Counting Chickens and Keeping Options Open

imageIt came to me as a great revelation in a dream:  The Fed doesn’t know what is going to happen, either.

So just in case, in the Fed decision this week, they dropped from four raises being in their forward guidance down to two.  With the action going on in the rest of the world, it means they aren’t too sure yet of what’s going to happen.

In the meantime, the markets are really setting the rates – and the Fed is simply rate following. 

Remember, around here, one of the few bits of economic reality is the  10-year Treasury.  And when you look at what the 10-year has been paying, it looks to me like it may have completed a major corrective 3-wave move higher from where it was February 11th at 1.644%.

imageWhile my odd way of looking at charts will make a lot more sense to our readers, the basic idea is that we have broken the trend channel of a wave 3 rally and the way is now open for the 10-year to drop down to the 1.78% area.

While this should do remarkable things for the Dow (which should rally since when rates are falling, traditionally the stocks go the other way) this leads us to anticipate another encounter – perhaps this summer) with Ure’s Discontinuity.

That’s what happens as interest rates approach zero.  While no one knows precisely where that level is, when rates are above it, the investment community looks at things and thinks “No point of jumping into stocks because they have risk…

Usually, though, stocks begin to look better than bonds at some point in the decline, especially in the period just ahead.  That’s because the thinking of investors flips over to something like “Damn!  The market is positive for the year so at this rate I should peddle my bonds and get long stocks….”

Below the floor of the Discontinuity, though, things turn ugly.  The investor thinking turns into something like this:  “Damn, bond yields are crap so I don’t want THEM.  On the other hand, things are now SO BAD that stocks are not showing any real potential upside EITHER.  I might as well go to cash and do nothing…just get my money off the table…”

Exactly THERE is where the Second Depression begins.  People who have been buying stocks are doing so on the come:  Most companies don’t really have a lot of traditional upside left (through increased sales, new products, and reduced costs) because everything has already been optimized all to hell and gone over the past 35-years.  Long, actually:  The long term high in the 10-year dates back to 1981, does it not?

On the bond side, though, that means banks and others are sopping up bonds as fast as they can because nothing else is offering a return of any sort.  As demand for bonds goes up, their yield goes down, and their prices go up at the retail level.

Damn.  Double damn.  Discontinuity damn.

By backing away from four raise predictions this week, and dialing it back to two (and we can’t even bank of those…) what the Fed is trying to do is pretty obvious:

They are attempting to bounce along on what they HOPE will be just above the floor of the Discontinuity so that things don’t spiral into collapse.

The good news (but only such as it is) is that the stock market could light off with one last huge bubble as took place when the Fed last tinkers with the macro economic equation at these levels.  You’ll find that in your history books as the period from the Fed discount rate increase in April of 1928 until the ultimate top in September of 1929.

We may very well, at least in the way I look at things, be in that similar position today.  The Fed is attempting to arb and jawbone the market higher.  In theory that is working, but they miss an important dynamic that I’ve never seen satisfactorily explained in any economic papers.

That dynamic is consumer expectations.  Here is what is going on:  People are beginning to sit on their wallets.

Here’s a snip from one of our reader’s (from our Comments section) that explains it neatly:

“I’m coming up on my 10th anniversary working for a certain department store chain. My store is located in a rather affluent suburb of Los Angeles, but still somewhat reflective of economic trends. The last couple of years my store has definitely showed symptoms of dollar deflation as we slash prices on merchandise so deeply even the customers are remarking, “It’s like you’re giving it away” and “Maybe next time you’ll be paying me to take it!” We have lately created large areas of permanent clearance areas as we slide our way down to remake ourselves into something like Kohl’s or TJMaxx. I just hope my job survives long enough for me to pay off my daughter’s wedding!

Keep an eye on our Comments section because people are reporting various incidents of price reductions, but not in the staples – yet.  For now it seems to be confined to the upper end of the discretionary spending ladder.

Sure, housing starts are doing OK – for now.  And my expectation is that they will continue to look good until the New President comes along in January.  THAT IS WHEN RISK WILL RISE LIKE A ROCKET.

There are only three possible outcomes in view presently, and none of them is particularly encouraging.

1.  Hillary Clinton wins the election:  Under this scenario, the importation of masses of more workers continues as illegals are made “legal” by the complicit (bribed and cajoled) Congress which has forgotten the basics.

Under this scenario, we have to ask “How would the Depression have worked out if Hoover hadn’t won in 1928?  What is a Roosevelt New Dealer (and master inflationist) has come along, instead?

Then, instead of a global blow-up in stocks and bonds (which not of the PowersThatBe really want) we would likely be able to kick the can down the road for another 2-5 years but then pension obligations blow up the world.  

CNBC has that covered in Study Finds Public Pension Promises Exceed Ability to Pay  which is worth reading.

The main thing here is the ultra-long-term view of pensions and Social Security and inflation and levels of taxation are still out there, and still unresolved.  It’s just we are distracted by a closer-in mess.

2.  Donald Trump (with a running mate like Dr. Ben Carson) win.

In this scenario, the Rest of World blows up, and while things look “iffy” in the short-term for investors, in the longer run, problems begin to dissipate after a few years.

The problem of the Second Depression, unfortunately does not.  Because as we slam borders closed, and as we raise tariffs or simply impose fees on imports, prices will go up.  And what is the result of that likely to be?  Oddly:  Some inflation under Trump during the period of adjustment.

Then there’s the matter of “payback’s a bitch.”  What if something happened to the master investor?  (In other words, a Kennedy type event.)  Would whoever his running mate is be able to hold to the economic policies that Trump espouses and see them to the implementation phase?

Answer:  It would be iffy at best.  So if anything happen to Trump – and regardless of his running mater, the outlook would be for a Depression with someone left in charge who lacks the communication skills to “talk down the country from the ledge.”  That’s a tall order, and none of the debaters seem likely to get this right.

3.  The GOP – being totally controlled at the top by self-interested greedsters who can’t em brace change unless there’s a buck in it for them, goes to a brokered convention and appoints as the standard-bearer someone who skipped the debates. 

I’m not the only one who expects a kind of WW III if this happens – read over here about how this insider stuff works.

In which case, the silent middle will be disgusted with the failure of the GOP to “walk the talk” and we [return] to Option 1 as the actual outcome and Hillary wins.

So our bottom line: 

1.  Slow time in the newsroom but since the Fed decision, the market seems likely to close up 250 for the week.

2.  Next week, we may see a decline because of the post quadruple witching let-down.

3.  It is still too early to take our New All-Time Highs to the bank.  That will not be assured until we get there are (as several astute readers have noted) get a few weeks of solidly higher closes above that level.

In Other News

Note really much worth noting except maybe American IS fighter: I made a bad decision because that really is a win for the home team.  Imagine:  Someone coming to their senses…

There is a new $10 bill in the works according to Hamilton Creator Says Fans Will Be Happy With New $10 Bill.

The fact that it’s not a new $20 or $50 speaks volumes about deflation to some of us.

O Cuba

To the LA Times “Obama’s Cuba visit to augur a ‘new beginning’ between nations.”

The real deal here is money (but then isn’t it always?)  Cuba rebukes Obama’s call for change but will nix dollar tax.

This will be an instant “add policy change and stir” that will bring some economic stimulus to southern US ports and will open another economic valve…

The Art of the {BAD} Deal

Fortunately, there’s a kind of unwritten rule of being a journo that you don’t get down to using colloquial phraseology in reporting like “Ungrateful prinks.’

Otherwise, we’d be tempted to apply it to Turkey and remind the cast of clowns running the EU (into the ground) that they are stupid beyond belief: Europe offers deal to Turkey to take back migrants.

They should be saying “Take ‘em back, or else…”

Europe loved the economic push from the import of lots of people (who just want to take over Europe again in a kind of Islamist’s version of reconquista),  Now they want to undo the deal?

Europe was dump for letting them in, in the first place.  Now they want Turkey to solve the problem for them?  ViseGrips time.  I need to pinch myself, bad…

30 thoughts on “Counting Chickens and Keeping Options Open”

  1. “””” The Fed doesn’t know what is going to happen, either.””””

    That O,S,M ( oh SH@$ Moment } when you realize those checks you were kiting anticipating the upcoming payday all catching up with you….

    • just look for that bald spot.. the one where everyone is running in circles ripping their hair out saying to themselves what do I do.. what do I do.. if you go deeper.. you could hit the spiral so bad it destroys everything later on without any hope of salvage.. or if you pull short and try and clean it up you take the chance of a journey on the roller coaster or unspecific perils sooner that could turn you into the spiral at a quicker pace..
      I personally am going to be that bird that sticks its head in the sand and pretend its not happening. like a tree being chopped down when it starts falling it is in slow motion till it hits that point of no return and crashes to the ground.

  2. George there is an option 4 in your scenario

    Brokered GOP convention which results in a Hillary win. After the election but before the swearing in ceremony, she is indicted and put in an Orange jumpsuit. Obama stays in office.

    • NO !
      Her veep would be sworn in as Pottus and the senate would “elect” a new Veep—–just like Gerald Fordover in 1973

      • Not the same scenario she is not sworn in, Nixon was a sitting president. So it would be a constitutional crisis, which would be settled by an Obama court….hmm seems well planned to me.

        There is only a rule against being elected 3 times. In this case he would not be elected so not unconstitutional. Another gray area that he is good at taking advantage of.

        If all that fails he declares a state of emergency and sets constitution aside and again does not leave office.

        My original point is that there is a 4th option….Obama stays in office

    • Remember that phone call from Bill Clinton to Trump in the early days of his announcement? I was always curious about what was said.

      After watching the DONALD start his take down of the GOP candidates, I said to a friend, what happens if he takes them all down and Hillary wins. Still very impressed with Trump, but for such a smart guy to say some of the things he has said that are self destructing, it makes me wonder? Nah…..

      If we have a brokered convention or they put together a Cruz-Kasik ticket like they are trying to do now BEFORE the convention, all hell will break lose now and fractions will happen.

      CHECK against Trump. Hillary or Obama stays in power under some kind of event, then martial law, then CHECKMATE, signed sealed and delivered…..nah…

  3. That NBC article about ‘the Republican problem’ is really very good – thank you for bringing it to our attention . . . I do wonder though if this is going to be a replay of the mess in Chicago that for the Democratic party was so divisive in 1968. (I doubt if the ‘rank and file’ of Donald Trump’s supporters will be satisfied, nor will they understand how nominations happen – in any case security needs to be very present and tight!)

    • The main takeaway (for me) from the article is that the political process is really a sham. If the will of the people – even a simple majority – isn’t carried through the convention, then democracy is a fraud. Moreover, the Electoral process makes is doubly so, so I repeat myself.
      the two party system has been a hoax pulled off by insiders who leave us with only 4% of the dollar’s purchasing power compared with 1913. Historically, countries get into “revolution country” when their currencies are debased 95% and we are well past that, a testament to the frogs boiled slowly idea which, although not true, does seems to apply to the largely inert population dumbed down with ultra-processed foods, bullshit television, high taxes, and an extra dose of fluoride.
      Since you already read UrbanSurvival, this is nothing new. And on our site, we have a lengthy discussion in the “First Things” section on how gold compares with stocks. Hint: Stocks still suck and will continue to do so, even well into new all-time highs.

      • We have no direct democracy, only representative democracy, meaning that the will of the people need not be taken into account. This was by design, after all, mob rule is not exactly best, not even sometimes.

      • I can’t tell you where I read it, but what I read was that when a ‘movement’ gets thirty percent approval then it begins to be considered seriously . . . if any candidate can get thirty percent of committed voters – even in an election with only two choices than the rest can be considered ‘swing’ voters able to be swayed.

        (But not approving of something can work differently if there is no clear way to express that opinion. Yes, as you say, the value of the U.S. dollar has decreased dramatically, but since most people are concerned with ‘day to day life’, they have no easy way to express this frustration, or really even quantify it. Donald Trump does not appeal to the better nature of humanity – the lowest common denominator is not a good thing to strive for.)


    It’s pretty obvious that the puppet masters of the G.O.P is struggling over a possible Trump Presidency.

    (Years ago.. I overheard a senator talking to another speaker on what he should say during a campaign speech.. the senators response was.. give them an ABC speech they are dumb as sheep and will believe anything you tell them..)

    I believe they believed just that and for decades have been right.. and they all thought that during this election it would be status as usual..
    instead they are finding that the people of the US are finally speaking up with one voice saying.. the status quo is broken lets make a change.. and Trump Is the man everyone thinks could make the changes needed to make America strong again.
    I think they see that a Trump win would be bad for them because he cannot or will not be maneuvered and controlled like a puppet doing the bidding of a few.
    Also He does have billions of reasons to salvage our economy and make America and its currency strong..

    Now for the thought on future conspiracies… the few pulling the strings are trying to rewrite the rules so that Trump can be eliminated from the ballot..

    But After years of a system that is obviously no longer working for the people by the people but only for the few with their money and influence is that the people are no longer buying the old give them the old ABC speech they will believe anything idea any longer…

    Now the What if scenario.. What if the puppet masters fail at the rewriting policies and force trump out of the election and trump wins..

    He still isn’t controllable by the puppet masters he will try to make America strong economically again.. It is in his best interest to do just that.

    we do know that those in power hate to relinquish that control they have over the people so for a trump win.. it would be similar to driving a car with a steering wheel that isn’t hooked up to the front tires any longer..

    another aspect of that is if they force trump out of the race.. would that destroy the GOP that they have nurtured for such a long time.. and what would the people do.. we already see the wave from the change in the winds of time.. could they maintain control over the public and still not make the changes that the people are crying out for.
    Or do they let Trump take control then force him out after he is in office by other means..
    If they did that what story would they have to create to keep it from falling downhill on them or who would they have to find that would be a scapegoat to blame their actions on….

    • Or could there be a reverse conspiracy theory.. we think of those theories from the past and the effects that they have created..
      Donald isn’t a fool.. could there be A BATTLE OF THE TITAN’S in the future and what effect would that have on society today.. our economic structures etc.. or could they just decide to make concessions together each give a little make the people happy and they gain power and ultimate control a little bit slower than what they would like..

    • The trump is the one polling the strings he even said it him self. I can not be leave he said he bribed are public officials and didn’t get arrested. trump should be in jail along with the clintons

  5. Of course spending, especially at the upper bounds, is declining.

    for 15 years we have encouraged current consumption using tomorrow’s income via debt. Hell, that’s what ZIRP is all about.

    And globally, consumers have reached “max debt.”
    No more debt = no more spending.

    Remember, MV=PQ. And the equation must ALWAYS balance.

    Even though money supply (M) has increased dramatically via QE, velocity (V)is on the floor. All that printed money is piling up on mega-bank balance sheets. Price and Quantity (P&Q) MUST fall.

    Sometimes I hate that I know stuff. Ignorance would be bliss. Unfortunately (or fortunately, I can’t decide) 99% of Americans are willfully ignorant.

  6. I posted an excerpt on Facebook yesterday from the 1976 Movie Network See this link…
    Listen to it. It is a 40 year old movie and 110% relevant today..and it got me to thinking.

    Why on earth is Donald Trump leading the polls? Because Fox is giving him 15x the coverage of any other candidate. He helps them sell ads on their network. But…that is a short term business strategy that ends in November.

    For the past eight years..they have made their money attacking Obama…creating hate, fear and well everything the GOP establishment and to lesser extent, the vocabulary challenged Trump has been preaching. It is their business model? Let’s face it…Fear and contentious rhetoric increases viewership.

    ?So, if Trump is elected…what will Fox’s programming be like? They can’t really turn on him…That would be contrary to their so called “conservative position”. If the GOP gains control of the house AND Senate…Fox becomes irrelevant for 4 years. It will be boring right?

    I can hear Roger Ailes right now in a big board room of media fat cats strategizing their next move…

    “Gentlemen…what is our next step in making sure we ruin the GOP candidacy? We could go all out and support Trump, because frankly, he has no chance of winning the Presidency…but it will ruin our reputation a bit, because this guy is a total fruitcake….and America is catching on. We ruined Rubio…Kasich is gaining steam, so let’s dig up dirt on him…Cruz is curiously divisive and may provide us a chance for a GOP loss. Or, we could create a situation where nobody gets enough delegate votes and we lobby for Jeb…who is safe, will definitely lose, yet gives us at Fox credibility for supporting a GOP establishment guy…That way…we get 4…maybe 8 more years of high ratings, heated shows and more contentiousness than ever with Hillary as our President…Put together your proposals and have them on my desk ny noon tomorrow…We need Hillary as our President. Ours stockholders demand it!!!”

    You heard it here first.

  7. A question from North of the Border:
    What would happen (before or after the Democratic and Republican conventions) if Hillary Clinton is charged with a criminal offense and Donald Trump was offed? Given the climate in the U.S. at the moment, both are not unrealistic possibilities.

  8. There’s also the comment attributed to Mark Twain-(paraphrase)
    If it made any difference, do you think they’d let us vote ?

  9. George, I’m in a public pension in Ohio(pers). It is financially sound. They are cutting back and have been for 20 years. Within 3 years no insurance for spouses. And our insurance( workers). Big pay ins. In 2018 Obama Care taxes policies at a tune of 40% if you have a Cadillac plan. That plan ( 10400) is base. So anything over 10400 is taxed at 40 percent. I have a out of pocket of 5250 per year from the County. With that out of pocket the county still put on my w-2 they played 16679 dollars to my insurance. Doesn’t sound to Cadillac to me. So 6279 is taxed at 40 percent. That is approximately 2500 in tax. Guess who’s ass that coming out of. But by that time , the Dow will be at 800. My pension will be gone ( along with everybody else’s). At least. 100 million Americans dead from civil war.( no more money for welfare). Let’s just get prepared to survive this on slot.

    • Just go cold turkey and join Samaritan Ministries. For a couple the share is $360.00 a month. What you described is highway robbery. You do not have health care and you do not have insurance, you are being defrauded. Just say, ‘no.’

  10. So the guy in LA is having a bad time with the retail situation, but being in the South in a very upward moving part of the country my place of work which USUALLY gives away it’s services with coupons and sales is scaling the deep Discount’s and sales wayyy back. Not sure what that means in the great scheme of things but hey

  11. I find it extremely difficult to believe that they will be able to get away with substituting another candidate for Trump if he has the delegates. I’m not saying they are not capable of doing so but it but it would be their complete destruction. The back lash could be so bad as to far outweigh the opportunity.

    I’ve noted the price of Revcon motor homes has fallen to rock bottom. I wish I had the money for some of these. A lot need some work but since they are front wheel drive it would seem to be fairly easy to convert to electric with parts from Tesla or other electric cars. Solar panels on the roof and you have a motor home you can park a few days, charge the batteries then drive a day. Most have built in 5 HP generators. I’ll bet with a 5 HP generator and solar on the roof you could drive it down the road as long as you didn’t get over 35 mph or so. I found on the web 8.00 hp are required to drive a 1900-kg automobile at 34mph. If I had the money I’d buy all the Revcons I could find and convert to solar-electric-diesel. A small Volkswagen diesel engine would easily drive one of these in hybrid electric mode. For the serious survivalist you could use a gasoline engine and put a wood gas converter on it. Drive with solar, trash paper and wood.

    Pertaining to your gravity drive. I saw a forum post on the EM drive and the relation of dielectrics to the operation of. Look at this post.

    They say,”…It’s interesting to note that a dielectric resonant oscillator (DRO) uses a dielectric “puck” to exchange energy, at resonance, with a tuned cavity…”

    I’ve posted a lot about dean drive and gyroscope type acceleration of acceleration being the cause of these effects. I’ve never understood the EM drive but this post made me wonder. Is the dielectric being driven in the same manner as a dean drive? Say interfering fields drive it to some peak acceleration at times? The dielectric is vibrating? That would be a simple explanation. The Dean drive and other types like it are the only type drives that I’ve seen that have reliable first hand data by reputable people. G. Harry Stine tested the Dean drive by pushing on it and verified that it pushed back. It would also account for their problems in testing EM drives. They’re looking for the wrong force or mechanism of action to monitor.

  12. Why does ANYONE believe, should Hillary be indicted, that her trial would go to court before the election? The only way she will appear in an orange jumpsuit before next March, would be if Donna Karan designs one for her.

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