The hand-wringing is so intense this morning I feel like I should be passing out cans of Burt’s Bees Hand Salve.
Politico warns us of “How Trump wall could beckon global trade war…”
Over at the NY Times they claim “Tax Plan Sows Confusion as Tensions With Mexico Soar.”
The Washington Post looks at the matter in their Workblog column and title it “Tariff? Border tax? Why it’s so hard for Donald Trump to make Mexico pay for the wall.”
From a more pragmatic (than political) standpoint, the idea of building a Wall with U.S.-made steel sounds pretty good on paper. However, the cost will be much higher since for years, China has been dumping steel in the American marketplace.
Still, there’s a good reason for the Trump wish to make the Wall of American steel (an aspect of his order that may be illegal over-reach): It would begin to make America autonomous again.
For those who do not understand the perilous times we are in, we are in a massive global replay of events that happened before in the 1920’s and 1930’s.
We track this “approximate rhyme” with prior history a couple of times per week on our www.peoplenomics.com site, but the chart that explains the most is comparison of how an equally-weighted summation of the Dow, S^P, and NASDAQ compares with the 1920’s Dow should most of what you need to know.
This week, in case you missed it, lines up with the week of July 18, 1929. For this to work out, we should continue smashing the records in the market until the middle of March.
Maybe a pullback today due to disappointing data which we’ll get to in a sec.
However, there is another way to play “guess the high” – and that is measuring days from the Hoover Inauguration to market peak in 1929 (182 days) and then counting from the Trump Inauguration January 20th to 182 days later this summer.
Our work seems to hint that March is highly possible, however, since Trump is more of a communicator and so are the Trump-bashers.
Ah! When you have studied the Kondratiev/Kondratieff Wave for as long as I have, and have read as many Fed Working papers, the thing that strike you is that the RHYME is never precisely the same.
It varies based on communication of market information. In other words, news, policies, and actions.
The really defining work (and it’s not that hard a read) is “Bubbles and Market Crashes” which was written years back by Michael Youssefmir, Bernardo A. Huberman, and Tad Hogg.
It’s brilliant because if you look at page 17 of the .PDF of the paper at arxiv.org, you will see a series of peaks evolved that represent the “shape of events” in financial markets based on placement of “information shock.”
This matter of “information shock” in the markets was also brilliantly discussed by Didier Sornette in his book Why Stock Markets Crash: Critical Events in Complex Financial Systems.
The key take-away from both approaches is similar in that the events that lead to a Crash actually are found in the minutes, hours, and even days and weeks before the onset of crisis. It is the placement of the “information shock” that ripples around and then causes issues.
An example: Remember when I warned that the Deutschebank scuttling of the “dual CEO” approach was failing? It took a nearly 9-month gestation period for that crisis to be birthed.
The good news is that since this is the week equivalent to July 18, 1929 in one modeling method and January 17, 1929 in the other, we likely still have a good ways to move up before the world comes crashing down.
You see? Hand-wringing can wait At least for a little while longer, but you’ll need to keep a sharp eye from trigger events just under the headlines.
Day to Data, Fed “Revises Money”
This being Friday we have two economic reports to deal with in a moment. But I would draw your attention to the H,.6 Money Supply report Thursday which included this:
For release at
4:30 p.m. EST
January 26, 2017
MONEY STOCK REVISIONS
The Federal Reserve revised its measures of the money stock and their components to incorporate updated seasonal factors and a new quarterly benchmark.
This release includes seasonally adjusted measures of the monetary aggregates and components produced with revised seasonal factors, which were derived from data through December 2016 and estimated using the Census Bureau’s X-13 ARIMA-SEATS seasonal adjustment program.1 The updated seasonal factors resulted in minor revisions to the growth rates of seasonally adjusted M2 for individual months in 2016, slightly pushing up the growth rate for seasonally adjusted M2 in the first half of 2016 and pulling it down slightly in the second half of 2016.
This release also includes a new quarterly benchmark, which incorporates minor revisions to data reported in the quarterly deposit reports and takes account of deposit data from Call Reports for banks and thrift institutions that are not weekly or quarterly deposit reporters.2 These revisions to deposit data start in 2015. In addition, this release incorporates data from Call Reports on the amount of small-denomination time deposits held in individual retirement accounts (IRAs) and Keogh accounts; related revisions to deposit data start in 2016. Likewise, the benchmark incorporates revisions to IRA and Keogh balances held at retail and institutional money market mutual funds; these revisions to data on money market mutual funds begin in 2007. This release also incorporates the receipt of historical information from other sources of data.
The effects of both the revisions to seasonal factors and the new quarterly benchmark on the growth rates of M1 and M2 are outlined in appendix tables 6 and 7.
Historical data, updated each week, are available with the H.6 statistical release at www.federalreserve.gov/econresdata/statisticsdata.htm.
Any time someone jiggers the counting of money, we tend to pay attention.
Still, we are intrigued by what the Fed is doing. If you look at the 3-month money data in December (most recently completed month) you will see how they ‘stood on the brakes and dragged their feet” on creation of M1.
On the other hand, compare that with the most recent 13-week period through Jan. 26 and M1 pops right back up:
What this seems to suggest is that the Fed is continuing to keep liquidity fairly high and is not trying to choke down economic growth by keep M1 too tight. At least so it looks to me.
Durables Not so Durable
As sobering as “recalibrating money measures” is the Durable goods order report just out from Census:
New orders for manufactured durable goods in December decreased $1.0 billion or 0.4 percent to $227.0 billion, the U.S. Census Bureau announced today. This decrease, down two consecutive months, followed a 4.8 percent November decrease. Excluding transportation, new orders increased 0.5 percent. Excluding defense, new orders increased 1.7 percent. Transportation equipment, also down two consecutive months, drove the decrease, $1.7 billion or 2.2 percent to $73.7 billion.
Shipments of manufactured durable goods in December, up three of the last four months, increased $3.3 billion or 1.4 percent to $238.0 billion. This followed a 0.3 percent November increase.
Transportation equipment, up following two consecutive monthly decreases, led the increase, $2.0 billion or 2.5 percent to $82.3 billion.
Unfilled orders for manufactured durable goods in December, down six of the last seven months, decreased $7.2 billion or 0.6 percent to $1,119.4 billion. This followed a 0.3 percent November decrease.
Another Bummer is GDP
From the Bureau of Economic Analysis:
“Real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the fourth quarter of 2016 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.5 percent. The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see “Source Data for the Advance Estimate” on page 3). The “second” estimate for the fourth quarter, based on more complete data, will be released on February 28, 2017.
The picture of the GDP growth (annualized) looks like this:
For the moment, futures are about flat. But I wouldn’t be surprised to see some money come off the table for the week later on today. Might even drop under 20,000 as the market tries to sort out how the new administration is handling the future.
With that, we’ll have to send some hand-wringing cream over to CNN which is reporting “Trump to speak with Putin on Saturday.”
Toss in the pessimism from “Mikhail Gorbachev: ‘It All Looks as if the World Is Preparing for War’“ and there’s plenty of reason for despair.
But save your worries for five years or 10. We are not ready for war, Gorby. We need to build steel plants up and get manufacturing onshored. And in this regard, Trump’s Wall is a fine first move in the era of Second Depression Chess.
Pawns to King’s Wall 2?