The Visual Capitalist is a cool website that displays economic data in concise and entertaining ways.
Below is a chart showing the growth of the gaming industry 1970-2020 from Pong and Atari to mobile games and VR. I was little surprised that the CAGR for the industry has only been 2.6%, growing from ~$60B in 1980 to $165B in 2020.
The stock market is fickle, frequently irrational and increasingly disconnected from the economy it is supposed to reflect...but for anyone keeping score (and the Trump Administration certainly did), the S&P 500's current post-election performance is the one of the best ever:
Diego Maradona died in Argentina today from a heart attack. He was 60. I say 'arguably' the best, because there is no way to compare players of different generations, much as we love to. We all have our biases...if you're older than me you might say Pele was the best ever, if you're younger than me you might say Messi. I never saw Pele play and have seen far more of Messi's games on satellite TV, YouTube, even Netflix than Maradona's.
Is Messi a technically superior player, was Pele? Perhaps, we can certainly debate it. But as Bobby Ghosh wrote today on Bloomberg, Maradona was the best ever because "[he] came closest to defying the dictum that soccer is a team sport." Exactly.
Would Messi be the same player without Iniesta and Xavi? Likewise Brazil's winning teams of 1958, 1962 and 1970 had legendary players like Garrincha, Rivelino, Torres and Jairzinho alongside Pele. But for most of his career, Maradona "played in teams that lacked any other world-beating players", writes Ghosh. Maradona took Napoli, a struggling southern club, and conquered Italian football over northern giants like Juventus and Milan (and changed Naples). He then took a "slightly better supporting cast of Argentines" to a wonderous triumph at the '86 World Cup over far better regarded teams.
As Ghosh says, "it is one thing to be a brilliant player surrounded by other brilliant players...but Maradona made magic out of mediocre materials." Even more remarkable is the weight of expectation he carried on his shoulders for both club and country. He was "the pibe de oro, or golden boy, as much talisman as captain and player." And delivered over and over again...until inevitably the pressure, drugs and addiction got the best of him. But he withstood those forces long enough to stake his claim of best ever. He was a hero and icon in both Argentina and Naples, who transcended sport.
And then, of course, there was THAT goal--the best ever. While there were similar ones over the years, none could match it in terms of occasion, pressure and importance (winning goal in the WC quarterfinals against rivals England in the shadows of the Falklands War).
Good vaccine news, Biden transition clarity, Yellen-Powell pro-longed easy money expectation...whatever the reason, the Dow Jones Industrial Average has gained 2,566 points or 9.3% since Election Day and crossed the historic 30,000 milestone today. Yay!!!
The most interesting things to start the week:
1. More vaccine good news: AstraZeneca-Oxford announced its Covid-19 vaccine was up to 90% effective at preventing the disease. It is part of the new generation of genetics-based vaccines. But unlike the Moderna and Pfizer-BioNtech vaccines, AstaZeneca uses DNA (rather than mRNA) as the platform for delivering genetic instructions to make parts of the SARS-CoV-2 virus. Crucially, AstraZeneca's vaccine does not require extreme cold temperatures for storage. It can be stored in a normal refrigerator for six months, which makes distribution relatively straightforward. It is also expected to cost only $3-$4 per dose, compared to $15-$25 for the other vaccine candidates.
2. Another first for Yellen: News leaked today that Biden is expected to nominate former (and first woman) Fed Chair, Janet Yellen, to be Treasury Secretary. She would be the first woman to hold the top Treasury post.
Markets reacted positively, welcoming back someone they know well. And someone they feel will have their back, focusing more on macroeconomics than regulation.
Joe Biden is ready to be President and has announced his picks for senior staff and cabinet positions. Looks like we might be going back to the old, boring way of doing things: picking experienced people with a traditional approach to governance and international relations. From left to right:
Jake Sullivan: National Security Advisor
Cedric Richmond: Director, WH Office of Public Engagement
Jennifer O'Malley: Deputy Chief of Staff
Ron Klein: Chief of Staff
Antony Blinken: (Nominee) Secretary of State
Avril Haines: (Nominee) Director of Intelligence
John Kerry: Climate Envoy
Not pictured:
Alejandro Mayorkas: (Nominee) Head of the DHS
Janet Yellen: (Nominee) Secretary of the Treasury
Linda Thomas-Greenfield: (Nominee) UN Ambassador
While most European countries locked down their economies in the spring to prevent the spread of the coronavirus, Sweden relied instead on voluntary social distancing. Swedish experts embraced the 'herd immunity' approach believing it would better protect against a second wave in the fall.
And while it was never a stated part of the strategy, the government did make the case that keeping society open would limit the impact on businesses. That point of view was embraced by those who argued 'the cure cannot be worse than the disease.'
Well, this week Sweden announced it is abandoning its herd immunity strategy as a second wave looms. Cases, hospitalizations and deaths all have spiked in recent weeks.
Per capita infection rate has exceeded those of Spain and the UK, two hard hit European countries. More than 200,000 Swedes have been infected and at least 6,320 have died.
As many people know, on Monday the S&P 500 Dow Jones Indices announced that Tesla will join the S&P 500, effective Dec 21. The car maker will be the largest company ever to be added to the index, after its (so far) 600% run up this year pushed the company's market valuation over $460B. Adding a company this big to the index has its own set of challenges.
Regardless, the addition of any company to the S&P 500, let alone one the size of Tesla, is a huge deal. There is over $11.2T of assets indexed or benchmarked to the S&P 500, with index funds comprising $4.6T of the total. At its current size, Tesla is expected to comprise over 1% of the index. That means shoehorning Tesla into the S&P 500 on Dec 21 will force, at least, $50B of rebalancing. And that's where the arbitrage comes in.
The old adage in finance, and life, is that there's no such thing as a free lunch (except for diversification). Expected returns are proportional to risk. If there happened to some risk-free arbitrage opportunity it would quickly be bid away. But due to structural and behavioral reasons, sometimes near risk-free opportunities can exist.
Pioneering quantitative strategist, Rob Arnott of Research Affiliates has shown that companies that get added to the index are typically 'hot' companies with lofty multiples, while companies that get removed on a discretionary basis (i.e., not due to M&A or other corporate actions) are usually deemed unimportant and are generally cheap. Arnott estimates that there is about a 3-to-1 ratio in valuation multiples between the added and deleted companies. In effect, when passive indexes (and some active investors) rebalance in response, they are buying high and selling low. Testing data from 1989 to 2017, Arnott found that
over the following 12 months, deletions, on average, outperformed discretionary additions, by 23%!!
Data from UK's NHS Test and Trace App reveal that supermarkets are the most common Covid exposure setting. The app looked at the contacts of those who caught the virus between Nov 9 and Nov 15 and retraced the steps of 128,808 people who tested positive.
About 18% had visited a supermarket, followed by 12% who attended secondary school. Full list here:
That's the gist of Steven Teles' recent op-ed in the NYT and Ezra Klein's article at Vox. An asymmetry exists in the American politics because the current system weights the votes of small states and rural areas more heavily than that of big states with significantly more people. Add in aggressive gerrymandering and you have electoral rules that favor Republicans. In effect, to win the Presidency Democrats must win the popular vote by 3-4 percentage points. To win the Senate, by 6%-7%; the House by 3%-4%. So to win, as Klein argues, "Democrats must appeal to voters ranging from the far-left to the center-right, but Republicans can win with only right-of-center voters." In a sense, we really are a center-right nation.
These fault lines are further divided by differences in race and wealth. Republicans dominate rural areas that are predominately white, while Democrats control big cities that are far more racially mixed. A relatively small number of, mainly Democratic, districts also drive the lion's share of the nation's economy (e.g. <500 of the counties won by Biden this election generated 70% of the US GDP in 2018 versus >2400 of the counties Trump won that generated only 30% of GDP).
And while other federal states, like Germany, Australia and Canada have similar deficits in their constitutions, they do not, as Teles points out, have "the same degree of representative inequality that the Electoral Collage and the Senate generate between a citizen living in California versus one living in Wyoming."
Ultimately, these structural imbalances are bad for democracy itself. As Klein argues, "what motivates parties to change, compromise, and adapt is the pain of loss, and the fear of future losses. If the party is protected from that pain, the incentive to listen to the public and moderate its candidates or alter its agenda wanes."
This imbalance and "unfairness" looks set to continue for the foreseeable future (or at least until Texas flips). And a rationale Republican party will do everything it can to hold onto its advantage.
Joe Biden swears by them...Trump, not so much. Iowa Gov. Kim Reynolds (R) was recently criticized for saying there was 'science on both sides' of the mask debate. While the CDC recommends wearing masks and studies show their positive impact, there have not been many large scale trials demonstrating their efficacy. But we now have the results from one such trial from Denmark involving 3,000 participants. The 'Danmask-19 trial' was a randomized controlled study--making it the highest quality scientific evidence. And the results...
..."no statistically significant difference between those who wore masks and those who did not when it came to being infected by Covid-19." Details can be found in the Spectator.
But as Forbes reports, the publication of the study in the peer-reviewed Annals of Internal Medicine has generated heated debate. Health experts, including the lead researcher behind the study, disagree with the results. The study has numerous limitations, but Dr. Christine Laine, editor-in-chief of the above journal, argues that the study did a good job of answering a very specific question: whether or not face masks protect wearers from Covid-19 in areas with low infection rates and high levels of social distancing. "It did not answer the question about whether widespread masking mitigates SARS-CoV-2 infection."
Bottom line: In areas where infection rates are low and social distancing is practiced wearing masks may not be that important. So, wear them in crowded places but okay not to in big open spaces. Seems intuitive.
Vice is reporting that the US military has been quietly purchasing location data from ordinary apps, including Muslim Pro a popular prayer app with ~100 million downloads. Others include a Muslim dating app, a popular Craigslist app, a weather app, and home DIY app, etc.
It's particularly sensitive because the US military have used other types of location data to target drone strikes.
In an update, Muslim Pro has said it will no longer share data with X-Mode whose customers include US defense contractors.
The idea that the Federal Reserve is willing to adjust monetary policy in a way that is supportive of the stock market has been debated for decades. A new study by Anna Cieslak and Annette Vissing-Jorgensen puts the argument to rest. They found "compelling evidence of a Fed put going back to the mid-1990s."
The stock market is, of course, not a part of the Fed's dual mandate of stable prices and maximum employment. However, the Fed has often been wary of any negative feedback loop a declining stock market might have on the real economy and pays very close attention to it. But as many people have pointed out, for structural reasons, the stock market does not reflect the economy.
Anyways, back to the study, findings of which is neatly summarized at ZeroHedge:
Analyzing decades of Fed transcripts and minutes, Cieslak and Vissing-Jorgensen found that for every 10% decline in the stock market, a 32 bps rate would result, on average, at the next Fed meeting. The authors tested their model against numerous other macroeconomic variables and found that stock market developments were a better predictor of FOMC than any of them. Their model forecasted a 109 bps cut following the 34% market plunge in Feb-Mar. In response the Fed cut rates by 150 bps.
Not surprisingly, the study also found that an increase in the stock market didn't lead to corresponding increase in interest rates.
This asymmetric response may appear to be decidedly bullish for investors. However, because successive Fed regimes have conditioned traders to expect a dovish Fed response to market volatility, the Fed put could be increasingly less effective in the future (as increasingly bigger responses are needed to get the same effect). As the authors write, for the put to be effective the Fed has to "beat expectations" of how much they will cut. "That's why the Fed's job could get increasing difficult."
The coronavirus has surged dramatically over the past month, with average daily cases reaching 150K over the past week. As the weather gets cooler and people socialize more indoors, public health officials are bracing for a further spikes, particularly after Thanksgiving.
Even at the current rate, the widely cited IHME model projects 371,000-587,000 deaths by Mar 1, 2021 under different scenarios:
Mandates easing: 587k (475k-712k)
Current trajectory: 439k (402k-481k)
Universal masks: 371k (336k-402k)
To put things into perspective, Covid-19 will almost certainly end up as the third biggest cause of deaths in the US in 2020 after heart diseases and cancer, based on data from the CDC. (Non-Covid attributions are from the most recently available year, 2017):
And (if there was any doubt) Covid-19 is far more dangerous than influenza, according to a new CDC study. That's certainly the case on an absolute basis. Over the past decade the flu has claimed, on average, about 37,000 lives per year. The worst was the 2017-18 season, when 61,000 people died. By comparison, Covid-19 has claimed nearly 7x more lives this year based on data from Johns Hopkins (as of 11/14/2020)
People around the world are paying $200-$400 for negative Covid-19 tests that enable them to travel. Groups in Europe and South America have been busted for selling falsified digital certificates displaying negative results for the coronavirus.
Straight-talk: Fox News anchor Sandra Smith tells it like it is, oops!
The people have spoken...again: Almost 80% of American believe Biden won the election, including a majority of Republicans. Nearly 6/10 Republicans and almost all Democrats said Biden won.
Ouch...Trump, who? British PM Boris Johnson, formerly one of DJT's closest allies, gushed over Biden and referred to Trump as 'former President' in Parliament
Mr. Popular: The Electoral College ("EC") votes had a lot of drama, mainly because of the order in which votes were counted--Biden is projected to ultimately win by the same EC margin as Trump's 2016 'landside' (306 to 232). But the popular vote is no contest. Biden is leading Trump by over 5 million votes and the difference is expected grow significantly when CA and NY votes are fully counted!
Dems can be "super spreaders" too: Pro-Trump supporters allege a double standard in the media that call out MAGA rallies as health risks but not the huge crowds marking Biden's victory. True...corona doesn't discriminate. Biden supporters do wear masks, but that won't altogether make up for the lack of social distancing. To be fair, CNN has noted (maybe gingerly) the risks these crowds pose. But, to be clear, these aren't organized events; if they were the media would (probably) be equally critical.
Yes, Fox News has been very vocal about the need to concede the election...that is, the 2018 Georgia Governor's race when Stacey Abrams (D) narrowly lost to Brian Kemp (R).
The Daily Show has compiled a reel of Fox hosts and guests dismissing voter fraud claims and labeling Democrats 'sore losers'. Exquisitely hypocritical.
Stephens, the NYT's oft pilloried (and not undeservedly) conservative columnist, has written a cogent piece on the 2020 elections and state of the Republican party. He is a prominent Never Trumper, but as a loyal and notable conservative his analysis carries weight.
Stephens distills why Trump failed to get re-elected:
Trump lost for two main and mutually reinforcing reasons. The first is that he's immoral--manifestly, comprehensively and unrepentantly.
The immorality didn't just repel his political opponents. It enraged them, inspired them, drove them to the polls...
Trump's immorality also blinded him to his opportunities...He could have spent the past eight months as the nation's consoler in chief...Instead, he went from denier in chief, to quack doctor in chief, to false promise maker in chief-- everything, that is, except the steady and compassionate figure the country desperately needed in the White House.
The second reason Trump lost is that conservatives never tried to check his immorality. They rationalized, excused, enabled and ultimately celebrated it.
Instead of acting as a check against Trump's worst impulses and essentially saving Trump from himself, the Republicans cheered everything did. Stephens decries:
Just as ignorance was strength in George Orwell's "1984," shamelessness became virtue in Trump's G.O.P. The strategy of moral inversion appeared to be vindicated four years ago, since none of Trump's successive scandals prevented his victory.
While there were narrow calculations at work among self-serving conservatives, Stephens points to the development of something more dangerous in recent years:
...political Manichaeism turned into moral nihilism: When the left is always, definitionally, "worse than the right," then the right feels entitled to permit itself everything, no matter how badly it trashes conservative policies (outreach to North Korea), betrays conservative principles (trade tariffs), debase the office (arms-for-dirt with Ukraine) or shames the nation (child separation). Stalinists used to justify their crimes in much the same way.
Finally, Stephens does see the silver lining in all this:
For America, this failure to do much more than flatter, defend and delude Trump these past four years is a blessing. For conservatives, it calls for a reckoning.
I'd agree and say that the election of Biden is a great opportunity for moderate Republicans to reclaim some lost ground--if they are willing. Biden is pre-disposed to compromise and highly experienced in the give-and-take of governance. He'll be sensitive to the political needs of his opponents. While that approach may disappoint many on the Left, ultimately, I think it'll be good for the Democrats and, more importantly, the country.
Another prominent conservative Jonah Goldberg writes change has begun.
Scientists have discovered a planet on the outer edges of our solar system where the oceans are made up of molten lava, it rains rocks and has supersonic winds. They gave it a catchy name: K2-141b. The news of the extreme planet was in many different places, but most intriguingly in...Travel + Leisure, because of course. If you were looking for a place to visit...who wouldn't want to explore a literal hell spot?
K2-141b is an Earth-sized exoplanet orbiting a dwarf-star--much cooler than our sun. K2-141b is so close to its own star, it completes a revolution in about a week. And because of that proximity it is gravitationally locked in place with two-thirds of the planet in perpetual daylight in 5,400F heat. While in the other third it is always night and freezing at -300F.
With Covid resurging around the world, Pfizer and German partner BioNTech had some great news today. The companies announced their coronavirus vaccine was >90% effective in preventing Covid-19 among people without prior infection. Scientists had been targeting a vaccine that was 75% effective, so the early results are very promising. (Dr. Anthony Fauci has said even a 50-60% efficacy rate could be acceptable). Pfizer board member and ex-FDA commissioner, Dr. Scott Gottlieb that a vaccine could be be available for limited use by Dec and wide distribution by fall 2021.
Markets were ecstatic, the S&P 500 was up nearly 4% mid-day. Financials, energy and transport stocks were the biggest winners, while Technology was the relative underperformer.
The US has been driving new cases in recent weeks, with the 7-day MA of new cases exceeding 110k. More than 240k people in the US have died from Covid-19.
Dave Chappelle hosted the first post-election SNL last night, just as he did in 2016. He smoked(!) on stage while delivering his 16(!) minutes long monologue. It was a wild, biting, often controversial, commentary on race and politics finishing with hope for reconciliation...similar, though perhaps more trenchant and less polished, than his 2016 set.
2020 Chappelle
2016 Chappelle
Beginning to move on...
...even as the President clearly has not
President Obama living his best life ...at a rally for Harris. Lose yourself in cool.
