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Saturday, February 17, 2024

2024-02-17

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


Economic and Market Fare:


.................. A simple concept, yet elegant. And Ira’s advice has been with me ever since. It is all about having a base-case view but being willing to accept the premise that nothing in the forecasting arena has a 100% chance of occurring. So I attached probabilities of the base-case occurring, and did the same thing for all the other lettered scenarios. ........

Not only that, but sitting with the PMs day in and day out, I could see how the best of the best were the ones that showed the greatest discipline: “Never fall in love with your portfolio”, I was told — and I began to think that as an economist, I should also “never fall in love with my base-case forecast.” It often won’t love you back! In other words, always be on the lookout for non-confirming evidence regarding the base-case view, and always be aware of what your blind spots are. These are critical ingredients for success, whether you are a wealth manager, analyst, strategist, or economist. .........

Now, today it might be said that I am not following this simple rule, as all my economist competitors have been throwing in the towel on the recession call while I stand-pat on the view. As I often say, “delayed is not derailed”. It all feels like some combination of 2000 and 2007 to me. So, Plan A, (a 2024 recession) in my view, has a 60% chance of occurring. I believe that interest rates still matter, but they can often work with long lags. I believe that there are times, as we saw in 2023, when there are positive offsets (in this case from massive fiscal stimulus and the last vestiges of pandemic-era “excess savings”). But these are not recurring factors, and the lags from the damage the Fed has done still lie ahead of us. So no — I’m not being stubborn. I just know history and I understand that the business cycle has not been repealed, there are no new eras, and again, nothing is more important to a credit-driven economy than interest rates. As I think of Plan B, it is not whether we avoid recession and end up in some so-called “no landing” or some perpetual “soft landing” but rather that this recession proves to be deeper, and last longer, than anyone currently expects (no asset class is priced for this, that much is for sure). I assign a 25% chance of the Plan A recession turning into a true “hard landing”, replete with a nefarious default cycle and credit contraction. Of course, Plan C is that I am completely off my rocker, and we see the economy emerge unscathed and that Goldilocks is something more than just a fairy tale — to that, I attach 15% odds. Not impossible, but certainly implausible.



The January CPI overshot expectations by 0.1% and the stock market had convulsions. It's absurd. 

If it weren't for shelter costs, which now comprise 25% of the CPI, the year over year change in the CPI would have been 1.6%, well below the Fed's target and very good news for everyone. But the way the BLS calculates shelter costs has boosted the reported year over year change in the CPI to 3.1%. Over the next 9 months, it is highly likely that shelter costs will fall by more than half, thus subtracting significantly from reported CPI. Meanwhile, the ex-shelter version of the CPI has been very well-behaved. 

This is all a statistical tempest in a teapot. ...........................

The Fed will figure this out sooner or later. Meanwhile, short-term interest rates will be higher than they need to be, but not forever. Monetary policy is "restrictive" only in the sense that borrowing is more expensive than it needs to be. But because bank reserves are super-abundant (see Chart #2 in my last post), liquidity is abundant and the economy can continue to grow as it has in the past year or so—despite higher-than-necessary interest rates. 



Bubble Fare:


While the bulls remain entirely in control of the market narrative, divergences and other technical warnings suggest becoming more cautious may be prudent. ...
“When you sit down with your portfolio management team, and the first comment made is ‘this is nuts,’ it’s probably time to think about your overall portfolio risk. On Friday, that was how the investment committee both started and ended – ‘this is nuts.'” – January 11th, 2020.
.................... Of course, there are undoubtedly important differences between today and the “Dot.com” era. The most obvious is that, unlike then, technology companies generate enormous revenues and profits. However, this was the same with the “Nifty-50” in the early 70s. The problem is always two-fold: 1) the sustainability of those earnings and growth rates and 2) the valuations paid for them. If something occurs that slows earnings growth, the valuation multiples will get revised lower.

While the economic backdrop has seemingly not caught up with technology companies yet, the divergence of corporate profits between the Technology sector and the rest of the market is likely unsustainable. ....... That inability to match the pace of expectations is already occurring. That divergence poses a substantial risk to investors. ..........

Again, while the risk is somewhat evident, the “bullishness” of the market can last much longer than logic would predict. Valuations, as always, are a terrible market timing device; however, they tell you a lot about long-term returns from markets. Currently, the valuations paid for technology stocks are alarming and hard to justify.

However, despite valuations, those stocks can keep ramping higher in the short term (6-18 months) as the speculative flows continue. .........

This analysis raises an obvious question.

“Well, if this is nuts, why not go to cash and wait out the correction and then buy back in.”

The best answer to that question came from Albert Edwards this week.
“I cast my mind back to 2000 where the narrative around the then IT bubble was incredibly persuasive, just as it is now. But the problem that skeptical investors have now, as they did in 1999, is that selling, or underweighting US IT, can destroy performance if one exits too early.”
.........




FT: Nvidia is nuts, when’s the crash?
A chip in every pot

.............. So Nvidia shareholders are making a bet that the law of large numbers does not apply, and that competition, innovation, and pricing pressure will not come to bear until at least the mid-2030s. Good to know.  .......



Tweet-Quotes of the Week:
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Charts:
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(not just) for the ESG crowd:




............................................ As for the US, the sooner it collapses, the better it will be for humanity as a whole. The empire was the global hegemon during the time when everyone knew about climate change, and it not only didn’t stop it, it put the pedal to the metal.


Collapse³

.......... The mathematical function crushing this civilization is both devilishly simple and incomprehensible to humans. Exponential growth. You can plot exponential growth for yourself, on a chessboard. Put one grain of rice on the first square, then double it on the next one. After one row (of 8 squares) it's just a handful. After seven rows, however, you've run out of rice. In the whole world. By the 64th square you've exhausted 12,000 worlds. This sounds stupid, but we based our entire global civilization on the idea of exponential growth! Forget rice, we're trying to double every single thing we measure.  ..................

The Ponzi was highly profitable for a few generations, but it's simply not possible in the long run. It doesn't matter what you're doubling, you simply run out of chessboard. It doesn't matter how big your chessboard is, the exponential will fill it up soon enough. By the time you even notice a problem, there's just a few moves left. Checkmate, you lose.

This fate is baked in to the very concept of growth. This is just how the exponential functions. ......





Geopolitical Fare (and Western Hypocrisy and Propaganda):



The US government has allowed Ukraine to kill an American journalist who criticized ‘dictator’ Zelensky

A successful social media commentator and American citizen, Lira died while incarcerated by Ukraine’s repression apparatus for his criticism of the Western and Ukrainian position on the war against Russia. His terms were often direct, even harsh and polemical. But he was not a spy or some sort of subversive influence agent. He was transparent and open to a fault, standing with his own name – and life – for everything he said. He was a political prisoner (yes, I agree with Tucker Carlson on this one); the official Ukrainian charges against him are a ludicrous disgrace.

The immediate cause of his death is virtually certain to have been severe, prolonged, and systematic neglect, which led to his indirect killing – fully deliberate or not – by a condition (pneumonia and complications) that is perfectly treatable. In legal terms, this qualifies as, at least, manslaughter or even murder, committed by Ukrainian officers of the “law” and those issuing their orders.

According to what Lira stated when he could still communicate, he was also tortured in a more hands-on fashion, so as to plunder his personal wealth. If you know how Ukrainian politics and authorities operate, there is no reason at all to disbelieve him. ........

He was unusually courageous, which, in the end, cost him his life. And he had the extraordinary honesty to not only understand just how wrong the US-NATO proxy war in and via Ukraine was, but to say so loudly and very publicly. While based in Ukraine....

In a world of cowardly careerist underhandedness (looking at you, Olaf Scholz, Robert Habeck, Annalena Baerbock, for instance…) and habitual, crass lying (your turn, Benjamin Netanyahu, Joe Biden, Antony Blinken, and, yes, Vladimir Zelensky), Gonzalo hollered the truth where it mattered and it took guts. ...........


Canada refuses to extradite wanted Nazi
Ottawa has cited a technicality in rejecting Moscow’s request for Yaroslav Hunka


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Sci Fare:

Fossil evidence shows that humans have been practising cannibalism for a million years. Now, archaeologists are discovering that some of the time they did it to honour their dead





............................ I have argued this many times now and I have asked people to work on solutions for this problem many times now. Just click the links in my post, read about this stuff for yourself.

You have deployed an experimental vaccine, that reprograms the human immune response, in a manner that does not work and is now beginning to undermine the population’s ability to deal with all sorts of different pathogens. The evidence shows that the immune response is broken after just two shots of mRNA. That’s 90+% of the adult population in many countries.

You now have measles spreading everywhere, growing cases of tuberculosis, you have record-breaking levels of pneumonia, seen in all ages groups, you have elevated levels of people going to the doctor suffering coughs that don’t go away. You have winter after winter, of excess mortality you can not explain, when you should be witnessing abnormally low mortality due to the harvesting effect. You have scientific evidence that the lungs of your population are deteriorating at an accelerated rate.

Your population is deploying antibodies, against all sorts of pathogens that their innate immune system would normally handle. These are overwhelmingly antibodies that do not instruct the immune system to deal with infected cells, these are IgG4 antibodies that are telling the innate immune system to stand down and ignore what’s going on. Pathogens around the world are mutating, to make use of the population’s abnormal immune response.

I have said this many times now, as long as you ignore what you created with these therapies, it is going to get worse. This virus will not just disappear either, as long as this poor antibody response is constantly being recalled by the majority of the population in developed countries.

Are you planning on letting teenagers deploy this abnormal antibody response that is continually being recalled with every new infection, for the next fifty years of their lives?

You need to work out some sort of therapy, to remove these abnormal B cells and T cells from the lungs and allow plasmacytoid dendritic cells, NK cells and other innate immune cells to do the job they are meant to be doing.



Other Fare:


Westerners who don’t appreciate the extreme dysfunctionality of western civilization are like someone in an abusive marriage who hasn’t yet recognized that there’s a problem, or someone who had a violent and chaotic childhood who still thinks their home life was basically normal.

All of us understand that there are problems with our society, and most of us understand that a lot of of those problems are severe. But few westerners really get just how bad it is. How pervasively diseased it is. 

In reality, we are living in a profoundly sick dystopia that is built on a foundation of human corpses and fueled by an endless river of human blood. Our news media are propaganda services, our entertainment is brainwashing, and our mainstream culture is social engineering, all built to keep us turning the gears of a vast globe-dominating empire.

There’s a widespread assumption throughout the western world that while things might not be perfect our society is certainly much better than what people experience in a nation like China, smugly believing ourselves to be a free society full of free thinkers and free people in contrast with those unfortunate thought-controlled communist conformists. In fact western civilization is one giant thought-controlled conformity machine where people’s minds are shaped by mass-scale psychological manipulation far more effectively than anywhere else in the world, exactly because westerners don’t know this is happening and believe they are free. ...


Or, a meditation on bloody-mindedness for Ash Wednesday.

Unless you’ve been living under a rock for the last couple of years, or you are a member of the Inner Party of the Professional and Managerial Caste (PMC), you will be familiar with the atmosphere of doom and gloom that increasingly permeates the lives of ordinary people these days. It’s like nothing I’ve ever experienced before: a sour, disillusioned, almost nihilistic attitude, that extends well beyond anger with our broken political class. In my observation, in several countries, people have mostly just given up. They are beyond anger, and most of all beyond hope. There is no belief in even the possibility of a turn for the better, and a pervasive sense that we are near the end, and that things are falling apart now quite quickly. As I’ve suggested on a number of occasions, this decline goes beyond just government, to encompass the private sector, the media, education, and just about anything else that requires a bit of organisation and a dash of competence. So as somebody put it to me this week: “everything is shit and nothing works.” .........

..... The problem with the system is less that it won’t change, than it cannot change. Its leaders are not very bright, they are saturated with their own ideology, and they are so incompetent that if they did miraculously understand the need for change, it would be impossible for them to use the enfeebled machinery that remains to actually get anything done. 

So, no hope then? Do we all fall into a state of despair and give up? Do we adopt the popular motto of these days: if at first you don’t succeed, give up, and find someone to blame? The rest of this essay is about that question, and I argue that we need to cultivate a way of living without hope, but also without despair, and that this is not, in fact, an impossible paradox. .....



Pics of the Week:




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