Category Archives: Rogues and Rascals


Apparently there is even a cryptocurrency futures market (BitMex).

You really can’t make this stuff up.

Oh, and that $240 million ICO? Principals are squabbling, no “coins” forthcoming.


It appears that Obamacare reform is now dead. No surprise, the insurance industry spent huge sums to get it passed in the first place. It is fair to assume that they are strategically spending more to ensure that their investment is not wasted. There is no such thing as principle in the US legislature, it is all about the money.

The only question now is whether or not Trump will continue to subsidize it by diverting the profits from Fannie and Freddie to the insurers.

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.

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.

Double Trouble – ICO Fraud

Not only are these schemes inherently traps for the naive and foolish, but they are being ripped off before they can even get their money into the trap.

Indeed, the huge amount of wealth that has fallen prey to cyber criminals is approaching the losses incurred by robberies in the U.S. for the entire year of 2015, which stood at $390 million, according to statistics released by the Federal Bureau of Investigation.

Fascinating in a morbid sort of way, folks bidding for these tokens that depend entirely on the greater fool theory for their value. Of course, the supply of fools is pretty deep but their supply of money is not inexhaustible.

Extreme Crazy

I was going to say Peak Crazy, but we all know things can always get crazier. Some things that spring to mind.

Political craziness: Mob violence on left and right, blatant defiance of federal law by city politicians, attempts to rewrite or at least deny history, demonization of Trump, Putin and anybody associated with them, and so on. Immigration in Europe – it’s that 4.7 kids per woman in Africa that nobody dares to talk about. Not to mention the crazy fat kid.

Fiscal craziness: Federal funding of runaway price increases, notably in university tuition, prescription drugs but also many other subsidized goods and services. Gross under-funding of state and local pension schemes even under ludicrous assumptions about future returns.

Monetary craziness: Central banks threatening to tighten but pumping away, consumer credit at record highs in US and elsewhere (Canada, that’s you I’m talking about with highest household debt in the world), government deficits keep growing. Subprime crdiet still gowing while defaults rise. Most of all, ICOs. People pouring money into blockchain-based tokens. Really?

Market craziness: Housing bubbles in China, Canada, Australia, UK and some US cities. Massive (record) risky speculation in many markets – short vol, long crude for example. Setups (risk parity) similar to portfolio insurance (remember 1987?).

I could go on. But I won’t. I’m just grumbling while I wait.


Just a quick rant about “cryptocurrencies.”

The blockchain architecture is a distributed database. As such, it is slow, because the process of committing a transaction to the database is subject to network delays. The “Bitcoin” system is about to undergo a code fork as a result of disagreements between developers on the proper way to improve performance, which is currently about 6 TPS. Compare to, say, VISA – trundling along at 30K TPS.

Performance improvements are certainly possible, but IMO there is no chance it will ever support the open-ended scalability that conventional high-performance transaction systems provide. Blockchain systems are an interesting innovation for high-value, low rate applications.

As a currency? Not happening.

However, the concept is certainly useful to separate a lot of naive people from their real cash in exchange for ?.

Now as to VISA – it is trying all by itself to eliminate cash by paying merchants to refuse cash. At least it has the infrastructure.

Virtual Folly

The mania goes on. Perhaps the most bizarre and disturbing symptom is the proliferation of so-called digital currencies like Bitcoin and Ethereum.

At best, these are virtual commodities, not currencies. Bitcoin, perhaps the most visible, clearly attempts to emulate gold. New bitcoins are generated by executing a complex computation which requires considerable computer time. This is intended to limit the supply, just as the increase in the supply of gold is limited by mine output. There is also a hard limit on the number of bitcoins that can exist, just as there is with gold (once it has all been dug up, there is no more until we start mining off Earth). Ethereum has something similar, but the limits are weaker.

There is, however, a genuine and valuable innovation here and that is the blockchain. The blockchain is, notionally, the global transaction log of a distributed database that allows multiple un-trusting writers. Unfortunately, AFAIK, all the implementations of this comcept so far are slow and unreliable, as is seen by the various reported (and doubtless un-reported) thefts, frauds, crashes and service outages.

Last I saw, there were some 80 or so competing “digital currencies”. We now see new ICOs (Initial Coin Offerings) on almost a daily basis. Each of these offers some variations on the basic concepts. For example, take Tezos which has raised $200 million in four days. Tezos is run by an ex-Goldman HFT trader. Draw your own conclusions.

So far, the primary applications for these systems are speculation on the money value of the digital commodities and, as a payment system, supporting money transfers by avoiding capital controls and facilitating anonymous commerce, such as in illegal drugs.

I am reminded of the old adage about gold mining; A gold mine is a hole in the ground with a liar on top.

Lasciate ogne speranza, voi ch’intrate” Inferno, Dante Alighieri

Illinois And The Tsunami

Apparently the standoff between Governor Rauner and Speaker Madigan continues. As it should. Madigan’s willingness to dispense unfunded largesse to his supporters is largely responsible for the state’s financial woes. Today also the state was ordered by a Federal court to pay its backlog of Medicaid bills, which will be interesting as the state is already cash flow negative.

However the biggest issue is the unfunded state employee pension obligations. This article from Bloomberg contains a nice graphic ostensibly showing the funding levels of most states (no data for California? Really? just check this blog)

These reported funding levels are a cruel joke. These funds continue to assume 7-8% returns, despite the fact that they have not achieved them for years. Just look at the column showing the decline in funding ratio from 2014 to 2015. Not only are the assumptions high, but they are for long-term averages, so that they adjust future return estimates higher to compensate for below-average realized returns. John Hussman’s work shows more or less zero returns for the next 12 years, with the high likelihood that there will be a major drawdown in that period. Drawdowns are lethal to pension funds because the payment of benefits continues, sapping the capital base and making recovery to previous levels nearly impossible.

Pension funds used to invest in bonds. The trustees would meet once a quarter, review the actuarial forecast of liabilities and approve adjustment of the laddered bond portfolio’s maturities to exactly meet the liability schedule. Then there would be lunch and golf. The future returns would be locked in and the contributions needed to fund the bond portfolio would be obtained from the sponsor. Everyone got to sleep at night.

Then Wall Street decided that pension funds had a lot of money, and not enough was being siphoned off into Wall Street pockets. So the sales force went out, armed with charts showing that stocks had historically offered higher returns than bonds. Higher returns mean that less contributions would be needed, so fund sponsors bought the pitch. Yes, stocks have offered higher returns but for a reason – much higher risk. Well, we’ll just assume a long-term average return and surely it will average out. GLWT.

$15 Reality In Seattle

From a paper by UW professors on the effects of raising the minimum wage:

Our preferred estimates suggest that the Seattle Minimum Wage Ordinance caused hours worked by low-skilled workers (i.e., those earning under $19 per hour) to fall by 9.4% during the three quarters when the minimum wage was $13 per hour, resulting in a loss of 3.5 million hours worked per calendar quarter. Alternative estimates show the number of low-wage jobs declined by 6.8%, which represents a loss of more than 5,000 jobs. These estimates are robust to cutoffs other than $19.45 A 3.1% increase in wages in jobs that paid less than $19 coupled with a 9.4% loss in hours yields a labor demand elasticity of roughly -3.0, and this large elasticity estimate is robust to other cutoffs.

Importantly, the lost income associated with the hours reductions exceeds the gain associated with the net wage increase of 3.1%. Using data in Table 3, we compute that the average low-wage employee was paid $1,897 per month. The reduction in hours would cost the average employee $179 per month, while the wage increase would recoup only $54 of this loss, leaving a net loss of $125 per month (6.6%), which is sizable for a low-wage worker.