WC Varones

Don't lend your hand to raise no flag atop no ship of fools

They forgot Mianis

Funniest town names by state:

But really, Essex over Mianis in Connecticut?

Paul Otellini's $3.5 billion screw-up

August 2010:
Intel Bets Its Chips on McAfee.  Tech Giant Strikes $7.68 Billion Deal for Security-Software Maker, Drawing Mixed Reaction

September 2016:

Paper gold is paper, not gold

Douche Bank fails to deliver gold to ETF owners.

If you can't hold it in your hand, you don't own gold. If you own a gold ETF, sell it and take the money down to your local coin dealer.

Lying liars at CalPERS want help with their propaganda website

Earlier this month, we showed how CalPERS was using its web site to deliberately deceive the public about their absurd investment promises and terrible results.

Now CalPERS wants help from Sacramento area locals to improve the spin.

We are conducting a research study for CalPERS and inviting individuals to participate in one-on-one sessions. If you are interested in participating and are in the Sacramento area, please complete the quick survey below.

NOTE: When there are openings for volunteers, we will contact you to schedule a 60-minute session with you. We will then confirm location, date and time with you.
Click through to the survey to see if you qualify.

Anthony Weiner headlines

Weiner pulls out

Weiner cut off

She's had enough Weiner

Hillary promises to stop grifting if elected President

Former President Bill Clinton and his daughter, Chelsea, plan to stop raising money for the Clinton Foundation and turn over operations to independent parties if Democratic candidate Hillary Clinton is elected president, according to people familiar with the plans.

So Hillary will no longer use the Clinton Foundation as a vehicle for massive corporate and foreign bribery if elected President.

Too bad the lapdog media never questioned her on it while she was blatantly selling policy favors for cash as Secretary of State.

I love the poorly educated

Trump supporter Sean O'Loughlin in a press release:
Donald Trump lives, works, eats and employs people of all races and religions.

CalPERS deliberately deceives public by cherry-picking dates

You probably know that CalPERS recently reported yet another year of investment results that fell far short of its absurd promises.

But did you know that CalPERS is actively, deliberately deceiving the public about its investment promises and results?

CalPERS has a section called "Myths vs. Facts" on its website where it tries to debunk critics of its rosy expected returns, which experts nearly universally believe are too high.  Here's what the site showed until mid-July:

This is a recurring theme of CalPERS propaganda: pay no attention to expert opinion, zero percent interest rates, or historically high valuations.  CalPERS can always expect high returns because CalPERS earned high returns in the past.

After a second consecutive year of dismal returns, the statements above about 20- and 30-year returns are no longer true.  This spreadsheet shows the past 21 years of returns, taken from CalPERS annual reports (we could not find data prior to 1996).  CalPERS' 20-year annualized return is now just 6.57%... and it's about to go a lot lower because it is rolling off four more consecutive years of double digit returns from the tech/internet bubble.

Last year, CalPERS semi-acknowledged that it needed slightly less crazy assumptions, promising to eventually lower expected return... but only after it has a really good investment year first.  That's like a heroin addict promising to quit after just one more fix.

Given that the CalPERS "Myths vs. facts" statement was no longer true, we were curious to see what CalPERS would do after 2016's bad results came in.  And CalPERS did not disappoint:

Look what they did here.  In mid-July 2016, after they had already reported 2016 results, they went back and cherry-picked time periods ending June 30, 2015.  If we don't cherry-pick the data, the truth is that CalPERS has missed its annual return targets for all of these time periods: 1-year, 3-year, 5-year, 10-year, 15-year, and 20-year -- and the long-term returns are even worse than the recent years!  CalPERS is deliberately misleading the public!

If we can't trust CalPERS even to be minimally honest with the public about its investment returns, why are we trusting them to manage hundreds of billions of dollars for retirees and taxpayers?

UPDATE: Thanks Mish and Yves!

Presented without comment

EU admits ISIS is exploiting refugee crisis to infiltrate Europe

Kerry: We Will Meet Obama's Goal of Admitting 10,000 Syrian Refugees by Sept. 30

Boris Johnson's Greatest Hits

Boris Johnson was just named the UK Foreign Secretary.  This is going to be awesome.  He's like a Nigel Farage understudy.

Boris Johnson on . . .

Hillary Clinton

“She’s got dyed blonde hair and pouty lips, and a steely blue stare, like a sadistic nurse in a mental hospital . . . she represents, on the face of it, everything I came into politics to oppose: not just a general desire to raise taxes and nationalise things, but an all-round purse-lipped political correctness.”

Donald Trump

“The only reason I wouldn’t go to some parts of New York is the real risk of meeting Donald Trump.”

Barack Obama

“Some said [his decision to move a bust of Winston Churchill from the Oval Office] was a symbol of the part-Kenyan president’s ancestral dislike of the British empire.”

Vladimir Putin

“Despite looking a bit like Dobby the House Elf, he is a ruthless and manipulative tyrant.”

Recep Tayyip Erdogan

“If somebody wants to make a joke about the love that flowers between the Turkish president and a goat, he should be able to do so, in any European country, including Turkey.”

Angela Merkel

“Everyone knows why Angela Merkel is so cynically and so desperately determined to appease the Turkish leader — or at least to do nothing to irritate him; and that is because in the next few weeks and months we could have another migration crisis in the eastern Mediterranean.”

The EU

“First they make us pay in our taxes for Greek olive groves, many of which probably don’t exist. Then they say we can’t dip our bread in olive oil in restaurants. We didn’t join the Common Market — betraying the New Zealanders and their butter — in order to be told when, where and how we must eat the olive oil we have been forced to subsidise.”

No jumbo for you!

You may recall that a couple years ago, jumbo mortgage rates went lower than conforming rates.  We speculated that this was due to fixed transaction costs being a larger percentage of smaller-balance loans.

But no longer.  With 10-year Treasuries crashing to record lows and conforming mortgages following, jumbos are not approaching the 3.5% area we saw advertised last year.

Bankrate recently:

There may be a new refinance boom for conforming mortgage debtors, but not for jumbos.

Fortune-tellers with formulas: modern macroeconomic forecasters

We'd never heard of the web magazine Aeon before, until a friend sent us this outstanding "Emperor has no clothes" article: The new astrology: By fetishising mathematical models, economists turned economics into a highly paid pseudoscience.
The failure of the field to predict the 2008 crisis has also been well-documented. In 2003, for example, only five years before the Great Recession, the Nobel Laureate Robert E Lucas Jr told the American Economic Association that ‘macroeconomics […] has succeeded: its central problem of depression prevention has been solved’. Short-term predictions fair little better – in April 2014, for instance, a survey of 67 economists yielded 100 per cent consensus: interest rates would rise over the next six months. Instead, they fell. A lot.

Nonetheless, surveys indicate that economists see their discipline as ‘the most scientific of the social sciences’. What is the basis of this collective faith, shared by universities, presidents and billionaires? Shouldn’t successful and powerful people be the first to spot the exaggerated worth of a discipline, and the least likely to pay for it?

In the hypothetical worlds of rational markets, where much of economic theory is set, perhaps. But real-world history tells a different story, of mathematical models masquerading as science and a public eager to buy them, mistaking elegant equations for empirical accuracy.
Long-time WCV readers will recognize this as a recurring theme here, most notably in our periodic sparring with University of Wisconsin Professor Menzie Chinn.

Menzie Chinn is first and foremost a partisan polemicist: a poor man's Paul Krugman who uses the thin veneer of academic credentials to relentlessly boost Democrats and bash Republicans.  But partisan cranks on the internet are a dime a dozen; what makes Menzie special is his unwaivering faith in mathematical models and his complete ignorance of the limitations of the data that the models are built upon.

One favorite example is here: Menzie defends President Obama's Panglossian economic forecasts from skeptics who ask, “Is the White House’s 3.1% growth forecast still too rosy?” (spoiler alert: yes, yes it was). Menzie uses a mathematical model with a fancy name (autoregressive integrated moving average, or ARIMA) to come to the brilliant conclusion that since GDP has grown about 3% in the past, it's likely to grow about 3% in the future.

Anyone with the slightest understanding of economics will know that there are a lot of factors that affect GDP growth, not the least of which are demographics and debt levels, and that current conditions are in many ways starkly different than the conditions that prevailed in the last half of the 20th century. But not Menzie Chinn. Past results are a good enough indicator of future performance for Menzie Chinn.

One particular factor that created tremendous GDP growth from the 1960's to the early 2000's was the explosion in the Total Credit to GDP ratio. Total credit includes all borrowing (debt) whether public or private, which flows directly into GDP. To refresh, GDP is defined as

Y = C + I + G + X

...with Y being GDP, C being consumption, I being investment, G being government expenditures, and X being net exports.  Any new debt directly increases GDP: spend $100 at a restaurant on a credit card, that's $100 in Consumption; a business borrows $10,000 from a bank to buy a new machine, that's $10,000 in Investment; the government runs a $500 billion deficit to bomb wedding parties overseas and hand out food stamps and Obamaphones at home, that's $500 billion in Government spending.  All new debt creation flows directly into GDP.

Here's what happened to the Total Credit to GDP ratio over the past 50 years (St. Louis Fed):

The TC/GDP ratio has more than doubled, from under 150% in the 1960's to more than 375% at the peak of the recent bubble. Since then, it has declined  a little  due to foreclosures, bankruptcies, and consumers paying down debt, and recently plateaued around 350%.  All this excess debt creation flowed directly into GDP growth, explaining a large part of the robust growth of the past 50 years.

By assuming that future GDP growth will match past GDP growth without even considering the contribution of Total Credit expansion, Menzie is implicitly assuming that Total Credit / GDP will again more than double to more than 800% of GDP.  Common sense says there's a limit to how much debt an economy can service; and our guess it that it's well short of 800% of GDP.  Even Japan, which is currently in a zero-GDP-growth debt death spiral, has public and private debt amounting to far less than that.

We pointed out the flaw in Menzie's logic in the comments on his post, and it was immediately clear that he had never even thought about the contribution of debt increases to GDP growth, or indeed, any factors other than putting a historical time series into a mathematical model and seeing what comes out the other end.  And in the ensuing back-and-forth, it became quite clear that while Menzie is capable of running an ARIMA model, he is completely incapable of engaging in even the most basic economic reasoning.

We hereby nominate Menzie Chinn for the Nobel Prize in Economic Astrology.
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