John Robb's Weblog

Ditto

Zombie Economy.

If the world's biggest pop star only made $25 million a year in total, something's very, very wrong. Where's the rest of the money? Why can't a resource as scarce as the King of Pop capture more value? The world's top hedge fund "managers" regularly pull in hundreds of millions. That's an order of magnitude difference. No wonder everyone wants to be a banker, investor, or [insert beancounter here]. There's no money left in anything else. That's the big problem behind the zombieconomy. We don't reward people for creating, growing, nurturing, or even remixing assets. We just reward them for allocating the same old assets.

This is what an economy looks like when rentiers and not entrepreneurs dominate. Stagnant.

DING

Marshall Auerbach sums up 30 years of failure:

The current crisis could have been mitigated if increased household consumption had been financed through wage increases and if financial institutions had used their earnings to augment bank capital rather than employee bonuses. The current system has failed because it was built on an incentive system that did just the opposite.

Instead, we get debt, investments in casino financial derivatives (the stock marekt, etc.), rapidly falling job/income quality, rising commodity prices, and the inevitable anger.  Hilarious:

A group of pensioners has been accused of kidnapping and torturing a financial adviser who lost over €2m of their savings. Mr Amburn (56) says he was burned with cigarettes, beaten, had ribs broken, was hit with a chair leg and chained up "like an animal".

Pension Apartheid

That's a great term from the UK.  It's the difference between generous public sector pensions and the weak/non-existent pensions the rest of us in the business world get (despite the fact that we actually produce the wealth).  

Ditto

Animal spirits blog on neo-feudalism.  What's sad is that there aren't any meaningful counter-trend efforts underway.  Neo-feudalism really does look inevitable.   

The Descent of the UK

Interesting documentation of the decay underway.  Again, another data point on the futility of protest in the modern environment (which will backfire in a violent way).

Spin won't work...

Yves delves into another example of how the MM (bloomberg in this case) is being used to spin economic news.  Spin won't work.  Debt is still 375% of GDP and climbing.  Housing prices are still falling due to a lack of buyers.  Credit is still tight due to more stringent lending requirements.  It's a farce.  

I expect that the spin economy will break down after labor day (it's the first event post the summer stasis).

Aging Anomaly?

Assuming this isn't a hoax, it's very cool.  Of course, the baby's genetic data should be posted in a public forum for the world's minds to work on (creative commons?).  What a gift to humanity if it yields benefits.  Of course, it won't be.  Due to the process that appears to be underway, few minds will grapple with it.  Fewer still will find a way to restrict it and profit from it (almost certainly not the parents or the child).

"Share" 24 candy bars, get fined $2 million

Not candy bars in this case, it's 24 songs.   Just another example of how rentier interests are so overwhelmingly dominant in our society.  There's a couple of interpretations of how this plays out.  

One is that post industrial government is morphing into a system that exclusively protects and extends the interests of rentiers.  Another is that the economic system grinds down, ossifies, rapidly destroying any entrepreneurial spirit.  Regardless, it's not a good sign.

Another thing that really bugs me is the idea that most "financial innovation" is truly innovation in the entrepreneurial sense.  It is, for the most part, innovations that yield new methods of gambling and predatory behavior (skirting regulation/propriety/morality) rather than innovation that creates net societal benefit.  So, any attempt to lump the "risk takers" of Wall Street to the "risk takers" of entrepreneurs making new services/products is an egregious conflation of societal value and pure misdirection.

The next crash

Xie is right on.  The new bubble will burst well before the others.  2010 is a good estimate of when.  

The world is setting up for a big crash, again. Since the last bubble burst, governments around the world have not been focusing on reforms. They are trying to pump a new bubble to solve existing problems. Before inflation appears, this strategy works. As inflation expectation rises, its effectiveness is threatened. When inflation appears in 2010, another crash will come.

Xie also points to why investments in financial derivatives (stock and non-productive property) are losers:

While rational expectation is returning to part of the investment community, most investors are still trapped by institutional weakness, which makes them behave irrationally. The Greenspan era has nurtured a vast financial sector. All the people in this business need something to do. Since they invest other people's money, they are biased toward bullish sentiment. Otherwise, if they say it's all bad, their investors will take back the money, and they will lose their jobs. Governments know that, and create noise to give them excuses to be bullish. 

This institutional weakness has been a catastrophe for people who trust investment professionals. In the past two decades, equity investors have done worse than those who held U.S. market bonds, and who lost big in Japan and emerging markets in general. It is astonishing that a value-destroying industry has lasted so long. The greater irony is that salaries in this industry have been two to three times above what's paid in other sector. The key to its survival is volatility. As markets collapse and surge, possibilities for getting rich quickly are created. Unfortunately, most people don't get out when markets are high, as they are now. They only take a ride. Indeed, most people who invest in the stock market get poorer. 

Look at Japan, Korea and Taiwan: Even though their per capita incomes have risen enormously over the past three decades, investors in these stock markets lost money. Economic growth is a necessary but not sufficient condition for investors to make money in the stock market. Most countries, unfortunately, don't possess the conditions for stock markets to reflect economic growth. The key is good corporate governance. It requires rule of law and good morality. Neither is apparent in most markets.

The rise of a predatory financial class (including corporate management) in the US and the EU puts us in the problematic group. 

Iranian Elections

Analysts floored by results.  It wasn't a surprise.  It's a classic case of analysts connected to the urban middle class with whom they come from/identify/talk to and projecting that the sentiment they read there is ubiquitous.