13/6/20: Gold Coins Sales are Up, and the Markets are Screaming Something New

Some interesting movements in demand for gold coins in recent months, worth watching:

Price is up, and volume of sales is quite volatile. Still, sales are hitting highs.

• Following weaker y/y January and February, March 2020 sales rose almost x10 y/y in volume and average coin sold size rose from 0.5 oz in March 2019 to 0.674 oz in March 2020. 
• April 2020 sales were x3.25 times sales in April 2019 by volume, with average coin size rising to 1.0 oz. May saw a major fall-off in demand m/m but still posted sales x2.26 time those of May 2019, with average coin sold size down to 0.538 oz per coin. 
• Through June 13, June monthly sales are already x2.75 times higher than sales for the entire month of June 2019, with average coin size sold so far this June running at 0.985 oz per coin, against 0.625 oz per coin in June 2019. 

It seems investors still showing little signs of moderating safe haven demand for gold, despite robust performance in the financial markets until this week profit-taking blowout. 

Gold can be seen as both a hedge and safe haven against a range of key financial and political risks, but it can also be viewed as a long-run wealth storage tool, and, given its liquid nature, as a precautionary savings instrument for tail risks. If the current demand remains robust in the face of rising gold prices, we are likely witnessing a risk-return relationship/expectations shift amongst the savers and investors, away from considering trend-driven investment strategy of thee recent years and in favour of investing against a major concern for significant tail risks driving the markets in months and years ahead.

13/6/2020: What Do Money Supply Numbers Tell Us About Social Economics?

What do money supply changes tell us about social economics? A lot. Take two key measures of U.S. money supply:

• M1, which includes funds that are readily accessible for spending, primarily by households and non-financial companies, such as currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; traveler's checks; demand deposits; and other checkable deposits. 

• MZM, which is M2 less small-denomination time deposits plus institutional money funds, or in more simple terms, institutional money and funds available for investment and financial trading.

Here we go, folks:

Does this help explain why Trumpism is not an idiosyncratic phenomena? It does. But it also helps explain why the waves of social unrest and protests are also not idiosyncratic phenomena. More interesting is that this helps to explain why both of these phenomena are tightly linked to each other: one and the other are both co-caused by the same drivers. If you spend a good part of 20 years pumping money into the Wall Street while largely ignoring the Main Street, pitchforks will come out. 

The *will* bit in the sentence above is now here.

12/6/20: American Love Affair with Debt: Part 2: Leverage Risk

I have earlier updated the data on the total real private economic debt in the U.S. as of the end of 1Q 2020 here: https://trueeconomics.blogspot.com/2020/06/12620-american-love-affair-with-debt.html

So, just how much is the U.S. economic growth dependent on debt? And have this dependency ben rising or falling prior to COVID19 pandemic onset? Well, here is your answer:

Using data through 1Q 2020, U.S. dependency on debt to generate economic growth in the private sector shot through the roof (see dotted red line above). In other words, U.S. corporate sector is leveraged to historical highs when the corporate debt levels are set against corporate value added.

All we need next is to see how 2Q 2020 COVID19 pandemic figures stack against this. A junkie hasn't been to a rehab, and the methadone clinic is closed...

12/6/20: American Love Affair With Debt: Pre-COVID Saga

Latest data for debt levels at the U.S. non-financial businesses and households (including non-profits) is out this week. So here are the charts and some stats:

There has been a bit of rush back in 1Q 2020 (the latest data available) to load up on loans by both private households and private businesses. 

• Non-financial business debt rose 7.86% y/y in that quarter, before COVID19 pandemic fully hit the U.S. economy. For comparison, previous quarter, debt rose *just* 4.81% y/y and 8 quarters annual growth rates average through 4Q 2019 was *only* 6.21%. Not only the U.S. businesses levered up over the last two years at a pace faster than nominal GDP growth, but their reckless abandon went into an overdrive in 1Q 2020.
• U.S. households and non-profit organizations serving them were not far behind the U.S. businesses. Debt levels in the U.S. households & NPOs rose 3.75% y/y in 1Q 2020, up on 3.26% y/y growth rate in 4Q 2019 and on 3.32% average growth rate over the two years through 4Q 2020. Which, in part, probably helps explain how on Earth financially-stretched American households managed to buy up a year worth of toilet paper supplies in one week in April.

Thus, overall, real private economic debt in the U.S. has ballooned in 1Q 2020, rising to USD 33.092 trillion. This marked y/y growth rate of 5.80% in 1Q 2020, up on 4.03% growth in 4Q 2019 and on 4.73% average growth over two years through 4Q 2019:

 

And yes, leverage risks in the private sector have increased as the result of these figures. At the end of 1Q 2020:

• U.S. non-financial businesses debts stood at 78.07% of GDP, an all-time high since the post-WW2 data started;
• U.S. households and NPOs debts stood at 75.6% of GDP, marking an official end to the post-Global Financial Crisis 'deleveraging' period that saw debt/GDP ratio declining to the low of 74.2% in 4Q 2019.
• Total non-financial private real economic debt stood at 153.67%, the highest level since 1Q 2011.

12/6/20: Summary of the Eurosystem Response Measures to COVID19

Great and tight summary of the Eurosystem monetary policies deployed in response to COVID19 pandemic: https://blocnotesdeleco.banque-france.fr/en/blog-entry/monetary-policy-measures-taken-eurosystem-response-covid-19.  Cumulative total through the end of May, EUR 1.27 trillion.

12/6/20: Post-COVID19 and Human Capital

My The Currency article this week is covering the issues of key talent in start ups and early stage enterprises post-COVID19 pandemic: https://www.thecurrency.news/articles/18174/after-a-crisis-history-shows-many-domestic-businesses-will-struggle-to-retain-rock-star-employees.

I cover the summary points of the article here: https://twitter.com/GTCost/status/1270438048950480896?s=20.

12/6/20: Russia COVID19 Update

Updating data for Russia on cases and deaths:

Russian cases trends remain uncomfortably high and showing no indication of a significant moderation. In the last seven days, new case counts cumulatively fell from 70,920 in the period through 05/06/2020 to 61,328 in the period of the seven days through 12/06/2020. Note: I am using ECDC data based on European time of reporting. While notionally, this shows a decline in the number of new cases reported over the seven days period, this decline is not significant enough to herald abatement of the pandemic pressures, nor is it sustained over the longer period of time, yet. 

Omitting the aberrational outlier in the new cases reported on 02/06/2020, current daily new cases counts are very narrowly in line with the daily counts reported starting from May 17, 2020.

In other words, daily cases data does not support a proposition that Russia should be lifting pandemic containment measures at this time.

Death counts are also relatively stable, and once again omitting the reporting outlier on 02/06/2020, Russia's death counts on the daily basis continue to run within the range that has been established since 21/05/2020. 

Here the death rates (adjusted and unadjusted) for per-1,000 cases basis:

Russia continues to report lower per-case death rates than BRIICS peers. In fact, amongst the countries with more than 10,000 cases recorded (50 countries with the highest case numbers), Russia's current death per 1,000 cases rate ranks 44th, with just 6 other countries reporting lower rate. In contrast, Russia ranks 19th highest in the group in the number of cases per 1 million population, and 28th highest in death rate per 1 million population. Interestingly, on the combined ranks measure across three metrics, Russia is statistically 'average' within the group of 50 countries heaviest hit by the pandemic. The same stands for the median (given that data is severely non-Gaussian, we have to consider both, and more). 

12/6/20: U.S. vs EU27 COVID19 Data Update

Updating comparatives between the U.S. and the EU27 in terms of case counts, deaths, and death rates:

The above shows overall data for cases and deaths counts. The U.S. is showing no moderation in trend and new cases and deaths reported, despite the country being hell-bent on exiting COVID19 pandemic restrictions. The data is yet to show any significant impacts of the ongoing social protests and unrest, which are coming down the line.

Next up, comparatives to the EU27:

Adjusting for the differences in the onset of the pandemic, the U.S. has overtaken EU27 in terms of deaths from the pandemic some days ago and it continues to pull away. Even in absolute day-to-day comparatives, the gap in total deaths counts between the EU27 and the U.S. is closing rapidly. This is important, because the U.S. pandemic is crucially of later vintage than that in the EU27, implying that:

• The U.S. should have lower deaths counts and death rates due to improvements in treatment of COVID19, detection of COVID19 cases and earlier interventions enabled by this lag, compared to the EU27;
• The U.S. should have faster rates of detection of COVID19 cases, leading not only to lower mortality, but also to faster exhaustion of the pandemic curve in terms of new daily cases.

None of the above is happening, implying that the pandemic itself and the public health system response to the pandemic in the U.S. is worse than in the EU27.

To see this more clearly, here are the U.S. death rates per 1 million population difference to the EU27:

The above numbers and trends are woeful for the U.S. and clearly signal poor management of the pandemic response in the country.

12/6/20: Global COVID19 Data Update

Globally, the pandemic is not abating, despite the optimistic talk across a range of countries currently relaxing severe restrictions on social distancing and pandemic-abatement measures:

In my opinion, outside Europe, current relaxation of COVID19 restrictions is premature. Global pandemic cannot be contained with international travel is allowed, and majority of the countries in the Northern Hemisphere currently moving to mid-range phases of pandemic containment measures removal are risking renewed waves of pandemic in late Summer.

11/6/20: America's Scariest Charts Updated

The latest data on initial unemployment claims for the week ending June 6, 2020 is out today (release here: https://oui.doleta.gov/press/2020/061120.pdf). Initial unemployment claims are up another 1,537,120 in one week, though the rate of new additions is down slightly on the revised 1,620,010 new claims in the week ending May 30, 2020.

Here is the summary of the claims and jobs losses during the current recession as compared to all previous post-WW2 recessions:

Cumulative estimated jobs losses so far in this recession amount to 21,088,120, though this number is likely to change as we get more updates on actual employment figures. Cumulative number of new unemployment claims filed in this recession stands at 40,358,315. This number includes those who were denied benefits in prior filings, but subsequently re-filed their claims. Nonetheless, the number is an important indicator of just how woefully horrific the COVID19 pandemic has been on U.S. labour force.

Updating data for June for Non-Farm Payrolls, and incorporating official number for May 2020, reported last week:

Estimated payroll numbers are now down to the levels las seen in 3Q 2000, effectively implying that COVID19 has ashed more jobs than were created in almost the entire 21 years of this century.

Here is another way to visualize the above data:

Here is what this week's initial claims print means for the index of jobs market performance during the current recession, compared to the already widely-debunked optimistic jobs report of last week for May:

In effect, this week largely destroyed most of the 2.509 million jobs created myth paraded by President Trump last week. In reality, of course, we know that that jobs creation print was to a large extent the outrun of re-registrations and benefits expirations, plus the figment of the BLS data collection methods. For the best explanation of these factors, read: https://www.thestreet.com/mishtalk/economics/surprise-the-bls-admits-another-phony-jobs-report and my take on this is: https://trueeconomics.blogspot.com/2020/06/5620-incredible-jobs-report-meets.html.

8/6/20: 30 years of Financial Markets Manipulation

Students in my course Applied Investment and Trading in TCD would be familiar with the market impact of the differential bid-ask spreads in intraday trading. For those who might have forgotten, and those who did not take my course, here is the reminder: early in the day (at and around market opening times), spreads are wide and depths of the market are thin (liquidity is low); late in the trading day (closer to market close), spreads are narrow and depths are thick (liquidity is higher). Hence, a trading order placed near market open times tends to have stronger impact by moving the securities prices more; in contrast, an equally-sized order placed near market close will have lower impact.

Now, you will also remember that, in general, investment returns arise from two sources: 

1. Round-trip trading gains that arise from buying a security at P(1) and selling it one period later at P(2), net of costs of buy and sell orders execution; and 
2. Mark-to-market capital gains that arise from changes in the market-quoted price for security between times P(1) and P(2+).

The long-running 'Strategy' used by some institutional investors is, therefore as follows: 

Here is the illustration of the 'Strategy' via Bruce Knuteson paper "Celebrating Three Decades of Worldwide Stock Market Manipulation", available here: https://arxiv.org/pdf/1912.01708.pdf.

• Step 1: Accumulate a large long portfolio of assets;
• Step 2: At the start of the day, buy some more assets dominating your portfolio at P(1) - generating larger impact of your buy orders, even if you are carrying a larger cost adverse to your trade;
• Step 3: At the end of the day, sell at P(2) - generating lower impact from your sell orders, again carrying the cost.

On a daily basis, you generate losses in trading account, as you are paying higher costs of buy and sell orders (due to buy-sell asymmetry and intraday bid-ask spreads differences), but you are also generating positive impact of buy trades, net of sell trades, so you are triggering positive mark-to-market gains on your original portfolio at the start of the day.

Knuteson shows that, over the last 30 years, overnight returns in the markets vastly outstrip intraday returns. 

Per author, "The obvious, mechanical explanation of the highly suspicious return patterns shown in Figures 2 and 3 is someone trading in a way that pushes prices up before or at market open, thus causing the blue curve, and then trading in a way that pushes prices down between market open (not including market open) and market close (including market close), thus causing the green curve. The consistency with which this is done points to the actions of a few quantitative trading firms rather than

the uncoordinated, manual trading of millions of people."

Sounds bad? It is. Again, per Knuteson: "The tens of trillions of dollars your use of the Strategy has created out of thin air have mostly gone to the already-wealthy: 

• Company executives and existing shareholders benefi tting directly from rising stock prices; 
• Owners of private companies and other assets, including real estate, whose values tend to rise and fall with the stock market; and 
• Those in the financial industry and elsewhere with opportunities to privatize the gains and socialize the losses."

These gains to capital over the last three decades have contributed directly and signi ficantly to the current level of wealth inequality in the United States and elsewhere. As a general matter, widespread mispricing leads to misallocation of capital and human effort, and widespread inequality negatively a effects our social structure and the perceived social contract."

8/6/20: EIB Economics Rankings 2020

Nice present to be ranked 39th economist in the world this Monday morning: https://www.ieb.es/de-michael-porter-a-daniel-lacalle-descubre-a-los-100-economistas-mas-influyentes-del-mundo/ via IEB:

Thanks! As silly as such rankings might be... still worth a smile. :)