Yes: The market will drop 200 points today.
Yes, it is due to trade with China collapsing: “Commodities rout deepens as Chinese trade data signal weaker demand.”
And yes, the Baltic Dry Index is at 551 and dangerously low, as we have been telling you for months.
We begin this morning by wondering whether the Federal Reserve will really go ahead with its announced intentions to raise rates a week from tomorrow.
The reason is that events are starting to pile up against a rate hike.
Let’s consider the problem broadly: America has roughly $18-trillion in public debt and it all needs to be financed.
The Fed, which is looking to raise rates a quarter, would increase the cost of paying interest on that debt $450 –billion. That expense has to be born by someone (check the mirror for the answer).
In long wave economic theory, there is a good case to raise rates when times are bad and when deflation is running amuck.
The reason is the most of the One Percenters have their dough tied up in interest-rate related investments. Obviously, if rates are low, say 2%, a million dollar nest egg is only going to generate $20,000 of interest income per year. But, when the Fed is watering down the purchasing power of the fiat Federal Reserve “Notes” by 5.9% per year, 2% returns are losing on a purchasing power basis.
When the interest rate is higher, say 5%, then the interest income on a million buc ks pencils out to $50-thousand a year.
As interest rates have fallen, it is this very dynamic that has forced the One Percent to concentrate larger and larger pools in fixed income products. Why take chances, right?
So in order to have a workable $500-thousand a year income with a 2% interest rate, you need $25-million to play with.
As the money piles up around the edges, the rates keep coming down and sooner, or later, you get a deflationary depression as prices collapse.
The magic is to increase the interest rates. And the way to do that is increase the cost of money…and the latest Fed Money supply figures show there has been no growth in M1 – ion fact it was dropping 9-10th’s of one percent per year if you look at the 3-month average.
All of which is foreplay to rates going up..
But the problem to behold this morning is whether Yellen has played this game of “chicken” too long?
We are seeing some impressive arguments against the rate hike in a quick scan of business data this morning.
First, and foremost, the National Federation of Independent Business is our with their just-release take on how the business climate looked for small business in November. Here’s a telling quote under their headline “Small Business Optimism Collapses in November after Three Stagnant Months”:
“Uncertainty in DC, federal agencies playing politics and a President that is willing to punish the current economy for inconsequential environmental benefits in the future indicates that business conditions will not be revived anytime soon. Even though there is talk that the Fed will be raising rates this month, it will hardly signal that they are feeling more optimistic about the economy.
“Overall, the outlook remains the same with a slow 2 percent-ish growth and there is still not much pressure on prices from Main Street. All we can do at this point is hope for a more business friendly New Year.” — Bill Dunkelberg, NFIB Chief Economist
Meanwhile, there is evidence that problems in the oil patch are becoming profound. MarketWatch is reporting this morning that “The case for $20 oil is getting stronger by the day.”
Frequent contributor OilMan2 is heading for a job interview today down in the oil patch. And he’s run into the damnedest thing I have ever seen in a company mission statement. We’ve changed the company name to shelter the identity but check this out:
“Mission: The Spirit of Company is the core of Company… The Spirit is rooted in current reality, but it also represents what Company aspires to be thus making it future active. The Spirit is an indivisible synthesis of all three statements. It means manifesting Intensity to Win, acting with sensitivity and being unyielding on integrity all the time.”
WTF does that mean?
OM2 isn’t sure he can get along too well with that kind of a company. We’ve both been around companies that go off on mumbo-jumbo like “current reality” which us practical “old-hands” wave-off along with the rest of the corporate nonsense instilled by reading one-too-many press releases about their own firms.
At one point in our conversation, OM2 summed it up this way (and forgive me if I don’t get this just precisely so…)
“George, you know and I know that most software is just “bullshit in a box.” [BS-IAB] I’ve seen this many times before. Programmers will go off into wonderland and then there’s a whole separate department that translates the BS-IAB to what’s real and sells…here in THIS REALITY…”
Practical ass-kickers tend to be suspicious of word-weasels who incorporate maintaining any kind of “reality” as one of their missions. I’m not overly religious, but I leave Reality to God…leave the customers to me.
But so it goes in America, where everything (including corporate bullshit) is monetized. Google “Mission Statement Consultant” sometime if you don’t believe it. 5.9-million hits.
‘Scuse me…but are we monetizing the wrong stuff? Is this what Rome was monetizing in its final years?
More and more companies are evolving these internal bifurcations: One branch of the company knows (clear as day) what the customer Reality is. Yet the BS-IAB department is its own alternate reality where algo-speak and run-away “use-cases” rule the day.
(Ures truly was a use-case writing algo-planner and sales guru in federal financial aid management s/w and I saw it all the time. The software people were on one wing of the building and the sales and admin and overhead lived on another side. Only a few of us had key-cards that worked the doors both ways…so OM2 is dead frigging right about this “Split Reality” deal in most companies..
If American companies are really “current reality” manifestations of the human brain with the purpose of generating cash flow, then the the sheath that divides the human brain has its analog in key-carded doors between departments.
This is not a new phenomena in business. It used to be Sales and the Factory Floor. But now, since software designers are really code librarians, as much as anything, they have evolved the art of bullshit-speak to astounding levels.
If America put into products and inventions what we put into “split reality” crap, we could actually be competitive, again.
And the Current Reality is Unreal
Since my Bro-In-Law is home-shopping, I get to see it every time I look at his real estate choices.
He goes shopping on Trulia and checks out Killeen, Texas.
Finds there are 950 homes for sale there in the under $300,000 range.
Then he wonders “Why are they still building new homes there?” Since I’m something of an economist and he knows I’m supposed to know the answer to this, he pops the question on me.
The best I could come up with is it’s the result of the National Kool-Aid party. Is there a secret order to the major banks to loan money are zero percent so all the spec home builders can keep going?
Or, is it the spec home guys are building because they know they can lock-in free money?
Whatever the reason, it gets us circled around to the Janet in the Window problem.
Question is: Has she missed it? Or does that matter.
I mean in the current “Customer Reality” and in the “spirit of or core.”
Did Sad Bernardino Stop Something Bigger?
So here is something that may have escaped your consideration, but it’s time to roll it out.
As you know, the Sad Bernardino Muslim terrorists who killed the 14-people out there were planning this for some number of weeks.
The MSM is downplaying this, but the story about the timing of a suspect banking transaction to buy arms…several weeks before the shooting…blows the agitprop nonsense about this being a spontaneous event.
The theory I have is that the couple may have actually been tasked with pulling off an even larger massacre, and they might be just one of multiple teams. But that possible larger attack plan fell apart when testosterone kicked in with the “I’ve got a gun and there are co-workers I hate” came into play on the fateful day.
It leaves this Columbo kind of question hanging: Were there others getting arms and others getting money when these two crazies started shooting? In doing so, did they protect us from something worse like a shopping center attack, or something on that order?
We will likely never know, but the question is there to be asked.
And since we know with virtual certainty that the weapons acquisition was seriously pre-planned, what was the rest of the mission and is it still out there waiting to pop?
Trump Stating Obvious
Meantime, a fire-storm of rhetoric has started to rain down on Donald Trump who is saying in no uncertain terms, that until the FedGov can figure out a way to screen all the Muslims who are out of the country where at least some are being radicalized, we should close all the doors and get back to some basics.
This whips up the middle to liberal segment such that stories like this one are coming out.
I do disagree with Trump but only slightly: If a Muslim (or anyone else) goes overseas, they should be subject to financial surveillance. We figure they should already be on the watch list up at “the castle” in Provo…
The government has already granted itself power to inspect all your media devices and impound your laptop at the border on return, so it’s not like financial surveillance would be much different.
Besides, all Americans are already under financial surveillance – it’s just we don’t know how tight the screws are what with IRS getting your income and being able to cross-ref to your tax forms.
I mean, that’s what the income tax is all about…self-incrimination.
In the meantime,. Trump should have couched it as “Close the borders or count the dead…”: which will (sadly)most probably be along too soon.