The Market Radar

We anticipate, monitor, and comment on market moving global economic and geopolitical issues.  No dark side brooding, no wanting the world to end, no political rants.  Traders, investors, policymakers, or market observers can’t  afford to ignore us.

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Circus Trumps Politic

A thousand people in the street
Singing songs and carrying signs
Mostly say, hooray for our side  – Buffalo Springfield, 1967

File this one under political analysis.

Not partisan as we try to keep our politics out of our analysis.  Strictly positive economics.

We must confess, however,  we are not big fans of President Trump’s economic policies.  We find some of them attractive, but, in totality,  inconsistent with a thriving job creating, low-inflationary economy and contrary to our free market inclinations.   As Honest Abe was fond of saying,  “a house divided cannot stand.”

Border Adjustment Tax (BAT) – A Disaster in the Waiting
Meg Whitman of Hewlett-Packard, for example,  said this morning that a border adjustment tax would really hurt her thin margin company.  She said HP does do manufacturing in the U.S., but most of the company’s supply chain is outside the U.S. and has taken 30 years to develop.

No doubt there are many companies similar to HP, including Boeing.  See our recent post, here.   Imagine the disruption in the economy of a BAT?    The increase in consumer prices will almost certainly kill jobs in the retail sector, and we do live in WalMart nation, the country and world’s largest private employer.

Our analysis suggests the U.S. economy will suffer a net loss in jobs with the implementation of a BAT.

Weak Victory,  But One Helluva “Hail Mary” Win
Nevertheless,  that is not the point of this post.   What we want to show is the “massive Trump victory”  is “fake news”.   Huge upset?  Yes!

What worries us most is the government is misinterpreting the November victory as a big mandate, which leads to policy overreach and massive pushback by the population resulting in social instability.

We are already seeing signs of it.    And this warning from Reverend Al,

First he worries about an America without Barack Obama. What will happen when “he walks out of there, and there is not even the symbol of a black family walking out of the White House every day, going to Air Force One. I worry that the despair and emotions on the ground escalate. ‘Cause not only do we feel we’re not getting justice, we’re not feeling we’re being assuaged by someone that we feel is at least sensitive to those needs. And I don’t know that America is ready or has adequately prepared to deal with that.”  – Al Sharrpton,  March 2016

We are not huge fans of the Reverend and never thought we would quote him,  but he does have a point, that we should all, as risk takers, take heed.  And he said this several months before the election.

The Circus Draws More Than The Politic
To illustrate how thin President Trump’s victory was, just take a look at the table below.   President Trump broke the “Blue Wall’ by winning the 46 electoral votes of Michigan, Pennslyvania, and Wisconsin, by a total margin in the three states of 77, 744 votes.  If Hillary had won these “blue states”,  she takes the electoral college 278 to 260.

For some perspective, this is less than the average weekly attendance at a University of Wisconsin football game on a crisp fall afternoon!   Or just 70 percent of the average attendance of a University of Michigan football game.   That is,  42 percent more people show up on average every fall Saturday at a Wolverines game to see Jim Harbaugh coach than the total combined margin of votes that President Trump won in Michigan,  Pennsylvania and Wisconson to take the office of POTUS.   Panem et Circensus.

.trump-electoral-victory

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His electoral college victory ranks 46th out 58 Presidental elections and only two other elections in the history of the Republic has a winning candidate lost the popular vote by a larger margin than the President’s 2.1 percent.

Massive victory?  A mandate for the  “deconstruction of the administrative state?”  Total  Bollocks!

When we held positions overnight on Wall Street, we used to go home worried about global instability and what was going on in the “Arab Street.”   Now we worry about the American Street.

We are rooting for President Trump to make America greater.  Uniting a very divided public is a necessary condition, which will only come by ridding the administration’s delusion and totally misplaced hubris of a “massive victory.”

Stay tuned.

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More On Algo and Robot Trading – Tedx Talks

Dated, but a must view.

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Seek and Destroy ‘Bots, Animated

You remember our rant at the beginning of the year,  Seek and Destroy Trading Bots Killing Us?   We suggest you click on the title, read it,  then watch the animation below.  They actually use the words “seek and destroy.”

Traders must be included in the  Financial Activity industry category that showed negative wage growth in our preceding post,   COTD: Pity the I-Bankers and Lawyers.

Very hard, no, becoming impossible to make money trading against these F-wads.  Move over,  John Henry!

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COTD: Pity the I-Bankers and Lawyers

Can this be true?    Blue collar wages outpacing white collar over the past two years?

Fake data?  Just yankin’ your Markov chain!

“Though only a few industries accounted for much of the recent acceleration in AHE [average hourly earnings], it may yet be sustainable,” Kansas City Fed economist Willem Van Zandweghe says in his study.
Bloomberg

wage_feb22

 

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Boeing 787 Dreamliner = Globalization

Interesting graphic below illustrating the outsourcing of Boeing’s 787 Dreamliner as President Trump touted his “buy American” mantra today as he stood in front of the airplane at the Boeing’s South Carolina plant.

trump-at-boeing

“We want products made by our workers in our factories stamped with those four magnificent words — made in the USA,” Trump said. – CNBC

Assembly is just a small part of the Dreamliner’s  manufacturing value chain.   The International Monetary Fund (IMF) noted in a recent working paper,

More than 70 percent of the plane’s value is not generated by Boeing.  – IMF
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The Post and Courier wrote yesterday the jetliner is
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…comprised of more than 2.3 million parts made around the world
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A few years back we were surprised that assembly of the iPhone 4 at Foxconn in China was only a small fraction of the $185 cost to make the phone.
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  • The average sale price of Apple’s iPhone 4 is $560. Of that, $7 covers the cost of manufacturing, $178 goes to components, $7 is taken by Foxconn, and Apple walks away with the rest, or $368.
  • As Nokia and RIM’s share of the global smartphone market shrunk between the second quarter of 2010 and the second quarter of 2011, that of Apple grew by more than six percent. Samsung’s share also grew over that period.
  • Samsung contributes the flash memory, DRAM memory, and applications processors for Apple’s iPhone 4. Those three components cost about $45.68 per unit.
  • Other components of the iPhone 4 and their cost: Battery, $6; accessories, $5.67; mechanicals and electro-mechanicals, $19.97; audio, $0.98; touchscreen control, $0.90; display and touchscreen, $38.50; power management, $1.51; bluetooth and Wi-Fi, $8.  – Global Macro Monitor

So,  we ask you, folks,  do you think the President realizes that his trade policies if implemented could actually end up losing jobs at the very manufacturing plant that he touted “buy American” today?   More, important, do you think voters understand this?

It is because of free trade that a Boeing plant exists in South Carolina today.  Free trade, fair trade, whatever.

The world is becoming increasingly complex and it is going to take strong leadership to guide us through the rough waters ahead without the global economy fully imploding, which will almost certainly morph into a world war.

boeing_787_feb17

 

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Why pension funds invest in EM debt – FT

 
Published on Feb 15, 2017
Mark Fawcett, chief investment officer of the UK’s National Employment Savings Trust, discusses the outlook for emerging market debt with Owen Walker.
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Inflation Runs Hot, Hot, Hot

CPI out this morning,  up 0.6 percent for January, more than double the 0.3 percent that was expected.  The hottest number since February 2013.  The main culprit was the rise in the cost of gasoline, which accounted for half the increase.   The year-on-year increase for all items in the CPI basket is 2.5 percent.  CPI inflation ex/ food and energy up 0.3 percent, up 2.3 percent year-on-year.

cpi_feb15

Note our post from a few weeks ago,  Inflation Cometh.   The stimulus of the coming tax cuts and infrastructure spend will most likely start to kick in mid-2018.   So, we repeat,  inflation cometh!.   As they used to say on the north side of Chicago,  “wait until next year.”

What’s so good about inflation?
Never could understand why inflation was thought as a good thing.  Check out the release on real wages today.

real-earnings_feb15

 

We like falling prices and paying less for goods and services.  Increases our real income.

The markets, and maybe even the Fed,  seem not to be able to distinguish between goods and services inflation/deflation with asset inflation/deflation.  Could be because the Fed has become increasingly reliant on asset inflation as a transmission mechanism of effecting monetary policy.  That is, stimulating domestic demand through the wealth effect.

The border-adjustment tax will be a disaster for lower income groups.  Reverse Robin Hood tax reform, in our opinion. Bad for Trump voters.

 

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COTD: Size of U.S. Economy v Europe

european-economies-vs-us_feb15Source:  Independent

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Oil and gas discoveries, China capital controls – FT

Seb Morton-Clark has Monday’s top stories from around the world, including oil and gas discoveries at a 60-year low, China reassuring on capital controls and Canadian PM Justin Trudeau meeting US president Donald Trump.

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QOTD: Ambiguous China Policy

It used to be said that Ronald Reagan’s “Red China” policy was driven by Nancy:  “don’t serve it on a green table cloth.”    President Trump’s policy?  Yet to be determined.

…U.S.-China relations remain in the Schrodinger’s cat-like state they assumed shortly after Donald Trump won the U.S. election. His words and actions often inhabit distinct realities; observers cannot assume that he means what he says, or will hold himself to it in the future. Beijing was smart not to panic in early December. It would be equally naive for it to breathe a sigh of relief now. – Foreign Policy

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