Wednesday, January 28, 2015

Today's news

Previously on Buffy the Vampire Slayer, it was noted that Greece is being sold down to nothing due to fear of imminent socialist revolution of the exploited proletarian masses against the kleptocratic neofascist oligarchs who secretly run Europe (and the rest of the world) on behalf of their alien overlord Davros.

Otherwise, Apple is awesome, Americans don't know whether to buy or sell their own country (funny how American pride evaporates when your leader is an uppity knee-grow), and who the hell buys Microsoft stock anyway?

So, here's a bit of news:

New Deal Demoncrat - idiots forecasting recession because oil. A steep collapse in the oil price indicates the end of a recession, not the beginning. However, NDD says supposed "investment professionals" are saying a recession is imminent because reasons, and he even gives us a link to prove he's not just making this shit up. Quote from this idiot link:
SAN FRANCISCO (MarketWatch)—The price of oil is about $17 a barrel away from signaling that a global recession is inevitable, according to a new survey of investment professionals.

The survey from ConvergEx Group polled 306 investment professionals, asking, among other things, what oil price would show that a global recession was inevitable.

“The idea behind this question was simple — at some point oil prices aren’t just a nice theoretical tailwind for global economies,” said Nicholas Colas, chief market strategist at ConvergEx, in a note. “Rather, they become a signal that worldwide demand is contracting so quickly that oil prices must quickly decline to reflect that fact.”

The most common answer was $30 a barrel, from 26% of respondents, with $35 a barrel being the second most common answer (16% of respondents). All told, 62% of respondents said $30 or lower crude was a global recession’s canary in a coal mine.

More than half those surveyed represented buy-side firms such as asset managers and hedge funds, and about a quarter of them were from sell-side firms such as banks or broker dealers, according to ConvergEx.
Thankfully we have investment amateurs out there like NDD who can give us actual US economic data that proves there's no damn recession. Convergex, your survey is bad and you should feel bad.

New Deal Demoncrat - consumer confidence. And yet people say the market's topping and a recession is imminent. Really, we're just seeing a big rotation due to a few trillion dollars of investment capital having been horribly fucking wrong for the past couple years.

Bloomie - China's 2014 gold imports tumble 32%. On the one hand, that's not good for gold. On the other hand, since this is 2014 data, that drop was already reflected in the physical market in 2014. Then again, is this the start of a worrying trend, especially given Xi is continuing his fight against corruption? But then again then again, over the next decade the trend should still be up, if the asset mix of Chinese should be expected to remain reasonably steady over time.

So basically, ignore the fucking news and just follow the fucking chart. The price is smarter than you.

The Krugginator - I agree entirely with My Own Market Narrative, which is a brilliant blog written by a super-genius who should just be handed an Econ Ph.D. instead of having to go to school for 7 years. He splains exactly why you're not going to see a war over Greek debt, despite the intensity of today's "OMG sociamalism" selloff.

I still wouldn't buy NBG or GREK just yet, since only investment money flows are going to determine when they stop going down; but right now I'd say both resemble a juicy fastball right in the wheelhouse.

Then again, they also resemble falling knives.


  1. A few things about that NDD article;

    1) Recessions are always seen in hindsight, no? As in, the data is always revised looking back - thus we could already be in the first 'recession quarter', earnings are not looking great for Q4. Economists in general - consensus - do not ever predict recessions particularly well, their consensus view appears to be 'low oil good for economy' at the moment.

    2) Which of those previous recessions followed a huge boom in oil production within the US, thus large job increases? Whilst I agree production may continue higher, the cash won't be there to keep paying them the same and/or provide the profit for future expansion.

    3) You will note in the latest ISM that a couple of industries talk about the falling oil price as both a blessing and a curse, the loss of Capital Expenditure will likely continue to be a problem.

    4) Strong dollar is also have an effect on company earnings, not a positive one. Earnings matter because of jobs etc. etc. etc.

    Regardless, looking at heavily revised GDP numbers alongside the oil price seems a little odd. Perhaps looking at the ISM plotted against the Oil price makes more sense? Or Oil against the S&P 500, as investors I guess that is what we care most about?

    Also - look at his post on consumer confidence, do you notice where it tends to top out? You guessed it, just before a recession and thus cheap gas going by his arguments.

    Bond market also screaming 'slowdown', as much as I would love to make a mint going long consumer discretionary right now - I don't see it...

    Cheers for the blog btw, good read

    1. Recessions are seen in the leading indicators. They are showing nothing but growth ahead for the US economy right now. The coincidents are showing a slow patch, but that was presaged in the leading indicators late last year.

      US is a net oil importer, therefore lower oil prices are a net benefit to the US economy.

      Also, the savings from low oil prices go to the people with the higher marginal propensity to consume, thus net benefit to the economy.

      Oil & gas capex altogether is less than 1% of GDP. The net benefit to GDP of lower oil prices is over +1%.

      Corporations are supposed to hedge currency risk: what you're seeing in earnings is reminding them of that right now. Also, strong secular US dollar upmoves are typically seen in US secular bull markets.

      There was nothing at all in that consumer confidence chart that showed it has topped out. Only that it has gone up.

      Bond market keeps going down because 30 years of destroying the working class means there is insufficient demand for capital that's in excess supply.

      Seriously, if you want to know when the next recession is coming, read Calculated Risk and NDD at Bonddad Blog.

    2. Also, re "economists":

      Try to follow REAL economists, and avoid the idiots with MBAs (or worse) working for investment houses or trying to sell their pathetically underperforming hedge funds.

    3. Wow, this even gave me an interesting idea.

      You might also want to consider the productivity of oil capex, versus the productivity of capex in other industries. What does oil capex do? It makes expensive oil and short-lived infrastructure: the IRR is low and net benefit to the economy is zero. $100 billion invested in manufacturing, OTOH, has a higher IRR and higher net benefit in cheaper goods and higher worker productivity.

      Though sure, we have to see that manufacturing capex actually happen first. Though the US capital stock is decades old because of underinvestment over the past 15 years, so you'd think it has to turn around eventually. They just need to see sufficient world demand, and with the EMs dead that demonstrates the limits of US economic strength in the face of EU/UK/Japanese stagnation.

    4. US may be a net oil importer, but have you seen how many jobs have been added in the past few years - how many of them are in energy? The main concern is the better paid jobs are either directly as a result of the Energy sector or via. supporting industries. Will that unwind now energy profits will be a lot cheaper? That is what your oil capex does, create a lot of jobs. Ditto with the housing permits in shale states versus the rest of the country.

      Sure, they hedge currency risk. But they would have hedged currency risk based on volatility assessments or whatever these clowns have learnt via their MBA degrees, thus the movements we have seen in the past few months will have caught them out. Will this be the same going forward? You only need look at the reaction to yesterdays FOMC announcement to realise that probably, yes.

      If you look at what happened in 1999 and 2007, the prevailing message was 'don't worry, it will only have an effect on Tech/Finance', which was obviously not the case in the end.

      Agreed re consumer confidence, was more suggesting that consumer confidence is always at a high just before the drop/start of a recession.

      Calculated Risk is good, always keep up to date with that. Speaking of which, I cannot work out whether the lack of sales/permits is a sign that the economy has a lot of improvement ahead - or that this recovery will be one of the weakest before we head into the next downturn...

      I guess we will find out soon enough, thanks again for the blog

    5. I'd rather see the jobs in Massachusetts than in North Dakota, there's more people. Your points about the negatives are all subsumed under "lower oil improves GDP".

      As for housing, yes that's been a problem, it really hasn't recovered except for being less horrible than it was in 2009.

      I have to wonder, though, how many people in the market are in agreement with your points. Seems like a lot.

    6. Hm, maybe, I am still very cautious on the idea that GDP will rise following oil crash. Latest GDP reading does not exactly help either.

      If you want to read someone who makes a lot of sense, might be worth looking at Ray Dalio's How The Economic Machine Works (pdf version) if you have not already, guys worth a few quid after all;

    7. S&P 500 was up 30% in 2013. That same year, Dalio's Pure Alpha fund was only up 5%, and his All Weather fund was down 4%. The best year in ages and he missed out completely.

      The reason he's worth money is that no matter how shitty his funds' performance, he still takes 2% of capital and 20% of profits. So basically, anything he says or writes is just "hey look at me, I'm Ray Dalio, now give me all your money so I can do absolutely nothing for you".

      I'd listen to Buffett since he outperforms the S&P and isn't in the business to rob capital from suckers. But Dalio and the rest of the hedge fund crowd?

    8. Not been a great few years for Hedge Funds - a lot of them have been utterly fucking dreadful, granted. But Dalio has been around 30+ years, guy's a veteran. People give him money due to his outstanding long-term track record, no other reason. So, when he puts forward his views on how the economy works, I pay attention. Rather that than learn from some academic clown with no practical experience, we are trading/investing after all.

      Also Dalio is different due to the longevity, not unlike some idiots who have simply bought the Fed dip for the past two years and go around claiming they are some sort of genius; they are not, they will be massively found out in the next downturn occurs.

    9. Also, if you look at Buffett's so called favourite valuation metric; stocks have only been more overvalued once in history - 1999. So yeah, add that to the list of reason to be very cautious

    10. The Fed are also concerned, because demographics -

    11. And yet there's a very large cohort coming into their mid twenties right now.

    12. True, but participation rate is still well down.

      Where are they going to get a job? Their local Wall Mart following the big consumer spend?

    13. Participation rate is explained by demographics. Are you reading Calculated Risk and Bonddad?

  2. Also retail sales fell 0.9% month to month for December, which whilst up year on year has to be a concern.

    All well and good the consumer being happy, they need to go out and spend now.

    1. The intramonth numbers are noisy as hell. All you should ever worry about is y-o-y.

      Seriously. Nobody would be freaking out about December retail sales right now if the S&P had just finished going up 10% in January. These are all rationalizations, not reasons.

  3. Possibly, and year on year was pretty strong - but the concerning part for me was the fact it was December. Naturally I would expect a fall off in January (even if seasonally adjusted), so for December to be lower MtM was a concern.. That said, as you say, they are quite noisy.