There’s a swathe of articles on how to fix capitalism from taxing global companies to improving US-China relations. On markets, some good papers on how equities could give better growth signals than the yield curve, the challenges in A-rated credits and tips from top investors. On macro, a paper on how patent law is making industries less competitive, estimating true Chinese growth and how the Tories are losing touch with economic policy.
Oracle of BostonSome investment ideas from Seth Klarman including “Do you want to trail the market when it’s going up or when it’s going down?”
Five Facts About Beliefs and PortfoliosBeliefs are mostly characterized by large and persistent individual heterogeneity; demographic characteristics explain only a small part of why some individuals are optimistic and some are pessimistic.
The 5 market crashes I lived through and what I learnedThe 5 being Black Money (1987), Tech Wreck (2000), Housing Bust, Great Recession, Japan
The Life Cycle of WealthSequence of return risk exists not only in the financial markets but also everyone’s own personal finances. When you were born can have an outsized impact on where certain generations stand financially.
Can the Market Multiply and Divide? Non-Proportional Thinking in Financial MarketsStockprice movements are often reported in dollar rather than percentage units, which may cause investors to think that news should correspond to a dollar change in price rather than a percentage change in price. Non-proportional thinking in nancial markets can lead to return underreaction for high-priced stocks and overreaction for low-priced stocks.
Forward Rate Bias over a Third of a CenturyFinds that G10 carry has worked less well since the 2008 financial crisis.
Reflexivity in Credit MarketsBehavioural model that incorporates feedback loops to mimic the ups and down of the credit cycle.
Information in Yield Spread TradesStrong steepening trades are associated with negative payroll surprises in subsequent months and can predict asset markets’ reaction to future payroll releases, suggesting that spec- ulators hold superior information about future payrolls.
Deconstructing the Yield CurveNY Fed uses a bootstrap technique and finds “that measures of equity market tail risk and the state of the macroeconomy predict bond returns beyond the level or slope of the yield curve “
Falling Angels? Credit Market Risks and Opportunities“Many investors express justifiable concerns about the sheer size of the BBB market, but we believe the spotlight on BBBs has diverted attention from the risks in the smaller single-A market.”
The IMF 30 Years After BradyIMF reviews the Brady programme
Fiscal and Taxes
How to Tax a Multinational The idea of a global corporate tax on these companies’ profits is gaining traction.
A History of Revolution in U.S. TaxationExcellent infographic
Warren Has a Good Beginning for Ending Corporate-Tax Avoidance Barry Ritholtz argues that some of Senator Warren’s ideas make sense such as “an alternative minimum tax for the biggest most profitable companies”.
Fate Of Capitalism
Economic Principles – Why and How Capitalism Needs To Be ReformedRay Dalio is worried arguing the “ income/wealth/opportunity gap and its manifestations pose existential threats to the US” and“the problem is that capitalists typically don’t know how to divide the pie well and socialists typically don’t know how to grow it well”
The End of the American CenturyInteresting take “The 20th century began in Sarajevo. Starting with the First World War, three wars were fought in Bosnia’s towns and mountains. Then came Holbrooke’s achievement at Dayton, giving Bosnia a precarious foothold in the liberal world. Now the American century is over, and even Bosnia, which would not exist without the United States, is slipping away”
Return of the oppressedFrom the Roman Empire to our own Gilded Age, inequality moves in cycles. The future looks like a rough ride
United States is turning into a third-world country is at once too pessimistic and too optimistic. What is actually happening is that a patchwork of post-industrial first and fourth-world conditions is emerging against a second-world backdrop.
Business Cycle and Labour Market
The Future of Economic GrowthJim O’Neil argues “when it comes to national-level GDP growth, past projections have largely been borne out; even when wrong, they can be used to diagnose structural problems.”
Assessing Macroeconomic Tail RiskFed looks at economics forecasts and finds that contractionary shocks disproportionately increase downside risk, independently of the type of shock (eg policy error, technology etc).
Understanding Migration Aversion Using Elicited Counterfactual Choice ProbabilitiesNY Fed finds “amplifying roles played by family, friends, and shared norms and values in the decline of residential mobility rates. “
Residual Seasonality in GDP Growth Remains after Latest BEA ImprovementsCleveland Fed argues “Our analysis indicates that even after these latest improvements by the BEA, residual seasonality in GDP growth remains. On average, this residual seasonality makes GDP growth appear to be slower in the first quarter of the year and more rapid in the second quarter of the year.”
What Happened to U.S. Business Dynamism?Authors argue a declining knowledge diffusion in the economy is leading to less dynamism. This in turn is caused by the heavy use of intellectual property protection by market leaders to limit the diffusion of knowledge.
Labor mobility in a monetary union“The optimizing monetary policymaker shows greater flexibility in inflation targeting when labor is mobile by leaning somewhat against deviations of migration flows from efficient benchmarks. But strict inflation targeting remains close to optimal. “
Changes Are Coming to the Fed’s Monetary Policy StrategyPeterson Institute suggests “One promising approach to boosting the potency of monetary policy at the zero bound is to promise to intentionally overshoot the inflation target after any extended period below target when policy is constrained.”
The great disinflation in emerging and developing economies“The column argues that a continuation of low and stable inflation in these countries is not guaranteed. If this wave of structural and policy-related factors loses momentum, elevated inflation could re-emerge. “
The Evolution of the FOMC’s Explicit Inflation TargetFrom around 2000 until the Great Recession, there was general consensus among participants that their inflation target should be about 1½%…By the end of the recession in 2009, however, the consensus had shifted up to 2%, which became the official target announced to the public in January 2012.
Optimal Monetary Policy for the MassesSt Louis Fed finds “nominal GDP targeting continues to characterize optimal monetary policy “
Peaceful Coexistence 2.0Dani Rodrik argues “Peaceful coexistence during the Cold War may not have looked pretty; there was plenty of friction…But it was successful in preventing direct military conflict … Similarly, peaceful economic coexistence between the US and China is the only way to prevent costly trade wars between the world’s two economic giants.”
Why China’s current account balance approaches zeroDifferent perspectives on why the current account is falling to zero. However, none mention that the services deficit could be due to disguised capital outflows.
A Forensic Examination of China’s National Accounts“Relative to the official numbers, we estimate that GDP growth from 2008-2016 is 1.7 percentage points lower and the investment and savings rate in 2016 is 7 percentage points lower. “
New results on the China shock, furthermore the China shock is largely over“the impact of Chinese imports appear to have disappeared after 2007 – we find strong employment impacts from 2000 to 2007, but nothing since from 2008 to 2015.”
The strange death of Tory economic thinking“policy areas that would traditionally have been seen through an economic prism are discussed from a social or national perspective instead”
Why have pundits got politics so wrong since 2015?Simon Wren-Lewis argues “misunderstanding austerity plays a large role in failing to see how far right the Conservatives were moving, and therefore Corbyn’s rise in 2015 and Labour’s gains during the 2017 campaign.’
Brexit Heralds a Decline of Anglo-American PowerThe UK’s all-but-inevitable departure from the EU may well scuttle NATO. U.S. officials must be prepared.
How Britain unified Germany: Endogenous trade costs and the formation of a customs unionHistory lesson: “This column shows how the formation of the German state can be traced back to British political intervention at the end of the Napoleonic War. “
Rest Of Politics
Special Elections Foreshadowed A Blue [Democrat] Wave In 2018. What Are They Saying Now?Basically only a weak tailwind for Democrats unlike the mid-terms.
The Circular Firing Squad Is Destroying the Left’s Political Brand: A Case Study from CanadaRevealing account of virtue signalling and tribal politics.
Why home bias can decrease civil service performance: Evidence from IndiaData finds that officers allocated to their home state perform worse than comparable officers who are allocated to non-home states.
Berlusconi Was Trump Before TrumpThe Berlusconi era—full of flashy parties, legal misdeeds, and too much news for the Italian public to keep track of—foreshadowed America’s current predicament.
Today’s laptop activists seek attention, not truthThe selfless war reporter Martha Gellhorn should be an example for today’s narcissistic journalists
Economics and philosophyBook recommendations includes Michael Sandel’s What Money Can’t Buy: The Moral Limits of Marketsand Agnar Sandmo’s Economics Evolving
Book Bits Some econ book reviews including Tyler Cowen’sBig Businessand Colin Crouch’s Will the gig economy prevail?
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