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Monday, May 22, 2023

2023-05-22

 *** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic and Market Fare:

Fed chair says banking strains could mean rates don’t have to rise as much to tame inflation

............ Earlier, New York Fed President John Williams presented research at the conference showing the Covid-19 pandemic didn’t change estimates of a “neutral” interest rate that neither stimulates nor restricts demand, a finding with important implications for how high officials may raise rates to slow the economy.

Between the 2008 financial crisis and the 2020 pandemic, Fed officials and economists had concluded the neutral rate of interest—or the level that balances supply and demand when the economy is operating at full strength—had declined sharply. That, together with weak growth following the crisis, ushered in a period of historically low interest rates.

Williams said a widely followed model used to estimate the inflation-adjusted neutral rate of interest showed “there is no evidence that the era of very low natural rates of interest has ended.” ........


As the bond rally runs out of steam, the case for shorting Treasuries is becoming increasingly compelling.
The bond market that US political advisor James Carville wanted to be reincarnated as is about to get intimidating again.
The rally off last October’s lows is fading, and there are now a litany of reasons why longer-term Treasuries are likely to soon fall in price, taking yields higher and supporting the yield curve:
  • Global financial conditions are easing
  • Excess liquidity is rising
  • Inflation is becoming entrenched
  • An increasingly precarious fiscal situation
  • Declining overseas demand for USTs
  • An expected jump in issuance when the debt-ceiling is resolved
First of all, let’s get the debt-ceiling elephant out of the way.
In the two previous debt-ceiling episodes in 2011 and 2013, bond yields mostly fell. Perversely, in a risk-off environment Treasuries were the only safe-haven asset, even if they were at the center of why risk was elevated in the first place.
We may get the same knee-jerk reaction this time, but that’s just a selling opportunity ....








.............. In all, it’s now been over seven months since the S&P 500 hit its lows back in October—that tends to mean the lows are in, and it also tends to bode well for future returns. When the S&P 500 has made it seven months or more without a new low in the past, it’s been higher 86% of the time over the following year. 


The world-changing narrative around AI has hooked up with the Fed’s determination to provide liquidity, even during a rate-raising cycle.


Wilson: Great Expectations, in PDF via The Bond Beat
… Last week’s price action showed signs of panic buying by investors who are afraid they’ll miss the next bull market. We believe this will prove to be a head fake rally like last summer’s, for many reasons. First, valuations are not attractive, and it’s not just the top 10-20 stocks that are expensive. The S&P 500 median stock forward P/E is 18.3x (in the top 15% of historical levels back to the mid-1990s), the S&P 500 ex-tech median P/E is 18.0x (also within the top 15% of historical levels) and the equity risk premium is only 200bp. Second, a very healthy re-acceleration is baked into 2H consensus earnings estimates (mid-to-high single-digit growth for both the overall index and the index ex-tech). This flies directly in the face of our forecasts, which continue to point materially lower. We remain highly confident in our model given how accurate it has been over time and recently. We first started talking about the coming earnings recession a year ago and received very strong pushback, just like today. However, our model proved quite prescient based on the results and is now projecting a much more dire outcome than consensus. Given its historical and more recent track record, we think consensus estimates are off by as much as 20% for this year.

Other reasons we are wary of the current rally:
● The equity market is now pricing in Fed cuts before year-end without any material implications for growth. Yet, Morgan Stanley economists believe the Fed will only cut rates if we definitively enter a recession, or if stresses in the banking system increase and/or credit markets deteriorate significantly. What’s more, the Fed cuts currently in the price implicitly assume that inflation will fall to at least 3%. That is possible, but not without significant growth implications.
● There’s also a presumption that the banking situation will not worsen and become systemic. While we don’t think this is 2008-09, we do think it will accelerate the credit crunch that was already likely to begin by year-end, based on loan officer surveys from January. 
....







Many central bank officials have been trying all sorts of conditioning narratives to convince us that their interest rate hikes have been justified. Now they are actually defying the information presented in the official data to simply make things up. Last Wednesday (May 17, 2023), the Bank of England governor gave a speech to the British Chamber of Commerce – Getting inflation back to the 2% target − speech by Andrew Bailey. It came after the Bank raised the bank rate by a further 25 points to 4.5 per cent the week before. In that speech, he admitted inflation was declining and the main supply-side drivers were abating. But he said the rate rises were justified and unemployment had to rise because there was now persistent inflationary pressures coming from a “wage-price spiral”. The problem with this claim is that there is no data to support it. .......




Michael Steinhardt: "The only analytic tool that mattered was an intellectually advantaged disparate view. This included knowing more and perceiving the situation better than others did."


Many investors are occasionally tempted to speculate. It is important to avoid confusing speculation with investment operations.

Benjamin Graham believed that an investment operation must promise safety of principal and an adequate return with the investor basing the decision on thorough analysis. If these conditions do not hold, the decision is inherently speculative. In Graham’s view, it is critical for investors to know the difference between investing and speculation and to avoid fooling themselves into thinking they are investing when they are really speculating. This advice sounds simple but is actually quite challenging to implement if the investor does not have a firm grasp of his circle of competence.



.... The tl;dr version is that Congress has a power to make binding commitments for the United States and the President is constitutionally obligated to perform those commitments. If the Treasury lacks the funds, then the President must borrow. No specific authorization is needed. Instead, it is implicit every time Congress appropriates funds to perform a binding commitment. ......


Levitin: Debunking Debt Ceiling Myths



Earnings Fare:



Shalett: "More than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by 350 to 450 basis points."
Zandi: "Lots more price declines are coming." 


Mac10: The debt ceiling is not priced in, it's priced out. 
Further rate hikes are not priced in, they are priced out.
Recession is not priced in, it's priced out. 
How do we know? Because the most overvalued sector is now deemed a "safe haven" from risk. You can't make this shit up



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(not just) for the ESG crowd:



Global warming not only increases ocean temperatures, it triggers a cascade of effects that are stripping the seas of oxygen. Fish are already moving to new waters in search of oxygen, and scientists are warning of the long-term threat to fish species and marine ecosystems.








A corporate document reveals why Toyota will focus more on hybrids over EVs




Media Matters:

Western News Media Exist To Administer Propaganda

The single most overlooked and under-appreciated aspect of our society is the way domestic propaganda is used to shape the way mainstream westerners perceive and think about their world.

Typically the only time you’ll ever hear the word “propaganda” mentioned in mainstream discourse is in reference to things other countries do to their own citizenry or as part of foreign influence operations, despite the fact that the overwhelming majority of the times we’ve encountered propaganda in our day to day lives, the call was coming from inside the house. .....



Western media are feeding us bullshit. It is so strong that even western politicians, like the public, seem to believe in it. The reason is that it is increasingly difficult to detect the bullshit because there is just too much of it. .................



Our ruling class will use any means necessary—no matter how lawless, vicious, or brazen—to preserve its power and privilege. And it will seemingly never pay a price for its corruption and criminality. That is the ultimate lesson conveyed in the more than three hundred pages of gory details about the republic-eroding scandal that is Russiagate, comprising Special Counsel John Durham's final report. .....

Russiagate’s aim from the jump was to delegitimize, destabilize, and destroy Donald Trump’s presidency. Hatched by the Hillary Clinton campaign, this would be her revenge for losing to Trump—an attempt to make his victory a Pyrrhic one. This would be the deep state’s way to sabotage and subvert a commander in chief who threatened to upend its agenda, and that of the entire political establishment. Neither fidelity to the law and truth, nor any sense of shame, nor any fear of consequences could temper the zealous would-be vanquishers of the “bad orange man.” We know this because, as Durham’s report spells out, and as even casual observers have long been aware, the story of Trump-Russia collusion was a farce from the very beginning and in virtually every respect.

It was born of hearsay, ludicrous innuendo, and laughable inferences. Its sources were biased, unscrupulous, and shady. The investigators acted corruptly, lawlessly, and violated basic practices and time-honored norms in pursuing a probe of the highest stakes. They could not corroborate the key pillars on which they “built” their “case” and covered their eyes and ears in the face of exculpatory evidence at every turn. The lack of due diligence and carelessness is staggering—if you were to assume the FBI and Justice Department were operating in good faith. Despite the glaring deficiencies in their case and the blatant violation of the rights of innocent Americans, including among them true patriots, nothing would slow them down.

It did not have to be this way. Were American journalists at our nation’s most storied publications adversaries of the ruling class rather than its stenographers—had they even a modicum of skepticism, curiosity, or intellectual honesty, they could have stepped in to defend our republic. They could have exposed one of the greatest scandals in American history: that our national security and law enforcement apparatus effectively sought to halt the transfer of power to a president they feared and loathed by pursuing him as a traitor, based on crackpot conspiracy theories borne of his political opponent’s research. Consider Gen. Michael Flynn’s purported Logan Act violations; George Papadopoulos’ comments to an Australian diplomat; Carter Page’s supposed Russian ties; the contents of the Steele dossier; Sergei Millian’s significance; the secret Alfa Bank back channel to Russia. The list of shoddy stories pertaining to purported Russian collusion is virtually endless, and as the Durham Report shows—as did reporting from independent, contrarian journalists at the time—such stories would fall apart under the slightest scrutiny. .........



War Fare:

On the global stage, US can only barely keep up the pretense that it is not losing its mind.


Signers say the conflict will be ‘our undoing’ if we don’t ‘dedicate ourselves to forging a diplomatic settlement that stops the killing.’



The recent letter published in the New York Times from a collection of former national security advisors (they include Jack Matlock and Jeffrey Sachs) calls for a US strategic diplomacy (in the absence of any diplomacy at all) that is adult enough to recognize that opponents are rational and have real interests that are as every bit important to them as ours is [are] to us. It then immediately stumbles at the first gate namely, by blaming Russia for its Special Military Operation (SMO) in Ukraine.

This inability to dig beneath cliche superficiality on the single most important principle that underlines the war is shocking testimony to the stubborn determination to be wrong that is manifested by practically ever western expert on this issue who enjoys any crumb of mainstream status. They believe that a system of international law that is essentially the product of imperial powers, that is infused with agents of those same powers, educated and propagandized by them, a system that is not set up to even recognize the tool of war most commonly wielded by those powers namely, regime change, is the immutable word of God.

Putin launched the SMO precisely because he was intelligent enough to confront and defy the reality that the west was relentlessly working towards just such a conflict and that, as Machiavelli once observed, the longer he refrained from acting then the more disadvantageous his ultimate military plight. Not just that, not just the fact that the fount of inspiration for the US military industrial complex, RAND, had in 2019 explained precisely how it would seek to dismember Russia through manipulation of its Ukrainian proxy, not just western disregard for over thirty years of strident Russian attempts to articulate its concerns over NATO’s purposeless drift to the east (purposeless, that is say, unless the intention was indeed dismemberment of Russia) and acknowledgment from responsible western diplomats like Jack Matlock and, at that time, William Burns, that Russia’s concerns might indeed provoke conflict….Not just these considerations, I say, but that Ukraine, under the leadership; of NATO’s unscrupulous and duplicitous protege, and heir to the US-instigated coup d’etat of 2014, Zelenskiy, did everything it possibly could to bring about a war: sabotaging the Minsk agreements, currying favor with NATO at every turn, begging for admission, being so very helpful to NATO in staging aggressive wargames along Russian borders, talking about having nuclear weapons, building up fortifications over eight years in preparation for war, with NATO aid, assistance and weapons, killing more and more of its Russian-speaking citizens in the Donbass, augmenting the size of Ukrainian armed forces along the border with the people’s republics, and not just in numbers but in the variety of Nazi brigades that they incorporated.

This culturally-determined mental defect (exhibited, as I say, in the letter to the New York Times) constitutes the reason first, why Russia and now the Global South which, with China, have lined up on the side of Russia, will not accept any compromise in this conflict that fails to address, head-on, what are the objectives of Russia: Ukrainian neutrality, De-militarization, De-Nazification, and integration of the Donbass into Russia which is where it always should have remained. It continues to make sense to respect Russia’s term for its actions of February 24, 2022 precisely because the SMO is not a war in the conventional sense. If it was a war in the conventional sense then the SMO would not have confined itself to the mainly pro-Russian oblasts of the Donbass and would not have fought a slow grinding war of attrition over many months even while it is obvious that Russia has all along had the means to obliterate and overrun all major power centers in Ukraine with a million man army, artillery and air force, with or without the intervention of western weapons. .......

...... There, crisp suits and sharp dresses belied the utter deficit of wisdom in this motley crew, the empty vessels of a materialistic, corporate-fashioned, privileged and know-nothing elite whose main contributions to the sickness of their world is a simplistic and self-serving ideology of neoliberalism, cultivated air of self-righteousnes and self-importance, deference to fossil fuel, permanent enrichment of the arms industry, reckless disregard for nuclear danger, and massive extension of wealth inequality between nations, races and social classes. ......



..... What sounded like a great idea to a certain claque of so-called neo-cons in our country — to use Ukraine as a bear trap — has instead rather suddenly revealed Europe’s and America’s manifold bankruptcies and revolted the whole rest of the world outside of Western Civ. Oh, the wonder and nausea!

     Try to imagine Mr. Zelensky’s predicament. Mighty America and redoubtable Europe conned the former comedian to thinking that if he went along with a genius scheme to ruin Russia and knock Vlad Putin off the global gameboard, his sad-sack country would be transformed into something like Ukro-Disneyworld, while he, Mr. Z, would be lionized and made rich beyond his wildest imaginings. His backup was the greatest hegemonic power the world has ever seen. The game was called Let’s You and Him Fight.

     The poor schlemiel fell for it. He let NATO (that is, the USA) set-up, equip, and train the largest army in Europe, including battalions of bad-ass, hard-core Ukro-Nazis — who had previously been so useful in the American-sponsored 2014 Maidan “color revolution.” Mr. Z followed the US State Department’s orders to rain down rockets and artillery on Russian-speakers who lived in his own eastern provinces. He formally applied for membership in the NATO club. His country received billions of US dollars without audit oversight, just screaming to be creamed off by Ukraine’s leadership — who, after all, deserved a little something for all these goings-along. What could go wrong?

     Thus, Western Civ kicked off Europe’s biggest hot war since the 1940s. So, in February, 2022, Mr. Putin had enough of the monkey business on his “front porch” and sent in a clean-up crew. Game on! The US neo-cons were ready to feed countless Ukrainian troops into a meat grinder that would, theoretically, exhaust the will and resources of the execrable bear and yield countless benefits reinforcing our dominant position in the world. Our hapless NATO “partners” went along with the program, despite being asked to commit economic suicide for the greater good of the alliance (or something like that). Anyway, they didn’t need that filthy Russian nat-gas. They were going “green” (Klaus Schwab said so, didn’t he?)

     Meanwhile, the citizens of our country were groomed to perfection by the US Propaganda-Industrial Complex screaming “Russia, Russia, Russia,” .......



.................. The US plotted a coup and moved NATO’s borders east, and Russia reacted exactly how they said they would. No nukes, no nazis, no NATO. They got the last two, and know they can expect the first too. But still the west maintains Russia’s special operation was entirely unprovoked. Look, they’re not even listening anymore. They would like to negotiate and end all this, but negotiate about what? Putting AZOV back on the borders of the Donbass, so they can kill more Russians there? Not going to happen.

It’s not only about weaponry, though that plays a major role: the hegemon can no longer make its demands based on military might. It’s been surpassed. Nor can it make demands based on the dollar’s reserve currency status, and it caused that itself. Weaponization of the currency has backfired to the extent that de-dollarization has become a process that can no longer be halted.

The moment that Saudi prince MbS turned his back on “Joe Biden” is a milestone. Because once he did that, it was obvious many would follow. .....

............. Ukraine had perhaps the best boots on the ground force in Europe, financed and trained since 2014 by NATO, and they lost to a caterer and a loose group of hired hands. You’re not going to win that. Your only option is long distance weapons, missiles, planes, you name it. But NATO has no advantage in that over Russia. To put it mildly.

The sole thing that’s in your favor is that Russia doesn’t seek to destroy you. They want to live in peace and trade with you. Same thing for China. NATO equals unipolar. But the world has moved towards multipolar. Ergo, NATO is obsolete. Ukraine will never reconquer its “lost” territories, and Zelensky will move to some property in Italy or Florida, never to be heard from again, unless perhaps in his obituary. ........








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Monday, May 15, 2023

2023-05-15

*** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic and Market Fare:





The UIG captures sustained movements in inflation from information contained in a broad set of price, real activity, and financial data.



.... Marks set up Oaktree in 1995 with chief investment officer Bruce Karsh and three others. Known for his popular investment memos, he is an unequivocal contrarian, bargain hunter and follower of market psychology who tries to live by Buffett’s investing maxim: be fearful when others are greedy and greedy when others are fearful.
Right now he sees a fertile environment for lenders such as Oaktree to step in and provide financing where banks are further retrenching following the collapse of Signature Bank and two other US regional lenders. The Fed said this month that banks were tightening lending standards for businesses and warned of a potential credit crunch.
“Now you have some meaningful interest rates and some scarcity of capital as banks are restrained,” Marks said. “This is a good climate . . . you can get equity returns from debt now, and when you invest in debt you have a much higher level of certainty of return relative to equity ownership.”


..... With the first-quarter earnings season drawing to a close, the profits of S&P 500 companies are estimated to have dropped 3.7% on average, compared to a year ago. While data compiled by Bloomberg Intelligence shows that 78% of firms surpassed forecasts, that’s less impressive than it sounds, given analysts had slashed their expectations before the season kicked off.
More crucially, it was the second straight quarter of earnings declines for corporate America. Bearish earnings forecasts now center around the April to June period, for which a 7.3% profit slump is penciled in, according to data compiled by Bloomberg Intelligence. And the pinch from higher interest rates and wilting consumer demand will extend into the third quarter of 2023, analysts reckon, backtracking on earlier predictions that earnings recovery would kick in around then.




..... Today, we get a new perspective on the market's performance when normalized for the record collapse in breadth. According to SocGen it's not so much a handful of stocks that has carried the entire market this year: it's just one specific trade, Artificial Intelligence (which will soon spark hundreds of millions in margin-boosting layoffs across western countries).


For much of 2023, some of the biggest Wall Street bears were betting - quite vocally in certain prominent cases- that Q1 earnings season would finally be the nail in the coffin of the bear market rally. However, with consensus expectations tumbling into the earnings print (as they always do), the bogey to beat ended up being quite easy and as a result, Q1 2023 earnings season has proven to be much better than feared.
With 90% of S&P companies reporting results, here is where we stand:
S&P 500 profits fell by 3% year/year, stronger than consensus estimates of a 7% decline at the start of reporting season.  In Europe, earnings actually rose by 3% y/y which is a positive surprise factor of 10% vs IBES estimates.
....







Grannis: Today the bond market is convinced that there will be no more Fed rate hikes. Yet the Fed insists that inflation has not fallen by enough, so that warrants continued monetary restraint; some governors even argue that further rate hikes might be necessary, even as evidence of economic weakness builds. Chalk this up to one more example of how the bond market is usually smarter than the Fed. Fed mistakes like this have been the proximate cause of every recession in my lifetime




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(not just) for the ESG crowd:

Global ocean temperature sets record high for April; Earth had its fourth-warmest April



Climate change is real, but I do not believe it poses a serious risk to the safety and soundness of large banks or the financial stability of the United States.1 Risks are risks. There is no need for us to focus on one set of risks in a way that crowds out our focus on others. My job is to make sure that the financial system is resilient to a range of risks. And I believe risks posed by climate change are not sufficiently unique or material to merit special treatment relative to others.2 Nevertheless, I think it's important to continue doing high-quality academic research regarding the role that climate plays in economic outcomes ......


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Monday, May 8, 2023

2023-05-08

*** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic and Market Fare:

What’s the situation with the economy? The short answer is not good. Here’s why…

There are literally hundreds of economic indicators either as hard data or sentiment surveys released daily. It’s impossible for any analyst to keep up with all of them.

But with computers, natural language processing and charts, it is possible to follow broad trends. The key for any good analyst is to settle on a subset of data that has the greatest predictive power and a long track record of getting things right.

It’s equally important to know whether indicators are leading, concurrent or lagging.

A lagging indicator may be a measure of how bad things are, but it comes too late to do anything to stop the bad turn. By the time you see it, a recession has already begun.

Concurrent indicators are useful as validation of what leading indicators have been saying, but they don’t put you ahead of the curve.

Clearly, the most valuable indicators are leading indicators — signals that arise six months and sometimes a full year before trouble arrives. Those are the ones to watch most carefully if you want to be prepared in advance.

The Fed Lags Behind
For reasons that are not clear, the Federal Reserve is obsessed with lagging indicators. This partly explains why they always get policy wrong. They tighten monetary policy after recessions have already begun, making the recession worse. They ease monetary policy when booms are underway, making asset bubbles bigger.

Just think of the stock market crash of 1929, the Tequila Crisis of 1994, the Russia-LTCM crisis of 1998, the dot-com collapse in 2000 and the mortgage bubble in 2007. You’ll find a poorly timed monetary policy in every instance. ........



........ The Fed is rarely able to keep rates at their peak for long, looking at tightening cycles going back to 1972. In the cycles after 1990, though, the average period on hold is longer — about four to five months — than cycles pre-1990, when it averaged less than a month. ........



Duality

.......... Regarding wages, Powell argued that current wage growth is still inconsistent with 2 % inflation. However, he correctly pointed out that wage growth is not an initial driver of price increases but rather a result of it. He also correctly noted that this is usually when economic expansion ends. As workers can enforce higher wages, business margins decrease, and workers get a higher share of business profits.

Several journalists asked Powell about future rate cuts, as markets are pricing such a scenario. However, Powell was very clear and assured that the Fed plans to keep interest rates higher for longer. However, history does not support that, especially in an environment of high inflation, where the Federal Reserve historically cuts rates one month after the peak. When inflation is low, the Fed, on average, could keep rates at the peak for 4 to 5 months.

Maybe Powell is correct in his thesis that this cycle is different, and the labor market does not weaken too much because of the rate hikes. Like prior Fed chairs, he also tries to sell the soft-landing narrative to markets, saying there are higher chances the US economy can avoid a recession than experiencing one.

Whether he believes in it or not, market participants disagree and still think that the Fed will have to pivot after the summer. They expect the fastest interest rate hiking cycle in 40 years will be replaced by the most rapid rate-cutting cycle since 1980. Hence, they do not think that it is different this time. ......




Food Inflation Served Hot and Cold




Focus
Economic propagation mechanisms that capture how disturbances systematically feed through the economy over time are central to macroeconomic models. Such mechanisms allow us to understand the behaviour of key macroeconomic variables and help us make more reliable forecasts. Unfortunately, many macro models lack strong propagation based on understandable economic behaviour and instead rely on mechanisms for which there is no economic rationale.

Contribution
We describe a natural propagation mechanism through which new borrowing can systematically affect future output and lead to reversals in activity. The starting point is simple: the majority of debt contracts are long-term and imply regular future debt service payments (consisting of interest and amortisations). These payments pile up during a credit boom and, as time progresses, eventually outweigh the flow of borrowing. When this happens, the positive output effect from the credit boom reverses and output falls. We confirm this pattern using data from many countries over the last four decades.

Abstract
We examine a propagation mechanism that arises from households' long-term borrowing and show empirically that it has sizable real effects. The mechanism recognises that when there is long-term debt, an impulse to new borrowing generates a predictable hump-shaped path of future debt service. We confirm this pattern using a novel multi-country dataset of debt flows. Whereas new borrowing boosts output contemporaneously, debt service depresses output. Credit booms thus lead to predictable reversals in real economic activity several years later. This long-term debt propagation channel is the main reason for why indicators of credit cycles have predictive power for future economic activity.



..... I have long been a fan of the concept of Strong Opinions, Weakly Held. ... It’s not just that we tend to be wrong, but rather, we seem to not accept the mathematics behind the odds of our own errors. They are exceedingly high, and we ignore that reality at our own peril. ... “Don’t just do something, sit there” continues to be sage advice for investors…



Banking Fare:

The FDIC is taking an estimated $13 billion hit after seizing First Republic and selling most of the bank to JPMorgan Chase

The Federal Deposit Insurance Corporation seized First Republic Bank this morning and sold most of the bank’s operations to JPMorgan Chase. The final sentence in the FDIC’s press release states that the estimated cost to the deposit insurance fund will be ~$13 billion. No depositor, whether below or above the FDIC’s $250,000 insurance limit, will suffer a loss of funds since JPMorgan will take over all deposits.

The standard practice is for the FDIC to recover losses to the deposit insurance fund by raising assessments on healthy banks. Ultimately, banks will either pass on these added costs to customers or shareholders will take the hit. In either case, the consequences of the mismanagement of First Republic will fall on individuals and institutions that had no role in the bank’s failure. ....

.... This all sounds like a sweet deal for JPMorgan and another feather in the cap of Jamie Dimon, the bank’s longtime CEO. Mr. Market seems to like the deal with JPMorgan stock up over 3% in morning trading. Although JPMorgan states that this is all the result of a competitive bidding process that minimizes losses to the FDIC, the only other bank rumored to have submitted a bid over the weekend was PNC Financial Services. The other banks large enough to submit a bid, all of which are considered “systemically important”, apparently declined to even enter into the competition. ........


......... Put it another way: the way you normally have bank crises is when bunch of them follow a fad and make too many stupid loans, in the typical Minsky cycle. Even Volcker backed off when banks started looking like they would fall over during his extreme rate increases. Yet the Fed has kept on bloodymindedly with its interest rate jihad, even as more and more evidence confirms that this inflation isn’t caused by too much demand or uppity workers succeeding in getting wage increases. Contacts say there’s still pent up demand for cars due to the prolonged Covid supply chain disruptions. Experts increasingly cite greedflation as a big contributor. As we said early on, the Fed can kill inflation, but for one produced largely by supply issues, it will kill the economy stone cold dead in the process?



Quotes of the Week:

Alpine: The Federal Reserve raised rates again last Wednesday. This was both unnecessary and misguided. The rate hike does little to help the battle on inflation but amplifies underlying stress in the banking system. Therefore, it will likely prove to be a classic case of “one hike too many” and the Fed will be forced to reverse course sooner rather than late.


Ashton: We may never know, but I do have to admit that Chairman Powell impressed me a little in his post-FOMC presser. Not impressed me like ‘he’s the greatest’ but impressed me like ‘this is what I’d hoped we were getting.’ I wrote back in 2017 that the fact he is not an economics PhD was a positive…although the fact that he did not know anything about macroeconomics before joining the Fed suggested that he has learned economics in an echo chamber from some of the most blinkered non-monetarists on the planet, whose main claim to fame is that their forecasts have been consistently, and sometimes colossally, wrong for a long period of time. Still, he has a different background and that always offers hope.



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(not just) for the ESG crowd:



A great question to ask someone is “What conspiracy theory do you think might be true?” If they struggle to come up with even one, then that means they don’t question anything. If they don’t question anything, they’re not thinking at all. If you believe The Official Story about everything that happens, then you’re not thinking, you’re repeating.

❖

One of the worst mistakes you can make is neglecting your responsibility to cultivate a truth-based understanding of reality for yourself. People hand off that responsibility to journalists, pundits, “thought leaders”, teachers, preachers and gurus, but to do this is to neglect a very sacred duty. As Terence McKenna said, “You have to take seriously the notion that understanding the universe is your responsibility, because the only understanding of the universe that will be useful to you is your own understanding.” Don’t pass off that responsibility to someone else.


Dr. Aseem Malhotra's recent appearance on Joe Rogan will red-pill a lot of people

.............. Very few of us appreciate how many different unquestioned assumptions we need to utilize to function in society and just how much work it is to unravel the fact or fiction behind those assumptions (e.g., doing so can call many other unquestioned beliefs into question). Furthermore, the more unquestioned a belief is, the more people become emotionally invested in it. Thus, when evidence is presented questioning any deeply ingrained assumption, people often default to dismissing that evidence.

To some extent, I've gotten around this issue by constructing a belief system designed to encourage the opposite. Specifically, I believe one of my reasons for being alive is to learn as much as I can, and I view learning something I had been sure of, was, in fact, wrong means that I am moving towards a higher level of understanding and thereby fulfilling my life purpose. Empowering belief systems like this one are very helpful, but as the self-help field has demonstrated, most people subconsciously choose to carry disempowering beliefs instead. ........



Pics of the Week:

Visual Capitalist:




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