I will make it really, really simple for you in case you haven’t paid attention: I’ve been mentioning the possibility of a stock market crash on (or around) March 22 for about a month, now.
It’s not all that had to figure.
It was 55- calendar days from the market highs in early September 1929 until the brown stuff that smells bad hit the rotator back when. We may be set to replay that pattern – in spades.
If you are skeptical, let me line up some of the data for you. Take it nice & easy, though, because when you see it, you might become afraid. Very, very afraid. Cocktail napkin and some colored pencils, please?
In economic research, based on historical change work of people like Marchetti and Odlyzko, I’ve come to the simple but dangerously non-Keynesian view that periodic booms and busts are the result of progress.
When an old technology is bubbling along – and and a new technology comes along – there is the period of time when things overlap. A great boom ensues. We’re there now, but it will end.
This isn’t the first time. It happened before in 1929 when mechanization of agriculture and mass media caused high demand for workers in the midst of the Roaring Twenties. When the process unwound, Herbert Hoover was stuck “holding the bag” and what we called the Great Depression followed.
The ONLY issue in my research is whether our present-day “echo” of the stock market collapse of 1929 is presently replaying the “left shoulder” area of the following chart. If we’re on the left shoulder, there’s a case for one more year of Roaring Twenties analog for Trump plays Hoover. OR, we’re at the cusp of the “right shoulder” collapse now, in which case, it will become apparent in a month, or so. Perhaps starting next Thursday.
Here’s one of the most telling charts from the Peoplenomics side of the house – updated with the closing data from Wednesday trading:
Of course there’s a third outcome possible; that we are not going to gracefully replay either case but will do some kluge of past events. Which would be fine. Keeps the game interesting.
Meantime, however, we need to talk about “investor confidence.”
Trump’s Poor Kudlow Pick
Markets are still pondering the departure of Gary Cohn from the White House on the economics side. His replacement is Larry Kudlow – and frankly, it’s perhaps the worst hire Trump has made so far. Looking at Kudlow’s resume from Wikipedia?
“Kudlow graduated from University of Rochester in Rochester, New York with a degree in history in 1969. Known as “Kuddles” to friends, he was a star on the tennis team and a member of the left-wing Students for a Democratic Society at Rochester.
In 1971, Kudlow attended Princeton University‘s Woodrow Wilson School of Public and International Affairs, where he studied politics and economics. He left before completing his master’s degree.”
So a Clinton protégé and a lefty in school? Other than media presence, I’m not seeing a ham sandwich here.
Gad zooks! You can’t be a freakin’ moderate/left dilatant and “get it.” For openers, go read Andrew Odlyzko’s ENTIRE financial bubble page here – and all the papers. Then, maybe, you’ll WTFU and see it. Ure is not alone – at least entirely.
Now let’s talk consumption. Nothing happens until people buy things.
The Federal Reserve’s latest on Consumer Debt (G.19 data) rolled this way:
“In January, consumer credit increased at a seasonally adjusted annual rate of 4-1/4 percent. Revolving credit increased at an annual rate of 3/4 percent, while nonrevolving credit increased at an annual rate of 5-1/2 percent. “
(Revolving debt is credit cards. Nonrevolving is basically mobile homes and school loans.)
But that was only the bleeding edge of the bad news: Retail Sales out Wednesday flat-out sucked wind:
And then, if this wasn’t big enough disaster waiting to happen (a consequence of under-spending on R&D resulting in no new “gotta-have-it” products), we have the “darling of the Digital Tulip Sellers” (Bitcoin) in mid-collapse:
IF one were to take Bitcoin as a coincident indicator of consumer sentiment, it may be time to find a high window or bridge to push this economy out (or off) of.
A couple of Fed Reports: NY Fed Empire State survey and the Philly Fed Business Outlook. NY Fed report was upbeat:
“Business activity grew robustly in New York State, according to firms responding to the March 2018 Empire State Manufacturing Survey. The headline general business conditions index climbed nine points to 22.5. The new orders index rose to 16.8 and the shipments index advanced to 27.0—readings that pointed to strong growth in orders and shipments. Unfilled orders increased, delivery times lengthened, and inventories edged higher.”
And as for the Philly Fed?
“The diffusion index for current general activity remained positive but declined, from 25.8 in February to 22.3 this month (see Chart 1). Nearly 37 percent of the manufacturers reported increases in overall activity this month, while 14 percent reported decreases. The indexes for current new orders and shipments recorded notable improvements this month. The current new orders index increased 11 points, with 52 percent of the firms reporting an increase in new orders. The shipments index increased 17 points. The indexes for unfilled orders and delivery times were positive and increased 6 points and 10 points, respectively. Inventories were higher this month: The current inventories index increased from -0.9 to 16.5.”
Also just out: Import and Export prices:
“U.S. import prices increased 0.4 percent in February, the U.S. Bureau of Labor Statistics reported today,
after rising 0.8 percent in January. In February, higher nonfuel prices more than offset declining prices for
imported fuel. Prices for U.S. exports rose 0.2 percent in February following a 0.8-percent advance the
All Imports: The price index for U.S. imports rose 0.4 percent in February, the seventh consecutive
monthly increase, after advancing 0.8 percent in January. The last time the index declined on a monthly basis was a 0.2-percent drop in July 2017. Import prices advanced 3.5 percent for the 12-month period ended in February, matching the 12-month rise in November. Those were the largest annual increases since the index rose 3.6 percent for the 12-month period ended April 2017.
On the Export side:
“All Exports: U.S. export prices increased 0.2 percent in February after rising 0.8 percent in January. The last time the index declined on a monthly basis was a 0.1-percent decrease in June 2017. In February, higher prices for both nonagricultural and agricultural exports contributed to the increase in overall export prices. The price index for U.S. exports increased 3.3 percent over the past 12 months. “
So, let me see: Import prices up twice as much as the export prices? Terrible – and not a recipe for “making great” as we read it.
Market’s aren’t impressed either – with almost no change in futures pricing.
Cigars and brandy on the Poop Deck today and tomorrow as we await the High Jump finals next week.
In the meantime, though, keep a close eye on interest rates, especially the 10-year. Because the Bonds will drive.
Right now, they are in the 2.817% range. But while there have been rumors that the Fed will raise rates four times this year, the collapse in consumer spending (with no new goodies on the must-have list) will cause the four-hike nonsense to, well, take a hike.
When that happens, bonds will begin to gain in price and drop in rates. And suddenly, the stock market will be wildly over-priced.
The only question is what day next week will all of this come to pass?
My best present guess is still Thursday. No, that’s not a doctoral project math outcome. It’s just being able to count to 55.
Maybe no one in Washington can manage even that.
Sheesh. What’s the point?
Department of Useful
CoreLogic Reports Homeowner Equity Increased by $908 Billion in 2017. It only matters if you sold, though.
Another Nor’Easter next week? Look for the Climate Charlatans – now arguing both sides of warming.
Department of Useless
Not sure what this means: North Carolina veteran inaccurately declared dead. Name wasn’t Lazarus, by chance, was it?
And A Missing Nobel Prize Winner Has Been Found Wandering a Rural Road in a Daze. Alien abduction’s our guess.. No?
Moron ‘the ‘morrow, then. TTFN.