MitchJi
Trying to learn kindness, patience & forgiveness
Higher unemployment is not positive for anyone!
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Tesla Investor's General Macroeconomic / Market Discussion
- Thread starter FluxCap
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ValueAnalyst
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What's your experience with macroeconomic analysis, the components that influence the federal funds rate, the 10-year yield, and three methods to calculate the discount rate in company valuations?
Off topic: My senior year in high school, many, Many moons ago I wrote a paper that I entitled 'reverse social security' where people between 18-24 were given $500/month but had to attend either a trade school or college and maintain a C or better average to collect.
My teacher thought I was crazy and gave me a B-, mostly for 'effort'. She was correct about the crazy part but it was an 'A' paper.
I was scarred for life when my second grade teacher criticized a crayon drawing I made of the sun by outlining the figure in black. She had pronounced breasts, though. "Who knows what evil lurks in the heart and mind of... a six years old." The Shadow does!
The leaders of large businesses which employ lots of unskilled labor would disagree. Karl Marx referred to the "reserve army of the unemployed", used to keep wages low, which these leaders liked, obviously, because it lined their pockets.
Wall Street lately, however, is reacting in a much more narrow-minded way than that. They want low interest rates for borrowing money. The Fed seems to have an itch to raise interest rates, but has a policy mandate which basically prohibits it from doing so if unemployment is high. So whenever job news is good, Wall Street panics that interest rates will rise. They're happy when unemployment is high. This perversity is what ValueAnalyst is referring to.
I think Wall Street is crazy in this regard, because they're ignoring the problem that *someone needs to buy the products*, so that high unemployment == less product sales. But this key macroeconomic concept is something many financiers and businessman have ignored for most of history -- even though Henry Ford understood it. It required Keynes to explain it to financiers and economists. And most of them still aren't listening -- they don't want to hear it because they don't like it.
Plants have pain signals (it's quite useful for self-defense), as can most classes of living things.
But the latest research is finally giving a clearer explanation of how plants behave and communicate, and it's very alien to us animals. Plants don't really have a sense of *self*. A plant communicates with itself quickly by spraying hormones in the air, which can be picked up by any plant in the neighborhood -- there's no distinction between communication with others and communication with parts of its own body. Similarly, the plant can't tell that the branch it's just overshadowed is one of its *own* branches. Being pruned is actually good for plants, on the whole (though the pruned bits would surely disagree). So... plants are different.
There's arguably something fundamentally immoral about being an animal (except perhaps a scavenger) and having to kill or maim other living beings to live. I don't have the integrity to be a fruitarian who only eats the parts of the plant which the plant *wants* us to eat, like the fruit; it's exceedingly difficult to get a balanced diet if you do that.
I'm a bit envious of the autotrophs (photosynthesizers). But plants can be jerks too: I remember my spider plant murdering my violet by sending runners into its pot, overshadowing it, and then strangling it. So, y'know, life is what it is.
Learning a lot of biology gave me a different perspective on the whole thing: arguably, morality evolved because cooperation and "peace treaties" are evolutionarily advantageous in many circumstances. And then occasionally they aren't.
My personal rule is to try not to eat anything more intelligent than Donald Trump. So I don't eat octopuses. They're more intelligent than most mammals. (They're also the most alien intelligence there is on this earth, since their intelligence evolved totally separately from vertebrates; so it's hard for us to even understand how intelligent they are. They are smart enough to refuse to cooperate with our intelligence tests if they don't want to, which is an intelligence level shared by very few species.)
For some reason, I'm totally OK with eating stupid creatures; call it a bias. Since even pretty stupid creatures can feel pain, though, I believe in treating them humanely and killing them quickly. I've gotten particularly uncomfortable with fishing practices, which are frankly cruel and typically involve slow suffocation.
No --I think it actually is related to the President's party. The reason is essentially that most Republicans rejected the facts of Keynesian economics. So they get worse results than most Democrats, who do accept the facts of Keynesian economics.
What I'm saying is that it's more about fiscal policy than monetary policy. While there have been some very profligate deficit-spending Republicans (Ronald Reagan and G W Bush), they tended to put their spending and tax cuts into the parts of the economy with the *lowest* economic multiplier effect. Democratic Presidents tended to put their spending and tax cuts into the parts of the economy with the *highest* multiplier effect.
Is there any field about which you don't have professional competence? How about sports? I am totally ignorant and totally uninterested. On the occasion of my mother's burial I did marvel about my youngest sons camaraderie with my brother when they talked about football. Didn't understand the details, but marveled at how well they engaged and enjoyed each other. Fortunately, I'm not the jealous type, but in old age I am capable of love—quite a surprise—doubtless due to my Buddhist wife.
I think it (strongly!) supports my thesis that we're now in a sector-selection market. I believe we will stay in this situation for quite a number of years. We may get a recession while the renewable energy sector continues to boom, or we may get a boom while the fossil fuel industry continues to crash, but the "boom vs. recession" will actually be less significant than the sectoral shift.
I can't think of an example of this type of situation since the 19th century, though I welcome people with more knowledge of economic history who might be able to find one in the 1950s or 1960s or perhaps WWI or WWII.
This sort of market was a big deal during the Industrial Revolution. Sure, it might be a recession (or "panic" as they called it then), but if you could *pick the right industry* and *pick the right company* you could thrive during the panic. Sure, it might be a boom, but if you were in the wrong industry, you were still going to lose your shirt.
This was not true during the highly-correlated 1920s or the Great Crash.
I believe that people who are looking at decorrelation as a prelude to a crash are missing something. The whole 20th century was very highly correlated. If you're only looking at 20th century data sets, you won't see the *long periods* of decorrelation.
I know next to nothing about sports, apart from some history.
I am also appallingly bad at acting and know very little about it, despite enjoying watching it.
And while I can *study* diplomacy, I am quite incapable of actually *being* diplomatic. There are quite a lot of fields I can analyze but wouldn't have any possibility of being able to actually *do*.
I actually know only the very very basics of several fields, such as geology and meteorology: not bachelors' level. I got bored with astronomy so again I only know the very basics. I know some physics but to my embarassment I never properly learned electromagnetism -- I must get around to it some day.
I know even less sociology and anthropology; thankfully those fields are in sufficient contention that the experts don't know that much either! ;-)
I am only a hobbyist in biology. The thing about biology is, there is so much of it. I probably know a bachelor's level amount, but there's just an infinite amount more -- it's not like physics, which is a much less sprawling field. I have no competence in any of the thousand specialties of biology; I'm just a generalist.
Basically I know enough to have a good general idea about a lot of fields but I am not a specialist in any of them. And to get this back on topic, this is actually related to a habit I share with Elon Musk.
I recently read this quote from Elon Musk:
"One bit of advice: it is important to view knowledge as sort of a semantic tree — make sure you understand the fundamental principles, i.e. the trunk and big branches, before you get into the leaves/details or there is nothing for them to hang on to."
( From this article: Elon Musk’s Unusual Communication Tendencies, + A Recommendation )
This is what I did for a large number of fields. I didn't bother to learn the details of most of the fields. "Jack of all trades, master of none".
I learn enough details (facts, evidence, empirical testing) to make sure the fundamental principles I was learning were actually *right* (this is a big issue in economics, where some of the "big ideas" are simply wrong and contradicted by all the evidence -- also in linguistics), but then I learned details only at random as I ran into them.
My instinct is to generalize, and I'm good at it, but your generalizations may be wrong if you don't pay attention to the individal detailed evidence. Due to scientific training, I always try to pay attention to the detailed empirical evidence and look for things which contradict the generalization, but it's not my instinct and I typically stop bothering when I don't need to do so any more to verify the general theory.
It turns out that this -- a shallow but correct general understanding of a lot of fields, so that you are *able* to learn the details on demand if you *need* to -- is an excellent background for investment analysis. Go figure.
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adiggs
Well-Known Member
I know next to nothing about sports, apart from some history.
I am also appallingly bad at acting and know very little about it, despite enjoying watching it.
And while I can *study* diplomacy, I am quite incapable of actually *being* diplomatic. There are quite a lot of fields I can analyze but wouldn't have any possibility of being able to actually *do*.
I actually know only the very very basics of several fields, such as geology and meteorology: not bachelors' level. I got bored with astronomy so again I only know the very basics. I know some physics but to my embarassment I never properly learned electromagnetism -- I must get around to it some day.
I know even less sociology and anthropology; thankfully those fields are in sufficient contention that the experts don't know that much either! ;-)
I am only a hobbyist in biology. The thing about biology is, there is so much of it. I probably know a bachelor's level amount, but there's just an infinite amount more -- it's not like physics, which is a much less sprawling field. I have no competence in any of the thousand specialties of biology; I'm just a generalist.
Basically I know enough to have a good general idea about a lot of fields but I am not a specialist in any of them. And to get this back on topic, this is actually related to a habit I share with Elon Musk.
I recently read this quote from Elon Musk:
"One bit of advice: it is important to view knowledge as sort of a semantic tree — make sure you understand the fundamental principles, i.e. the trunk and big branches, before you get into the leaves/details or there is nothing for them to hang on to."
( From this article: Elon Musk’s Unusual Communication Tendencies, + A Recommendation )
This is what I did for a large number of fields. I didn't bother to learn the details of most of the fields. "Jack of all trades, master of none".
I learn enough details (facts, evidence, empirical testing) to make sure the fundamental principles I was learning were actually *right* (this is a big issue in economics, where some of the "big ideas" are simply wrong and contradicted by all the evidence -- also in linguistics), but then I learned details only at random as I ran into them.
My instinct is to generalize, and I'm good at it, but your generalizations may be wrong if you don't pay attention to the individal detailed evidence. Due to scientific training, I always try to pay attention to the detailed empirical evidence and look for things which contradict the generalization, but it's not my instinct and I typically stop bothering when I don't need to do so any more to verify the general theory.
It turns out that this -- a shallow but correct general understanding of a lot of fields, so that you are *able* to learn the details on demand if you *need* to -- is an excellent background for investment analysis. Go figure.
You're in lots of good company with this way of thinking (view knowledge as a semantic tree - make sure you understand the fundamentals).
Charlie Munger agrees and is quoted at this website that I've used and enjoy reading to systematize my own efforts along these lines:
Mental Models: The Best Way to Make Intelligent Decisions (113 Models Explained)
In the language of this website, what you're talking about are mental models, and the importance of having lots of them. The site even lists out ~100 of them, which is even one of the points Charlie makes - when you're talking about the really big ideas, there's maybe 100 to know.
To see Charlie's idea of mental models, his speech on "A Lesson in Worldly Wisdom" makes for fascinating reading (entralling for me), and articulates @neroden's paragraph above more completely.
A Lesson on Elementary Worldly Wisdom
To the list of mental models / big ideas it's imortant to know, I would add Supervised Learning. The reason being that "data science", or as I like to think it - applying numerical analysis from science fields to business data and business problems - is becoming increasingly important to the business world, and the key idea that I've found business people don't understand or have a paradigm for is Supervised Learning.
Supervised learning - Wikipedia
Wikipedia's writeup is pretty good in my estimation (true, brief), while also possibly suffering from the use of too many math terms. But at least it's something.
Republicans are just as big Keynesians as Democrats. They just spending the money in different places.
MitchJi
Trying to learn kindness, patience & forgiveness
Higher unemployment is not positive for anyone!
I believe that those metrics are irrelevant. IMO the success of a society is measured by the health, happiness and prosperity of its citizens, not "methods to calculate the discount rate in company valuations ".
Do you think that the optimum level of unemployment is determined by maximizing the economic welfare of big businesses? Pretty heartless.
ValueAnalyst
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ValueAnalyst
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I know next to nothing about sports, apart from some history.
I am also appallingly bad at acting and know very little about it, despite enjoying watching it.
And while I can *study* diplomacy, I am quite incapable of actually *being* diplomatic. There are quite a lot of fields I can analyze but wouldn't have any possibility of being able to actually *do*.
I actually know only the very very basics of several fields, such as geology and meteorology: not bachelors' level. I got bored with astronomy so again I only know the very basics. I know some physics but to my embarassment I never properly learned electromagnetism -- I must get around to it some day.
I know even less sociology and anthropology; thankfully those fields are in sufficient contention that the experts don't know that much either! ;-)
I am only a hobbyist in biology. The thing about biology is, there is so much of it. I probably know a bachelor's level amount, but there's just an infinite amount more -- it's not like physics, which is a much less sprawling field. I have no competence in any of the thousand specialties of biology; I'm just a generalist.
Basically I know enough to have a good general idea about a lot of fields but I am not a specialist in any of them. And to get this back on topic, this is actually related to a habit I share with Elon Musk.
I recently read this quote from Elon Musk:
"One bit of advice: it is important to view knowledge as sort of a semantic tree — make sure you understand the fundamental principles, i.e. the trunk and big branches, before you get into the leaves/details or there is nothing for them to hang on to."
( From this article: Elon Musk’s Unusual Communication Tendencies, + A Recommendation )
This is what I did for a large number of fields. I didn't bother to learn the details of most of the fields. "Jack of all trades, master of none".
I learn enough details (facts, evidence, empirical testing) to make sure the fundamental principles I was learning were actually *right* (this is a big issue in economics, where some of the "big ideas" are simply wrong and contradicted by all the evidence -- also in linguistics), but then I learned details only at random as I ran into them.
My instinct is to generalize, and I'm good at it, but your generalizations may be wrong if you don't pay attention to the individal detailed evidence. Due to scientific training, I always try to pay attention to the detailed empirical evidence and look for things which contradict the generalization, but it's not my instinct and I typically stop bothering when I don't need to do so any more to verify the general theory.
It turns out that this -- a shallow but correct general understanding of a lot of fields, so that you are *able* to learn the details on demand if you *need* to -- is an excellent background for investment analysis. Go figure.
This is also in-line with Liberal Arts education, of which I am a big fan.
Nice article. This bit resonates:
I deliberately spent my college education taking the 101/intro courses in as many disciplines as I could manage.
I was very confused as to why my fellow college students did not do this -- they specialized way too early. And this was a "liberal arts college". Isn't learning the basics of every field what a "liberal arts education" is supposed to be *for*?
adiggs said:
That article has an interesting list of models. I use many of these.
There are only two of them which I know to be actually outright false, and they're both from economics.
Comparative advantage is false. I looked at the historical record: there is no empirical evidence supporting the idea that comparative advantage actually exists between nations, and a lot of empirical evidence proving it completely false. The evidence is also against the existence of comparative advantage between firms. It might exist between individuals, who are much more severely time-limited, but I've seen no evidence of this either. (I did mention economics is a minefield of stuff like this.) *Absolute* advantage is another matter, as it's obviously true and there's lots of evidence supporting it -- the distinction between the two is very important.
Comparative advantage is the idea that if Tesla is better at building cars than everyone else by a huge amount, and better at building batteries than everyone else by a little but not by as much, then Tesla should outsource building batteries. It's nonsense.
Absolute advantage is the idea that Tesla should outsource anything where it's actually *worse* at producing them than the other guys. This, by contrast makes sense.
The description of trademarks, patents, and copyrights is also completely wrong. A proper understanding of patents and copyrights should be hung on the understanding of non-excludible goods, non-rival goods, and externalities, and it's known that patents and copyrights are very poor solutions to the problems which those have. Trademarks are a totally unrelated concept which is about fraud.
You inspired me to make my own list, since for me many of those models (like Hanlon's Razor) are actually branches hanging on even more generalized models (like the Standard Cognitive Biases). And I've got more of a superstructure than that list does.
Some of my top generic models right now are:
-- the catalog of standard cognitive errors from psychology. Check your beliefs and behavior against it to see if you're making one of 'em. Check *other* people's beliefs to see if *they're* making one of them.
-- trusting empirical evidence above theory or doctrine (the first principle of science; counteracts optimism bias, pessimism bias, confirmation bias, and pattern-seeking bias, among others)
-- testing your pet theory by trying to prove it wrong (the principle of the scientific *method*, IMO, designed to counteract confirmation bias); a theory where many people have tried very hard to find evidence to disprove it but can't is probably true
-- formal reasoning / formal logic (easy but oddly missing from a lot of people's curricula; counteracts many, many cognitive biases)
-- the power and pervasiveness of randomness (this counteracts the *pattern-seeking* cognitive bias, which is one of the most powerful cognitive biases)
-- correlation: it doesn't imply causation, but if it exceeds the statistical threshold for probably being randomness, then it indicates a likelihood of causation, reverse causation, or joint causation by a lurking variable; go through all four possibilities
-- evolution by reproduction, variation (by random mutation), and natural selection (this is incredibly useful well beyond biology; it's also highly counterintuitive to almost everyone, and mind-blowing when you really understand it)
-- the feudal model of society as a hierarchical network of personal trust & loyalty relations
-- the principle that past behavior is a predictor of future behavior (this comes naturally to most people, but brainwashing can mess people up on this one)
And a set specific to economics, where the standard courses are a mess:
-- the understanding that something is money because other people will accept it in payment
-- the fundamental trust basis of economic activity: people don't deal with people they distrust; and the resulting mechanisms of bank runs, demonetization, and currency collapse
-- the principle that the economy is never in equilbrium (this is very heterodox): leading to time series modeling
-- the four supply and demand principles, critically, *with the relationship to time* (the timeless "equilibrium" versions in most 101 courses are highly misleading):
---- if price of a good goes up, there is an incentive to supply more in *future* (vice versa if it goes down)
---- if price of a good goes up, fewer people will want to buy it in *future* (vice versa if it goes down)
---- if supply increases, there is an incentive for suppliers to lower the price in *future* (vice versa if it goes down), but they will put it off
---- if demand increases, there is an incentive for suppliers to raise the price in *future* (vice versa if it goes down), but they will put it off
-- market power: monopolist sellers can force prices up or cut off supply, monopsonists can force prices down or cut off demand
-- the basic understanding of the behavior of suppliers (this is not in standard economics 101 at all, though the facts are undisputed):
---- all suppliers want to be monopolists
---- if sales of a good drop, their first move is product differentiation, and their second move is advertising
-- the all-important theory of product substutition, which causes sharp, sudden, and total changes in behavior when prices cross over a threshold, and the associated theory of inferior goods
-- non-excludible goods, non-rival goods, and externalities, both positive and negative: situations where brainless markets make things worse for most people
-- informational asymmetries
-- the operation of banks (this is from MMT), which lend money and then borrow to cover it later (the time order is important)
-- the economic game theory experiment results regarding people's evaluation of fairness in different societies
-- the game theory experiment results and bird society studies regarding cheating vs. enforcement in societies
-- the principle of wealth concentration: market forces tend to accumulate wealth in a small number of people and impoverish everyone else; this can be demonstrated with statistical simulations
And a funny one specific to investing:
-- the efficient markets *theorem* (not the hypothseis), which says that if everyone has the same information, analyzes it equally well, and everyone has the same market power and markets are competitive, you can't beat the market. It's a correct theorem, but the evidence says people can beat the market, and do so frequently. Therefore, using the contrapositive, if you can beat the market, you need to have one of the following:
---- market power
---- more information than most people in the market
---- better analysis of said information than most people in the market
I've probably left out a lot of very important math stuff from that first list because I learned a lot of it very very young. I'd say the basics of math which everyone should know are:
-- symbolic logic (propositional, and first-order predicate including basic set theory)
-- formal systems, and the closely related concept of algorithms (named after al-Khwarizmi)... this is the language of mathematics
-- arithmetic on the integers, and the decimal system of notation
-- arithmetic on fractions
-- algebra (developed by al-Khwarizmi)
-- real numbers as an infinite converging sequence of approximations (a very tricky concept, actually)
-- arithmetic on the real numbers
-- geometry: 2d, 3d, and more-than-3d have to be learned separately (they use somewhat different parts of your brain)
-- analytic geometry, the most basic and critical relationship between algebra and geometry (developed by Descartes).
Analytic geometry trains your head to translate back and forth between algebraic and geometric representations of a problem, which is extremely useful (and is used constantly in all other scientific fields). Those are basically the only two types of representations ever used in mathematics (although you will find multiple alegbraic representations and multiple geometric represenations for a single problem). The algebraic and geometric representations are actually processed in wildly different parts of the brain -- algebraic in the verbal-processing centers typically, and geometric in the visual/spatial processing centers. You have to practice to link these together.
Once you get these, you have the mental framework to learn the rest of math.
Well, that was a fun excursion for a Sunday. I should go back to work now.
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No, they're not.
In fact, most Congresspeople probably don't understand Keynesianism, but *none* of the modern Republicans have a *clue* about it. Their behavior is consistent with "handing money to cronies", not with any sort of economic policy with any theoretical basis.
Keynesianism isn't just "spending". It has to do with managing the availability of money for economic "lubrication" purposes (making trades happen rather than having them stalled due to a money shortage), for which it is critically important *where* the money is. If the money is misallocated, large sectors of the economy can have money shortages even while J P Morgan's vaults are full of money.
A true Keynesian policy keeps moving the money into the sectors which have a shortage of liquidity (and, for that matter, out of the sectors which have excess liquidity). For much but not all of history, and also right now, it is the 99% who are liquidity-limited and the billionaires who have excess liquidity.
Right now I would say there's an overallocation to "financial investment money" (leading to high P/Es in the stock market), an overallocation to military materiel spending (which takes real resources and, typically, destroys them), an underallocation to infrastructure construction (which takes real resources and uses them to create value), and an underallocation to consumption (which takes resources and uses them to make people happy).
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Thanks for this too. I read the whole thing. He raises some fascinating questions, particularly about why you can have an industry dominated by 3 or 4 companies, and *sometimes* they act competitive and eliminate profits, and *sometimes* they act as a cartel, and *sometimes* they act somewhere in betwen.
He also starts getting at the problems with investment management. I will repeat what I've called Nathanael's Laws of Investment Advice:
(1) If your investment advisor can beat the market, s/he will probably charge more than the amount by which s/he does beat it
(2) If you can tell whether your investment advisor can beat the market, you have the expertise to do your investing directly yourself
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Military spending is Keynesian spending as any Keynesian will tell you is what got us out of WW2. Even Paul Krugman, the ultimate Keynesian, jokingly advocated for increased military spending for a fake alien invasion to get us out the last recession.
I don't agree with this but it is what Keynesians have said. Any spending is good spending.
As to why there is an over allocation in the financial sector, I would blame crony capitalism on both sides supporting Wall Street lobbies. Why does the carried interest loophole still exist through multiple parties in power over decades?
*Sigh* it is actually way more complicated than that. Money going to soldiers, of course, gets spent. A substantial amount of our military spending is, *for some reason*, paying soldiers on bases overseas, and as such it boosts *foreign* economies.
More problematic is the money spent on building equipment. If it goes to factory workers in the US, yes, they spend the money. But if it goes to CEOs of defense contractors (and on "cost plus 20%" contracts, 20% of it basically does), then it *doesn't* get spent; it gets socked away in the CEO's bank account and removed from the consumption sector of the economy.
By contrast, if you pay someone to build a bridge, they spend money immediately domestically, and then the bridge (if it's in a useful location) saves money for other people and enables them to spend their money on other stuff and enables additional economic activity...
Traditional Keynesians talk about the economic multiplier. Monetarists would refer to the velocity of money in different sectors. Others would refer to the savings rate. It's actually all the same fundamental concept, though that's far from obvious.
No disagreement. Money == power, and that power is used to get more money. It's how capitalism fails.
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I completely get the theory of Keynesianism but, in practice, it fails miserably. One of the key tenets of Keynesianism is paying back the deficit spending during good times. When has that ever happened in the last 40 years? We just keep adding to the debt. If Keynesianism actually worked as advertised, we would not have an increasing debt load over multiple economic cycles. The ONLY reason it has seemed to work this long is the US dollar is the reserve currency of the world and we can print and borrow indefinitely. Until we can't.
BTW, capitalism hasn't failed. What you're describing is crony capitalism and that has failed us.
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