Good morning. I have been watching a lackluster stock market today, and bitcoin, and oil, and interest rates, and to keep busy I have been reading and analyzing the CNN interview. I have the full transcript put out by CNN, which is available here.

Walz is incredibly simple spoken. Simple, value-laden words:

• I'm
• I've
• Know
• think
• Can
• Proud
• Hope
• Things
• Never

He is the "I guy" who makes simple statements, like I think, I know, I can, I hope, and I am proud. It was all about him.
Here is the word cloud: https://imgdlvr.com/pic/wordclouds.com/20240830-0637/public
​

From the speech, I noticed content:

• Supports a child tax credit to reduce child poverty
• Support reproductive freedom to eliminate any barriers to families having children.

This sounds, to me, like a pro-life stance.

Note: We included all of her answers verbatim, with no editing, from the CNN transcript.

She is definitely running for President of the American people. Her top three words were People, American and President, with America close behind.

She spoke about herself a great deal, with top words being:

• Done
• Think
• Gonna (sounds very informal)
• I'm
• Believe
• Border
• Deal
• Clear
• and surprisingly for a member of the executive branch: Bill and Congress

Her filler words were in full force: Clear, Important, Including, One, and Actually.

She did speak of Joe Biden.

There wasn't much discussion of policies in the speech. I see a few words, like investing and invest, and tax, inflation, and credit. However, the speech largely avoided the economy and economic policy. There are few words on foreign policy. Fracking was there, but in response to a question. There was no discussion of America's energy or industrial policy.

I see "Bacon" which could upset leaders in muslim countries (she said she cooks bacon and feeds it to her family). It stood out for me in the transcript.

In terms of her positions, policies and important matters of state:

• President Harris plans to increase spending on the middle class (not the poor, nor rich), by giving tax credits to promote (stimulate demand) for specific events she feels are important (first year of a child's life and first time home buyer). She is stimulating demand for children and home ownership in an incredibly tactical way.
• President Harris will implement, continue, and strengthen price controls to reduce prices on goods that she selects, and to those who she chooses to benefit. Insulin is now capped at $35/month for senior citizens. Total prescription drug costs are capped at $2,000 / year for seniors, regardless if they need life saving cancer treatments, dialysis, or just cold medicine. The problem is that pharmaceutical companies may not be able to raise the money to develop the newest and riskiest drug candidates if they cannot charge for them in the incredibly unlikely event their inventions work. This only really works for old, off-patent medicines.
• Harris does not discuss the economic impact of price controls on supply. She also ignores services, focusing only on goods. What about services, especially housing? A tax credit for home buying will make rents higher, not lower.
• A Harris presidency will not ban fracking, because we can manage to change the climate without it for now.​
• Harris was very specific on her role on immigration as requested by President Biden, that she was addressing the root causes of migration in the northern part of Central America. She suggested her work helped as it caused U.S. businesses to increase investment in those areas.​
• She really wants to hire 1,500 new Customs and Border Patrol agents and place them at the border. However, she doesn't say that. She says she will make sure Congress passes that border bill. I don't know what is in it, but I believe it was really complex and expensive.
• When asked about illegal immigration, she said illegal border crossers should face consequences, and the would enforce the laws around immigration. She sounds like a lawyer, not an executive.

​
With regards to the New Cold War, she has a few well hidden ideas that came out being couched as things Joe Biden did that she was proud of:
- The way to handle Israel and the Palestinians is a Two-State Solution, and a 'deal' is urgent. She said it at least four times in quick succession. Diplomacy & deals.
- She is for expanding our NATO, SEATO and new AUKUS+India+Japan+Indonesia alliances. She will protect sovereignty and territorial integrity. This is directly targeted at Russia and China, whether she realizes this or not. She will continue our New Cold War.

A few things that were absent that I expected to see:
- more active, policy statements (things to do, and how, when and why)
- proud to be an American, free, strong and independent (her mom and dad were immigrants)
- speaking like a president in a polished and formal way, serious
- The government's debt and deficits, interest rates, currencies, trade flows and the markets.
- The private sector and how to promote jobs, income, opportunity and wealth.
- America as a promise, a place to come to, and a treasure to protect (patriotism)
- Big picture strategy and strategic thinking.
- A grand challenge for America. Is there a race to 2050 we need to win? A goal to unify us?

The Kamala Harris Word Cloud can be found here: 
https://imgdlvr.com/pic/wordclouds.com/20240830-2937/public

I hope you enjoyed the post and analysis.

We are available for consultation on multiple matters, whether the stock market, the South China Sea, Enterprise IT Infrastructure, Global Outsourcing, and even Iranian energy. We manage money with the custodial agent support of Charles Schwab.

​Let us know...we are here to serve.

10-year UST note futures trading at 3.792% this morning. The 13-week UST bill at 5.03%. The 2-year UST note is trading at 3.943%. The spread between the 2&10 years notes is -0.151%, which shows a pretty flat yield curve.

This is good news for stocks, as lower interest rates lessen the 'pull' of risk free income away from equities.

There is an issue. This may not be sustainable.

What would happen if the economy weakens AND the US Federal Government has to borrow more to finance deficit spending. Typically, the government pays down its debt during positive economic growth (like the last few years) and has 'dry powder' for when things turn lower.

The bad case for us is that politicians feel the need to grow spending (as opposed to shrinking it) and cannot raise enough tax revenue to pay for that, plus the increase in interest expense (which is something like an extra trillion dollars per year as the debt rolls over). This re-creates the inflation boogey-man, which requires higher policy interest rates, which creates a debt crisis.

That being said, it is unlikely that our technocratic leadership at the US Federal Reserve will let that happen, and everything should be fine.

We are not pouring our clients, nor our own assets, into long-term debt at sub-4% rates until US Fiscal Policy is resolved and starts taking action to resolve our unstable spending and borrowing situation.

Here is the funny part. I am not sure that this is about elections...it is about a collective, bipartisan focus on our economic health and prioritizing our spending.

By Jeffrey Cohen

Short note. We continue to be surprised by the strength of real estate stocks, but then we see that interest rates continue to fall.

• The UST 10-year yield is trading at 3.83%, when about a month ago it was 4.25%.
• The UST 13-week yield is trading at 5.04%, and has declined from 5.2% about a month ago.
• These are significant declines and will impact U.S. Mortgage Rates, driving them lower, making housing more affordable. It also reduces the cost of servicing the ~$35T U.S. Federal Debt.

We understand why the 13-week yield is lower. People are expecting a Fed FOMC policy rate cut of 0.25% to 0.50%, and this 13-week bill would be renewed after that rate cut...so people are willing to take less knowing rates will be lower.

What we don't really understand is why the 10-year note is trading so much higher (rates lower). This is the market talking, and not a simple measure of arbitrage. It implies a much more inverted yield curve, which is typically an advance warning signal for recession.

This is weakening the U.S. Dollar, which is now trading at $1.110 This has been below $1.10 since late December 2023. This means it costs more Dollars to buy a Euro, and the Euro is considered 'stronger' or a better place to park assets. It also could mean that financial assets are flowing back to Europe from the USA.

The U.S. equities markets have been on a steady and steep upward climb since August 7, 2024. The rally has lasted for eight straight days, and today it looks like we could see a ninth day of increases. There seems to be a rotation, but we cannot pinpoint it.

Gold is higher, as well as residential mortgage-backed securities. This is because interest rates are lower, sure, but what about credit quality?

At the end of the day, what is an investor to do?

​Give us a call and let's discuss it.
 

Good morning to our faithful followers, and sometimes visitors. We have been learning a great deal about the U.S. residential real estate business due to a position we took.

However, last night we checked out Google Earth in the South China Sea, and see some islands have new satellite coverage. Newer 2024 images that we can use on our website, and in our analysis.

We will be updating our South China Sea research today, and into early next week.

We have also been putting aside articles to process on the region. It appears that China and the Philippines have had discussions and may have made a deal. Not sure. We will go through our backlog, and look around for open source intelligence on the area.

We offer consulting (for an hourly or daily fee) and project work on the South China Sea. Please reach out if you are interested in a free consultation or quotation.

Jeffrey Cohen
President, US Advanced Computing Infrastructure, Inc.

Good morning.

CPI all items is down to 2.9% for the year, with all items less food and energy up 3.2%.

Key highlights:
Services cost more led by transportation and shelter.
Automobiles costs less, especially used.
Electricity is more expensive, and gasoline is down a bit.

Services is slower to correct, as those economic cycles may take years to play out. They use capital goods and/or are real-estate based. Labor is a part of the story.

Automobiles becoming less valuable...never really understood this cycle.

Electric vehicles, computing, and normal economic growth, along with the closing of coal-fired electricity plants creates larger growth in demand for electricity (dE/dT) than the growth rate of the production of electricity.

The U.S. Federal Government should support new construction of renewable energy systems like nuclear, wind, hydroelectric and solar, along with heat-capture systems. More energy means more heat.

Chicago Quantum proposes to design a system that captures the heat of electricity production and usage and release it in Chicago during the winter months, creating a literal oasis of beautiful weather all year round. We propose using quantum mechanics to do this efficiently and effectively.

Original post by the Bureau of Labor Statistics:
https://www.bls.gov/news.release/pdf/cpi.pdf

By Jeffrey Cohen, President, US Advanced Computing Infrastructure, Inc.
Illinois Registered Investment Advisor, and friend to all in the markets

Story is a work in process. 

This has been an unusually bad week for high beta stocks that have low volatility (relative to their high beta). As the market has corrected, so too have these stocks.

A few examples:
TNA - The 3x small cap ETF, Direxion Daily Small Cap Bull 3X Shares, is down 25%, and looks very much like a hill, up fast and down fast.
OPEN - Open Door Technologies down about a third this week on a lower earnings forecast for Q3
BETR - Better Homes and Financing down sharply today on news of a 50:1 reverse split
SMCI - Super Micro Computer, Inc. is down 25% this week, along with Intel $INTC, potentially on earnings.
QBTS - D-Wave Systems down 25% on quantum computing concerns
RGTI - Rigetti Computing also down 25% on quantum computing concerns

This is all happening at the same time that the S&P 500 ETF is down around 5%, but mostly in a downward direction. Today the market is higher, taking back about a third of the loss, but the damage to high BETA stocks is already done.

In conclusion, the benefit of holding high beta and low volatility stocks is that they do very well when the market is rising steadily. They move higher, often in lock-step with the overall market, and rarely have negative surprises. However, when the markets correct, these stocks also move quickly downward. The news driving the declines seems independent (reverse split, earnings surprise, etc.) but the declines happen. If you invest in high beta stocks, hedge against the downside risk.

The other thing about these stocks is that the market has a short memory, and it is likely that if they can find their footing and rise again on good market news, they can keep their position and market focus, and rise again.

Was this just a Fed FOMC-induced fixed income temper tantrum?

• Who knows, but highly unlikely. This would be an emotional response to waiting until September 2024 to begin raising policy rates by a quarter or a half of a percent.

Was this a great 'unwinding' trade from Japan?

• Japan's central bank raised rates, and indicated a tightening of rates (from 0% to 0.25%) to fight their nascent inflation, which is expected to continue. This 'I have read' caused a great unwinding of Japanese cash in U.S. markets, as it all ran back home to earn an extra quarter percent (soon to be half a percent if you believe the Bank of Japan Governor Kazuo Ueda).
• Highly unlikely in our opinion, although Japanese fixed income policy rates have been near zero for the past seventeen years, and this must feel a shock to some market participants. I suppose many assets can make the trek from Japan to the U.S. in seventeen years of near-zero interest rates. Who knows how much of the fifty trillion to 55 trillion USD invested in the U.S. equities markets is funded by Japanese savings?

This could be end of irrational exuberance, helped along by Summer trading desks and market technical instability.

• Maybe the market just needed a pause to convert profits into cash, to allow a few big trading desks take a Summer vacation in early August. The hypothesis is that trading desks would have lowered their risk control levels, and junior traders could not handle the volatility. Combine that with a market shut-down of retail traders (Monday, August 5, 2024 saw retail traders unable to log in or trade on major platforms), and it could have been a march of the market losers doing all the wrong things for two days in response to the Bank of Japan raising rates. We think this is part of the problem...the market became disorderly.

We did have market uncertainty from the introduction of VP Harris and Tim Walz into the 2024 U.S. presidential race. We do not under-estimate the impact of a diverse and progressive word-salad, San Franciscan challenge to a felonious, conservative, loud and abrasive New Yorker. I feel a race like William Jennings Bryan against Barry Goldwater, and the only thing we are missing is the mushroom-cloud advertisement.

Thank you to the U.S. Library of Congress for preserving this ad.

The thing we noticed the most in this latest market correction, the thing that really surprised us and made us tweet furiously and sit confused in front of blaring, red screens of doom, was the response of U.S. interest rate futures.

What? Who cares about fixed income? Isn't that the boring area where grandma puts her nest-egg, and clips coupons every six months to make those sweet apple pies?

No, fixed income is a significantly larger market than U.S. equities. Here is a perspective I shared with my daughter yesterday taking her to music lessons:

• "The U.S. equity market that we study each day is worth around $50T, maybe $55T on a very good day."
• "The U.S. Federal Government has debt of $35T, and that does not include states, municipalities, or all the corporations? I would guess they owe $100T, so the fixed income market is around 2x the stock market in size."

Net-net, the 13-week UST rate and the 10-year UST rate both crashed. The value of fixed income rose quickly and decisively. We think this was the play on Monday.

Gotta go...markets open in 4 minutes. Have a great trading day, and good luck to all #GLTA.

New Clients Welcome
+1.312.515.7333
Non-discretionary investment advice.

Run for the hills. The VIX is inversely correlated to the US stocks, especially the NASDAQ 100 but also the S&P 500. At the same time, the 10-year US Treasury Note is showing yielding 3.7%, which is also down from around 3.9%, 4%, and 4.25% we have seen recently. There is a flight to cover the 10-year, or to lock in that yield to ride out a potential U.S.-led global macro-economic storm.

At least, that is the narrative.

The other narrative is that a large trade came in to buy long-duration US Treasuries last week after the Fed FOMC held rates steady, taking one last ride on falling rates. That trade crowded out other equity trades, and is causing volatility in the Japanese Yen. The result is a rout in US Equities, and Japanese Equities. We read last night of a trade called a volatility control trade that has sold off $64B in U.S. equities since Thursday. Could be a thing...we run a volatility controlled, high beta model and it was down significantly on Friday.

So, what do we see:
US Equity Futures are down almost 5% this morning
- S&P 500 down 3.44%
- NASDAQ 100 down 4.7%
- Russell 2000 down 4.25%

VIX up
US Treasuries up
Gold down
Oil down
Bitcoin down significantly
Japanese Yen up (against the US Dollar)
Grains are down, mostly.
Metals are down, livestock is down, and energy is down.

I would guess that the 'buy the dip' forces are gathering to pick up the pieces after today's storm.

Good luck to all. Our Chicago Quantum Net Score top pick is down again in pre-market. This is an aggressive sell-off of risk in the markets.