The evolution of mortality through the demographic transition is as close as we come to a deterministic process in the analysis of population dynamics. Science and technology have become increasingly better at keeping people alive, a benefit that still seems to drive the human experience to this day. It’s possible to identify milestones through history such as the development of modern sanitation to defeat contagious air- and waterborne illnesses, the development of vaccines for specific illnesses, as well as overall technological development in the field of healthcare. It is a story about pinning down the causality between rising national income and technological development and the improvement in the human living condition in the past 250 years. Researchers still debate the relative importance and merits of specific drivers, but it’s possible to generalize, all the same. The story about of human mortality is contained in a few relationships, for the individual, between, and possibly within countries. It is a story about Nike swoosh-shaped, logarithmic and asymptotic curves, and the extent to which we observe deviations from such stylized relationships over time, and why.
Read MoreI am still not entirely sure whether Noah Smith, a U.S. Economist and prolific blogger, is a converted MMTer or not. But I do know that he is doing a great job in describing the discourse around this newfound holy grail of macroeconomic policymaking. In my attempt to label MMT as “Woke Economics”, I leaned on some of Noah’s earlier pieces on this, and now he is back with his invocation of the new Macro Wars. The stage, according to Noah, is the recent fiscal relief bill in the US, prompting even otherwise pro-stimulus economists to push back. Oliver Blanchard and Lawrence Summers both suggest that $1.9T might be too much of a good thing, while Krugman is sticking to his Keynesian ethos, arguing that Biden’s bill really is ‘disaster relief’, a position that Noah seems to agree with. Replying specifically to Noah’s recent post, he argues that Keynesianism won the theoretical battle a decade ago, leaving only “cranks, charlatans and WSJ Op-ed writers” on the other side. Tyler Cowen chimes in, pointing out that Biden’s post-election fiscal stimulus push has as much to do with populism as it has to do with careful application of Keynesian macroeconomics. As it turns out, this is a position I have a lot of sympathy for.
Read MoreThis week, I’ll stitch together some thoughts on our ticket off the Covid-19 train, also known as the “vaccine”. I am prompted by Georges Pearkes’ challenge to come up with why it might be a bad idea to given people $1500, or another monetary amount, as an incentive to take the vaccine. First things first, it’s very possible that our main problem next year is that we won’t have enough of this thing. Paradoxically, the prospect of a vaccine dealing a killer blow to the virus in the middle of next year has created an incentive for authorities to maintain tighter restrictions in the short run—well into Q1, at least—while we wait for the shot. After all, if the virus is gone tomorrow, the cost of an infection today increases, a lot. A reasonable counterpoint is that governments aren’t masochists, and some form of reopening will happen in Q1, but the point I am getting is simple in the end. Assuming the vaccine is rolled out by early Spring, on the back of a miserably semi-locked down winter, it’s more likely than not that people will be scrambling for a jab, especially in an environment where the vaccine becomes a ticket to otherwise restricted activities via a form of passport. In such a situation, we won’t have to pay people to take the shot. We’ll have to make sure it isn’t hoarded. As for the counterpoint, I am not convinced that the rise of anti-vaxxers—known in the literature as "vaccine hesitancy”—can be applied to predict a threat to the effectiveness of Covid-19 vaccine efforts. That said, early survey evidence suggest that hesitancy might be an issue, especially at the margin where the line between failure and success is drawn.
Read MoreIt’s been a while since I updated these pages, mainly because I have recently moved across the country, back to the Big Smoke, where I am now nestling in the hopefully up-and-coming part of southern London. I will be up and running with my market updates and videos soon enough, but first things first. I have been sitting on this piece, mentally more than anything, for a while, and I thought it would be a nice way to re-start my posting. I have long been thinking about whether it is possible to provide a good quantitative argument in favor of the defunct value equities, or more specifically the value “factor”. I think it is, but as always, I leave to you to judge. In my last post before my temporary hiatus, I made the argument that the vast majority of investors are structurally short volatility. Accepting this premise raises the obvious question; how does one achieve a cheap and effective long vol position? In this post I will try to offer a concrete and quantitative perspective on this question using the simplest tools available to us from finance theory. Before I get to that, though, I want to state the problem more precisely. In a nutshell, the traditional 60/40 portfolio is doing too well. The increasingly concentrated leadership in equity beta centered around the ubiquitous growth factor—essentially U.S. technology firms—and the correlation of this position to the performance of government bonds—driven by structurally falling interest rates—has been a boon for investors. A 60/40 portfolio with a concentration in growth stocks has increased by a factor of almost 4 since 2010, beating the MSCI World by almost 25%, not to mention breezing past the main regional indices—MSCI EM and MSCI Europe—by a factor of 2-to-2.5. That’s great news, but it also puts investors in a bind. If a balanced portfolio is winning on both legs what happens when the tide turns?
Read More