Economics

Presidents and the Market

Posted on November 1, 2020November 1, 2020 by Sam Kornstein in Charts & Data, Data Visualization, Economics, Markets

I suspect most presidents have less influence over stock market performance than the media suggests. And today – probably more so than at any other time in my life – the performance and health of the largest companies comprising the stock market is not a good measure of the overall health of the economy. But regardless, taking a step back and looking at market movements over multi-year periods can provide a helpful perspective. And so as we near Tuesday’s election, I enjoyed seeing and reflecting on this Axios graphic: I expect many people would look at this and spin it to support the political narrative they want to be true. And some of those narratives are probably right. But I

Under the Hood of the S&P 500 Rebound

Posted on August 24, 2020August 24, 2020 by Sam Kornstein in Charts & Data, Economics, General

There’s been quite a bit of debate about what’s driving the rather unexpected stock market rebound in the midst of a global pandemic (e.g., Fed actions/policies, stimulus, large businesses benefiting at the expense of small businesses, some business models are benefiting from the new norms at the expense of those that don’t, etc.). In my view, it’s probably a bit of each of those, but dominated by the sad fact that a large cross-section of non-public small and medium businesses will not survive, and large public companies that can weather the storm will ultimately be able to fill the supply void, and even buy their assets/IP for pennies on the dollar. Case in point – my dad never used Amazon

Music As An Uncorrelated Investment

Posted on January 14, 2020January 14, 2020 by Sam Kornstein in Economics, General, Music

I recently came across this article – The Man Who’s Spending $1 Billion to Own Every Pop Song – and found it to be fascinating. It’s about a former music manager turned “crazy” (bold?) music investor, who’s buying up the rights to thousands of hit songs from artists like Taylor Swift, Ed Sheeran, and Bruno Mars at what most industry experts consider to be irrational valuations. It’s a bit long, but the whole thing is worth a read if you enjoy following the music industry. As a preview, here are a few highlights: In less than three years, Hipgnosis has purchased nearly 7,500 songs, more than 1,000 of which have been number one hits. Mercuriadis has done eight-figure catalog deals

An ICO Advertised on My Blog Post About ICOs

Posted on January 15, 2018January 15, 2018 by Sam Kornstein in Current Events, Economics

After reading my previous post on crypto, a former colleague, Eric Holzhauer, sent me a picture of this ad on my site, to the right of my post about ICOs: A few immediate reactions: They have a marketing budget to advertise via Google Adwords to encourage people to “Join ICO” (i.e., buy the new crypto coin they are creating in the hope of using it to facilitate rental transactions)? That’s legal? Wait, really, that’s legal? I guess just because they’re doing it, doesn’t mean it’s legal. But they are a legitimate company, with $4M in VC funding previously raised, and over 200k properties on their site. And yet it all feels very deceiving. They can’t say invest in ICO, because

4 Thoughts on the Crypto “Bubble”

Posted on January 14, 2018January 15, 2018 by Sam Kornstein in Current Events, Economics, General, Markets

There’s been a lot of talk about whether Bitcoin, or crypto overall, is a bubble. Some say absolutely. Many suspect it’s likely, but argue that as with most bubbles, it’s difficult to know for sure. After all, the Economist called Bitcoin a bubble in 2011 when it was at $2.50 and again in 2013 when it was at $1,000. And Tyler Cowan used to think it was a bubble, but now isn’t so sure. I’ve had many fun discussions about this with friends and family, and have been increasingly reading and thinking about the topic. So I’d like to share a few thoughts. 1. The total market capitalization of all cryptocurrecnies is $740B – this is a bubble The market cap

Some Thoughtful Points on the VIX

Posted on September 20, 2017September 20, 2017 by Sam Kornstein in Economics

Larry Summers via Tyler Cowen: SUMMERS: Second, the VIX — people tend to underappreciate this. The volatility of the market moves very much with the level of the market. The reason is that if a company has $100 of debt and $100 of equity, and then the stock market goes up, it’s 50/50 levered. If the stock market goes up by $100, then it has $100 of debt and $200 of equity and it’s only one-third levered. So when the stock market goes up, its volatility naturally goes down. And the stock market has gone way up over the last 10 months. That’s a factor operating to make its volatility go significantly down. It’s also the case if you look at surprises.

What’s the Matter with Small Biz?

Posted on August 19, 2014August 19, 2014 by Robin Bose in Economics, General, Research

The following is a guest post from Robin Bose. There’s a truism that small businesses are the backbone of the American economy. I happen to think it’s true that small businesses make local economics more resilient to shocks and changes in the overall mix of market forces. If we accept that, then we should all be a little worried. A mildly alarming study The Brookings Institution published shows a 30 year decline in what the US census calls “new firm formation” (i.e., baby businesses getting formed) accompanied by no real change in “firm exits” (small business owners closing up shop). Some surprising highlights: Troubling 30 year secular decline across multiple business cycles and political administrations Trend is prevalent across all 50

Predictor of Stock Market Returns

Posted on January 2, 2014January 1, 2014 by Sam Kornstein in Economics

I found this post from the ‘Philosophical Economics’ blog to be very thoughtful. It offers some interesting ways of thinking about equity price levels, and what drives them. The author makes a convincing argument that despite the fact that many believe price changes are largely a function of valuation multiples (e.g., P/E ratios), they are actually caused by relative changes in the aggregate investor allocation to equities. Essentially, the post makes the case that aggregate demand for equities as a proportion of all financial securities — or average asset allocation to equity across all investor portfolios — does a much better job of explaining subsequent returns than traditional mean-reversion metrics. When demand for equities in aggregate increases (decreases), expected future returns

Outsourcing Gavel Production in the US Senate

Posted on June 5, 2013June 5, 2013 by Robin Bose in Current Events, Economics, Politics

The following is a guest post from Robin Bose. Robin went to MIT with me and likes beer almost as much as I do. He’s also a great singer. The United States Senate has a busy 2013 summer schedule: a new farm bill, interest rates on student loans, and comprehensive immigration reform. Immigration reform in particular has thrown off a lot of heat and light, with new entrants into lobbying — led by Facebook and the tech sector — facing an already crowded field of corporate interests, immigrant groups, unions, Tea Partiers, border militia, and lots of local, state, and national officials. For example, we know who the sheriff of Maricopa County AZ is (Joe Arpaio). He makes national immigration news.

Fiscal Cliff Offers

Posted on December 20, 2012December 20, 2012 by Sam Kornstein in Current Events, Economics, General, Politics

Via Wongblog, this is the best description of the negotiations I’ve seen yet: