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.