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Thursday, June 2, 2022

2022-06-02

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

Economic and Market Fare:

Dylan Grice: Crash, Then Boom
Complacency in financial markets has given way to concern that the Federal Reserve will have to provoke a hard downturn to defeat inflation.

The complacency around inflation pricing remains unresolved. For all the ridicule that central bankers are currently taking from politicians and the press for having predicted that pandemic inflation would be transitory, long-term inflation markets steadfastly continue to predict exactly that.

The likelihood, however, is that inflation will be a problem for the next cycle. If long-term inflation expectations could remain ‹well anchored› as inflation was breaking forty-year records, we doubt they’ll become suddenly unanchored as base effects and a weakening economy push it back down over the coming months.

The complacency in broader risk markets, in contrast, which we documented towards the end of last year, has now largely given way to a growing concern about how much the coming slowdown is going to hurt. As we’ll explain below, we suspect it will be a lot (big party, big hangover), which is why we think it’s too early to be aggressive buyers notwithstanding statistical cheapness emerging in some areas. ...

..... Chart 3 above doesn’t only show how extraordinarily, stimulatory, ever-lower interest rates were in making assets more affordable, it shows how eventually, asset valuations which are goosed to such an extent that they are barely affordable at low interest rates become downright unsustainable at higher ones.

.......... Will the coming economic slowdown/recession be enough to take inflation back to historical average rates, proving that the Fed was right after all, and that pandemic inflation was transitory? Probably. The weak demand of a slowing economy combined with base effects going into reverse will likely see inflation moderate to less nose-bleed levels in the coming months.


Beige Book Shows Fed Quietly Freaking Out About Widespread Economic Slowdown





Inflation is here, and there are a lot of explanations for it. People who worry about the monetary supply – especially people in the deflation-loving cryptocurrency world – blame it on excessive money creation during the pandemic and uppity workers demanding higher wages:

https://www.businessinsider.com/elon-musk-remote-work-makes-you-less-productive-wrong-2022-6

Anti-monopolists blame inflation on price-gouging. This is a persuasive argument. After all, CEOs of companies in highly concentrated industries keep giving investor presentations where they chortle, rub their hands, twirl their mustaches, and announce that their profits are sky-high thanks to their ability to raise prices:

https://pluralistic.net/2022/02/02/its-the-economy-stupid/#overinflated

Some take a middle road and blame inflation on covid's supply-chain shocks, or, translated into normal human speech: "China makes everything. China locks down every time there's a covid outbreak. When that happens, China stops sending us stuff, which drives prices up":

https://www.ft.com/content/483ef3bc-e600-4c2d-bbf3-15208e52020c

There's a Russia/Ukraine version of this, too: "Russia exports a lot of gas. Ukraine exports a lot of wheat. Russia's invasion of Ukraine triggered economic sanctions on Russia and disrupted farming in Ukraine, therefore prices of wheat and gas (and everything we make from wheat and gas) are going up":

https://www.cnbc.com/2022/04/21/from-food-to-inflation-the-russia-ukraine-war-has-a-global-impact.html

All of these can be true at once. The Trump administration's decision to pump trillions into the capital markets definitely triggered massive asset inflation, including and especially inflation in shelter, with Wall Street landlords buying up houses and jacking up rents:

https://pluralistic.net/2022/03/17/shareholder-socialism/#asset-manager-capitalism

And yeah, the decision to centralize manufacturing in China, wheat production in Ukraine, and energy production in Russia means that when they stop exporting, other countries face shortages, which leads to bidding wars, which leads to inflation.

Likewise, it's undeniable that industries dominated by one company or a small cartel of companies are raising prices because they think we think prices are going up and so we will blame their excess profit-taking on the abstract forces of "inflation," rather than the greed of eminently guillotinable corporate execs:

https://pluralistic.net/2022/03/15/sanctions-financing/#soak-the-rich

Is there a way to synthesize all of these factors into one explanation? Writing for Employ America ("Tight labor markets, higher wages, and better jobs"), Alex Williams gives it a go, with "The Physical Capacity Shortage View of Inflation":

https://www.employamerica.org/researchreports/the-physical-capacity-shortage-view-of-inflation/

Williams turns the question of whether Chinese lockdowns or Russian invasions caused supply-chain shocks on its head and says, "Why can't America respond to these shocks by making the stuff we need on-shore?"

The answer? Because of decades of deliberate American de-industrialization, undertaken by private firms who chased lax regulation and low wages overseas. ....


Polish economist Michał Kalecki argued that capitalists would always resist full employment because it increases the confidence and bargaining power of workers. He was right — so right that even the Fed has now begun citing his ideas.



Charts: 
1:



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Bubble Fare:


The valuation of the Wilshire 5000 US Total Stock Market Index reached a historic high of 207% of GDP in 2021 in the wake of the Covid-19 stimulus and record corporate earnings. We are now entering what in Crescat’s analysis is an inflationary recession. The index is off 15% from its all-time highs but still trading at 187% of GDP. During comparable stagflations of the early 1970s and 1980s, the associated equity bear markets did not end until the total stock market capitalization traded down to an average of 35% of GDP. Even if nominal GDP were to grow a full 20% over the next two years, not out of reason in today’s historically high inflationary environment, there is the potential for a further 78% decline in stock prices from current levels to settle at the low multiples of the last stagflationary era. While the market could bottom at higher multiples this time around, we must acknowledge the downside risk if we are indeed in just the early stages of new stagflationary regime. ...

...... The Fed is Trapped

The Fed’s main policy tool for fighting inflation is to hike interest rates. This reduces the demand side of the economy by tightening credit conditions and causing financial asset prices to decline which crimps investor savings and consumer demand and increases unemployment. But raising interest rates does not stimulate commodity supplies, the core inflationary problem today. In fact, raising interest rates could have the opposite effect because it makes the cost of capital for investment in new commodity production higher.

After years of money printing and interest rate suppression, policy makers have created a historic speculative environment in financial assets. But now, the inflation genie is out of the bottle, and to restore its credibility, the Fed has no choice but to burst the bubble. At the same time, it is powerless to stop commodity inflation. To illustrate just how trapped the Fed is, it has never ended a hiking cycle with the Fed Funds Rate below CPI. But the implied terminal rate in the Fed Funds Futures market is now just 2.9% in early 2023 while CPI is still at 8.3%. If the efficient market hypothesis holds, which it rarely does, CPI must drop precipitously over the next three quarters. Such is highly unlikely based on our commodity supply analysis shown above



A fascinating aspect of the financial markets is that long-term returns are driven almost entirely by math, while short-term returns are driven almost entirely by psychology. It’s useful to consider both.

From a long-term perspective, a security is nothing but a claim to a future stream of cash flows that investors can expect to be delivered over time. Given a historically-reasonable estimate of future cash flows, knowing the current price is identical to knowing the expected long-term return. That part is arithmetic. From a short-term perspective, the price of a security is just the highest price the most willing buyer will pay and the lowest price the most willing seller will accept. That part is psychology.





(not just) for the ESG crowd:



Investors in unsustainable assets are lashing out at ESG. We’ve got their attention; now it’s time to step up our game.








Contrarian Perspectives

Extra [i.e. Controversial] Fare:

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


Regular Fare:

'The City of London is a major drain on productive economic activity in Britain'



Unsustainability Fare:


Half a century of dealing with Neoclassical economists has taught me to expect them to have zero comprehension of the bleedingly obvious, when the obvious conflicts with their established beliefs.

That experience was confirmed in spades last week, with the publication of my letter to Proceedings of the National Academy of Sciences entitled “Estimates of economic and environmental damages from tipping points cannot be reconciled with the scientific literature” (Keen et al. 2022). That letter critiqued a paper published in Proceedings of the National Academy of Sciences just last year: “Economic impacts of tipping points in the climate system” (Dietz et al. 2021), written by the mainstream economists Simon Dietz, James Rising, Thomas Stoerk and Gernot Wagner. They replied to our critique with the note “Reply to Keen et al.: Dietz et al. modeling of climate tipping points is informative even if estimates are a probable lower bound” (Dietz et al. 2022), which dismissed every point we made (and some we didn’t).

The key point we made was bleedingly obvious. Their paper asserted that losing eight critical elements of the Holocene climate—(1) Arctic summer sea ice, the (2) Greenland and (3) West Antarctic Ice Sheets, (4) the Amazon rainforest, (5) the Atlantic Overturning Meridional Circulation (colloquially known as the Gulf Stream), (6) the organic matter currently trapped in the arctic permafrost, (7) the methane currently trapped under huge pressure and cold temperatures in the deep ocean (Ocean Methane Hydrates), and (8) the Indian monsoon—would reduce future consumption by a mere 1.4%:
Tipping points reduce global consumption per capita by around 1% upon 3°C warming and by around 1.4% upon 6°C warming, based on a second-order polynomial fit of the data.
This was simply ridiculous. A planet missing those 8 critical elements of the Holocene environment would be totally unlike the one we currently inhabit. The idea that we could use “data” about this world’s climate to predict the GDP of that world was simply hubris. But they couldn’t see that. .....

.... As one correspondent on Twitter commented, “my 11-year-old could tell you: there is no economy left if we breach eight tipping points. We already risk losing everything.”

To give just one potential consequence of losing just one of those tipping points, Harvard University Professor of Chemistry James G Anderson argues that losing the Arctic summer sea ice will lead to a breakdown of the Ozone layer (Anderson and Clapp 2018). The mechanism is complex:
  • The tipping of the Arctic turns it from a reflector of sunlight to an absorber;
  • This leads to the three Tropospheric circulation cells collapsing into one;
  • Water vapor that currently remains in the Troposphere gets transported into the Stratosphere;
  • This water vapor will contain traces of Chlorine and Bromine;
  • These chemicals will break down the Ozone layer, leading to much higher ultraviolet radiation;
  • This will render the Northern Hemisphere far less hospitable to humans and other mammals.
....


We can’t stop people from lying for a living. But we can stop handing them truths to hook their lies onto.

................. Climate change is an existential threat to human life on the planet, and addressing it is an existential threat to that industry.

Let’s face it. The answer to the question, “What’s the cost of not addressing climate change?” is “All the wealth in the world.” When humans are hunter-gatherers again, world GDP falls to a very small number. Or to zero if we’re extinct.

And the answer to the question, “What would happen to the fossil fuel industry if climate change were adequately addressed?” is “The business wouldn't exist.”

Every corporate asset owned by Exxon, if related to its climate-killing work, would lose all value if the rich who run the world were serious about addressing the problem. And they know it.

“We have an existential threat here,” said West Virginia treasurer Riley Moore. He’s right. The industry, which should be dead today, is threatened with a well deserved extinction. And yet it lives. 


COVID Fare:

I've continued to come across too much excellent COVID-related content (with contrarian evidence-based points-of-view!!) to link to it all
Read everything by eugyppius; el gato malo; Mathew Crawford; Steve Kirsch; Jessica Rose!
Paul Alexander, Berenson, Chudov, Lyons-Weiler, Toby Rogers are also go-to mainstays; a list to which I have added Andreas Oehler, Joey Smalley (aka Metatron) and, Julius Ruechel; Denninger worth staying on top of too for his insights, and especially his colorful language; and Norman Fenton; Marc Girardot; plus Walter Chesnut (on twitter); new additions: Sheldon Yakiwchuk and Aaron Kheriarty; I will of course continue to post links to key Peter McCullough material, and Geert Vanden Bossche, and Robert Malone, and Martin Kulldorff, and Jay Bhattacharya, and Sucharit Bhakdi, and Pierre Kory, and Harvey Risch, and Michael Yeadon, and John Ioannidis, and Paul Marik, and Tess Lawrie, and Zelenko, and Dolores Cahill, and [local prof] Byram Bridle, and Ryan Cole, and…
but going forward, my linking to material by those mainstays mentioned above will be reduced to key excerpts and/or essential posts

Analysis:

Oehler: What If S Spike Targeting Jabs Never Worked, Like At All?

This post shapes up to be necessarily a long one, but divided in four parts: The Banal, The Scientific, The Leading Edge, and The Dark Side of the Moon. If you are short on time and/or attention span, feel free to jump ahead to the part that you have the stomach for.


Commentary:


Sophists are those who engage in superficially plausible but fallacious methods of reasoning or argumentation.

Midwits are closely related to sophists. In fact, you’ll often find a sophist and midwit in the same person.

Midwits are those with middling intellect, who often get distracted from the truth by focusing on minutiae. In this article about midwits, they are described as follows:
The midwit is incapable of drawing on multiple streams of information, from many different domains, to understand the novel information in the broader context of a system.

To compensate, the midwit turns inward, focusing with increasing resolution and detail into the confines of the information itself. To the midwit, this is nuance. To the genius, he is missing the forest for the trees.
COVID vaccine uptake by IQ

Both sophists and midwits are intelligent enough to have picked up on some of the “lingo” of science. They often have statistical-sounding things to say. This may fool you into thinking that their arguments are sophisticated, but some digging reveals that they are, frankly, full of shit.

Let’s go through some of the top phrases and arguments that sophists and midwits regularly use and abuse, so you can watch out for them.

............ I like what physicist Richard Feynman had to say about this:

Science is the belief in the ignorance of experts.

And:

It is necessary to teach both to accept and reject the past with a kind of balance that takes considerable skill. Science alone of all the subjects contains within itself the lesson of the danger of belief in the infallibility of the greatest teachers of the preceding generation.

Feynman describes judgement in science as the skill to “pass on the accumulated wisdom, plus the wisdom that it might not be wisdom.” .....



Anecdotal Fare:

The other toll of "vaccination"—strokes/heart attacks that have NOT killed their victims (yet); a "baffling" surge in childhood hepatitis; and a sharp rise in what we once called "freak accidents"




Back to Non-Pandemic Fare:

GeoPolitical Fare:

Meyssan: The secret Ukrainian military programs





CaitOz Fare:

People Who Defend Empire Narratives Are Really Just Defending Their Worldview From Destruction

.... There’s a great comic by The Oatmeal which explains the psychological defense mechanisms humans have in place to protect their worldview from information that could destabilize it. Because of our tendency to select for cognitive ease over cognitive challenge in order to conserve mental energy, we tend to be heavily biased against consciously helping new worldview-disrupting information get past those psychological defense mechanisms.

And it doesn’t get more worldview-disrupting than questioning mainstream consensus reality. Because on the other side of that investigation is the realization that pretty much everything you’ve been trained to believe about your society, your nation, your government and your world, is a lie. ...

... Think about it. If you consider the possibility that the news media and their government are lying about Ukraine, you must necessarily consider the possibility that they’re lying about other things, too. And if they’re lying about all that, it would mean you were taught lies in school, too. And if you’ve been consuming lies from the very beginning of your education, that means your entire understanding of how everything works is built on lies, which means your political ideology and many opinions you hold probably are, too.

If you really think about what this kind of confrontation means for the individual, is it any wonder that most people fight tooth and claw against the suggestion that they should even begin to enter that investigative rabbit hole? ...


Long Reads / Big Thoughts:

Edward Curtin: Why is Everything Broken?

.... “Broken flesh, broken mind, broken speech,” wrote Norman Brown when he argued for aphoristic truth as opposed to methods or systematic form.  These days the feeling that everything is broken is the norm, that madness reigns, that truth is being strangled and all we have are lies and more lies. Carefully constructed arguments fall on deaf ears as dissociation of the personality, post-modern attention-disorder, gender confusion, and corporate/intelligence mass media propaganda techniques are used daily to sow confusion.  In simple colloquial language, people are badly fucked up.

Much of the world is suffering from megrims.  Bob Dylan puts it simply:

Broken lines, broken strings
Broken threads, broken springs
Broken idols, broken heads
People sleeping in broken beds
Ain’t no use jiving
Ain’t no use joking
Everything is broken.

Who can disagree?  Everyone’s mind seems to be at the end of its tether.

Why?  There are obvious answers, and while so many are true, they are insufficient, for they usually scratch the surface of a worldwide crisis that has been developing for at least a century and a half.  That crisis is spiritual.  Many can feel it rumbling beneath the surface of world events.  It’s a rumbling in the bowels. It’s unspoken. It’s something very dark, sinister, and satanic. It seems to be a form of systemic evil almost with a will of its own that is sweeping the world ....



Other Fare:

Media Roots Radio on Psychedelics:



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