My impression is that they have a lot of careerist people who say the right things even if they don't really understand what they're saying. And because the scope of research is so broad, a lot of the management managing these people are either generalists and thus can't evaluate the work or also bullshitters.
you can store the main eigenvectors for a set rolling period and see how the space evolves along them, all the while also storing the new ones. In effect the whole idea is to get away from "individual security space" and into "factor space", which is much smaller, and see how the factors are moving. Also, a lot of the time you just care about the outliers -- those (small numbers of) instruments or clusters of instruments that are trading in an unusual way -- then you either try to explain it.... or trade against it. Also keep in mind that lower-order factors tend to be much more stationary so there's a lot of alpha there -- if you can execute the trades efficiently (which is why most successful quant shops like citadel and jane street are market MAKERS, not takers, btw).
I don't know that these are very good examples. The box office and newspapers have been declining for years. Companies like Apple of course have a higher revenue relative to US gdp because they can sell their products with ease to rich people all over the world, not just in the US.
It is also completely unsurprising that the internet's most viewed websites is unchanging as the industry has matured, following the pattern of every industry since the industrial revolution.
And the structure of US elections completely discourages third parties, and this is not a new thing. In Europe things are much more dynamic -- France's current president founded his own party and then won the presidency and legislature like a year later. It's also probably good that people are living closer together, ideally as densely as possible, from an environmental perspective.
I am curious, is putting up with the occasional self-obsessed ceo not worth it?
For example Tesla has a market value greater than every European carmaker combined, having gone from approximately 0 annual car deliveries to over a million in just a few years while revolutionizing electric travel. Or with space x developing reusable rockets that have utterly transformed the industry. These companies will contribute to economic dynamism and wealth creation for years and decades.
Macron said of American space companies, “Unfortunately they’re not European, but they took a bet”. Perhaps at a certain level you need people with lots of money who are willing to risk it
No. They keep whatever actual wealth they might end up creating - if and when they even manage that - and the only thing that trickles down from them is their ego.
The big read is definitely very good https://www.ft.com/the-big-read. You can read the articles by googling any article title in a private window.
Just to give some examples, in the last week they published lengthy articles all with charts on topics as varied as a European private equity company's IPO, Ben & Jerry's activism, and tech companies shredding old memory disks.
There used to be strict leverage restrictions on funds that raised money from investors, as well as limits on who/what entities could invest in the funds. The article really goes into more detail but lawmakers and the Clinton administration eliminated these laws and birthed the modern private equity industry which is pretty much the definition of short term focus.
Aren't products like smartphones, laptops, desktops, etc all low-margin businesses though? At least for every other company in the market. Apple just sticks to the high end?
Porsche sells hundreds of thousands of vehicles per year with something like $20k profit per car on a $90k average selling price. There could be big demand for an innovative Tesla equivalent that didn't have so many build quality issues.
And Foxconn is desperate to get an Apple car contract. Car companies really screwed themselves by outsourcing everything to suppliers (who have much higher profit margins than the car manufacturers at this point) except the internal combustion engine which is losing importance fast. What I am seeing here for Apple is big demand, low barrier to entry, and high profits.
The low-income threshold in sf for a family of four is about $120,000. And $150,000 is not far off from that. And even more important, the extraordinary rents in sf more than outpace the higher incomes:
For example, a fair market rent for a two-bedroom apartment in the San Francisco area is considered to be $3,121 (£2,340) per month - nearly twice the 2008 figure of $1,592 (£1,190). In Cincinnati, Ohio, the figure is $845 (£632). This difference (270%) is much larger than the difference in median family incomes (50%).
Yeah, the actual pew summary for that question was "Germans more likely than those in other publics to say they are satisfied while offering few specifics".
It seems like the takeaway is only two percent of Americans say vague positive things when talking about what gives them life satisfaction, with many more saying specific positive things
“In the quarter to August used cars, hotel rooms and airfares made up less than 5% of America’s consumer-price index, but together accounted for the majority of overall inflation”
If we’re having inflation due to a tiny number of goods having large price spikes, it might be too early to predict disaster
It tends to be the well off people who dismiss inflationary pressures.
I certainly don't look at my heating bill every month.
But inflation is devastating to the working poor. Funny that it's so easily brushed aside by those who claim to advocate for them.
Consumer perception of the economy is roughly equivalent to 2009 numbers now, in a recent study. The public by and large thinks the economy is terrible, primarily due to the inflationary pressures.
Consider that unemployment affects the marginal job seeker, but inflation affects everybody. From a purely political lens, vying for higher employment at the expense of inflation, once past a reasonable threshold, seems like a losing move.
If inflation is supply-side (e.g. oil runs out, a ship gets stuck in Suez, etc) then workers lose.
If it's demand-side, then their wages should rise up together with inflation so they don't win or lose (except for whatever savings they have and whatever time it takes for wages to adjust).
Wage numbers come out with the monthly jobs report. Only one month this year did wages rise higher than inflation, IIRC.
So wages are rising, but slower than inflation, e.g. people getting poorer. And of course, many stay in the same job and don't get a raise, or get a paltry raise.
Many seniors living off of fixed income investments which are yielding lower than ever. And so on...
Workers are only better off if wage is strongly above inflation. I do see people cheering on wage gains, even though they've been persistently below inflation, which is a bit of a headscratcher.
It seems the public perception is finally starting to bubble up though, rather than the headline narratives.
Poor people often have a negative net worth. If both inflation and wages are rising, it makes their debts easier to pay off.
I'm not arguing that inflation is good for poor people, just that "Inflation = Bad" is reductionist. There are winners and losers with inflation, and the lives of most individuals are affected in nuanced ways, both positively and negatively.
These aren't prices we haven't seen before. Electronics, sure, but there's a pretty good non-general-inflationary explanation for that. This (still) ain't the 70s.
Well, I believe it is. The original argument was that it is a very large price increase of small number of not that widely consumed goods causing the numbers to look that bad.
Housing, transportation, energy and food are the majority of expenditure for most people, which is in a direct contradiction of what OP claims.
I don't think the cost of propane nearly doubling is bull whip, not out here. Therr are going to be a lot of people wearing extra layers and looking at getting wood stoves out here this winter.
It is a good point. Inflation can be argued as an effect that impacts different people differently. If you're a vegetarian, rising beef prices do not affect you. So using an inflation indicator such as produced by the Fed and other organizations is not accurate for you as a person. I do indeed see inflation and it seems much more than the 5 to 8 percent that is published by the various inflation gauges. I'm not an average person and there really isn't an average person out there and we get impacted in different ways.
Also the issue with aggregates indicators is that some expenses can be more easily adapted than others: it’s easier to buy a less powerful smartphone/TV/GPU than to heat or eat less.
Food prices does not mean much when houses go for a few hundred thousand more within a couple years, or daycare prices increase from $15k/year to $16k to $17k or health insurance deductibles go from $3k to $5k to $7k.
For a young family that is interested in buying a house, food/gas does not even register.
Same, and New York. Anecdotal evidence doesn't really amount to much though, since prices fluctuate wildly from place to place (i.e. Pittsburgh is cheaper than New York, regardless of the inflation index).
USA. I've noticed a few restaurants bumping prices up a buck, but most haven't changed yet.
By galloping inflation, I hope that means wage increases. Inflation is neither bad nor good, until it changes people's behavior. Even then, it's not strictly bad until it spirals out of control. Until then, inflation is in many ways a good thing: higher wages, higher revenues, transferring money from creditors to debtors. These are things many people want more of.
Switzerland has had very limited inflation so far, I think the annual inflation is expected to be around 1.5% for 2021. Though to be fair, Switzerland has had about 0% inflation on average since 2015, with a few years of deflation in that interval, so it's still quite a big increase.
Electric generation charge has basically doubled for me (.045 to .085). Beef prices are about 50% higher, chicken at least 10%, pork about 15%. Etc.
I also know people buying cars at or close to MSRP that would have gotten them for much less before. So the sticker prices might be the same, but actual prices paid are going up.
As papi used to say, “follow the money.” If you’re a retailer, why not raise prices and blame inflation? I’m not saying increased labor costs and higher costs for raw materials don’t play into the equation, but if I can charge $7 for a gallon of milk instead of $6.50 and pocket the extra $0.50, seems like a good deal to me!
I make the median US household income and I don’t even think about the prices of any of those things, I’m more worried about housing prices, not being a homeowner.
Past 6 months? What are you talking about? It's been the past 30 months - ever since Trump declared a trade war with China and then the pandemic hit. My grocery bills and the price of everything else have been rising noticeably ever since. The problem we're experiencing now is demand is surging and the supply chain hasn't recovered from the pandemic. High demand/low supply is a nice problem to have if you're a policymaker. That's why the policymakers aren't too worried about inflation.
There's a huge lag to reflect certain data in the headline numbers. Owners equivalent rent measurement technique, only sampling 1/6 of housing stock per month and so on lead to about a 12 month lag in cpi.
Rents alone will fuel high baseline inflation for at least a year or two, once the value starts getting priced in.
You are right that we'll likely see some decline from cars normalizing, but not enough to offset rents and more broad based pressures. Baseline inflation will likely remain well above the Feds 2% target
Average market rent represents a segment of rent prices that responds much more quickly to market price shocks than rent prices as a whole. Your link is effectively the price change for people moving into a new apartment. The other 50-60% of the market (people renewing their lease or continuing tenancy at will) has much smoother price growth over time.
Doesn't square 17% and 3%, but it could definitely mean the lagging CPI rent growth we see over the coming year is more like 9 or 10%.
The market rate forecasts the rent increases for the broader market.
If market rate of new units is 20% higher, almost by definition you'll see 20% higher rents for all in the long run.
Why should we use backward looking methodology in computing the CPI? It's an extremely flawed way to analyze the state of the market. Forward looking metrics are more useful to policy makers.
The methodology for OER and rent analysis in the CPI acts to suppress true price increases. Though those price increases eventually materialize as people renew their leases, move etc. It comes with a year or longer lag though.
The Fed drives their policy based on this data. Why should the data have a one year lag and potentially put them behind the curve?
If we used the same CPI formula as in the 70s, we would be seeing similar CPI numbers too.
> If market rate of new units is 20% higher, almost by definition you'll see 20% higher rents for all in the long run
Well, yes, but that's not very meaningful without knowing over what time period you'll see that increase.
> Why should we use backward looking methodology in computing the CPI?
I mean that's literally just what CPI is. You're welcome to use leading indicators if you want, and economists certainly do. One slight problem with predicting the future is we don't know what will happen then.
> If we used the same CPI formula as in the 70s, we would be seeing similar CPI numbers too.
This is completely unsupported by the data. Yes, the switch to geometric mean effectively deflated CPI when compared to measures taken using the previous formula, but not remotely close to a level that would bump our current ~6% rate into the high teens.
Home prices used to be included in the CPI formula, which is how you get to similar number.
Not OER, but actual home prices.
But even if CPI reflected rents fully, today, we would be at similar numbers.
And the Fed primarily looks at core PCE which is based on the backward looking CPI data. It's very obvious from a policy perspective, they should be considering market rate and not existing tenant rates for forecasting forward inflation.
Yes, the Fed forecasts the backward looking CPI, but their forecasts were also so far off this year, I wouldn't put any stock into them. I believe they predicted 3% inflation for 2021 earlier this year.
> Home prices used to be included in the CPI formula, which is how you get to similar number.
Sorry, I thought you were making the geometric mean argument. Yeah that would definitely add significantly for this year in particular. Home price inflation is about 20%, and is replacing housing inflation at maybe 3% in the CPI calc. Owner occupiers are ~64% of the housing market which contributes around ~33% to CPI. So including that would add (.2 - .03) x .33 x .64 = .036 so 3.6% to CPI.
So around 10%. Comparable to most of the 70s, but not the high-teens emergency points.
And yes the Fed doesn't always accurately predict inflation, but in the long run no one else does either (and one could make billions doing so, it's not like no one's trying).
Agreed, so far this looks like it's a bull-whip effect in many many supply chains.
For example, lumber is still priced fairly high, but far far down from its peak level. And if this podcast is to be believed (and I think it is), mere lack of metal trusses for home building is holding back a lot of builders from continuing with their projects, meaning a ton of lumber is being held in places that it's not usually held, which will lead to further bull whip price swings:
Inflation due to large monetary stimulus may appear through a bullwhip affect as demand eventually stresses fixed-capacity capital intensive industries. Once these industries are strained higher costs may radiate outwards.
I don't know of a good measure for how long it takes price signals to be transmitted across the economy - particularly not inflationary price signals. I'd be willing to bet that the speed at which supply reacts to changing price signals depends highly on the current expectations for how long price changes will persist and how much of the price change is inflationary.
Offhand however, the top capital constrained industries that I can think of (in rough order) include.
1. Semi
2. Housing
3. Automotive/heavy manufacturing
4. Energy
Which are all experiencing shortages/rapid price increases. If the hypothesis holds we would see price increases in other fields which depend on the above. If the supply disruption/demand disruption hypothesis holds then we should see a normalization of prices in the above industries.
Evidence? This is economics we're talking about. I think we can make some guesses, but the system is too complex to make reliable predictions.
A single advancement in worker automation could easily provide enough productivity gains to offset wage growth. A single plant disease or new political treaty could massively effect food and or energy costs. The system is chaotic.
It is still less of a school to the economy than the beginning of the pandemic was. Threading the needle to manage this period has to be extremely difficult for policy makers.
Wasn't our stimulus minuscule compared to other countries? I believe most countries paid at least partial wages of employees during lockdown while the US got $2000 for going on 2 years of lockdown now.
I've heard that on the contrary, the US had some of the highest covid stimulus payments in the world across different metrics (% of GDP, $ per capita, etc.).
That's when considering "stimulus" as broader than the unconditional (but means-tested) direct payments--colloquially "stimmy checks." Following is from a quick search and to the best of my knowledge; I'm in a high cost of living area and fortunate to have kept a job past the individual cutoff for stimulus checks:
Direct stimulus was $3200 to eligible individuals across three checks. Some amount of that was banked for dependents too.
Increased refundable child tax credit was increased from $2000 to either $3000 or $3600 per child per year and the Democrats are trying to persist that in the build back better act.
The US also did increased unemployment -- $300 a week in extended unemployment benefits. Which totals $15,600 a year on top of existing amounts. The first $10k in unemployment was made tax-free. I've heard e.g. Canada had a high percentage of salary backed by the government in unemployment, however there was a total dollar cap that was fairly low.
US had PPP loans that lefties (disclaimer: I'm one) on social media (disclaimer: I'm not) complained about going to businesses, but very likely let some business keep people on the payroll in the first place as intended.
Mortgage forbearance, eviction moratoriums.
Freezing of payments and interest accrual on student loans that is still going on, and when (if?) it restarts will have stopped the accrual of interest for about two years.
>If we’re having inflation due to a tiny number of goods having large price spikes
I take issue with this. Hotel rooms and airfare can often be forgone for the average American. New (or used) cars to a lesser extent. However we are seeing increases in prices of ag commodities increasing dramatically. On a year-on-year basis, prices were up 32.8% in September[1]. Oil prices are at a three year high[2]. Not to mention soaring housing costs. It may indeed be to early to predict disaster, but things are not as good as your comment seems to suggest.
This is a great point. But a counterpoint is that housing is not included in consumer price index. Real estate prices have rocketed to outer space for the past year and housing constitutes the biggest monthly expense for most people.
Not predicting disaster, but what's going on is very unusual and no one can predict how or when it will shake out.
> Real estate prices have rocketed to outer space for the past year
In the Netherlands it's about 20% YoY. And this is starting to become true all throughout the country even though it started in urban areas. I really feel bad for people who aren't homeowners yet, because becoming one right now is getting damn near impossible.
I don't know how the 'average joe' is tolerating it right now. I rent, but I also work in tech so there's still a chance I'll be able to buy a house one day(not anywhere near my job, but still).
If I were middle class and saving for a home, I think I would be angry to the point of revolution and violence right now. There are people who have worked like crazy their whole lives and they just had their hopes and dreams set on fire by runaway money creation and the resulting inflation.
> There are people who have worked like crazy their whole lives and they just had their hopes and dreams set on fire by runaway money creation and the resulting inflation.
Would they be happier under a repeat of 2008 or 1928 instead?
I would figure from a self interested perspective a repeat of 2008 would be pretty advantageous to an aspiring homeowner. Home prices peaked at $262,600 median in March 2007 and bottomed at $205,100 in March of 2009.[1] Rates were even about a % lower in 2009.[2][3]
Of course if the hypothetical aspiring homeowner with excellent market timing lost their job the point would be moot, but if their income stayed the same and they put 20,000 down their monthly payments would have gone from $1,302 to $994.
Is it pretty advantageous to new retiree who has followed orthodox investment advice, and has started to live off their investments, only to see the value of half of them crash? Even if they recover in six years, they have still lost a mountain of principal in the meantime.
Is it advantageous to a new graduate who will see no work, and maybe a decade of depressed wages (which, between loans and compounding interest in savings, is devastating to their future prospects)?
Is it advantageous to a new homeowner that just lost their job?
Some people got burnt by that flood of money that stabilized the economy. Some people benefited. Some people avoided harm. Focusing on the first group without regard for the latter is missing a large part of the picture - which was that the economy as a whole remained more or less stable through this crisis.
For sure, some people will benefit from such policies and some people wont. My figuring is that those in the parent comment's category of "middle class and saving for a home" are probably not in the camp of those benefiting from current policies (holding cash). Those policies are, what I can tell, keeping valuations high instead of raising rates, and providing an incentive not to hold cash and instead purchase and invest.
Whether that's fair vs protecting those who already have homes and other assets is I suppose a different question. I agree things have remained fairly stable so far as the result of printing but I suspect we likely haven't felt it's effects yet and the stabilization will continue well into the next year, though the future is always fickle to predict.
Wouldn't a prudent retiree have exited the market and experienced gains in their bond backed portfolio?
Right now we're fueling a tsunami of moral hazard which will eventually bite us in the ass anyway. We're just prolonging the inevitable and making the crash even worse when it finally appears.
I fall into that category, and am still mildly hopeful there might be one or two more chances to hop on board. My rent increased by close to 20% this year (US, FL) to the point where paying my old rent with a $250 month to month penalty is actually cheaper.
I think this is part of the rampant speculation on crypto and the like - $1,000 isn't really going to do me that much good, but if I hit a 100x I could be a homeowner.
> My rent increased by close to 20% this year (US, FL) to the point where paying my old rent with a $250 month to month penalty is actually cheaper.
I have never heard of this type of rental agreement. Your contract says you can stay indefinitely if you pay $250 per month extra over the expired contract’s rent?
The lease automatically converted to a month to month after the one year term ended. This thread seems to cover a similar scenario.[1]
I suppose the downside is they could give me the boot with 30 days notice. FWIW I've contacted them several times to try and just sign a lease but the property has been bought out and had it's management office staff swapped out a few times so the whole thing is a mess.
OER is a hugely flawed metric that is somewhat designed to suppress true cost increases. E.g. they include rent controlled units in the figure. Small portion, but clearly that's not a useful lens to analyze through.
Many other methodological flaws that can be enumerated
If I'm reading apartmentlist's methodology correctly, they're tracking average prices for apartments that were vacant and have newly been rented (what they call "transacted rent prices"). But they don't track prices for existing leases to long-term tenants, which are typically much more stable than newly turned over units. Depending on the market, that can significantly overestimate rent increases in the broader market. For example, in NYC, about 50% of renters are in rent-controlled units, but they account for a relatively small percentage of new listings, because the units don't turn over often. So you'd get different answers if you average rent for newly turned over units vs. average rent for all current tenants.
(I'm not in NYC, but also in that category: I've rented my place for years, and my rent has increased 0.0% this year.)
Yes, exactly. Why would you ever want to weight in rent controlled units?
The much more useful number is, what is the cost of living for somebody plopped into the economy. Because eventually almost everybody ends up moving and bearing that cost.
Should our price data be forward looking or backwards looking? Obviously from a policy perspective having forward looking pricing data is much more useful and relevant.
Including rent controlled units and existing leases is a methodological flaw of OER. You're right though, if you game the measurement and design the methodology just right, you can produce lower numbers.
If the CPI formula were unchanged from the 70s, we would have roughly equivalent inflation numbers now that we had then.
For apartmentlist's purposes it makes sense they do it that way, because their target audience is presumably people who are looking to rent a new unit, and those people care about what newly rented units go for. But if we're looking at changes in cost of living in the broader economy, most people don't move constantly, so it doesn't make any sense to exclude the cost of living of people who are staying in the same unit. You end up massively exaggerating both increases and decreases in cost of living, e.g. apartmentlist showed huge deflation in rents in my city during 2020, even though most people didn't move and most people's actual cost of living didn't decrease. But there were a lot of vacant units listed cheaply as people left for the suburbs during covid. Now the vacant units are back up again as people come back into the city, but my rent still hasn't changed either way, and neither has most people's. So you could tell a story of massive deflation followed by massive inflation, but that is not in fact what most people who actually live in the city experienced. So for an overall cost of living number I'd much prefer just an average of all rents.
So you prefer backward looking to forward looking metrics then. That's not useful from a policy perspective.
The Fed is meant to head off inflationary pressures. If they take a full year to materialize in the data, that's a flawed metric IMO. A 20% market rate rent increase will almost by definition feed into a 20% rent increase for everybody in the longer run.
The market rate rent will dictate rents for all over the longer run. Yes, maybe 10% of the population got a good deal on their renewal or whatever. Including that information is not useful or helpful from a policy perspective.
At the very least, they should produce two figures. Market rate CPI and existing tenant CPI.
CPI doesn't include the stock market, either. Real estate is an asset. Rent is included, however. They estimate how much a home owner is effectively paying in rent.
I don't know, last year my oil change was around forty bucks, this year it's been closer to a hundred. I think we're just seeing the tip of the spear and the shaft is going to show up pretty soon, though I hope you are right and we don't get the shaft.
That's just it, the guy on the skateboard who pays a buck more a day for his Chipotle and SBUX isn't going to notice shit. The guy who feeds his family of 4 (vehicle, cloths, energy, taxes, life) is feeling it.
I’m not an operator. All I am is a run of the mill automobile owner who needs the car serviced. The prices have gone up why the shops upped the price is not something I’m privvy to.
On the other hand fuel prices are up considerably too.
I'm just curious because oil changes do not appear to be more expensive because of supplies. Oil and oil filters cost the same as they did before. Is it possible you just got ripped off?
That's the price for full synthetic 6 qts. If you like search Groupon for their non-discount prices. Sometimes you can get a 40% discount at the shop near you, but not always. I don't always have the time to drive to the place with a discount.
I just looked at the prices for motor oil at a large chain near me, and 5 qts of full synthetic is $20 (so 6 would be $24). That's a retail price, presumably shops pay less for bulk purchases.
If your prices went up by $60 this year, it wasnt because the oil is more expensive.
They haven’t around here, speaking as someone who just had the oil changed on two vehicles for the second time this year. The prices here are the same as they have been in recent years, but I don’t use Groupon.
One thing I've seen repeated is that increased shelter costs are problematic if rents rise (on locked in leases) because wage expectations would rise in response.
I don't know, but I think if you want to see where inflation is headed you should look at labor costs. Unless we see a corresponding increase in productivity(maybe from automation), I think prices will have to rise to compensate. Lots of things can transiently spike in price, like energy or raw materials, and you can eat those increases by taking less profits if you don't have the pricing power, but once labor costs go up it seems you are stuck with them.
If those labor costs drive the price of goods and services beyond some psychological tipping point, you then have more demands for higher wages, at least until those start to get rejected and we find a new zone of relative pricing stability.
I'm not arguing for hyperinflation or anything, but I don't think we'll see the price increases of the last year go away. If you're like me and had your assets in cash, well, a good percentage of that buying power is gone and not coming back.
Housing sticks out like a sore thumb. 2% increase? Over what period? Case Schiller is double since the last dip (circa 2012), and a solid 45% up since the peak of the 2008 bubble. It has a sharp uptick in the past couple of years, sharper than the 2006 run up. Sure, 2% housing inflation, nothing to see here.
