Turnaround Tuesday? 1929, Bitcon, Tax Reform Weigh

Peoplenomics subscribers, please see the specifics in our after-market special posting here.  If you are not a subscriber (shame!) here’s a short discussion to roll around as we collapse an expected 200-400 points today:

Here’s how to read this chart – and follow along, because it IS IMPORTANT!

(Continues below)

 

The mainstream media is in-process of getting this “once-in-a-lifetime” spectacularly wrong.  For example, the Drudge Report was running a headline “Fed Wants Blood?”  But, that pointed to a story with a dateline of last September, so not exactly relevant to current goings-on.

Let me run through the “Major Deal Points” of this market decline.

Referring to the chart above:

  1.  We believe there is a great similarity between the market break in 1929 and present day events.  The market in historical times had a break in 1920-1921 which was followed by a major upside boom.  You may remember it from the history books as The Roaring Twenties.

There are an amazing number of parallels.  The flappers of the time were the cultural subgroup out challenging the old ways.  And today their rhyme is the LBGTQR…etc‘s.

Another is drugs.  In the 1920’s, you remember the old episodes of The Untouchables, of course.  The stories of Al Capone, Dutch Schultz, and the like.  Today, the personalities are not as specific, so we see cultural archetypes.  When you compare Capone and Schultz, think Sinaloa, MS-13, and the other uprising gangs.

The long wave economic bottoms have, in the past, been when people finally get to select their drugs of choice and – as the money comes out of either running scotch in from Canada (thye 1920’s case) or muling in Mexican dirt weed on the backs of illegal aliens is how a rhyme works.

Massive technological change fueled the 1929 Depression.  We look back at the period as one where multiple human migrations were taking place.  The biggest – from the rural farms to the Big Cities – happened because manufacturing was blossoming.

Some people like to make up catchy phrases (like “crack-up boom”) but that missed the more important nuances.

Just as there was a fundamental technology shift going on  in the Roaring Twenties, as the internal combustion engines replaced draft animals, driving 7-million acres of land fallow and leading to over-production of foodstuffs (driving down prices) and the resultant susceptibility of agriculture to massive droughts *Dust Bowl”), we see an echo today.

Just as farmers were displaced, so too, we are facing the specter of job replacement and obsolescence because of business process automation.  That’s a field I know well – having been into the guts of designing software for highly regulated industries (such as Education).  Software and networks are displacers.  Oh, not during the initial development and deployment phases, of course.  But slick-talking sales people (um…like moi) who promised businesses they would be able to run leaner business models were right.

At some point, developer super-saturation arrives.  All those schools that are teaching “skills” (video game design?) haven’t run out the numbers:  How many people have how much time and how many “games” does that take?

Worse, though, is the prospect of arriving workplace automation.  When mass manufacturing went viral (after Ford’s production line optimization in the auto sector) there was a huge increase in things like appliances and radio…the whole spectrum of consumer goods.

Go into a soft focus now and generalize:  The next round of workplace automation may be found on Google at any instant by searching words like “robot” and “online” and “driverless.”

The most telling story of all – out yesterday but lost in the handwringing:  Banks are continuing to slash humans from the customer interface.  See this morning’s discussion on Yahoo of how “1700 Banks Shutter Branches in Fastest Decline on Record.”

In another one of my lives, I worked on the MMI – Man-Machine-Interface level of electronic instrumentation.  But there is another generalization most people don’t think about, don’t measure, and don’t understand.  Yet it’s changing your life every days.

It’s the CCI.  Company-Customer-Interface.  Banks don’t need branches if people go “all-electronic” – and money has definitely gone virtual.  The problem is?  There are now serious short-term business model implications that haven’t been addressed.  These will need to be in a few years.

What will happen as massive sales phone rooms are fully automated by complex systems like that offered by Avaya? Remember, I worked for the Redmond, WA start-up in the 1980’s from which Avaya sprang – I know where this is going.

All it takes if A.I. development, the further refinement of the voice-interactive computer capability already being deployed on platforms like Alexa and Google’s voice-driven assistant.  Lots of jobs will be going bye-bye.  First globally at the low end, but then coming back to America.  You may not remember this from last fall, but try on “Google voice recognition could transcribe doctor visits – Engadget.”  Then go read up on the Google speech API over here.

If you don’t already know an API is the “Application Programming Interface” – that which lets my software talk to Google’s software, you are not caught up to the class yet.

Trust me when I tell you, once we started getting the voice recognition part of computers figured out, using the same processes to interface to all business processes became complex, but technically not difficult.  It’s all just hierarchical design and database calls with a side of text-to-speech and back again.

I could go on endlessly about The Big Rhyme, but that’s all over on our Peoplenomics.com side.  (Subscription sign-up – it’s $40 a year and we think it’d be a bargain and five times that.)

#2:  Bitcon has Lost 2/3rd’s of Its Value

We have been writing forever that Bitcoin would end badly – because it is little more than a scaled version of the Iraqi Dinar pyramid or the original Ponzi Scheme.

Remember that at its core, Bitcoin is backed by nothing.  Sure, it’s an interesting “uncopiable” code exercise.  But the dispersed global ledger system is so slow that at a Bitcoin conference a while back – Florida, wasn’t it? – you couldn’t pay registration on site with BTCs because they weren’t clearing fast enough.

Doesn’t sound like that’s going to take over the world to me.

Meanwhile the coiners are touting things like “Venezuela may go all crypto!” as being notable.  Er…not so quick.  Venezuela is a communist government, in collapse, and they will say anything to keep the lid on their population.

Bitcon took a bounce off $6,000 this morning as you can see in the charts over at www.bitcoincharts.com – they have a great site for technical trading data:

A note on reading this chart because lots of people (and maybe you) are only becoming aware of the world’s financial crisis now.  Here’s how you read this chart:  It’s called an OLHC chart.

Each of those small vertical lines is the daily range for that day.

The small line sticking out to the left is the opening price.  The line sticking out to the right is the closing price.  When  the market is trading evenly, the closing price will run right into the opening price the next morning.  But when the market gaps up, or down, the left and right lines won’t meet exactly.  These GAPS are often important to technical traders because often times gaps opening up (or down) are later filled by pattern retracements.

But enough…

Point is Bitcon has (as we’ve been predicting for months) losing its arse and it may well ultimately hit our worst case which would be as low as $453.  Well, there’s one past that, but then Bitcoins would be either worthless or legislated out of business…

Tax Reform’s Payback

It is widely held that EARNINGS of stocks drive their prices.

In the recent months, the market has gotten a major boost from Tax Reform.

While corporations have been wildly gleeful about the whole thing, what they have completely overlooked (and we covered this in a recent Peoplenomics piece (Issue 855-A, January 24, 2018  “Two Major Tripwires“), is that the lower corporate tax rate will force some possibly unexpected one-time earnings write-downs this quarter.

Here’s how this works:  Suppose you own Gigantic Corporation and you are making money.  You can buy a small company which has a huge accumulated tax-loss carryforward  and use that T/: C/F to reduce your effective tax rate.  When the corporate tax rate was 35%, that was a very useful way to grow companies even in stale markets.  You bought a small company in a complimentary business, took its sales (adding them to yours) and then writing off the acquisition costs and that T/L C/F.

It doesn’t take too much thinking, though to see that in a 21% regime of corporate taxes that the TL/CF value to the P&L has been whacked by 50%.  So look for those one time adjustments, too.

Typically, these won’t panic a market, but remember, we are in the middle of a massive emotional event.

But, for today, we haven’t seen the emotions get out of hand.

What To Look For Now?

The two big stories are what this mini-crash will do to ETF’s.

The story “Stock market could see another $100 billion in outflows after volatility surge: JPMorgan’s Kolanovic” is exactly on point.

As we explain in (yet another) Peoplenomics report, remember these triple levered ETF’s out there have a structural problem no one likes to talk about.

Think of it this way:  Imagine you set up a craps game and promise both upside gamblers and downside gamblers that they can “make three times their money.”

So you come in an make a $100 bet on the downside.  The counterparty to your bet puts $100 on the upside bet.

Now the market falls to 1/2 its value.

Who has what?

Well, the House gets to keep the $100 upside bet.  But they owe you $150.  They have to go begging for money.

That’s why the market has to go down today and why it may continue going down the rest of the week:  The SEC requires the ETF’s to settle overnight.

I know someone – a brilliant trader on the Pacific Stock Exchange – who was run out of business in options in 1987 because of just this problem.  Every day, he had to come up with more and more money until he was finally tapped out – bankrupt.

This is the kind of dynamic than could get started so watch for selling in the bond market.  If that takes off – and the emotional drive to the downside begins, then things will be ugly beyond your wildest.

Meantime, the conspiratorially minded will remember most of the people who run “Big Money” are liberals.

Notice how the outing of the Clinton campaign’s collusion in the 2016 election has been “run off the front page?”

All of which leave this with a very good chance of being Turnaround Tuesday…and we will have follow-up tomorrow on our regular Wednesday Peoplenomics.com report.

Trade Balance Deteriorates

Like we need a downer in this market?

The story:

“The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $53.1 billion in December, up $2.7 billion from $50.4 billion in November, revised. December exports were $203.4 billion, $3.5 billion more than November exports. December imports were $256.5 billion, $6.2 billion more than November imports. .”

Sicklympics

Norovirus Sweeps Through PyeongChang Olympics Venues, Sidelining 1,200 Guards Ahead of Opening Ceremony.

More tomorrow in Peoplenomics.  But tell you what:  The phrase I keep hearing in my head this morning as I look at whether to go long at lows coming shortly are from an old Clint Eastwood Dirty Harry flick.

“Are you feeling luck, punk?”

Comments

Turnaround Tuesday? 1929, Bitcon, Tax Reform Weigh — 29 Comments

  1. Considering bit coin and how far they’ve dropped from their peak.
    Keeping in mind how high the stock market has risen from it’s lowest level. I wonder.. How far down will it go when the dollar collapses?

  2. DJIA needs to hold 23,400 or close to that. Wave 3 down is already in. Let’s see how much more upside (if any) we get on this short covering wave 4 upward correction. Then, wave 5 down to new lows.
    ALTHOUGH, the first few days of this decline matched up with the early stages of the 1929 decline. So, let’s see if the trend lines hold. Not out of the woods yet.
    Either way, the BULLISH scenario is a move back up at some point, a 3 wave late spring/early summer decline, then a late surge into a top more like 1987 or 1929.
    2018 is 89 years from 1929.
    Although if the rally from 1896 to 1929 took 33 years and the rally from 1932 to 1966 took 34 years, then 1.618 times 34 would equal 55 years. Add that to 1974 and you get 2029.

    da bear

    It’s not a bank run — it’s a JAILBREAK.

  3. Ever wonder in this electronic age why markets ever close? It’s so the big boys have time to get their manipulation positions into place to profit from the moves they cause. They are not markets any more than a craps or blackjack table is a market.

    Someone was mentioning purchasing power parity. Instead of just looking at numbers, look also at the quality of what you buy. Food today is crap, consumer goods are crap, medical treatment is crap, etc.

    The Chapwood index is showing true inflation for the last 5 years to be running at 7-11%. Anybody seen an increase in their wages or pensions to match that? And these high market prices don’t mean an increase in wealth.They represent a decline in the value of the dollar! Americans, you have been so impoverished by this dollar devaluation that were quality products available, you simply could not afford them. You can only afford the crap now because other nations are forced to cough up resources for printed dollars at the barrel of a military weapon. The only way you can afford quality is by buying castoffs of the wealthy, like George’s Lexus. But not even he can afford to buy OEM parts for the car to keep it in original condition.

    • Hahahahh. Well well well. Look what the cat dragged in. Wealth isn’t defined by fancy clothes and luxury sports cars. I have had my share of them. Acura TL Type S, Audi S4, Corvette’s, $50K Monster trucks, BMW M3’s etc. Etc. Had a 4 bedroom house on 2 acres, currently living in a 5 bedroom house etc. Etc.

      And I drive a Dump Truck for a living.

      Wealth is what’s between the ears. That is what counts. And so far I’m running 100% on the markets and Bit coin. ;)

      I hear ya though. America is about to have a reckoning. But not till late 2019 from my vantage point.

      Even then, 3rd world we are not.

  4. Hey George, funny how your “Earthquake Antenna” was glowing bright red yesterday and instead of a ‘quake we got a crash!
    Maybe your magic powers are multi-dimensional?

  5. OT… George you were right a out a big quake.. News reports coming in from Taiwan…

  6. Curious thing George! Lets suppose that everyone in the US became self sufficient. Grew their own food, built their own houses from harvested forests, etc. just like the pioneers! What would happen to our economic structure that totally depends on us to buy things made by others?
    Got this idea from last years trip to Japan. First time. Tokyo was an electronics cornucopia. Yet their electronics in the workplace was used to help staff do their jobs better, not to eliminate them. In America, electronics are used to minimize staff. Is that not counterproductive? Where will all those displaced people get money to buy things our economic system counts on? Already we see some of that in the number of homeless people sleeping in the streets. Is that our future?

    • The homeless are the ones that will survive. Including the Amish, and other colonies. The homeless because the live with nothing that we take for granted. The Amish because they work as a unit.

  7. M 6.4 – 21km NNE of Hualian, Taiwan
    V
    DYFI?
    VII
    ShakeMap
    GREEN
    PAGER
    Time
    2018-02-06 15:50:41 (UTC)
    Location
    24.158°N 121.680°E
    Depth
    9.4 km

    • You have a few choices in “AI”. Regular CPU, graphic cards you can mine crypto or break crypto, some USB sticks and some CPUs. The most “interesting” of the low cost CPUs for enabling the wave Mr. Ure speaks of is the rock64pro from pine64.org. The non NLP board due in March features dual camera input, 4 gig of DRAM, a PCI slot and multi-core ARM for under $80. Add in the NLP “AI” and they claim under $100 at the end of the year.

  8. George. Good point, again, about automation. Less jobs, means less money circulating, means less sales. Not get the supply-siders. Mike.

  9. At the very least, I should have placed some money on the VIX. Wow!

    For those readers that don’t subscribe to Peoplenomics, buy a small coffee instead of a large once a week and spend the difference on a subscription. Market wisdom without the crap.

  10. So history repeats itself, huh? Was “Bitcon” the historical equivalent of the South Sea Bubble? George, you would know. Could this be a combination of historical rhymes?

  11. run off the front page: Yes, and who was short big time yesterday. Trump is getting to close to the truth. My feeling is “they” will crash the market to avoid being outed.

    • Might be a dry run for October.

      My wave counts would actually point to that, or at least a high probability set up.

      da bear

  12. Why worry George I see the auditors are digging around in the Pentagon, and it seems right out of the gate they found one branch that can’t account for $700 million,and I see Trump is going to ask for billions more in defense in 2019,who in their right mind would ever consider cutting taxes and increase spending when you have a soon to be $21 trillion dollar debt….

  13. Why is the nasdaq taking a beating but the Dow is up at the open?

    Asian markets took a beat down last night.

    • I respectfully disagree. 20% market correction. Then we move to all time highs.

      Bitcoin stability at $5500-5800.

      Funny when you really THINK about things. Perspective: Dow was 777 points on August 12th 1982. 36 years later we hit all time highs in January of 26,600. Where we have 1500 point drops, more than double the entire value of the Dow in 1982.

      Strange world.

      Can’t find em, grind em. Lol

      Rich me!

      • Regardless of PPP.(purchase power parity) in 36 years that is significant growth. Primarily due to the invention of the computer and the WWW (world wide web) at CERN in switzerland.

        Just thinking out loud.

      • “Primarily due to the invention of the computer and the WWW”

        Please don’t ignore the asinine money supply, worldwide! IMHO, of course ;-)

  14. I tend to believe conspiracy theories, but really, you couldn’t make this stuff up.