Thursday, October 23, 2014

NYT: No Big Deal If Price Inflation Climbs Above 2%

An NYT editorial calls for the Fed to print and print to keep interest rates low and says higher price inflation is no big deal. Note also that this is the first time I have see it claimed that the Fed's mandate  is to keep "inflation stable," rather than price stability :
[I]t is not the Fed’s job to protect investors’ bond portfolios. Its job is to foster both stable inflation and full employment... there is no inflationary pressure and no reason to raise rates in the near term.
In fact, inflation has been so low for so long that the economy would not be in danger of overheating even if there were a period of inflation above the 2 percent target. That target is an average that the Fed would like to maintain over time, not a level that necessarily signals the need for a rate increase.
This is likely thinking very close to that of the Fed itself. The Fed is going to be very slow to react to climbing price inflation.

Wednesday, October 22, 2014

Study: Most Published Results in Financial Economics are Wrong

Danielle Kurtzleben writes at VOX:

In a new NBER paper, Duke University Finance Professor Campbell R. Harvey, University of Oklahoma Assistance Finance Professor Heqing Zhu, and Texas A&M Assistant Professor of Marketing Yan Liu come to the conclusion that a majority of papers in financial economics are wrong.

Of course they are. Austrian school economists have long taught that you can't forecast or develop theory based strictly on empirical data. It is faulty methodology.


 The Counter Revolution of Science by Friedrich Hayek

The Ultimate Foundation of Economic Science by Ludwig von Mises

Economic Science and the Austrian Method by Hans-Hermann Hoppe

 Kurtzleben continues:

Harvey and his co-authors studied 315 papers that examine different factors that might predict returns on stocks. Those papers propose all sorts of different potentially predictive variables, like leverage and price-to-earning ratios....

Harvey and his co-authors found that study authors have not been using rigorous enough standards in determining statistical significance. As a result, they write, "most claimed research findings in financial economics are likely false."

The reason is that in trying to figure out what exactly is correlated with high returns, academics and finance gurus often compare many different variables. The statistical tests usually are significant at the 5 percent level, Harvey says. That means that when a variable is shown to be statistically significant, there's a 5-percent chance of seeing that (or a bigger) result in the numbers, even if there is no real effect present. That's pretty low odds if you're just running one test, but if you use powerful computers to run hundreds of tests, you're sure to find some "significant" relationships that are just random noise.

Apartment Rents Have Risen For 23 Consecutive Quarters; Show No Sign of Easing

Rental rates increased 1% during the third quarter to an average of $1,111 a month nationwide, according to Reis, real-estate research firm that collects data on 79 U.S. metropolitan areas, reports WSJ.. That was up 3.3% from the same quarter a year ago. Last quarter's 1% increase was faster than the second quarter's 0.9% rise.

Apartment rents have risen nationally for 23 straight quarters and are 15.2% higher than they were at the end of the recession in 2009.

The only sector where prices aren't climbing are sectors where technological improvements have increased productivity.

OFF THE WALL: Keith Alexander Was Day Trading in Chinese Metals Firms While He was NSA Chief

Foreign Policy magazine reports:

At the same time that he was running the United States' biggest intelligence-gathering organization, former National Security Agency Director Keith Alexander owned and sold shares in commodities linked to China and Russia, two countries that the NSA was spying on heavily.

At the time, Alexander was a three-star general whose financial portfolio otherwise consisted almost entirely of run-of-the-mill mutual funds and a handful of technology stocks. Why he was engaged in commodities trades, including trades in one market that experts describe as being run by an opaque "cartel" that can befuddle even experienced professionals, remains unclear. When contacted, Alexander had no comment about his financial transactions, which are documented in recently released financial disclosure forms that he was required to file while in government. The NSA also had no comment.

Russia Calls Europe's Bluff on Ukraine Gas Deal

Geoffrey Smith reports at Fortune:
Russia, Ukraine and the European Union failed late Tuesday to strike a deal that would guarantee Russian gas supplies through the coming winter, after the E.U. refused a request by the Russian side to guarantee full and proper payment by Ukraine.

The deadlock revives the risk that Russia may cut off gas deliveries to parts of Europe this winter, as part of a wider strategy to assert its influence in Ukraine. That would further aggravate the economic slowdown that has hit both countries since the Ukrainian crisis erupted.

It also exposes the reluctance of Europe to back up its political support for the Kyiv government with hard cash.

Ukraine has a record of siphoning Russian gas destined for Europe, and its own finances are in a disastrous state after years of mismanagement by President Viktor Yankovych and the economic collapse in the turmoil that followed his ouster in February. The economy is projected to shrink by some 7% this year...
Russia supplies over a quarter of the E.U.’s gas, and most of those supplies have traditionally gone through Ukraine. Countries such as Bulgaria and Slovakia are completely dependent on Russian gas shipped through the Ukrainian pipeline system, and would face drastic energy shortages this winter if no agreement is struck.

Russia stopped shipping through Ukraine in May, claiming Ukraine owed it over $5 billion for past supplies. Ukraine’s national gas company Naftogaz says it only owes $3.1 billion. The sides are arguing over the difference in a Stockholm arbitration tribunal.

How Many Years Would It Take for You to Personally Payoff the US Debt

By Simon Black

The US government’s debt is getting close to reaching another round number—$18 trillion. It currently stands at more than $17.9 trillion.

But what does that really mean? It’s such an abstract number that it’s hard to imagine it. Can you genuinely understand it beyond just being a ridiculously large number?

Just like humans find it really hard to comprehend the vastness of the universe. We know it’s huge, but what does that mean? It’s so many times greater than

BITCOIN IS EVIL: The Final Proof

It's time for every person who seriously calls himself a libertarian to abandon the notion that Bitcoin is some kind of magic escape hatch from government regulation, intervention and control of the money supply.

Bitcoin is a very trackable transaction medium. And, now,  market leaders in Bitcoin like BitPay, Bitstamp, Coinsetter and Ripple Labs are attempting to set up an electronic identification system that will allow governments to track Bitcoin users. The horrific details are here.

The Top 10 U.S. States Where Chinese Are Investing in Real Estate

In San Francisco there are buses that take Chinese investors from one SF  building available for purchase to the next.

I understand that a group of Chinese inventors has also purchased land across the bay in Oakland in an area known as Jack London Square. They plan to spend billions on projects at that location. l have long considered JLS to be an unpolished jewel, perfect for development given its waterside views, boat access and proximity to SF.

In U.S., 31% Say Now Is a Good Time to Find a Quality Job...

In the US, the Fed manipulative trick continues to do its trick. More and more people continue to to view the current period as a good time to find Fed induced "quality job."

This will continue until we have another severe pullback in Fed money printing.

(via Gallup)

Wal-Mart, That Economic Wrecking Ball

By Ilana Mercer

To ameliorate the effects of the Obamacare wrecking ball, Wal-Mart Stores, Inc., is venturing into the business of providing primary health care. For $40, the price of a copay (mine are way more), "you can walk into a Wal-Mart clinic and see a doctor." It's "just $4 for Walmart U.S. employees and family members."

Sandra Fluke: You can have a pregnancy test at Wal-Mart for ... $3.00.

Via MarketWatch:

On Friday, a Walmart Care Clinic opened in Dalton, Ga., six months after Walmart U.S., the retailer’s biggest unit, entered the business of providing primary health care. It now operates a dozen clinics in rural Texas, South Carolina and Georgia and has increased its target for openings this year to 17. A ... cholesterol test [will cost] $8. A typical retail clinic offers acute care only. But a Walmart Care Clinic also treats chronic conditions such as diabetes. (Walmart U.S. also leases space in its stores to 94 clinics owned by others that set their own pricing.)
“It was very important to us that we establish a retail price in the health-care industry because price leadership matters to us,” said Jennifer LaPerre, a Walmart U.S. senior director responsible for health and wellness, in an interview.

Let the anti-Wal Mart jousting begin.

Typically, critics of Wal Mart—for example, Marian Kester Coombs, writing for The American Conservative—will do nothing to trace the mysterious mechanism by which Wal-Mart is said to impoverish. By offering “the lowest possible prices all the time, not just during sales”? What precisely is the economic process that accounts for Wal-Mart’s ability to “expel jobs and technology from our own country”? Competition? Offering a product people choose to buy?

“Protecting the home market,” which is what TAC writer advocates, is to the detriment of consumers. It forces them to subsidize less efficient local industries, making them the poorer for it. To keep inefficient industries in the lap of luxury, hundreds of others are doomed to shrink or go under.

The writer aforementioned also froths at the mouth over “the teenage girl in Bangladesh … forced to sew pocket flaps onto 120 pairs of pants per hour for 13 cents per hour.” It sounds dreadful. However, the economic reality is this: Wal-Mart is either offering higher, the same or lower wages than the wages workers were earning before its arrival in Bangladesh. The company would find it hard to attract workers if it was paying less, or the same as other companies. Ergo, Wal-Mart is a benefactor that pays the kind of wage unavailable prior to its arrival. More material, if the entrepreneur were forced to pay workers in excess of their productivity, he would eventually have to disinvest. What will the Bangladeshi teenage girl do when that happens?

Ilana Mercer is author of Into the Cannibal's Pot: Lessons for America from Post-Apartheid South Africa©2014 By ILANA MERCER

INCREDIBLE: Video of Shootout in Canadian Parliament

Gunmen are apparently still on the loose. Here is the incredible video.

Marc Andreessen Destroys Paul Krugman's Attack on Amazon

Julie Bort at Business Insider sets the scene:
Paul Krugman thinks Amazon is bad for America. He came out swinging in a recent column over Amazon's war with book publisher Hachette.

Super investor Marc Andreessen has jumped in with a little sarcasm aimed at Krugman...

Krugman is siding with book publisher Hachette in its battle with Amazon. The story goes: When Amazon wanted Hachette to give it a bigger percentage on the Hachette books Amazon sold, Hachette balked. So Amazon began doing things like delaying the delivery of Hachette titles, raising prices, and steering customers to other publishers.

Krugman says Amazon is acting like a robber baron and suggests it must be stopped, just like the Standard Oil-era robber barons were stopped.
Here's part of the Andreessen attack:

Krugman: ... in case you’re wondering, yes, I have Amazon Prime and use it a lot. But again, so what?
Andreessen: Amazon is hurting America, but not enough for Paul Krugman to take on a little inconvenience by using other ecommerce sites. Principles!
Krugman: You might be tempted to say that this is just business — no different from Standard Oil, back in the days before it was broken up, refusing to ship oil via railroads that refused to grant it special discounts.
Andreessen: Classic Krugman rhetorical maneuver. “Just business” is not the same as “no different than Standard Oil”. Businesses of every shape size and description negotiate with their suppliers every day without in any way meriting a comparison to Standard Oil.
Krugman: So far Amazon has not tried to exploit consumers. In fact, it has systematically kept prices low, to reinforce its dominance.
Andreessen: Another classic Krugman rhetorical maneuver. According to Paul, keeping prices low is a sign of monopoly power, but of course he’d also say that keeping prices high would also be a sign of monopoly power.
Andreessen goes on to blast Krugman for a few other things.  The whole annotated argument is a pretty entertaining read.

Minimum Wage Increase Blowback: McDonald's Plans Major Automation by the Third Quarter of Next Year

WSJ has a play-by-play:
Unions have made McDonald’s a particular target of their campaign for a $15 an hour minimum wage and have even protested at corporate headquarters in Oak Brook, Ill. The pressure was enough to cause CEO Don Thompson this summer to capitulate and endorse President Obama’s call to raise the federal minimum to $10.10 an hour from $7.25. Many states have already enacted wage floors above the federal minimum...

The McDonald’s earnings report on Tuesday gave a hint at how the fast-food chain really plans to respond to its wage and profit pressure—automate. As many contributors to these pages have warned, forcing businesses to pay people out of proportion to the profits they generate will provide those businesses with a greater incentive to replace employees with machines.

By the third quarter of next year, McDonald’s plans to introduce new technology in some markets “to make it easier for customers to order and pay for food digitally and to give people the ability to customize their orders,” reports the Journal. Mr. Thompson, the CEO, said Tuesday that customers “want to personalize their meals” and “to enjoy eating in a contemporary, inviting atmosphere. And they want choices in how they order, choices in what they order and how they’re served.”

That is no doubt true, but it’s also a convenient way for Mr. Thompson to justify a reduction in the chain’s global workforce. It’s also a way to send a message to franchisees about the best way to reduce their costs amid slow sales growth. In any event, consumers better get used to the idea of ordering their Big Macs on a touchscreen.

Entry-level fast-food jobs have never been intended to support an entire family. So-called quick-service restaurants provide opportunities to lots of young people with few skills and limited experience. Across all industries, about two-thirds of minimum-wage workers who stay employed get a raise in the first year.

Amid a historically slow economic recovery, 1970s labor-participation rates and stagnant middle-class incomes, we understand that people are frustrated. Harder to understand is how so many of our media brethren have been persuaded that suddenly it’s the job of America’s burger joints to provide everyone with good pay and benefits
. The result of their agitation will be more jobs for machines and fewer for the least skilled workers.

The State of Madness in Silicon Valley: ‘Uninhabitable’ Palo Alto Home On Market For $1.8M

Palo Alto, California, home of Stanford University and in the heart of Silicon Valley, is also near the heart of the Fed money printing spigot.

This is what happens near the spigot:

An uninhabitable home a realtor says may be infested with rodents is on the market in Palo Alto for $1.8-million.

“We thought it would possibly go for $650-thousand, maybe $700-thousand.  Then when it came out originally for $1.6-million, and then they raised it to $1.8-million, we were like, I’m kind of dumbfounded,” neighbor Dave Ashton said, according to CBS San Francisco.

The house is so bad that prospective bidders can’t even go inside to take a tour.  Part of the house is being held up by wooden posts.

Get this:
Realtor Debbie Wilhelm told KPIX 5, that if the home’s eventual new owners plan to bulldoze the house and start fresh, they will likely have to add nearly $1-million on to the price tag.
Have you had enough yet?  Get this:
The seller received two offers Tuesday, and Wilhelm says it sold to a group of investors.

The Man Who Tried to Corner the Silver Market, Nelson Bunker Hunt, is Dead

Nelson Bunker Hunt, an heir to the oil billionaire H. L. Hunt fortune, is dead. He was 88.

Bunker Hunt and his brothers, Herbert and Lamar, once tried to corner the silver market. Their buying drove the price of silver to $50.35 an ounce. BUT, the problem was that they didn't watch the money supply!

Paul Volcker had taken the reigns at the Fed and he had stopped the crazed money printing of his predecessor G. William Miller.

With new Fed money no longer flowing into the markets, there was no way the price of silver was going to stay at the then lofty levels. It crashed to $10.80 per ounce.

With the dramatic crash in the price of silver, the Hunts faced billions of dollars in margin calls that they couldn't meet. I was actually sitting in the brokerage office of a senior vice-president at one firm on Wall Street, as he wrote out the tickets to sell out the Hunts when they couldn't meet the margin calls  by his firm.

The Great Silver Crash:

Tuesday, October 21, 2014

‘Saudi Texas’ and the OIl Shale Boom

(via Mark Perry)

The Best Time to Buy a House or Rent an Apartment

I have been advising in the EPJ Daily Alert that this winter might be a very good time for those looking to buy a house. It might be the last time in decades that interest rates will be so low and housing prices relatively low before price inflation really takes off.

That said, winter is also a very good time, in general, to buy a house in the Northeast and Midwest.

I like to buy, and rent, when I have little competition, so, if I can arrange it, I try to do either when I am among the few bidders and where there are desperate people I am dealing with.

What do I mean?

In the Northeast, I would try buying (or renting) after a series of snowstorms where the roads and sidewalks aren't generally clear.  If a seller is offering a property under those conditions, the seller is likely desperate. I would do it after a couple of storms have blown through so that I know the seller hasn't seen many other bidders in weeks.

In Chicago, I would wait for a long cold snap with temperatures at or below zero. I once needed to rent a place for 6 months in Chi-town and did it in the middle of such a cold snap. You could see the desperation on the face of the property owner. You can get all kinds of concessions under such conditions and you should really lowball the price.

This, of course, doesn't work as well in California, but even there opportunities exist. I once rented a place in Palm Springs in August when many shops and restaurants were closed during the blistering heat of summer and the temperature was around 100 degrees. Again, I could see the desperation on the face of the property owner.

Keep in mind that these owners may be nice people and you may be helping them out of a jam by doing a deal with them at such a time. They might have mortgage payments that they can't meet because the property is empty, or unsold.

Another good time to buy in California is after a major earthquake. I am talking 8.0 on the Richter scale, at a minimum. A major earthquake above 8.0 spooks people, many want to get out of town fast--a great time to buy.

If you understand the fundamentals of a situation, it is always best to buy, whether it is property, stocks or whatever when there are few bidders around for whatever reason.

Dentists Have Last Laugh Over Sneering Keynes

A Letter to the Editor of the Financial Times:

October 20, 2014 11:48 pm

Dentists have last laugh over sneering Keynes

Sir, Your editorial “A Nobel award for work of true economic value” (October 15) cites the witty and memorable line of J M Keynes about wishing that economists could be “humble, competent people, on a level with dentists”, which concludes his provocative 1930 essay on the economic future. You fail to convey, however, the irony and condescension of the original text of the arrogant, intellectual elitist Keynes, who, while superlatively competent, was assuredly not humble. With the passage of 84 years, the irony has changed directions, for modern dentistry is based on real science, and has made huge advances in scientific knowledge, applied technology and practice, to the great benefit of mankind. It is obviously far ahead of economics in these respects, and it is indeed unlikely that economics will ever be able to rise to the level of dentistry.
Alex J Pollock, Resident Fellow
American Enterprise Institute,
Washington, DC, US

(via AEI)

Gold-Hater Joe Weisenthal Leaving Business Insider for Bloomberg

If you hate gold, the establishment will pay you big time.

Joe Weisenthal, executive editor of Business Insider, is leaving the company, reports Nicholas Carlson at BI.

Weisenthal is going to Bloomberg, where he'll host a TV show and develop a news site about the markets.

He has been with Business Insider for six years.

"I love BI and I never thought of leaving," he said. "But Josh Tyrangiel at Bloomberg put together an offer that no journalist could pass up."

The suspicion is that Weisenthal may be getting an annual salary of close to a million dollars.