This week your Outside the Box is from my friend Ben Hunt, who writes his letter under the title Epsilon Theory. This edition is a little darker than usual, and certainly more of a think piece. A central argument that Ben makes in Epsilon Theory is that it is Narrativethat is the driver of politics, economics, and social interaction generally. The Narrative is what we all (mostly) believe and act upon. Investors generally believe that quantitative easing is going to result in a rising stock market, so they act as if another round of QE and continued low or negative rates are good for the equity markets; and thus the game goes on.
Ben wraps his discussion of narrative in game theory, at which he is something of an academic expert. And this week he talks about “crisis actors,” those people who use Narrative to suggest to the masses (that would be us) outcomes they think are positive. But of course, the crisis actors have both good intentions and bad ones. And ultimately their intentions don’t matter so much as the creation and maintenance of the Narrative to which we all adapt and continue to support … until that Narrative breaks, sometimes very profoundly and abruptly. Or at other times a Narrative might just fade away with the shifting social seasons.
A key point Ben makes is that to fight the Narrative can be self-destructive. Fighting the Fed just because you think what it is doing is wrong doesn’t make any sense from a personal game theory perspective: the purpose of playing the game is to make sure that you get the most possible benefit.
But at the same time, we must try to understand the power of the Narrative and how it works and to have some discernment as to when the Narrative might no longer work, and move to the sidelines. Or possibly even figure out how to make the Sturm und Drang of the Narrative actually work in our favor.
Ben likes to start his letters off with a bunch of obscure quotes. (I often do as well, but he uses far more quotes and interesting ones, too – I have no idea where he comes up with some of this stuff, but it’s a
Marijuana pop culture has traditionally centered around the young male smoker and his high times. But the legalization movement has made marijuana more accessible than ever been before, and cannabis’s application as a painkiller is particularly appealing to senior citizens.
So what does the typical, recreational marijuana user look like today? And how do the preferences and spending habits of groups like young men and senior citizens differ?
We explored these questions by drawing on the data of Headset, a Priceonomics customer with a large dataset of cannabis retailer transaction data. Since many of these cannabis dispensaries have customer loyalty programs, the data includes information about customers’ age and gender. We decided to use to this data to learn more about who buys weed and what they smoke or consume.
The data suggests that smokers in the customer loyalty program are overwhelmingly male, accounting for about 70% of all members. And, while customers range from ages 21 to 95, over 50% of loyalty members are under 40.
We also found that while Flower (your typical marijuana bud) accounts for about half of the purchases made by each demographic, each group has its own quirks. Compared to the opposite sex, men prefer concentrates and women prefer pre-rolls and edibles. Older consumers prefer edibles to pre-rolled joints.
We began our analysis by examining the the customer split by gender. Are men or women more likely to visit cannabis dispensaries often?
25- to 29-year-olds account for the largest percentage of customer loyalty members (20%), followed by 21- to 24-year-olds (16%). Yet the average customer age is 37.6-years-old, which is a higher than one might expect given
Come July, Janet Yellen and the FOMC are going to once again ‘punt’ hiking interest rates in favor of waiting for ‘global instability’ due to the ‘Brexit’ to subside. However, as stated this is a mistake for a couple of reasons.
First, with the markets making new all-time highs, there is a ‘price’ cushion available for the markets to absorb a rate hike without breaking important downside support.
Secondly, with Central Banks globally flooding the markets with liquidity, a further ‘shock absorber’ is currently engaged in softening the impact of a rate hike.
Lastly, the economy is likely going to show a bit of ‘strength’ in upcoming reports, with slightly stronger inflationary pressures. This pickup in economic strength will be another inventory restocking cycle following several months of weakness. As has been in the past, it will be transient and that strength will evaporate as quickly as it came.
If I was Janet Yellen, I would hike interest rates by .50 bps immediately in a surprise announcement and use the price and Central Bank liquidity cushions to soften the blow. This would move the Fed towards its goal of reloading its primary policy tool while there is some ability to temporarily control the outcome of the rate hike.
But that is just me. She won’t do it.”
Now the question will be her excuse will be for not hiking rates in September to keep from affecting the outcome of the Presidential election. As my friend Danielle DiMartino-Booth
Global investors dumped equities in July and raised bond allocations after Britain's vote to leave the European Union and subsequent signs of damage to economic growth prompted a dash toward fixed income.
The Trans-Pacific Partnership, a multilateral trade deal involving the U.S. and many countries on the Pacific Rim, has become something of a bugaboo for those both on the left and the right. Republican nominee Donald Trump has denounced TPP, declaring it a sop to China, even though China isn't included in the agreement. Bernie Sanders is against it as well. President Barack Obama and Democratic vice presidential nominee Tim Kaine are for it, while Hillary Clinton, who helped negotiate the deal, has now turned against it.
In that regard, something important happened recently. And not many people noticed. I’ll do a quick review to explain.
In Congressional testimony last February, a member of Congress asked Janet Yellen if the Fed had legal authority to use negative interest rates. Her answer was this:
In the spirit of prudent planning we always try to look at what options we would have available to us, either if we needed to tighten policy more rapidly than we expect or the opposite. So we would take a look at [negative rates]. The legal issues I’m not prepared to tell you have been thoroughly examined at this point. I am not aware of anything that would prevent [the Fed from taking interest rates into negative territory]. But I am saying we have not fully investigated the legal issues.
The US dollar index now down about 1%, recovering a bit of the initial plunge after the “unexpectedly” weak GDP report. Against the Yen, the dollar is doing much worse, down about three percent.
US Dollar Index Reaction to US GDP
US Dollar vs. Yen
Direction on the above chart is opposite the first. The Yen has strengthened about 3%. Some of that is due to a US GDP reaction, but the bulk of the move is on the heels of a market reaction to actions by the bank of Japan.
As noted previously, a portion of those revisions are related to a construction spending data error that goes back ten years.
Let’s take a look at the revisions.
GDP as Revised
2013 Q1: +0.9 percentage points
2013 Q2: -0.3 percentage points
2013 Q3: +0.1 percentage points
2013 Q4: +0.2 percentage points
2014 Q1: -0.3 percentage points
2014 Q2: -0.6 percentage points
2014 Q3: +0.7 percentage points
2014 Q4: +0.2 percentage points
2015 Q1: +1.4 percentage points
2015 Q2: -1.3 percentage points
2015 Q3: unchanged
2015 Q4: -0.5 percentage points
Because of construction errors I was pretty sure 2015 would be revised lower and I expected 2014 to go up. The latter appears to be flat.
For 2013, upward revisions to inventory investment, exports, and residential and nonresidential fixed investment were partly offset by a downward revision to personal consumption expenditures (PCE).
For 2014, a downward revision to inventory investment, an upward revision to imports, and a downward revision to state and local government spending were offset by upward revisions to exports, PCE, and residential fixed investment.
Now that the narrative of rising gasoline demand and a "strong summer driving season" is finally over, courtesy of gasoline stocks that just refuse to drop…
… and a glut in PADD1 that has never been greater…
… defenders of the "bull" crude oil thesis are stumped. "Doubts are rife as to whether the oil supply imbalance is indeed slowly drawing to an end," Stephen Brennock of oil brokerage PVM, said.
So with no fallback "story" both WTI and Brent are down 20% since their last peak in June, as another bear market for oil has arrived.
Worse, earlier today we got confirmation that another parallel narrative, namely that OPEC is cutting its production, is also dead and buried. According to a Reuters survey, OPEC's oil output is likely in July to reach its highest in recent history, as Iraq pumps more and Nigeria manages to export additional crude despite militant attacks on oil installations. Top OPEC exporter Saudi Arabia has kept output close to a record high, the survey found, as it meets seasonally higher domestic demand and focuses on maintaining market share rather than trimming supply to boost prices. Supply has been rising since OPEC abandoned in 2014 its role of cutting supply to prop up prices as major producers Saudi Arabia, Iraq and Iran pump more.
According to the survey, OPEC supply rose to 33.41 million barrels per day in July from a revised 33.31 million bpd in June.
There's more: OPEC's production could rise even further should talks to reopen some of Libya's oil facilities succeed. Conflict has been keeping Libyan output at a fraction of the pre-war rate. "This could shortly release more oil into an already abundantly supplied market," Carsten Fritsch of Commerzbank said, although earlier hopes of a restart have not been realized. "It therefore remains to be seen whether this time will be different."
It won't be different. As Reuters notes, OPEC's output has climbed due to the return of former member Indonesia in 2015 and another, Gabon, this month, skewing historical comparisons. July's supply from the remaining members, at 32.46 million bpd, is the highest in Reuters survey
Despite the huge miss compared to expectations, Bloomberg Econoday managed to put a positive spin on this mess.
Second-quarter GDP looks very weak at only a plus 1.2 percent annualized rate, but the details are positive. The biggest positive is consumer spending where growth, showing strength across readings, came in at a stellar 4.2 percent rate, more than double the first-quarter’s 1.6 percent rate.
A plus for the economy but a big negative in this report is slowing inventory accumulation which pulled down GDP by 1.2 percentage points in the quarter. But lean inventories point ahead to new accumulation which is a plus for future production and employment.
Another negative in the report is a reversal in residential investment, which had been running in the double-digit zone but which fell at an annualized 6.1 percent to pull down GDP in the second quarter by 2 tenths. A central concern remains nonresidential fixed investment, falling at a 2.2 percent rate and pulling down GDP by 3 tenths in the quarter. Weakness here points to weakness in business confidence and trouble ahead for productivity growth.
The first estimate for second-quarter GDP is expected to come in at plus 2.6 percent for a sizable gain from first quarter growth of 1.1 percent which was held down by severe weakness in nonresidential fixed investment. Retail sales rose sharply in the second quarter and are expected to feed strong gains for the consumer spending component, offsetting what is expected to be continued weakness in business investment, slowing in residential investment, and slowing in inventory accumulation. The GDP price index, reflecting energy prices, is expected to accelerate sharply, to plus 1.8 percent from 0.4 percent in the first quarter.
The inventory-to-sales numbers remain in the stratosphere so it is beyond absurd to spin inventories as a huge positive.
This week your Outside the Box is from my friend Ben Hunt, who writes his letter under the title Epsilon Theory. This edition is a little darker than usual, and certainly more of a think piece. A central argument that Ben makes in Epsilon Theory is that it is Narrativethat is the driver of politics, economics, and social interaction generally. The Narrative is what we all (mostly) believe and act upon. Investors generally believe that quantitative easing is going to result in a rising stock market, so they act as if another round of QE and continued low or negative rates are good for the equity markets; and thus the game...
MacVladimir The Cat: The Napoleon of Globalist Crime
MacVladimir a Mystery Cat: he's called the Hidden Paw— For he's the master criminal who defies globalists with a guffaw. He's the bafflement of Scotland Yard, the Neocon's despair: For when they reach the scene of crime—MacVladimir's not there!
MacVladimir, MacVladimir, there's no one like Ma...
The potential mover and shaker this morning was the surprisingly weak Advance Estimate of GDP for Q2, not to mention the downward revisions to the two previous quarters. But no worries for the market! The S&P 500 hits its -0.30% intraday low about 30 minutes into the trade and then bounced to its 0.32% intraday high during the lunch hour -- a record intraday high for that matter. A bit of zigzagging in the afternoon cut the closing gain in half to 0.16%, just a tad shy of a record close.
The bond market took a somewhat different view. The yield on the 10-year dropped six basis points to close at 1.46%. That's nine BPs off its all-time closing low and 11 BPs below its close on July 22, when the S&P 500 set its latest record close.
By Jacob Wolinsky. Originally published at ValueWalk.
NetSuite Inc (NYSE:N) is soaring this morning as Oracle Corporation (NASDAQ:ORCL) has made a bid to buy the company for $9.3 billion. This deal has been rumored for some time but obviously few expected such a large premium or did not think the bid was certaintly coming as the stock is up about 18 percent at the time of this writing which is a lot for a tech giant. Here is what the sell side is saying.
NetSuite – analysts react
Should the transaction take place, Oracle would pay about 9x NTM EV / revenue (based on consensus estimates for NetSuite), above the average multiple paid in our precedent SaaS Software acquisitions analysis of 6.8x . Additionally, Oracl...
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After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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