Category Archives: Strategy & Scenarios

Here We Go Again

Recurring economic crises are nothing but the consequence of attempts, despite all the teachings of experience and all the warnings of the economists, to stimulate economic activity by means of additional credit. […]

And although the conclusion to which my investigations lead, that expansion of credit cannot form a substitute for capital, may well be a conclusion that some may find uncomfortable, yet I do not believe that any logical disproof of it can be brought forward.

— Ludwig von Mises, The Theory of Money and Credit, 1934, 2009 edition

Chunky Monkey

Thanks to zero hedge, of course.

Deflation Watch

ECRI chimes in – I told you so.

The plunge in oil prices, which dropped below $50 this week, blindsided many businesses and investors. But the inevitable decline was foreshadowed months ago by a downturn in commodity prices, as measured by ECRI’s Industrial Price Index (IPI) which was previously known as the JoC-ECRI IPI*…….

…..Oil price inflation has now plummeted to a 32-month low – its worst reading since early 2016 (bottom line). But industrial commodity price inflation, as measured by the IPI, has already dropped to a 33-month low, and is still falling (top line), signaling continued downside risk for oil price inflation.

Three More Days

Trump needs to hold this market together, if not continue the rally, for three more days, until the mid-term voting is concluded as the polls close on Tuesday of next week. More learned minds than mine have opined that the force behind the rally is short-covering by some large fund that is massively short gamma (e.g., has a short put position). Moi, I think that the explanation is more mundane and is closely related to Trump’s need to hold things together.

Supposedly the seasonality is positive after the mid-terms, but I have to wonder as the level of vituperation from the Dems would seem to bode ill for the political climate. The Dems seem to have no agenda but to oppose and/or impeach Trump and prove that Hillary was robbed. Time to move on, folks.

The employment report this morning included more than a hint of inflation, which is usually toxic to the stock market. Given the historically (hysterically?) extreme level of valuation, risk is off the charts.

Be careful out there.

Close To The Event Horizon?

From ECRI’s Lakshman Achuthan:

Notably, the combined debt of the US, Eurozone, Japan, and China has increased more than ten times as much as their combined GDP [growth] over the past year.

Remarkably, then, the global economy—slowing in sync despite soaring debt—finds itself in a situation reminiscent of the Red Queen Effect we referenced 15 years ago, when tax cuts boosted the US budget deficit much more than GDP. As the Red Queen says to Alice in Lewis Carroll’s Through the Looking Glass, “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

Self-explanatory

The R Word

From highly respected Ned Davis Research via Zero Hedge:

Expect a global recession. It either has begun or will begin shortly. Though no guarantee, as 7.89% of the time since 1970 when the global economic indicators that make up this model were above 70, a recession did not occur.

Inflation?

The increase in average hourly earnings (AHE) was taken as a sign of economic strength. Well, no. AHE is aggregate earnings divided by aggregate hours worked. So if hours worked is declining faster than earnings, AHE goes up. But is a sign of weakness. From ECRI.

In another case of up means down, the NOPE index is signalling trouble.

Res Ipsa Loquitur

Those Words Again

Fed Chairman Powell, speaking this morning at the Jackson Hole festival of central banker self-love, promised to do “whatever it takes” to prevent another financial crisis.

Unfortunately, Mr Powell, your predecessors have done everything that it takes to guarantee another crisis, a truly special one this time.