MUM’s the word, in Economics. Except, instead of silencio it now stands for Making Up Money. Which is what the G20 is orchestrating; reshuffling debt and making-up borrowing to make it appear all is well. Buying time on the Global Titanic.
A Thought Experiment: I owe you $10-bucks; it’s all the money I have. You owe me $10-bucks; and it’s all the money you have. Our friends understand that both of us are broke, when comes down to it.
An economist comes by and says. “I can make both of you look more prosperous by Making Up Money.”
Producing a copy machine, he copies each of us $10,000. Paper is everywhere.
He also rewrites our mutual debt so that I now owe you (newly printed) all the money I have. That’s $10,010. You do the same, just to keep the monetary injection equal.
“Tell me how this fixed anything,” you ask the economist.
“Insofar as the two of you are concerned, there has been no change. BUT, your friends? Onlookers? No matter what the debt, if the numbers are big enough, no one will question your worth!”
Was it the late Senator Edward Dirksen who said it best:? “If you owe the bank $5,000 dollars, you have a problem. If you owe the bank $500-million, the bank has a problem.”
It’s useful to step back and see how “hole patching” of the Global Titanic is coming along.
Past Economic Depressions, you see, have been localized. They have been confined to specific areas::The Weimar Republic and more recently Zimbabwe. The USA, too, during ours own (not so) Great Depression.
Thanks to the interconnectivity of the world nowadays, a never-before-scene possibility arises which is easy to articulate but less-easy to model. International market linkages, in all three major domains (foreign exchange/FOREX, equities, and commodities) are now linked via arbitrage.
Squeeze on any one of these, say FOREX in Europe, and eventually the impacts will ripple to commodities in, oh, Asia for example.
Thus, we can focus on the several aspects of Depressions that (going Dangerfield here) “Don’t get enough respect.”
- Information asymmetry
- Trade asymmetry
- Expectations asymmetry
It’s likely (says the literature, at least by implication) that modern instant communications to (most) market players has reduced the risk of a single-market-washout. A high-speed crash, while an eventual outcome, may not be the primary source of collapse globally. Never had a global crash before.
Trade asymmetry is a slow-motion bleed-out and it’s why the US is presently holding out for trade equality. Regardless of opinions on Trump, if we don’t “fix trade” the future of America dims to MM50 – Mostly Mandarin in 50-Years. That’s because with compound interest, America will be unable to make even interest payments. Our once-great nation will hav e effectively traded itself into collapse. Are we that stupid? You won’t like the Chinese answer….
Which leaves us eyeing the third vector for clues; financial relationships. Some important ones to consider:
- Value of the dollar vs. Yuan and Euro
- Prices in the PGM (precious metals group)
- Distracting Abstractions like Bitcoin and cryptos.
Momentarily, we seem to be resting a bit. Noise trading on the FOREX, Gold and Silver are semi-stable in the $1,500/$18.00 range. Bitcoins? Right around $10,250.
While there are lots of reasons for the market to decline, there are three reasons that would need to change in order for us to get wildly bearish – just yet.
- The market is above the 50-day moving average. This Yahoo Finance chart hints the S&P 50 DMA is down around 2,939 and we’re holding 30-odd points above that. Also, our Peoplenomics Aggregate is also above a key level that has in the past been a reasonable proxy of when to be long or short the market. More on this for subscribers tomorrow.
- The Federal Reserve’s Consumer Debt report out yesterday was decidedly positive.
- And we have a fresh set of Small Business leanings to consider today.
A drill-down into these two latter points may be instructive:
National Federation of Independent Business survey just in comes with the headline “Small Business Economy Remains Steady, Despite Doom and Gloom Narrative That’s Hampering Expectations…” and picks it up from there:
“WASHINGTON, D.C. (Sept. 10, 2019) — The NFIB Small Business Optimism Index fell 1.6 points to 103.1, remaining within the top 15 percent of readings. Overall, August was a good month for small business. However, optimism slipped because fewer owners said they expect better business conditions and real sales volumes in the coming months. Job creation accelerated, positive earnings trends improved, and quarter-on-quarter sales gains remained strong.
“In spite of the success we continue to see on Main Street, the manic predictions of recession are having a psychological effect and creating uncertainty for small business owners throughout the country,” said NFIB President and CEO Juanita D. Duggan. “Small business owners continue to invest, grow, and hire at historically high levels, and we see no indication of a coming recession.”
It’s not a bad report. Within the top 15% of all time readings.
The other Big Positive that isn’t getting much airplay on the financial networks (for what we’d guess are either political reasons or simple ineptitude) is a smoking hot Federal Reserve Consumer Debt Report for July.
I’d underline the July revolving (credit card) use being up strongly.
Which really frames the question in our opening headline today: For now, there could be something of a Crash Respite. But the dangling question is “For how long?”
Historically, revolutions happen when governments don’t deliver on their promises. In some ways, Barack Obama was under-promising with his “new normal” that featured less growth. When little was delivered? People put up with it.
But, the Trump expansion has shown that what “gets delivered” is also a product of what people’s expectations are. One could cast Obama as a “glass-half-empty” kind of guy while Trump is not only a “glass-half-full” kind of fellow, but he’d also toss out new business ideas: “Why don’t you start a glass-filling business and stop being so damn negative?”
Notwithstanding, the derelict congress, now infested with junior “take-down-America” socialists are likely to drive the final nails in.
Slow Motion Inflation is Still Here
What cost a single dollar in 1913 (with the Fed seized money power from the FedGov) today costs about $25.80.
That’s $25.25 based on the Minneapolis Fed inflation calculator and our own estimate of 2.2 percent inflation for 2019 which won’t be in the calculator until next year.
When you divide $25.80 into 100 cents, you find actual purchasing power of the “modern dollar” to be 3.875% of what it was just 106-years ago. Thus, if you saved $1,000 when the Fed took over in 1913, and just held onto it – not putting it to work – you’d be able to buy something priced at $38.75 today. Well, except it would be more like $34.85 (3.485% remaining value) because we need to really pay the 10% sales taxes, right? Economists sweep this last 10% bendover under the rug, but it’s real and never mentioned.
Of course, it works the other way, too: A $10,000 house in 1913 would be priced today just under $259,000. Maybe two to ten times that if you bought in a high-growth urban area. Think the South Bay and Seattle’s Eastside (Bellevue, Redmond, Kirkland, Bothell, Renton corridor). Again, the huge property tax bite is never mentioned in real estate “appreciation” either. Just keeping your thinking clear. In fact, in America, until alloidial title returns, everyone rents from at least the government, but let’s set that aside…
A weather-eye to real estate, despite the rampant negativity being pimped by the controlled corporate press, we don’t believe the Global Titanic sink today. Sure, its in trouble but until the EU hits the financial rocks and real estate prices get sketchy. cautious optimism and that glass-filling start-up sound good.
There’s a crash in our future, just not today, or even likely until at least October. Crashes don’t happen at market peaks.
Which Leaves Things That Matter
Stories about Hollywood this (Joker) and that (Hanks as Rogers) aside (being semi-cultural icons), the rest of today’s news flow is back to summer doldrum-like:
“US Futures Drift Higher On Chinese Invitation To Bagholders, Trade And Central Bank Optimism” on ZeroHedge looks interesting…Dow futures were still down a shade.
Projecting power? North Korea fires projectiles after offering to resume U.S. talks. What makes this linguistically so interesting is that someone at the top is “mind-feeding” the word “projectiles” not missiles. Either that or the MSM is the biggest bunch of uncreative numbskulls in the Universe. (OK, maybe some of column a, some of column b, then…)
For those watching “The War Between the ‘Nets” (as the internet moves toward breakup into Asian, European, and North American nodes), please note how the head of the EU’s global internet shakedown of Big Tech is sticking around. Netplosion isn’t a word yet, but give it time and runaway megalomaniacs in Europe.
Speaking of EU victims: “Violent retail crime leading to PTSD for shop staff, report says…” Care to take the side bet on whether the perps are native Birts or those force-fed imports demanded by the Brussel srouts? Open Border lessons for the stupid are free.
You Follow Cameron and Tyler? “Winklevoss Twins Launch a Crypto Storage Service.” Kinda sounds like a Crypto online bank to this doddering old man I shave… Hmmm…how could such a bank be robbed, I wonder, academically of course!
Mental Acuity Test: If we headlined “Ray Charles Meets Alibaba” would you get it? Here’s the headline hint: “Alibaba set for ‘big challenge’ as flamboyant chairman Ma departs…”
For your slower classmates: Alibaba’s boss is Jack Ma and Ray Charles sang what? (This is one from the easy deck…)
How Washington Could Save China: China’s Pork Prices Soar, Adding to Beijing’s Troubles. Say, don’t we have a pork barrel or two in D.C. to contribute? Might help trade talks, too…
Attention Button-Pressing Phone Apes: iPhone 11 to be unveiled at Apple event. (Our backwoods idea of an Apple Event runs to washed, cored, and sliced.)
Off to scramble the rest of life…pork out if you can.
Write when you get rich (or when the toast comes up),