Wednesday, October 28, 2015

Talking worth hearing: Accounting for profits

Stan Pignal, Patrick Foulis, and Philip Coggan (all three from The Economist), talk about how managers find (mostly) legal ways to puff up corporate earnings.

~12 minutes


Thursday, October 22, 2015

Talking worth hearing: China

Tyler Cowen talks about the rise and fall of the Chinese economy: how they grew so fast, and why they're in trouble now.

~12 minutes

I like Tyler's insight that decades of high growth distorted the assessment of the risk/return of new investment projects, which is distinct (but compatible) from a decline in the marginal productivity of capital.

Friday, October 16, 2015

QE: What if investors don't buy it?

John Authers has written another good column. It's about "what happens if rates never rise." Among many interesting things, he reminds us to watch profits (payrolls and GDP are secondary, really). He also walks us through the (increasingly plausible) scenario where the Fed doesn't raise rates at all, and  the central bank needs to resort to QE to counter an economic slowdown.

He writes, in passing, something with disturbing implications:
The risk continues to be that investors at some point give up on monetary policy and its power to make a difference — and that would be bad for stocks. So rather than plan for a continued indiscriminate rally in US stocks, it is probably better to focus on those that can show some sustained pricing power, and on those that pay a decent yield.
That first sentence (emphasis mine) entails a mind-blowing possibility. What it the emperor has no clothes?  What if the main (only?) effect of QE is through higher asset valuations? What if QE works because investors think it works and nothing else? What if investors wake up and decide that QE doesn't work?

Wednesday, October 14, 2015

Unemployment rate and employment growth: Reasonable expectations

Stephen Williamson wrote a fantastic post, where he bounds reasonable numbers for employment growth and the unemployment rate, in the U.S., in coming months.


-200k jobs added per month, which many observers find normal, is more than we can reasonably expect.

-Recent trends and the current level of labor force participation suggest that employment can't grow faster than 0.5% for too long. 200k jobs per month imply a 1.7% growth rate, given the current level of unemployment.

-The unemployment rate can't probably get much lower than 4.6%.

-Going forward, monthly employment growth should be closer to 60k (population growth) than the "normal" 200k.

Talking worth hearing: GDP

Stan Pignal and Ryan Avent (from The Economist), and Mike Jakeman (from the Economist Intelligence Unit), discuss whether GDP is an appropriate indicator of an economy's health.

~12 minutes

(I wish they wouldn't implicitly endorse the popular definition of recession, i.e. two consecutive quarters of negative GDP growth. It's truly an awful notion.)

Thursday, July 23, 2015

Core inflation around the world

I put together a chart of the 12-month percent change of measures of core inflation for a selection of countries. The definition of core inflation varies across countries.

Green (red) means lower (higher) inflation. The color scale is meaningful within rows only. So, for example, the deep-green that the U.K. shows for June 2015 means that the core inflation in that month is among the lowest observed in the U.K. between June 2012 and June 2015 (but not necessarily low across countries; in fact, Switzerland's is lower).

The two lines at the bottom, below the legend, show the median core inflation rate and a measure of cross-country dispersion (the median absolute deviation).

     Click on the picture to enlarge

Tuesday, July 21, 2015

Market crashes that never happened

Here's an article from on market analysts who kept predicting (incorrectly) that the stock market would crash.

(Hat tip to my old colleague and accomplished investment manager: P. M.  I'm not sure if I can say his name, since I got his pointer through LinkedIn.)

I love this table, towards the end of the article:

I'm not trying to say that bearish calls are nonsense. In fact, I'm bearish more often than bullish. But I'll stay away from specific market calls.

Tuesday, May 19, 2015

Graphic content: Unemployment rates town by town, in Spain

Beautiful map on unemployment rates on If you go to the website you can click on each town and see its name and unemployment rate.

Notice the clusters of high unemployment in Castilla La Mancha, Cádiz-Huelva-Sevilla, and León-Galicia.

The map, however, is misleading if you try to infer comparisons of regional unemployment. For instance, it would seem that Galicia's (northwest) unemployment rate is much, much higher than Catalonia's (northeast). Wrong: Galicia's jobless rate in 2015:Q1 was 21.8%, whereas Catalonia's was 20.1%.