God, I Love Mike Trout!

Posted on July 20, 2018 by macromon

You got that?  Pulled the little guy out of the stands to hang with him!

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Why Gold Is Such A Dog

Posted on July 20, 2018 by macromon

Summary

  • Gold prices have been in a bear market since the August 2011 peak at $1920
  • Prices are making new 52-week lows
  • Gold has primarily been a monetary asset throughout history and moves closely with the global monetary base (GMB), the sum of the U.S. monetary base and total international reserves
  • Gold has lost some of its luster as a store of value as goods and services inflation failed to materialize after the printing presses flooded the global economy with trillions of reserve currencies during Great Financial Crisis
  • Surprisingly,  demand remained steady or even increased as the major central banks emitted trillions in new currency
  • The broken credit mechanism resulted in an overall monetary contraction and  shortage of dollars
  • The gold bugs had their day as gold moved 650 percent from August 1999 to August 2011 while the GMB moved 455 percent during the same period, the result, mainly of a massive build in international reserves
  • The global monetary base will continue to contract over the next several months as the Fed shrinks its balance sheets and emerging markets continue to lose international reserves
  • Gold prices will thus linger and drift down toward and below $1,000 unless a major global shock results in a flight to quality
  • Just as the simultaneous unfolding of umbrellas do not cause but, instead, reflect a reaction to similar external forces – rain;  so to do comovements in the dollar and gold. In other words, moves in the dollar do not cause moves in gold but reflect a reaction to similar external stimuli
  • The next round of QE, which will probably be the result of a G7 sovereign debt crisis, should cause the massive spike in gold prices that the bugs were looking for in round one
  • We could be wrong

 

Jul19_Gold

Gold is making 52-week lows.

The yellow metal has been in a vicious bear market, down almost 40 percent since its September 2011 high of $1,920.   We find it almost impossible to make money in the commodity, much like everything else in trading these days,  at least for us.

Close your eyes and  BTFD and let it ride!  That trade is only working now in just a few stocks.

Only Buying French Dips

After taking some big hits and several small ones, we have disciplined ourselves to buy only French Dips these daze.  We are not comfortable trying to pick up pennies in front of a steamroller.

Everything is expensive and it is even more difficult to time the bursting of price bubbles driven by restricted supply rather than leveraged demand, such as was the case n 2008 credit and housing bubble.

Furthermore,  with the algos looking to pick you off 23/5 it is even becoming impossible to scalp to make money in a range trading market.

Cash flow is getting tight and we can’t decide if our next career is a truck driver or python programmer.   Have any thoughts?

Enough of the ranting.

Jul19_Gold1

Helicopter Ben

On October 24, 2005, President George W. Bush announced he was nominating Ben Bernanke, his chief economic adviser at the CEA,  to replace Alan Greenspan as the next Fed chairman.  The gold price was trading at around $470.

I noticed Boeing stock was up over 2 percent, and Boeing made the AH-64 Apache helicopter.  I instantly thought how efficient the markets were that helicopter stocks were rocking the same day “Helicopter Ben” is nominated as the Fed chairman. Genius!

Jan19_Helicopter Ben

 

I instantly shot off an email to my now famous friend, Barry Ritholtz, pointing this out and he made it his QOTD – quote of the day.  True story.

Thank Goodness For Gentle Ben 

In all seriousness,  we complain here a lot about irresponsible monetary policy and the serial bubble blowers at the Fed, but we are grateful Bernanke was the Fed Head during the Great Financial Crisis (GFS).   Even if he did play a major role in contributing and missing the massive housing and credit bubble.

I am sure most of you would agree it’s much better living with the consequences of a too loose monetary policy than living under a freeway and eating bark for dinner.

Anyone in the know and close to the situation in 2008/09 understands how close we came, and several times, and within minutes,  to a complete financial and economic collapse.

Marshall Law

I am not talking about 50 percent clipped off the Dow but a complete collapse of the global payments system,  marshall law, the hijacking of food trucks, food riots, and wars.

We came very, very close to the apocalypse, folks.

Ignorance was bliss back in the Q4 2008 but those in the know spent many nights without sleep hyperventilating.

Unfortunately, it doesn’t seem we have learned our lesson and the final chapter has yet to be written.  It seems as if asset bubbles are the only tool to keep the global economy afloat these days.  No wonder the Fed wants to keep trillions of excess reserves in the system by paying banks not to lend them out.

What Drives Gold Prices

So what are the factors that drive gold prices over the medium and long-term?

There is really no metric to determine the equilibrium price of gold. such as a price-earnings ratio.    Gold has little industrial use and has mainly been a monetary asset throughout the ages.

We wrote back in 2010, just before the 55 percent blow-off over the next 12 months,

Because the equilibrium price of gold is an unknown,  the yellow metal keeps running.  There is no real metric to determine its fundamental value — a real rate of interest and price-earnings or price to book ratio, for example.   This is also the case with most commodities.   And, in a world of zero interest rates, the opportunity cost of holding gold is extremely low. 

…Nobody knows the “right” price and that is why the commodity, in our opinion,  will surprise to the upside.

..Some say Gold is nothing more than a fear trade.”   We agree:  we are afraid when we are too long, not long enough, or not long at all! – GMM, Sept 25, 2010

Fundamentals

After many years of watching and trading gold, we have concluded that, because it is a monetary asset (the Russians are selling dollars to add to their gold reserves), gold moves closely with what we call the global monetary base (GMB).  That is the sum of the U.S. monetary base and total global international reserves excluding gold.

Jul19_Gold_1

 

We can’t recall where or how we came up with calculation of the global monetary base  and will get back to you as soon as we do.  Ed Yardeni does a great job tracking the global monetary aggregates, however.

When we have more time we may revise the data and add a portion of the ECB monetary base to the global monetary base as the euro now makes up a growing portion of international reserves.  The dollar is still around 65 percent of total reserves.

Peak Global Monetary Base

The global monetary base peaked in August 2014 about two years after the the gold price peaked.   We think because the rapid increase in base money didn’t result in the goods inflation as many believed, including us, by the way,  gold has lost much of its luster as a monetary asset and paved the way for rise of cryptocurrencies.

We understood, maybe not as well as we should have, that the credit mechanism was broken and the increase in traditional base money would not translate into a rapid increase in the monetary aggregates causing demand pull inflation.  We failed to believe, however, the markets would be willing to hold dollars after such massive monetary emissions.

We extrapolated our experiences from the emerging markets such as Venezuela and Argentina, and failed to believe the demand for the reserve currencies would actually increase and dollar shortages would break out due to the contraction of credit.

Gold Disappoints 

After waiting for their moment for so long,  the gold bugs didn’t get what they were looking for, at least not yet. Inflation didn’t emege and gold didn’t perform, and now just wanders and lingers, seemingly waiting for the next monetary burst.

We do believe the next round of quantitative easing may be a different story, however, as it will probably occur simultaneously with a sovereign funding crisis in a G7 country.  Central banks will be called upon to fund the inability of a sovereign borrower to rollover its debt.  Much like what happened during European debt crisis in 2011 but on a larger scale, such as a big debtor like Italy getting into trouble.  The currency then becomes “hot potato” money as demand dries up and the potential for hyperinflation increases.

Increase In Total International Reserves 

It is interesting gold began to move when total international reserves started to expand in the emerging markets in the late 1990’s.  The EM governments learned after the 1995 Mexican Peso Crisis, the 1997 Asian Financial, and 1998 Russian debt default that allowing hot money to cause currency appreciation — though holding down inflation and creating “wealth effect” driven growth — was a recipe for a balance of payments and current account crisis.

Jul19_Gold_2

The change in foreign exchange regimes across the emerging markets to more of a “dirty float” mechanism  where central banks intervene in the FX markets to keep their currencies competitive led to a massive build in international reserves.  It makes sense that gold would rise just from the increased demand from the “allocation effect.”  Some countries try and keep a certain percentage of their international reserves in gold.

Asset Bubbles And The New Economy

We have noted several times that everything changed in the 1990’s as assets markets began to grow increasingly overvalued, and actually drive and lead the economy rather than follow it.  The big inflows and recycling of the massive build in international reserves back  into U.S. financial markets was a major factor contributing to that change.

Gold Price And The Change In Global Monetary Base

Jul19_Gold_3
Finally,  we have charted the monthly gold price to the first difference change in the global monetary base.  As the chart illustrates, the two track relatively well.  They both peaked around the same time and have been doing nothing ever since.

China RMB

The global monetary base has been contracting over the past few months as emerging markets have been losing reserves due to currency weakness and the Fed has been reducing the monetary base through its balance sheet reduction.   No surprise gold has been weaker.

China holds a little over 25 percent of the world’s international reserves.

As President Trump said today China’s currency “has been dropping like a rock.”  The RMB is only down about 2 1/2 percent in July, hardly a rock, such as the Turkish “kaya”, which is down 5 percent in the same period.

It’s difficult to determine whether China is weaponizing the RMB in the trade war with the U.S. or capital flight is causing the weakness and the PBOC is losing reserves trying to cushion the fall.  If so, it could explain the recent weakness in gold.

Conclusion

Keep the global monetary base, both the U.S. base and total international reserves on your radar, especially the first difference change in the GMB.  You will be amazed how closely they track each other over the medium to long-term.

It will also give you more confidence in your view as noise and volatility increase.   Gold is a treacherous market to trade.

The relationship will be noisy  as is everything else.  Gold can suddenly spike. It is still considered a safe haven in times of turmoil.

We expect the GMB to continue to shrink over the next several months and wouldn’t be surprised to see gold dip below $1,000 per ounce.

Stay tuned.

Posted in Euro, Fed, Gold, Uncategorized | Tagged , , | 2 Comments

Charts That Count: Another China Crisis? – FT

Posted on July 19, 2018 by macromon

China’s currency has devalued sharply against the dollar in recent weeks. The last time China surprised the markets with a devaluation, in the summer of 2015, it prompted a global sell-off of risk assets. John Authers discusses why China’s currency is moving again, and asks why this devaluation has so far had much less impact on stock markets than the last one.

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Is Trump Starting To Lean On The Fed Or Setting It Up?

Posted on July 19, 2018 by macromon

President Trump said in an interview with CNBC’s Joe Kernan this morning he “does not agree”, is not “thrilled” or “happy” with the FOMC’s interest rate hikes.  The full interview and transcripts will be available tomorrow.

Jul19_Trump Interview

Click here for excerpt of interview

You Heard It Here First

Presidents never, or rarely comment on monetary policy or currency market moves. for that matter,  x/ the hackneyed meme “a strong dollar is the best interest of the United States.”

President Trump hit them all in this interview today, from the Fed to the Euro and Chinese RMB (“dropping like a rock”).  It doesn’t surprise us.

Recall our March 21st post, The Biggest Risk At The Fed.

But this doesn’t concern us as much as the Fed’s independence.

“Just let it rip”

That is we are worried more about the freedom from White House pressure and interference in conducting monetary policy than getting a few bps wrong on the Fed Funds rate.   This is especially true and relevant given the strongman tendencies and  lack of respect for institutional norms of the current president.

Here is Larry Kudlow, the president’s new chief economic adviser:

“Just let it rip, for heaven’s sake,” Kudlow said of economic growth in the U.S., during a more than hour-long interview Wednesday on CNBC. “The market’s going to take care of itself. The whole story’s going to take care of itself. The Fed’s going to do what it has to do, but I hope they don’t overdo it.”  – CNN
– Global Macro Monitor,  March 21, 2018

We were assured by Fed insiders shortly after that post in March Chairman Jerome Powell was tough and we should not underestimate his independence.   He has thus far proven to be an extraordinarily competent Fed leader.

Moreover, the president seems to have appointed very competent and independent Board governors to fill the many vacancies on the FRB.

Nothing Here, Move On

Other than committing another faux pas by publicly criticizing the Fed — and it really wasn’t that critical — the president’s comments,  taken in isolation,  were relatively benign and does not pose a threat to central bank independence, in our opinion.

But the totality and cumulative mistakes of  amateur hour at the White House, from foreign to domestic economic policy, are slowly chipping away at the world’s confidence in the management of America, Inc..

What we fear most is the loss of confidence in the world reserve currency status of he U.S. dollar, which is slowly eroding.   There doesn’t currently seem to be a viable replacement, however.  We do live in a nonlinear world,  where technological advancements can rapidly change and turn sectors upside down overnight, so that could change in a heartbeat,

Just look at the rise of crypto and mobile payments in the past decade?

Who is to say that a replacement for the dollar won’t come along in the next few years?  That would be a huge game changer and could render the U.S.economy to the dustbin of highly indebted countries, with large deficits, and irresponsible monetary policies.  And you know who they are.

Is Trump Setting Up The Fed As The Fall Guy?

CNBC’s Steve Liesman raises an interesting question: is Trump setting up the Fed to take the fall for his trade policies gone bad?   Farmers are really starting to feel the pain.

As Dale grain and beef cattle farmer Dennis Whitsitt watches his crops grow in the fields, he also watches grain prices tumble as tariffs between the U.S. and several other countries take effect.

The Trump administration began talking about imposing tariffs on Chinese imports in January, starting what has come to be called a trade war. Trump’s threats led China to threaten retaliatory tariffs on U.S. goods, including soybeans and pork. Both countries enacted the threatened tariffs on July 6. The administration also imposed tariffs on goods from the European Union, Canada and Mexico, leading those countries to impose retaliatory tariffs as well. Those tariffs also included farm goods as foreign leaders looked to hurt areas that voted for Trump. In Whitsitt’s opinion, the tariffs have hit their mark, as far as farmers go.

“It doesn’t seem like a good strategy,” Whitsitt said of the trade war.
— The Herald,  Jasper, IN

What Worries Us Most About The Interview

This is what tweaked us most about the president remarks,

Now I am just saying the same things what I would have said as a private citizen. So somebody would say oh maybe you shouldn’t say that as a president. I couldn’t care less what they say. Because my views haven’t changed.   – President Trump

“I couldn’t care less” — Are you frickin’ kidding me?

As we posted  last night, the president’s not even ambiguous (double negative) comments on coming to the defense of a NATO country, coupled with the U.S. public, which some could read, acquiescence to the Russian annexation of Crimea only increases the risks that China moves on Taiwan.

The U.S. would then have to decide if it willing to “send its boys” to defend Taiwan and enter World War III.

Serious business, folks.

By the way,  this just in,

CHINA WAR GAMES NEAR TAIWAN

As Washington pundits and government officials debate President Trump’s meeting with Russian President Vladimir Putin in Helsinki, China is busy sending a strategic message to the United States with large-scale war games near Taiwan.

China on Wednesday kicked off live-fire drills in the East China Sea north of Taiwan in an area simulating the size of the island state — a not-so-subtle message to the country Beijing regards as a breakaway province.

The military maneuvers at sea also will be held not too far to the west of the Japanese island of Okinawa, home to U.S. military forces.

The six-day war games were announced Monday in a sea closure zone that warned all vessels to stay clear of the area, where Chinese ships are firing missiles and other weaponry.

The sea closure zone covers an area off the coast of Zhoushan, south of Shanghai, to Wenzhou about 200 miles to the south. The Communist Party-affiliated newspaper Global Times noted the exercise zone’s “similar size to the island of Taiwan.”

The exercises are designed to warn Taiwan, Chinese military expert Song Zhongping, told the newspaper. “The drill’s main objective is to send a serious warning to Taiwan separatists,” Mr. Song said.

According to another Chinese military expert quoted by Global Times, the East China Sea is viewed by the Chinese military as the main battle zone if war breaks out.

The expert, who was not named, said this week’s drills are larger than in the past and require more troops and weapons. The maneuvers will test the Chinese military’s combat capabilities, tactics and training methods and its new weapons and hardware.

“The [People’s Liberation Army] air force and navy have been frequently conducting island encirclement exercises,” Mr. Song said. “The drill this time will add up and form a military deterrence of high pressure against the Taiwan separatists.”

According to Mr. Song, the war games will involve joint military operations in a bid to simulate real combat. —  Washington Times, July 18th

Stay tuned!

Posted in Fed, Uncategorized | Tagged , | 11 Comments

Pop Nails It!

Posted on July 18, 2018 by macromon

People like Pop, coach of the San Antonio Spurs, make America great.  Must view, folks!

 

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The Day “Strategic Ambiguity” Died

Posted on July 18, 2018 by macromon

Jul18_Stratgeic Ambiguity

The hits just keep on coming.

There is a new sheriff in town, the old order is crumbling, and we are afraid the world is going to become much more unstable in the next few years.  Assets markets are incapable of discounting or pricing it in.

President Trump Throws Montenegro Under The Bus

In an interview with Fox’s Tucker Carlson last night, President Trump seemed to question the raison d’être of NATO and foreign alliances in general.

Tucker:  So membership in NATO obligates the members to defend any member that is attacked.  So let’s say Montenegro, who joined last year,  is attacked, why should my son go to Montenegro to defend it from attack?

President Trump:  I understand what you are saying. I have asked the same question. You know Montenegro is a tiny country with very strong people… They may get aggressive, and congratulations you are in World War III…But that is the way it was set up, don’t forget I just got here. 

There are errors and misrepresentations in the above, such as NATO’s Article 5, which has only been invoked once in the aftermath of 9/11, and does not apply when the NATO member is the aggressor.

NATO Expansion Was A Mistake

Before going further let us state for the record, we believe the expansion of NATO without including Russia was a big mistake, unnecessarily provocative, and ruined the West chances of bringing Russia “in.”

With the fall of the Soviet Union and the sudden shift in the military balance in Europe in the early 1990’s, NATO faced an existential crisis.  Rather than winding down, the conventional wisdom was that NATO must go “out of area or out of business.” Bureaucracies don’t die easily.

The Russian backlash to NATO’s expansion was devastating.  In 1991, 80 percent of the Russian public had a favorable opinion of the United States.  After the expansion of the alliance and bombing of Serbia in 1999 without UN Security Council authorization,  Russians had a negative view of America.  In 2000, Vladimir Putin was elected president of the Russian Federation.

George Kennen

Listen to George Kennen in 1998, the architect of America’s successful containment of the Soviet Union and one of America’s great statesmen of the 20th century, who was “present at the creation” of NATO, and authored the anonymous 1947 Foreign Affairs article, signed ”X,” defining America’s cold-war policy for 40 years,

”I think it is the beginning of a new cold war,” said Mr. Kennan from his Princeton home. ”I think the Russians will gradually react quite adversely and it will affect their policies. I think it is a tragic mistake. There was no reason for this whatsoever. No one was threatening anybody else. This expansion would make the Founding Fathers of this country turn over in their graves. We have signed up to protect a whole series of countries, even though we have neither the resources nor the intention to do so in any serious way. [NATO expansion] was simply a light-hearted action by a Senate that has no real interest in foreign affairs.” – NY Times, 1998

So, to some extent, we agree on many of the philosophical tenets that we think what President Trump believes.  The problem lies in implementation and execution.

Just as, we believe, trade disagreements should be settled in a rules-based multilateral framework, such at the WTO.

We  also agree with another American president about being suspicious and trying to avoid  “foreign entanglements.”   The web of foreign entanglements among European nations led to World War I, a war that nobody wanted.

The nation which indulges toward another an habitual hatred or an habitual fondness is in some degree a slave. It is a slave to its animosity or to its affection, either of which is sufficient to lead it astray from its duty and its interest. Antipathy in one nation against another disposes each more readily to offer insult and injury, to lay hold of slight causes of umbrage, and to be haughty and intractable when accidental or trifling occasions of dispute occur. – George Washington

Xi’s One China Policy

What worries us about the Tucker Carlson interview is a potentially destabilizing effect on geopolitics, especially with China.

How do you think Xi Jinping, Trump’s new BFF,  who is becoming increasingly  aggressive about his “one China” policy, interpreted the interview?

Maybe something like:

“Why should my son go to Montenegro Taiwan to defend it from attack?”

Wars begin with misperception and miscalculation.

Saddam Hussein misread ambiguous messages from the U.S. ambassador believing he could get away with invading Kuwait.  In 1950, North Korea may have misinterpreted the Truman administration policy statement, that South Korea was outside the American defense perimeter in the Pacific.

We believe the world is becoming more unstable by the day especially with messages such as the one sent by the president last night.

We don’t like foreign entanglements, though we believe the U.S. should be the first among equals in the community of nations.  We also doubt the American public, at the end, of the day, is willing to send “their sons to defend Taiwan” but those are cards we have been dealt by past leaders.  To send mixed signals now only destabilizes and invites aggression.

We also sense that President Xi believes that even more than he did yesterday.

Taiwan may be about to get hot, hot, hot in the next year after last night’s Commander in Chief’s ambiguous message on defense treaties.

To stave off an eventual crisis, both capitals must work to ensure that Taiwan does not stand alone, that Taiwan’s people continue to believe in the feasibility of a free and (de facto) independent future, and that the United States and Taiwan’s armed forces can deter and, if necessary, defeat Chinese aggression. – The American Interest 

Sidetracked By Geopolitics

We apologize to our readers for being sidetracked with geopolitics and will get back to economics and the markets tomorrow.  It is imperative investors and traders understand the magnitude and seriousness of, what we believe, is taking place in the world.

The post-war order is crumbling before our very eyes (or, maybe, we are just seeing pink elephants in the clouds).

Political and geopolitical risk is rising rapidly.  The warning lights are flashing.

UPDATE (July 22) – Looks like Fox took down original video and replaced with the following.

 

 

Posted in China, Geopolitical, Trade War, Uncategorized | Tagged , , | 36 Comments

Was Helsinki Trump’s “Jane Fonda” Moment?

Posted on July 17, 2018 by macromon

It has been over three years since President Trump first launched his successful campaign for the highest office in the land. The then unconventional candidate, and now president: has broken almost every rule in the political playbook; is a walking civic faux pas;  has brought a new 24/7 reality show inside the beltway, and turned Washington into the “Greatest Show On Earth.”  The ratings are going through the roof!

We are not big fans of the president’s policies, or the person, but we have to admire the man as one of the world’s greatest trolls.  He can set his political opposition’s heads on fire at will, and you know he loves it.

As a very close friend, and a Trump supporter, told me on Sunday,  “he has set the world on fire!”  He doesn’t have children, by the way,  so he worries less than I do.

Trump Is Finished, Trump Is Finished.  No, He’s President

Countless times President Trump has committed the “unpardonable sin” that would end his candidacy, weaken or end his presidency, and send him to the political dustbin.   So they told us.

Yesterday in Helsinki feels different, however.

Standing with Vladimir Putin at his side, the president effectively sided with the old KGB spy.  Stating “the United States has been foolish,” the president questioned the veracity of his own administration and the conclusion of the U.S. intelligence community the Russian government hacked the 2016 presidential election to help Trump win.  Nothing new he hasn’t said before, but standing next to the Russian president?  Jaw-dropping.

The president is now on the defensive with his tweet this morning about how great his meeting with NATO  and “even better meeting” with Putin went, and is “sadly” not being reported – “the Fake News is going Crazy!”

Not so.  The criticism and condemnation of yesterday’s Helsinki presser is universal and widespread,

Even Abby Huntsman,  the Fox News Channel Anchor/Co-Host of Fox & Friends Weekend, and daughter of the president’s current ambassador to Russia, Jon Huntsman, tweeted yesterday,

By the way,  we supported Jon Huntsman when he ran for president in 2012, a campaign that never got any traction.  He left office as the governor of Utah with an 80 percent approval rating, has a first-rate intellect and impeccable character, and positioned in the sweet spot of the political spectrum,  in our opinion.  Watch that guy.

Water Cooler Talk To Predict Elections

Finally, I am a big proponent of political “water cooler talk,” such as political cartoons, satire,  and tuning into jokes overheard on the train ride home, etc., to get a better feel for the political landscape and mood of the voters.  Even as artificial intelligence and big data become more ubiquitous, predicting the outcome of elections is becoming increasingly more difficult and more uncertain.  Those damn ‘bots and millennials with cell phones!

We suspect the Helsinki debacle may have been President Trump’s “Hanoi Jane (Fonda) Moment,” the abomination of desolation,   and is going to turn many, including the military, and  especially officers, against him.   Times may be a-changin’ for the president.  We have said it before and have been wrong.

Let me finish with a personal story from an earlier life and then I will post some of the latest political cartoons making the rounds.

By the way the ‘toons are observations, data points for us, and not endorsements.   They do reflect what we see as a changing mood,  They are now coming fast and furious.   We suspect there are several web scraping algos to measure the mood of the political cartoon world and make predictions.

Lech Wałęsa Goes Ice Fishing

Right after the Berlin Wall fell, the new Republic of Poland, headed by President Lech Wałęsa, hired me as an economic advisor to help the government restructure its external debt.  Recall, Wałęsa, a cult hero of Ronald Reagan and the American conservatives,  co-founded and headed Solidarity (Solidarność), the Soviet bloc’s first independent trade union.  He won the Nobel Peace Prize in 1983.

We loved wearing our Solidarność t-shirts in college.  It was code and a symbol for conservative students to recognize that they were safe with each other just as the fish symbol was for early Christians during their persecution during the 1st century Roman Empire.   Frickin’ tribalism is killing and ripping us apart but it was not as bad as it is today when I was in college.

Jul17_Sol

 

Many credit Solidarity, coupled with the election of a Polish pope in 1978, Karol Józef Wojtyła, who took the name John Paul II, as a significant catalyst in the fall of the Soviet Union.

Front Seat To History

I had a front seat to witness Poland’s conversion  from communism to democracy and a market economy, and had the honor to help contribute in the country’s transformation.  Poland is now an emerging market economic superstar.   It is sad to watch the country join, along with many others, the slow drift away from liberal democracy to authoritarianism.  The Poles are good people.

Nevertheless,  I worked for a relatively high-level, high profile public official, the U.S. equivalent to, say, the Deputy Secretary of Treasury and spent many hours in the Ministry of Finance.   Late in President Wałęsa’s term, I began to hear jokes about the president circulating among the bureaucrats throughout the Ministry.

After hearing the following joke from a high ranking public official, I knew Wałęsa had lost the respect of the Polish people, and there was no way in hell he would be re-elected. My emerging market buddies thought I was crazy.

President Wałęsa lost the 1995 presidential election by 1 percent to former Communist Aleksander Kwasniewski.

The President Goes Ice Fishing

Lech Wałęsa decided to go ice fishing last Sunday afternoon.  He cut a hole in the ice and dropped his line.  After 10 minutes he had no bites.  The president hears a voice from above, “there is no fish here!”  He had a little too much vodka the night before and so, at first, he thinks he is just hearing voices. 

Lech pulls his line and moves 10 meters north, cuts another hole in the ice, and drops his line.   After 15 minutes,  no bites.  Another voice from heaven rings out, “I told you, there is no fish here!”.  

The frustrated president lashes out, “Who is that.  Is that you, God?”.  No answer.

Wałęsa decides to give it one more try. 

He moves another 10 meters, cuts a circle in the ice, and drops his line.  After 30 minutes, a thunderous voice from heaven shouts,  “Mr. President,  I told you there is no fish here!”.  

Now very frustrated as the fish aren’t biting and God isn’t answering, President Wałęsa shouts at the top of his lungs, “Who is that?  Is that you, God?  I am Lech Wałęsa, the president of the Republic of Poland, I demand to know who is speaking to me.  Damn it!”

After about a 30-second pause, the voice from heaven responds.

“I am the manager of this ice skating rink!”

So there you have it, folks, not a political statement just a data point, an observation, deduction, and prediction.   The political water cooler talk, which led me to conclude Wałęsa would not re-elected, could not have been part of an algorithm, AI, or machine learning program.

Algos don’t drink beer and vodka with Polish bureaucrats.  They do, however, spy on their Facebook pages.  How likely would it be for a government official to make public such a joke about their boss on a Facebook page?  Not very.

Sometimes it really does pay to have boots on the ground.  There is still hope for us human analysts.

Massive Lavender Wave Coming In November

We believe there will be a massive “lavender wave,” in the November midterms.  Lavender is the color combination of pink and blue.

In a recent poll, the president’s approval rating among men is 54 percent positive and 45 percent negative. Among women, it’s 32 percent positive and 65 percent negative.   There are many more women registered voters than men.

In elections, women are also more likely to vote in higher numbers and have done so for decades.  Women have casted between four and seven million more votes than men in recent elections.

Moreover, the revulsion toward the president among women has not only made them more likely to vote but has turned them into activists.  Women are running for office this year in record numbers.

Recall it was the African-American women who put Doug Jones over the top in Alabama’s special U.S. Senate election against Roy Moore last year.  Exit polls showed that 98 percent of black women supported Jones.

Do the math, folks.  Listen to the water cooler talk, read the cartoons.

The Dems will control the House, and probably Senate come next January.   PredictIt gives the Dems a 68 percent probability of taking back the House but only a 30 percent chance of taking the Senate.   We will take that bet, however, a 3,600 percent compounded annual return if Chuck becomes the next Majority Leader.

Here Comes The Walk Back 

President Trump is now out trying to clean up yesterday’s mess by parsing the language from the Putin presser,

“In a key sentence in my remarks I said the word ‘would’ instead of ‘wouldn’t,'” Trump said. He explained he reviewed a transcript and video of his remarks.

“The sentence should have been: ‘I don’t see any reason why it wouldn’t be Russia,'” he said. “Sort of a double negative.”

“I think that probably clarifies things pretty good on itself,” Trump said.  — CNN

Wow!   Very Clintonesque.

“It depends on what the meaning of the word ‘is’ is. If the–if he–if ‘is’ means is and never has been, that is not–that is one thing. If it means there is none, that was a completely true statement – President Clinton, August 1998

Too late, however.   President Trump’s  “Hanoi Jane” moment is, and has been, in the books for some time.

As Ron Insana tweeted yesterday,  markets are incapable of incrementally pricing an increasing probability of big tectonic shifts.   That is why markets crash when the shit begins to hit the fan.

 

Trump and Putin’s Helsinki summit relationship, as skewered by cartoons

Please view the cartoons and tweets not as a partisan but as a sociologist or social psychologist, trying to better gauge the political climate in the United States.

We look forward to the hate mail and threats.

 

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Posted in Geopolitical, Politics, Uncategorized | Tagged , , , | 12 Comments

Why Markets Believe Fat Tails Are Fairy Tales

Posted on July 16, 2018 by macromon

Insana nails it.

It is also called denial or the inability to distinguish between cyclical issues versus structural shifts, for example.   Such as using monetary policy to deal with demographic issues.   Stabilization policies or structural reform?   Call in the IMF or World Bank?  Or the Pope?

Markets In The Land Of Pharaoh

It does feel the markets are in Egypt, however.  The land of de Nile.

The post-war international order is more at risk of unraveling – and we are not saying its demise is imminent – than is currently priced.
– Global Macro Monitor, July 11, 2018

Posted in Demographics, Uncategorized | Tagged , | 1 Comment

Netflix Swan Dives After 1 Million Membership Miss

Posted on July 16, 2018 by macromon

July 16, 2018
Fellow shareholders,

We had a strong but not stellar Q2, ending with 130 million memberships. Membership growth was 5.2m, the same as Q2 last year, but lower than our 6.2m forecast.   –  Netflix Investor Relations

Down 14 percent in A.H.

Jan16_NFLX_Swan Divee

 

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12 Ways To Make You Smarter

Posted on July 16, 2018 by macromon

 

 

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Source:  WEF

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