Scent of Approaching Panic?

Although the market today looks to open up more than 100 Dow points, we have to wonder  – with such a data intensive week to come – whether there is any point to being long over the weekend.  For if we are in a massive “buy the rumors” cycle, perhaps the other view should be considered, as well.

There’s a real lack of news to drive things with the only major US data due out today being the Baker Hughes rig count this afternoon – with little impact on oil expected.  And on the north side, Canadian Retail Sales will come out.

Let;s run through our list of “worry stones.”

  • Monday the Chicago Fed National Activity Indicator will be released.  If it’s anything like the Philly Fed data this week, there will be a small decline in optimism and outlook.
  • Tuesday federal housing starts and the Case-Shiller Housing price data will arrive so we will see how rates and sales are looking on the real estate side.  We get the sense there’s something like a “soft peaking” underway, but it may be too early for it to show up in the data.
  • Also Tuesday, consumer confidence and if we’re reading the size of refunds from IRS and people’s bitching and moaning about things, that may begin to teeter a bit, too.
  • Thursday will bring GDP data
  • Friday is a data festival with Personal Income and December core inflation.

There are two others – and really these dominate the “fear-factor” thinking about next week.  First is the possibility of the Mueller/Special Counsel report.  If it goes one way, it might be constructive for markets.  Or, the other, would be bad fxor markets.

As if that isn’t enough, there’s the matter of Trump now saying that his formerly “hard date” for a Trade deal with China isn’t a “magical date” after all.

To us, while there’s a chance of a slightly higher high today in our Aggregate view of things, the occasional “worry stones” are turning into a gravel pit, or will do so shortly, and that’s reason to be skeptical.  But we’ve been wrong before…

The US Strategic Problem

Is still unchanged.  It’s that the Velocity of Money has collapsed to life-time lows and after a tiny bit of recovery is once again looking lame.

Most people have never thought about “Velocity” but you can think of it as the turn-over rate” of money.

Money operates very much like electricity.  It has pressure and flow measurements.  The pressure is indicated by interest rates (think of that as voltage) and the turnover of money is like current in electricity.

The amount of “work” done in the economy is the product of interest rates and turnover just as voltage times current gives you Watts of work done in electricity.  Sure, an imperfect analogy, but it’s a starting point.  (Long article on the electricity analogy to money somewhere in the Peoplenomics subscriber archives…)

Point of this morning is people can’t seem to comprehend why money piles up in dark pools of capital at the bottom of the economic long wave.  The answer is surprisingly simple.

If interest rates are 10 percent and you want an income of $100,000, then you need $1,000,000 stuck in 10% bonds.

That was fine in the mid to late 1980’s but bonds had already begun to move down from the 1981-1982 peak.

Nowadays, in a world of 2% interest, if you want to ladder some bonds for a $100,000 income, you need $5-million stuck in 2% bonds.  It quickly becomes clear why the money tends to pile up in the fixed incomes.

The result on the economy is a slowing because there’s only just so much money even when notionalized so money stops turning over.  When it does, the public confidence tends to falter and a lack of economic “self-confidence” ensues.

That’s the strategic problem.  People are running about like chickens looking for a frying pan lately over the Federal budget deficit, but if you study a bit, you’ll find that this is exactly when the government spending should be expansionary.  Gets the economy going and acts like a big flywheel.

You look at when the US was paying down debts?  That was on the other side of the economic long wave (think 1950’s) when we were producing our way toward the peak of the long wave interest levels that would come 30-years later.

The Scent of Fear is dangerous stuff.  Right now, the Fed is trying to paper over the gulch between a second major decline (which would be falling back into Depression-era economics).

In the latest Fed data out we see what went wrong in December.  The Fed dropped the money creation at M1 to a lousy 2% for the window ending December 31.  When rates of money creation go down, money comes out of markets and looks at bonds.  It’s like tossing nitroglycerine around.  Too high with rate and money goes back into bonds too quickly, too low and economic activity slows.

We’re thinking odds could be as low as 50-50 that there will be any rate hikes this year.  That Bernanke (et al) paper on Lower for Longer is very significant and (as with Dr. Bernanke’s usual high clarity) is very much in line with IRL (in real life) experience.

Awareness is building: A Fed pivot, born of volatility, missteps, and new economic reality.

Dribs and Drabs

So, pardon me, but what are public lands if the public can’t go on them?  We see this as a thought-problem often enough here in the US but looks like governments worldwide are picking up the cue:  As Indian court orders 1 million to vacate forest land.

Political correctness continues to confound us.  Latest is China’s new policy against gender bias meets fans, sceptics.  Don’t know how many genders China deals with, but most places there are only two…California and the Northeast have other counts, however.

Can’t get an investigation of HRC and the 2-years of Tramp-slam have us bored.  But did you see where a IRS Agent Charged With Leaking Michael Cohen’s Bank Records?  Little people get charged.  Big people skate.

Remember when Boeing product was 100% American made?  VietJet to sign major Boeing deal during Trump-Kim summit: sources and it almost certainly will be a much-offshored product.

Gold’s little pop recently has maybe set off some acquisitions in the gold fields as Canada’s Barrick Gold considers hostile $19 billion bid for Newmont Mining: media.

Attention Bernie and Octavio:  Here’s the latest of how socialism is working against the people in Venezuela “Nicolas Maduro Has Closed Venezuela’s Border With Brazil to Block Aid.”  Can’t either of you read, for crying out loud?  On the other hand, sending in the neocons doesn’t seem likely to help, either but here it goes: Press Releases: Special Representative for Venezuela Elliott Abrams Travel to Miami and Cucuta, Colombia.  Ought to be dandy for the “defense sector”.

Which is an oxymoron:  We can’t defend our own border, but we can defend Venezuela?  WTF?  I must not be drinking enough, lately.

The Revisionist’s Life

Church of England says Sunday services no longer mandatory.  Online churching, here we go.

As our historical replay continues toward replaying WW II, here comes anti-Antisemitism in Europe as Vandals paint swastikas on buildings in Amsterdam.

Frog’s legs are heading away from mainstream: Bear Grylls faces possible fine after killing, boiling frog in Bulgaria: report. We’ll try to keep a leg up on this story.

Lost in Space (Money)

Here’s a cover story for you: A Japanese Spacecraft Has Landed on an Asteroid to Look for Clues on Origins of Life.  The reality is that major countries around the world – faced with the reality of running out of resources here on Earth – are actively trying to get into space to exploit that as well.  You think these billionaires are going for the joy of it?  The Pacific Counsel‘s offers a bit of a think-tank view here in “Regulating International Space Mining, and Enormous Industry.

Tightly related: Watch SpaceX Launch the First Private Lunar Lander Mission. It’s all about? Mooney, mooney mooney…

Well, I see pork futures are back up more than 5.66% this morning so that must mean Elaine’s going with bacon and eggs over at the house.  .

So…moron the ‘morrow.

22 thoughts on “Scent of Approaching Panic?”

  1. Actually, we Society of Friends have had an online church since 2012, on almost every known social media site. Not really a new idea either. About 200 members counting all the sites. On FB, Utterz, Minds (new), Friendscircuit, OneWay, SocialCross,Wordpress and several others. Lately been running Chris Tyremans work on Utterz.

  2. G – looks like the S&P closed on a Doji candle on a Daily – Hollow Candle chart. Do not want to be Long this market when that Doji appears -IMHO
    I wonder what if any negative trade news will be leaking out today..the aforementioned Doji is a warning.
    Leaks everywhere today, especially grey matter leaking out of Leftist Progressive Democrats (Baby Killers) all over the place.
    See Smollette leaks regarding who he was in frequent contact with..Alphabet Agency/Antifa Backer.
    Bet a Nickel the LSM(Lame Stream Media) wont touch this angle, as all media eats from the hand that feeds it…the Christians In Action (CIA) – same crap, different day.

    • CIA – Criminals In Action – it has nothing to do with Christians, but you knew that already, right?
      FBI – Felons Belong Incarcerated.
      NSA – Normalizing Surveillance Activity.

    • I guess I don’t buy the humanitarian aid news. Never had.. All you have to do is research what resources they have that the puppeteers would want. Like NK and lithium Syria and gas and oil…
      In every depression commodities were a nuclear war or emo depression still can buy Charmin tp the real issue is price. In a catastrophic event there will be resources available. The real event will be replacement of what you have. Since manufacturing has been outsourced and plants reconfigured and dismantled..
      The discussions lately at the coffee stop is the tax return reductions and taxes being paid going up. If you have a family of four and normally get an eic tax credit of seven thousand and this year you only get three you won’t be spending four thousand. A television that costs three hundred and taking up space on the shelf. Either has to be dumped for a product that will turn over. So for an item like that seasonal you can basically have them give it to you. If they need that space if not that product may go through the roof.
      A few weeks ago a business I was a manager at reported that they were closing. I went in and bought a commercial popcorn maker. Because they are dumping the shelves I got it for 12 and a five dollar kickback.
      There are a lot more surprises coming to from the last spending bill passage. DJT will be blamed for them the same way Carter was. Even though what’s happening has anything to do with DJT.
      Anyway the news video didn’t surprise or shock me at all.
      As for the prices.. That’s where you learn how to make beer wine cheese soap etc.
      Then do like I did make a deal with a farmer and trade. Do like we did in the eighties and barter your skills in exchange. A plumber is still a plumber..that’s one way Greece was able to survive.
      The Unskilled and elderly had a lot of different issues to work through.

    • Wow! The USSR and GDR used to put out stuff exactly like that Max Blumenthal vid. Sometimes they’d have to scour every market within 50 miles of Leningrad or Leipzig to find enough stuff to stock the shelves of a market in Moscow or East Berlin, before the video shoot. The few shoppers were always wives of Politburo brass or KGB chair polishers, or their Stasi counterparts.

      Venezuela has its billionaires, as does every socialist nation. They are considerably fewer by percentage, and own a significantly higher amount of the private property in their countries, than do the “wealthy” in the United States. They are also physically protected and isolated from the masses, by the military of the despot in-power…

  3. George, excellent economic piece today.
    My concern is that money is flowing out of the hands of the people that spend it, Main St., and when it hits rich folks’ piles, it tends to stay there. Hence falling velocity!
    Which of course, the tax cuts exacerbated. And consumer debt rises to augment Main St. spending. So, the trend is less money to spend, and mounting debt.
    Which is exactly what your chart shows.
    I agree with you that we should augment spending, simple Keynesian economics, but then the risk is more national debt, which then gets saddled mostly onto the middle class, which in the end pulls out more money. A viscous cycle gets created. Adding to the piles that tend to not get spent (i.e., trickle down) just makes it worse.
    So, it needs to be clawed back from the rather sluggish piles, and injected into Main St. where it gets spent.
    And will be getting much worse as automation takes more jobs.
    Just saying.
    This kind of wealth disparity is what got Venezuela into trouble, and provided the snake oil that that brand of populist despot was able to sell.
    Best, Mike.

    • Yup…trickle down was a nice idea..the issue was it didn’t trickle down. It ended up in some bank hidden from view.
      Jobs left for increased profits and necessities that were controlled given the right to charge monstrous sums in comparison to wages that actually considering the decline of the dollar and economic increases of has been declining.

  4. China is following the US in folly! Nondiscrimination in gender? Gimme a break. Chinese understand the bottom line and will do what’s necessary to keep it in the black. Many job ads in Asia declare an upper age limit of 35, and no Asian country has ruled against that! Older people better have their own businesses.

    BTW, there are only two sexes in China – those you want to sleep with and those you don’t! Enforcement of harassment law is lax, if even that, and drinking after work with the team or the boss is a required skill.

    • Hmmm..just sayin
      If you ever get a chance to get to know a traditional Chinese family you’ll be surprised.
      You may marry the daughter. But you literally gained a family so to speak. Mom dad grandpa grandma aunts uncles all are the responsibilities of the children.
      The ones I know ( nephew married into a traditional Chinese family) and those I have worked with have everyone living under one roof. They pool finances and manage it similar to a colony.
      We don’t claim the responsibility of our elders or children we let them go their own way.
      In Canada a refugee has to be sponsored and no govt. Funds are used you sponsor them they and their needs are yours. The break the law you pay the fines etc.

      • Looking: How the US grew to a superpower. In the US, we leave the nest & go out to make our own mark with the goal of making each future generation better than the last. That is what has made our country great. No one used to ask for anything free from the gov’t. Our Country became rich & the Dems were there to spend it to increase their power. The Dems were more than happy to give freebees to everyone for their vote. Is it really necessary for our Government to be the world policeman or the policeman of our values? Who have we spread Democray to? NO one. But the Dems need to expand to keep the money rolling in. It Is a Ponzi scheme that will eventually collapse.

      • I actually know several Chinese families and almost married a Chinese woman. Possibly it was a mistake that I didn’t, though at the time I knew too little of the culture and still have mixed feelings about it. One never knows what might have happened on the path not taken. I’m definitely open to the idea of marrying a Chinese family if the bride was sufficiently compatible with me. I think living and sleeping with a Chinese bride is probably the only way for an American to really learn the Chinese language.

        The paperwork of importing a Chinese woman is challenging, and in the USA, you must prove your ability to sponsor a foreign bride and sign an affidavit of support. Some folks can skate around the law, but I’m not smart that way and would rather not anyway. Moving to China as a retired person is generally a non-starter. It’s been much more difficult politically for the last seven years.

      • NM – you could move to the Philppines & meet a woman. Art Bell moved there after his wife died & married a young bride.

      • That’s true.. Until deregulation and outsourcing jobs and congress tossing the middle class under the bus. A lot of positions were voluntary.
        Working healthcare. Candy strippers and orderly’s were volunteer positions. The last time I seen a volunteer was a work release and a member from a psych hospital ward ( hilarious story about the psych patient) that was 90 or 91.. About the same time nurses wages started to go up from 4 dollars an hour.
        Moms had to go to work and waves went down. The good Samaritan programs went from going to the absolute needy to the. Average wage earner as a necessity to survive

  5. Remember the days when you turned 18 & were eligible for the draft. During that era, the polititions had to answer to the mother’s of their drafted 18 year old sons. Today, with a voluntary army, war is not so personal, so the polititions can use the military for their own purposes (like Bush II invading Iraq to avenge his father & remove Saddam). That is why we will always be at war because it gives the Polititions world power. How else did the Clinton Foundation raise billions of dollars. With our home front secure & the whining Millenials sucking their pacifiers, the Polititions are free to masacre the rest of the world. The problem is eventually hell will return home if we let our government continue their madness. The deplorables recognized this madness & elected Trump because he appeared to be on the same wavelength as the Deplorables. Unfortunately, PT doesn’t appear to be mentally up for the job. Good talker, few results. At least Obama did his part for the Deep State by opening the door to Marxism & used race to silence the critics. Then Hillary was to continue the Marxist trend. Fellow Deplorables, we need a new strategy! Washington is playing PT like a fiddle & Marxism is right around the corner. They will go to any length to rid themselves of PT; the country be damned.

    • Back then.. Under the table deals were just that.
      There was still some integrity in congress and they still accomplished something.

      Today there’s nothing holding back the puppeteers from influencing our congress. The congress we have hasn’t done anything in decades.
      And from all indications they won’t anytime soon

      • There was not necessarily any more integrity then than now. What there WAS however, was an understanding that when politicians, or people in general, did things which were illegal, immoral, or selfish and self-serving, they were crossing a “line” between that which they should do, and that which they shouldn’t.

        The difference between yesterday and today, is that the “line” has been made invisible, or made to disappear completely.

        We have no moral compass…

  6. George

    “Money operates very much like electricity. It has pressure and flow measurements.”

    Analagies are great for helping people understand difficult subjects.
    I especially like to use the analagie of water when thinking about an electronics problem.

    For example a transistor is just a spicket valve for electrons. The valve handle acts like the transistor Base lead. The more you turn it the more water you pass. Apply more current and voltage to the transistor Base and more electrons get to pass.

    Resistors are just calibrated pipes for electrons to flow through.

    My Father was disappointed I didn’t become a plumber like he was. He could not understand that I was a plumber of electricity and was advancing the family tradition.

    Many technologies of today are just a rehash of older stuff dressed up to look new. For instance the computer is just a very fancy Jacquard loom type of device.

    Enjoy the weekend!

  7. Bond lattering was the trend when interest rates were high. I used 16%, 5 year Bank CD’s when rates went crazy. I thought, where can you get 16% with no risk!…unbelievable good days for the bond investor. I should have used longer term bonds, but I wasn’t that smart. I just let the interest compound.

  8. To understand the use of the word “Public” by the mainstream media (and other entertainers), “intellectual elite,” Liberal politicians, and other Marxist regressives, simply substitute the word “Government” for the word “Public,” every time it appears or is spoken.

    For instance:

    Public Park = Government Park
    Public Television = Government Television
    Public Healthcare = Government Healthcare
    Public Transportation = Government Transportation
    Public Education = Government Education
    Public Land = Government Land

    See how it works?

    Until 235 years ago, there was no place on Earth, over the entire known history of humanity, where non-titled “common people” could own property. For the past 235 years, elements both within, and without our society, have striven to remove this Right from our personal expectation and from our lexicon…

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