Monthly Archives: February 2017

I Bid 43 No Trump

The stock market continued to post new highs last week and the chattering classes battled over politically biased ownership claims. I enjoyed the silliness sipping a Crozes-Hermitage GSM, as my dog had predicted the increase months ago without political affiliation.

First, a few data points: Jan 2015 12 M LIBOR = .63 and EFF = .12

Jan 2016 the sets were 1.169 and .38. and Jan 2017 was 1.689 and .66 and March/April should be interesting.

As we suggested a year ago, the calibration of monetary policy, provided an exogenous mishap could be avoided, would become more powerful over the ensuing months. The beneficiaries of said calibration would be "anything but Treasuries and the economy" in decreasing connection. With the Taylor Rule finally being disparaged publicly by more respected talking heads than mine (@TheStalwart had me on WDYM twice over the past 2 years discussing its flaws), we will continue to monitor policy through our historically more accurate and market profitable metric.

Looking at the simple Jan samples above, we can see that Zirp 2015 was an "equilibrium calibration at best. (FF "should" have been slightly negative) in Jan of last year the metric moved to +.16 and in Jan 2017, +.43. (The higher the number the higher the loose policy efficacy. There is a whip crack effect and a lag, obviously) In  Q3 2015 we suggested that the effects should manifest themselves 6 to 9 months hence.

The SP has roughly crawled from 2000 to 2360 over that long dirge span. About 200 of those points were scored since Nov, more an indication of election resolution than dog whistled victor administration policy possibilities. More importantly, the real economy metrics behind the stock market scoreboard are spotting up after nearly 18 months of positive cluster.

March looks to come in like a Lamb around 1.75 but could go out like a Lion if European pressures that have aided the positive calibration impact here were to abate abate. A steadying, or decline, from the prevailing .43 spread would be a tell. However, spreads of 100 + or - are not uncommon in cycles hitting on more cylinders. Then, historically, the Fed screws it up.

(See Countdown to Liftoff March 2015 in the archive.)

In Other News

--The massive Pilot Whale grounding bolstered the correlation to earthquakes.

-- The 220% increase in Northern Ca. rainfall has caused an emergency spillway breach and evacuation below the nation's tallest dam. Prices for wine have been pushed "sticky" in a post-harvest attempt to curb widespread discounting. The problem is another massive harvest and large increases from non-Napa/Sonoma regions. The dam is not in danger of structural failure, but more rain is on the way. The "heads -up" is for Central Valley growing regions (Spring should be under way) where most bulk grape and large volume fruits and vegetables are produced. (The other place being Mexico, the place on the other side of the wall)

--The shift in winter weather from the plains to the coasts connects to the potential Omega block this Summer in grain growing regions. We will be keeping an eye out for rain at Riviera CC as the PGA rolls in. Also, Titans of Maverick's was canned when Red Bull pulled out but record-breaking waves have been reported.

-- You can see where we are going with this: We outlined earlier our belief that the new administration was policy tilted toward price increases. A supply oriented policy mistake(s) is fundamental to gaining price traction in a world awash in everything. A weather market would ignite the process. Corn for Dec is up 25 cents this year and 20 cents over the front month.

We are not crazy about heavy things that hurt when Garts drops them on his foot. We do think financial assets have been force-fed and stuffed like a Hudson Valley duck during the monetary experiment euphemistically called QE. Any incremental shift into the tiny commodity markets for food would bring limit moves. Craft beer chasing millennial traders would experience their first grain Summer.

We're your Pilot Whale.