IPA’s weekly links

Published

1 month ago

July 11, 2020

Guest post by Jeff Mosenkis of Innovations for Poverty Action

Professor Lisa Cook explains that black and white inventors put in equivalent numbers of patent applications once in 1899, and never again.

First, a great webinar by Professor Lisa Cook, former economic advisor to President Obama, among many other accomplishments, on how lynchings, violence, and discrimination caused African-American inventions (measured by patent applications) to peak in 1899 and never recover. Here’s the video and slides, but for a fast summary, I did my best to live tweet it. She covered a lot of ground, but some parts that stuck with me in particular:
- The number of “missing” patents never filed because of the decreased numbers is on the order of the contribution of a medium-sized European country. It’s hard to imagine what innovations and prosperity we’ve all missed out on.
- Prof Cook mentioned in passing that a cousin helped found a town in North Carolina intended as a safe place for African-Americans to live and prosper without harassment. The story of Soul City, NC is fascinating.
- The most compelling part of the story wasn’t even in the webinar. It was her decade-long uphill battle to get the paper published, and what it tells us about the field of economics, which she explains to Planet Money’s The Indicator (Apple).
The NYTimes has a piece explaining the problems with the culture of economics, and Dania Francis & Anna Gifty Opoku-Agyeman offer three tips for the field in Newsweek
The Sadie Collective has recommendations for what institutions and individuals in the field can do better.
The best piece I’ve read on how subtle assumptions about race get absorbed into economists’ reasoning is this from Professor William Spriggs.
How the field got to be the way it is is a bit easier to understand if you read this horrible piece by George Stigler in 1962: The Problem of the Negro.

If you haven’t seen it yet, this was a great explanation for the general US culture:

Kimberly Jones’ Monopoly game metaphor reminds me of this Howard French brilliant deconstruction of a UK historian’s book (gated, sorry) about African history. French shows that Europeans destroyed sophisticated civilizations and hollowed out countries’ populations for hundreds of years by dragging away the workforce, and today cast about for roundabout theories for why they’re “underdeveloped”
I’m side-eyeing historians, but also hard to ignore the asymmetry in where development economists’ ideas come from, and the assumption that countries where the rich people are also must know how to get rich.
Along those lines, here’s a great piece by Francesco Loiacono, Mariajose Silva-Vargas, & Apollo Tumusiime (written before the pandemic) about how research designs can be more sensitive and less biased by the views of the researchers (better informed consent, for example, and not assuming their programs happen in a vacuum, or realizing that local politicians may swoop in and take credit for cash transfers). (h/t David McKenzie’s links)
Today, I learned that the UK’s abolition of slavery was accomplished through paying the slaveowners for their lost “property,” to the tune of today’s $17 Billion (and requiring an additional 5 years of unpaid labor, which I feel like there’s a name for…) British taxpayers just finished paying back that borrowed money in 2015, which means that descendants of slaves have been paying back their own ancestors’ slavemasters.
Jennifer Doleac put together a series of flash webinars on policing research, more info here.
A series of simple police reform ideas in this article and tweet thread on how to fix many policing problems by looking at financial incentives, moving the benefit of the “taxes” levied disproportionally on the poor by the criminal justice system away from the local municipalities (revenues from fines, seized assets, and the like) and redistributing them at the state level, prioritizing the poor.

The post IPA’s weekly links appeared first on Chris Blattman.

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Framing Your Investments for Context & Clarity

Published

2 hours ago

August 11, 2020

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Source: JP Morgan Asset Management

The above is one of my favorite charts.

This version comes from a JPM discussion on “Framing Bias.” It raises interesting issues about how decisions are influenced by the way information is presented:

“What level of returns should we expect from equity markets? The answer changes depending on the time period – when investors allow an incomplete picture to influence their decisions, it is an example of framing. While it appeared the market had climbed to untenable highs post-GFC, [but] if we take a slightly longer view, the overall market return was actually flat between 2000 and 2012. During that time period, the market had an average annual total return of 0.6% per year and a cumulative total return of 6.8% - effectively a sideways market.”

I draw a slightly different conclusion from the long term series of secular bull and bear markets. (Assuming you are not a trader), when you consider the chart above, investors are presented with several choices:

1. Time the market, moving in and out before long bear markets;

2. Buy & Hold, waiting out the decade (or longer) poor returns;

3. Reduce Risk, by making tactical moves to modestly shift asset class exposure.

The discussion of framing suggests there are other alternative contexts for these choices: For example, you can use tactical allocation shifts to manage behavior rather than to affect risk or returns.

Having now lived through two bear markets that were a decade+ long, I wanted to find a new way to think about what Buy & Hold investors should do during bear markets.¹ To stick with the concept of framing, these investors should also pay attention to inflation, compounding, and how the idea of longer cycles negatively impacts our comprehension of valuation and prices.

A quick real estate story:

When we were purchasing our first suburban home in the late 1990s, we had narrowed it down to two houses. One was in Sea Cliff, a charming town on the North Shore of Long Island. The other was about 5 minutes south in Greenvale, in the Roslyn school district, which was a highly ranked (but became a notorious scandal-ridden) district.

Both homes cost about $250k. Sea Cliff was more quaint, but in front of that house was a bus stop. It was noisy, from inside you could hear the chuffing of the bus as it stopped, brakes squealing, diesel engine rumbling. I could not get past that, and so we ended up in Greenvale.

But the house I truly fell in love with was a Double Dutch Colonial in Sea Cliff. It was exorbitantly expensive at $400k. Now, if $250k and $400k don’t sound that far apart, you are being affected by your framing of current pricing. At the time, $400k — well over half again as expensive as our price range — was a giant gap far beyond what we could afford for a starter home.

I don’t see that house on Zillow, but a home next door (not as nice) is now up for sale at $1.795m.

That pricing reflects several real estate bull and bear markets, where prices advanced three steps, and then retreated one. But it also reflects how our comprehension of compounding and inflation creates valuations and prices that are difficult to grasp. Mortgage rates fell, suburbs became more attractive, and suddenly an asset appreciating 4X does not seem so wild. Around the same time (97?), the S&P 500 Index was about 800, and it is also 4X today.

One last thing: I have a very vivid recollection around this time of people taking a little off the table from appreciated equity and rolling that into real estate — trade up homes, vacation properties, etc.

Which makes me wonder about this: Maybe equity investors should think about bear markets — or even the last innings of bull markets — as opportunities for long-term accumulation phase with expected returns of zero or negative over the short term.

That sounds counter-intuitive. But given what we know about how unsuccessful investors are when it comes to market timing, what other choice do they have but to reframe the low return and/or expensive part so of the market cycle?

Buyers during the 1966-82 and the 2000-13 bear markets were essentially accumulating assets for the next bull market run. It surely felt awful to be a Buy & Hold stock accumulator in the 1970s, just as it did int he 2000s. But boy, did it pay off when the next bull cycle began.

I expect that when we look back at the end of this cycle (the 2013 - ?? bull market) and past the next bear cycle, if we might draw the same conclusion. Just an idea I am noodling around with.

~~~

Economy

Market Talk – August 11, 2020

Published

3 hours ago

August 11, 2020

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ASIA:

China will continue to implement its part of the phase one trade deal with the United States and will fulfill financial opening-up pledges despite worsening bilateral relations between the world’s two largest economies, China’s central bank governor said in an interview with the official Xinhua news agency. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, who led the US negotiating team, are expected to hold a video conference with Vice-Premier Liu He this week to review the implementation of the deal.

China is stepping up military drills around East Asia as a war of words with the United States heats up over Washington’s military activities and the visit of a US cabinet secretary to Taiwan. Beijing has stepped up the pace of its war games in recent weeks, after the US sent two aircraft carrier strike groups on rare dual-carrier exercises in the South China Sea twice in the month of July.

Business sentiment among workers in Japan with jobs sensitive to economic trends in July almost returned to levels seen before the coronavirus outbreak, as social and economic activities gradually resumed, government data showed Tuesday. The diffusion index of confidence among “economy watchers” such as taxi drivers and restaurant staff, released by the Cabinet Office, rose 2.3 points from June to 41.1, compared with 41.9 logged in January when the fallout from the virus outbreak in China was yet to be felt in Japan.

The major Asian stock markets had a mixed day today:

NIKKEI 225 increased 420.30 points or 1.88% to 22,750.24
Shanghai decreased 38.96 points or -1.15% to 3,340.29
Hang Seng increased 513.25 points or 2.11% to 24,890.68
ASX 200 increased 28.50 points or 0.47% to 6,138.70
Kospi increased 32.29 points or 1.35% to 2,418.67
SENSEX increased 224.93 points or 0.59% to 38,407.01
Nifty50 increased 52.35 points or 0.46% to 11,322.50

The major Asian currency markets had a mixed day today:

AUDUSD decreased 0.00025 or -0.03% to 0.71507
NZDUSD decreased 0.00072 or -0.11% to 0.65847
USDJPY increased 0.66 or 0.62% to 106.66
USDCNY decreased 0.01951 or -0.28% to 6.94185

Precious Metals:

Gold decreased 106.75 USD/t oz. or -5.26% to 1,922.55
Silver decreased 3.68 USD/t. oz or -12.63% to 25.454

Some economic news from last night:

Japan:

Adjusted Current Account increased from 0.82T to 1.05T

Bank Lending (YoY) (Jul) increased from 6.2% to 6.3%

Current Account n.s.a. (Jun) decreased from 1.177T to 0.168T

Australia:

NAB Business Confidence (Jul) decreased from 0 to -14

NAB Business Survey (Jul) increased from -8 to 0

New Zealand:

Electronic Card Retail Sales (YoY) (Jul) increased from 8.0% to 11.4%

Electronic Card Retail Sales (MoM) (Jul) decreased from 15.6% to 1.1%

Indonesia:

Retail Sales (YoY) (Jun) increased from -20.6% to -17.1%

Singapore:

GDP (YoY) (Q3) decreased from -12.6% to -13.2%

GDP (QoQ) (Q3) decreased from -2.1% to -42.9%

Some economic news from today:

China:

M2 Money Stock (YoY) (Jul) decreased from 11.1% to 10.7%

New Loans (Jul) decreased from 1,810.0B to 992.7B

Outstanding Loan Growth (YoY) (Jul) decreased from 13.2% to 13.0%

Chinese Total Social Financing (Jul) decreased from 3,434.2B to 1,690.0B

Japan:

Economy Watchers Current Index (Jul) increased from 38.8 to 41.1

India:

Cumulative Industrial Production (Jun) decreased from -0.70% to -35.90%

Industrial Production (YoY) (Jun) increased from -18.3% to -16.6%

Manufacturing Output (MoM) (Jun) increased from -22.4% to -17.1%

The major Asian stock markets had a mixed day today:

NIKKEI 225 increased 420.30 points or 1.88% to 22,750.24
Shanghai decreased 38.96 points or -1.15% to 3,340.29
Hang Seng increased 513.25 points or 2.11% to 24,890.68
ASX 200 increased 28.50 points or 0.47% to 6,138.70
Kospi increased 32.29 points or 1.35% to 2,418.67
SENSEX increased 224.93 points or 0.59% to 38,407.01
Nifty50 increased 52.35 points or 0.46% to 11,322.50

The major Asian currency markets had a mixed day today:

AUDUSD decreased 0.00025 or -0.03% to 0.71507
NZDUSD decreased 0.00072 or -0.11% to 0.65847
USDJPY increased 0.66 or 0.62% to 106.66
USDCNY decreased 0.01951 or -0.28% to 6.94185

Precious Metals:

Gold decreased 106.75 USD/t oz. or -5.26% to 1,922.55
Silver decreased 3.68 USD/t. oz or -12.63% to 25.454

Some economic news from last night:

Japan:

Adjusted Current Account increased from 0.82T to 1.05T

Bank Lending (YoY) (Jul) increased from 6.2% to 6.3%

Current Account n.s.a. (Jun) decreased from 1.177T to 0.168T

Australia:

NAB Business Confidence (Jul) decreased from 0 to -14

NAB Business Survey (Jul) increased from -8 to 0

New Zealand:

Electronic Card Retail Sales (YoY) (Jul) increased from 8.0% to 11.4%

Electronic Card Retail Sales (MoM) (Jul) decreased from 15.6% to 1.1%

Indonesia:

Retail Sales (YoY) (Jun) increased from -20.6% to -17.1%

Singapore:

GDP (YoY) (Q3) decreased from -12.6% to -13.2%

GDP (QoQ) (Q3) decreased from -2.1% to -42.9%

Some economic news from today:

China:

M2 Money Stock (YoY) (Jul) decreased from 11.1% to 10.7%

New Loans (Jul) decreased from 1,810.0B to 992.7B

Outstanding Loan Growth (YoY) (Jul) decreased from 13.2% to 13.0%

Chinese Total Social Financing (Jul) decreased from 3,434.2B to 1,690.0B

Japan:

Economy Watchers Current Index (Jul) increased from 38.8 to 41.1

India:

Cumulative Industrial Production (Jun) decreased from -0.70% to -35.90%

Industrial Production (YoY) (Jun) increased from -18.3% to -16.6%

Manufacturing Output (MoM) (Jun) increased from -22.4% to -17.1%

EUROPE/EMEA:

Russia claimed on Tuesday it has developed the world’s first vaccine offering “sustainable immunity” against the coronavirus, as the pandemic marked another bleak milestone with 20 million infections globally. Western scientists have raised concerns about the speed with which Russia has developed the vaccine, suggesting that researchers might be cutting corners. And the World Health Organization on Tuesday warned that any approval of the Russian vaccine would require rigorous review of data to show its safety and efficacy.

Heathrow Airport’s boss has warned quarantine restrictions are “strangling the UK economy”, and renewed calls for Covid-19 testing at airports. Thousands of jobs are being lost because Britain is being cut off from key markets, said chief executive John Holland-Kaye. The warning came as Heathrow reported passenger traffic in July plunged 88%.

Investor sentiment in Germany picked up more than expected in August, a ZEW survey showed on Tuesday, reflecting hopes that Europe’s biggest economy is on the road to recovery after the devastation caused by the coronavirus pandemic. The ZEW - Leibniz Centre for European Economic Research - in Mannheim, an economic research institute and a member of the Gottfried Wilhelm Leibniz Scientific Community said in its survey report investors’ economic sentiment rose to 71.5 from 59.3 points the previous month, far exceeding a forecast for 58.0 in a Reuters poll of economists.

The major Europe stock markets had a green day:

CAC 40 increased 118.48 points or 2.41% to 5,027.99
FTSE 100 increased 103.75 points or 1.71% to 6,154.34
DAX 30 increased 259.36 points or 2.04% to 12,946.89

The major Europe currency markets had a mixed day today:

EURUSD decreased 0.00089 or -0.08% to 1.17332
GBPUSD decreased 0.00217 or -0.17% to 1.30524
USDCHF increased 0.00194 or 0.21% to 0.91733

Some economic news from Europe today:

UK:

BRC Retail Sales Monitor (YoY) (Jul) decreased from 10.9% to 4.3%

Average Earnings ex Bonus (May) decreased from 1.7% to -0.2%

Average Earnings Index +Bonus (Jun) decreased from -0.3% to -1.2%

Claimant Count Change (Jul) increased from -28.1K to 94.4K

Employment Change 3M/3M (MoM) (May) decreased from 6K to -220K

Unemployment Rate (Jun) remain the same at 3.9%

Germany:

German ZEW Current Conditions (Aug) decreased from -80.9 to -81.3

German ZEW Economic Sentiment (Aug) increased from 59.3 to 71.5

US/AMERICAS:

President Trump stated that he is considering a capital gains tax cut, a move he says will help to create more jobs. The current long-term capital gains tax stands at 20%, and any change to the rate must be approved by Congress. However, the president could use a loophole that would permit him to index gains to inflation.

Joe Biden, Democratic presidential nominee, has selected Senator Kamala Harris as his running mate ahead of the November 3 election. Biden previously vowed to choose a female vice president, and Kamala’s nomination makes her the first woman of color to run for a vice president position for a major political party in the US. “You make a lot of important decisions as president. But the first one is who you select to be your Vice President. I’ve decided that Kamala Harris is the best person to help me take this fight to Donald Trump and Mike Pence and then to lead this nation starting in January 2021,” Biden stated in a campaign email this Tuesday.

Walmart announced a new partnership with Instacart that will allow the chain to offer same-day grocery deliveries across the US. The move will allow Walmart to compete with Amazon, who offers same-day delivery through Amazon Prime Now and Amazon Fresh through Whole Foods.

Former Bank of Canada and Bank of England Governor Mark Carney is assisting the Trudeau administration in handling the fallout of the coronavirus crisis. Carney’s career with the Bank of England recently came to an end, leaving many to speculate whether Carney will seek the office of finance minister or another leadership role.

US Market Closings:

Dow declined 104.53 points or -0.38% to 27,686.91
S&P 500 declined 26.78 points or -0.8% to 3,333.69
Nasdaq declined 185.53 points or 1.69% to 10,782.82
Russell 2000 declined 9.57 points or -0.6% to 1,575.1

Canada Market Closings:

TSX Composite declined 108.49 points or -0.65% to 16,497.01
TSX 60 declined 4.01 points or -0.4% to 991.09

Brazil Market Closing:

Bovespa declined 1,270.08 points or -1.23% to 102,174.4

ENERGY:

The oil markets had a negative day today:

Crude Oil decreased 0.31 USD/BBL or -0.74% to 41.6300
Brent decreased 0.44 USD/BBL or -0.98% to 44.5500
Natural gas decreased 0.01 USD/MMBtu or -0.46% to 2.1460
Gasoline decreased 0.0293 USD/GAL or -2.37% to 1.2050
Heating oil decreased 0.0004 USD/GAL or -0.03% to 1.2390

The above data was collected around 15:32 EST on Tuesday.

Top commodity gainers: Ethanol (14.56%), Lumber (2.49%), Orange Juice (1.73%), and Aluminum (1.55%)
Top commodity losers: Palladium (-4.82%), Silver (-12.63%), Gold (-5.26%), and Platinum (-4.02%)

The above data was collected around 15:35 EST on Tuesday.

BONDS:

Japan 0.03%(+1bp), US 2’s 0.15% (+2bps), US 10’s 0.63%(+5bps); US 30’s 1.31%(+6bps), Bunds -0.47% (+5bp), France -0.20% (+4bp), Italy 1.01% (+3bp), Turkey 13.86% (-12bp), Greece 1.08% (+3bp), Portugal 0.32% (+3bp); Spain 0.29% (+2bp) and UK Gilts 0.19% (+6bp).

US 3-Year Note Auction decreased from 0.190% to 0.179%
US 52-Week Bill Auction decreased from 0.155% to 0.140%
UK 5-Year Treasuy Gilt Auction decreased from -0.033% to -0.049%
Spanish 6-Month Letras Auction increased from -0.506% to -0.480%
Spanish 12-Month Letras Auction increased from -0.463% to -0.455%

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Economy

What to watch on jobs day: A stalled recovery

Published

4 hours ago

August 11, 2020

pribizco

After historically fast job growth in May and June, the jobs report for July is sure to disappoint. Because so many jobs were lost in March and April, the economy remains 14.7 million jobs short of where it was in February, and a full recovery even with rapid growth is many months away. As COVID-19 has spread rapidly throughout the country, various other data released since the reference period in mid-June suggest—at best—a stalled recovery. At worst, we could see job losses in July. Whichever is the case, it is clear that the bounceback in May and June is over and that the mammoth jobs gap will take years to claw back unless policy becomes much better on both the public health and economic fronts.

In this preview post, I’m going to take you on a brief foray into the data that predict a very disappointing economic performance for this week’s jobs report. First, let’s start with the weekly unemployment insurance data. As of mid-July, 34.3 million workers—or about 20% of the pre-pandemic workforce—were either on unemployment benefits or have applied and are waiting to see if they will get benefits. Although the continuation of record high levels of unemployment insurance may include some pent up demand from the difficulty of accessing the system, there has been no measurable improvement in these unemployment insurance numbers in weeks.

Second, let’s turn to the Census Bureau’s Household Pulse Survey. Data collection has occurred every week since April 23 and the survey asks questions about the impact of COVID-19 on people’s lives, notably with details on employment. One key question asked is whether the respondent was employed in the last seven days. According to my analysis of the published tables, employment dropped by 6.7 million from the survey week for the June jobs report to the survey week for the July jobs report. This suggests a reversal, not a slowdown, in the recovery. This should not be a shock. As many have noted since the beginning of the coronavirus shock, economic recovery depends entirely on success in managing the spread of the virus, and this management has failed spectacularly since early June. There is a strong correlation between faster growth in COVID-19 cases and faster declines in employment, as illustrated by economist Aaron Sojourner here. Further, analysis by economist Arin Dube strongly suggests that these trends are driven by a slowdown in states that experienced a resurgence in COVID-19 cases, namely in Arizona, California, Florida, Georgia, and Texas.

Third, employment changes reported by Homebase have also been quite useful to uncover details on the labor market because the data are available on a daily basis for hourly workers at thousands of small businesses. Maximiliano Dvorkin and Asha Bharadwaj at the Federal Reserve Bank of St. Louis analyze Homebase data to predict the monthly employment numbers. Using comparable data for June and July reference periods, they find that there has been a slowdown and slight reversion in employment since the week of June 12. As with the Household Pulse Survey, they find that the states which recovered the least in that period (Arizona, Florida, and Texas) also experienced a large number of COVID-19 cases.

Other data, such as from Open Table, suggest that economic activity flatlined between mid-June and mid-July, again suggesting at the very best a stalled recovery. Whether the jobs report comes in around zero or negative, it is clear that rising cases have measurably slowed the economic recovery. And, I fear, the recovery will remain stalled for quite some time if more financial support for workers, their families, and state and local governments is not forthcoming now and through the pandemic-driven recession.

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