Housing Bubble?

 The chart below shows the yearly percent change in the Case-Shiller Minneapolis Home Price Index from 1990 to 2020 (using December to December numbers). The 10.2% increase in 2020 was big, but four of the 31 years analyzed had even bigger increases. The 2020 increase can still be viewed as unique, given that it happened during a recession. The other big increases happened in 2012, during the recovery from the Great Recession, and 1999 to 2001, around the time of the Dot-com bubble. The mean yearly change is 3.92%.

Meaning of The Killing of a Sacred Deer

This post contains spoilers for The Killing of a Sacred Deer.

Some have identified the meaning of Yorgos Lanthimos' movie The Killing of a Sacred Deer as detailing a tragedy of karmic fate. Steven caused the death of Martin's father; the movie has us watch the painful march toward an inevitable rebalancing of this transgression, despite all attempts to deny it or avoid it. In reality, the meaning is more complicated than this. The Killing of a Sacred Deer is about the hollowness of vengeance, and the search for meaning in familial relationships. The eating habits of the characters are key to demonstrating this. When we see Steven and Martin eating together at the diner, Steven asks Martin if he is going to eat his fries. Martin explains that he really likes fries and is saving them for last. Steven says that he does the same thing. Later in the movie, Martin is eating spaghetti, and recalls to Anna that he was once told that he eats spaghetti just like his father does. Martin explains that he later found out that everyone eats spaghetti the same way, and that he was even more disappointed by this realization than he was when learning that his father had died. Finally, at the end of the movie, we see the Murphy family eating at the diner while Martin sits at the counter. We see Kim eating her fries without a bite taken from her hamburger. It's easy to view Martin's role in the movie as a messenger from the karmic forces of the universe, but things might make more sense if we view him as more of a protagonist. Martin wanted Steven to replace his father. He took their commonality in the way they eat fries as a sign that such a relationship was warranted. Martin believed that with Bob dead, he would be able to take Bob's place in the Murphy family. The final scene illustrates the hollowness of Martin's vengeance. The family remains together, and Martin remains separate, sitting alone at the counter, and furthermore, vexed that Kim retains her place in the family despite the fact that she doesn't eat fries the way her father does. 

What is a WallStreetBets?

 The GameStop (GME) saga is certainly unprecedented, at least in some ways, but some have ascribed an anti capitalist narrative to it that really isn't accurate. I have actually followed the WallStreetBets Reddit sub since late 2019, back when it had fewer than a million members. While it may have some complaining of 'hedge fund manipulation', it is anything but anti capitalist. Political discussion is officially not allowed on the sub, but I would describe the users as generally pro Trump. Moreover, discussions on the sub are laced with pejorative use of the words 'gay' and 'retard', and the humor that dominates the sub would be found to be offensive by many on the political left. In fact, what permeates the sub more than anything else is an idolization of wealth. In fact, Martin Shkreli ("Pharma Bro") was supposedly active on the sub before going to prison. I can't confirm whether Shkreli really posted on the sub, but I can say that he is still well regarded by WallStreetBets members. I don't really state these things to say that I have any ill will toward WallStreetBets members, I think a lot of them are just young people who might be a little misguided, but my point is that the narrative that some people have ascribed to them is not accurate. 

The second point that must be made, and perhaps the more important one, is that people should seriously consider whether demanding that Robinhood allow unrestricted trading on GME is irresponsible. The most revered style of trade in the WallStreetBets community is the 'YOLO'. This generally means a high risk/high reward options play that someone places a large amount of money into. Often, the implication is that they are using all the money available to them. In some cases, this includes maximum margin, student loan money, and maxing out credit cards. Granted, this may just be talk, but in the case of GME, the fervor is so intense that I think many actually did this. I don't see any reason that Robinhood would want to protect hedge funds. The reasons they stated for restricting trading appear to be true. Ironically, the first time Robinhood and WallStreetBets were in the news together, it was because a WallStreetBets user had opened a box spread position that he didn't understand the risks of. It put him about $58,000 in debt, and Robinhood was harshly criticized for allowing such high risk trades on its platform. 

This brings me to the third point, the question of how this will all end. There are plenty of financial journalists doing much more in depth analysis than I have, but I will make a few comments about the future of GME. Firstly, many people have referred to a hedge fund going bankrupt, and this needs to be corrected. Melvin Capital and Citron both remain solvent after closing their short positions on GME. According to S3 Partners, the value of GME stock held short is about the same as it was before the short squeeze. Many on WallStreetBets are convinced that Melvin Capital didn't really close their position. This doesn't make sense, because then there would not have been a short squeeze. More likely, is that other hedge funds have taken new short positions. It is likely that the new short positions were taken by larger funds that have calculated the risk of another short squeeze, and feel confident. Given that the stock has gained about 600%, one could calculate that generating another short squeeze would require six times the money. Moreover, some of those GME holders might be paying 18% interest on the credit cards they used to finance their purchases. And of course, I can't end the discussion without looking at GameStop's fundamentals. I compared GME to four companies with very similar market capitalizations. (Total Equity is most recent quarter, net income is last reported annual net income)

Company                          Market Cap   Total Equity  Net Income

Old Dominion Freight Line (ODFL)    22.8B        3.17B         616M

SVB Financial Group (SIVB)          22.7B        8.22B        1.21B

PG&E (PCG)                          22.7B        20.8B       -7.64B

Gamestop (GME)                      22.7B         332M        -471M

Coupa Software (COUP)               22.4B         413M       -90.8M

Surprisingly, GME doesn't look too bad in this group, but at the rate it is loosing money, total equity will be negative before the end of the year. 

There is another discussion that could be had about whether short selling is actually bad. The upward pressure when short sellers buy to cover counters the downward pressure from the short sale, so I don't think long term investors should be concerned about shorting. In the end, companies don't go bankrupt because of short selling or a decline in stock price generally. Companies go bankrupt because people stop buying their products.

The Bachelorette - Season 16

I've posted a lot about politics and economics on here, and I thought I should switch to something more serious: predictions for the current season of The Bachelorette. Tayshia has just replaced Clare, and as of yet has not eliminated anyone. 

 Episode 6 updates:

I guess I was expecting Ed, Noah, and Demar to be gone earlier, but the bracket still looks good.

Episode 7 updates:

I still have no upsets in the bracket, but I'll really need Ed, Noah, and Demar to go home this week to maintain that status.

2016 Electoral Analysis

I again made a chart designed to help estimate the likelihood of the incumbent president's reelection. The percent vote margin in the 2016 presidential election is shown for each state (note that a few states separate Congressional Districts in the electoral process). The states are shown in order with the strongest margin for Clinton on the left, and the strongest margin for Trump on the right. The number after each state name is the number of electoral votes for that state. Trump's margin of victory was 74 electoral votes, meaning that half that number (37) electoral votes will need to move from Trump to the Democrat for Trump to lose in 2020. Based on this data, this would most easily happen with three states (Michigan, Pennsylvania, and Wisconsin) moving from Trump to the Democrats. Without looking at any polls, I would estimate that this is a possibility. Trump won these states largely because of promises of manufacturing and mining jobs. While Trump did achieve a lot of economic growth and low unemployment before the pandemic started, the largest job growth was actually in healthcare and education. Mining and manufacturing actually continued to lose jobs. On the other hand, the Democrats have continued to blunder their way through the election, showing no signs of a winning strategy, and failing to identify galvanizing candidates.