Internet Advertising

I’m seeing an increasing number of companies (e.g. Proctor and Gamble, Restoration Hardware, Uber… ) complaining publicly that they are receiving little or no value for their internet advertising spending. It is trite to say that half of every advertising dollar is wasted, you just don’t know which half. But in these cases, companies claim to be reducing their internet ad spending without significant negative impacts. Reasons given include poor placement and fraud, although these seem very hard to quantify.

Given that a big chunk of the market cap out there comes from highly valued internet advertising companies (Google, Facebook, etc.) I think one should “watch this space.” Closely. Very closely.

Quantitative Tightening

The Fed announced that it intends to normalize its balance sheet at the rate of $10 billion per month. Will only take a little less than 40 years.

Stocks flat, bonds down. VIX 9.9. Seriously?

Nothing Unusual Here

Zero hedge of course. Just for the record.

Universal Basic Income

The left continues to be fascinated with the idea of re-distribution. It believes that the whole notion of some people being paid more than others is fundamentally unfair, that they must have had some advantage – skin color, parents, brains, whatever – which was just a matter of luck. “You didn’t build that,” as Obama famously said.

So the latest brainchild of this idea is the notion of a monthly check from the government that is sufficient to provide a comfortable lifestyle regardless of whether or not the recipient chooses to work.

A single program that replaced the myriad of transfer payment programs, from welfare through Social Security, would save an enormous amount of administration costs at all levels of government and help to pay for the program. The “poverty trap” would be eliminated as the payment could be “universal” that is, not means tested. Minimum wage laws would need to be abolished, of course, since the “living wage” would be redundant. Might not work, but there seems to be some potential anyway.

But that is not what is proposed. In general, it seems that this would be yet another program which would be funded by even more government borrowing. This, it is claimed, would “grow the economy by $2 trillion.” Please.

There are only two ways to grow the economy. One of these is to increase labor utilization, the number of hours worked in a given period. The other is to increase the productivity of that labor, that is the amount of output produced for each hour of labor. That’s it.

Existing programs already provide a major disincentive for work – the “poverty trap.” This would add another. Productivity is improved by investment – in technology, skills, infrastructure, etc. More spending on consumption would not help this, but would certainly provide more inflation, which would act to deter investment. If you want to see the outcome of this kinf of program, just check the news from Venezuela.



To Hear Is To Obey

Hillary Clinton’s take-away from George Orwell’s 1984 is that we should all respect authority more. Of course we should, because she is smarter and more capable than us. Unless the authority is someone named Trump, of course.

Here is a good example of the contrary view, an analysis of Baltimore’s education system, which is entrusted with the responsibility of giving children the basic skills they need to have good lives. Big government simply sees this trust as an opportunity for looting taxpayer money.

Those of us of the libertarian view (that would be me) view government in general as large scale theft. In the USA, 42% of GDP (and rising) goes down that black hole. That’s why real incomes are declining. That’s why inner-city kids can’t read.


The Trump administration announced the end of the DACA program, that allows undocumented immigrants who arrived as children to obtain work permits.

The administration’s point is that the program, established by the Obama administration, was a direct violation of black-letter law and exceeded the President’s authority. Like many other immigrant-friendly policies, of course. True enough, but one can reasonably hope that Congress will act to change the law and the administration has provided time to allow that to happen, if it will.

The good reason for acting is that these people are the innocent victims of their parents’ bad acts and should not be penalized for them. Many have little or no connection with their country of birth and may not even speak the language. The bad reason for acting that is being bandied about is the resultant shortage of workers for low-wage jobs. The shortage has nothing to do with immigration and everything to do with the “welfare trap,” which makes it foolish for many Americans to seek employment because the withdrawal of benefits will more than offset any wage income they might receive.

To fix the shortage, the government needs to remove the trap.

That Which Is Not Seen

Alhambra Partners

After tax, corporate profits are still slightly less in Q2 2017 than in Q4 2014, and barely more (+3.4%) than in Q1 2012 five years ago.

SocGen’s Albert Edwards:

Our Ice Age thesis has always called for US and European 10 year bond yields to converge with Japan. We still expect that to happen, with the downward crash in US yields likely to be particularly shocking. There is mounting evidence that underlying US CPI inflation has already slid into outright deflation in exactly the same way that Japan did seven years after its credit bubble burst. Hence we repeat our call for US 10y bond yields to ultimately converge with Japan and Germany at around minus 1%.

In short, stocks are grossly overvalued and Treasury bonds are similarly undervalued. Not news, of course, just some confirmation bias.

Government Shutdown?

Many voices are being raised to warn of the danger of a government “shutdown” should Congress fail to raise the debt limit.

Why, one might ask, is this so dangerous? It is simply the fact that U.S. Federal deficit is still running about 3% of GDP. Cut Federal spending back to match its income and recession will certainly ensue.

Of course, the steady accumulation of debt is even more dangerous, but less immediate. So the voices hope.

A “shutdown” would not need to be anything more than a modest 15% reduction in run rate. Inconceivable.

Sticker Shock

A buying panic in the biotechs today as the FDA approved a radical new therapy for certain blood cancers.

This therapy, developed by Novartis, costs a cool $475,000 for a course of treatment.

Nothing To See Here

The dip-buyers and volatility-sellers are quickly reversing the overnight selloff, due to the Korean missile crisis.

These strategies work until they don’t. The absolute lack of fear is totally consistent with market tops.

The good news is that Treasuries are holding on to most of their overnight gains. When the bond and stock markets disagree, the bond market is usually right.