Things to Read on the Afternoon of May 16, 2014

Should-Reads:

1. Adrianna Macintyre: Another red state just caved on Obamacare: “So, is Indiana signing up for Obamacare’s Medicaid expansion? Yep, but don’t expect the governor to frame it that way. ‘From the very beginning of my tenure as governor, we’ve been saying no to the Affordable Care Act in Indiana’, Pence said at today’s press briefing. ‘Medicaid is not a program we need to expand, it is a program we need to change’. Pence has proposed to expand an existing state program, the Healthy Indiana Plan, to extend affordable coverage to all Hoosiers below 138 percent of the federal poverty line. Indiana would pay for that expansion using Obamacare’s Medicaid expansion funds. Healthy Indiana is popular with its beneficiaries, but the program would have to change to become Obamacare-compliant. Right now, for example, it imposes annual and lifetime dollar limits, doesn’t cover maternity care, and requires monthly contributions from most enrollees. The Department of Health and Human Services made it clear that some of these rules were unacceptable if Indiana wanted federal funds for a full Medicaid expansion. He’s billing this move as an ‘alternative’ to Medicaid expansion, because the state is seeking permission from the feds revamp the Healthy Indiana Plan. But Indiana’s special expansion still needs to play by Obamacare’s rules…”

2. Barry Ritholtz: What Does “This Time Is Different” Really Mean?: “Valuation always matters…. What you pay for a stock or index will ultimately determine the return it generates over time. What is never different is the behavior of investors. It is always driven by greed and fear. That is simply human nature at work. We all understand the basic formula for valuation… P/E…. ‘Stocks can be defined as cheap (the rule of 20, which adds the inflation rate to a stock index’s price-earnings ratio) or fairly priced (forecast P/E), somewhat overpriced (12-month trailing P/E) or wildly overpriced (Shiller’s cyclically adjusted P/E).’… Templeton was not suggesting was for investors to ignore the many factors that actually impact valuation… because they are ‘different’ than they were previously…. Should one ignore inflation rates of 12% or bond yields of 2%? Of course not. This is a nuanced but important difference. In 1974, the P/E ratio of the S&P500 was 7.33, but inflation was running at 11% and the 10 Year bond yield was 7.4%…. Identifying when metrics that matter change is very different than recognizing when the collective madness of the crowd no longer believes valuation makes a difference…”

3. Isaac Chotiner: Narendra Modi’s Election and the Future of India: “It’s easy to describe Modi to people who have never heard him speak, or read about his past. He is a depressingly familiar type. He is secretive; he is vindictive; he has creepily authoritarian tendencies (a woman in Gujarat was placed under surveillance by Modi for months in a controversy that somehow didn’t seem to register with voters); he ricochets between aggression and self-pity in a manner familiar to anyone who has heard nationalists of any stripe; and he is simply incapable of sounding broad-minded. During the 2002 Gujarat riots, hundreds of people (mostly Muslims) were killed in communal violence on Modi’s watch. (This is why he has been denied a United States visa for many years.) The extent of Modi’s role in spurring on the horrors has been extensively debated; suffice it to say that he once said his only regret about the mass murders was that he didn’t handle the media well enough. Modi is also known for his close ties to unsavory, right-wing Hindu fanatics, notably in the Rashtriya Swamyamsevak Sangh (RSS), which he joined when he was very young. Arguably Modi’s closest confidante is Amit Shah, who has been accused of numerous crimes, including murder, and whose attitude to Muslims might be euphemistically described as unwelcoming. (He likes to talk about ‘appeasement’ of Muslims and said this election was about ‘taking revenge’ on them.)”

Should Be Aware of:

1. Kevin D. Hoover: The Genesis of Samuelson and Solow’s Price-Inflation Phillips Curve

2. James Cloyne and Patrick Hürtgen: Why monetary policy matters: New UK narrative evidence: “The effects of interest-rate changes on output and inflation could be much larger than previously thought. Such evidence was suggested by Romer and Romer in their analysis of the US. This column provides similar estimates for the UK based on a novel real-time dataset. In response to a 1% increase in the interest rate, output declines by 0.6% and inflation falls by one percentage point after two to three years.”

3. Nicholas Bagley: The Fourth Circuit oral argument in the exchange litigation: “The Fourth Circuit heard oral argument in King v. Sebelius, which is basically a carbon copy of Halbig…. From a quick listen, the argument went well for the government. Two of the three judges—Davis and Gregory—evinced skepticism that the ACA could be read to deprive tax credits to people who happened to live in a state that didn’t establish its own exchange. (The third, Judge Thacker, was mostly quiet.) The government’s lawyer was largely given a pass. The high point of the argument came when Judge Davis challenged the plaintiffs’ lawyer with the following: ‘You want us to adopt an interpretation of this reticulated statute and kick millions of people in five states… off the insurance rolls, so that the four people you represent here don’t have to pay a few dollars extra for insurance. That’s what this case comes down to’. It’s risky to hazard a prediction about the outcome of a case based on oral argument alone, but the government had to be happy with that statement…”

4. Don Steinbrugge: Why are Hedge Fund Assets Reaching All-time Highs?: “Hedge fund industry assets continue to reach all time record highs…. Where is the disconnect between these articles [on lagging performance] and the attitude and behavior of many of the most highly sophisticated institutional investors that are responsible for a majority of assets flowing into the hedge fund industry?… These institutional investors are not using the performance of the S&P 500 as a benchmark…. Why should anyone compare a hedge fund portfolio consisting of CTAs, global macro, structured credit, market neutral equity, distressed, event driven, volatility strategies, and long/short credit managers with the S&P 500?… A diversified hedge fund portfolio… [has] a low correlation to long-only benchmarks…. Many institutional investors in the short term will be happy if their hedge fund portfolio outperforms their fixed income portfolio…. Others will be happy if their hedge funds outperform the forward looking return assumption they used in their asset allocations model. In both of these cases they were happy in 2013…. Sharpe Ratio[s]… The hedge fund industry… has significantly outperformed long-only benchmarks on a risk-adjusted basis over time…. The media is always going to need a simple benchmark they can use on a monthly basis to report how hedge funds are doing. I would suggest they switch to a 60% blend of the MSCI All Country World equity Index and 40% of the Barcap Global Aggregate Bond Index…”

5. Ezra Klein: The home page isn’t dead. It’s just resting: “In an unintentionally hilarious angle to all this, the NYT’s report on the need to be digital-first appears to be a print-first document that Buzzfeed subsequently scanned, uploaded to the web, and is getting traffic from.)… The trend isn’t quite as bad as the chart suggests: The Y axis goes 160 to 80, which means traffic to the home page has fallen by roughly half rather than, as the chart suggests, nearly 100 percent. Still, the Times doesn’t mince words: ‘Traffic to the home page has been declining, month after month, for years’ ….The thing about ‘push media’ is someone needs to do the pushing…. Where do those readers–the ones seeding your content, and finding your gems–come from? That turns out to be a very, very hard question to answer. It’s tough to track the chains of social shares…. The home page used to be the way most of your readers found your content. It’s becoming the way your power users find the content to share with your casual users…”

And:

• Piketty’s Charge: Project Syndicate Focal Point
• Miles Corak: Joseph Fishkin’s book, Bottlenecks, explains why inequality lowers social mobility”
• Brad Plumer: Five horrifying maps of America’s massive drought
• Michael McKenzie: Demand for long-dated Treasuries defies bearish signals
• Annalee Newitz: The Movies You Must Watch To Understand Godzilla
• Harry Turtledove: Shtetl Days
• Paul Tough: Who Gets to Graduate?
• Izabella Kaminska: Charting Europe’s Japanification

Already-Noted Must-Reads:

1. Zach Goldfarb (2012): Economists, Obama administration at odds over role of mortgage debt in recovery: “”One year and one month before President Obama won reelection, he invited seven of the world’s top economists to a private meeting in the Oval Office to hear their advice on what do to fix the ailing economy…. Nearly all said Obama should introduce a much bigger plan to forgive part of the mortgage debt owed by millions of homeowners who are underwater on their properties…. Obama was reserved in response, but Treasury Secretary Timothy F. Geithner interjected that he didn’t think anything of such ambition was possible. ‘How do we get this done through Congress?’ he asked. ‘What could we actually do that we haven’t done?’…”

2. John Scalzi: Freshman Freakouts: “This piece in the New York Times magazine talking about the differences in graduation rates between the kids in the upper economic levels (and the ones whose parents went to college) and the ones at lower levels…. Roughly speaking, one of the best indicators of whether you’ll finish college at all is whether your parents did; without that knowledge base (and economic leg up) things become rather more difficult. The story covers how the University of Texas…. The article interested me because to no small extent it is about me, or at least people like me…. I had, in fact, gone through that upheaval and transition period–but in high school, not in college. I went to a private college prep boarding school as a scholarship student, and my freshman year there was a mess…”