Monthly Archives: June 2016

The Other Exit

Star Wars creator, and Chicago political player Melody Hobson's husband, George Lucas exited Chicago and returned to the Left Coast on Friday. The "Friends of the Parks" group, which has done some good protecting Burnham's vision, had tied Lucas up in the courts over a parking lot. The billions of dollars lost in this populist battle could have fixed the air-port flaw in the Death Star and returned the Big Onion to the world stage.

Chicago, as is its host State, is in a monetary crisis. That a Lucas-sized construction and tourist project could be lost faster than the Millennium Falcon can do the Kessel Run is astounding. That the job couldn't articulate its way through the Machine is testimony to Rahm's inabilities. Daley would have "got her done." So, take a spin southbound on LSD and enjoy the view of crumbling asphalt and wasted space, hum the Star Wars theme and imagine what might have been...a long time ago in a city far far away.

55

The SP Future has declined 55 handles from our June 6 post "Enter Sandman." Yesterday, 100s of thousands of new position calls were bought in the Sep Gyro contract and the Fed did nothing. The market, now more than ever, tells us nothing about the future, even the near future. The amazing constant of the media coverage of the capital markets is the promulgation of the foresight myth. All this activity, technology and money has to tell us something, right?

Wrong. And you can hear the stretched reasoning getting louder this morning. I can say without hesitation that I have no idea what those 55 handles mean to the economy, let alone the world. Instead, I would suggest you read the June 1 edition of Fortune on the rise of private companies. The top private companies involve riding in other people's cars and sleeping on other people's couches. They don't need public capital because they don't produce any goods or own many hard assets. What could the daily sloshing around of public shares possibly tell you about that?

3x

Yesterday, the Economics and Finance crowd from the San Francisco area gathered for a day conference. Amid the rosy outlooks and bullish unicorn tech scenarios, one talk really resonated. A slightly frumpled B of A economist presented a matrix of income to housing that swung from healthy to unsafe.

The Bay area housing market clocked in at a ground shaking 3 times the "unsafe" marker. Our prediction is shortly after the new President is sworn in, the market topic will be "How much impact will the West Coast housing crisis have on the Heartland?" Remember 1990 my millenial friend? Oh wait, sorry.

Deep Thoughts

This post is from @interestarb . You should read it. I don't ask many peeps for their opinion about things, but I definitely ask him !

 

What the U.S. Federal Reserve may fear most at this point in time Prior to the May Employment report, many economists, financial market participants, and other economic/market watchers (aka financial market journalists) considered the idea of a July rate hike in the U.S. as ill fated or simply unwarranted. One small 25bp move geared toward normalcy, that for some had already been delayed, has little chance by itself to upset the current U.S. apple cart in terms of domestic consumption and business. However, years of Zero Interest Rate Policy (“ZIRP”) have fostered a highly leveraged fast paced trading (not investing) community ravenously pursuing profits that could start the ball rolling. With a sometimes dangerous heard mentality, and get me out first mindset that can easily overwhelm and trample the true mechanics of market place price discovery. This and the memory of the “Taper Tantrum” is what the Federal Reserve may now fear most, the markets ability to overreact and create havoc. It’s not about the actual underlying U.S. economy operating on its own merit, but how it may be impacted by possible financial market upheaval overly sensitive to the winds of monetary policy. At the same time, the Fed’s forward thinking must also incorporate the interconnectedness of many global factors that could spillover with the potential to have domino like effects. The Federal Reserve seems destine to continue the waiting game, to live in a world where it needs all the planets to be in a line to ever so slightly alter it’s current policy stance. Unlikely “to boldly go where no man has gone before”, the question now is how much longer will the Fed be content to err on the side of over accommodation and live in fear of its own shadow. Some Members have hinted at above target inflation acceptance, but with a 4.7% UER they would clearly be behind if that were to occur. Again, there are participants who may find that acceptable after years below target. Things may be about to get a tad more interesting.