Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!

Monday, October 05, 2015

Simply because it's the right thing to do

I find myself pondering the vast contorted pile of twisted knickers that have been piled up all over my media consumption over the last two days about the behaviour of protestors outside the Conservative conference.  And I find myself with one overpowering thought:

Someone is going to get killed if this sort of thing carries on

I've never been a fan of demonstrations at all - sensitive feet, low boredom threshold.  But one of the things that makes me even less of a fan, is that you tend to meet the kind of person who thinks that shouting loud aggressive slogans at passers-by is a cool thing to do.  And of course it isn't.  It's belligerent macho bullshit, of exactly the sort that people like me like to pretend doesn't happen on the political left[1].  It's also, pretty clearly, a more or less direct consequence of the way that every single disagreement over benefit policy these days gets blown up into "THE TORIES ARE QUITE LITERALLY MURDERING BABIES".  Owen Jones was, on the Twitter, apparently surprised to have been cussed as "Tory scum" because he was walking into the conference with his press credentials, but really, what might he have expected - if you spend five years telling people that a political party is intentionally hounding the disabled to death, then wouldn't it be surprising if a few people didn't think that this justified violent behaviour?

On the other hand, the British political media, one of whom got gobbed on apparently (which is why we're having this moral panic), might also use the rather nasty and overheated atmosphere currently prevailing in Manchester as an occasion to ponder their own behaviour, and whether they themselves have been as grown-up as they could be.  One of the nastiest bullying games in any school playground is that of picking on the weird kid, winding him up with progressively nastier and nastier insults, then finally getting him to freak out and hit somebody then shouting "LOOK WHAT HE DID!".  And that's pretty much been the response of the commenteriat to the Corbyn boom.

Yeah, Corbyn supporters, it was very clear from as long ago as July, tend to have a large element in them which is young, not overly blessed with common sense, and very passionate and aggressive in defending their beliefs.  Not all that clever an idea to wind them up then was it?  After a pretty solid 90 days of amazingly aggressive, amazingly bad faith insults, the press can hardly claim that what has been happening to them in Manchester has fallen out of a clear blue sky.

What!  Can he really be saying that?  Is that bastard Davies blaming the victim?  I bet he doesn't even own a "Je Suis Charlie" t-shirt [2]!  How dare he!  Finally We See The Left In Its True Fascist Colours , etc etc.

I don't understand why people have such a hard time understanding this point.  Surely professional, literate people who are willing to take enough time and trouble to write a blog post themselves, are also able to stretch their minds around two independent concepts simultaneously.

1.  It is not OK to spit at or harass people, still less to harm them.  This is still not OK even if they wind you up.

2.  It is not OK to fill your news coverage with bad faith bullshit.  This is not retrospectively justified if some supporters of the person you're insulting behave badly.

That might be a little too compressed.  Let me expand and provide a few corollaries:

If the Corbyn fan club were to calm down, turn down the emotional temperature and self-police the idiots in their midst better, would this mean that they got better press coverage?  Maybe, but probably not.  The British political media establishment know one thing about Corbyn - they know that they didn't see him coming, they don't understand him and he appears to have made the last twenty years' investment in intellectual and social capital with New Labour obsolete.  So their attitude to him is always going to be that of a Nottinghamshire weaver to them new steam looms.  There is basically no hope of getting a fair shake, and behaving better won't help.  Nonetheless, it is the right thing to do.

If the press were to start covering the Labour Party in a remotely fair or objective way, and to stop proliferating stupid gotchas, does this mean that they would get less gobbing and insults from protestors?  Again, probably not.  It only takes a few morons, and morons are extremely resistant to self-policing.  In any case, as with the Cybernats, the Corbynites have a large element who are entirely new to politics, very passionate, very paranoid and (as with anyone who takes up a political cause for the first time), outraged that what appears obvious to them is not also obvious to anyone else.  The British political media have chosen their side - technocratic centrism - and they are not likely to be able to get rid of the enemies that this choice has made for them.  Changing the style and slant of their journalism probably won't help.  Nonetheless, it is the right thing to do.

As I say, if stuff keeps going in this direction, somebody is probably going to get killed, either in a protestor riot or a police riot, and it will not be much consolation to anyone that the person who gets killed will be at least partly the author of his or her own misfortunes.  I am now officially old enough to say "grow the fuck up" as my main tool of political argument, and since I am suffering the aches and pains of middle age along with the psychic torment of knowing I will never play for Wales, I'm damned if I'm going to give up on the few compensations.  GTFU, the lot of you.

[1] By the way, plenty of the "I am a man of the left, oh yes I am, despite having spent the last ten years writing in praise of the Conservative Party" tendency have been trying to claim that Conservatives are much more friendly and less inclined to this kind of behaviour.  Nuh uh.  If you think that Tories don't spit on their political opponents and call them "scum", ask your mum about what used to happen when CND was a thing.  Or try wearing a white poppy.

[2] I do
10 comments this item posted by the management 10/05/2015 08:03:00 AM

Saturday, August 23, 2014

One door closes, another one slams in your face

Welcome new readers, also welcome old readers.  Up until now this has mainly been a politics and economics blog.  From now on in, it will also be a travel blog.  There may even be pictures!  But perhaps not.  In the meantime, the fact that I am no longer conflicted out because of my day job means I can do a few more things about newsworthy issues of the day and specific things to do with banking.

For example, our Felix's latest article on Silicon Valley deals and how they prove that banks are redundant and so on and so on. On the one hand, I agree with a lot of it, because I've always thought that M&A advisory was a really hinky part of the industry (occasional reader - not you! you were great mate! those other guys!). But on the other hand, I would read from the welter of Silicon Valley deals that have been consummated without Wall Street help, a simpler underlying truth - that there are a lot of very good companies which simply have no business being part of the public quoted capital market and that for the first time in about twenty years, a lot of these companies are not being part of the public quoted capital market. This seems like the system working, for anyone whose career started earlier than about 1997; it would be better if Wall Street had explicitly said that WhatsApp at $10bn was not a suitable investment for anyone's retirement savings, but if they Just Don't Get It and therefore Miss The Deal, then that works too. In my view, a decent next step would be to recognise that companies like Facebook (and even possibly Google) probably shouldn't be troubling the stock market either.

This isn't a slam on tech, far from it.  There are lots of really great industries that should never be quoted companies and should not have investment banking advisors talking them into and out of deals.  For example, investment banks.

8 comments this item posted by the management 8/23/2014 12:56:00 PM

Monday, April 21, 2014

Secular stagnation and such ...

I put this in the comments on Brad's site

I think the problem here is more of this gross substitutability stuff and marginal thinking that I am always going on about. The idea that people seem to be stuck with is that an increased weighting to equities and high-yield debt in some portfolios is an "increase in risk" and that this in some way increases the danger of another financial crisis. But a) the extent to which it's actually happened is hardly measurable, and b) it isn't, any more than a budgerigar might grow up into a tyrannosaurus rex. They're different things.

The credit bubble and house price crash weren't random outcomes selected from the underlying distribution of financial asset returns; they were specific events with their own causes, which is why they appeared to be Black Swans to people who weren't paying attention to those causes. That's not going to happen again, or at least not in that specific way, not for a while.

As far as I can see, Brad, you're more right than the people worrying about financial instability, because they're looking at this from a partial analysis - they're looking at either the (small) empirical evidence of people increasing holdings of credit-risk securities or the theoretical arguments to the effect that the private sector has an incentive to increase those holdings and saying - increase risk equals bad.

You, for your part, are looking at the system as a whole and saying that there's something close to a conservation law; that duration risk has gone down, while credit risk (and equity risk) has gone up, for the private sector. 

Stein's view seems to be that the total amount of "risk" can go up if the total amount of *activity* goes up (which is true, activity is risky), and that in so far as the QE channel works by encouraging the private sector to buy credit- and equity-risk securities and thereby ... (cough mumble) investment in real entrepreneurial projects, then it's possible that QE might encourage the kind of over-leveraged risky structures that lead to financial fragility.

My view is that, while your view and Stein's are clearly better than the partial view, this is all the sort of blackboard thinking you're going to get if you start off by making the mistake of drawing supply and demand diagrams denominated in generic "risk"! The attraction of cash isn't that it's "safe" - ten year floating rate government bonds would have zero duration risk, but they wouldn't be cash. The reason that people hoard cash in liquidity traps is that it's *liquid* - it preserves your optionality, and combines zero risk of being unable to meet nominal liabilities, with instant convertibility into consumption or investment goods. Cash is what you want to hold when you don't know what to do next.

And people's decision about what they want to do next are driven by animal spirits and expectations about an unknowable future. The kind of thing that makes people take non-ergodic, non-insurable, non-hedgable entrepreneutrial risk is really not very related to the kind of thing that makes people move the equity weighting of their portfolio from 40% to 45%. 

If, at some future date, activity picked up and we had a normal investment environment and yields were still at 2%, then this might be a problem, as it would mean that people would be able to finance very low-yielding projects, and as a result would be vulnerable to comparatively small real shocks to either their refinancing cost or their cash flows. But this is to assume that future massive mistakes would be made.

2 comments this item posted by the management 4/21/2014 10:50:00 PM

Wednesday, April 02, 2014

A minor squib about Ukraine


A few weeks ago: Europe and Russia were politicking over whether Ukraine should be considered to be Finlandized to the EU sphere of influence or to the Russian sphere of influence.

Now: Basically the same diplomatic and grand political struggle, over Eastern Ukraine.

Remind me again who looks weak and silly and has been humiliated?  It looks to me as if, in sheer territory-lost-versus-gained metrics, there's a clear winner and a clear loser among the two imperial powers on the European continent, to the tune of half of Ukraine.
3 comments this item posted by the management 4/02/2014 12:08:00 AM

Tuesday, April 01, 2014

An absurdly simplistic point about High Frequency Trading

This seems like such an obvious point that it surprises me I haven't seen it being made over and over again, presumably in industry publicity material. The central anecdote of Michael Lewis's book (and a story that very often forms the centrepiece of an article about high frequency trading), goes as follows:

"Before RBC acquired this supposed state-of-the-art electronic-trading firm, Katsuyama’s computers worked as he expected them to. Suddenly they didn’t. It used to be that when his trading screens showed 10,000 shares of Intel offered at $22 a share, it meant that he could buy 10,000 shares of Intel for $22 a share. He had only to push a button. By the spring of 2007, however, when he pushed the button to complete a trade, the offers would vanish."
To make his point, he asked the developers to stand behind him and watch while he traded. “I’d say: ‘Watch closely. I am about to buy 100,000 shares of AMD. I am willing to pay $15 a share. There are currently 100,000 shares of AMD being offered at $15 a share — 10,000 on BATS, 35,000 on the New York Stock Exchange, 30,000 on Nasdaq and 25,000 on Direct Edge.’ You could see it all on the screens. We’d all sit there and stare at the screen, and I’d have my finger over the Enter button. I’d count out loud to five. . . .
“ ‘One. . . .
“ ‘Two. . . . See, nothing’s happened.
“ ‘Three. . . . Offers are still there at 15. . . .
“ ‘Four. . . . Still no movement. . . .
“ ‘Five.’ Then I’d hit the Enter button, and — boom! — all hell would break loose. The offerings would all disappear, and the stock would pop higher.”
At which point he turned to the developers behind him and said: “You see, I’m the event. I am the news.”

Fair enough. But … tell me about the other side of this trade. Brad Katsuyama, in this story, had to pay a few fractions of a cent more for the 100,000 shares of AMD stock he wanted to buy, because high frequency trading firms saw his order coming and took out the sellers. But if he paid a few fractions of a cent more, then someone else who was selling the stock received a few fractions of a cent more. Here's a story you don't ever see told.

"One day, he came into work and started trying to sell a block of stock at $15 a share. There wasn't much interest at that price and a bunch of offers at $14.9995. Brad knew he needed to get the trade finished, so he sighed and got ready to lower his quote. Just as he was about to press the button, though, a shoal of high frequency traders took out all the offers below him and an institutional investor paid up the full $15! He said hurray".

Nobody would think that way. If you put in an order and get a fill which has a bit more slippage [1] in it than you were expecting, then you start looking around for explanations of why this thing could have happened. If you get an unexpectedly good fill, then you tend to presume that this is just because you're such a great trader.

All of which certainly isn't my general view on HFT; I have always thought that the whole business of payment for order flow was hinky in the first place, and I've always been suspicious of entities which behave like liquidity providers but don't commit to providing liquidity when it's needed. But by definition, when the price moves away from one trader, it's moving toward another one. So I don't think that estimates of the "cost" of the presence of high frequency traders can be supported based only on anecdotes of bad fills.

[1]("slippage" = "the difference between the price you saw on the screen when you made the decision to trade, and the price where the order actually gets filled")
7 comments this item posted by the management 4/01/2014 11:59:00 PM

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