Month: March 2014

I have to admit our Trading Model (over on the Peoplenomics side of things) has been hard to believe.  All through this broo-hah over the Ukraine situation, the Model has remained firmly bullish.  And, amazingly, the S&P hit 1,876.53 yesterday, putting in yet-another high.

What the Model is telling us is that the Bernanke-turned-Yellen Fed is closely watching their computer models, just as we watch our own.

At the core of it is rumored to be something called the DSGE which has a Wiki entry more articulate than me at this hour:

Dynamic stochastic general equilibrium modeling (abbreviated DSGE or sometimes SDGE or DGE) is a branch of applied general equilibrium theory that is influential in contemporary macroeconomics. The DSGE methodology attempts to explain aggregate economic phenomena, such as economic growth, business cycles, and the effects of monetary and fiscal policy, on the basis of macroeconomic models derived from microeconomic principles.

Sounds like the financial version of WOPR, doesn’t it?

I’d tell you this is a picture of how it works, but not quite.

You see, this is a famous drawing of how something called “Reductionism” may be envisioned?   At its core in an insight into how ‘intelligent thinking’ works.

It’s all about how people “class” their observations.

It starts off with noticing that some animals – like snakes – have no legs.  Yet other animals do.  And some animals have two legs, and some of these (about 7-billion, plus or minus a birth control pill) are humans.

And we all pretty much “work the same” in terms of underlying “software.”

Of course, how your software is programmed varies widely.  Some parents program jihad, while others program crusades.  Language limits as do passed on beliefs.  The number of people who actually self-program (tearing everything down and rebuilding) is maybe 3-5%.  Everyone else gets to just run with onboard code. Freakin EPROM society. 

The “E” being electronic media which can do limited rewrites which is why advertising exists.

Which has what to do with the market’s new highs?  Oh, that….

Well, you can look at the DSGE code, rumored to be used by the Fed and other macroeconomic econometricians (pretty good for one cuppa coffee, huh?) and they can – over time – load in enough supporting data tables, that the DSGE can do a pretty good job of predictive economics.  So much so, that one might be tempted to believe that there is nothing between the market and moon.

But, of course, there is.

The first major problem is what happens when interest rates turn.

Remember how the DSGE likely (may) think the markets work:  A 1% interest rate implies that a $1 dollar dividend should give a $100 stock price.  But suppose that the prevailing interest rate begins to climb and goes to 2%.  What then?

In that scenario, the $1 dollar stock dividend now only justifies a $50 stock price, since bonds and stocks are always dueling over who offers the best returns for investors.

When the interest rate climbs to 5% (which is around normal over the very long term) the same $1 dividend-paying stock is whacked down to a $20 proposition.

Key lesson here:  The decline of the market (to maybe as little as one/fifth of its present price) needs only a major interest rate hike to “make it real.”

And that’s why I want you to go over to the long term bond chart and watch it like a hawk because as goes interest rates, so goes the financial world.

The second point about this morning is that the previous work in DSGE’s has likely been augmented now with “machine learning” such that additional inferences (and levels of precision) may be in the works.

In a 2011 paper, the  Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. have this delightfully revealing paper titled “How Useful are Estimated DSGE Model Forecasts?”  This part of the abstract is key:

“Our finding is the DSGE model analogue of the literature documenting the recent poor performance of macroeconomic forecasts relative to simple naive forecasts since the onset of the Great Moderation. While this finding is broadly consistent with the DSGE model we employ{ie, the model itself implies that under strong monetary policy especially inflation deviations should be unpredictable, a wrong” model may also have the same implication. We therefore argue that forecasting ability  during the Great Moderation is not a good metric to judge the usefulness of model forecasts.”

I suspect the “Great Moderation” refers to the decline of interest rates since the 1980’s – about as tough a forecasting world as you’ll see.  But now, we “get it.”

Now toss in modern machine-learning tools and who’s to say the DSGE can’t become adaptive, and do a better job of calling the economic shot than humans? 

Remember, machine learning of legal proceedings is already predicting outcomes of high court decisions somewhere north of 75% accurate while panels of expert lawyers are running about 66%.  One of those (pard this) “Oh shit, we really are becoming obsolete” moments.

Which delivers us to this morning’s economic ponder:  What IF the Fed and other central banks around the world a) have been sharing DSGE models and b) what if they have applied machine-learning and c) what if the “managed economy” is slowing being smithed into the first  rolling “wheel” by the coders in the back room?

To be sure, there would still be variations in the model (as trading is inherently noisy) but as we see in the market recently, there’s an underlying tendency and that begs the question:  While everyone’s off worried about prepping, World War III, energy shortages to come, and all that, what are the REAL IMPLICATES of someone in the back room coming up with a machine-learning enhanced approach to DSGE that could deliver the Holy Grail of economists?

A managed economy.

You look at the inputs that are possible (on mood-swings) and answer me this:

“If you had access to the kind of mood-swing information that the NSA has, and if you could plug that “mood data” into a super-DSGE, don’t you think a managed economy might become doable?”

It would be the “story of the century” but wouldn’t admission be a public relations nightmare?  Especially if, for example,. the G20 was playing in “synchronized-swimming” fashion?

But it would explain the power of the spy agencies and it would explain why Congress hasn’t whacked off the NSA and CIA (financial) nuts when the NY Times and McClatchy papers run stories about how the CIA [purportedly] spied on Senate staff looking into waterboarding and the like.

“Do you want an economy, or don’t you?” would be the quiet question over a key dinner, or two. “We own the economic outcomes across the board.  Now be a good patriot so we can continue the data feed that lets it all happen…”

Ad hoc data sharing and use for machine learning is a real fact, though not much covered.

It’s an interesting insight, unprovable one way or t’other, but if the news fits, wear it.

Crimea Sakes, What Next?

Meantime, the Crimea (autonomous zone, which sounds like a zone from Star Trek, but again I digress) has voted to join Russia..  Since peeps in the area mostly speak Russia, it’s a “well, duh…” but I’ve been talking sense for weeks and no one cares.

Just remember, we’re on the side with the managed economy…which was, if my feeble is still working, something that was one of the BIG bugaboos of Soviet Communism, but’cha see how everyone trades places in history?  Their managed economy was BAD and we attacked what?  CENTRAL PLANNING!

OMG it’s so Redickingfokulous.

The press meantime, unable to see the mirror keeps parroting Hillary likening Putsy to Hitler. And again (as I look at the wreckage of the ACA) I ask…where have all the mirrors gone?

I must have missed the bill in congress making Central Planning an OK religion now in ‘Merica.  But it worked the other way when we wuz pimpin dah Cold War. 

Who knew?  And even now, who says it?  Cultural programming is, oh, so vital.

Meantime, Back with the FlashGov of Ukraine

All of which gets us to the “club” and who’s in, and who’s out.   Notice this morning that the financial assets of the ousted president of Ukraine have been frozen by the EU.

Of course, they would be idiots for keeping money in EU banks when there are more flexible haunts like some of the Caribbean islands and Hong Kong, but that’s this morning’s war-by-other-means report.

Oh, except to mention the Russia Today report who quit on the air.  The Daily Beast summary is a good read.

Flip-side action:  Russia is saying (through friendly Xinhua) that Ukraine membership in NATO is impossible.  Oh?  Watch closely then, now that the West has discovered a push-back tool.

This about guarantees that with the Western loan guarantees, NATO membership will be a one-page application with a rubber stamp ready and NATO commanders ready to roll.  Just not yet is all…

Overall,  we are where we were when the whole thing began:  The EU wants Ukraine not just for its domestic resources, but to control pipelines from Russia and the like.  Russia would just as soon die (in multiple megaton flashes) than be invaded by Europe again and/or lose their warm water port.

Putin as a choice:  Throw in with the managed global economy/ new world order, or go it alone or with China and the BRICs and wait for the West to implode when the economic system goes out of model parameters.

Trouble is, he doesn’t know what those parameters are because Snowden can only tell him so much and how the models run…no telling.

So we put the whole thing on simmer for a couple of more weeks while Ukraine becomes NATO and the Russians move things along in background, beefing in Crimea, and we sit back to watch the Dow follow the other indices to new highs shortly.

Then all the generals and others who are well-connected, in background, can load up on shorts and we will have another crisis (a month or two), billions more pocketed, and so the world turns.

Human progress is thus the replacement of clubs and sticks with nukes and software.  Not sure if that’s much to be proud of, but it is what it is.

Strategic Stockpiles

Meantime, our framing of present history as the “Manufacturer’s Resource Wars” continues with this addendum from our Winnipeg news analyst:

Dear Mr. Ure,

Titanium dioxide appears to have many uses and the BBC reports of Americans who have been convicted of selling production methods to the Chinese government-owned Pangang Group.

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Earlier this week, I was telling you about my research into the “winds of luck.” 

Which picked up to a gentle breeze on Wednesday as two things happened:  A reader sent me a note to be extra careful on our trip as she had bad vibes about us flying out west.

No worries there…this is a driving trip.

But here the story takes a turn.  Yesterday on my way up to Tyler, Texas, do take care of last minute banking details (it takes money to go to a casino, right?) what happened?  The “check engine light” came on.

So I did the usual…water, oil, tranny fluid, brake levels…and everything was fine.

My next stop was an AutoZone store – which has a dandy service if you haven’t used it.  You go in, and free, they will hook up a computer to your car or truck and tell you what the OBD II (onboard diagnostics, level 2) computer is saying.  In my case, it as a couple of ABS sensors.

While we’re still planning to continue our trip (the car is drivable) we will be stopping for a couple of hours at the Lexus store (Sewell) up in Ft. Worth where they’ll have the car up on a rack and fix whatever it is…putting a 2-3hour hole in our plans.

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That’s OK, however.  We’ll simply find a comfortable place to hang out, hook up computers and we’re good for however long it takes.

But this gets me to the point of this morning’s comment on life.

Once upon a time, when a person went on a trip, they packed clothes, a handful of postcards (blank) and a pen.  That was it.  If you wanted to keep in touch with the people back home, you’d fill out a post card and in two or three days it would land, thus informing whoever of whatever and that was ‘keeping in touch.’

Nowadays, however, two things have dramatically changed our travel.  Medicine and electronics.

The medicine is no big deal.  There’s four pills for me, a fifth in case of a gout attack, and that’s it.  Except that Elaine and I both do a few supplements, so that by the time we add up the pill bottle its about 15 in all.  Once you get over 60, read the research on vitamin C and lysine, and on things like L-arginine, you’ll become a believer. 

Oh, sure, you can count out the pills for each day into one of those 7-day pill holders, which is how long this adventure should last, BUT that takes time so it’s easier to toss em all in a case of their own and off we go.

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Now to the point.  Electronics.  This is a bigger deal than our clothing, for cryin out loud!

It struck me this morning that everything else on this trip is shrinking in significance compared to the “electronics bay” we’ve loaded for the trip.   Here’s the list:

• George’s cell phone
• George’s cell phone charger
• Elaine’s cell
• Elaine’s charger
• Mobile power cords
• George’s computer
• Wireless mouse and keyboard
• Gambling software for this luck theory test
• Streets and Trips 2013 update
• Charts data transfer to laptop from home server.
• Fresh chip for camera
• Spare chip for camera
• Back up (portable) GPS
• George’s Kindle
• Elaine’s Kindle
• Kindle chargers
• Batteries, AA.:  Camera 4, keyboard 2 (AAA), mouse 2, camera 4, GPS 2… screw it, a 24-pack oughta do it.
• Ham radio
• Charger and repeater directory for above
• Flip video recorders (2) and four more AAs for them.
• Did I mention a couple of backup network cables? 
• How about updating contact lists…oh, my head hurts…

And, to top it all off, Elaine’s computer, wireless keyboard and mouse, carrying case and a backup 500 GB drive that we share.

But wait, there’s more!

Before going on a trip, I also back up everything, so I have 1.5 gB of backup files for the UrbanSurvival and Peoplenomics website that were made Wednesday.

Oh…and the electronic web of travel also includes telling our bank that we’re going on a trip.  And (in theory) this will make it so we don’t have credit cards turned off part way through the trip by the automatic anti-fraud system.  But again, the electronic web continues to tighten around its prey.

With the bro-in-law here, we don’t worry about home security, but without him, we wonder how much other electronics could possible be involved.  My son showed me all eight of his online security, auto-recording cameras that monitor his digs, when he was down recently and this morning it all came together.

We’ve gone from the days when Ma & Pa Kettle would pile in camping gear and go to a complete rat’s maze of reservations, deposits, electronics, backups, software, barriers, and batteries.

So much so that if the White House ever wanted to “lock down America” all they’d have to do is turn off hotel wireless routers and lock up the AA batteries.

American travel would die on the vine.

Serious Gambling Advice

As our trip bulldozes ahead, this email gives us plenty of stuff to add into our “research” plans:

1) Gamble during the Psi Window (12:30 to 14:30 Local Sidereal Time).

The Psi Window triples the efficacy of remote viewing, per one study (Let me know if you want the citation).  Gambling during this window in games where remote viewing/knowledge would be useful (like poker or blackjack) might result in bigger gains.  You could also try gambling 12 hours later than the Psi Window (ie., 00:30 to 2:30 Local Sidereal Time) to see if your luck is much worse.

On 3/6/2014, the Psi Window occurs between 02:40 and 04:40 AM in your local time zone, not corrected by Daylight Savings Time.  This should be true within +/- about 15 minutes anywhere on the planet.  The Psi Window backs up on the clock face about 4 minutes a day.

“Sidereal Clock” is a free app (on android, maybe others) that tells you the current Local Sidereal Time at your location.  From that, you can calculate when the Psi Window will occur in your local time.

2) Work the Fibonacci Ratio (f) into your gambling.

The Fibonacci Ratio is found in everything from the curve of the roots of your teeth to the curving of the spiral arms of the galaxy.  Maybe it’s in ‘luck’ too;

It approximates at 0.6180339…  You generate it by adding 2 numbers of a sequence to get the third, then divide the last 2 numbers in the series to get an approximation.  For example, 1,1,2,3,5,8,13,21,34,55,89,144 and so on.  89/144 is about 0.618…   144/89 is about 1.618…

In a room of slot machines, you could put 2 coins in the first, one each in machine 2, 3, 5, 8, 13 etc. 

Bet on f numbers at the roulette wheel, or make red=even and black=odd to bet on roulette color outcomes.

3) You gotta play to lose.

So don’t play too long. Casinos stay in business from long-term players.

Have fun–hope you don’t lose too much :-)

Trent T, subscriber from Maryland

Fine advice…now, if someone would just work out local sidereal time for us in Arizona, that would be useful.  Otherwise, I will be reduced to doing a “sun shot” at noon local time and hopping for the best…

Tom’s Gambling Advice

From the Southbay area…..

To make a long one short, I met up with a pro black jack player (Larry Revere).

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The big news of the morning is that there is NOT a war going on in Ukraine, and with the market putting in a decent low yesterday, we should be set for a major market turn in the near future, which has a whole methodology that will be part of Peoplenomics tomorrow morning.

For now, however, the “big deal du jour” seems to be that the US is looking at a wide range of sanctions against Russia.

But, when comes down to cases, what’s on the table is more “for show than for dough.”

The idea of the US not attending the G-8 meetings – or even going so far as to kick Russia out as some reports have suggested – is hardly meaningful.  the G20 is the real game and the G8 is little more than an afterthought in today’s world.

My in-box has been overflowing with hate mail because of our coverage, but please note that we have so far called events nearly right.  And so we should be in a period of quiescence while the West and Russia figure out what to do.  The real resolution of this won’t come until summer, or there abouts.

What matters in the very short term is that our long position in our Trading Model has been correct again, our intelligence on what’s to come is pretty good.  And about the only question is whether George Soros bailed out of his massive short position in yesterday’s market hemorrhaging.

With word that Soros is about to make a big bet in Spanish real estate, we are inclined to speculate that maybe he has, although actual knowledge is far above our pay grade. 

But back to point:  Vlad Putin is making it clear all over the place that they have no plans to annex Ukraine and that it is deeply indicative of a double-standard for the US to be preaching about intimidation tactics given how many trillions we’re into the Middle East and all.

And high integrity news sites like The Daily Beast are out with reports that echo what we’ve been saying all along here.  Go read “How the ‘Realists’ Misjudged Ukraine” and the theme ought to sound familiar.

One of the sad truths revealed by recent events is that a lot of people I know who mindlessly support the Obama administration (one likened questioning their moves to sedition) reveal a fact of polarization politics.

If you can’t deal with facts in an objective manner, you’re going to come to the wrong conclusion a very high proportion of the time.  I’m sorry we got this one right, but Russia is not about to lose their warm water port and they will go nuclear to defend it.

Anyone who can’t grok that and believes they understand the situation is seriously delusional.

But no worries.  Such people may have a “hole in their rock & roll soul.”  To help with repairs, go listen to the 1976 ballad by Al Stewart  “Roads to Moscow” over here on YouTube….  Things should come into focus…

Cultural memories are something you don’t mess with.  Unless you’re a fool, of course.

Or the EU.  But then, I repeat myself.

Do take the headlines about “Russia Massing Troops” with a grain of salt.  Remember, they’ve been invaded by Europeans before and they get extremely angry at historical reruns that challenge their sovereignty.  

I of course support the US response, just as soon as Congress has declared war in Afghanistan and all the other places we’ve been killing people and breaking things without the Russians confronting us on it.

You did catch the Venezuelan foreign minster calling out “international forces” for trying to whip things up in his country (too).

Meantime, John Kerry is talking about a billion dollars of US aid to the flash-government in Kiev?  ViceGrips and doobies all around!

We’re up to our butts in debt and we’re doing what with your tax money? FMTT. 

New Road to Wealth:  I’m going to some small country, get some Androids, start me a revolution, and get rich…

Global Whating?

While the rest of the country is about to get some Texas-style snows back east, we can’t help but notice that one of our favorite number-crunching realists (Warren Buffett) has been eyeing the Global Warming hype with the same kind of suspicions we have.

“Warren Buffett: Supposed Increase in Extreme Weather ‘Hasn’t Been True So Far’’.”

But the facts haven’t kept Al Gore from going around the country making speeches about it.

Hmmm…where does that put us?  We have war-mongering and Gore-mongering, shall we go for a Trifecta?

(Bingo!)  Poor Mongering!

The Los Angeles Times has a worthy read about how the Obama budget plans would shift tax benefits from the wealthy to the poor.  That would be a good thing.

Except, of course, the rich control the purse strings of the K Street Mafia, so look for the actual benefit to the poor to be minimized in the end. 

Still, credit where due: The Obama crew is trying to do the right thing.  And that should last about 3 weeks on the Hill where election cash trumps right thing every time.

Mr.

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Go figure this one out:  The Russians actually have their senate VOTE on the use of troops in order to secure their border and the world panics.  When the US invades countries, we conveniently forget about Declarations of War.

So the only inference I can draw from all this is simple.  What’s spooking the market may be John Kerry going to Ukraine, as much as Russia securing its naval base and military resource in Sevastopol.

A couple of Analogs?  Sure:  Ukraine breaking away size-wise would be like California, Oregon, and Washington announcing they were seceding from the US. 

And you don’t think the USA would march into Cuba to protect our base at Guantanamo?  OMG, people, how shallow are we?  Tit-for-tat.

What Ukraine was – and continues – is an oversized flash-mob of anarchists and now we’ll see if they can pull it into something more real.  But the anarchist spew is really soiling the picture.  Whether Kerry can find a moderate government (which could avoid war with Russia) is the open bet.

And judging by the futures, the market is shading that.  So, when a “breakthrough” comes, look for a 200+ point relief rally.  Or, have your flash-goggles ready if it goes the other way..

Our Monday begins with trying to dig out the real reason for the decline.  It’s not Ukraine.  It’s the fact that the Big One – China – was down 1.47% overnight.

So while the (me-too) press is tying all the negatives in the market to Ukraine, the wise investor is reading stories like “China move hints at 30% market correction.”  Key quote from the article:

Chinese policy makers’ move to weaken the yuan may affect stock market valuations all around the world.

Well, guess what?  China is the big dog here.  Japan was down, but only 1.27%.  And a tiny 1/3rd of a percent in Oz.

What’s going on in Europe right now is ugly:  The Brits are down 1.83% while the Germans and French are both down more than 2%.

I will grant you that Ukraine does weigh on the EU – since the Western-backed uprising is not going like a walk in the park (nor will it).  But the first 1.75% is laid at the feet of China.

If you want to believe that Ukraine is driving, have at it.  It’s partly so.

The more realistic view is that the global economy is set for a massive 30% correction and that brings our target of 1,540 on the S&P (Robin Landry’s view) into play.  In the short term, we may see his predicted bounce of gold to $1,400, but from there things should fall to the $1,000 an ounce level or under.  Just saying.

This kind of outlook is not going to win me any popularity contests.  But, in case you haven’t noticed, I’m not interested in a fan following. 

Being right matters more.

Russia’s actually voting on deploying its troops in advance.  There’s a great lesson there in who’s running a democracy lately.  I must have slept through the US vote on sending troops to how many countries is it, now?

Personal Income and Laughter

What better way to start Monday than thinking that paying down a credit card is “savings?”

While I fetch us the ViceGrips and roll us a doobie, you read the personal income and expenditure press release.  Particularly the bolded part:

Personal income increased $43.9 billion, or 0.3 percent, and disposable personal income (DPI) increased $45.2 billion, or 0.4 percent, in January, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $48.1 billion, or 0.4 percent. In December, personal income decreased $5.5 billion, or less than 0.1 percent, DPI decreased $9.7 billion, or 0.1 percent, and PCE increased $6.5 billion, or 0.1 percent, based on revised estimates.

Private wages and salaries increased $14.8 billion in January, in contrast to a decrease of $9.1 billion in December. Goods producing industries’ payrolls increased $1.8 billion, compared with an increase of $1.7 billion; manufacturing payrolls decreased $0.4 billion, in contrast to an increase of $0.2 billion. Services-producing industries’ payrolls increased $13.0 billion, in contrast to a decrease of $10.8 billion.

Personal saving — DPI less personal outlays — was $540.1 billion in January, compared with $544.5 billion in December. The personal saving rate — personal saving as a percentage of disposable personal income — was 4.3 percent in January, the same rate as in December.

There…want a hit of nitrous to go with that?

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