Lost in translation

More than 10 years ago, Forbes reported:

China Daily reported Friday that unnatural deaths have taken the lives of 72 mainland billionaires over the past eight years. (Do the math.)

Which means that if you’re one of China’s 115 current billionaires, as listed on the 2011 Forbes Billionaires List, you should be more than a little nervous.

I seem to recall that I criticized this article, but I cannot find the post. In any case, it’s hard to keep down fake news. Just a couple months ago the Financial Times repeated this nonsense:

Citing statistics from the Chinese press, the article pointed out that 72 of the country’s billionaires had died premature deaths in the previous eight years. The original piece in China Daily, which is published by the Communist party, provided the details: “Among the 72 billionaires, 15 were murdered, 17 committed suicide, seven died from accidents, 14 were executed according to the law and 19 died from diseases.”

Doesn’t the FT have a fact checker?

This is from the original China Daily story from 2011:

Since 2003, 72 billionaires in the Chinese mainland have died an unnatural death, the Changchun-based New Culture News reported Friday. . . .

Among the 72 billionaires, 15 were murdered, 17 committed suicide, seven died from accidents, 14 were executed according to the law and 19 died from diseases.

There were approximately 60,000 people with 100 million yuan in the Chinese mainland at the end of 2010, according to the GroupM Knowledge – Hurun Wealth Report 2011.

So all of this comes from the obscure New Culture News. Let’s take a closer look.

The first problem is that Forbes refers to the fact that in 2011 China had 115 US dollar billionaires, whereas the New Culture News is referring to yuan billionaires. A billion yuan is more like 150 million US dollars.

The second problem is that the article cites the fact that back in 2011 there were 60,000 people with 100 million in wealth. But 100 million yuan is not a billion. The most likely explanation for this discrepancy is that round numbers are defined differently in China. In the West, a thousand, a million, and a billion are considered focal points. In China the basic units are a hundred (bai), ten thousand (wan), and a hundred million (yi). A Chinese newspaper aimed at a local audience would be unlikely to use the term “billionaire” unless perhaps referring to a Western concept, like US dollar billionaires. Certainly not for a wealthy Chinese person.

So they are almost certainly referring to people with a net worth of at least $15,000,000. And 72 premature deaths among 60,000 people is much less shocking that 72 deaths among 187 people (leaving 115 survivors.)

Think about this logically. Does it really seem likely that 72 of 187 Chinese dollar billionaires would have suffered premature deaths in a brief period of time and only the “New Culture News” would have noticed the problem? These people are celebrities, and their lifestyles are widely reported on both in and out of China.

In fact, the Chinese new story is almost useless. It’s not clear that a single Chinese US dollar billionaire has suffered a premature death. I suspect a few have, as China occasionally executes a businessman for corruption. But the article cited by both Forbes and the FT doesn’t tell us anything useful.

PS. I’d like to thank my wife for help with the Chinese numbering system.

HT: Jordan Schneider

The Fed is behind the curve (as usual)

There’s a widespread impression that the Fed has recently tightened monetary policy. And it’s true that they have taken specific steps to signal an intention to raise rates and end QE earlier than had been expected six months ago. Nonetheless, monetary policy has effectively eased in the past six months, becoming more expansionary. The stance of monetary policy is not about Fed actions, it’s about market expectations of inflation/NGDP growth.

During the summer of 2021, 5-year TIPS spreads hovered around 2.5%. As of today, they are over 2.9%. The problem is that the equilibrium interest rate is rising faster than the Fed’s signals about future rate increases. This is actually the typical pattern over the business cycle. The Fed tends to raise rates too slowly during booms and cut them too slowly during recessions.

Actually, the situation is even worse than suggested by the rising TIPS spreads. The Fed isn’t targeting inflation; it’s targeting average inflation. That means a period of above target inflation should be followed by expectations of lower inflation going forward. Ideally, after the high inflation of the past 6 months, TIPS spreads should have declined, as markets anticipated a make-up period of below 2% inflation.

I still believe the Fed did a good job in promoting a rapid recovery in NGDP. Monetary policy is not binary situation of “success” and “failure”. All monetary policy ends in failure of some sort, it’s just a question of how bad. There’s still time for the Fed to remedy the situation and produce a soft landing. To do that, they need to aim for no more than 4% NGDP growth going forward, and no less than 3%. (In my view, trend RGDP growth is now below 2%) To do that the Fed needs to get ahead of the curve. Tighten policy enough to significantly reduce market inflation forecasts.

Socrates would have opted for index funds

Almost a year ago I posted on GameStop. I’m reluctant to revisit that post, as I’m almost certain to be misunderstood. But . . . when has that ever stopped me before?

Here’s what I said on January 29, 2021:

In the early 2010s, I had no idea what was going on with Bitcoin, and still don’t really understand the investment. But I think I at least understand that I don’t understand it. You say nothing “fundamental” has changed with GameStop in the past week? OK, maybe, but are you sure? Does becoming 10 times more famous and developing a strong emotional connection to many millennials have zero value to a retailer? I don’t even play computer games, so I have absolutely no opinion on this stock. But how confident are you in your opinion?

This is why it’s so hard to test the EMH. The collapse of what looks like speculative bubbles seems like evidence against the EMH, but in fact the theory predicts that the vast majority of speculative “bubbles” will collapse, in order that the expected rate of return on portfolios that include Bitcoin, Amazon and Tesla is consistent with the risk-adjusted rate of return on other portfolios. The statement “speculative stock X is very likely to be lower in a couple years” is not at all equivalent to “speculative stock X is a bad investment.”

A commenter responded:

I’m surprised to see GameStop used as an example here. It closed today more than 14 times the pre-social movement high, which started a bit over two weeks ago.

Could the company cash in on this extra capital? Yes, though it hasn’t done so yet. Could millennial affection help permanently boost prospects for earnings? Yes, but 14 fold, for a retailer that still mostly depends on buying and selling increasingly obsolete products in many increasingly obsolete retail spaces, like malls?

In less than a year, GameStop has moved from obsolete malls to NFTs:

The day started hot for video game retailer GameStop (NYSE:GME) after the company announced an NFT marketplace. Shares jumped 22.3% at the start of trading but started losing that bounce quickly and were trading 8% higher at 10:40 a.m. ET. 

The Wall Street Journal reported after the market closed on Thursday that GameStop is building a non-fungible token (NFT) marketplace and partnerships in the cryptocurrency business. About two dozen people have already been hired for the project, and management thinks it can translate the brand to a valuable position in the market.

Translate the brand to a valuable position? Interesting idea . . .

My fear is that readers will view this as a buy recommendation for GameStop. Nothing could be further from the truth. (It still seems like one of those long shots–like Bitcoin.) I invest in index funds because I believe in the EMH. I believe that I don’t know anything about individual stocks.

Where does Socrates come into the picture?

I know that I know nothing.

Socrates would have invested in index funds.

The job market is very weak and very tight

Last year, I began talking about labor shortages. Lots of commenters suggested that it was just employers gripping because they didn’t want to raise wages. They pointed to the fact that total employment remained far below pre-pandemic levels.

Employment is still far below pre-pandemic levels, but it’s now pretty clear that I was right. There really is a labor shortage. The labor market is “weak” in the sense that total employment is low, and “tight in the sense that it’s hard to find workers and wages are rising fast. Unemployment is only 3.9%.

The latest employment report is a disappointment, but the job market is actually somewhat stronger than this number would suggest. Consider the following:

While the payroll survey shows gains of only about 450,000 over the past two months, the (less accurate) household survey shows gains of over 1.7 million. That’s a phenomenal number, as household employment has gone from a deficit of 4.6 million to a deficit of 2.9 million in just two months.

But why pay any attention to the less accurate household survey? Because even though it is less accurate, it provides some information, at the margin. Thus it picks up gains in self-employment, which might matter during a period where people like working at home to avoid Covid.

It’s also worth noting that the payroll figures will likely be adjusted upward. How do I know this? Because the payroll numbers were revised upward in each of the past 8 months. The odds of that happening randomly are 1 in 256. Let’s revisit my prediction in two months to see if I’m right:

Wage growth again came in higher than expected, and the unemployment rate fell by more than expected. Inflation is way above target, and NGDP is growing at a rate than is not consistent with the Fed’s inflation target. Even worse, NGDP growth in 2022 is likely to be excessive. TIPS spreads are excessive at both 5 and 10 year time frames. We need tighter money. Under FAIT, the Fed should be shooting for below 2% inflation.

There’s a lot of confusion about full employment. We are at “full employment” (as defined by economists) given the headwinds of Covid. And yet it’s equally possible that by July the full employment level will be three million higher than today. But that would not mean that we are not at full employment today. Full employment is not a fixed number, it moves around due to “real” factors, such as Covid.

Conservative follies #2

1. Breitbart reports that in the past year, 15 border patrol agents have died in the line of duty. They don’t say that 13 of them were killed by illegal viruses.

2. The wisdom of the House GOP.

3. Amy Vax on why Asians are bad for America.

4. Vaccines violate the Christian religion, but killing people does not.

5. Ron DeSantis is now so afraid of his fellow conservatives that he refuses to say whether he got the booster.

6. A prominent Utah Republican suggests that vaccines are a Jewish conspiracy:

“I believe the Jews are behind this. For 300 years the Jews have been trying to infiltrate the Catholic Church and place a Jew covertly at the top. It happened in 2013 with Pope Francis. I believe the pandemic and systematic extermination of billions of people will lead to an effort to consolidate all the countries in the world under a single flag with totalitarian rule. I know, it sounds bonkers. No one is reporting on it, but the Hasidic Jews in the US instituted a law for their people that they are not to be vaccinated for any reason,” he wrote in the email.

I completely agree with the fifth sentence in that quotation.

7. January 6, 2021 is often viewed as one of the darkest days in America history. Here I’d like to suggest that it was also one of our best days. For one brief shining moment in an otherwise endless sea of lies, politicians were willing to speak truth to power. Here was Mitch McConnell:

The mob was fed lies. They were provoked by the president and other powerful people…They tried to disrupt our democracy, they failed…This failed insurrection.

And here was Kevin McCarthy:

The violence, destruction, and chaos we saw earlier was unacceptable undemocratic and unamerican. It was the saddest day I’ve ever had as serving as a member of this institution…We saw the worst of America this afternoon…

And McCarthy a week later:

last week’s violent attack on the Capitol was undemocratic, un-American and criminal…those who are responsible for Wednesday’s chaos will be brought to justice…The President bears responsibility for Wednesday’s attack on Congress by mob rioters.

And Lindsey Graham:

Trump and I, we’ve had a hell of a journey. I hate it to end this way. Oh my God, I hate it. From my point of view, he’s been a consequential president, but today, first thing you’ll see. All I can say is a count me out. Enough is enough.

Of course soon after they lost their courage and resumed the position of obsequious subservience to the Great Leader. The GOP will nominate Trump in 2024 and he’ll probably win, as I predicted on the day after the election, when most of you thought Trump was finished.

To be a democracy it’s not enough to have elections. The outcome of elections must be trusted by the public. We are half of a democracy.

Trump could drop dead of a heart attack tomorrow and nothing would change. The Republican Party of the 20th century is gone, and it’s not coming back regardless of who leads the party. It’s a personality cult. Please follow Argentinas “Peronists” and relabel it the Trumpian Party.

As Francis Fukuyama recently suggested, we are a banana republic:

Conversely, losing candidates in elections in new democracies have often charged voter fraud in the face of largely free and fair elections. This happened last year in Peru, when Keiko Fujimori contested her loss to Pedro Castillo in the second round of the country’s presidential election. Brazil’s president, Jair Bolsonaro, has been laying the grounds for contesting this year’s presidential election by attacking the functioning of Brazil’s voting system, just as Mr. Trump spent the lead-up to the 2020 election undermining confidence in mail-in ballots.

Before Jan. 6, these kinds of antics would have been seen as the behavior of young and incompletely consolidated democracies, and the United States would have wagged its finger in condemnation. But it has now happened in the United States itself. America’s credibility in upholding a model of good democratic practice has been shredded.

And this fact fills Vladimir Putin and Xi Jinping with “unconstrained glee”:

If momentum had built in the Republican Party to renounce the events of Jan. 6 the way it ultimately abandoned Richard Nixon in 1974, we might have hoped that the country might move on from the Trump era. But this has not happened, and foreign adversaries like Russia and China are watching this situation with unconstrained glee.