March 6th, 2015

The importance of definitions: BI writer Portia Crowe

I'm a bit concerned that BI is going to fix this, so I'm gonna just copy the way it is right now:

Title: Here's where the world's ultra-rich are moving — and where they are coming from

Read more: http://www.businessinsider.com/which-countries-the-ultra-rich-move-to-2015-3

"The world's ultra-rich are on the move.

In its 2015 Wealth Report, real estate consultancy Knight Frank took a look at the migration flows of the world's so-called high-net-worth-individuals (HNWIs) from 2003 to 2013.

As a destination, the UK far outpaced every other country, with more than 114,000 HNWIs migrating there during the 10-year period. (HNWIs are defined as having at least $30 million in assets.)

The US came in third place with 42,000 ultra-rich immigrants.

Note, the total number of HNWIs in the US (4 million in 2013) is still higher than the total in the UK (815,000 in 2013).

So where did the majority of those people come from?

Asia, mostly. About 76,000 HNWIs left China throughout the decade, while more than 43,000 took left India. According to the report, Singapore has been a popular destination for many of those emigrants."

What has happened here is pretty simple: Crowe has confused the UHNWI, of which there are only a few tens of thousands in the world [ETA: under 200K would probably be a more fair way to characterize this group. It's more than a "few tens of thousands". My bad.], with the HNWI, of which there are millions. She is using the _wealth minimum_ for UHNWI and the _total population_ of HNWI. This is actually pretty fucking awesome in so many ways, but mostly because it is practically designed to induce feelings of inadequacy (at the very least) and potentially a nervous breakdown (probably not) in the typical BI reader, who, judging by the articles anyway, is obsessively trying to figure out how to get richer, trying to understand who the super-rich are, and ranking themselves accordingly.

You can tell that there is _some_ sort of confusion, otherwise, the conclusion would be that there are as many people in the US with more than $30 million in assets as there are babies born every year. Another way to think about 4 million HNWI where HNWI = $30 million (<-- remember, this is a mistake! HNWI is only a million; UHNWI are $30 million) is that in order to be in the top 1% by wealth in the United States, you have to have _more than_ $30 million dollars. And we know that all of that is just kinda loony tunes. (Altho if it _were_ true, then soaking the top 1% for tax revenue would actually fix all of our problems. But it ain't true! Gosh durn it all.)

Her source is here:

http://www.knightfrank.com/wealthreport/2015/wealth-distribution/

"The global population of ultra-high-net-worth individuals, grew by almost 5,200 last year, according to data prepared exclusively for The Wealth Report by the analyst firm WealthInsight.

This latest increase means 65,000 people have joined the ranks of the ultra-wealthy over the past decade – arise of 61%. In total, there are now 172,850 individuals in this cohort who hold wealth totalling $20.8tr, an increase of $700bn during 2014."

If my math is correct (and it probably isn't), those 172K individuals average 120 million. Which means precisely nothing.

I'm still digging around in the underlying research trying to figure out how this particular error happened in the first place.

Update 1: More about the error!

http://luxurysociety.com/articles/2014/03/5-key-insights-from-the-2014-wealth-report-by-knight-frank

The main article here has it right, but on the bottom right there is a little section that has the same error (HNWI defined as $30 million, which is of course the UHNWI definition).

"The Wealth Report is Knight Frank’s annual publication covering wealth creation, the spending habits of HNWIs (defined as those with net assets of over $30m), prime property markets around the globe, the world’s most important cities, and the attitudes of the wealthy towards investment and their homes .

This year’s Report includes contributions from Wealth-X, Ledbury Research, The Economist Intelligence Unit and Real Capital Analytics, as well as Knight Frank’s research teams.

knightfrank.com/wealthreport"

Update 2:

Even Knight Frank can't keep it straight!!!

http://www.knightfrank.com/news/world%E2%80%99s-wealthy-set-to-grow-by-50-in-the-next-decade-01615.aspx

"The global number of High-Net-Worth Individuals (HNWIs is defined as someone with $30 million or more in net assets) increased by almost 8,700, or 5%, in 2012"

Update 3:

I explored the possibility that Knight Frank redefined HNWI. I think they did not.

http://www.knightfrank.co.uk/news/first-ever-knight-frank-prime-global-cities-index-q1-2011-results-0626.aspx

I would think it would be easier than this to keep straight the difference between $1 million in assets and $30 million in assets. It is not difficult to tell the difference between a penny and a quarter plus a nickel. It is not difficult to tell a $1 from a twenty and a ten. It is not difficult to tell three c-notes from a ten dollar bill. Etc. It is _even_ possible to notice the difference between a million dollar home and a thirty million dollar ... something or other. I know, a single letter difference introduces copy editing errors. But copy editing errors doesn't seem to be what we have going on, at least not by the time it got to BI.

Daily Activities: fitbit, swimming canceled

At A.'s IEP meeting, her speech therapist commented that A. was really interested in the speech therapist's pink fitbit and liked to tap it to see the lights. I commented that this was probably because both R. (my husband, A.'s father) and T. (my son and A.'s brother) had them. Later, I asked A. about the speech therapist's fitbit and A. said she liked it. So I foolishly asked A. if she wanted one and boy did she get excited about that idea and wanted to order one right away.

So we now both have pink fitbits (because I figured that would give us each a backup wrist band, since they each come with L and S size bands). Which means that the Omron is going to be retired after today. I was sort of hoping to avoid this stage, and go straight to the Apple Watch, but I'm okay with this, too.

The kids' swimming lessons were canceled but they both miraculously wanted to go with the babysitter today, so R. and I got two (shorter, but still) walks in today, in addition to my usual walk with M.

In which I feel compelled to comment on commenters on the Fed

Ya know, just walk away. I know I can't, but hopefully you have more self-control and sense than I do.

h/t Calculated Risk, quoting another blogger, Tim Duy, on the topic of some of the language used by the Federal Reserve to set market expectations for how the Fed might adjust the interest rate at which it loans money out ("Fed Funds Rate", currently .25% or 25 basis points).

http://www.calculatedriskblog.com/2015/03/duy-patient-is-history.html

For some years now, the Fed has said that it was gonna keep that rate real low for quite a while, and it has used some different language to convey that but recently, the key word was "patient". A little background. The Fed has _two_ _equal_ mandates. It has _two_ priorities. It has _two_ goals. One goal is price stability: prices are not supposed to rise (inflation) or fall (deflation -- I know you think falling prices are Teh Awesome, but when they happen, you are all freaking out with the rest of us, you've just blotted the memory out because it was So So Painful). The other goal is full employment. Once upon a time, it was believed that full employment meant basically every man had a job. Then some stuff happened and some other stuff happened, and now we have this theory abbreviated NAIRU, which is basically if every man or woman who recently had a job still has a job (that is, no recently employed person is currently looking for work), then wages rise and prices rise and wages rise faster and prices rise faster and That Is Not Good So Don't Let That Happen make sure there are always a few people looking for work. The actual fraction of people recently employed who should not be currently employed but still looking is subject to some debate, but it's around 5%.

Currently, the not-seasonally adjusted CPI-U for all cities in the US ex food and fuel as of January 2015 is .2%. The year-over-year not seasonally adjusted CPI-U is 1.6%. Just like we don't want everyone to have a job (cause that makes for inflation), we don't want to have zero inflation (because it can tip over negative and we're back into that thing you blotted out because it was So So Painful). The current target for inflation is 2%, which means that even year over year inflation is Too Fucking Low. But getting close. HOWEVER we are in the middle of a ginormous crash in the price of fuel and the result is that we are actually experiencing deflation right now in the headline number. Yes, you heard me, and you are actually happy about it because you can take all those $20 you used to pour into your gas tank and go spend them at Applebee's instead.

For CPI-U numbers go here: http://www.bls.gov/cpi/

So Tim Duy thinks that the Fed will remove "patient" from the language but not immediately raise rates. Other people are thinking RAISE RATES NOW NOW NOW and their argument is, when it is not totally crazy, fairly simple: we are experiencing asset inflation not captured by CPI-U. Basically, all the super yachts and art objects and condos in Manhattan and similar have gotten Way Too Expensive, because stock prices are up all over and people are borrowing against their portfolio to buy real estate and that just sucks for all the people who were hoping to get the same thing for less. That's _the sane_ argument for raising rates (doesn't sound sane? You may be on to something there).

Predictably, Krugman has a column out about asymmetrical effects of raising rates.

http://krugman.blogs.nytimes.com/2015/03/06/the-nairu-straitjacket-and-cromwells-rule/

Notably, he says something NICE about Greenspan (I know -- I was a little surprised, too):

"Circa 1994 it was widely believed, based on seemingly solid research, that the NAIRU was around 6 percent; but Greenspan and company decided to wait for actual evidence of rising inflation, and the result was a long run of job growth that brought unemployment below 4 percent without any kind of inflationary explosion."

Here's what I'm thinking. Don't do it in June, because everyone will be about to head out on vacation, so they'll make the absolutely most conservative decision possible and the economy will stall the fuck out. But if you do it in September or later, then you'll be raising a lousy 25 bp into the Christmas season and even if you cock it up completely, it'll probably be okay and you can undo it in January. And if we needed to do that, then it'll be great, and you can raise again early in 2016.

Also, I'd wait until after we top up all the storage to see what happens to oil prices when no one is buying that stuff to store it for later. Because that could be a wild ride for a bit there.

http://247wallst.com/energy-economy/2015/03/05/is-a-crude-oil-super-contango-in-our-future/

[ETA: Cushing to fill by end of May: http://www.argusmedia.com/News/Article?id=1001222]

It is not worth arguing this much about 25 bp. This is the most anticipated rate rise In the History of the Federal Reserve. It is going to be okay.

[Two more things to point out. While currently low gas prices have the simultaneously scary effect of pushing us into headline deflation and the simultaneously lovely effect of giving ordinary people extra money to spend on something they've been wanting for some time now, at some point fuel prices -- and food with them -- will rise once again. And then they won't have that extra money and the economy has a whole will Really Feel the Pinch, if we treated that extra spending as "inflation" inducing -- ha! -- and discouraged it. Second thing: the European Union is finally being sensible and trying to crawl out of what looks like the beginnings of another recession. We could help them a bit by allowing the Euro to continue to weaken and the dollar to strengthen, compatible with a 25 bp rise by the Fed. I think. Unless I got it backward, again.]

[USA Today's commentary seems to be leaning towards September. http://www.usatoday.com/story/money/2015/03/06/investing-a-sea-change/24454215/]