Cause and Effect

  • A chicken-or-egg proposition
  • November retail-sales roundup
  • Federal “bread” lines
  • Facebook (and FTC) lawyer up 
  • High-frequency trades get even higher-frequency
  • Another Brexit train wreck
  • A reader writes: “Bitcoin? Money? Never!”… A Here Comes the Sun catastrophe… A brief history of conspiracy theories… And more!

We can’t help wondering if there’s some level of cause and effect going on here: The following alerts appeared this morning on your editor’s iPad, separated by a 50-minute gap.

Retail

Lawmakers

The Census Bureau issued the November retail sales numbers at 8:30 a.m. EST. They stunk up the joint.

The “expert consensus” among dozens of economists polled by Econoday called for a modest pullback from October of 0.3%. The gloomiest guess was a 0.7% decline. The actual number was minus 1.1%. Oops.

Media malpractice: In its rush to get the news out, The Wall Street Journal flubbed the headline. It’s actually the second decline in seven months.

It’s even worse if you throw out vehicle sales (which are volatile month to month) and gasoline sales (because falling gas prices translate to lower total sales).

Here, the economists were figuring on 0.2% increase but the actual number was a 0.8% decline. Super-oops.

It’s true that overall retail sales are higher now than they were in the pre-pandemic month of February — by 3.6%, to be precise. But that’s more than offset by less spending on services — think shuttered salons and whatnot.

Lo and behold, less than an hour later, word emerges that congressional leaders are getting close to a new round of “stimulus” spending — which would likely goose those flagging retail numbers.

A spending bill has been the object of on-and-off talks for weeks. For the most part we’ve ignored those talks; no point trying to suss out the consequences without knowing the details.

But now the outlines are becoming if not clear, at least a little less hazy.

Looks as if another round of checks is in store, though maybe not as generous as the $1,200 per adult from last spring. No bailouts for state and local governments, though — and the issue of liability protections for businesses operating amid a pandemic will be pushed off to next year.

Still no word on the total amount of spending. But presumably whatever’s hammered out will be tacked onto a “continuing resolution” to keep the government running past the current deadline of midnight Friday night. (CRs are what Congress passes these days in lieu of an honest-to-God budget.)

If Wall Street is weighing flagging consumer resilience versus incoming government stimulus this morning… the two balance out.

At last check, the major U.S. stock indexes are almost pancake flat — none of them moving more than a tenth of a percent in either direction. (For the record, the Nasdaq notched its 51st record close of 2020 yesterday.)

It doesn’t help that New York’s mayor is warning of a “full shutdown” soon. As we saw back in March, Wall Streeters tend to react strongest to whatever pandemic measures are being imposed in NYC. That’s the case even now, when most Wall Streeters are working from their second homes in Westchester County or Long Island or Connecticut.

In addition, traders are biding their time until the Federal Reserve issues its every-six-weeks proclamation on monetary policy this afternoon. Obviously the benchmark fed funds rate will stay near zero… but this is one of the four times a year when Fed pooh-bahs issue their forecasts for the economy, which will lend clues to the likelihood of accelerated money printing going into 2021.

Gold is holding the line on $1,850 and silver’s less than 20 cents away from $25… but the big mover in nondollar assets today is Bitcoin. It’s up 7%, crossing the $20,000 mark for the first time. (It just missed that mark during the late 2017 rally.)

If the Federal Trade Commission looks overmatched in taking on Facebook… Jim Rickards says appearances can be deceiving.

Last week the FTC and 48 state governments hit FB with an antitrust suit, demanding the company unload WhatsApp and Instagram.

Since then, a few media outlets have noticed the FTC’s budget and legal staff are stretched. Nor is the FTC bringing in outside lawyers to pursue the case. Meanwhile, FB is dropping big bucks on antitrust pros at specialty law firms like Davis Polk.

“The stories make it sound like a David and Goliath confrontation,” Jim tells us.

“There are two problems with that metaphor. The first is that David won. Let’s not count the FTC out so fast.

“The second problem is that high-priced legal talent may not be as valuable as legal creativity applied to the theory of the case.”

It comes back to something Jim described for us at the start of the year — when it was already evident Washington was going to go after Big Tech. As he sees it, antitrust law is entering a new stage, the fourth since passage of the Sherman Antitrust Act of 1890.

  • Stage 1, 18901940: “Big is bad.” This is when Uncle Sam broke up big companies, the biggest of them being the Rockefeller-owned Standard Oil Trust
  • Stage 2, 19401980: “Big is bad, but not always.” If a big company faced diverse competition and consumers had alternatives, it was usually left alone
  • Stage 3: 19802020: “Size matters less than consumer benefit.” Even if a company had a monopoly, it would get a pass if regulators felt that on balance consumers were the beneficiary.

“Facebook and Google have benefitted from this Stage 3 interpretation,” Jim says. “They are near monopolies, but consumers like their products, which are mostly ‘free,’ so they seem to pass the test of consumer benefit.”

But no more. Under the emerging Stage 4, “the test of consumer benefit cannot be limited to ‘free’ products.” Remember, when it’s free, you’re the product. “Do consumers really benefit when their private lives are an open book?

“An inventive FTC lawyer can now make a compelling case despite the hired guns lined up against him. And that could lead to the breakup of Facebook, Google and even Amazon in a remarkably short time.”

We’ll be on watch throughout 2021…

Here it comes, trading at — well, not the speed of light, but they’re getting closer…

Traders

“Hollow-core fiber,” it’s called. What you see in the picture is “a next-generation version of the fiber-optic cable used to deliver broadband internet to homes and businesses,” says The Wall Street Journal.

“Made of glass, such cables carry data encoded as beams of light. But instead of being solid, hollow-core fiber is empty inside, with dozens of parallel, air-filled channels narrower than a human hair.”

Light travels through air 50% faster than through glass, we’re told. So the empty space has the effect of speeding up data passing through hollow-core fiber by about one-third.

You can see what an advantage that would be for HFT, high-frequency trading.

It’s not very useful at long distances; signals have a tendency to face. But for just a few hundred yards? Connecting, say, the data center housing an exchange’s systems to a microwave tower nearby? Perfect.

We’re talking about only a few hundred billionths of a second, but that’s enough for HFT traders to get an edge on their competition.

[Ed. note: The Journal piece reminds us “high-frequency trading is controversial, with critics saying that some ultrafast strategies amount to an invisible tax” on investors who don’t have access to such highfalutin’ techniques.

For sure. But our own James Altucher is putting the finishing touches on a trading algorithm that will level the playing field for everyday folks like you. We’ll clue you in early next year.]

Model train enthusiasts the world over are crestfallen: The Brexit fiasco is denying them holiday access to one of their favorite brands, made in the U.K.

“Model railway maker Hornby is pausing all international orders until January next year,” reports the BBC, “because of uncertainty around post-Brexit trade rules.”

The United Kingdom and the European Union still can’t come to terms on the final phase of Britain’s exit from the EU, and a Dec. 31 deadline looms.

"Within Europe,” says Hornby CEO Lyndon Davies, “people are already asking us: 'If I buy something, are those tariffs already included in your pricing?' Because we don't know what's going to happen, it's just a very difficult position."

Easier, he figures, to just pull the plug on all orders outside the U.K.

Humby

Hornby Railways: Stalled in Brexit purgatory…

“People who are having these talks just don't understand how the real world operates,” Mr. Davies laments. “They think at the last minute they can come up with a solution. People are going to be losing jobs."

Feels like that’s been the story with everything in 2020…

Bob Williams’ take yesterday on Bitcoin vs. gold — he sees Bitcoin with the edge going forward — brought a not-unexpected flurry of hostile reactions.

“Gold is the only real money, along with silver, in existence. It is nonperishable, mobile, without counterparty risk!!!!!!, nonvirtual and noncounterfeitable apart from very clever and expensive manipulation.

“The main advantage and protection of owning gold that is not available to Bitcoin owners is this: IF YOU CAN’T HOLD IT IN YOUR HAND — YOU DON’T OWN IT!!!! This is unfortunately true for just about everything you take for granted that you ‘own.’ Think you own your house? See what happens if you fail to pay your property taxes.

“Bitcoin? Money? Never! A currency imitating money — possibly. An investment? OK, anything from postage stamps to baseball cards can be an investment, but at least YOU CAN HOLD THOSE PHYSICAL OBJECTS IN YOUR HAND!

“Bitcoin relies on the internet. If the internet goes down, your ‘wallet’ disappears. If bad actors (government) acquire control of the system, you can be held hostage to your ‘wallet’ to perform their way, to ‘toe the party line’ or kiss goodbye to your wallet. If you don’t hold it in your hands, you DON’T OWN IT.

“ANY Bitcoin (virtual) type currency — not money — makes possible a backdoor path to extinguish your freedoms through financial extortion.”

And another Bitcoin objection: “What if there is another 'Carrington Event'?”

“Scientists say this coming 11-year solar cycle may be the worst since the 1800s. What say you?”

The 5: We say it’s a great question.

The reader refers to a heavy-duty solar flare resulting in a “coronal mass ejection.” A CME in 1859 knocked out the nascent telegraph network. Another one in 1989 knocked out the hydropowered electric grid in Quebec.

It’s sobering to contemplate the impact of a major CME on our electronics-dependent world today. And indeed, the 11-year sunspot cycle now underway is shaping up to be the strongest in a long time.

Which means even without a CME, the mid-2020s might be an era of major riots, revolutions and wars — see our most recent episode of The 5 outlining the connection between sunspots and “mass excitability.”

But yes, Bitcoin would be at a decided disadvantage under that circumstance. Greg Weldon, who heads a money management and institutional research firm bearing his name, said as much over the weekend during the Financial Sense podcast.

Remarkably, though, that does not dissuade him from Bitcoin as protection against a falling dollar. He likes both Bitcoin and gold for that purpose.

On the subject of conspiracy theories… “I was told by several sources supposedly in the know that the CIA created and spread the meme ‘conspiracy theory’ after JFK was assassinated and forever after has seeded public media with the words whenever nasty questions are being asked about Big Happenings.

“Of course, since they are prohibited from acting in the U.S., they must mail in or email the terms from outside the country…”

The 5: Your sources have led you down the primrose path.

It is true that in 1967, the CIA issued a memo attempting to address some of the unauthorized explanations for the JFK assassination. (The New York Times finally obtained the memo in 1976, during a brief and glorious post-Watergate era when the media actually tried to hold deep-state agencies accountable now and then.)

The memo laid out plans for “countering and discrediting the claims of the conspiracy theorists, so as to inhibit the circulation of such claims in other countries.”

But it did not lay out a plan to spread the term “conspiracy theory” as a smear. Searching Google Books turns up regular usage of the phrase in the 1950s, and even early appearances as far back as the 1870s.

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Confidential to Gmail users: The weird Google outage that hit briefly on Monday has had a lasting impact. Between then and now, it’s highly likely you missed an email or three from our firm — including those from the newsletters and trading advisories you pay for.

We’re doing everything we can on our end to remedy things. But in the meantime, we urge you to check out the websites of the publications you subscribe to — just in case.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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