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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Supply (lack of ) Driven Bull Market

I had an interesting conversation with an economist friend this morning about inflation and excess capacity. He sees no evidence of excess capacity in the U.S. economy, including the service sector, where he cannot find, say, a plumber for hire to do some home improvements.

We then moved on to an esoteric conversation as to why those inflationary pressures are not showing up in the official data. They do seem to be building in the pipeline, however.
We concluded mismeasurement, archaic data collection, the deception of averaging, and mused that in the coming years economic data would be measured in real time by big data and we will not have to wait months for GDP and measurements of inflation. That is looking in the rearview mirror as to how the economy is functioning and trying to work through the noise of lousy data.

Asset Markets
Speaking of lack of capacity, take a look at the lack of new stock supply (IPOs) and removal of old stock supply (buybacks) from the market over the past few years, which have been a big driver of this bull market.   At the end of the day, Econ 101 teaches us an increase in demand (yield chasing in the current case) while supply remains constant or declines drive prices higher, no?

We have written about this in past posts, which apply to the housing and risk-free bond markets as well.

Our family just survived the Northern California  fires with one of our old houses going up in flames. Five percent of the housing supply in our city, already in bubblicious mode, burned down.

Now a very odd market. Existing housing supply is nonexisistant yet land values in the burned out areas are plummeting.

A different type – a supply restricted – bull market in many of the asset classes, which artificially lowers the relative cost of capital in some and makes expanding capacity in other real sectors — investing in automation, for example — cheaper than hiring new workers.

All in all, sounds smells and acts like inflation to us, which can destroy jobs just as deflation destroys jobs.  Especially as the asset imbalances lead to the boom/bust cycle, which we have experienced already twice early in this century to the extreme.  If it keeps us,  we will have to start needing  seasonal adjustments on the S&P500!

Arghhhh…  Those distortions.

The majority of economists need to widen their vision of how they perceive as inflation. Instead of calling it “financial imbalances,” for example, call it for what it is: asset inflation.  In addition, understanding that inflation in one sector can distort and result in adverse disinflationary forces in others, with a relatively artificially cheap cost of capital.

P.S.  This has been an extremely difficult year, but I still have much to be thankful for.  Great family and beautiful daughters.  Priceless!

Happy Thanksgiving, folks.

Stock Supply_Nov22.

Stock Buybacks_Nov22

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Ten Year Expected Returns

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Party Like It’s 1999: U.S. – German 2-year Yield Divergence

What does this mean for capital flows?  Euro should weaken, but it ain’t!

ECB timid and waaaay behind the curve.

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Bond Yields and Equity Prices

Interesting chart which reflects what we have been preaching for years. Central bank distorted and repressed bond yields result in a mispricing of all other assets.

This chart goes a step further and quantifies it, though it assumes “all other things being equal” — ceteris paribus in economic parlance — which they never are.

Bond Yields and Equity Marketss

Source:  TheVolawatcher

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Merkel Fails To Form Government

After almost two months since the September 24th general election German Chancellor Angela Merkel and her alliance of Christian Democratic Union and Bavaria’s Christian Social Union has been unsuccessful in forming a new coalition government. Merkel needed the support of the two ideologically diverse parties, the pro-business Free Democrats and the leftwing Green party.

Here are the main reasons for the rupture in negotiations:

Among the core differences was the issue of refugee and asylum policy and, in particular, the issue of whether refugees should be allowed to bring their families to Germany.

In 2016, at the height of the Syrian refugee crisis, Berlin suspended that right. But the freeze on family reunifications runs out next year, raising the prospect of a spike in new arrivals.
Among the core differences was the issue of refugee and asylum policy and, in particular, the issue of whether refugees should be allowed to bring their families to Germany.

The Bavarian CSU, the sister party of Ms Merkel’s CDU, was determined to prolong the suspension, broadly backed by the CDU and the FDP. The Greens, in contrast, insisted that refugees must be allowed to bring their spouses and children into the country, citing humanitarian reasons.

Other areas of disagreement were Germany’s response to climate change and the Green demand to shut down a significant number of coal-fired power plants, which are among the biggest producers of carbon dioxide emissions.

Tax policy, too, was a bone of contention, with the FDP demanding a rapid phase-out of the so-called solidarity tax that is raised to fund the economic development in eastern Germany. – FT

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Sector ETF Performance – November 17






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Global Risk Monitor – November 17



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How Xi Jinping Went From Feeding Pigs to Ruling China

How did Xi Jinping go from being a provincial politician to China’s paramount leader in such a short period of time? In this Bloomberg Profile, we look at the life of China’s 7th President and his campaign against dissent. ———- Like this video? Subscribe to Bloomberg on YouTube:…

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QOTD: Extrapolate This Late?

Most of the time the future is indeed like the past, and so extrapolation doesn’t do any harm. But at the important turning points, when the future stops being like the past, extrapolation fails and large amounts of money are either lost or not made.  – Howard Marks


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QOTD: Vive la France!

“France is a paradise populated by people who believe they are in hell,” the writer Sylvain Tesson said in a radio interview earlier this year. – Bloomberg 

(QOTD = Quote of the Day)

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