Going to be ugly in the markets today: Seat-backs and tray tables to their upright and locked position. Seatbelts fastened tightly – it’s going to et bumpy.
First time jobless claims were a little better than expected, but that’s not going to help much. Producer prices were up 4-10ths of a percent – too much and inflationary.
Once you feel secure, put on your thinking cap with us. We’ll try to understand WHY the market is about to crater. 40-thousand foot view? The reason is the Fed’s outlook report Thursday.
Essentially, the Fed essentially admitted: No growth, contracting economy, and a real “bad scene” for the next three years. This will take some explaining and contemplation to sort-out. We begin with their summary of what’s ahead:
For reasons we’re not clear on, the Fed went to great lengths to point out: “The December projections were made in conjunction with the meeting of the Federal Open Market Committee on December 10–11, 2019.”
A mea culpa, perhaps? Blame the pandemic?
Big Picture Now
Before our line-by line analysis, let’s consider the massive structural changes – strategic view – of life, the economy, and knock-on effects.
- The world has “run out of growth” prospects.
- We have resorted to monetizing minutia: the weather, gender, race, orientation. Everything else is taken. (Can I develop an app for you? LOL) Hot-button pressing is “in” since we have no hot new tech driving real growth.
- Consumer super-saturation has arrived in consumer goods – even the storage units are overflowing many places.
- Financializations are on the rise: Companies have pressed up stock prices by simply buying-back their own stock. This has distorted the markets.
- Because we’re AT a global longwave economic peak, the Fed has been trying to “print across the peak” by creating money at a greater than 50% annualized basis.
- And this has funded stock operators running the market up to dizzying heights…
- The Virtuous Cycle is Ending (or HAS)
- In a virtuous cycle, one growth area ripples out to reinforce others.
- Its “evil twin” is the vicious cycle. Where one collapsing sector takes down others.
- Global Consumption has Radically Shifted
- The Work from Home model was imposed by CV-19.
- Future of commercial real estate is shakey.
- Rural could be the new growth area as LEO satellites bring fast wi-fi everywhere.
- Online e-tailing has creamed brick and mortar. Shopping malls are in collapse.
- Depression Looms
- This is not “just another recession.”
- The economic calamity is not political, either.
- It is systemic…
All comes down to the built-in asymmetry of the U.S. Capitalist Model: We kick-ass and rock the planet when faced with shortages. Shortage drives opportunity, you see? As long as there is growth, we can smoke anyone.
The downside is our economic model collapses in a heap at zero – and worse, God forbid, negative growth rates. Gives us a chance/window to “go Venezuela.”
So the Future?
There are only a few ways out of a longwave economic collapse.
- The Weimar Republic Model.
- Reduces value of savings to zero.
- Reduces load of public long-term debt.
- Screws investors.
- War Model
- Most wars are the result of economic drivers.
- WW II was the ending of the Great Depression.
- Deflation – Downscaling
- The post 1929-1937 period contained both a primary Depression (centering in 1933/34) and a secondary Depression (centering 1937).
- That Depression might have continued with lower level lifestyles except WW II was an economic and technological change point
- The Hybrid Model (New idea!)
- Fed takes a little this, a little that
- May or may not work
- May or may not avoid the War door out…
Seems to us, the Fed is trying a “mixed bag” approach. First, letting the CV-19 virus take care of the downscaling/deconsumption part of Depression. Then, by hyperinflating on the backside.
Feeling better, now?
1929 2021 Restated: Line Item Discussion
GDP first: The forecast of a -6.5% US GDP this year is, in my view, totally insincere. The reality is the Fed is making up money at (depending on which metric you choose) 30 to 85%.
We have always admired the work of John Williams of ShadowStats.com and his estimate of M3 (reconstructed) places inflation of money at the broadest level. Somewhere in the 25-30 percent range now. That’s likely to grow as we spend our way toward Oblivion.
The questions that don’t get asked at the Fed Chair’s press conference disappoint. Unless I missed it (having gone to the coffee recycling station) no one asked if the GDP forecast was on a current or constant dollar basis. All assume “real GDP.”
This is the 800-pound gorilla.
While the Fed says “Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the fourth quarter of the previous year to the fourth quarter of the year indicated…” they don’t address shortcomings of “real GDP.”
“Real GDP” is not precisely the same as constant dollars. Think diffusion. Blair Fix and Johnathan Nitzan address this in a 2019 paper “Real GDP: The Flawed Metric at the Heart of Macroeconomics.” Particularly cogent as they put forth in their abstract:
“We argue that real GDP is a deeply flawed metric. It is presented as an objective measure of economic scale. But when we look under the surface, we find crippling subjectivity. Moreover, few economists seem to realize that real GDP is based on a non-existent quantum-utility. In light of these problems, it seems to us that much of macroeconomics needs to be rethought.”
Yeah, now they’re thinking…right? But there’s more…
Additional Flawed Metrics:
The same problem (as what kind of dollars are we counting?) is evident in the discussion of PCE and Core inflation. Their guidance here is:
“PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption expenditures (PCE) and the price index for PCE excluding food and energy.”
Yes, but are these inflation adjusted constant dollars or are these in Nuevos Centavos de Fed – as the printing presses work overtime? If it’s the latter, then your lifestyle will be (pardon this) in the shitter by mid-2021. And that’s Regardless of Who Wins the 2020 election. Its so dicey, I think we can already claim “No One Wins” in 2020 because they will preside over a Depression and march to war.
Remember, even so-called constant dollars get things wrong over time.
Economics – as you should be getting clear on – is a crooked business at its core. Definitions and conditions rule. UNLESS you take the time to read what are, effectively in this outlook, the “Notes to the Financial Statement” before you look at a single claimed number.
Take the further fandangle (def. 2) is evidenced in the unemployment outlooks put forth. Here’s their footnote on employment forecasts:
“Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.”
The fandangle? Well, the Fed goes by the rate of inflation. As we have discussed many times previously, the rate is crooked because it’s based on the estimated size of the workforce. NOT on the absolute number of people gainfully working.
Seriously? Know how you reduce the “unemployment rate?” You make the workforce smaller. Of course this is an absurdity, but check out how its already being done. I just pulled this from the Deptment of Labor database:
See the yellow highlights? The Labor Department figures 6.329 MILLION people just disappeared from the workforce in five months. Well, can 6-million plus influence (NSS!) the apparent unemployment rate? Yah think?
What we’re reduced to is some simple inferences.
Total number of people working January of this year? 131.099-million. Last month (May)? 116.523 million. Total number working is down almost 12 percent.
Yet, the Fed is pumping out money like mad to support “the way we were” in many overbuilt, out of purpose industries. And it will all come back to bite on the ass those of us who are still working through higher taxes.
Jeez…enough, already. You get the picture: Everyone has numbers and they’re all suspect: Like we’ve said for years, though: If you don’t hold it in your own hands, you don’t own it. NOTHING – ANYTHING. Not even the truth.
The world is a crooked place and thanks to the Digital Uprising, complicit liars in both political parties, and squandering of resources – not to mention this “everyone has to finish the same” regardless of effort put forth mentality…I guaran-frigging-tee that there’s no “happy ending” in sight.
Revenge of The Fractal Economist
Wednesday of last week, a long-time friend of this site – The Fractal Economist – (who in real life is an ER doctor) – sent in a warning of what he sees going wrong in here:
“89 Year US Third Fractal Nonlinearity … With trading halts, Thursday 4 June 2020 will be the longest day (trading day … denominated in 8 …. one hour units …)“
I opined at the time I thought he was a week early. But this morning…does this look like fractals are worth considering? Futures 2-hours ahead of the open:
This will bounce around as the Fed hands out free money to “arb things up” and pretend this is an “orderly sell-off.”
Meantime? A green star today to the Fractal Economist for getting “close enough for home use.” We assume the market will soon-enough see the financial analog to one of the ER doc’s tools: “QuikClot…”
Need More Scary Stuff?
You really know how to push things, don’t you? Early futures lead here:
More for Peoplenomics subscribers Saturday, but for this morning the “line to watch” will likely be the bottom of the lower trend channel at the market close today.
And In Other News
Not that anything else really matters while your pension and life savings are running into big headwinds, but here’s what the MSM is peddling:
Trouble in FAANG Land: EU Beats DOJ To The Punch, Brings Antitrust Charges Against Amazon.
Defund the Police – Payback time: Minneapolis police withdrawing from union negotiations.
No hurry to move? HouseCanary Market Pulse: Weekly Contract Volume Remains Healthy While New Listings Continue to Lag. Elaine and I just had this conversation: Why leave paradise to live small and among the crazies?
Another example of PC-BS…or is this P-CBS? New “Looney Tunes Cartoons” take away Elmer Fudd’s rifle. Defund and disarm…urban drug lords got’s to luv it, yo… Wait. hey CBS…do drug lords by advertising?
And our CV-19 forecasts are higher: While CDC Expects 200k COVID-19 Deaths By October As Dreaded ‘Second Wave’ Arrives: Live Updates, our outlook says the US could pass the 200k dead level well before Labor Day…we’ll see who’s right. My money’s on…me.
ATR (Around the Ranch)
Another cool morning down here…temps in the low 60’s. No sign of global warming yet. I’m sure if I could gin up a way do a climate hustle, I could get rich. Dumb me, we just sequester carbon on our tree farm. And run heavily on our solar. No real money in that. Being a demagogue is a much higher paying gig.
Oh, no word back from NOAA (this will make more sense to PN subs) on our inquiry over the conflicting data on the solar cycle progression website. I sent the inquiry to three or four NOAA types.
Only one answer so far: “I will be out of the office today, 06/05. If you need immediate assistance, please contact…” (blah blah blah…)
Jesus…I should have gone into government “service.” Big pension, lots of time off, power…rub shoulders with the demagogues…tax the sheeple….
Oh well… You do remember who told you all those Fed interventions in free markets would likely ONLY BUY Time – not price, right? Time’s up today. Fractally forked, I believe would be the polite way to say it.
Write when you get rich (or the world gets over manic),