Yesinia pestis and Markets

In the event you’re wondering why the whole market was being painted (again) Thursday, the answer is simple:  There was a new fed boss (Jerome “Jay” Powell) being named.  It’s typical for markets to put on a good showing when the Street wants suck-points down the road.

The alert reader will note that we hinted at this with the Powell quotes on LIBOR in Thursday’s column.

Which brings us to the problem du jour:  What will cause this market to stop behaving in such an irrational manner?  It’s time we go looking for headlines that have the potential to “pop the market bubble.” Enter Yersinia pestis just in time to pose a threat…

(Continues below…)

 

That is the name of the common flea bacteria. While it is useful to have studied the potential for a modern plague outbreak in the east Africa/Madagascar area, as well as the potential to spread into China via a variety of rodents in the region (see: Epidemics and risk factors of plague in Junggar Basin, Xinjiang Uygur Autonomous Region, 2007-2016].) we are most immediately concerned with the work of Yue RPH1, Lee HF2,3, Wu CYH4. who have looked at plague and plague transmission in times of old.

You see in their paper Trade routes and plague transmission in pre-industrial Europe., they have a very interesting transmission model.  While constructed to reflect trade in medieval times, we have tossed a couple of new labels onto their diagram (ours are in red) to reflect the change in trade transportation in the modern era:

As clear in the cited work, historical trade routes demonstrate quite accurately where plague outbreaks were anticipated.

It’s very much on-point to remember that plague was re-discovered this summer in Arizona wildlife.

Can the pesky flea, and its Yersinia pestis, really account for a market disruption?  If you have bubonic going airborne, sure!

Perhaps not, at least yet, but with the headlines in the UK Daily Mail today (“Deadly airborne plague in Madagascar is now at ‘crisis’ point and the ‘worst outbreak in 50 years’ as cases rocket by almost 40% in just 5 DAYS and could hit a further 20,000 in weeks…”), it’s a fair question to be asking.

Although it’s a GIGANTIC step to speculate on how plague transmissibility will work out in the modern, hyper-connected world, we not only need to consider conventional human-to-human spread, but also take a look at all the ports and airport where Madagascar’s goods land. These would be one set of countries to place bets on:

  • France: (24.1% of total Malagasy expo rts)
  • United States: (13.1%)
  • Germany:  (8.8%)
  • China: (6.7%)
  • Japan: (5.3%)
  • Netherlands:  (4.6%)
  • South Korea: (4.4%)
  • India: (3.9%)

The story about potential (and economic) impacts is getting more traction in Europe than it is in the U.S. “Plague holiday warning: Mauritius and Seychelles on watch list as Black Death spreads.”

For now, the threat of global spread is termed “low” but this is exactly the kind of wild-card event (one of those ‘out of left field’ things) that leaves us with the potential for what most often happens when bubbles collapse.  It’s called…

Asymmetric Information

Likely not yet on your bookshelf is a defining work on point by Markus K. Brunnermeier. Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding.  Not an inexpensive book ($113 for Kindle, for example) but if Ure cheap, under $40 as a used book if you get lucky.

Sometimes, though, you get what you pay for.

Job Data: A Symmetric Information Example

Assuming that you’ve got some notion how bubble collapses work (if not see Ken Stieglitz and Daniel Shaprio’s 1998 article in Computational Economics: “Simulating the Madness of Crowds: Price Bubbles in an Auction-Mediated Robot Marketto get warmed-up) it’s nice to see how modern information channels have leveled a lot of asymmetry from previous eras.

Where in the 1920’s bubble, people got most of their “hot” information from a morning or afternoon newspaper, in today’s world, things like this morning’s job report are well discounted and there’s very little room for the unexpected.

We knew from the ADP numbers out Wednesday that more jobs were being created.  And yesterday’s Challenger Job Cuts report amplified the healthy job market outlook.

So it’s almost anti-climatic to read this just out from the Labor Department:

“Total nonfarm payroll employment rose by 261,000 in October, and the unemployment rate edged down to 4.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment in food services and drinking places increased sharply, mostly offsetting a decline in September that largely reflected the impact of Hurricanes Irma and Harvey. In October, job gains also occurred in professional and business services,  manufacturing, and health care.

Household Survey Data

The unemployment rate edged down by 0.1 percentage point to 4.1 percent in October, and the number of unemployed persons decreased by 281,000 to 6.5 million. Since January, the unemployment rate has declined by 0.7 percentage point, and the number of unemployed persons has decreased by 1.1 million.

A few numbers to mull over:

The Labor participation rate, actually dropped a surprising 0.4% down to 62.7 percent – and that is not a good thing.

And the CES/Birth-Death Model – which is how the government estimates jobs in and out of existence that are not otherwise tracked through conventional statistical channels – showed 216,000 jobs were estimated into existence this month.

Until we get an “out-of-left-field” event (*NK Nuke, massive hack attack, plague in Florida, or something like that) we don’t see too much systemic asymmetry that would derail the market.

Until, of course, we run out of “greater fools” who are pricing the FAANG stocks at classic bubble prices.

But in this morning’s data, the number of people in the workforce was estimated DOWN 765,000 persons and the number actually holding jobs was down ALMOST HALF A MILLION (484,000).

This means, all the MAGA talk aside, almost a million more people were “Not in the Labor Force” this month. 968,000. 

Labor force down, participation rate down, Not in Labor Force up – sounds like three strikes to us.

How will Wall Street spin this?  No clue, but with the futures up 30 when we looked, we have to wonder if pee-testing has been done away with among analysts?

International Trade Data

Our “coffee test” this morning? (See if you can stay awake through this paragraph…)

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 $43.5 billion in September, up $0.7 billion from $42.8 billion in August, revised. September exports were $196.8 billion, $2.1 billion more than August exports. September imports were $240.3 billion, $2.8 billion more than August imports.

Still awake?  Hmmm…how about a picture?

There, wake up.  Back to the big stories now.

Brinksmanship Tracking

U.S. Bombers From Guam Conduct Exercise Over Korean Peninsula.  Oh, this will help, for sure.

Crack-tured Fairytale!

Germany: cocaine found in fairy-tale books from Uruguay.  Call “Snow” White.

The Daily Bash

Unable to make headway on taking out “double-down Trump” we see Mike Pence becoming a target.

Why America’s Screwed

This story says it in a nutshell: “California girl, 5, cited for operating lemonade stand without a license.”

Wonder if she had I-9’s in all her employee files, too.  Why this could be federal!  Call EPA and ask how that acidic leftover product was disposed of…

Yep.  Screwed beyond belief.

But no worries:  Bitcoins were at $7,315 this morning.  That’s save our asses, for sure…

Hand me that Uruguayan Snow White book again, would yah?

Peoplenomics tomorrow discusses “How to Save Hollywood” and I need to get ready…

Comments

Yesinia pestis and Markets — 32 Comments

  1. https://www.youtube.com/watch?v=iRrD60JpUKw

    https://www.youtube.com/watch?v=st5mo4siHJ8

    https://www.youtube.com/watch?v=JexA6PGTyaQ

    http://crooksandliars.com/2014/03/daily-shows-aasif-mandvi-destroys-fox

    Unfortunately america isn’t anywhere prepared for a contagion of any kind.
    when I worked at the hospital almost seventy percent of the staff didn’t have insurance to cover expenses and when staffing is low it is mandatory that you are at work or you are let go.
    If there was an emp that set the majority of the country back to the stone age along with a contagion it would pretty much wipe out the country.
    https://www.youtube.com/watch?v=S_ghep_BP3c

  2. Hi, George,

    Oh, dear, I need to apologize for the two typos I had in my last post. Occasionally, my blonde moments and my senior moments overlap.

    • If I spent time apologizing for all the typos on this site, there’d be no other content!

      Ure among friends…

  3. I like the Roaring 20’s comparison’s too, but I also like one with the 80’s. The rally since the election or even from the 2015 market churn looks like a mini-version of the rise in stocks off the 1974 low into the 1987 high.

    My count? 1974 super mega uber rally lasts 55 years with a orthodox top in 2029. A low in 2032 or so with 2037 being a B wave one world government one world trade mega sucker top. C low by 2042 at the earliest. IF DJIA 100,000 is the orthodox high then my target low would be DJIA 911.

    The rally since 2009 is WAVE FIVE up. 1987 only marked the peak of 3 of THREE up. The rally from 2009 is a mini-version the the ENTIRE super cycle (GRAND super cycle?) rally from 1932 on…

    DJIA in CYCLE 3 up or PRIMARY 3 up since DJIA 10,600 a few years ago… this is now extending a rally of intermediate wave 5 of 3.

    Looking for a pullback soon… somewhere between here and DJIA 24,000. Incidentally, 2,400 was the first temp high before the sell-off that created the 1987 high of 2,700. So, a high at 24,000ish would be a dress rehearsal high. 2018 would have a 27,000 to 30,000 high with a good chance at a 1987-style October crash. 2021 high of 40,000 (21 years from 2000 and 34 from 1987), then down to 20,000. That would fool the bears who would probably buy that high then massively short that low. Orthodox high of 100,000 would be 10 times the 2000 high and 100 times the early 60’s high. Nasdaq could get to 50,000 by 2029.

    Bitcoin: I would be afraid to trade it either way here, but I can see a really nice 5 wave advance with added bonus points for an extension inside v of 5. The upcoming high will be a THREE high, so FOUR down should/could be an outright CRASH. I wouldn’t rule out a swift trip back to 2,500.

    Short-term, if stocks don’t top out soon, then we could get a Christmas Crash. … if it goes up past Christmas, I would look at March 2018. Either way, I am looking for a temporary top soon, another temporary high next year, along with an even higher, toppy temporary high in 2021 or as early as 2020. Nobody left to short the 2029 top.

  4. Hep A kills 19 in San Diego:

    http://www.latimes.com/local/lanow/la-me-hepatitis-outbreak-20171017-story.html

    Bird Flu wildcard:
    https://www.statnews.com/2017/02/28/bird-flu-surge/

    http://www.npr.org/sections/goatsandsoda/2017/09/07/549069924/deadly-bird-flu-in-china-evolves-spreads-to-new-regions

    Bird Flu & Hep are slower to develop symptoms, more difficult to treat & detect. (Tamiflu may no longer work). You can be contagious before you show symptoms.

    • Do you have mercury fillings in your teeth then watch this video so you won’t die prematurely

  5. Hey George, to your point that the government not able to raise interest rates due to the size of our ntl debt, am surprised, but now looks like (enough) Rs will accept a lot more deficit for tax cuts. I personally wouldn’t take on more debt, but if we’re going to spend the dough, I’d rather get far more bang for the stimulus buck via infrastructure.

    Regarding Lois’ point about the Trump FL estate, I went back and ran the Case-Shiller Index numbers at the time. It still comes out to about 3x its then FMV. The Russian’s justification in the article she cited was goofy, like justifying buying Apple for 3x its then 2008 value because it up 10% above that amount now in 2017.

    So: Why a Russian bigwig would take a 2/3 haircut on the deal??? He obviously not stupid and he surely could afford $500 for an appraisal. What was he really buying? Mike

    • Mike, clearly you did NOT read the Seattle Times article she cited. The structure on the site was demolished and the property subdivided into 3 lots. One was sold for $34.34 M. The Russian in question is, in fact, on track to make a profit on the transaction. But once again, you do not seem interested in letting facts getting in the way of your pet Trump-as-Russian-Manchurian-Canidate-since-2008 Theory. It detracts from any kind of credibility you try to bring to the rest of the discussion.

      • Credibility?

        On the contrary – this still could be a prime example of ‘money laundry’ asset exchange. Or at the very least – Russian has ‘ill gotten’ shady gains and Trump needs profits (and will even sell his ‘soul’ and honor if he had any.)

        Just an ordinary deal, right?

    • Come on Mike – it makes perfect sense to borrow from our kids and grand kids, cut deductions for student loans, medical expenses and housing in order to give tax cuts to the people who need it least.

      Get with the freaking program! The rich must get richer!

      • Yeah we know all about the wealth distribution as 80 billion was stripped from Medicare and ANNUALLY billions go to Mexican citizens and their dual citizenship progeny that strips money from US AND our kids.

  6. Oh I don’t think Powell’s appointment had anything to do with it (he could have appointed a pig and you would have got the same result) but the very very large cut in corporate taxes which pleases wall street,meanwhile it further shows Trumps complete lack of any fiscal responsibility cutting taxes with a $20+ trillion dollar debt, and running a $700 billion dollar deficiet this year well on its way to another trillion, is just another reason I stayed home from the polls last year…

  7. The WHO has stated that the spreading strain is pneumonic (spread by contact, sneezing and coughing).

    That is a different kettle of fish entirely

  8. Hi, George,

    Here in north-central New Mexico, that wide, open space situated between Arizona and Texas, the plague makes its usual trip around the Sandia Mountain area, in several places near Santa Fe, and some areas east of Albuquerque. It can infect mountain lions, coyotes, squirrels, and humans. Not sure if bears are susceptible. Several cases of plague in humans are normally reported by the newspaper during the spring.

    The rabbits here can also become infected by tularemia, known as rabbit fever, another very serious disease. Tularemia can wipe out a rabbit population quickly, and it may take several years for the rabbits to return. Coyotes, dogs, cats, and even humans can be infected by contact with infected rabbits. Humans can also become infected by their pets coming in contact with the infected rabbits. The state gets involved at this juncture, just like it does with plague.

    One disease around here that is truly strange is the occurrence of Cushing’s disease in dogs, hyperadrenocorticsim. One of my dogs had this, as well as the neighbor’s dog up the street. Both of our dogs were not allowed out of the yard except on leases, which means that the dogs did not roam on their own. The local vet remarked that she had seen cases of this in our area over the many years of her practice and did not know the reason why.

    • 15 years ago, when we adopted our 5 yo rescue schnauzer, he was displaying symptoms of what our highly experienced vet said was Cushings. Wanted to put our dog on meds – expensive meds and stuff that had not so nice side effects. After reading about the disease, I was a teeny tiny bit skeptical – but heck, I’m not a vet. So, off we went to our naturopathic vet (yes, we do have one). And after she reviewed the test results, she pointed out that yes, it would ‘seem’ like Cushings except for one number on the test results, which most vets don’t associate with Cushings, that didn’t really support the dignosis. Turns out our dog did NOT have Cushings but rather, because he had received a plethora of vaccinations all at the same time (he was a rescue and they didn’t know what he had had or not had so they gave him everything all at the same time), his body was reacting to this overdose of vaccines. She gave us some naturopathic remedies to help his body deal with the overload, and, low and behold, the dog got better, his blood tests eventually came back normal, and he didn’t have Cushings. But, if I had not questioned and pursued other avenues, the poor dog would have been stuck with the Cushings dignosis and resulting medications.

      Another reason dogs could be showing more Cushings symptoms is because today’s commerical dog food has all sorts of preservatives, by- products, GMO grains, and not the highest quality proteins. This, over time, takes a toll on their bodies. Where we live, in the burbs of Seattle, can’t recount the many number of dogs/cats that have had cancers….something that wasn’t in the norm back 30 years ago. Once again, the poisoning of our drinking water, the poor quality of ingredients for pet foods, all the chemicals that are used in our everyday life – all contribute to breaking down immune systems – pets and humans.

  9. We need to remember that the stock market is not a prepper, & doesn’t care about conspiracies. It is a BUSINESS MODEL and should be treated as such. Why would you want to buy GE whose stock & earnings are in a downturn. You should own AMZN, FB, BABA, & GOOGL whose stock & earnings are in an uptrend. The market rewards earnings & punishes earnings misses. An investor makes most profits in bull markets. George pointed out previously that the market goes up 75% of the time & down 25% of the time. So where do you want to concentrate your money – in the 75% long markets.In summary, invest long 75% of the time to make real money, & invest short 25% of the time to protect long gains and make some spare change during a bear market. Easier said than done, but if you invest in good quality stocks or mutual funds you can ride out a bear and still be in a good position profit wise. Try to ride out a short position, you will go broke.

  10. Forget the fleas. Most of the plague in Madagascar is of the pneumonic variety. Instead of tracking goods, track flow of people out of Madagascar. Which airports have most connections?

    • Famadihana:

      There are reasons to bury the dead.
      Digging them up is not part of the plan.

  11. perhaps if the people of Madagascar would stop digging up their dead and dancing with them the plague would subside, just saying …….

  12. “the FAANG stocks at classic bubble prices.”

    They maybe a great index to pay attention to?

    Re: plague — some British “prince” finally noticed that there are too many of us sharing this globe.

  13. George,
    Not to be picky, but Yersinia pestis is the bacteria that causes plague –not the flea that transmits it. Please see https://en.wikipedia.org/wiki/Yersinia_pestis

    Plague, by the way, is endemic in the SW United States. It just doesn’t break out/transmit the way it did 700 years ago, and the question is “what’s different?” Some think the bacteria itself may have undergone changes, and then there’s the fact that our nutrition and general heath is improved, plus significant improvements in sanitation. But yes, an outbreak sure would cause a problem…….

    DBM in NJ

    • Great book on this is ‘Plague And Peoples’ by William Hardy McNeill – it’s twenty-five years old but still current for all that!

  14. BLS Jobs report – not that good today. In fact, aggregately bad. since Sept:
    – Employed down 484k
    – participation rate down .4% (big)
    – NiLF up 968k (big)

    They revised Sept up, and that was a good report. Futures not swayed by today’s report. But it wasn’t a good one. The pump continues. Maybe the hurricane “snapback” happens in November instead?

    • Employers in the city I live in cant find enough applicants for minmum wage retail positions. This problem has to be elsewhere I would think.

      • Eventually, I would expect that minimum wage retail positions with big (overthetop) profit corporations will finally have to raise their hourly wages. Let’s think, back in 1979, those jobs paid $7 to $10 an hour…what do they pay now?

        Somethings gotta give unless they want to keep importing the 3rd world. That’s how you know that the government, the corporations, and the elite really don’t care about poor people. If you can’t breed em, then field em in, everywhere, all the time, non-stop. Importing poverty, after all is a business model. Turning the middle class into a poverty class is a business model, too, but there is far more fun in doing that…to think…they are turning a country.

    • On the generally “poor” BLS report, we have a continued stock-market swell. I guess nobody really knows when the bubble can burst. I’m not short because – macro indicators aren’t strong enough yet to indicate a true top.