**** denotes well-worth reading in full at source (even if excerpted extensively here)
Economic and Market Fare:
***** Tectonic Policy Shift
Trump and Bessent guide to government financing changes that are still poorly understood, but of tremendous importance for global markets
........................................ As a general observation, in my view, capital markets have changed materially due to what is effectively the death of active management, which has been replaced with passive flows, retail, multi-manager platforms and “machine money” that mostly trades headlines
Grannis: The June jobs report was not strong
Today's June jobs report is being touted as strong enough to put any chance of a Fed ease on hold. That's silly, in my view. Putting things in the proper perspective, today's job report was one more in a year's worth of mediocre numbers. ............
Even before the new Administration took office in Washington, my focus had been on whether the economy would have a “soft” or “hard” landing, i.e., recession. That has only intensified by the utter chaos of this Administration, particularly about tariffs. So my focus now is looking for “hard” vs.”soft” data indicating its impact.
While the headline numbers of this month’s employment report were positive to neutral, the underlying component were mainly weak to negative, including several very important ones. ...........
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For the second month in a row, the only reason the unemployment and underemployment rates did not go up was that the labor force participation declined significantly. The employment/population ratio also declined. Further out on the spectrum, those not in the labor force but who want a job increased to the highest level in almost 4 years.
Additionally, most leading sectors declined, including total and auto manufacturing, trucking, temporary help, and residential construction. Professional and business employment also declined, as did government employment.
Perhaps even more ominous, both aggregate hours and aggregate payrolls outright declined this month, even before accounting for inflation. In other words, the American middle and working class as a whole almost certainly saw an absolute decline in their purchasing power last month - something that typically has happened a few months before a recession begins. ................
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Bottom Line: While the economic effects of the OBBBA aren’t clear, we suspect the front-loading of tax cuts will override some of the more back-loaded spending cuts and provide a moderate lift to growth next year, as largely assumed in our forecast. But the many moving parts in the Act and the unknown reaction of businesses and households, coupled with the still lack of clarity on the trade file, could greatly alter the growth picture. For the Fed, the expected stimulative effect on the economy could reinforce a go-slow approach to easing. However, the growth lift may not be large enough to fan inflation, especially given some supply-side response to tax cuts, keeping the Fed on track to gradually restore policy neutrality from the current modestly restrictive stance.
The consensus economic forecast is that growth will slow down over the coming quarters as higher tariffs weigh on earnings, capex spending, and consumer spending.
The consensus equity analyst forecast is that earnings will accelerate over the coming quarters, see chart below.
This is not consistent. Either the MBA forecasters are wrong about corporate earnings, or the PhD economists are wrong about tariffs slowing down growth. ........
The return of optimism is being accompanied by quiet strength in stocks
.......................... Last week also featured a so-called golden-cross for the S&P 500 as the 50-day average climbed above the 200-day average. Whether it is a golden cross or a death-cross (when the 50-day moves below the 200-day), the crossing itself does not matter as much as the condition it creates. All of the net gains for the S&P 500 over the past quarter century have come when the 50-day average has been above the 200-day average.
.............. While this trend improvement has been recorded at the index level, most stocks within the index (and an even larger percentage of of small-cap and mid-cap stocks) still have 50-day averages that are below their 200-day averages. The percentages are improving, but there is plenty of room for the average stock to play catch-up.
Yves here. To clarify Richard Murphy’s headline, he is not referring to all levels of government in the UK, but “Government” which in US-speak would be “Administration”. His point is that the UK and US national governments will never run out of currency and do not need bond markets to fund budget deficits. Bond issuance is a political holdover from the gold standard era as opposed to an operational necessity. Looks at how Japan ran absolutely ginormous government deficits for decades.
Too much net spending that does not sufficiently (or at all) boost productive capacity generates inflation. That is the constraint on spending. Or in MMT-speak, “real resources” ...............
The spike in public stock markets is pushing up the mooted price of comparable private assets too, making them harder to sell.
The Securities That Banks Are Backing Away From: Credit Weekly
China Fare:
Takeaways
- US banks are retreating from selling preferred shares, following JPMorgan Chase & Co.'s lead, despite investor demand, as capital regulations are being eased in the US.
- Preferred managers are looking for alternatives, such as hybrid bonds, as the market for US bank preferreds shrinks, with assets under management in the 10 largest funds rising by over 10% year-to-date.
- Non-financial companies are backing away from preferreds in favor of hybrid bonds, with issuance becoming viable after Moody's Ratings changed its methodology in early 2024, and managers expect the supply of hybrids to expand to cover growing demand for infrastructure investments.
US banks, among the few companies that still sell preferred shares, are following JPMorgan Chase & Co.’s lead and retreating from the securities, even as investors are eager to buy them.
Capital One Financial Corp. redeemed a $500 million preferred share this week, resulting in the market shrinking on a net basis this year, according to data compiled by Bloomberg. If the trend continues, this will be the second year in a row that the market for US bank preferreds has shrunk, something that hasn’t happened since the lenders were replacing obsolete capital after the global financial crisis. .............
The heavyweight champion of financial crime gets seemingly its millionth chance to show it's reformed
China Fare:
Vid Fare:
Quotes of the Week:
Bogle: We use the term risk all too casually and the term uncertainty all too rarely.
Bogle: We use the term risk all too casually and the term uncertainty all too rarely.
Charts:
1:
(not just) for the ESG crowd:
Bates: Where's the tip?
This week began with the noonish Monday opening of a long-awaited and oversold event. Nope. Not Glastonbury. It was the 4-day Tipping Points conference at the University of Exeter, just a few miles up the A38 from Totnes. More than 500 participants bypassed the adjacent Starbucks to cram into The Forum for brunch. The first plenary, standing room only, introduced the theme of the week: Earth System Tipping Points and Risks. Lead-off speakers came from some of the most distinguished climate think tanks in the world. Noticeably absent: any U.S. reps. There were no speakers from NOAA, NASA, DOE, USDA, EPA, Goddard, Woods Hole, C2ES, WRI, UCS, RFF or USGCRP. Many career scientists at those places no longer had jobs. A notable exception: Rocky Mountain Institute, and more on them later. .............
.............. Leading up to the conference, its originator, Exeter professor Tim Lenton, gave an interview to the Guardian, that discarded the cushion of “we can still avoid catastrophe” in favor of “how do we act from within collapse and whatever comes next?” He told the Guardian:
In the climate science community, we have tended to concentrate on assessing what's the most likely thing to happen, but the more important question is: what's the worst thing that could happen? That's the difference between a scientific assessment and a risk assessment. I would argue we've not been treating climate change as a risk assessment.
Lenton's summary: Traditional risk frameworks are still being used to rationalize delay, falsely implying that collapse is avoidable if we act fast enough. It's the whole “remaining CO2 budget” nonsense we have been fed for 40 years.
But if cascading system failures are now underway, then the task shifts from prevention to preparation, from bending emissions curves (those need to just stop, full stop) to a complete redesign of the built habitat and national borders, and from carbon targets to cultural transformation.
Thousand-year-old systems—agriculture, infrastructure, health care, political governance—have to shift into nonlinear warp. They need to find a new gear. We have not only to protect and sustain but regenerate ecosystems, biodiversity, and biocultural landscapes. ............
Albedo, La Nina, El Nino, and EEI
Statistical Review of World Energy
U.S. B.S.:
2024 Regional Overview – access to energy and sustainability
Global energy supply increased 2% in 2024 driven by rises in demand across all forms of energy, with non-OECD countries dominating both the share and annual growth rates. Fossil fuels continue to underpin the energy system accounting for 86% of the energy mix.
Yves here. We have regularly criticized the Green New Deal and other initiatives to try to limit carbon emissions and thus climate change because they are based on the feel-good falsehood that the mere adoption of new tech will enable humans to keep modern lifestyles. The only very faint hope, which if more countries don’t embrace it, will be forced upon us via collapse, is radical conservation. ............
Most of us don’t give much thought to the ocean, and it’s often overlooked in discussions about climate change and the environment. Yet the ocean plays a vital role in maintaining Earth’s stability and is essential for human survival. It covers 71% of the planet’s surface, holds 97% of all water, and its volume is approximately nine times that of the land above sea level. Despite its scale and importance, the ocean is frequently treated as an afterthought.
The ocean absorbs about 90% of excess heat and 30% of carbon dioxide. It acts as a climate regulator and carbon sink, delaying the worst impacts of planetary overshoot. But its buffering capacity is not limitless, and signs of strain are becoming increasingly clear.
One of the clearest warning signs is rising ocean temperature and declining oxygen levels. ............
U.S. B.S.:
Obviously this is a pile of steaming garbage. Four trillion of tax cuts, paid for by cutting Medicaid (11.8 million people will lose health care according to the CBO) and perhaps 8 million people will lose food benefits under SNAP. Green energy subsidies are cut (no, shut up, there are tons of dirty energy subsidies) and there’s a huge budget increase for ICE (including more prison camps), America’s Gestapo.
And, of course, there’s all sorts of nasty in the details, like, for example, a ban on States regulating AI, cuts to Planned Parenthood (which does far more than abortions), and so on.
A lot of Americans are going to be hurt by this. I’d go so far as to say it might be the worst American federal budget I’ve seen in my life, though Obama and the Fed’s giveaways to the rich were worse. .........
Geopolitical Fare:
Sometimes – or, actually, very often – the behavior of the West’s ruling “elites” (if that is the word) is so obviously absurd and vicious that it’s, literally, stunning. In the sense that it almost knocks out a sane and morally decent individual’s capacity to fully grasp all aspects of any given new piece of depravity. ...........
Today’s modest topic is the future of the West. Will it end in a bang, whimper or maybe just sort of muddle through in some zombie stagger? Whatever happens, a quarter of the way through the American Century, the standard of liberal democracy we hoisted as global inevitability twenty years ago hangs by the scruff of the neck and its enemies are eager to boot it straight into irrelevance. .....................
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As the US political system quit working, what filled the void? Managers papered over rising incoherence. The Academy proposed jargon to explain it all, offering dubious theories of ‘functional authoritarianism,’ ‘liberal autocracy,’ ‘participatory autarky’ and so on. But mostly, the void was seized by clowns and their courtiers.
The clown is the personification of institutional decay, a figure who doesn’t merely emerge from disfunction but thrives in it, weaponizing spectacle and performative rule-breaking. Clowns wear their buffoonery as proof that they are authentic, and superior to the institutions they discredit. ....................
........ The truth is that Western governments have mostly accomplished their goals over the last 45 years: it’s just that their ur-goal was to make the rich richer. If that meant burning everything else down, they were OK with that. There are a number of reasons for this, but basically political elites were bought: do what the rich want and even if you lose office you’ll be very well taken care of. Instead of viewing government as “theirs” and their countries as “belonging to them” they viewed political office as a way to get rich. Instead of viewing the rich as their competitors for power, to be kept under control, they viewed them as their benefactors and as the ones who could put them into office. Or, put another way, most elected representatives saw themselves as de-facto employees, or contractors, of the rich and corporations.
This view has explanatory power: politicians do what you’d expect them to do if it were true. Take a look at Trump: his budget has 4 billion in tax cuts for the rich, and to partially pay for those cuts, it is getting rid of 800 billion in Medicare funding. The idea that he’s some sort of economic populist is laughable. He’s making the rich get richer, just like every other President since Carter (though Reagan was the real inflection point.)
This wasn’t always the case. From 33 till around 68 or so, the primary policy goal in America was the growth and prosperity of the middle class, and most politicians, while they’d take the money of corporations and rich to some extent, saw them as the enemy, to be kept under control.
So, let’s turn to the CCP. They have lifted more people out of poverty than every other country combined. The one-child policy, whether you agree with it or not, did get China’s population growth under control. They are ahead in 80% of techs, when 20 years ago that number belonged to the US. They have the largest industrial economy in the world. They are reducing housing prices, which was their goal. They are reducing inequality and smashing the number of billionaires. They are installing more renewable energy than the rest of the world combined. They are building industrial stacks so that nothing they actually need comes from the rest of the world—they’re not quite there yet but they will be. (Don’t invest in TMSC long term, their near monopoly position is almost over and they will soon be overtaken by the Chinese. Three to five years at most is my guess.)
The CCP accomplishes its goals. Its primary goal is:
The Preservation of its own power. There are two branches to this: avoidance of foreign military conquest or regime change, and avoidance of domestic collapse or revolt. .........
Sci Fare:
Better stress assessment and tailored interventions could give clinicians the tools they need to fend off lasting damage.
What if simple changes could significantly reduce your risk for serious illnesses, such as cancer, heart disease, diabetes, dementia, and more?
We all want to protect our health: eat better, move more, quit smoking, manage stress, and keep up with medical screenings.
But what if one of the most powerful things you could do to protect yourself isn’t even on your radar? What if you could make simple changes to dramatically reduce your risk for serious illnesses and chronic conditions?
Avoiding COVID-19 infection may be one of the most important things you can do to protect your long-term health.
While a COVID infection may appear “mild” in the beginning, its long-term consequences can be severe – paralleling other initially mild infections with severe consequences down the road like HIV-AIDS and hepatitis C. COVID is not a simple airway infection like a cold or the flu, but a blood vessel infection that weakens the immune system, making you more susceptible to other illnesses. A growing body of research draws clear connections between COVID-19 infections and increased risks for serious, chronic health problems, including:
- Heart attacks, strokes, and cardiovascular disease
- New-onset diabetes and worsening of existing metabolic conditions
- Accelerated cognitive decline and dementia
- Reactivation of viruses
- Immune system dysregulation and chronic fatigue syndromes
These risks aren’t theoretical—they’re showing up in the data of large-scale studies. Increased cancer risks are also expected based upon immune system dysregulation because the immune system protects people from cancer. There are also specific COVID effects that have been identified as increasing cancer risks. Even people who had COVID infections they believed to be “mild” are seeing long-term impacts months or even years later. And the risk goes up with each subsequent infection. ...............
Other Fare:
Pics of the Week:
.............. That’s the entire answer! It’s complete nonsense! Sam Altman, the CEO of OpenAI, a company allegedly worth $300 billion to venture capitalists and SoftBank, kind of sounds like a huge idiot!
“But Ed!” you cry. “You can’t just call Sam Altman an idiot! He isn’t stupid! He runs a big company, and he’s super successful!”
My counter to that is, first, yes I can, I’m doing it right now. Second, if Altman didn’t want to be called stupid, he wouldn’t say stupid shit with a straight face to a massive global audience. .........
Pics of the Week:
