Yellen Says Higher Interest Rates Are OK

The Daily Escape:

La Jolla, CA – photo by Russ Harris photography

Janet Yellen made news for a second time, announcing on Sunday, in an interview with Bloomberg, that higher interest rates would be a “plus” for America. She probably has a fairly good idea of how the Federal Reserve is thinking, since she was its Chair prior to becoming Treasury Secretary.

The issue in her interview was whether inflation would continue growing if Biden’s infrastructure bill is passed, and we spend an additional $4 trillion over the next 10 years. Yellen said that it wouldn’t create enough inflation to cause economic concern. She said that the current spurt in prices powered in part by the Covid stimulus, is just temporary, and would fade next year.

But Yellen also said that if current price increases turned out not to be temporary, and it triggered more persistent inflation, the concomitant higher interest rates wouldn’t be a bad thing:

“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade….We want them to go back to a normal interest rate environment, and if this helps a little bit to alleviate things then that’s not a bad thing – that’s a good thing.”

Current Fed Chair Jerome Powell must surely see this as political cover for any near-term rate hikes, but opinions differ today on whether we’re in for a new run of inflation. We have some data that’s worrisome. Economic theory explains why we probably should be worried. And yet, we have plausible-sounding explanations as to why things are actually okay.

The younger generations may have trouble believing how dark things seemed in 1979 when President Carter appointed Paul Volcker Fed chairman. Some of us remember inflation that hit 14% in 1980. Unemployment trended up to 9.7% in 1982. Oil prices had jumped off the charts.

Volcker took dramatic steps to rein in the runaway inflation by tightening the money supply, which drove the Prime Rate to 21%. His actions led to not one, but two recessions before prices finally stabilized.

Nobody wants to see that type of inflation recur now, but low interest rates have increased wealth inequality in the US. Soaring stock and housing prices are a direct consequence of interest rates that remain reliably low. When this happens, people can borrow money for less than they can make by investing, and newly printed dollars that continue to pour into the markets ensure that prices will continue to rise.

And this low-rate scenario benefits those who already have lots of stock and real estate.

How could Elon Musk make $142 billion in 2020 when total revenues (not profits) at Tesla and SpaceX were less than half that number? Share prices in both companies rose with demand from investors with too much cash in their pockets. The growth in Musk’s fortune is based on the inflated share prices of both firms.

Yellen’s underlying message is that if the Fed maintains its low interest rate policy, more cheap money will flow into the pockets of people who really don’t need it. She’s correct when she says rates have been too low for a decade. It’s created an asset bubble, particularly in stocks and real estate. Today’s prices are no longer grounded in reality.

As for how to unwind the bubble? Good luck: Very few people will be happy if the stock market drops, or if the value of their home drops, say, just before retirement.

And like all things, inflation is political. House Republicans are working to undermine Biden’s economic agenda by zeroing in on voters’ latent fear of inflation. They are circulating a memo with the subject line: “Tie Biden Agenda to Inflation.” It tells members to “explain to voters how inflation is Democrats’ hidden tax on the Middle Class.”

The GOP is attempting to stir up fear of an impending economic downturn just as businesses are beginning to reopen after a year of being impeded by Coronavirus restrictions. They’re also saying that taxpayer dollars being put toward Covid relief and unemployment benefits will tank the economy.

The GOP is also using a WaPo op-ed by Larry Summers. Summers was Clinton’s Treasury secretary, and he was a former director of the National Economic Council for Obama. The article warns of the risk of sharply rising inflation expectations.

Ultimately, we’ll see if the inflation scare-mongering by Larry Summers is real.

What should we believe about inflation and interest rates? It doesn’t matter what we believe. What matters is what the market thinks. And if the market suddenly stops believing the explanation as to why these inflationary pressures are temporary, we’ll see rates rise bigly.

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Are the Wrong People Manipulating the Market?

The Daily Escape

Green River covered bridge in Guildford, VT photo by jackalatch

Out of nowhere, we’re all hearing about “GameStop”. From The NYT:

“Traders on the Reddit message board, r/wallstreetbets, a community known for irreverent market discussions, made GameStop their cause du jour and rushed to buy out-of-the-money GameStop options.”

GameStop (GME) is a struggling, mid-size retailer stuck in a legacy business. They sell physical video games in a world where you buy and play them online. The financial fundamentals for GameStop suggest that its price should be below $20. It’s a real company, with about 53,000 employees, but it’s not worth anything close to its current valuation. It began the year at $19, got as high as $350, and is currently dropping like a stone, at about $196 right now.

Here’s how the r/wallstreetbets crowd made it happen: A hedge fund shorted GME — betting the price would go down — and thousands of retail investors banded together on Reddit to buy the stock, driving the price up. That caused the hedge funds to lose money, since they had to buy the stock for more than they had sold it for.

The r/wallstreetbets crowd numbers about 2 million subscribers. They realized that GME’s float (the number of shares physically available to trade) was very small, small enough that any large order or volume of buy orders would greatly affect its share price.

They knew that GME’s stock could be driven up to the point where the hedge funds that shorted the stock would have to panic-buy them to cover their short positions and contain their losses. They also understood that this could seriously damage those hedge funds.

This is known as a short squeeze, and Wall Street players do it all the time. What’s different is that a bunch of day traders got in on the action. A well-executed short squeeze is a thing of beauty, and in this case, it’s out in the open, and probably legal.

No one seems to be managing this effort. It’s a self-organized campaign with people using message boards to communicate with each other. What’s interesting is that this time, it’s the institutions that were caught with their pants down.

R/wallstreetbets is drawing on techniques used during the 2016 presidential election. Over the course of that campaign, a loosely organized community of alt-right meme pushers and their followers, located on sites like 4chan and Reddit, used social media to barrage Hillary Clinton with an endless flow of memes targeting her supposed inauthenticity and corruption.

They exploited social media to disrupt the normal workings of the US political system, just like these traders are doing this week to the pros on Wall Street. Interestingly, the traders on r/wallstreetbets, describe themselves as “Like 4chan found a Bloomberg Terminal”. It’s a remarkable testament to the internet’s ability to facilitate collective action.

From Bloomberg:

“This is all fascinating. In the space of 12 years, the role of the short-seller has turned on its head. Back in 2008, it was the shorts who upset the status quo, revealed what was rotten in the state of Wall Street, and brought down the big shots. They were even the heroes of a big movie. It was the Wall Streeters who attacked them.”

Now, short-selling hedge funds are seen as part of a corrupt establishment (as they should). And there is a deep generational divide: those unable to own their own home, who have student debt up the wazoo, and are forced to plan retirement without a pension have a stunningly unfair deal, compared to those of an older generation. That percolates into anger, in this case, partly directed at hedge funds.

Anger, at least as much as greed, has the capacity to make us throw caution to the winds. Many of us have a lot to be angry about. It’s impossible to foresee the consequences of similar angry bubbles driven by social media.

It also made a few titans of Wall Street angry. Here’s Leon Cooperman:

This is hilarious! Short positions get squeezed all the time, but the fact that he’s losing to a bunch of losers, who are “sitting at home getting their checks from the government, trading their stocks.” is unacceptable!

For God’s sake these people didn’t even go to Wharton!

And early on Thursday, Wall Street got a measure of revenge, when the trading platform Robin Hood suspended trading in GME. More than half of all Robinhood users own at least some GameStop stock.

No shortage of irony when you’re named Robin Hood, but you protect the rich by blocking everyday citizens from trading.

It’s almost as if capitalism is a tyrannical system arranged to benefit a select few.

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Sunday Cartoon Blogging – August 30, 2020

WaPo’s Alexandra Petri restates Trump’s re-election strategy:

“Donald Trump has made America great again, and he will make it great again, again, if reelected, but right now, Joe Biden and the Democrats are ruining America and filling it with chaos. So don’t you think it’s time for a change?”

Her piece is pretty funny, you should read it. The internet is also asking: Why is vigilante murder an appropriate response to property damage, but property damage isn’t an appropriate response to vigilante murder?

We can’t let Trump highjack the narrative away from our other major problems: Consider that stocks in the US hit all-time highs this week, but another 1 million Americans filed for unemployment benefits. This shows that employers continued to eliminate mind-boggling numbers of jobs, five months into the pandemic. One result is that 12 million people have lost employer-sponsored health insurance since February due to losing their jobs.

Our economy remains far worse than it was in January. The Fed’s weekly economic index suggests that the economy is still more deeply depressed than it was at any point during the 2008 financial crisis. The stock market rise is driven by only a small number of technology giants (Apple, Google, Amazon, and others). And the share prices of these companies have very little to do with their current profits, let alone the state of the economy in general.

Trump has not offered a solution for any of this, because he doesn’t need an answer if you think rioting and looting are more important. On to cartoons.

Why the stock market’s up when everything else is down:

Guess which side thinks Kaepernick is a traitor, but Rittenhouse, the shooter is a patriot?

 

Trump says he’s not going down with the ship:

We left the reality-based world last week:

Some think that professional athletes shouldn’t say anything about BLM:

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Call It the Great Virus Crash of 2020

The Daily Escape:

Desert bloom on Siphon Draw Trail, AZ – photo by ericatect

That was the term used on Wednesday by Ed Yardeni, president of Yardeni Research:

“It’s all at once a health crisis, financial crisis and economic crisis. We need to fix the health part of it before we have it solved, but we can take financial and fiscal steps to blunt its effects.”

JPMorgan Chase said it forecasts a 14% decline in gross domestic product in the second quarter. That’s enough to scare anyone. In a partial response, the Trump administration suspended evictions, authorized the Defense Production Act, and is eyeing a stimulus package worth about $1 trillion.

The headline is that Trump wants to give Americans direct cash assistance. He wants to send two $1,000 checks to many Americans. Beginning April 6th, $250 billion would be issued, and another $250 billion would be issued beginning May 18th. Payments would be tiered based on income level and family size.

The Treasury Department is circulating a two-page sheet of priorities that it wants to see in the final deal:

  • Part of it is a $50 billion “airline industry secured lending facility” that would allow it to make direct loans to “U.S. passenger and cargo air carriers”.
  • The Treasury would also earmark $300 billion to help small businesses avoid mass layoffs.
    • Eligible borrowers would be companies with less than 500 employees.
    • Loan amounts would be limited to 100% of 6 weeks of payroll, capped at $1540 per week per employee.
  • The Treasury also wants Congress to allow it to temporarily guarantee money market mutual funds. Some are worried that an investor panic could lead to a run on these funds. This was done before during the Great Recession.
  • Finally, there would be a $150 billion fund to prop up other sectors, including hotels.

And Wednesday was another day when Trump appeared in front of the press, attempting to look as if he’s a war president. The bad news was that they again halted trading on the stock markets during his press conference.

At Wednesday’s close, the Dow was down another 1,338 points. We’ve now lost almost all of the gains accrued during the Trump administration. Nearly every asset class – stocks, bonds, gold, and oil – fell as investors fled to the safety of cash.

Mr. Market has decided that cash is king. The smart money can’t decide whether Trump’s offering too much stimulus. If so, things must be really bad. And if he’s not offering enough, then there’s no leadership.

Here’s one way to look at the Dow’s performance:

  • First 1153 days of Obama’s presidency +67%
  • First 1153 days of Trump’s presidency  +0%

The WH needs to shut him up. Each time he speaks, things get worse for the rest of us.

Inside this crisis is perhaps the biggest political challenge for Democrats: They have to agree to help an incompetent president and his Party avoid killing their constituents.

That’s a bitter pill, particularly in an election year.

It isn’t a stretch to see how Democrats would be painted as obstructionists if they fail to support what Trump wants at a time when millions of people need a cash bridge to help them across economic difficulties.

Wrongo thinks helping people is a good idea, and a total of $2,000 is better than nothing, but what will it really do? The average US mortgage payment is over $1,000, while the median rent for a 1-bedroom apartment is $1,234. So for a couple, in most cases, one month’s housing costs will eat up about 25% of the total cash from the government. The rest will go to car expenses, the cell phone, perhaps student debt payments. Maybe, if people can stretch, it will last two months.

It’s helpful, but far from enough if employers remain closed for two months or more.

And loans to small businesses? Will small businesses willingly take on more debt when they can’t be sure when their income will return, or if the business will survive?

Any loans to large corporations is a huge mistake. The big four US airlines – Delta, United, American, and Southwest – whose stocks are getting crushed because they will run out of cash in a few months, would be the primary recipients of that $50 billion bailout. But together, they incinerated $43.7 billion in cash on share buybacks since 2012. Now they are looking to get that back from the taxpayers. Those buybacks enriched the very shareholders that Trump now wants to bail out.

Perhaps Trump said it best, although it was a while ago: “We’re seeing a stock market like no one has ever seen before.”

Trump spent the first three years of his presidency trying to erase Obama’s legacy.  Now, The Great Virus Crash in Trump’s last year will erase his.

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Can the Economy Endure a Two-Month Shutdown?

The Daily Escape:

Cannon Beach, OR – 2020 photo by franks28

The short answer to the question above is no, not without outright financial support for individuals by the government. That support if it comes, is likely to be too little, too late.

But the Fed tried something. On Sunday, it announced that it slashed its federal funds rate by a full percentage point, to a target range between 0% and 0.25%. In addition, they launched a new Quantitative Easing program for another $700 billion.

Investors threw up all over the Fed’s Sunday moves, because we’re looking at a “demand shock”, the state-enforced loss of consumer sales,something that can’t be stimulated away. The S&P futures immediately plunged 5% to hit its downside limit. That made for an interesting Monday, with the Dow ending down nearly 3,000 points, or another 13%. In the past month, the market has lost nearly a third of its value.

All these efforts to provide stability actually showed the market that our leaders have no idea what they’re doing. It’s the exact opposite of inspiring confidence.

Did the Fed panic? Fed Chair Jay Powell lowered rates right after Trump said he had the authority to remove Powell. That makes it seem, true or not, like the Fed is now in Trump’s pocket. No confidence-builder there.

Looking through a wider lens, Mr. Market has decided that the Fed is pushing on a string. Rates were already so low that there was little gain from the interest rate reduction, and little else that the Fed could do. Mostly, the Fed signaled that it is very frightened about the prospect of a global recession.

In addition, the market understood that the stimulus bill working its way through the House and Senate is inadequate to the task ahead. For one thing, Pelosi’s bill promises paid sick leave, but as written it only covers about 20% of all workers.

Again through that wide-angle lens, the growing COVID-19 business lockdown strategy will have an economic impact similar to a natural disaster, like a hurricane, but played out over a longer time frame. FEMA has found that 40% of businesses close in a natural disaster. And of the businesses that reopen, only 29% survive the after the following two years.

Since our economy is 70% services, many industries facing the lockdown, like tourism, casinos, restaurants, and hotels, will soon be in meltdown mode. The Fed has no answer to a massive drop in consumer spending, only the president and Congress can solve that.

We know that 40% of Americans don’t have enough cash on hand or room on a credit card to handle a $400 emergency. Many service industry workers will be hit with either cutbacks in their hours, or outright job losses. Without financial assistance, we’ll quickly see defaults on rent or mortgages, and delinquencies on credit cards and car payments.

So the Fed creates some more money. But just like in 2008, rather than distributing it to every citizen, they’re giving it to the banks. Somehow, all that money is going to people who already have plenty, while those who need it get nada.

Why is the answer always to give more to the supposed “job creators” when we get basically nothing in return? Why not just send a check to the actual people who need it?

Finally, what will this interest rate cut do for the economy?

  • Are restaurants going to start hiring workers that can’t actually come to work just because loans are cheap?
  • Are workers not collecting a paycheck going to go out and buy a new car/TV/house because interest rates dropped a bit?
  • Are banks going to lend cheap money to airlines, restaurants, and cruise lines when we have no idea how long this will last?

Every company on the planet has simultaneously realized that it is in an existential cash-flow crisis due to COVID-19. The big and smart companies already have drawn down their unused loan facilities to ride through the slowdown.

The slower and the smaller firms are staring at an economic nuclear-winter scenario where their revenue plunges for months, and they can’t pay their staff, or make their fixed payments.

The speed and comprehensiveness of the lockdowns, and their drastic impact make what’s going to happen very clear. Our leaders are in a fog of denial. They don’t see that much of what was the traditional mode of operating our system is crumbling.

During the 2008 financial crisis, we learned that events can move too quickly for anyone to intervene and limit the damage. Our business environment’s drive for highly efficient systems, from just-in-time inventory sourcing to reducing the number of hospital beds per capita, have created fragile systems that are now being stress-tested.

We may be learning, to our collective detriment, that all of these systems along with our leaders, have failed us.

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Trump Shows No Leadership on the Virus

The Daily Escape:

Sunrise, Mesa de Anguila, Big Bend NP, TX – 2020 photo by pierceingramphotos.  

Trump spoke from the Oval Office about the pandemic on Wednesday night. It left most of us puzzled regarding whether our government is capable of more than a banana republic response to our public health crisis.

Trump offered no top-level guidance or policy, and no explanation for why testing remains largely unavailable. He issued vague promises of loans for businesses and tax deferments to individuals soon to have no jobs or incomes to tax.

Health care support for victims? Nada.

He labeled the Coronavirus a “foreign virus”. Several GOP Congresscritters are calling it the “China Virus”. What are Republicans trying to accomplish with this reframing?

His 30-day travel ban from Europe is a stop-gap way to wall off America from certain infected foreigners. Remember that in February, he did the same thing with China. He announced his European ban while saying it would not apply to the UK, where the virus has an established foothold. It also doesn’t apply to South Korea, which has the largest number of infections outside China. Again, what’s his point?

We hoped for a significant statement about controlling the spread of the virus in the US, but there was nothing. And since that was ostensibly the point of his little talk, it indicates that he either doesn’t know how to control the spread of the virus inside the US, or, doesn’t think that kind of program would help to keep him in office after November.

From Charlie Pierce:

“You knew it was all going to go terribly wrong in the first few sentences when the president* referred to the source of the pandemic as “a foreign virus”—This is the most aggressive and comprehensive effort to confront a foreign virus in modern history….the claim was as false as it was stupid. As the Washington Post helpfully points out, the administration*’s response to this outbreak has been to deny it, ignore it, downplay it, and now to use it as an excuse to ram through some tax cuts, a form of antibiotics that Joseph Lister never thought of.”

More tax cuts? Perhaps the one takeaway from the past two weeks, and from Trump’s Oval Office speech, is this:

“All the King’s tax cuts for all the King’s men
Won’t keep the Coronavirus from coming in”

People were expecting Trump to declare a national emergency but he didn’t, because he’s in a quandary. He doesn’t want to declare it despite the fact that we’re already in one. It would make a lie of his talking points that there’s nothing to worry about.

But remember last year, when he stirred up emotions about “an invasion of our country with drugs, with human traffickers, with all types of criminals and gangs“? He was happy to declare a National Emergency to get some of his wall built.

Emergency to stop immigrants? Sure. Emergency to save American lives? I’m thinking….

Here’s a long quote from David Frum:

“This crisis is not of Trump’s making. What he is responsible for is his failure to respond promptly, and then his perverse and counterproductive choice of how to respond when action could be avoided no longer….No American president, and precious few American politicians, have ever pointed so many fingers or hurled so much abuse as Donald Trump. What he means, of course, is: Don’t hold me to account for the things I did.

But he did do them, and he owns responsibility for those things….

More people will get sick because of his presidency than if somebody else were in charge. More people will suffer the financial hardship of sickness because of his presidency than if somebody else were in charge. The medical crisis will arrive faster and last longer than if somebody else were in charge. So, too, the economic crisis. More people will lose their jobs than if somebody else were in charge…More savers will lose more savings than if somebody else were in charge. The damage to America’s global leadership will be greater than if somebody else were in charge.”

Let’s close with Tom Sullivan:

“The only saving grace in this graceless, classless, heartless presidency is that this virus may end it…”

However, only if Biden wins in November.

Trump and the Republicans who enabled him in order to get their tax cuts and judges, must go.

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The Health Crisis Now Coincides With a Financial Crisis

The Daily Escape:

Sunrise, St. Augustine Beach, FL – March 2020 photo by Carl Gill

The WaPo reported that a Coronavirus-sparked oil war sent crude prices down on Sunday by 32.3%. That triggered a forced temporary halt of stock trading on Monday, when the S&P 500 index sank 7% shortly after the market’s opening.

This occurred on the 11thanniversary of the current bull market. But, as Greg McBride, chief financial analyst at Bankrate.com, wrote:

“The uncertain economic impact of coronavirus continues to grip markets, with stocks, commodities and interest rates all dropping sharply. Markets hate uncertainty and there is a ton of it currently in play.”

There is no question that there will be more angry Americans now that a health crisis coincides with a financial crisis. Who they focus their anger on remains to be seen. Trump took credit for each rise in the stock market, so will he take ownership now that it’s tanking?

He’s not a broadly popular president, and this will make him less popular, so fewer people will believe him when he tries to lay the blame on others.

The oil price plunge was triggered when Russia announced on Friday that it would no longer stay within the OPEC+ quotas after April 1st. Saudi Arabia then said it would slash prices for its customers in April. In addition, they hinted at increasing production from the current level of 9.7 million barrels per day to 10 million barrels per day.

This is the start of an oil price war between Saudi Arabia and Russia over market share. But the real target for both may just be the US shale oil sector. US banks and other investors have been fueling the shale oil sector’s growth with hundreds of billions of dollars of loans over the years. And the shale oil producers keep ramping up production, despite it being largely unprofitable. They continue to burn through cash.

Brian Sullivan at CNBC warns us: The US oil industry valued its oil reserves, as collateral for its loans, at $60 a barrel. Today’s price is now about $30/barrel.

By sending some of these shale-oil companies into bankruptcy, Saudi Arabia and Russia are hoping that new money will refuse to support the US shale oil sector. Then production in the US will decline and take some oversupply out of the oil market.

Their timing is impeccable. Oil demand is down due in part to the Coronavirus. Chinese manufacturers are producing less and airlines in particular have less need for jet fuel. If OPEC and Russia increase production, and assuming US production still increases while demand globally is in steep decline, then global markets will be awash in oil.

And what does an oil glut do for Iran, already fighting a severe Coronavirus outbreak, and needing higher oil prices for their own economy?

But no worries! We can count on the competent leadership in the White House. And if that doesn’t make you comfortable, you might ask yourself, “Is this 1929 all over again?”

Maybe not, but if it is, who will be our FDR? In the 1930s and 1940s, FDR spent money on America’s democratic infrastructure. That money gave jobs to people. He created a social safety net, and allowed industry to again flourish.

But in the past 30 years, all the money has gone to our industrial infrastructure and to the rich, through tax cuts and subsidies. The easy money party has helped to pump up both stock prices and asset prices, giving us an ever-growing income and wealth gap.

What happens to the health of the people and to the health of economy between now and November is going to be a huge political concern. There’s always a tension between the best health policy, and the best economic policy.

Trump wants economic policy to win out, but the primary beneficiary of that is industry and the rich.

We should remember that when leaders are seen to be incompetent and/or ARE truly incompetent, they try to divert the voters’ attention. What Trump attempts to do in order to divert our attention, is worthy of discussion.

As of today, the fuse is lit. It’s an election year, and we know that Trump won’t go away quietly.

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Sunday Cartoon Blogging – October 20, 2019

(Blogging will be light until Tuesday 10/29 as Wrongo and Ms. Right will be in London. Yesterday’s Brexit votes seem to leave things up in the air, so it should be interesting.)

Vanity Fair has an article on possible manipulation of the stock markets with advance information about big news coming from the White House. Several publications have noticed that a killing was made several times on positions taken just before news breaks, but VF lays out just how much. The vehicle was “S&P e-minis”, electronically traded futures contracts linked to the Standard & Poor’s 500 stock index: (emphasis by Wrongo)

“In the last 10 minutes of trading on Friday, August 23, as the markets were roiling in the face of more bad trade news, someone bought 386,000 September e-minis. Three days later, Trump lied about getting a call from China to restart the trade talks, and the S&P 500 index shot up nearly 80 points. The potential profit on the trade was more than $1.5 billion.”

There were several more.

  • On September 10th in the last 10 minutes of trading, someone bought 82,000 S&P e-minis when the index was trading at 2969. On September 11 in Beijing, the Chinese government announced that it would lift tariffs on a range of American-made products. That same day, Trump said he would postpone tariffs on some Chinese goods. The S&P index moved up 47 points. If you were the lucky one who bought the 82,000 e-mini contracts, well, then you were sitting on a one-day profit of roughly $190 million.
  • In the last 10 minutes of trading on Friday, September 13, someone got lucky. That’s when someone sold short 120,000 S&P e-minis when the index was trading around 3010. The time was 3:50 p.m. in New York, but it was nearly midnight in Tehran. A few hours later, drones attacked a large swath of Saudi Arabia’s oil infrastructure, choking off production in the country and sending oil prices soaring. By the time the market opened for pre-trading on Sunday night, the S&P index had fallen 30 points, giving that lucky ducky a quick $180 million profit.
  • But these wins were peanuts. A trader, or group of traders bought 420,000 September e-minis in the last 30 minutes of trading on June 28. That was about 40% of the day’s trading volume in September e-minis. At the time, Trump was in Osaka, Japan, 14 hours ahead of Chicago, meeting with China’s President Xi Jinping. On Saturday in Osaka, after the market had closed in Chicago, Trump emerged from his meeting with Xi and announced that the trade talks were “back on track.” On Thursday, June 27, the S&P 500 index stood at about 2915; a week later, it was just below 3000, a gain of 84 points. Whoever bought the 420,000 e-minis on June 28 had made a profit of nearly $1.8 billion.

You get the picture. Traders have been watching these wagers intently since the start of the Trump presidency. The precision and timing of the trades, and the vast amount of money being made, make the traders wonder if all this is on the level. Or, is it some form of insider trading?

So far, the SEC and the Commodity Futures Trading Commission (CFTC) seem disinterested in pursuing what might be behind these trades. On to cartoons.

America hosts the G-7. Naturally, Trump picks his own hotel:

The Mikes try to clean up Trump’s Turkey mess:

The arguments against Brexit are stronger:

RIP Elijah Cummings:

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Saturday Soother – February 10, 2018

The Daily Escape:

Lighting the Olympic torch – photo by Chang W. Lee

Did anybody see the bus that ran over Wrongo’s 401k?? It was a tough week on the retirement savings front for anyone who uses the capital markets to bolster their net worth. Retail investors are trapped – they can’t sell their holdings quickly, and there doesn’t seem to be a safe haven for their cash if they manage to get out of the markets only slightly bruised. Fear seems to be guiding Mr. Market.

Also, Washington finally passed a bi-partisan budget deal, but only after a brief shutdown. Sadly, it adds more than $1 Trillion to the national debt. It’s hard to square the Republicans’ deficit hawk ideology with their sudden willingness to spend whatever it takes to give the military whatever it wants.

During the recession, (Obamatime) the Republicans argued that responsible people tighten their belts when times are bad, just like people do with their household expenses. Now, we really shouldn’t use that argument for governments who can create their own currency. Despite that, if you really think the government should be run like a household, wouldn’t a responsible family increase their savings and pay down their debts when times are good? That would give them a “rainy day” fund that they could dip into when times were bad. Or, they could then go back into debt to get through the rough patch.

But today’s Republicans are saying: “Times are great! Let’s max out the credit card”. This will soon be followed by: “Oh shit, now I have to starve the kid so I can make the payments on my student loans”.

They won’t even follow their own dumb rules.

That was the week that was. A stomach-churning, no sleeping, hot steaming pile of anxiety. You need a real break.

To help you forget about your financial losses and your government’s foolishness, settle into a comfortable chair with a Vente cup of Volcanica Coffee’s Blue Mountain Peaberry coffee from the Clydesdale estate in Jamaica (only $89.88/lb.). You can’t afford it after what happened on Wall Street, but like Congress, you have a credit card. So go for it!

The Clydesdale coffee region is near the center of Jamaica’s Blue Mountain coffee area. The Clydesdale Estate was founded in the 1700’s.

Now, listen to a throwback to the 2012 Olympics in London. Here is the London Symphony Orchestra conducted by Sir Simon Rattle with a performance of “Chariots of Fire”. The performance includes physical comedy by Mr. Bean (the British comedian Rowan Atkinson):

This isn’t high art, but it is fun, and tangentially relevant to the Olympics.

Those who read the Wrongologist in email can view the video here.

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Wrongo’s 2018 Predictions

The Daily Escape:

Snowy Landscape with Arles in the background – Vincent Van Gogh, 1888

A tradition at the Mansion of Wrong is to attend the annual New Year’s Day Concert at the First Congregational Church of Washington CT, built in 1801. The concert is always by the New Baroque Soloists. This year, the church was packed, and among the guests were Tia Leoni and Tim Daly, the leads in the CBS series “Madam Secretary”.  For the sixth year in a row, it was another inspiring performance by the New Baroque Soloists.

Now it is time for a few Wrong predictions about 2018, most of which will probably will be wrong:

  1. The US economy as measured by GDP will grow at greater than 2% for 2018.
    1. The US stock market as measured by the S&P 500 index will end 2018 with little or no growth over year-end 2017.
    2. The Trump tax cuts will increase the deficit, and despite Paul Ryan’s best (or worst) efforts to push the country into austerity, that can will be kicked down the road for a few more years.
  2. The Democrats will not take control of either the House or the Senate in the 2018 mid-term elections. The still-growing economy, and the pittance that increases paychecks from the Trump tax cut will help incumbents enough to forestall a wave election.
    1. The Democrats will remain without real leadership or vision in 2018.
  3. Cyber and other forms of meddling by people who wish our democracy harm will continue in the 2018 elections, to broader effect than in 2016.
    1. Facebook and Google will be held to account for their failure to tamp down disinformation.
  4. Trump will continue to flounder as the leader of the Free World, while his “frenemies” in the GOP will continue to try to thwart him on domestic economic legislation.
    1. There will be some form of bi-partisan accommodation on DACA.
    2. Trump’s public-private infrastructure deal will not pass the Senate.
    3. The House will pass legislation that messes with Medicaid, but the Senate will not.
    4. Trump will have the opportunity to appoint another Supreme Court Justice.
  5. Trump will have a serious medical issue in 2018, but will not leave office, or be temporarily replaced by Pence.
  6. Mueller: By March, MAGA will mean “Mueller Ain’t Going Away”. The storm will crest, a Russiagate conspiracy will be exposed, and crud will fly everywhere. This could lead to the Democrats taking control of one or both Houses.
    1. A few additional Trumpets will go to jail, or be tied up in court. Trump will not be impeached by the 2018 Republicans. 2019 might bring a different calculus.
  7. Tillerson and possibly other cabinet members will resign to “spend more time with family”.
  8. #metoo will continue to dog politicians, Hollywood and the media.
  9. Middle East:
    1. Syria – by this time next year, the war will be essentially over. Assad will still be in power, and the US will be out of the picture. The Syrian Kurds will switch sides, and collaborate with the Assad regime.
    2. Iran – the current protest movement will fizzle out. Neo-cons in Trump’s administration will try to bring us close to war with Iran, but cooler heads at the Pentagon will prevail.
    3. Famine and death in Yemen will continue to be ignored by everyone in the US.
  10. Russia: Russia, China, and Iran will have a “come together” moment, possibly resulting in an agreement for mutual economic cooperation.
    1. Russia will continue to face ongoing battles with the US, but Putin will persist.
    2. Ukraine: The US delivery of anti-tank missiles to the Ukrainian army will not cause them to begin military operations in the east.
  11. Europe: The right-wing authoritarian movements in the Eurozone and England will become a larger factor in their domestic politics. Brexit will occur, and no one in the UK will be happy about the outcome.
  12. Will there be a war or “incident” with North Korea? Despite the scary politics, the Seoul Winter Olympics will keep the situation from escalating through June. The second half of 2018 could lead to some kind of incident between the US and NorKo, but will not be a nuclear incident.

A “black swan” event (an event that comes as a surprise, has a major effect), could change everything for the President, the country and the world. Let’s hope that none occur in 2018.

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