With the Price of Oil crashing to lifetime lows, it has become apparent that the Fed has seriously screwed-up and does not understand what happens when hyper-deflation (here at the bottom of the economic long wave cycle) runs into hyper-inflation as demanded by compounding effects of interest on the federal debt. And egged further into super-nova territory by $600-trillion worth of financial derivatives which are beginning to blow up.
Now the gory details…
My youngest daughter called Monday to ask “Dad, are you watching CNN? What happens when the price of oil goes NEGATIVE?” Smart kid, smart question.
The answer is that some high-rollers, who don’t understand “time-value” and the urge of market-makers at the Chicago Board to Trade to Bankrupt anyone wandering by, and who misjudges the future, will promptly lose their asses. To wit: Monday.
On the other hand, the forward contract, June, is trading this morning down, again to the $15.57 range for West Texas Intermediate. My consigliere and I were discussing just this dynamic earlier Monday as in certain trades, producers were paying to have people take delivery of oil. Better than FREE!!!
One of the Kings (Tabitha or Stephen) could write “The Patch” and it would scare anyone who’s ever dabbled in oil futures…
Can you see the remake of the old TV show “Dallas?” Only this time set in The Woodlands which is the Houston area’s answer to Mecca for oil…and where property taxes are already over the 3% per year range. The series would follow the misadventures of an imploding Texas muni bureaucracy when all their wet-dreams of power collapse with empty oil company campuses and no muni worker pensions left after going BK….(Oilman2 is living this in The Woodland and ought to be able supply details (and whole episodes) as the meltdown rolls along…)
Bottom Line #1: Deflation is here. Your Lifestyle has just collapsed. Nail salons are NOT essential services. But, the Trumpster knows Depression is here if we don’t get back to work May 1. (All this was explained month’s back in February’s “Xi’s Quandary” where the Chinese faced the same “Health-versus-Wealth” post-Wuhan call. In Depressions, the bad choices just keep “making the rounds…”
Did The Fed Buy ONLY Time?
Lookie here: Remember the Oh Great Ben Bernanke discussion about how the “new tools of monetary policy “were Oh so marvey?” To quote from the Blog o’ Ben:
“Central bank purchases of longer-term financial assets, popularly known as quantitative easing or QE, have proved an effective tool for easing financial conditions and providing economic stimulus when short rates are at their lower bound. The effectiveness of QE does not depend on its being deployed during a period of market turbulence.”
Gushy? Methinks, yes, t’is a bit…especially since:
Ure’s Depression Replay Notes, (volume 20, chapter 4, verse 21) clearly states as follows:
“When quantitative easing is deployed under normal circumstances, it will [usually] drive up prices. HOWEVER when deflation is over-powering, throwing QE into anything will not REVERSE PRICE – IT WILL ONLY BUY TIME.”
(huffing on the white board marker, Prof. Ure quickly sketches up how the evolving Depression compares with the previous one (1929-1941 which ended with Roosevelt forcing Japan into a War in the Pacific which drove the U.S. workers to win-or-die recovery):
(Another huff of the marker and Ure continues…)
“Ya’ll look at the red arrow which lines up the bottoms of the first waves down in 1929 and 2020. Now, look at the right red arrow which attempts to line up the next top (top of Wave II under Elliott rules).
“Now we posit as follows: What the Fed bought was simply the increase in time for Wave 2 to complete (big black arrow ). As any fool can see (*or I wouldn’t have) we were going to head back down to – at a minimum – retest the previous low. So all we did apparently was “buy some time” between the 1929 Wave 2 High (10/04/1929 was the Wave 1 low while 10/10/1929 was the Wave II high – so five trading days, lingering into six in 1929).
Whereas in the present case, our low (of Wave 1 down) was April Fool’s Day, and for now, the Wave II high was April 17th. That’s 12-trading days.”
A Formula for Ben
Now comes the useful part: What does it all mean? No quantitative easing and the onset of the 3rd Wave down took 5-trading days in 1929.
Round numbers, but $4-trillion, let’s call it in 2020, took the Wave 2 rally up to 12-trading days for 5 (and maybe 6) in the last collapse..
Thus, the wild nutjob in the woods of East Texas proposes that when the market is “selling time, not price” at the cost of about $4-trillion dollars for each (12-5=7) 7-days of time.
To my simple mind, it comes down to a choice: How many days do you wish to spend $571,428,571,428.57 per day to keep The End from arriving?
(No provision for market learning and resulting multi-agent model nonlinearities arising in the Fed’s DSGE models as a result…) Each of us – still working with jobs, about 125-million still employed – can easily paper this over by donating just $4,571.43 per day EACH to a not-really-Federal reserve near you. Otherwise, Coriolis Effect, baby, we’re flushed… Say, you don’t think toilet paper disappeared to print up financial instruments, do you?
“The What did you call it?” Oh, the Fed uses a DSGE Model….and although I can’t be certain, I don’t believe that their model includes provision for “context switching” of market reaction between buying price changes on the one hand, and buying time, on the other. Bet thjey missed that. I will have to go reread how the FRBNY works its DSGE woo-woo…and if you’re interested:
“The goal of this paper is to present the dynamic stochastic general equilibrium (DSGE) model developed and used at the Federal Reserve Bank of New York. The paper describes how the model works, how it is estimated, how it rationalizes past history, including the Great Recession, and how it is used for forecasting and policy analysis. “
My simple point (for all to behold in wonder) is that just as in aeronautics, there is, with power on, nose up, a configuration called “reverse control authority” where the controls work “backwards” – so too, in economics (and dating) things don’t go “like they should.”
If the DSGE Model doesn’t account for triggered (AI learned) context-switching between buying price or buying time, then the model will lead us to a (*nearly here) Wreck of the Ship of State on the Rocks of Assumptions.
But that’s OK, because it will happen to everyone and once collapse begins to run away from you… well, this is how Tuesday looks.
Say, did I mention oil just did that and $600-trillion in derivatives (many times the World’s GDP) are also operating in La-La Land now and when “continuous settlement” of derivatives fail, then the worst nightmares of my late friend Dr. Paul Erdman will be visited upon the Earth?
I learned more from drinking lunch at the old Palm Court at the Seattle Westin back in the day with Erdman than most business majors learn in a lifetime. Erdman’s book The Crash of ’79 is to the “finance side” what Stephen King’s book, The Stand is to the pandemic side. Erdman had – to make it comprehensible to the young – the “mind of a Raymond Redington” (on the right side of the law), but in finance….you see the point?
“The entire essence of America is the hope to first make money — then make money with money — then make lots of money with lots of money.” – Erdman
Maybe I’ll be wrong – and I sure wouldn’t bet a country on my being right – but I’d sure look at price/time context switching as an overlooked dynamic in DSGE models.
Just like in energy studies where you get “context switching” between gas and coal fired electricity – depending on a few variables, so too, you buy some mix of price and time… more on the technical aspects in Peoplenomics tomorrow.
FWIW, I’m not the only one seeing disaster coming along shortly. Go read “To ‘V’ Or Not To ‘V’ – $180 Billion Asset Manager Warns “The Fed Knows Less Than They Think”
Virus: The Monday Effect, AGAIN
Here ‘s another example of how “You don’t need to be smart, but you need to ask smart questions…”
I forget whether it was here, or on Peoplenomics , where I asked the question “Is there a Monday Effect in Covid 19 data? See the green oval in the data through yesterday off on the right?
The green ovals are Mondays.
My theory – and I’m a nutjob, remember – is that the reason there is a Monday Effect is less spread on weekends than when people go to work, engage in commerce and otherwise contaminate one-another. Nail saloning on the road to Die-Off. Did the Bible get it wrong? The “Quaffed and the Dead?”
We are soooo hopeless!
Wait…Melatonin for CV-19?
Yeah…we can come at this two ways. Simple version is found on San Antonio news giant WOAI’s website: “Area doctor sees success in experimental COVID-19 treatment using Melatonin.”
More complicated is the abstract of the paper “COVID-19: Melatonin as a potential adjuvant treatment” by Rui Zhang, Xuebin Wang, Leng Ni,a Xiao Di, Baitao Ma, Shuai Niu, Changwei Liu, and Russel J. Reiterb…
“This article summarizes the likely benefits of melatonin in the attenuation of COVID-19 based on its putative pathogenesis….
“Melatonin, a well-known anti-inflammatory and anti-oxidative molecule, is protective against ALI/ARDS caused by viral and other pathogens. Melatonin is effective in critical care patients by reducing vessel permeability, anxiety, sedation use, and improving sleeping quality, which might also be beneficial for better clinical outcomes for COVID-19 patients. Notably, melatonin has a high safety profile. There is significant data showing that melatonin limits virus-related diseases and would also likely be beneficial in COVID-19 patients….”
We neither endorse nor recommend…and do read the WOAI article for levels…but you can’t have too much info or too many options when comes to poten tial life & death choices… ( Gee, and I sent 25-cents in coin and two cereal box tops to Battle Creek Michigan, but no Junior Doctor Degree, yet…Have to look into that….)
And in Other News
Like what? Like Depression, Pandemic and coming food shortages aren’t enough to worry about? ( Forbes out with some happy-talk about food in “Yes, The U.S. Could Face Minor, Local Food Shortages, But They Will Be Temporary” See why we’re still working in the garden?… )
Kid Korea Ill: The one we call Kid Korea is on death’s doorstep with problems from an operation linked to heart, weight, smoking.... (Is his heir-apparent sister less nuts? )
Time to go put on the Scrooge McDuck suit and head to the vault. You don’t really think I get up every morning and work my ass of for free, do you? Did you miss my lectures on how to “dual-purpose things in your life?”
Dow futures down 548 points…don’t tell Donald. West Texas down to $15.57 when I checked. Maybe that green Dodge Charger with the big Hemmie might be affordable once again…God, I miss American “big iron…” Killed twice by gas shortages, but now? The modern analog to the Duesenberg?
Write when you get rich,