My personal “idea operating temp” varies a few degrees, depending on the kind of work being done.

For most consulting, writing, study, and thinking 68F  is about right.  Provided there’s a long-sleeved shirt.  Otherwise, 72F is acceptable.

Real construction (framing, hanging sheetrock, roofing, decking, and such is best done around 55-65F,

Gardening is best done at 75, or lower.  50F is a good temp for soil-breaking with a front-tine tiller, but up to 60F with the rear-tine variety that won’t smash you to smithereens.

Point is, I like comfort when working and this summer I have been very good about NOT doing much outside until the past week.

Elaine was playing with the cat, or some-such – and noticed some rot on a deck I’d built 8 or 9 years back, so this weekend was spent tearing off the rotten (and even remotely suspicious parts.  The good news about the deck was that it all went together with 3” construction screws and the special screws for treated decking were used.  So it was disassembly rather than blasting caps.

Later on this week, the repair wood will be delivered.  The decking itself will be #1 20-foot treated 2 by 6s.  These cost a fortune, but like a boat, if a deck isn’t maintained, rot is just a fact of life.

The heat’s been the main thing, though.  Not the work.

I do fine up until about 85F but by then, the glasses start coming off at impossibly bad moments.  Most of the past week, that working temp threshold has been sailing by at about 10 AM, or so.  Sunday was typical:  Start working at 6 AM and call it quits about 10:15 and hit the shower.

East Texas temps, despite what the climate alarmists may say, had a pretty typical “hot part” to summer this year.  A handful of days over 100 but mostly just bumping up against 98 or 99 and enough humidity to be sticky.  Not like out in the Phoenix area.

Thursday of this week should be special:  It may not even bust 90.

Around the country, one of the most interesting weather stories comes from the Alaska Dispatch News which noted a couple of weeks back:

As of Wednesday, Anchorage had seen 32 days this season with official temperatures 70 degrees and higher, putting this season fourth in the number of 70-degree-and-warmer days since recordkeeping began in April 1952.

That doesn’t sound like the climate-driven end of the world, somehow.  Still, credit where due:  It has been hot (*or what passes for hot to weather wimps) in San Francisco.  And even Phoenix tied an old high record over the weekend.  117F is warm, I don’t care who you area.

Still, there are cool spots, too.  Like Bangor Maine where they just had the chilliest July ever along with coldest year-to-date

Then there was a super cold front that brought temps in Idaho down within spitting range of freezing.

I mention all of this to underscores that many of the records are falling 11 or 12 years after old ones.. And this leads Ures truly to wonder aloud if the El Nino/La Nina cycle is hyperextending?

It might be interesting to watch the scientific press once the information gets collected.

But the calendar is what matters most now:  Historically, the odds of busting 100 are going down by the day.  And when we get back from our Peoplenomics.com cruise, in mid September, we may be down to reasonable outdoor working weather, again.

Elaine’s Articulation Award

She said something I never heard before, but then again, I suffer from male pattern deafness.  I just can’t seem to hear certain phrases  like “don’t let the cat….” or another one is “Take the….”

The reason for the award is she said – as I was offering to double the size of the deck that needs rework – “Don’t make the house any bigger – it’s too much to take care of now…”

Huh?   Well, as you can imagined, this was a terrible shock.  I could have sworn that women (*and men) both liked big houses.  Maybe once upon a time, but that’s done.

When we first moved here, the original square footage of the place was 1568 for the house  and 220 square feet of deck.  The shop space was 12 X 24.  The rest was an open RV cover pole building.

So I sat back and run out the numbers.  The house is only a little bigger at 1,833.

The decks have grown, too: 484 square feet.

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Just sitting back in a moment of extreme cynicism this morning, after looking at the futures which are hinting to S&P 500 this week may close out around 2,075, plus or minus 20, I think we need to have us a discussion about “churn.”

Now, everyone knows what churning is in the dairy sense.  You take heavy cream (like whipping cream from the store) beat the snot out of it.  And at first you’ll get whipping cream.

But if you keep going, you will also get butter.  Toss in some food coloring and salt and…

In the financial world, churning is a little different.  A management firm gets a big pile of money to invest, and then then invest long or short in this, or that, and the market does its thing.

Except people don’t realize how easy it is to wrap investment policy people around their fingers, especially when done in a mahogany-line foxhole and immediately followed by a big dinner out or a delicious catered lunch.

When (eventually) the client wakes up to realize that they aren’t making what buying a shoebox full of bonds 5-years ago would have made, they then play something akin to client musical chairs.

The people who make out are the brokerage firms which front-run everyone, but because the SEC is too crooked to call computerized skinning of the client the same (net) as a human broker trading ahead of a client as criminal, everything goes along fine.

Churning is when the client funds go in and out, long or short, when there’s really no need to.  Again, the object is to make commissions for all the money people and for the clients, too bad.

So let’s say the S&P closes around 2,075 today (plus or minus 20).

Last week, we closed at 2,077 and change.

On July 24th, we closed at 2,079.65.

A little further?  How about April 17: 2,081.16

Well, then, how about December 5th of last year? 2,075.37.

Now the shocker.  September 1st, 2000 the S&P 500 was at 1,520.77.

“Hold ‘er right there, Ure:  1,520.77 is less than the 2,075 you’ve gone off on.”

Well, no.  Because if you believe that my financially ignorant friend, you’ve been sucked into the fairytale that Wall Street, the Fed, Congress, and the White House all want you to believe.

Because when you use the authoritative Minneapolis Fed inflation calculator  (here, try it sometime).

So there you have it.  (This is the kind of stuff I tell Peoplenomics.com subscribers about all the time, too…)

America – land of the brave, home of the free, which has listed to all the free-trade bullshit and torn down our borders has – on an inflation adjusted basis – made a slight negative return on on the S&P over the past OMG FIFTEEN FREAKING YEARS.

Sure, there will be those who claim that “Ure’s wrong.  He doesn’t include dividends.”

Oh?

I’ll include dividends if you include bankruptcies.  And if you include the one other reality the crooks in Washington and Wall Street conceal (CHURN:  Commissions times turnovers times fees), I think you’ll understand what  and how it is that America is now at an economic break-point.

When people are working harder, longer, and not getting anything additional in return, it becomes what the great sociologist Joseph Tainter describes as the “marginal rate of return on additional effort falls below zero.”  Historically, he notes, that’s when countries break-up.

So between now and elections, expect some “hugely useful crisis.”  Because without it, a revolution at the polls is likely and a few like Donald Trump are sensing the shift in the herd and are willing to give ‘em what they haven’t had for at least 15-years.

Socioeconomic honesty. 

And if goes back 55-years if you want to talk poverty rates and 65-years if you want to talk about working households on one job-holder in a family.

The Magician’s Spell

Can be seen in Producer Prices just out:

The Producer Price Index for final demand advanced 0.2 percent in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today.

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We need to revisit the Cartesians of dreams topic, again..

You see, I wasn’t thinking deeply this week when a reader pointed something out to me on a discussion posting this morning:  “Didn’t you have a dream you wrote up a while back about an explosion to the northwest?”

You mean  in advance of the Tianjin industrial explosion? 

Yes.

In the interest of dream  science, let me remind you of the posting I put up on May 18th:

Coping: Cartesians within Dreams

Posted on May 15, 2015 by George Ure May 18, 2015

If dreams have predictive content,  we might soon be reading about a shopping center or mall attack in coming weeks/months.

Or – and this is really the more likely – last night’s dream was merely a collection of thought stubs.

First, though, let me tell you about the dream itself.

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Wednesday we got into this in some depth for our www.peoplenomics.com readers, with charts and all.  But despite the market gyrations making no-brainer headlines for the doom and gloom crowd, we persist with the silly notion that facts still matter.  Like this morning’s retail numbers which we will get to in a moment.

Look at the China Yuan devaluation.  What does it do?

Simple:  In theory is should make buyers of Chinese product, like Wal-Mart, a little more profitable because the things made in China, sold by Wal-Mart aren’t going up in price.  And what that means – if Wal-Mart doesn’t go nuts with those price rollback stickers, is the company’s financial performance should improve.  Everything from China should get cheaper.

On the other hand, if your company makes its money selling to China, I’d be dusting off the resume’.

There are some competing headlines this morning of a non-economic nature that are being beaten to death is less practical media.

We consider UrbanSurvival a kind of output for PM (practical media) because we don’t look so much at the news items, per se.  We try to look at the effects that headlines will have – good or bad.

And right now, we’re having great fun watching the End of Worlder’s line up.  But bad news for them:  The world won’t end even with a drop of the S&P to 1,740.  And that is a possibility for a major Wave 4 correction, though I like 2,040 better..  But then will come five  – a screaming upwave (if our work is right).

The Fed rate drop this fall will force money parked in bonds to get more adventurous.

Yet again, the same people who were touting Bitcoins at $900 on the downside (it’s $264 this morning) keep making predictions that turn out wrong.  (See our Sept. 2014 discussion here).  But we will go out on a limb here:

When the major wave five of 2016 gets underway, those Bitcoin promoters are likely to be right for a change.  Because one thing about paper is it’s easy to add zeros.  Satoshis may start to look interesting in here, but not if the market breaks down severely this fall.

So again, we wait.  It’s about as exciting as sitting in a duck blind for 10 hours, but when we shoot, we can get some pretty good kills, now and then.

So What Does Retail Say?

Hot numbers – fresh off the press release:

“The U.S.

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A nice conversation with my friend Robin Landry Monday centered around a terribly important question:  Is the market doing an “irregular high flat four?”

Turns out it is one of the possibilities.

While we save that discussion of how the future arrives for our Peoplenomics.com subscribers tomorrow, I wanted to point out that Ure’s Theory of Blow-Off Tops may be about to slide into the record books over the next two and a half years.

If it does, I promise to take savage joy in reminding you who the contrarian was who called it nearly a year in advance.

Here’s the deal, if you’re waiting for the coffee to kick:

As you know in the middle of the 1920s when the market was running up, the Fed sat pretty tight on the discount rate.  Steady hand on the helm, so to speak.

However, at their February 21st meeting, in 1928, the Fed began  to raise rates.  The first move was from a 3.5% discount rate to 4%.

Then, at the April 23rd meeting, they raised to 4.5%. 

Even that wasn’t judged enough because at their July 19th meeting (1928 still) they raised to a full 5% discount rate.  The “then Fed” held the rates at 5% until their February 1930 meeting – well after the devastating October crash.

Now let me show you how well our Aggregate Index Model is tracking the Dow Industrials run-up into the 1929 crash.

In the chart to the right the blue data trace is the pre collapse Dow Jones Industrials.

The data set on to of that is our Aggregate Index, normed to market levels of 1921. 

Students of market history will recall there were a series of major market shakeouts between the Panic of 1906 and the final downward break in 1921.

And if you’re thinking “Is that all Ure did?  Line up the 1921 bottom with the 2009 bottom in his Aggregate work?”

Why yes,. now that you mention it, things MAY turn out to be that easy.

But don’t put away your glasses yet. 

Look at the bottom of the small decline (which we should be entering now through a week or two before the September Fed meeting).  See that GREEN arrow?  That’s when (normed to the match up with my data series) the Fed made its first rate hike in Feb ‘28.. 

And what happened?  Well, the market went up a ways, then drew back a bit, until (at the red arrow) the Fed made its final July 1928 discount rate hike to 5%.

You will notice that serious disintermediation from the bonds followed and money went seeking its highest rate of returns…which it always does.

Faced with a percent and a half increase in the bond rates (which meant their cash value was collapsing) money poured, hand over fist, into the stocks.

Which is precisely how and why we can see the stock market scream higher if the expectation set for bonds changes at the end of a Long Wave Interest Rate Decline.  If you look at the MAX timescale of the 10-year, you will see we are likely in the end of the bond rate decline.  At least insofar as before the crash of 2017.

“And what, pray tell does the ^TNX move Monday have to do with all this?”

Yield on the 10-years (as you can see from the Yahoo Finance screen scrape was up 2.9% while our Aggregate Index was up (from Friday’s close) 1.27%.

Today, therefore, the 10-year should move lower, the down should give up about half (to a Fibonacci 61.8%) of the screaming Monday gains, and the 10 year should give up some ground as well.  Oil should drop, and between now and the Fed meetings from September into early 2016, we could trade about sideways from where markets were (as an Aggregate) last December.

Yes, if the lights are starting to go on now, that’s a go nowhere market for 8-month and perhaps another month to go.  Is nine months long enough to be an irregular high flat four off the rally from the 2009 lows?

That’s why I keep smart guys like Landry on speed dial.

Oh, and how all this ends?

Well, if you were a Peoplenomics.com subscriber, I’d tell you tomorrow.   But I assure you, the end is not pretty when it comes.

The market is screaming 2016 Presidential Election Disaster in 72 point type.

Productivity

Last month, productivity in the US took a major hit.  This morning we have a report that it has rebounded a bit:

“Nonfarm business sector labor productivity increased at a 1.3 percent annual rate during the second quarter of 2015, the U.S. Bureau of Labor Statistics reported today, as output increased 2.8 percent and hours worked increased 1.5 percent.

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With all due respect to “Jammin Janet” the Federal Reserves modus operandi seems to have been to slam on the brakes at the free money window a month or two back, and then sort of pump the brakes, hoping for a smooth stop of deflationary pressures, so rates can be raised slightly this fall.

As you can see in the short-term H.6 Fed Money Stocks data, the rate of M1 increase has come back up to 2.5% while broader M2 is running 4.6.  And Trader Bart’s estimate of M3b (reconstructed) shows, the M3b is running around 2% which is still slightly below Fed prayer levels.

If you look closely, though, you can see how people are trying to arb things up.  That last hour press on gold Friday, for example.  It doesn’t take away from the 10 year being just over 2% and it doesn’t mean we are out of the financial woods yet.

The reason the ABS analogy is useful is this: 

If you slam on the brakes on ice too hard, you lose control.  By the same token, when the Fed slammed on the brakes, they have done so in a measured way.  They don’t want to lose control.

Ideally, rates will bottom out over what’s left of summer, we will see a tiny increase in rates in September.

This will drive people by the thousands to lock-in real estate deals because yes, rates will revert to historical norms and they are far below those levels now.

When the herd starts to move into real estate (big jump in Housing data) then the Fed can pump the brakes just so.  Enough to get the economy going again, but not so much as to send things into hyperinflation.

Gold prices, even with the Friday bump are telling us the Fed is still in control, but the reality of the Long Wave in Economics is the terrible bottom is not in yet.

In order for the meaningful bottom to arrive, we need to see a massive destruction of both debt and savings – none of which has happened yet.  Check with the Greeks and Cypriots on how much fun this is.

But the amazing part is that the doomsters are saying “World Ends this Fall!!!”

No.  Go look at the data.  Go look at Trader Bart’s M3b.  Go continue the growth rate of money from the 2009 point where print to save became the regimen.  The Fed as I read it has yet another Trillion of QE they could make up, if they really wanted to.  And, if things get bad, they will.

So for now, we continue with a very skeptical off-planet perspective.  The Fed is pumping the brakes, trying to arb up rates.  When rates go up, people will revert to the “Buy now before prices go up” mentality and the economic recover sees our one more massive upside.

On the other hand, an accident at a major player could spin the world into the financial abyss. 

We’ve been telling you to keep an eye on Deutsche Bank, for example.  New CEO is sounding less than upbeat about legal problems and just Friday key counsel stepped aside.

The reason for concern here is evident when you look at the Comptroller of the Currency’s most recent quarterly report:  Banks are back to increasing their Net Current Credit Exposure (NCCE).

We seem to be building towards another 2007-2008-like spike and you know what happened at that spike high in 2009 – the world was ending as real estate imploded.

Deutsche Bank is huge.  In one story back in June when the co CEO’s were “shown the door” DB’s derivatives book was placed at $54-trillion.  To put that into perspective, the US Gross Domestic Product is less than $18 trillion.  Thankfully, this is all supposed to be hedged.

All of which sets up a fascinating question the markets may be answering as we head into the fall.

“Are the problems in Deutsche Bank big enough that they might need to be helped or (God forbid) bailed out? “  And the follow-on question is “Who’s big enough to do that?”

I’ve got a crazy pet theory about how to bail out a “Too Big to Bail” problem – should ever one come along.  And Deutsche Bank – should things blow up – might be an interesting test case.

Obviously US taxpayers would scream bloody murder if there was a move to bail out a foreign bank.

But there’s another way to have an  international bailout of a super player.  And that’s what I’d describe as the “Distributed Screwing” approach. 

Let’s say an International Monster like Deutsche (though I don’t think they will) ran into trouble.  What would happen if there was a “structured failure.”

Under such a scheme, the Monster Bank would “stiff” US banking counterparties in a proportional kind of way.  Laying off their cost of a bailout on US and other country’s banks who did business (as counterparties) to the Monster Bank.  It’s be like a deliberately inverted Herstatt effect…

The slick thing about this is it spreads the pain around, no one in the US could object to saving the “poor victim” US banks, and should a little “extra” be distributed to the rest of the derivatives poker players at the table, then the Monster player could be saved without the host country having to put up a dime.

It’s all theory, mind you…and a nutty one at that.  But crazier things have happened.

Still, this is not an immediate problem.  Big problems – like elephant pregnancies – take a while to gestate.  Between 617 and 645 days, depending on if you are talking Asia Elephants or African Elephants.

I’m guessing the gestation period will be about that long for the Teutonic species of elephant, too.  Then we shall see if a crisis is delivered.  But if it is, Ure’s Distributed Screwing Theory might just show up.  That’s how Depressions work…destruction of debt and savings.  A global Elephant’s death could do it all.

Ferguson’s Social Suicide

To mark the one year anniversary of violent death in Ferguson, there’s a quote in a Reuters’ story over here that’s worth reading:

“These were criminals, they weren’t protesters,” he said of the shooters. “There is a small group of people out there that are intent on making sure that we don’t have peace that prevails.”

Unfortunately, it is a case of social suicide.  A community that looked like it was beginning to get back together has, once again, been shoved in the direction of social suicide by what I am just speculating are the same people who support anarchy and don’t believe in the rule of law – unless it’s theirs.

It’s Called Payback

The story this morning out of Turkey about deadly violence in Sirnak and Istanbul may not seem like a big deal.

But it begins to fall into place when you remember the US just sent half a dozen F-16s to Turkey in order to launch faster attacks in the region.  And now we are going after Syria directly along with ISIS…and from where?  Why, Turkey, of course.

So look for Turkey to be blown sky-high with some frequency.  The thinking of the opposition (Syria/ISIS) is that even though asking the US to leave Turkey won’t work, if the country is blow up from under moderate leadership, they will have to flip.

Summer Rally Arriving?

Dennis Lockhart of the Atlanta Fed speaks today.  We’ll see if he hints toward a hike in September, or not.

Not much else going on except some bond rates and then productivity which comes out tomorrow.  To my reckoning, celebrating high productivity is dead wrong.  At 100% won’t we all have been replaced with robots?

Dow futures were up about 110 when I looked.  Which might be the start of the run toward the average annual high date:  August 26 plus or minus a couple of weeks.

Do you regret not buying bushel baskets of cheap call strikes for the August option expiration last Friday when they were cheap? You might get better odds on the Strip.  At least there you can get free drinks.

Matter Goes Shapeshifting

A new NOvA experiment gets into morphing neutrinos with interesting results.  Not sure how that turns into a free lunch or steak and lobster, though.

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