Will Markets Face a “Shutdown Discontinuity”?

Those of us who like to follow long wave economics (not exactly a normal pastime) tend to look at “the news” trying to place it in some kind of historical framework in order to use it as guidance as to what MIGHT be coming along next.

For some reason, I awoke today with the notion of a “market discontinuity” driven by a lack of hard data during the government shutdown.

As you may know, a lot of economic data releases have stopped due to the shutdown.  And, when government comes back to work (assuming sometime in our lifetimes, right?) the  problem will be reconciling what the markets thought was going on with the economy during the shutdown and what the actual data will show when it is eventually sorted out.

The problem that theoretically MIGHT be in play is that the market – made up of algorithm-assisted apes with terminals and blinky apps – may be as subject to continuation bias as anyone. Idiocy, in my experience, is surprising well-dispersed.

In other words, the world has been going along on its “normal” trajectory for so long, that there’s implied in the current (relatively stable  price action) a belief that things are STILL going along just fine…

But what IF – when the markets finally get their doses of Reality when government pulls together the missing/delayed data and releases it, there’s a gap between what’s real and what the markets thought was going on?

A couple of areas where this may matter:

On the trade picture, we know that the balance of trade and retail sales data has been delayed.  There are assumed generally to fall in line with “expectation” which are their own, separate, kind of statistical continuation bias hell.  “Economists” bet the central tendency so as not to be “wrong.”

I mention this because my spider sense is that something just ain’t right with markets.  We should have started down by now but why haven’t we?

We should get some insight into the problem when the Federal Reserve releases this week’s  H.6 money stocks report after the close today.  As you know, you can get a good sense of what the Fed is up to by looking at the full-month sliding windows that move monthly (table 1) and the very latest sliding table of weekly results (table 2).

We seem to remember that the Fed had been stomping on the brakes back in late fall, increasing the latest window M1 at a rate of less than 2 percent, annualized.  But then, in the more recent data in table 2, we saw they were back creating liquidity at about a 4.9 percent annual rate.

What to look for?

Well, if the annualized rate of increase (3 months, table 2) of M1 creation is jumps over 5 percent, it means that we may infer that we got scary-close to a BIG ONE in December.  I trust you remember the Christmas Eve Day 600 Dow point nose bleed?

To us,  pricing in markets isn’t making sense.  Who, in their right mind, would see the stock market soaring as it has the past week, or so, when things in Washington have turned to (gross alert!) sh*t soup?

The headlines this morning are mostly going to the idea “Who will blink first – Trump of Pelosi?”

Let me lay it out as a simple thought-problem for you.  Come with me to the airport – we need to hijack a plane for this particular thought-experiment.

OK, we chartered instead.  You are on an airplane and you’re flying along at . 10,000 feet.  Both engines running.  Pilot announces “We may run out of gas pretty soon, but I’ll press on….”  Would you invite your loved ones to have been on this flight with you?  Markets did.

Then, the starboard engine quits.  Pilot says “Oh damn, we’ve got a shutdown” and he busily feathers the right engine’s prop.

But you, looking at the panel-mounted Garmin from your back seat perch,, notice that the plane is only very slowly descending into the mountains below because the pilot has pitched the nose over just the tiniest, wee-bit.

You begin thinking to yourself “This will work out OK, since this aircraft can fly on a a single engine at 3,500 feet and still hold altitude.”

Looking ahead, though, you see there is some red shading popping up a few miles ahead. An overlay on the GPS flashes the word “Terrain.”  Obnoxious bold white letters on red – and somewhat disconcerting.

Noticing you have some mountain peaks in the area with numbers like 8,200 feet next to them, you begin to wonder. “Can this pilot zip around mountains and find a route to safety down at 35-hundred?”  You mind tries to recall the elevations along I-90 which is somewhere out there….

The altitude of the plane continues to unwind but the airspeed is good.  But the mountains are looking a lot bigger and closer.

Again, is what the markets look like to us.

We drift back to the fundamentalist investor question “Would we invite loved ones along on this ride now?”

Suddenly, the pilot picks up word from one of the regional ATC (air traffic control centers):  “BadFlight 73-Whisky, Mullan altimeter 29.92.”

You look over at the pilot, realizing that you’ve been flying toward Spokane from somewhere in Montana and you’re just west of the Montana checkpoints with Mullan Pass Idaho 70-miles ahead on an GPS-direct routing..  Damn!  Not over I-90 yet.

Oh crap and damn” the pilot exclaims as he discovers, rolling the new correct altimeter reading in, the airplane is really 1,000 feet lower than you both believed.  “Must have flown through a front, or something,” he mutters.

The market, to me anyway, feels like it’s nearing one of those “recognition moments.

We ask again:  Would you pile-on more loved-ones on this flight now?

Up ahead you see a big thunderhead building.  Big anvil sucker that must reach up to 35,000 feet.  Curiously, there’s a laser-engraving on this cloud that says “Taiwan.”  (“Hmmm…Project BlueBeam musta been real…” you’re wondering…)

Looking north, you see another building cloud. “Ukraine” this one says.  Weather’s closing in. In the direction of Salt Lake Center there’s another big anvil.  “Korea” flashes on the side of this one.

Then you look at the pilot.  He looks calm, cool, and collected, but you ask anyway:  “You ever flown instruments through this kind of crap before?”

“No, can’t say as I have, but I nicked the edge of rain showers once when I was scud-running.”

You glance nervously at the female co-pilot.  An elderly woman in her 80’s.  “Ma’am you ever done this before?”  You notice her name tag says “Nancy.”

“We must all work together to get through this crisis,:” she mumbles incoherently.  As the pilot asks here to update weather, she becomes transfixed on the radio dials for a minute, or two and can’t seem to remember what to do.

Come on, I need that damn weather update!”  The pilot’s name tag, you notice, says “Don.”

It’s irresponsible to demand weather like that.  We all have to work together for the good of our passengers and all of our citizens….” she begins.  Five-minutes later, she still hasn’t mentioned a weather term and the pilot’s obviously getting pissed.

“You got any parachutes on this old crate?”

“Why do you ask?” wonders Don the Pilot.

“Because the last time I was near a crash, we had a whole bunch of bailouts….”

Never happen.  Never.”

Nancy was still mumbling and looking dazed.

Which gets us to the last time we’ll ask the question:  Are the market’s frigging crazy?

Or, as our headline suggests, are we heading straight into a data discontinuity that no one sees coming?

As We Continue to Lose Altitude

…and the mountains get closer, we still can’t get the weather data.

“Housing starts are on hiatus. Here’s the next best thing.” offers MarketWatch.

So We Roll with Drivel

Beto O’Rourke pens epic, rambling blog from road trip: ‘In and out of a funk’.  Must be a pal of the co-pilot, we assume.

It’s OK, the Denial Epidemic is everywhere.  Wine is different from other alcohols, not responsible for binge drinking, French minister claims/

Altitude sickness lurks, too as U.S. weekly jobless claims unexpectedly fall/

More Sobering

Trump tariffs force tough choices at U.S. auto suppliers

And Facebook removes 512 Russian accounts and pages that were spreading disinformation/  Gee, is CNN still up?

On that note, fellow passengers, I’m gonna bail. Because with Dow futures down 59, we’re reminded of the Janis Joplin advice:

“Chute if it makes you feel good…”

Moron the ‘morrow…

31 thoughts on “Will Markets Face a “Shutdown Discontinuity”?”

  1. With gas selling for under $2.00 a gallon in NC, oil stocks have to be attractive at this level. Investing sometimes is looking at what is happening around you to provide investment opportunities.

  2. Holy S#@$! Professor ! I could not agree with U more on this mornings rant/warning.
    Never have I experienced a market that completely ignored Uncertainty in economic and world affairs. Just one of todays news items regarding Uncertainty used to cause the markets to at least pause.
    As I look back at recent events, it seems as though the Plunge Protection Team is active in markets again. Right around the same time treasury secretary Mduche-in called all the big banks leaders about liquidity, we see what looks like CB buying activity in Futures (dow mini’s), not too mention outright buying of Equities.
    Keeping an eye on Gold priced in Euro’s, early indicator of things going sideways..did I hear a whisper regarding Deritive Bomb going off, and “EOD” guys struggling to contain collateral damage..hmmm

  3. OPEX Friday. Probably supporting markets to inflict the most damage on puts/calls.

    Three day weekend coming up. Then down?

  4. Trump Tariffs were supposed to make U.S. steel competitive. Instead, tariffs were just another subsidy.

    “…as tariffs have allowed U.S. steel producers to raise prices.”

  5. Thanks for the analogy with the two pilots. I literally laughed out loud with your depiction of the Nancy the pilot. Your point on the markets aside (very poignant point FYI and worrisome) It is a curious how the Dems have torn off the mask they are moderate, and liberal and revealed themselves for what they really are, Socialist, communistic and anti-American. They are now positioned against protecting our boarder. They have people in their party openly espousing taking property from citizens if they deem them not using them the way they feel is best; telling the country the constitutional principles aren’t relevant anymore; and still another is telling us that socialism is our future and that the Free Market it will not be here in the future and she defends a $40trillion price tag for her socialist programs. Then the Dems give that same moron a seat on the House Financial Services committee. And they want to impeach President Trump over fitness!!

  6. According to Catherine Austin Fitts the FASB 56 has sealed our country’s modus operandi as fascist. And, she says the border wall struggle is between several banking centers for control of the money flow; Schumer fronts for the Wall Street gang, Pelosi fronts for the West Coast Bankers and Trump appears to have an alliance with the Bush gang. Makes it interesting, n’est ce pas?

  7. “The headlines this morning are mostly going to the idea “Who will blink first – Trump of Pelosi?””

    Hmm.. it depends on how long the puppet masters are willing to cover them..
    Now for some serious considerations from the cottage…

    well.. my dry aging cooler is coming along nice.. I decided to make a new one this time though instead of Himalayan salt in a bowl I am going to make the whole box tiled with it.. and new UV lighting system.. with humidity control.. I was going to add a smoker and still may put in the port for it..just in case I decide to do that..



    I am really curious about doing that.. but hate to take the meat out of the aging chamber to infuse the smoke flavoring in my smoker.. but I don’t want everything to have that smoked flavor.. decisions decisions..

  8. Here in Michigan

    Gasoline – $1.98 a gallon.
    Whole Milk – $1.29 a gallon
    Bread – $0.88 cent a loaf (20OZ)

    • Steve… 88 cents a loaf..phew that is a great price.. We have some cheaper bread.. But what we have at that price is lacking substance. I think they held out some flour..

      I still think the oil industry is what’s saving us from an instant collapse.. Laborers saving a hundred here and there on travel expenses will spend it on necessities.

  9. So Mark everything that you think you know is what you’ve been taught and that’s not the truth everything that you hear over the airwaves with his radio television or Internet has been to deceive you into becoming complicit and you have no Vigor in your soul to eject what you have been taught because you are digital slave.
    But more you are a slave of the mass media which controls every aspect of your life where you vacation who do you want to talk to how much money you going to make how much taxes you should pay who you should marry and most of all rappelling you from your own intuition what you’ve lost through your programming what song this week on the television what have a program for you to be program with have you ever Mark been out into the country and live for a year away from all the programming and all of a sudden woken up and said hey I’m different from all of that I don’t need to live in that program world because that’s what they’ve done they’ve made you a Slave to them the people the elite who control every facet of your life you have no choice because everything that you do or say is recorded I’m not saying that’s a bad thing or a good thing all I’m saying is Mark you have no idea until you go out to the country break away for a little while on a vacation become like a monk and go like hey I don’t need that and I don’t need that and I understand what they’re doing to every aspect every minute of my life everything I say is recorded and everything that I do they come back with whether it’s from the TV are your internet service they proposition you with an advertisement that gradually lead you into their belief system if you doubt what I’m saying is wrong go take a camping trip and cut off everything and then when you come back your perspective will be different becaus.
    Anyway have a good day may all beings be lovingly fulfilled financially fulfilled and readily fulfilled . So be it

    • Nice try, Bryce, but Mike’s ears are blocked and his eyes only C, CNN and rapidly infused fake news networks. His rebuttals are so close to the real fake thing, it’s like he downloads them each day and comes on here and enters the info for our perusal in case we can’t afford cable or subscriptions. Independent of thought seems to me. As for the rest of your treatise, it’s nice to be part of George’s 1%. We were taught to hang out with people smarter than us so we can grow. He’s attracting the 99% the best way, word of mouth.

  10. For all us morons out there that was a good piece you published today thanks George

  11. Because George are in the 1% in the things in the way you write people can understand that’s your deficiency but you have the ability try the song another words you have the ability charge to affect even the cat or the dog or the squirrel with your knowledge you have the ability 2 make them aware you also have the ability to put things in the freezer or people can’t see touch or hear.
    What you do with your writings your books or novels and things I guess they could be said to be okay but when you’re at 1% of the population at the top as you could be Orwell be how do you communicate with the other 99% Marmora you know how to do that and I know you know how to do that but the fact is you don’t do that on a regular basis if you’re just trying to affect the 1% then you’re doing that pretty good the reading you loud and clear but if you’re trying to affect the other 99% you’re going to have to go back to your ABC of it teach me today

    • I’m going to teach you something, awright.

      “people, new line”

      When using dictacious, do learn the commands.


  12. , I consider myself an advertising expert if I want people to follow a particular Avenue I make the ad almost subliminal and almost so easy that a seal or a dog or cat could read it.
    I noticed that you pride yourself on complexity and complexity is great when we want to be entertained in that direction but simplicity comes from within the boundaries of our universe including every animal and being the best there so in order to survive and make Boku advertisement bucks you have to start with the ABC of it

    • You may be an expert but based on your posts over the years you not a very good expert… I usually skip down to the next post when I realize it’s rambling from the porch!

  13. So again what I’m saying is you want a hundred thousand a million people to subscribe to your website but there’s not that many people that can keep up with you so you’ll have to see you’re at the top of the pyramid in your way of thinking so in order to get more subscribers you will have to think at the lower end of the pyramid when you think and write novels in that direction you have more Inception

    • The good news is I think maybe another dozen smart people left in the country…but that is a finite number for sUre

  14. Now for your psychic dictionary reading will you be more successful in 2019 then you were in 2018 the answer is no you will be split.

    The split means you’re going to draft this new thing into your being I guess it could be crypto so you’re going to be split right now because you got too much to learn laws are changing so fast that you can’t even keep up with it will maybe you can but anyway it’s going to be hard so that’s why it’s split for 2019

  15. There’s more than going on that meets the eye for instance…….. the Southwest

  16. The question is how many fish are in the sea that you can catch and the answer is it’s a rheostat and that applies to us.
    And that applies to us with an our belief system of our clergy because they convince us and everything we believe.

    The biggest FBI CIA or any resource for spying on people is within the Vatican because all of those pedophile church members report back to Vatican so that’s the biggest part of our demise because the Vatican can also controls the central bankers and the masses

  17. Some government financial statistics went static back in December, some didn’t. I haven’t seen any public source address this until your post. I am afraid to post any specific info, other than to say “trust no one” on government-derived financial info until the shutdown is over. Of course, you probably shouldn’t have trusted government financial info to start with, but that’s another issue altogether.

  18. How to shift your advertising from the top 1% to the bottom 1%-99%.

    Remember thoughts have wings

  19. I heard it said that anyone who votes republican is either rich or dumb. People need to be taken care of & that is Big Daddy’ job because Capitalism will not do it. Family values won’t buy food for the poor, but Big Daddy will. Republicans need to pay more taxes because the are sucking all the money out of the system & forcing people to work 3 jobs because they will only hire them part time.

  20. Did you notice POTUS canceled Pelosies european 7 day trip and told her she had to stay to help get the gov back up and running, and when she does get to go has to fly commercial .Hmmm

  21. Side note to George the brains in the tower already have the algorithms adjusted. You really think they don’t have a plan B? Don’t insult them!

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