May 2011


First, using several different measures that capture the levels of dynamism and innovation
in the economy, we find that the rate of creative destruction among public firms in the U.S.
increases during our sample period.

They will list the various measures that they utilise later in the paper that have some really major issues associated with them. The sample period is from 1960-2009. This encompasses a number of important historical developments in the US so the period is a good one I think.

Like Fogel, Morck, and Yeung (2008), we use big business
turnover as a measure of economic dynamism, and find that turnover among the largest firms
increases significantly during our sample period.

This is the first of their statistical measures:

Big Business Share Turnover. Big business share turnover is the aggregate, beginning of
period market share of the big businesses that exit the big business decile during a period. To
compute this measure, we measure the market share of each firm in the top revenue decile.
Market share is the firm’s revenue in year t-5, scaled by the aggregate revenue of all of the firms
in the top revenue decile in year t-5. Big Business Share Turnover is the aggregate market share
in year t-5 of the firms that are no longer in the top revenue decile in year t.

I have some reservations on this methodology, however we will see why later when some of their assumptions with regard to the calculation of revenues becomes more clear. Apart from these initial concerns, I have an issue with this in that does this actually measure innovation? It seems to measure increasing/decreasing dominance of firms within an industry due to competition and business decisions that effect that competitiveness. This is not innovation. It would probably include evolution.

We generate additional turnover measures that
capture aggregate changes in market share and value-added, and find that all of these measures
exhibit positive and significant trends during our sample period. The firms gaining market share
are increasingly faster growing relative to the firms that suffer losses in market share.

As we’ll see, these additional measures are pretty irrelevant. They in no shape or form relate to innovation at all.

These “creator” firms exhibit increasingly high growths in total factor productivity (TFP), value-added,
and profit margins relative to the firms that they replace, which is consistent with increasing
innovation.

Let us just for the moment accept at face value the authors claim that these measures do in point of fact measure innovation. Could these measures also be a measure of other variables? If so, how would you differentiate the innovative component from the other variables? Take one example, Profit Margins: could profit margins increase in any way other than solely through Innovation? The answer is definitely yes. I’ll be looking at the ways when I address their measures later in the paper.

Also consistent with increasing innovation, creators spend increasingly more on
R&D, and have increasingly more patent grants relative to firms that lose market share.

This opens an interesting area with regard to patents. I have some quite interesting theory and data that refutes this initial assertion, but again, more on this later.

Taken in their entirety, our findings are consistent with the rate of creative destruction among public firms
increasing during the last half century.

Well I will argue, not even close. But this will be developed as the various data are analysed and causation assigned.

This is a disgrace. I have noticed it here in NZ, the Salvation Army are running out of food, so heavily is this resource being utilised by the unemployed and marginals. The thing is, there are still jobs in NZ. Sure they are not great jobs, but they are jobs none-the-less.

Anyway, foodstamps are simply another cost that the government takes from one and redistributes to another. At some point those that are being expropriated by government will either simply leave, or give up producing. There is always a point where a tax system steals too much, and raises less revenue through disincentives to work.

This is of course the primary underlying problem that government has: they have absolutely no idea how to create employment. The reason being that government employees are not entrepreneurs, they are parasites. Why would you ask, or expect a parasite to solve unemployment issues? Currently everything that they have undertaken has not improved the situation, at best it has deferred the problem to another day, where the problem will be even more intractable for these cretins.

First for the industry in general.

Profitability into the end of 2010
Year Quarter ……………………DOMESTIC………………………. INTERNATIONAL…………… TOTAL
2010 …………………….5,059,820 ………………………3,790,728 …………………8,850,548

2010 TOTAL ………….175,059 ……………………………..108,983 ………………….284,042….[JBLU]
2010 TOTAL ………….67,270 ………………………………5,199 ………………………….72,470…..[HA]

The airlines as a group have underperformed stocks, largely due to headwinds with oil and jet fuel. If oil prices stabilise, or even fall, then airlines could well outperform as ticket prices can fall, thus stimulating increased demand.

The sector weightings, complete with their average, are depicted in the following charts. Of course the average means little to nothing, but it in the short term might throw up some trading ideas.

Technology. Is an early leader in an expansionary business cycle. As we are in the early stages of a contraction, technology might be one to underweight currently, unless it’s cheap, unloved and undiscovered currently.
Financials. I avoid. No transparency. Full of lies. A bit like flippe-floppe-flye.
Health Care. Another industry that I avoid like the plague. Medical Ethics are non-existent.
Consumer Staples. Defensive, and generally pretty solid. Need to find a solid dividend payer cheap.

Energy Long term, yes. Currently no. Energy has already run it’s race this cycle. Look again after QE2 comes to an end. The consensus seems to be that a QE3 is a given down the road.
Industrials Always worth having some, just finding the right ones currently.
Consumer Discretionary Again worth having some exposure generally. Now looks to be a propitious time to enter the sector.
Materials Based on the weighting, looks to be an interesting sector. I’ll have a further look. Of course, this happens to be a hot sector: POT, you name it, gold miners, silver miners, they are all in here. Makes for an interesting question: the sector, is underweight in the index, the stocks, many are extended. Which carries more weight? I’d definitely be interested in an ETF of gold/silver miners in the future, if prices should fall significantly for any reason, they are definitely on my to buy in the future list.

It has come to this. A year after rescuing Greece from default, Europe is staring into the abyss. The bailout has proved insufficient. Greece needs more money, and it can’t borrow from private markets where it faces interest rates as high as 25 percent. There is no easy escape.

What’s called a “debt crisis” is increasingly a political and social crisis. Already, unemployment is 14.1 percent in Greece, 14.7 percent in Ireland, 11.1 percent in Portugal and 20.7 percent in Spain.

Some causes of Europe’s plight are well-known: the harsh recession following the 2008-2009 financial crisis; aging populations coupled with costly welfare states. But there’s also another less recognized culprit: the euro, the single currency now used by 17 countries.

Launched in 1999, it aimed to foster economic and political unity. For a while, it seemed to succeed. In the euro’s first decade, jobs in countries using the common currency increased by 16 million.

It was a mirage. For starters, the euro fostered a credit bubble that led to booms in housing, borrowing and consumer spending. But one policy didn’t fit all: Interest rates suited to Germany and France were too low for “periphery” countries (Greece, Ireland, Portugal and Spain).

Money poured into the periphery countries. There was a huge compression of interest rates. In 1997, rates on 10-year Greek government bonds averaged 9.8 percent compared to 5.7 percent for similar German bonds. By 2003, Greek bonds fetched 4.3 percent, just above the 4.1 percent of German bonds.

“The markets failed. All this would not have occurred if banks in Germany and France had not lent so much,” says economist Desmond Lachman of the American Enterprise Institute. “It was like the U.S. housing market.” Both American and European banks went overboard in relaxing credit standards

The markets failed. What a load of bollocks. Government, Socialist government failed. The Banks could not without the complicity of government practice the crime of fractional reserve lending. Without fractional reserve lending, there could be no credit expansion. With no credit expansion there would have been no credit bubble in housing. There would have been no housing bubble.

I could continue, but essentially there is one guilty party, the government. End of story. The banks, are simply dishonest underlings, greedy as all get out, stupid beyond measure, but essentially under government control.

This appeared the other day on the StockTwits list of bloggers.

Question: What do you call a D student who graduated medical school? Answer: Doctor

How do you know if the guy that gropes and tests you got an A or a D in med school? You don’t. It’s like boarding a 747 after the pilot went on a coke binge, killed his wife, left her on the kitchen floor, had a few Mimosas and then started up the engines to fly you over the Atlantic. It’s a trust thing, you have no control.

I always said if I had anything really wrong with me I would want Dr. House to do the operation as he is the only Dr. I could see myself trusting. Unfortunately he isn’t real so that ain’t happening.

Over the past year I have had some intermittent stomach pain. I chalked it up to a bad burrito or the occasional Big Mac. Lately though, the pain was more frequent, and over the last two weeks the pain which used to last twenty minutes, has duration of three to ten hours. The way I can describe this pain is simple. If you remember the last scene of Braveheart when Mel Gibson had his entrails ripped out, well, that’s how it feels.

So I did what I have never done. I went to WebMD because of extreme curiosity. My Mom had her gall bladder removed years back and that is what I thought it might be. Anyway after my search, I found that I had about ten out of ten of the symptoms of gall stones. I knew it had to be gall stones.

I went to my Doctor the next day and described my symptoms. I told him that my Mom had gall bladder issues and I thought I may have the same thing. He looked at me thoughtfully and said ” I really doubt it, I think you may have really bad indigestion”. He sent me for a full abdominal sonogram and an upper gastro test which required me to drink about a pint of a chalk like substance.

After the test I described my symptoms again to this new Doctor in extreme detail. He was the” specialist”. He looked at me and said something that I never though an expert in this area would say. ” Hmm, I never heard of this”, he then asked “Do you have stress?” I responded that I was on wall Street for over twenty years, trade stocks and have two teenagers, what do you think Dr. Shit For Brains? No I didn’t call him shit for brains, but I wanted to.

Friday I got the results back. It was my gall bladder. Schmucks.

This is a minimally invasive procedure these days and I will have this useless organ ripped out in the next week or two. I just hope i don’t get the D student.

Obviously this chap is somewhat underwhelmed by the diagnostic prowess of the doctors in encountered. Using WebMD he feels rather superior, that based on matching 10 symptoms, although some of them might have actually been signs, although the distinction seems to have made no impression on our self diagnosing patient.

The tests he was subjected to, did actually confirm the diagnosis. Now further investigations, which are scans of various types, are all listed under further investigations, and are not diagnostic, rather they are confirmatory of an existing diagnosis [or not as the case may be] So all ended well.

Well possibly not.

The last sentence highlights the problems associated with a lay diagnosis, and unfortunately the doctor seems at fault here again: the gallbladder is very far from a useless organ. It has myriad physiological functions. The primary function being the emulsification of fats in the digestive and absorption process. Fats are a component of every cell in the body. They are particularly important within neural cells, which for this chappie, involved in the financial markets, is a rather crucial area. Of course the other major issue is the aetiology of the gallstones, what, why and how they formed. This pathological process that resulted in a gallstone, could and likely does, have a pathology that acts as an early warning to a more serious, or continuing pathology.

The one that immediately leaps to mind is excess estrogen. Yes, I know estrogen is a female hormone, but it is ubiquitous, and in the male with gallstones, is a prime suspect. The issue with estrogen levels that are high in men is the increase in cholesterol that they induce. High cholesterol levels lead inexorably to atherosclerosis, which commonly manifests as Coronary artery disease. Depending on other lifestyle factors, are you a fat bastard, are you a fat bastard because you are a lazy bastard guzzling beer, fags and high fat while watching a 3 hour football game on TV, can lead to what’s commonly described as a heart attack, add in some age, and you start to multiply the probabilities.

Now when I went to Medical school, there were indeed the A students, and there were the D students. I have to say the D students were pretty damn dangerous and should never have been unleashed on the public. In fact the whole Medical industry is dirty, so dirty that I have never bought stock in the industry, I may have daytraded a few issues, but never on an investment basis.

NEW YORK (AP) — To fly someone from New York to Los Angeles and back, airlines spend close to $330 these days — just on fuel.

That’s a 48 percent increase from last year and the main reason vacationers face record costs to fly this summer. To offset their single biggest expense, airlines have hiked fares seven times this year and raised fees for checking bags and other services.

This has only added to the frustration of most casual fliers who see $59 fares advertised but are quoted prices well above $300 when they actually try to book. Americans’ expectations of a cheap vacation are being destroyed by the reality of $100-a-barrel oil.

“The passenger has to understand that the airline industry in the United States is not meant to be a low-cost mass transit system. The airlines are in business to be profitable,” says airline analyst Robert Herbst.

A decade ago, fuel accounted for about 15 percent of airline operating expenses. Five years ago, it was 29 percent. Today, it’s 35 percent.

During the first three months of 2011, the airlines spent $8.7 billion on fuel, 31 percent more than last year. In the current quarter, jet fuel expenses are even higher.

U.S. airlines burn an average of 22 gallons of fuel for every 1,000 miles each passenger flies. At $3.03 a gallon, airlines are currently spending $330 per passenger just on fuel for a 4,950-mile transcontinental round-trip. Some fliers might have paid less than that for their ticket while others could have spent more than $2,000.

The industry’s remaining expenses break down this way:

– Salaries and benefits account for 28 percent. Ten years ago, it was the biggest expense at 39 percent. But several major airlines filed for bankruptcy and that allowed them to renegotiate labor contracts.

– Aircraft maintenance, airport landing fees and travel agency commissions account for 18 percent.

– Aircraft lease payments, food and drinks and in-flight entertainment account for 5 percent. And that’s even with most airlines no longer serving peanuts.

– Another 14 percent goes to miscellaneous costs, such as updating reservation systems and marketing partnerships with other airlines.

The price of a domestic round-trip ticket this summer is forecast to be $430, on average. That includes taxes but excludes baggage fees and other services.

While airfares should break nominal records, they are not nearly as high as they were a generation ago once inflation is factored in. The average ticket in 1978, the year airlines were deregulated, was almost $650 in today’s dollars. Deregulation created more competition, which ultimately drove down prices for passengers.

With oil close to $100 a barrel, fuel has become the expense that preoccupies airline executives more than any other. It is the reason airlines started charging for checked baggage in 2008 and why they have raised fares more than 10 percent this year.

Baggage fees — typically $50 per bag, round-trip — have added more to the cost of flying since 2008 than fare increases have.

Despite the rising fares and fees, demand for air travel is rising. The airlines expect 206 million passengers this summer, a 1.5 percent increase from last year, according to the Air Transport Association.

That suggests airfares aren’t likely to decline soon, despite a drop in oil prices this month. The airlines lost a combined $1 billion during the first quarter and hope to recoup that with higher ticket prices.

War is the health of the State

Randolph Bourne.

With a move to a war footing, the move to Socialism and government control of the factors of production ensues. Citizens have all manner of freedoms curtailed, travel etc. Goods are rationed. Debts explode as the ability to finance a war exceed the tax revenue of the government to wage the war.

War…………………………………………………….Total Cost……………………….%GDP
Civil War Union…………………………………….$59,631 million…………………11.3%
Civil War Confederacy…………………………..$20,111 million………………………..

WWI…………………………………………………..$334 Billion………………………13.6%
WWII………………………………………………….$4,104 Billion……………………35.8%

Vietnam…………………………………………….$738 Billion……………………….2.3%

Iraq I…………………………………………………$102 Billion………………………0.3%
Iraq II……………………………………………….$784 Billion……………………….1.0%
Afghanistan……………………………………….$321 Billion……………………….0.7%

Total Post 9/11 [inc above]………………….$1,147 Billion…………………….1.2%

All the above figures are in 2011 dollars [inflation adjusted]

By contrast, free trade, free movement across borders, promotes an expansion of freedom, wealth [via production] that is a function of the increased division of labour and relative production efficiencies. Less and less government is required as trade leads to peaceful co-existence.

In the weekend report I discussed the impending stock market yearly cycle low and three year cycle low in the CRB that are both coming due together this summer. A yearly cycle low in stocks is the second most severe selling event ever seen in the stock market, only exceeded by a four year cycle low, which by the way is due in 2012. The three year cycle low in the CRB is the single most severe selling event for commodities.

If you’re a believer, then watch out, a perfect storm of cyclical patterns.

Britain has been involved in all the American wars, Iraq I, II and Afghanistan, but this one was personal.

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