Saturday, February 27, 2016

LOWEST BULLISH LEVEL IN 23 YEARS: here's what you need to derp

Some stuff worth reading this weekend:

WSJ - what changed in the final 4Q GDP estimate? I can't believe local governments are cutting spending still.

Polemic's Pains - all correlations have broken down. Every correlation that you would expect from the broad world market, given the recent dominant narrative, has broken this week:
After writing yesterday about looking for the crack in the correlations to appear to indicate a move from general stress, seeing China (the king of bear stories) fall hard I really thought things didn't look rosy for Europe and US equities. But yet they held in and rallied on the european open. Correlation break 1.

Meanwhile German Bunds were continuing to look bid, which is normally a sign of stress. Of course bunds up, equities up points to all the eggs resting in ECB action, which is somewhat worrying because it is pretty rare for central banks to exceed market demands, leaving scope for disappointment at the next ECB meeting. The other play could be, and here I am guessing, that long Bunds is the European hedge against Brexit. Little has been spoken of risks to Europe on a possible UK departure, instead finding it easier to point the grief finger at the smaller partner but if the UK were to go, Germany would be holding an even larger share of the EU grief. So if pressure increases on EU, buy Bunds. But they weren’t moving in the normal counter direction to equities. Correlation break 2.

The JPY has been bid throughout all of the stress and though oil was down, China down and Bunds up, JPY has been weakening with GBP/JPY doing exactly what it shouldn't do according to the narrative of the last 2 days by going up. Correlation break 3.

And look at AUD/USD, as Europe came in and saw what China had done AUD had shrugged it off and was higher than where London had left it, chosing to take its lead from DM rather than China. Correlation break 4.
I find it a bit difficult to follow this blogger sometimes, but I think what he's trying to tell us is that the bullshit market moves of the winter are now over and we can go back to stocks doing what they're supposed to do. After all, markets correlate in a fear environment, and they decorrelate once the fear passes, right? Haven't we already learned this?

Bespoke - bullish sentiment bounces. Same argument as above, just fewer words and more charts.

Joe Fahmy - AAII lowest bullish level in 23 YEARS. My god. The market. It's full of derp.

Tim Duy the economics guy - Lacker, Kaplan, Fischer. God, what a panty-piddler this guy is! I'm really left shaking my head here:
No matter how good the underlying fundamentals, if you let the financial system implode, it will take the economy down with it. I don't know that the Fed needs to cut rates, or that they needed to cut rates as deeply as they did during the Asian Financial crisis, but I do know this: The monetary authority should not tighten into financial turmoil. Wait until you are out of the woods. That's Central Banking 101. And I suspect that is ultimately the direction the Fed will take.

Bottom Line: Despite some hawkish talk, the Fed will find themselves in risk management mode at the March meeting. Some will not like it. There will remain a contingent that fears standing still risks excessive overshooting of the inflation target.
Yo Timmay! What if, by the March meeting, two weeks from now, $SPX is at 2050? Will they still be justified in holding off, per your argument? Will you not even be worried, once the S&P is back to where it was?

For fuck's sake, guy! The S&P is down 10%. It's not a fucking 2008 collapse. Yes, DB and the other EU banks are collapsing, but that's only because their business model of money laundering and tax fraud is under threat from a passing fad of fining banks for RICO-level criminal activity.

Tim Taylor - causes of falling real world interest rates. No, it's not financial repression by the Fed, no matter how much blathering idiots in the blogosphere assert it is: it's an excess of saving over desired investment. With a link to a pdf book on the topic, if you want to learn some basic economics.

WaPo - America has locked up so many black people it's warping our economic statistics. Quote:
The most recent report puts the white unemployment rate at around 4.5 percent. The black unemployment rate? About 8.8 percent.

But the economic picture for black Americans is far worse than those statistics indicate. The unemployment rate only measures people who are both living at home and actively looking for a job.

The hitch: A lot of black men aren't living at home and can’t look for jobs — because they’re behind bars.

Though there are nearly 1.6 million Americans in state or federal prison, their absence is not accounted for in the figures that politicians and policymakers use to make decisions. As a result, we operate under a distorted picture of the nation's economic health.

There's no simple way to estimate the impact of mass incarceration on the jobs market. But here's a simple thought experiment. Imagine how the white and black unemployment rates would change if all the people in prison were added to the unemployment rolls.

According to a Wonkblog analysis of government statistics, about 1.6 percent of prime-age white men (25 to 54 years old) are institutionalized. If all those 590,000 people were recognized as unemployed, the unemployment rate for prime-age white men would increase from about 5 percent to 6.4 percent.

For prime-age black men, though, the unemployment rate would jump from 11 percent to 19 percent. That's because a far higher fraction of black men — 7.7 percent, or 580,000 people — are institutionalized.
By the way, we don't study this in undergrad economics. Because black people don't matter, I guess?

Chris Dillow - employment and productivity on Coronation Street. It's a shit argument because it fails to account for the fact that employers are oligopsonists: they do actually extract surplus value from labour, and wages are not even remotely determined by marginal product - as anyone who's held a job in the real world can tell you. But I guess it's normal for economists to fall into the trap of thinking that 18th-century philosophers like Smith, who never saw data in his life, can actually construct anything close to a true mathematical model for wage determination.


  1. A lot of those incarcerated do work - as slaves.

    1. Hm.

      I assume that isn't counted as "employed", considering they aren't eligible for unemployment benefits or health and safety rights or whatever.

      See, if I was an econ prof I'd run off right this sec and submit a journal article explaining how counting incarcerated slaves as "employed" affects GDP. And probably advocate enslaving more people.

      Cos I'd rather be the Adolf Hitler of economics than the Joe Stiglitz.

    2. Oh hey check this out