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…