Guest Post by Tom McClellan
January 10, 2015
A new Congress has been seated, and it brings the prospect of perhaps maybe potentially in a possible way doing something about the runaway federal deficits. And in other news, several New York area bridges are for sale, which you can acquire at a bargain price.
Let us suppose, just for the sake of inquiry, that Congress ever actually did something to reduce the federal deficit, which would arguably be good for taxpayers (and for the grandchildren of taxpayers). The question is: would that be a good development for current investors?
Continue reading Deficits Are Good, Sort Of
Never mind that the US increased employment by 252,000 in December and unemployment sagged to 5.6%. The stock market moves to its own beat and doesn’t care much about the particulars in the ‘Jobs’ report or the media’s interpretations of its details.
US Stocks Decline as Wage Data Overshadows Job Gains
The market only cares about how those particulars affect the money creation that has kept it in operation since 2009. Here are two graphs from NFTRH 324…
On the Monetary Base view, Post-QE Base dropped, the S&P 500 popped (Santa seasonals)… then dropped… then the Base popped after the S&P 500 dropped and then the S&P 500 popped, then it dropped (to fill the gaps) and popped again; but today it dropped.
The Fed Funds view (ZIRP is into its 6th year now) simply shows box 1 (black) and box 2 (red). Box 1 wants to see box 2 remain very thin and horizontally rectangular while it continues to grow very tall in a vertically rectangular sort of way.
Economics 101, Wonderland style.
The worry in the ‘Jobs’ details was supposedly in wage stagnation. The mainstream thinking being that wage growth would spur organic economic expansion as all those consumers get out there and gobble up the economy’s products.
But it can be argued (by the second chart above that it is the lack of wage growth that can cause fretting by policy makers and an avoidance of any moves that would threaten box 2. Put another way, if wages start growing and the things that mainstream economists call inflation start to get out of hand the pressure would mount – amidst the strong economic backdrop – to get on that rate hike cycle and not fall behind the curve.
So today’s reaction by the stock market is not unexpected by this individual participant, because I was only looking for a gap-fill bounce with no need to read more into it than that. But the lack of wage growth is not a reason why the stock market should be going down. The jumpiness in yield spreads could be among them, however.
Well, of course change is coming to the macro markets. It has come every day since the beginning of time and today is different than yesterday. But I mean a change in the market’s character is likely coming in 2015.
NFTRH notes the divergent Horsemen, Gold-Silver Ratio and USD, and also cryptically notes that people need to have the proper market interpretations at the ready in 2015. It was just 6 months ago that we started managing a bounce in the roundly reviled USD in NFTRH. Now look at it, everybody’s bullish the buck.
The stock market is down big today. Oooh, that’s scary, eh? Well no, not until it breaks some parameters. Interestingly, some of my non-gold stocks are very green today. I think (think, mind you) that the market is just cleaning out the pipes as sentiment got over bullish again over the holidays. Those gaps need filling, after all.
But if and when it does go bearish for real I’ll plan to short this pig with conviction. Right now the only thing I am short is junk bonds and that is working well. I find it really interesting that everything is down in the face of the strong dollar but the precious metals. That is exactly according to NFTRH’s plan on the big picture. Exactly. In the near or intermediate-terms, other things can and will happen. But today is a microcosm of what I’d expect the big picture to look like under a strong dollar regime.
Meanwhile, the Gold-Silver ratio says Uncle Buck may be readying to take a break. It’s either that or the GSR will get back in gear and croak everything. I think the former may be in play.
- Fill’er Up –Market Anthropology [biiwii comment: a few days late but interesting viewpoint on the post-2011 disinflationary phase]
- 5 Themes for 2015 –SeekingAlpha [biiwii comment: this SA post disputes MA’s view; what makes a market and all…]
 December ISM just out, details here –NFTRH.com
and… What Happens After a Big Down Day Between Christmas & New Years –QuantEdges
So Baby 2015 has slammed the book on wrinkled old 2014 (this imagery just cracks me up), a year that featured the continuation of existing macro trends like US stocks up, global stocks wobbling, precious metals weak and commodities weak to tanking.
Personally, I found the year revolting as an honest market participant, but thankfully made like a caveman and simply used my tools to help me avoid the pitfalls of my emotions and logical mind. I try very hard to tune down the Tin Foil Hat stuff, but I continue to be in awe of Policy Central and the depths of what looks to me like depravity that they will stoop to in order to keep up appearances. Reference Operation Twist and its “inflation sanitized” selling of short-term notes and buying of long-term bonds.
Who would’ve thought managing an economy and a financial system could be so easy, so controlled and well, so sanitary? Of course, that was way back in 2011, when the macro began to quake in anticipation of change. An anti-market (AKA gold) was brought under control but good and though the masses would hold tightly to their fear (so deeply ingrained from 2008) for another year or more, 2013 and 2014 saw increasing momentum toward a complete recovery of hurt feelings from the 2008 crisis time frame.
Continue reading Welcome, Baby 2015