Except, it’s not the T as in testosterone. It’s the T as in Treasuries.
You see, my friend the Bond Dude who suggested that the Fed raise was accompanied by a loosening on the back-end to essentially give an illusion of an interest rate hike while in reality they were just doing an easing, may be exactly right.
Here’s why I am leaning this way:
Went you look at interest rates a year ago, do you remember where they were? (10-year) Around 2.257. On Monday of this year (yesterday if you’re in the egg-nog recovery ward) the 10-year closed at 2.20.
So let me ask you this: Since the 10-year was up at 2.47% in June of this year, tell me again about how the Fed supposedly “raised?”
The truth of the matter is that steering an economy with interest rates may not be instantaneous. But when I looked at the latest money supply figures, my Bond Dude’s hypothesis actually looked like it might have some substance in fact.
Here’s a quick scribble on the inflation rate of the monetary supply, so you can see what I’m looking at: Left Column is M1 seasonally adjusted and the right is M2 seasonally:
If the bean hasn’t kicked-in yet, the story goes like this: Bottom data first.
Last year the M1 increase 0.554% or an annualized rate of 6.86% Ocober to November period.
Now for the top data:
What it reveals is that M1 (on a seasonally adjusted basis) went up 1.884% in one months and annualized this works out to a bump of 25.197%. You can see M2 was going up 8.9%
This would certainly explain why the Fed rate increase is not being reflected in 10-year rates yet…and why my friend the Bond Dude is likely right that while the Public Face was raising, the Policy Reality face is still passing out money like crazy.
I have to admit: It’s a graceful way to try and arb up the economy and it should work. I am continuing to expect a major rally in Q1 –Q3 of 2016, it’s just that the Fed may not be driving bond money back into the markets.
It may simply be because there has been another defacto easing which is what looks like what happened here.
We will revisit this in a month (when we get the first December data) because last year, the seasonal Christmas bump in M1 annualized to something like 15%.
And if this hare-brained theory of ours works out, the M1 annualized for December should be in the 30-35% range. And 30-90 days later, the market will be screaming ahead. New highs, skies parting, and green shoots II will be going strong.
Except it’s a paper game, and few people understand the interplay between money creation, rates, and markets, and maybe you’re not ready for that discussion so we will save it for the grown ups over on the www.peoplenomics.com side of things.
Just remember: When money printing increases, a month to three later there’s a tendency for markets to rise…more money means it’s easier to go bidding up of prices.
Hot Economic Data
Well, would you believe lukewarm?
Real gross domestic product — the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes — increased at an annual rate of 2.0 percent in the third quarter of 2015, according to the “third” estimate released by the Bureau of Economic Analysis.
In the second quarter, real GDP increased 3.9 percent. The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, the increase in real GDP was 2.1 percent.
With the third estimate for the third quarter, the general picture of economic growth remains the same; private inventory investment decreased more than previously estimated (see “Revisions” on page 2).
The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, state and local government spending, residential fixed investment, and exports that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the third quarter primarily reflected a downturn in private inventory investment and decelerations in exports, in PCE, in nonresidential fixed investment, and in state and local government spending that were partly offset by a deceleration in imports.
Real gross domestic income (GDI), which measures the value of the production of goods and services in the United States as the costs incurred and the incomes earned in production, increased 2.7 percent in the third quarter, compared with an increase of 2.2 percent in the second.
The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 2.3 percent in the third quarter, compared with an increase of 3.0 percent in the second.
It is as fine a collection of happy-talk as you’re find any weekend at an auto dealer sales event.
But the reality is “Where is my Social Security increase if everything is so all-fired great then?”
As to who is making the money?
Profits from current production Profits from current production (corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)) decreased $33.0 billion in the third quarter, in contrast to an increase of $70.4 billion in the second.
Profits of domestic financial corporations increased $1.8 billion in the third quarter, compared with an increase of $34.6 billion in the second.
Profits of domestic nonfinancial corporations decreased $11.8 billion, in contrast to an increase of $24.3 billion. T
he rest-of-the-world component of profits decreased $23.1 billion, in contrast to an increase of $11.4 billion. This measure is calculated as the difference between receipts from the rest of the world and payments to the rest of the world. In the third quarter, receipts decreased $3.5 billion, and payments increased $19.5 billion.
Taxes on corporate income decreased $6.9 billion in the third quarter, in contrast to an increase of $31.3 billion in the second. Profits after tax with IVA and CCAdj decreased $26.2 billion, in contrast to an increase of $39.2 billion.
All of which somehow related to the Federal Debt to the Penny which at most current check was $18,795,033,928,275.59. So yes, we are in debt more than one year’s worth of GDP – and the prospects of that changing are close to zero.
Stocks look to open about flat. But we’re still hoping to hear the clatter of hooves around the Big Board this afternoon.
Art of Prediction, I
Right on time. What did I tell you in yesterday’s column?
“The first aircraft crossing of the Pacific took place in 1928 about now (on the rhyme-line) , so we would expect there to be news of success shortly in the Billionaire’s Space Race. “
And what is big news this morning?
Yes sir, nothing to it.
Art of Prediction, II
We have been watching Deutsche Bank since about June, or so, when their CEO duo was shaken up – wondering what was going on behind the scenes. So now comes the next shoe to drop with the story Deutsche Bank Tally of Suspect Russia Trades at $10 Billion.
Story Stocking (AoP II.v)
I should have made a list of press releases out over the past 2-3 weeks that were of an “undated” nature, Because those are the stories that reporters can “pre-record” or pre-write for whenever a gap comes in holiday news flow.
There are usually huge gaps that come around this time of year. My late (great) broadcast news mentor told me (during my first holiday trying –without success – to find some breaking/hard-hitting news for the rock & roll station):
“Well,George, rewrite Hints from Heloise if you need to.”
That was then. This year it will be rewritten Drone Registration stories, perhaps.
Art of Prediction III
Another reader was wondering about this note from yesterday’s column had been filled:
In two weeks we will hit the harmonic of Zhang Jinghui’s close brush with an assassination in 1928 China, so we will keep our eyes open on this one. Doesn’t have to be China,, either. Could be something like a big ISIS figure gets taken out and a lieutenant of some note survived. That kind of thing.
A Reader wanted to know if this story (ISIS executioner killed in Sharqat, Iraq) qualified.
Damned if I know. Future history is odd stuff to deal with. We may see a whole flurry of events around the historical precedent.
Politics: FEC Chairman Nuts
Why? Well, let’s see here: FEC chair who sought to regulate Drudge slams colleagues as ‘dysfunctional’.
Takes one to know one, perhaps?
In the meantime, might we suggest the FEC cowboy up to the real problem in American politics which comes down to just two things (and Drudge ain’t one of ‘em)?
1. The elections in America are BOUGHT. This is because the limpdicks at the FEC haven’t figured out that in order to have clean elections for the House and Senate we need to bar ALL out of State and Out of District Money.
End the anonymous PACS and SUPER-PACS.
The reason we have such similar policies coming from the Obama wing of the GOP and the Pelosians is simple: They are report to the same lobbyistas/law firm dispensing the favors. As a result, there is NO substantive policy differentiation. Just differing check sizes.
2. Politicians should be held accountable by their voters. And the FEC should encourage the FTC to monitor False Advertising involving everyone holding elective office in Washington.
If the FEC was real, they would have required all candidate contributions to be made from accounts to QuickBooks Online accounts for each Candidate and give read-only access to anyone who wants to see on a real-time basis who is being bought and what the current price is.
So no, it’s not the chair’s colleagues on the FEC who are dysfunctional – it’s the whole parade and circus of ‘em, thank you very much.
It’s all very doable – some scaling required along with some load balancing, but for crying out loud, is this America, or what?