Tuesday, January 2, 2018

And we're off to the races...


So as it turns out, gold really was walked down purposefully by market manipulators at the end of December, and that data is now confounding the TAs who trust charts above everything else. One major rule of TA is that you have to know when to disbelieve.

Gold is up over $1310 to start the year, and it probably will hit $1400 this year, and eventually stay there. And you can know this with some certainty, because oil and copper have already come off their multiyear lows, and that has happened because the late part of a US secular bull market always sees inflationary pressure in commodity prices.

This cyclical sort of pop isn't responded to by suppliers with investment in new production the way a secular pop is, because (a) they have cut back on exploration for the past few years so there's nothing to put into production, and (b) everyone in commodity production knows that the price at the late stage of a US bull equity market is not a price you can base long-term capital investment decisions on.

There's your simple macro analysis that doesn't involve reading 50 pages of a rank amateur's word-salad every week.

Does a cyclical commodity bull bode ill for your SPY position?

Well, on the one hand, secular equity bull markets don't die on their own.

On the other hand, they can be killed by policy, and Trump is doing a great job of that by providing a massive tax cut that. If it were meant to stoke inflationary consumption pressure, it would be responded to by the Fed with rate hikes that would completely offset the benefit. Also, if it were meant to be deficit-neutral, it would also be responded to with massive entitlement cuts to eliminate the deficit that the Republicans have just blown up, which would mean cuts to consumption at the low end of the income spectrum.

Ultimately, a kleptocratic rentier economy is deflationary and exhibits no or negative growth. That is also basic macro.

And lurking in the background is the bitcoin bubble, which definitely is a bubble and you might want to look at whether or not your bitcoin position is easier to liquidate than a position in a Venture stock that only does $5000 in volume per day. Ever try to liquidate that sort of thing? How about on a bad day when the buy side of the order book has dissappeared? Hm?

I don't think bitcoin can become so stupidly huge a bubble that it blows up the financial system the way MBSes did... but then again, it can still become stupidly more bubbly to the tune of a further 1000% gain, at which point it does become biggish.

So as for the S&P 500, if the US equity market is going to drop in the next 2-3 years, it's good to remember that secular tops take years to draw their charts; we're probably at the rounding top now, and anyone with a long horizon should sit on what they have with a sell stop to limit losses, and wait to buy 20% lower x years from now.

Are FANGs dead, as someone on BNN was talking about yesterday?

No. Because it's impossible for anyone to supplant the market position of Google or Amazon. Netflix and Apple maybe, if entry is cheap enough. Eventually. No, Tencent and Baidu aren't going to supplant them in the part of the world that matters, though they can continue getting market share in East Asia.


As for me?

This winter I'm taking a break from studying economics, and instead doing a bunch of classes on transport policy and GIS.


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