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Thursday, January 12, 2023

2023-01-12

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


Economic and Market Fare:

Small Business Optimism Slump Signals Profit Margins Poised To Plunge

 

Used-Car Prices Record "Largest Annualized Decline In Series' History"


 

"Third Straight Month Of Good News On Inflation": Wall Street Reacts To The CPI Report

 

Roberts: ASSA 2023 part one: the mainstream – fiction and reality

As usual, there were hundreds of sessions and papers at this year’s ASSA 2023, the annual conference of the American Economics Association (AEA).  In this post, I shall concentrate my report on the mainstream economics sessions and on what I considered to be key topics and the most illuminating.

Let’s start with the US economy.  In the big arena of the Grand Ballroom of the Hilton in New Orleans, we were treated to presentations by leading mainstream economists under the title ‘Economic Shocks, Crises and Their Consequences’.  The title tells it all.  The premise of mainstream economics is that market economies (theoretically) move smoothly along until hit by ‘shocks’ that push it off course.  The job of economists is to get market economies back on course with some suitable policy adjustments and perhaps look for ways to defend the market economy from future ‘shocks’.  There is no acceptance that there could be inherent fault-lines within the market economy itself – all problems are exogenous. .......


This permanent component is just a statistical artifact and Grohe offered no explanation of what drives it. Maybe she should read some Marxist explanations.

Nevertheless, I sympathise with the view that, if the major economies are entering another decade of low growth, post-COVID, then the current inflation spike may not be permanent.



Bubble Fare:

FINANCIAL ARMAGEDDON

As an antidote to ludicrous bull shit, I am now upgrading this debacle to Financial Armageddon. It won't be the end of the world, but it will feel like it for those who don't see it coming..

..... With all of that in mind, now imagine if you will, back in 2010 in the aftermath of the Global Financial Crisis, someone telling you the following fantastical story:

In the span of a decade there would be an asset bubble that would dwarf 2008 in magnitude. It would arise out of a global pandemic and it would span every asset class, including crypto currencies. What are crypto currencies you would ask, and you would be told they are thousands of digital Ponzi schemes with trillions of dollars in market cap and ZERO net worth. And they are fully legal and accepted without question even in 401k  retirement accounts. Because they are deemed to be safe havens from inflation.

So far, so good: a bigger housing bubble than 2007, a bigger Tech bubble than Y2k and something called a crypto Ponzi bubble. All of which asset inflation causes economic inflation to explode to the worst levels in 40 years. So what do central banks do? They extreme tighten at both ends of the yield curve at the same time. Until one by one the dominoes start falling. Starting with crypto Ponzi schemes, junk IPOs, pot stocks, electric vehicle bubble stocks, then it moves on to global housing markets, autos, and mega cap Tech stocks. Until everything is imploding at the same time, but central banks are STILL tightening. 

 

********* 2023 – Navigating the narratives

FACING FACTS, RELYING ON REASON

At the start of 2023, an impartial observer could easily conclude that ‘the world has gone mad’. This is most evident in what is sometimes called ‘the public discourse’. Where our economic prospects are concerned, what we are witnessing must rank as the most extreme case of collective denial ever experienced.

Few would dispute that the economy went badly awry last year. In concrete terms, there were widespread and severe falls in living standards, whilst the cost of mortgages and credit rose markedly. Asset prices started their descent from absurdly over-inflated levels.

But there’s a lot that didn’t happen in 2022, but may be lying in wait in the year ahead. Air has started to leak out of the “everything bubble” but it hasn’t, thus far, actually burst, as most bubbles do. We’ve yet to see a cascade of defaults on credit commitments, though this could be a logical corollary of asset price slumps (which impair collateral), and of declining household disposable incomes and falling corporate profitability, most obviously in discretionary sectors. 

This is for real

This isn’t intended as a forecast, and we cannot rule out a gradual retreat from the excesses fuelled by a combination of economic deterioration, cheap credit and cheaper money.

Rather, the point is that we need to take this very seriously indeed, and that’s the intention here. The world is awash with “narratives”, and this combines with two factors – the rapidity of change, and the highly elevated levels of risk – to require a focus on what we can know, rather than on what we can only speculate about.

Where “narratives” are concerned, the orthodox line remains that, once the pandemic and the war in Eastern Europe are behind us, the global economy will return to perpetual growth, with technology delivering a shiny new world of prosperity powered by limitless amounts of climate-friendly renewable energy.

This, both in detail and in toto, is at the far end of implausible. Growth in material prosperity has gone into reverse, and claims to the contrary are in direct conflict, not just with logical analysis, but with the lived experiences of millions as well.

De-globalization is already underway, and the much more serious process of the de-financialization of the economy comes next.

This situation presents us with choices. We can participate in collective denial, or we can analyse the economic and broader situation from a rational point of view, founded in first principles. The latter approach is preferred here. Effective analysis of the economy is perfectly possible, but its results are unpalatable to what we might term ‘the generality of opinion’.

The facts of the matter are simply stated. The harnessing of abundant, low-cost energy from coal, oil and natural gas triggered two centuries of remarkable economic growth. Now, though, fossil fuel energy has ceased to be low-cost and can be expected, in consequence, to become a lot less abundant as well. With no complete replacement available for the energy value hitherto sourced from fossil fuels, the economy can only contract.

In no particular order of priority, our second problem is the environmental and ecological harm inflicted by historic and continuing use of carbon energy. On the basis of fossil fuels, the economy has evolved into a dissipative landfill system. Energy is used to process raw materials into products whose ultimate (and usually rapid) destination is disposal. This involves the conversion of energy from concentrated into diffuse form. The latter is waste heat which, in a system powered by fossil fuels, contains climate-harming gases.

None of what we are experiencing now has happened without prior warning. The remarkably prescient The Limits to Growth (LtG), published back in 1972, used system dynamics to forecast declines in industrial output and the supply of raw materials, combined with a worsening in what was then termed “pollution”. These warnings were very largely ignored, not because they were wrong, but because they were inconvenient.

At a humbler and less ambitious level, the SEEDS economic model provides a nearer-term, financially-calibrated interpretation which accords with the prognosis of LtG. .........

 

Charts:

1:


2:






Quotes of the Week:




(not just) for the ESG crowd:

***** I’m a Scientist Who Spoke Up About Climate Change. My Employer Fired Me.

 

Atmospheric Rivers Over California’s Wildfire Burn Scars Raise Fears of Deadly Mudslides – This Is What Cascading Climate Disasters Look Like


Failing Grade: A US Climate Report Card
The Biden Administration is Not Making Sufficient Progress Towards its Emissions Reduction Targets

Several new reports are just out that allow for a quantitative evaluation of progress by the United States under the Biden Administration towards its emissions reduction targets under the Paris Agreement. Despite all of the froth associated with the passage of the Inflation Reduction Act in 2022, according to the latest data from the U.S. government, whoever is sworn in as president in January, 2025 will face an enormous emissions reduction challenge.

These three new reports were released yesterday:

  1.     U.S. Energy Information Agency Short-Term Energy Outlook (US EIA)
  2.     Preliminary US Greenhouse Gas Emissions Estimates for 2022 (Rhodium Group)
  3.     U.S. Power Generation: 2022 Review (Enersection)

The analysis that follows relies on the data and projections found in these reports. ......

......... The bottom line here is that the U.S. seems all but certain to miss its 2025 emissions reduction target and with each passing day, achievement of its 2030 target gets further and further out of reach.

As I have often noted here, discussions of climate are frequently detached from empirical reality. So I suppose some might be able to continue to pretend that U.S. emission reduction targets might still be met. The good news that accompanies short-term targets is that we will not have to wait long to find out.


Sci Fare:

Excess deaths in 2022 among worst in 50 years

 

EXCLUSIVE: Key study into anti-stroke drug taken by millions found to be 'unreliable' and potentially fatal side effects were ignored, documents reveal

    Rivaroxaban is approved by NICE for the prevention of stroke and embolisms
    In 2009, a study on the blood thinner appeared to show it was safe and effective
    But now medical journal The Lancet has warned of 'inaccuracies' in the trial data

 

An Extremely Rare Green Comet Is Visiting Earth And You Can See it Withy Naked Eye



Fun Fare / Vid of the Week:





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