Tuesday, July 9, 2019
Revisiting the ‘Capital Ideas’ That Took Wall Street By Storm - Bloomberg
Revisiting the ‘Capital Ideas’ That Took Wall Street By Storm - Bloomberg
Does world finance rest on faulty foundations? Models developed in academia in the 1950s and 1960s have come to dominate the way that bankers and investors do their work, and many blame them for the crash of 2008. But were the models really to blame?
In this Masters in Business interview, Bloomberg’s John Authers and Christine Harper discuss the classic book that introduced the academic ideas that took Wall Street by storm: “Capital Ideas” by the late Peter Bernstein. It was the first selection in Bloomberg’s new experimental book club, Authers’ Notes, and it produced a torrent of feedback from readers who spent a month reading along with us.
Monday, July 8, 2019
June employment report_The Dangers Lurking in Stocks - btbirkett@gmail.com - Gmail
The Dangers Lurking in Stocks - btbirkett@gmail.com - Gmail
Even with the frankly rather silly speculation of a 50 basis-point rate cut finally over, the trend toward a dramatic easing in financial conditions remains intact. That actually seems reasonable because the guts of the employment data, which will be of great interest to the Fed, suggest reasons for concern that the labor market is no longer in danger of overheating. The official unemployment rate actually went up very slightly. And most importantly, the signs of growing wage inflation that appeared a few months ago may be at an end. The following chart is from Deutsche Bank strategist Torsten Slok:
Sentiment surveys have been suggesting a turn like this for a while. It is also noticeable that overtime is going down and that weekly earnings growth is falling more than hourly earnings growth. When preparing for tougher times, businesses generally start by asking people to ask fewer hours, so this makes sense:
These latest data may have convinced traders that talk of a 50 basis-point cut was a bit silly, but they provided stronger evidence that the case for a Fed rate cut is a decent one. And if there is a reason for lower rates (which as said earlier is good for stocks), it follows there is also reason to fear an economic slowdown or recession (which would be bad for stocks).
CAPE_The Dangers Lurking in Stocks - btbirkett@gmail.com - Gmail
The Dangers Lurking in Stocks - btbirkett@gmail.com - Gmail
For those uninitiated in the arguments over long-term gauges of market valuations, the CAPE is a measure first promulgated by Benjamin Graham in the 1930s and popularized by Nobel laureate economist Robert Shiller 30 years ago. The idea is that earnings tend to follow a cycle, and that investors adjust for this when deciding what multiple to pay for a stock’s recent earnings. If at the bottom of the cycle, investors will tend to pay a higher multiple because they expect earnings to rise, and vice versa. The CAPE therefore compares prices to an average of earnings, adjusted for inflation, for the previous 10 years.
...This is how the CAPE has moved since 1880, as presented on Shiller’s website:
For those uninitiated in the arguments over long-term gauges of market valuations, the CAPE is a measure first promulgated by Benjamin Graham in the 1930s and popularized by Nobel laureate economist Robert Shiller 30 years ago. The idea is that earnings tend to follow a cycle, and that investors adjust for this when deciding what multiple to pay for a stock’s recent earnings. If at the bottom of the cycle, investors will tend to pay a higher multiple because they expect earnings to rise, and vice versa. The CAPE therefore compares prices to an average of earnings, adjusted for inflation, for the previous 10 years.
...This is how the CAPE has moved since 1880, as presented on Shiller’s website:
Shiller found fame for using the CAPE to help predict the dot-com crash of 2000 in his book “Irrational Exuberance.”
...the most popular critique by far was that the CAPE had been thrown off by the extraordinary earnings recession of a decade ago.
The extent of the earnings collapse during the crisis was extraordinary. Indeed, it was unprecedented. This next chart shows Shiller’s entire data set for corporate earnings going back to 1870. It is necessary to show it on a log scale; and the earnings recession of a decade ago looks even more like an utterly unpredictable Black Swan:
Farewell, Flat World by Jean Pisani-Ferry - Project Syndicate
Farewell, Flat World by Jean Pisani-Ferry - Project Syndicate
The single most important economic development of the last 50 years has been the catch-up in income of a large cohort of poor countries. But that world is gone: in an increasingly digitalized global economy, value creation and appropriation concentrate in the innovation centers and where intangible investments are made.
...in an increasingly digitalized economy, where a growing part of services are provided at zero marginal cost, value creation and value appropriation concentrate in the innovation centers and where intangible investments are made.
...Digital networks also contribute to asymmetry. A few years ago, it was often assumed that the Internet would become a global point-to-point network without a center. In fact, it has evolved into a much more hierarchical hub-and-spoke system, largely for technical reasons: the hub-and-spoke structure is simply more efficient.
...The same hub-and-spoke structure can be found in many fields. Finance is perhaps the clearest case.
...the standard approach would make, say, the won-real exchange rate a prime determinant of trade between South Korea and Brazil, the reality is that because this trade is largely invoiced in dollars, the dollar exchange rate of the two countries’ currencies matters more than their bilateral exchange rate. Again, this result highlights the centrality of US monetary policy for all countries, big and small.
...“weaponized interdependence”: the mutation of efficient economic structures into power-enhancing ones.
The single most important economic development of the last 50 years has been the catch-up in income of a large cohort of poor countries. But that world is gone: in an increasingly digitalized global economy, value creation and appropriation concentrate in the innovation centers and where intangible investments are made.
...in an increasingly digitalized economy, where a growing part of services are provided at zero marginal cost, value creation and value appropriation concentrate in the innovation centers and where intangible investments are made.
...Digital networks also contribute to asymmetry. A few years ago, it was often assumed that the Internet would become a global point-to-point network without a center. In fact, it has evolved into a much more hierarchical hub-and-spoke system, largely for technical reasons: the hub-and-spoke structure is simply more efficient.
...The same hub-and-spoke structure can be found in many fields. Finance is perhaps the clearest case.
...the standard approach would make, say, the won-real exchange rate a prime determinant of trade between South Korea and Brazil, the reality is that because this trade is largely invoiced in dollars, the dollar exchange rate of the two countries’ currencies matters more than their bilateral exchange rate. Again, this result highlights the centrality of US monetary policy for all countries, big and small.
...“weaponized interdependence”: the mutation of efficient economic structures into power-enhancing ones.
Saturday, July 6, 2019
Ray Dalio - John Mauldin Discussion, Part 5 | Mauldin Economics
Ray Dalio - John Mauldin Discussion, Part 5 | Mauldin Economics
....My reading of Keynes does not suggest he believed in the unending fiscal stimulus his disciples encourage today.
....My reading of Keynes does not suggest he believed in the unending fiscal stimulus his disciples encourage today.
Secondly, as has been well documented by Ken Rogoff and Carmen Reinhart, there comes a point at which too much leverage becomes destructive. There is no exact way to know that point. It arrives when lenders, typically in the private sector, decide that borrowers (whether private or government) might have some difficulty repaying and begin asking for more interest to compensate for their risks. An overleveraged economy can’t afford the higher rates, and economic contraction ensues. Sometimes the contraction is severe, sometimes it can be absorbed. When accompanied by the popping of an economic bubble, it is particularly disastrous and can take a decade or longer to work itself out, as the developed world is finding out now.
Monday, July 1, 2019
Google and Facebook Are Sucking the AI Brains Out of Europe - Bloomberg
Google and Facebook Are Sucking the AI Brains Out of Europe - Bloomberg
Last week, the FT reported that a group of Britain’s best-known quantum computing scientists had moved quietly to Silicon Valley to found a startup called PsiQ. The lure was the abundance of venture capital that can’t be had in Europe.
... Some 562 European startups were bought by U.S. firms between 2012 and 2016, or 44% of the total, according to the advisory firm Mind the Bridge. As the Google economist Hal Varian says, a big reason for buying these companies is being able to poach all of their engineers in one go.
Last week, the FT reported that a group of Britain’s best-known quantum computing scientists had moved quietly to Silicon Valley to found a startup called PsiQ. The lure was the abundance of venture capital that can’t be had in Europe.
... Some 562 European startups were bought by U.S. firms between 2012 and 2016, or 44% of the total, according to the advisory firm Mind the Bridge. As the Google economist Hal Varian says, a big reason for buying these companies is being able to poach all of their engineers in one go.
To get a sense of how scarce these resources are, consider that the international talent pool for AI – the “defining technology of our times,” according to Microsoft’s CEO – is alarmingly shallow at about 205,000 people. Germany and Britain are among the top-five hubs for AI talent because of the excellence of their universities. But it’s a bitter struggle to keep such highly prized workers at home.
...Using public money to improve the pay of researchers would help, as would more hybrid public-private partnerships. Tougher antitrust scrutiny in technology is also needed – even if it edges toward protecting the national interest. Finally, there’s the dream of a European version of DARPA, the Pentagon agency that fosters emerging technologies for the military.
Europe’s AI and deep tech exodus will continue until its political leaders take the issue as seriously as they do jobs in the metal-bashing industries. Unless they wake up soon, the race is lost.
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