Monday, August 31, 2015

"Mark my words, it's just around the corner, you'll see!"

In his latest blog posting, Paul Krugman unfortunately continues to bang his head against the wall. Despite the years of evidence to the contrary, Krugman cites another example of a "serious thinker" prescribing a policy cure based on reasoning that is both flawed and, based on recent history, wrong.

It's more of what we've been hearing for many years now: that QE is undoubtedly inflationary and the Fed needs to preemptively raise interest rates to get ahead of looming runaway inflation. How many times have you heard a right-wing, Keynesian-hating friend utter the words, "Mark my words, it's just around the corner, you'll see!" I can't tell you how many times I've heard this said, that hyper-inflation is upon us (Weimar Republic!) and although we may not see it yet, it will appear fast and furious from out of nowhere -- as if it was an evil force in a horror movie. Is this any way to conduct policy, not based on evidence but rather fear of the boogeyman?

Krugman includes a chart showing what we've been accustomed to seeing: inflation below 2% for nearly the entire post-2008 period. But you don't need to rely on just one CPI chart, as many naysayers often argue key items (bread, eggs, gas, home prices, etc.) are being excluded from the proverbial basket and thus distorting the "true" picture. Never mind that various different versions of a representative basket of goods has typically depicted the same result: very modest inflation.

I've always liked to keep an eye on data from the Billion Prices Project@MIT as another check on inflation. The BPP collects prices on a daily basis from hundreds of online retailers and then calculates inflation statistics, comparing them to the reported CPI. If inflation was a "cooked" number from our government, not to be trusted, I would expect to see some significant deviation between the BPP index and the CPI. However that hasn't been the case as the BPP index and CPI have tracked quite closely over time. So much for that conspiracy theory.

Still not convinced? OK, then I submit this chart:


It's the 5-year breakeven inflation rate, which is the difference between the 5-year Treasury yield (nominal) and the 5-year TIPS yield (real). In short, as described on the St. Louis Fed's web site, it "implies what market participants expect inflation to be in the next 5 years, on average." 

The key aspect of this chart to keep in mind is it reflects the views of "market participants," i.e. investors. It is backed by many billions of actual $$$. I believe as a general rule of thumb that "market participants" are not stupid or easily fooled and thus they would not be projecting sub-2% inflation five years from now if the "non-goosed" CPI (inflation rate) was arguably much higher. 

Again, as with the BPP, the 5-year breakeven chart helps put to rest the conspiracy theories that the "official" reported inflation rate is a cooked figure and artificially understated. On the contrary, it appears inflation has been quite low for years and if anything, based on the FRED chart above, expected inflation has been trending lower since 2006! To borrow from the legendary Wendy's TV commercial, I ask, "Where's the inflation?!"

Well, it's coming, very soon, you'll see.... Mark my words.... Yeesh.

Wednesday, August 26, 2015

The Federal Deficit & Presidents

Hmm, I detect a pattern here:


The deficit tends to shrink (expand) with a Democrat (Republican) in the White House.

Is it any wonder Republicans complain about the deficit when a Democrat is president? Their guy eventually exits, no doubt leaving a huge deficit, and it's now safe for Republicans to complain about said deficit. Of course, such a budget imbalance is never a problem when their guy is president, and recall Dick Cheney once uttered, "deficits don't matter." True dat, they only matter when a Democrat is running things.

Wednesday, August 12, 2015

The Wisconsin Experiment

Yesterday one of my favorite bloggers, Kevin Drum, highlighted a post by Menzie Chinn at Econbrowser. It appears the "Kansas experiment" launched and spearheaded by Governor Brownback has been an unmitigated failure. Menzie compares the economic coincident index of Kansas and the U.S. and clearly shows that the state has trailed the economic trajectory of the overall country. Recall that Brownback's right-wing, free-market policies were supposed to catapult the Kansas economy into high-growth mode as it was finally unshackled from leftist regulations and obstructions. Yawn.

But it occurred to me, Scott Walker entered office in January 2011, the same time as Brownback, how did Wisconsin's economy fare when viewing this same data?


Answer: not much better than Kansas. Whereas the coincident index for Kansas increased by just 10.6% compared to 15.2% for the U.S., Wisconsin enjoyed a better 12.8% gain but still significantly below the national figure. It seems the Koch brothers' hand-picked stooge has been less than successful in energizing Wisconsin's economy -- what a shocker.

I also include data for New Jersey and California over this same time period. The 12.7% rise for NJ puts Christie as worse than Walker, something that could be a surprise if you believed Christie's blather during the debate. 

And as for that bastion of liberalism, California, the state of excessive restrictions, taxes and red tape, how did it fare? Just a whopping 21.1% increase in its coincident index, far ahead of the country's impressive 15.2% gain. Can't say I was surprised. Yawn.

Tuesday, August 11, 2015

HP & Carly

Carly Fiorina had a good debate. She's getting big kudos and accolades for her performance. Good for her. But I would remind, in some respects this sort of post-debate underdog glow is somewhat bittersweet as it often comes with the presumed expectation that the candidate was going to fare much worse and instead pleasantly surprised. Similar to when we applaud a racehorse that went off at 50-1 odds and came in third. Bravo, stellar effort, but in actuality the horse is likely still not very good.

Also, don't forget that Romney beat Obama in debate #1. Nuf said. Debate performances can be extremely temporal.


It's of course not lost on Carly that she's going to need an incisive answer to the inevitable question, "Why did you get fired from Hewlett Packard?" Her chosen defense from a recent interview:

Look, I led Hewlett Packard through a very tough time - the dot-com bust, post-9/11, the worst technology recession in 25 years.  And tough times, unfortunately, requires, sometimes, tough decisions. 
Two things to keep in mind when she tries to get away with this spin:

1) When it comes to stock price performance, there's absolute and relative. Absolute stock price performance measures simply what the stock price did over a period of time. Relative stock price performance compares the stock price versus a relevant index or benchmark.


2) Stocks tend to discount the future by about 6-9 months. In other words, if a stock plunges -20% today, it's doing so as a reflection of expectations for the company over the next 6-9 months.


That said let's take a look at the absolute and relative performance of HP's stock during the time Carly was CEO.


July 1999 - February 2005

Hewlett Packard stock: -54%
S&P 500: -15%
NASDAQ Composite: -27%

During Carly's reign, HP's stock declined by 54%, pretty awful. However, she has attempted to explain this dreadful performance away by reminding us that it was "a very tough time" with "the dot-com bust, post-9/11" (Really? She uses 9/11 as an excuse for her dismissal? Please.) and of course an economic recession. 


In this regard, the relative stock price performance is much more revealing. How did HP's stock price do compared to the S&P 500 and the technology-heavy NASDAQ Composite? Answer: not well. HP's stock underperformed the S&P 500 by a whopping 39% during this time and trailed the NASDAQ Composite by 27%. 


The moral: despite the dot-com bust, a recession and 9/11, the S&P 500 headed south by "just" -15% compared to HP's horrific -54% decline, and the arguably more appropriate NASDAQ Composite dropped by -27%, or just half of HP's percentage loss. Yes, the times then were dismal, but HP's stock still dramatically underperformed relevant benchmarks -- likely a very integral reason for Carly's forced departure.


According to HP's stock price performance, Carly did an exceptionally poor job at running the company. But what did HP's stock price suggest about the company's prospects once Carly exited the scene? I already mentioned that stock prices are discounting mechanisms with today's current stock price typically reflecting investor expectations for the next 6-9 months (approximation). My research shows that Carly left HP on February 8, 2005.


Six months after February 8, 2005        One year after February 8, 2005

Hewlett Packard: +21%                         Hewlett Packard: +59%
S&P 500: +2%                                       S&P 500: +5%
NASDAQ: +4%                                      NASDAQ: +9%

Interesting. After Carly's dismissal, HP's stock was a stellar performer, beating the S&P 500 by 19% and the NASDAQ by 17% in six months. A year later, HP's stock surpassed the S&P 500 by 54% and the NASDAQ by 50% -- wow! It's safe to conclude that investors believed Carly was a significant impediment to HP and the company had a much brighter future with her gone.


Please remember these figures the next time you hear Carly trying to spin her past into a success story. Did she get rich? Oh certainly, to make her go away, HP paid Carly an exit package of somewhere in the neighborhood of $20-$40 million, depending on which news story you want to believe. But was she a successful CEO? That's quite a different question and one that is much more relevant to her campaign narrative.

Friday, August 07, 2015

If this were a stock chart....

Wall Street folks would say the chart below displays a well-defined 100+ year uptrend with a recent bullish break-out. Buy!


Yet we continue to hear from many in the Wall Street camp, namely Republicans, that the chart above is a figment of our imagination, that a steady uptrend in temperature simply does not exist, that it's all a hoax.

Funny, these same people look for these charts all day to buy -- as long as it involves stock prices and not temperature.

Wednesday, May 20, 2015

Sexism vs. Racism in the U.S. -- A Valid Question for 2016

She was on her way to victory. I was supporting Hillary over Obama -- until the wheels came off her campaign.

Joshua Green lays it all out in the recent Bloomberg Businessweek. In his piece, Joshua tends to downplay the successes of Obama's campaign versus the screw-ups of HRC, i.e. Obama didn't win the nomination as much as Hillary lost it. Not sure I agree. If memory serves, Obama's 2008 campaign was pretty darn masterful, and it had to be since then it appeared Hillary had the momentum needed to become the nominee.

But as Green makes clear, she better have learned from her mistakes else there is the chance even a somewhat compromised Republican contender might be able to edge her out of a victory. Not to mention, if this time around she again does not take charge and put a stop to any internal turmoil arising within her campaign, what will that say to many about what her presidency might look like? Drama city? Frequent controversies resulting from in-fighting and power moves? Fortunately Obama's 6+ years in office has been downright boring in this regard, putting the mainstream media to sleep.

Admittedly, it will likely take a significant amount of petty, behind the scene backstabbings and all-around incompetence to sink the HRC ship in 2016. And the GOP is always playing from behind when gunning for the White House (see my reasons for this here and here). But judging from 2000 and 2004, I suppose anything can happen....

I thought it was also interesting to read in the piece that most Americans desire compromise in Washington and according to a Pew poll, "they believe by a 4-to-1 margin that women are better at working out compromise than men."

So Americans hate gridlock and want our political process to function more efficiently, and they favor women over men when it comes to achieving this goal. Seems like a huge advantage for HRC, no? One would think.

But are (male) Americans more sexist than they are racist? If yes, then obviously this would be a significant problem for Hillary. After all, could anyone have predicted that history would have been made with the first elected African-American president before the first elected female president? Would Hillary have also soundly beaten McCain in 2008? Or would Hillary being a woman have been perceived as more of a handicap than Obama being black, due to unfortunate realities and biases in the U.S.?

I don't have answers to these questions, but I do hope that in 2016 voters are able to look past gender as they were able to look past race or color in 2008. Let's hope we've grown-up that much as a country.

Tuesday, May 05, 2015

I'm back.... Sort of....

Hello again. I haven't posted anything to this blog since 2013. After the GW/Cheney reign of incompetence and horror, it's been 6+ years of massive clean-up, with Obama doing what he could to fix things (granted he could've done more, being too conciliatory with Republicans, shame shame), and doing so without scandals or drama. (Benghazi? Please).

Truth be told, I've been preoccupied with other things over the last few years. That's not to say there haven't been news events worthy of commentary, just nothing to get my blood boiling enough for me to post here. Also, I frankly became burnt out and needed a lengthy hiatus. Blogging can be quite time-consuming and exhausting, and I would guess for most bloggers, involving little to no compensation. It's generally work of passion that fills a need to convey thoughts, opinions, facts and web links (of course) to others, hopefully shedding light on issues and stirring up some much-needed discussion, and even outrage. After all, Republicans and wingnuts should not be the only ones who can get angry and pissed-off, while the Dems and liberals remain calm, understanding -- and flaccid. In fact, I would argue that many of the problems facing this country over the last X number of years have been allowed to fester due to this long-standing contrast, a fired-up, indignant right-wing GOP versus overly wet-noodle and yielding left-of-center Democrats. We can get angry and pissed too (!), using facts and reason as our weapons, which should always be more than enough to win any fight. (OK, "should" is the key word, but in this country, facts and reason are too often not enough to convince the brain-washed and ideological zombies).

Anyway, I'm back, sort of. With Obama gradually exiting and Hillary entering the scene, I've started to get that itch again to put the time into organizing my thoughts and hopefully write some blog entries that connect with people. I like to think I was able to effectively do that with the 2500+ blog entries I posted from 2004-2013, most being from the GW/Cheney era. As I've said, blogging takes time and commitment (unless one prefers to just prattle from the hip -- I don't). That said I will likely start slowly in returning to form, with posts being infrequent or sporadic, depending on the news events of the day. But as the 2016 election approaches, I'm certain there will be enough crap going down to get me annoyed and frustrated, requiring release via a blog entry. Stay tuned!

Thursday, November 14, 2013

"Socialist" Obamacare a boon to insurance companies

But wait a minute, I thought we were told Obamacare was going to destroy free-market insurance companies? I mean isn't "rampant socialism" supposed to be bad for capitalism?

Of course the ACA is nothing close to the socialist program Republicans would have us believe -- just ask Mitt. But all you really need to do is check out the performance of the health care insurance stocks. If Obamacare was going to wreak havoc on the private insurance industry, one would surely see the proof in the pudding when it came to stock price returns.

The chart below shows stock price performance for the S&P 500 (red), the iShares US Health Care Provider ETF (IHF, blue) and then eight of the largest publicly-traded health care insurers. The start date is March 23, 2010, when President Obama signed the ACA into law.


In the time period, the health care provider ETF returned 74%, far surpassing the 52% gain for the S&P 500. Meanwhile seven of the eight insurance stocks easily trounced the S&P 500 with only Wellpoint underperforming the S&P 500, albeit ever so slightly.

Oh yeah, it's quite clear Obamacare has just devastated our capitalist system.... Gads, just more lies.

Monday, October 21, 2013

Some interesting numbers

In reading this week's The New Yorker magazine, I came across some interesting numbers.

I'll first give three numbers: 5 million, 10 million and 1.5 million.What do they refer to?
  • Obama was reelected by a net margin win of 5 million votes.
  • For the Senate in 2012, Democrats received 10 million more votes than Republicans.
  • For the House in 2012, Democrats received 1.5 million more votes than Republicans.
And yet because of redistricting, Republicans retained control of the House. It's for this reason we went through the government shutdown and faced default on our debt. It's why there's dysfunction in Washington. Democrats received many more votes last year, but due to gerrymandering and arcane redistricting laws, they do not wield the equivalence in power. Instead a minority of extreme far-right Republicans hold an inordinate amount of power and in many respects abuse it for purely selfish reasons.

More numbers:
In 1965, C.E.O.s at big companies earned, on average, about twenty times as much as their typical employee. These days, C.E.O.s earn about two hundred and seventy times as much.
Incredible. In less than 50 years, CEO pay has ballooned by more than 13 times the compensation of the typical employee. The ratio in 1965 would have a CEO today making $800K assuming a typical employee earned $40K. However, the actual ratio for today has that CEO earning close to $11 million, well above the already bloated $800K figure. Certainly this business model can't last. It's Rome all over again.

Wednesday, October 16, 2013

It's over, finally

Yippee. It's over. Finally. We won't default on our debt and the government should be open for business by tomorrow morning.

And what was it all for? What did the Tea Party zealots get in return? As far as I can tell, "Obamacare" emerges intact and spending remains as it would've been if none of this occurred. It's pretty much status quo, business as usual. On the surface, the Tea Party got nothing, but in actuality what they got was unprecedented media attention, the likes of which is worth many millions of dollars. Through Sen. Cruz, they held the country hostage, shutting down the government and risking national default, all so that they could garner some free publicity. Like cheap, two-bit shysters. These are U-S-A patriots? This is country first??

So things get pushed off till February, when we undoubtedly will have to go through this crap all over again. Will this become the norm for how government will operate in the future? Every six months, we'll go through this nonsense to see if the government (and national parks, etc.) will remain open and the country won't default on its debt? If so, then rating agencies should lower our credit rating! Talk about third world!

Assuming this unfortunately becomes the norm, I recommend ignoring the media and following the stock market when it comes to gleaning the most likely outcome. During this past ordeal, the market held up well through it all, indicating much of it was idiotic showboating and correctly looking past the inane shenanigans. In general, investors collectively are not stupid. 

As for Republicans, they have only themselves to blame. Carve up a bunch of districts through gerrymandering to successfully elect a bunch of what would normally be unelectable candidates, i.e. lunatics -- you get what you deserve. Inmates are definitely running the asylum. 

The much greater tragedy is we as a country get screwed in the process. At least Reagan was shrewd enough to just pretend to care, to throw the nutballs some symbolic morsels they could chew on yet never letting them gain enough voice to wield actual power. Somewhere the former president is shaking his head, saying "You idiots!" (and, "Enough with renaming so many post offices after me!!").