Economics is a kind of “pretend science.” Schooled in scientific method, and with an amazing ability to observe a handful of data points and turn these into all manner of indecipherable formulae, we’re supposed to believe modern economics has the situation well in hand.
Don’t buy it.
We recently explained to our Peoplenomics.com subscriber that there’s a lot more to the Kondratieff long wave, than most realize. Kondratieff, (also spelled Kondratiev by people who haven’t read his books thoroughly) proposed the length of the long wave economic cycle at between 48 and 54 years.
Here’s where modern economics runs off the rails: Kondratieff’s cycle length may be closer than most realize. But, whether a cycle results in a global economic Depression, seems to depend on other factors, such as the prevailing interest and inflation rates at the time the K-Wave says “Time’s up!”
Many remember the 1987 mini-crash. That was arguably a 58-year cycle end. So, why didn’t we crash in 1987? Where was TEOTWAWKI?
It all has to do with interest rates.
In 1982, interest rates were peaking in the 13% range. That that’s critical for exactly one reason.
The expectation that goods would be more expensive later drove consumers to continue spending in ’87. Housing sales held up well, the new cars were still being sold (they’d cost more next year, right?) and in general, the market bump didn’t impact many outside the financial markets. Even there, the impacts were short-lived.
As a colleague explained once “We don’t have any problems more revenue won’t fix…” And high interest rates force current spending.
Now we’re at (or very near) the end of another cycle. Only this time, interest rates have been bumping along bottom. Never-before seen lows, in fact. Remember that by the summer of 1929, interest rates in NYC had been running 5-6%. But, that was lower than they had been…as revealed by the Fed discount rates from the period that we’ve reviewed on the subscriber side.
What got our attention last week (and it cost me a few buck) is that we are apparently now about where the 1920-1929 market was over the Fourth of July period back in 1929.
It’s always been a curiosity to me that economists are plagued by the “Illusion of precision.”
The concept is familiar in Engineering disciplines. It’s why – back in old-school times – engineers didn’t bother with more than 3- decimal places (if they were any good at the art of slide rule interpolation, if not, two digits would do). As long as the main number was right and the decimal points were correct, that was usually a “close enough to be workable” answer.
In Economics, too much time is (IMHO) spent on trying to push accuracy to four decimals. Think of it this way using electronic design, as an example. Anyone with “in the trenches experience” knows that if a particular circuit pencils out to 12,598.3 ohms, you select either a 12.5K or 12K or 13K ohm resistor, if that’s what’s handy, and move on.
An economist, on the other hand, would write learned papers about the faux criticality of a “perfect component value” and its broader implications. In the end, most could never build the circuit under discussion, nor will they EVER find PRECISELY the right resistor because it’s not in the standard engineering prototyping kit. The illusion of precision in economics is real.
Point I’m trying to make is that right now, we’re on a historical track where one of two things is likely to occur:
- The market is biased heavily to the upside. Reason is the Fed’s Making Up Money (MUM) policy which goes hand-in-glove with the Bernanke (et al) Lower-for-Longer (L4L) policy. The illusion of higher costs is still a recent-enough memory to keep people spending.
- The major downside risks, however, are that a) China will want another round of trade, since they’re slippery negotiators OR b) some political lightning bold will hit Trump (like a 25th Amendment coup by the Obama implants, holdover, and socialist sympathizers, because Trump loyalists Barr and Durham are getting close to indicting for how the Intelligence Community effectively IS the Deep State) OR c) Consumers are fully saturated, have nothing left to buy that they really need and we run out of storage units to pile up our shit in.
(I apologize for offending your sensibilities. Using the non-economic term “piling up shit in” but it’s born of frustration. The “naughty-word” fully describes the phenomena of hoarding, excessive consumption, and the reality of too much attachment to physical goods that we just want to rent housing for….why?. I’ve read a ton of economics papers in the past 30-years and it’s significant to me (being crazy, and all) that not ONE learned paper discusses the importance of Storage Locker Utilization Index rates as a precursor to consumer reluctance to spend more generally. Which, in case you’re still grogged-out this morning, means “When the spending stops, grab the ankles.” Why Gloomberg and SeeNBC haven’t nailed this yet astounds me. (OK, I’m over it…)
Alexander Harris has a great set of stats over here that reveal (as we have contented) 9.4% of American household pay a shade under $89 per month to “pile their sh*t up in. To me, or anyone else with half a brain, the density and amount of stored goods is one hell of a useful tool. It just hasn’t “been discovered” by some prince or princess of econ on their way to Nobelhood. When it happens, remember Harris go there first and Ure wasn’t far behind. I digress.
Where does this leave us? Well, hell, who knows?
The G-20 is orchestrating the global blow-off, but as we saw on the subscriber side over the weekend, euphoria hasn’t busted out to the upside. Yet Europe is up strongly this morning and Asia did OK overnight.
We’re just waiting for someone to yell “Trade!” in this crowded theater.
Meantime Bitcoins remain sketchy – under $9,200 when checked earlier. We’re thinking those rolling “Bitcoins don’t work” power events in California might have schooled some speculators on a thing or two. Fortunately, we live in a country with no shortage of ignorant people. We’re wall-to-wall with “willing to listen to any half-assed, ill-though sales pitch.” Which explains how the free lunchers in Congress persist, too…but that gets into politics and we’re so sick of this whole waste of public funds on a witch hunt…hand me a barf bag, would you?
Since Stand-Up Economics isn’t wildly popular – yet – we’ll use only B material on this morning’s stroll down Headline Lane.
In Politics – if you aren’t sick of it, yet – nothing moved over the weekend. In The SF Chronicle though, a Willie Brown piece “Impeachment a winner for Democrats? Don’t bet on it” is a very well-thought-out piece. Willie Brown is a rare example of a reality-based democrat. Not sure if there are any others like him, since most have TDS. And we don’t trust a word from any of the pack clamoring for the White House.
The Writer’s Problem is this: If we skip the political crap, we’ll be reduced to rewriting Hints from Heloise to fill up space. She is already covering NH... OK, skin moisturize issue from there, but that’s more useful than anything in political columns, right?
Still, if that’s a little too hard-hitting for you, consider Study reveals early Christmas decorating is good for you. Since we don’t celebrate Christmas here at Uretopia (Because anything with antlers is shot on sight due to Texas hunting season being open over the holidays…) wel skip right to a Trader Vic’s HBR (hot buttered rum) and call it good. More risky than decorating, there’s no pink elephant season in Texas.
Derr eRabbit? “Volkswagen starts factory production of electric car it says is ‘accessible to millions'” (Passing ponder: Why has no one has named a car “The Weasel?” Ads shot in front of government buildings and the naughty corporate of the week would be a hit…juss wun-drin…)
Speaking of cars, here’s another indicator of too much money sloshing around: Ferrari raises 2019 outlook after solid third-quarter results, shares jump. Sports car drivers are a shifty lot…
Trouble ahead in Iran because we know people in Tel Aviv are going to read Iran working on prototype centrifuge 50 times faster than allowed by nuke deal: official and think preemptively.
Did these people not read Twilight in the Desert? Aramco’s Aim for a $2 Trillion Valuation Is Doubted by Many, But Saudi Investors Are Lining Up. One born every what in the desert, too? Repeat after me “Water Cut!”
The price of oil reflects the economy and if you listen closely, you’ll here the word “Trade!” in Oil prices creep higher on tentative U.S.-China hopes.
Recycled Clothing continues to propagate. High end, too, as Olivia Newton-John’s famous ‘Grease’ outfit sells for over $400,000.
The Week Ahead
As you may have figured by now, no real news this morning other than trade and impeachment hype. Factory orders at mid session.
Tomorrow, international trade, but with the trade war, that’ll be a zilch. Ditto the Labor Department productivity and cost Wednesday. Consumer debt from the Fed and the federal balance sheet could make for an interesting Thursday. Minor trade and consumer data Friday. Plan to skip work Friday.
In short, if you have vacation time to burn, unless there’s some kind of left field event that starts to pop, this is a great week to “call in well” and pursue your own interests.
The world’s likely to be here tomorrow. Since the online hype about a weekend risk for Seattle passed without incident, The big Seattle buzz is Russell Wilson’s pass completions (29 for 43) in the OT beat of the Buccaneers Sunday.
When I’m reduced to citing a sporting event, there’a a deep lack of useful out there, Hey! How about we call it quits and grab some chow, huh? Good day for Bailey’s & nutmeg French Toast with a side of ham.
Be sure and get to work early enough to see who screwed up on the time change.
Write when you get rich,