Ten Plus Great Weekend Reads – Feb 15

 

WER_Chart1_Feb15

  • Fed to finalize plans to end balance sheet runoff ‘at coming meetings’: Mester – Reuters
  • Emerging-market stocks are the ‘most crowded trade’ for first time on record – MarketWatch
  • China and U.S. to Continue Trade Talks Next Week – NY Times
  • ‘Like pulling teeth’: In trade talks, China and US said to be far apart on structural changes by Beijing – SCMP
  • It’s a Very Bad Day for U.S. Farmers – Bloomberg
  • West Coast real estate is now so expensive that married couples are moving in with multiple roommates – MarketWatch

 

WER_Chart2_Feb15

  • Spain’s Sánchez calls snap election on April 28 – Politico
  • Maduro’s End Would Be Just the Beginning of Venezuela’s Road to Recovery – Stratfor
  • What Will Succeed GDP? – Project Syndicate

 

  • This Is Your Brain on Nationalism: The Biology of Us and Them – Foreign Affairs

Bonus

  • The EU looks like the Soviet Union in 1991 – on the verge of collapse, George Soros – Guardian
  • Why Paul Tudor Jones Fears a ‘Revolution’ – Institutional Investor
  • The Best-Paid Hedge Fund Managers Made $7.7 Billion in 2018 – Bloomberg
  • Everything still to play for with AI in its infancy – FT
  • An AI that writes convincing prose risks mass-producing fake news – MIT Tech Review
  • Robots that look like my grandma – Economist
  • The greatest banned songs of all time – ranked! – Guardian
  • The Cubs are no longer lovable losers – but has the team lost its soul? – Guardian

US-China trade talks: which side holds the advantage?  – FT

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Spain snap election – Euronews

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Doji City At The 200-day

Total indecision in the S&P 500 price action at the 200-day moving average.

Very similar to past short-term peaks but if it were that easy,  we’d all be eating caviar on our yachts.

Impressive that market doesn’t break.  No sellers.

Nevertheless, better seller before everyone else starts selling.

Doji_def

Source:  Using Japanese Slang

Doji_City

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Millennials Rising, Market Risk Increasing

Righteous!

Check out today’s cover of the Economist.

Economist_Cover

 

It confirms our ongoing analysis and illustrates why you should read the Global Macro Monitor, folks.

It’s been almost exactly one year to the date since we posted,  Karl, The Comeback Kid?  We warned the 1-percenters to “Wake The F&*k Up” to what was coming — a move to Nordic Capitalism — especially if the millennials started to show up at the ballot box.

They did in November by increasing their turnout by more than 50 percent.

Poll_Youth Turnout

Just a few days before the midterms we posted,

We sense a political earthquake coming Tuesday.   Female, young, and left.   Brace yourself, folks. – GMM, October 31

Enter AOC & Co.   A warning:  she/they will take a big political hit — fair or not — on Amazon’s flight from NYC, and they really do need to learn and learn fast, that the private sector is the main engine of job growth and wealth creation.

Similar to using fire to cook your food and warm your house, use and harness market forces to accomplish your social and economic goals.  Markets, like fire, are amoral.  Corporate socialism, people’s socialism,  socialism for the rich, socialism for the poor – hey, it’s hard to be pure.

Nevertheless, we were way out in front before others began jumping on the Karl Train.

Prairie Fire

The movement only gets stronger, in our opinion, as deep structural demographic, economic and political forces are driving the underlying social dynamics of the nation and many other countries in the West.  Trump had his chance and deserves credit for reading what most pols missed, but he is increasingly viewed as a Trojan Horse for the elites — as he is or, at least, claims to be an elite — and is despised by the young.  Not to mention his political and legal problems.

One political party believes they can win 2020 with a party of old white men scaring the middle by conflating  Nordic Capitalism, which the millennials advocate, with “Venezuelan and Cuban socialism.”

Go ask a millennial if they prefer Caracas to Copenhagen?  ‘Nough said.

The Rise Of Bernie

Think about it folks.

Bernie Sanders would be president today if Hillary and the Dems had not rigged the 2016 primaries in HRC’s favor.  We believe almost one-third of Trump voters felt the Bern, especially in the mid-West, and Bernie would have brought out the younger voters en masse.  Trump would not have had a chance.

Trump’s own pollster, Tony Fabrizio, stated flatly at a recent Harvard University Institute of Politics event that Sanders would have beaten Trump. He said Sanders would have run stronger than Clinton with lower-educated and lower-income white voters. I could not agree more, on both counts.

The real working-class hero candidate was always Sanders, not Trump, who has always been a crony capitalist pretending to be a populist.  – The Hill, November 3, 2017

Now think five years back, and ask yourself if you ever, in your wildest imagination or fantasies, would have believed a no-name “socialist” independent from Vermont could become president?  Or, for that matter,  a 12 handicapper reality television star?

We are not advocating jack all here at GMM, as we are often accused,  just making inferences from the economic, polling and demographic data, and trying to find our way along the foggy path into the future.

Socialism is storming back because it has formed an incisive critique of what has gone wrong in Western societies. Whereas politicians on the right have all too often given up the battle of ideas and retreated towards chauvinism and nostalgia, the left has focused on inequality, the environment, and how to vest power in citizens rather than elites (see article). Yet, although the reborn left gets some things right, its pessimism about the modern world goes too far. Its policies suffer from naivety about budgets, bureaucracies and businesses.   – Economist, Feb. 14

Look What QE Has Wrought? 

Bernie and Co. (the MMT crowd) now think that much or let’s say, some,  of the increased spending, can be financed by the Fed’s printing press.  That reflects a total lack of understanding of monetary policy, monetization, and quantitative easing.

The Fed injected reserves into an impaired financial system to purchase Treasury and MBS bonds in order to inflate asset prices, mainly,  but not totally,  through hyping animal spirits, without increasing interest rates during a mass asset reallocation and explosion of fiscal deficits.   The impact on demand was relatively inefficient and, at best, indirect.

Though a counterfactual can never be proven,  nobody knows how much aggregate demand (AD) would have collapsed without QE.  We maintain its better to be safe than sorry and it sure beats living under a freeway and eating bark for dinner — surely almost all of our fate if the system had collapsed.   So kudos to Ben & Co. for saving the global financial and economic system.

The impact on AD came indirectly through the economic recovery plan’s fiscal spending and the wealth effect. and thus had little impact on goods and services inflation.   This also happened during a period of household deleveraging, mainly in mortgage debt, and therefore, the massive reserve injection was not converted to endogenous money through bank credit expansion.

However, corporate and fiscal debt increased, mainly through bond issuance,  and asset prices did hyperinflate.

People’s QE

The next big quantitative easing will be a “Peoples QE’ and we believe will go to finance consumption and investment directly.  Money demand may not decline, especially at its genesis, but the People’s QE will definitely increase inflation.   Its impact on real money demand will determine its length, efficacy, and ultimate fate.

We don’t worry so much about increases in the monetary base, especially when a financial system and credit is impaired, we worry more about the collapse in real money demand, which results from a loss of confidence in the central bank’s commitment to maintaining the purchasing power of the currency.   That’s how hyperinflation begins and societies end.

This is our view of the end game, a ways off, however.

Difficult To Understand Monetary Policy

We now have a president who doesn’t understand free trade and certainly has no clue about monetary policy.

“Just run the presses — print money,” Trump said, according to Woodward, during a discussion on the national debt with Gary Cohn, former director of the White House National Economic Council.

“You don’t get to do it that way,” Cohn said, according to Woodward. “We have huge deficits and they matter. The government doesn’t keep a balance sheet like that.”

Cohn was “astounded at Trump’s lack of basic understanding,” Woodward writes.  – CNBC

Scary clueless.

I read sometime, somewhere as an undergraduate that President Kennedy, a high IQ POTUS, had trouble remembering the difference between fiscal and monetary policy, and had to write cheat sheet notes on his hands during pressers.  Fiscal policy on one hand and monetary policy on the other.

I am still trying to find the documentation for you, folks.

In his last presser Chairman Powell stated even the best and the brightest at the Fed does not know what is the right level of reserves to maintain a stable financial system.   Alan Greenspan believed making monetary policy was a black box.

There is, regrettably, no simple model of the American economy that can effectively explain the levels of output, employment, and inflation. In principle, there may be some unbelievably complex set of equations that does that. But we have not been able to find them, and do not believe anyone else has either. 

Consequently, we are led, of necessity, to employ ad hoc partial models and intensive informative analysis to aid in evaluating economic developments and implementing policy. There is no alternative to this, though we continuously seek to enhance our knowledge to match the ever growing complexity of the world economy.   – Alan Greenspan, Decemeber 1996

Imagine the two candidates in the next presidential election debating the efficacy and risks of a “People’s QE.”  Yikes!

We double down on our Soros quote posted late last night,

Most of us assume the future will more or less resemble the present, but this is not necessarily so. In a long and eventful life, I have witnessed many periods of what I call radical disequilibrium. We are living in such a period today.  —  George Soros, Feb. 12th

Radical disequilibrium, indeed.   Not market friendly.

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Heartbreaking: Get Off Your Knees —> Action

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Das ist nicht gut!

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QOTD: George Soros

Most of us assume the future will more or less resemble the present, but this is not necessarily so. In a long and eventful life, I have witnessed many periods of what I call radical disequilibrium. We are living in such a period today. – George Soros, Feb. 12th

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The Caravan On The Move Again

 

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China’s Pushback In Trade Talks Over Sovereignty

Bingo!

Note our comment from an earlier post this evening,

Seriously, folks,  do you really think the Middle Kingdom, with all its history and past glory, after climbing back to global superpower status, is now going to cave and give up some of its sovereignty because Trump demands it?

President Xi already seems to be preparing his population for the worst case scenario, warning of “challenging times ahead” possibly in the event Trump goes ahead with the tariff hikes.  Maybe we are reading too much into it and maybe not. – GMM

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QOTD: Three Kinds Of People

There are three kinds of people: the haves, the have-nots, and the have-not-paid-for-what-they-haves.  – Earl Wilson

QOTD = Quote of the Day

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