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Friday, May 29, 2026

2026-05-30

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


Economic Fare:


.... The more I thought about it, the more I realized that the modern macro world is becoming less about access to information and more about the ability to interpret complexity, connect systems together, and identify structural shifts before they become visible in traditional data.

......... That observation matters because it reveals something important about the phase we are entering globally: the problem facing investors, policymakers, and even societies is no longer the lack of information, but rather the inability to distinguish signal from noise in a world saturated with endless data, headlines, commentary, opinions, and short-term reactions.

........ The rapid evolution of AI and public-data infrastructure is also progressively democratizing access to macroeconomic information. Large institutions, banks, hedge funds, sovereign investors, and increasingly even smaller independent research platforms now possess the technological ability to recreate significant portions of traditional macroeconomic databases internally through public APIs, automated pipelines, AI-assisted systems, and open-source data infrastructure. In such an environment, the future value of macro research will increasingly depend not on access to raw information itself, but on the ability to interpret structural change, connect systems together, identify second-order effects, and recognize regime shifts before they become consensus. ...........






 



Real Household Disposable Income (2017 $bn):




  • Global oil inventories and floating storage have acted as temporary shock absorbers against the Hormuz disruption.
  • OPEC spare capacity has stabilized markets, but it cannot fully replace lost Persian Gulf exports indefinitely.
  • Prolonged disruption could eventually exhaust market buffers and trigger a much sharper oil price surge.
I think most energy analysts would have been shocked to learn that roughly three months into a total closure of the Strait of Hormuz, oil would be trading at just over $100 a barrel. I certainly expected prices to be significantly higher by now. The physical math seems indisputable: take that much supply off the market, and prices should respond quickly and decisively. .........



........ Building on UBS analyst Arend Kapteyn's note from Friday titled "When The Oil Buffers Run Out," Brookings' Robin Brooks and Ben Harris outline in a note that oil markets could face a massive price shock by mid-July as temporary supply buffers run dry.

There appears to be consensus building among Wall Street analysts at Goldman, JPMorgan, UBS, and many other desks that if the Hormuz chokepoint is not reopened in the near term, an energy cliff may materialize in early summer. .........



......................... But if Chevron was pessimistic, the company's biggest domestic competitor, Exxon, was downright apocalyptic. Speaking at the same Bernstein conference, Exxon SVP Neil Chapman had some truly horrifying remarks, certainly not something that Donald Trump would like to hear. We present them below.
Commercial inventories of crude oil, of liquids, think petroleum, gasoline, diesel, jet fuel, they've all run down. And running down those inventories has mitigated or offset, supplemented by the release of strategic petroleum reserves, which most of the Western countries have done. All of that has mitigated the impact. You can model this. We've modeled it. I think a lot of people in the industry have modeled it.
Nothing new here: we've discussed all this in the previous three months. But it is what he said next that was a moment of shocking insight into just how bad things are about to get: 
We're approaching unheard of inventory levels. I mean, really, really low levels. You can debate whether that's going to hit those really low levels in two weeks or three weeks. Once you get to that point, then you'll see price shoot up. A model would say dated Brent will shoot up. Once you get to that really low inventory level, up to $150, $160.

The models would tell you that. And then what happens is when the price gets to a certain level, demand destruction brings it back into balance. Prices go so high, it becomes unaffordable. And that's what happens. And so we're at that level right now.



Market Fare:





(Or: The Risks in Your Private Equity Portfolio)

.......... It is not good news, then, that over the past 10 years, private equity has focused on taking companies private that are both more levered and less profitable than similarly-sized businesses (which we have already established are junky to begin with), all while paying a higher price for them than their size-peers. These companies bank on the same set of factors—that interest rates will remain sufficiently low and the economy sufficiently robust—for them to be able to generate enough cash flow to pay down their debts. Different types of shocks—an economic slowdown, a further pickup in real interest rates if inflation proves sticky, a widening of credit spreads if private credit continues to sour—can all be enough to meaningfully hamper the profitability of these businesses, and to do so in a correlated manner.



Head of Multi-Asset Macro Investing Michael Contopoulos explains why, with credit spreads at historic tights and rates moving higher, investors should focus on resilient yield, as there is limited room for price appreciation.
Key takeaways:
  • Liquidity, not credit quality, is likely to be the primary risk in corporate markets, particularly as stress emerges in private credit and investors are forced to sell what they can, not what the want.
  • Spikes in rate and equity volatility should further erode carry, creating asymmetric downside risk.
  • In our view, the current environment argues for patience, flexibility, and an emphasis on resilient yield over stretched credit.

One sector is flashing the most extreme oversold reading in its history. We're paying attention

Summary: The Nasdaq has posted eight consecutive weekly gains — a historically rare signal that has preceded positive three-month returns in the large majority of prior instances. Defensive sub-industry relative performance has reinforced that reading. Both data points argue for remaining long the trend.

Against that, three developments warrant attention: our Trifecta Lens Score deteriorated last week; fund manager sentiment surveys show signs of euphoria; and BofA’s Bull-Bear Indicator triggered a sell signal. We are not calling a top. But the distribution of outcomes has widened. The appropriate response is to trail stops, size down on risk and tactically ride the momentum.



The Core Observations
  1. Roughly one-fifth of the S&P 500 today sits directly in semiconductor names, and by our classification around 60% of the index is invested in companies whose valuation is primarily driven by the AI narrative. Diversification has quietly left the broadest US benchmark.
  2. At the same time, the relative performance of Quality stocks versus the S&P 500 stands at its lowest level since 1999, and the Momentum factor trades five standard deviations above its long-term trend. Quality has never been offered more cheaply against the broad market.
  3. Our view: Quality today is primarily an allocation question, not a crash hedge — the missing diversification pillar against a concentrated index, at historically most attractive relative valuation.



Bubble Fare:


................................... The report compared the current environment to previous periods of speculative excess, but stopped short of calling for an immediate market collapse. Instead, Hartnett suggested investors remain “long and paranoid,” balancing strong momentum against growing risks from inflation, interest rates and crowded positioning.



A.I. Fare:


......... The second sentence— “Tokens got burned for millions of dollars without any real significant ROI to show for it” – might well turn out to be the epitaph for an era.


Customers are waking up to the recognition that tokens are getting “burned for millions of dollars without any real significant ROI to show for it”




.............. The West is building vast numbers of data centers, far more than the Chinese, because nothing is optimized for efficiency. Our models use far more electricity, far more GPUs, and far more water. Additionally the Chinese are working hard on real-world AI uses: robotic AI, in other words, so that their AI can be used for actual production, and pushing on humanoid robots so they can take care of their old people, do household work and so on: Chinese AI is optimized to do shit work so you can read and write and paint, while Western AI is optimized to do creative work so you can shovel manure, do your own laundry and clean toilets. 

............. I’m shaking my head as I write this. This is the greatest mis-allocation of resources I’ve seen in my entire life. It makes the housing bubble (out of which we at least got some homes) look brilliant and wise. ........




..
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA

Quotes of the Week:

Wintersberger: But if one looks at the price action, one can clearly see that markets reacted positively to the news again. At this point, it seems that financial markets have moved on and assume that the Iran war is basically over. Everyone seems to expect a deal is in the pipeline, and setbacks are treated simply as a delay to a deal. Whether that turns out to be right needs to be seen.




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(not just) for the ESG crowd:


Sci Fare:




U.S. B.S.:



War Fare:




Since February 28, we have experienced the geopolitical equivalent of a roller-coaster ride on magic mushrooms. We hurtled from Operation Epic Fury to Operation Economic Fury to Project Freedom to no fury at all, and not much freedom of navigation either. We sped from the impending obliteration of Iranian civilization to “a Memorandum of Understanding pertaining to PEACE . . . largely negotiated, subject to finalization.” If you have not experienced the psychological equivalent of whiplash in the last 12 weeks, you have not been paying attention. How many nearly-peace nearly-deals have we nearly had? Four? Five?


.................. Iran won the war. They want a peace deal that reflects that. They aren’t willing to give in peace what the US can’t win by arms.



My best guess is that the Trump administration has successfully fooled markets once again into thinking that there is to be an imminent agreement between Iran and the US. Trump will do and say anything that tempers oil markets (and make him, his family and co-conspirators even richer). The probability of a real peace settlement is remote. Why? Iran has the advantage right now and would be foolish to give it up in negotiation with a demonstrably undependable, bad-faith and fanatically Zionist interlocutor.....................

Iran is rightly insisting on retention of its recently-established control over the Strait of Hormuz because this is a major source of leverage over the political West, and a source of revenue which, for the immediate future, can help compensate it for the massive damage that the West inflicted upon it, while it waits upon a time when the West will be forced to lift all sanctions on Iran, release $26 billion dollars of frozen Iranian assets, and pay reparations, and this time is not as far away as many people suppose. ................


Israel imported military-related goods from six European countries despite arms restrictions.




Geopolitical Fare:



Other Fare:


It's Not Okay To Join The Military

Polly on Twitter asks, “Is there a pejorative term for military like what pig is for cops?”

Dear Polly,

No, but there should be. We need to start stigmatizing that shit.

It is not okay to be a stormtrooper for the western empire. It is not honorable. It is not worthy of respect. If you are a westerner who is considering joining the military, you should choose a different career path instead.

Don’t thank soldiers for their “service”. Don’t play along with the lie that your nation’s soldiers fight for your rights or your freedom. It only encourages more people to join the military when you do that. It’s irresponsible and unethical.

If you live in the west and you join the military, at no point will you ever be acting in defense of your country; you will be murdering people who are trying to defend their country.  ............

......... The crimes of the empire will continue until people stop facilitating those crimes. Anyone who volunteers to help the empire inflict murder and devastation on targeted populations should be regarded as the lowest of the low.



Pics of the Week:



Posted by at No comments:

Sunday, May 24, 2026

2026-05-24

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


Economic Fare:


Drawing down crude inventories at a record pace, with SPR releases doing the heavy lifting to cushion the Gulf supply shock, only delays the move higher in crude oil prices. Once those buffers are depleted, oil risks being violently repriced higher.

That is why the Trump administration's race to secure a peace deal with Iran and reopen the Hormuz chokepoint has taken on new urgency in recent weeks. The longer the critical waterway remains disrupted, the greater the risk that the oil shock will escalate from a market event to a financial crisis, with higher crude prices feeding directly into inflation, consumer stress, and broader recession risk.

The message from the SPR crude data this week, the largest ever draw, is very clear: The Trump administration is buying time to get a deal done with Tehran. If Hormuz does not reopen soon, the market will eventually force demand destruction through much higher prices. ......

...... Earlier, Rapidan Energy Group analysts warned that a prolonged closure of the Hormuz chokepoint risks pushing the economy into a downturn on a scale approaching that of the 2008 Great Recession.





............ A delayed opening of the Hormuz chokepoint would increase the third-quarter oil supply deficit to 6 million barrels per day as inventories fall toward dangerously low levels, the analysts warned.

Even an early-August restart would not bring immediate relief, as inventories would continue to slide into early fall while Gulf production and shipments normalize.

JPMorgan analysts recently warned that the world is spiraling toward a catastrophic cliff-edge shortage of crude oil if the maritime chokepoint is blocked through June ............

*** Major Markets Letter #24: Yield curves in Stagflation








... This is certainly impressive, although the impact on GDP may be less than what the above figure suggests due to the associated rise in imported silicon chips — buying foreign equipment to invest locally improves the capital stock, but does not represent a rise in domestic production. (The exporting country is producing the goods.) This relates to one of the perennial online economics debates: do imports subtract from GDP? In addition to the statement “imports subtract from GDP” being mathematically correct, the cancellation of domestic spending does matter: there is a financial cost associated with buying foreign goods, and that financial cost can displace spending that would have been made on domestic production. .........



Market Fare:

MS Weekly Warm-up: Thoughts from the Road (via the Bond Beat)

................. Last Wednesday, We Published Our Mid-Year Outlook...We raised our next twelve month (mid 2027) S&P 500 price target to 8,300 driven by strong earnings—16% annualized EPS growth through our forecast horizon (2x the long-term median). Under the surface, we prefer Industrials, the hyperscalers, Financials, and Discretionary Goods.

.......... We’re took our forward 12-month (mid-2027) price target up to 8300. That’s 20.5x forward EPS of $404. Our year-end 2026 price target moved up from 7800 to 8000. The main messages here are:

This is an earnings story, not a multiple expansion one.

This outlook builds on three themes we have emphasized since last year: running the economy/earnings cycle hot, public to private rebalancing, and a broadening of earnings and performance.

The fear of AI is leading many companies to “run it lean” in an economy that is also running hot. This has only boosted the operating leverage and margins further and one reason we raised our EPS forecasts last week.

In our baseline, we have 2026 EPS of $339 (23% growth), 2027 EPS of $380 (12% growth), and 2028 EPS of $429 (13% growth). The drivers of our resilient earnings forecast are: positive operating leverage and margin expansion aided by AI adoption, stabilizing pricing power in goods oriented end markets and a capex cycle that continues to show momentum…........

Our Midyear Strategy Outlook published last week highlights the fundamental momentum in the global economy as a driver of markets, with the energy shock as a key downside risk. The disruption has lasted almost three months, but drawdowns in inventories and redirection of trade have kept macro implications muted to date. If oil prices rise significantly from current levels or the disruption continues for another quarter, the macro narrative will shift. Our Outlook frames alternative scenarios along these lines. For now, we focus on positive structural drivers — AI-driven capex, wealth-driven consumption, and a return to full employment — that should support a recovery in growth next year… ............

…The duration of the oil shock is as critical for growth, inflation, and monetary policy as the price of energy. If the conflict escalates and oil prices surge through $150 and stay above $125 for several quarters, the outlook turns recessionary. A milder adverse scenario has a persistent oil price premium that reflects widespread but non-crippling shortages, prompting central banks to lean more aggressively against inflation. Both scenarios are negative, but the differences are significant.

But we also see substantial upside risks. Especially in the US, aggregate demand has proved resilient and could easily surprise us to the upside for a prolonged period. Strong wealth effects boost US consumption and AI-driven capex appears unrelenting. Taken together, the US growth impulse could build on itself and because consumption and investment goods have a huge import component, the rest of the world would benefit. ...........




Various metrics suggest that the Canadian banks could be overvalued



.......... Startups with no revenue, no profits, and occasionally no actual product are raising millions or billions because their founders can say the words “large language model”. Public company CEOs now jam “AI” into earnings calls with the same shamelessness that “trendy” gastropubs have when being the 4th “new” place on the block to not just offer a good ole’ fashioned cheeseburger, but the breathtaking innovation of a truffle aioli smashburger.

........... Berkshire has spent decades avoiding one of the central mistakes in modern investing: confusing a compelling narrative with a compelling investment. A transformative future does not automatically justify any price.

............ There is also a lesson about temperament. Successful investing is often less about predicting the future perfectly and more about avoiding emotional decision-making when sentiment becomes extreme.





................. So, I think two things can be true here:

This market is not a “bubble” because it has real fundamental drivers underlying it.
This market is riskier in certain elements because the expectations embedded in certain sectors are very high which reduces margin for error and creates potentially higher sequence risk. ..............

There has been renewed chatter in recent weeks that we’re headed back to the 70s (again). People love this chart from Larry Summers showing the 2014 starting point compared to the 70s. As if there’s some sort of necessary temporal relationship between the two time periods because…because!


Are we going to get another big surge in inflation? We’re seeing a surge! It’s surged from 2.4% to 3.8% in just 5 months. That’s a pretty sizable jump. The problem is, it’s mostly cost push inflation driven by the war in Iran. Consumers will eat the price hike until they can’t. But here’s the thing – in order to get a 1970s style inflation you need a much larger boom in oil and commodities. And I mean MUCH larger. You see, in the 70s that second big jump in prices coincided with a 150% surge in oil prices after the first big surge. So, if we’re expecting inflation to go to 14% year over year (or anything remotely close to that) then you need a record breaking surge in oil prices and broader commodities on top of what we’ve already had. The equivalent sort of price action is a move to something well above $300 oil. But that brings in another problem – the US economy isn’t nearly as oil dependent as it was in the 1970s. So it would take a much broader and much larger commodity rally to cause this. And it would need to be supported by some sort of underlying stimulus from global governments. None of which is completely out of the realm of possibility, but I struggle to see what will cause that 



Just when investors thought it was safe to go back into the bond market, the Iran War and resulting inflationary concerns reversed the January-February decline in rates (rally in bond prices) and then some.

Expectations for Fed cuts have quickly turned into fears of Fed hikes given the inflationary backdrop, while the correlation between bonds and stocks, which had been reverting to negative territory over the past two years, has snapped back to being unhelpfully positive ............


Bubble Fare:

Rising prices are draining the liquidity from financial markets, including bonds. The AI stock bubble is ripe for bursting


***** Last call
on the most valuable company in the world

Sit. Sit down. No, here, I saved you the stool. You want one of these? Course you do. Two more of whatever this is, thanks.

Right. So you’re buying Nvidia.

Don’t. Don’t do the face. Everybody does the face. I’ve been doing this twenty years and the face never changes, it’s the same face the guy made in ‘99, the same face the guy made in ‘07, this sort of but the numbers are good face, and you know what, you’re right. The numbers are good. The numbers are spectacular. That’s the whole problem and nobody will sit still long enough to let me explain it to them. You’ll sit, though. You bought me a drink. That’s the deal now, you’re stuck.

Wednesday. You watch Wednesday? The earnings?

Course you didn’t, you were busy buying the thing. Let me tell you about Wednesday. Street wants seventy-nine, they print eighty-one and a half. Street wants a buck seventy-eight, they do a buck eighty-seven. They guide up. They hand everybody a dividend twenty-five hundred percent fatter, which, between us, between you and me and this glass, is a penny turning into a quarter on a two-hundred-dollar stock, so it’s a yield of bugger all, but the room cheered, they actually cheered, twenty-five times more of basically nothing and grown adults stood up and clapped. Revenue up tenfold in three years. Best quarter the most valuable company in the history of money has ever turned in. Flawless. Spotless. Not a hair out of place.

And the stock went down.

Yeah. Down. I had it on the screen behind the bar, I made Tony put it on, and I watched it go red and I thought, Tony, your telly’s broken. It wasn’t broken. Fourth time now. Fourth perfect quarter in a row and the thing just... sags. And everybody’s got the line ready, profit-taking, it’s priced in, and here’s the thing about that line, my friend, that line is true so many times that the one time it’s a lie you’ve already stopped checking. The guy who says priced in is right and right and right and right and then the building’s on fire behind him and he’s still saying it.

Because that’s how it goes. That’s the part you’ll learn the expensive way if you don’t let me buy you the cheap version right now. The top doesn’t ring a bell. There’s no guy with a bell. I keep waiting for the guy with the bell, twenty years, never shows. It looks like exactly this. Perfect everything, and the price just won’t go. You feed the machine the single best meal of its entire life and somehow the whole table walks out poorer. Something changed underneath. And nobody, nobody, sends the memo.

Even the bean-counters clocked it. Read the boring stuff, nobody reads the boring stuff. Every quarter lately the thing barely twitches on the day and then bleeds out over the week, every quarter a triumph, and they gave it a little name so they wouldn’t have to think about it. A trap. A nice trap, a cheerful trap. Which is bean-counter for the good news quit working and we’re all very politely not mentioning it over dinner.

Hey. Hey. You still with me. Good. Drink up, I’m only getting started, and there’s three things wrong here, not one. Three. One screams, one’s in the walls, and one’s been down the cellar this whole time just... eating. Quietly. We’ll get there. ................................



A.I. Fare:




..................... The scale of today’s AI buildout has historical precedent. For instance, the railroad expansion of the mid-1800s involved more extreme infrastructure investment, with railway Capex estimated to have consumed as much as 10-20% of GDP at its peak. A more recent and appropriate comparison is the telecom buildout of the late 1990s, when Capex peaked at roughly 1.0-1.2% of US GDP. Today’s AI infrastructure spending by just the four companies has recently surpassed that telecom figure.

But unlike the debt-fueled telecom boom, today’s AI spending has thus far been funded almost entirely by the cash and cash flows of extremely profitable corporations. While the composition of funding is shifting from cash and free cash flow to debt, the companies noted above have debt-to-equity ratios well below the S&P 500 average and significantly lower than during the telecom buildout. Moreover, earnings from other highly profitable business lines will continue to provide them with substantial cash for investment.

............ While still early in the AI revolution, the economic data points to genuine economic momentum. Whether AI productivity benefits can become more broadly based across the economy is the question that Part Two of this article addresses.



AI is, as it stands, not economically viable for anybody involved other than the construction firms, NVIDIA, and the surrounding hardware companies benefitting from the irrational exuberance of a data center buildout that doesn’t appear to be happening at the speed we believed. 

Every AI startup loses millions or billions of dollars a year, and nobody appears to have worked out a way to stop hemorrhaging cash. Hyperscalers have invested over $800 billion in the last three years, with plans to add another $700 billion or so in 2026 and another $1 trillion in 2027, meaning that they need to make at least three trillion dollars in AI specific revenue just to break even, and $6 trillion or more for AI to be anything other than a wash. I went into detail about this (albeit at a lower, pre-2026/2027 capex number) in a premium piece last year.  ................


Strong opposition kicks in when data center demand surpasses 5% of a country's power supply.


Why politicians are squandering the anti-AI backlash





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(not just) for the ESG crowd:

The floating ice shelf of world’s widest glacier – Thwaites glacier in Antarctica – is detaching, with worrying implications for global sea-level rise





The inaugural Transition Away from Fossil Fuels (TAFF) Conference took place in Colombia at the end of April. It's almost universally reckoned to have been “a measured success”.

We have to hope so given that the whole current climate governance system driven by the United Nations Framework Convention on Climate Change (UNFCCC) and underpinned by scientific advice from the Intergovernmental Panel on Climate Change (IPCC) has comprehensively failed the whole of humankind for the last 25 years. ........



Sci Fare:


Our inner narrator makes it all up



U.S. B.S.:

.......... Beyond all that, MTG has repeatedly shown that she will risk her own political career in order to condemn destructive war policies, whether they’re carried out by the other party or by her own. She did so by not only opposing and denouncing Trump’s financing and arming of Israel, but also the panoply of D.C. bipartisan war policies. MTG thus denounced Trump’s bombing of Yemen (after he spent 2024 criticizing Biden for bombing Yemen), his bombing of Iran last year with Israel, and Trump’s new war with Iran.

AOC, by rather stark contrast, is a partisan hack, nothing more than a glorified Nancy Pelosi Jr. She will criticize the policies of a Democratic president only in the most muted and deferential tones.

............ None of this should be remotely surprising to anyone who has paid attention to mainstream, DNC-loyal liberal politics. Caring about outcomes is very low on their list of priorities, if it appears on it at all. ...............





Travel by Canadians to the US is down almost 50% from last year’s already drastically reduced levels. Part of this is a quiet Canadian protest against US imperialist foreign policy — Trump’s arrogant assumption that Canadians wouldn’t find the idea of being a US state repulsive, his threats of annexation, his endless tariff wars against former US allies, and the US Uniparty’s financial, political, and military support for Israel’s genocides and the Empire’s brutal, illegal, endless wars, while so many Americans are suffering poverty, precarity, joblessness, and illness that the government refuses to pay a penny to relieve.

But the larger part of our reticence to travel to the US, I think, is fear. It is increasingly obvious that the collapse of the ‘rule of law’ in the US, and the declaration by government officials that they are ‘above the law’, and that their ICE and other paramilitary forces are exempt from prosecution for their terrorism and excesses, means that it is absolutely dangerous for non-citizens to venture across the border. ........

And anyone following the political events there knows that even if the Tweedledee Democrats replace the Tweedledum Republicans in the next elections, the policies and situation there aren’t going to significantly change. The US Empire has entered a death spiral, and it’s only going to get worse. .......



War Fare:

A memorandum of understanding for the MoU of the deal

That is the most consequential string of weasel words I’ve seen since “weapons of mass destruction - related programme activities”.

Largely. Negotiated. Subject to. Finalization.

That’s not a deal. That’s not even a ceasefire!

............... The neocons are already losing their minds on X. Pompeo, Levin, Graham, the whole fingerprints-up-their-asses crowd - furious. Which, for what it’s worth, is the one legible signal in all of this that something real might be happening. ...............

..





Geopolitical Fare:




Every society is three meals from chaos
-Vladimir Lenin
On May 4th I wrote that a year of hunger and famine is baked in for most of the world.

This was based on the effects of Six Week War and the continued blockade of the Strait of Hormuz. But, in addition, we have the strongest El Nino is a hundred and fifty years incoming ............



Other Fare:

Everybody knows about the decline in birthrates. Fewer people understand why—or just how significantly it could transform society in the next few decades.


How a generation's time preference was sabotaged

......................... There was a famous Stanford experiment called the Marshmallow Test which measured time preference in young children. A child would be left in a room with a single marshmallow on the table. They were of course free to eat the marshmallow, the experimenter would tell them, but if they didn’t, then later on they would get a second marshmallow. Children with high time preference – meaning that they strongly prefer the immediate reward to the hypothetical future reward – would cram the marshmallow into their candy-holes without a second thought. Children with low time preference – meaning that they value the future at a similar or even higher level to the present – would patiently wait, and be rewarded with a second marshmallow. These children were then followed, and it was demonstrated that the children with low time preference demonstrated better life outcomes: they maintained higher grades, were less likely to fall into debt, were less likely to develop drug addictions, were less likely to get pregnant before marriage, were less likely to get fat, and so on. All of which makes sense. The capacity to endure present pain – by studying, dieting, working out, what have you – in order to obtain a better future outcome is obviously going to be linked to better outcomes.

How would a smart kid react if the experimenter failed the marshmallow test?

For instance, say the experimenter simply lied. There was no second marshmallow; the child waited for nothing. Or, even worse, the first marshmallow was snatched away, and replaced with two marshmallows, each one half the size of the original? Or a third the size? Here are your two marshmallows, sucker, joke’s on you. What would the results be if, after this experience, the children were tested a second time? I don’t know if such an experiment has ever been conducted, but the outcome is not hard to guess. Every single one of the children, whether they’d passed the marshmallow test the first time or not, would scarf down the marshmallow the moment it was in front of them.

The capacity for low time preference may be largely innate, but whether it expresses or not is entirely a function of social trust. In order to defer gratification for a greater future reward, one must believe that there is a reasonably high chance of that reward manifesting. The less likely the future reward becomes, the more steeply a rational actor will discount the future.

........................ I’d like to believe that this is all temporary, that things can be turned around, but if you tell me this hope is nothing more than cope it is very difficult for me to argue otherwise. Maybe things will finally improve and maybe they won’t; the point is that, for the young who have only ever known civilizational rot, it is entirely rational for them to lay down and let it rot.

Generation X and the millennials both tried to do everything right, according to what the boomers told them was the path forward: save money, study hard, get a ‘job’. At every stage we got rugpulled. Most of us have nothing to show for any of that.

Zoomers looked at what happened to Gen-X and the millennials and said, quite rationally, fuck that.

.................. Zoomers have no faith that the future will be better and every reason to believe that it will be much worse, and so they have every reason to prize the small, present pleasure over some future prize that experience has taught them lives only in their broken dreams. What’s the point in saving for a house if you’ll never even be able to afford a hovel in an abandoned toxic-waste dump small town where the major local industries revolve around the fentanyl trade? You might as well just splurge on that $28 lunch, which you can enjoy now, and which you won’t be able to enjoy in a few years, when you’re making the same amount of money, but that lunch costs $48, is prepared with worse ingredients, is provided in smaller portions



Pics of the Week:

Posted by at No comments:

Sunday, May 17, 2026

2026-05-17

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


Economic Fare:


Global oil demand is set to exceed supply in the current year amid the ongoing conflict in the Middle East, reversing previous projections of a surplus, OilPrice reports citing the latest IEA data.

"With Hormuz tanker traffic still restricted, cumulative supply ​losses from Middle East Gulf producers already exceed 1 billion barrels with more than 14 million (barrels per ⁠day) of oil now shut in, an unprecedented supply shock," said the agency, which advises industrialized countries. .........



................... In other words, futures markets are not ignoring the risks associated with the Iran War. They have already embedded about a $30 geopolitical premium into current pricing. Inventories imply a price closer to $70, while markets are pricing oil near $99. That is a substantial overvaluation relative to inventory fundamentals.

This is how markets translate uncertainty into price. Oil cannot trade at theoretical values unless counterparties are willing underwrite that transaction.

.......... One may believe that current physical scarcity justifies $150 oil, but markets do not move to theoretical scarcity values automatically. Price only rises to levels at which counterparties are willing to make a trade. Like it or not, that is how the process works.

......... The main takeaway from these charts is that markets are pricing an intense near-term squeeze while still expecting some form of resolution to the Iran War and related supply disruptions within a relatively short time frame. Markets are adaptive. If comparative inventories continue falling deeper into deficit, prices will rise further—but only when counterparties are willing to make trades at higher prices based on evidence of worsening physical constraints rather than fear alone.


There’s NO sign underlying inflation is picking up despite yesterday’s “hot” CPI

…I should clarify upfront that I’m an inflation “dove.” It feels to me like we’re on the cusp of a major automation wave in white-collar jobs that are heavily administrative and repetitive. There’ll be lots of people chasing far fewer jobs in coming years, which will put downward pressure on wages. I just can’t see how - with that as a backdrop - underlying inflation has room to pick up, even with everything that’s going on now…


Morgan Stanley Insight: Global Economics Mid-Year Outlook: A Fluid Outlook (via The Bond Beat)

Coming into this year, we were constructive on growth and remain so, but with increased caution amid the energy supply shock. Energy volatility generates a wide range of outcomes, particularly on the inflation front. The AI boom remains a critical driver of demand, but its effects on productivity are a wild card. We rely on scenarios to illustrate potential paths for the global economy depending on oil and AI outcomes.
  • Global growth is fundamentally supported by continued US momentum in AI-driven capex and high-end consumer spending, which over time should allow for a broadening in macro drivers. China is more insulated than Europe, although in each case the energy shock will damp but not derail the expansion.
  • The duration of the energy disruption is consequential – our base case assumes crude back to $90/bbl at the end of the year and further declines in 2027. A more-protracted oil price dislocation would exacerbate growth and inflation risks, and a permanent risk premium for oil would stall the return to target inflation globally. An “escalation” scenario – where oil prices surge through $150/bbl – would mean physical shortages, supply chain disruption, and recessionary outcomes. .......
............ Energy and commodity markets, policy choices, and the speed of AI adoption all combine to define growth through 2027. In the baseline, the energy shock slows the global economy modestly through mid-2026 before growth stabilizes and recovers into 2027. We see growth near potential across most major economies. AI-driven capex and fiscal spending on energy security and defense provide a firm floor to prolong late-cycle growth. But we are assuming that the conflict in Iran is resolved in the next month, limiting the effects to one quarter, and that volatility from energy prices subsides over the balance of the year…



Synopsis:
  • The Iran war has driven up inflation but has had no meaningful impact on U.S. growth so far because (1) it comes with a lag and (2) there are temporary offsets from tax refunds, military spending, some pull-forward in demand, and a stock market wealth effect. Our models show that recession risk remains low and growth is decent. 
  • Had we not had the war, we likely would have seen global growth exceed our initial estimate from late last year, coming in closer to 3.4-3.5% (vs. our estimate of 3.1% now). This helps explain the resilience of the global economy now despite the spike in oil prices. 
  • With 85% of S&P 500 companies reporting, the beat rate of 84.8% is on pace to be the third highest on record, after Q1 and Q2 2021. Every sector’s beat rate is above 70%, so while the earnings growth is driven disproportionately by earnings and AI, companies are navigating the current economic backdrop well.
  • ...
  • Since the March 30 low, leadership has been very much Growth over Value. The 28% gain for Technology over the past 30 market days is 9th best on record. Prior cases have seen Technology continue to outperform for several months before eventually losing some momentum. 
  • Semiconductors have been clear leader within the sector, but Hardware has outperformed as well. Software is still down about 20% over the last six months and has underperformed by roughly 40% over that time. ... 
  • Near-term, Tech is extremely overbought and the weight in the S&P 500 made a record high last week at 37%.  However, earnings have been strong and forward estimates have risen so the sector is not back to extremes from a valuation perspective.
  •  ....... We remain on bubble watch but it is too early to bail.



Market Fare:

A rally fueled by improving expectations lacks broad support

The indexes are hitting new highs. The S&P 500 is up 6 weeks in a row and finished last week just shy of 7400. The NASDAQ composite, which is also up 6 weeks in a row, pushed 4.5% further into record territory last week.

Beneath the surface, however, the picture is not as rosy. The index is hitting record levels and yet only slightly more than half of the constituents in the index are even above the long-term moving average - for the median stock in the index, a new 52-week high would require a rally of more than 15%. The percentage of stocks above their 200-day average is falling and by the end of last week it dropped below 55%. ..........



The commodity supercycle thesis is everywhere right now. Bank of America’s Michael Hartnett, one of the most widely read strategists on Wall Street, recently declared “commodities the biggest trade of the next five years,” anchoring the call on deglobalization, chronic capital underinvestment, and a world drifting away from dollar dominance. As is often the case, the narrative is extremely compelling. However, it’s also internally contradictory in ways that most investors aren’t stopping to examine.


DB: Asset Allocation - Q1 2026 Global Earnings: Tech Drives Robust Growth (via The Bond Beat)




Biggest groups have gained $5.4tn in value since conflict began — but semiconductor sector accounts for most of the gains





QOTW:

Wintersberger: The market remains a news-driven machine front-run by flows. And so far, the Trump administration still manages to steer market pricing despite making little visible progress in negotiations with Iran. I have lost count of how often Trump, or any news outlet quoting a “person familiar with the matter,” has announced that a deal with Iran could be close. What matters, however, is that markets continue to react to it. Wednesday brought another Axios headline and, once again, oil collapsed while equities and bonds rallied. Of course, one can debate whether that is just another lie, half-truth or simply wishful thinking. But regarding price action in markets, this is secondary. What matters for portfolio managers is the P&L.



A.I. Fare:



US tech giants including Alphabet and Amazon are tapping foreign debt market at an unprecedented rate


This isn’t a joke, and it’s becoming a big problem

......... There’s a specific kind of brain rot spreading through executive suites and VC circles right now. It looks like productivity. It sounds like innovation. It burns through tokens at a rate that would make your CFO cry. And it produces almost nothing of measurable value.


AI writing is impossible to avoid, is making everything sound the same, and is driving us crazy.



(not just) for the ESG crowd:

Daegan Miller on the Often Misunderstood Work of Roy Scranton

............................. It’s useful to think about the difference between the words “world,” “planet,” “Earth,” and “globe,” and Scranton, drawing on the work of historian Dipesh Chakrabarty, writes, “we might say somewhat reductively that…the globe is political, the planet scientific, the Earth phenomenological, and the world ontological.” Or to put it another way, the nation states, treaties, and climate summits make up the globe, while climate modeling and evolution and the periodic table of elements and carbon cycle are what define the planet. The Earth is the ground we feel under our feet, the wind we hear in the trees, the sun we feel on our faces. And the world: that’s a capacious Old English word that means “the state or realm of human existence on earth.” Each of these is deeply entangled with the others—a change to one ripples its way through each—but the point remains that the end of the world means the end of the realm of human existence, and for those of us living today the realm of our existence is a fossil-fueled, capital crazy, trigger-happy world of exploitation, extraction, and extravagance for the few at the cost of immiseration for the vast majority of life. ........



Sci Fare:

Consciousness is not separate from the physical world — our “soul” is of the same nature as our body and any other phenomenon of the world.

A fierce debate is raging around the slippery notion of consciousness. It retraces a trotted pattern of cultural resistance: We humans are often scared by anything that may disturb our image of ourselves. 

Famously, Darwin’s realization that we have common ancestors with all living organisms on our planet met ferocious resistance. Many felt confounded or degraded by the idea of sharing a family tree with donkeys. The cultural history of modernity is dotted by similar ideological rearguard battles, wherein old worldviews fight in retreat against novel knowledge to save some concept held dear. Amid the current cultural backlash against progressive ideas, today’s debate on consciousness reflects our human fears of belonging to the same family as inanimate matter and losing our dear, transcendent souls. .....................





U.S. B.S.:

Usonia: More than 250 Years in the Making



War Fare:

from an evil neocon M-F'er
Washington can’t reverse or control the consequences of losing this war.

......... Iran remains in control of the Strait of Hormuz. The common assumption that, one way or another, the strait will reopen when the crisis ends is unfounded. Iran has no interest in returning to the status quo ante. People talk of a split between hard-liners and moderates in Tehran, but even moderates must understand that Iran cannot afford to let the strait go, no matter how good a deal it thought it could get. For one thing, how reliable is any deal ..?



Geopolitical Fare:






Other Fare:

The transition from small hunter-gatherer societies into complex civilizations gave rise to the first Axial Age. Today, the planetary polycrisis of climate chaos, mass migration, increasing warfare and transformative AI represents a rupture of comparable magnitude.





Vid Fare:



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