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/
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…