Opinion

Ben Walsh

from Counterparties:

Multiplication nation

Ben Walsh
Apr 2, 2014 22:14 UTC

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“You can't legislate demographics”, says Derek Thompson, surveying the economic drag of America’s low birthrate. Blame, in part, the world-record cost of giving birth in America, and the recession, for the decline of babies. Reihan Salam and Matthew Klein don’t want to legislate for demographics, but they do want to tax incentivize for them. Here’s Salam’s solution:

Who should pay more? Nonparents who earn more than the median household income, just a shade above $51,000... We all benefit from the work of parents. Each new generation reinvigorates our society with its youthful vim and vigor. As my childless friends and I grow crankier and more decrepit, a steady stream of barely postpubescent brainiacs writes catchy tunes and invents breakthrough technologies that keep us entertained and make us more productive. The willingness of parents to bear and nurture children saves us from becoming an economically moribund nation of hateful curmudgeons.

Not everyone is ready to write a rejoinder to Rust Cohle-esque anti-natalism into the tax code. Matt Yglesias wrote in 2009 that a focus on the economic consequences of the birth rate is a vestigial agrarian impulse. His preferred policy is essentially fertility neutrality: “To deliberately constrain people from having large families would be abhorrent, but it’s not clear to me that we should be going out of our way to encourage them to do so”.

Choosing not to have a child has fairly straightforward economic benefits, beyond avoiding ten plus thousand dollars in medical costs. BuzzFeed’s Anna North says that there are economic benefits of birth control: “56% of women said contraception had allowed them to support themselves financially; 51% said it had helped them finish their education. And 50% said it had help them get or keep a job.” Part of America’s falling birth rate is the plummeting rate of teen pregnancy, which is an unalloyed good.

A very easy way to make more Americans is to let in more people into the country who want to be here. Overall US population growth was just 0.7% in 2007, so why not, Ezra Klein asked, pass immigration reform. “Immigration is essentially the importation of new workers. It’s akin to raising the birth rate, only easier, because most of the newcomers are old enough to work”.

from Counterparties:

Guilty Motors?

Ben Walsh
Apr 1, 2014 22:08 UTC

Want to sign up for the Counterparties email? Click here. In the first three months of 2014, GM has recalled 6.3 million cars. Among those recalled are all 2005-2010 Chevy Cobalts, whose ignition switches have been faulted for 13 deaths so far.

GM CEO Mary Barra told Congress today that she “cannot tell you why it took years for a safety defect to be announced”.

Heidi Moore thinks the reason lies in the company’s sclerotic and hubristic corporate culture. The company never really changed after its 2009 bankruptcy, Moore says, and “all of that talk – of the reborn American automaker, of bets paid and dollars won – seems like a hollow spectacle”. James Pethokoukis agrees: “There is not much a $50 billion government check can do about a dysfunctional corporate culture except temporarily paper over it”.

GM’s internal safety and quality control procedures certainly look inadequate. The company knew about the ignition switch problem in 2001 and decided not to fix it in 2005 because it would have cost too much. GM was also aware of numerous other other problems with the Cobalt, the NYT reports based on state data. Before the ignition issues became public, “it was already seen as a lemon”: owners reported problems as farcical as windows falling out.

from Counterparties:

Flash mob

Ben Walsh
Mar 31, 2014 22:08 UTC

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“The US stock market... is rigged.” That was Michael Lewis’ one sentence summation of his new book Flash Boys on last night’s 60 Minutes.


In an excerpt of the book in the NYT, Lewis writes that around 2007, one of the Royal Bank of Canada’s stock trading teams began seeing odd market behavior: quotes vanished as soon as orders were entered. Other big banks and hedge funds were having the same problem. In trader-talk, the market kept moving away from them, no matter what they bid or offered. High-frequency traders were milliseconds ahead, buying, selling, and, perhaps most importantly, canceling quotes faster than RBC. The market wasn’t fair, and speed was the reason why.]


“High-frequency trading is a tax on investors”, says Barry Ritholtz. Institutional investors pay a “skim” to HFT shops on every trade. Just how big the skim is is unclear – Lewis puts the daily gains from US HFT trading at $160 million, or about 0.07% of average daily volume of $225 billion – but its very existence is, to Ritholtz, “prima facie proof that something is amiss”.

from Counterparties:

Roasted Turkey

Ben Walsh
Mar 28, 2014 21:51 UTC

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For the last 10 years, Turkey has been a growth miracle. It increased exports by afactor of ten; GDP and per capita income rose threefold. But the cornerstone of that economic success – political stability – is now under threat.

Prime minister Recep Erdoğan isn’t on the ballot in Sunday’s local Turkish elections, but they’re all about him, says Oray Egin. Erdoğan blocked Twitter (the ban was laterreversed), succeeded in shutting down YouTube due to “national security concerns”, has been caught up in a bribery scandal, and was the target of massive protests.

Polls and currency markets are predicting that Erdoğan’s ruling AK Party will win a plurality. Aid of food, clothing, coal, and other necessities has kept support among working class voters strong.

from Counterparties:

Citi-wide failure

Ben Walsh
Mar 27, 2014 21:22 UTC

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Citigroup can now claim worst-in-class stress test performance. For the second timein three years, the Federal Reserve rejected the bank’s capital plan. Citi proposed raising its dividend from a penny to 5 cents and repurchasing up to $6.4 billion in stock. However, the Fed rejected the plan, saying it doubted the “overall reliability of Citigroup’s capital planning process”.

Embarrassingly for Citi management, Bloomberg’s Michael Moore and Elizabeth Dexheimer write that the Fed found issues in planning areas it had previously flagged. These include the bank’s “ability to project losses in ‘material parts of its global operations’ and to reflect all business exposures in its internal stress test”. In February, Citi announced it had uncovered $400 million in loan fraud in its Mexican subsidiary, forcing it to restate its 2013 earnings.

While Citi passed the Fed’s quantitative hurdles, it failed on qualitative grounds. Matt Levine explains:

from Counterparties:

Recovery-lite

Ben Walsh
Mar 26, 2014 21:55 UTC

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The Great Recession ended in June 2009. The average post-war recovery, Jared Bernstein notes, lasts just 58 months before there’s another recession -- and this recovery is now 57 months old. But even as the recovery enters its statistical autumn, most Americans haven’t noticed that it ever happened at all. A recent NBC/WSJ poll found 57% of respondents thought the US economy was still in a recession.

Josh Barro points to barely-there wage growth to explain the disconnect. Between 2009 and 2012, real incomes of the 99% grew at a meager 0.1% annually. The longer term trend, he points out, is clear:

from Counterparties:

Alibaba’s New York debut

Ben Walsh
Mar 19, 2014 21:57 UTC

Alibaba, the Amazon, eBay, and Paypal of a country with 618 million internet users, is going public. The company will raise around $20 billion at an approximately $150 billion valuation, with the roadshow scheduled to begin March 25; the underwriting banks are expected to make $400 million in fees on the deal.

That valuation is built in part on assumptions about the future growth of Chinese ecommerce. China already buys more by dollar value online than the US does, and KPMG estimates that by 2015, online transactions in China will hit $540 billion, up from $190 billion in 2012.

The market isn’t without competition. Alibaba is currently in the midst of fighting for payments and messaging users with Tencent, a gaming and social media company. Forrester Research's Bryan Wang calls it “one of the most expensive competitions in online history”.

from Counterparties:

McCarthyisms

Ben Walsh
Mar 18, 2014 21:37 UTC

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Ryan McCarthy has decided to leave the world’s most prestigious Canadian-British news agency to join the local paper of a small, disenfranchised mid-Atlantic district.

Before he goes, we wanted to remind you all what we’re losing. For starters, the person who wrote headlines like “950 shades of grey”, “MOOC ado about nothing”, “Aging bull”, “Madvillainy”, “Beef Rogoff”,  “Where synergies go to die”, and “Our sweet creamy center cannot hold”.

from Counterparties:

Take that, copper!

Ben Walsh
Mar 13, 2014 22:26 UTC

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In the last week, the price of copper on the London Metal Exchange has dropped 9%, to its lowest level since 2009. The start of the decline coincided with China’s first corporate bond default. BofA analysts called the default China’s “Bear Stearns moment” -- the first major event of a what could be a severe financial crisis. With China consuming 40% of the world’s copper, a Chinese crisis would be trouble for global copper prices (among other things).

The FT’s Jamil Aderlini called BofA’s characterization a “bold, attention-seeking call that is also patently ridiculous”. Aderlini points out that the default was by a small Chinese company in the always-on-the-verge-of-crisis industry of solar panel manufacturing. It’s rare for a single analyst note to cause an extended sell-off, and Joe Weisenthal points to two more plausible reasons for the decline: “Copper has a reputation for being a good global economic bellwether... Copper also plays a role in the Chinese financial system (as collateral)”.

from Data Dive:

America’s job market: still not good enough

Ben Walsh
Mar 11, 2014 21:23 UTC

On Tuesday morning, the most recent Bureau of Labor Statistics Job Openings and Labor Turnover (JOLTs) data showed that the rate of hiring, turnover, and the number of open jobs was basically flat.

A little explanation: The hiring rate is the number of peopled hired as a percent of total employment. The JOLTs report also tracks the quits rate, which is the number of people who have voluntarily quit as a percent of total employment. Taken together, the quit rate and the hire rate represent a good proxy for the level of choice workers, particularly the already employed, have in the job market.

This chart shows that the level of choice in the job market within the workforce plummeted during the Great Recession. It has gradually improved over the last four years, but is still at right around 2008 levels. And this is likely still not fully representative of the job market: because it tracks quits, and there is a bias to hire the already employed, this chart more accurately reflects job choice among the employed than the unemployed.

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