US equities fell their most in 5 weeks on marginal volume today as a budget deal (moar fiscal means less moar monetary policy) and a potentially hawkish Stan Fischer on the Fed spread taper fears across all assets with gold lower, Treasury yields higher, and USD rising. New 52-week-lows spiked to 4 month highs as higher beta muppetry took Trannies down most in almost 4 months. The S&P tested back below the payrolls-data and FOMC Minutes launchpad levels from last week as rather notably, while most sectors are still up 5-10% from the debt-ceiling lows, Utilities are now unch. Treasuries weakened back to unchanged from the payrolls print for 5Y (though 7s-130s are -3 to 4bps still). This is the biggest jump in VIX in 2 months as the term structure is the most inverted since US downgrade levels in Aug 2011. Dow <16,000; S&P <1,800; NASDAQ ~4,000 - Retirement Off!
New 52-Week Lows spiked to its highest in over 2 months...
And the advance-decline peaked a few months back... (as breadth remains weak as we warned)
The S&P 500 had a bad day... 50DMAs are coming back into focus on all the major indices... the S&P saw its lowest close in 3 weeks.
Utilities are now unchanged since the debt-ceiling lows and sectors are giving gains back in a hurry...
VIX saw its biggest pop in 2 months as the term structure is the most inverted (short-term risk the most above medium-term) since Aug 2011...
Treasury yields were banged higher - back to unch from payrolls...
Productivity. Every employer loves it, and every employee is fascinated by it, especially if it comes in cute colors, a retina screen, and weighs under a pound... at least until such time as "productivity" results in the loss of the employee's job, which in turn makes the employer love it even more as it results in even higher profits, even if it means one more pink slip and a 91 million people outside the labor force.
With a labor force already in turmoil as millions drop out every year never to be heard from again, made obscolete by the latest technological and computerized innovation, and students stuck in college where they pile up record amounts of student loans (at last check well over $1 trillion) hoping form some job, any job, upon graduation, unfortunately the future is not bright at all.
In a recently published paper, "The Future of Employment: How Susceptible are Jobs to Computerisation," Oxford researchers Frey and Osborne, look at the probability of computerization by occuption. What they find is shocking for nearly half of the US labor force, and especially those in the transportation, production, office support, sales, service and extraction professions.
JPM's Michael Cembalest summarizes it as follows:
Life after college: be prepared for technology to continue changing the job landscape
There’s plenty of data on unemployment rates and salaries by undergraduate major (the majors with the lowest unemployment rates and highest salaries: computer, chemical, electrical, civil and mechanical engineering; math/physics; and economics. Drama and film majors are a recipe for living at home). A more important long-run issue to think about may be how technology affects your career. Researchers at Oxford just published an analysis assessing what jobs might be computerized in the future. Their conclusion: a staggering 47% of the US workforce, spanning a range of career types. There are vigorous debates about outsourcing, but increasingly, computerization may grow as a factor affecting employment conditions.
In The Man in the White Suit, Alec Guinness invents a suit that never has to be cleaned or replaced. London’s tailors and dry cleaners angrily chase him down in the street to destroy his invention. They are relieved when the suit finally starts to unravel, since the fiber’s design is flawed. Productivity improvements are great things, but there might be a point at which too much power shifts to capital over labor. Anyway, when you think about a career, remember that in some professions, eventually a computer might be able to do it too, or reduce the economic value of you doing it (e.g., the impact of the internet on print journalism).
The good news: those iPad apps are cheap, and most unemployed workers - who were put out of a job thanks to one - can afford them. The bad news: anyone lamenting the return of America's employment golden age, is kindly encouraged to exhale.
Former OMB director David Stockman rages to none other than Rick Santelli that the budget deal is a "betrayal and a joke" and "the final surrender of the House Republican leadership to beltway politics." The dismal reality - that little to no one in the mainstream media will dare utter - the budget adds $70 billion to spending this year and next year, and "then they're going to pretend to save it in '22 and '23." Stockman blasts, "they've not only kicked the can down the road, but kicked it into low-earth orbit." The only hope of getting our fiscal house in order was if House Republicans stand up, and Stockman warns "will trigger an enormous negative reaction from Tea-Party Republicans." The truth hurts...
Santelli "we're not talking about kicking the timeline can til the mid-terms, " - "this is a two-year vacation on the fiscal budget."
"Just from the momentum built-in, our debt load will be $25 trillion by the end of the next Presidential cycle."
As tensions escalate in Ukraine, risk indicators flash redder than red, and the US is now considering "sanctions" against the divided nation, parliamentarians in Georgia (ironically Stalin's birthplace) have a different way to solve their differences... as the following fight suggests...
Via The Telegraph,
Deputies from majority and opposition parties fought at the plenary session of the Georgian parliament over plans to encourage supporters of Ukraine's European integration.
Video footage taken inside the parliament shows government officials throwing documents in the air and brawling with one another following the opposition's suggestions.
Deputy Giorgi Baramidze wanted to encourage supporters of Ukraine's European integration with a special resolution.
Mr Baramidze also condemned violence inflicted on participants of peaceful rallies in Kyiv.
No one was seriously injured in the incident, but opposition representatives have demanded a public apology from the parliamentary majority before they will participate in any more plenary meetings.
Submitted by Charles Hugh-Smith via Peak Prosperity,
We’ve recently been treated to two mutually exclusive forecasts: that the Great Bull Market will run until 2016 or 2018, so no worries; and that markets are exhibiting bubble-like characteristics that presage another crash.
So which forecast is more likely the correct one?
Analysts of every stripe—fundamental, quantitative and technical—pump out reams of data and charts to support one forecast or another, and economists (behavioral, macro, etc.) weigh in with their prognostications as well. All sorts of complexities are spun as a by-product of producing research that’s worth paying for, and it all becomes as clear as…mud.
As an experiment, let’s strip away as much of the complexity as possible and look at a few charts of what many observers see as the key components of the U.S. economy and stock market.
Let’s start with a basic chart of the S&P 500 (SPX), a broad measure of U.S. stocks:
Without getting fancy, we can discern three basic phases: what we might term “the old normal,” from the late 1950s to 1982; an amazing Bull Market from 1982 to 1994 that saw the SPX more than double; and a third phase that some consider “the new normal,” a leap to the stratosphere in the 1990s, followed by sharp declines and equally sharp rises to new highs.
This third phase of extreme volatility does not look like the previous phases; that much is clear. Is this a new form of volatile stability; i.e., are extreme bubbles and crashes now “normal”? Or are these extremes evidence of systemic instability? About the only things we can say with confidence is that this phase is noticeably different from the previous decades and that it is characterized by repeating bubbles and crashes.
Let’s zoom in on this “new normal” from 1994 to the present. Does any pattern pop out at us?
Once again, without getting too fancy, we can’t help but notice that this phase is characterized by steeply ascending Bull markets that last around five years. These then collapse and retrace much of the previous rise within a few years.
The reasons why these Bull phases only last about five years are of course open to debate, but what is clear is that some causal factors arise at about the five-year mark that cause the market to reverse sharply.
The ensuing Bear markets have lasted between 2.5 and 1.5 years. We only have three advances and two declines to date, but the regularity of these advances and declines is noteworthy.
Next, let’s consider other potential influences on this “new normal” of wild swings up and down. Some have observed a correlation between the cycles of the sun’s activity and the stock market, and indeed, there does seem to be a close correlation—not so much with the amplitude of the market’s recent moves but with the economic tidal forces of recession and Bull/Bear sentiment.
But there is nothing here to explain why the highs and lows in the stock market have become so exaggerated in the “new normal.”
Many have attempted to correlate key dynamics in the U.S. and global economy to the stock market’s gyrations. Let’s look at a handful that are often offered up as important to the U.S. markets: the bond market (TLT, the 20-year bond index), the Japanese yen, gold, and the U.S. dollar.
If there is some correlation between the SPX and the TLT, it isn’t very visible.
How about the Japanese yen? Once again, there is no correlation to the SPX that is obvious enough to be useful.
Some analysts see the yen and gold as tightly correlated; here is GLD, a proxy for gold:
There is a clear correlation here, but as we all know, correlation is not causation, which means that some underlying forces could be causing the yen and gold to act in a similar fashion. Alternatively, the yen is acting on gold in a causal role.
In either case, the problem with correlations is that they can end without warning. Since neither the yen nor gold correlate with the S&P 500, neither one helps us forecast a continuing Bull or a crash.
Lastly, let’s look at the U.S. dollar (DXY).
As I have noted elsewhere, the dollar doesn’t share any meaningful correlation with the S&P 500, yen, gold, or bonds in terms of trends, highs, or lows. Here is a longer-term view of the Dollar Index, and once again we see no useful correlation to the SPX:
Proponents of cycles (17.6 years, for example) claim a high degree of correlation with actual highs and lows, but these cycles do not exhibit the fine-grained accuracy we might hope for in terms of deciding to buy, short, or sell stocks.
Analyst Sean Corrigan has described a remarkable 33-year cycle of highs and lows in the SPX: lows in 1949, 1982, and (forecast) 2015, and highs in 1967 and 2000, (forecast of next high, 2033). While interesting on multiple levels, these cyclical data points are rather sparse foundations for decisions on whether to sell or hold major positions in the stock market, and they do not provide a forecast of the amplitude of any high or low. Given the extremes of the “new normal,” we would prefer a forecast, not just of time, but also of amplitude.
Though it is unsatisfyingly imprecise, the “new normal” phase strongly implies that future declines will be as dramatic as the advances and that the five-year clock is ticking on the current Bull market. Forecasting an advance that lasts years beyond this five-year pattern is equivalent to forecasting that the “new normal” phase is now ending and a new phase of much longer Bull advances is beginning.
That is a bold claim, and there is little historical data to give it much weight. Stripped of complexity, the charts suggest that the current run will top out within the next few months and retrace most of the advance from 2009; i.e., a crash of significant amplitude.
In Part II: The Case for Cash, we analyze the indicators that help us determine the likelihood of a coming crash similar in magnitude to 2000-02 and 2008-09, and why a strategy of selling risk assets now, and holding the cash until income-producing assets “go on sale” at the trough of the next market decline, seems especially prudent at this time.
Curious how much the various banks who stood to be impacted by or, otherwise, benefit from either a concentration or dilution of the Volcker rule? According to OpenSecrets, which crunched the numbers, here is how much being able to continue prop trading meant to some of the largest US banks and lobby groups:
- American Bankers Association: $6.495 million
- JPMorgan: $4 million
- Wells Fargo: $4.440 million
- Citigroup: $4.240 million
- Independent Community Bankers of America: $3.581 million
- Bank of America: $2 million
Not bad considering the loophole-ridden Volcker Rule will effectively permit "hedge" books (where an army of lawyers paid $1000/hour defines just what a hedge is) to continue piling on billions of dollars in wildly profitable, Fed reserve funded trades.
Regulators approved the Volcker rule yesterday, a central piece of the Dodd-Frank bill that limits the ability of banks to engage in high-risk trading. Their decision comes in spite of heavy lobbying from the rule's main opponents: the banks themselves.
The American Bankers Association, which represents the interests of banks of all sizes, spent nearly $6.5 million on lobbying in the first nine months of 2013, with much of that money going to lobbying on behalf of "Dodd-Frank issues." Wells Fargo and Citigroup each spent just over $4 million, while the Independent Community Bankers of America, another organization that represents banks, spent nearly $3.6 million. All three lobbied on the Dodd-Frank legislation.
Bank of America, meanwhile, spent just under $2 million on the Volcker rule and other issues, while JPMorgan Chase spent more than $4 million and listed "implementation and interpretation of the Volcker Rule" as one of its concerns.
The final rule is seen as a defeat for the commercial banking industry, which has already voiced its unhappiness with the decision.
Congrats on the math, alas completely flawed conclusion: obviously the banks wouldn't spend tens of millions not to achieve their goal, which they have - cover up a Rule which is only superficially named for Paul Volcker (even he admitted he had zero contribution in its drafting), and which was almost certainly penned by the banking lobby, in a way that allows banks to continue their prop trading status quo, only this time with the implicit blessing of the government. And since everyone knows how this movie ends, can we just please fast forward to the bit where one after another bank has to once again be bailed out on the taxpayer dime.
Finally, there are those who will be disgusted at how cheaply US politicians can be bought for. That is, sadly, an accurate observation. Recall from Presenting The Greatest ROI Opportunity Ever:
The dream of virtually anyone who has ever traded even one share of stock has always been to generate above market returns, also known as alpha, preferably in a long-term horizon. Why? Because those who manage to return 30%, 20% even 10% above the S&P over the long run, become, all else equal (expert networks and collocated flow-frontrunning HFT boxes aside), legendary investors in the eyes of the general public, which brings the ancillary benefits of fame and fortune (usually in the form of 2 and 20). This is the ultimate goal of everyone who works on Wall Street. Yet, ironically, what most don't realize, is that these returns, or Returns On Investment (ROI), are absolutely meaningless when put side by side next to something few think about when considering investment returns.
Because it is the ROIs for various forms of lobbying the put the compounded long-term returns of the market to absolute shame. As the following infographic demonstrates, ROIs on various lobbying efforts range from a whopping 5,900% (oil subsidies) to a gargantuan 77,500% (pharmaceuticals).
How are these mingboggling returns possible? Simple - because they appeal to the weakest link: the most corrupt, bribable, and infinitely greedy unit of modern society known as 'the politician'.
Yet who benefits from these tremendous arbitrage opportunities? Not you and I, that is for certain.
No - it is the faceless corporations - the IBM Stellar Sphere, the Microsoft Galaxy, Planet Starbucks - which are truly in the control nexus of modern society, and which, precisely courtesy of these lobbying "efforts", in which modest investments generate fantastic returns allowing the status quo to further entrench itself, take advantage of this biggest weakness of modern "developed" society to make the rich much richer (a/k/a that increasingly thinner sliver of society known as investors), who are the sole beneficiaries of this "Amazing ROI" - the stock market is merely one grand (and lately broken, and very much manipulated) distraction, to give everyone the impression the playing field is level.
Despite hope (and talk) that Greece is on the path back to recovery, our recent discussion of the record deflation the nation is undergoing (and record unemployment) suggests Stournaras propaganda is just that. As Bloomberg's David Powell writes, the embattled nation continues to push further into depression and a state of insolvency and appears highly unlikely to be able to reduce the domestic price level in order to restore competiveness and simultaneously avoid a second restructuring of its sovereign debt. Perhaps that is why Troika delayed its appearance in Athens as it is easier to ignore the truth that way? Especially as beggars, once again, will become choosers in the "grexit" debate.
Via Bloomberg's David Powell,
Deflation in Greece continues to push the embattled country further into a state of insolvency.
The EU-harmonized measure of the headline consumer price index declined 2.9 percent year over year in November, according to data released by the National Statistical Service of Greece on Monday.
The gross domestic product deflator dropped 3 percent year over year during the third quarter of 2013, according to Bloomberg Brief calculations based on the levels of nominal and real GDP. The decline in prices is likely to have been greater than the economists of the International Monetary Fund had forecast. In the public sector debt sustainability analysis published in the latest review of Greece’s bailout package, they assumed the GDP deflator would measure minus 1.1 percent in 2013. It was released in July.
The official inflation forecasts for the following years also appear high. The economists assumed the GDP deflator would measure minus 0.4 percent in 2014, 0.4 percent in 2015 and 1.1 percent in 2016. Those figures may fail to materialize as a result of spare capacity in the economy. The unemployment rate measured 27.3 percent in August, the latest reporting period.
That compares with a recent peak in May of 27.5 percent, which was the highest level since the birth of the monetary union. The Organization for Economic Cooperation & Development estimates the non-accelerating-inflation rate of unemployment to be 15.6 percent. That’s a gap of 11.8 percentage points. A period of sustained deflation appears likely.
The experience of Japan demonstrates the difficulty of overcoming deflation. Nationwide Japanese CPI, excluding food and energy prices, slipped into negative territory in September 1998, measuring minus 0.1 percent year over year. It failed to move into positive territory for almost 10 years, hitting 0.1 percent year over year in June 2008.
In addition, spare capacity was much less in Japan than it is in Greece. The unemployment rate in the former never rose above 5.5 percent during the period. That compares with the latest estimate of NAIRU for Japan from the OECD of 4.3 percent.
Deflation raises the real interest rate on Greek debt. For example, the average real interest rate would rise to 5.7 percent from 3.6 percent in 2013, to 4.8 percent from 3.1 percent in 2014, to 4 percent from 2.6 percent in 2015 and to 3.2 percent from 2.1 percent in 2016, according to Bloomberg Brief calculations. Those figures assume the GDP deflator troughs at its present level of minus 3 percent in 2013 and rises to minus 2 percent in 2014, minus 1 percent in 2015 and 0 percent in 2016.
Deflation also weighs heavily on the pace of nominal GDP growth. It would fall to minus 7.1 percent from minus 5.3 percent in 2013, to minus 1.4 percent from 0.2 percent in 2014, to 1.9 percent from 3.3 percent in 2015 and to 3.7 percent from 4.8 percent in 2016, assuming the real GDP growth forecasts from the latest IMF review of the Greek economy and the aforementioned alternate inflation profile.
The nominal size of the Greek economy would be much smaller in 2016 under the alternate inflation scenario. It would measure 199.2 billion euros using the baseline scenario of real GDP growth and inflation from the latest report of the IMF. It would measure 187.5 billion euros using the baseline scenario of real GDP growth from the latest report of the IMF and the alternate inflation profile.
A shrinking economy increases the relative size of a country’s sovereign debt. Greece’s debt-to-GDP ratio would measure 158.3 percent in 2016 under the baseline scenario of the IMF and 168.9 percent for the same year under the alternate inflation scenario.
Greece appears highly unlikely to be able to reduce the domestic price level in order to restore competiveness and simultaneously avoid a second restructuring of its sovereign debt.
While Bernanke may be about to leave; none other than his mentor and thesis adviser - former Bank of Israel chief Stanley Fischer is rumored to be in line for a new role:
- FISCHER STEPPED DOWN AS BANK OF ISRAEL GOVERNOR IN JUNE
- FISCHER LEADING CANDIDATE TO BE DEPUTY FED CHIEF: ISRAEL CH. 2
- DJ WHITE HOUSE NEAR NOMINATING STANLEY FISCHER TO FED VICE CHAIR
Also of note: Fischer was once upon a time considered the "dark horse" candidate to replace Bernanke:
Dark-horse candidates include Stanley Fischer, an American citizen who recently stepped down as governor of the Bank of Israel, and Roger Ferguson, another former Fed vice chairman and now chief executive of TIAA-CREF, a not-for-profit financial-services company.
For now the market seems oblivious that the #2 person at the Fed may be far more hawkish than Larry Summers ever would be.
Big Tail Highlight Of 10 Year Reopening Auction, In Which Direct Bidder Allotment Drops To Lowest Since August 2012
Moments ago the Treasury sold $21 billion in 9 Year-11 Month paper in today's 10 Year reopening of CUSIP WE6, which pricing at 2.824% was a sizable 0.7 bps tail to the 2.817% When Issued trading at 1 pm, and easily one of the bigger tails in the past year for the benchmark bond auction. And while the closing yield indicated a sudden drop off in demand into the auction, the internals were hardly as ugly, with a Bid to Cover of 2.61, below last month's 2.70 (and below the TTM average of 2.73) but hardly a cliff drop in bidside demand. Breaking the allotment by final purchaser, Dealer got 40.5%, in line with the 39.2% average, while Indirects took down nearly half the auction, or 49.8% to be precise, far above the 38.3% LTM average, and the highest Indirect allotment since the 51.7% from June. Directs were therefore left holding 10.6% of the auction, the lowest such portion since the 5.2% in August 2012. Overall, hardly an impressive auction, and one which probably reflects concerns what the taper could do for longer duration in the months ahead.
Following yesterday's "selfie-gate" furore at Nelson Mandela's memorial service, it is perhaps unsurprising that the AFP photographer responsible for the series of incriminating photos come out with a wordy (and picturey) response to explain what we all saw. Roberto Schmidt notes, "it was interesting to see politicians in a human light because usually when we see them it is in such a controlled environment. Maybe this would not be such an issue if we, as the press, would have more access to dignitaries and be able to show they are human as the rest of us." Indeed, especially for a president whose only focus is to be seen as "one of the people" and not actually doing, you know, work to help the people.
So here’s the photo, my photo, which quickly lit up the world’s social networks and news websites. The “selfie” of three world leaders who, during South Africa’s farewell to Nelson Mandela, were messing about like kids instead of behaving with the mournful gravitas one might expect.
In general on this blog, photojournalists tell the story behind a picture they’ve taken. I’ve done this for images from Pakistan, and India, where I am based. And here I am again, but this time the picture comes from a stadium in Soweto, and shows people taking a photo of themselves. I guess it’s a sign of our times that somehow this image seemed to get more attention than the event itself. Go figure.
Anyway, I arrived in South Africa with several other AFP journalists to cover the farewell and funeral ceremonies for Nelson Mandela. We were in the Soccer City stadium in Soweto, under a driving rain. I’d been there since the crack of dawn and when I took this picture, the memorial ceremony had already been going on for more than two hours.
From the podium, Obama had just qualified Mandela as a “giant of history who moved a nation towards justice." After his stirring eulogy, America’s first black president sat about 150 metres across from where I was set up. He was surrounded by other foreign dignitaries and I decided to follow his movements with the help of my 600 mm x 2 telephoto lens.
So Obama took his place amid these leaders who’d gathered from all corners of the globe. Among them was British Prime Minister David Cameron, as well as a woman who I wasn’t able to immediately identify. I later learned it was the Danish Prime Minister Helle Thorning Schmidt. I’m a German-Colombian based in India, so I don’t feel too bad I didn’t recognize her! At the time, I thought it must have been one of Obama’s many staffers.
Anyway, suddenly this woman pulled out her mobile phone and took a photo of herself smiling with Cameron and the US president. I captured the scene reflexively. All around me in the stadium, South Africans were dancing, singing and laughing to honour their departed leader. It was more like a carnival atmosphere, not at all morbid. The ceremony had already gone on for two hours and would last another two. The atmosphere was totally relaxed – I didn’t see anything shocking in my viewfinder, president of the US or not. We are in Africa.
(AFP Photo / Roberto Schmidt)
I later read on social media that Michelle Obama seemed to be rather peeved on seeing the Danish prime minister take the picture. But photos can lie. In reality, just a few seconds earlier the first lady was herself joking with those around her, Cameron and Schmidt included. Her stern look was captured by chance.
I took these photos totally spontaneously, without thinking about what impact they might have. At the time, I thought the world leaders were simply acting like human beings, like me and you. I doubt anyone could have remained totally stony faced for the duration of the ceremony, while tens of thousands of people were celebrating in the stadium. For me, the behaviour of these leaders in snapping a selfie seems perfectly natural. I see nothing to complain about, and probably would have done the same in their place. The AFP team worked hard to display the reaction that South African people had for the passing of someone they consider as a father. We moved about 500 pictures, trying to portray their true feelings, and this seemingly trivial image seems to have eclipsed much of this collective work.
(AFP Photo / Roberto Schmidt)
It was interesting to see politicians in a human light because usually when we see them it is in such a controlled environment. Maybe this would not be such an issue if we, as the press, would have more access to dignitaries and be able to show they are human as the rest of us.
I confess too that it makes me a little sad we are so obsessed with day-to-day trivialities, instead of things of true importance.
During Mandela's memorial service in Johannesburg. (AFP Photo / Roberto Schmidt)
JPY carry trades are not helping and stocks just keep testing lows and finding no new BTFATH-ers for now. This will come as a little surprise to those who have watched the saturated and less exuberant credit markets unable to join the party for the last 2 months.
Credit never bought it...
and all those NFP taper-is-good gains are gone...
as JPY carry is being unwopund (for now)...
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The Python That Ate Your Job
We are already well into the "end of work."
The more accurate title would be "The Python (Script) That Ate Your Job." Python is a computer language whose core philosophy is summarized by "PEP 20 (The Zen of Python)", which includes aphorisms such as:
- Beautiful is better than ugly.
- Explicit is better than implicit.
- Simple is better than complex.
- Complex is better than complicated.
- Readability counts.
As I understand it (from a non-programmer POV), Python enables rapid development of scripts that may not be optimized by some metrics but which work perfectly well in terms of solving a problem in a cost-effective manner.
(Programmers can be highly partisan, i.e. emotionally attached to their preferred language, so I am trying to be as non-partisan and careful as possible here to avoid arousing the ire of either Pythoneers or Python detractors. I am just an ignorant bystander; please don't shoot the piano player, etc.)
A senior manager at a small tech company recently related a story that illustrates 1) the power of Python (and other scripting languages) and 2) the changing nature of work:
The company had some time-consuming data analysis that needed to get done on a regular basis, and the manager was considering recruiting a (paid) intern to do the work. Instead, he spent four hours writing a Python script which did the work in a few minutes. He named the program "Intern."
This story is repeated thousands of times a day across millions of tasks. Virtually all of my self-employed friends use technology to enable one person to produce output that would have taken three people in the 1980s.
As management guru Peter Drucker noted, enterprises don't have profits, they only have expenses. If you are self-employed or own/manage a business, you will immediately grasp the profound truth of this insight.
If you can replace an expensive worker (and every employee is expensive nowadays, due to the high cost of labor and general overhead) with a Python script that can be crafted in a few hours, financial fact compels you to do so: your business has no profit, it only has expenses.
This dynamic is scale-invariant, meaning it is true of all organizations, from one-person businesses up to global corporations and entire nations. A non-profit group only has expenses, and so do churches, cities and nations. Once expenses exceed income, the organization goes bust.
Could I be replaced with a Python script? In some ways, yes: a script could be written that mined the thousands of entries and essays I've written for repeating words, phrases and themes, and the script would rehash the material into "new" entries.
But since the script isn't logging "experience" in the same way as a human does, the script would not be able to replicate dynamics such as changing one's mind or taking a new direction, although it could randomly generate such behaviors to mimic human development.
Would the script be "good enough" to attract readers? Perhaps; but attracting and keeping readers is not necessarily a problem-state that can be solved with data-mining and pattern matching, as readers seek not just novelty and expressive writing but insight. Any script that rehashed existing material would not be generating new insight; it would simply be repackaging previous insights.
For highly partisan blogs, this might well be "good enough," since partisan readers actually want to read the same rehashed material again and again: in effect, a script that repackaged "it's the Demopublican's fault" with new headlines and slightly different content would closely match the human content generator's output.
I have no doubt some clever programmers have already played around with generating rehashed content and posting it as a blog written by a human being, an artifice masked by an avatar ("Hi, my name is J.Q. Public and I write about politics."). It would almost amount to sport to generate a phony history and cobbled-together quirks to fill out the illusion of personhood.
(Some readers have even wondered if "Charles Hugh Smith" is such an avatar. The answer is no, because the history and quirks of "Charles Hugh Smith" are simply too implausible to be believable. Also, the cost of maintaining such a complicated avatar isn't worth the paltry income generated by the blog. What machine intelligence would be dumb enough to maintain this idiotically complicated enterprise for such a paltry return? Only a human would be compelled to do so.)
Could a robot and standardized scripts replace everything I can do with a Skil 77 wormdrive power saw? It could certainly do a great many repetitive tasks at a work bench, but it would not be able to do non-standardized, on-the-jobsite tasks such as cutting out the rotten sections of a wood window frame. The robot might be able to execute the cuts (presuming it was light enough and mobile enough to stand securely on a scaffold or slope), but it would need a human partner to program the cuts in the real world and in real time.
In other words, "work" is increasingly a partnership of humans and technology. If one's skills and experience (i.e. labor) can be replaced with a Python script, it will be replaced by a Python script. Organizations that fail to replace costly paid human labor with a script will have much higher costs than those organizations that replace paid labor with scripts.
The paid human labor that can't be replaced by a script will increasingly require the knowledge and skills needed to collaborate with technology as an essential work partner.
We are already well into the "end of work." Digital pythons have been eating jobs for some time now, and because organizations only have expenses, they will continue to do so indefinitely until the only paid jobs left are those that cannot be fully replaced by a script or a robot operating on standardized scripts.
Two days ago, supposedly in an attempt to demonstrate how "contained" the radiation fallout from Fukushima was, an event was held in Tokyo to demonstrate the safety of the rice grown in the vicinity of the evacuated area around the exploded nuclear power plant according to the source, NHK. And since officials from Fukushima Prefecture said "no radioactive materials were detected in any of the harvested rice" a whopping 540 kilograms of the non-radioactive rice would be served in a government office complex in Tokyo for 9 days from Monday. We further learned that Senior Vice Environment Minister Shinji Inoue and Parliamentary Vice Environment Minister Tomoko Ukishima tasted rice balls made of the crop on the first day. Inoue said the rice tasted good especially when he thought about the great effort that went into cultivating the crop. A farmer from Kawamata Town said he will continue to cultivate rice now that he knows that it's possible to grow a tasty product if the paddy fields are properly decontaminated. He said he travelled from his temporary home to the paddy to tend the rice as it grew.
While we will avoid commenting on the "intelligence" behind this action, designed to demonstrate just how under control the Fukushima situation is (when even Tepco admitted it no longer is), especially since it takes years if not decades for radiation-induced illnesses to appear (although we do remind readers that the leader of the Fukushima explosion response team did die from Cancer in July, or just over two years after the disaster), we will note something curious.
A quick search for the original article on NHK, which we read when it came out, reveals a surprising finding: a 404 error.
Which makes one wonder: is this the first instance of the government's brand new "secrecy" bill being implemented, and if so, why, of all places, in a story which is nothing but propaganda to telegraph that all is well in Fukushima and whose downside is at most the well-being (and life) of two lowly government apparatchiks.
In the meantime, if the US is importing any rice from Japan, it may want to give it the good old Geiger Counter test or two.
The Merrill Lynch Investment Strategy group, Martin Mauro and Cheryl Rowan has their look ahead to 2014. I don’t agree with all of these, but they are interesting and thought provoking:
Themes for 2014
1. Be an owner, not a lender
Fed tapering with accompanying higher interest rates, an improving US economy, and healthy earnings and sales growth all favor stocks over bonds.
2. Cash is trash, but high yield is not junk
High yield bonds and senior loans will be among the best performing sectors of the
bond market in 2014, in our view, while returns on money market funds and other
short-term assets should remain near zero until early 2016.
3. Pick stocks, not markets
Falling correlations among individual equities suggest divergent returns and an
environment that favors stock selection over indexing.
4. Bigger is better
Small caps have outperformed large caps in 2013, but are now expensive and not expected to outperform
large when global growth accelerates.
5. Look after tax, not before tax
For most investors, even those in lower tax brackets, yields on municipal bonds are higher than the after-tax yield on other bonds.
6. Warehouses over townhouses
We may be in the early stages of an equity market leadership shift away from consumer-related sectors and toward industrials and global cyclicals.
7. Ride the curve
We recommend some exposure to intermediate-term maturities, primarily through portfolio laddering,
even though we expect yields to rise.
8. Find the next Google
In our view, some of the best equity themes can be found among innovative companies that benefit from their investments in technology.
9. Look across the pond
European recovery is only just beginning, in our view, and the region is poised for a longer and more sustainable rally in the equity market in 2014.
10. Don’t get real
We expect a modest decline in a broad array of commodity prices in 2014, caused by Fed tapering, higher US rates, a stronger dollar, slowing economic growth in China, and oversupply.
You can see the full video here.
Hat tip: Barry Ritholtz
The ratio of bulls to bears has never (that is ever) been higher according to (the perhaps ironically names) Investor's Intelligence. There are now more than 4x more bulls than bears and even more concerning, the only time "bears" have been lower than the current 14.3% was in the spring of 1987...
Winthrop H. Smith Jr. son of one of founders of Merrill Lynch, is interviewed by Connie Mack of WealthTrack:
The first complete history of Merrill Lynch – traces ML’s impact on the world of finance from the day Charlie Merrill opened his one-man shop on January 6, 1914, to the final shareholder meeting prior to its acquisition by Bank of America on December 5, 2008. Win Smith also weaves in his personal experiences and observations. As the son of a founding partner, the author has known every Merrill Lynch CEO from the first, Charlie Merrill, to the last, John Thain. While it details the drastic decline of the company between 2001 and 2008, it also explores the story of the company’s “Mother Merrill” tradition – the vision and guiding principles shared by employees with each other and with their clients throughout the world.
Another perspective on the Volcker Rule via Colin Burgess of Sterling, authoried by Anthony Peters of SwissInvest
Mario’s Law and Volcker’s Pandora’s Box
Today, Tuesday, is a day rich in headlines from across Europe which confirm that all is well in the garden and that where things are not well they will become well.
Ireland will unquestionably receive its last tranche of bailout money because it has earned it, Cyprus will most likely receive its next tranche despite the fact that in truth it has barely deserved it and Greece continues to miss every deadline which has been set for it but will in the end surely also be found to be worthy – how can it not be?
All this is now a function of “Mario’s Law”. As opposed to Murphy’s Law which determines that whatever can happen will happen, Mario’s Law seems to teach us that whatever can happen won’t. That is the simple new reality which includes a sub-section which adds that sceptics will be flogged by rallying asset prices until they surrender. Spot the way I am holding both hands height in the air?
Meanwhile, while the UK’s Royal Institute of Chartered Surveyors (RICS) reports the highest level of optimism in the country’s residential real estate sector since June 2002 – it reported this morning at 58% – and the euro goes from strength to strength while breaking a five year high against the yen, the future of our industry is up for debate in front of Congress as the Volcker Rule threatens to be enacted into law.
It is no secret that the banks have fought very hard to prevent Volcker from taking effect but it looks suspiciously as though it is now game over and the industry in which we are working will, if it is introduced in the format which is proposed, never be the same again.
I am still of the generation which came into banking because we were not smart enough to get a proper job. The cream of the graduate population either competed for a slot on the British Antarctic Survey or for one of the highly prized positions as a graduate trainee in marketing with one of the principal consumer or pharma groups. The big queues at the graduate job fairs were at the stands for Shell, BP, Unilever, Proctor and Gamble, Coca Cola or Kodak. Banking was for those left over and who neither wanted to join the army or enter the church. Bank shares were for boring pension funds and figured somewhere with utilities, in as much as any of those were listed and not still in public ownership.
Luckily for me, I defaulted into a twenty five year period when banking lit up like shooting star. Deregulation of markets and the creation of so called “products” based on mathematical modelling drove the industry forward and even the smallest boats rose with the tide. Wall Street and the City found themselves full of people who believed that they were worth what they were being paid and the queue of those who wanted a part of it stretched all the way to Oxford and Cambridge and to New Haven and the other Cambridge. If you had a PhD in astro-physics or theoretical chemistry, you simply had to be perfectly qualified to advance in banking. My degree in politics and modern history might have helped me get a slot on the reception desk, no more.
Alas, the growth of the derivative markets along with relatively generous capital rules helped to boost bank earnings and with that their ability to lend. Lending led to growth which fostered further lending and further growth and the miracle of rising living standards which took off in the late 70s/early 80s under Reagan and Thatcher but which was funded more by easy borrowing as it was by higher productivity was up and running.
“Ordinary people” could aspire to possessions they had never been able to dream of before and in their hubris they never appreciated how much they were paying in fees and interest in order to buy the goodies they packed into the house which, in the end, they bought as well.
The culture of estimating how much debt service one could afford was born and with it the culture of worrying how one could ever repay what one had borrowed died. And the banks, bless them, encouraged the nonsense. That’s right; if you don’t ask borrowers to repay, you reduce the risk of default. Simples!
The entire socio-economic model is now built on this and, whether right or wrong, it demands a very different sort of banking that the “pay 3% on deposits and lend them at 5%” kind of industry which I came into and which prevailed until the late 1970s or early 1980s.
Volcker seemingly wants to go back to the world he oversaw as Chairman of the Federal Reserve but Pandora’s Box has been opened and it can’t be sensibly closed, post factum. Bond markets are not equity markets and they don’t always have buyers and sellers afoot. Bonds tend to be all bid or all ask and the efficiency of the market is based on the banks’ ability to act as a huge reservoir taking up the slack in both directions. This is not a matter of simply playing the intermediary – bond markets need much, much more than that in order to function in a manner which protects the ultimate investors’, that’s the savers’ and policyholders’ interests.
Minimum clip sizes of 100,000 units or more have driven small private investors out of direct participation bond markets and into institutional funds but these need forms of liquidity which the Volcker Rule risks effectively out-lawing. Sure, many of the trading patterns of the first decade of the century were reckless and crazy but higher capitalisation rules have taken care of most of this. Volcker risks over-egging the pudding and, to mix my metaphors, killing the goose that lays the golden egg.
I have no doubt that investment banking in general and fixed income in particular are still overpopulated and rife with people who still believe that a job in the industry is a free ticket to get rich quick. However, banks and brokers are in the natural Darwinian process of right-sizing and to do that they don’t need the Volker Rule. Yet, it is difficult for people outside our industry to truly understand all the mechanics and drivers within it and if they are fuelled by the desire to perform populist legislative acts which they can carry to the hustings or, as Americans say, to the stump, then even less.
I see trouble ahead if Volker is passed and a decade in getting it right again. Liquidity, the holy grail of markets, is possibly about to be sacrificed on the altar of ignorance and fear.
Submitted by Jim Quinn of The Burning Platform blog,
The MSM is trying to spin the 110,000 sign ups in November as a fantastic result. When a “free” new entitlement is announced and rolled out in this country, they would normally be knocking down the doors to sign up. Anyone who really wants Obamacare has already signed up. The first two months should generate the biggest numbers. When you have only achieved 5% of your goal after two months, you’ve failed miserably. Obamacare is a disaster before it even gets off the ground and bankrupts the country. Young healthy people will never sign up for Obamacare. They know it’s a scam. They also know that Obama and his IRS minions are so incompetent, they’ll never figure out how to collect the fines from people who don’t sign up. Have you ever met an IRS employee?
But, the MSM will do their darndest to mislead the public about Obamacare success.
Behind Obamacare figures
The latest figures on Obamacare enrollment are out, and they have better but not great news for the White House. The stats show that Obamacare enrollees who have selected insurance plans through the federal HealthCare.gov website quadrupled from October to November, but other figures don’t show growth that rosy.
HHS figures show that HealthCare.gov enrolled 110,410 new consumers in health plans last month, more than four times that of the 26,794 signed up during October, as the troubled website started to work out the troubles it experienced from its inception Oct. 1.
Growth in the number of people processed through the system wasn’t as sharp. HHS figures indicate that 822,789 consumers were deemed eligible for health plans last month, up 17% from the 702,619 reported for October. The pace of those who completed applications for health coverage was slightly better, with November postings of 1.23 million, up 19% from the 993,635 reported for October.
Further, activity slowed significantly on both the federal and state marketplaces, though some of that wane can be attributed to initial heavy interest. After nearly 27 million unique users clamored to HealthCare.gov and the state websites in October, that slowed down to roughly 12.2 million in November, a drop of 54%. Calls to the various service centers dropped to 2.1 million from 3.2 million, falling by a third.
HHS officials said nearly 365,000 people have selected health plans from state and federal marketplaces since Oct. 1, with nearly two-thirds of that coming from the states. The number of federal marketplace enrollees deemed eligible for coverage is twice that of the state-run exchanges — at 1.5 million vs. the states’ 780,000.
In addition to the 365,000 nationwide sign-ups, more than 800,000 were deemed eligible for Medicaid or the federal Children’s Health Insurance Program. HealthCare.gov serves 36 states, while the 14 other states and the District of Columbia run their own exchanges.
HHS hopes to enroll 7 million people in health plans by March 31. It has been hampered severely by troubles with HealthCare.gov, which it says is operating smoothly for the bulk of consumers visiting the site.
The following Third Point letter may or may not have been actually sent, although if indeed shareholder activists - more aggressive now than ever thanks to the brilliant idea of forcing management teams to lever themselves up to the gills with what for now appears to be cheap credit - do get some original ideas thanks to this particular Vanity Fair lampoon, then children around the world will have a fabricated Dan Loeb to thank for having their Christmas presents delivered by an army of highly efficient and profit-maximizing Amazon drones.
Source: a rather humorous Vanity Fair
Investors all over the world are confronted by markets that have been dressed up for the amusement of the crew in charge of the ship, and nobody seems to recognize what they are looking at. Sure, they look like markets, but at the same time there is an unfamiliarity that is extremely unnerving to at least a few in the gathering crowd. The majority of the mob, however, have decided that they look enough like markets to charge in blindly in the expectation that all will be as it should. Things are not as they should be. Far from it.
Everywhere one looks are signs that the markets are just monkeys dressed up in fancy costumes…
From benign inflation, housing’s recovery, improved unemployment, and sustainable profitability; Grant Williams destroys the myths of the disturbing disconnects between these “headlines” and the facts in his must-read letter…
Countries all seem far rosier when viewed through the prism of stock market performance and government bond prices than when examined realistically by means of a long, hard look at the underlying economies — particularly if the necessary adjustment is made to account for the extraordinary level of stimulus applied by all and sundry.
Which provides the perfect segue…
Raoul Pal and Remi Tetot of Global Macro Investor (one of, if not the, very best macro publications available anywhere) put this chart together for their most recent monthly and kindly gave me permission to use it.
It is without question the single best chart I’ve seen to explain the reality of all-time highs on the S&P 500 in relation to the application of trillions of stimulus dollars. This chart obviously applies solely to the USA, but no doubt we would find a similar pattern in just about all the major, QE-riddled markets.
The chart shows the S&P 500 deflated by QE — and it’s breathtaking:
There’s your all-time-high stock market, folks.
Just another primate dolled up like a sailor, I’m afraid.
Don’t follow the crowd and dive into markets just because everybody else is doing so.
That’s how monkeys end up getting hanged.
Full Letter below…