Tesla Investor's General Macroeconomic / Market Discussion

[techmaven]

Though off the thread, its time to take politics much more seriously, more than ever after Hiroshima.

Thank you for posting your thoughts.

The ignorance level of American voters, combined with their entrenched ideological views pretty much inoculates them from any productive and enlightened conversation about the U.S. and its role in the world, does it not? Of course, this isn't a new problem and one can argue that we have more access to data than ever before, but our ability to understand it has not kept pace. Most of us have other things to do and do not have the background, inclination, or energy to follow much of what is going on with our government. With our current mass media, is it not easier for a few talented tongues to twist the narratives to their advantage, especially if those narratives stroke our collective egos?

 

[yesla]

deleted

 

[AudubonB]

Moderator Notes

First, one post removed for the most unimportant but ever-annoying reason:

To all: DO NOT COPY POSTS when you are responding to them, other than the merest, most trenchant portions to which you are referring. It may be the single most-clamored request from members to the moderators. And when an extremely long post, such as the one in the excised post, is copied, it sends off forehead slaps throughout this community.

To all: Thank you very much for the diligence so far shown in the past 36 or so hours to have walked, successfully, the razor-blade tightrope of having a discussion concerning politics without violating forum rules against politicizing posts. But you need to regard this Note as first warning.

To our (fairly) new member, Int'l Prof.: Thank you very much for your considered insight and well-written posts.

 

[Intl Professor]

At 79 I appreciate the compliment, "fairly new." And the real compliments above.

 

[Wenche]

I see the impact of oil price on TSLA, and the rest of the market, espesially the growt stocks, but there is a lot I don't understand. How come one one statistic show a big increase in oli storage one day, and the next day another measurement show close to no change. Anyone that has insight to the differences here? I really want to understand.

Thanks!
Wenche

 

[AudubonB]

That's a great question. I'm pawing my way through the EIA's database and cannot determine, yet, what the difference is between crude STOCKS and crude INVENTORIES. As far as the English language is concerned, those words should be effectively synonymous but, inasmuch as the data show that one is almost exactly twice the other, that obviously is not the case....

 

[GoTslaGo]

Maybe more to do with source of information, API vs. EIA?

Don't know, but I'm just trying to figure out why there is such a lock-step of commodities (esp oil) and the market.

Shouldn't low gas prices mean a big bounce for many industries, especially in a consumer economy? Or is it that our top market indicators (Dow and S&P) are dominated by oil/gas? Oil prices as an indicator for recession I've heard of.

Or is it that we've become too quant/technical or computer driven in trading? Maybe too easy to follow commodity market prices if you think of how someone may have programmed some trading algorithms.

So that's how I stumbled here. Don't mind me, I'm still learning. Trying to understand what makes oil/gas such a driver of the market.

PS--Thanks to Intl Professor for an interesting and broad look at what is going on in the world today and in the past. Looking forward to more, if any are coming... Any thoughts about the current isolationist trends in the US, more or less than the past? Abdication of US global leadership, bowing to the inevitable or just retrenchment, licking wounds and such? How these may contribute to overall market instability...

 

[Intl Professor]

I've saved your last paragraph and will try to respond soon. But first, I'm about half through El-Erian's book and want to finish and briefly summarize the main points for this thread and the long term thread. Thanks for the appreciation of recent posts.

Best.

 

[Auzie]

............

Don't know, but I'm just trying to figure out why there is such a lock-step of commodities (esp oil) and the market.
........................

My take on the current lock-step is that the current macro market moves are dominated by China slow down.

With the China's economy slowdown there is a corresponding slump in demand for commodities. China was simply gobbling commodities during its rapid growth phase.

The drop in commodities demand is felt acutely in commodities exporters (Australia, Canada) and some emerging economies.

US seems to be going in the opposite direction to the rest of the world (monetary policy, economic growth rate) but it is quite hard to go against the prevailing economic climate and hence US economy is feeling a drag of China slowdown.

Oil price drop is caused by different developments (oversupply, US record inventories in crude)

 

[dmunjal]

My take on the current lock-step is that the current macro market moves are dominated by China slow down.

With the China's economy slowdown there is a corresponding slump in demand for commodities. China was simply gobbling commodities during its rapid growth phase.

The drop in commodities demand is felt acutely in commodities exporters (Australia, Canada) and some emerging economies.

US seems to be going in the opposite direction to the rest of the world (monetary policy, economic growth rate) but it is quite hard to go against the prevailing economic climate and hence US economy is feeling a drag of China slowdown.

Oil price drop is caused by different developments (oversupply, US record inventories in crude)

You've got all the symptoms correct but you missed the cause. The reason all of the above (China, oil, commodities) is happening is because of the strong dollar. Which is directly related to Fed monetary policy of raising rates four times this year. If they don't raise rates or even go to ZIRP/NIRP, then you'll see a reversal of this trend.

 

[Auzie]

You've got all the symptoms correct but you missed the cause. The reason all of the above (China, oil, commodities) is happening is because of the strong dollar. Which is directly related to Fed monetary policy of raising rates four times this year. If they don't raise rates or even go to ZIRP/NIRP, then you'll see a reversal of this trend.

My view on macro cause / effect is slightly different.

My view is that the primary driver of USD strength is FED's monetary policy, raising rates. That policy (and the previous one of QE) seems to be effectively steering US economy, despite being in direct diversion with the rest of the world. Consequently, USD appreciates against most currencies.

The secondary reason for USD appreciation is that USD strength reflects underlying US economy. The US economy is so far outperforming most, if not all, other economies.

The third reason is that USD is becoming safe currency in the current macro environment. Capital flows into the US and out of other economies, especially China, due to a loss of confidence in local governance/economy.

My view on China's economic slowdown is that the primary cause is the capital misallocation coupled with central planning with little regard for market forces. Hence, we have real estate bubble, share market bubble, ghost towns and underutilized factories. The weaknesses in China are internal, growing and maturing pains. The strong USD and weakened Chinese economy are likely coincidental, not causal.


That said, hiccups are expected in a low maturity market economy of China. Imho Chinese leaders deserve a lot of credit for effectively steering billions of people out of poverty and improving their quality of life. It is a big ask and unrealistic to expect more of them (faster improvements).

 

[GoTslaGo]

My understanding is that the Chinese govt is trying to rebalance the economy to encourage more domestic consumption. Based on that assumption we would expect to see an economic slowdown, drop in commodities and a fall in stock prices (since most growth was driven by the export economy, like Japan was in the past). Has there been a commensurate increase in domestic spending? And as an outsider how would we know?

In the US, we have large consumption driven corporations listed and traded and tracked on the exchanges. Companies that are heavily dependent on the US economy, not international. Does China have similar companies on their exchanges? Do they have domestic corporations (meaning that they mainly trade within china and not internationally) that are listed? If they do, how are they doing relative to the general market over there (in a rational market one would assume exporters would drop, but domestic companies would rise...)? I'm wondering how we can get insight into whether the govt's attempt to restructure the economy is working.

That being said, I'm glad to see that investors are at least uncoupling the US from China markets. Whether it is the strong dollar, interest rates, safety or whatever. Yes China is a big potential economy, but it's far from mature. Thought it was kinda crazy that folks dumped like they did at the beginning of the year, although I have to admit I did take advantage of it...:wink:

 

[Auzie]

.................. I'm wondering how we can get insight into whether the govt's attempt to restructure the economy is working.

.....

I'd like to think that China will recover regardless, or despite, government effective/not so effective interventions. Some social forces are unstoppable. The culture of hard work and appreciation of education are likely to drive further progress.

 

[GoTslaGo]

Yes. I recall listening to a podcast from a correspondent in Shanghai (for NPR in the states) who basically said the domestic economy is solid. Folks are feeding/clothing/entertaining themselves despite the downturn in the export economy.

Part of US strength and weakness in the domestic consumer economy is borrowing for consumption. Which I do not foresee happening anytime soon in China (thousands of years opposes this). Yet if this can happen in China a tremendous domestic expansion conceivably could occur (obviously better sources of borrowing etc. would have to exist).

That's why I keep wondering how the govt can get their goal of re-balancing the economy to work. I'll have to go find my back copies of The Economist to see if they have encouraged banks to lend more to consumers. If US consumers were not buying on credit I doubt they would contribute any more than 30-40% to the economy at best, instead of the current 60-70%.

Auzie--Thanks for the greater insight!

 

[Intl Professor]

Another source of volatility, of course, are the upcoming elections. Here is an interesting but wrong conclusion about Trump and my most humble clarifications.

Shared from Google News.
http://www.theguardian.com/commenti...ma-donald-trump-us-election-american-politics

This is an interesting but wrong observation. Obama also gave us Bernie Sanders, not just Trump. This caused by Republican and Democratic party failures to really deliver on the promise of Obama. Except for Robert Reich, normally astute pundits are unwittingly throwing this election, as is Clinton, by ignoring fundamental sociological truths. The people like what Sanders' goals are by those willing (or able) to listen, and Clinton is more and more being tainted by her moneyed connections which she cannot abandon and won't return the money. What if she gets the nomination and then as an "October surprise" transcripts of her Goldman Sachs speeches are released by Republican operatives? (Of course not by the Trump campaign.)

Anything is possible this year, more so than ever for speculation about the political outcome. The denoument is fraught with volatility, like the markets, until November and perhaps beyond.

What if, just for fun, Sanders backs Elizabeth Warren for vice-president and Clinton pays back the speech money to Goldman Sachs with an apology and then endorses Warren for V.P. as well? That would make the Democratic convention almost as exciting as the Republican promises to be for very different outcomes. Of course if Clinton wins with Warren, the Republicans will argue that would be two women on the ticket! Then the Republicans lose the entire election when someone realizes two males are the norm. But you know the scenario.

Then watch the volatility of the markets if Trump, Sanders or Clinton win. I have no insight for alternative Republican candidates except this:

Michele Bachmann for Republican V.P. anyone? She is, after all, the ultimate anti-Obama with her intimation we might have to exercise our Second Amendment options.

I realize this is rich and political, but still....

- - - Updated - - -

Another thought. Suppose there is some collective brain among Wall Street types. Surely someone has at least as crazed speculation as mine, and they fear losing control of the election (if Sanders is right). Of course they would be confused as to what to do about investing now, and that would lead to volatility as well.

Maybe I should stop now. To paraphrase a figure of speech, "retired minds do the work of the devil."

 

[sundaymorning]

I'm glad to see the Asian markets are in recovery mode. Both Nekkei and Shanghai up 4%, looks like the market misinterpreted data and sold on the oil fiasco. Is it safe to say we're gravitating back to a bull market? We'll have to wait and see.

http://www.cnbc.com/2016/03/01/asia-stocks-markets-to-focus-on-us-equities-gains-higher-oil-prices-and-china.html

 

[GoTslaGo]

Good news. But here's my question.

Why should Asian markets fall with oil? With lower oil prices Asia (with almost no endogenous sources of oil) should benefit. I know people use oil as a proxy for recession or the argument that oil = USD. But I'm just trying to figure out why our current market is in such synchrony with oil. Most economies would benefit from lower oil prices, especially in Asia, and especially the big economies (China, Japan, etc...).

I wonder if another argument about oil driving the markets is this: could be that oil is a proxy for world trade in general? That with less demand and trade for oil (kind of like Salt in ancient history), that the overall world markets are becoming more autarkic? Less dependent on international trade and cooperation. Could this be an underlying argument for oil prices driving the markets? Don't know.

 

[Auzie]

Good news. But here's my question.

Why should Asian markets fall with oil? With lower oil prices Asia (with almost no endogenous sources of oil) should benefit. I know people use oil as a proxy for recession or the argument that oil = USD. But I'm just trying to figure out why our current market is in such synchrony with oil. Most economies would benefit from lower oil prices, especially in Asia, and especially the big economies (China, Japan, etc...).

..................

GoTslaGo, I wonder where you see synchrony.


This is last 3 years SPY (reflection of or proxy for US market)

This is Crude, same period

It does not look like a lock step to me.

 

[GoTslaGo]

Thanks again Auzie for showing me the light. I feel better about the rationality of the markets. Think I've been reading too much doom and gloom from CNBC!

 

[Intl Professor]

I just posted the following on the Short Term Tread.

I’ve finally finished Mohamed A. El-Erian’s, The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse. New York: Random House, 2016, just in time to hear Janet Yellen’s press conference.

This is more a recommendation than a review. There are some of you much more capable than I at a more formal review. In any case, I cannot recommend this highly enough.

Many of you may know of El-Erian as a commentator with a remarkably low key demeanor on PBS or Bloomberg. He has impeccable credentials for writing such a book from a first-rate educational background to vast experience with the IMF and Pimco where he was responsible for the idea of “the new normal.” He has not served, so far as I can tell, as a central banker. That is an advantage.

His thesis is we are approaching a decision point within two to three years where we either do not meet the challenge of our times, and suffer dreadful consequences for decades, or prepare for a profound shift in our approach if we want continued growth in the economy. Instead of the familiar bell curve we are in a bimodal distribution (like a graph shaped in the form of a two-hump camel).

He combines a wealth of research from a variety of sources and personal anecdote to buttress his case implicit in the title. He praises central bankers’ efforts to transition through the Great Recession, as some have called it, but they are hampered because they have limited means compared to other institutions. He doesn’t use these terms but I interpret him to mean we have dealt with the money economy and not the real economy. Central bankers have tried to improve the economy in some ways through untested means which he applauds but they are insufficient, inappropriate, and might contribute eventually to the collapse. Certainly, alone without fiscal stimulus investing appropriately for the future, and changes in structure which only governments can achieve, they are stymied.

He’s realistic about the changes we need and makes suggestions on overcoming bias in facing the challenges. A sheer focus on avoiding fiscal measures and structural changes to the personal, national, and international institutions because of their cost is not the thing to do. Among several direct experiences and lessons he shares with us include Pimco’s anticipation of the Lehman collapse through “scenario analysis.” They predicted there would be no collapse, but they also prepared for what they would have to do if it occurred and so quickly protected its customers. They were so successful many competitors thought Pimco had predicted what would happen.

He does not reference the work of Ilya Prigogine on complex adaptive systems far from equilibrium. To tease you: what the T intersection El-Erian talks about is what complex adaptive systems theorists label a bifurcation point. There’s some heavy-duty mathematics worthy of his Nobel Prize, but Prigogine easily admits as does El-Erian, predicting when it can occur is problematical.

He has many other examples, say, the importance of diversity by not only challenging ideas but tapping different peoples’ perspectives on the decision at hand. My example is we were tasked to hire a Middle East specialist in my department. We received an applicant whose entire resume referenced publications in Arabic. None of us could read it so we should have decided to have an outside group advise us which would be possible. But we didn’t and so the poor guy never had a chance.

You may not think his work applies to you, but he says it should because we as individuals, whether investors or not, should listen and change our behavior in the directions he recommends. The idea is to be liquid, adaptable, open to change, and ready for surprises, some of which may be better managed by preparing for them. (I’m reminded of Machiavelli’s admonitions on fortuna.)

I think you’ll enjoy the read. I know you will profit from heeding his advice concerning decision-making on the personal level or at a key position in any institution.