The Second Depression is coming into view.  Even the big Eastern Media are hinting now.  The biggest financial question, perhaps of our lifetimes, is which side of the Replay of the 1929 blow-off market topping process are we on?

It is NOT  a trivial question, as there are two very real possibilities.  If the market is going up, then odds favor the notion that we are now working higher of the short-term low the market put in December 13, 1928. Such a parallel would suggest that we would have nine months of upside left to run. Think market peaks in September and a late October or November crash.

(Continues below)

 

The other case, however, is that we have already peaked.  If this is the case, the market will promptly drop from here after the two day rally.

That long position I’d held in one of the triple-levered ETFs went away at 02/12/18 | 09:40 AM ET.

The market just isn’t feeling right to me.  But the problem GLOBALLY is that a negative mood seems to be gathering strength.

While the early US futures were showing down about half a percent, we were left to ponder what the cycles of ups and downs are trying to tell us.  We’ll lay out some of it in Peoplenomics tomorrow for subscribers.

Bitcoins, I think, are something of a bellwether here.  As of this morning, they were still stuck in the $8,500 to $8,600 trading range.  But, this leaves them in the downward channel.  Once they break out to the upside (if, indeed, they do) it would give me a lot more confidence to go long the market.

Were any of our children to ask, now is not a bad time to have things like retirements sitting in a stodgy parking place.  Cash is boring, but…

  • Bitcoin is stuck in a trading range.
  • Stocks have broken out of a downward decline, but only perhaps in the short-term.
  • Bonds are problematic, too.  After dropping (basis the 10-year) to as low as 1.37% interest in July 2016, we have seen rates go up to this morning’s 2.86% range.

That would seem to signal that the long wave economic bottom has passed and good times are ahead for all.

But, not so fast.

If you look at the five year chart of the ^TNX on Yahoo, we may be close to completing a bounce after which we could fall back into negative rates.

Specifically,  if we use the mid 2016 low and then plug in the 2.60% in December of 2016 as a wave 1 up, then Wave 2 should have dropped into the range of 1.66 to 2.13 – which it did with 2.06 in September of 2017.

And that sets up a rally to the 3.83% (and maybe over 4%), but those are not likely sustainable number.

Bring circles us back to March 22, which is a possible crash date UNLESS the market promptly sets new highs.  And this, in turn, is looking like the weaker case by the day.

Whew.  So into the headlines to see what is driving:

Treasury Budget Data

If you click over here, you will see Treasury receipts were up compared to year-ago December figures, but only up 2%.

That is bothersome because when you run the money supply figures from the Fed (H.6 money stocks) what you find is that the money supply was up 4.7 percent  while Treasury receipts were up only 2%.

Just hold that thought, for a second now and let me jump to the BIGGEST Story of the Day:

There’s growing talk of a downturn in 2019 says the Washington/Amazon Post.

The Curse of Financialization

Whatzat?

We live on an utterly insane planet.  A short mental exercise will reveal some of the insanity and explain why a Second Depression is necessary.

First, we’ll click back to the 1920’s.  America was a nice blend of technological progress (electricity and radio plus autos coming of age).  But, as we all know from the history books, it all collapsed into a heap when the financialization of the period failed.

The farms could still produce food – but too much meant falling food prices – and the race to the bottom was on.  Those who cut prices first sold crops.  Those who didn’t?  It was ugly.  Same thing in manufacturing.  As consumer debt tapped out, prices had to come down…which they did all over the board.

That’s how Depressions work.

Now, let’s go back to the question raised by a reader on the discussion side of this site the other day.

Do you think the Velocity of Money has bottomed?

Critical question that must be understood:  Money, understand, is a manufactured product.  And in order to do its magic in an economy, it needs to change hands.  Every time it changes hands there is “economic activity.”  A sales commission is paid, title changes, a resource goes to work…

Think of the Velocity of Money as being roughly the same at the Inventory Turns Rate in manufacturing.  the more your inventory turns over, the faster and better your business is operating.  But the same works the other direction, too:  When no one is buying, inventory piles up.

In finance, so does money and it’s annotated as the collapse of money turnover – called Velocity at M2.  And in the most recent data, Velocity is STILL a disaster:

To be sure, there’s a little blip, but little blips don’t save us.  Besides, the only number than really matters is Retail Sales per capita.

We will have new data for the month tomorrow morning over on Peoplenomics, but we can look at last month’s data.  As we do, remember money is up 4.7%.

Advance estimates of U.S. retail and food services sales for December 2017, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $495.4 billion, an increase of 0.4 percent (±0.5 percent)* from the previous month, and 5.4 percent (±0.7 percent) above December 2016.”

Remember:  Fresh data is due, but if we look at two factors, we can estimate that we are still stuck in a No Grow Economy.

First, let’s assume the numbers are perfect (they’re not, really) and pencil this out:

With sales up 5.4% and money stocks up 4.7%, we need only account for growth of 0.7%.

Since we know US population was 324,459,463 in 2017 and it’s now 326,766,748, that is an increase of what percent?   Repeat after me: 0.7%.

In other words, with this one devastatingly simple series of data points, we can see how we were (as of December) still stuck in a zero growth economy.

And this circles us around to immigration.

Regardless of the right/left, republicons and demoncrats blatherspeak and spew, the fact of the matter is this that if population per capita spending is stuck at zero, then the easiest way to “fix” things is to pour in more people.

Tons of them.  And that’s what the GOP can’t seem to calculate, while the demo’s are working it as a two-fer – getting people to consume more crap AND getting a fresh crop of gullibles AND sure, let’s toss in umpteen ESL teachers, too.

You see how this works as a business model now?

Trump wants to build a wall – and they will result in some jobs.  And it’s a nice public works deal – shades of the Depression, huh?  The modern era’s version of Grand Coulee dam.

The Schumerviks and leftover Obamanistas want to flood the country.

Of course THEY don’t tell you that America has gone from being 85% Aglo heritage in 1960 to just 62$ today.  And God help someone like Jeff Sessions who is old enough to remember the economy of America before we imported growth by throwing open our borders.  See how Sessions if being skewered by the left today

But things aren’t all bad.  In fact the NFIB optimism index is just out:

“The Small Business Optimism Index jumped two points to 106.9 in January and set a record with the number of small business owners saying Now Is a Good Time to Expand, according to NFIB’s Small Business Economic Trends Survey, released today.”

And Bloomberg report “Americans Expect Biggest Pay Jump in Years.

For now, though, Ure’s truly is patiently waiting in cash.  Maybe I will wade back in tomorrow, but for this morning?

We notice all the hype about the Obamas and their painting’s this morning.  Seems to us, there was a better painting to base Obama’s painting on:

40-minutes from the open, the Dow futures were down 100.  Maybe we’ll get long tomorrow…time will tell.

Tomorow in Peoplenomics:  Occam’s Spreadsheet where we try to calculate what’s next.

Occam’s Spreadsheet
Coping: With 10-Year News Futures