debt may be
subject to self-guarantees, and this debt is getting very high ratings. Whom
are we kidding? (This is actually a very serious problem and needs an entire
letter devoted to it. There’s just not enough time on a Friday afternoon,
with the grill beckoning.)
special-purpose vehicles (SPVs) for offloading their risk that are then
guaranteed by the parent company. This is the subject of a very sobering report
from the Minnesota branch of the Federal Reserve. Up to 25% of such debt may be
subject to self-guarantees, and this debt is getting very high ratings. Whom
are we kidding? (This is actually a very serious problem and needs an entire
letter devoted to it. There’s just not enough time on a Friday afternoon,
with the grill beckoning.)
And we are going to have to deal with a
run on everything, very similar to what happened last time, armed only with
“macroprudential policy”? Precisely what additional rules are we going to
enact? You are not allowed to sell what you own? Except if you say “Mother may
I, with sugar on top?” A liquidity crisis cannot be dealt with by means of any
regulatory policy I can think of, short of draconian limits on markets – really
nasty limits, which sort of undermines the whole concept of a free market. But
then, maybe I just have no imagination.
run on everything, very similar to what happened last time, armed only with
“macroprudential policy”? Precisely what additional rules are we going to
enact? You are not allowed to sell what you own? Except if you say “Mother may
I, with sugar on top?” A liquidity crisis cannot be dealt with by means of any
regulatory policy I can think of, short of draconian limits on markets – really
nasty limits, which sort of undermines the whole concept of a free market. But
then, maybe I just have no imagination.
If I could sit down with Chairwoman
Yellen and ask her a few questions, chief among them would be: “What can
macroprudential policies do in a liquidity crisis brought on by a reach for
yield encouraged by your bank? Can you tell me exactly what those policies
are?”
Yellen and ask her a few questions, chief among them would be: “What can
macroprudential policies do in a liquidity crisis brought on by a reach for
yield encouraged by your bank? Can you tell me exactly what those policies
are?”
There is a bull market in complacency.
As Dylan goes on to say, the illusion of central bank control is in full force.
And one of the chief ironies is that a bull market can last longer than any of
us can reasonably expect – and then end more abruptly than even the most
cautious bulls suspect. The St. Louis Fed Financial Stress Index is at its
lowest ebb since they began calculating the index. How much lower can it
realistically go? The answer is that no one really knows.
As Dylan goes on to say, the illusion of central bank control is in full force.
And one of the chief ironies is that a bull market can last longer than any of
us can reasonably expect – and then end more abruptly than even the most
cautious bulls suspect. The St. Louis Fed Financial Stress Index is at its
lowest ebb since they began calculating the index. How much lower can it
realistically go? The answer is that no one really knows.
I don’t know what the trigger for the
next debt crisis will be, but whatever it is, it will result in an even deeper
liquidity crisis than we saw in ’08. That is just the nature of the beast.
next debt crisis will be, but whatever it is, it will result in an even deeper
liquidity crisis than we saw in ’08. That is just the nature of the beast.
You need to look into your portfolios,
deep into your portfolios, and see what your various investments did back in
2008-09. Then take a deep, long, serious look in the mirror. Ask yourself, “Can
I withstand another shock like that?” Do you think you are smart enough to pull
the trigger to get out in time? Do you have automatic triggers that will cause
you to exit without having to be emotionally involved? Are there illiquid
assets in your portfolio that you want to own right on through the next crisis?
(Let me note that there are a lot of assets about which you might answer
positively, with a full-throated yes, in that regard.) Would you rather be
biased to cash today, when cash is in a true bear market and at its lowest
value in years, if that cash will give you the buying power to purchase assets
at prices that will once again look like 2009’s? Think about how you will feel
in the wake of the next crisis, when cash will be king!
deep into your portfolios, and see what your various investments did back in
2008-09. Then take a deep, long, serious look in the mirror. Ask yourself, “Can
I withstand another shock like that?” Do you think you are smart enough to pull
the trigger to get out in time? Do you have automatic triggers that will cause
you to exit without having to be emotionally involved? Are there illiquid
assets in your portfolio that you want to own right on through the next crisis?
(Let me note that there are a lot of assets about which you might answer
positively, with a full-throated yes, in that regard.) Would you rather be
biased to cash today, when cash is in a true bear market and at its lowest
value in years, if that cash will give you the buying power to purchase assets
at prices that will once again look like 2009’s? Think about how you will feel
in the wake of the next crisis, when cash will be king!
You should be thinking of cash not as
cash per se, but as an option on future deep-value
trades. There are few truisms in the investment world that are really valid,
but one of them is that you make your money when you buy. That you sold at a
profit is just another way of saying that you were smart to buy when you did.
There is going to come a time when buying opportunities are once again going to
be all around you.
cash per se, but as an option on future deep-value
trades. There are few truisms in the investment world that are really valid,
but one of them is that you make your money when you buy. That you sold at a
profit is just another way of saying that you were smart to buy when you did.
There is going to come a time when buying opportunities are once again going to
be all around you.
First, this was a continuation of a
five-month run of relatively good nonfarm payroll numbers. You can see the GDP
recession in the January and February reports which gave us lower payroll
numbers. That recession is gone away. There are no wage pressures in the latest
report, with earnings rising a meager $0.06 an hour, or the more positive
sounding 0.2% y/y. Unemployment fell to 6.1%, but the broader unemployment
measure, U-6, barely budged, at 12.4%.
five-month run of relatively good nonfarm payroll numbers. You can see the GDP
recession in the January and February reports which gave us lower payroll
numbers. That recession is gone away. There are no wage pressures in the latest
report, with earnings rising a meager $0.06 an hour, or the more positive
sounding 0.2% y/y. Unemployment fell to 6.1%, but the broader unemployment
measure, U-6, barely budged, at 12.4%.
Joan McCullough ran U-6 down for us:
Including this from EPI (Heidi Shierholz)
who runs this calculation every month called “Missing Workers”, a/k/a/ those
who have dropped off the radar screen for a host of reasons.
who runs this calculation every month called “Missing Workers”, a/k/a/ those
who have dropped off the radar screen for a host of reasons.
June 2014: *5.98
mil (*roughly half of that number are of prime working age. Aint’
that grand? SOS.)
mil (*roughly half of that number are of prime working age. Aint’
that grand? SOS.)
UE Rate if you add those back into the
labor force: 9.6%
labor force: 9.6%
Compare that number to the official
rate of 6.1%
rate of 6.1%
Ms. Shierholz also estimates that “even
if we saw June’s rate of job growth every month from here on out, we still
wouldn’t get back to health in the labor market for another two and a half
years.” … http://www.epi.org/publication/missing-workers/
if we saw June’s rate of job growth every month from here on out, we still
wouldn’t get back to health in the labor market for another two and a half
years.” … http://www.epi.org/publication/missing-workers/
That is still not be enough to take the
bloom off the rose, but we should note that buried in the data is something
that I’ve noted anecdotally among my own children and their friends (and which
Joan again highlighted to me):
bloom off the rose, but we should note that buried in the data is something
that I’ve noted anecdotally among my own children and their friends (and which
Joan again highlighted to me):
Now here’s the big joke of the whole
deal:
deal:
Employed persons at work part time:
Part time
involuntarily
+275k
involuntarily
+275k
Because hours cut
back
+72k
back
+72k
Because that’s all they could
find
+111k
find
+111k
Part time voluntarily
+840k
+840k
That is seriously pathetic and makes me
wonder about the Retail adds +40k and the Leisure & Hospitality adds
+39k. Low-paying, less than 40 hour a week jobs? You bet.
Ditto Health care and social assistance, which clocked in with a hefty
33.7k.
wonder about the Retail adds +40k and the Leisure & Hospitality adds
+39k. Low-paying, less than 40 hour a week jobs? You bet.
Ditto Health care and social assistance, which clocked in with a hefty
33.7k.
But it also explains why, with 288k
bodies added, the average workweek is not budging. Translation:
they are hiring more workers instead of increasing the hours of existing
workers. Which suggests that maybe this is more of what we have seen
already: the quest to hire part time employees to avoid the
benefits baloney.
bodies added, the average workweek is not budging. Translation:
they are hiring more workers instead of increasing the hours of existing
workers. Which suggests that maybe this is more of what we have seen
already: the quest to hire part time employees to avoid the
benefits baloney.
Use your head. If we really
created 288k jobs. And 275k folks were made involuntarily part-time, then
this suggests that there are still way more candidates than there are openings.
created 288k jobs. And 275k folks were made involuntarily part-time, then
this suggests that there are still way more candidates than there are openings.
When some of us pointed out, when the
Affordable Care Act (Obamacare) was being debated way back in 2010, that the
bill would result in an extraordinarily large number of temporary and part-time
workers, we were called delusional and told we were just using that argument to
oppose the ACA. It turns out, Mr. Krugman et al., that we were right. An
unintended consequence of the ACA is a dramatic increase in part-time
employment, especially among young people. There is no disputing this, unless
you are willing to ignore the clear data from the BLS.
Affordable Care Act (Obamacare) was being debated way back in 2010, that the
bill would result in an extraordinarily large number of temporary and part-time
workers, we were called delusional and told we were just using that argument to
oppose the ACA. It turns out, Mr. Krugman et al., that we were right. An
unintended consequence of the ACA is a dramatic increase in part-time
employment, especially among young people. There is no disputing this, unless
you are willing to ignore the clear data from the BLS.
Precisely when young people are
starting their careers and should be able to land “starter jobs” and look
forward to establishing themselves, they now have to hold down multiple
part-time jobs in order to simply survive. Gods forbid they have a kid or two.
starting their careers and should be able to land “starter jobs” and look
forward to establishing themselves, they now have to hold down multiple
part-time jobs in order to simply survive. Gods forbid they have a kid or two.
I don’t know when the topic of reform
of the ACA will actually be allowed to come up in the House, let alone the
Senate. I don’t think there is anyone who thinks the increase in part-time jobs
due to the ACA is a good thing. There are at least two or three different ways
to fix it, but until both parties are willing to address some seriously needed
reforms, we are stuck in a world where our kids will suffer because of the
stubbornness of both the Republicans and the Democrats. This is one of those
topics where I wish both parties could simply see past the forest to say this
particular tree needs to be trimmed, and we will worry about the other trees
later when one party gets enough power to adopt some further changes. For now,
our kids and those with fewer skills are paying the price.
of the ACA will actually be allowed to come up in the House, let alone the
Senate. I don’t think there is anyone who thinks the increase in part-time jobs
due to the ACA is a good thing. There are at least two or three different ways
to fix it, but until both parties are willing to address some seriously needed
reforms, we are stuck in a world where our kids will suffer because of the
stubbornness of both the Republicans and the Democrats. This is one of those
topics where I wish both parties could simply see past the forest to say this
particular tree needs to be trimmed, and we will worry about the other trees
later when one party gets enough power to adopt some further changes. For now,
our kids and those with fewer skills are paying the price.
But it is July 4 as I wrap up this
letter, and we are celebrating our independence. From taxation without
representation, from overbearing government, from government in some distant
locale unconcerned with our local problems and our personal concerns. From a
government concerned with its own internal re-election interests rather than
with real on-the-ground problems of the people. Sigh.
In any case, it’s time to hit the send button asletter, and we are celebrating our independence. From taxation without
representation, from overbearing government, from government in some distant
locale unconcerned with our local problems and our personal concerns. From a
government concerned with its own internal re-election interests rather than
with real on-the-ground problems of the people. Sigh.
my family beckons and the grill awaits my magic touch.
Thursday, January 23, 2014
Don’t Worry About Robots. Worry About Washington. - Bloomberg
Don’t Worry About Robots. Worry About Washington. - Bloomberg
...Remember too that output and productivity in the Internet economy aren’t easy to quantify. Gross domestic product measures output by what people pay for goods and services (or by what the products cost to make). Much of what people consume over the Internet is free. Google and Facebook reach hundreds of millions of people and deliver enormous value -- but what they produce requires relatively little labor and is supplied at no charge. As far as GDP is concerned, this output barely exists. That says more about the defects of GDP than about the shortcomings of digital innovation.
...Remember too that output and productivity in the Internet economy aren’t easy to quantify. Gross domestic product measures output by what people pay for goods and services (or by what the products cost to make). Much of what people consume over the Internet is free. Google and Facebook reach hundreds of millions of people and deliver enormous value -- but what they produce requires relatively little labor and is supplied at no charge. As far as GDP is concerned, this output barely exists. That says more about the defects of GDP than about the shortcomings of digital innovation.
In “The Second Machine Age,” an excellent new book on technology’s economic impact, authorsErik Brynjolfsson and Andrew McAfee of the MIT Sloan School of Management emphasize this measurement problem: Something huge is happening, and the figures aren’t capturing it. They also argue persuasively that Gordon and other productivity pessimists seriously underestimate the power of innovation still to come. Digital technologies, they argue, are “general purpose technologies” -- like steam power and electricity. They’re “pervasive, improving over time, and able to spawn new innovations.”
...
Tuesday, January 14, 2014
Scandinavian Debt Crisis Waiting to Happen Puzzles Krugman - Bloomberg
Explains where the US inflation is hiding.
Scandinavian Debt Crisis Waiting to Happen Puzzles Krugman - Bloomberg
Scandinavian Debt Crisis Waiting to Happen Puzzles Krugman - Bloomberg
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