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Sunday, May 26, 2024

2024-05-26

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


Economic and Market Fare:

Don’t ignore the markets’ bullishness even if things are not so straightforward. And a look at copper and credit spreads.



.................... This is all quite interesting, but the core question for investors remains: does it matter for when stock markets experience their worst falls, i.e. recessions?

To begin with, the Conference Board and Michigan’s gauges of consumer sentiment as well as the NFIB are tier-2 data when it comes to predicting downturns.

Much better is the manufacturing ISM. As a standalone indicator it excels at unequivocally turning down before a recession begins.

But that’s secondary; the ISM’s real importance stems from it sitting at the nexus between soft and hard data and how they interact to trigger recessions.

This is critical. Recessions metastasize when we get a negative feedback loop developing between hard and soft data. Hard data deteriorates, and this feeds into soft and market data. That in turn hits the wealth effect, which affects investment and spending and feeds back into worsening hard data. Unchecked, a recession typically develops. .........

But we also needn’t overstate its importance. There is no single “killer” recession predictor. The ISM’s utility comes from it having a long history, being minimally revised, having an early release time and its role in facilitating recession-causing negative feedback loops. But other data matter too. ........

A reliable and timely recession indicator, with only a few false positives, has been when all of the regional indexes have been in contraction. Even then this should not be used as a standalone signal. To reiterate, we need to see both hard and soft data self-reinforcedly deteriorating at the same time to trigger a recession.



...................... As discussed previously, one of the primary reasons why the economy has defied the recessionary drag from higher borrowing costs has been the ample supply of fiscal support through previously passed spending bills such as the Inflation Reduction Act and the CHIPs Act. When combined with stimulus checks, tax credits, and moratoriums on various debt payments like rent and student loans, the amount of monetary support for consumption supported economic growth as the Federal Reserve tightened monetary policy.

What is crucial to understand is that the surge in monetary support acted as an “adrenaline” boost to the economy. Yes, many economic data series suggest the risk of recession is elevated. However, the surge of monetary injections sent the economy into overdrive, as evidenced by economic growth in 2021.

The crucial point to understand, and what eludes most economists, is that the economy slows as that “adrenaline” boost fades. ........

Given the long lag between recessionary indicators and economic recession, it is unsurprising economists gave up anticipating a recession. However, while the recession has not happened yet, it does not mean that it still can’t. We should pay special attention to data historically correlated to economic growth.

For example, real retail sales have weakened materially since the peak of economic activity in 2021. ...........

.... with consumers strangled between declining wage growth and higher living costs, the ability to fuel the difference with debt is becoming increasingly challenging. ........



It's not the Sahm rule - it's the '10% recession rule'

A reliable recession indicator maintained by market strategists at Piper Sandler triggered last week - but the same strategists who developed the indicator believe that, in all likelihood, its triggering is bullish for stocks.

Michael Kantrowitz, chief market strategist at Piper Sandler, said in a report shared with MarketWatch on Tuesday that Friday's April employment report from the Labor Department had triggered his team's "10% recession rule."

Simply put, the rule triggers when the three-month moving average of the number of unemployed people in the U.S. workforce rises 10% compared with its level from one year ago. In the past, it has been a reliable indicator that a recession is coming.

However, this time around, Kantrowitz said that the rule's triggering is more likely a harbinger of what investors would likely interpret as a welcome slowdown for the U.S. economy, rather than a recession.

He characterized it as the latest indication that the U.S. labor market is shifting back toward its pre-pandemic norm. This is likely bullish for both stocks and bonds, as it would encourage the Federal Reserve to cut interest rates, Kantrowitz noted. .....



  



GavekalResearch: Auditing My Bond Market Model, via theBondBeat

… My starting point is the “golden rule” of Maurice Allais, a French Nobel Prize winner in economics. It stipulates that in an open economy long rates always return to the economy’s structural growth measured in nominal terms (see Building A Bond Valuation Tool). As such, my first chart shows the relationship between US long rates and US nominal GDP growth in the prior 10 years (the “structural growth rate”).


… To adjust for these anomalies, I put into my model a second variable in the form of US short rates as shown in the first chart overleaf. The idea here is to provide an indication of a long bond’s carrying cost if the purchase is funded with short-term money.


… And since the summer of 2019, when I turned bearish on US long bonds, instead of losing 15% on my portfolio, I made around 10% in cash.

Once again, my goal is not to forecast whether rates will go up or down in the future, but to determine whether, at this moment, I should sell or buy longterm bonds…

… General conclusion
The only market where I would buy 10-year government bonds seems to be Japan. ...


The preferred journals of the power elite peddle the myth of pending Social Security catastrophe, which is catastrophically wrong.

............ If the Fourth Estate is puzzled why almost no Americans can correctly answer 101-level questions about our economic institutions, it might be because the Fourth Estate itself spews nonstop false tropes and misunderstandings about these topics, as they have for decades.

As the Post noted, we’re going to have some big fiscal fights next year as the Trump tax cuts expire, which will put all of this back in the center ring of American politics. Our journalists need to be better than this by then. So allow me to inform the people who inform the people how money works. If you’re an econ reporter, please print this out and pin it to your cubicle. .................



Quotes of the Week:

"In order to succeed you must first survive."
— Warren Buffett

"If we as investors fixate on downside protection, the upside, in many cases, takes care of itself. If you can put floors on the downside, then you've got a huge advantage."
— Mohnish Pabrai

“A margin of safety is necessary because valuation is an imprecise art, the future is unpredictable, and investors are human and do make mistakes.”
— Seth Klarman

"The single greatest edge an investor can have is a long-term orientation."
— Seth Klarman


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Charts:
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(not just) for the ESG crowd:


.... Considering that modeling typically understates risk — almost all real-world indicators are outpacing computer projections by generations to centuries — it is at least plausible that irreversible acceleration has already arrived. 

.... It is not only that global temperature has increased, the rate of increase has doubled since 2010. It is not just the change that is alarming, but the accelerating rate of change. Last year the rate of change of atmospheric CO2 went up by 81%.


The ocean heat could fuel an unusually active hurricane season.




Venezuela has likely become the first country — it certainly won’t be the last — in modern history to lose all its glaciers. Scientists expected the Humboldt glacier to last another decade. However, it melted at a faster rate than expected






Why glaciologists and financial regulators should talk

............... The key message from this summary was not the numbers the banks reported but the difficulty they had going through the exercise. Most were relying on third-party vendors, and it was extremely challenging to evaluate the models the vendors were using to give advice: "The "challenges [associated with reviewing the vendors' climate models] included limited data, lack of back-testing capabilities, nonlinear risks, scenario horizon, heavy reliance on judgment, limited reliability of model output, and time constraints." In other words, they were faced with black boxes they didn't understand. ..........

Our fractured, full-of-holes financial regulatory system has so far allowed banks to mostly avoid grappling directly with the possibility of swift, unprecedented physical changes being caused by climate change. Things are moving very slowly: this Fed report is coming out fully three years after President Biden issued an executive order calling for assessment of the physical risks of climate change "to the financial stability of the Federal Government and the stability of the U.S. financial system." The Fed report is a good first step in along these lines. It is also a call to action. .........



This is the choice we have made. Your friend and several other residents on the lower floors had their homes destroyed by flooding caused by unexpected and severe rains, a result of the climate crisis. In a courageous show of solidarity, the homeowners convene a meeting to discuss how to address the damage and prepare for the increasingly violent future that all agree lies ahead. Following one of these meetings, a communique is distributed, stating that those of us on the upper floors will provide financial aid to the lower floor residents impacted by the disaster. However, the fine print makes it clear that this aid is contingent upon the affected homeowners using repair and mitigation services offered by the upper floor residents. These upper floor owners, including us, can secure loans at lower interest rates due to our unaffected assets and creditworthiness. We then lend this money to the desperate lower floor residents, ostensibly in a show of unity. The injustice of this setup is stark: the lower floor residents not only have to pay us higher interest rates, but they are also required to purchase our services to recover from the disaster. This is the path we have chosen. .......


Primitive accumulation is the historical process through which capitalists stole their wealth or took it by force. Canadian ecosocialist Ian Angus has contributed an excellent new book on this history, covering the violent transition from feudalism to capitalism in depth while demonstrating its continuing relevance to the modern world.



........................ Sustainable development has become something of an oxymoron, we acknowledge. It needn’t be. It is unfortunate how the terminology gets used these days. By sustainable development, the UN implies unlimited capacity for physical growth using an extractive economy. It should instead imply directed de-growth of that economy while simultaneously developing harmonious relationships with nature and each other in a sustainable spiral of endless improvement in the quality of life. Better, not more.


Foundational innovation in cloud technology and artificial intelligence will require more energy than ever before—shattering any illusion that we will restrict supplies.






Why the denial keeps getting worse.

............... Leon Festinger introduced cognitive dissonance in the 1950s, just a few years before the Chinese famine. Basically, the idea refers to the deep discomfort it causes us when someone proves us wrong or when we find ourselves living in contradiction with our principles. We'll do anything to alleviate that discomfort before we actually change our behavior.

In Festinger's own words, "Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point." For decades, research on cognitive dissonance confirmed the most disturbing traits about human nature, that we're impulsive and easy to manipulate. We can rationalize anything, but if our cognitive dissonance becomes too great, we can't function. We go nuts.

The denial we're seeing isn't new. It's as old as time. It's just getting worse, and the stakes are getting higher. 

I think what we're learning is that it doesn't matter if the entire fate of the species and every other species hangs in the balance. In fact, that's all the more reason to try and ignore it. Who's going to raise their hand and take responsibility for destroying all life on earth? It's easier to either deny it, or find someone else to blame.

There's several types of cognitive dissonance: ...........

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Sometimes you can't reason with someone. You can't appeal to their logic or emotions. All you can do is fight them for influence. All you can do is help the ones you can. All you can do is repeat the truth over and over again. And sometimes, all you can do is know the truth, and act on it.

You would think the reality of the situation would finally force an awakening. You would think that the cascade of disasters would finally convince deniers and minimizers to come to terms on some level.

Nope, that's not how it works.





Geopolitical Fare:



Biden's attack on it just got dangerous

It is prima facie impossible, as all sensible people will know, to enable, support, and altogether approve of a lawless nation’s genocide of another population and then defend one’s enabling, supporting, and approving in the court of public opinion, in a court of international law, or in international fora such as the United Nations. There is no chance whatsoever of winning broad acceptance for such conduct. It simply cannot be done. Only foolish people would even attempt to seek the approval of others. Opprobrium is the only possible outcome.

But the Biden regime, if this is not already obvious, is comprised of foolish people. It would be best if the rest of the world accepts this as an American reality. And foolishness in combination with power—another American reality—is bound to produce disastrous results. .........


Russia & China — Two Against One


*** Vladimir Roosevelt and Franklin Putin

............................................. Based on Putin’s actions on the international front it soon dawned on the USA that he was not the pushover they expected him to be, but was instead a Russian patriot. After his 2007 address to the OSCE security conference in Munich in which he strongly objected to the USA’s ongoing violations of its 1991 promise to Gorbachev not to expand NATO eastward, the west began demonizing him personally while doubling down on its efforts to foment unrest in Russia. The USA-instigated 2014 coup d’etat in Ukraine convinced Putin and his team that Russia would sooner or later have to defend its vital national security interests by force of arms, and they then launched a crash program of weapons development, arms manufacturing capability, and general economic autarky to be prepared to do so. In December 2021 Russia initiated a final attempt to get to a peaceful resolution of its security concerns by publishing two draft treaties identifying its “red lines.” The accompanying communique noted that if agreement wasn’t reached Russia would address its vital national security interests by “other means.” After the USA and its NATO vassals blew off the Russian initiative, those “other means” began on February 24 2022 in the form of Russia’s Special Military Operation in Ukraine.

Two days earlier Russia formally recognized the embattled Russophone Ukraine oblasts of Lugansk and Donetsk as sovereign states, thus setting the stage for legally intervening based on the same UN charter “Responsibility to Protect” articles the USA had used to justify its many interventions other countries’ internal affairs. ........................

I am reminded of a quote I read while browsing a biography of Otto von Bismarck in the library of a Cape Cod Bed & Breakfast while on the college tour with our daughter 35 years ago, which as best as I remember goes:

“The task of the statesman is to put his ear to the ground, listen for the hoof beats of the horse of history, determine which direction he’s running, and prepare himself to jump on its back when it comes by and hang on for dear life.”

The hooves of the decolonization steed have been beating the gound for over a century, and now they’re louder than ever. The only thing that can stop them is nuclear war, and that will almost certainly end human civilization as we know it. We USA citizens must take back our Potemkin democracy from the greed classes who are the profiteers of super colonoalism before they they press the red button in panic or a rage of Samsonian nihilism.


When the Lie Becomes the Truth:  "Israel is the Victim of Palestinian Aggression”. According to the ICC, "There is No Genocide".
Outright Fraud: The Criminalization of International Law


The latest crisis in Georgia is an example of Western "elites" building echo chambers feeding them their own delusions

After the predictably catastrophic proxy war in Ukraine and the West’s open and obstinate complicity in Israel’s Gaza Genocide, we must – if we want to maintain our own sanity – accept as an empirical fact that, as a whole, Western “elites,” across their feeding domains of politics, the economy, culture (broadly understood), and the mainstream media, have no human compassion or moral constraints (an ethical issue). And at the same time and compounding the effect, they are also incapable of being restrained by foresight and caution simply with a view to their own success or failure. In short, they are not only vicious but irrational, too (a cognitive debility).

Instead of rationality, they display a consistent pattern of being delusional with hubris, constantly overestimating their own standing and capacities, mistaking their wishes for reality, and, in general, misreading the global room we call humanity. Clearly, a complete theory of this epidemic of Western “elite” delusion is beyond a short essay. There is no doubt that is has something to do with having had it too easy for too long while wielding too much power far too easily: Hegemonitis, as some observers have aptly called this syndrome. .....


Sometimes it feels like they’re experimenting on us, just to see how dumb of a narrative they can get people to swallow.



Our society does not have an antisemitism crisis. It doesn’t have a crisis of far left radicalism, Islamist extremism, support for terrorism, or fomenting of dissent by foreign powers.

Our society has a moral crisis. A cruelty crisis. An imperialism crisis. A militarism crisis. A propaganda crisis. An insincerity crisis. A stupidity crisis. An obedience crisis. .......



Sci Fare:




.... listed a slew of problems with the COVID mRNA jabs, evidencing what he called an evil “abuse of science.”

.................. “I am now deeply concerned not only about a serious crisis in medicine but in science and democracy,” Fukushima said.

........... He argued that it is “crucial” that the WHO take responsibility for the harms of the COVID shots, which he called “an abuse, a misuse of science and an evil practice of science, to be frank.” ..............





Other Fare:

Eleven years ago, this journal published a symposium called “The Middle-Out Moment,” touting a new theory of growth no one had heard of. Today, everyone has heard of middle-out economics, but most people still don’t know exactly what it is. With this issue, we revisit the topic: naming its core tenets, touting its successes, acknowledging its hurdles and complexities—but still arguing forthrightly that this is the economic future the country needs.

A New Economics Takes Hold

Industrial Policy’s Triumphant Return

Moving Past Global Neoliberalism

Keep Empowering Workers!

Finally, a Public Investment Boom

The Fruits of the American Rescue Plan

Seeds of an Antitrust Revival

The IRA’s Promises—and Pitfalls

An Economy with Ethics



Lapham: Power Outage
On the thermodynamics of history.



Pics of the Week:

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