End of the “Antibubble”

One bear down, another few ursas (both major and minor) to go. Professor Didier Sornete of UCLA, a geophysicist and part-time market seer, has apparently decided that the market may be going up for a while after all. Sornette had been predicting what he called an “antibubble”, a Japan-style unwinding of the “excesses” in the U.S. stock markets that would take U.S. indices to well below current levels, perhaps as low as 500 on the S&P 500. In his most recent missive, he says the following (and the all-caps style is all-his):



To paraphrase Professor Sornette, the thing that he had assumed was going on is not going on, so the thing that he thought would happen won’t happen. In other words, not to mince phrases, and to cut to the chase, without prevarication or delay, he was wrong.

“Lord Can Now Focus on Being Premier”

A headline from the Toronto Star today:

“Lord can now focus on being premier”

Ah, what a comedown. With all the righteous saved and the sinners packed off for eternal damnation and hellfire, it looks like 2004 will be a different sort of year in the deity business.

Floyd’s Wall of Worry

The New York Times’ Floyd Norris is far from alone, but his piece today, while verging uncharacteristically on optimistic at the close, demonstrates the indefatigable bearishness in many media quarters about the resurgent bull market. Here are some sample quotes about the year that just ended on the major markets:

That optimism may have been a little overdone … stores catering to those lower on the economic ladder found sales a little harder to ring up … If the season turns out even worse than Wall Street now believes …. that could be an indication the economic stimulus provided by tax cuts is starting to wear off … it might begin to appear that the heavy foot on the accelerator caused the economy to lurch forward but did not get it into gear in a way that will produce the continuing movement investors now expect. [All emphasis added.]

AEA in San Diego

In case anyone’s looking for Brad, me (at least on Monday), or Alan Greenspan (on Saturday), we’re all at the American Economics Association meeting here in San Diego. Runs Jan. 3-5.

No Shrinking from Shrimp Wars

All those shrimp you’ve been eating lately? Dumped. Not literally, of course, but figuratively, at least according to the Southern Shrimp Alliance. On Wednesday of this past week it filed a request with the U.S. Commerce Department and the U.S. International Trade Commission to whack Thailand, Vietnam, India, Ecuador, China, and Brazil on $2.4-billion in imports “flooding” the U.S. shrimp market.

The SSA claims that dumping from said countries is egregious, ranging from 30% to 200%. And they have touching stories to go along with the claim, about “rampant unemployment and whole [U.S.] coastal communities suffering”. Senator Mary Landrieu (D.-La.) is, of course, playing along, putting out a release saying that domestic shrimpers need a more level playing field. “For our shrimpers to feed their families and fuel their boats, they must receive a fair price for their catch,” Landrieu said.

But there some big problems for shrimp-tariff fans:

  1. U.S. producers have a wage disadvantage. U.S. producers pay U.S. salaries. Granted, they are paying wages to shrimpers, not software engineers; but a U.S. shrimper will still earn at least twice what their Vietnamese counterpart will, and often more.

  2. U.S. producers are inefficient. While shrimp prices have fallen from $6.08 to $3.30 per pound since 2000, harvesting methods changed radically at the same time. Most of the six countries mentioned above run shrimp farms where they harvest shrimp intensively and at low costs; the U.S. continues to fish for wild shrimp in the Gulf and South Atlantic. It is the difference between building a car on Ford’s newest automated manufacturing line, and doing it in your back yard with a saw horse and some sheet metal.
  3. U.S. producers are near their production limits. Estimates vary, but most think that the U.S. is already at or near 90% of its current shrimp-catching capacity. So it is not that U.S. shrimpers want access to more of the U.S. market — they couldn’t service more of the market. They just want higher prices for their less efficient supply.

Pardon me for belaboring the obvious, but there is almost certainly no dumping going on. Matter of fact, given the current wage and productivity differences, it is only surprising that gobal shrimp prices haven’t fallen further than they have. And that only makes the conclusions even more obvious: shrimp anti-dumping tariffs are unwarranted, and U.S. shrimpers must modernize or die.

But will the Commerce Department or the ITC see it so sensibly in an election year? We can only hope.

Eliot Spitzer & Pining for Perp Walks

The SF Chronicle has picked N.Y. Attorney General Eliot Spitzer as businessperson of the year. While there are many objections to his being picked, perhaps the most persuasive is that he simply isn’t a businessperson. He is a lawyer and, arguably, a politician, but he is certainly not a businessperson. After a few years of wallowing in post-boom recriminations, it would have been nice to finally celebrate a few business successes — it’s too bad that some in the media apparently can’t stop pining for perp walks.

IP Lawyers Join the Priesthood

Are IP lawyers really just prelates? In an otherwise unenthusiastic review of Intellectual Property Rights and the Life Science Industries: A Twentieth Century History in the journal Nature, I ran across this intriguing snippet:

One interesting concept described in the book is that of the “patent community” of IP lawyers who have a vested interest in the IP system, and have “interpretive custody” of the system similar to that of the Catholic priesthood when the Bible was in Latin. [Emphasis added]

While the reviewer, a lawyer, goes on to make the point that academics have at least as much at stake in the wiser-than-thou writ-interpretation game, he rightly concedes the point. The transaction costs involved in any wholesale IP regime change — not to mention the corresponding power shift — are among the more significant quasi-economic obstacles to reforming intellectual property law, little different than the problems Pope John XXIII faced in pushing through his vernacular changes at Vatican II.

Bats, balls, cows and homo economicus

There is a wide-ranging interview in Strategy+Business with Nobel-winning economist Dan Kahneman. In light of flu fear, and the current panic about mad cow consumption, his comments about homo economicus and people’s tendency to overweight low probability outcomes are awfully relevant. As he says, “…the prospect of the worst case has so much more emotional oomph behind it.”

On a less serious note, the interview starts with the following question:

A bat and a ball cost $1.10 in total. The bat costs $1 more than the ball. How much does the ball cost?

Drag your cursor over the following blank area for the correct answer. The correct answer is that the ball costs 5 cents, while the bat costs $1.05, Most people say 10 cents for the ball because the original $1.10 figure separates so neatly into $1 and 10 cents. Was your initial response correct? Be honest.

Making Money the Moneyball way

While Moneyball is not writer Michael Lewis’s best book (that honor goes to Liar’s Poker, followed closely by the underappreciated Trail Fever), it certainly has been the Lewis book that has stimulated the most discussion. The gist: baseball manager Billy Bean analyzed oodles of (under-used) statistical data to discover winning could be had more cheaply than other managers thought. Specifically, such things as hitters with high on-base percentage and pitchers who get lots of ground outs were under-valued, at least with respect to said players’ relative compensation.

In this data-drenched age, that sort of things gets people thinking about data-mining. Where else, as the folks at Marginal Revolution ask today, might you apply Moneyball-style spelunking tactics?

Folks might have a look at a book about … jai-alai. Two years before Lewis’s Moneyball came out there was a wildly quirky book from a Computer Science professor at Stony Brook, New York, who wrote about how in one year of betting jai-alai he had increased his initial stake by 500%. How? By simply doing a better job of analyzing historical data. It is fascinating, and what’s more, for folks interested in trying that sort of data spelunking themselves — whether in the stock market or in sports — it is much more applicable, for obvious reasons, than Lewis’s book.

Paul Krugman & the “so-called boom”

You have to hand it to Paul Krugman: He does know how to absolutely madden his critics, the sorts of people who think that the Princeton economist and New York Times columnist is near demonic. Because Paul Krugman is stubbornly convinced that the current economic resurgence is no resurgence at all.

Here is his argument: In today’s column Krugman concedes that the unemployment rate of 5.9 percent — which he cagily calls the “measured” rate — isn’t that high by historical standards. But, he says, there is “something funny about that number”: an unusually large number of people have given up looking for work, so they are no longer counted as unemployed. And more measures apply, like the length of time it takes laid-off workers to get new jobs. Given all of this, Krugman argues that the gains are going mostly to corporate profits, which rose at an annual rate of more than 40 percent in the third quarter. Yes, those gains are going mostly to stockholders and executives, but he points out that while more than half of Americans own stock, most own very little, so they don’t participate.

Krugman’s points aren’t outright wrong, as certain of his tireless critics think. It’s just that he is walking very far out a very thin plank. What makes his non-boom hypothesis falsifiable? What level of job growth over what period would cause Krugman to turn tail and proclaim all’s well with the economy? Merely a return to historical norms? Why, then, the use of the word “boom”? Must the economy “boom” again for him to feel that prosperity is returning and growing?

After all, Krugman (like myself) was a staunch critic of the boom-bubble economy of the late 1990s, so it is peculiar, to say the least, for him to crankily complain that only another boom now would prove that the economy is finally back on its feet.