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Monday, June 5, 2023

2023-06-05

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


Economic and Market Fare:


China’s property market, once galactic in scale, has shrunk considerably. Will it follow Japan’s path and enter a lost decade? We think not, but volatility will persist.









US Manufacturing Surveys Signal "Renewed Deterioration Of Business Conditions" In May, Orders/Prices Plunge
........ The good news - prices paid plunged back into contraction.
The bad news - new orders plunged to their biggest contraction since COVID lockdowns...






The Bearish Case Is Compelling But 'AI-Chasing Bulls' Are In Control
.......... While there are certainly reasons for concern, the bullish technicals remain supportive of the rally for now. Whether this is a “new bull market” or another “bear market rally,” we will not know until much later. However, as Callum Thomas of @TopDownCharts recently posted, bear market rallies can last much longer than many think.
While there are many reasons to be bearish on the markets, it is essential to remember that “stocks climb a wall of worry.”
The current market advance looks and feels like the Dot.com advance in 1999. How long it can last is anyone’s guess. However, importantly, it should be remembered that all good things come to an end. Sometimes, those endings can be very disastrous to long-term investing objectives. This is why long-term returns tend to take care of themselves by focusing on “risk controls” in the short term and avoiding subsequent major draw-downs.



The huge outperformance of AI stocks is obscuring the increasingly recessionary message coming from an indicator based on cyclical stocks inspired by investor Stan Druckenmiller. Equity indices are now wholly reliant on AI-hype persisting and compensating for the decline in cyclical sectors. .......



............. Acemoglu reaches similar conclusions..  “I think one of the things you have to do as an economist is to hold two conflicting ideas in your mind at the same time,” he says. “That’s the fact that technology can create growth while also not enriching the masses (at least not for a long time). Technological progress is the most important driver of human flourishing but what we tend to forget is that the process is not automatic.”  Under the capitalist mode of production for profit not social need, there is a contradiction, so “mathematically modelling and quantitatively understanding the struggle between capital — which benefits most from technological advancement —and labour isn’t an easy task.”  Indeed.

Acemoglu’s own extensive research on inequality and automation shows that more than half of the increase in inequality in the U.S. since 1980 is at least related to automation, largely stemming from downward wage pressure on jobs that might just as easily be done by a robot. The result of automation in the last 30 years has been rising inequality of incomes.  There are many factors that have driven up inequality of incomes: privatisation, the collapse of unions, deregulation and the transfer of manufacturing jobs to the global south.  But automation is an important one. While trend GDP growth in the major economies has slowed, inequality has risen and many workers — particularly, men without college degrees — have seen their real earnings fall sharply. 

Moreover, under capitalism, Acemoglu adds that not all automation technologies actually raise the productivity of labour. That’s because companies mainly introduce automation in areas that may boost profitability, like marketing, accounting or fossil fuel technology, but not raise productivity for the economy as a whole or meet social needs. “Big Tech has a particular approach to business and technology that is centered on the use of algorithms for replacing humans. It is no coincidence that companies such as Google are employing less than one tenth of the number of workers that large businesses, such as General Motors, used to do in the past. This is a consequence of Big Tech’s business model, which is based not on creating jobs but automating them.”

Acemoglu reckons modern automation, particularly since the Great Recession and the COVID slump, is even more deleterious to the future of work.  “Put simply, the technological portfolio of the American economy has become much less balanced, and in a way that is highly detrimental to workers and especially low-education workers.” 

........ And while government spending on research on AI has declined, AI research has switched to what can increase the profitability of a few multi-nationals, not social needs: “government spending on research has fallen as a fraction of GDP and its composition has shifted towards tax credits and support for corporations. The transformative technologies of the 20th century, such as antibiotics, sensors, modern engines, and the Internet, have the fingerprints of the government all over them. The government funded and purchased these technologies and often set the research agenda. This is much less true today.” That’s the business model for AI under capitalism.  .......






Big Banks Could Face 20% Boost to Capital Requirements
Those relying on fees might need larger buffers to absorb losses under planned rules


Lenders prepare to offload debt at a discount even when borrowers are up to date on payments












There are many people far better qualified than I am to analyze and comment upon labor market dynamics. One of the concepts I introduced within this Substack last summer was my Circle of Trust. The circle is populated by people who have analytical frameworks in which I have found significant value. A common attribute is that they have the talent and courage to form and share variant perceptions.



Vid Fare:






Quotes of the Week:

Lyngen: "Any time the unemployment rate is 0.3% off of the low hit over the prior 12 months (which just happened), it tends to go on to spike 1.5 to 3 percentage points higher."

MS US Equity Strategy: Hotter but shorter cycles persist — we continue to forecast an earnings recession this year that we don't think is priced, followed by a sharp EPS rebound in 2024/2025. We recommend investors focus on stocks with defensive characteristics, operational efficiency, and earnings stability...... we see 2023 earnings facing significant headwinds — we lower our base case 2023 earnings forecast from US$195 to US$185 (17% below consensus)





Charts:
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(not just) for the ESG crowd:





Two climate scientists have issued a dire warning about the consequences the planet might face if humans did not limit the global temperature rise.

...... Prof. Rockstrom said: "There's one conclusion without any uncertainty whatsoever, and that is that a 2.5C global mean surface temperature rise is a disaster." He added, "1.5C is not a target. I call it a physical limit."

"It's something that humanity has absolutely no evidence that we can cope with. It would actually exceed the warmest temperature on Earth over the past four million years."

"There would be a collapse of all the big biomes on planet Earth – the rainforest, many of the temperate forests – abrupt thawing of permafrost, we will have complete collapse of marine biology, we will have a shift of large parts of the habitability on Earth," he further added. .......


Shall we do climate change the hard way, or the harder way?

At its core, insurance is a simple business. Companies figure out how much they will likely have to pay out, and then set their rates to ensure they make a profit. Success is dependent upon the ability to accurately assess risk. There is a huge financial incentive to have the most clear-eyed possible understanding of reality. Wishful thinking or misguided ideology will do nothing except lose an insurance company money.

Because of this, insurance can tell you things about reality. It resembles global investment firms in this: The people running them may be greedy, and the clients may be evil, but the business is all about understanding the true and unvarnished state of the world in order to manage risk in order to protect wealth, and therefore these firms do their very best to operate according to what is true, whereas politicians, for example, often do their very best to lie. This is why every leftist and revolutionary should read the Wall Street Journal. There are far fewer lies when money is involved.

The insurance industry is going to serve a very useful role in the climate apocalypse. It is going to be the tip of the spear that punches through all of the bullshit of climate denialism once and for all. Indeed, the process is very much underway already. Politicians and oil lobbyists can lie all they want, but their homeowners insurance rates are going up. ......






Lloyd's of London became the sixth organisation to quit a net-zero alliance for insurers within 36 hours on Friday, as a U.N.-backed coalition of financial groups warned about the fallout of "political attacks" on insurers in the United States. 


Warming waters in the Pacific can trigger droughts, wildfires, and extreme rainfall around the world, potentially leading to $3 trillion in losses in the coming years.


In the coming century, the global economy will experience an unprecedented convergence of two trends, as the world’s population reaches its peak while simultaneously approaching near-zero levels of growth – a combination that will invert both the population pyramid and dependency rates. This column examines this transformation within the context of changes to the global economy’s fundamental methods of production. High levels of dependency and the relative scarcity of labour may induce a shift in the methods of production from labour-based R&D back to a reliance on natural resources.


Scientists keep discovering species in museum collections long after they’ve died out. What else have we missed?



Sci Fare:

Research suggests that the brain's size, curves and grooves may play important roles in its function, perhaps even more than the connections between neurons.



Other Fare:


Well it’s that time again. Time for everyone to spend a year and a half pouring mountains of mental energy into arguing about who should be the next President of the United States of America.

Friendships will be shattered. Family dinners will be ruined. Social media activists will lose themselves in weeks-long flame wars. And, when all is said and done, the person sworn into office on January 2024 will oversee an administration which governs in more or less the same way as their predecessors.

As Tom Woods put it, no matter who you vote for, you get John McCain. ......

Only those trusted by the empire will be allowed to cross the velvet rope by the imperial bouncers — and yes I’m sorry Trumpers but this includes your guy; he’d never have made it through if he wasn’t trusted, and indeed he spent his entire term advancing longstanding empire agendas.

Only those willing to sign off on all the murderous, tyrannical things that need to be done to keep a globe-spanning empire on the top of the world order get to be president. They don’t really need to have any other qualities than that: a willingness to either actively facilitate the empire’s interests or passively allow the empire managers to do what they need to do.

The fact that a literal dementia patient sits in the White House currently is all the proof you could possibly need that this is the case. .....



Someday the leaders of ecocidal corporations will be put on trial for their crimes against our planet, and their defense that they did it to generate profits for their shareholders will be treated the same as war criminals saying they were just following orders.




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