Sierra Canyon High School

15-year-old Lebron James Jr. goes there, and his games will be on ESPN 15 times this year, even though he is mainly a role player and not a star.  Here is more:

What Sierra Canyon strives to provide is controlled madness, controlled chaos. It’s a school not just familiar with athletic fame but celebrity, which has complexities beyond what even LeBron [Sr.] had faced.

For example, Sierra Canyon doesn’t attempt to restrict players’ social media. Players are put through a four-week course to educate them about its benefits and dangers. But Bronny is permitted to say whatever he wishes to his 3.7 million Instagram followers. Stanley and Pippen Jr. had hundreds of thousands of followers themselves.

“We don’t want to stop any of our players from building their brands,” Chevalier says. “They may be able to use that later in life, whether they make it as basketball players or something else.”

LeBron James Jr., by the way, plays on the same team as Zaire Wade, son of Dwayne Wade, LeBron’s former star teammate from the Miami Heat.

Here is the ESPN article, here is a related NYT piece.

Another take on q-factors and investment CAPM

Standard consumption CAPM applies a constant discount rate across all stocks, but surely that is odd if different companies face different costs of capital, as indeed they do.  Take the companies with a higher cost of capital — in equilibrium they also should have higher rates of return as an offset.  And those are (usually) the small stocks, and indeed we know there is a small stock premium (sometimes better expressed as a lower market to book premium) in the finance literature.

But that premium comes from the supply side arbitrage conditions, not from some odd properties of portfolio risk.

You will note that “the investment CAPM says that controlling for a few characteristics is sufficient to explain the cross section of expected returns.”  Theory advocates claim that investment CAPM indeed passes that test: “…most anomalies turn out to be different manifestations of the investment and profitability effects.”

That is all from this Lu Zhang paper.  Here is my earlier post on q-factors and investment CAPM, still not sure I understand it!

Boris Johnson sentences to ponder

He has done what no other conservative leader in the West has done: He has co-opted and thereby neutered the far right. The reactionary Brexit Party has all but collapsed since Boris took over. Anti-immigration fervor has calmed. The Tories have also moved back to the economic and social center under Johnson’s leadership. And there is a strategy to this. What Cummings and Johnson believe is that the E.U., far from being an engine for liberal progress, has, through its overreach and hubris, actually become a major cause of the rise of the far right across the Continent. By forcing many very different countries into one increasingly powerful Eurocratic rubric, the E.U. has spawned a nationalist reaction. From Germany and France to Hungary and Poland, the hardest right is gaining. Getting out of the E.U. is, Johnson and Cummings argue, a way to counter and disarm this nationalism and to transform it into a more benign patriotism. Only the Johnson Tories have grasped this, and the Johnson strategy is one every other major democracy should examine.

Here is more by Andrew Sullivan, interesting throughout.

Taiwan fact of the day?

This year, the World Bank told current and prospective employees of Taiwanese nationality they must present Chinese travel documents in order to maintain or pursue employment.

Here is more.  You will note “Taiwanese law prohibits citizens from maintaining dual citizenship with China.”  However upon responding to an inquiry from Axios, the World Bank senior leadership seems to have walked back this policy (for now?).

q-Factors and Investment CAPM

The new paper by Lu Zhang with that title strikes me as potentially important, though I am just starting to grasp the main argument.  So far I understand it as such.  The great weakness of finance theory has been that it assumes asset pricing and the production side of the economy, and production adjustments, are entirely separable. But maybe they are not, and in a way that matters for asset pricing anomalies.

Let’s say that an asset price rises too high, above its fundamental value.  The old story was that arbitrageurs sell short and force the price back down.  The new story is that investment (sometimes) pours into the overpriced firm, increasing the number of shares and thereby pushing the price of those shares back down.  (The opposite may hold for underpricing.)

But sometimes the new investment does not pour in, the overpricing remains, and that can give rise to eventual asset pricing anomalies.  Such anomalies in fact arise from imperfections on the investment side, and that explains why asset price anomalies a) tend to cluster around stocks of a common kind in common sectors, and b) do not last forever, because the investment inflexibilities are not forever either.  In any case, the Q-factor approach, unlike consumption CAPM, explains where the anomalies come from (and why they might end).  Consumption CAPM is sadly quite deficient when it comes to explaining cross-sectional variation in returns across stocks.

Most generally, this “investment CAPM” theory is pricing assets from the perspective of their suppliers — firms — rather than their demanders.  Doesn’t this sentence make some sense to you?: “Tim Cook most likely has more impact on Apple Inc.’s market value via his operating, investing, and financing decisions than many Apple Inc. shareholders like me via portfolio decisions in their retirement accounts.”

You will note that when expected investment is high/strong relative to current investment, the model predicts “momentum and Roe premiums.”

I still don’t understand most of this!  And apologies to the author for any misstatements.  In any case I am intrigued.  Here are further papers by Zhang on this topic.

The mattress-stealing, luxury hotel culture that is German

Some hotel guests wake so rested at luxury properties that they purchase the same kind of mattress they slept on. Then there are those patrons who steal them.

At least 48 mattresses have disappeared from guest rooms in the more than 1,100 four- and five-star European hotels surveyed by German review site Wellness Heaven. Guests at five-star hotels were 8% more likely to take mattresses, perhaps because they were more comfy, according to the survey.

That’s far less than the nearly 900 towels or 753 bathrobes that hotels say went missing. Hangers, pens, cutlery, cosmetics and blankets were among the other most commonly lifted items. Personal electronics and small appliances, including tablet computers, hair dryers, coffee makers and TV sets were also reported missing from hotel rooms across the properties.

…He [Keilmann] estimates that roughly $60 million worth of mattresses are lifted from hotels worldwide each year.

Here is the full story, and it seems you can get away with such thefts because the hotels are reluctant to report them and get the police involved.  (By the way, might some of those mattresses be the famous German Schlafsacks?)

For the pointer I thank the excellent Michael Rosenwald.

A simple word in defense of David Cameron

I remain a supporter of Remain, for reasons I will not recap here, but I am also a realist and I recognize that a commitment to the European Union requires a substantial commitment from the population, more than a mere fifty percent and in the United Kingdom we do not see that close to that.  You probably know that the Tories seem to have won a smashing victory in today’s election, and by campaigning on Brexit as their main issue.  And you can’t just blame Corbyn — his ascendancy and leadership were endogenous to the broader process, and getting rid of him to reverse Brexit it turned out was not the priority.

So do you know who looks much better in retrospect?  Yes, David Cameron.  After the initial referendum I heard from the usual elites the notion that Cameron committed some kind of inexplicable, aberrant error by allowing the referendum in the first place.  That notion is much harder to entertain after today.  Even if you are pro-Remain, we should now see that either the referendum, or something like it, was indeed a necessary step in British politics.  Cameron himself saw this, and thought that a later referendum, run by an EU-hostile Tory government, could in fact go much worse than what he chanced.  So it seems with hindsight that Cameron was pretty prescient, even if he did not get what he wanted.

We need more indices

That is the upshot of my latest Bloomberg column, as the Doing Business index, PISA scores, and the Corruption Perceptions Index have been highly influential.  Here are a few of my further requests:

These successes raise a question: Which other indexes might be useful? Think of the suggestions that follow as a kind of Christmas wish list.

How about a loneliness index? David Brooks has argued that America faces a crisis of loneliness, making us unhappy and impoverishing us spiritually. I find these claims plausible, especially since the median U.S. household size has been shrinking. Still, just how bad is this problem? One recent study found that American loneliness has not been rising lately, and that loneliness increases only after people reach their early 70s…

A stress index for Americans another related idea: Just how much do our lives focus our attention on our worries rather than on our joys and hopeful expectations?

There are less emotional concerns as well. How about an infrastructure speed index? I worry about bureaucratization and the slow pace of building important public works. Construction on Manhattan’s Second Avenue subway line, for example, started in 1972, paused, resumed in 2004, and was finally completed (the first phase, anyway) in 2017. In contrast, construction of the core New York City subway system, with 28 stations, began in 1900 and finished in 1904. Similarly, construction of the Empire State Building took only 410 days.

Why do so many U.S. infrastructure projects today take so long? And if the process of improving and reshaping the environment to further human progress is now so much slower, doesn’t it make sense to try to measure this decline for the purpose of eventual improvement? Given the need for a greener energy infrastructure, this is a matter of the utmost urgency.

Speaking of energy infrastructure, how about a severity index for climate change and associated problems?

There are further noteworthy suggestions at the link.  Which indices do you wish for?

Thursday assorted links

1. Markets in everything: “New Zealand has ordered about 1,290 square feet of human skin from the United States to help treat patients severely burned in Monday’s volcanic eruption on White Island, as emergency workers scramble to find at least nine people still missing amid concerns the volcano could erupt again.”

2. What David Perell learned this year.

3. No-Castling chess, a new variant from Kramnik.

4. Old MR post on the Junker fallacy.  A lot of claims about stock buybacks commit this fallacy.

5. “My boss lets’us book hangover days.” (UK)

6. New results on Millennium Village Project.

7. New results on health insurance saving lives (NYT).

The macro frontier (not your grandpa’s Keynesian economics, or is it?)

We argue that the input-output network of investment goods across sectors is an important propagation mechanism for understanding business cycles. First, we show that the empirical network is dominated by a few “investment hubs” that produce the majority of investment goods, are highly volatile, and are strongly correlated with the cycle. Second, we embed this network into a multisector model and show that shocks to investment hubs have large aggregate effects while shocks to non-hubs do not. Finally, we measure realized sector-level productivity shocks in the data, feed them into our model, and find that hub shocks account for a large and increasing share of aggregate fluctuations. This fact allows the model to match the decline in the cyclicality of labor productivity and other business cycle changes since the 1980s. Our model also implies that investment stimulus policies increase employment throughout the economy but have unequal effects across sectors.

That is from a new NBER working paper by Christian vom Lehn and Thomas Winberry.

Martin Gurri on the current Age of Revolt

The question, for me, is whether these repeated crises of authority at the national level represent a systemic failure.  After all, the disorders of 2019 are the latest installment in a familiar tale.  Governments long ago yielded control of the information sphere to the public, and the political landscape, ever since, has been in a state of constant perturbation.  From the euphoria and subsequent horrors of the Arab Spring in 2011, through the improbable electoral victories of Brexit and Donald Trump in 2016, to last year’s violence by the Yellow Vests of France, we ought to have learned, by this late hour, to anticipate instability and uncertainty.  We should expect to be surprised…

This would be a good time to bring up the pessimistic hypothesis.  It holds that the loss of control over information must be fatal to modern government as a system:  the universal spread of revolt can be explained as a failure cascade, driving that system inexorably toward disorganization and reconfiguration.  Failure cascades can be thought of as negative virality.  A local breakdown leads to the progressive loss of higher functions, until the system falls apart.  This, in brief, is why airplanes crash and bridges collapse.

For systems that are dynamic and complex, like human societies, outcomes are a lot more mysterious.  A failure cascade of revolts (the hypothesis) will knock the institutions of modern government ever further from equilibrium, until the entire structure topples into what Alicia Juarrero calls “phase change”:  a “qualitative reconfiguration of the constraints” that gave the failed system its peculiar character.  In plain language, the old regime is overthrown – but at this stage randomness takes charge, and what emerges on the far side is, in principle, impossible to predict.  I can imagine a twenty-first century Congress of Vienna of the elites, in which Chinese methods of information control are adopted globally, and harsh punishment is meted out, for the best of reasons, to those who speak out of turn.  But I can also envision a savage and chaotic Time of Troubles, caused by a public whose expectations have grown impossibly utopian.  The way Juarrero tells it, “[T]here is no guarantee that any complex system will reorganize.”

Do read the whole thing.

Sweden recovers in the PISA tables

The 2013 edition of the survey was a wake-up call for Sweden, which experienced a sharp drop in the results of 15-year-old students, pushing them below the OECD average and sparking debate about the country’s schools.

But Tuesday’s release of the 2018 Pisa ranking suggests that Swedish schools have further improved on a recovery that started with the 2016 edition, with above-average scores in reading, mathematics and science.

The report notes that Sweden is back at levels observed in early rankings, despite a rapid increase in the proportion of immigrant students, who tend to score below native-born students, in recent years. In 2018 around 20 percent of students in Sweden had an immigrant background, up from 12 percent in 2009.

Here is the full story.  You will note that way back when people blamed the 2013 PISA score plunge on Swedish school privatization and vouchers, and also it led to a lot of fury about immigrants.  Others blamed “progressive schooling” techniques.  In any case, the Swedish performance has recovered notably and is back to its previous levels.  Don’t overreact to particular data points, people!  Of course it remains possible that the next measure in three years will show renewed decline, but do not overtheorize based on very limited trends.

Wednesday assorted links

1. Turn almost every object into a data storage unit?

2. China threatens Faroese prime minister.

3. The roots of eastern European backwardness.

4. Atif Mian on the economy of Pakistan (NYT, note that Mian commits the “Junker fallacy,” namely he argues that land speculation on net drains funds from business investment — a basic mistake in economics).

5. 98 percent of Bougainville votes for independence from Papua New Guinea.