R>G=BS?

Mr. Piketty hypothesized that income inequality has risen because returns on capital—such as profits, interest and rent that are more gleanings of the rich than the poor—outpaced economic growth.

The evidence modern capitalism foments inequality, the former adviser to French Socialist Party candidate Ségolène Royal argued, was in capital’s rising share of income at the expense of labor’s contribution over the last four decades.

But Mr. Piketty’s thesis, posed by the French economist in his controversial 2013 tome “Capital in the Twenty-First Century,” isn’t proved by historical data, says International Monetary Fundeconomist Carlos Góes.

“There is little more than some apparent correlations the reader can eyeball in charts,” Mr. Góes says in a new paper published by the IMF. “While rich in data, the book provides no formal empirical testing for its theoretical causal chain.”

Mr. Góes tested the thesis against three decades of data from 19 advanced economies. “I find no empirical evidence that dynamics move in the way Piketty suggests.”

In fact, for three-quarters of the countries he studied, inequality actually fell when capital returns accelerated faster than output.

Those findings support previous work by Daron Acemoglu of theMassachusetts Institute of Technology and political scientistJames Robinson, now of the University of Chicago, suggesting Mr. Piketty’s thesis was far too simplistic for the complexities of real-world economies that are affected by politics and technology.

Mr. Góes says his study also provides evidence that Mr. Piketty’s assumption that saving rates remain stable is flawed. Rather, the data shows changes in the savings rate are likely to offset most of the effects of an increase in capital share of national income.

Talley, Ian. "'No Empirical Evidence' for Thomas Piketty's Inequality, IMF Economist Argues," The Wall Street Journal., Real Time Economics, August 5, 2016, Accessed on August 8, 2016, http://blogs.wsj.com/economics/2016/08/05/no-empirical-evidence-for-thomas-pikettys-inequality-theory-imf-economist-argues/

I'd Like to Believe

New research by Harvard economist Dale Jorgenson offers a cheerier outlook for both them and economic growth. 

His new study, which breaks down the forces propelling U.S. growth since 1947—the year the transistor was invented—and projects them forward to 2024, anticipates a boom in low-skilled work that rekindles economic growth to the tune of 2.49% a year from now till then, a little above the 2.34% experienced from 1990 to 2014. 

Those workers will fill service jobs in a growing economy, he suggests.

While the average quality of the labor force will begin to flat-line, the number of hours worked will rebound as employment-participation rates flick back to near where they were before the Great Recession, the paper says.

Creighton, Adam. "How Low-Skilled Workers Could Rescue the World Economy," The Wall Street Journal., Real Economics Blog, Accessed on August 3, 2016, http://blogs.wsj.com/economics/2016/08/02/how-low-skilled-workers-could-rescue-the-u-s-economy/

I'd like to believe it but you just can't predict in complex systems like a world economy. Such hubris to think you can. And we all know what my man Taleb has to say about economists and their projections. 

Worries Over Unintended Consequences of Central Bank Action in Financial Markets

Despite the Bank of Japan’s efforts to push down its currency and jump-start the economy with negative interest rates, the yen is up 8% this year and is at its strongest level against the dollar since October 2014. European central bankers are having similar problems containing the strength of the euro and other currencies.

These difficulties are a reminder that the long stretch of exceptionally low rates in response to the 2008 financial crisis has created market distortions that may be difficult for central bankers to contain.

This disconnect could produce more volatility in financial markets. Even if investors can predict what actions central banks are likely to take, they are having a hard time predicting how markets will react, potentially sparking a pullback from riskier assets, such as emerging markets or commodities.

[...]

A number of government bonds are yielding below zero in places like Japan, the eurozone and Switzerland. Money managers said this has added to concerns that central banks are distorting the normal market function and that investors are finding it difficult to fairly value financial assets.

Analysts said central banks need to pay attention to the unintended fallout on markets and banks from tools such as negative interest rates.

Zeng, Min and Iosebashvili. "Global Currencies Soar, Defying Central Bankers," The Wall Street Journal., Friday, March 18, 2106, A1, Accessed on March 18, 2016, http://www.wsj.com/articles/global-currencies-soar-defying-central-bankers-1458258134

What Americans Want

Americans want a President they can respect, not one who is a constant source of turmoil.

"Trump and the Protesters," The Wall Street Journal., Monday, March 14, 2016, A18, Accessed on March 14, 2016, http://www.wsj.com/articles/trump-and-the-protesters-1457909062

What Junk Indicates

The revival is noteworthy because the junk-bond market is widely watched for clues about the state of the U.S. economy. Companies issuing junk debt have less financial flexibility to weather a downturn than higher-rated firms, often making the performance of their bonds an indicator of broader economic health.

Cherney, Mike and Goldfarb, Sam. "Junk-Bond Rebound Signals Easing Fear," The Wall Street Journal., Tuesday, March 8, 2016, A1, Accessed on March 8, 2016, http://www.wsj.com/articles/junk-bond-rebound-signals-easing-fear-1457395260 

Buy Chinese

A study of more than a century's worth of investment returns shows that emerging markets deliver their best results not when hopes are highest, but after they break investors' hearts.

Zweig, Jason. "Lessons From a Frontier Market: U.S.," The Wall Street Journal., Thursday, January 28, 2016, C1, Accessed on January 28, 2016, http://blogs.wsj.com/moneybeat/2016/01/27/market-crashes-stock-scandals-lessons-from-the-u-s-frontier/

German Debt, German Guilt

In German, "debt" and "guilt" are the same word, Schuld, and many Germans equate the two.

Nissen, Madeleine. "German Savers Find New Taste for Risk," The Wall Street Journal., Tuesday, January 26, 2016, C1, Accessed on January 26, 2016, http://www.wsj.com/articles/germanys-cautious-savers-find-new-taste-for-risk-1453734098

Indian Inequality

In Kolkata, Arijit Saha says that narrow lanes and potholes around his house mean he can't keep his red Jaguar XFR at home. Instead, he parks it in an empty lot off an unpaved road, where the $75,000 car shares space with a bicycle rickshaw and a group of homeless people.

Sugden, Joanna. "India's Superrich Have Supercars, but Nowhere to Drive," The Wall Street Journal., Tuesday January 19, 2016, A1, Accessed on January 19, 2016, http://www.wsj.com/articles/indias-superrich-have-supercars-but-nowhere-to-drive-them-1453156090

Dumb as Rock

Nickelback's ranking atop the rock-intelligence charts was boosted by their 2008 hit "Something in Your Mouth." The song registered with a 4.2 grade reading level, better than the second to third-grade rock average.

Germano, Sara and Hong, Nicole. "Who Likes Nickelback? Nobody, Except for Millions," The Wall Street Journal., Saturday/Sunday, January 16-17, 2016, A1, Accessed on January 16, 2016, http://www.wsj.com/articles/who-likes-nickelback-nobody-except-for-millions-1452894762

Say No to Sports Subsidies

The National Football League on Tuesday announced that the St. Louis Rams would move to the Los Angeles suburb of Inglewood in a deal that called for no public funding toward the planned $1.9 billion stadium.

Similar attitudes have affected deals for numerous projects in the state. In Northern California, the Golden State Warriors are planning a $1 billion basketball arena without public funding, while the 49ers’ new stadium in Santa Clara had relatively little public aid.

And in Oakland, city officials on Wednesday reiterated that no public funding would be devoted to building a stadium to keep the Oakland Raiders from walking away.

[...]

[A] wealth of academic studies [shows] that stadiums and arenas are poor investments when it comes to economic development. Without pro teams, would-be fans spend money on other local entertainment, economists have found, while sports facilities rarely spur real-estate development that wouldn’t have happened anyway.

Brown, Eliot and Carlton, Jim and Futterman, Matthew. "Cities Rethink Sports-Team Deals," The Wall Street Journal., Thursday, January 14, 2016, B1, Accessed on January 14, 2016, http://www.wsj.com/articles/cities-rethink-sports-stadium-deals-1452734069

The Bordeaux Bandit Strikes Again

A 1990 Château Pétrus. A 2005 Château Mouton Rothschild. A 2010 Château Mouton Rothschild. A 2009 Château Lafite Rothschild. And multiple bottles of Opus One.

These are just a few of the wines allegedly stolen by Scott Deluca, the man who officials in a New Jersey’s prosecutor’s office have dubbed the “Bordeaux Bandit.”

Law-enforcement officials in the New York region said they have spent several months pursuing a man accused of stealing high-end wines during heists that have attracted the attention of area oenophiles.

Teague, Lettie. "The Painstaking Pursuit of Region's 'Bordeaux Bandit'," The Wall Street Journal., Wednesday January 13, 2016, A15, Accessed on January 13, 2016, http://www.wsj.com/articles/uncorking-the-city-police-pursue-the-bordeaux-bandit-1452641127

The whole article is worth reading. Great crime story.

How Is This Even Possible?

For one thing, Americans are far bigger couch potatoes than Europeans, watching 5 hours and 45 minutes of TV a day on average, compared with less than four hours in most of Europe's largest countries, according to Bernstein Research.

Hagey, Keach and Futterman, Matthew. "Discovery Bets Big on Sports," The Wall Street Journal, Tuesday, January 12, 2016, A1 Accessed on Tuesday January 12, 2016, http://www.wsj.com/articles/discovery-communications-wants-to-be-the-espn-of-europe-1452567094

Bro, Where are the Shareholder Equity Accounts?

“In the cannabis industry, there is a lot of people that lose track of a lot of things,” said Nic Hernandez, head grower at La Conte’s Clone Bar & Dispensary, a legal marijuana outlet in Denver. An app from Flowhub helps him keep his operation straight.

Dwoskin, Elizabeth. "Silicon Valley's Unlikely New Frontier," The Wall Street Journal., Tuesday, November 17, 2015, Accessed on Wednesday November 18, 2015, http://www.wsj.com/articles/silicon-valleys-unlikely-new-frontier-1447810134?cb=logged0.7287707715295255

Others Were Found Unfit

Fighters who made it to the screening centers were confused about the mission. When they learned what it was, many left. Others were found unfit, including one who showed up with open gunshot wounds.

Entous, Adam and Ballout, Dana and Al-Akraa, Mohammed Nour. "U.S. Caution Hobbled Birth of Syrian Force," The Wall Street Journal., Monday, October 4, 2015, A1, Accessed on October 4, 2015, http://www.wsj.com/articles/conflicting-agendas-caution-beset-pentagon-plans-in-syria-1443997392

Kissinger and History

The primary emphasis in the book is on how Mr. Kissinger arrived at the set of core ideas and convictions that he would bring with him into high office.

Many of these convictions—the idea that “most strategic choices are between lesser and greater evils,” for instance, or that history provides a crucial guide to any nation’s policies and self-understanding—will be quite familiar to those who have heard Mr. Kissinger’s story before.

Brands, Hal, "The Definitive Biography of Henry Kissinger," The Wall Street Journal., Accessed on September 28, 2015, http://www.wsj.com/articles/the-definitive-biography-of-henry-kissinger-1443209592

The more I read and think about history the more I believe this sentiment to be true. 

Law (of Supply and Demand) and Regulation

The global market for electric cars has been weak because of low gas prices and concerns about vehicle price and battery range. To date, Tesla Motors Inc. and Nissan Motor Co. sell two of the best known and highest-volume battery-powered vehicles, but volumes are only a sliver of the industry’s 85 million annual vehicle sales.

Emissions standards are tightening around the world, however, leading most major car companies to invest billions of dollars in plans to launch electric cars between now and the end of the decade. By the time an Apple car would make its debut, brands spanning General Motors Co.’s Chevrolet to Volkswagen AG’s Audi and Porsche will have long-range electric vehicles aimed at the mass market.

Wakabayashi, Daisuke. "Apple Sets 2019 Goal to Build Auto," The Wall Street Journal., Tuesday September 22, 2015, A1, Accessed on September 22, 2015, http://www.wsj.com/articles/apple-speeds-up-electric-car-work-1442857105?mod=trending_now_2

I like these two paragraphs. They illustrate how both the natural laws of economics and the artificial dictates of regulation shape prices, producer decisions and consumer preferences. 

If Ever There was a Reason for Force

Japanese fight over pacifism.

The Wall Street Journal., Facebook timeline photo, Accessed on September 18, 2015, https://www.facebook.com/wsj/photos/a.392580748127.173020.8304333127/10153712465753128/?type=1&permPage=1

A Time to Hold and a Time to Trade

Buying and selling by individual investors is especially heavy in the minutes immediately after the market opens in the U.S. at 9:30 a.m. Eastern time, when the chances of getting the best price for a stock are lower and swings tend to be bigger, traders and other market observers said.

But within minutes, the gap between the price sellers want for a stock, known as the “ask” price, and what buyers are offering, the “bid,” shrinks sharply and continues to narrow up until the end of the trading session. This quirk in the market has been amplified in recent weeks amid the big market swings.

The smaller gap, or spread, is better for investors because they are less likely to overpay for a stock or sell below the prevailing price in the market. The wider the spread, the more exposed investors are to high costs, which can erode returns at a time when major stock indexes are down for the year.

In the first half of the year, the difference between the bid and ask prices of shares in the S& P 500 was 0.84 percentage point in the first minute of trading, according to data from ITG, a brokerage. That gap shrinks to 0.08 percentage point after 15 minutes and to less than 0.03 percentage point in the final minutes of the trading day.

This difference often amounts to only pennies a share. But it can add up for the many individual investors who pile into the market early in the trading day.

Strumph, Dan and Driebusch, Corrie. "Early Birds Suffer in Market" The Wall Street Journal., Tuesday, September 15, 2015, A1, Accessed on September 15, 2015, http://www.wsj.com/articles/early-birds-suffer-in-market-1442273794

IPOs and Stock Market Volatility

Recent stock-market volatility caused by jitters about the health of China’s economy and the Federal Reserve’s plans for raising interest rates haven’t helped the IPO pipeline. Companies are more likely to list their shares when markets are strong, to maximize proceeds. Sharp swings in share prices complicate IPO planning and cause potential investors to be more cautious.

Winkler, Rolph and Telis Demos. "Tech Firms are Notably Scarce in IPO Market" The Wall Street Journal., Friday, September 11, 2015, A1, Accessed on September 11, 2015, http://www.wsj.com/articles/ipo-parade-continues-without-many-tech-companies-1441929152

A Short Introduction to "Bond-Auction Strategies"

Element is among the last to embrace “bond-auction strategies,” trading maneuvers that have become less popular since the financial crisis. 

These trades aim to take advantage of the effects of supply and demand in the $12.8 trillion Treasury market. Demand for these bonds often fluctuates based on factors including investor perceptions of economic growth and market risk, while supply can be affected by regular auctions of different-maturity Treasury securities. A burst of new supply tends to slightly depress prices for short periods, sometimes for less than an hour. 

In the past, Wall Street dealers and hedge funds scored profits shorting “when-issued” bonds. These are contracts conferring the right to purchase Treasury securities when they are sold days later at auction. Then, these traders would buy bonds during Treasury auctions at the slightly lower prices and use these newly purchased bonds to close out their short sales. 

The difference between the higher price at which they sold the Treasurys and the lower price they paid at auction was their profit.
There are a number of variations to this strategy, traders said. The maneuver involves a bet against bonds, so traders usually purchased hedges such as Treasury futures or interest-rate swaps to protect against rising bond prices while the trade was under way, said Tom di Galoma, head of fixed-income and rates trading at ED&F Man. 

[...] 

There are dangers with the auction strategy. Once in a while, the prices of bonds being auctioned jump, rather than fall, for reasons such as bad economic news that prompts an investor flight to safety. Hedges sometimes don’t work out. And the strategy relies on inexpensive borrowing because each trade usually yields minimal profits. 

In the 1990s, hedge fund Long Term Capital Management used leverage to profit from small discrepancies in the Treasury market before a market reversal swamped the firm. LTCM used much more leverage than Element does.

Cui, Carolyn and Zuckerman, Gregory. "Obscure Funds Buys Billions in Treasurys" The Wall Street Journal., Wednesday, September 9, 2015, A1, Accessed on September 9, 2015, http://www.wsj.com/articles/an-obscure-hedge-fund-is-buying-tens-of-billions-of-dollars-of-u-s-treasurys-1441704601