Our future could fall apart next week. Other than Summer ending on Monday, the 23rd being a bit later this year, the other key date will be the close of trading one week from now. That’s because current markets have some similarities to the 1929 blow-off period.
To derive this view, we built an equal-dollar weighted Aggregate Index of U.S. markets. And we compare this with the Dow Jones Industrials of the pre-Depression lead-in. Use of multiple indices today makes sense: There are a lot more companies and there are sectors today that didn’t even exist back then. Tech, for example, to point out a big one.
When you line up the indices, scaling for differences in price, from the 1920-21 lows, when compared to the 2009-2010 lows, you get a view that looks like this:
There is no assurance that a top is imminent, of course. The Kool-Aid may never run out. Even the Federal Reserve – in lowering rates, an exceptional move with no evidence of decline yet in hand – seems unclear on how to proceed. To be sure, there is some dandy work by former Fed Boss and Depression Economics expert Ben Bernanke that says Lower (rates) For Longer (L4L) is the right medicine. Yet, J. Powell also doesn’t want to get into the negative rate mess the European Union is now in.
Essentially, what has occurred is what we’ve described for years as the Discontinuity Zone. Namely that “normal” economic controls begin to operate backwards. Indeed, as you can see in the current Velocity of Money (at M2), the Velocity (think of it as “inventory turns” of money) has flat-lined.
Worse, the latest “tick” was back down to levels never-before seen lows. The result of this is “money piling up in dark pools” of capital. There’s a mechanistic reason why this occurs, especially in the dead-end, dark alley of long wave economic periodic rate collapses.
Pretend you need $10 of interest income to live. In the 1980’s when times were admittedly in something near hyperinflation, a $100 bill would generate almost $15. Rates were so high president Ford had to pass our buttons saying “WIN” – short for whip inflation now.
The problem with whipping inflation is that when rates get down to the effective zero bound, it can take an almost infinite amount of money to get that $10 bucks you need.
In fact, with rates negative, you need to pay out money just to hang onto your original hunsky.
There are two choices (vastly simplified): You can implement negative rates, as the EU has. And that’s the bet that money will come flying out of dark capital pools and will look for new investments. Growth ought to result.
The American Fed choice, at least so far, has been to attempt a mix of shaming, maintenance of low rates, and effectively stealth quantitative easing. The thinking is that eventually, money will find a way to get “back in play” and then the “virtuous cycle” can kick-in and we’re back into an economic expansion. For now, the stock market is bubbling more because its the only game in town.
You can see the Fed’s predicament in this week’s H6 Money stocks report. The most recent window (Table 2) looks like this:
As is evident, the Fed’s annualized print rate is increasing and with rates low, the thinking (and prayer in the L4L models) is that business will invest, capital formation will work toward higher returns, the sun will come out and the birds will sing again…
The problem is the Fed is operating as though times of semi-normal. I would propose they are not. Consumers are super-saturated.
Regrettably, most people don’t “tie the news” to financial affairs. But when you look at the European Union, it’s pretty clear that it would have already imploded from its runaway, half-ass, bureacrat-laden government were it not for the Muslim reconquest of Europe.
As huge numbers of Muslims came to Europe, they created an artificial boom. Just as the tearing down of the Berlin Wall in 1989 had been accompanied by predictions of disaster, there was so much real pent-up demand (and skills) waiting in Eastern Europe that Germany was able to re-incorporate East Germany with only modest disclocations. And then came the immigrant, as save the burning of Paris in riots a few years back (and certain districts of major cities no longer safe for police) the overall economy hasn’t been bad. EU officials owe immigrants a lot.
This didn’t escape the notice of US policymakers, and in particular the unelected levels some call the Deep State. Unchecked immigration is just the ticket to building bureaucratic empires. And with no real breakthroughs to fund massive employment (since UHD monitors and phones aren’t made here, anyway and longshore jobs are full up) what we needed was a growing under-class to swell employment and demand across the economic spectrum. Even the lowliest of drug mules has to park their head somewhere at night and they’ll need a meal the next day.
And that’s what we’ve been seeing in our present day replay of 1929. Lot of people come in from “The New Old Countries,” the evolution of gangsterism which was largely Scicilian last time around, but more Sinaloa and MS-13 this time around, as well as an unchecked explosion in communications.
Remember that The Radio Act came along in 1934 (after things fell apart) because The Radio Bureau was just not enough bureaucracy to keep a lid on. Which is precisely why you’re reading headlines today questioning the role of “social media” and why I was able to predict in my book Broken Web in 2012 that it was only a matter of time until there is “licensing of the Internet.” We’re still on track. Patience, please.
Just as Hitler came to power in the period of turmoil as the global economy of the late 1920’s was hitting the rocks, we see an echo in how the leader of China is now the “leader for life” and we see China’s continued militarization (not to mention Moon-grabbing plans) as no more than the rhyme off German expansionism of earlier economic cycles.
Events are also changing the view of economic Long Wave. As presented to Joseph Stalin by Nicholas Kondratiev, the Long Wave ought to run 48 to 66 years (depending on which limits you want on the boundaries). But now, we see the “long wave” with a decline in 2020 possible as being 90+ years in length.
What has changed?
There is a long shopping list. I’ve been drawn to the extension of life expectancies due to improvements in medicine. My consigliere likes longer cycles and is very fond of the interplay with the 72-year existential war cycle that’s due to lead to conflict in coming months between Pakistan and India. Also, with attempts to draw the US into a showdown with Iran, remember Israel hits the 72-year marker next spring. So, if an existential war breaks out, remember who gave you the “Avoid tourism in the Middle East next spring” advise.
All of this is highly useful on background, but what does it tell us about markets? When do we run out of “greater fools?”
We’ve been tossing out charting ideas the past few weeks, but as of the early futures pricing this morning, thing looked like this:
Leaves the way open for 5 up.
The market traded (intraday) down to the black “x” up there on the right, which lets us redraw the trend channel slightly, and you can see why we COULD have one more blip up. Should it occur, the size of the rise could lead into mid fall, but remember last Christmas and the slaughter of the elves.
Curious thing about last year was most think of the December Washout as a one-time event. We anxiously await sleigh bells to see if the reindeer will be doing the SlipNSlide again.
Normally, this is the kind of thinking that shows up on the Peoplenomics side of the house. But, without all the charts and other stuff (like my book “ The 100-year Toaster” treatise on obsolesence which has another chapter tee’d up for tomorrow) I felt compelled to mention how things are laying out for the weeks and months ahead.
Fundamentally, we have 7.6 billion people and in America we’re not seeing any brand new “gotta have it” inventions. The few we see (and like) are actually not “job creators” at all. They are job destroyers. Like our 3D printer. Once you own the software and order some filament….
When presidental wannbe’s like Yang start spouting off about how “climate change” (which is a lie, but most people can’t do the math to see it) and how private car ownership may need to be banned, I wonder what he thinks will hold his Marxist world together? Can people not comprehend that in order to pay taxes to fund giveaway governments, they need jobs to fund tax payments? And how many jobs in America depend on private car ownership?
Yet Yang and other socialists in the fray are hot on the trail of monetizing anything not nailed down. Personal rolling stock in America amounts to what? $20,000 per family? Climate scams are a great way to stampede people into losing that klittle bit of personal equity, the same way the “no doc loans” resulted in bidding up real estate and the eventual crash of net worth that resulted.
Yang is just anothe socialist. He doesn’t have any more answers than us. Decreasing car ownership means fewere highway department jobs, fewer convenience stores, fewer shopping experiences, fewer gas stations…OMG the list of hammered jobs is long.
How many? Well, the Auto Alliance figures there are a shade under 10-million jobs at stake. So “no private cars” would directly result in >10 percent unemployment. Take ripples and 25% unemployment follows. Yeah, sure…you vote for that. And come back here when you dry out.
Software people seemm to have a warped and twisted view of life here on “The Outside” of their screen worlds. Life is not effectively modeled anywhere in Silly Con Valley. We’d love to see Yang’s improvements to the Federal Reserves DSGE model that would support such Dystopian environmental free lunch programs.
Should any of the Yangsters wish to check out how an approximation of reality (out here) works, we would suggest Wikipedia:
“Dynamic stochastic general equilibrium modeling (abbreviated as DSGE, or DGE, or sometimes SDGE) is a method in macroeconomics that attempts to explain economic phenomena, such as economic growth and business cycles, and the effects of economic policy, through econometric models based on applied general equilibrium theory and microeconomic principles. “
And should the miracle recode of supply and demand work, and a mythical way to give away free lunches without killing society in the process is tested, send a copy of it over to Ben Bernanke at Brookings. The grown-ups would love to see what kind of mirages play on Oculus.
In the meantime, pardon our skepticism. America’s only kidding itself; We’re scraping the bottom of the barrel making-up new Dividing Political Industries. Except no one calls it that, so let’s lay out a few:
- The Gender Industry
- The Weather/Climate Industry
- The Pollution Crisis Industry
- The Gun Grab Industry
- The Marxist Economics Industry
- The Open Border Industry
- The Trump hate industry
As we’ve been preaching for years: Everything’s a Business Model . Once you see it, you’ll be appalled.
And you have only to open your eyes and see the Digital Mobsters who are moving in for the kill. Waiting for a crash because that’s what the kiddies with the Molotov’s want for their own selfish ends.
Madness of End Times. Anymore, you don’t even need a religion to see it.
Just a working bullshit detector.
Whistleblower or Traitor?
We see again how the NY Times is on another Trump-attack expedition with stories like “Whistle-Blower Complaint Sets Off a Battle Involving Trump.”
A couple of points here: Trump can say what he wants to foreign leaders is the first. He is what you call a “president” and as such can declassify (and say) whatever he needs to in order to carry out his plans. He won. Deal with it.
Second point is if the “whistleblower” is keeping secrets, what the f*ck is the story doing all over Drudge?
Seems to me there’s a ticket to Leavenworth around here somewhere. I know only the basics of clearances, though I still honor the requirements of my security clearance – and that goes back more than half a century. Who the hell are these people? And since when do the agencies that work for the President get to judge and convict in the press?
No, it’s crystal to us that there’s an ongoing coup attempt and the papers (and networks) promoting it don’t seem to hold the same values or believe in the same Constitution as previous generations.
Anymore, you only need to read a few headlines to figure out who’s in bed with who politically.
We’ll stick with economics and things we know (like reporting).
Oh, and breakfast.
Write when you get rich,