Irrational Trumpxuberance, Financial Time Travel

There’s a notion that markets predict the future.

Oh, not like you will see a red pick-up truck turning right at 9:17:44 AM today.

No, it’s more like “We, the collective forces of the market, see a bell-shaped distribution of probable earnings and profits of this (or that) somewhere between nine months and 2-years into the future.”

Just for fun, you can actually see these phenomena for yourself. All you have to do is look at a standard options report for a broadly-based index (I like the S&P 500 options, me-self) and they will give you a sense of things.

The way you look at the curves is also revealing: The outlook is never purely symmetrical, so you end up with what you can think of as a particular “tilt” on the future.

OK, why mention all this?

Because the market is seemingly on a rip and tear to roll into our predicted all-time high in 2017 and it should come at levels that would be the modern analog to where things were when Herbert Hoover presided over a nearly identical situation back in March of 1929 when he went through his inauguration.

A true student of history (lemme bow here) would say “OK, how many days was it from the Hoover inaugural until the all –time (to then) high? “ That is a reasonable dart to throw.

Of course it is problematic, in a sense. It doesn’t take into account the effects of cell phones, Android 6, internet porn, global warming, and yada, yada.

But people, regardless of Age, do tend to reaction in semi-predictable ways.

So what does Trumpxuberance mean?”

Just getting to that.

Let’s suppose that the Dow set its previous Bubble High in early September of 1929…and we plug that number into the Minneapolis Fed Inflation calculator. Where do you suppose the Dow ought to be using this (admittedly crack-pot) approach to market valuation?

Well, the Dow ought to be around 5,331 and change.

But, of course, NOTHING works out so simply. For one, the reported inflation number may not be as good a tool as something like average home prices. These might reflect a different kind of gain.

Or, we could look simply at the money supply per capita in both periods, and even that gets sticky because we have the total population, the civilian, non-institutionalized population, and a half-dozen other ways to slice that piece of pie.

More to the point, however, is that we have stopped being a society that bases its worth on the present value of consumable things we make.

No, instead we live in a highly financialized world. We don’t contribute to pension funds thinking “There will be a demand for 100,000 cars per month in 10 years, so my pension fund is investing in autos and that sounds better to me than investing in transistor radios…”

There’s no such logic to it.

Instead, big investors (*like Donald Trump) look at the future as a complicated future value proposition where the inflation-adjusted net present value of an asset (like real estate) is analyzed and relative likelihoods of performance are compared.

Which is another way of saying the future doesn’t really care, but over time, on average, people need a place to live, so the demand will come from somewhere and we can ASSUME that part OK, so now what’s the inflation outlook?

Given an inflation outlook and the concept of leveraging inflation by putting minimum down on property to get full use of OPM (other people’s money) we’re off to the races.

But here’s the thing:

If you look at a long-term chart of the 10-year Treasury Note, what you’ll see is that we have been in roughly 35-years and four months of decline.

To anyone with half a brain (I qualify!) this infers an economic long wave in the vicinity of 72 years, but we really won’t be able to tell with certainty until 1) the Fed raises rates in a couple of weeks, 2) we get a reaction of the panicked type following and a big market break to the downside and then 3) when the Fed lowers rates back down, and possibly below now and sets off inflation again.

After that little dance, which might take another couple of years, depending on where the cumquats fall, we will be a position to make an actual pronouncement about the length of the long-hypothecated 70-90 year economic cycle.

Which gets us back (thankfully)  to this morning and the headlines.

An hour and a half prior to the opening, the market was flat. Still, we’re in the all-time-high area and it should persist until 1) the Electoral College is done. By the way, you saw the NY Times is trumpeting a faithless Elector from here in Texas? Won’t vote for Trump, he says. But to me, voting against the Will of the People is tantamount to being a traitor to the electorate.

I’d call this faithless Elector an egotistical prick, too, except that might not sufficiently differentiate him from ALL Texans to be useful. We are proud of our pride here…but not without reason.

Second trip-wire is the Fed meeting which could jack rates a half, not just a quarter. The 10-year yesterday was trading in the 2.4% range.

Third trip-wire is the inaugural.

Already, we are seeing hints that “ISIS declares Trump Inauguration day “Bloody Friday” stories appear.

Frankly, if that was all there was, I wouldn’t be too worried. But the fact is we have a couple of other things going on in background.

The first is that no one on the civilian side really knows with certainty what the U.S. deal with ISIS is. We know, for example, that the neocons at State have tried to use different groups in the Middle East in pursuit of their bankrupt regime change crap. And we see how poorly that has gone. And yet the communications channels are there such that a rogue government MIGHT actually make such a move and try to maintain its faltering control of the (back room) reins of power.

Last – but really most important of all is the PRECONDITIONING IN MASS MEDIA for such an event.

I refer to the TV series Designated Survivor which is laid out this way on Wikipedia:

“On the night of the State of the Union address, an explosion claims the lives of the President and all members of his Cabinet except for U.S. Secretary of Housing and Urban Development Tom Kirkman, who has been named the designated survivor. Kirkman is immediately sworn in as President, unaware that the attack is just the beginning of what is to come.”

Quick! Who is the present head of HUD? I mean we know Dr. Ben Carson has been named the incoming.

Enough with the suspense:  It’s Julian Castro who took over from Shaun Donovan in 2014.  Will he be playing the D.S. role?

You get the point (I hope, but it is early) that when television is pre-selling something like an attack on a massive assembly of American Leadership, it’s something to consider being braced for.

There.

If you haven’t taken your anti-paranoia pills for the morning, you might do so now.

We now return control of this media to…Oh wait!

Speaking of Control of Media

In the latest Orwellian twist of fate, did you see the report that the web giants of public opinion are now going to be scrubbing “extremist content?”

True, extremist content like how to blow up buildings, or wield a machete don’t belong on the net, no argument there.

But how long before the Group Think is extended to take any opposition to the present paradigms of government, finance, or politics is also banned?

Not long, I figure.

Why just raising some of the legit questions we raise around here as thinking points may be enough to get us banned, but we shall see.

Accident or Arson?

Now that a criminal investigation of the Ghost Ship Collective’s rave is underway in San Francisco, the backgrounders (like this one from NBC) are popping up.

Where did Syria Go?

Seriously.

Back before the election, all we heard about was the worries about Aleppo, how the Russians were doing this, and that. It was like listening to the Hallelujah Regime Change Choir.

Yet, here at the castle of fortitude the change in tune of the neocons is disturbing clear in how it reveals how the ‘cons at State have been wagging the dog, until now.

Suddenly the headlines are reading like “How the War Ends in Syria” and “Syria says it rejects Aleppo ceasefire if rebels remain – state media.

Yes, don’t look now, boys and girls, but The Donald’s taking the call from Taiwan says something huge which we alluded to in the Monday column:

The State Department has just been neutered and the President is taking back power.

ABFT.

There are plenty of better ways to balance an economy than starting wars around the world. Putting fiber on every desktop (including here in the Outback, please, please, please…) and revamping the nation’s passenger rail system would be a dandy start.

You see, super powers like China are becoming Super by worrying about things are home. A has-been power, like we used to be, occupies other countries and goes down that Egos of Rome “projecting power” trip. Which blows up, in the end.

See this morning’s Coping section for more on how the rails work.

Press Releases du Jour

I bet you’re just sitting on the edge of your rocker waiting to learn this salient data:

From Census:

“The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $42.6 billion in October, up $6.4 billion from $36.2 billion in September, revised. October exports were $186.4 billion, $3.4 billion less than September exports. October imports were $229.0 billion, $3.0 billion more than September imports.

The October increase in the goods and services deficit reflected an increase in the goods deficit of $6.3 billion to $63.4 billion and a decrease in the services surplus of $0.1 billion to $20.8 billion.

Year-to-date, the goods and services deficit decreased $8.8 billion, or 2.1 percent, from the same period in 2015. Exports decreased $58.7 billion or 3.1 percent. Imports decreased $67.5 billion or 2.9 percent.”

They also supply a picture for the reading-impaired:

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And from Labor:

“Nonfarm business sector labor productivity increased at a 3.1-percent annual rate during the third quarter of 2016, the U.S. Bureau of Labor Statistics reported today, as output increased 3.6 percent and hours worked increased 0.5 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.)

The quarterly increase in nonfarm business sector labor productivity was the first increase after three consecutive declines in the measure. From the third quarter of 2015 to the third quarter of 2016, productivity was unchanged. (See table A.)

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers. Measures released today are based on more recent source data than were available for the preliminary report.

Unit labor costs in the nonfarm business sector increased 0.7 percent in the third quarter of 2016, reflecting a 3.8-percent increase in hourly compensation and a 3.1-percent increase in productivity. Unit labor costs increased 3.0 percent over the last four quarters.”

Blah, blah, blah.

The only thing it really means is that the world is in continuation mode today and no, nuclear war, Second Coming, a real break on taxes…none of that it likely until at least tomorrow.

No sign of comets plowing into Earth, either. No major assassinations scheduled (at least that we were on the distro list for) so mainly this is a good day to have your teeth cleaned, or get the dog groomed.

With Futures showing the Dow up a whopping 13-points, our only sage advice is this:

Don’t spend it all in one place.

As that great American Ben Franklin didn’t say: “A Penny Saved won’t buy shit anymore.”

Comments

Irrational Trumpxuberance, Financial Time Travel — 13 Comments

  1. In reference to your comments on the “faithless elector” I cant help but agree. Trump wasn’t my first choice either and I admit he is a little rough BUT he was able to work out a deal with Carrier, Drive the stock markets up (for a while) and in the three weeks since the election he got rid of Castro.(something the CIA hasn’t been able to do for 50 years.) Give the guy a chance. this Elector took the job willingly with the understanding he would support the parties nominee. From what he’s saying now he’s no better than a politician who promises everything before the election and then decides his views and opinions are more valid the people that voted for the candidate (the majority). If he has such tremendous personal feelings about voting for Trump then he doesn’t have to, HE CAN RESIGN and the voters will would be satisfied by his replacement. I am appalled by his arrogance to think that his opinion is superior to the majority will of the voters. I’m also curious how this will play out in the republican party as he states he wants to continued to be involved with the party. In fact it may have an affect on his work/ job place relations assuming he is still in the emergency services sector.

    • I had someone argue that he didn’t save all the jobs.. but he saved some.. it is better than none.. and my bet is if he can get congress to play ball.. he could do something.. I have my doubts though.. he came out with the canceling the order for more new air force one because it was so far over budget.. well you seen the stir her got in congress.. everyone was upset..
      My thought is go for it.. your doing exactly what you said you would.. and that is refreshing..Its way overdo.. our whole leadership has been more concerned for the big business end and other countries welfare that its time that we had someone that shows some concern for america..

  2. In a recent interview Jim Sinclair declared that essentially US financial markets no longer exist; the ability of those in power to paper over any market at will has destroyed the engine of the free market capitalism. Quite an alarming and disturbing statement from an old timer like Sinclair…

  3. George, reading you is like being on acid. You think Trump has a big plan to “take back” the State Dept.? Rather than just a big dummy taking a call because he not know any better and too lazy to find out? You do recall that Obama (liberals) were against the neocon’s war that broke the Middle East beyond repair? Your team’s war, George. Remember ‘Freedom Fries’ and ‘Support the Troops’? And Obama tried to disengage us. And you do recall that Obama (liberals) tried to spend money on infrastructure, but your team constantly blocked it? And now you’re begging for more infrastructure? Jeez George. Please. But we still love you. Mike.

    • Acid provides incredible insights to those with the guts to deal beyond their own denial. Donald Trump is an incredibly successful genius, and though he’s made a few mistakes, he generally doesn’t make the same mistake twice.

      I’ll certainly give him my support until he proves that I shouldn’t. So far, that’s not happened. I don’t agree with everything he says and does, but it’s a refreshing change from the doldrums of the last 16 years.

      I see no significant problem with talking to a head of state. If I chose to talk with Charles Manson, it wouldn’t co-opt me into becoming a mass murderer. Talking and listening is important. Thinking is based on information, and both sides need to be heard to balance things.

      Besides, it was just congratulatory…….

      • If a three time bankruptcy declaring, draft dodger, married to a nude model with a heavy eastern european accent, three time divorced, NYC billionaire real estate developer with gold plated bathroom fixtures, non-tax paying, self-declared celebrity, p grabber, former WWE star ran as democrat would you also be willing to give him your support until he proves otherwise?

        I find it insane that republicans elected someone that they would normally despise. I think that those who voted for him will be disappointed and those who didn’t may be pleasantly surprised at how pragmatic Trump is.

  4. Good morning George,
    Your thesis regarding a blowoff top has troubled me for a long time but it appears you were right all along; it’s a question of magnitude and duration at this point.
    Volatility is one of my pet bets but the mass media preconditioning you point out has truly removed the testosterone from volatility related instruments, for now. Events that in the past would have sent markets reeling only create a blip and then it’s back to SNAPFU (situation normal, all plunges fixed UP). Looking back at certain volatility plays in 2008 keeps my dream alive but I’m beginning to wonder if the kind of black swan event needed to trigger huge volatility swings would be so big that only rubble would remain afterwards. Only one of your three scenarios from today’s column would do it (IMHO). Nonetheless, I’m keeping a marker on red for a few more months.
    Another prescient George had it right a while back, only pablum for the masses’ sensitive mental digestive tracts. We may be reverting to fax machines for real news before long.
    Time for my soma, coffee’s too stimulating.

  5. By now I am sure that you are aware that the USA and a couple of it’s proxy’s have been named up close and personal by Russia in the attack on a Russian MASH unit and several deaths therein. Poking the bear has been fun up till now, but now it’s more like a deep stab. Russia never let me say that again, never forgets.

    • By now I am sure that you are aware

      You understand you can post links to this claim so we can evaluate it for ourselves. It is an interesting claim – so can you prove it up?

  6. Instead of calling it “brainwashing”, it’s now called “predictive programming.” But I much prefer your term “pre-conditioning.” Some people think that an entity, telling people what they are going to do in advance is merely sportsmanship, or some sort of “honor among thieves.” Someone opined that its function was to strengthen a luciferian spell. After all the spirit-cooking news, one has to wonder.