Saturday, February 06, 2016

This Morning's Employment Report


The Bureau of Labor Statistics reported today that unemployment fell to 4.9 percent and wages rose. "In January, average hourly earnings for all employees on private nonfarm payrolls increased by 12 cents to $25.39. Over the year, average hourly earnings have risen by 2.5 percent."  Jobs rose 151,000 according to the payroll survey and 496,000 according to the household survey. The unemployment drop was dispute a jump in the labor force of 433,000, admittedly amplified by new higher population estimates.   

Tuesday, January 05, 2016

The Making of the Big Short (the Movie That Is.)

Michael Lewis' book, The Big Short: Inside the Doomsday Machine is one of the best on the financial crisis.  No one writes about finance like Lewis, the journalist who started as a bond trader with Salomon Brothers.   His book chronicles the outsiders who bet against the housing bubble. It short be read with Gillian Tett's book, Fools Gold, which follows the tribe of geeks who invented the credit default swaps in the first place. My favorite moment in the book is when Paulson's analysts are at a Deutsche Bank conference.  They are baffled at why the bankers are so ready to sell them credit default swaps after he had been pulling teeth to buy them months earlier. 

Adam McKay directed the movie based on the book.  Here is a Wall Street Journal Cafe interview with him: 



Oddly enough, John Paulson, who made the biggest killing–the biggest short–is not in the movie.  Richard Thaler is.  He is the Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business.  He presented a paper at the 1985 FMA meetings in New York which presented evidence against the efficient market hypothesis.  That was my first professional finance meeting and I had the pleasure of discussing the paper.  I sympathized with his difficulty at the time publishing such heresy.  Times change.  Now you can see he is at the pinnacle of the profession. Thomas Kuhn taught us that a scientific orthodoxy is finally finished only when the last member of that school dies.    

Wednesday, December 30, 2015

Was 1945 a Recession Year?

On EconTalk, Russ Roberts, debated Noah Smith on whether economics is a science.  It was a fun discussion well worth listening to. 

At one point Russ brought claimed Paul Samuelson predicted a return to the massive employment of the Great Depression when military spending fell after World War II. Noah Smith replied there was a recession.  I wrote a brief comment, although it turns out that Russ already posted Geoffrey Moore's note on business cycle chronology which treated the 1945 downturn as sui generis.

My analysis:

The NBER indicates a cyclical peak on February, 1945 with a trough 8 months later. Germany surrendered May 8th and Japan August 15th.  Japan's formal surrender was on September 2nd aboard the U.S.S. Missouri.  General MacArthur's boss was the former senator form Missouri.  Missouri is also the only state with two Federal Reserve Banks.

The unemployment rate was 1.1% at the NBER cyclical peak. The highest it rose to in 1946 was 4.26%. Apparently someone predicted 8 million unemployed in 1946. Some predictions were even wilder.

Yes there was a downturn as the U.S. economy ramped down from its most fevered war pace.  Looking at key series from their peaks to troughs, industrial production declined 35.5% from August, 1944 through February 1946. Payroll employment dropped by 3.3 million jobs from November, 1943 through September, 1945. Almost two million of that drop was in September, 1945, more or less VJ Day. The cyclical trough (October, 1945) corresponds to the first post war month. The 37 month expansion that followed ended in November, 1948.  

Do you want to call the 1945 cyclical episode a recession, a peacetime adjustment, or a preliminary ramp-down of the state driven economy? Geoffrey Moore wrote, "There remains the brief contraction after World War II, February—October 1945, which marked the transition from a wartime to a peacetime economy, and which is the most difficult of all to characterize because different measures yield such different results. However, in terms of its impact upon the well-being of the population it must surely be classed among the more modest of those in our list." Interestingly, Moore chooses his criterion of severity as welfare not aggregate demand or production, the more Keynesian categories.

i did not get interested in the business cycle until maybe the 1973-75 recession, on which I wrote my dissertation. My first memory of  economics would have been the copy of Samuelson's Economics which I studied to prepare for high school debate. I do not remember a discussions of business cycle history that talked about either the 1945 downturn or the 1945-48 recovery. They would have either ignored it or refereed to it as a wartime transition or demobilization. Indeed, I do not remember the textbooks of my youth (Keynesian all) dwelling on either the 1945 contraction nor the 1945-48 expansion. One excuse for their silence is that quarterly GDP data starts in 1947. Still the widespread prediction of a return to the Great Depression by the secular stagnationists was not mentioned in polite company.

Monday, November 16, 2015

So Who Owns Park Place?

Craig Karmin and Liz Hoffman report in the Wall Street Journal that Marriott will buy Starwood Hotels for $12.2 Billion (11/16/2015.) By acquiring rival Starwood Hotels and Resorts, Marriott will create the world's largest hotel company with more than one million rooms globally.



Sunday, November 15, 2015

Swedish auto maker Volvo has as a key component of its strategy to gain a competitive advantage by providing a car safer than its rivals' offerings. Volvo reckons people, at least the more affluent ones,will pay more for a car preserving their human capital. Differentiation improves markups. 

In Australia, Rob Taylor tells us in the wall street Journal, the Swedish firm is developing a technology that could help minimize car collisions with kangaroos, a perennial nuisance:


Monday, November 09, 2015

Dipti Kapadia Asks Whether the Jumbo Jet Era Is Coming to an End.direct flight over vast distances problem.

In the 1960s, Boeing introduced the world's first jumbo jet.  This met two key needs of global travel.  The Boeing 747 could carry 450 people and it could fly vast distances such as crossing the Pacific.  For decades, the only way to connect two cities seven or more thousand miles apart wast a jumbo jet. Over time both 747s and various wide aisle twin engine planes extended their range, but jumbo jets were the only solution to the direct flight over vast distances.

Both Airbus and Boeing project global passenger growth at or near 5% a year for the next two decades. This would require both more available seat miles and airports that could accommodate the growing passenger throughput. Airbus and Boeing made different strategic decisions about how their customers, the world's airlines, would respond to meeting this growth.  Airbus decided the global air carriers would continue their hub-and-spoke systems and overcome the resulting choke points at those hubs by flying a yet bigger jumbo jet.  Thus they committed to building the A380, the world's largest jet, which, in one configuration, can seat 950 people.  Boeing figured airlines would increase their international point-to-point flights garnering more business travel with its higher revenue per passenger mile. thus they bet the company on building the boeing 737 Dreamliner, a largely composite (thus more fuel efficient and less costly) plane with a long range and 350-450 seats.

Who is winning?

in this November 9th, 2015, Wall street Journal video, the Journal's Dipti Kapadia wonders if "The Jumbo Jet Era Is Coming to an End?"







Jet Deals Fall at Dubai Air ShowConcern about slowing aircraft sales has risen in recent months

Monday, October 12, 2015

India's Stock Market Outlook

During its October 10th, 2015 Asia Form, Barron's Isabella Zhong interviews Invesco's Paul Chan on what's ahead for India stocks, interest rates and the spending power of India's growing number of consumers.

Must One Be Bearish About China's Stocks and the Yuan?

Yuan Devaluation? Think Again. 10/10/2015 12:05AM Isabella Zhong asks Gavekal's Louis Gave talks about China's correction, what's ahead for the yuan, and why he likes Chinese airport stocks in this October 10th, 2015 video: