Common sense

9 Okt 2020

Every time Trump and Pelosi flirt with this next round of stimulus the market goes up. Hasn't it already priced in the stimulus like every day it went up since stimulus talks began?

On the downside, you have these risk factors:

1. Chinese news saying China is going to ready to take Taiwan. That would put the US alliance system into question if we didn't go to war.
2. US election - stage is set for a contested election
3. Stimulus bill passing the Senate while the senate is fighting over the Supreme court nominee. For that matter, will it even pass the house?
4. No deal Brexit - time is up next Thursday
5. Covid-19 resurgence in Canada, Europe, and norther US states
6. Slowing economic improvements
7. Record debt held by individuals, corporations, and federal government
8. 3Q 2020 earnings trickling out and massive credit warnings and downgrades ahead

Alright, bulls. Let's hear it...

9 Okt 2020

Nota

It’s funny that we’re having this discussion in the comments, the news is out that MacConnell (Senate leader) doesn’t think stimulus is likely before Nov 3. And yet the market goes up. Also ironic is how people are saying that the market is predicting a Biden win—without caring for a tax hike?

23 Okt 2020

Nota

I have some new research.

1. Ian Easton, author of "The Chinese Invasion Threat" writes in his book that fog is needed to conduct amphibious operations in the Taiwan straight. Fog is present in Mar, Apr, May. Here's a recent article with his analysis: taiwannews.com.tw/en/news/4034710
2. No change
3. No change.
4. Today, we learned France is trying to get the EU to concede on the fisheries issue.
5. Covid is still surging, but it's getting less deadly and a vaccine is coming?
6. Moody's, a credit rating agency, published an economic report yesterday that shows while corporate debt surged 11.2% in 2020, NET DEBT actually decreased by 2.2%. This has never before happened: moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1251233 This could mean we're not at risk of a corporate liquidity crisis, and thus no crash.
7. No change.
8. Earnings seem to be positive across the board, especially at banks where loan losses are less than expected.

How is this possible in the face of the sharpest decline in output in history? The US Federal Reserve's money printing. The Moody's report in item #6 above mentions it too. So does Ray Dalio in Chapter 7 of his series, "The Changing World Order," linkedin.com/pulse/chapter-7-us-china-relations-wars-ray-dalio/ I'll quote the most important paragraph from Chapter 7:

The United States is testing the limits of how much there can simultaneously be a) enormous amounts of dollar-denominated money and debt created, b) falling and negative real returns, c) the dollar being used as a weapon (e.g., the usage can be limited via capital controls), and d) a fiat monetary system. We won’t know what the limit is and we can’t say it is here until it is reached. At that point it will be too late to fix. From both my studies of past historical extreme cases in which these conditions existed and from our analysis of current and upcoming supplies and demands for US money and debt, one can see that the US government, the Federal Reserve, and the buyers of the debt are testing the limits of how much money and credit can be squeezed out of a reserve currency without breaking it. From speaking to the most knowledgeable people in the world in this domain, including those who are now running the world’s monetary and economic policies and those who did in the past, there isn’t a single person I spoke with who when shown the evidence—i.e., both the historical cases in relation to the current case and the current picture of the supplies and demands for dollar-denominated money and debt—disagrees that we are in unprecedentedly risky territory and testing the limits of what’s possible. That doesn’t mean that anyone is confident that the dollar will decline significantly in value or as a reserve currency in the near future. The picture for the dollar and dollar debt is like (and related to) the picture for interest rates. If a few years ago you had asked whether these extremities would be reached—i.e., whether we would have negative nominal and real long-term interest rates with debts and borrowings so large in a capital market that governments aren’t imposing capital controls on to force such circumstances—all these knowledgeable people would have said “implausible.” That is because that never happened before and because it is tough to figure out why holders and buyers of that debt would accept that deal rather than move their wealth into other things. One would have looked at past extremities when the largest budget deficits and debt monetizations existed in such large amounts and interest rates stayed low (which were war years when government capital controls were required and interest rates were targeted) and looked at the most deflationary and depressing economic times, and one would never have seen these things happen, so “implausible” would have been a smart assessment. Yet that is what has happened.

4 Nov 2020

Nota

Can someone explain why stocks are going up at the same time as Long term US treasury yields are falling and regional banks are selling off 2-5% during a closely contested election with no stimulus and a rapidly expiring US government funding bill?