Gross Domestic Product

Scott Sumner said he had a “modest” proposal: there should be a highly liquid futures market in Nominal Gross Domestic Product. Let's look at that.

The game of enabling more debt by lowering interest rates and loosening lending standards is coming to an end. Debt is not a sustainable substitute for income, and households are increasingly waking up to this realization. Say good-bye to Christmas, America, and debt-based spending in general--except, of course, for the federal government, which can always borrow another couple trillion dollars on the backs of our grandchildren.

China’s producers couldn’t get the prices they wanted anymore, as early as 4 years ago, and that’s where deflationary forces came in. No matter how much extra credit/debt was injected into the money supply, the spending side started to stutter. It never recovered.

Global policymakers have gone to incredible measures to stabilize market, financial and economic backdrops. Yet reflationary measures will continue to only further destabilize. When policy-induced “risk on” is overpowering global securities markets, fragilities remain well concealed. Fragilities, however, swiftly manifest with the reappearance of “risk off.” Rather quickly securities markets demonstrate their proclivity for illiquidity and so-called “flash crashes.” So after an unsettled week in global markets, the critical issue is whether “risk on” is giving way to “risk off” dynamics.

Macy's is down over 13% today, pushing towards a sub-$40 handle - the lowest since February 2013 - after lowering guidance and disappointing a market full of hope (and hype) that retail is back (remember, all the retail hiring last Friday). However, that is not the most prescient issue as 3 years of buying back billions of dollars of Macy's stocks - to financially-engineer earnings to ensure executive compensation is satisfactory - have been completely wasted. And worst still, the additional debt added to fund the total failure in timing of buybacks has now sent Macy's credit spiking to multi-year highs (as the stock tumbles).

According to the CEO of Maersk, the world's biggest container shipping company, "the world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting." Andersen adds that "we believe that global growth is slowing down. Trade is currently significantly weaker than it normally would be under the growth forecasts we see....we’re a little bit more pessimistic than most forecasters."

The cries for going totally crazy are growing louder... the lunatics are running the asylum. One shouldn’t underestimate what they are capable of. The only consolation is that the day will come when the monetary cranks will be discredited again (for the umpteenth time). Thereafter it will presumably take a few decades before these ideas will rear their head again (like an especially sturdy weed, the idea that inflationism can promote prosperity seems nigh ineradicable in the long term – it always rises from the ashes again). The bad news is that many of us will probably still be around when the bill for these idiocies will be presented.

There were a few different stories coming out over the last few days that reveal the true nature of government and the apparatchiks who use disinformation, devious machinations, fraudulent accounting, and taxpayer money to cover up their criminality, lies, and the true state of the American economy. The use of government accounting tricks to obscure the truth about our dire financial straits is designed to keep the masses sedated and confused.

For those eager to cut to the chase and curious if overnight we have had another standard USDJPY ramp levitating US equity futures on low volume, the answer is yes. And since the USDJPY carry was patient enough, it managed to trigger the 2100 ES stops and as of this moment the futures were comfortably on the politically-correct side of 2100.

• Euro zone growth weak in October, China services rally (Reuters)
• Stocks Rise With European Bonds on Stimulus Outlook; Euro Falls (BBG)
• VW Sinks Deeper Into Crisis as Scandal Spreads to More Cars (BBG)
• Republicans ask IRS to audit Clinton charity's finances (Reuters)
• PBOC Inadvertently Boosts Stocks With Dated Zhou Comments (BBG)
• As China’s Economy Slows, Consumers Pick Up Some of the Slack (WSJ)
• Plane crashes in South Sudan, witnesses say dozens killed (Reuters)

The fundamental problem facing today’s economy is the flagrant contempt by governments the world over for the free exchange of goods and services and private stewardship of property. Perhaps it is power and control governments are after. Maybe they believe they are improving the economy and making the world a better place for all. No one really knows for sure. But what is lucidly clear is the muddled disorder modern day economic policies have wrought upon us.

Late on Friday afternoon, after recording its biggest monthly points gain in history, the S&P500 unexpectedly took a surprising swoon lower to close trading well in the red. This chart may be the reason why.

Central banks can’t afford a big correction to take place as it goes counter to their mandate, a stable growing economy, hence they interfere every single time a correction of size is about to unfold. And any threat to the global economy must be prevented. Now that fiscal year end mark-ups are over for many funds buyers have to prove how committed they are to driving markets higher. Price will ultimately confirm how this will play out, but altogether this chart is an amazing construct of symmetry and, as fans of structures and symmetry, it certainly has our attention. We can’t recall ever seeing such a precise structure.