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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US Sector ETF Performance – Nov 25


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Misplaced Policy Thinking – $1 trillion infrastructure build

As the stock market celebrates  and is downright giddy over the prospect of a massive fiscal expansion through a one trillion dollar infrastructure build,  we are less sanguine and propose a different and more long term policy track.
The U.S. doesn’t have  the skilled labor and experience to do such a large infrastructure spend and will have to depend on Chinese and foreign firms and labor to implement the program,  just as U.S. built out its railroads in 1830-60’s with Chinese labor.
The big infrastructure build this decade in the SF bay area was the rebuild of the SF Bay Bridge, done by a Chinese firm, by the way.

Bridge Comes to San Francisco With a Made-in-China Label – NY Times

SHANGHAI — Talk about outsourcing.

At a sprawling manufacturing complex here, hundreds of Chinese laborers are now completing work on the San Francisco-Oakland Bay Bridge.

Next month, the last four of more than two dozen giant steel modules — each with a roadbed segment about half the size of a football field — will be loaded onto a huge ship and transported 6,500 miles to Oakland. There, they will be assembled to fit into the eastern span of the new Bay Bridge.

Furthermore,  the U.S. is at full employment and only 936K  (as of Ocotober 2016)  of the labor force is employed in heavy construction and civil engineering.  You can’t take an unemployed banker and have him/her build a bridge or hospital.  This is not like the WPA and CCC during the great depression where the unemployed built campgounds, for example.

If implemented, expect big inflation in a few years.  The markets are already beginning to price it in with the collapse of the global bond markets and huge rally in the dollar.

The U.S. will thus have to rely heavily on immigrant labor and foreign firms for its $1 trillion infrastructure build out.  Exactly the opposite of what Trump has campaigned on. Ironic, no?

Finally,  many construction jobs will be automated in 10 years anyway and most, if not all new,  jobs will be in software and coding.  We have been writing, no, warning about this for years.

The idea of paying families that lose their jobs to automation and robots, say, $50k per annum, is already being discussed in the private sector and policy circles, commonly known as the “universal basic income“.

The brave new world of robots and lost jobs

A look at the numbers suggests that the country is having the wrong economic debate this year. Employment security won’t come from renegotiating trade deals, as Donald Trump said in a speech Monday in Detroit, or rebuilding infrastructure, as Hillary Clinton argued in Warren, Mich., on Thursday. These are palliatives.

The deeper problem facing the United States is how to provide meaningful work and good wages for the tens of millions of truck drivers, accountants, factory workers and office clerks whose jobs will disappear in coming years because of robots, driverless vehicles and “machine learning” systems. – David Ignatius, Wash Post, Aug 11, 2016

Instead of a one off massive infrastructure program, the U.S. should massively revamp its education system,  teaching coding to second graders and continue through graduation.  And ramp its vocational training for those not inclined to take a software job.   But this faces violent opposition from the special interests – not excluding the public sector and teachers unions — and will take political vision, will and courage.  We need a new Sputnik moment and we better get on with it.  Quickly.

The Japanese spent the U.S. equivalent of almost $20 trillion of infrastructure build from 1991 to 2009,  building bridges to nowhere and got them nothing — well maybe staved off a greater depression —  but a debt of over 200 percent of GDP and are now on the verge of blowing up.

Japan’s Big-Works Stimulus Is Lesson

Moreover, it matters what gets built: Japan spent too much on increasingly wasteful roads and bridges, and not enough in areas like education and social services, which studies show deliver more bang for the buck than infrastructure spending.

“It is not enough just to hire workers to dig holes and then fill them in again,” said Toshihiro Ihori, an economics professor at the University of Tokyo. “One lesson from Japan is that public works get the best results when they create something useful for the future.”

In total, Japan spent $6.3 trillion on construction-related public investment between 1991 and September of last year, according to the Cabinet Office. The spending peaked in 1995 and remained high until the early 2000s, when it was cut amid growing concerns about ballooning budget deficits. More recently, the governing Liberal Democratic Party has increased spending again to revive the economy and the party’s own flagging popularity.

NY Times, Feb 5, 2009

Enough of this same old archaic, not thought out policy making,
Yes it would be nice to have a first class and brand new “trophy” infrastructure to, say,  one up the Chinese,  but not at the expense of the future of our children. We prefer trophy children over trophy airports. Yes, fix and modernize LaGuardia and JFK; and in no way  are we saying we don’t need to improve are infrastructure and restructure the way we pay for it.
But. economics is all about making choices.  Staying at the Best Western instead of the Trump Casino Hotel while in Vegas is fine with us if it provides a better future for our children.  $1 trillion dollars?   Come on, folks, get real.

It’s about time we start to think outside the box, don’t you think?

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Trump’s Worst Sin

Science Denier.

Why?  Because it poses an existential threat to our civilization.

Remember,  science, like civil law cases, is based on “preponderance of evidence”,  not “beyond reasonable doubt” as in criminal cases.  Many who argue against science confuse and conflate the two.

Given today’s Washington Post article,  Trump Tower could be underwater by the end of his first term.  Should cause some panic among the millennials.

The North Pole is an insane 36 degrees warmer than normal as winter descends

Political people in the United States are watching the chaos in Washington in the moment. But some people in the science community are watching the chaos somewhere else — the Arctic.

It’s polar night there now — the sun isn’t rising in much of the Arctic. That’s when the Arctic is supposed to get super-cold, when the sea ice that covers the vast Arctic Ocean is supposed to grow and thicken.

But in fall of 2016 — which has been a zany year for the region, with multiple records set for low levels of monthly sea ice — something is totally off. The Arctic is super-hot, even as a vast area of cold polar air has been displaced over Siberia.
Washington Post, November 17, 2016

Wow, 36 degrees.  Scared yet?

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Our Quick Analysis of the U.S. Presidential Election

Why did everyone miss it?

  1. Polls and pundits missed it due to “Bradley Effect” — “The Bradley effect (less commonly known as the Wilder effect) is a theory concerning observed discrepancies between voter opinion polls and election outcomes in some United States government elections where a white candidate and a non-white candidate run against each other.”

Many people were ashamed to admit publicly and to pollsters they would vote for Trump partly due, we believe, because of the media elite opinion was so adamantly opposed to Trump.

  1. Latino vote meme was over hyped, punto!   Though it mattered in popular vote, the Latino population is mainly concentrated in California Washington, and Texas.  Since these states almost always vote blue and red, respectively, the marginal Latino vote didn’t matter that much.   The other states with large Latino populations where it did have an effect were New Mexico, Nevada and Florida (see map below).   Interestingly, in Los Angeles,  where Latinos are fast becoming, if not already,  the majority Hillary won by over one million votes,  which is more than her lead in the popular vote.  So,  one city and mainly Latinos gave her the popular vote.   One reason not to support popular vote, in our opinion, given our current Presidential and bicameral Legislative system, where one city could decide an election.   The Senate also gives equal power to each state regardless of population.  Vermont and Montana, for example,  have populations of around 500k,  about the same size of the relatively small county we live in California,  yet is represented by two Senators,  the same as California with a population of around 40 million.

According to the exit polls — a rough measure of turnout at best — Latinos accounted for 11 percent of the votes cast Tuesday the same as 2012. If those numbers hold, there was little or no Trump effect, and however much the number of Latino votes increased was just a result of demography. 

The national exit polls show that Mrs. Clinton drew 65 percent of the Latino vote compared with 29 percent for Mr. Trump. That is a landslide by any measure, and it is about the same margin in the exit polls for 2008 (67 percent vs. 31 percent). The disappointment sets in when you compare the outcome to 2012. President Barack Obama took 71 percent of the Latino vote in the exit polls that year compared with 27 percent for Mitt Romney.  – NY Times,  Nov 9.

Trumpism, mainly anti-globalization and anti-immigration is a worldwide phenomena, what the Economist magazine calls, “The march of Europe’s little Trumps.”

It is also sweeping through Europe.   Not only, Brexit, but all throughout Europe.  And it is mainly a generational divide.  Germany has oldest population in world, tied with Japan, but Japan has no immigrants.

Hard nationalist and xenophobic politicians across Europe are gaining popularity as sections of their society become afraid and angry over immigration. The Economist calls it “The march of Europe’s little Trumps.”

Hungary has probably been the best example. Prime Minister Viktor Orban’s vehemently anti-immigrant rhetoric, his country’s border fence with Serbia, as well as his pandering to the far-right Jobbik party has long caused concern in Europe. Among Hungarians, however, Orban’s approval has grown.

More recently, Poland’s new right-wing government — though not radical — pledges it will crack down on immigration. Also, thanks to its conservative Catholic stance, it announced it’s cutting state funding for in vitro fertilization.

In Scandinavia, support for the far-right Sweden Democrats party has shot up, while the Danish People’s Party took second place in last June’s elections.

German Chancellor Angela Merkel just made TIME‘s “Person of the Year” for “viewing the refugees as victims to be rescued rather than invaders to be repelled.” But even Germany, which has been at pains to keep far-right groups sidelined, hasn’t been able to escape the trend. Case in point: the vocal anti-Islamic Pegida movement, which staged major demonstrations earlier this year. Some observers say the far-right Alternative for Germany (AfD) is the country’s third most popular party.  – USA Today, December 16, 2015

What next?

On December 4th Italy holds a referendum on Prime Minister’s Matteo Renzi’s economic reforms.  It is now widely viewed as another Brexit type referendum.

With only weeks to go before voters cast their ballots, Renzi is now doing everything he can to avoid a ‘Brexit’ style defeat —. Italian populists and right-wing parties are already exploiting to their advantage Trump’s unexpected presidential victory, saying it has lowered Renzi’s chances of referendum success making him bound to be the next “domino” to fall in post-Brexit Europe.  – Time, November 17, 2016

If Italy votes against the Prime Minister, instability could ensue as the global markets view that Italy will exit the Eurozone,  which is much more severe than a Brexit, where the UK is not part of the Euro currency.

Next up will be the French elections.   The second round of elections will be on May 7th, where Marine Le Pen, the far right nationalist, anti- Euro, anti-globalist and anti-immigrant who has threatened to leave Europe, is widely expected to make it to the run off.

Berlin (AFP) – French Prime Minister Manuel Valls warned Thursday that far-right leader Marine Le Pen had a chance of winning next year’s presidential election, boosted by the momentum of Donald Trump’s shock victory in the United States.

“It’s possible,” Valls said in response to a question at an economic conference in Berlin on whether the candidate of France’s anti-immigration National Front could win in light of the US upset.  – Yahoo, November 16, 2016

If Le Pen wins, BID ADIEU to the European experiment and will usher in massive global economic instability.   Could be Trump’s first real test of leadership and why it is important he appoints top notch cabinet and advisors.  Not looking good, thus far.

hispanic-population(click here if picture is not available)

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Who said nobody thought Trump would win?

Given the political earthquake the U.S. has just experienced and the long-term consequences that are sure to follow, we thought it is time to start writing again.  We (I) have been sick, which has temporarily diminished our capacity to write for quite some time.  But we are back!

We are going to widen out the scope of the blog from purely trading and economics to politics,  human interest and personal stories that we think you will be of interest to you.

So let’s start with our prediction on the election that we sent out on Monday night before the election.   We are part of the Socratic Club, a small group of intellectuals (we being the pseudo intellectuals)  that has debating and exchanging ideas over the past 15 years.  Each of us was charged with predicting the election.

This is our e-mail.   We are most proud of the Clinton wins popular  vote, which NOBODY, and we mean NOBODY predicted:

On Nov 7, 2016, at 8:36 PM, Gary E$*%# <gev@#*%@%$> wrote:
I am always contrarian esp after Newsweek already has their Madame President issue on stands.
Politics of rage is sustained.   Trump wins 284 electoral votes. Clinton wins popular vote with 46 percent.

Sent from my iPad

There you have it.  Wasn’t our preference as we didn’t vote for either candidate.

Now the deluge.

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US Sector ETF Performance – Oct 28


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Daily Risk Monitor – Oct 28

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What’d You Miss in Markets This Week? Here’s Your Recap – Bloomberg

What’d You Miss?’ co-hosts Joe Weisenthal and Scarlet Fu get you caught up on the most important stories in financial markets, every weekday at 3:30 p.m. EST on Bloomberg TV.

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US Sector ETF Performance – Oct 7


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Daily Risk Monitor – Oct 7

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