BRIEFLY NOTED: For 2021-04-12 Mo

Things that went whizzing by that I want to remember...

First:

Readings for: Slow Growth of Human Economic Knowledge Before the Imperial-Commercial Revolution of 1500:


Very Briefly Noted:


Paragraphs:

When you buy an option from somebody who then delta-hedges it, what you really have done is: (a) taken a very small position in the underlying, and (b) committed to a positive-feedback trading strategy that will continually plow a very large share of notional profits you may earn on your position back into the underlying by massively raising your leverage:

Robert ArmstrongThe Nope Theory to Explain Volatility in Equity Markets: ‘One factor in many of the strangest market episodes is the shadow cast by the equity options market…. Options to buy and sell shares have to be hedged by the dealers which offer them. When options-related volume is a significant portion of the market, this makes the market unstable…. The delta of an option changes with the price of the underlying stock. So if a stock really starts to run up, dealers of options in it have to buy more of it to hedge the options they have sold. This adds to the upwards price pressure…. This kind of snowball was behind the more violent spikes in GameStop, a name retail option buyers piled into heavily. The punchline is that the state of the equity options market at any given moment tells you something about pressures that will be subsequently felt in the equity market itself—and it should be possible to trade on this fact…. Francus’ core concept is an indicator called Nope… a rough-and-ready… gauge of the weight the options market is exerting on the stock market. It estimates the amount of the liquidity available in a certain stock or index that is being sopped up by options dealers’ hedging… the delta of all the outstanding “call” options to buy stocks, less the delta of all the “put” options to sell them, divided by the total daily volume trading of the shares. When Nope gets unusually high, Francus says, “the market has a strong tendency to reverse”…. This volatility-encouraging character of options is a nice iteration of a familiar Wall Street irony: a financial instrument designed to manage risk is turned into a speculative device, making the market riskier. Credit default and total returns swaps are two other good examples… 

LINK: <https://www.ft.com/content/dd3b8f7b-ff0c-4887-b730-52a0fb0a11d2>


Duncan BlackThis Again: ‘If only there was some way employers could attract more workers to jobs:“’I’ve never seen it this bad’, said Arnold, president of Look Trailers, based in Middlebury, Indiana. Look builds utility trailers, which are in heavy demand from small businesses such as landscapers and plumbers as well as hobbyists who use them to haul motorcycles or other bulky sports equipment…. Wages at his trailer factories are already far above state or federal minimums. The average starting pay is $19 an hour, while workers with skills such as welders make $24 an hour or more. ‘People talk about the oil boom in the Dakotas—how workers would get in their car and drive out to get jobs’, he said. ‘We have the same thing here, a jobs boom. But nobody’s coming.’…“ Way above the minimum and still the ungrateful peasants won’t come!!! $24 hour full time 50 weeks per year is $48,000. This is not a lot of money. This is not ”move across the country to Middlebury, Indiana" money…

LINK: <https://www.eschatonblog.com/2021/04/this-again.html>


Ezra KleinThe Best Explanation of Biden’s Thinking I’ve Heard: ‘With the $2 trillion American Jobs Plan, the economic theory that is Bidenomics is taking shape. It’s big. It puts climate at the center of everything. It is more worried about political risks—losing the House, giving Donald Trump a path back to power—than some traditional economic risks, like wasting money and bumping up inflation. It prefers to err on the side of spending more and making sure people know they got a bridge or a job than doing less and having people question whether government is working for them. But I still have a lot of questions about Bidenomics…. Brian Deese is the director of the National Economic Council…. I asked Deese to join me on the podcast to talk about how his economic policymaking and thinking have changed since 2009…. "Growing economic inequality… was laid bare during the pandemic…. Climate change; we’ve also seen the impact accelerating… [and] having an economic strategy that is unresponsive or agnostic to those issues is no longer a viable option…. One of the important things politically is making sure that the ultimate beneficiaries of the things you are trying to accomplish know and understand what you’re trying to accomplish…. The president is thinking…. When he’s thinking about the infrastructure investments necessary, a lot of it is in contraposition to what he is seeing China doing in terms of strategic investments…. There is a big question…. Can the United States deliver for its own citizens? Can the United States competently govern and invest in things that are obviously beneficial to its own welfare, its economic strength, its economic resilience? Because the world has watched now for a couple of years where the United States operated in a way that was very difficult for our international counterparts to fathom. That is really the dominant question…. Can the U.S. get its house in order? And that question is inevitably framed vis-à-vis China… 

LINK: <https://www.nytimes.com/2021/04/09/opinion/ezra-klein-podcast-brian-deese.html>


Greg RobbFed Officials Split on Outlook for Inflation: ‘Federal Reserve officials seemed divided evenly into two camps about the outlook for inflation, according to minutes of their March meeting released on Wednesday. “Several” Fed officials said that supply bottlenecks and strong demand would push up price inflation “more than anticipated,” the minutes said. At the same time, “several” other Fed officials expressed belief that the factors that had contributed to low inflation over the past decade “could again exert more downward pressure on inflation than expected.” The Fed upgraded its forecast for growth and employment and forecast that headline inflation would rise to 2.4% rate this year—above the 2% target—but then settle down to 2.1% by 2023. Despite these changes, the Fed’s median forecast was for no liftoff in interest rates through 2023. The central bank cut its policy interest rates to zero last March. The Fed said it would maintain this easy stance until the economy returns to full employment, and inflation has risen to 2% and was on track to rise moderately above 2% for some time… 

LINK: <https://www.marketwatch.com/story/fed-officials-split-on-outlook-for-inflation-11617820245>


Jim TankersleyWith Warning to Democrats, Manchin Points the Way for Biden’s Agenda: ‘The West Virginia Democrat’s latest plea for bipartisanship suggested that, to win over a critical swing vote in his own party, President Biden will first have to reach out to Republicans…. The chances that such a compromise will materialize are slim…. Manchin’s calls for bipartisanship were less an insurmountable obstacle for Democrats than a road map for Mr. Biden… reaching out to Republicans to explore possible areas of compromise while laying the groundwork to steer around them if no such deal materializes…. Biden… aim[s] at increasing the pressure on Republicans to compromise—and, if they will not, giving Mr. Manchin and other moderate Democrats whose backing Mr. Biden needs the political cover to accept an all-Democratic plan…. [Biden] urged Republicans to “listen to your constituents,” arguing that voters across America back infrastructure spending on the scale Mr. Biden envisions…. Smaller pieces that could attract 10 or more Republican votes each, starting with a bill focused on supply chains and competition with China…. Postponing Mr. Biden’s proposed tax increases on corporations… if doing so would get Republicans on board with a spending bill…. Manchin… has blared his message: First, try bipartisanship. “Senate Democrats must avoid the temptation to abandon our Republican colleagues on important national issues,” Mr. Manchin wrote in the Washington Post op-ed on Thursday. “Republicans, however, have a responsibility to stop saying no, and participate in finding real compromise”… 

LINK: <https://www.nytimes.com/2021/04/08/business/biden-manchin-infrastructure.html>


Dan WangChina, the U.S., & Technology: ‘China has become a lot more brutal than I expected and then second of all, China looks a lot more successful than I expected…. You have to be able to recognize that things in China are getting worse, and then things in China are also getting better, just depends on the particular segment. China last year looked especially brutal, as it was able to control the virus fairly successfully. I think the lived experience to all of us in Beijing where I was based, right now I’m in Shanghai, was that China was able to control everything more or less by April of last year and it was really able to get its factories restarted by then…. China was really, really good at figuring out these short-term problems. The central government, the local governments, but especially the companies themselves were able to organize production effectively and what I’m now hearing from so many companies now is that China is still the world’s best growth story. That was the case in 2020, and that might still be the case for the next 10 years relative to a lot of other emerging countries. In addition to that, China is the world’s best place to manufacture so many different types of goods and they’re more or less doubling down a lot more on China as a major market and also as a producer…. I’ve come to the view now that… we have to spend much more time taking a look at what’s going on with the leading companies…. There are some areas of Chinese technological success, I would cite areas like solar panels, high-speed rail, mobile telephony equipment, so this is the 5G stuff that Huawei has become really good at. But if you take a look at a much bigger ticket items, things like semiconductors or aviation technologies, China has been a manifest failure…

LINK: <https://stratechery.com/2021/an-interview-with-dan-wang-about-china-the-u-s-and-technology/>


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