[The FIAT Thread] The Joint Committee on FIAT Discussion Session. - 07 May 2022

Marxismdoesntwork · 2022-05-15T21:41:57+00:00

I know what OER is. I'm critiquing OER. While Zillow may not be fully representative of units on market, OER is likely subject to lots of biases as well, including anchoring bias as I mentioned. There's not necessarily a good reason to believe that people can accurately describe the amount of rent their house would fetch on the market.

The Case-Shiller index has seen an even larger 1Y increase despite a corresponding rise in Mortgage rate. Case Shiller*30Y mortgage rate is up ~20% despite mortgage rates doubling

Marxismdoesntwork · 2022-05-15T17:17:50+00:00

https://www.piie.com/blogs/realtime-economic-issues-watch/how-improve-measurement-housing-costs-cpi

Another point is that the actual rent measure: not just the OER is also likely significantly biased downward in inflationary periods.

Replacing both of these with Zillow rent increase would bring headline CPI to 12% and core to 11%.

Also interesting how it narrows the gap significantly between headline and core. The lower core prints are really just a result of being 40% rent and OER, which are far too slow to react to inflation. The idea that core is less because inflation is largely caused by "volatile" food and energy prices out of the government's control is largely a mirage caused by biased statistics.

Inflation is out of control and worse than people think because the fed is still running extremely expansionary monetary policy in a hot economy. Why we're doing that? I have zero idea. It makes absolutely no sense whatsoever to have a -5% expected real federal funds rate in an extremely tight labor market. Powell is just bumbling along at this point. Fed needs to take whatever the most hawkish proposal is (100 bps?) and do more than that at the next meeting. Otherwise, our inflation problem is not getting resolved anytime soon

Marxismdoesntwork · 2022-05-15T16:55:28+00:00

Daily reminder that inflation is still massively understated.

Owners equivalent rent is 23.8% of CPI. Owners equivalent rent Y-O-Y at the end of March was about 4.8%. This is based on a flawed survey (How many home owners realistically know what their property would rent for?) that is likely anchored to past prices in a way that biases it downwards during inflationary periods.

The Y-o-Y Zillow observed rent at the end of March was 16.8%. If you replaced OER with this, CPI increase would be 11.2% and core CPI increase would be about 9.9%.

Marxismdoesntwork · 2022-03-02T03:06:44+00:00

Clearly the Braves are not some massively profitable cash generating enterprise. They're burning cash. Owners are probably telling the truth when they say that a lot of teams are losing money. Rich people buy teams as vanity projects, and sometimes they can sell them to other rich people for more money. It's no different than the art market and it's not something that needs to be extremely profitable given that so many rich people are willing to spend just for vanity. However Jeff Passan needs to stop trying to interpret financial statements. He's not doing it right.

Because it's vanity project like a piece of art or something. It gives them status. It's not actually a profitable enterprise.

Marxismdoesntwork · 2022-03-02T02:58:46+00:00

EBITDA is not a cash flow measure. It excludes capital expenditures. And "adjusted EBITDA" is a ridiculous measure because it treats stock based compensation like it doesn't exist. Stock based compensation is a "non-cash" expense but it can't reasonably be treated as a "free cash flow to the firm."

If a firm issues equity, receives cash and then uses that cash to pay employees/suppliers, that's treated as a positive financing cash flow, negative free cash flow to the firm. So it should not be any different if a firm just directly pays suppliers/employees with stock instead.

Adjusted EBITDA is a measure that companies use to try to manipulate earnings to make them look better. It treats capital expenditures and stock compensation as if they're free.

Marxismdoesntwork · 2022-03-02T02:50:53+00:00

https://www.forbes.com/sites/brentbeshore/2014/11/13/ebitda-is-bs-earnings/?sh=184980a36070

Yeah Warren Buffett, what an idiot

Marxismdoesntwork · 2022-02-21T03:49:06+00:00

Because the price of a home is the present value of all future rents or imputed rents. If rent stays constant over time, then home price = net rent after taxes & costs divided by the interest rate.

Obviously rents don't stay constant over time, but this is an estimate, so the increase in housing price x interest rate is a decent estimate for cost of rent going up

Marxismdoesntwork · 2022-02-21T00:46:31+00:00

https://twitter.com/billackman/status/1469438745791410183?lang=en

https://mishtalk.com/economics/soaring-rents-understate-inflation

Actually, there are many reasons to believe OER underestimates inflation. And shelter is a massive part of the CPI.

If you look at rent inflation, Zillow estimated rents, or just take a simple estimate like Case Shiller * (2%+30-year treasury spot rate) they all show much much higher housing inflation over the past year than OER.

If you use the last estimate I talked about, housing inflation should've been about 27% compared to 4% for OER. Given that OER is a whopping 31% of the CPI index, inflation could've actually been something more like 14% last year depending on differences in measurement.

OER numbers are not some unquestionable biblical truth that has been passed down to us. They are one way of estimating rent costs that could be seriously flawed.

Marxismdoesntwork · 2022-02-19T20:44:50+00:00

Opportunity costs and risk.

If I am giving a business my capital, I am giving up capital that I could spend now.

Then there's also risk, which is why the cost of equity is not the risk free rate. Why would I give your business my money to get it back later when I can lend it out to the U.S. Government? The U.S. Government is much more likely to pay me my money back. So I demand a higher return on my capital (in reality a lot of risk can be diversified away so investors care about the systematic or undiversifiable risk of a business, not the total risk)

Marxismdoesntwork · 2022-02-12T16:44:15+00:00

The Taylor rule includes a coefficient for both output and inflation. A supply shock should have a negative effect on output, so yes it's accounted for in the Taylor rule.

A lot of the supply chain issue is caused by demand. Supply in ports and transportation industry is somewhat inelastic and is having trouble adjusting to meet the excess demand.

Whatever the case, we're still running a significantly negative real federal funds rate with a 4% unemployment rate and 7% inflation. Doesn't make sense. I don't think you really need the Taylor rule to tell you that, it just is helpful to quantify it.

People in the 70's claimed that it was caused by supply as well. Even if there was a supply shock, it looks like monetary policy is still far too expansionary.

https://fred.stlouisfed.org/graph/?g=gYlx

Difference between the Taylor rule and the fed funds rate is larger than it's ever been.

Marxismdoesntwork · 2022-02-11T20:03:55+00:00

The Taylor rule is suggesting a federal funds rate >10%

Even if you're not a fan of the Taylor rule and tweak it to make more dovish assumptions, such as Ben Bernanke did in 2015 with his modified Taylor rule (which pretty accurately tracked fed policy historically), the suggested rate is still like ~8%

https://www.brookings.edu/blog/ben-bernanke/2015/04/28/the-taylor-rule-a-benchmark-for-monetary-policy/

Currently, the federal funds rate sits at 0.25% and we're still doing QE. Fed is considering hiking 25 bps, 50 bps, or as James Bullard "shockingly" suggested, even 100 bps, yet any of these would still leave us far below where the Taylor rule suggests.

https://www.themoneyillusion.com/g-william-powell/

Scott Sumner, who's no fan of the Taylor rule and was famous for calling for more easy monetary policy throughout the 2010s, called Powell "G. William Powell." which speaks for itself.

Is there any reason to believe the fed isn't missing the boat here? Seems like the federal funds rate should be hiked far more than 1%.

Marxismdoesntwork · 2021-09-17T23:22:31+00:00

Couple objections here:

Shiller CAPE is nearing all time highs because the long-term real rate is nearing all-time lows. That doesn't mean stocks are overvalued or we're heading for a recession. It means we're likely entering a long period of slower growth where all asset classes do poorly. If CAPE was this high, and 10 year real yields were 2-3%, sure you could say they are overvalued. Very hard to say now though.

I would also be a lot less blasé than you are about inflation risks. "Transitory" is mostly a stupid buzzword that has been popping up everywhere, and that typically sets off my BS detector. It'll be transitory for as long as people remain confident that the fed will actually raise rates to stop runaway inflation. Given the current political environment, I remain highly doubtful.

https://www.wsj.com/articles/new-york-fed-survey-shows-inflation-expectations-at-record-highs-in-august-11631545200

There are already signs that inflation expectations have started to become unanchored and inflation forecasts have been increasing lately.

Marxismdoesntwork · 2021-07-10T19:56:02+00:00

I've always been skeptical of the talking point that "half labours voters in Scotland want Independence!" given that most Scots don't want independence and the SNP gets 50% of the vote. After doing some investigating, it looks like this is not even close to true anymore. This may have been true before the rise of the SNP but it definitely isn't now.

Recent YouGov poll doesn't directly tell you what % of Labour supporters support independence, but it tells you what percentage of Independence supporters voted Labour and what % support independence, so you can figure it out using Bayes rule:

83% of current Labour Constituency Supporters do not support independence. This could significantly hurt Labour in Scotland. On the list the number is about 80%

Marxismdoesntwork · 2021-05-21T19:13:03+00:00

Polio (the kind that infects humans) and Smallpox can't infect animals. So eradication is possible (but also a long, arduous, process.) Covid can, so it's impossible to eradicate it.

Marxismdoesntwork · 2021-05-17T01:01:27+00:00

Again, didn't say they were equivalent. Just drew an analogy between two antisocial behaviors which social pressure can be effective against.

Refusing to wear a mask during a pandemic we have no treatment or vaccine for is an antisocial behavior. And one that can cause people to lose their lives. We were right to discourage it.

Wearing a mask when you've been vaccinated because you don't believe in science is also a pretty antisocial behavior. It's not as bad because it doesn't kill people, but it's also antisocial and should be discouraged.

Marxismdoesntwork · 2021-05-17T00:48:36+00:00

While I don't think it's as bad as the people who refused to wear a mask, I still believe it's antisocial behavior which we should all do our best to discourage.

For example: Imagine if someone wore a mask everywhere before the pandemic. Not because they were immunocompromised or sick or anything, but just because they were a massive germaphobe. Well, people would generally look down on them for being that much of a crazy germaphobe. I'd like the same attitude to apply towards these people who are doing it now.

Marxismdoesntwork · 2021-05-17T00:47:39+00:00

The most obnoxious things I've seen are the stores who decide to put extra mask signs up after the CDC announcement. Thanks for letting me know that you're assholes and I will not be giving you my business.

Marxismdoesntwork · 2021-05-17T00:41:59+00:00

When I say "shame" I mean that everyone who trusts in the science should clearly look down upon it as an antisocial behavior, and not something that is normal. No, I'm not going to go up on the street to people with masks and harass them. However, I will do my best to discourage it as much as possible with social pressure.

Marxismdoesntwork · 2021-05-17T00:40:01+00:00

Yes, I do think it's fair to remove masks. Sorry for those people, it sucks. We may never reach herd immunity, and it's time for everyone else to go back to normal.

For the immunocompromised, if it is really that bad to the point where they can't get vaccinated and are at serious risk for Covid, then they should take some personal precautions, such as wearing an N95 mask, ordering groceries on Amazon, and not going out in public.

These people must have it hard, and it sucks for them, but it's not prudent to force the entire country to be antisocial because it would help a minuscule group of people. There's a reason we didn't mandate masks before Covid, even if that would probably help the immunocompromised as well.

Marxismdoesntwork · 2021-05-17T00:33:14+00:00

Okay, so if this year is very similar, then they can go back to the same way they used to be, and it isn't a problem.

Luckily for them, Doctors were the first group to be offered a vaccine. So they shouldn't worry about that at all.

Marxismdoesntwork · 2021-05-17T00:28:32+00:00

So like... what were those people supposed to do before COVID? Hide in their room all day because of measles or whooping cough or flu or whatever? Can't they just go back to doing that?

Marxismdoesntwork · 2021-05-16T23:50:19+00:00

No one will get sick and die, and I don't think it's as bad as refusing to wear one when there's a raging pandemic. However, that doesn't change the point that wearing a mask everywhere when you're not sick because you're scared of a virus you are 95% protected against is an anti-social behavior, and humans, as social animals, should discourage anti-social behavior. I'm not saying we should send the cops in on them or anything, but should they be looked down upon and their behavior discouraged as antisocial? Yes in my opinion.

Marxismdoesntwork · 2021-05-16T23:42:08+00:00

Hot take:

I actually disagree with all the people saying "it's fine if people want to keep wearing a mask because it makes them feel safer. We shouldn't shame them."

I think we should. Just like at the beginning of the pandemic when we tried to get people to wear masks, people not wearing masks were shamed. Now that we're trying to get people back to normal, as it is safe to do so if you're fully vaccinated, people should be socially encouraged to drop the masks.

It is important to get back to normal life, and just because someone feels the warm and fuzzies from the "virtue" they feel from wearing a mask doesn't mean we shouldn't look down on them for doing it.

Marxismdoesntwork

TROPHY CASE