Social security is zero issue -- that money does not exist today, except as a past tax that has been reapportioned already. It is a purported obligation of the gov't, and gov't money backs it up. Really the only issue there is the size versus GDP. Now, 401Ks would be a bit of an issue, but mostly because of inflated equity markets more than personal debt. National debt is a problem more as an ROI on spending and whatever interest gets paid than the size per se, but all of that is obfuscated by the funky and unnecessary Fed and fractional reserve banking. Treasury could do what is needed alone.
The tricky part of bank debt is there is no real line between individual assets and banking assets and individual debt and bank debt, as it's all "private debt", though the private banks are acting like part of the public money creation by issuing loans........and also investing on their own behalf.
Most basically, though, from what I've gathered is that when rate of return on capital exceeds rate of wage growth, wealth aggregates toward the wealthy. The last bust just vacuumed up real property to institutions and investors. The next bust will finish off corporate ownership, as it washes out individuals and their 401Ks.
This whole notion of capitalism focused on modest inflation and 2% raises and 4-6% unemployment but a 6% stock market skews toward the wealthy. Really, a democracy should lean toward work for all, welfare for few, more production and less service fraction, and wage growth eating most of the benefits of production. Of course that goes against globalism, but that is dying anyway, as the currency race to the bottom continues -- everybody wants to be an exporter, and yet all they'll likely export is deflation.
All 4% inflation guarantees is that people fight for jobs instead of wages fighting for workers. I fully admit there are crappy workers, but good ones should be in demand, and the best should get better raises than the investors who own their company's stock.
I read that prisons cost the US 240B yearly. Nowhere near as much as healthcare, but a LOT. Yet another "service industry" on both sides of the bars that produces nothing to improve quality of life or national wealth. Except for dangerous criminals, we need to get people out of prison and making stuff. Since we're paying $30K or more for each already, any sort of marginal return would be a big improvement.
The service economy in general is a misnomer too, except for where a modest level of service support adds efficiency to the productive workers. No way a "mostly service" economy can be wealthy in the long term, as to do that requires producing more goods to share around. If we're producing more than we need (food, houses, whatever), then there shouldn't be worries about retirement or welfare, as what remains is a distribution problem.
Sunday, February 15, 2015
Friday, February 13, 2015
Interesting Graph
A graph of stock valuation versus tangible capital is high, but apparently peaking. Are we heading into a steep fall, or just an aberrant jog down before newly inflated highs? Courtesy of NY Times via Zerohedge.
Sunday, February 8, 2015
China slowing
Found this little news snippet on China's January numbers:
With imports down way more than exports, China Posted a Record Trade Surplus of $60 billion, in this case, not a sign of strength.
Year-Over-Year Data Points
Read more at http://globaleconomicanalysis.blogspot.com/#GVbfyMXmPZZxODi6.99
With imports down way more than exports, China Posted a Record Trade Surplus of $60 billion, in this case, not a sign of strength.
Year-Over-Year Data Points
- Imports plunged 19.9% year-over-year vs. economist expectations of a 3.2% drop.
- Exports fell 3.3% vs. economist expectations of 5.9% gain.
- Crude oil imports fell 41.8%
- Iron ore imports fell 50.3%
- Coal imports fell 61.8%
Read more at http://globaleconomicanalysis.blogspot.com/#GVbfyMXmPZZxODi6.99
As you all know, I've said that China was slowing, based on shipping rate info (a leading indicator), and the known drop in crude and iron prices. This says the rest of the world is slowing too, as nobody is buying (even the US, with our strong dollar).
We are knocking on the door of deflation. If the bottom falls out of crude, and the Greek situation worsens, we could find ourselves in a deflationary dip. A spiral down that path is a dangerous one for a heavily indebted world (and for indebted individuals). We haven't had deflation since the 30's, and we've said we'll never permit THAT again, which is why we have so much debt -- lenders who should be worried, aren't.
We are knocking on the door of deflation. If the bottom falls out of crude, and the Greek situation worsens, we could find ourselves in a deflationary dip. A spiral down that path is a dangerous one for a heavily indebted world (and for indebted individuals). We haven't had deflation since the 30's, and we've said we'll never permit THAT again, which is why we have so much debt -- lenders who should be worried, aren't.
Financial returns and growth have far outweighted labor gains and productivity gains for many years. That's probably about to change...either wages go up, and the "real" GDP gains, or financing comes down. Or both......
Saturday, February 7, 2015
Crude in storage growing
Oil in storage keeps growing and growing.
http://www.eia.gov/petroleum/weekly/images/crstusm.gif
Storage capacity grew since the recession-driven glut of 2009 through the pipeline-restriction WTI glut in Cushing of 2013. Now all the storage is filling at once, at a rate of about a million barrels per day.
Why? Production, for one -- even at today's lower prices most (almost all) wells are economic to produce, so producers work harder to sell more quantity to compensate for lower margins so they can cover costs. Some will succeed, while some won't. For storage, it's a no-brainer for investers, as the contango of the futures chain says they can buy low now and sell high next spring with virtually no risk.
Rigs are dropping, and have been for six months, but production flattened for the first time this week. Investors bid up oil prices on this news, and the continuing rig count drops, and some unrest in the Mid-East, but I think they are overly optimistic. Unless consumption rapidly picks up, and with China slow, the EU in a morass, and Russia in a pinch, covering the 2mpd+ production glut will not come quickly.
Besides the 1mbpd going into storage in the US crude stocks, refined products are up a bit as well. More importantly, floating storage filled, and so did China's SPR. I see this week that the bump in prices has halted the growth of floating storage, so the delivery pipeline (firgurative - as in market, not necessary a physical one!) is going to congest a bit. Currently, there is about 440mbbl of official storage capacity in the US. From the graph above, we're at about 410. In another few weeks, we'll be bumping at the top.
Even if we assume there is some unofficial storage that will fill (tank cars, barges, refineries, etc.), that will go fast. Unless production drops before the tanks fill up, WTI will take a hard hit, and fast. If floating storage fills up (which would take longer), then worldwide prices will drop. Worst case, they'll drop to the marginal cost of existing production, which would be $33 or lower, versus the nebulous space they are now between marginal cost of existing production and cost of new production. Once China's SPR fills (nobody knows for sure quite when, but it will be soon), another 1mbpd of excess production will be on the market, and those tankers will idle, and they will quickly fill with oil, too.
We have less than sixty days for production to drop significantly, else prices will collapse. As for the bump this week, either the market is more confident than I that production will drop quickly, or it believes economies will expand faster, or it is overconfident. The remaining option, as always, is for war to break out in a producing nation.
http://www.eia.gov/petroleum/weekly/images/crstusm.gif
Storage capacity grew since the recession-driven glut of 2009 through the pipeline-restriction WTI glut in Cushing of 2013. Now all the storage is filling at once, at a rate of about a million barrels per day.
Why? Production, for one -- even at today's lower prices most (almost all) wells are economic to produce, so producers work harder to sell more quantity to compensate for lower margins so they can cover costs. Some will succeed, while some won't. For storage, it's a no-brainer for investers, as the contango of the futures chain says they can buy low now and sell high next spring with virtually no risk.
Rigs are dropping, and have been for six months, but production flattened for the first time this week. Investors bid up oil prices on this news, and the continuing rig count drops, and some unrest in the Mid-East, but I think they are overly optimistic. Unless consumption rapidly picks up, and with China slow, the EU in a morass, and Russia in a pinch, covering the 2mpd+ production glut will not come quickly.
Besides the 1mbpd going into storage in the US crude stocks, refined products are up a bit as well. More importantly, floating storage filled, and so did China's SPR. I see this week that the bump in prices has halted the growth of floating storage, so the delivery pipeline (firgurative - as in market, not necessary a physical one!) is going to congest a bit. Currently, there is about 440mbbl of official storage capacity in the US. From the graph above, we're at about 410. In another few weeks, we'll be bumping at the top.
Even if we assume there is some unofficial storage that will fill (tank cars, barges, refineries, etc.), that will go fast. Unless production drops before the tanks fill up, WTI will take a hard hit, and fast. If floating storage fills up (which would take longer), then worldwide prices will drop. Worst case, they'll drop to the marginal cost of existing production, which would be $33 or lower, versus the nebulous space they are now between marginal cost of existing production and cost of new production. Once China's SPR fills (nobody knows for sure quite when, but it will be soon), another 1mbpd of excess production will be on the market, and those tankers will idle, and they will quickly fill with oil, too.
We have less than sixty days for production to drop significantly, else prices will collapse. As for the bump this week, either the market is more confident than I that production will drop quickly, or it believes economies will expand faster, or it is overconfident. The remaining option, as always, is for war to break out in a producing nation.
Wednesday, February 4, 2015
Has oil found a bottom?
After two days of rising, and breathless pundits extolling "the largest rise since 2009", headlines pondered whether we'd found the bottom of oil prices.
I would say, in short, "No".
Why? Well, for one thing, the rise started on month's end, when shorts were covering after a not-as-bad-as-might-have-been earnings. The next day had a mixed report from Exxon, along with some stress in the Mid-East, and a softening of Syriza's tone in the EU. No solid reasons at all, really.
Second, storage reports weren't out then, but they are now, and stocks are higher than "anytime in the past 80 years", and still going up. China is easing money supply to keep their economy growing (again, how can EVERYBODY hope to shore up their exports?).
Third, everybody is still hopeful that things won't get all that bad. Usually, with big market shift, tops are found right after everybody becomes an optimist, and bottom occur after the last bull capitulates. We aren't there, yet.
There are positive signs, like the majors cutting investment quickly, and the fact that US production was flat this week (actually down just a tad), but one week does not a trend make. We need to see the four-week average to tail off significantly, and the world production to follow. We need stocks to flatten and start to drop. We need the futures chain to flatten and move from contango. We need floating storage to stop growing.
Rig counts are way down, and that's a good sign -- the faster we cut, the faster the recovery. If they are committed to protecting their market, KSA should want to see a financial rout, not just a drilling rout, else the rigs will stand up again quickly. They should want to see bankruptcies and financial blood flowing in the streets.
Of course, instability in the Mid-East or a larger war with Russia could tip things sooner, but that is unlikely to happen. The best case is for the north sea to cut way back, and deepwater in general, and the higher-price shale plays to drop. Most likely we will see several mid-size and many small companies fold entirely, and the healthier companies pick up some fire-sale assets.
Me, I'm still thinking we have 3-6 more months of volatility before the bottom proves out.
I would say, in short, "No".
Why? Well, for one thing, the rise started on month's end, when shorts were covering after a not-as-bad-as-might-have-been earnings. The next day had a mixed report from Exxon, along with some stress in the Mid-East, and a softening of Syriza's tone in the EU. No solid reasons at all, really.
Second, storage reports weren't out then, but they are now, and stocks are higher than "anytime in the past 80 years", and still going up. China is easing money supply to keep their economy growing (again, how can EVERYBODY hope to shore up their exports?).
Third, everybody is still hopeful that things won't get all that bad. Usually, with big market shift, tops are found right after everybody becomes an optimist, and bottom occur after the last bull capitulates. We aren't there, yet.
There are positive signs, like the majors cutting investment quickly, and the fact that US production was flat this week (actually down just a tad), but one week does not a trend make. We need to see the four-week average to tail off significantly, and the world production to follow. We need stocks to flatten and start to drop. We need the futures chain to flatten and move from contango. We need floating storage to stop growing.
Rig counts are way down, and that's a good sign -- the faster we cut, the faster the recovery. If they are committed to protecting their market, KSA should want to see a financial rout, not just a drilling rout, else the rigs will stand up again quickly. They should want to see bankruptcies and financial blood flowing in the streets.
Of course, instability in the Mid-East or a larger war with Russia could tip things sooner, but that is unlikely to happen. The best case is for the north sea to cut way back, and deepwater in general, and the higher-price shale plays to drop. Most likely we will see several mid-size and many small companies fold entirely, and the healthier companies pick up some fire-sale assets.
Me, I'm still thinking we have 3-6 more months of volatility before the bottom proves out.
Sunday, February 1, 2015
Energy prices, relatively speaking
It's instructive every once in while to review various energy prices, to see what "cheap" really means.
Oil is WAY down, at $45 per barrel. How does this compare to other forms?
Coal is about $45 per ton, for thermal coal. But that's about 5 barrel's worth of oil energy. So it's a dirtier, less transportable (but easily stored) energy form, at about $9 per barrel (and it's down more than oil, in the past few years).
Natural gas is less than $3Mbtu today. That's equivalent to about $18 per barrel oil.
What about solar? That's harder, as solar panels aren't a store of energy (like oil, or for the mistaken greenies, hydrogen), but a converter of solar energy to electrical energy.
Well, installed solar is about $5 per watt, more or less. The panels alone are less than $1 per watt. Still, at $5 per watt, and about five hours of generating time per day, and a life of at least 20 years, you get:
1 watt * 5 hrs/day * 365 days/year * 20 years = 36500 watt-hrs for $5, at 3.4btu per watt-hru = 125Kbtu.
That's 1/8MMbtu, or less than 50 cents worth of gas. So, installed solar is still considerably more expensive, but if you go just on panel cost then it's a lot closer (and with subsidies, cheaper still). Utility scale is about half the price (8c/KWH, versus about 16 above), especially when you include the generation cost for gas.
Really, energy is terribly cheap. Solar is cheap. Gasoline is cheap. Oil is cheap. Natural gas is cheaper still. The trick is to use the form that fits the need best. Use liquids for transportation, solar PV for electricity, and NG or coal for heating. Note that today coal is so cheap that even if you sequestered it, it would still be cheap (assuming 2x the cost). Inject it in depleting gas or oil fields and it would probably help pay for itself.
Oil is WAY down, at $45 per barrel. How does this compare to other forms?
Coal is about $45 per ton, for thermal coal. But that's about 5 barrel's worth of oil energy. So it's a dirtier, less transportable (but easily stored) energy form, at about $9 per barrel (and it's down more than oil, in the past few years).
Natural gas is less than $3Mbtu today. That's equivalent to about $18 per barrel oil.
What about solar? That's harder, as solar panels aren't a store of energy (like oil, or for the mistaken greenies, hydrogen), but a converter of solar energy to electrical energy.
Well, installed solar is about $5 per watt, more or less. The panels alone are less than $1 per watt. Still, at $5 per watt, and about five hours of generating time per day, and a life of at least 20 years, you get:
1 watt * 5 hrs/day * 365 days/year * 20 years = 36500 watt-hrs for $5, at 3.4btu per watt-hru = 125Kbtu.
That's 1/8MMbtu, or less than 50 cents worth of gas. So, installed solar is still considerably more expensive, but if you go just on panel cost then it's a lot closer (and with subsidies, cheaper still). Utility scale is about half the price (8c/KWH, versus about 16 above), especially when you include the generation cost for gas.
Really, energy is terribly cheap. Solar is cheap. Gasoline is cheap. Oil is cheap. Natural gas is cheaper still. The trick is to use the form that fits the need best. Use liquids for transportation, solar PV for electricity, and NG or coal for heating. Note that today coal is so cheap that even if you sequestered it, it would still be cheap (assuming 2x the cost). Inject it in depleting gas or oil fields and it would probably help pay for itself.
Saturday, January 31, 2015
Easy life hack - shopping healthier
We all know our tribal lizard brains don't work very well. We are creatures of habit, and have built-in predilections to indulge in all sorts of things that aren't good for us.
You know how when you go to Whole Foods and buy the organic veggies and other stuff, and you struggle whether to buy the frozen pizza, bottles of juice, or even the marginally-healthier (maybe) cookies and such? Your lizard brain REALLY wants the salty, fatty, sugary good stuff.
Rather than giving in to full indulgence, or redirecting to the regular store (where you're already conditioned to buy the big bag of Doritos, a pack of hot dogs, a bag of mini-Snickers, Oreos, and a frozen lasagna), only buy healthy stuff when you're at the healthy store, but as you finish buy ONE small goodie, and eat it as you leave. You build a habit to reward your lizard brain with what it wants, but only if it behaves. Teach yourself to NEVER buy snack food at the convenience store -- just don't go inside, or steel your will before your do.
For me, my routine treat is dark chocolate. Chocolate is really not bad for you, and doesn't have too much sugar, but I really like it. Now, when I'm paying $100 for my two modest bags of veggies and some organic milk and cheese, my brain is happily relishing a $1.50 worth of chocolate, rather than telling me we should be saving money at Walmart (where, by chance, there are Oreos). My wife likes a little baggie of roasted nuts from the bulk aisle, which works too.
Try it. Tell me if it works for you.
You know how when you go to Whole Foods and buy the organic veggies and other stuff, and you struggle whether to buy the frozen pizza, bottles of juice, or even the marginally-healthier (maybe) cookies and such? Your lizard brain REALLY wants the salty, fatty, sugary good stuff.
Rather than giving in to full indulgence, or redirecting to the regular store (where you're already conditioned to buy the big bag of Doritos, a pack of hot dogs, a bag of mini-Snickers, Oreos, and a frozen lasagna), only buy healthy stuff when you're at the healthy store, but as you finish buy ONE small goodie, and eat it as you leave. You build a habit to reward your lizard brain with what it wants, but only if it behaves. Teach yourself to NEVER buy snack food at the convenience store -- just don't go inside, or steel your will before your do.
For me, my routine treat is dark chocolate. Chocolate is really not bad for you, and doesn't have too much sugar, but I really like it. Now, when I'm paying $100 for my two modest bags of veggies and some organic milk and cheese, my brain is happily relishing a $1.50 worth of chocolate, rather than telling me we should be saving money at Walmart (where, by chance, there are Oreos). My wife likes a little baggie of roasted nuts from the bulk aisle, which works too.
Try it. Tell me if it works for you.
Macro Econ - Brazil
Quote of the week: (Hat tip - The Guardian) Yanis Varoufakis, in his 1998 book Foundations
of Economics, cites the British Keynesian Joan Robinson: “The purpose of studying economics is to learn how not to be deceived by economists.”
Remember a few years back when the BRICs - Brazil, Russia, India, and China - were the investment darlings of the world? Don't hear about that much now, do you?
Brazil in an informative case. Even at a glance, you can see the economy is struggling. National deficit is up, state/local borrowing is up, and the currency is weakening.
So, what happened? A couple of things:
1) Brazil has a lot of debt in dollars. As the dollar strengthens, and Real weakens, the effective rate of interest goes up. Way up, in this case. In 2011, one Real would buy you 60 cents. Today it buys you 37 cents. Thus, if the nation had gotten loans at 6%, they now "feel" like 9% to the economy, as a bigger fraction of Brazilian GDP has to go to pay interest.
2) Brazil used to be an export nation. In the late 200s, per Woldbank, Brazil had a current account of $10B, so it was exporting products and importing money. Today, it is $-50B or more in deficit, so it is importing more. This means money is flowing out of the economy so products can flow in (back to the equation). So, it should be no surprise that if money is flowing out from the country, then states and the nation itself, at least one of the two, will be borrowing. And, if individuals or companies actual save any money, then those entities will end up borrowing or printing more.
What can we see? As noted previously, it is painful to have foreign-denominated debt. Like Greece, Brazil is seeing more money go to debt service, which leaves less to invest locally. If exchange rates go down, then a greater effort goes into debt service, while if rates go up then it is harder to export, resulting in a squeeze either way. If the gov't tightens money, like "austerity" and the Austrians (and IMF) would desire, supposedly to ensure that debts are paid, there will be less money for investment and less private borrowing, so the economy will slow (it has to stay in balance). If the exchange rate improves, which is probably, it will slow business more. Net result is likely to be a slowing economy, which then tends to make debt/GDP get larger, which makes things looks worse. Deflation becomes a possibility, and they get their own Depression if things get bad enough.
At that point, the IMF will likely loan money, which would be a bad idea for Brazil (investment-level banks really want control, not to help you out!). Instead, they should likely add tariffs on imports and subsidize production for export to balance trade, spend locally and lower taxes to grow jobs and increase GDP, negotiate alternative payments for loans (selling product instead of cash, for example), and as the Real strengthens and dollar drops, pay-off foreign-denominated debt. Or so it seems to me.
One BRIC down, three to go. Maybe by then the US economy will start to make sense.
Remember a few years back when the BRICs - Brazil, Russia, India, and China - were the investment darlings of the world? Don't hear about that much now, do you?
Brazil in an informative case. Even at a glance, you can see the economy is struggling. National deficit is up, state/local borrowing is up, and the currency is weakening.
So, what happened? A couple of things:
1) Brazil has a lot of debt in dollars. As the dollar strengthens, and Real weakens, the effective rate of interest goes up. Way up, in this case. In 2011, one Real would buy you 60 cents. Today it buys you 37 cents. Thus, if the nation had gotten loans at 6%, they now "feel" like 9% to the economy, as a bigger fraction of Brazilian GDP has to go to pay interest.
2) Brazil used to be an export nation. In the late 200s, per Woldbank, Brazil had a current account of $10B, so it was exporting products and importing money. Today, it is $-50B or more in deficit, so it is importing more. This means money is flowing out of the economy so products can flow in (back to the equation). So, it should be no surprise that if money is flowing out from the country, then states and the nation itself, at least one of the two, will be borrowing. And, if individuals or companies actual save any money, then those entities will end up borrowing or printing more.
What can we see? As noted previously, it is painful to have foreign-denominated debt. Like Greece, Brazil is seeing more money go to debt service, which leaves less to invest locally. If exchange rates go down, then a greater effort goes into debt service, while if rates go up then it is harder to export, resulting in a squeeze either way. If the gov't tightens money, like "austerity" and the Austrians (and IMF) would desire, supposedly to ensure that debts are paid, there will be less money for investment and less private borrowing, so the economy will slow (it has to stay in balance). If the exchange rate improves, which is probably, it will slow business more. Net result is likely to be a slowing economy, which then tends to make debt/GDP get larger, which makes things looks worse. Deflation becomes a possibility, and they get their own Depression if things get bad enough.
At that point, the IMF will likely loan money, which would be a bad idea for Brazil (investment-level banks really want control, not to help you out!). Instead, they should likely add tariffs on imports and subsidize production for export to balance trade, spend locally and lower taxes to grow jobs and increase GDP, negotiate alternative payments for loans (selling product instead of cash, for example), and as the Real strengthens and dollar drops, pay-off foreign-denominated debt. Or so it seems to me.
One BRIC down, three to go. Maybe by then the US economy will start to make sense.
Wednesday, January 28, 2015
Tribal lizard thinking
Sometimes I revel at the superb names people come up with, like "lizard brain" for the more primordial part of our brain. When we talk about Big Stone Heads -- the impressive but generally pointless one-upmanship contests that humans perform, the lizard brain can't be far behind. No less for peacock feathers -- the lizard brain is all about reproduction. And sand castles too -- the lizard brain thinks short-term, and likes flashy feel-good things.
However, we aren't just lizards, but tribal lizards. My team is my team, and it's better than yours, win or lose. My nation is better, and my religion, too. My family for sure, and most likely my town, and generally my company too (if it's not, maybe you should change tribes, er, companies). Gangs, high-school teams, cliques, college alma maters, frats -- all tribes we belong too.
The smart, thinking part of the brain isn't the boss of the lizard brain, in general, so like it or not we all get to act like lizards a lot, and the tribal aspect leaks through, too. Sometimes you can over-rule it, but more often than not you end up making excuses for it, and rationalizing its desires. After all, it has emotional -- chemical -- hooks into you, and you're just a junkie for what it's pushing.
How does the brain reconcile these disparate urges, and without us even being able to tell what it's doing? Maybe that's why some people hear "voices", as different parts make their urges known? Our brains are really good at taking a mishmash of sensory inputs, foggy memories, weak statistical preferences, and primal desires, and somehow weaving a mostly-logical and vividly clear narrative for what we're doing and why. Perhaps this is the nature of human consciousness, a nicely woven narrative we tell ourselves? And perhaps also why it seems so hard to pin down, as it's not really anything definite, just our rationalizing brain doing its best to justify another arbitrary position?
If you had a pretty good artificial intelligence, what would you get if you hard-programmed a few basic rules:
"If asked whether you are conscious, say yes".
"For any answer, justify the position based on past experiences as best you can. Feel free to use any of a large set of biases to 'prove' your point.
"Occasionally ask yourself, 'Am I conscious?'"
However, we aren't just lizards, but tribal lizards. My team is my team, and it's better than yours, win or lose. My nation is better, and my religion, too. My family for sure, and most likely my town, and generally my company too (if it's not, maybe you should change tribes, er, companies). Gangs, high-school teams, cliques, college alma maters, frats -- all tribes we belong too.
The smart, thinking part of the brain isn't the boss of the lizard brain, in general, so like it or not we all get to act like lizards a lot, and the tribal aspect leaks through, too. Sometimes you can over-rule it, but more often than not you end up making excuses for it, and rationalizing its desires. After all, it has emotional -- chemical -- hooks into you, and you're just a junkie for what it's pushing.
How does the brain reconcile these disparate urges, and without us even being able to tell what it's doing? Maybe that's why some people hear "voices", as different parts make their urges known? Our brains are really good at taking a mishmash of sensory inputs, foggy memories, weak statistical preferences, and primal desires, and somehow weaving a mostly-logical and vividly clear narrative for what we're doing and why. Perhaps this is the nature of human consciousness, a nicely woven narrative we tell ourselves? And perhaps also why it seems so hard to pin down, as it's not really anything definite, just our rationalizing brain doing its best to justify another arbitrary position?
If you had a pretty good artificial intelligence, what would you get if you hard-programmed a few basic rules:
"If asked whether you are conscious, say yes".
"For any answer, justify the position based on past experiences as best you can. Feel free to use any of a large set of biases to 'prove' your point.
"Occasionally ask yourself, 'Am I conscious?'"
Saturday, January 24, 2015
Macro Economics - all in balance
There is a great graphic, from the book I just bought.
http://neweconomicperspectives.org/wp-content/uploads/2012/03/untitled-32.png
As you can see, it's a mirror image -- whenever one sector runs a surplus, the other match in deficit, or vice versa. Note the interesting thing isn't just the deficit spending, but the scope of the spending versus GDP, and the heavy private sector debt in the 90's and 2000's. The biggest thing, though, is that we used to export, or at least balance, but for recent decades we've imported a TON of stuff.
So, it's not the deficit per se, but the scope that is unusual. There is also the long-term notion of overall debt loads, versus yearly balances. I'm not sure what that does, beyond adding debt service as an obligation.
http://neweconomicperspectives.org/wp-content/uploads/2012/03/untitled-32.png
As you can see, it's a mirror image -- whenever one sector runs a surplus, the other match in deficit, or vice versa. Note the interesting thing isn't just the deficit spending, but the scope of the spending versus GDP, and the heavy private sector debt in the 90's and 2000's. The biggest thing, though, is that we used to export, or at least balance, but for recent decades we've imported a TON of stuff.
So, it's not the deficit per se, but the scope that is unusual. There is also the long-term notion of overall debt loads, versus yearly balances. I'm not sure what that does, beyond adding debt service as an obligation.
Friday, January 23, 2015
Macro Econ - Gov't, Capital Accounts, and Private Debt
Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0
So what does this mean? Basically, gov't balance is the inverse of private balance plus foreign trade balance. If one area is paying out, another must be saving. So, if you're the US, forever running a trade deficit, then either private or gov't areas must be paying out...or both.
When individuals and companies run up debt, the nation can buy overseas to match. If foreign trade is balanced, like the UK has been of late, then if people are cutting back on debt the gov't MUST pony up to match -- there is no choice; it's not discretionary.
When you hear Germany saying that the rest of the EU should promote austerity and live like they do, they neglect that they have a positive balance of trade, so the can balance the sovereign budget and still have dollars going into private savings. This means Germany can say "you should all be like us", when really, for every outflow there is an inflow, so somebody else is paying out. The US is one such donor outside the EU, and Greece is one inside the EU.
The EU experiment is doomed, as Germany doesn't want to pay out (who wouldn't like to be in their place?), yet individual states can't run much debt, so once they hit limits then either people have to suck it up and borrow, or they have to stop buying. In a sovereign state, gov'ts can spend at any point, with the risk of devaluing their currency, at which point they can't buy much, but they can easily sell. Greece doesn't have that luxury, so they have to devalue in place, which means a deflationary pressure locally, with dropping wages and prices. Maybe they'll get to the point that Germans won't be able to help themselves and they'll at least go to Greece for vacations, and maybe buy up the country.
More later on this -- I'm still sorting out the details in my head, and I'm not sure I can articulate the finer nuances at all. How GDP factors into the picture is pretty important.
So what does this mean? Basically, gov't balance is the inverse of private balance plus foreign trade balance. If one area is paying out, another must be saving. So, if you're the US, forever running a trade deficit, then either private or gov't areas must be paying out...or both.
When individuals and companies run up debt, the nation can buy overseas to match. If foreign trade is balanced, like the UK has been of late, then if people are cutting back on debt the gov't MUST pony up to match -- there is no choice; it's not discretionary.
When you hear Germany saying that the rest of the EU should promote austerity and live like they do, they neglect that they have a positive balance of trade, so the can balance the sovereign budget and still have dollars going into private savings. This means Germany can say "you should all be like us", when really, for every outflow there is an inflow, so somebody else is paying out. The US is one such donor outside the EU, and Greece is one inside the EU.
The EU experiment is doomed, as Germany doesn't want to pay out (who wouldn't like to be in their place?), yet individual states can't run much debt, so once they hit limits then either people have to suck it up and borrow, or they have to stop buying. In a sovereign state, gov'ts can spend at any point, with the risk of devaluing their currency, at which point they can't buy much, but they can easily sell. Greece doesn't have that luxury, so they have to devalue in place, which means a deflationary pressure locally, with dropping wages and prices. Maybe they'll get to the point that Germans won't be able to help themselves and they'll at least go to Greece for vacations, and maybe buy up the country.
More later on this -- I'm still sorting out the details in my head, and I'm not sure I can articulate the finer nuances at all. How GDP factors into the picture is pretty important.
Capture a nat'l bank? How DOES this happen?
Rebels captured a Libyan national bank, with it's vault of gold:
"The central bank is the repository for Libya’s oil revenue and holds nearly $100 billion in foreign reserves."
I hope the rebels use it only for good......
"The central bank is the repository for Libya’s oil revenue and holds nearly $100 billion in foreign reserves."
I hope the rebels use it only for good......
Sunday, January 18, 2015
Macro Economics - Two out of three ain't bad
Steve Keen has essentially written a better-worded version of the blog I was going to write, only with pictures. The only issue is that he doesn't talk much about the third leg - imports and exports.
So, rather than retrenching this same ground, I'll just link to the better article and then continue from there in a day or two. But the bottom line is clear -- balancing the Fed budget on the backs of the taxpayer makes no sense. Nor does enriching banks. In fact, we CAN'T balance the budget without balancing trade first, really.
http://www.forbes.com/sites/stevekeen/2015/01/14/beware-of-politicians-bearing-household-analogies-3/
So, rather than retrenching this same ground, I'll just link to the better article and then continue from there in a day or two. But the bottom line is clear -- balancing the Fed budget on the backs of the taxpayer makes no sense. Nor does enriching banks. In fact, we CAN'T balance the budget without balancing trade first, really.
http://www.forbes.com/sites/stevekeen/2015/01/14/beware-of-politicians-bearing-household-analogies-3/
What's really important?
The best things in life are free, they say. And really, so are the worst. Actually, the worst things you get for free, and then they cost a lot to mitigate.
And yet nations, and especially ours, focus on money. Should we focus on happiness instead? Our founding fathers had it closer with "life, liberty, and the pursuit of happiness". What do we have now "work, legalism, and the pursuit of money"?
This isn't a new notion, and in fact there is a lot of work that has been done in Europe and around the world, including of course some in the US. As is usual, my perusal has been less than scientific, but I have a few issues with what I read so far.
Unsurprisingly, one concern is the lexicon -- it's easier to discuss if we use precise terms. A good bit of writing talks about "gross national happiness", which of course echoes the common "gross national product". If we're just talking informally then we can be fine with that, but if we're talking economics, then "gross national product" is distinct from "gross domestic product". The distinction, at least as far as I've read, is that "national" in this sense means "controlled or owned by the nation" while "domestic" means "in the country". So, GDP is the economic activity here in the US (including foreign companies here), while GNP includes economic activity of US companies overseas (but not foreign companies here). So, the better parallel term would seem to be "Gross Domestic Happiness".
Do we even want happiness, or some less fluffy state? Some talk about "well being", which seems like a good term.
But is GDW - Gross Domestic Happiness -- what we really mean -- we want to promote lots of happiness activity and industry? I guess that's not a bad thing, but if we each want happiness, is it something you get by doing happiness related stuff (including mostly for others, one would presume) in GDW, or is it collecting for yourself as something more akin to wealth? Is well-being absolute or relative -- can you have inappropriate well-being disparity, as you can with income? To answer all of this, maybe we need to figure out what really makes people happy?
Fortunately, a lot of work has been done on this, and for a long time. Most people recall Maslow and his heirarchy, and to me that seems like a good starting point. But of course, that's obvious, so a lot of work has been done.
To have well-being, you'd have to gain happiness or something similar, and of course that varies by person. Handily, somebody decided to do work on the marginal utility of well-being, and sure enough, there are ways to measure it. Well Being
A reasonable premise is that basic economics is important for the most basic wants, but as you climb Maslow's hierarchy the economics is less applicable, and from a policy perspective we need something more than basic economic measures alone. Like these folks say:
What if we made well-being a goal for economic activity? Could we skew policy to maximize well-being, which would help those at the bottom of Maslow's ladder to gain security, while helping those at the top to self-actualize? Is it reasonable to encourage people to aid those around them, or is well-being a rational self-interest driver with competition and rules like supply-and-demand?
I think this is important enough that each of us should think about what makes us happy, and well. Many of us don't write down financial goals, and struggle to attain what we want in part because of this. I suspect almost all of us fail to analyze and record happiness goals. How much stress, struggle, and suffering could we eliminate if we not only determined our own lists, and put some effort into understanding and facilitating the desires of those around us?
And yet nations, and especially ours, focus on money. Should we focus on happiness instead? Our founding fathers had it closer with "life, liberty, and the pursuit of happiness". What do we have now "work, legalism, and the pursuit of money"?
This isn't a new notion, and in fact there is a lot of work that has been done in Europe and around the world, including of course some in the US. As is usual, my perusal has been less than scientific, but I have a few issues with what I read so far.
Unsurprisingly, one concern is the lexicon -- it's easier to discuss if we use precise terms. A good bit of writing talks about "gross national happiness", which of course echoes the common "gross national product". If we're just talking informally then we can be fine with that, but if we're talking economics, then "gross national product" is distinct from "gross domestic product". The distinction, at least as far as I've read, is that "national" in this sense means "controlled or owned by the nation" while "domestic" means "in the country". So, GDP is the economic activity here in the US (including foreign companies here), while GNP includes economic activity of US companies overseas (but not foreign companies here). So, the better parallel term would seem to be "Gross Domestic Happiness".
Do we even want happiness, or some less fluffy state? Some talk about "well being", which seems like a good term.
But is GDW - Gross Domestic Happiness -- what we really mean -- we want to promote lots of happiness activity and industry? I guess that's not a bad thing, but if we each want happiness, is it something you get by doing happiness related stuff (including mostly for others, one would presume) in GDW, or is it collecting for yourself as something more akin to wealth? Is well-being absolute or relative -- can you have inappropriate well-being disparity, as you can with income? To answer all of this, maybe we need to figure out what really makes people happy?
Fortunately, a lot of work has been done on this, and for a long time. Most people recall Maslow and his heirarchy, and to me that seems like a good starting point. But of course, that's obvious, so a lot of work has been done.
To have well-being, you'd have to gain happiness or something similar, and of course that varies by person. Handily, somebody decided to do work on the marginal utility of well-being, and sure enough, there are ways to measure it. Well Being
A reasonable premise is that basic economics is important for the most basic wants, but as you climb Maslow's hierarchy the economics is less applicable, and from a policy perspective we need something more than basic economic measures alone. Like these folks say:
"We argue that economic indicators were extremely important in
the early stages of economic development, when the fulfillmentof basic needs was the main issue. As societies grow wealthy,however, differences in well-being are less frequently due toincome, and are more frequently due to factors such as socialrelationships and enjoyment at work."
What if we made well-being a goal for economic activity? Could we skew policy to maximize well-being, which would help those at the bottom of Maslow's ladder to gain security, while helping those at the top to self-actualize? Is it reasonable to encourage people to aid those around them, or is well-being a rational self-interest driver with competition and rules like supply-and-demand?
I think this is important enough that each of us should think about what makes us happy, and well. Many of us don't write down financial goals, and struggle to attain what we want in part because of this. I suspect almost all of us fail to analyze and record happiness goals. How much stress, struggle, and suffering could we eliminate if we not only determined our own lists, and put some effort into understanding and facilitating the desires of those around us?
Macro Economics for the Ignorant - Money and Currency
So what is Money? Currency? Financial assets?
From what I read, it is worth keeping terms clear (and this is true in almost any communications really -- a shared lexicon helps keep communications clear and efficient. And it actually skews thinking too, but that's for another day...).
Money is what we think of as cash - coins, banknotes, and so forth.
Currency is the broader system, generally issued by and supported by a country or national bank.
Financial assets are intangible contractual items of value, that can include bonds, deposits, and stocks.
Tangible assets are things with physical value, like land or equipment.
Why is money worth anything? Well, it can be said to have intrinsic value, like coins made of metal (and metal, being relatively difficult to obtain and having useful applications, then has embodied value). But it can also be, and usually is, worth what it's worth more or less due to mutual agreement, and if a particular form of money has nominal intrinsic value but a significant agreed value, then you've built a fiat currency (one not based on gold, or such). The US used to have a gold-backed currency most of the time, but abandoned that in 1970, and is now a fully fiat currency.
How can a country make its money worth something, and be used by its people? It's not a trivial question, and it turns out that private currency can work too, more or less by the same rules. To have a currency and money respected, you need two things:
- Authority stating a non-optional need for individuals to have the money.
- Significant repercussions for failure to meet that need.
All sorts of natural experiments support the above. If I'd been planning ahead, I'd have links, but I only have one handy krohn.pdf
One currency I read about was school currency that could only be earned by volunteering at local community service organizations, but was required in modest quantities to pass a class or earn a degree - the school wanted a way to compel its students to help out in the local community that supports (and puts up with) them. It was created by the Economics School at the college, and apparently has worked stably for years. Also, as we'll see is important for fiat currency, exchange rates have arisen, and there is an informal value for the bucks of something like $15. What is interesting is that early-on bucks sold for $5, but are now $15, and the rate of increase has outpaced inflation, and the value of the currency is actually greater than the value of the student labor, due at least in part from parents and visitors taking bucks for souvenirs or mementos.
On the flip side, in the Civil war the South created a currency that largely failed. The authority was weak, and so were the repercussions. At the sovereign level, taxes are the mandated need, and imprisonment is the repercussion, so respect is nearly universal. The problem with the South was they kept taxes too low and punishments too weak, so the currency had little value and inflated.
As noted in the article above, there are a LOT of local currencies, and most fizzle quite quickly. I haven't thought them through, but it would be interesting to know how many failed due the criteria above -- for sure, most local currencies are feel-good items (Support your local vendors! Support your school!) and harsh penalties would be hard to fathom.
When it comes to money, a lot of other interesting points arise. For example, if you want to issue a currency but lack authority, intrinsic value always works. That's why any king or duke could issue coinage -- all they had to do was get some existing coinage and re-stamp them with their own likeness. However, to use fiat money, the king would need to assess a head-tax and send collectors out to collect or imprison (or worse). The notion of floating exchange rates, and what outside draws on money can do to the value, is important as well.
Cigarettes as prison currency, or ammo as dystopian cash, are examples where intrinsic value sets a base, but agreed exchange rates may fluctuate.
Barter is a system where only intrinsic value matters, and exchange rates are local, between two parties. I think, but don't know, that prevalence of such systems implies poor availability of money, and presents an opportunity for a local authority to facilitate the economy.
If anybody sees errors or omissions in what I'm writing, please chime in. I claim no expertise in economics, and am simply talking out loud as I plod my way along trying to clarify my own understanding.
Next round I'll get back to that key equation. After a little more reading, I gather that it isn't so basic after all, but was more the place I happened to start.
From what I read, it is worth keeping terms clear (and this is true in almost any communications really -- a shared lexicon helps keep communications clear and efficient. And it actually skews thinking too, but that's for another day...).
Money is what we think of as cash - coins, banknotes, and so forth.
Currency is the broader system, generally issued by and supported by a country or national bank.
Financial assets are intangible contractual items of value, that can include bonds, deposits, and stocks.
Tangible assets are things with physical value, like land or equipment.
Why is money worth anything? Well, it can be said to have intrinsic value, like coins made of metal (and metal, being relatively difficult to obtain and having useful applications, then has embodied value). But it can also be, and usually is, worth what it's worth more or less due to mutual agreement, and if a particular form of money has nominal intrinsic value but a significant agreed value, then you've built a fiat currency (one not based on gold, or such). The US used to have a gold-backed currency most of the time, but abandoned that in 1970, and is now a fully fiat currency.
How can a country make its money worth something, and be used by its people? It's not a trivial question, and it turns out that private currency can work too, more or less by the same rules. To have a currency and money respected, you need two things:
- Authority stating a non-optional need for individuals to have the money.
- Significant repercussions for failure to meet that need.
All sorts of natural experiments support the above. If I'd been planning ahead, I'd have links, but I only have one handy krohn.pdf
One currency I read about was school currency that could only be earned by volunteering at local community service organizations, but was required in modest quantities to pass a class or earn a degree - the school wanted a way to compel its students to help out in the local community that supports (and puts up with) them. It was created by the Economics School at the college, and apparently has worked stably for years. Also, as we'll see is important for fiat currency, exchange rates have arisen, and there is an informal value for the bucks of something like $15. What is interesting is that early-on bucks sold for $5, but are now $15, and the rate of increase has outpaced inflation, and the value of the currency is actually greater than the value of the student labor, due at least in part from parents and visitors taking bucks for souvenirs or mementos.
On the flip side, in the Civil war the South created a currency that largely failed. The authority was weak, and so were the repercussions. At the sovereign level, taxes are the mandated need, and imprisonment is the repercussion, so respect is nearly universal. The problem with the South was they kept taxes too low and punishments too weak, so the currency had little value and inflated.
As noted in the article above, there are a LOT of local currencies, and most fizzle quite quickly. I haven't thought them through, but it would be interesting to know how many failed due the criteria above -- for sure, most local currencies are feel-good items (Support your local vendors! Support your school!) and harsh penalties would be hard to fathom.
When it comes to money, a lot of other interesting points arise. For example, if you want to issue a currency but lack authority, intrinsic value always works. That's why any king or duke could issue coinage -- all they had to do was get some existing coinage and re-stamp them with their own likeness. However, to use fiat money, the king would need to assess a head-tax and send collectors out to collect or imprison (or worse). The notion of floating exchange rates, and what outside draws on money can do to the value, is important as well.
Cigarettes as prison currency, or ammo as dystopian cash, are examples where intrinsic value sets a base, but agreed exchange rates may fluctuate.
Barter is a system where only intrinsic value matters, and exchange rates are local, between two parties. I think, but don't know, that prevalence of such systems implies poor availability of money, and presents an opportunity for a local authority to facilitate the economy.
If anybody sees errors or omissions in what I'm writing, please chime in. I claim no expertise in economics, and am simply talking out loud as I plod my way along trying to clarify my own understanding.
Next round I'll get back to that key equation. After a little more reading, I gather that it isn't so basic after all, but was more the place I happened to start.
Saturday, January 17, 2015
Macro Economics - The Most Basic of Basics
As I've mentioned, I'm not happy with my level of understanding of Macro Economics. As an Engineer, i was never required to take an econ class, and so like many I've picked up bits and pieces along the way. Micro econ, the stuff we live by every day, is relatively straightforward and intuitive. Macro, at least to me, is neither.
So, after years of thinking I halfway understood the views of Austrians and Keynesians, and the general view of inflation and deflation, and trade balances and commodities and so forth, along came 2007. I was one of the people who saw the advent of peak oil and the impact on economies as pricing rose to match the marginal cost of new production (which it does, thanks to micro econ). Though nobody wanted to admit it, high oil prices were one of they key shocks to the world economy in 2008 that kicked off a cascade of collapses. After crash, of course, oil prices dropped as consumption dropped, pretty much as I and most rational thinkers would expect.
I was not at all surprised by the crash. All of my (meager) assets were in cash and gold, and my family suffered not a whit in the stock market crash, and I was fortunate enough to hold a job through the dip, which was almost as severe as I expected.
So far, so good? Well yes, but then QE came along with bailouts of gigantic proportions. I freely admit that I did not expect the gov't to bail out businesses and banks to the tune of trillions of dollars, nor to continue such spending for years with near-zero interest rates. I knew enough about econ to know what low interest rates do, especially coupled with inflation -- they erode savings, push investors further out the risk/return curve, and create moral hazard for the thrifty by benefiting the risky, especially when risk is backed by boundless backstops.
I honestly never thought the US gov't would so blatantly crush the little guy, while making banks and major corps and investors whole. And even when the intent was obvious, I didn't think it would work. My Austrian leanings anticipated market punishment, with weaker dollar. I was completely wrong.
Well, not completely. Gold was a REALLY good investment, for my modest holdings, and college expenses made me liquidate that later at relatively good time, but that was just luck. Other than that, I failed to join into the risk market, and missed much of the run-up in stocks. Obviously, my understanding was incomplete, so I knew I didn't know enough......and I also knew that the financial pundits don't either, since they missed the crash and the turnaround and everything else beyond fairly obvious currency moves and near-term changes.
Along this time I'd already decided that being on the non-discretionary side of the economy made more sense than where I was, so I voted with my feet and changed industries. I was also back in school, with plenty to do, so I just filed away this need to learn and got absorbed in life for a while.
Fast forward to 2014, and I'm done with school, some of the kids are off at college, and I see stocks at record highs and gold dropping, still with trillion-dollar deficits more or less, and I can't help but be intrigued.
The oil issue was resolved, and so far I'd been right about getting into energy -- oil prices were high, and energy was king. Personally, I'd never really believed the world would adjust to $100 oil as well as it had, but to degree it was clear than it hadn't, with high unemployment, heavy gov't debt, and slow growth the world over. $100 oil was enough to ignite the shale revolution, and though I had indeed expected unconventional oil to grow, it did so better than I'd anticipated. This is worthy of further discussion, too, but not today.
Expensive oil fostered a broad interest in renewables, and essentially enabled a renaissance in wind and solar, helped along by gov't subsidies the world over. The interplay between oil prices and renewables is worthy of a discussion all its own, too, but not today.
So today we have the double-whammy of crashing oil prices with slow consumption and expanding production, with changing fortunes around the globe, and various financial shocks. How will this play out, and what should countries (especially ours!) do? Good question, and I know I don't know enough to answer......yet.
A few points are key: lower energy prices profit consumers and punish producers, on the int'l level and here in this country. It seems pretty intuitive that those countries that are heavy net imports WILL do better, and those that are heavy exporters (like Russia, Venezuela, and much of the MidEast) will struggle. What about those in the middle, like the US?
First, we need to understand how money flows, and double check that "intuitive" part, because I've already proven my intuition doesn't work very well. I understand this is a basic equation in macro econ, and I assume there isn't much argument about its validity (it is a pretty basic assertion, really).
Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0
I think I understand this, and its a pretty simple concept: in a given country's money, everything that is owned -- money, whether asset or debt, whether real physical asset or financial instrument -- is either owned by the private population (and that includes corporations!), the government, or by foreigners (those outside the country). This is really basic and intuitive, yet it implies a lot of more subtle and less intuitive consequences, especially when you add in fiat currency, bonds of various sorts, loans, and of the course the complications of changing monetary flows over time. Which is what Macro Econ is all about. And which is pretty much universally understood.
Edit: this is intuitive for flows where everything that transfers goes from one party to another; it's less-so for the assets overall over time. If growth in one area has to be offset by debt somewhere else, then growth means offsetting growth of assets and liabilities overall.
Enough for this post...maybe the next one will cover currency first, and and a little about financial assets. And then we'll get back to economics, and maybe eventually the impact of oil shocks.....
So, after years of thinking I halfway understood the views of Austrians and Keynesians, and the general view of inflation and deflation, and trade balances and commodities and so forth, along came 2007. I was one of the people who saw the advent of peak oil and the impact on economies as pricing rose to match the marginal cost of new production (which it does, thanks to micro econ). Though nobody wanted to admit it, high oil prices were one of they key shocks to the world economy in 2008 that kicked off a cascade of collapses. After crash, of course, oil prices dropped as consumption dropped, pretty much as I and most rational thinkers would expect.
I was not at all surprised by the crash. All of my (meager) assets were in cash and gold, and my family suffered not a whit in the stock market crash, and I was fortunate enough to hold a job through the dip, which was almost as severe as I expected.
So far, so good? Well yes, but then QE came along with bailouts of gigantic proportions. I freely admit that I did not expect the gov't to bail out businesses and banks to the tune of trillions of dollars, nor to continue such spending for years with near-zero interest rates. I knew enough about econ to know what low interest rates do, especially coupled with inflation -- they erode savings, push investors further out the risk/return curve, and create moral hazard for the thrifty by benefiting the risky, especially when risk is backed by boundless backstops.
I honestly never thought the US gov't would so blatantly crush the little guy, while making banks and major corps and investors whole. And even when the intent was obvious, I didn't think it would work. My Austrian leanings anticipated market punishment, with weaker dollar. I was completely wrong.
Well, not completely. Gold was a REALLY good investment, for my modest holdings, and college expenses made me liquidate that later at relatively good time, but that was just luck. Other than that, I failed to join into the risk market, and missed much of the run-up in stocks. Obviously, my understanding was incomplete, so I knew I didn't know enough......and I also knew that the financial pundits don't either, since they missed the crash and the turnaround and everything else beyond fairly obvious currency moves and near-term changes.
Along this time I'd already decided that being on the non-discretionary side of the economy made more sense than where I was, so I voted with my feet and changed industries. I was also back in school, with plenty to do, so I just filed away this need to learn and got absorbed in life for a while.
Fast forward to 2014, and I'm done with school, some of the kids are off at college, and I see stocks at record highs and gold dropping, still with trillion-dollar deficits more or less, and I can't help but be intrigued.
The oil issue was resolved, and so far I'd been right about getting into energy -- oil prices were high, and energy was king. Personally, I'd never really believed the world would adjust to $100 oil as well as it had, but to degree it was clear than it hadn't, with high unemployment, heavy gov't debt, and slow growth the world over. $100 oil was enough to ignite the shale revolution, and though I had indeed expected unconventional oil to grow, it did so better than I'd anticipated. This is worthy of further discussion, too, but not today.
Expensive oil fostered a broad interest in renewables, and essentially enabled a renaissance in wind and solar, helped along by gov't subsidies the world over. The interplay between oil prices and renewables is worthy of a discussion all its own, too, but not today.
So today we have the double-whammy of crashing oil prices with slow consumption and expanding production, with changing fortunes around the globe, and various financial shocks. How will this play out, and what should countries (especially ours!) do? Good question, and I know I don't know enough to answer......yet.
A few points are key: lower energy prices profit consumers and punish producers, on the int'l level and here in this country. It seems pretty intuitive that those countries that are heavy net imports WILL do better, and those that are heavy exporters (like Russia, Venezuela, and much of the MidEast) will struggle. What about those in the middle, like the US?
First, we need to understand how money flows, and double check that "intuitive" part, because I've already proven my intuition doesn't work very well. I understand this is a basic equation in macro econ, and I assume there isn't much argument about its validity (it is a pretty basic assertion, really).
Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0
I think I understand this, and its a pretty simple concept: in a given country's money, everything that is owned -- money, whether asset or debt, whether real physical asset or financial instrument -- is either owned by the private population (and that includes corporations!), the government, or by foreigners (those outside the country). This is really basic and intuitive, yet it implies a lot of more subtle and less intuitive consequences, especially when you add in fiat currency, bonds of various sorts, loans, and of the course the complications of changing monetary flows over time. Which is what Macro Econ is all about. And which is pretty much universally understood.
Edit: this is intuitive for flows where everything that transfers goes from one party to another; it's less-so for the assets overall over time. If growth in one area has to be offset by debt somewhere else, then growth means offsetting growth of assets and liabilities overall.
Enough for this post...maybe the next one will cover currency first, and and a little about financial assets. And then we'll get back to economics, and maybe eventually the impact of oil shocks.....
Nature of Reality - Another Imperfect Option
Assuming my free-will is really free, and not some farcical illusion of a pre-ordained mind forced to believe thusly, I still have a few complaints. What kind of sad joke is it to live in universe where free-will enables the broad manipulation of future reality, and not only be limited to a few relatively limited sensory organs to comprehend current reality, but also have to make guiding decisions using a seriously flawed computing engine equipped with logically inconsistent logic routines, faulty usage of "beliefs" where "facts" should apply, essentially no effective engine for statistics, highly limited short-term memory (about 7 items, really???!?!), an error-prone and malleable long-term memory (without change tracking), and a hormonally-attuned "emotional override" circuit that is likely many millennia out of date.
I understand the nature of engineering trade-offs, and the self-learning, auto-correlation, and memory-pruning tools are pretty impressive so maybe some other areas had to give, but I think a little more attention to the conscious decision components would be helpful. It would be SO much easier to make decisions if a few more criteria could be weighted in ad-hoc mode, and it would help every so much if intentional desire to commit info to long-term memory could be more efficient (even if you had to intentionally purge some others). A better interface to that impressive differential math coprocessor that lets NBA players shoot 3-pointers on the move, yet makes it hard for most students to master calculus, would be nice.
But it's really the logical fallacies that are readily allowed by the high-level algorithm engine that needs work. Why have a machine that can self-analyze to find faults, yet have pre-wired sections that difficult or impossible to modify (let alone that the weighting of desire to actually make changes is so weak). Maybe the root flaw is self-certainty -- people are just a little too sure of their obviously error-prone decisions to drive change. Or maybe that derives from the questionable "respect" circuit, where we more heavily weight the opinions of people who seem certain over those who seem uncertain, even in non-crisis situations. And that crisis circuit needs work too -- what's this deal about dumping adrenaline in for routine business situations, and thereby invoking archaic hormonal overrides where cold logic would better apply (and we won't even get into the unnecessary stress effects that causes)?
Let's see if we can't make some wiring and programming changes, shall we? And fix at least the more egregious processor limitations?
I understand the nature of engineering trade-offs, and the self-learning, auto-correlation, and memory-pruning tools are pretty impressive so maybe some other areas had to give, but I think a little more attention to the conscious decision components would be helpful. It would be SO much easier to make decisions if a few more criteria could be weighted in ad-hoc mode, and it would help every so much if intentional desire to commit info to long-term memory could be more efficient (even if you had to intentionally purge some others). A better interface to that impressive differential math coprocessor that lets NBA players shoot 3-pointers on the move, yet makes it hard for most students to master calculus, would be nice.
But it's really the logical fallacies that are readily allowed by the high-level algorithm engine that needs work. Why have a machine that can self-analyze to find faults, yet have pre-wired sections that difficult or impossible to modify (let alone that the weighting of desire to actually make changes is so weak). Maybe the root flaw is self-certainty -- people are just a little too sure of their obviously error-prone decisions to drive change. Or maybe that derives from the questionable "respect" circuit, where we more heavily weight the opinions of people who seem certain over those who seem uncertain, even in non-crisis situations. And that crisis circuit needs work too -- what's this deal about dumping adrenaline in for routine business situations, and thereby invoking archaic hormonal overrides where cold logic would better apply (and we won't even get into the unnecessary stress effects that causes)?
Let's see if we can't make some wiring and programming changes, shall we? And fix at least the more egregious processor limitations?
Swiss Franc Unlocked
"FXCM, the brokerage facing a shortfall of nearly a quarter-billion
dollars after highly-leveraged investors made losing bets on the Swiss
franc, pushed back against U.S. regulatory efforts that likely would
have left it less vulnerable."
Talk about Karma! Low leverage thresholds usually hurt the little guy, who gets caught short in a bad trade and struggles to cover. But when a big unexpected event occurs, like the Swiss unlocking their rates, ALL of the trades hit stops pretty much, and the volume prevented liquidation before most blew through the capital requirements, so the brokerage goes instantly broke too.
IF the investors cover their losses (any some may not be able to), then the brokerage will be OK. If not, the brokerage folds, and the winners on the other side of trades lose too. As with Lehman, the trouble starts when trades can't net out, and the contagions.
One might wonder why trading with leverage from the trading house that makes money on the trading value is even allowed.
Talk about Karma! Low leverage thresholds usually hurt the little guy, who gets caught short in a bad trade and struggles to cover. But when a big unexpected event occurs, like the Swiss unlocking their rates, ALL of the trades hit stops pretty much, and the volume prevented liquidation before most blew through the capital requirements, so the brokerage goes instantly broke too.
IF the investors cover their losses (any some may not be able to), then the brokerage will be OK. If not, the brokerage folds, and the winners on the other side of trades lose too. As with Lehman, the trouble starts when trades can't net out, and the contagions.
One might wonder why trading with leverage from the trading house that makes money on the trading value is even allowed.
Thursday, January 15, 2015
Oil in Storage Growing
Lots of interesting news, mostly negative. Holiday spending was down, more than expected. Why? Mostly because people are worried, probably.
Big news was the Swiss unlocked their currency without warning, and the Franc promptly blew away the Euro, leaving currency shorts bloody on the floor (30% loss in a day for some!), and Swiss companies bleeding about $100B of value in one day. Others of course made out like bandits. Of course it's a system shock, and most of the effects will ring out over time, but I do wonder what the Swiss were thinking. This knocks the Euro down a rung (which it didn't need), but also will push Switzerland closer to deflation too. Why do countries seem to be some sort of quandary between courting deflation on one hand or QE to banks on the other? It's a false dichotomy, ignoring the option to invest in infrastructure to better stimulate GDP.
So a stronger Franc makes for a marginally weaker dollar, so oil goes up a bit and everybody long on oil heralds the bottom is here, while those who were talking how much good cheap oil would be for the economy were silent. A few days back it was sort of the other way around. Simply, though, one group of Americans spending less on oil to others making less on oil doesn't help or hurt. The fraction saved from imports helps, but strengthens the dollar, so those trying to export hurt. Overall, long-term, cheaper energy is better, but fast, short, shocks cause all sorts of consternation, especially if there isn't time for gov'ts and central banks to react, and more so if some react poorly when they do. Sometimes an economy here or there hits a tipping point, and gets stuck into a new rut; VZ could go into default, or Britain could hit a deflation cycle, or Germany, or the US could, for that matter. All it takes is a flat economy and then most people saying "Hmm, I think I'll just sit on my money and wait for a bit and see how things sort out", and there you go.
I learned there is now maybe 30Mbbl of storage or so leased (some say up to 50Mbbl). In the past up to 100Mbpd has been parked, and I think there is about 200Mbpd of fleet capacity total. And that's pretty impressive, since that's a mobile quantity twice the complex at Cushing (which represents maybe 70Mbpd free, of the 300Mbbl total US free capacity). US storage is only 1/3 full, so it seems silly to use floating storage, but for Brent crude ships may be cheaper.
Different sites say different things, but there is at least 300Mbbl or so capacity free in the US, and at least a couple hundred more around the world. At a couple of Mbpd, filling up will take the most of the year.
Nat gas is up a little, and at $3+, it is still dirt cheap. For comparison sake, that is relatively worth as much as $23 oil. So, even at the lowest stated floor of $30 or so, oil will STILL be worth more than natural gas. I cannot fathom why the US does not try to consume cheap NG to displace imported oil, instead of worrying about drilling expensive US oil and exporting cheap US NG. Displace oil with NG, display coal with solar and wind, and use a little NG for peaking plants as needed, and we'd have a good start toward and energy policy that made some sense. Spend a few public $$ on the power infrastructure and grid, and instead of wealthy bankers maybe we'd have a stronger blue collar economy and better middle-class as well.
And no, I don't think Austrians and their austerity or Keynesians and their loose money and inflation goals are either one correct. Another false dichotomy (or maybe the same one, rephrased), but for another day's discussion.
Big news was the Swiss unlocked their currency without warning, and the Franc promptly blew away the Euro, leaving currency shorts bloody on the floor (30% loss in a day for some!), and Swiss companies bleeding about $100B of value in one day. Others of course made out like bandits. Of course it's a system shock, and most of the effects will ring out over time, but I do wonder what the Swiss were thinking. This knocks the Euro down a rung (which it didn't need), but also will push Switzerland closer to deflation too. Why do countries seem to be some sort of quandary between courting deflation on one hand or QE to banks on the other? It's a false dichotomy, ignoring the option to invest in infrastructure to better stimulate GDP.
So a stronger Franc makes for a marginally weaker dollar, so oil goes up a bit and everybody long on oil heralds the bottom is here, while those who were talking how much good cheap oil would be for the economy were silent. A few days back it was sort of the other way around. Simply, though, one group of Americans spending less on oil to others making less on oil doesn't help or hurt. The fraction saved from imports helps, but strengthens the dollar, so those trying to export hurt. Overall, long-term, cheaper energy is better, but fast, short, shocks cause all sorts of consternation, especially if there isn't time for gov'ts and central banks to react, and more so if some react poorly when they do. Sometimes an economy here or there hits a tipping point, and gets stuck into a new rut; VZ could go into default, or Britain could hit a deflation cycle, or Germany, or the US could, for that matter. All it takes is a flat economy and then most people saying "Hmm, I think I'll just sit on my money and wait for a bit and see how things sort out", and there you go.
I learned there is now maybe 30Mbbl of storage or so leased (some say up to 50Mbbl). In the past up to 100Mbpd has been parked, and I think there is about 200Mbpd of fleet capacity total. And that's pretty impressive, since that's a mobile quantity twice the complex at Cushing (which represents maybe 70Mbpd free, of the 300Mbbl total US free capacity). US storage is only 1/3 full, so it seems silly to use floating storage, but for Brent crude ships may be cheaper.
Different sites say different things, but there is at least 300Mbbl or so capacity free in the US, and at least a couple hundred more around the world. At a couple of Mbpd, filling up will take the most of the year.
Nat gas is up a little, and at $3+, it is still dirt cheap. For comparison sake, that is relatively worth as much as $23 oil. So, even at the lowest stated floor of $30 or so, oil will STILL be worth more than natural gas. I cannot fathom why the US does not try to consume cheap NG to displace imported oil, instead of worrying about drilling expensive US oil and exporting cheap US NG. Displace oil with NG, display coal with solar and wind, and use a little NG for peaking plants as needed, and we'd have a good start toward and energy policy that made some sense. Spend a few public $$ on the power infrastructure and grid, and instead of wealthy bankers maybe we'd have a stronger blue collar economy and better middle-class as well.
And no, I don't think Austrians and their austerity or Keynesians and their loose money and inflation goals are either one correct. Another false dichotomy (or maybe the same one, rephrased), but for another day's discussion.
People are DUMB!
I heard a rather depressing story on NPR on the history of handwashing for infection control, and found a write-up online:
"In the mid-1800s, studies by Ignaz Semmelweis in Vienna, Austria, and Oliver Wendell Holmes in Boston, USA, established that hospital-acquired diseases were transmitted via the hands of HCWs. In 1847, Semmelweiss was appointed as a house officer in one of the two obstetric clinics at the University of Vienna Allgemeine Krankenhaus (General Hospital). He observed that maternal mortality rates, mostly attributable to puerperal fever, were substantially higher in one clinic compared with the other (16% versus 7%).50 He also noted that doctors and medical students often went directly to the delivery suite after performing autopsies and had a disagreeable odour on their hands despite handwashing with soap and water before entering the clinic.
He hypothesized therefore that “cadaverous particles” were transmitted via the hands of doctors and students from the autopsy room to the delivery theatre and caused the puerperal fever. As a consequence, Semmelweis recommended that hands be scrubbed in a chlorinated lime solution before every patient contact and particularly after leaving the autopsy room. Following the implementation of this measure, the mortality rate fell dramatically to 3% in the clinic most affected and remained low thereafter.
Apart from providing the first evidence that cleansing heavily contaminated hands with an antiseptic agent can reduce nosocomial transmission of germs more effectively than handwashing with plain soap and water, this approach includes all the essential elements for a successful infection control intervention: “recognize-explain-act”.51 Unfortunately, both Holmes and Semmelweis failed to observe a sustained change in their colleagues’ behaviour. In particular, Semmelweis experienced great difficulties in convincing his colleagues and administrators of the benefits of this procedure."
The NPR story was more direct. Basically, the doctors did not appreciate being identified as the transmission agents, and to an extent unknowingly responsible for countless deaths. Rather than embracing the situation, they managed to drive Semmelweis from the clinic, and reverted to previous practices. Semmelweis continued to ardently (and ineffectively) strive to make his case, with a blustery and contentious approach that made very few converts. Eventually he lost his mind (possibly from syphilis, or stress, or who knows what?) and went into an asylum.
These are the same basic genetics in our pool today, so you can bet that people are no smarter, nor more reasonable about looking at data. I would like to think some would just as soon not smell like cadavers when they went about, but really I'm not sure about that. Is it really reasonable to expect our species to make progress expeditiously on less obvious world issues?
Wednesday, January 14, 2015
Recession and nobody noticed?
Oil and economics update.
Oil has bounced around, and we're back in the land of volatility. December (Christmas) spending was down, far more than expected, and Nov was adjusted down, so of course the market shot down. Surprising, oil was up -- probably some people moving money out of stocks pushed it up, and short covering helped.
A few days back I observed "either the world is in a major recession and doesn't know it, or we suddenly have more than 4Mbpd of spare oil capacity, or oil is oversold". I'm thinking that at least part of it is indeed weaker than visible economics, at least in the west.
Part of this drop is due to cheap oil -- oil or gasoline spending counts just like eating out or buying gifts, so cheaper oil all by itself is a hit to spending. Of course some will spend their savings, and indeed food and beverage was up a bit. Other spending was down, though. But isn't cheap oil good, you ask? Well, it will help individual households a bit, but in the short term people save a bit or pay off a bill or two, and it takes a while for cheaper oil to percolate through business costs to make other areas cheaper...and that reduces spending too....and it takes longer for that to turn into more buying and a stronger economy. But then, the dollar is also strengthening, and that makes it easier to import but harder to export, so that part of the economy slows for a while, while the import part expands. And of course, if you're in the oil patch or any of the business areas associated with it, you aren't spending more at all!
Is it a net positive or negative for the US? It'll be positive for the coasts, and a negative for the energy states. Investors will take a bath, as most of the recent capex growth in the US has been in oil. Housing and jobs will take a hit for a while. Overall, the current account deficit will drop as import value goes down for oil, but it should be made up in material imports. Importers will do well, and exporters will struggle a bit more. Tanker rates should drop a bit, while other shipping may go up a bit.
Sure enough, container shipping is up from the recent low, and that indicates some recovery in China and maybe India, and perhaps a little more importing to the US. Since China and India import a higher fraction of their oil (less total, but a higher percentage), they'll benefit a bit more than the US from the cuts. Of course they'll have the same economic hit from lower price, as will the entire world. Unfortunately, most of the world was already teetering along with low inflation, so a cut to spending can tip across to recession, and a little follow-through to prices can turn into deflation. All that needs to happen then is for people to pocket their savings while waiting for prices to drop a bit more, and a deflationary spiral can start. With heavy gov't and individual debt, debt to GDP will then automatically go up, and EU rules and credit agencies will start hammering on the weaker countries.
How does all of this play out? I don't know, other than volatility and uncertainty, but I think the world is at high risk of contagion and a broader market collapse. A slower drop in oil would have helped, and hopefully production cuts back fast enough to moderate prices until economies can digest the savings as stimulus versus deflation.
In other news, floating storage is up to 25Mbbl leased (likely not all full, yet), and US storage is up a few Mbbl since last week. Rig activity is now below a year ago, and it can quickly roll back to the lows of '09 since we don't have rising nat gas prices to stimulate a transition from oil to gas like we had from dry gas to wet plays as gas dropped and oil rose in recent years. It'll just get bad faster this time.
How long will prices be low? Best bet is to watch storage build. If production doesn't drop by the time China fills their SPR, Cushing fills up, and floating storage is loaded, we'll see a harsh new low. If production drops and economies recover, then prices should recover to 65+. Neither can happen quickly, so we're in for a half-year slog of market volatility, at best.
Oil has bounced around, and we're back in the land of volatility. December (Christmas) spending was down, far more than expected, and Nov was adjusted down, so of course the market shot down. Surprising, oil was up -- probably some people moving money out of stocks pushed it up, and short covering helped.
A few days back I observed "either the world is in a major recession and doesn't know it, or we suddenly have more than 4Mbpd of spare oil capacity, or oil is oversold". I'm thinking that at least part of it is indeed weaker than visible economics, at least in the west.
Part of this drop is due to cheap oil -- oil or gasoline spending counts just like eating out or buying gifts, so cheaper oil all by itself is a hit to spending. Of course some will spend their savings, and indeed food and beverage was up a bit. Other spending was down, though. But isn't cheap oil good, you ask? Well, it will help individual households a bit, but in the short term people save a bit or pay off a bill or two, and it takes a while for cheaper oil to percolate through business costs to make other areas cheaper...and that reduces spending too....and it takes longer for that to turn into more buying and a stronger economy. But then, the dollar is also strengthening, and that makes it easier to import but harder to export, so that part of the economy slows for a while, while the import part expands. And of course, if you're in the oil patch or any of the business areas associated with it, you aren't spending more at all!
Is it a net positive or negative for the US? It'll be positive for the coasts, and a negative for the energy states. Investors will take a bath, as most of the recent capex growth in the US has been in oil. Housing and jobs will take a hit for a while. Overall, the current account deficit will drop as import value goes down for oil, but it should be made up in material imports. Importers will do well, and exporters will struggle a bit more. Tanker rates should drop a bit, while other shipping may go up a bit.
Sure enough, container shipping is up from the recent low, and that indicates some recovery in China and maybe India, and perhaps a little more importing to the US. Since China and India import a higher fraction of their oil (less total, but a higher percentage), they'll benefit a bit more than the US from the cuts. Of course they'll have the same economic hit from lower price, as will the entire world. Unfortunately, most of the world was already teetering along with low inflation, so a cut to spending can tip across to recession, and a little follow-through to prices can turn into deflation. All that needs to happen then is for people to pocket their savings while waiting for prices to drop a bit more, and a deflationary spiral can start. With heavy gov't and individual debt, debt to GDP will then automatically go up, and EU rules and credit agencies will start hammering on the weaker countries.
How does all of this play out? I don't know, other than volatility and uncertainty, but I think the world is at high risk of contagion and a broader market collapse. A slower drop in oil would have helped, and hopefully production cuts back fast enough to moderate prices until economies can digest the savings as stimulus versus deflation.
In other news, floating storage is up to 25Mbbl leased (likely not all full, yet), and US storage is up a few Mbbl since last week. Rig activity is now below a year ago, and it can quickly roll back to the lows of '09 since we don't have rising nat gas prices to stimulate a transition from oil to gas like we had from dry gas to wet plays as gas dropped and oil rose in recent years. It'll just get bad faster this time.
How long will prices be low? Best bet is to watch storage build. If production doesn't drop by the time China fills their SPR, Cushing fills up, and floating storage is loaded, we'll see a harsh new low. If production drops and economies recover, then prices should recover to 65+. Neither can happen quickly, so we're in for a half-year slog of market volatility, at best.
Nature of Reality - less fortunate options
I struggle to imagine a more intellectually disappointing reality than having a predetermined life with a mind falsely ordained to presume free-will trudging along a difficult existence driven by suboptimal decisions that are generally obvious in retrospect, thereby inexorably yet pointlessly fated to self-flagellation.
This is really what the argument for determinism amounts to, though. Perhaps artificial intelligence researchers are missing the boat on the quest for consciousness -- they don't need to create consciousness, but must only program the jealous belief that it is conscious. Malevolent divine watchmakers we would be.
Perhaps sometimes one can cut too deeply with Occam's Razor?
This is really what the argument for determinism amounts to, though. Perhaps artificial intelligence researchers are missing the boat on the quest for consciousness -- they don't need to create consciousness, but must only program the jealous belief that it is conscious. Malevolent divine watchmakers we would be.
Perhaps sometimes one can cut too deeply with Occam's Razor?
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