The longwave economics perspective is, at its core, skeptical of much of the HS&J (hype shuck, and jive) that passes in transfictional media as fact.  Despite my membership in a couple of journalistic groups, I don’t see much being able to change at the public perception level because when you start writing about how the game really runs, eyes glaze over, people nod off, and snoring is soon heard.

To counter this, I hereby create my news job title around here:  NewsJay.  Click here for the moodsetting music.  Let it roll in a new tab, speakers up, and stay with me.l…

Now we can ramble:  For the aware person, nothing is more exciting that figuring out “the truth” (whatever that is) in advance of the rest of the herd.  It gives us (thinkers) time to reflect, consider bargains before prices run up, and so forth.

Oh, sure, anyone can made simple long-term decisions and win over time.  Buying a “hard asset” like gold (when the Fed has been diluting purchasing power of the dollar by [on average] 3.25% per year since its founding in 1913.  Or, simply buying stocks in companies with the largest “proven oil reserves” and waiting for the world to burn through the declining resource.  Sure, those are likely winners long term.

But every so often, it helps to take the blinders off. And we will do that very publicly this morning by comparing two simple charts from the Federal Reserve that (together) reveal in stark ugliness why, if there is an economic recovery, you don’t have more money.  It’s so simple even Ures truly can figure it out.

Step 1:  Our first chart du jour, courtesy of the Federal Reserve of St. Louis excellent research resources, is to look at the the mortgage-backed securities PLUS the US Treasury securities held by the Federal Reserve.  In other words, the asset side of their balance sheet:

OK, what does it mean?  Well, it looks to me like at the lows of the 2009 post housing collapse, the Fed held about $500-billion of treasuries.  Plus about zero in the way of mortgage-backed securities.  Maybe as much at $600-billion (just over 1/2 a trillion) worth, if you want to be generous.

Fast forward to the latest data:  We can eyeball that the Fed is (*much as a snake swallows its own tail) holding more than $2.2 trillion in Treasury assets plus the MBS portion is now pressing $1.5 trillion.

Time for simple arithmetic:  This is rough and only the first cup of coffee, but looks like $3.7 trillion in Fed ownership of debt instruments.

Step 2:  Next, we look at the Gross Domestic Product through Q2 of 2013, and we can estimate that the reason that it feels like there has been no economic recovery is the simple reason that the increase in GDP has been directly proportional to the combined growth of Fed Treasury and MBS.  Say, how about that?

Which gets us to our great ponder of this morning ( or the groB fragge heute for our Swiss gnome-schoolers):

What is the Fed’s exit strategy?

In other words, is there some logical limit beyond which the Fed cannot keep buying up all the pieces on the Monopoly board, now that the Chinese are not buying enough US Treasuries to matter nor enough MBS for us to play the game of “hot potato” with them?

There may be no technical reason that the Fed can’t continue to increase its holdings in an effort to maintain the illusion of recovery which includes a stock market that just had a “paint the tape day” this week, trying to bust out to the upside, and when that failed, reality snuck in following.

This  (newsjay: living in the background) “How do we clean up after ourselves?” issue was mentioned in the December Fed minutes that came out this week that read in part:

“Further, participants noted that ongoing asset purchases could increase the difficulty of managing exit from the current highly accommodative policy stance when the time came. Many participants, however, expressed confidence in the tools at the Federal Reserve’s disposal for managing its balance sheet and for normalizing the stance of policy at the appropriate time. Regarding the marginal efficacy of the purchase program, most participants viewed the program as continuing to support accommodative financial conditions, with a number of them pointing to the importance of purchases in serving to enhance the credibility of the Committee’s forward guidance about the target federal funds rate. A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue, although some noted the difficulty inherent in making such an assessment. A couple of participants thought that the marginal efficacy of the program was not declining, as evidenced by the substantial effects in financial markets in recent months of news about the likely path of purchases. “

I believe the Fed has made a “deal with the Devil” that will come back to haunt us within a couple of years.  Yes, this is a long-term view, but what the Fed faces is really a two-part problem which has an analogy in drug rehab treatment.

The first problem is:  How to ratchet down the quantitative easings to zero.  The first step.  If they mention slowing their asset-buying largess, the markets will tank.

Then, the second problem arrives: How to divest of those assets…or do all mortgages eventually belong to the government and say, isn’t that how the Soviet system ran?  Or, with an ex-Berkeley Fed chair is this the new plan?

As we look at the Challenger job cuts report (next item) it strikes me that as busy as sitting members of the Federal Reserve were, back in the day, getting their fine academic credentials, they may have missed the 1968 musical Oliver! which asks the question in music that we are asking ourselves this morning. (Go ahead, play it in the background and keep reading…)

With declining disposable, the LBGT movement getting traction (thus reducing birth rates) and bringing the “new coupling” plus the arrival of additional robotics and workplace automation, no to mention 3D food printers like the ones being shown at CES in Las Vegas this morning, and what about New Minimalists?  Just who will buy all those assets piling up on the Fed’s balance sheet?  The public with its collapsing disposable income driven to the gutter by the healthcare tax?  Not bloody likely.

But that’s easily solved, of course:  We’ll just pretend (for statistical purposes) that healthcare is not a tax and that buying healthcare is optional.  That way, it won’t appear that we’re in trouble.

“There’ll never be a day so sunny,
It could not happen twice.
Where is the man with all the money?
It’s cheap at half the price!

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We’re gearing up for a marvelous lesson in public relations later this month when the Fed holds its last meeting under the gavel of outgoing Ben Bernanke.  That will happen January 29 & 30th.  And, although the press won’t be in the room, a ceremonial “handing over the gavel” may be anticipated.  

According to some, a rather obscure indicator of markets will flip over right in that period:  The Bradley Siderograph. You can find a good discussion of it here, but the main thing to note (if you’re not actively trading markets) is that the Bradley turn date happens at the same time the Fed meeting pops up.  This arrival of a Fed meeting and a turn date is – as the Chinese might say – an auspicious occasion.

Which is why it would be a dandy time for one of two things to happen:  Either Janet Yellen will play ball with Wall St. or she will act tough.  She’s stepping into a pressure-cooker where there is no right answer.

The analogy my consigliere uses goes something like this:  The Fed thinks it can “build a bridge” across the long wave economic  abyss that we’re almost smack over.  In order to do this, they have built a series of bubbles to help them along their way.  Print money fast enough to keep things going, but not so fast as to hand the easy win to us gold bugs through rampant inflation.  You know, just keep depression/deflation out of sight.

One of these is seen in how the market went into a real estate bubble orchestrated by Alan Greenspan.  That bought us part way over the chasm. Then, with the collapse of the market in 2008 into 2009, there was a need for a new stimulus to “build the next part of the bridge” and we have been going through that exercise with Ben Bernanke’s quantitative easings.

We note, in passing, that the Greenspan reign at the Fed lasted to 2006.  With this in mind, we wonder if the “passing over” to Bernanke in this period, marked the end of the housing bubble?  In many markets, 2006 (starts) were the last big batch.  The top was in by 2007/2008 and then we know what happened next.

Analytics could be used to count days from the Greenspan departure to the bottom of the secular market in 2009.  We know, for example, that the last Fed meeting for Greenspan was 1/31/2006.  And that the Dow, on a weekly closing basis was setting its low on 3/2/2009.

That’s 1,126 days.

We can then plug in the date of Bernanke’s last Fed meeting and wonder what will happen 1,126 days later?

Will a new market low be appearing the week around March 1, 2017?  Fed bosses don’t change at the bottom. But near tops?  Yes, that would be more in line with expectations.

Markets on Ice

Still, for this morning it is “Turnaround Tuesday” and after slipping 45-points by the Dow yesterday, the market seems set this morning to come back to life with the futures pointing to a modest gain of 60-70 points.

The reason to be a little cautious in here is simple.  I mean besides the Bradley/Fed date coming.  The price of oil is still under $95, the December auto and truck sales disappointed, and the recovery needs something a little stronger than just newly minted paper to become sustainable.  Another indicator –  the Baltic Dry Index  – has failed to move decisively higher than the 2,000 levels, so it will be worth keeping an eye on once we get to the turn date.

And that leaves us with only one major data point going into this morning’s open:  The new Balance of Trade number just out from Census:

The Nation’s international trade deficit in goods and services decreased to $34.3 billion in November from $39.3 billion in October (revised), as exports increased and imports decreased.

GOODS AND SERVICES

• Exports increased to $194.9 billion in November from $193.1 billion in October (revised). Goods were $137.1 billion in November, up from $135.6 billion in October. Services were $57.8 billion in November, up from $57.5 billion in October.

• Imports decreased to $229.1 billion in November from $232.5 billion in October (revised). Goods were $191.0 billion in November, down from $194.4 billion in October. Services were $38.1 billion in November, up from $38.0 billion in October.

• For goods, the deficit was $53.9 billion in November, down from $58.8 billion in October (revised).

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There’s not a word for this one.  No longer warm doesn’t get it.  Cool doesn’t work either.  Cold just sort of sneaks up on it.  “Freezing our asses off” is closer still.  But no combination of words I could come up with come anywhere near describing what is quickly turning into one of the coldest winters in decades.

But, then, we already knew it would be happening because of two simple indicators.  You may remember when we flew out old Beechcrate back from the Northeast during the monsoons this summer that rain and crappy weather forced us to head all the way west to Mt. Carmel, Illinois, before turning south for Texas?  One of our overnights was in Lancaster, Ohio, and it was there that a long-term resident driving the local cab warned us.  It had something to do with worms and squirrel behaviors.

The second major “Oh, crap, THAT!” was when the Sun started to go out. Well, maybe not quite, but you get the idea:   Since the sun heats this-here rock, when you get a major decrease in Sun output, which is what Cycle 24 has been so far (major dud), there’s less heating.  The good news is that sun spots came up to their projected (paltry) levels in the month just finished, but I’ve been calling it the “Ure Minimum” for months, now.  Please, try not to be surprised, alright?  Yes, that’s the new Sunspot chart just out this morning…

Of course the THIRD hint might have been all the volcanic activity which was spewing suspended particulates that even Beijing (with it’s crappy air quality) would have to envy.

So this morning, it’s down to 19-degrees in our little corner of East Texas, and we may be one of the warmer spots around.   It was 11-below zero this morning in Chicago.  My consigliere up in Columbus is waking up to a heat wave: 4 above zero.

Still, the tropical East Coast is still warm enough for another few hours while the chill meanders eastward:  Hartford is looking at the mid-50’s.  Ditto NYC.  But it does give national media something to talk about.

But that’s going to end later on today when both cities collapse into DFC (dead frigging cold) such that by this time tomorrow NYC should be down around 14, or so.  Already, Canadians have been reporting “frost quakes“.”

Despite all the cold weather, this is probably one of the safest days to fly somewhere that you’ll find:  Aircraft performance is a function of density and THE best operating conditions for any airplane are super-cold temps, lack of moisture and so on.  On a hot summer day, the old ‘crate might eat up 1,200 feet of runway getting on the ground.  On a morning like this morning, I could probably do it in 480-feet.  Airplanes, unlike people, do great in cold weather. 

“Power to the People”

On the other hand, the US power grid is heavily stressed, with everyone turning up their EBs to “mother” (electric blankets as high as they will go).  Which gets me to the latest communiqué from “warhammer”

George,

National security entails much more than a ready military. A nation must be prepared to prevent and, when prevention fails, absorb attacks, accidents and failures affecting our critical national infrastructure, e.g. the power production systems and transmission grids, water purification and distribution systems, information transmission (phone, Internet, television, mail), health networks, food production/distribution and interstate commerce, to name a few.

So while this piece of news is interesting . . .[link: Double Threat: US grid vulnerable on two fronts”]

. .

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Oh-oh.  Another one of those controversial topics just waltzed into the inbox, so before going any further I need to say:

WARNING:  LOOKING AT THE SUN DIRECTLY MAY CAUSE INJURY TO THE EYES OR BLINDNESS.

Why the warning?  Well, with a subject line line “Jaw-dropping info that I stumped upon, matches almost what you been report for a while…” who can resist reading on?

Hello George:

I been following your material for years, i recently stumbled on to a book and purchased it, by Whitley Strieber called THE KEY, A True Encounter at his site..www.unknowncountry.com. It has been sitting around the house for a couple of months until this weekend when i finally finished reading other material about sungazing and the light body, i have become very spiritual since my daughters passing from Bone Cancer at the young age of twenty five, may of 2012, so needless to say i have been reading everything i have been guided towards to heighten my Sixth sense to try and stay in contact with my daughters presence when she should happen to come around. I was startled after getting into the conversation that Whitley had with what seems like the Angel Micheal about how Heaven’s use of Astrology to track mans progress since their is no time in Heaven, and that a important age or event happens every 2 Thousand years in which the Holocaust was ours, since the Holocaust reduced the intelligence of the human species by killing too many of its most intellectually competent members. It is why we are still using jets seventy five years after their invention. The understanding of gravity is denied us because of the absence of the child of a murdered Jewish couple. This child would have unlocked the secret of gravity. But he was not born. Because his parents went, the whole species must stay. What is happening is consequence, not punishment.

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Very quietly, the nibbling away at the edges of the “old and familiar” is moving ahead at  serious speed this week in the odd intersection between physics, mathematics, and “urge to find truth” as 2014 spins up.

The view is based on a cluster of events in headlines and the appearance of two items in my personal life, one of which comes from the “I Ching” Inbox. 

No, you can’t buy an I Ching inbox…they just sort of happen when you’re on the right path of a stupid initiate who seeks truth of all things.

Item #1:  In come the disclosures from Ed Snowden’s latest which is about how the NSA is building a quantum computer that’s designed to do a much faster job of breaking encryption keys than present-day technology.

Item #2:  Detroit’s Water Department.  This is a city agency – paid for by taxpayers – which can actually make money. Talks on its future will be coming next week, but the mathematics tie-in is obvious:  Compound interest overwhelms politicians, again, who we’ve always been a little suspect of, when it comes to “running the numbers right.”

Item #3:  Next comes the report in the University of Delaware’s UDaily that researchers at the school have developed a new curriculum approach called the “Number Sense Interventions” which, while designed for kids who might not be exposed to math at home.  That may be telling us something much more general about society, murmurs the I Ching inbox:  Maybe we’re all pretty stupid on math?  My buddy Howard is always pointing our numeracy issues, especially with the press, but maybe J-schoolers ended up pounding keys because they couldn’t hack the differential equations to be rocket scientists…

Item #4: A paper on ARXIV.org reports on a search of the internet  looking for evidence of time travelers.

Time travel has captured the public imagination for much of the past century, but little has been done to actually search for time travelers. Here, three implementations of Internet searches for time travelers are described, all seeking a prescient mention of information not previously available.

So begins the very interesting paper that you can read over here.  Math, quantum mechanics and time travel evidence on the internet…all wrapped up in one paper.

Personal Item #1: Every pair of socks I have put on for the past week has developed a hole in them.  Now, if this was just two or three pairs of socks, that’d be one thing.  This is the sixth morning in a row, now, and I can’t help but intuit that the Universe is telling me something about runs of events. 

The rest of today will be spent deciphering the cosmic meaning of this:  Does it mean that I should run into town and buy a lottery ticket?  Or, are events telling me I should run into town and buy socks?  Vexes me no end.

The I-Ching Inbox Capper:  A reader email came in Thursday discussing numerology of all things!

In your column this morning you talked about predictive strategies and mentioned Astrology as the oldest. I believe that you are incorrect. The oldest predictive approach is numerology, however it does go hand-in-hand with Astrology.

I do not know what your full name or birthday are but if I did I could tell you more about your life and Elaine’s than you will ever get out of a web bot.

As an example your last name GEORGE (7+5+6+9+7+5=39, 3+9=12, 1+2=3) URE  (3+9+5=17, 1+7=8) (3+8=11) demonstrates that you’re enlightened. If I had you full birthdate i.e. month, day, year I could tell you your life path which is a slightly more powerful vibration than your full name.

All primary numbers (1-9) have a vibration.

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