Thursday, January 22, 2015

On those negative Swiss yields and what they don't mean

Some odd explanations are being offered for the negative yields seen recently in several countries' debt markets. Today, Swiss bond yields went negative right out to 15 years, quite an historic anomaly. Why?

Contrary to what I've seen and read through several outlets, negative bond yield does not mean that individual investors knew, a priori, that this would happen. It does not mean that they are cheerfully willing to accept losses over the term of a bond, just to put their money somewhere.

We have to remember that a lot of capital is moving simultaneously but also independently from many different directions, into the rather small Swiss debt market. Certainly, Switzerland is a magnet for safe-haven investing, particularly after they unpegged from the Euro a few days ago. Now there are many large investors moving their capital, and they are all doing so very quickly because of a variety of factors: oil price collapse, eurozone deflation, currency collapse...many separate reasons. There is a widespread sentiment that something really big might go down e.g. Greece could move to sever itself from the Eurozone, or Russia could realize they are going to default and start behaving even more belligerently, to (so to speak) get it over with in Ukraine. China could confess that their GDP numbers are twice cooked. A lot of things could happen.

Now, if many investors, working independently, spooked by their own economy, decide that a low-yield Swiss bond is the safest and most convenient place to put their money for now, and if Switzerland isn't offering much new debt to match the demand, then that collective behavior can force the yields negative.

How much debt can the Swiss offer? Well their entire national debt is only about $127B...yes billion, which is tiny, and it's only ~35% of Swiss GDP. By comparison, US debt is above 100% of GDP, at ~$17T, currently. So it's very easy to distort Switzerland's yields, and much harder to distort ours.

All of this doesn't mean the magnetic poles have flipped or Draghi has released antigravity or whatever. It means that a teeny tiny debt market in a small economy has been distorted by a lot of capital rising in from many different directions.

Monday, January 19, 2015

The State of our Union's Tax Code - #SOTU #SOTU2015

I am amused and cautiously joyed to hear that President Obama will propose to simplify the US Federal Internal Revenue Code in his State of the Union address tomorrow. The jumbled tax tome is so complex that it has spawned a whole industry of tax preparers who rake in billions every year. The Code is an annual gift to lawyers and 'tax professionals,' and generates all manner of lawsuits that go on for years.

You just about need Alan Turing to figure out what you owe, or what the IRS owes you. The Code is so ridiculously complex that most Americans (not just Mitt Romney!) truly don't know how what percentage they pay. Debates swirl over how regressive our Code is, but we can all agree that it is oppressive.

There have been a few stabs at our beastly Code over the years. Perhaps out of sheer desperation, a number of people have proposed replacing it completely with a flat tax. The latest proposals call for something "flatter," whatever that means.

Our lawyerly Congresses have been hell-bent on making the Code even more complex. Democrats want more Federal tax revenue, and they'll grub for it anywhere they can. Republicans work tirelessly to append corporate loopholes or to get little favors for certain constituents.

Obamacare has significantly complicated the Code; you'll hear more about that over the coming months. Democrats have advocated a whole new class of complex taxation -financial transaction taxes- (FTTs) to try to skim revenue off each and every stock trade. Meanwhile, entire corporations migrate abroad just to get out from under the Code. Don't try that trick as an individual, though: the US expects tax revenue from you even if you live and work abroad; yes, even if you don't earn one penny in the US. Only one other country pursues your income to the ends of the Earth: Eritrea. Yeah. Hmm, maybe if we all become individual multinational corporations and use bitcoin...

Our Code is in imminent danger of collapsing under its own weight. The IRS has a fraction of the Code-trained personnel required to thoroughly and fairly inspect all of our tax documents. The Democrats' solution? Add more bureaucrats. The Republicans' solution? Lower taxes. And so ordinary Americans are stuck with poor service from an IRS that is hamstrung with the worst Code in the world. And so, as many Americans know, filing taxes has become a game of chance.

So...call me amused that President Obama will call for a simpler Code in his State of the Union address tomorrow. Good luck, Mr. President. No, I really mean it, good luck...you'll need it. The Code is an enduring gift to the legal profession in America, and ~40% of Congress is composed of lawyers.

Most Lethal Terrorists in the US? The #KKK

I asked myself: what is the most lethal terrorist group in the history of the US? I poked around for some numbers and facts. Here's my verdict:

The Ku Klux Klan and affiliates are known to have lynched thousands of African Americans since their founding in 1865. The numbers I found: ~3500 total black lynchings to date directly attributable to the Klan, or ~120 per year, although the Klan has had several periods of growth and then collapse. Note that a large number of whites were also lynched. There are, of course, various Klan side organizations and freelance racists, so it's hard to get firm numbers.

The Klan ran local politics in several States for many decades and directly intimidated an uncountable number of people across the country...for generations. Most young Americans don't realize just how openly the KKK used to weigh on American politics. This should give you an idea:

https://www.youtube.com/watch?v=UomPUYgxSTY

Yes, they marched that openly in Washington D.C. in 1928, and have held many large, public gatherings since.

Of course, the Klan is best known for advocating segregation and fighting against equality, whilst packaging their very anti-Christian arguments in faux Christian symbology e.g. crosses. Through their actions, the Klan also spawned hateful counter-groups which in turn also committed hateful acts; hatred, of course, begets hatred.

Let's remember, as we speak about terrorism from abroad, that the single worst terrorist group in the history of our nation was born and bred right here, and still exists openly in many States. And whether that terrorizes you probably has a lot to do with your skin color.

Thoughts on Same-Sex Marriage & #SCOTUS

Same-sex Marriage will shortly be taken up by the US Supreme Court. I'll express my own legal opinion. If you're not prepared to read what I have to say then don't read further ~

My opinion is that if reason prevails, this will be the conclusive end of the ridiculous State-by-State, case-by-case lawsuits, and civil marriage -whatever you want to call it- will be fairly and equitably extended to all who meet the basic legal requirements. The reason has nothing at all to do with opinions about right and wrong, and everything to do with extending rights to a minority that have long been recognized by a majority.

Now, I'm sure that some will object based on their religious beliefs, interpretations of scripture, or other arguments. It is certainly your right, as a member of your church, to follow your own church's guidance and speak freely and as you wish. No freedoms of religion or expression are violated by others' private actions.

However, the first key legal point is that citizens of this country have had a separate and non-religious 'civil' pathway to marriage for many, many years. If the desire is to put marriage back into church, that would entail upending a very longstanding precedent. Not going to happen.

Yes, there are a [very] few countries that don't recognize civil marriage e.g. Saudi Arabia, Syria, Yemen...you get the picture. In these law-abiding United States, the issue is conclusively settled: you can get a civil marriage outside the church. Those wishing to marry are therefore not beholden to the strictures of any particular church.

It sends to me that the above point, alone, may not be quite sufficient to extend all same-sex marriage benefits, however. And so the second key point is that it would be unlawful to extend civil benefits in a way that discriminates on the basis of gender or race. This is perhaps not quite as legally enshrined as some might wish, but the spirit is well recognized throughout our legal system. You can't reward someone for being born as a particular gender or race; so too you can't penalize them.

Therefore, the right to civil marriage should ...and very certainly and inevitably.... will be extended to all who meet basic legal requirements e.g. age of consent and ability to recognize the terms and implications of the marriage contract. (And n.b. these latter qualifications very clearly exclude all the nonsense that some worry will turn us all to salt e.g. underage marriage, polygamy, unions between man and animal, and all the rest of the straw men typically offered!)

So, in conclusion, I say: the argument against same-sex marriage is already legally lost and that's the end of the story. We need to focus on far more important things than what consenting adults do in their own homes and whether they can share earned financial benefits.

Saturday, June 14, 2014

Tuition Inflation in #HigherEd & why @SenWarren 's Proposal Won't Fix It

College tuition has been inflating severely since the early 1990s, at a rate far exceeding the CPI. This alarming trend defies simple explanation... and there is no simple cure.

Without question, tuition inflation is one of the most severe challenges for American millennials. Although the data assure impressive long-term (~30 year) return on college investment for most students, tuition inflation has made it almost impossible for students and their families to make that investment without long-term loans. And unfortunately, much student debt is serviced at interest rates far exceeding reasonable benchmarks e.g. the 30-year bond yield or the 30-year mortgage rates.

It is important to note that little of the cumulative student debt is served by the Federal assistance programs such as the Stafford program. This is well known to families with students in college today.

In the most cynical analysis, it appears that some parts of Higher Ed and the loan industry are in collusion, baiting students with promises of remunerative careers while luring them into loans they may never repay. Indeed this analysis seems particularly apt for certain for-profit programs, which have been the target of recent Congressional attention.

Highlighting the impending increase on Stafford loans from 3.4% to 6.8%, Senator Elizabeth Warren recently brought some much-needed attention to the problem of loan repayment; she summarizes her program in this PDF:

http://www.warren.senate.gov/documents/BankonStudentsFactSheet.pdf

One of Senator Warren's most compelling arguments is the following:

"This year, the federal government will make $34 billion on student loans. The government even makes money on its loans to low-income students – 36 cents, on average, for every student loan dollar it puts out. If Congress allows the interest rate on these loans to double, the federal government will bring in even more revenue – money that comes straight from the pockets of college students."


However, as noted before, only a fraction of student loan debt is served by the Stafford program.


Also, it important to note that a very simple market principle: in the debt markets, the demand for loans is inversely proportional to the loan rate. In other words, if the loan rates are depressed, more students will take on debt. Is that really what we want? or do we want to find ways to make it possible for stduents to complete college without a mountain of debt?

Of course, Sen. Warren intends to migrate student debt away from predatory loans to less expensive loans, and is one way to help today's students in debt crisis. But the larger issue -much larger than Sen. Warren's well-intended vision of debt relief- is ongoing tuition inflation in higher ed, which will continue to hit tomorrow's students very hard. And that inflation arises from complicated institutional effects that aren't easily distilled into political sound bites. The uncomfortable truth is that I and many of my colleagues were able to complete college with ~zero debt only a few decades ago, and that is almost impossible today. Why?

In the coming weeks, I'll visit the various sources of tuition inflation in an informal way, and suggest reasonable ways to address them. and I pledge that nothng will be sacred. So stay tuned!

Friday, June 6, 2014

Education Market Enriches Apple and Microsoft

In this letter to the Chronicle of Higher Education, I express my concern about the huge profits taken by companies like Apple and Microsoft in the education market:

http://chronicle.com/blogs/letters/education-market-enriches-apple-and-microsoft/

Saturday, April 19, 2014

Looking forward to meeting @jackandraka...

Inspiring and energetic young inventor Jack Andraka will visit me and the students at #UVa next week. First he'll visit my nanoelectronics class, ECE 4140, and then he'll give talk and do some Q&A on Monday at noon in the dome room of the UVa Rotunda. It'll be a lot of fun, and I am expecting a lot of other young inventors to attend.

Biomedical engineer Alex Zorychta, himself a clever inventor whose team recently won a UVa Entrepreneurship Cup and secured substantial funding, has set up a FaceBook Event to help me publicize this event.

Given the source of Jack's inspiration, the topic of his research, and the venue for his talk, I thought it'd be appropriate to comment about Randy Pausch, the brilliant computer scientist who inspired so many people with his "Last Lecture" and "Time Management" during his final days here in Virginia. Here are the introductory ppt slides that I will present on Monday:

Keith Williams' intro slides for Jack Andraka's visit on Monday April 21st

k.w.