Donald Trump

Endgame

The fallacious notion of central planning has plagued economic life for decades now, but in recent years the cancer of social engineering and economic tinkering has metastasized from the public into the private sector, where companies the likes of Tesla and Amazon engineer high-tech ‘solutions’ to non-existent problems that invariably involve the replacement of the human workforce with machines.

Neophiles like Elon Musk conveniently paint the designed obsolescence of the Human race as inevitable and even beneficial, but more and more people are starting to ask just what is so inherently wrong with flesh and blood cabbies, fast food workers and truck drivers.

Sure, we’ve all met our share of lippy baristas whom we sure wouldn’t mind being sacrificed to the holy gods of automation, but by and large human workers are pretty decent at their jobs. Jobs they dutifully perform at least eight hours a day, five days a week, often for very little pay and under outright degrading conditions.

From their pedestals, the elites – from the heads of Central Banks to Silicon Valley luminaries – continue to disparage the masses as lazy and incapable of providing for themselves outside of the welfare state.

Only the oracles at the central planning agencies are allowed the use of analog techniques in their decision making process. When Fed Chairman Janet Yellen announces that asset valuations are high (and that Obama is no longer in office), and that she believes it would be ‘unwise’ not to raise rates, her completely subjective (and likely partisan) assessment of the state of the economy is taken as canon backed up by sound data and sophisticated economic models.

Talk about a double standard.

Still, for the average joe, a guaranteed stipend doled out by the government sounds like a killer deal. Let machines do all the work while we enjoy the consumerism oriented utopia the government has created for us.

On the face of it, automation, coupled with a universal basic income sounds like the humanistic answer to the problem of work. Unfortunately, this theory doesn’t hold under close scrutiny, in that it is premised on the existence of a benevolent dictatorship vying for the rights and well-being of the common man.

In reality, the entrenched bureaucratic structure is interested in no one’s interests but its own, and sees its citizens as mere cattle to be controlled, taxed and allowed to exist only within the confines of the technological plantation and only for the purpose of glorifying the leaders at the apex of the social pyramid.

Now, quite a few people are onto the ruse. In fact, despite being portrayed by the self-appointed experts as ignorant rednecks, Donald Trump supporters knew what was at stake going into Election Day on November 8. It was self-evident that, in Hillary Clinton’s dystopia of a borderless, hemispheric trade bloc, the standard of living for all but the privileged few would be eroded to match the common lowest denominator of third world impoverishment, paving the road for the rapid expansion of the welfare state.

Trump supporters, relentlessly ridiculed by the press – both at home and abroad – were playing a sophisticated game of three-dimensional chess, reading far ahead all the way to the technocrats’ endgame.

Whether their gambit will pay off is for history to decide, but one thing is for certain: on the night of November 8, 2016 the American people came, they saw, and Hillary Rodham Clinton’s Presidential aspirations died.

Japan · Privacy

A Poor Man’s Faust

As a single man in my late twenties living in the frantic Tokyo metropolis, I am not particularly inclined to cook (nor particularly adept at it, for that matter), so the services provided by fast food chains and convenience stores are invaluable to me.

Now, don’t get me wrong: despite what celebrity chef Anthony Bourdain might lead you to believe, it amounts to hyperbole to claim that the egg salad found in convenience stores elicits anything resembling “layer after layer” of gustatory nirvana. More realistically, one should expect slightly doughy Danishes and sinewy processed meat-based lunchboxes drenched in salt and artificial preservatives.

I don’t expect anything different. After all convenience stores – like all retailers – are run with the explicit purpose of generating profits, even if to achieve this they have to cut corners here and there.

Such is the covenant one enters with when making a purchase at these stores, namely that the customer agrees to put up with somewhat questionable product quality and borderline fraudulent business practices (e.g., making negligible changes to the existing lineup and repackaging these as “new and improved” products) in exchange for convenient access to the products we elect not to buy elsewhere, due to the co-morbid afflictions of physical and mental exhaustion and a crushing sense of apathy.

Still, and despite the steep mark up, Japanese convenience stores offer products that are somewhat more nutritious compared their European (read gas station assortment of Doritos and Snickers’ candy bars) and American counterparts.

What I take umbrage to, however, is their constant attempt to shove their points reward program down my throat. I find this offensive because it’s a) unsolicited (I once got handed three cards at the same store in the period of less than a week!) and b) because it displays a sense of smugness on the part of the company; a conceited certainty that I would prostitute myself into revealing my name, home address, and spending habits for a measly 1% point rebate on the amount spent at Family Mart stores.

With the level of granularity you’re required to provide to qualify for one of these, you have to wonder to what further depths of depravity these companies will sink to next. Perhaps they’ll start inquiring about regularity of bowl movements? Or number of sexual partners? The possibilities are truly endless!

As if being asked to fork over such bits personally identifiable information wasn’t enough of an invasion of privacy, this particular card (the so called “T-Card”) can be used to track purchases not only at Family Mart stores, but across a whole spectrum of restaurants, video rental places, and even pharmacies! This allows the company to build a complete profile of the individual; from menu preferences at the casual dining chain Gusto to medicines bought Welcia Holdings drugstores – all down to the Geo-locational level!

It is not my contention that this information is being used for nefarious purposes. I do, however object in principle to the idea of allowing any corporation to aggregate so much data on so many people. The potential for abuse – either on the part of the company itself by turning to the dark side and selling consumer information to the highest bidder, or by third parties gaining access to consumer records through an unauthorized data breach – is considerable and not in proportion to the benefits offered to the public (the above mentioned 1% point rebate).

Yet despite all the above, the Culture Convenience Club (CCC), the company responsible for issuing the T-Card, announced (in Japanese) last month that its membership had reached 60 million unique users – close to half the country’s population – in 2016. This represents an increase from 20 million in early 2007, and 40 million in mid-2012.

This is the very definition of selling oneself short: we have become so inured to the idea of having every single datum, every single statistic about our lives traded on the open market, that we long longer think twice before signing up for a loyalty program or any such promotions, almost regardless of the actual monetary advantages of doing so.

What can we do, then, to protect ourselves? Old fashioned as it might sound, the easiest and by far most effective solution is simply not to enroll in any point rewards program to begin with and, to take it one step further, to pay in cash whenever possible. This piece of advice is particularly easy to follow in Japan, which unlike the United States, remains a predominantly cash-based society. In fact, according to MasterCard, for the year of 2013, only 14% of all payment transactions were conducted using non-cash methods, as opposed to 45% in the US, 52% in the UK and 57% in Canada.

In summation, let’s not sell ourselves short. If they want my personal information, they’re going to have to offer me a way better deal.

Book Review

Book review: Paradime by Alan Glynn

Synopis

Danny had intended to stay for two years, but his stint as a civilian contractor at a chow hall in Afghanistan is cut short after a mere four months when he witnesses the brutal and senseless murder of two TCN (Third Country National) after a food riot.

Back in the US and facing possible legal action for what he saw, Danny decides to make contact with Gideon Logistics in an attempt to assure his former employer he has no intention of rocking the boat and blowing the whistle on the company. His effort bears fruit when, much to Danny’s surprise, he is offered a job at Barcadero – a fancy restaurant on 44th Street.

It is peering out of his prep station in the kitchen into the dining area at Barcadero, that Danny first lays eyes on venture capitalist Teddy Trager – who happens to look exactly like him.

Danny initially becomes consumed by the idea of finding more about his double and, as time goes by, he is ultimately possessed by the compulsion to “become” Teddy Trager. It is at this point that, with the certainty of a sleepwalker, he abruptly quits his job at Barcadero, spends a fortune he doesn’t have to dress like Trager and starts stalking the headquarters of Paradime Capital.

As a carbon copy of the visionary entrepreneur, Danny succeeds – in a display of personative chutzpa rivaled only by hedge fund impostor Marc Dreier – to pass himself for the CEO of the company.

However, Danny quickly realizes the mistake he has made, when it becomes apparent that he – and indeed Trager himself – is nothing but a lonely puppet on a string, dancing to the tune set by  the industrial military complex.

Analysis

An underlying concept in the works of Alan Glynn is the ideal – or perhaps more aptly, the fallacy – of the perfectibility of Man. In Glynn’s first novel The Dark Fields (later re-released as Limitless to coincide with the movie adaptation by Leslie Dixon), Eddie Spinola goes from aimless drifter to high powered executive managing the biggest merger in American Corporate history. In Paradime, Danny Lynch travels a similar path, metamorphosing from lowly stove monkey to ersatz venture capital visionary.

It is a motif that has been somewhat abused as a plot device, but which is masterfully executed in Paradime, in a way that captures the oppressive sense of social and economic alienation in a post-Lehman world. In The Dark Fields, Eddie is stuck in a permanent roller coaster of emotions – swinging wildly between the exhilarating highs of enhanced cognition brought about by the mysterious nootropic drug MDT-48, and the excruciating lows of withdrawal. Danny’s trajectory, on the other hand, is far more linear with brief moments of euphoria punctuating a state of chronic fatigue and paranoia. Indeed, Eddie only realizes he’s doomed at the very end of The Dark Fields. Danny, on the other hand, knows it from the very beginning.

This may be Alan Glynn’s greatest talent: his unique ability to synthesize the spirit of each era. The Dark Fields captured the irrational exuberance and excess of the Dot-Com bubble, while Winterland – the draft of which was written during the boom years – predicts the meltdown of the housing market in Ireland. The atmosphere of unreality depicted in Paradime too is a perfect reflection of the Twilight Zone of negative interest rates and fudged unemployment statistics we find ourselves trapped in at the moment.

Japan

Shinzo Abe’s Demographic ‘Bonus’

One week ago today, Bank of Japan Governor Haruhiko Kuroda announced a shift from quantitative purchases of Government bonds towards an effort to control the yield curve.

Market response was subdued, with the prevailing sentiment being one of skepticism when it comes to the ability of the BOJ to control the curve across all maturities. JBG 10Y resumed their downward slide, as yields – having briefly touched  negative 0.1% yesterday – drifted away from the BOJ’s target of zero percent, highlighting the institution’s – and by proxy, the Government’s – loss of credibility.

To be sure, Central Bank market theatrics are always a spectacle to behold, but on the day Mr. Kuroda unveiled QQEWYCC, premier Abe delivered a show of his own in front of a crowd of finance professionals in New York.

In a chilling chimerical mix of macho bravado and ivory tower disconnect from the real world, Mr. Abe painted Japan’s demographic crisis as a blessing in disguise. In the father of Abenomics’ own words:

“Japan may be aging. Japan may be losing its population. But these are incentives for us. Why? Because we will continue to be motivated to grow our productivity” […] “Japan’s demography, paradoxically is not an onus, but a bonus”

If it rhymes it must be true, right? Wrong, and the Prime Minister knows it. In fact, it is utterly farcical to claim that Japan’s aging demographic structure does not put a tremendous strain on GDP, the NHS and Social Security. If anything, the BOJ’s policy of NIRP has served only to exacerbate things, with the Government Pension Investment Fund posting losses of over $50 billion last fiscal year.

Mr. Abe also referred his cabinet’s policy of relaxing visa requirements for highly qualified professionals in fields such as IT, robotics and engineering, in an effort to attract foreign talent.

The idea itself isn’t without merit, as it could – at least in theory – help offset Japan’s brain drain. It all depends on execution, though, because with Tokyo University not even ranking first in Asia for 2016, and an archaic corporate structure that hinders career advancement, Mr. Abe has a rough sales pitch to make.

Ultimately, though, the number of people with advanced degrees in science and technology only account for an infinitesimal fraction of the population. The government could potentially succeed in attracting thousands of PhD-yielding savants, and the economic impact would still be somewhat negligible.

Formalized knowledge in the form of an advanced degree isn’t necessary to operate in every day society. Taxi drivers, farmers and restaurant owners – who are the backbone of the economy – run their businesses using simple, time-tested heuristics and have been generally successful at it.

It should be apparent to anyone outside the ivory tower of academia or the technocratic circles of government that the crux of a successful immigration policy – and I’m going on a limb here and assume that, contrary to all evidence, extensive immigration positively impacts the aggregate wealth of the host country – should lie, not on pandering to the intellectual elites, but on improving the working conditions of Filipino nurses or factory workers from neighboring China.

A modicum of modesty might help too, for the first step towards the solution to any problem – even one so mind-boggling complex as the demographic crisis facing Europe and Japan – is admitting that it exists in the first place.

Financial Crisis

Bloomberg View Columnist Noah Smith Is Wrong, Wrong, Wrong

A second viewing of the movie adaptation of Michael Lewis’ The Big Short has prompted me to write the following analysis of Bloomberg View columnist Noah Smith’s hit piece on market oracle Michael Burry.

As most of our readers know, Dr. Michael Burry famously bet against the US housing market back in 2005. In a specular display of testicular fortitude, Burry persevered in the face of blatant market manipulation by Goldman Sachs – who only started pricing his Credit Default Swaps accurately when they themselves got in on the trade – to return a whopping 489% for his investors between November 1, 2000 and June 2008.

Now compare Burry’s spotless track record to Mr. Noah Smith’s, who back in June of 2014 lavished public and unadulterated praise on Japanese Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda’s aggressive economic reforms. As I write these lines, consumer prices in Japan have fallen back below zero as the 2% inflation target remains elusive, and the BOJ – through a policy of reckless, indiscriminate ETF purchases – is now a top 10 holder in 90% of Japanese stocks, in a futile effort to prop up the Nikkei 225 Index. These are hardly examples of “effective leadership”, as Mr. Smith termed Prime Minister Abe’s policies.

The Argument

Smith seemingly doesn’t question Burry’s talent at identifying special investment situations, but is dismissive of his macroeconomic views and “anti-government, libertarian ideology”.

In Smith’s own words:

“Burry repeats a theory of the crisis that has long since been discredited — the idea that the government caused the crisis by encouraging home loans to the poor. Actually, housing bubbles manifested in many countries that had no equivalent to the government-sponsored enterprises Fannie Mae and Freddie Mac, the bubble was driven by middle- and high-income borrowers, and the borrowers who drove up prices were primarily speculators rather than owner-occupiers.” […] “Libertarianism is fine and good, but ideology can distort reality and prevent people from efficiently assimilating the available evidence.”

This is a remarkable piece of illogic, because it is a matter of historical record that the US Government did indeed a) encourage the degradation of lending standards and b) the use of technologies by sub-prime lenders in order to entice borrowers to take loans they couldn’t possibly afford to pay back.

Barney Frank (whom Burry criticizes in an interview with New York Magazine – which became the basis for Smith’s article) has admitted this much, by stating that:

“It was a mistake to push lower-income people into housing they couldn’t afford [at Fannie Mae and Freddie Mac].”

Similarly, in a speech in 2004, then Chairman of the Federal Reserve Alan Greenspan exhorted the virtues of adjustable-rate mortgages over standard fixed-rate loans. In the following year, he mentioned concerns about “froth” in the housing market, but proceeded to assuage the public by claiming that bubbles to be “local and not national”.

Given the interconnected nature of complex systems, it is a fool’s errand to even attempt to pinpoint a single, specific cause for the collapse of the housing bubble in 2007, but it is facetious to claim that regulators and policymakers shouldn’t share a sizable chunk of the blame.

Smith cites an arcane paper published by the New York Fed exploring the “previously unrecognized, but very important, role” of real estate speculators in the collapse of the housing bubble. The crisis, he argues, was caused not by the Government lending to the poor, but rather by middle class punters trying to flip properties to make a quick buck.

No one questions the role that speculative excess played in the whole sordid affair, but Smith’s point can only characterized as immaterial to Burry’s thesis; namely that borrowers (of various degrees of credit-worthiness) abused non-prime credit – a situation that was made possible by a lowering of lending standards mandated, aided and abetted by the US Government.

In fact, as Burry points out in a lecture delivered at Vanderbilt University in 2011:

“Tragically for all of us, the Federal Reserve actually had authority to block any lending activity it deemed deserving of such treatment, but it had absolutely no will to do so.”

The fact that they didn’t, alone, amounts to nothing short of negligent behavior requiring some form of accountability.

The fact that Mr. Smith seems incapable of grasping such simple logic is unfortunate. As a proud member of the Intellectual Yet Idiot Class class he has gone so far down the rabbit hole of ivory tower of intellectualization that he appears to have become completely impervious to the idea of common sense.

Either that or he knows he’s spouting nonsense, but can’t be bothered to stop. Take your pick.

Central Bank Interventionism

The New and Improved QQE – Now With Yield Curve Control

Much has been made of the Bank of Japan’s announcement yesterday – with mixed reactions across the board in a day when Federal Reserve Chairwoman Yellen disappointed by delivering a whole bunch of nothing by failing to announce a rate hike.

At its core, yesterday’s announcement from Governor Kuroda can be broken down into two parts: a) the government’s commitment to overshoot its long held 2% inflation target and b) the steepening of the yield curve in an attempt to undo the damage caused by the BOJ’s own move towards the implementation of a negative interest rate policy (NIRP).

There’s not a whole much to the first part of the BOJ’s two-pronged effort to revive the economy laggard economy: it will simply continue to expand the monetary base until inflation stabilizes above the price stability target of 2%. After three years of doing precisely this and with the CPI currently sitting at negative 0.5% – more or less where it stood when Mr. Kuroda became Governor of the BOJ back in 2013– it isn’t incredibly clear how doing more of the same should yield different results; but nonetheless, this appears to be the preferred policy at the moment.

Regarding the Central Bank’s newly announced policy of Yield Curve Control, it is an attempt to undo the damage wrought upon banks and pension funds as a result of the BOJ’s own NIRP. Yield Curve Control is to be achieved by a) pegging the 10-Year bond at around 0% while pushing up the yield on super-long maturity JGBs, and b) bidding up the price – and thus driving down the yieldof shorter maturity bonds: thereby avoiding a weakening of the Yen and allowing for infrastructure spending at a reduced cost.

World markets reacted positively to the announcement and the 10 Year JGB is currently trading at -0.027 after briefly touching positive territory.

However, as Chief Strategist of Economic Research at Rakuten Securities Masayuki Kubota points out in an astute piece (in Japanese) in the Toyo Keizai, the BOJ’s quantum entangled policy of both easing and tapering – of loosening its bond buying program of long-term bonds, while at the same time reaffirming a commitment to further easing should market conditions require such measures – can be viewed as tantamount to having your cake and eating it too.

As Mr. Kubota points out, as the Central Bank expands its purchase of short term bonds, will banks be content to pay the 0.1% penalty to park their money with the BOJ? Or will they instead opt to buy longer maturity issues? Should the latter scenario materialize, greater demand could send yields lower, therefore undermining Mr. Kuroda’s aim of controlling the yield curve at the longer end.