Oct

18

 The chronic need of economic doom topics…

New time series on FRED from the Atlanta FED. (New on FRED. The project is not new.) It is derived via keywords from US/ world newspapers. Methodology. Home. I find the uniformity over long phases fascinating. The Jerry Seinfeld joke come to mind: Isn't it surprising, that newspapers never run out of pages or have blank ones. Whatever happened fits perfectly the space available.

Stefan Jovanovich writes: 

PR's usual cleverness and my coach potato contemplations of this year's World Championship in track and field (this was a glorious year) have me thinking that the steeplechase is a better metaphor for the markets than rock climbing. The worries are repeating hurdles more than they are walls.

Oct

2

What is the significance if any of recent money market stress and Fed actions?

Larry Williams writes: 

If it is a mini QE-4, as I suspect, bullish.

Peter Ringel writes: 

I had decreasing excess commercial bank reserves as bullish factor for equities, because it is an indicator of optimism.

People are less in cash and invest more and more in other assets.

Pete Earle writes: 

A colleague and I wrote an article about this two days back. "This is Not QE4, Yet"

Mr. Isomorphisms writes: 

If it's due to quarterly tax payments, why doesn't this happen every quarter?

Pete Earle replies:

It's not just because of taxes. Read the article.

Aug

15

Watch "Bridgewater's Ray Dalio Discusses the Impact of China's Growth on the World Economy" on YouTube

Watch "Gordon Chang: On Hong Kong Protest, Chinese Economy, Trade War, & Trump's New Tariffs" on YouTube 

Very distinct views. What is yours? Btw, any news on Jim Chanos' latest China results? Seems like he backed out his short earlier?

Stefan Jovanovich writes: 

When Cantillon shorted "France" - i.e. John Law's system, he went to the Bourse in Amsterdam and bought gold with a promise to deliver assignats. The difficulty with shorting "China" is who are your buyers? Cantillon's counter-parties were not AIG fools; they needed Law's paper to pay their French taxes, which could only be done with Law's paper legal tender. But who outside the jurisdiction of the PRC has a need for the delivery of Yuan?

Mr. Chanos' shorts, to the extent he disclosed them publicly, were derivative bets against exporters to China that did not touch the currency at all. Kyle Bass' hints at his short position, which he has closed, involved the exchange between renminbi and the Hong Kong dollar. A question for the List: where, in fact, can a sizable bet be made right now that shorts Chinese legal tender? A bet against the dollar in BitCoin can be laid on in volume but not Yuan. The price CNBC puts on its screens is no more a market quote than the exchange rate for Venezuela's money. Or, have I answered my question already. A purchase of BitCoins in China with the domestic currency would seem to be, for now, as good as selling assignats for future delivery in Holland in 1719. 

Peter Ringel writes: 

Hi Leo, I don't see necessarily a contradiction between the two.

Dalio seems to highlight opportunities in the Chinese private sector. Chang points to the many issues and question marks, that arise from the behavior of the Chinese government.

Anecdotally, I only hear of foreigners exiting China's "physical" sector. I don't know what foreigners are doing in the financial sector in China.

Isn't Dalio concerned about the rule of law? Will he get his money out at some point? I believe Dalio talks a bit to his book and to ears in China. His historical analysis of past global powers, which was also posted on his blog a little back, is aimed in this direction. I do see contradictions mid and long term. With all due respect to China's culture and idiosyncrasies, how can an economic power house and a police state coexist? (Mainly corruption will rip any economy apart).

What do you think the prospects are (in case as an analogy)? The ear on the ground is always the best source.

anonymous writes: 

Hi Peter,

I have been quite negative since a few years ago, and so started long term traveling outside the country since 2015.

I feel quite the same that Dalio was talking to his book and the top ears in the country, and suspect that might be a precondition for him to take his money out now.

His data presentation looks convincing, but it seems dated without considering the country's abrupt shift to the far left in these few years. One may argue that he is looking at a trend on a century level and a few years time can thus be well neglected. Well, people in the West really lacks the experience of what "far left" means. That alone, not to mention about other big issues in the country, will cause a deep and likely long hiccup in the near term, which might well expire everything imagined for the long term.

Larry Williams writes: 

LTTIU

Never forget: the Long Term Trend Is Up…do not fear the future. Fear does not create death. Fear limits life.

Aug

9

We had extreme ranges and drops this week. A couple thoughts… Chair and Rocky argued about percent vs absolute points. Since each point is always $50, points matter most to the wallet. As the absolute value goes up, absolute ranges rise as well.

Questions arise about extreme events: clustering, duration, time between, distributions of returns. Pareto distributions are a key idea according to the book.

Peter Ringel writes: 

From a base of extremely less experience: I think in points. It is more intuitive. The market seems to move in chunks of points. E.g. NQ seems to like 30pts.

Aug

8

I've learned a lot from the DailySpec. Larry's advice that the market rewards patience is good. Ralph's formula for leverage is good. I realize they go hand in hand (their advice). It's hard to have patience when over levered.

Larry Williams writes: 

Leverage is pressure. There is enough of that in this business as is. Why compound it?

Ralph Vince writes: 

This is life and death, and I have NO interest in comfort.

Steve Ellison writes: 

When the game is to shake out the weak, a game plan of being strong, which would preclude excessive leverage, just might work.

I thought the Chair summarized it perfectly in a tweet on Monday:

A typical fri-mon almost identical to the feb 2018 decline with down another 1.5% on Mon nite 1100 pm est and then ready to resume its inevitable bullish climb on tues. anything to force the weak to give their chips to the strong.

Peter Ringel writes:

This is a wonderful tendency. Worked like a charm.

Jul

30

One important thought is that capitalism produces a better citizen (the base for democracy).

In capitalism every entrepreneur is a little king of his house and business.

It creates healthy individual self-confidence. This creates a healthy society.

In contrast, in socialism we find little personal self-confidence.

There self-confidence is replaced by something/a cause to make the little peasant not feel too bad about himself and his fate.

This is the road to Nazism, communism or religious fanaticism.

May

20

 Nelson Lichtenstein wrote interesting books about $WMT, noting that Sears was excluded from the initial 1955 Fortune 500 list "simply because it was a retailer".

His "retail revolution" is the transfer of power from manufacturers down the line and closer to the consumer. WMT now significantly controls the supply chain "up" the line.

(Nike and Starbucks have been noted in this regard, but not so far in this book.)

There is a second reason why Burger King management has put the federal Equal Employment Opportunity Commission (EEOC) statement at the very top of the application. Americans consider workplace discrimination on the basis of race and religion and creed un-American. For nearly a third of a century we have had a national debate over the definition of such discrimination and the remedies that are useful and legal to eliminate it. But there is practically no debate about the need to stop it and compensate individuals for it, when discovered.

The overwhelming majority of workers, employers, and politicians believe that the government has a right to insist that active discrimination not take place against anyone covered by Title VII of the 1964 Civil Rights Act or those many statutes that followed in its train. This seems so commonplace and common sensible, that we forget the radical character of this law. If you own a restaurant or a factory or a motel or run a college, you can't make use of your property as you wish. The state mandates you to hire, fire, promote, and otherwise deal with your employees or clients according to a set of rules laid down in Washington and refined by the EEOC and the courts. If litigated, the courts will force an employer to pay real money in compensation and rehire or promote a worker if management is found to have transgressed this new kind of labor law.

Peter Ringel writes: 

Yes, the "point of sale" has the dominant power position.

Like the US has it towards China: US is the point of sale.

Mr. Isomorphisms writes: 

I think this was a point made by Michael Pettis (shows up on twitter.com/jaredwoodard feed) as well.

Stefan Jovanovich writes: 

Some of us are happiest as counter uppunchers. But for I's and PR's wonderful (as always) comments, I would not have spent the first part of the morning rummaging through my books and pestering the wife about her encyclopedic knowledge of employment law. So, I pray these remarks will be taken as merry grumbling, not smart-ass smugness.

1. The EEOC placard is like putting In God We Trust on the Money. It does no harm but it is not proof of anything real. Companies put it up for the same reason water fountains in my birthplace and the nation's capitol once had labels that said colored only; the law made them do it.

2. Labor Union's flourished in the 1930s for the same reason the water fountains had the signs; the Federal law made companies do it. What it did not do, of course, was make the labor unions allow memberships to be open to people regardless of gender and race. On the contrary, those awful capitalist employers had shown a shocking willingness to allow women and Negroes and Mexicans to come to the same workplace. They had, of course, shown the same terrible openness to letting rich black and Creole people in Louisiana ride in the same passenger carriages as white people. In both cases the law put a stop to the dreadful egalitarian idea that anyone could be a source of profit.

3. One should be careful about drawing any inferences from the Fortune List. When Henry Luce ran Time-Life editorial selection had a simple rule: our advertisers are the news. Sears was not a major advertiser in expensive magazines in the 1940s and 1950s. They did not need to be any more than Google (forgive me: Alphabet) needed to buy ads on television in the 1990s and 2000s.
 

May

15

If we imported goods from, say, the Gaza, would that be a good thing?

Peter Ringel responds:

Please allow the kraut to interject:

Hamas bombed Israel with >1200 missiles (and counting) during the last 3 weeks.

Hamas tries to trick Israel into a broad attack because Hamas is losing support in Gaza fast.

Israel showed tremendous restraint so far. Something politically extremely costly during an election year.

It is on the shoulders of the Palestinians to get rid of Hamas. Economic sanctions help with that IMHO.

Then we will see.

Feb

10

Mises wrote in 1940 what it is still difficult to say 80 years later: the "working class" in Germany were the Nazis most dedicated supporters precisely because Hitler offered "full employment" through public spending. Hitler's dilemma in 1939 was that the German central government had no more usable FX with which to pay for its imports. The only means of continuing the supplies from Scandinavia and the Baltic and Romania was to make German IOUs as good as cash in the same way Napoleon persuaded Continental Europe to accept the "reformed" (sic) French currency. The Soviets could not be so easily threatened, but they could be bribed with half of Poland, the Baltic and a slice of Finland. Even so, everything depended on the French and British believing that an invasion to the Rhine would only bolster Hitler's popularity, not destroy it. So, as Mises notes, leaflets were dropped instead of bombs.

Peter Ringel writes:

The left here always gets a little bit annoyed when one highlights, that NAZI stands for National SOCIALISM (A member of the National Socialist German Workers' Party NSDAP). It would be nice if more (in Germany) understand, that economics is the driving force of history–not political or religious "ideas".

Dec

9

From a NYT article:

In the past 60 years, every recession has been preceded by an inverted yield curve, according to research from the San Francisco Fed. Curve inversions have "correctly signaled all nine recessions since 1955 and had only one false positive, in the mid-1960s, when an inversion was followed by an economic slowdown but not an official recession," the bank's researchers wrote in March.

anonymous writes: 

Cleveland Fed has a dedicated website on the YC. Lately the probability of recession in the next year has increased to 20%+ some good literature on the subject by the NY Fed.

While historically it has been a solid predictor, the timing is tricky and not stable (can you afford to be short the market at least a year before a recession) and its predictive power has decreased over the years. The evidence in foreign markets is also mixed (look at the UK in 2000s where a decent portion of the time the YC was flat/inverted). It is what someone will call a weak predictor. One would think that you might find a better forecast in specific industries/sectors (eg financials) than the market as a whole.

It's worth mentioning that inverted yield curves were the norm before 1900. Most academics attribute that to wars; if a country survived in the short-term (wars), it had less risk over the long term. Similar to the VIX term structure during sell-offs. 

Peter Ringel writes: 

We had so many bogymen on the news-wire today.
Everyone is free to choose the fear he or she desires:
- yield curve 
- Russia military aggression (old news- but displayed as new)
- Italy risk (old news)
- Brexit fail
- Trump-China back paddling ("China is puzzled" <- this one is real IMO )
- FED talk
- IRAN war (old news)

Probably all a campaign.

Ralph Vince writes: 

Alright, since the media is yield curve obsessed, I'm copying what I posted to another list, expletives deleted.

This talk of an inverted curve by taking segments out is the most ignorant discussion in the media on the topic i have ever seen. When there are inflection points in the curve, which are COMMON, historically, there are portions of inversion, of course.Throughout the late 90s, when the 20 was above the 30 year, was anyone calling it an INVERTED YEILD CURVE!!!!! (and screaming about it, as they do now?)

In late 1998, there were at least FIVE inflection points using the main maturities on the constant curve, and three segments that were inverted. Things were pretty strong in the economy until hints of slowness in 2001Q2.

This is more bull***it financial writing, along the lines of "longest expansion in history," etc.

Who knows, maybe a slowdown is upon us (not evident in any numbers I keep - yet) but the yield curve is NOT inverted.

Russ Sears writes: 

Perhaps they have learned after Trump's election that making the first move instills confidence in the dip buyers Trump optimism. But selling after a big up Trump day the opposite.

anonymous writes:

It would seem that those that believe Trump knows what he is doing now move regularly before those who doubt him.  

Kora Reddy writes: 

1. When T10Y2Y goes below zero for the first time in 250 days (one year) and forward $SPX index returns:

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2. When t10y3m goes below zero for the first in a yr:

  

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3. When T10YFF goes below zero for the first time in a year:

  

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