Tuesday, October 6, 2009

Near zero

Moral: Wherein we consider that the current times, and debates, really bring to fore the notion that someone always pays (of course, parents know this).

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That is, TANSTAAFL is a real issue, except for this sense: the universe and its energy are here, ready for our use (to answer the question of why is a t-issue that is being deferred for the moment -- also, remember that there is no perpetual motion machine -- except that which might exist in the fantasies of some CEOs).

Who pays and when can be swept under the rug using techniques that filter, supposedly extraneous, information and that determine that an economy can be a non-zero-sum game. You've heard it said before: win-win.

Lately, we've been hearing a lot about this: Heads, I win - Tails, You lose (think of this as privatization of gain, socialization of loss -- bluntly, fat cat bailouts by we the little people). Yes, the little pun refers to that stacked deck recently given a proper description of casino capitalism. But, let's not go there until much later.

What we must do, it will be argued, is to see that the concept of near zero is what we need to consider. The question is how to describe the notion so as to make it understandable and of use (ah, does that imply value as utility?).

In short, near zero is seen around the world everywhere we find those with (very small set cardinality) and those without (gigantic set, usually). So, to not get labels of Marxist, or other aspersions, thrown this way, please mind your blinders (rose-colored and otherwise) and consider the following from a viewpoint of first principles (of course, it is very much reasonable to ask whose principles).

One doesn't have to expect Egalité to know when things smell: to wit, some bank practices that essentially bleed the more poor customers with ridiculous fees (no need to belabor the point, as we all know the issues). Given that we're supportive of law and order, one still has to wonder how some ideas generate and get support, such as the notion that a Corporation enjoys rights like a citizen or that some brilliant stars (read CEOs) think that they are the essence of the human race and we're all to kiss their rings: to wit, even CEOs of non-profit organizations taking extractions worth millions yearly. What? Many times, these positions have regal (or is it royal?) benefits. Do they need their big pay, too? Whose pockets are being picked in those situations?

What does all that have to do with near zero? Well, in terms of big-buck pay, it comes from somewhere. In terms of a corporation, many pay up, including shareholders. In terms of personal wealth, this arises through various means and requires maintenance.

The recent events have everyone wondering about capital and markets. We hear of tremendous losses (not all by shenanigans) and some gains. Of course, 'gain' includes that take from run-ups of the stock markets like we've seen this summer. Is that type of gain essential to economics (ah, think back to what lies behind capital and its use - utility again)?

Business Week, of late, was kind enough to provide a graph of S&P and Treasury Bond trend lines from 1926 to now. This shows that $1 would grow to $28K on the equity side while it would only be $89 with the Treasury. Of course, we would really have to look at the corporate bonds for a better comparison. Notice, though, that since 1980 there has been a steady rise for both.

We saw this in the beginning of the graph. Then, from about 1945 to 1980, something suppressed the Treasury line (we'll look at this) while equity grew. Of course, we all know that the Treasury paper is rock solid (we, the American taxpayers, have never defaulted), hence returns will be low due to limited risk. That suppresses the Treasury line.

And, if we could account during the timeframe shown in the chart for those whose pockets bulged and those who lost hugely, what would we see? Has anyone successfully tried that? Is it, by necessity, something that has to be done as a thought experiment (quasi-empiricism)? Near zero is still constrained by our UUUN limitations (saying this does not excuse malfeasance).

Over the past year, we have been looking at reductions all around that are not equally spread. Due to the downturns, topics include a need to reduce benefits, to assess more taxes, to make people work longer, and the related.

In actually, folks, a proper accounting may show that the two sides of capital (see Modigliani) would play more closely. Remember this. The long term line says nothing about an individual's choices since we're talking about a 30-40 year timeframe in which there could have been gains or losses that are significant (that is, in the long run we all perish). We see that now with people who are close to the time for their retirement and who are without the proper means because of equity fluctuations. On the other hand, there are plenty of examples of people retiring quite well with bonds being the main investment.

What is not seen in the hype about equity is that a lot of the payout (or supposed gain) is actually coming from other investors. Yes, it's true; as some have tried to describe, our economy's ways (gab standard and all) are Ponzi, at best. Have we not seen a lot of discussion about how the future generations are being set up to pay for current choices?

How many high-flying stocks of late have had no earnings (in the classic sense, folks, as gains with casino capitalism need to have another label)? Ah, yes, we like dividends. But, does not that assume profits to share?

Note: So, how to explain the rise in the equity line and still argue near zero? That is the task here as we continue to expand the discussion about the 'near zero' notion starting, as mentioned, from the foundational considerations, like economic growth and the need for sustainable ways and means. There have been other ways proposed which we'll look at further.

Remarks:

06/11/2014 -- The old chimera is still with us, a train at 17K (DOW).

12/22/2012 -- Fair and open actually used in a WSJ article.

10/12/2012 -- Hedge fund mirageChimera works, too. Harvard. Its big endowment is the envy of all (but the rational). Yet, Harvard, talk to us about how you feel you deserve big earnings (what? earned?) in term of near-zero. I really need to bring this up to date.

05/04/2012 -- win-win, if it happens, always is accompanied by sacrifice (yes).

03/23/2012 -- Renewal of the idea (and related energies) via Cooper and CiE.

11/04/2011 -- Tech Ticker asks a good questions about the darker side of Apple. Are any of the other tech companies any better?

10/18/2011 -- Hopefully, the OWS will bring this type of thing to public awareness.

09/21/2011 -- On Wealth and the CEO MVP.

06/16/2011 -- Golden sack'd scandals. There have always been over-accumulators. However, a sustainable economy would dampen that. How? We have not seen such an economy, as of yet.

04/03/2011 -- Need to look at some background. Too, tranche and trash.

03/23/2011 -- The hopes spring, again, forgetting, of course, near-zero, all because of M&M. See the real story. But, Big Ben ought to know better.

03/22/2011 -- It's spring, and the garble uses gambling metaphors.

03/15/2011 -- The M & Ms are apropos.

01/19/2011 -- For the most, things are dire, not by necessity.

12/05/2010 -- Raj Patel has the proper grasp on the 'financial madness' that is threatening us.

09/27/2010 -- Capitalism is for the good of us, let's bring that forward.

05/25/2010 -- Who will (or can) lead out of the morass?

04/27/2010 -- Need to add the political set of truths, such as cat and mouse.

02/10/2010 -- We could probably use the auto (and recent events) as a way to characterize this concept. Of course, we have the value versus quality mis-think as part of the problem. Business Week reports that Toyota was asking suppliers for a 10% cut. Well, such scrimping would have an effect, even if it was only in looks. However, cutting into the life of a system may appear smart but, actually, relies on the same unstable basis as does a lot of economic thinking.

01/16/2010 -- Fundamentally, near-zero means that what people talk about with a win-win actually requires that some get less than they wanted. That is, the term 'sacrifice' has been applied from certain viewpoints. But, that scares us from looking at the thing correctly. The topic is simple from certain perspectives and not so from others (what isn't?). But, using 'sacrifice' is too strong. Why? That which those who take less lose, from a 'truer than not' perspective, is overwhelmed by the collective marginal, smaller gains of those who get more than they would not have gotten with zero sum (essentially, zilch). It's a foundational issue, folks. So, for now please ponder this: a financial heart, that is robust, run by those who have higher goals, and morals (oh, is that ethics?), involved in their operational viewpoint (monks, as an example, has not been used facetiously - marines, too, as disciplined and self-less).

12/29/2009 -- Thanks, Krugman, for agreeing with the concept; yes, we've just had 10 years of zero. Now, everyone ought to know why.

12/15/2009 -- Requiem for the dollar (WSJ) and responses.

12/08/2009 -- Consider current CEOs in relation to Paul. Not fair? Well, these guys/gals have set themselves upon some supposed plane that is above the rest of us.

11/30/2009 -- From 'Our basis' can grow a whole bunch.

11/08/2009 -- The gigantic chimera needs proper attention.

10/20/2009 -- Actually, we're dealing with less than zero.

10/16/2009 -- 201K <-- 401K --> 25601K, this denotes the current financial gaming.

10/13/2009 -- Always timely, a WSJ op-ed (Don't Get Hit by Crash at Finish Line) gives an appropriate message to the theme. Holding stock over time does not reduce risk of losing.

10/11/2009 -- Near-zero says that someone always has to suffer. The actuality? Fat cats only suffer monetarily and in pride. Those who lose do so viscerally (yes, as real as you can think). Business Week recently (BW) had an article that weighed in on the issue of India's progress being held back by some property matters. Recall, if you would, that Tata did not succeed in placing one plant where they wanted and then moved over 1000 miles elsewhere. BW described one of the controversies, which demonstrates near-zero. Oh yes, some involved say win-win. Now listen carefully, it's a situation where 5000 souls need to be moved off of land that they have farmed subsistence-wise for generations because it is wanted by some development for manufacturing purposes. Okay, it's estimated that 1000 souls may obtain jobs. Granted some little bit of monies is paid (remember, that it is pittance in relation to the big pockets of the developer), but who suffers here? The 4000, obviously. Too, the 1000, especially if they become enslaved which can (does) happen with industrialization. The whole story is never told. Why? Things that are considered too minor are thrown out, even though they weigh very large, comparatively, to those to whom the suffering is being imposed. Ah, the ways of capitalism cut deep. Yet, we, the people, are the ones supposedly with power (t-issue, of course). So, where is the humanistic capitalism that will show casino capitalism the door? In the US, the Constitution and Bill of Rights are supposed to afford such. Right?

10/08/2009 -- We all want win-win, says former President Clinton. Yes, but a true accounting would show that many times (probably always) that which makes these things near-zero is considered outside of the scope. That is, we push the costs to unfortunates who have no current say. And, in terms of the markets, we don't usually go around and collect the losses to see the longer term aspects. Why? Because the game is limited by time. The Quants make great use of an insight that we obtained from Markov, among other things. Yet, the longer term ramifications are exactly what an enlightened system (society) would consider. No, we forget the losers (large cardinality) and hear too much, ad nauseum (who cares what Buffett thinks), about the winners (very small cardinality).

Modified: 06/11/2014

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