Perceptions and Expectations

A surrey was conducted by the University of Michigan Survey Research Center on what people perceived inflation to be in the past and what they expect inflation to be in the future. Surprise, surprise. Overall, what people perceived in the past is what they expect in the future.

People think in a “linear” fashion. They take their past experiences and project them out to infinity. Most people miss the trend change. Whether these trend changes be the stock market, housing prices, government rule or crime dropping is irrelevant. Inflation can change very rapidly. Empirical data from the past shows this to be true. When you discuss the impact of the improbable, the question should be asked, “improbable to who?”

The Oil Blood Bath

So much for a bounce at 55. Oil cut through a whole bunch of support and the technical damage is severe. Expect a lot of back and fill before this market recovers. If oil fails to bounce at 50, there is little in the way of support until 40. The United States of Arabia has become an oil producing machine and has thrown a wrench in the OPEC cartel.

Since the Saudi Arabia government tax revenue goes hand in hand with oil prices, Saudi officials are no doubt going to talk up the oil price over the next few months. Expect a lot of chatter about production cuts from OPEC and Russia officials.

How Low Will GE Go?

The assets keep shrinking and the debt keeps rising.

Cash on hand keep shrinking.

I first commented on GE’s “Goodwill assets” here. They account for about 30% of GE’s assets. I suspected these assets were not real. This quarter, GE Power recorded a goodwill impairment charge of $22 billion.

Stating the obvious, GE power is a disaster. Putting aside the impairment charge, earning from continuing operations is still negative. Selling off assets will not be enough. They have become a massive bureaucracy. The way they do business must change. They need to make the company lean. If these trends do not reverse GE will become a penny stock.

Dr C. Gives a Hint

Dr. copper holds a PHD in economics. It looks to be making a failed H&S pattern.

Copper is a pretty reliable indicator of trouble. The chart is starting to look ugly and I plan to short copper if it breaks below the right shoulder.
Second, the US dollar looks set to make a run to 100. Although I did not take this trade (to sloppy), there is not much resistance past this point.

The general market action looks like this correction can go lower and last longer than previous ones. Although during this time of year we get the ‘Christmas rally’, I am standing clear of everything. It is best to move into cash and wait.
On a separate note, I want to show a market with bad price action.
Low volume and zero price action. Holders of bitcoin have lost interest. A sudden drop on high volume is a bad sign for this market.

United States of Arabia

The USA now produces about 12 million barrels per day, a new record high. This makes the US the top oil producer in the world by far.

The OPEC cartel becomes less relevant each day that passes.

Opportunity in the Academic World

Three academics conducted an experiment. See video below.

They created a fictions author and a non-existent institution- The Portland Ungendering Research Initiative. They took the most absurd ideas and retrofit them into today’s politically correct dogmas. Here is a sample:

“Sometimes we just thought a nutty or inhumane idea up and ran with it. What if we write a paper saying we should train men like we do dogs—to prevent rape culture? Hence came the “Dog Park” paper. What if we write a paper claiming that when a guy privately masturbates while thinking about a woman (without her consent—in fact, without her ever finding out about it) that he’s committing sexual violence against her? That gave us the “Masturbation” paper. What if we argue that the reason superintelligent AI is potentially dangerous is because it is being programmed to be masculinist and imperialist using Mary Shelley’s Frankenstein and Lacanian psychoanalysis? That’s our “Feminist AI” paper. What if we argued that “a fat body is a legitimately built body” as a foundation for introducing a category for fat bodybuilding into the sport of professional bodybuilding? You can read how that went in Fat Studies.
We used other methods too, like, “I wonder if that ‘progressive stack’ in the news could be written into a paper that says white males in college shouldn’t be allowed to speak in class (or have their emails answered by the instructor), and, for good measure, be asked to sit in the floor in chains so they can ‘experience reparations.’” That was our “Progressive Stack” paper. The answer seems to be yes, and feminist philosophy titan Hypatia has been surprisingly warm to it. Another tough one for us was, “I wonder if they’d publish a feminist rewrite of a chapter from Adolf Hitler’s Mein Kampf.” The answer to that question also turns out to be “yes,” given that the feminist social work journal Affilia has just accepted it. As we progressed, we started to realize that just about anything can be made to work, so long as it falls within the moral orthodoxy and demonstrates understanding of the existing literature.”

These papers got peer reviewed and published. Even hailed. The dog park paper got special recognition from the journal “Geneder, Place,and Culture”. The data and empirical evidence they used to backup their claims was pure nonsense and made up. No one bothered to even look at the references or raw data they were using. No one even bothered to research their institution to see that it was fake.
The academic world is digging its own grave. I suspect over the next few decades these colleges will loose their audience. Consider this, it was less than 20 years ago the main stream media was the only outlet to get news. Due to the internet and the decentralization of information, they have lost credibility. Alternatives have popped up to replace their monopoly.
Some entrepreneur will become filthy rich doing two things. One, making a better college curriculum. Two, marketing it to parents and students. There are many curriculum’s online that are excellent. Some are 100% free. However, they have failed in marketing. Very few parents or would be college students take the idea of an alternative to mainstream college serious. You can quiz out of college by taking CLEP exams. Most students do not due this. They would rather go to one of these colleges. The parents have this mentality: “It is not that bad”. It is very bad. The marketing campaign should focus on how bad it is.

Currency Crisis Unfolds

The Turkish Lira and Argentine Peso have gone into free fall. The Argentine Peso dropped over 25% in just two days.

Last year Argentina sold $2.75 billion dollars worth of 100-year bonds at a yield of 7.9%. This is the same country that defaults or hyper inflates its currency about once every 15 years. Investors thought it was a good idea to lend the Argentina government their money for 100 years. So much for the school of rational expectations.
Europe never recapitalized its banking system. There banking system just limps along. The bureaucrats in Brussels put band aids on the ship whenever they see a leak. This is causing a capital flight to the USA. I expect this will continue to put upward pressure on the US dollar, US stocks and US bonds.

At the Extremes

To many bears. The large traders are piling in on the short side. At the extreme, they are usually always wrong.

The Road to Zimbabwe

South Africa’s issues seem to be getting main stream attention. Investors are ignoring South Africa’s issues. Once the line is crossed, whats to stop the government from harassing the mining industry? This is right out of Hayek’s book The Road to Serfdom. South Africa’s  took another step down the slippery slope. Buy platinum and be patient.

Bears Grasping and Faulty Analysis

This happens at least a few times a year. Housing starts, permits and/or completions ‘unexpectedly’ drop. A million articles are written about why this is the end of the housing boom. A few months pass and they are all proven wrong.
Obvious questions are, who is being polled that it was unexpected? The answer is economist.
There are two laws about economist.
The First Law of Economists: For every economist, there exists an equal and opposite economist.
The Second Law of Economists: They’re both wrong.
So housing starts unexpectedly plunged 12.3% in June.
Here are the details for those interested via census.gov.

Below is a long term perspective of these data points.

These numbers are no where near the absurd height of 2005-06. They are right at the median of the past five decades.
Below is a zoom in from  2009 to today on the same data points.

There is nothing to be said about these ‘unexpected’ plunges. It could just be statistical noise. It has happened many times since 2009. Looking at the bigger picture, we see that the trend is up.
Further, the world is far more complex than a econometric model. Actually, econometric models are useless. I don’t have an answer for this “plunge”. Neither does any one else. It could just be as simple as the price of lumber making all time highs.

It could be a million other factors no one has thought about.
The flashing indicators showing that a recession is imminent are not there. The doomsday websites have been calling for a recession since 2011. They have missed the boat on the greatest bull market ever. One day they will be proven right just as a broken clock is right twice per day.
In the mean time ignore the noise.