Thursday, 31 March 2016

Fertility Rate + Birth Rate, US & Canada

Current (2015) rate: 1.87 children born/woman.
Minimum population replacement rate: 2.1. 

QOTD

"I was worth over one million after the close of business that day. But my biggest winnings were not in dollars but in the intangibles: I had been right, I had looked ahead and followed a clear-cut plan. I had learned what a man must do in order to make big money; I was permanently out of the gambler class; I had at last learned to trade intelligently in a big way." - Jesse Livermore

The Unsurprising Financial Markets

By Larry Smith, Professor of Economics, University of Waterloo:

There is no doubt that the world’s financial markets play an indispensable role in fueling economic growth and development. There is equally no doubt that large amounts of capital are misallocated and therefore wasted. Part of the misallocation occurs because far too many conflicts of interest and instances of self-dealing continue to be tolerated. That is in addition to those who with malice aforethought create false information to mislead the unwary. However, responsibility for the greater part of this misallocation arises from a different source: those who claim that the future cannot be predicted usefully. Notice how this plays out.

Those who are optimistically inclined, whether genuinely or not, and those who are optimistic in order to promote sales, deals and commissions are of course often contradicted by events. Are they then held to account? Rarely. The prognosticators always invoke their great excuse, claiming that nobody could see the anomaly coming, that they were all wrong together. After all, the future is unknowable, they plead. But they plead not for forgiveness, but for acquiescence in the state of their version of reality.

Of course, they are right about one aspect of predicting the future, the aspect they use to excuse all else. Indeed, the future cannot be predicted in great detail, or in any detail in some circumstances. But that does not mean it cannot be predicted usefully. The definition of useful in this context is quite clear. Can you use the prediction to guard yourself from danger, or in some cases to advance your economic interests? And for economic predictions that are thoughtfully applied, the answer is emphatically yes.

This blog has long argued that the only realistic outlook for the global economy is slow growth, at best. The reason is entirely clear: all of the world’s major marketplaces face serious and multiple problems. The governments of the United States and the European Union, for example, are near dysfunctional. And interest rates are so low only because growth is illusive. To predict sustained growth at historically high rates requires us to assume that all or almost all of the world’s major problems are resolved nearly simultaneously. That is an assumption only the heroically blind optimist could make.

Nevertheless, modest growth in the United States and no immediate crisis like 2007-08 were enough to propel the financial markets upward, with no allowance for anything to go wrong. Strictly speaking, it actually meant that everything had to go right!

As this blog has pointed out, these multiple, complex and overlapping problems inevitably produce both high uncertainty and high volatility. So how could you be surprised that energy and commodity prices are unstable? Or perhaps you are surprised at exactly how low energy prices have fallen? But it is the essence of volatility in uncertain times that the swings will be very wide, if not wild.

Notice what assumption was necessary in order for energy and commodity prices to be even approximately stable. China would have had to slow its massive economy from unsustainable to sustainable growth rates and would have had to do so smoothly. China would have had to do this even though it had never done it before and its financial and regulatory institutions are still in development. It would have needed timely and reliable statistics, and minimal corruption. It could not overshoot its targets in either direction. And why we are surprised that China has struggled with this great challenge? And as China struggles, the energy and commodity markets weaken further.

So now that reality has emphatically asserted itself, the optimists have bailed and the markets have tanked. Of course, once you really do believe that the future is completely unknowable, adversity easily causes over-reaction. So the markets are likely to fall far further than circumstances warrant. But even that observation is uncertain. So where does that leave the individual?

Since everyone’s circumstances are different, there is no single way to effectively respond to today’s environment. But there are several basic approaches that serve in times of great uncertainty. Avoid inflexible obligations. Try to insulate part of yourself from the external environment. One way is to seek out individual investment opportunities that are not strongly dependent on the overall economy; ideally, you find an investment that is strengthened by volatility and slow growth. They do exist.

Last and not least, make sure your career strategy is aggressive. Add to your advantage by enhancing your innovative capability. Remember the highly innovative problem solver is always in demand.

US corporate profits vs Dow Jones


source: tradingeconomics.com

Tuesday, 29 March 2016

Milton Friedman, Nobel laureate: The Purpose of the Federal Reserve


Janet Yellen to the Rescue


US Corporate Profits vs US Money Supply M2 2007 - Present


United States Corporate Profits 2007-present


source: tradingeconomics.com

Dow Jones Industrial Average vs US Money Supply M2: 2011 - present


source: tradingeconomics.com

Interest rates vs M2/M3 (Money Supply): US, EU, Japan, China

Notice a pattern?

United States Fed Funds Rate 2007-2016


source: tradingeconomics.com

QOTD

"In my experience, selling a put is much safer than buying a stock" (Kyle Rosen, 2004).

Despite JustinTrudeau's devaluation of the CAD, Raw Materials Price Index (RMPI) down -2.6% m/m.

http://www.statcan.gc.ca/daily-quotidien/160329/cg-a001-png-eng.htm
 

Monday, 28 March 2016

QOTD

"Everything possible today was at one time impossible. Everything impossible today may at some time in the future be possible" - Edward Lindaman (Apollo space project, president Whitworth College, 1920-1982).

Thursday, 24 March 2016

QOTD

"There is only one side to the stock market; and it is not the bull side or the bear side, but the right side" - Jesse Livermore (Early 20th century stock trader and speculator, How to Trade in Stocks, 1877-1940).

Wednesday, 23 March 2016

TOTD: Terms of Trade

TERMS OF TRADE = price of exports / price of imports = 
Px / Py

The rate at which goods are traded, either between individuals or between nations. It is the quantity of one good exchanged per unit of another good. The terms of trade is essentially the price. But the price is stated in terms of the quantity of another good. Like any market price, the terms of trade is based on what the buyers are willing to pay and what the sellers are willing to accept. The terms of trade between any two countries is based on the relative opportunity cost in each country.

via amosweb

QOTD

"Anyone who believes that exponential growth can go on forever is either a madman or an economist" - Kenneth Ewart Boulding (Economist, activist, poet, scientist, philosopher, co-founder General Systems Theory, 1910-1993).

Monday, 21 March 2016

TOTD: Fascism

Fascism, by Sheldon Richman: The Concise Encyclopedia of Economics | Library of Economics and Liberty

QOTD

"Over the last 25 years, computer processing capacity has risen more than a millionfold, while communication capacity has risen over a thousandfold" - Richard Worzel (Futurist, Facing the Future).

Friday, 18 March 2016

QOTD

"I'm very big on having clarified principles. I don't believe in being reactive. You can't do that in the markets effectively. I can't. I need perspective. I need a game plan." - Ray Dalio (Money manager, founder Bridgewater Associates)

TOTD: Fermat Primes

"Fermat Primes are prime numbers of the form F_{n} = 2^{(2^n)} + 1, where n is a non-negative integer and are named after the French Mathematician Pierre de Fermat who studied numbers of this form.

If 2n + 1 is a prime, then n is a power of 2

 

For 2n + 1 to be prime, then n must not contain an odd factor, or 2n + 1 would be a factorable number of the form:"

Thursday, 17 March 2016

QOTD

After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! - Jesse Livermore

GLD - Sitting Tight


Tuesday, 15 March 2016

QOTD

A good trader has to have three things: a chronic inability to accept things at face value, to feel continuously unsettled, and to have humility. - Michael Steinhardt (Financier, philanthropist, political activist, chairman Wisdom Tree Investments)

TOTD: Pareto Principle

The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity)[1] states that, for many events, roughly 80% of the effects come from 20% of the causes.[2] Management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who, while at the University of Lausanne in 1896, published his first paper "Cours d'├ęconomie politique." Essentially, Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population; Pareto developed the principle by observing that 20% of the peapods in his garden contained 80% of the peas.[3]


via Wiki

Monday, 14 March 2016

TOTD: Law of Diminishing Marginal Utility

LAW OF DIMINISHING MARGINAL UTILITY:
A principle stating that as the quantity of a good consumed increases, eventually each additional unit of the good provides less additional utility--that is, marginal utility decreases. Each subsequent unit of a good is valued less than the previous one. The law of diminishing marginal utility helps to explain the negative slope of the demand curve and the law of demand.
via amosweb

Saturday, 12 March 2016

QOTD: "Statistics are valuable, but they must be kept subordinate to a comprehensive view of the whole situation."

"Statistics are valuable, but they must be kept subordinate to a comprehensive view of the whole situation."

— Rubin (@traderrubin) Mar. 12 at 03:48 PM

Friday, 11 March 2016

TOTD: International Trade: Heckscher–Ohlin Model

Basic situation: Two identical countries (A and B) have different initial factor endowments. Autarky equilibrium (A^A, A^B): no trade, individual production equals consumption. Trade equilibrium: both countries consume the same (C^A = C^B), especially beyond their own Production–possibility frontier; production and consumption points are divergent.
Source: https://en.wikipedia.org/wiki/Heckscher%E2%80%93Ohlin_model

Tuesday, 8 March 2016

Saturday, 5 March 2016

Update: $SI_F Silver Futures

$SI_F (Silver Futures) update
— Rubin (@traderrubin) Mar. 5 at 06:00 PM

SLV - long reiterated; near-term target 15.50; short-term target 17

$SLV - target 14.83 hit; near-term →15.50; short-term → 17$GLD $TLT

— Rubin (@traderrubin) Mar. 5 at 05:23 PM