Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week.  The links are mostly market related, but there are some other interesting subjects covered as well.  We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

Investing

Is the Yale Model Broken? by Alexandra DeLuca (AI-CIO)

A sure-fire method of outperforming used to involve some exposure to stocks and bonds but much heavier bets on illiquid private investment. While still working for some allocators, cheap beta and a dearth of alpha are turning many away from that angle. [Link]

Hedge Funds Get Big or Go Home by Lisa Abramowicz (Bloomberg)

A basic summary of the hedge fund industry landscape, with large firms attracting more flow of investment capital and charging less. [Link]

A Better Theory to Explain Financial Bubbles by Noah Smith (Bloomberg)

An overview of the “extrapolative expectations” theory of asset pricing, one that breaks the traditional assumption of modern economics (rational expectations). [Link]

Ratings

S&P Just Demolished One Big Distinction Between Emerging and Developed Markets by Sid Verma (Bloomberg)

The stability of developed market politics has always been a reasonable argument for higher ratings on bonds issued by those governments. But now, S&P sees little distinction from the chaotic evolution of politics in rich countries versus those in faster-growing, lower-income nations. [Link]

AAA Grades Return for Securities Backed by Riskier Mortgages by Matt Scully (Bloomberg)

In a significant post-crisis landmark, bonds linked to newly-issued mortgages without a government guarantee are being given a AAA rating. However, borrowers are hardly the subprime customers whose loans were stuffed in MBS in the mid-2000s; the average FICO for this deal is 712. [Link]

Foreign Affairs

What’s Bundespraesidentenstichwahlwiederholungsverschiebung? (BI/AP)

Austria’s word of the year, struck in famously compounding and confounding German, is “postponement of the repeat of the runoff of the presidential election”. [Link]

Hayao Miyazaki blasts animators on NHK over AI-generated ‘zombie’ clip by Roland Schichijo (Tokyo Reporter)

In a remarkably candid response to an animator’s experiment, famed Japanese animator Miyazaki (Spirited Away, Howl’s Moving Castle, Princess Mononoke) was incensed by the creation of a hypothetical creature that could feel no pain and thus walked using its head as a limb.  [Link]

Decay

Has Appalachia Lost Fewer People Than East Germany? by Lyman Stone (Medium)

We’ll admit that we know not everyone likes reading enormous, data-driven demographic discussions about population, economic outcomes, and regional destinies. We do from time-to-time and if you do too you’ll enjoy this. [Link]

U.S. life expectancy declines for the first time since 1993 by Lenny Bernstein (WaPo)

The CDC announced this week that death rates spiked for a number of demographics and causes across the country, sending the overall life expectancy for the US population down (marginally) for the first time in nearly a generation. [Link; paywall]

Property Taxes

Rationale for Texas’ Largest Corporate Welfare Program was a ‘Typographical Error’ by Patrick Michels (Texas Observer)

Back in the early 2000s, Texas decided to charge companies a lot less in property taxes, and the decision to do so was likely made because of a typographical error in a little-read business journal. [Link]

How Big-Box Retailers Weaponize Old Stores by Shannon Pettypiece (Bloomberg)

Assessing going concerns at the market value of shuttered stores elsewhere in a state is causing havoc on the finances of small towns and counties across America. [Link; auto-playing video]

Politics

Trump Team Broadly Backs Efforts to Rein In Fed, Hensarling Says by Rich Miller (Bloomberg)

Congressional Republicans are fired up about the idea of restricting monetary policy to a rule of the Fed’s own choosing. The specific tack a Trump administration takes towards the Fed is still an open question, though. [Link]

Google Looks for ‘Conservative Outreach’ Manager After Trump Election Win by Mark Bergen (Bloomberg)

Google is hiring a lobbyist (the role of its “Public Policy” team) in DC. Given the size and scale of the company’s operations, that’s probably not a horrible idea…though there’s no word on the impact on efforts to drain any swamps. [Link]

Strange News

On the Internet, to Be ‘Mom’ Is to Be Queen by Jessica Bennett (NYT)

Who knew that parents were cool? For many in the burgeoning post-Millennial generation, mothers are especially viewed as a symbol of cache. [Link; soft paywall]

Sofía Vergara sued by her own embryos by Emily Smith (NYP Page Six)

A former fiancé is suing the “Modern Family” star on behalf of two fertilized embryos. We’re still having a hard time keeping the ins and outs of this one straight. [Link]

Sterling Flash Crash

Citi trader deepened October’s pound ‘flash crash’ by Katie Martin and Caroline Binham (FT)

While not causing the sudden drop in GBP a couple months ago, Citi’s desk definitely made volatility in the seconds that sterling spent at multi-decade lows worse. [Link]

Pounded By The Pound: Sports Direct’s Hedges and the Cable Flash Crash by Josh Giersch (Josh Reviews Everything)

A former FX options traders’ analysis of one corporate hedge that went decidedly sour thanks to the huge sterling plunge described above. [Link]

Trade

The (No Longer) Almighty Soybean by Brad Setser (Council on Foreign Relations)

Starting with soy but moving on elsewhere in the US goods trade universe, Setser makes a compelling case that the US trade deficit is getting ready to widen quite dramatically in coming months and quarters. [Link]

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