Monday, 15 January 2018

Google's bait and switch ad model

Google's youtube ad model is funny. On my account on roku/ amazon firestick I watch some finance and current affairs clips like TYT Network.  

Google then uses that 'profile' to sell ads, but most of the ads are shown when my kids are watching clips like Peppa Pig or Alphablocks and not during the grown-up clips.  Also known as a bait and switch. 

The ads are for things like ETP trading accounts, new Apha Romeo cars and recently bloggers promoting their 'crypto expertise'. 

 There is no way the ad buyers at Alpha Romeo are agreeing to spend money advertising luxury cars to pre-schoolers. The money is 100% wasted. They cant plausibly be aware of what is happening.

Google will know they are showing the grown up ads on kids clips. Usually the same clip is shown in succession until the ad budget is used up. 

You have to wonder what the legal status of this business model is and also when the buyers will figure out their money is being wasted.

Given the ad sales are via algorythm, presumably Google has figured out how to game the buyer algos. Im guessing 80% of the ad money is available for middle class grown ups with disposable incomes in middle class areas, where as 80% of the volume of youtube is kids.

Wolfstreet has covered this a few times.

Monday, 8 January 2018

Fixed income vol and wages.

Fixed income vol has not been lower since Nixon ended Bretton Woods. But need to see some wage inflation to turn it around and so far companies seem to prefer to not fill vacancies than bid up wages too much. That said with JLTs at 1.1 unemployed for every job ad something has to give at the margin and some wage inflation should rebound this year after six months had stagnation at the 3-3.6% range. 

Just looking at wages peaking and slowing in isolation you could be forgiven thinking its about to see the end of the cycle. However corporate margins are still fairly high desipte having fallen since 2012, and Fed rates are still very loose.

This current credit led cycle is clearly late in the day, but it may be possible to transition to a new cycle led by wages-inflation-capex without a recession in the middle. If the Fed keeps enough behind the curve and if enough companies facing margin pressure decide to invest instead of cut back. 

Bond market yields seem to primarily be handicapping the recession in the transition scenario, but capex seems to be bouncing and Trump is talking about an infrastrcuture deal. 

Hedgeye ran a clip yesterday on the cyclical upturn in a number of sectors including industry:


Friday, 29 December 2017

Reforming the House of Lords

I personally have had enough of the unelected liberals in the upper house. We only have one elected entity in the UK and its the house of Parliament. Not the government, not the PM, nor the house of Lords nor the head of state. 

Its all a historical anacronysm.

Instead we could have a 5 yearly elected upper house. Eligible candidates could be those with a Knighthood for public service or similar. We could have 300 or 400 full time Lords elected via regional list. The largest coalition could form the senior leadership and the lead of the house could be formal head of state.

The Windsors can lose all formal power and access to public funds and assets. 

Monday, 18 December 2017

The pain in grain falls mostly on the plain?

I have seen some people pushing agriculture as a theme recently, buying farms, thinking its an inflation hedge or something like that. It's the most basic of basic industries, manual labour and energy are two of the main input costs. So without profitable fixed price long term supply contracts to food brand companies or a significant structural cost advantage, such as being the largest producer in a country, its not a very good business. 

As this blog makes plain.

As an example, there is a pretty good interview with William Chase about how he went from a bankrupt potato farmer with a commoditised, low margin product to a successful Potato Chip producer with the premium Tyrrells brand.

Prices down 25% in Prime London and activity down 70%

Prices down 25% in Prime London and activity down 70%. Prices are still ridiculous though. 

There is a myth of 'all cash' buyers. But having worked in a private bank I can say many prime properties are mortgaged, at least up to a few million, maybe the £5m plus are mostly cash buyers. If you look at CML postcode data mortgage debt in prime areas is up 20-25% in the last 5 years or so, whereas in the West Midlands town I grew up in its actually flat to down despite a lot of houses having been built.

If this guy ends up in No 11 better swap the two up two down in West London for somewhere in the industrial belt.
 Image result for john mcdonnell labour gif

Friday, 15 December 2017

NY Fed inflation moves up to almost 3%

NY Fed's Underlying Inflation Guage that in addition to prices uses other macro factors pushed up to almost 3% in November as CPI prices have bounced this year. I think most people would recognise 3% inflation as being closer to the mark more than 1.5% Core PCE. After all smartphones may get 'hedonically' better each year, but they still cost the same.

Friday, 8 December 2017

UK trade stats, Brexit and economic rebalancing

UK October trade stats out. If we are running about £120bn trade deficit, mostly with China and the EU, at a 35% tax rate and say an average manufacturing wage of £35k, that is worth 3.4 million good quality jobs and £42bn of direct taxes. You would also get indirect jobs and taxes from the secondary effects of more domestic activity.

Not that surprising Germany doesnt want to change anything in the EU. When elections/ referedum do force the change, Germany will have a final demand crisis. Even 18 months after the Brexit vote it astounds me that politicians like May dont understand how it happened, while others like Corbyn get it but are forced by New labour MPs to argue for a continuation of the status quo. 

A wealthy country with a balanced economy should be running a surplus of a few % of GDP, so the actual delta on a rebalancing would be even bigger than the numbers above. 

It will happen as the economy rebalances to higher wages, high investment and saving and higher exports. Continuing negative real rates, tight employment and an infrastructure/ house building programme should push things in the right direction.

That change also represents a massive rebalancing of economic sectors in the UK, and similarly the US.