Recently in Business & Economics Category

Bank of America says that OPEC is dead and oil is going to $50 a barrel -- great news all around. Who's hurt? Petro-funded enemies like Russia, Iran, and Venezuala. Who wins? Europe, America, and everyone who has to buy oil from the cartel.

The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over the coming months as market forces shake out the weakest producers, Bank of America has warned.

Revolutionary changes sweeping the world's energy industry will drive down the price of liquefied natural gas (LNG), creating a "multi-year" glut and a much cheaper source of gas for Europe.

Francisco Blanch, the bank's commodity chief, said Opec is "effectively dissolved" after it failed to stabilize prices at its last meeting. "The consequences are profound and long-lasting," he said.

The free market will now set the global cost of oil, leading to a new era of wild price swings and disorderly trading that benefits only the Mid-East petro-states with deepest pockets such as Saudi Arabia. If so, the weaker peripheral members such as Venezuela and Nigeria are being thrown to the wolves.

I'm loving the $2 gas.


The best response ever to "sell me this pen"? Well, according to the author anyway! His pitch framework is pretty solid and could be helpful even if you aren't a sales professional:

There are exactly four sales skills the interviewer is looking to see when you answer:
  1. how you gather information
  2. how you respond to information
  3. how you deliver information
  4. and how you ask for something (closing)

I know I've shared it before, but Glengarry Glen Ross has the best sales motivational ever:

Watch it at least once a year. One type of person will be motivated, and another will scoff at the abuse.


Mark Biller at Sound Mind Investing has an interesting observation about the unending dire predictions for the ongoing bull market (subscription required):

While it's completely anecdotal, it's hard for me to believe this bull market is going to end while so many financial journalists are calling for its demise so loudly and frequently. That's not how long-term bull markets usually end. Rather, it's usually the opposite: when nobody seems to have much bad to say about the stock market, that's the time to be nervously looking over your shoulder.

This bull market has been hated from the day it first started rising over five years ago. Many investors -- both pros and amateurs -- have never gotten over their fear from the 2008-2009 financial crisis and never got reinvested. For an individual, that's terribly disappointing. For a pro, it's potentially devastating. Some of those pros have been writing why the bull market is about to keel over ever since. They've got so much invested in their calls that the bull market can't last, it definitely does make one wonder if they can be objective at this point.

The fascinating thing that most people forget about the stock market is that in every transaction there are two participants: a buyer and a seller. The buyer thinks the price is going up, and the seller thinks that price is going down. No matter what you read or see on television, half the money in the market is betting on it going up, and half the money is betting on it going down.

So why have so many talking heads been predicting the end of the bull market for so long, while other investors continue to drive it up? Are the talking heads, as a class, smarter than everyone else? I think it's more likely that their incentives to not align with those of other investors.


The primary reason that teenagers should work is because it puts them in a position of having to win approval from adults rather than from other teenagers. The "real world" and the "school world" are completely different. The behaviors and attributes that win acclaim in the school world won't get you far in the real world, and most kids aren't wise enough to learn this just by hearing their parents repeat it. Teenagers who work at a real job earn far more than a few dollars per hour -- the experience they get will pay huge dividends for their whole lives.


A brilliant new double-decker armrest design may be able to reduce arm contention between seat neighbors!

paperclip-armrest-2-inline.jpg

And airlines will be able to squeeze more people into the same space, which could save passengers money.

If airlines make our lives truly terrible, they may give us the Paperclip as consolation. Some are thinking about putting 10 seats in each row of the Boeing 777 where today there are nine, Robert Mann, an airline industry analyst said, which would bring in huge economic benefits. "If this sort of feature were to facilitate that without detracting from the customer experience," it would be worthwhile.


In an effort to spur lending the European Central Bank has introduced negative interest rates for bank deposits. Although it sounds strange, there's no reason that interest rates can't go negative -- in fact, negative interest rates are basically the same thing as traditional inflation. Spend (or lend) the money now because you'll have less in the future.

It cut its deposit rate for banks from zero to -0.1%, to encourage banks to lend to businesses rather than hold on to money.

The ECB is the first major central bank to introduce negative interest rates.

Howard Archer, chief UK and European economist at IHS Global Insight said: "Despite being widely anticipated and in some quarters criticised for occurring too late, it is still a bold and unusual move by the ECB to take its deposit rate into negative territory."

"There has to be considerable uncertainty as to how effective negative deposit rates will turn out to be," he added.

It has been tried before in smaller economies. Sweden and Denmark, who are both outside the Single Currency, attempted to use negative rates in recent years with mixed results.

Analysts said in Sweden it had little discernible impact; in Denmark it did have the effect of lowering the value of the currency, the Krone, but according to the Danish Banking Association it also hit the banks' bottom line profits.

Here's some more about what a negative interest rate even means.


US GPD contracted in 2014Q1, but is that significant? In my opinion, GDP is a pretty stupid metric. Why?

  • If you and I each mow our own laws, GDP = $0.
  • If you and I pay each other $50 to mow each others' lawns, GDP = $100.
The U.S. economy contracted in the first quarter for the first time in three years as it buckled under the weight of a severe winter, but there are signs activity has since rebounded.

The Commerce Department on Thursday revised down its growth estimate to show gross domestic product shrinking at a 1.0 annual rate.

It was the worst performance since the first quarter of 2011 and reflected a far slower pace of inventory accumulation and a bigger than previously estimated trade deficit.


Everyone has heard about BitCoin by now, but did you know that crypto-currencies are just a subset of Distributed Autonomous Corporations?

Distributed Autonomous Corporations (DAC) run without any human involvement under the control of an incorruptible set of business rules. (That's why they must be distributed and autonomous.) These rules are implemented as publicly auditable open source software distributed across the computers of their stakeholders. You become a stakeholder by buying "stock" in the company or being paid in that stock to provide services for the company. This stock may entitle you to a share of its "profits", participation in its growth, and/or a say in how it is run.


Bloomberg has an infographic about how automation threatens various jobs. I think it captures some interesting categories, but I don't agree with the bottom line.

automation.jpg

For "Manipulation"-type jobs, it is only a matter of time before automation miniaturizes and catches up to humans.

For "Creativity", internet distribution makes it possible for elite creative workers to share their products very widely and cheaply, thereby pricing middling/poor creative workers out of the market. Non-elite creative workers will only get paid for making unique creations, and the pay will be poor. Example: quilt-making.

The "Social/Perception" field is likely safe for the foreseeable future... but what does that mean? Humans will be better than automation at social interactions with other humans... but will there be any money in that when no one has any other jobs?

Obviously I don't think the future is that bleak. I believe that humans and machines will continue to cooperate in voluntary collaborations and we'll all be better off for it. The modern corporation is basically a massive human/machine hybrid.

(HT: WH.)


This piece by Aswath Damodaran is a great explanation of why Facebook paid $19 billion for Whatsapp. There's a lot there, but it's an elegant read.

Returning to the Facebook/Whatsapp deal, it seems to me that Facebook is playing the pricing game, and that recognizing that this is a market that rewards you for having a greater number of more involved users, they have gone after a company (Whatsapp) that delivers on both dimensions. Here is a very simplistic way to see how the deal can play out. Facebook is currently being valued at $170 billion, at about $130/user, given their existing user base of 1.25 billion. If the Whatsapp acquisition increases that user base by 160 million (I know that Whatsapp has 450 million users, but since its revenue options are limited as a standalone app, the value proposition here is in incremental Facebook users), and the market continues to price each user at $130, you will generate an increase in market value of $20.8 billion, higher than the price paid. Are there lots of "ifs" in this deal? Sure, but it does simplify the explanation.

Bonus content: an explanation of the difference between how traders and investors see the world.

This week, I was at the Tuck School of Business at Dartmouth, talking about the difference between price and value. I built the presentation around two points that I have made in my posts before. The first is that there are two different processes at work in markets. There is the pricing process, where the price of an asset (stock, bond or real estate) is set by demand and supply, with all the factors (rational, irrational or just behavioral) that go with this process. The other is the value process where we attempt to attach a value to an asset based upon its fundamentals: cash flows, growth and risk. For shorthand, I will call those who play the pricing game "traders" and those who play the value game "investors", with no moral judgments attached to either. The second is that while there is absolutely nothing wrong or shameful about being either an investor (No, you are not a stodgy, boring, stuck-in-the-mud old fogey!!) or a trader (No, you are not a shallow, short term speculator!!), it can be dangerous to think that you can control or even explain how the other side works. When you are wearing your investor cape, you can be mystified by what traders do and react to, and if you are in your trader mode, you are just as likely to be bamboozled by the thought processes of investors. So, at the risk of ending up with a split personality, let me try looking at Facebook's acquisition of Whatsapp for $19 billion, with $15 billion coming from Facebook stock and $4 billion from cash, using both perspectives.


Security and Exchange Commission employees are required to sell any stock they own in a company when beginning an investigation into that company. Since such an investigation can only lead to bad or neutral results for the company in question, the requirement to sell naturally leads to employees making a boatload of money.

Here is an investment strategy for you:

Buy all the stocks in the S&P 500 index, weighted by market cap.
Any time the Securities and Exchange Commission opens an investigation into one of those companies, sell its stock.1
That's it! I feel like that would be a good strategy, right? All the benefits of indexing, plus you get to occasionally trade on inside information. Oh, right, for this strategy to work, obviously, you'd need to know about SEC investigations as soon as they start; you can't just wait until the investigations are public.

So I guess the downside of this strategy is that, to use it, you need to work at the SEC. The upside, though, is that if you work at the SEC, this strategy is totally fine!

More than "totally fine", this investment strategy is basically required.

It's obvious that SEC employees should not be allowed to own individual stocks, and I'm quite surprised to find out that isn't the case. Government regulators should in general be prohibited from benefiting from their insider knowledge.


A great run-down of how app stores have changed software, and mostly for the better. I agree with the author's conclusions as well.


It's interesting to look at how Google spends its money. Does it just have so much cash that it can't find a good way to invest it? Or are these "moon shots" good business? Or are the founders using the company as a piggy bank to play around with? Should this money be paid out to shareholders?

Look at the technology landscape today and what do you see? A few companies -- Facebook, Yahoo, Apple, Twitter and Google -- competing for the same sorts of revenue: advertising, search, location and some mobile hardware.

Now look into the future of the technology landscape and what do you see? I'll answer that for you: Google, Google and Google.

Over the last year alone Google has acquired more than a dozen tech hardware outfits working on projects that might seem crazy today, but could be part of our not-too-distant future.

Let's look at just a small collection of Google's recent acquisitions. There have been several humanoid robot-makers, including Boston Dynamics, which makes two- and four-legged machines that walk and run with an uncanny sense of balance. Then there was Holomni, a small design firm that makes high-tech robotic wheels, presumably for more robots, or even Google's fleet of driverless cars. And the acquisition of Makani Power, which makes airborne wind turbines, for, well, who knows how Google will use those?

Yet many of its competitors seem to be stuck in the present. Look at Facebook, Yahoo and Twitter's acquisitions, all of which have purchased a lot of software, design, advertising and content companies. No robots. No self-driving cars. No wind turbines.

It's unclear where Apple fits into all of this -- the company, is, after all, better at keeping secrets than the National Security Agency. Apple also clearly has the money to compete with Google.


It's interesting to look at how Google spends its money. Does it just have so much cash that it can't find a good way to invest it? Or are these "moon shots" good business? Or are the founders using the company as a piggy bank to play around with? Should this money be paid out to shareholders?

Look at the technology landscape today and what do you see? A few companies -- Facebook, Yahoo, Apple, Twitter and Google -- competing for the same sorts of revenue: advertising, search, location and some mobile hardware.

Now look into the future of the technology landscape and what do you see? I'll answer that for you: Google, Google and Google.

Over the last year alone Google has acquired more than a dozen tech hardware outfits working on projects that might seem crazy today, but could be part of our not-too-distant future.

Let's look at just a small collection of Google's recent acquisitions. There have been several humanoid robot-makers, including Boston Dynamics, which makes two- and four-legged machines that walk and run with an uncanny sense of balance. Then there was Holomni, a small design firm that makes high-tech robotic wheels, presumably for more robots, or even Google's fleet of driverless cars. And the acquisition of Makani Power, which makes airborne wind turbines, for, well, who knows how Google will use those?

Yet many of its competitors seem to be stuck in the present. Look at Facebook, Yahoo and Twitter's acquisitions, all of which have purchased a lot of software, design, advertising and content companies. No robots. No self-driving cars. No wind turbines.

It's unclear where Apple fits into all of this -- the company, is, after all, better at keeping secrets than the National Security Agency. Apple also clearly has the money to compete with Google.


Pope Francis opposes capitalism:

"Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world," Francis wrote in the papal statement. "This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and in the sacra­lized workings of the prevailing economic system."

Greg Mankiw defends capitalism:

A few reactions:

First, throughout history, free-market capitalism has been a great driver of economic growth, and as my colleague Ben Friedman has written, economic growth has been a great driver of a more moral society.

Second, "trickle-down" is not a theory but a pejorative used by those on the left to describe a viewpoint they oppose. It is equivalent to those on the right referring to the "soak-the-rich" theories of the left. It is sad to see the pope using a pejorative, rather than encouraging an open-minded discussion of opposing perspectives.

And then sticks in the shiv:

Third, as far as I know, the pope did not address the tax-exempt status of the church. I would be eager to hear his views on that issue. Maybe he thinks the tax benefits the church receives do some good when they trickle down.

Glenn Reynolds points out that Pope Francis may not be familiar with real free markets:

I think the key factor here is that he's from crony-capitalism-capital Argentina, and that he has mistaken what goes on there for the operation of free markets.

This observation is likely correct, given some of the Pope's following remarks:

"This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and in the sacra­lized workings of the prevailing economic system."

"Meanwhile," he added, "the excluded are still waiting."

In free markets no one is excluded. When people are excluded it is almost always the result of government action, justified as being "for the good of the people".


Some great charts personal financial planning targeted at engineers. The advice is good for anyone though.


60 Minutes has a distressing account of how many people are turning to disability fraud because they economy is so bad. I can understand that people are desperate to care for their families, but this is an abuse of the disability system. We need to encourage unemployed people to move away from distressed areas and into parts of the country that are hurting for labor.

There is a Senate hearing scheduled tomorrow on a subject of some importance to millions of Americans, but with the government shutdown it's not clear that the Senate Committee on Government Affairs will be able to pay for a stenographer to record the event. The hearing involves the Federal Disability Insurance Program, which could become the first government benefits program to run out of money. When it began back in the 1950s it was envisioned as a small program to assist people who were unable to work because of illness or injury.

Today, it serves nearly 12 million people -- up 20 percent in the last six years -- and has a budget of $135 billion. That's more than the government spent last year on the Department of Homeland Security, the Justice Department, and the Labor Department combined. It's been called a "secret welfare system" with it's own "disability industrial complex," a system ravaged by waste and fraud. A lot of people want to know what's going on. Especially Sen. Tom Coburn of Oklahoma.

Tom Coburn: Go read the statute. If there's any job in the economy you can perform, you are not eligible for disability. That's pretty clear. So, where'd all those disabled people come from?

The Social Security Administration, which runs the disability program says the explosive surge is due to aging baby boomers and the lingering effects of a bad economy. But Sen. Tom Coburn of Oklahoma, the ranking Republican on the Senate Subcommittee for Investigations -- who's also a physician -- says it's more complicated than that. Last year, his staff randomly selected hundreds of disability files and found that 25 percent of them should never have been approved -- another 20 percent, he said, were highly questionable.

I'm sure that non-disabled people would rather sit at home and collect a check than move to the Northwest and pick pears, but why should taxpayers finance that preference?

Over 80 percent of America's fresh pears are grown in the Pacific Northwest, and this year's harvest is slated to be one of the biggest on record.

But some of the fruit is rotting in the orchards because there aren't enough workers to pick them.

Mike McCarthy farms about 300 acres of pears in Oregon's Hood River Valley. He has about 60 workers harvesting in his fields, but would like to have about 30 more.

"Normally we would have picked these Comice [pears] at least 10 days ago, but we're just getting here now," says McCarthy. "And it's not a good thing."

Many farmers are short-staffed this year. For McCarthy, it's the third year in a row he has had a labor shortage. He's tried the employment office, but those workers didn't have any agriculture experience, and they didn't last more than a couple of days. He's looked for workers in Arizona and California, but found those states facing similar shortages.


I think that most researchers and commentators are too timid when predicting the rise of automation. People tend to look at how a human does a job and then ask: could a robot do that? But that's the wrong question. Instead of looking at "jobs", which are a social construct, look at the need that the human in the job is fulfilling and ask yourself if a robot could fill that need. When it happens, it's likely that the robot's "job" will look very little like the human "jobs" that were displaced.

Obvious example: Amazon has probably destroyed at least 100,000 retail jobs, but none of what Amazon's computer system does looks like the job of a retail clerk. A modern robot would be terrible at chatting with customers, stocking shelves, working a cash register, setting up displays, and pointing people to the restroom. If you were were to look at the job requirements of a retail clerk you might think, "this job is safe from robots!" And don't forget that Amazon has destroyed the white-collar jobs of store managers and owners as well.

Frey and Osborne focus on "engineering bottlenecks" in AI and robotics, and compare these stumbling points with the requirements of jobs in order to determine which are most and least likely to be vulnerable to automation. The biggest bottlenecks are perception and manipulation, creative intelligence, and social intelligence, all of which computers struggle mightily at (but Rosie the Robot excelled at, by the way). While the trend in recent decades has been towards a hollowing out of "middle-skill" jobs and an increase in low-paying service sector jobs and high-paying, highly educated jobs, Frey and Osborne expect that automation in the future will mainly substitute for "low-skill and low-wage" jobs.

So who, specifically, should be worried? They write:

Our model predicts that most workers in transportation and logistics occupations, together with the bulk of office and administrative support workers, and labour in production occupations, are at risk. These findings are consistent with recent technological developments documented in the literature. More surprisingly, we find that a substantial share of employment in service occupations, where most US job growth has occurred over the past decades (Autor and Dorn, 2013), are highly susceptible to computerisation.

This may turn out to be correct, though I'd note two reservations I have. First, the model uses (in part) the notoriously unreliable subjective estimates of AI researchers to assign values to whether tasks can be automated or not, and second, it uses lists of job requirements, that the authors acknowledge are not written to assess whether a job can be easily automated. Indeed, job ads don't list things that are universal (or nearly so) across humans, such as rudimentary social intelligence, language understanding, and commonsense. As AI researcher Ernest Davis points out, there has been "only very limited progress" in equipping robots with commonsense reasoning skills.


James Altucher has a cheat sheet for starting and running your own business, but I contend that almost all the items on his 100-long list can be applied to almost any career, even when you're working for someone else. Everyone has customers, everyone has investors, and everyone wants to grow. Even if you aren't an entrepreneur you can apply these principles to make your work-self awesome.


It's interesting to me that Google's interview process is so onerous considering that they admit it has little predictive value. It seems to me that a policy of probationary hires might be more productive. Perform an initial screening to weed out the obviously unsuited and then bring candidates on for six-month contracts and see how they do. It would still be more onerous than what most companies do, but a six-month track record would certainly be predictive of future results.

Frankly, the use of highly-technical trick questions strikes me as embarrassing.

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