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Sunday, January 19, 2025

2025-01-19

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


Economic and Market Fare:


Like it or not, the broad and dominant theme for many macroeconomic and market outlooks remain the continuation of U.S. exceptionalism. In a world often shaped by shifting tides, the U.S. economy continues to stand out as a beacon of resilience and innovation.

2024 marked another year of this refrain, with clear outperformance by the U.S. economy. The United States is the only major developed economy that has returned to its pre-pandemic growth path, while the gap between U.S. growth and the rest of world, most notably China, continues to drive the wedge wider.


The economic prowess of lady liberty rewarded its shareholders of U.S. stocks, which outperformed the rest of the world last year by the largest margin since 1997.


This strategic idea of U.S. exceptionalism should be reinforced again in 2025 by further research and development across the tech ecosystem, potential deregulation, and a myriad of changes in trade, fiscal, and drill-baby-drill energy policies. .........

The downside and risks to U.S. centric investors on the eve of the Trump 47 presidency and his America-first maxim?

The potential for sticky inflation, higher-for-longer on rates, divisive industrial policy, and the risk of trade war escalations – all that and more baked into the U.S. equity risk premium.

And, of course, (relative) valuation, where the U.S. is pushing history to its extremes across a score of asset classes.



The stock market has struggled in recent weeks as concerns have grown around interest rates, a stronger U.S. dollar, policy uncertainty, and the direction of the economy.

Since the market peak on December 6th of last year, the S&P 500 has pulled back 4.3% while the 10-year Treasury yield has screamed higher from 4.15% to 4.78%.

Under the surface its much worse. When zero sectors are trading above their short-term averages (50-DMA, below left) and just 11% of stocks are trading above their short- and longer-dated timeframes (50-DMA and 200-DMA in green, below right) – both their lowest readings in over a year, the weakness appears to be growing and spreading like a winter’s cold.

........ Despite the growing list of headwinds, the selloff thus far has proven far more orderly than back in December. Investors looking for evidence of capitulation in this selling pressure may be disappointed when the selling merely dries up and prices start to turn higher.

.................. A high price-to-earnings ratio means that investors are paying more for every dollar of earnings than in the past. This means that future returns may be lower, or equivalently, that markets have gotten ahead of future returns.

The key question is whether the underlying economic and market fundamentals are healthy, or if the market rally is built more on lofty earnings expectations.

........ When valuations are high, the solution is not to avoid stocks altogether. Instead, it’s to stay balanced across different parts of the market that can outperform at different times. These might include sectors beyond Information Technology or Industrials, and also investment styles such as value, small-caps, or other uncorrelated opportunities.

The key is to hold a portfolio that is appropriate for your specific financial goals, risk tolerance, and time horizon.



.......... However, it is critical to note that being “tactically bearish” does NOT mean we are expecting a bear market or a severe market crash. Regarding portfolio management, the difference between being “tactically bullish” or “tactically bearish” is the level of equity risk we take in client portfolios. Over the last two years, we have been “tactically bullish” and have held more significant weightings in equities that have benefitted from market momentum and investor sentiment. However, shifting toward a “tactically bearish” position would suggest rebalancing exposure to more fundamental, value-oriented, dividend-paying companies that will reduce overall portfolio volatility. It also may mean owning less equity exposure and increasing cash levels. 

Could a “crash” happen? Yes. However, bear markets rarely happen all at once. In most bear markets, the market showed plenty of warning signs well before the “bear” came out of hibernation. Such gave investors ample time to exit the market, reduce risks, and raise cash to minimize the eventual reversion to capital. Even a simple technical signal, such as when the market violates the 48-week simple moving average, allowed investors to exit risk well before the rest of the correction occurred. Did you get out right at the top? No. Did you get back in at the exact bottom? No. Did you participate in most of the advance and avoid most declines? Yes.

Furthermore, as discussed in “Credit Spreads,” the difference between Treasury and Junk bond yields tends to be one of the earliest signals that credit markets are pricing in higher risks. Unlike stock markets, which can often remain buoyant due to short-term optimism or speculative trading, the credit market is more sensitive to fundamental shifts in economic conditions.

Currently, Wall Street analysts are very optimistic about 2025. Notably, earnings estimates for 2025 remain well deviated from historical long-term growth trends. That in and of itself is not a reason to be more cautious. However, current valuations suggest that stocks are priced for perfection as asset prices are well ahead of what a declining economic growth rate can deliver. This leaves little room for error. In other words, investors are essentially betting on corporations’ flawless execution in a year when macroeconomic uncertainties loom large.

In the short term, valuations are a terrible timing tool for investors. However, there are times when valuations collide with other factors, making them a more significant short-term risk.

Interest rates are one of those factors.

Over the last two months, interest rates have risen sharply due to fears of “tariffs” under the new Administration. Furthermore, there is concern that stronger-than-expected economic data might stall the Federal Reserve from cutting rates further. Notably, the rate increase is primarily a function of short-term sentiment, as economic data remains in a longer-term reversion process. Michael Lebowitz recently discussed the impact of sentiment on rates. The model below combines the Cleveland Fed Inflation Expectations Index and GDP into a model. (Economic activity is what creates inflation: supply vs demand). That model historically dictates where interest rates should be. While interest rates are nearing 5%, the economic and sentiment model says rates should be closer to 3%.


The next chart correlates the model and presents the “term” premium and discount. The orange dot shows where yields trade currently relative to the model, which is the highest in its 35-year history. Mike has also highlighted the 2018-2019 range when the Trump Administration previously imposed tariffs. While the bond market has sold off on fears of inflation from tariffs, the previous period resulted in lower yields, not higher.


......... Lastly, valuations are a function of earnings growth and investor sentiment. Therefore, rate increases pose a significant threat if earnings growth becomes impaired due to higher costs and slowing economic demand. Historically, rising interest rates have triggered more significant mean reverting events. This is because investors must reprice assets for lower expected earnings growth rates. With valuations at the highest level since the stimulus-induced frenzy in 2021, the risk of a reversion has increased. Such is particularly true if Wall Street’s bullish forecasts fail to become reality.

......... While there are certainly some more significant macroeconomic concerns heading into 2025, the technical backdrop supports being more “tactically bearish” into the new year.

The following chart has provided a strong basis for our portfolio risk-management protocols over the years. It is a weekly price chart of the S&P 500 index showing the current bullish price trend channel that started in 2009 on a logarithmic scale. Whenever that market has traded at the top or bottom of that channel, it has been a significant indication to begin changing allocation levels in portfolio models. The bottom two panels are a short—and longer-term weekly Moving Average Convergence Divergence Indicator (MACD). Notably, the deviation of those indicators from the long-term norms post-2020 has been significant due to the flood of stimulus and surge in market speculation. Notably, both indicators are topping and beginning to signal a market warning. While these indicators can remain elevated for some time, the market will be in a more corrective process when the trends become consistently lower, as seen in 2022


With the market still trading above longer-term means, it is not yet time to sound the warning bell to reduce portfolio risk significantly. However, given the combination of higher rates, excessive valuations, and the risk of slower earnings growth, focusing on risk heading into 2025 seems prudent. Therefore, it seems appropriate to restate something I wrote the last time we saw these divergences.
“Our job as investors is to navigate the waters within which we currently sail, not the waters we think we will sail in later. Higher returns come from the management of ‘risks’ rather than the attempt to create returns by chasing markets. Robert Rubin, former Secretary of the Treasury, defined this philosophy when he stated;

‘As I think back over the years, I have been guided by four principles for decision making. The only certainty is that there is no certainty. Second, every decision, as a consequence, is a matter of weighing probabilities. Third, despite uncertainty, we must decide and we must act. And lastly, we need to judge decisions not only on the results but also on how we made them.

Most people are in denial about uncertainty. They assume they’re lucky, and that the unpredictable can be reliably forecasted. Such keeps business brisk for palm readers, psychics, and stockbrokers, but it’s a terrible way to deal with uncertainty. If there are no absolutes, all decisions become matters of judging the probability of different outcomes, and the costs and benefits of each. Then, on that basis, you can make a good decision.’”
For all of these reasons, we are becoming more “tactically bearish” as we ponder the outcomes of 2025. It should be evident that an honest assessment of uncertainty leads to better decisions. Still, the benefits of Rubin’s approach, and ours, go beyond that. Although it may seem contradictory, embracing uncertainty reduces risk, while denial increases it. Another benefit of acknowledging uncertainty is it keeps you honest.
“A healthy respect for uncertainty and focus on probability drives you never to be satisfied with your conclusions.  It keeps you moving forward to seek out more information, to question conventional thinking and to continually refine your judgments and understanding that difference between certainty and likelihood can make all the difference.” – Robert Rubin
We must recognize and respond to changes in underlying market dynamics. If they change for the worse, we must be aware of the inherent risks in portfolio allocation models. The reality is that we can’t control outcomes. The most we can do is influence the probability of specific outcomes. Such is why we manage risk by investing in probabilities rather than possibilities. 

Such is essential to capital preservation and investment success over time.



• The American economy has entered 2025 with a strong head of steam. We estimate that real GDP grew at an annualized rate of 2.7% in the recently completed fourth quarter of 2024, and the economy ended the year on a strong note by creating 256K net new jobs in December.
• Most businesses are in solid financial shape. The pace of gross hiring has downshifted in recent months, but most firms do not need or want to cut staff.
• Progress on returning inflation to the Fed's target of 2% has slowed. The year-over-year change in the core PCE deflator, which most Fed officials believe is the best measure of the underlying pace of consumer price inflation, edged up from 2.6% during the summer to 2.8% in November.
• The economic outlook for 2025 is clouded by the potential for changes in U.S. trade policy. Although President Trump may not necessarily impose a universal tariff on American trading partners when he takes office, the probability of higher levies in coming months is not insignificant, in our view.
• Higher tariffs, should they be imposed, would impart a modest stagflationary shock to the economy. That is, inflation could potentially pick up and real GDP growth could slow. Higher prices would erode growth in real income, thereby weighing on growth in real consumer spending.
• We have made some adjustments to our outlook for U.S. monetary policy due to the economy's strong head of steam recently and slow progress in returning inflation to 2%. We now think the FOMC will remain on hold for an extended period of time. We look for only two 25 bps rate cuts this year: the first in September and the second in December. Then, we think the Committee will keep its target range for the federal funds rate unchanged at 3.75%-4.00% throughout 2026.
• The levying of tariffs could present the FOMC with a policy conundrum. If the Committee responds to an uptick in inflation with tighter policy, then the unemployment rate could rise. On the other hand, however, if the FOMC tries to offset the growth-slowing effects of tariffs with more accommodative monetary policy, then inflation could tick even higher.
• We should learn more about the policy choices of the Trump administration in the coming weeks and months, and we will  be prepared to make adjustments to our outlook, if necessary, as those details become known.


UBS: A downward (likely bumpy) path (via TheBondBeat)
Economic Comment: no January cut but more to come

The "no cut" narrative's momentum, fueled by last week's employment report, seems unstoppable, even in light of this week's CPI. The chances of slowing that freight train between now and the March FOMC seems fleeting. Looking ahead to the January FOMC meeting, we doubt Chair Powell rules out a March cut, but he and the FOMC's already heightened inflation concerns likely remain. In our view, the December employment gain was helped by residual seasonality and other payback, and January may see similar support too. To us, that does little to alter the trend. However, absent revision, the December gain will simply be in the three-month moving average for, yes, three months, an argument in favor of a prolonged pause. In four weeks, we expect nonfarm payroll employment to revise down by ~700,000 jobs, reflecting the employment report's substantial overstatement of actual labor market strength. The imputations will be updated too, and the sample refreshed. The FOMC could be handed a new contour of employment in a few weeks, and the forward implications of the CPI for PCE prices look favorable. It's a close call, but maybe the March cut odds are not as low as one might think ....



Our 10 Macro Themes for 2025 tell the story of a global economy poised for geopolitical realignment, bringing the promise of heightened volatility as well as conditions that we believe will drive compelling, long-term risk-adjusted returns for active fixed-income investors.
  1. Popular Discontent Will Disrupt Global Policy, Elevate Volatility
  2. A Shifting Geopolitical Landscape Will Realign the Global Economy
  3. U.S. Economy Will Outperform, as Other Economies Face Headwinds
  4. Reshoring, AI, and Power Needs Will Fuel Strong U.S. Investment
  5. Global Disinflation Will Allow Central Banks to Ease Further
  6. Runup in Equities Will Show Signs of Fatigue
  7. U.S. Yields Will Remain in a Higher, More Normal Range
  8. Investor Demand and Strong Fundamentals to Contain Spread Widening
  9. Fiscal Consolidation Will Take on New Urgency
  10. Attractive Opportunities for Active Fixed-Income Management



.................. To a man with a hammer, everything looks like a nail. To a Central Banker, the solution is always more liquidity. To an investor, the lesson has been to hold on for dear life, outlast the crisis, then lever up, because the subsequent liquidity-induced rally will be life-changing.

For the first time in almost three decades, I wonder if the rules have changed. What if the Fed is no longer there to protect investors?? What if the Fed will now be forced to penalize investors during the next crisis?? What if the investing universe is so pre-conditioned that they can’t appreciate the rules changing?? ..............

................ Since pretty much the lows of the Covid Crash in March 2020, I’ve been a raging bull on most CUSIPS. I called the top in Ponzi in 2021, but stayed long the real economy. In the summer of 2022, I called bullsh*t on a pending recession. In fact, I doubled down on real-economy cyclicals like housing. I rode this cycle for as far as felt prudent. During the spring and summer of this year, I undertook a culling of less liquid portfolio positions. I’ve grown timid over keeping long-sided exposure, and I’ve run a thinner book ever since. I missed the resurgence of Ponzi in 2024, but have zero regrets. I think this is the final blow-off in American Exceptionalism as an asset class—I worry that the back-side of the peak will be unusually steep. I have this sinking feeling, that with a bunch of structured derivative products resetting in January, right as Trump unleashes MAGA, high-multiple US assets will get a gut-punch. Bonds already cannot hold it together, and we all know that Trump wants to “Run It EVEN HOTTER.” I think it only gets worse for bonds—the global margin call is accelerating on financial assets, right as real-economy assets are awakened by Trump. This is a combustible combination.

I’ve been adamant that you don’t short “Project Zimbabwe.” For the first time in ages, I have built up a pretty substantial book of longer-dated put spreads on various indexes. I’ve even tempted fate on the short side (with VERY tight stops). Real economy names may do alright—if only because they’re so under-owned, but most equity investors are crowded in overvalued tech, and fantasy themes of dubious quality. The Everything Bubble suddenly feels highly unstable. I think 2025 will be a year that most equity investors will want to forget…


While the market expects constantly higher inflation, a deflationary shock could be well in the cards at some point.

............... For the first time since 2021, when inflation began to surge, the yearly increase in producer price inflation has outpaced consumer price inflation. While I wouldn't assert with certainty that we'll end the year with higher inflation than now, the combination of rising commodity prices and uncertainty about the incoming administration's tariff policies could dampen inflation progress in the first quarter.

................ What I believe is clear, however, is that the Fed has not provided a compelling outlook on its future interest rate policies. The US 10-year Treasury Inflation-Protected Securities rose significantly after the Fed began cutting interest rates following the summer.

..................... My view here is that the market is concerned that the latest interest rate cuts will act as a tailwind for future economic activity, fueling inflation at a time when labor is scarce (unemployment is at 4.1%) and real GDP is already hovering around 3%. Frankly, current data offers little indication that this economic vigor will fade soon. ............

........... Over the medium to longer term, I'd say there's still a possibility for a more substantial bond rally. Just a tiny error from the Fed could lead to rapid changes. As we all know, central banks often make mistakes, and from an Austrian economics perspective, this is inevitable due to the impossibility of micromanaging an economy from a central planning agency.

Regarding the longer-term developments, Russel Napier gave an interesting interview, stating that he believes the mistake has already been made. In his view, the Fed and the ECB have overtightened, increasing the likelihood of an impending deflationary shock.

You might be curious about what event could trigger this. If asked about the source of this shock, I'd respond similarly to Napier's comments in the interview:

You and I could hypothesize about that all day. It could be a spike in French bond yields. It could...China.. It could be the yen carry trade unraveling again...[or, it could be] the unknown unknown. Somebody somewhere gets into trouble, and we’ll see something break in the financial system.

His prediction of future higher inflation still stands, but he posits a deflationary shock will come first. In his view, AI isn't the game-changer many believe; hence, financial repression is inevitable. The system he envisions, which he calls "national capitalism," seems somewhat of an understatement. What he describes sounds more like "economic fascism." According to Napier, we are witnessing the collapse of the current monetary system before our very eyes.

Napier advocates for gold, arguing that fixed-income returns will be eroded by inflation and financial repression, compelling investors to liquidate foreign assets like stocks. American stock markets would be most affected, given the global investment they've attracted over recent decades.

I think the bottom line is that Napier believes the golden age of high stock market returns is nearing its end as governments take control of economic activity. However, the central planning this implies, while possibly addressing the debt situation, will likely result in severe economic distortions and low real growth. .......


December CPI: rebounds in gas and car prices outpace deceleration in shelter and insurance laggards

......... As it has been for several years, in the broadest terms inflation in excess of the Fed target remains almost all about shelter.

................. What the above all means is that if we were to take out the two areas that we know lag, shelter and transportation services, consumer inflation would probably be up only something like 1% YoY.


Analyzing the change in the leading nature of stock prices and outlining a better warning signal of future declines in earnings and share prices.

Stock prices have long been deemed a Leading Indicator of the economy and are still in popular indexes such as the Conference Board Leading Index.

However, the relationship between stock prices, earnings, and real economic conditions has changed over the last several decades.

In this post, we’ll highlight the changes in these relationships and underscore a better leading alternative for the economy, earnings, and potential declines in share prices.

S&P 500 earnings data, provided by Case-Shiller, show an increasing trend over time, with large declines that surround Business Cycle recession periods.

At times, such as from 2015 to 2016, earnings can dip, but without the follow-through of a Business Cycle recession, earnings recover and continue upwards.

The history of S&P 500 earnings shows the majority of declines associated with recessionary periods, marked with a red circle in the chart below.

Over the last 50 years, there have been four declines in earnings greater than 5% that were not associated with recessions. These periods are marked with an orange circle.


If we overlay declines in the share price of the S&P 500 with declines in earnings, we can see that before the 1990s, declines in share prices would often lead or anticipate declines in earnings and the economy.

In every Business Cycle recession, S&P 500 share prices led declines in earnings - marked with a red circle.


There were several periods when stock prices declined without a decline in earnings - marked with a green circle.


So stock prices would always lead major declines in earnings and sometimes, share prices would decline without a drop in earnings, or, stated another way, stock prices would sometimes anticipate declines in earnings that would not materialize.

However in the two modern recessions of 2001 and 2008, stock prices did not lead the declines in earnings - in fact, there was a slight lag of share prices relative to earnings.


Even in the 2016 mid-cycle downturn, there was a decline in earnings for almost a year before stock prices responded. Ultimately, the Business Cycle did not end, earnings recovered, and stock prices rebounded.

Stock prices had a very mild lead ahead of the 2022 decline in earnings, perhaps due to the rapid change in interest rates, but the main point still holds that stock prices used to have a far greater and more consistent lead ahead of earnings and economic declines compared to today.

Several theories can explain this change. .....................

At EPB Research, we describe and track what we call a “Four Economies Framework.”

While the Aggregate Economy Index tracks the entire economy, there are some segments that move before the average, and some segments of the economy that move after the average.

In this chart below, we show this Four Economies Framework with the Aggregate Economy highlighted in yellow.

What this shows is that there are two buckets of economic data that move ahead of the Aggregate Economy data.

The Leading Economy does not track actual measures of growth or employment, but rather seeks to track the availability of money and credit, as well as soft commitments like building permit applications or new manufacturing orders.

The Cyclical Economy measures growth and employment for the two most interest rate and credit sensitive sectors: construction and manufacturing.

The Aggregate Economy, as the name suggests, tracks the broadest measures of growth and employment.

Lastly, the Lagging Economy, measures growth and employment of services - the least interest rate sensitive sector. .........


…...... Changes in the Cyclical Economy (construction and manufacturing) are always first to respond to changes in the Leading Economy or monetary policy conditions.

In the chart below, it’s clear how the Cyclical Economy Index of construction and manufacturing turned down far in advance of S&P 500 real earnings in the last two Business Cycle recessions of 2001 and 2008.

Changes in the Cyclical Economy lead to changes in earnings, which, lately, have led declines share prices. 

Therefore, it is clear that the most important part of the economy to track is the Cyclical Economy or the construction and manufacturing sectors.


Of course, as the saying goes, there are long and variables lags between each Economy or each bucket of economic data.

On average, a 6-8 month time gap exists between each economic bucket, but these averages have variables ranges. For example, in the 2008 recession, the Leading Economy and the Cyclical Economy peaked around the same time, in the summer of 2006. This was about 1.5 years before the onset of the Aggregate Economy recession.

In the 2001 recession, the lead time of the Cyclical Economy peak to the Aggregate Economy peak was shorter than a year.

In this cycle, the time delay between the peak in the Leading Index was almost two years ahead of the Cyclical Economy due to a variety of pandemic-related factors.

Still, despite popular talking points, the Sequence of the cycle remained the same as it has in every Business Cycle.

In summary, stock prices, particularly the price of the major indexes like the S&P 500, are objectively poor leading indicators of the economy and earnings in the modern era.

However, changes in growth and employment of the most cyclical sectors remain a key warning sign of changes in earnings and broader economic activity.

Despite the shrinking relative size, don’t lose sight of the Cyclical Economy.


After sitting on the shelf, we think now is a prudent time to highlight a memo Dave published shortly after Donald Trump got elected.

............................ Warren Buffett has built up a 30% cash hoard for a reason.

The Fed has backtracked from not jumping to any conclusions on November 7th to modeling out various versions of the Trump economic and fiscal plans at the December 18th confab, and, in the process, cut back dramatically on its projection to cut rates aggressively this year. The term “uncertainty” was deployed no fewer than a dozen times in the last set of FOMC minutes. Buffett has de-risked, Powell has de-risked, and so maybe we all should be doing the exact same thing. Much damage has been done to the bond market; and the bond market has this nasty tendency to lead the stock market .................


Tariffs alone will not make American manufacturing great again





Vid of the Week:





China Fare:

Will tariffs help rebalance the global economy (and the Chinese economy)?

..................................... As you know, any time there’s an economist food fight, especially over macroeconomics, I am here for it! I wish Tyler had elaborated on his criticisms of Pettis’ paradigm, and I a.lso think Pettis is being unfair in his blanket accusations of ideological bias.

..................... Which brings me to my second point: Whatever you think of Pettis’ theories, I think he’s probably the single most important and influential international economics theorist in the world today. 

....................... In other words, Xi is making the Chinese economy look a little bit more like the old Soviet one, where production was determined by plans instead of by the market. He’s using banks and industrial policy to tell Chinese companies to build a bunch of specific high-tech manufactured products, and they’re doing what he’s telling them to.

Why did this approach fail in the USSR? Ultimately, it was because Soviet manufacturers were inefficient — they made a bunch of stuff, but they produced it at a loss. That was unsustainable.

Chinese factories are a lot better than Soviet ones were. ..................



Quotes of the Week:

Muir: The wall of worry that markets climb has become the cliff of overconfidence that they walk along.

Schwager: “Amateurs think about how much money they can make. Professionals think about how much money they could lose.”

BS: Target, timing and level of any tariffs are frankly a guessing game at the moment. The 🐿️ is now in ‘watch and wait’ mode when it comes to risk assets. When it comes to commodities, both the buy and sell buttons are firmly locked in the desk drawer until we get some further clarity!

Weinstein: You’ve got to be agnostic. Be prepared to go either way. The markets’ gonna talk and I’m gonna listen.

Lyngen: We’re reluctant to skew the risks in favor of lower outright yields at the moment, despite our medium-term constructive outlook on Treasuries. Trump has an incentive to make a dramatic policy entrance next week; a backdrop that reinforces the prudence of a more cautious approach to duration until the initial trade war salvos have been exchanged 

Thorne: Today, the consensus is that there will be no rate cuts in 2025, but they will likely be wrong again. How can they overlook the reality that Biden’s extreme spending to secure re-election will taper off in 2025?  Additionally, Musk's emphasis on government efficiency will create significant fiscal drag next year. This sets the stage for unexpected rate cuts that will surpass the market's expectations. Meanwhile, Wall Street and mainstream media tout the recent jobs report as evidence of a robust labor market (consensus has blind faith in seasonally adjusted data to deal with extreme exogenous shocks, we never learn) despite Census and JOLTS data suggesting otherwise, is clear evidence of the lack of insightful contextual research that exists. Let’s get the revisions!


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(not just) for the ESG crowd:


The 20th edition of the Global Risks Report 2025 reveals an increasingly fractured global landscape, where escalating geopolitical, environmental, societal and technological challenges threaten stability and progress. This edition presents the findings of the Global Risks Perception Survey 2024-2025 (GRPS), which captures insights from over 900 experts worldwide. The report analyses global risks through three timeframes to support decision- makers in balancing current crises and longer-term priorities.


Analytical framework and toolkit


Tooze: Trouble Transitioning

Any​ hope we have of containing the escalating climate crisis depends on getting to net zero, which will mean cutting greenhouse gas emissions drastically in the next few decades. Coal, gas and oil will have to be replaced with clean energy sources. In the language of climate policy, this is known as the green energy transition and is often presented as the latest in a series of transitions that have shaped modern history. The first was from organic energy – muscle, wind and water power – to coal. The second was from coal to hydrocarbons (oil and gas). The third transition will be the replacement of fossil fuels by forms of renewable energy.

The transition narrative is reassuring because it suggests that we have done something like this before. We owe our current affluence to a sequence of industrial revolutions – steam engines, electricity, Fordism, information technology – that go back to the 18th century. Our future affluence will depend on a green industrial revolution, and to judge by the encouraging headlines, it is already well underway. The standard estimate is that energy transitions take about half a century; if that were true of the green energy transition, it could still be on schedule for 2050.

This is the way that many governments and experts think about the future of energy. The Intergovernmental Panel on Climate Change takes advice from specialists in ‘transition theory’. Analysts touting S-curves of technology adoption benchmark the take-up of electric vehicles against previous phases of technological change. Figures such as Elon Musk are cast as the Edisons of our day.

But history is a slippery thing. The ‘three energy transitions’ narrative isn’t just a simplification of a complex reality. It’s a story that progresses logically to a happy ending. And that raises a question. What if it isn’t a realistic account of economic or technological history? What if it is a fairy tale dressed up in a business suit, a PR story or, worse, a mirage, an ideological snare, a dangerously seductive illusion? That wouldn’t mean that the transition to green energy is impossible, just that it is unsupported by historical experience. Indeed, it runs counter to it. When we look more closely at the historical record, it shows not a neat sequence of energy transitions, but the accumulation of ever more and different types of energy. Economic growth has been based not on progressive shifts from one source of energy to the next, but on their interdependent agglomeration. Using more coal involved using more wood, using more oil consumed more coal, and so on. An honest account of energy history would conclude not that energy transitions were a regular feature of the past, but that what we are attempting – the deliberate exit from and suppression of the energetic mainstays of our modern way of life – is without precedent.

This is the argument of More and More and More, the latest book by the French historian of science Jean-Baptiste Fressoz. As he makes clear, historical experience has little or nothing to teach us about the challenge ahead. Any hope of stabilisation depends on doing the unprecedented at unprecedented speed ............................

.................... At the same time, the prospect of global warming was being brought to wider public attention, for example in the Charney Report of 1979, which forecast that a doubling of carbon dioxide levels could lead to a global temperature rise of 3°C. As Fressoz points out, the first reaction of many politicians and business leaders to these alarming predictions wasn’t denial but a confident assertion of the ability of the existing system to adapt. Degrowth wasn’t an option, nor were the radical visions of technological transformation put forward by theorists such as Amory Lovins, who in 1976 called for a future of decentralised ‘soft energy’. Instead, they turned to the stage theory of energy transitions teed up by the nuclear industry. It offered an all-purpose vision of comprehensive change, shorn of any assumption of radical socio-economic or political transformation.

Futurologists and economists converged on the energy transition theory to posit that it was only a matter of time before technological development, if directed correctly, would yield green technologies to replace fossil fuels, just as surely as cars had displaced horses. It was unhelpful at the time that quantitative economic historians such as Nicholas Crafts were debunking simplistic stories of the industrial revolution. But such subtleties were ignored in favour of the fables spun by future Nobel Prize winners such as the economist William Nordhaus, who insisted that economic growth should not be fettered by unduly heavy carbon pricing for fear that slower growth would retard the technological transition. In due course, this would allow the planet to stabilise somewhere between 2.7 and 3.5°C of warming. Having estimated a loss function and weighed the costs of investment and adaptation, Nordhaus’s sage advice was that growth was the best way to get to this new equilibrium.

Thinking​ in terms of energy transitions is, in Fressoz’s view, one of the main reasons truly radical action on climate has been delayed. Like Nathaniel Rich and Naomi Klein, he sees the 1980s as the decade in which the opportunity for decisive early action was lost. .........................




The fires burning in Palestine and Los Angeles today are symptoms of the same disease: a system that values conquest over conservation, profit over people, and expansion over existence.

.......... Research from Lancaster University has revealed that in just the first sixty days following October 7, the military response in Gaza generated more planet-warming gases than twenty climate-vulnerable nations emit in an entire year. In a single month – October 2023 – Israel dropped 25,000 tons of bombs on Gaza, releasing climate-warming gases equivalent to burning 150,000 tonnes of coal. American cargo flights delivering weapons consumed 50 million liters of aviation fuel by December, spewing 133,000 tonnes of CO2 into our shared atmosphere – more than the entire nation of Grenada emits annually. .......................

......... The ecocide in Gaza – recognized as a war crime under the Rome Statute – isn’t just a distant tragedy. It’s a harbinger of our collective future if we continue to allow environmental warfare and genocide to go unchallenged.

......... What you allow in Gaza, you allow everywhere. Today it’s their fields burning under thousand-pound bombs; tomorrow it’s our forests. The fires that connect us demand that we finally see this truth: we either stand together against this destruction, or we all burn separately.



Hydroclimate volatility broadly refers to unusually rapid and/or high magnitude swings between unusually wet and dry conditions (or vice versa) relative to what is typical for a given location and season. Such rapid transitions can often generate hazards that are distinct from their constituent wet and dry extremes (e.g., floods and droughts), meaning that hydroclimate volatility can yield overall societal and ecological risks that are “greater than the sum of their parts.” ................


Jathan Sadowski on the ecological, financial, social, and political crises threatening to swallow us whole.

.......... The hellish scene in LA is a tragedy, but importantly it is not an isolated or independent event. A problem only for the many people in the evacuation zones. We must see this most recent crisis as one more node added to a global network of ongoing crises, each one resulting in different forms of mutually reinforced devastation, but all of them interconnected, with their consequences touching everybody, everywhere. We all live inside the firestorm now. ..........................


"Growth is something we really need to get past." 

We knew there would be unknown unknowns when we started passing tipping elements. ..............................

I am not one to advocate techno-fixes or evacuating the planet to colonies on Mars. If we neglect the root causes of our present crises, our Mars colonies will merely become crime-ridden urban ghettoes with race wars and rats.

The present crash of confidence will take more than a system reboot. We need an entirely new paradigm. Call it Civilization 2.0. ...................

When one studies how systems change and what might bring about such a change now, at the 11th hour and 59th minute, or even perhaps past that, there are a few realities we have to concede. Each climate change solution presents unique advantages and challenges. A comprehensive strategy that combines approaches while considering local contexts is likely the most politically viable. Balancing immediate actions—living in the present degenerative system—with long-term sustainability—shifting to a regenerative system—is merely pragmatic. Yet, there are a few criteria that it will help to observe.
  • First, do no harm.
  • Favor passive systems that once set in motion no longer require human action
  • Favor resilience, recognizing that we are in uncharted territory and there will be shocks.
  • Favor intrinsically regenerative systems that are part of, and contribute to, larger ecosystems.
  • Protect the seventh generation.






U.S. B.S.:

What really drove the rise of Biden's 'tech industrial complex', and how to stop it



In the run-up to Trump 2.0, the speed with which former opponents of the once and future president are adapting to his re-election and displaying anticipatory obedience has been greater than anyone could have, well, anticipated. Prominent examples include Jeff Bezos, Mark Zuckerberg and congressional Democrats who seem to think that performing bipartisanship by loudly declaring their willingness to work with Trump might somehow be rewarded. But nobody likes to think of themselves as an opportunist; everyone wants to tell themselves (and the world) a story to justify their change of tune. As a character remarks in Jean Renoir’s movie La Règle du jeu – among other things, a profound study of the moral collapse of the French Third Republic – ‘there is something appalling on this earth, which is that everyone has their reasons.’


The "Invisible Presidency" is an all-time criminal, and must not be allowed to flee

.................... For four years, while Buster Keatonesque videos of stumbling, tumbling Biden filled social media, just a handful of clues leaked about the ethereal “Presidency” running the American superpower. The latter existed separate from Biden and is scheduled to slither aside Monday. It exits on a bitter note, blaming an “avalanche of misinformation and disinformation” (not enough censorship) for its inability to be re-elected while strapped to a corpse. It hopes to get away unseen and probably will, as reporters prepare to chase the great baited hook that is Donald Trump


In politics as in life, the stupid person causes others to lose and gains nothing for himself.

................... Cipolla divides people into four categories: helpless, bandit, intelligent and stupid. In any normal interaction between two people, he contends, the helpless person suffers a loss while the other gains. The bandit exacts a benefit while levying a loss on the other. The intelligent person gains while enabling the other person also to gain. The defining trait of the stupid person is that he gains nothing while obliging the other to take a loss. Mr. Trump’s fans can argue with his despisers about whether he belongs in the category of bandit or intelligent, but he definitely can’t be classified as stupid according to Cipolla’s definition.

The astounding fact of recent years, however, is that Mr. Trump’s chief political opponent—Joe Biden—is a perfect specimen of Cipolla’s idea of stupidity. ............


Part 5 of our series on how Barack Obama undermined U.S. democracy

In contemporary political discourse, the term “deep state” frequently arises as a catch-all phrase to describe the entrenched bureaucracy and unseen forces that shape U.S. governance. Washington, D.C., is often portrayed as the epicenter of this so-called deep state, where power dynamics operate independently of electoral outcomes. Some also refer to it as the “blob.”

While it is true that U.S. governance is steered by unelected and unaccountable entities, such as the military and intelligence complexes, the concept of the “deep state” can oversimplify the complexities of governance in Washington, D.C. It can also serve to deflect accountability from those most responsible for the damage inflicted on our country.

The deep state may appear to be a monolithic entity. However, it is, in reality, a complex web of human actors with genuine agency. Among these individuals, Barack Obama stands out as a pivotal figure whose influence and legacy have significantly shaped the political landscape over the past 17 years.

In this concluding piece of our series on Barack Obama, we explore his instrumental role in shaping U.S. policy, not just during his own presidency but also during Trump's first term and the Biden presidency ....

Obama exemplifies the concept of agency within what is usually referred to as the “deep state.” His presidency not only brought about significant division and policy shifts but also laid the groundwork for a network of fanatical loyalists and ideological allies, many of whom have remained entrenched in both governmental and non-governmental institutions. These figures, many of whom are former members of the Obama administration, have undermined democracy and the will of the people across multiple presidencies. ..........................................




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Geopolitical Fare:


........... American television news has almost completely ignored Israeli (and US) war crimes in Gaza, which have been taking place daily, but are not apparently deemed “news” at CNN, MSNBC, Fox, CBS, ABC, etc.

Here let me just excerpt some statements by the former US government officials: .............


Finally Seeing Movement Toward A Gaza Ceasefire As Biden Moves Out Of The Way

........ Though Biden and the Democrats are of course trying to take credit for these developments, according to Israeli media this sudden rush of movement after 15 months of stasis has been the result of pressures and negotiations from the incoming Trump administration.

.......... So it’s not as though Trump has taken a strong position against Israel; he’s just doing something instead of nothing.

........... Ever since the genocide in Gaza began it’s been an open question whether the Biden administration’s facilitation of the slaughter has just been standard US empire depravity, or an evil that would only have occurred under Biden. The fact that we’re now closer to a ceasefire than ever before, reportedly due to pressures exerted by Trump, suggests that the latter could be the case. It suggests that these 15 months of human butchery could only have occurred under a dementia-addled lifelong Zionist surrounded by Zionist puppeteers.

Trita Parsi wrote months ago that Biden’s completely unconditional facilitation of every Israeli demand is historically the exception rather than the norm under US presidencies. If Trump does in fact wind up presiding over a de-escalation in the genocidal atrocities in Gaza, this will have been officially confirmed. It will be a proven fact that a Biden presidency was the worst thing that could possibly have happened for the Palestinian people. That for 15 months a psychopathic apartheid state was essentially left unsupervised to do what it has always wanted to do to the Palestinians in ways it never could have under any other circumstances, resulting in unfathomable horrors we’ll still be learning details of for years to come ..............



The ‘all bullshit, all of the time’ nature of the US in recent decades has made fools of most who take official pronouncements at face value. The current ‘Gaza peace’ negotiations provide the appearance of rational adults working through complicated political and logistical disputes. However, the facts of official lawlessness render any agreement subject to the whims of the leaders of the US and Israel. Dozens of UN resolutions condemning Israel’s (US) actions currently litter the area surrounding the current peace ‘process.’ Israel regularly ignores them all.

The measure of US - Israeli lawlessness was recently codified by the ICJ (International Court of Justice), with War Crimes (genocide) charges being filed against senior Israeli leaders. In a case of misplaced identity, the ICJ has condemned Israel under the theory that it is responsible for being a puppet of the US in carrying out genocide. In yet one more case of feigned powerlessness, the American puppeteer is nowhere to be found regarding criminal liability for the slaughters that its puppets so regularly undertake .................

............................. Under the current explanation of AIPAC’s control over US foreign policy, Israel buys US political outcomes via campaign contributions and primary tactics. Again, if Congress really is a coven of elected adults offering to exchange sexual favors for a few quid, why don’t the Russians and the Chinese avail themselves of the opportunity to buy US foreign policy? Or even more cleverly, if intelligence can be found anywhere in this scheme, why doesn’t Congress just start a global bidding war for who controls US foreign policy?

The point is that unless other nations--- including alleged enemies, are allowed to buy US foreign policy like Israel / AIPAC do, ‘the Israel lobby’ exists as a proxy for US foreign policy interests. Question: how would the US know its alleged enemies from its friends if the purchase of US foreign policy by foreign governments (AIPAC) determines the matter? And framed conversely, how is the public posture that Israel decides US foreign policy in the Middle East politically viable inside the US?

This latter claim must find its way past the fact that Israel is the only nation granted this privilege. In other words, alluding to a systemic flaw whereby foreign powers are allowed to purchase US foreign policy outcomes when only one nation has been granted this privilege (Israel), renders those so alluding either stupid or deceitful. Were it ‘systemic,’ the opportunity to buy US foreign policy would be universal. But it isn’t. In this way, the ‘Israel Lobby’ represents a tactic of feigned powerlessness from cynical cowards. ..........................



........... The western political-media class is expressing outrage over the incident, not because of journalists being manhandled for asking critical questions of their government, but because those journalists asked critical questions.

............... This is western liberalism in a nutshell. The problem isn’t the genocide, the problem is people being insufficiently polite about the genocide. Western officials feeling inconvenienced and insulted is a greater concern than children being shredded and burned by US military explosives.



Sci Fare:


.............. This is what I mean, when I say that through mass vaccination you prohibit the population from discriminating against virulence associated epitopes.

................. The studies show that since the first Omicron wave, SARS-COV-2 has steadily been growing more virulent again, as it’s becoming steadily better able to fuse cells together again. The improvement of the polybasic cleavage site is part of that process.

Fusing cells together allows it to spread undetected by antibodies. And so, vaccination is a great way to encourage this path of evolution towards greater virulence. As most antibodies don’t manage to pass the blood-brain barrier, it also encourages greater neurovirulence. This is what you saw with H5N1: It evolved to become a very neurovirulent virus, it now kills cats by destroying the brain.

I understand none of this is very interesting to most of the population, but it just surprises me, that we see the same thing happening to SARS-COV-2 after vaccinating against it, that we witnessed happening to H5N1 after vaccinating poultry against it, but nobody seems to be very interested in where this is headed.



Other Fare:


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  1. It’s easy to criticize those in power for their poor decisions and general ineptness. It’s much harder to come up with approaches and suggestions on what could be done better. And focusing on alternative ideas forces us to think and learn more about the predicaments we’re facing.
  2. Most of the people currently in positions of ‘leadership’ and power are quadruply incompetent: They are stupid (in the sense of having low cognitive capacity and reasoning ability), misinformed (having little or no knowledge or understanding of current economic, ecological and political realities, or the lessons of history), lack the skills needed to properly do their jobs, and are arguably mentally ill 



................... The People’s Republic of China is the hyper-modernist state par excellence. Chinese communists are quite taken with their slogans about “Chinese style modernization,” but this mostly amounts to standard modernization but with a Leninist party in charge. If there is a country whose leaders are more inspired by Enlightenment rationalism than China, I have not found it. India is different. In fact, India is the only country I have visited where a post-liberal polity seems plausible. Hindu nationalists conceive of their project much the same way Western post-liberals do—they aim to create a country animated by a “non-Western worldview,” to strip away the hegemony of Enlightenment ideas on the Indian mind, and to find a separate path toward wealth and power.  


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