Sunday, December 10, 2017

Full Employment Fantasy

Here come the jesters
One, two, three
It's all part of my fantasy
--Bad Company

Graphic-rich piece comparing claims of 'full employment' to reality. One informative graph is this simple time series comparison of headline unemployment to the labor force participation rate.

The difference in labor force participation rate at this peak in 'full employment' vs previous peaks amounts to about 16 million fewer people working this time around.

Meanwhile, wages are nowhere near levels associate with previous 'full employment' peaks.

The obvious question is why isn't less supply/more demand for labor find wages rising here?

Saturday, December 9, 2017

Household Stock Exposure

If you say that you are mine
I'll be here till end of time
--The Clash

Financial media frequently claim that households aren't into stocks any more and have therefore missed most of this bull market. In reality, most households never left stocks in a big way. While they may not be day trading brokerage and IRA accounts as in the heady .com days, households are likely to be significantly exposed to stocks via held 401(k) mutual funds, 'lifestyle' retirement funds, stock-laden pension and insurance pools, and other vehicles.

Currently, households hold more money in stocks than at any other time outside of the .com peak in 2000.

This is, of course, a key reason why policymakers can't afford for stocks to decline in meaningful way. Can their prop job endure?

If not, then people will still hold the shares, but they will be worth far less.

Friday, December 8, 2017

Reinforcing Moral Hazard

Jacob Moore: You know what moral hazard is, Ma? You know what that means?
Sylvia Moore: No.
Jacob Moore: It means that once you get bailed out, what's to stop you from taking another shot?
--Wall Street: Money Never Sleeps

The gist of this article, including the accompanying graph below, is that central banks no longer have to intervene in markets because investors have 'learned' from previous interventions that they will be bailed out by CBs should market actually decline.

Thus, we have investors buying all dips in competition to be early entrants into subsequent rises that would have been backstopped by the Fed et al. had those dips been deep enough. Follow that?

Due to CB-facilitated moral hazard, the reinforcing loop creates what appears to be a self-fulfilling prophecy of higher markets.

If one buys into this thesis, then the question becomes: what breaks this reinforcing cycle?

no positions

Thursday, December 7, 2017


"That stock's going to Pluto, man."
--Marv (Wall Street)

Make that 19,000...


"He's going vertical, so am I."
--Maverick (Top Gun)

Bitcoin has creased 16,000 this morning. As recounted by ZeroHedge, the crypto has gone from 12,000 to 16,000 in about 36 hrs.

Bitcoin's market cap now exceeds $250 billion, ranking it as the 12th largest 'company' in the S&P 500.

Every bubble has its poster child. And you're looking at it.

no positions

Wednesday, December 6, 2017

Consecutive Low Closes

Will you look above me?
Look my way? Never love me?
Rain keeps falling, rain keeps falling
Down, down, down, down
--Simple Minds

An almost unbelievable note from Jason Goepfert stating that, yesterday, the SPX closed in the bottom 10% of its daily range on two consecutive days for the first time in about two years.
Cursory review of a candlestick chart over the past seven months is consistent with his statement.

Demonstrates just how one sided the market action has been. And how comotose we've become to the extreme conditions.

no positions

Tuesday, December 5, 2017

Reversal of Fortune

An angel's smile is what you sell
You promise me heaven
Then put me through hell
--Bon Jovi

Market trends often culminate in a reversal day, where early strength is sold and another seemingly positive leg higher turns into a loss. Yesterday, the gap higher surrounding the weekend tax cut euphoria didn't stick and, by mid-day, major indexes began to leak.

After a rally attempt by the bulls, markets closed near session lows in classic 'sell the news' fashion.

Of course, this bull run has produced many false signals of its demise. This may be another one. Key will be whether we see downside follow-thru in the near term.

no positions

Monday, December 4, 2017

Sensitivity Analysis

"It's what the bean counters call a simple actuarial analysis."
--Dr Getchell (Class Action)

Dilbert discusses sensitivity analysis. How sensitive is your model to changes in your assumptions?

When small changes in assumptions cause big or unpredictable changes to projected outcomes, then a model is overly sensitive. When a model weathers such changes well, it is 'robust.'

Consumers of forecasts, particularly economic forecasts, would be wise to apply sensitivity analysis to the underlying models that generate the forecasts.

Those who do will likely find that, more often than not, noise greatly exceeds signal.

Sunday, December 3, 2017

Drawdown Drought

It's been such a long time
I think I should be going
And time doesn't wait for me
It keeps on going

Interesting graph showing amount of time before a 10% drawdown for a 'balanced' portfolio of 60% stocks and 40% bonds.

Only the 9.1 year run-up in portfolios in the late 1920s surpasses the current 8.7 year streak.

1920s run-up, of course, culminated in the great Crash of '29 and ushered in the Great Depression.

no positions

Saturday, December 2, 2017

Market Highs and Margin Debt

Spent the last year
Rocky Mountain way
Couldn't get much higher
--Joe Walsh

'Dow 24K' was the major market headline this week. Needless to say, margin debt marking all time highs was not deemed headline worthy.

All speculative blow offs occur in environments of cheap debt and high leverage.

Without exception.

no positions