Ure has a decent case of gout going this morning.
An artifact of too much (good for you) oil in fried foods. Being a suckah for “Yukon Golds” nicely shredded in a mix of coconut and MCT oil. Aggravated by being on my knees mounting the (now repaired) tractor tire. And by sitting on my butt writing Wednesday’s Peoplenomics report “Focus Section” Sunday.
Most people would complain about the pain. And about red light, ibuprofen, and colchicine being necessary. But send me no pity.
Much of my gout is self-induced because the underlying condition that causes gout is also highly correlated to higher IQ.
ISYN. All over in the literature. You might look at “Blood Uric Acid Level and IQ: A Study in Twin Families” as a starting point. But data goes back at to1981 when the article “Genes for Super-Intelligence” noted:
“The results of a postal questionnaire distributed to British members of Mensa failed to confirm an association of superior intelligence with torsion dystonia, retinoblastoma, or phenylketonuria, but were consistent with real associations between high IQ and infantile autism, gout, and myopia.”
Our first bottom line: If you were semi-autistic as a baby, have gout, along with myopia, you may be statistically -correlated with a higher IQ crowd.
The personal bottom line? Being smart can be a real pain. My “intellectual best” is sometimes evident just on either side of a “gout event.” Just before (last week) and just after (now). In between? The learning machine. Consumed three books Sunday. Eases the pain a bit.
Fed’s In the Catbird Seat
What is a “catbird seat” anyway? If you’re bright enough to follow your sense of inquiry over to here, you’ll find that “catbirds” – are a kind of American Thrush. They can imitate the sound of a cat. Meow! Moreover, catbird’s tend to hang out in the tops of trees. This may be where the phrase “sitting pretty” came from.
Which has what to do with the Fed?
Just as the catbird can imitate a “meow” the U.S. Federal Reserve can imitate an organization that knows what it’s doing. They don’t, as we see it. (Meow.)
Not that people aren’t afraid of their Wednesday rate announcement: “Japan’s economy minister warns against deepening negative rates.” for example. More moderate fears are bespoke in “Zero rates preferable to negative rates for investors’ risk-taking.”
What no one gives voice to is something I’ve talked about (not endlessly, but close) on the Peoplenomics side of the house. Something I call…
Background: In order to understand what’s going on, you need to look at “return on money” in a simplistic way. Then the problem will jump out at you.
Let’s roll back the clock to 1980- the peak of the extended economic long wave. At that time, prevailing interest rates were peaking at 13%, or so. As a result, Pappy Ure bought as many of the WPPSS tax-free 13.5% bonds as he could. As rates came down, and plans for additional nuclear power plants in Washington State collapsed, these public bonds paid well until they were “called” at a premium and Pappy did just fine.
Point is? If you have $100,000 in cash (big money then) and you put it into a solid government-backed tax-free bond, you could net $13,500 per year worth of interest income.
Since ’81, interest rates have collapsed. Oh, and inflation has gone through the roof.
How Much Is Needed today?
If you wanted to get $13,500 worth of income in 1981 dollars today, how much would that be?
Shocking $37,962! (The Minneapolis Fed hasn’t updated their inflation calculator yet, so take on an additional 3% on anything you see off their online calculator.)
That’s only the warm-up shock. Because you know how much money (cash balance) you’d need to roll in that kind of dough today? Just under $7.6- million dollars!
In other words the capital required for a base income is now 76- times what it was back then. Really shocking stuff.
Main thing to remember is that lots of pension and defined benefit plans are on the verge of imploding because of this “higher capital base” requirement which local governments can no longer afford. The lower rates go, the more capital these funds need.
We’ll get to how that applies up in Communapolis in a sec. But “defund the police” means beginning the capping of public pension contributions not only in Whiskeyconsin, but also in places like
Company Valuations Go Ballistic
Next we apply the same metric to stocks.
As long as they are not bleeding too badly (and have a suckah-story for the weak financial press) their valuations will parallel the capital requirement of fixed (inflation-adjusted) investments. Perverse but real dynamic.
Honest-to-God: Companies aren’t worth any more today – arguably less, since even the New York Times admits there’s an unprecedented Demand Collapse Underway. Not believing me? Try on “Don’t Lose the Thread. The Economy Is Experiencing an Epic Collapse of Demand.” for size.
Earlier this morning Dow Futures were up
150 223 points. Part of this is hopium. A portion of it is brown-smelly stuff. Also don’t overlook runaway printing to increase M1 at over 50% per year. Now plug-in the the “capital equivalency” font module. (Dear God, don’t tell me you don’t remember font modules, child? Yes, there was a civilization before .TTF and .WOFF, OMG…)
How the Discontinuity Can Work
Let’s roll up all these “thinking stubs” and bake them into one cake. Which will be taken out of the oven Wednesday PM when the FOMC winds up and announces [whatever].
Last week, my friend The Fractal Economist posted a comment on this site (Wednesday, I think it was) where he forecast a terrible Thursday with circuit breakers going off all day and the market going “down for the count.”
I remarked at the time that last Thursday was too early . But THIS Thursday isn’t – and triple-especially so if the Fed lowers rates.
Although in a ceteris paribus world this discontinuity should appear AT the zero crossing, it may happen above (or either side in theory) because of the Effective Lower Bound. (Zero isn’t zero, exactly.)
This is worth noting (because it’s where interest-rate play resumes Wednesday). Former Fed Chair Janet Yellen posted a nifty explanation of the ELB (effective lower bound) in a blog post back in 2018:
“The increased relevance of the zero lower bound reflects the fact that the neutral real rate of interest (r*) looks to have declined considerably in recent decades while inflation expectations have become well anchored around the FOMC’s 2 percent target. There is a good deal of uncertainty about both the current magnitude and future evolution of r*. Empirical estimates are sensitive to methodology. A key paper by Laubach and Williams, however, finds that r* is currently only slightly above zero. And FOMC participants estimate that the longer-run normal real fed funds rate is only a little higher, with the median estimate of r* between 0.75 percent to 1 percent. The causes of the decline in r*, which is also evident in other advanced economies, are uncertain, but look to be structural and persistent. They include low productivity growth, declining trend labor force growth reflecting aging societies and an increased preference for safe assets.”
All of which would be fine, but current Fed policy has been bumping along the ELB for a while now and nothing seems to be picking up steam. Hot air? Maybe. But steam? No.
Pressure to Lower
The Fed seems likely to consider negative rates not because they are stupid (put a placeholder there, lol) but because there is SOME evidence it would be a good thing to do.
One example is a report last year from Fed researcher Mauricio Ulate in a San Francisco Fed working paper “Going Negative at the Zero Lower Bound: The Effects of Negative Nominal Interest Rates.”
From which he generalizes:
“This paper studies the effects of negative rates in a new DSGE model where banks intermediate the transmission of monetary policy. I use bank-level data to calibrate the model and find that monetary policy in negative territory is between 60% and 90% as effective as in positive territory.”
While we sort-of like the Dynamic Stochastic General Equilibrium (DSGE) model, from experience in computer modeling (having written an airline financial forecasting model in 1983, for example) I’ve come to appreciate that as models become more complex, they also become more prone to error.
Two non-economic model error examples may include “Global Warming” climate models. Why New Yorkers aren’t swimming to Battery Park testifies to error size. Similarly, we’re still not sure whether our quest to “game an antenna” model really revealed a “Missing Decibel” or not. Was the “the model” or “physics?”
The limitations of computer models is an extended conversation. We have concerns that the Fed will – like the runaway climate monetizers have shown – action in accordance with a computer model.
Wednesday remembrer this: Models can be wrong.
Missing variables (like Ure’s Discontinuity, for example) are almost certain to come to light after the fact when the wreck of America is surveyed.
It just keeps getting worse. The way we figure it, any district that would elect Ilhan Omar is likely over-the-edge already.
Wonder why I call it “Communapolis”? Besides adopting a plan that will effectively zone people out of single-family housing in this evolving Venezuelan sister-city as part of their Minneapolis 2040 plan, they will also be Defunding their police.
Collectivization – it’s not just for Soviets anymore, right?
If I were a criminal, or division leader of a gang, this would be THE city to site a new clubhouse.
The Future is In Books
Now for some important background that has been lost in all this Digital Uprising and Online Insurrection effort. You need to read an old book to see the future clearly. Wiki here for:
“The Nine Nations of North America is a 1981 book by Joel Garreau, in which the author suggests that North America can be divided into nine nations, which have distinctive economic and cultural features. He also argues that conventional national and state borders are largely artificial and irrelevant, and that his “nations” provide a more accurate way of understanding the true nature of North American society. The work has been called “a classic text on the current regionalization of North America”.
Meanwhile, though, stories – like zone-banning single-family homes and defunding police rolls through Communapolis, we note Google Trends shows a long-terrm upswing in searches related to “rural” anything:
Gee: Look surprised!
While we agree with our West Coast Real Estate Expert about Big City growth prospects, we happen to like living outside the “coop” mentality evidenced in big hive-think urban areas today.
The NY Times asked a very pertinent question this morning: “The Agonizing Question: Is New York City Worth It Anymore?” For now, NYC is a great place, but bad political leadership leaning too far left is likely “fail-over” into Yorkunism one of these first days.
If the (mislabeled) “leadership” of Communapolis had half a brain (even that much is arguable), they would build their Distopian NuCop Model FIRST and then (and only then) defund the cops.
To a rational person, you don’t “Saw the wings off an airplane when it’s flying” until you have the new ones in place, adjusted, and carrying the load first – then saw away.
Remember, though, these are Communapolists, we’re talking. Making anything fly larger than a Molotov goes into the too hard pile. We may have to set up a unicorn farm up there.
The Uprising Continues: – Digital Wobbly’s
Despite our distaste for the take-down of America, we do have to admire the digital insurrection. All facilitated by the hijacking of social media into a marketing machine. Computers were supposed to be thought-amplifiers. Not spray cans of confuselation.
Kill the Golden Goose, why don’t we? The NY Times is “sounding the alarm” on giving aid to farmers. Tell me again why welfare recipients get free phones and farmers – don’t? I’m a bit sketched on that…
You only need to hang in 4-years, though: The War with China is still on as minor foreplay rumbles in “China Warns Of Racism In Australia, Issues Travel Warning As Row Escalates.”
Proof of the Global Privilege System spied again in Hong Kong eases travel restrictions—but only for its business elite. Except hold it! Why not reward excellence with money, or is THAT being communized, too as the uprising rolls?
A coincident war indicator: China raises the stakes in defending Huawei in the U.K..
Around the Ranch
Hot down here today – 94 and 62% humidity, so off to do chores early.
We dodged (wait…or was that Plymouth’ed?) the tropical storm, but should have lows into the mid 60’s later in the week. Lawn mowing day looks like Wednesday right after Peoplenomics is posted.
“High-Photon Diet” day 7. Using less speed crown input. Weight is down 6-pounds and working 14-hour days on a variety of projects.
Disappointed Harbor Freight orders haven’t shipped yet…but with the lockdowns and recovery all over the map…sheesh.
Have a great week and ya’ll come back tomorrow. In the meantime?
Write when you get rich,