Alice is the new normal
July 18, 2020 9:02 AM Subscribe
I wonder what's behind the name "Oirob"?
Anyhow the writer is known for the book "Devil Take the Hindmost: A history of financial speculation.", so you can see where he's coming from.
The financial world is pretty nutty these days. Nuttiness usually ends suddenly and badly.
posted by storybored at 9:19 AM on July 18, 2020 [2 favorites]
Anyhow the writer is known for the book "Devil Take the Hindmost: A history of financial speculation.", so you can see where he's coming from.
The financial world is pretty nutty these days. Nuttiness usually ends suddenly and badly.
posted by storybored at 9:19 AM on July 18, 2020 [2 favorites]
I wonder what's behind the name "Oirob"?
This guy.
posted by Klipspringer at 9:29 AM on July 18, 2020 [3 favorites]
This guy.
posted by Klipspringer at 9:29 AM on July 18, 2020 [3 favorites]
Ah, found it. Claudio Borio, Bank of International Settlements. Sources of Financial Instability.
posted by storybored at 9:29 AM on July 18, 2020 [1 favorite]
posted by storybored at 9:29 AM on July 18, 2020 [1 favorite]
Heh, Klipspringer!
posted by storybored at 9:29 AM on July 18, 2020
posted by storybored at 9:29 AM on July 18, 2020
Jinx poke, someone owes someone a Coke.
posted by hippybear at 10:15 AM on July 18, 2020 [1 favorite]
posted by hippybear at 10:15 AM on July 18, 2020 [1 favorite]
Yes, this makes sense.
And, as a currently-unemployed HR professional, I wonder if there are non-monetary forms of value I should be investing my time and energy in. Hm - learning and advocating for first-responder skills, mending and maintenance skills and tools, finding ways to reuse/recycle into something besides art.
posted by rebent at 11:05 AM on July 18, 2020 [2 favorites]
And, as a currently-unemployed HR professional, I wonder if there are non-monetary forms of value I should be investing my time and energy in. Hm - learning and advocating for first-responder skills, mending and maintenance skills and tools, finding ways to reuse/recycle into something besides art.
posted by rebent at 11:05 AM on July 18, 2020 [2 favorites]
I've been saying this since 2002. But my friends who bought in to this are rich and I am poor. In spite of the crash in 2007, where they should have struggled and my attachment to the physical reality of the world should have been a strength.
I like the story, though.
posted by mumimor at 11:20 AM on July 18, 2020 [9 favorites]
I like the story, though.
posted by mumimor at 11:20 AM on July 18, 2020 [9 favorites]
Nice ending.
posted by heatherlogan at 11:34 AM on July 18, 2020 [1 favorite]
posted by heatherlogan at 11:34 AM on July 18, 2020 [1 favorite]
I love how this (perhaps intending to mock them) still illustrate several basic truths that non-traders have trouble seeing, the most important of which being almost all investible insights are the counter-intuitive ones, because intuitive insights are going to be priced in or wrong.
posted by MattD at 3:06 PM on July 18, 2020 [4 favorites]
posted by MattD at 3:06 PM on July 18, 2020 [4 favorites]
My Stash account earned 53 cents last week.
posted by Devils Rancher at 3:14 PM on July 18, 2020
posted by Devils Rancher at 3:14 PM on July 18, 2020
I am a timid soul. I neither speculate nor invest. My few shekels are hidden away in a municipal bond fund. I don't touch them. They grow slowly and quietly, month by month, as dispersals are reinvested. Everything, other than capital gains, is tax exempt. But I never sell so there are no gains. A simple request can turn the income stream on or off as needed. My reasoning has long been that should municipal bonds ever prove to be unviable, that would be the least of my worries...
posted by jim in austin at 5:28 PM on July 18, 2020 [1 favorite]
posted by jim in austin at 5:28 PM on July 18, 2020 [1 favorite]
That was a 'fun' read thanks sammyo, I didn't know Reuters did satire! I was equally surprised to find something similar in Ian Stewart's In Pursuit of The Unknown especially the chapter on the Midas formula.
"The banks behaved like one of those cartoon characters who wanders off the edge of a cliff, hovers in space until he looks down, and only then plunges to the ground. It all seemed to be going nicely until the bankers asked themselves whether multiple accounting with non-existent money and overvalued assets was sustainable, ... and realised that they didn't have a clue Except that it was definitely a lot less than they'd told shareholders and government regulators."
Im with jim in austin and distrust anything much more than a nation's Reserve Bank rate, I remember my dad (a CPA) telling me that anything greater than about 1.5x the Reserve rate had to be fraud, or something that looked like fraud if you looked close. I won't get wealthy but I won't be guilty of wrecking the planet either.
posted by unearthed at 12:33 AM on July 19, 2020 [2 favorites]
"The banks behaved like one of those cartoon characters who wanders off the edge of a cliff, hovers in space until he looks down, and only then plunges to the ground. It all seemed to be going nicely until the bankers asked themselves whether multiple accounting with non-existent money and overvalued assets was sustainable, ... and realised that they didn't have a clue Except that it was definitely a lot less than they'd told shareholders and government regulators."
Im with jim in austin and distrust anything much more than a nation's Reserve Bank rate, I remember my dad (a CPA) telling me that anything greater than about 1.5x the Reserve rate had to be fraud, or something that looked like fraud if you looked close. I won't get wealthy but I won't be guilty of wrecking the planet either.
posted by unearthed at 12:33 AM on July 19, 2020 [2 favorites]
I think I'm glad I don't understand most of this.
posted by eotvos at 11:09 AM on July 19, 2020 [1 favorite]
posted by eotvos at 11:09 AM on July 19, 2020 [1 favorite]
I think I'm glad I don't understand most of this.
OK, I'll give the first part a shot:
“Do you hold bonds for income?” she eagerly asked. Everyone laughed. “Are you dreaming?”
A couple of facts to start. If you're lower income, you tend to spend most of any increase in income you receive. If you're making $30,000, and you get a windfall of $1,000, there are lots of way to spend that cash that will improve your life. If you're already rich, you'll save pretty much all of a $1,000 windfall, because you already have lots of money.
Second, because of technology, political campaigns against unions, concentration of market power in larger corporations, and other reasons, a larger share of income is going to the wealthy.
So, more income is going to people who don't spend it.
Ok, so where does that money go.
You might think the stock market, but money can't really go there. Because of the technology, the decline of unions, monopolies, etc. most companies in the stock market are big and profitable. They don't need investor money. In fact, they pay profits out in dividends, or buy back stock. They are paying money TO shareholders, not getting money FROM them. Sure, rich people buy stocks, but that money goes to other people who are selling those shares, not the companies themselves.
One large place that money goes is government bonds, because those are safe, guaranteed assets. The US Treasury owns a printing press that makes US dollars, so if you buy bonds, you are pretty confident that you'll be paid back. Unlike the stock market, the government is, as a whole, borrowing a lot of money especially these days.
So lots of money is going to safe assets like bonds. And if lots of people are lining up to lend the government money, the interest rate they demand is going to go down. And it's been trending towards zero. You might think that if bonds pay zero interest (or near zero), what's the point of holding them. Well, if you're a big company, institution, or really rich person, you can't really store a giant pile of cash, even virtually in a bank account. The bank doesn't guarantee a bank balance of a billion dollars, but a billion dollars of government bonds is guaranteed by the government. So if you've got a lot of money lying around, you're holding that in bonds.
So, there's no income in bonds, yet lots of people have to buy bonds. If you own bonds, and more people show up to buy them from you, you can sell at a profit, even if the rate is slightly negative. It's a place for wealthy people to store the biggest piles of cash in the economy, and of course, the economy is making the rich richer, so they have to buy more bonds. (And real estate. But owning real estate is a job, while owning bonds isn't.)
posted by thenormshow at 7:32 PM on July 19, 2020 [7 favorites]
OK, I'll give the first part a shot:
“Do you hold bonds for income?” she eagerly asked. Everyone laughed. “Are you dreaming?”
A couple of facts to start. If you're lower income, you tend to spend most of any increase in income you receive. If you're making $30,000, and you get a windfall of $1,000, there are lots of way to spend that cash that will improve your life. If you're already rich, you'll save pretty much all of a $1,000 windfall, because you already have lots of money.
Second, because of technology, political campaigns against unions, concentration of market power in larger corporations, and other reasons, a larger share of income is going to the wealthy.
So, more income is going to people who don't spend it.
Ok, so where does that money go.
You might think the stock market, but money can't really go there. Because of the technology, the decline of unions, monopolies, etc. most companies in the stock market are big and profitable. They don't need investor money. In fact, they pay profits out in dividends, or buy back stock. They are paying money TO shareholders, not getting money FROM them. Sure, rich people buy stocks, but that money goes to other people who are selling those shares, not the companies themselves.
One large place that money goes is government bonds, because those are safe, guaranteed assets. The US Treasury owns a printing press that makes US dollars, so if you buy bonds, you are pretty confident that you'll be paid back. Unlike the stock market, the government is, as a whole, borrowing a lot of money especially these days.
So lots of money is going to safe assets like bonds. And if lots of people are lining up to lend the government money, the interest rate they demand is going to go down. And it's been trending towards zero. You might think that if bonds pay zero interest (or near zero), what's the point of holding them. Well, if you're a big company, institution, or really rich person, you can't really store a giant pile of cash, even virtually in a bank account. The bank doesn't guarantee a bank balance of a billion dollars, but a billion dollars of government bonds is guaranteed by the government. So if you've got a lot of money lying around, you're holding that in bonds.
So, there's no income in bonds, yet lots of people have to buy bonds. If you own bonds, and more people show up to buy them from you, you can sell at a profit, even if the rate is slightly negative. It's a place for wealthy people to store the biggest piles of cash in the economy, and of course, the economy is making the rich richer, so they have to buy more bonds. (And real estate. But owning real estate is a job, while owning bonds isn't.)
posted by thenormshow at 7:32 PM on July 19, 2020 [7 favorites]
Yeah the upside down world of AZIR - almost zero interest rates.
The description of the decline in interest rates causing time to go backwards is excellent intuition and explanation.
The broader issue is that the Anglo-American economies are all suffering the same economic issues
https://www.lrb.co.uk/the-paper/v42/n14/pankaj-mishra/flailing-states - is an excellent summation of the hubris that brought us here
Mishra encourages examination of the "social" capitalism model developed in 19th century Germany - which allows business a more integrated social role as well.
Another take on why the Anglo-American problems are arising is Robert J. Gordon, "The Rise and Fall of American Growth" - the period from 1870 to about 1950 represented major innovation which benefited individuals and populations - electricity, plumbing, transport, antibiotics, etc. Since that burst of infrastructure investment, there have been only marginal improvements - genetics, internet - and growth has been marginal as a result.
posted by Barbara Spitzer at 10:41 PM on July 19, 2020 [1 favorite]
The description of the decline in interest rates causing time to go backwards is excellent intuition and explanation.
The broader issue is that the Anglo-American economies are all suffering the same economic issues
https://www.lrb.co.uk/the-paper/v42/n14/pankaj-mishra/flailing-states - is an excellent summation of the hubris that brought us here
Mishra encourages examination of the "social" capitalism model developed in 19th century Germany - which allows business a more integrated social role as well.
Another take on why the Anglo-American problems are arising is Robert J. Gordon, "The Rise and Fall of American Growth" - the period from 1870 to about 1950 represented major innovation which benefited individuals and populations - electricity, plumbing, transport, antibiotics, etc. Since that burst of infrastructure investment, there have been only marginal improvements - genetics, internet - and growth has been marginal as a result.
posted by Barbara Spitzer at 10:41 PM on July 19, 2020 [1 favorite]
(NB: I do not understand the market, at all.) David's a financial advisor. He sent me a link to Robin Hood and asked me to make a small investment so he'd get a referral something or the other. I bought $5 of Bed Bath and Beyond. It's up over $10 since March. How. What. The stores have been closed, WTAF? I'm not buying or selling, I just watch what it does.
I have long felt that the stock market is a casino without the bells and lights.
posted by corvikate at 10:58 AM on July 20, 2020 [1 favorite]
I have long felt that the stock market is a casino without the bells and lights.
posted by corvikate at 10:58 AM on July 20, 2020 [1 favorite]
OK, I'll give the first part a shot:
Please feel free to explain the rest of the piece, thenormshow!
I enjoyed the article and thought I understood it, but your comment has made me realise there are layers behind the story that would be helpful to make explicit.
posted by cynical pinnacle at 10:37 AM on July 21, 2020
Please feel free to explain the rest of the piece, thenormshow!
I enjoyed the article and thought I understood it, but your comment has made me realise there are layers behind the story that would be helpful to make explicit.
posted by cynical pinnacle at 10:37 AM on July 21, 2020
Please feel free to explain the rest of the piece, thenormshow!
I agree! I understood very little of this other than knowing there’s something clever about it. Would welcome more explanations from thenormshow (or others), your comment was both helpful and really interesting!
posted by the thorn bushes have roses at 11:42 AM on July 21, 2020
I agree! I understood very little of this other than knowing there’s something clever about it. Would welcome more explanations from thenormshow (or others), your comment was both helpful and really interesting!
posted by the thorn bushes have roses at 11:42 AM on July 21, 2020
Thanks for the encouragement...
“I see,” said Alice doubtfully, hoping that stock market investors would prove more sensible. At least they valued investments by discounting future income streams. But on opening a door marked “Fundamental Active Equity”, she came across an empty trading floor.
“Oh, we closed down that team last month – they’d been underperforming for decades,” said Otto.
.
Wealthy people have long hired others to help them choose what stocks to buy. Before, say, the 60's the landscape of these stock pickers was dominated by salespeople. Companies in need of cash hired brokers to sell stock to their wealthy clients. Slowly, academics started to do research about what properties of stocks led them to grow faster than others. And it seemed like you could predict the future path of stock prices with enough certainty to make a profit. Mutual Funds sprang up to offer this expertise to investors, and big banks created armies of analysts to help pensions and endowments buy stocks on their own. The analysts read company annual reports, spoke to customers and suppliers, went to annual meetings and conferences all to learn about the companies they covered. This information gathering was called Fundamental Analysis, and it was very profitable: if you have more information, you're better able to decide what a stock should be worth.
One problem with this is that success relies on having information that others don't. If everyone has the same information, then no one has an advantage. Michael Mauboussin calls this the "paradox of skill." Fundamental analysis now involves things like satellite photos of parking lots outside stores, credit card data, and location data from cell phones, all in an effort to get a slight edge over people who don't have it. But the edge you get from this sort of information is relatively small, and the cost is high. For this reason, some Wall St. banks are cutting back on their analysts, or outsourcing this research to specialists who can spread this very expensive information gathering project over several clients. So there goes the Fundamental Active Equity team.
The Alice in Wonderland moment there is that the modern Wall St analyst is much more knowledgable than their counterpart from the 70's, but their work is worth much less because there are so many similarly skilled analysts.
posted by thenormshow at 4:54 PM on July 22, 2020 [4 favorites]
“I see,” said Alice doubtfully, hoping that stock market investors would prove more sensible. At least they valued investments by discounting future income streams. But on opening a door marked “Fundamental Active Equity”, she came across an empty trading floor.
“Oh, we closed down that team last month – they’d been underperforming for decades,” said Otto.
.
Wealthy people have long hired others to help them choose what stocks to buy. Before, say, the 60's the landscape of these stock pickers was dominated by salespeople. Companies in need of cash hired brokers to sell stock to their wealthy clients. Slowly, academics started to do research about what properties of stocks led them to grow faster than others. And it seemed like you could predict the future path of stock prices with enough certainty to make a profit. Mutual Funds sprang up to offer this expertise to investors, and big banks created armies of analysts to help pensions and endowments buy stocks on their own. The analysts read company annual reports, spoke to customers and suppliers, went to annual meetings and conferences all to learn about the companies they covered. This information gathering was called Fundamental Analysis, and it was very profitable: if you have more information, you're better able to decide what a stock should be worth.
One problem with this is that success relies on having information that others don't. If everyone has the same information, then no one has an advantage. Michael Mauboussin calls this the "paradox of skill." Fundamental analysis now involves things like satellite photos of parking lots outside stores, credit card data, and location data from cell phones, all in an effort to get a slight edge over people who don't have it. But the edge you get from this sort of information is relatively small, and the cost is high. For this reason, some Wall St. banks are cutting back on their analysts, or outsourcing this research to specialists who can spread this very expensive information gathering project over several clients. So there goes the Fundamental Active Equity team.
The Alice in Wonderland moment there is that the modern Wall St analyst is much more knowledgable than their counterpart from the 70's, but their work is worth much less because there are so many similarly skilled analysts.
posted by thenormshow at 4:54 PM on July 22, 2020 [4 favorites]
Thank you for part 2!
That makes more sense. At first, I thought the trading floor was empty because more people were investing in index funds versus studying fundamentals. However, the popularity of index investing is relatively recent, not the "decades" referenced in the story.
posted by cynical pinnacle at 7:50 PM on July 23, 2020
That makes more sense. At first, I thought the trading floor was empty because more people were investing in index funds versus studying fundamentals. However, the popularity of index investing is relatively recent, not the "decades" referenced in the story.
posted by cynical pinnacle at 7:50 PM on July 23, 2020
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Now to unpack the references I missed...
posted by abulafa at 9:08 AM on July 18, 2020 [1 favorite]