The US Fed seems to be trying to stabilize markets in here. The latest H.6 Money Stocks report reveals the Fed let a lot of air out of the market by only growing the 90-day M1 (cash) at a 1.7% annualized rate through the end of November. However, now we see that run rate is back up to a 4.9% annualized growth rate.
Armed with some cash, the Big Boyz of Wall Street can go share-shopping. But, the real question is “Will they?” For more than a sharp pop-up day-trade?
I will tell you three critical numbers to watch because today marks the end of the first trading week of the new year. In order to coax the Bulls out of hibernation (an odd thing for a mammal, admittedly), the market need to close above Friday December 28 levels.
Which were? For the Dow, that would mean a close above 23,062. We don’t do fractions around here until after lunch. Based on futures pricing before the opening, the Dow might not make it.
For the S&P 500, the “number to beat” is 2,484. Here, based on futures pricing (5:52 AM Central time) this could be a close horse race.
As for the NASDAQ Composite? The battle line looks like 6,585 to us. Again, though, the future’s aren’t calling for higher.
But, “Hope springs eternal in the hearts of men” and maybe those running the NY Fed trading desk.
Will “Soft Hyper-Inflation” Work?
What’s very apparent to us is that the Federal Reserve is trying (with lots of computational economic and modeling support, we imagine) to “Paper Across the Gulch.” Here’s what the “gulch” looks like:
The dynamic that damn near killed the American economy in the Great Depression was the people lost their incentive to spend money. Between 1929 and 1933, your money would buy 25-30 percent more goods, in absolute terms, than it did prior to the Great Crash.
One reason we didn’t drop into Depression from the Housing Bubble collapse was prices didn’t drop much. Only 5% more purchasing power and then for a very short window. That wasn’t enough to kill spending, thus, a recovery followed.
As we explained previously, the 1929 consumer spending collapse was one of the drivers for the government to “call” gold and silver; both were confiscated in the Depression.
This is, in our view, why the Fed is hell-bent on raising interest rates now. But, not too fast. Instead of “rock and a hard place” the Fed’s between 1929 deflation and Wiemar hyperinflation.
If the markets panic too much more, the Fed might be driven back to interest rate decreases. Interest rates could turn negative. These, in turn cap prices, which can resume their long-term declines. Which (follow me here) is seen by the consuming public as a reason to “sit on their wallets” and that kills sales which, in turn, depresses earnings.
Print & Pray is the protocol. Think back to the Great Depression: Had we not been locked to gold prices (which confiscation fixed) would an “easy money Fed” have been able to navigate better? Maybe, but computational economics makes it, oh, so much easier.
Conjectural Economics is not an “acceptable academic” view. On the other hand, with a few exceptions, such as Robert T. Ely of Northwestern, most people were taken-in by the Keynesian mob.
Few have read Ely, but to our way of thinking, he was a practical moderate when came down to economic philosophy. As Wikipedia recounts:
Although regarded as a radical by his detractors on the political right, Ely was in fact opposed to socialism. “I condemn alike,” he declared, “that individualism that would allow the state no room for industrial activity, and that socialism which would absorb in the state the functions of the individual.” He argued that socialism was not needed, and “the alternative of socialism is our complex socio-economic order, which is based, in the main, upon private property.” He warned that the proper “balance between private and public enterprise” is “menaced by socialism, on the one hand, and by plutocracy, on the other.”
Ely’s critique of socialism made him a political target of the socialists themselves. In his 1910 book, Ten Blind Leaders of the Blind, Arthur Morrow Lewis acknowledged that Ely was a “fair opponent” who had “done much to obtain a hearing for [socialism] among the unreasonable,” but charged he was merely one of those “bourgeois intellectuals” who were “not sufficiently intellectual to grasp the nature of our position.”
I disagree and believe Ely totally “got it.”
I enjoy studying Ely. Especially when we consider “technological monopolies” emergent in today’s world.
When we behold the nearly monopolistic power of Twitter, Facebook, and Google (search), our views are informed by Ely’s 1894 book “Natural Monopolies and the Workingman. A Programme of Social Reform.”
Moreover, the collectivist mindset of Henry George, whose “…writings inspired the economic philosophy known as Georgism, based on the belief that people should own the value they produce themselves, but that the economic value derived from land (including natural resources) should belong equally to all members of society,” is aptly counterbalanced in Ely’s later book “Ground Beneath Our Feet.”
One of the most profound questions in human history comes into focus as we study the concept of “ground ownership.”
On the one side, we see a case for socially owned and shared property. The problem lies in the nature of sharing. You see, that usually morphs (instantly) into taking.
There are solid reasons to support open ownership of land, of course. Native Americans I know point out their long history was based on equal sharing.
In other groups, too, such as the Baha’i faith, leaders such as Abdu’l-Bahá, said on hearing of a long-ago battle in Bengahzi:
” How is it possible for men to fight from morning until evening, killing each other, shedding the blood of their fellow-men: And for what object? To gain possession of a part of the earth! “
“Ownership” – dominance and the right to tax first and foremost – is, indeed, central to most wars. Possession is a slippery slope to traverse.
Yet here in the East Texas Piney Woods, we consider ourselves stewards of our small tree farm who would solemnly defend it to the greatest extent possible.
We possess, and believe unto death that sharing that which we create is at our discretion. It comes not at the whim nor demands of takers.
But, I digress.
With the Dow down more than 650 points Thursday, we wonder whether today will reveal a “dead cat bounce” or, if this old market could yet “go Lazarus” on us, yet.
Given the political intransigence and the testosterone-estrogen warfare under the guise of “social justice – another taker modality) underlying resurgent (rebranded) socialism attacking anything that moves in national politics, we’re leaning (how should we say?) more than a bit “feline” in our outlook. YMMV.
Especially so if the US and Chinese sides figure out that a trade war would really amount to the economic version of the old Cold War “Mutually Assured Destruction.” Which is why market mavens are attempting to play Lazarus-raisers on the back of China-U.S. trade talks a tonic to battered markets.
Meow, anyway. But maybe not until next week, which has been our view for a month now. We’ll know more a minute to the close at 4 PM Eastern.
The Job Numbers Roll
Total nonfarm payroll employment increased by 312,000 in December, and the unemployment rate rose to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains
occurred in health care, food services and drinking places, construction, manufacturing, and retail trade.
The unemployment rate rose by 0.2 percentage point to 3.9 percent in December, and the number of unemployed persons increased by 276,000 to 6.3 million. A year earlier, the jobless rate was 4.1 percent, and the number of unemployed persons was 6.6 million.
We tend not to get too worked up over the data: In absolute terms, only 143,000 more people were working in December than in November. And the civilian population was up 180,000 month-on-month so there you go.
Click over to FinViz for the latest market reaction. We think the increase in labor participation rate could drive things a bit higher.
Don’t have gasoline to light up your economy? China slashes banks’ reserve requirements again as growth slows.
Yes, we still believe in high MPG transportation as Oil rises to $57 on China-U.S. trade talks, OPEC cuts.
And is this a hint of things to come from the generally liberal-backing CNN? What happens if Mueller comes up empty?
One Book You MUST Read
We don’t cite many books just out that ought to immediately catapult into junior year of high school curriculum. But Can’t Hurt Me: Master Your Mind and Defy the Odds is the rare exception.
The Amazon write-up lays out the general idea:
“For David Goggins, childhood was a nightmare – poverty, prejudice, and physical abuse colored his days and haunted his nights. But through self-discipline, mental toughness, and hard work, Goggins transformed himself from a depressed, overweight young man with no future into a U.S. Armed Forces icon and one of the world’s top endurance athletes. The only man in history to complete elite training as a Navy SEAL, Army Ranger, and Air Force Tactical Air Controller, he went on to set records in numerous endurance events, inspiring Outside magazine to name him The Fittest (Real) Man in America.
In Can’t Hurt Me, he shares his astonishing life story and reveals that most of us tap into only 40% of our capabilities. Goggins calls this The 40% Rule, and his story illuminates a path that anyone can follow to push past pain, demolish fear, and reach their full potential.”
It’s a great – no bullshit – square yourself away book. It’s not motivational because, as Goggins explains, that doesn’t change anyone. It’s more a “do it yourself kit.” consisting of 10 “challenges.”
There’s only one person who can square you away. Goggins met him at age 17 when he was shaving. Just a hell of a fine book, tune-up kit, and a pleasure to experience.
94% of 733 reviews on Amazon ranked it five stars. When I get to it, mine will also be five stars, but only because I can’t give it 10.
Reflecting on it, I conclude that only warriors can really share. Because only they can resist takers. All others are victims waiting for their takers to show up.