Office Politics: Religious Freedom and Kim Davis

For anyone that’s been otherwise distracted, Kim Davis is the Kentucky county clerk that was thrown into jail yesterday for failing to issue civil marriage licenses (to anyone, gay or straight) in the wake of SCOTUS’ big “Love Wins” ruling.

Her (third/fourth) husband has likened her to “biblical figures” for her position on the sanctity of marriage. Presumably, he doesn’t mean Jezebel.

Anyway – now, she is experiencing a very literal conviction of conscience.

And this is my question (it’s been my question for some time):

“What on earth does a civil marriage have to do with a religious one?”

We are talking about a social contract here, issued by a secular institution, governed by a set of civil laws, that entitles a partnership to certain legal rights and tax privileges.

There is no religious belief at play. There is no one compelling a priest or elder or rabbi or imam to perform a sacramental ceremony.

This is simply a legally-recognised binding that gives any man or woman the right to sit by their spouse’s bedside during times of illness, and prevents them from being kicked out of their homes by their partner’s family in the aftermath of a death.

There is no religion in this. It is simply “render unto Caesar”, etc.


If someone were to feel that this was a crisis of religious conscience…


If you have religious objections to the death penalty, then best you don’t work as an executioner.

If you have religious objections to blood transfusions, then best you don’t volunteer for blood donation groups.

If you have religious objections to unveiled women, then best you don’t freelance for Victoria’s Secret.

And if you have religious objections to same-sex marriage, then best you don’t officiate as a civil servant, bound under oath to issue civil marriage licences.

These are obvious things.

What you don’t say is:

“I want to be a martyr for the cause, but not pay for it by being unemployed”


“My religious beliefs entitle me to earn a salary for not doing this job.”

bitch please

If you want to take a moral stand, then you must pay for it.

That is how these things work.

Otherwise, you are not a martyr.

You are just someone that collects $80,000 a year for being wilfully incompetent.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

Zimbabwe, Deflation, and the Rand

Bloomberg journalists published an article yesterday entitled: “From Hyperinflation to Deflation, No End To Zimbabwe’s Decline.”

The big opener:

Consumer prices have fallen every month since March 2014, dropping 2.8 percent in July from a year ago. That’s a far cry from the days when prices rose an average of 500 billion percent at their peak in 2008, according to estimates from the International Monetary Fund.

The graph:

But then, this paragraph made me sigh:

Deflation comes with its own problems. It discourages consumers from spending as they anticipate prices will fall further, while declining margins reduces the incentive for businesses to invest and hire workers. That, in turn, limits wage increases, curbs tax receipts and worsens corporate and government debt burdens.

So here is my problem: deflation is not such an issue if the country more dependent on imports and diaspora remittances, than it is on local production and wages.

And if we’re looking for a likely culprit for the deflation, then we don’t need to look further than the depreciation of the Rand.

Consider this:

Then, specifically, what is being imported from South Africa:

To contextualise that:

  1. Zimbabwe’s economy, back in 2012, was around $12.5 billion (as measured by GDP).
  2. Total consumption (household and government consumption) was around $14 billion.
  3. Total imports in 2012 were $7 billion (that’s half of total consumption).
  4. Of that, South African imports were $3 billion (that’s 24% of GDP, and over a fifth of total consumption).
  5. And those imports fell into almost every class of consumption good.

The important point: a fifth of Zimbabwean consumption is South African goods.

Then, the Rand since March 2014:

The cost implications of that:

  1. Say a good for import into Zimbabwe cost R100.
  2. Back in mid-2014, the USD cost of that was $9.52
  3. Today, that same good would cost $7.84.
  4. That is: South African imports are around 18% cheaper than they used to be.

So let’s extrapolate that out:

  1. Take consumption of $14 billion.
  2. A fifth of that gets an 18% discount.
  3. So what was once $3 billion now costs $2.46 billion.
  4. New total consumption is now $13.46 billion ($11 billion + $2.46 billion).
  5. Oh – look at that. 4% deflation.

So actually, 2.8% deflation isn’t too bad.

What I’m trying to say is: if the deflation can mostly be attributed to importers lowering their margins in order to compete with the grey trade, then there is no loss of jobs linked to that deflation. That is, the margins can come down because the margins were increased by lower import costs to begin with.

The Bigger Problem

Unfortunately, while the depreciation of the Rand might neutralise the deflation side of things – it is causing severe liquidity problems within the Zimbabwean economy.

In particular, it’s a problem of remittances.

I’ve written about them before (How is Zimbabwe doing it?), but let me repeat it here, and start with some quotes from the 2014 Labour Force Survey released by ZimStat (Zimbabwe’s National Statistics Agency).

In a slightly tautologous moment, this:

The 2014 LFCLS showed that 81 percent of the working age population was employed. The national employment to population ratio stood at 81 percent.

Which doesn’t sound so bad. Until two paragraphs later, when:

Ninety-four percent of the currently employed persons 15 years and above were informally employed. Ninety-eight percent of the currently employed youth aged 15 – 24 years and 96 percent of currently employed youth aged 15 – 34 years were in informal employment.

Just to be clear, 94% of the supposedly-employed are only “employed” because they are considered “economically-active” in the “informal market”.

And that’s government statisticians admitting that less than 5% of Zimbabwe’s working age population are formally employed.

So where is the consumption power coming from?

Well, it’s being heavily subsidised by remittances.

Here is the chart that Bloomberg gave us in their article:

zimbabwe remittances vs humanitarian assistance

From what I’ve read, that 2014 figure is far too low an estimate – and in any case, that is just remittances through formal banking channels. Once you take into account the fact that a portion of imports are actually “remittances in kind”, some estimates point to a total remittance figure of around $3.5 billion per year.

Now consider that 88% of the Zimbabwean diaspora live and work in South Africa.

And they are facing that same 18% discount for every R100 that they try to send home.

In fact, three years ago, the exchange rate was R7.50. So where that R100 was once arrived as $13 – today, that same R100 would arrive as $7.40. Nearly half what it once was.

So how is that for a liquidity crisis? You have a country that depends on remittances – and the USD value of remittances from the country that houses 88% of the diaspora has halved over the last three years.

Either way, the weak ZAR isn’t helping.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

High Frequency Trading: To Blow Your Mind

When it comes to share prices, one thing that has always bothered me is how influential one trade can be on the market.

I mean – we assume that the market is efficient enough that the last traded price is the “value” of the share in question. But that is all kinds of problematic.

Example: if I have thousands of shares in a company to sell, and I have to liquidate in a hurry, I can take those shares to the market, sell at a discounted price in order to close out the trade ASAP, and move the entire market. The price that I accept will be the price that the market registers as the current value of the share.

At this point, I’ve changed the value of a number of important stock indexes: the overall market index, the industry-specific market index, and to a greater or lesser degree, every index that has that particular company or industry or stock market in its underlying composition.

But that now has repercussions. If you’re in the US, ±27% of all equity investments are tied up in index-tracking funds. So now those funds will have to re-balance their underlying investments in order to take into account the revised indexes that I just affected. This will result in some selling of shares. Which will affect the price. Which will affect the index. Which will affect the re-balancing until the price changes are small enough to fall within the acceptable limits of tracking error. #loops

Into this mix, now add algorithmic traders, who are busily watching the markets for statistical arbitrage and technical-signs-of-momentum. Some algorithms will see my trade, and interpret it as a potential sell-off starting, and starting selling-off. Other algorithms might see the trades of the momentum algorithms, and see it as a chance to engage in some statistical arbitrage by going short on the exchange-traded funds that are linked to the index whose values will drop come rebalancing time. Which will affect the index-tracker funds even more.

Multiply that ad hysterium.

I realise that I’m applying the “butterfly-wing→hurricane” scenario here – and in practice, my trades are going to be offset by other trades that are happening at the same time.

However, these are ebbs and flows. And I think that we sometimes underestimate the potential feedback loops that the current trading environment is capable of generating.

Specifically, I feel this lingering disquiet around the interplay of high-speed algorithmic trading volumes, and growing investments in passive index-tracker funds. Because: half the market trades take place on autopilot, while a quarter of the funds are voluntarily blind.

Anyway. That aside, here are related-things to be aware of:


“Some firms allow algorithm programs to learn and create their own rules. However, the firms are unaware of the rules the programs create.”

But don’t worry, markets are efficient.


For more: last week Friday’s post.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

Mutual Funds and Money Managers – bad words

I’ve been asked what the difference is between a mutual fund and a unit trust. And also, what the difference is between a money manager and an asset manager.

The answer is: geography.

Mutual funds and money managers can be found on Wall Street. Unit trusts and asset managers can be found in Cape Town (where most of South Africa’s asset management houses have elected to base themselves).

That is: they are basically the same thing. As I understand it, the terminology is just legal jargon, where “unit trusts” and “mutual funds”, etc, are legally-defined terms in the legislation that regulates them.

I’ve written about unit trusts here, here, here and here.

For mutual funds, here is a Monday morning infographic:

Similarities aside, I think that “money manager” is a terrible term, and leads to all kinds of bad assumptions.

Like this Quora question:

Screen Shot 2015-08-31 at 9.13.25 AMAnd if you’re interested, I did post an answer:

Screen Shot 2015-08-31 at 9.14.16 AM

The point is: money and assets are two financial-economic concepts that should not get conflated.

Money managers manage wealth and/or investments. Those can sometimes take the form of cash (or “money”). But for the most part, they do not.

To illustrate, I asked Google how much money there is in the world. It answered:

Screen Shot 2015-08-31 at 9.23.15 AM

So let’s take the high-end estimate of $25 trillion. In the world.

But “money managers” invest in stocks and bonds (and other types of asset).

So the next question is – what is the market capitalisation of all the world’s stock markets? Helpfully, Bank of America Merrill Lynch recently released a map of the world by market capitalisation. Here it is:

world map by market capitalisation

In total, that’s around $39 trillion worth of equities.

Then bonds. Well let’s start with national debt (owed to governments, so government bonds). There is a website called, which will helpfully calculate the amount of global debt for you as you watch. Since I started writing this paragraph, the world has apparently accrued $9.156 million in interest charges. That was up to $9.982 million by the time I reached the end of the sentence. It’s all very alarmist – but as you may know, I’m not that alarmed.

Here is global government debt:

As at 9.29.12AM this morning

As at 9.29.12AM this morning

So about $61 trillion in government debt.

But there is more than just government debt – there are corporate bonds and corporate commercial paper and utility bonds and utility commercial paper and asset-backed-securities and a whole host of fixed-income assets to take into account.

According to the Independent this morning, as of mid-2014, total global debt was sitting at around $200 trillion.

So let’s just take that as a basic benchmark:

$200 trillion debt + $39 trillion equities IS MUCH BIGGER THAN $25 trillion cash

And that’s not including real estate, commodities, private equity, or derivatives.

Of course, there is some feedback in this – and plenty of double-counting. But the double-counting takes place on both sides.

My main point is: “money” is dangerous stuff. Sometimes, we call wealth “money”, and sometimes, we call cash “money”.

But those are two very different things. And if you get too caught up in keeping all your wealth as cash in a mattress, then that’s empirically a sure-fire way to lose it.

PS: that debt clock? Now up to around $63 million. #stillnotalarmed

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

Are Algorithms Breaking The Market?

For anyone that doesn’t already know this, the world of trading is now split between two types of trader:

  • Humans; and
  • Robots (AKA the algorithmic traders AKA algos).

Robots…trade on new data at almost the speed of light. And “expect to reach those constraints in the next 18 months“. Back in 2010 when the guys at Chi-χ first said such a thing.

Humans, meanwhile, are still waiting for the news to come through on the email.

In the modern era, it seems that “reading things” is the new “postal service”. We’ve innovated ourselves into vestige.

Which seems like bad news. Here’s a history of the algo-high-frequency-traders:

My two favourite parts (from 2013):

“A server farm situated in Washington DC can transmit data at the speed of light to New Jersey via superfast microwave transmission service.”


“September 18th 2013: At 2pm, the Federal Reserve shocked the financial markets by announcing not to scale back its level of support to the economy. An estimated $600 million in assets changed hands in the milliseconds before other traders in Chicago could learn of the news.”

That, right there, is the real dystopian science-fiction. Because all that trading took place in the milliseconds before other robot traders in Chicago could learn of the news. Ne’er mind the old human codgers who were still seconds away from even realising that there was news. By order of magnitude, that’s millennia.

So to keep this sci-fi analogy going, from an “algo” perspective, all human trading takes place in very slow motion. And in the time between a human trader placing an order and confirming the trade, the algos have nimbly swept in, had a good sniff around, painted a moustache on the human trader’s face, and left wearing his pants.

In practice:

  1. A human trader places a bid-order (buy-order) at a certain price.
  2. The algos sweep through the market ahead of the price, buying up any ask-orders (sell-orders) that are priced below the bid-price.
  3. The algos then come back and sell to the human trader at his maximum bid price.

Theoretically, the algos take on no risk. They’ve basically stolen the bid-ask spread, all the while confident that they can buy and sell the shares before the buyer and seller realise that they’ve been dealing with a middleman.

But the algos haven’t stopped there. They now trade on all kinds of information, with pre-programmed trading strategies, and with an eye on much larger prizes than just the measly bid-ask spread.

The Good News

I think we’re beginning to realise that the algorithms may be fast, but they’re only as good as their coding. Coding that was designed by software programmers with human minds that (I expect) cannot comprehend the infinite multiplicity of feedback loops that you get when you have hundreds upon thousands of literally lightening-quick programs buying and selling on the back of different parameters in concert.

Sometimes, you get flash crashes that have come and gone before the human traders even realise that anything was happening. The only reason they know it happened is because they see signs of it in the day-trading graph.

And other times, you see the market break. Like this week past.

Here’s a screen cap from my new favourite article on the “August 24-26 market crash” that seems to have already ended (?):

The take-home message: the algorithms can get incredibly stupid.

In fact, they’re almost human.

For more, read this article from Matt Levine: “Algorithms Had Themselves a Treasury Flash Crash.” I LOL’ed and I won’t apologise for it.

Happy Friday!

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at

The Debt That Will Never Be Repaid

Some time ago, I wrote a post in which I ranted about economies not being households (“ECONOMIES ARE NOT HOUSEHOLDS“). I have another questionable (and related) paradigm that I’d like to offer up for consideration.

Here is the typical narrative: “Government debt is like a mortgage bond – it all needs to be repaid!”

Here is why I’m starting to suspect that this is wrong (and bear with me, I am going somewhere with this, but it might take me a while):

The Goal Of A Well-Financed Life

My friends and I are in the honeymoon golden age of being adults. We’re just about done with being in our twenties, with all the dogsbody positions and the studying; and we’re not quite yet at the point of needing to fund private high-schooling and university costs for multiple children (thus far, the babies that have joined us are mostly cute toddlers who are just learning to walk/talk/use the potty).

I’m calling it the “honeymoon golden age” because there seems to be more disposable income to spend on fun holidays, and there is the occasional bonus which is nice. And all that adds up to: conversations about what to do with one’s savings.

I have these conversations quite often – mainly because of this blog. And I have a few things that I point out fairly frequently:

  1. Your financial advisor has strong incentives to push you into safer investments than you need – because this means that you’re not panicking about losing your money, and he’s getting fewer phone-calls during weeks like the one that we’re in.
  2. You are forgetting (and he is discounting) that by far your greatest asset is your earnings power – and it’s only beginning to be converted into other kinds of asset. If you really want to offset risk, you should be taking on more risk, not less.
  3. Stop worrying so much about the capital. If we’re having this conversation, then we are talking about money that you are never going to spend.

It’s that last one that I want to re-iterate.

What Are Savings?

To generalise broadly, savings mean different things to different classes of people:

  • The Poor – do not generally have savings. And if they do, it’s to cover big expenses like funerals, medical costs, etc.
  • The Middle Class – have some savings which go toward future non-essential expenses (like holidays and private-schooling for their children), and possibly some untouchable savings like a pension fund to cover a future retirement that will hopefully be comfortable.
  • The Rich though“live off the interest”.

And again, it’s that last one that I’d like to re-iterate. The wealthy…have passive income. They’ve reached a point where they have accumulated enough capital that the return on that capital:

  1. Pays for their lifestyle; and
  2. Adds to their already-accumulated capital.

And where does this capital end up in order to earn its returns? In government bonds. And equities. And other investments.

The point is, when people say things like “What happens when the government debt can’t be repaid?” – one appropriate response is “Who said anything about having it repaid?”

Once you’re above a certain income bracket: the money that you are saving today is not being saved so that you can spend it tomorrow. It is being saved so that, one day, you can live off the interest. And if that money gets repaid, you’ll need to find someplace else to put it so that you can continue earning the interest.

And given that much of the world’s wealth is owned by the wealthy, we’re talking about some fairly indefinite capital investments (in government debt, equity markets, property, etc).

Which is the reason why we can be less concerned about the “global debt explosion” that many of the alarmists like to throw out into the twitterverse. It’s almost certainly less worrying than it first appears.

PS: while I was doing some background googling around this, I found a Paul Krugman op-ed which might be worth a look: “Nobody Understands Debt

Happy Thursday.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at