Since 2008 pundits such as Nicolas Nassim Taleb and Peter Schiff have been calling for the end of the bond bull and they keep being wrong. The DJIA is up 20% in the past two years, but even more astonishing is that TLT, a 'risk-off' ETF is up 25% in that same period.
This disproves the often repeated leftist canard that a bull market in stocks and bonds are mutually exclusive due to some 'great rotation'. Dyseconomcis, on the other hand, predicts a huge bull market in ALL asset classes, including bonds, stocks, gas prices, commodities, treasuries, munis, and junk bonds. The smallest hiccup in Europe sends yeilds plunging while stocks only fall a tiny amount or stocks will surge like they did on Friday but yeilds don't budge. Merkel farts and it instantly becomes a 'risk off' event according to the bond market & US dollar. Corperate America will keep refinancing their debt at lower and lower rates and use the proceeds to repurchase stocks.
Liberals in various media outlets such as CNN, MSNBC, and New York Times over-hyped the otherwise contained subprime crisis into a full fledged financial crisis to get Obama elected. Now they are spreading lies about the debt being unsustainable or how we need more stimulus spending when, in fact , the economy is booming. They want America to pay higher interest on its debt or to waste money on useless job creation, infrastructure and entitlement programs. Liberals want America to be ashamed of its exceptionalism and meritocracy, while spreading lies about inequality being bad for the economy to force a populist, wealth spreading agenda. Liberals seek economic crisis as a way to mold society to their liking, like during the Great Depression when FDR tried to pack the Supreme Court with six extra pro-New Deal justices. They amplify any shred of bad news such a Cyprus into a paradigm changing crisis. http://tiny.cc/szjcuw
Pretend conservatives seek fiscal restraint to soak the rich in contrast to democrats that want tax hikes, but either way the outcome is the same which is wealth destruction targeted on 1% who are the most adversely affected by excess regulation, taxes and fiscal restraint. Liberals like Schiff want the fed to prematurely raise rates and he's spreading lies about the debt being unsustainable despite the fact that long term yields are still near historic lows even with this huge bull market.
3/22/2013 Restoring Growth and Optimism to the GOP
Stocks are surging today because the economy is still fundamentally sound. No one on Wall St. cares about Cyprus, debt, job loss and stuff like that. Dow 15000 just around the corner. Bitcoin is goin to $200 soon. People getting richer than ever through speculation, web 2.0, housing market.
Since around 2008/2009 the GOP has been infected with a pervasive strain of pessimism or what I call 'small government liberalism'. This is a GOP that eschews its pro-growth successors of George W. Bush and Reagan for small government, fiscal frugality, financial regulation, and protectionism. These are the conservatives that oppose the drone program and deficit spending while attacking Wall St. and fanning the flames of class warfare for populist votes. The GOP , once the party of boundless optimism- harbingers of a 21st century manifest destiny to spread technology, democracy and free markets to all corners of world has withered into a shell of small government small minded irrational fear; fear of financial instruments, fear of globalization, fear of technology, fear of deficits.
There is a large disaffected electorate that has been hurt by the overblown, media generated financial crisis (exacerbated by the New York Times to get Obama elected) and stock market plunge, but that doesn't mean the GOP has to renounce the policies that worked spectacularly well during strong economic times- mainly pro-growth, free trade, monetarism, and interventionism. The rise of Rand Paul or 'small government liberalism' is endemic of this problem. Attacking 'fat cats' and the military industrial complex is a cathartic approach that appeals to voters, but the GOP must resist the temptation to co-opt these platitudes that are the mainstay of welfare liberalism.
There is a tendency for this new GOP to spread misinformation about the deficit and the economy. They want America to get its 'fiscal house' in order, but is this just another example of making a mountain out of a fiscal molehill? For example, these 'small goverment liberals' conviently ignore the fact that the USA pays less interest on its debt relative to GDP than in the 90's. Deficits can be used for good and bad; in the case of Paul Krugman and other neo-Keynesians they are used to force equality and job creation, and at a large waste. Conservatives, on the other hand, skillfully used deficits in the 80's and 2000's to promote pro-growth policy such as defense spending and tax cuts. See, the problem isn't the deficit or the size of the government, but how it is used- a subtlety that 'small government liberals' fail to grasp. Thanks to 'big government' homeland security programs, over fifty homegrown terror plots have been thwarted since 9/11. Conservatives in siding with the UN would rather have the USA abort the war on terror or risk lives of more US troops to kill terrorists How many US citizens have been killed by drones? Exactly one, who happened to be a terrorist mastermind (which I think is grounds for revocation of citizenship). Other conservatives such as Peter Schiff frequently compare America to Greece, ignoring that Greece pays considerably higher interest on its debt than the USA and is an economic weakling with a GDP smaller than Boston.
Deficits, bank bailouts, and drones aren't the problem; the problem is liberalism and a recessionary woe is me attitude that has permeated the modern conservative movement. We need less Burke, Kirk, Will and Buckley and more Kristol, Krauthammer, Milton Friedman, McCain and dare I say Rush Limbaugh? http://tiny.cc/0liutw I implore the GOP to stop the anti-debt, class warfare rhetoric and bring back pro-growth policies.
3/20/2013- Dow 500,000 and the Interest Rate Cycle
According the the interest rate cycle, we can anticipate a bull market on a grand scale- the longest and biggest bull market in the history of the stock market.
Before we delve into a more detailed explanation of the interest rate cycle, here are some of the bullish economic/fundamental factors that are driving stock prices higher:
1. Endless liquidity from QE, institutions, 'flight to safety' , and foreign surpluses. (When the USA runs a trade deficit its trading partner has a surplus that can be used to buy treasuries and that helps depress interest rates)
2. Persistently low valuations. Despite a 135% rally from the March 2009 lows, the PE ratio for the S&P 500 is still just 14.
3. As a consequence of the BRIC boom there's billions of potential customers and demand to compensate for any consumer weakness in America. As much as 46.3% of the revenues in the S&P 500 originate abroad.
4. Increase in buybacks & mergers.
5. A constant backdrop of negativity that keeps the masses out of equities, preventing prices from rising too quickly. This negativity also helps keeps rates low due to the flight to safety/US dollar safe haven phenomenon.
6. A bad news=good news phenomenon. This is where bad news is construed as being bullish because it increases the odds of more easing (the Bernanke put).
7. Rapid development of technologies to increase worker productivity and economic growth.
8. Falling personal savings rate directly helps retailers.
9. Positive yield curve
10. Improving housing market
11. Corporate balance sheets showing record high profits.
As we all know short term rates are still at zero, as they have been since 2008. Our prediction is that it may be five years or longer before the future fed chief finally raises rates with the consensus is that this will be a bearish event for the market. We take a contrarian view that rate hikes will not have a bearish outcome because the fed will give abundant warning and will raise them in such a way that he will be 'behind the curve'. Rate hikes are bearish when the are unexpected; nowadays unlike in the 70's and 80's the fed gives ample warning as to not spook the market. Stocks will keep rising until the short term interest rate cycle peaks at around 5.5-6.5%, like in 2000 and 2007. Presently they are still at zero so we can extrapolate that with the DJIA already at 14550 the market has substantially higher to go. At the peak of the cycle the interest rate curve becomes inverted, a hallmark of bearishness.
We're still far away from an inverted yield curve
Stocks peaked in 2000 & 2007 as interest rates exceeded 5% and the yield curve turned flat or negative.
But what about that fed balance sheet? What if it gets out of control? There is a misconception that the fed balance sheet is a ticking timebomb waiting to explode at the first hint of inflation or that it's rapidly increasing. But believe it or not, the fed's balance sheet has only increased some 250% since 2008 with the majority of the gains between 2008/09. Since 2010, it only increased gradually, and furthermore the fed balance sheet doubled between 1995 and 2005 and the world didn't come to an end. Maybe I'm wrong, but I would rather make money now than sweat the hypothetical doom and gloom that may never happen. Secondly, US federal government interest payments as a share of GDP is still at near historic lows.
In fact, we can't even put an upper limit on the DJIA because we haven't even had our first rate hike but assuming the fed raises rates to .25 at dow 20,000 some simple algebra gives a target of around Dow 500,000 at the peak of the cycle. Assuming an aggressive annual return of 15% this will occur about 24 years AFTER the first rate hike. This will be a very big bull market, indeed.
Typically when the market is flat or falling there are fewer posts or otherwise there would be no time to work on other stuff. Here's the summary of events:
Cypus: ignore it and buy the dip. no brainer.
That's pretty much the only substancial economic event since the last post and it can be safely ignored. We're going to dow 15000 soon, like it or not. These liberals will be dragged along for the ride, kicking and screaming. They want to see the consumer fail, the bond market collapse, for the fed to prematurely raise rates, for American worker to be less productive. The liberals are asking 'where's the recovery?'. The answer: it's already here. Stocks are surging, profits for S&P 500 companies keeps being blowout, and economic data sill better than expected. Thanks to rapid growth in exports and business-2-business based commerce, we don't need mainstreet's partiticpation to have a booming economy. Companies like Google, Intel, Cisco and IBM, for example, are mainly B2B. A small percentage of S&P 500 companies sell exclusively to the US consumer. Disney, McDonalds, and Starbucks are global large cap consumer brands. On the other hand, companies like Netflix and Lululemon are midcap companies with the US consumer as the predominant customer.
3/14/2013 A forever rising stock market?
Is it possible that the stock market may never have a meaningful correction ever again?
Here are four theoretical paths the stock market could take.
The most likely outcome is either the red or blue path, which are the most smooth. Why is smoothness so important? Because we propose a scenario for the next 20 years and beyond where the stock market perpetually rises and the indexes become less volatile and well-calibrated as funds intercede to smooth out any price perturbations. The trading volume will keep falling and this makes it easier to prop up the price in the event of selling, and hence there will be less volatility. In the event of selling the funds will immediately buy the dip and with a few days the market will be higher, yet again. The volume/price symmetry is a solution to the chart to scalar equlibrium equations and partially explains why the market is so quick to recover from its selloffs, the other explanations being strong economic fundamentals and forever low rates.
The volume/price symmetry as predicted by chart to scalar theory as illustrated in this crude diagram agreees with patterns observed in real stock charts.
As the price falls at a greater rate, the volume rises. The volume remains elevated on the way back up, forming a symmetrical path reflective about the nadir.
We predict that it may be five years or longer before the future fed chief finally raises rates and at that stage the fed will be so far 'behind the curve' that Wall St. won't care because the fed's intent will have been telegraphed long in advance. Interest rate hikes are bearish when the are unexpected; nowadays unlike in the 70's and 80's the fed likes to give lots of warnings as to not spook the market. Stocks will keep rising until the interest rate cycle peaks at around 5.5-6.5%, which is how high interest rates were when the market peaked in 2000 and 2007; presently they are still at zero so we can extrapolate that with the dow already at 14520 the market has substantially higher to go. In fact, we can't even put an upper limit on the price because we haven't even had our first rate hike but assuming the fed raises rates to .25 at dow 20000 some simple algebra yeilds a a target of around 480,000 at the peak of the cycle. Assuming an aggressive annual return of 15% this will take about 24 years AFTER the first rate hike.
3/13/2013 The daily view: Consumers, Apple, Nicholas Nassim Taleb, Fake Conservatives
Anyone that has read this blog would know that the liberals have been front-running the demise of the consumer since 2009 and they keep being wrong. Consumer spending yet again crushed estimates, in retrospect making the huge rally since 2012 fundamentally justified rather than just feeding off fed intervention.
This is a large cap, multinational, web 2.0, retail, cloud computing, payment processing, search engine driven economic boom. Small business is still for chumps due to obscenely high borrowing costs, no assistance from the govt. or fed , and cutthroat competition.
There are two misconceptions about the etiology Apple's decline: the absence of Jobs and a lack of innovation. I'll refute both.
Bunsinessinsider writes "Without Jobs, there is no one at Apple with the charisma to beat back the stories about Samsung's rise and Apple's fall. There is no one to explain what's happening with the iPhone business. There is no one to artfully drop hints about future products and massacre the products of rivals."
Even if Jobs were alive it wouldn't matter. When Steve Jobs died AAPL was only at $375 and no one was complaining about Mr. Cook as it rose another 300 points. The problem is all the enthusiasm for Apple has evaporated isn't going to return anytime soon. Apple needs to make a major acquisition. Maybe buy LNKD, Ebay or Twitter to get investors excited again. It is a misconception that Apple doesn't innovate enough. The argument can be re-framed another way: Apple has actually done more evolving than the majority of tech companies. They have released dozens of variants of iphones, ipads, macbooks, ipods, etc. What has Ebay done differently since 2002 when it acquired Paypal? Nothing and yet Ebay stock is at a historic highs. Apple's problem is that they are forced to keep developing new products to be relevant and if they miss a beat the stock & earnings will get murdered as is happening now. But the second problem is the mass realization that the first problem exists, compounding the problem.
Closeted liberals like Bruce Krasting and Peter Schiff are fanning the flames of crisis by spreading misinformation about inflation.
Bruce Krasting writes this "When will S&P say 'enough-is-enough', and drop the US credit rating another notch? Given that there is no leadership at all, the folks at S&P must be thinking about how to respond. Last time it did not matter a damn that the rating was dropped. I donít think the country will be so lucky the second time around."
If Bruce were a real conservative he would credit the historically low yields to the ingenuity of the free market and this would be desirable instead of appealing to the rating agencies to issue unduly punishment on the economy & bond market for something he doesn't agree with. Unless he can have his way, Bruce would rather have the economy & stock market suffer due to inflation, which is a very self-centered way of looking at the world.
We need wealth creation and not wealth spreading. America is a beacon of economic growth and prosperity in a world of excess regulation, corruption, and populism. However, we shouldn't get bogged down in the minutia of budgets because according to the bond market the last thing we should be worrying about is deficits. We need more pro-growth spending on tax cuts and defense. Yields are actually lower than before the downgrade despite the stock market being up 20% since then. The rating agencies have been defamed and yet liberals like Bruce Krasting, Nicholas Nassim Taleb, and Peter Schiff keep spouting this fiscal frugality nonsense. Nicholas Nassim Taleb recently published a 500 page book called anti-fragile that does a better job as a doorstop or cinder block than revealing the subtle complexities the world or providing actionable advice. Like most libs he loves to complain about rich people being oblivious to risks or being overcompensated. He wants a nanny government to protect people from the imaginary risks to the detriment of the economy and free market.
3/11/2013 Being Right All the Time is a Thankless Job
Some people don't like the links I post. I consider it to be a small reward for sharing free information that has made people thousands or maybe millions by not selling too soon in this huge bull market. I feel entitled to post links in exchange for sharing this information out of my own generosity.
Here is what is really stupid: I get thumbs down for being bullish in Apple in 2011/2012 and then thumbs down for being bearish in 2012/2013? Maybe it's the liberal mentality of attacking success and pitying the underdog, even if that includes a $400 billion dollar company. There are some things that are so stupid you can't describe it in words, you simply have to behold it.
American exceptionism is how US companies can amass such big profits and hire so little. The most common excuse is uncertainty over imaginary geo political risks and yet these companies keep posting blowout profits & earnings quarter after quarter for like 4 years in a row. Maybe by risk they mean the sun burning out or something like that. There are no hidden risks; it's just an easy excuse to not hire. So be it. America is #1 in terms of stocks always going up, enriching speculators, and minting overnight internet billionaires, but job creation? Err...not so much. Tough shit, loser. Better learn how to code cuz that's how ppl are getting rich these days. Or if you can't code, open an etrade account and buy as much Google stock as possible.
Everyday these crisis-seeking liberals on sites like businessinsider, NYtimes, Washingtonpost or Zerohedge try to scare you into selling too soon by spreading FUD about impending profit margin contractions, the non-existent crisis in Europe, about how wealth inequality is a threat capitalism, or the media generated US debt crisis. Let's just assume that in the not so distant future the debt become so big that everyone is convinced that it poses a real threat to the economy. What will happen? Ironically, yields will fall as everyone gets scared, hence the the debt becomes less burdensome. And that will solve our earlier problem, so the fear over the debt becomes a self-defeating prophecy.
We're still in the greatest prosperity boom in the history of human civilization. When will the fed raise rates? How about never? Assuming hell freezes over and Bernanke ends QE what will happen? The widely held and incorrect belief is that stocks will fall, but the actual data shows that stocks can indeed rally as the fed tightens, iF the fed is perceived as being behind the curve. That's why stocks surged even as Greenspan raised rates in the 2000's.
Go ahead and read the article archives where I astutely predict the sequester and fiscal cliff would have no negative impact on stocks. Read Dyseconomics written in 2011 that predicted everything that is happening today such as the massive stock rally.
3/8/2013 Playing the 'catch up' game for quick profits.
The biggest risk to the recovery is if too many people participate in it. We need bigger profits, fewer jobs, more consumer spending, stingier credit for homeowners and small businesses, we need lower borrowing costs for multinationals, more consumer credit, and more productivity. We need more people clicking google ads and putting resumes on linkedin. The liberals are still waiting for the shoe that will never drop as the market keeps climbing higher day after day, week after week..
Dyseconomics predicts broad multi-asset class inflation driven by abundant global liquidity. Since around 2002 asset classes that traditionally has small or negative correlation such as stocks, hard commodities, oil, grains, gas prices, junk bonds, treasuries, munis, will rally together with a relatively high degree of correlation.
Sometimes an asset class will lag, but then with the slightest provocation it will shoot higher and 'catch up' with the S&P 500 -the ringleader of this liquidity driven asset boom. Back in May 2012 oil fell from 108 to 78 while the broader index fell only modestly. A five months later oil would retest 100 again, a gain of over 20% in just a few weeks as the major indexes made new highs. Now the DJIA is at 14350 but WTI oil is still stuck in in the low 90's , providing an opportunity to buy oil as a 'catch up' play. Same for wheat and gold which have also lagged the S&P. I predict that within the upcoming 6 months for reasons ever so subtle (ie a abnormally hot weather), grains, oil and gas prices will rocket to new highs, or enough to match the S&P 500 in YTD performance. So if the S&P 500 hits 1560 we could see a 20% rally or more in oil, wheat and corn. I am especially confidence about this prediction because Bernanke has given zero indications of ever raising raising rates again despite 130% gains in the major indexes and doubling of profits & earnings for S&P 500. This is unprecedented in the history of macroeconomics for there to be a profits & stock market boom of this magnitude without accompanying interest rates hikes. Or for unemployment to remain perpetually high despite major profit windfalls. To be honest, Bernanke doesn't give two bits about the unemployed and neither does Wall St. but a bad labor market makes a great excuse to never raise interest rates again. And that is part of what is contributing to this massive asset boom, the other being robust global growth and the third being inelastic arbitrage. So don't fight the fed. Buy Google, LinkedIn, Amazon, and UGA gas ETF. Buy the S&P 500 and DJIA. Buy IBM, FB, CRM.
3/5/2013 Ignore the liberal fear machine
My goal is to present an alternative reality in the most blunt way possible, to shake up your prexisting notions of how things. I want my writing to be a kick in the ass to anyone that gazes upon it. When you read your first repsonce is probably 'is he serious?' and the answer is always 'yes'. Everyday we're bombarded with news, opinions, headlines, and other cutter. Liberals experts such as Roubini and Nicholas Nassim Taleb are telling us to be mindful of 'imaginary risks' and to sell your stocks and bonds, when people such as myself who present an empirically centric view of the world get virtually no coverage, yet keep being right over and over. Making matters worse the importance of stories tends to be inversely proportional to the coverage, so a small $85 billion sequestor cut will have more longevity and intensity than a story about the personal savings rate falling, even though the later is more important in terms of economic impact. They shower us with contradictory headlines written in big bold font with lots of superlatives and exclamation points because this is REALLY FUCKING UGRENT and EVERYONE agrees that THIS WILL HAPPEN!!
In the past two years I've written enough blog entries and essays to fill a 300 page book and created an entire option pricing and stock market 'theory' from scratch, just because. It isn't good enough that stocks are going up I wanted to know why and when the existing explanations were scattered and inadequate, so I set out to write my own. Oh and then there's facebook work and all the links. So it has been a pretty busy past few years and we're not stopping yet. Just get to keep pushing ahead.
3/5/2013 2 Years Later
This stock market is unstoppable. Everything keep being better than expected and all bad news is either unimportant or priced in.
In two years we've come a long way. In 2011 we developed a new economic theory called Dyseconomics or dystopian economics (the economic system of a dystopian society). Dyseconomics takes the conventional rules of macroeconomics and rewrites them in such a way that it fits with empirical post-2008 observational data. The Dyseconomics interpretation of macroeconomics has proven to be the most accurate one yet, more so than Keynesian, Austrian, mixed, etc . Paul Krugman, a saltwater Keynesian is right about Bernanke and the need for more spending, but in the context of Dyseconomics is wrong about how the money should be spent or the importance of full employment. Adherents to Dyseconomics may not agree or like the values it espouses, but believe it's the most accurate way of looking at the world, hence necessitating a cognitive dissidence. Most people can't make this leap and only choose to believe what makes them comfortable, not what is true.
We believe an economic system where the masses reap a disproportionately small amount of the aggregate wealth, is either optimal for growth or a byproduct of a economy functioning optimally. Most economics agree with this observation, but efforts by activist economics like Krugman or Joseph Stiglitz to try to make society more equitable in repudiation of this trend, are destined to fail. In contrast to a participatory democracy that is contingent on individuals participating in the democratic process, an economic system should be exclusionary and autonomous with only occasional intervention by elite policy makers in crisis.
Back to Paul Krugman. He is wrong about austerity, inequality, and employment. We need more of the first two and less of the later. Paul krugman keeps spreading the lie that austerity is bad for the economy when, in fact, case studies such as Italy, Greece, and Spain have shown it to be beneficial, resulting in lower yields, faster growth, and improved sentiment. Austerity should be imposed on mainstreet, but expenditures for tax cuts for the highest of income earners, homeland security, and defense should be unchanged. As written in the 3/4/2013 article, the rich do a better job spending than everyone else. They also create jobs and technology in contrast to the lowest of income earners that use their income for subsistence.
We don't need job creation programs or student loan relief; instead we need continual reassurance that Bernanke will not end QE and that Washington will not acquiesce to the wealth spreaders that want to make America unsafe.
3/4/2013 The US Consumer, Still the Best in the World
Part of what makes America a crappy place (such as surging living expenses, nosebleed healthcare costs, inflation lagging wages, evaportating social safety net, and record wealth disparity) also ironically makes its economy and stock markets superior to the rest of the world. I recommend living abroad while investing in America in contrast to living in America and investing abroad. Since 2009 the S&P 500 and DJIA has handily outperformed every major stock index. Remember the unfounded comparisons between the US and Japan that were repeated ad nauseum back in 2009? With the excpetion of the Nasdaq, every major US index is within a few percent of historic highs versus the N225 which is still 75% from its highs. In retrospect, America is becoming more like America and Japan..well..more like Japan. The great moderation that began in 1982 shows no signs of ending. The calm before the storm is the calm before more calm and Dow 15000. America's youthful demogrpahics, free market capitalism, proactive central bank, and propensity for consumption is unique amoung other developed economies. We're going to have 7.5-8% unemploymenr for many more years to come, giving Bernanke and his successor an excuse to never raise rates again, but more importantly foreign surpluses and flight to safety are helping keep interest rates low.
People keep getting this wrong; there doesn't have to be a great rotation out of bonds and other fixed income for stocks to keep surging. There is enough liquidity for everything to go up.
From the WSJ: "Taxes are up. Incomes are down. Gas prices are rising. Tax refunds have been delayed. Yet consumers, so far, appear unfazed."
None of those things are a big deal, as I predicted in 2011/2012. The spending is coming from somewhere; overseas consumption, the wealthy, falling personal savings rate, more debt.
From the WSJ: "As taxes rise, prices climb and incomes fall, it's the wealthiest U.S. households that are driving spending. Meanwhile, middle-class and poorer households are feeling the economic brunt. "
This is good for the economy or a sign that the economy is functioning properly. That's why we need to raise taxes on the <$200k/year bracket and lower them for the rich because they do a better job spending money in an economically efficacious manner. The top 20% of earners account for about 38% of all spending, according to Labor Department data, nearly as much as the bottom three-fifths of earners combined.
Are speculators driving up prices? Probably, but does it matter? Specualation is double edged sword and the liberals conveniently forget that the same speclators that drove up oil prices in first half of 2008 drove them back down at a faster rate in the second half.
Another reason for surging commodities, healthcare, insurance, and gas prices could be due to inelastic arbitrage. When a price change has no effect on the supply and demand of a good or service, it is considered perfectly inelastic. For much of the 80's and 90's there was a gap between how much Americans would be willing to spend on inalastic gods like gas and the actual price of gas. Now there is a 'mass discovery' of the existance of such a gap, which is being arbitraged away by inflation exceeding rising prices.
From the WSJ: "Behind that seeming paradox lies a consumer sector that is increasingly split in two: Wealthier households, buoyed by improving home values and a rising stock market, are spending more. Poorer ones, hammered by higher taxes and rising gas prices, are holding back."
They are not holding back. Look at the data that shows that the personal savings rate is falling. The US savings rate fell from 6.4 percent to 2.4 percent in January.
Exactly as I predicted would happen: Personal saving rate falls
"People in the top half of the income distribution are doing just fine. They're spending enough to keep the economy moving," said Mark Zandi, chief economist at Moody's Analytics. "But the lower half is having a difficult time keeping their heads above water."
I wrote about the bifurcated economy in Dyseconomics and subsequent articles. We don't need mainstreet's participation to have a strong economy; however consumer speding is still robust so even if mainstreet is feeling strained they are not slowing consumption whatsoever.
Some person nammed 'chumbucket' wrote that some of the consumer data was weak. My response is to look at the stock prices an PE ratios, and not to get bogged down by the minutiae of the individual economic reports, which tend to be volatile, contradictory, and unimportant. Walmart has surged $4 since the libs were certain that the errant email sealed its doom. I guess the end of the consumer will have to be put on hold, yet again. The PE ratio of the S&P 500 is still just 13.
Google is going to $1000. AMZN $400 again like Blodget predicted in 1998. 15 years later he'll take much derseved credit for this call.
Government is both the solution when they bailout too big to fail and the problem when they over regulate.
As a consequence of the sequester I hope student loan rates go up. That will give prospective students an incentive to choose higher paying careers and perhaps study harder, too. The student loan debt, however, is not a bubble and does not threaten the economy whatsoever.
2/28/2013 Why ZeroHedge Sucks
ZeroHedge (ZH) is anti-reality, anti-facts, and pro-wealth destruction. On Monday the carrot of crisis was dangled before Zerohedge's readers, only to be yanked away in this huge rebound that has propelled the indexes to new highs.
The ethos of ZH is to blame the fed, Washington, Wall St., and the rich for all the ills of the world, which is similar to liberal sites like NY Times and Huffingtonpost, but with a more libertarian bent. Real republicans want wealth to be created instead of destroyed and don't read ZH.
The world isn't coming to an end. There is no bond or stock market bubble. There is no eminent hyperinflation. No hidden risks. High frequency trading isn't a ticking timebomb. America isn't Greece. We have the best consumers, best stock market, and economy in the world. America is second to none in innovation, wealth creation, free market capitalism, and stocks always going up. Zerohedge wants America to feel ashamed of its exceptiomism, for our troops to withdraw in defeat, for the fed to prematurely raise rates and I say, 'no, no, and no!'.
Goldman, AIG, bank of America, and AIG have the most pristine ballance sheets in years. Let's give a round of applause to the speaker Boehner, the GOP congress, and Bernanke for navigating these difficult political waters in the face of constant criticism. When so many anticipated failure, they rose to the occasion, creating trillions of dollars of wealth.
This market always goes up and I keep being right about everything. When I say something isn't a big deal, it usually isn't. I have an uncanny ability to filter out minutia from the constant bombardment of news and data. This market in unstoppable due to tame inflation, no deflation, and robust fundamentals, and I guarantee that in the upcoming months the economic & earnings data will affirm this.
The graph below shows two possible RHS (right hand side) paths for a hypothetical stock upon encountering a LHS (left hand side) resistance force. Chart to scalar uses variational methods and functional analysis to simulate how stocks trade when encountering obstacles or resistance or support forces, that are represented by simple shapes.
2/27/2013 The Daily View: Ignore the Sequester and Italy
>> Dow 14100. Phase two begins.<<
I don't need five hundred words to tell you that any dip caused by Europe based fears is worth buying. The economic impact of the Italy election is ignorable and doesn't affect the fundamentals any of the S&P 500 components. Go back as far as the 80's and everytime the US markets have sold off on foreign uncertainty it has always rapidly recovered. Same for the upcoming sequester- another non-event, or the fiscal cliff (which I correctly predicted in 2012 to be a speedbump and a buying opportunity). Typically, the economic impact of news is inversely proportional to the coverage. In just the past week alone, Huffingtonpost has published over a thousand stories about the sequester.
See for yourself https://www.google.com/#q=site:huffingtonpost.com +sequester&hl=en&safe=off&tbs=qdr:w&psj=1&ei=DE8uUaSUHeOQi ALZvYDABg&start=10&sa=N&bav=on.2,or.r_gc.r_pw.r_qf.&bvm=bv.429 65579,d.cGE&fp=7a4cdc557dea5c34&biw=1366&bih=667
That is just the Huffingtonpost so you can extrapolate the total number of sequester stories from all media sources over the past month is probably in the hundreds of thousands.
What will happen after the sequester rolls along? Not much. The left, waiting in eager anticipation for the cuts to hurt the stock market, will be dissapointed yet again as Wall St. blows it off just like after the cliff in Jan. 2013. America is coming a nation of liberal crybabies seeking crisis and recession , and I refuse to participate.
Chart to Scalar option pricing has been modified for bifurcated support/resistance triangles
2/25/2013 Wealth inequality: Much ado about nothing
Here we go again. Stocks keep surging and it's time for another post.
The myth that wealth inequality is bad for economy is perpetuated either out of ignorance or by liberals trying to promote a subversive wealth spreading agenda. Anti-wealth disparity sentiment is commonplace on a variety of news sites such as Zerohedge, Washingtonpost, Businessinsider, New York times, and Huffintgtonpost where the fed, republicans, congress and the rich are used as a scapegoat for a myriad of supposed societal ills.
Wealth inequality should be embraced, not scorned because it is a byproduct of a free-market economy that rewards innovation by its creators. That's why as a debt reduction compromise we need to raise income taxes under the $200k/year bracket, eliminate the earned income tax credit, and lower taxes for the highest of income earners because the rich contribute better to the economy than everyone else in terms of consumption, job creation, and innovation. What about people falling between the cracks? What about stagnant wages or the loss of opportunity? No where is it written in stone that a rising economic tide is supposed to lift all boats or that downward economic mobility isn't contemptible with a robust economy. There is no statically significant evidence that shows that rising wealth inequality is actually bad for the economy, just hunches about how inequality should be bad for the economy based on logical fallacies, anecdotal evidence, or wishful thinking. I implore the liberals and Ron Paul retards to give me one shred of economic data or one peer reviewed case study that shows how wealth inequality in America caused 'xyz bad event' to occur. I don't mean austerity protests or riots, I mean actual economic data such as weak consumer spending or S&P 500 profits falling that can be specifically attributed to wealth inequality. Good luck.
How about 2008? Didn't wealth disparity play a factor in the crash? The opposite, actually. When mainstreet is feeling too rich, it usually means it's time to sell. As housing prices rose in the first half of the the 2000's, millions of Americans were able to obtain easy credit for mortgages they otherwise couldn't afford. In other words, average Americans felt MORE prosperous before the economy hit the skids because of the wealth effect of rising home prices. In the late 90's we saw a similar wealth effect for stocks, and then the market proceeded to fall 50%. But what about financial contagion, excess, and leverage? Contrary to popular belief the contagion from the implosion of the banking and housing sectors was only minimal. Large cap technology companies, exporters, and retailers were only hurt modestly before rapidly recovering. The S&P retail spider, for example, is at historic highs. The QQQ technology 100 ETF has surpassed its 2007 highs. That's why TARP was such a brilliant idea; it infused liquidity to the financial sector so that the other sectors of the economy could resume thriving. With trillions of dollars created in terms of stock market gains and profits & earnings that $700 or so billion (which as all been re-payed) is looking like a drop in the bucket.
2/22/2013 The Daily View: Why Do Stocks Keep Going Up?
Why do I keep being right? Because I look at the totality of the economic data objectivly and draw conclusions on the actual empirical data of how things are, not the way I want them to be. But these libs aren't idiots; they are literate, can read graphs and have some grasp of economics and yet they are always wrong. Here's my theory: too many people are confusing marcoeconomics with sociology. They want to believe there is consumer weakness because in their leftist worldview there should be consumer weakness because consumers are supposedly being taken advantage of by greedy speculatorsm, or simply a self confirmation bias.
I keep reading headlines about everything that's SUPPOSED to be hurting the market and economy such as increased taxes, sequester, and surging gas prices and yet there is almost zero observational evidence in terms of the actual economic & earnings data to support these suppositions. The liberal media & blogs keep front-running the consumer recession that refuses to happen. Maybe the Walmart earnings confirm a little weakness in the US consumer, but this is easily compensated by the booming exports and B2B growth.
The DJIA and S&P 500 have a tendency for rebounding quickly from small losses versus most individual stocks which sometimes take weeks or months to recover from selloffs. For example, Tesla (TSLA) fell 10% yesterday. It will quite a long time before it's able to recover those losses. The DJIA only fell 1% and the losses have already been recovered as of today , almost effortlessly. Obviously, bigger selloffs equals longer recovery times, but why does the market seldom fall much?
One obvious answer is fundamentals such as perpetually low rates,fat profits, rising earnings, nosebleed export growth, a tireless consumer, and all economic news being either better than expected, not a big deal, or priced in.
Another reason why stocks keep going up is because very high liquidity stocks and indexes (such as the DJIA, SPY, QQQ) have a small volume 'clumping factor'. What this means is it is unusual for the volume in these liquid ETFs and indexes to clump, as is commonly observed in more thinly traded individual stocks. According to chart to scalar theory, clumping volume or higher than usual volume results in a higher probability of a stock rising and falling beyond certain price thresholds because higher energy density/magnitude is required to break though the LHS chart support barrier is satisfied. For the DJIA, daily volume fluctuates little and there isn't much clumping, so the probability is high that in the absence of bad news there's won't be much price fluctuation. But you also have the backdrop of bullish economic fundamentals and price action increasing the probability of a buy order versus a sell order.
The stuff in the left hand side of this expression is a unitless LHS scalar and consits of a volume component, an atomic interaction component, and a curvature/geometric component. It is priori information. The RHS has the same component structure of the LHS and in conjunction with solving the lagrangian gives a crude chart of how the stock should trade.
2/20/2013 The Daily View: Washington, Apple, Gold, Profits vs. Revenue, Walmart Emails
It's been nearly two years since I began this blog (on a different url) and have since amassed hundreds of posts most of which aren't on this website but in a cloud archive. Believe it or not, this enormous bloated page only represents a fraction of the total posts. Eventually I'll get around to organizing them in an accessible format.
The fear that Washington will screw up the recovery is irrational because these journalists underestimate the autonomy and resiliency of the US economy and overestimate the power of congress. Thanks to well entrenched policy of de-regulation (repeal of Glass Steagall) and globalization (NAFTA), policy makers have much less influence over the economy than they did decades earlier. Just undoing a small part of the Bush tax cuts took three years. The fed and the treasury has supplanted much of the role of Congress in influencing the economy. Unless there's a real crisis (not one manufactured by the liberal media) then Congress will act with expediency, but otherwise don't expect much.
Now that the election is over Obama's true colors are showing as he's made every effort to sabotage the economy by pressing for raising the minimum wage, cutting defense and raising taxes on the most productive of Americans. The good news is that worst is over and the next GDP is expect to be a robust 2% and the 4th quarter one was revised positive.
Apple. Put a stick in it and cover it in caramel. After a brief reprieve Apple is back to affirming Newton's observation that apples do indeed fall. I remember in Dec. 2012 reading about how it was 'tax related' selling or funds booking profits after a large run. Or that Apple was cheap and undervalued. Apparently the tax selling went into overtime as Apple began 2013 with a rotten quarter and by the end of January became the worst performing stock on the S&P 500. Yes, Apple sells tens of millions of units and will continue to do so long into the future, but P&G sells lots of toothpaste, Microsoft lots of software, and GE lots of turbines. Is there much enthusiasm for those companies? Not really. Stocks tend to trade on the enthusiasm for the underlying business model, not valuations. Buying stocks on a low PE ratio is a surefire losing strategy. Wall St. has a predilection towards transformative companies such as Google, Facebook, Ebay (more specifically Paypal) and Amazon that not only have rapid growth, but are deemed key players in the burgeoning 21st century digital economy. The industry of selling pretty looking electronics has a cloudy future; cloud computing, mobile payments, social media, and advertising has, on the other hand, endless unimpeded growth on the horizon.
Looking back, hardware stocks typically have a growth spurt of around 10-15 years before tapering off or collapsing, packaged software (MSFT) is longer and intangible software/internet applications (Google, Safesforce, Amazon) may be even longer, still. Dell had a 15 year run from 1985 to 2000. Compaq, Gateway, and Acer lasted around 12 years; Research in Motion 10 years. Apple is approaching its 13th year on its second run; its first run from 1978 to around 1993 lasted about 15 years.
The question being asked on blogs and financial TV "Can Apple still innovate?" Does it matter? The fact we're asking such a question is bad news for Apple because if there's one thing Wall St. hates-even more than regulation and taxes- it's forced innovation. Wall St. looks favorably upon innovation, if the company can choose to innovate at its own leisurely pace versus 'forced innovation', which is where Apple is at now. Competition and changing consumer sentiment is forcing Apple to frantically cut prices, introduce lower margin models, and new categories of products in an effort to be relevant. It's too late now. An iWatch or iTV won't be enough to reverse Apple's murky fortunes. Neither will smaller tablets, improved map software, or cheaper phones. Look at LinkedIn, Google, and Facebook. Those sites haven't changed much in the years, except for incremental improvements for usability. Google and Facebook aren't slashing their ad rates or redoing the layout, as Yahoo has been forced to do many times. Best Buy is being forced to innovate against show-rooming. Wall St.'s perfect company is a black box that perpetually prints money, only needs occasional polishing, and has no competing boxes.
Gold? Buy the dip. Central banks can't get enough of this stuff. Not only gold but buy the dip in Brent crude; however avoid WTI crude. One of the pillars of dyseconomics is that there is an implacable demand for all asset classes by foreign institutions due to rapid growth of an emergent upper and middle class. That includes treasuries, junk bonds, munis, REITS.
As a caveat gold probably isn't as good of an investment as RBOB gasoline (UGA), REITS, high yield munis, Brent crude (BNO) or individual stocks like Amazon or Google.
Profits vs. Revenue. In much of the business world, revenue trumps profits. It gives the liberals on blogs like businessinsider false hope that falling profits will be the death knell for stocks when it's falling revenue combined with falling capex expenditures that is the real concern, but gets much less coverage. That's why Amazon.com, for example, can rally after reporting low or negative profits because they are constantly reinvesting profits into rapidly growing revenue producing outlays. As soon as they release the gas pedal on these infrastructure re-investments profit margins will explode, and Wall St. knows this. Profit margins tend to be much more volatile than underlying revenue and can fluctuate on various seasonal and economic factors.
The results show that the increase in revenue has a much greater positive effect on the valuation of a business for sale then the negative effect from loss of profit and profit margin. The revenue multiple increased by 83% from the lowest category to the highest....
What does this mean to my business? When making decisions about a new product, service or growth strategy, you should value increased revenues over decreased profit margins...
Let's turn to Dr. Google to see how well liberal predictions for falling profit margins have held up (You can do this for anything. It's hilarious that some of these people are paid to be wrong all the time)
Walmart emails. For the sake of this blog post I'll give the liberals the benefit of the doubt and assume that not only do these emails exist but that they have some negative premonitions about the consumer in them. I'm not losing sleep over these emails and neither is Wall St. which promptly shrugged it off by recovering all its earlier losses on Friday and then rallying an additional half a percent to new five-year highs on Tuesday. Inductive reasoning, or extrapolating future failure on past events has lead to financial ruin for many. The hype is just another example of the failure and crisis obsessed liberals on blogs front-running the nonexistent, but always eminent demise of the consumer, the same consumer that was supposed to succumb to debt, falling wages, and pain at the pump. They take un-falsifiable, anecdotal 'evidence' and hackneyed 'theories' and paste it into their looping narrative of impending economic collapse and proletariat revolution. Failure is the opiate of the liberal masses. Thanks to Obama we had our first negative GDP reading in 16 quarters which was met with elation on liberal strongholds such as Huffingtonpost, New York Times, Businessinsider, Zerohedge and Daily Kos.
Here's what will happen: retail stocks will report yet another quarter of blowout earnings, stocks will keep going up, and the email will serve as an unheeded reminder that reality does, in fact, prevail over wishful thinking.
2/19/2013 The Daily View: Jobs, Congress, Immigration, Higher Ed Bubble, Tesla, Pain at the Pump
The great American job machine stalled out in 2007 but that doesn't mean the economy isn't thriving, because we're still in a Goldilocks economy of tame inflation, blowout earnings, surging stocks, and zero deflation. The strength of the US economy is in intellectual property in the form digital exports, business to business based commerce, mobile/digital payments, web 2.0, social networking, and cloud computing. Job creation has been pushed to the periphery to make way for bigger profits and more productivity and stocks going up all the time. The left says there's poor demand due to inflation lagging wages and supposed weak economy. This is wrong. Thanks to the BRIC boom there are billions of new consumers that a decade a ago didn't exist. Standard & Poor's estimates that 46% of revenue for S&P 500 constituents came from abroad in 2010, and that percentage will only keep growing. We need wealth creation from the top down, instead of bottom-up liberalism. If main street is being left behind, too bad. Not my problem. I want more stocks going up, I want more buy all dips. I want to believe that the free market is the best path to prosperity. The problem with the labor market is not a mismatch of skills or a dearth of job openings, rather wages are too high. The prescription for the US economy is more productivity and lower wages.
As of Tuesday, according to Thomson Reuters, 70 percent of the 353 companies to report earnings beat expectations, slightly better than the 65 percent average in the last four quarters and well above the long-term average of 62 percent. This is the highest in two years, but the left still insists the economy is weak, their shrill cries for crisis and recession still ignored since 2009.
According the bond market there's no need for congress to pass a budget. I agree with Krugman that the US is not Greece and that the spending is sustainable, but we disagree on how the money should be allocated. Spending is not the problem; the problem is liberalism.The problem is consumers hoarding money instead spending as much as possible and protectionist policy that shuns immigration and free market capitalism. Here's my 2013 fiscal compromise:
-increase income taxes on those earning less than $200k a year
-eliminate the earned income tax credit
-incentives for outsourcing
-guest worker program and open borders policy
That way we cut the deficit , increase revenue, and keep America safe while promoting pro-growth policy.
We need more immigrants to do the work libs are too lazy, indignant, or unskilled to do. Lazy liberals want all the social programs to themselves while contributing nothing to society but a constant drone of negativity. Not only do 'illegal' immigrants consume a greater percentage for each dollar earned than legal citizens, but they pay into social security with no hope of being applicable to redeem it. Furthermore, legal labor is slow, expensive, and over- regulated.
For years the left has been predicting a bursting of the nonexistent 'college tuition bubble', and they keep being wrong. Higher education is borne out of necessity due to increasingly fickle employers, competitive job market, and demand for technological skills.
Look at this screenshot of failed predictions dating back three years ago. Since 2009 Liberals and paultards have predicted zero of the last dozen bubbles/crisis. They keep being wrong, and god bless them for trying. It makes great entertainment mocking them.
The New York Times vs Tesla debacle pits the curmudgeon reviewer and the antiquated leftist rag against a capitalism success story. This is a smear campaign by the failure & crisis obsessed left. They did this to Facebook before and after the IPO, Goldman in 2009, JP Morgan with the whale trade, Mitt's campaign after the 47% video, Wholefoods after the CEO questioned global warming, and Chick-fil-A for being anti-gay. I post this simple question to Mr. Blodget or anyone else; 'How many times have you ever been stranded because you ran out of gas?' I thought so. It seldom happens unless you are careless and completely ignore the fuel indicators. The people buying these cars are using them for short distances in urban/suburban areas, not 200-1000 mile road trips. I imagine if they are rich enough to afford one, they are competent enough not to get stranded, and can easily summon help if they do.
I still think pain at the pump is funny. It's funny how ppl have to pay more to fill up the tank to get to work. (My solution: work at home) It's funny reading rants on leftist blogs directed against speculators and Bernanke for manipulating prices, when there's not only nothing they can do about it, but that pain at pump is good for the economy which could explain the apathy by congress to do anything about it. If prices won't go lower then liberals wish that gas prices would hurt the economy- in effect driving down prices, but that refuses to happen either.
In 2011 & 2012 I predicted numerous times that pain at the pump is not only going to get worse, but won't prove to be detrimental to the economy whatsoever. In agreement with my predictions, the S&P 500 retail spider is at historic highs along with the rbob gasoline etf UGA. Much to the frustration of the libs, the consumer has learned to adjust to rising gas prices, although having a demonstrable track record of always being wrong won't stop the liberals on the blogs from continuing to front-run the demise of the consumer.
2/15/2013 The Daily View: How to Land a Good Job
I'm getting tired of all the complaining about job loss and recession. If you can't find a job improve your skill set or work for less pay. In this guide I will show you how to land a good paying job. That's my way on behalf of the Institute of Economic Understanding of 'giving back' to those who have been impacted by the worst supposed recession since the 30's or 70's or whenever.
As we all know, many manufacturing jobs have been outsourced or automated, but there's still hope for job seekers. The service sector (e.g., short order cook, WalMart door greeter, cashier, street sign holder) and high tech (e.g., facebook, apple, google, twitter) are growth industries.
To work in the higher paying tech industries it is recommended that you become technologically literate. If you donít already own a computer, buy one. If you already have a computer make sure it plugged in and has internet and so you can send email.
Then proceed to compose your resume with Microsoft Word or Notepad (make sure your computer has a keyboard before attempting this)
It is advised that your resume include your name, phone number, email address (to show technological proficiency), birthday, height, birth weight, birth height, present weight, hair & eye color, waistline (in an effort to improve efficiency companies are penalizing employees who have heath risk factors such as obesity). The resume should also list your hobbies and talents so that you stand out. For example, list your favorite TV show, travel destinations, movie, sports team, or Looney Toons character. If you have any unique skills (e.g., ability to hold your breath a really long time or extra sensory perception) be sure to list them.
Finally put it on monster.com or Linkedin (LNKD).
Once you've completed these steps you'll have a competitive edge and you should start getting high paying job offers almost immediately (check your email!).
I hope this helps.
2/12/2013 The Daily View: How Wealth is Created in The New Era
In The New Era, wealth is created not through the conventional notion of the American dream like home ownership or small business, but through buying stocks, speculation, and internet infastructure (e.g., web 2.0, cloud servers, social networking, digital payments), or as I like to call Matrix infastructure. Perpetually high unemployment and downward economic mobility is a byproduct of an economy running at its maximal efficiency and potential. It's better to have people constantly on their toes for fear of being fired, so they work harder; anxiety begets productivity, productivity begets more profits. Companies are chewing through employees to keep up with the demands of rapid technological progress in the process creating high structural unemployment but more economic growth, better products, and bigger profits. Infastrutre is neglected as a necessity of diverting dwindling federal funds to more pressing issues like defense. The future is one of massive pain at the pump, roads coated in potholes, traffic jams as far as the eye can see, and thick smog in the horizon. I don't know the fate that awaits the masses of unemployed and marginalized Americans but I do know that stocks will keep going up. I do know that the fed will never raise rates again and that the national debt will keep surging because the debt binge- contrary to the misinformation disseminated by the inflation hawks on Zerohedge and Businessinsider will tell you- is forever sustinable in The New Era.
The 2000-2003 period of economic malaise actually dates back to the mid 90's when corporate profits, having risen steadily since the 80's began to fall and the government ran up a budget surplus.
In the graphs below you can see the inflection point of when surplus/GDP began to rise correlates to the peak of profits as a percentage of GDP, around 1996 or so. The irrational exuberance that Greenspan warned us about was already winding to a close.
In 2000 at the peak of an 18 year bull market, everyone felt rich but the balance sheets of S&P 500 companies, on the other hand, were improverished as profits hit multi-year lows. PE ratios were astronomically high and a combination of the Clinton surplus and high interest rates was choking the economy. By the third quarter of 2001 the economy finally entered a recession, the culmination of five years of insidious economic decline that only became apparent in the final year.
Nowadays, mainstreet feels poor but stocks are surging, PE ratios are anemic, interest rates are forever in neutral, S&P 500 companies are flush with cash and we have a BRIC boom creating billions of new consumers. Paradoxically, when the public sentiment is at its most negative is when it's time to buy stocks. In 2008 we became a nation of crybabies forever preoccupied with debt, the misdeeds of Wall St. and unemployment, but the rest of the world has moved on. Smart people are creating multi-million dollar start-ups overnight, speculators raking in millions with long bets on stocks and commodities, home flippers buying foreclosed propery at deep discounts and renting to desperate cash strapped losers at a high premium.
It's indisputable I have been right about everything economics and finance related since 2011. Not only am I an expert, but I have a intuitive grasp of how things work by making connection to things that may not be obvious or forging new connections to create theories that may initially seem preposterous, but agree with the actual empirical data. In 2011 I predicted that rising gas and oil prices would not hurt the economy and lo and behold consumers have learned to adjust to higher prices not by cutting back discretionary spending, but by simply decreasing their personal savings rate and taking on more debt. This is good for the economy to force people to spend. According to dyseconomics all asset classes are positively correlated because of enormous inflows of global liquidity that a decade ago didn't exist, meaning that you can have stocks, treasuries, munis, junk bonds, and commodities all rally together. Of course, this won't happen in tandem but if you plot each asset class since 2009 you will find that they have all made substantial gains. The smallest hiccup from Europe will send treasuries surging, but stocks will fall a little. Then when stocks get overheated treasuries will fall, but not that much. Then oil will rally inexplicably, and one need not wait very long for the usual liberals to blame speculators. Junk bonds and munius are impervious to everything, having long ago defamed bears like Meredith Whitney and Bill Gross.
I also predicted in 2011 that the debt ceiling and in 2012 the fiscal cliff and sequestration would have zero negative long term effect on equities or be inflationary, and with the market making new highs every day my personal reputation for being right to a fault has only been cemented.
Stockcreeper has merged into the Institute of Economic Understanding, a non-profit organization committed to making macroeconomics accurate and accessible. We believe in the dyseconomics interpretation of macroeconomics and The New Era. The Institute consits of three divisions; macroeconomics and futures studies, econometrics, and archives.
There is a growing effort to censor our message. They delete our blogs and posts but everything from as far back as 2011 (including html templates, blog posts, and individual posts) is stored in archives so they can never derive the full satisfaction of expunging our ideas.
The Institute of Economic Understanding is the only organization only one of a handful of websites that accurately and truthfully interprets macroeconomics.
Today's Economic Wrap-Up: Stocks surge, libs lose.
Media-generated Spain inflation scandal. Verdict: not a big deal. Ignore it and buy the dips.
Fiscal slowdown: Non existent as I predicted in 2012 it would be. No one on Wall st. is losing sleep over debt or the overblown fiscal slowdown. Google, IBM, Amazon, Facebook, Twitter are thriving, regardless of what stench is emanating of of Washington.
The 47% of this country wants the economy to contract and for America to be less safe from terror. Wall St. shrugged off that negative GDP, much to the chagrin of the left who's initial elation over the bad GDP number turned to dread as the market pushed above 14000 the next day. I know how economics and options pricing works. I know how stocks work. What the left doesn't yet realize is that the US economy and stock market is thriving in spite of them, not because of Obutthole and that wealth creation is unstoppable.
Any problem, no matter how trivial, is amplified into a crisis in order to push a wealth spreading agenda to 'fix' the non-existent crisis. The libs on news sites like Zerohedge, New York Times, Huffingtonpost, and Businessinsider seek crisis and recession to bring the world down to their level. The fed is creating prosperity in the form of this huge bull market and then you have the liberals on the blogs always criticizing, using the rich as a scapegoat for their problems.
My question is: when did America become such a nation of crybabies? When did failure, or more specifically the wanting of failure, become the new national past time? Why can't we just accept that everyhting is OK, there ar no hidden risks, no tail risk, no problems, no crisis, no double dip, no inflation, no deflation.
2/5/2013 Pricing March 15th BlackRock, Inc. (BLK) Options
From part of the paper about pricing options:
I'm going to price BLK puts and calls using Chart to Scalar. BLK rose from 190 to 239 (2/5/2013 closing price) in roughly 50 trading days. The March 15th Call/Put expires in 28 trading days.
It has an average daily volume of 7.7*10^5 (yahoo finance) And an average order size of a_v=2*10^3 to 3*10^3 upon looking at the one day yahoo finance chart
The mast extends to 267
The standard deviation is roughly 11.37
786000 is the constant q or v_g/(p_3-p_i)
The truncation factor is tiny and can be ignored
Let's price our $240 March 15th call
Truncated call: $3.84
non-truncated call: $4.06 which agrees with the yahoo finance quotes
240.00 BLK130316C00240000 4.25 1.16 3.90 4.20 13 254
increasing the a_v to 3*10^3 increases the call it to 4.5
The non-truncated $250 call is $1.01; truncated $.91
Versus yahoo finance which has a bid/ask of $.8 x $1.0
The short term put options seem way overpriced
Chart to scalar gives $1.39
Versus yahoo Finance quotes of 2.50X2.85 bid/ask
Summary: Downside protection is too expensive because of increased possibility of bad news from Europe?
Because stocks are falling today it's time to price some short options and a put option.
Example 1: Facebook (FB), Feb 15th $28 call
Facebook has fallen from 32 to 28 in roughly seven trading days. It has an average daily volume of 7*10^7 shares. The Feb 15th expires in 9 trading days. In 9 days that is 9*7*10^8 volume.
Solving the equlibrium equation shows the mast extends to $33 as the upper limit.
http://www.wolframalpha.com/input/?i=%2814*7*10%5E7%29%2F%28%288%29%282%2Bln%28x%2F2 8%29%29%29%3D%287*9*10%5E7%29%2F%282*%289%2 F14%29*8%2B%28x-28%29*%28ln%28x%2F28%29%29%29
The average order size is around 1*10^5 to 2*10^5 by looking at the one-day yahoo finance chart for FB.
For a_v=2*10^5, sigma_p=2.3
http://www.wolframalpha.com/input/?i=%28%289*7*10%5E7*2*10%5E5%29%5E%281%2F4%29*%288*28.20*122500000 %2B%289*7*10%5E7*2*10%5E5%29%5E%2 81%2F2%29%29%5E%281%2F2%29%2B%289*7*10%5E7*2*10%5E5%29%5E%2 81%2F2%29%29%2F%282*122500000%29>
For a_v=10^5, sigma_p=1.9
The truncation factor is small
The truncated call is worth $.99 for a_v=2*10^5
Non-truncated call: $1.11 for a_v=2*10^5
The non-truncated call is worth $0.92 when a_v =1*10^5
For comparison, Yahoo Finance gives:
0.96 0.93 0.94 http://finance.yahoo.com/q?s=FB130216C00028000
The facebook $28 call with a March 15th expiration is a good deal because chart to scalar overprices it when a_v is increased to 2*10^5.
2/1/2013 Pricing Options with Chart to Scalar
With Chart to Scalar, the official option pricing algo of The New Era, we price options not with brownian motion and log-normal drift but by converting stock charts into simple lines and triangles that represent resistance and support forces. These shapes (and more complicated ones such as convex and concave curves) result from the interection of buy and sell orders in a trading space.
In this example Chart to Scalar will be used to price SPY March 15th 2013 150 strike options with the following assumptions: 0% risk-free interest and no extra buy orders. Data is as of the close of 1/31/2013.
By cursory observation SPY has risen from 135 to 150 in a 2.5 month period (about 50 trading days) and has a daily volume of 1.4*10^8 shares. The call option has a strike of 150 and expires in 1.5 months or around 30 trading days.
Because there is no resistance triangle we have to invent one. The support trianlge is the reflection which is already established.
Our main variables:
p_3=165 (the mast of the conceived resistance triangle)
p_1=150 (current price)
a_v=5*10^5 (can range between 10^5 to 10^6. It's a very heavily traded ETF)
Plugging these into the equilibrium equation and solving (I have linked the steps to wolfram alpha to make it easier to follow along)
Wolfram research can apparently plot it but refuses to solve it, so 156 is the closest approximation.
P_max=156 (the resistance triangle)
p_min=144 (the support triangle, which is a simple reflection about y=150)
Now use the standard deviation quadratic approximation formula
http://www.wolframalpha.com/input/?i=%28%2830*1.4*10%5E8*5*10%5E5%29%5E%281%2F4%29*%288*150*4.67* 10%5E8%2B%2830*1.4*10%5E8*5*10%5E5%29%5E%281%2F2%29 %29%5E%281%2F2%29%2B%2830*1.4*10%5E8*5*10%5E5%29%5E%281%2F2%29%29%2F%282*4.67*10%5E8%29
Calculate the truncation factor:
Integrating the probability density function
Put it together to calculate the call option
C=$1.37 for a 1.5 month expiration (March. 15th 2013) SPY 150 Call
If a_v=10^5 then C_150=1.2 for a lower bound
If a_v=10^6 then C_150=1.4
These options are very cheap compared to the 'official' ones quoted on yahoo finance or morningstar.com, but that's because the truncated pricing formula is being used.
Today on 2/1/2013 SPY closed at 151.24.
The 151 call March 15th according to the un-restricted option pricing formula is 1.32
Versus morningstar.com official quotes:
151.00 2.29 2.32 2.34 (bid/current/ask)
Going down the call table the formula outputs:
C_152 = 1.84
C_153 = 1.43
C_154 = 1.09
152.00 1.75 1.78 1.80
153.00 1.30 1.32 1.33
154.00 0.88 0.92 0.95
The 'official' SPY call options are probably overpriced, but chart to scalar is making the asumption that buy and sell orders have equal probability and the the trading volume is evenly distributed about x_2-x_1. If a stock is in an persistent uptrend then it is safe to assume there is a slight buy order bias which would be reflected in higher values for sigma_p and mu_p.
Perhaps selling SPY March 15th calls with a 156 or 157 strike maybe be a good strategy because that is the upper bound of the truncated price range.
Da da da dum another post. woo hooooooo markets keep going up for all the reasons I've given in my earlier posts. The jobs report coudn't have been more bullish: an uptick in unemployemnt will keep the fed on the gas pedal but the increase in new jobs will create the impression that the economy is in recovery. Hopefully we will get to 8.5% unemployment and dow 15000. We need more productivity, exports, consumer spending and fewer jobs. I want more buy all dips. I want more stocks going up. In America we may not create many jobs but we also have the best performing stock market in the world and all the biggest social networking sites. We have google, apple, and amazon. We have Fox News and CNBC. We have the most productive workers in the world. We have a congress that is committed to pro-growth and less regulation.
Here we go again. Another huge rally for the market, another post on stockreeper, more crap links posted on businessinsider. These perts are making it a stuggle, but progress is what is done. When it's finished it is beneath you and you can move on. The goal is completion, to take these ideas and put them in written form right now. Like a sedimentary rock each layer of strata is a task or an idea, and each new idea buids upon a previous one until you have a finished product.
Today's essay: Things That Don't Matter (with regard to stocks)
Markets are surging despite an awful consumer confidence number. What gives? I'll explain. Investors are bombarded with economic data, but 99% of it is of zero predictive value with regard to quities and should be ignored. The good news is most retail investors do ignore it, but it's usually the bloggers that ruminate over these trivialities. They get stuck in the minutiae of the economy while missing the bigger picture.
Consumer confidence doesnt matter becuase (news flash) un-confident, consumers consume as much a optimistic ones. But there is an upshot- poor consumer confidence, which is positively correlated with a poor labor market results in consumers being more productive at work for fear of being fired. In this sense, poor consumer confidence is actually good for the economy because spending is unchanged but productivity goes up.
Did you hear about the 1994 scare? I did, and laughed it off. The risk of a repeat of the 1994 bond market mini-crash is non-existent. The libs have predicted ninety of the last zero crisis. Since 2009 they predicted hyperinflation, deflation, bank crisis relapse, bond market collapse, double dip recession, S&P 500 profits contraction, bear market, Greece default, Eurozone collapse, consumer spending contraction, de-leveraging, bursting of the education bubble - all wrong. Not a single prediction came to fruition. The slightest hiccup from Europe will send yields crashing even if the major indexes keep rising along with oil and gas prices. The world is awash with liquidity and unlike the 90's there is an unquenchable demand by foreign governments and institutions for exceptionally low yielding US paper. Dow 15000 and the 10 year treasury yield may finally break 2.5.
Housing starts, housing stops, home prices, new permits, pending home sales, etc. Lumped together as 'housing', none of these matter much. Despite getting a disproportiante amount of news coverage, housing only contributes 2-4% of the US GDP. As far back as 2006 when I began following the economy more closely I can't recall a SINGLE time the market has ever fallen substantially on a poor housing number. I think the worst I can remember is a loss of 50 points on the DJIA on a horrific number, but not more.
Manufacturing surveys: Dallas Fed, Philadelphia Fed, Richmond Fed etc. All of these can be lumped as 'manufacturing', and like housing seldom move the market even when the number is bad. The strengh of the US economy is in intellectual property based exports (movies, software, social networking, cloud), consumer spending, free market capitalism, service sector, and financial services. Manufacturing is only a couple of inches above dirt on the economic totem pole. The most I have seen the market fell on bad manufacturing data is around 50 points.
Beige book. Another non-event.
Consumer credit. 95% of the time better than expected. Waiting for that consumer deleveraging? Not gonna happen, sorry. American consumers have a propensity for comsumtion and credit unmatched in the world.
Durable goods is another indicator worth ignoring. This tends to be very volitile and a poor predictor or future stock market returns or economic growth. Released at 5:30 it seldom moves the market much even when the number misses badly, as it often does.
Weekly jobless claims. Unlike other indicators this has the potential to move the market, but has a positive bias because it's impossible for the number to be truly 'bad'. For example, if it comes in weak then it increases the odds of more fed easing. If it comes in strong then it's a sign of economic strength. Either way, a win for the markets.
Bad data in the less important things (housing, jobless claims, manufacturing, durable goods) is paradoxically bullish because it gives the fed a good excuse to continue easing, even though the actual adverse economic impact from this poor data is minimal. The result is a net economic GAIN from the easing, hence bad data in less important things becomes GOOD for the economy.
Unemployment data - big headlines, but limited downside for the same reasons as the weekly jobless claims. I can count on one hand the number of times the market fell a lot on a bad unemployment number - twice in 2007 when the DJIA fell 300 points and a few times in 2008 and 2009. People losing jobs by the millions, lower number of hours worked, people being unable to find work or being out of the labor market for years at a time, and skills mismatch in the labor market just isn't a big deal for the economy. That's the way it is. Want to find a job? Get better skills. Stop being a crybaby,
Pain at the pump, surging oil prices, surging corn and wheat prices. Again, not a big deal because this is bullish for the energy and commodity sectors and other sectors have proven to be resiliant, despite never-ending pronouncements by the left about how pain at the pump will squeeze the comsumer and economy, and yet is never has and never will. The lower & middle class spending more money for food and energy is good for the economy by increasing aggregate consumer spending, profits and earnings and hence GDP while lowering the personal savings rate. The fallacy perpetuated by the echo chambers of the leftist blogosphere is that surging food and energy costs will eat into other forms of consumer spending, but the data has shown this is not true; instead consumers will dip into their personal savings to compensate and leave discretionary spending (electronics, automobiles, home repairs, vacations) unchanged. The reuslt: more spending.
Dow theory transportation indicator. Dow theorists were rightfully ridiculed when their indicator failed in 2012 and the theory fails upon closer scrunity. Maybe the transports are lagging not because the economy is weak, but rather the business of transporting stuff isn't as lucrative as it used to be? Look at airlines, for example. These have been some of the worst performing stocks in decades, but that's because the business of air travel sucks, not the economy. Same for dryshipping stocks which were decimated in 2008/09 and have never recovered.
Political uncertainty. Did you hear about the impending goverment shutdown, sequester cuts, the debt ceiling or the fiscal cliff? Short of cutting off conventional news sources it's imposible not to. You can take the headlines from June 2011 about the cliff and after replacing some of the names and dates it would be indistinguishable from today's headlines about the subject matter. In June 2012 the market finally exited headline carousel, posting massive gains. The blogs are still riding the merry-go-round in the hope that if they make one more revolution that something will change. Nothing will change, but it doesn't have to. This Washington 'dysfunction' bemoaned by the left is good for the economy. Congress is like a Galapagos tortoise spending most of time in hibernation and lethargy, only to be arroused at the most pressing of concerns like a crisis in 2008 or 2001. Otherwise, it doesn't want to be disturbed and if you prod its shell or curse at it it won't do anything.
Kill your TV, turn off the radio, stop reading the newspaper. Stop reading these articles written by liberals that conflate economics with sociology. Krugman's New York Times column is one such example. Dean Baker (Huffingtonpost), Charles Blow (New York Times), David Brooks (New York Times wealth spreading sympathizer pretening to be bi-partisan) and Robert Reich are others. The cycle of negativity or FUD that is constantly being regurgitated will mislead you. David Brooks recerntly wrote "As the winners of our meritocracy hold the reins of progressive power, they may struggle to mitigate the inequality their own ascendance has helped produce." Spoken like a lib. This innequlity is a byproduct of a thriving modern economy, not a threat. It is to be encouraged.
Retail/investment bank earnings. Since 2007/08 or so I can't recall a single quarter where these banks produced a genuinely bad number. It seems like they always beat or better than expected no matter what. Goldman is probably going to $200 soon, BAC $15, everything keeps going up.
The 'slowdown'. According to the liberals the economy has been in a slowdown since 2009, 100% gains in S&P 500 profits & earnings and equity prices notwithstanding. That doesn't count, apparently. Unless the economy recovers in a way the left deems equitable and fair, it hasn't recovered at all and any gains are the reuslt of ephemeral funny fed money than real economic progress. Nevermind, success stories like Google, Apple, Facebook and Twitter- NO- it's funny money at the root of it. It's the rich stealing from the poor, or reverse Robin Hood as quoted by Paul Krugman. When the left can't get the rich to share their wealth they want it destroyed through economic crisis.
But the left still insists the economy is weak. Their shill cries for crisis and recession still ignored since 2009. It's fun mocking them for the negative losers that they are. Wall St. is back with a vengeance. People are getting richer than ever with speculation, sevices and web 2.0. Thank you Mr. Bernanke for creating a macro envirmentment condusive for wealth creation. Your detractors can pound dirt in the unemployment line or welfare office.
Fed raising rates. This was a big theme at Davos. In 2013 there will be some exogenous inflationary event and someone will pull a gun to Bernanke's head and force him to reign in the money supply, or the economy will die. Seomthing like that, and completely unfounded. Here's what will happen when the fed begins to raise rates: maybe a brief sell-off but the market will resume it's rally in earnest because what matters is not that the fed raises rates, but if he's behind the curve. Bernanke has given every indication that like his predecessor he will stand behind it. By the time he gets around to finally raising rates he will have long since telegraphed his intents to the markets and no one will care. The federal funds rate was lowered from 6.5% in December 2000 to 1% by June 2003. It was kept at 1% until June 2004 when the rate was raised by 0.25%, yet the market doubled until rates finally peaked in 2007. The market has already mroe than doubled from its 2009 lows, but rates still haven't budged. I can extrpolate that the DJIA may reach 25,000-30,000 before the interest rate cycle peaks again.
Eurozone crisis relapse. The positive is that if Greece, Spain and Portugal steal the limelight in 2013 that it will invalidate the preceeding paragraph. Yeilds will plunge and the inflation hawks will be besmirched again as the discussion returns to how wonderful the US dollar is as a safe haven. I believe that like the debt ceiling the market has stopped caring and the US indexes may decouple as Europe falters.
One Source: http://pages.stern.nyu.edu/~nroubini/bci/
I called Roubini an udder face and other insults because I disagree with his political views and find his appearence aesthetically un-pleasing, but he has done a good job compiling various economic indicators and explaining their signifigance from an objective standpoint. My biggest cmplaint is when trained economists venture into politics and try to turn economics into sociology.
1/25/2013 An Era of Economic Perpetualism
We're in an era of economic perpetualism or an age of zero where there is a tendency for things to remain the same. Stocks always go up, profits and earnings always better than expected, interest rates will never budge, and a never ending shortage of jobs and anxiety. By an age of zero I mean an era of zero upward mobility for most Americans, few opportunities...a rut pretty much for most of the country. The smarties are whizzing ahead but maybe that's the way things were intended because it's optimal for the economy to have a recovery where few participate in it. The smarties are the most deserving because they contribute disproportionately in the form of investment and spending, so let's give them first dibs on the recovery and maybe they will create a few jobs that few are skilled enough to qualify for in return. I don't think anyone on the NYSE has ever complained of too few jobs; it's always the opposite - too many jobs which then forces the fed to raise rates and hurts profits and stock prices.
If you want to participate in the ownership society, if you want to become an acolyte or a disciple instead of a poor loser then you need to develop the necessary technical skill-set. If you can't do that, then buying stocks on the dips may allow rich enough to buy yourself a membership. The job creators can't create jobs when there is so much class warfare emanating from Obama and the boo hoo who is me media. Spreading optimism about the economy will help you find a job. If you lose your job throw a huge party for your friends and maybe one of them will hire you. Optimism is infectious and begets more optimism and opportunities.
Is there uncertainty in Washington? No. Everything is going as planned, because stocks are surging and the economy is boooming. This anxiety about the deficit is manufactured by the blogs and media for ratings. No one on Wall St. is losing sleep over debt and neither are the bond holders. The debt binge is still sustainable and hyperinflation is a remote possibility even as the deficit keeps growing and stocks keep surging. It's paradoxical, yet the facts are immutable. Oh, and I'm always right.
1/24/2014 Nicolas Nassim Taleb - the Short-Fused Liberal Hypocrite?
Nicolas Nassim Taleb is wittingly endorsing fiscal policy that will enrich himself while devastating the economy and the pensions of millions of people. 'Anti-fragility' is tantamount to deflation and the destruction of equities.
The very quantitative finance equations he renounces in his 'Black Swan' trilogy he uses for his own papers, in one recent example using a hypergoemtric distribution to try to 'prove' why the average fund manager will underperform the aggregate. He's also profiting from textbooks in his name bearing quantitative finance equations. How can he in good faith profit from textbooks that contain formulas that he believes are worthless? If the formulas are worthless, then so aren't his papers and books, too? But regardless of the validity of his formulas, Nassim Taleb's advice as a trading or investment method is ostensibly worthless as well.
I recommend Title: Taleb's Own Black Swan. it explains why Black Swan or tail hedging strategies don't work in today's low inflation, low valuation economic environment.
Final question: why does he criticize the media for journalistic malfeasance while simultaneously seeking the media to promote his books? Hmmmmmmm? Like most liberals, he wants special attention but cries foul when people return stones at his glass house.
When asked about bank compensation, Taleb's answers are laden in FDR inspired liberalism and devoid of critical thinking. He never answers HOW long a bailed-out executive should be paid like a 'civil servant', or under what conditions. What if a $200 billion company is bailed out for five dollars; would all future executives be penalized? That would be unreasonable, so there is a grey area that Taleb refuses to entertain. Wouldn't the penalties at some point be removed? How about when the companies repay the bailed-out money, which is what happened in 2011 when the treasury reported a profit from TARP. How many eggs do we have to break to cook the perfect omlette of regulation? We can stop the unproductive charade of outrage and scorn and learn to celebrate the free market, instead of punishing it for old misdeeds.
"Words cannot convey how angry I am right now"
Peter Schiff Was Wrong
Someone needs to create a 'Peter Schiff Was Wrong' meme. Peter Schiff is perhaps the worst economic prognositcator ever. His batting average is 000. Even a broken clock has him beat. Please spread the 'Peter Schiff Was Wrong' meme to all your friends to warn them to to take anything he writes with a big laugh and a grain of salt. Watch his videos from 2009 (please set the volume on low because he sounds like a bullhorn). He predicts everything that DOESN'T happen. There was no hyperinflation, no stock market crash, no dollar crash, no default, etc. Even when he's bullish he's wrong. He was wrong that foreign currencies and markets would be 'safe havens' - the opposite has happened as foreign indexes and currencies have lagged the S&P 500 and the US dollar by doube digit margins.
"I Bought These Cool Glasses With Your Money!"
Liberalism - An Ideology Of Crisis & Failure
Liberals with a few exceptions like Larry Summers want the wealth to be spread and destroyed and the biggest concentration of wealth is in stocks, making the stock market an easy target. They also want hyperinflation and deflation so various asset classes become worthless or bond holders lose money. Liberalism is predicated upon failure. Welfare liberals are the liberals that voted for Obama in droves and want the 1% to spread their wealth to undeserving people. Any wealth that can't be forcefully spread they want destroyed through crisis, which explains why liberals were such staunch opponents of TARP and European austerity. Liberals are drawn to crisis and failure like bees to honey. If there's an economic problem you can be sure there will be liberals swarming blogs like businessinsider, huffington post or zerohedge wanting it to get worse. Of course they don't always identify openly as Obama suporters, but their ideology almost the same as one; a wanting of economic failure that will indirectly cause wealth of the 1% to be destroyed and the legalization of gay marriage, abortion, and marajuana.
A paultard can't come out and support higher taxes on the rich because he needs to retain his 'libertarian, anti-Obama, small gov' credibility, so how can he promote his wealth spreading agenda in a libertarian compliant way? Simple, by going after the fed. Abolishing the fed or going on the gold standard would cause recession and plunging markets, hence destroying wealth that he can't spread through taxes.
I have been given orders by the The Creators of The New Era Coalition to make as many posts as possible on BI and other sites preaching about how great the economy is and the threats posed by liberals. They want me to tell you why the economy is fundamentally sound. Having recived the necessary training to become an economic expert I am qualified to recieve communications from The Creators and publish it to the public.
The Daily View: 1/22/2013
Sell Apple on Earnings, Perts. Buy Facebook and Google
Here's my experience with companies that perform very poorly relative to the S&P 500 before earnings like Apple: it gets worse, not better. Apple is the most most scrutinized company in the world right now. The funds know that earnings suck and the result will affirm this, much like last quarter. If earnings were gonna be good Apple would rally into earnings because the funds would get whiff of it though their proprietary surveying methods before retail investors do. For the last two quarters Apple has sold off after earnings and this is no different and any pop will be quickly sold off. Salesforce, IBM, Facebook, Linkedin, Google and Amazon look poised to crush expectations though.
The problem's with Apple is that they are in an bad situation of being forced to innovate. WALL ST. LOVES INNOVATION IF ONLY AT THE VOLITION OF THE COMPANY. Wall st. HATES 'forced innovation'. Consider craigslist. They have not changed anything cosmetically since 2003. They don't need to innovate because there are no competitors. All they have to do is sit back and collect endless money from advertisers.
If the sun rises, Facebok is relevant. Apple need to keep frantically developing new products, itterations, and upgrades to be relevant to an increasingly fickle consumer market who have more smart phone choices than ever. Facebook, Linkedin, and Amazon users have no choices, so they will keep using those sites even if they don't innovate. Additionally, those companies have moats that are impassable to even the most determiend and deep-pocketed of competitors. (Look at Bing , for example. A decade and billions of dollars later and Microsoft search is still in third. It is estimated that the reason why Bing has any marketshare is because it's the default search engine when people buy new PCs) Apple will continue to sell tens of millions of units, but the enthusiasm has long evaporated and isn't going to return.
The big four; Amazon, Google, Facebook, and Salesforce are the architects of a real life Matrix that in the distant future may resemble the one in the eponymous movie, but for now it's a matrix of mobile advertising, mobile payments, cloud storage, and social networking. Apple's contribution to this matrix is regrettably missing.
Today's Post 1/17/2013
Chart to Scalar is almost complete- an attempt to create a unified theory for the mechanics of stocks prices in the same way that Dyseconomics is a unified theory of 21st century macro economics. The former was much harder to codify and still isn't complete.
Chart to Scalar can be used for pricing options and other usefull applications. It's the closest thing in my opinion to a theory for financial markets. http://en.wikipedia.org/wiki/User:Stockequation/sandbox
Original Dyseconomics Essay http://dl.dropbox.com/u/134193923/archives/142.htm Amazing how two years later it's still 100% relevant and correct.
2nd Post 1/17/2013
The New Era is here, having crossed the rubicon years ago and there is no turning back. We're still in a greatest economic and stock market boom in the history of human civilization which shows no signs of slowing. Since 2009 never before has so much wealth in nominal terms has been created, and in such a short time period. The stock market is impervious to everything. There is no such thing as bad news when all problems fall into one of the following categories:
1. priced in
2. not as bad as expected
3. easily remedied by printng money
Nothing fundamentally has changed since 2009 when the bull market began. Rates and inflation still rock bottom with profits still fat, PE ratios very low. Five years from now things will still be unchanged; all predictions of a bear market, hyperinflation, deflation, bank crisis relapse, recession etc will be wrong. Peter Schiff will be discredited and Bernanke vindicated. We're gonna have wealth creation on an unfathomable scale- if only for a few, and perpetually weak labor market. We're gonna have $5/gallon gas soon, but forever low treasury yields.
Wealth is created not through small business, attaining college degree or home ownership, but by buying the dips. Buy AMZN, FB, and Google. Buy UGA gasoline etf. Buy ES, NQ, SPY, DIA, and QQQ. Buy treasuries, oil, municipalities, and gold at the same time. If it's an asset class and it trades, buy it. Everything is going up because the world is awash with endless liquidity.
Facebook, Google and Amazon are the only three stocks you need to own because they are laying the digital infrastructure of The New Era, like the railroads did in the 1900's. Uploading pictures on Facebook, clicking google ads, tweeting or buying on Amazon contributes to the economy as much, if not more, than having a job. This is the new economy. It doesn't always make sense but it works. It's making ppl tons of money. It's why stocks are always going up.
If the media says something is a problem, ignore it. Pay no mind to to the alledgely weak Q4 earnings because earnings are still gonna beat, no matter what. It's impossible anymore for companies to report truly bad numbers because all supposed earnings weakness is telegraphed well in advance by the media and analysts. The downside surprise factor is gone due to information symmetry, but the upside is bolstered.
Stocks keep going up, and I must continue to plow ahead. Now is not the time to slow down even when things aren't going so well. There is success on the math front , and great successes on the facebook front, but no much on BusinessInsider. Now may be a time to resonsider the strategy. We're getting closer to completion. The updates are far and few between, but progress nonetheless.
The math paper is almost done. Just need to add some more proofs like why the geodesic of one of the first four fundamental symmetries is simply a reflection of the LHS curve and examples. http://en.wikipedia.org/wiki/User:Stockequation/sandbox
It's amazing I was able to turn these loosley tied ideas and put them into a paper to create a theory that can be tested and applied. This is what it's all about. Taking ideas and writing them down. Othwerwise they vanish.
The first step is writing it down
Why posting less on business insider? Because there's no money to be made posting links and it's become too difficult after recent changes to the moderation system.
In 2011 I was motivated to write the article on dyseconomics because the majority of economic writing on the web is motivated by ideology and a general desire to see the market fall or the economy contract, rather than obective analysis of macro econ the way it is versus how they want it to be. This bearish bias produces faulty reasoning and bad predictions that I felt compelled to correct though my own blog.
What is it?
How is it derived?
Examples of usuage
What is the new era?
The New Era is a whole new way of looking at the market that begins phase 3. The old era is about dyseconomics. Any more writing on that subject matter and I would be repeating myself.
Phase 1. first blog 2009-2010
Phase 2. facebook 2010-2012
Phase 3. second blog 2011-present
Prelude to the New Era: Economic Perpetualism and the Eminent Market Breakout
Since 2008/09 we've been in a so called era of 'economic perpetualism' characterized by a lot of angst and headlines but a perpetuation of the same stuff we're grown accustomed to over the past years - easy money, lots of debt, financial market intervention, a dithering congress, a contentious 24-7 campaign and news cycle, weak labor market, and rising prices. You can substitute today's economic and political headlines with ones from 2009-2010 and only astute readers would be able to tell the difference.
The bullish backdrop for equities is still intact; profits & earnings and exports still chugging along at a brisk clip and it's safe to assume interest rates are never going up in our lifetime. Keep in mind that slowing growth is STILL growth- a lot of bearish pundits seem to confuse slowing with contraction. The fiscal cliff is coming, but I trust the bulls will be right and stocks will continue to shrug it off, as they have done thus far. I am faily certain that the 'cliff', while theoretically large, will in retrospect won't amont to much more than a sidewalk curb. Bell weathers like Apple, Amazon and Google will keep posting blowout numbers, and any earnings damage that can somehow be attributed to the cliff will be minimal even if GDP is weak. What about the falling transports? There will always be weak sectors (like transports or energy) but stronger ones like tech and consumer discretionary will compensate. That's how a market works- some sectors raise and others fall, and if the quantity risers exceeds the laggards the market will rise. Remember in August 2011 about debt standoff and the allged hyperinflation that was destined to follow? Didn't happen and more amazing treasuries (TLT) have rallied, along with stocks and pretty much everything else except the dollar.
I am emphatically bullish because the DJIA on the multi-year chart is showing a ascending triangle or rising wedge.
**Just one day after I drew this chart the DJIA has surged over 200 points**
A massive breakout to 14,000 is eminent, along with $100 oil and Gas $4.00 gallon. Grains and gold will surge, too. The catalst will be a combination of dovish statements form the fed and ECB, or many nothing at all. It will just happen and catch many people by surprise. Treasuries will fall, but the 10-year will probably not exceed 1.8 again, even with the DJIA at 14000.
We can test 125 on DIA (or DJIA 12500) and the pattern would still be valid.
A New Era
Between 2011 and 2012 I have written over 140 articles centered around the theme of dyseconomics. The entire archive can be found here:
Beginning with the first article written in May 2011, all of my predictions (except a few about Newt Gingrich and Facebook stock) have come true. Stocks are surging like I said they would. However, treasuries are also rallying along with stocks with TLT and DIA BOTH posting large gains for the year due to an overabundance of global liquidity and a flight to safety. Treasuries will look for any excuse to rally. Draghi farts and TLT is up 60 cents..that's the kind of market this is. The treasury bears have been wrong since 1981, and they will keep being frong even as the dow passes 15,000 and oil $200. Commodities, food prices energy prices also going nuts (as I predited would happen). But these surging prices still aren't hurting the economy, nor is the fiscal cliff which I predicted many months ago was more like a 'sidewalk curb' than any real threat to the economy. The dow is within striking distance of 4-year highs. No on Wall S.t. losing sleep over debt, fiscal cliff, pain at the pump, Europe, or job loss. Joe W. is wrong; Job less claims don't matter- profits & earnings, exports, consumer spending and the fed does. Those things keep getting better and better, quarter after quarter with no end in sight. More people looking for works means a higher unemployment rate, and therefore more easing from Bernanke and lower polls numbers for Obama- both bullish for stocks. Oh and Paul Ryan has infused some much needed life into the Romney campaign. Massive pain at the pump and nosebleed energy & food prices takes its toll on the Obama campaign, and no amount of rhetoric about drilling or empty threats targeted at supposed 'speculators' will derail this trend. Consumers are being forced to max out the credit card on gas, enrgy, food, healthcare and education and Wall S.t is loving it. Buy the dips= make money. There will NO relief for consumers this summer or winter...gas prices will hit $4.30 nationally just in time for Obama to lose. Unemployent will keep rising as jobless claims spike. But stocks, on the other hand, will keep rallying. All bad news is either priced in, unimportant, or lagging. This market is impervious to anything. There is nothing that can stop this new era of limitless wealth creation and asset inflation.
Things That are Good For the Economy
Stocks are surging today on news of Romney pulling ahead in major swing states, especially Florida. Here is a list of things that are traditionally thought as being bearish but are actually bullish for the economy in the context of dyseconomics.
Falling consumer confidence is bullish because pessimism usually stems from job related uncertainly, so employees will become more productive for fear of being fired yet actual consumer consumption remains unchanged. Historically high confidence has coincided with market tops and tighter fed policy. Low confidence means fatter profit margins for S&P 500 companies, a more accommodating fed, and higher equity prices.
Negative fed economic outlook is bullish. The content of Bernanke's outlook hasn't changed since 2009 with the usual 'slow growth, headwinds' blah blah blah yet stock prices and earnings per share have doubled since the March 2009 lows. The Fed's attention is on housing, GDP, and employment - three data points that have consistently lagged in this huge bull market. Wall St., on the other hand, is focused on profits & earnings, exports, productivity, consumer credit, and consumer spending - all which have boomed since 2009 with ZERO signs of slowing. The fed is using the under-performing data to justify leaving rates at zero forever, and Wall St. is loving it.
Small business pessimism is good for stocks. Same for companies refusing to hire. Fewer employees = higher earnings per share. The 'demand side' fallacy of who is going to buy the goods without jobs is debunked because the purchasing power for foreigners (exports) and the highest of income earners is enough to compensate for any decline in purchasing power from high unemployment. Job creation along with housing and small biz will have to take a backseat in this economic boom. Web 2.0, dollar stores, and smartphones is where the growth is.
The drought is good for stocks and the economy. Hopefully oil, gas, corn, and food prices prices will keep rising not only so I make more money being long, but so that Obama loses. Asset inflation unstoppable. More speculation, more booming global growth, no slowdown, no double dip. Increasing anxiety over pain at the pump and pain at the checkout line is ultimately good for the economy by forcing consumers to max out the creditcard on inelastic goods when they would otherwise save the money.
Full employment and large social safety nets are not only impractical but economically deleterious. It's better to have people antsy and anxious about their futures while working more productively and spending more money on transportation food and healthcare to keep the economy booming.
Updating the Funny List
It' time to update the funny list. This is a list of liberal platitudes that I find funny.
1. 'too much debt/ our children will inherit the debt/ etc' People complaining about debt and government spending. They are found on blogs like businessinsider and zerohedge and pretend to be conservatives, but are actually liberals beause they want to spread the wealth through fiscal restraint and ending the fed versus raising taxes and regulation preferred by welfare liberals. The endgame is always the same: wealth is destroyed.According to the bond market the debt binge is still sustainable.
2. 'Ron Paul can still win'. LOL he can win if he the only candiate on the ballot, but he would still lose to the hanging chad. He lost the primary not because of a conspiray but because his economic and foreign poliy views are more alligned with Dennis Kucinich or Occupy Wall St. than actual republican values.
3. 'End the wars' Lets not. We need more preemptive war to keep America safe from potential hostile governments and put more money in the pockets of defense contractors. This is good for growth, good for stocks.
4. People losing their jobs and homes, and then complaining about it. It's funny reading articles about job loss and stuff like that. The economy thrives off profits and productivity, not useless, redundant, overpaid jobs. The service sector is still doing great. There's a lot of jobs if people are willing to work for lower pay and fewer hours. If you are out of college consider yourself lucky if you can get a job in a growth industry such as a Walmart door greeter.
5. 'The fiscal cliff is coming' Did it ever occur to these libs that their track record for predicting crisis is really poor? The fiscal cliff is more like a sidewalk curb, just like the debt ceiling in 2011 wasn't a big deal either. If the left says 'crisis', rest assured there won't be one lol.
6. 'I hate our government...but I want Obama to win' These closet Obama supporters on sites like businessinsider pretend to be bi-partisan discontents, but their allegiance is still with Obama, and this becomes evident if you write a post that is critical Obama or praising Romney because they will shed thier bi-partisan cloak give 'thumbs down' on your posts.
7. 'We're in a crisis/recession' Umm...no we aren't by any stretch of the imagination. Even if GDP is a little soft we still have quarter after quarter of blowout profits and earnings from large cap globalist companies like Apple, Google, Mastercard, IBM, etc. Profits and earnings > GDP. 2% GDP growth and 5-10% profit growth is sustinable. There will be NO profit margin correction as the left has incorrectly predicted since 2009. No double dip either. There will be no collpse of the bond market either, so you can have near record low treausry yeilds and dow 13000. You can have 8% uneployment, perpetually low consumer confidence, and a booming economy. It's happening now. People falling between the cracks and downward economic mobility is side effect of a dynamic, growth-oriented economy.
8. 'Wall St. Got a Bailout and Mainstreet got Nothing' Wall St. deserves first dibs on the recovery because their contributions to the economy are the most imporant of all. That is the fair way of looking at it. Mainstreet will have to wait for the recovery to trickle down. Let's stop complaining about inequality and buy stocks. You can make 10% returns in one quarter just by buying a stock like ROST and holding it.Is Facebook the best stock ever?
Facebook has ZERO viable competitors so it can grow at its leisure, unlike Apple which is forced to frantically develop new products and upgrades to fend off competitors.
Facebook has 50% profit margins -greater than any lage cap company in existence.
It's earnings growth is booming, at 50% a year clip.
It's growth is effortlessly scalable. more users= more revenue= more profit with only minimal infrastructure investment.
Facebook is a safe haven in a market full of crappy , unpredictable stocks. There huge funds will keep parking their money into Facebook knowing there's no other alternative for long term, sustainable growth.
Facebook will rip to $90 in a long term bull market, and could drift to $50 even in a flat or bear market.
Why We Need More Money in Politics
For the good of the free market and the economy we need more money in politics. Putting the politician over a barrel in exchange for campaign funding provides the best outcome for the economy and homeland security. Let's consider a hypothetical campaign where candidates are restricted to only spending a couple million dollars with zero corporate donations and zero PACs. Instead of compromising on policy, the candidates would make rash populist demegogoery solely for the purpose of garnishing as many votes as posible like 'abolish the fed' , 'universal healthcare', 'separate banking from investment banking' or 'close the borders' . Once in office they would try to implement this policy because they would have no financial incentive not to. The person who would win is the one who can best pander to people's angst and fears, even if such anti-growth policies scare the moneyed elites. However, when outside money enters the equation politicians, in order to compete, are forced to put the economy and corporations ahead of the leftist populist whims of the electorate by making pragmatic decesions that may be unpoplar to a lot of people but necessary, such as bank bailouts, wiretap, and preemptive war.
We all need to make shared sacrifices, including accepting more debt, no student loan reform, and no job creation in exchange for bigger profitsand a strong economy.How to Trade Greece
Right now Greece is on everyone's mind so I'm going to lay it out explicitly how I'm going to trade the outcome of the Sunday vote
If new democracy wins I do nothing because I'm already long. TLT (which I also own) will fall, but not that much. We could see a 1% rally in the futures because this outcome seems to be mostly priced in.
If Syriza wins the major indexes could open 3-4 percent lower. TLT will go nuts. The strategy here is to go back to my earlier post about Getting rich off poverty. I will leave my existing longs alone and buy a small amount of September or November 2012 dated in-the-money calls of Europe-resistant stocks like Dollar Tree (DLTR), Sherwin Williams (SHW), Dollar Thrifty (DTG), and Ross (ROST) as soon as the market gaps lower. This is a conservative bet that will double my long exposure while giving room for further potential downside without the calls expiring worthless.
Still not losing sleep over the fiscal cliff
Crisis over so soon? stocks up again? Oh no liberals still waiting for shoe to drop? not dropping ? Lolz.
I keep reading these dire predictions about this supposed fiscal cliff. Who's making these predictions? The left, of course. These are the same libs that have been spreading lies about the economy being weak or the consumer being 'maxed out' for as far back as March 2009. These libs like David Rosenberg and El 'jar-jar binks' Erian keep being wrong yet the economic bloggers and MSM take bait and disseminate and syndicate their gloomy & incorrect forecasts when they should simply be ignored.
If it's so obvious wouldn't Wall St. have priced it in already? If you think you're smarter than Wall St. then I implore you to short the market. You will lose a lot of money, but the lesson about not betting against Wall St. is invaluable.
The fiscal cliff is like a kidney stone that will be passed with some pain, but nothing too serious. Instead of 2-3% Q1 GDP growth we may ony have .25-.75% growth, and the vast majority of sectors won't be hurt. Anyone expecting an economic and equity nosedive will be disspointed.
America Sucked Dry By Its LEGAL Citizens
We need open borders to compensate for the economic drain inflected by lazy Americans that refuse to work or are overpaid and unproductive. In a free market we wouldn't have 99 weeks of unemployment, disability for minor ailments, or social security.
Legal American labor tends to be slow, unproductive and expensive. Undocumented workers, on the other hand, pay into the government though tax witholding but can't collect on benefits like social security, foodstamps, or medicare. They work faster and complain less. Oh and let's not forget that they love to spend and pay rent, just like legal citizens. It's a win-win for everyone, espcially for employers, landlords and the economy.
Due to changing demographics in the electorate the isolationist/isolationist wing of the GOP will have no choice but to capitulate to immigration, or the party will fail. The big GOP donors tend to support immigration and without their help, the GOP will be ill-funded to compete with the liberals. The GOP needs more support from the Latino community to be competitive in swing states. I am optimistic they will come around. Many successful businessmen republicans like M. Bloomberg, G.W. Bush, Sheldon Adelson, and Arnold support it becuase it's good for the economy.
The pro-market approach is to embrace undocumented immigration, lower taxes for the rich, and put an end to the social safety nets consisting of medicare, social security, foodstamps, and long term unemployment benefits. It's time to give tax incentives for companies that ship jobs, too. That giant sucking sound that Ross Perot warned us about isn't so bad if it means more profits. It's time to embrace the commoditization of labor and the new era of hyper-capitalism though rapid gains in productivity enchancing technology and deregulation.
According to Mike "Mish" Shedlock, 2.2 Million LEGAL Americans have gone on disability since Mid-2010.
Over 46 Million LEGAL Americans On Foodstamps.
56 Million LEGAL Americans collecting social security
48.7 Million LEGAL Americans on medicare
As of May 2011, 13.7 Million LEGAL Americans Currently Collect Unemployment
2 Million LEGAL Americans have collected 99 weeks of benefits
Our own LEGAL citizens are sucking the economy dry.
Stocks Surge, Obama Plunges
For some reason the amazon host ran into problems to it's time to set up shop on tumblr until i get it resolved.
Stocks will keep going up as Obama's polls keep falling in anticipation of a pro-growth Romney presidency, and the continued disintegration and fragmentation of the democratic party between the far-left wealth spreaders and moderates. DNC heavy-hitters like Carville, Summers, Clinton, Cory Booker,and Begalla have all voiced dissent against Obama. Wall St. knows that despite all the criticism and controversy, George W. Bush's policies were a resounding success. The tax cuts worked. The bank bailouts worked. Bush embraced the fed and free trade, and thats why presently our trade relations are so strong as evidenced by record high exports, low treasury yeilds, and steady GDP growth as other countries are struggling with slow growth and inflation. The department of homeland security is keeping America safe. Its safe to assume that a Romney presidency will continue Bush's legacy.
The enthusiasm over Romney is palpable. Today he gave a speech in Ohiio and CNN covered it in its entirely while Obama's speech was cut short. We're in a new renaissance of of free trade, web 2.0 and wealth creation on an unimaginable scale. Facebook is going to $90/share soon. The do-nothing congress is good for the economy by not needlessly interfering in what has been a blowout profits driven economic boom. The media shoudn't dwell on job loss because it's just not that imporant. Profits over jobs is the way to run the economy. We need to keep spending. Let's keep buying the dip.
StockCreeper Leaves SeekingAlpha
After fourteen long months the editors at seeking Alpha told me to stop spamming their articles, so I have painstakingly moved all 142 articles and the blog to a new server. I'm not about to give up now just because of a new obstacle.
The Weekly View: Stocks Rally as the Obama Campaign Disintegrates
Is it a coincidence Wall St. had its best week of the year as the Obama campaign had its worst? Obama's pain is Romney and Wall St.'s gain and there was no shortage of it last week:
-plunging polls in swing states
-falling behind Romney for May fundraising
-media coverage turning negative
-Scott Walker victory
-surrogates going off the script (Bill Clinton, Larry Summers)
-fallout from the ugly unemployment report
-CIA intelligence leaks
-and finally, the gaffe about the private sector being strong ( I agree S&P 500 companies are doing great, but this doesn't resonate with voters)
The Romney campaign responded with a 54 second video of private sector workers losing their jobs, to emphasize how the economy is not doing fine.
Even I will admit the republicans do a pretty good job faking outrage over this gaffe. I don't think they actually give much of a shit about these people; instead they saw an opening in what has been a close election, and ran away with it.
But it gets better...
For damage control Obama issued the following statement:
"It is absolutely clear that the economy is not doing fine. That's why I had a press conference,"
This is a bigger gaffe than the original because it's a self-admission of failure. It's a pretty bad sign when the incumbent, not the challenger, concedes his economic policies have failed just months before the election.
Romney is still the Teflon candidate. None of the anti-Bain attack ads have been effective at swaying moderates & independents and Romney himself has yet to make any glaring gaffes recently, leaving the Obama campaign with few offensive options.
The left says the fiscal cliff will hurt the economy, yet stocks still keep going up. The DIA is up 450 points for the week and market is generally a more accurate future indicator than the doom and gloom media. The economic impact from these automatic budget cuts and tax hikes (assuming they even happen) will be much less severe than expected.
The job situation is a basket case and until November 6th there's no hope for improvement there. To salvage his presidency Obama may promise a grand bargain to minimize the fiscal cliff, but it's a long shot.
The national obsession over job loss & job creation unproductive and I wish Romney would tone down the job creation rhetoric. Despite his business experience he's powerless to make jobs and I think profits and productivity is more important for the economy than creating redundant, overpaid jobs. Jobs will come when companies decide they want to hire, not because Obama or Romney prodding them to do so.
Politicians are falling victim to the logical fallacy of confusing association with causation by attributing Obama's policies to small business malaise when the data shows that the already high rate small business failure hasn't increased since Obama entered office. Politicians and the media always seem the omit that fact that small business has a high failure rate - so much so, in fact, that CIT Group, a company provides business loans for middle market business, entered Chapter 11 bankruptcy protection on November 1st 2009 due to an overwhelming deluge of delinquent small and medium business loans. This was exasperated by the recession which hurt demand, and had nothing to do with the Obama administration.
The DJIA may rally as high as 13800 in anticipation of a Romney victory. Obama's polls, however, won't recover even as stocks surge because mainstreet will continue to feel pessimistic and 'left out' of the boom, especially in the hard-working swing states like Iowa, Florida and Ohio.
Some republicans think we're in a recession and the solution is less spending. I disagree. The economy is fundamentally sound, thanks no less to Paulson, Bush, and Bernanke who did all the hard work stabilizing the financial system before Obama was elected.
According to Rasmussen, 77% of likely voters give Bush, not Obama, credit for the economic recovery and killing of Bin Laden. As compromise we should spend more, if only for pro-growth things like tax cuts, homeland security, and defense.