America’s Wet Spot

Say, bet’cha can’t guess what it is doing again here in East Texas this morning?

The National Weather Servicer has noticed, too:  Record rainfall for the month in Dallas and we should find out how Houston came out too, later on today….

But it’s not quite over yet:

“Strong to severe storms are expected to develop over the southern High Plains Friday with large hail and locally damaging wind gusts the main threats. Scattered thunderstorms with marginally severe wind gusts and possibly hail are expected to develop ahead of a cold front from the Great Lakes southwestward across the mid Missouri Valley into the central Plains.”

Other than a cranky septic system, muddy roads, and crumby instrument flying weather, it hasn’t been too bad here in the Outback.  We’ve got more magnolia and gardenia blooms than we’ve ever seen before.

Other people haven’t been so lucky.

And if this is climate change, it’s not too bad.  I am taking up a collection to send Elaine and me to Brownifornia to put bird seed out.  Elaine’s bird feeding is what set this all off, I swear.

Former GOP House Speaker Indicted

Former House Speaking Dennis has been  indicted on corruption charges revolving around structuring of cash withdrawals to evade reporting requirements.

And yes, this case involves supposed payments of almost a million dollars to a female, perhaps from Hastert’s teaching days.  More details will emerge over time.

But there are two things in play here.  First is the nature of this is highly political, since payments to women are (in Washington….you kidding?) not exactly unusual.  But the other thing to keep an eye on is whether Hastert actually broke the law.

As we have noted many times, there is a tendency for federal officials to take laws on the books today (very hard laws on structuring of cash transactions and using “structuring” to avoid detection and reporting) and applying them retroactively.

Of course, the lying to the FBI part?  Just plain dumb on Hastert’s part, as I see it..

I don’t know how many times I have mentioned this, but in many cases, a defendant *(in this case Hastert) gets into trouble because they speak with authorities.

Here’s the classic YouTube lecture on point, in case you missed it…

I can’t say for sure, but I’m just guessing that the former GOP House speaker that wishes he’d spent a little more time on YT.

Could the case have been made without him opening his mouth?  Nickel side bets are now open.

Restudy:  Flood, Dresher, & Tucker’s work on prisoner’s dilemma…d’oh!  Reread Nash.

Economic Ball of Confusion

(Go ahead, click the headline for the music track from the Temptations…)

So here’s the point of confusion is this:  The economy like contracted in the first quarter, but the fundamentals are strong.

We’ve been watching this a lot more closely over on the Peoplenomics™ side of the house, but the long and short of it is that a) the US is in deflation and b) we are papering it over by simply printing up gobs and oodles of money so no one notices.

With the Federal Reserve’s money printing data out, we see how shoveling 8.1% more M1 into the economy over the past year – which in normal times would light off a bonfire of inflation  – has been unable to move the Treasury notes far from the 2% level.  In fact, the TNX (10 year) closed yesterday at 2.13% roughly.

So, what’s going on?

Well, I think the dynamic can be thought of this way:  We have four percent deflation around.  And we suspect that because the Money supply is up 8.1 percent, and we back out the interest rate on bonds, which says 6.1% inflation.  But then you back out organic growth of the economy, maybe another 2 1/2% and you come up with about 4% deflation.

In normal times, that would result in business failures and all sorts of sand in the economic gearbox, but since the Fed is opening the back door and shoveling out grease (in the form of free money) wee haven’t had to pay the price.

The danger is that the economy is now in a new kind of balancing point, and all the doom and gloomers (who have been spectacularly wrong) will continue to be wrong until we get the final blow off which should occur (this is only a guess) in 2016.

So in the meantime, economic distortion is the order of the day.  The market will open down this morning, but the market isn’t sure what to make of it either.

And while we see an ascending terminal wedge, which should result in a 5-10% downside move, there is enough distortion in the system that there’s no telling how it will all impact traditional economic measu405.6frements and forecasts. 

On the other hand, if we are indeed playing the parallel to the 1921 to 1929 period, then this is late 1927 and the bulk of the blow off top is yet to come and that could be a doozy.

Then, when Hillary Clinton buys the White House in 2016, she will fulfill a historical rhyme of the Second Roosevelt (being the second Clinton) but with the twist that she will be the Herbert Hover bag-holder when it all falls down.

At least, that’s one construct present in Big Data of all this stuff.

BEA Data Confirms

You can see how this distortion is working out in the new Gross Domestic Product report just released here in the past few minutes:

Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — decreased at an annual rate of 0.7 percent in the first quarter of 2015, according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 percent. The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, real GDP increased 0.2 percent. With the second estimate for the first quarter, imports increased more and private inventory investment increased less than previously estimated (for more information, see “Revisions” on page 3). The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, nonresidential fixed investment, and state and local government spending that were partly offset by positive contributions from personal consumption expenditures (PCE), private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

So repeat after me:  Decrease in GDP means that deflation is really here.  But shovel enough paper onto the fires of prosperity and no one will notice.

The market is working out a new money-fueled QE burn rate and it is causing economic distortion which has thrown traditional measurements off kilter.

It’s not (to borrow the Temptations tune) a “Ball of Confusion.”  It’s the disorienting effects of being a locked in part of the old-style “Ball of Consensus.”

What’s really in play is a complex system achieving a new economic equilibrium…for now.

Dow futures down how much?  -30 and the Dry Ships/Baltic Dry cargo index is stuck at 588 – about 2009 levels.  Maybe the market is telling us “Could have been a lot worse…”

The reality is it probably is, but we can see it for all the mountains of cash.

Mountains, did I say?

Shakin’ and Quakin’

Spectacular blow off of a volcano in Japan reports USA Today over here.  And we notice the Big Quake Jitters for May 28 paid off with a quake that has ping-ponged between 6.7 and 7.0 (depending on report time) up in the Aleutian Islands this morning in Alaska.  Details on that one over here….

Keep an Eye On…

Russia masses firepower on the Ukraine border.  What day of the week would you pick to start an invasion?