Breaking: Durable Orders Crumble
From the press release:
“New orders for manufactured durable goods in November decreased $5.0 billion or 2.0 percent to $242.6 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 0.2 percent October increase. Excluding transportation, new orders were virtually unchanged. Excluding defense, new orders increased 0.8 percent. Transportation equipment, also down two of the last three months, led the decrease, $4.9 billion or 5.9 percent to $79.2 billion. .”
Are we to see this as evidence of our long-predicted Consumer Super-Saturation model?
Seriously? Does this sound like a hot economy?
Inventories of manufactured durable goods in November, up sixteen of the last seventeen months, increased $1.8 billion or 0.4 percent to $434.0 billion. This followed a 0.4 percent October increase. Transportation equipment, also up sixteen of the last seventeen months, drove the increase, $1.8 billion or 1.2 percent to $149.3 billion. Capital Goods Nondefense new orders for capital goods in November decreased $1.3 billion or 1.8 percent to $71.3 billion. Shipments decreased $0.7 billion or 0.9 percent to $74.4 billion.
We can’t help but notice the lack of (sane) reaction with the futures up nearly 60 after the number. (Go figure…a lil too much egg-nog, maybe?)
Markets Hope for Higher, Though
We couldn’t help but notice that early this morning, the signs were (not surprisingly) pointing to a continuation of the rally. The problem in our work (*over on the Peoplenomics.com side of the house) is that there is one possible match-up with the 1929 blow-off top that hints the market only has another 3-5% of upside left.
When we get there, we will have equaled 1929. And it’s no surprise, really.
In both periods, we were in major technological overlaps. The two “hot tech” segments that were competing for (regular) jobs were the auto industrial and related build-out of fledgling federal highways. Plus there was all that “radio” manufacturing. All hugely prosperous and demanding talented people.
Today, the technical “cartography” seems eerily the same – but different! Instead of a build out of highways, we are building out the Internet’s next evolution, 5G. Then there’s the whole matter of A.I. and robotics coming right along. So much so, that when I get done with my silly “time machine” experiments this spring, Ure’s truly will be trying his hand at some simple robotics programming.
The problem we see ahead, though, is that “Boom Times” never last. And we are looking down the barrel of what I’ve described as Ure’s Discontinuity.
Let me put it into lay terms and I think you’ll grasp it (depending on your coffee loading, so far…)
We know some baseline things:
- Bond rates have been falling (on average) since 1982. That’s when some of the family high-yield bonds in the failed WPPS nuclear plants were called: They were paying north of 13%!
- At the same time, tech exploded. I mean think back to the days when Microsoft was still compiling code on the top floor of “the heating plant” on the north side of 520 in Seattle. Baby steps. That’s when I was doing my experiment in sending digital messages over radio on the main channel of KMPS AM-FM as a Sunday morning “public affairs” program.
- Since that time, we have gone to extremes. Microsoft and the other tech companies are actually paying dividends. No more of the “betting on the come” for tech. It became an equation.
- At the same time, bond prices fell because its a competitive world out there. With high quality techs paying an actual dividend, would you put your money in a bond, where the yields have been planned to be lower for longer? Or, would you take what was behind the other curtain? Namely that with dividend paying stocks, you might get a double-whammy on the upside. Specifically, the dividend yield doesn’t have to be greater than bonds to make stocks more attractive. It’s the prospect of the capital gain on the share price in addition to the dividends that pays off.
So what’s this Ure’s Discontinuity stuff, then?
Not only have we gone from Bonds having high yields (and low prices) to low yields and high prices, but the quality of tech has been evolving from speculation to dividend payer, so we can make out a logical limit of extremes.
The zero boundary is where everything blows up. That’s why the Federal Reserve has (and in my view wisely) made a whole pile of references to the “effective lower bound.” They know, as do we, that the lower bound isn’t zero. It’s where the Discontinuity becomes undeniable.
At the boundary, bonds pay nothing, so their value goes to zero. And stocks, even if a hint of profitability (or another damn fool to buy ’em) goes to infinity.
Wake up and look around: We’re there!
If the bond yields come down much more, the valuation of the bonds can’t really go up. In other words, say bond yie;lds drop to 1%. That means to make a decent retirement income, of say $50,000 a year to augment Social Security, investors heading into their Golden Years would need to have amassed $5-million in bonds. (Since 1% of $5-mil is how much?)
On the other hand, we are in a stock market setting where our Aggregate Index (not counting this morning’s futures pricing) is up how much from the “slaughter of the elves” last Christmas?
Let’s look it up: Friday of last week, our Aggregate closed at 27,287. (I’ll skip the fractions, too early for them.) During the Christmas eve slaughter? 19,841. Pencils out to a one-year gain of 37.528%
Contrary to what presidential politics polling might offer, behavior economics suggests that if you need $5-million to make $50,000 in bonds versus $134-thousand if you could play stocks to perfection, which one would you have jumped into? (Hint: This economics stuff ain’t that complicated, is it? People will do what feathers their own nests best…)
Of course, no one has played it perfectly. My own predilection is being perpetually too early on market moves. It’s cost me dearly. I expect everyone will see things when I do, which is not the case.
That said, however, there MAY be some significant downside to the market ahead in January for a simple technical reason. Let’s say you bought stocks in January of this year. The one-year capital gains holding period which will allow those gains to be minimally-taxed ain’t that far ahead.
For now, the Fed is making-up-money (MUM) in support of “lower for longer” (L4L) which is fine. Except (and we eye the move in gold this morning suspiciously) when inflation comes, it ought to come roaring in like a lion.
We can already see the mechanics of what happens when we pull back from the Discontinuity – which we can define as the height in the stock bubble where as bond rates collapse, the price of stocks move quickly towards infinity.
That’s because on a competitive basis, stocks have kicked bond’s ass all over the street this year.
The Fed is in no hurry to raise rates. For one, they need markets to survive because in large part, the screaming U.S. markets are keeping the European Union from collapse because they’re already in negative rates.
The main reason the Fed doesn’t want rates to rise (yet) is that when they do, the interest on the National Debt will soar quickly higher. And that could spell economic doom for America. Or, at least a Second Depression which will be worse that the first one for reasons that should be obvious.
Think back on everything you read about the Great Depression: Hobo markings of which houses would share food (gang signs will work thing time around) and masses “riding the rails” looking for work. This time, it’ll be hitch-hikers everywhere. Instead of people losing their farms, there will be huge collapses of corporations because when we leave the “Discontinuity Zone” (which we’ll have to, in order to feed starving and displaced people) government will have to spend on top of record Federal Debt and that’s not a happy ending.
Or, is it?
We’ve long-expected the U.S. economy would enter a time of “terrible workout” when our failure to pay down the public debt and actually increase the value of our money, would “come home to roost.” Don’t look now, that that’s the way ahead.
This is not to say “The higher the markets go, the worse things will be on the backside of the Bubble.” That’s premature. What we know is that government itself is in good measure responsible for the continuing reappearance of long wave economic cycles.
It all comes down to human nature. Quest for power. Oh, and Politics above all.
At a time when we could have been building new opportunities (infrastructure) and working even more aggressively toward on-shoring, what have we done? Record spending and political pig-headedness that is astounding.
Why, it’s like the “two hands of government” not only can’t work in a coordinated manner, but they seem fully spastic and even attached to different bodies.
Example: You saw this weekend that the State Department has updated its “Where NOT to travel in Mexico Map,” right? Notice on the map how the orange area are along whose border that idiots in the House can seem to figure-out how to close?
As you can see, the State Department can read data and produce maps. Idiots, in Washington it turns out, not only don’t read legislation they vote on, but now we come to understand they must not read the papers or understand maps, either. Good God, what a mess, huh?
The good news in all this? Rotsa-ruck, buddy…
- First is we are still in the discontinuity. That is, prices are still going up in stocks and may for another week, or longer. It’s just a matter of when the buyers last year at market lows decide to bail out and lock in their gains.
- When the selling starts, we have a problem because there is so little worth buying. Housing has fully recovered from the 2009 low, and the only thing driving now will be last-minute buyers who see housing prices as heading up again when interest rates begin to go up.
- That could mean a good year for things like precious metals, and digital tulips (bitcoins this morning is up to $7,550). HNyper-inflation may hurt the country, but gold-bugs will love it.
Meantime, we will just keep whistling in the graveyard and glance nervously at the railroad tracks.
There’s a train wreck coming and we can hear the whistle and see the headlight, already.
Aw, do we have to?
Yup – ‘fraid so. We is data driven peeps, is we not? Roll with me:
As we read how Police search for four people in deadly Nashville stabbing, we have to wonder where the knife registration action groups are? And this will ripple into sports because the Brother of 49ers quarterback killed in double murder.
In lieu of STEM-based curriculum? Russian Special Forces Show Fifth-Graders How to Beat Crowds.
Trade war thawing will lead to the rising market, we figure,. so keep stories likme China To Cut Tariffs On Pork, Tech And Many Global Imports It Desperately Needs in mind if you’re eyeing the short side. Meantime, we can’t figure why Washington isn’t more with Trump than against him since U.S. Tariffs Are Near Global—and Historic—Lows. Except, oh, wait! Didn’t we just figure out the folks in DeeCee can’t read?
“Everyone But US” department: Millionaires support a wealth tax — as long as they aren’t getting taxed: CNBC survey.
Holiday travel plans? It could be a white or wet Christmas depending on where you live in the US, sayeth CNN…
Remakes failing? Cats: Lame opening for Cats at US and UK box office. Also, the new Star Wars getting raves from our family members who’ve seen it, but panned by critics. For an example read “‘Star Wars’ Leads Box Office With Disappointing $175.5 Million. As always, our advice is to ignore the critics and follow your heart. The critics are usually wrong…we wouldn’t give you a plug nickel for a dozen of ’em.
Longish column, today, but no appologies. No one’s going to get jack done today, anyway..
NY Fed’s Repo Dep[ot popped with $49.35-billon this morning. Up from last Monday’s $37.7, but can’t anyone else figure the durables aren’t good?
Moron the morrow, then.
Write when you get rich,