***** denotes well-worth reading in full at source (even if excerpted extensively here)
Economic Fare:
................. Amrita Sen, founder of Energy Aspects, pointed out that heading into the US-Iran war, the global oil market had around 400 million barrels of excess inventories, not including strategic reserves controlled by governments.
"Now we have close to nothing ... and market complacency around Hormuz flows is being severely tested," Sen warned.
This is not a blanket levy on everything crossing the northern border, and what got left out is as revealing as what got hit. Oil - of which Canada is the largest foreign supplier to American refineries - is exempt. So is potash, the fertilizer input U.S. farmers depend on and cannot readily source elsewhere. Fish and critical minerals are out. So are goods already carrying national-security tariffs, including steel and many auto parts, per the White House fact sheet.
What remains is still enormous. ..........
Market Fare:
A holistic review of the recent changes in the distribution of risk across the financial system and their consequences for market structure in general and Liquidity Dynamics in particular.
The second-quarter earnings season is in full swing. So far, the results are landing in line or better than the upwardly revised Wall Street estimates. That’s the opposite of how this usually works. Analysts normally trim their forecasts as a year wears on. In 2026, they’ve done the opposite. The S&P 500 is on track to grow earnings north of 20% for a second straight quarter. The earnings are real. However, a meaningful slice of them is also an accident of accounting timing. That timing, the AI capex depreciation risk, hasn’t hit the income statement yet. But it is about to turn from a tailwind into a headwind. ...........
Currently, the entire earnings growth story is concentrated in the semiconductor and AI-infrastructure names. The accounting underneath it is where the catch hides. ..........
Todd Castagno at Morgan Stanley calls this “a golden window where everybody looks good.” He’s right. Revenues and margins look strong among chipmakers and the companies buying the chips at the same time, which is exactly the kind of broad, simultaneous strength that convinces investors a cycle is durable rather than borrowed from the future. Make no mistake, there’s nothing improper here. This is how companies book capital assets. What’s different this cycle is the sheer scale of the spending, and the eventual AI capex depreciation is being overlooked. ........
Big momentum thrust signal across financial sub-industries…
.......... 4. The S&P continues to coil. Our base case remains an eventual break higher. Near term, renewed US–Iran tension and firmer oil argue for some potential downside first.
5. Breadth eased but held .......
6. Internals are deteriorating. The key market internals are moving the wrong way. If the picture doesn’t stabilize soon, our one-to-three-month outlook turns decidedly more cautious.
7. Liquidity keeps grinding lower. Our Liquidity Gauge continues to trend down, which adds weight to the intermediate-to-longer-term caution.
8. Positioning and sentiment are stretched, especially on longer horizons. ...............
12. We still like precious metals, and we think we’re early. For now we’re waiting out the correction, which is a rates story. Until bonds find a durable floor, we stay on the sidelines here.
13. Central banks keep buying gold. The pace is accelerating, which puts a floor under how far the metals can fall.
14. The clearest positive is in the financials. Our new colleague Dean Christians (TPMR) flagged a rare breadth thrust in the sector. This week every financial sub-industry group registered a bullish short-term Dual Trend buy signal, something last seen in 2021.
The base rate is encouraging: when more than 95% of financial sub-industries are on buy signals, the sector has compounded at 19.6% annually, well above its average back to 1959. As Dean put it, “the ongoing rotation out of technology has fueled improving participation across several other sectors, with financials standing out as one of the primary beneficiaries.”
......... Momentum has been the undisputed king for global factor investing in 2026, particularly for Asian markets. Those trades are fracturing, as reversals in South Korea and other tech-heavy sectors set off a deepening rotation in the region. Investors look to be taking some of the hefty profits that remain on the winners from 1H 2026 and pivoting toward other assets. That’s a theme also gaining traction for US chipmakers, with the SOX Index down more than ~18% from the highs of June. ........
Google Tumbles After Boosting 2026 Capex Guidance Again
......... Because across nine decades, every new Fed chair has been greeted the same way: with an equity drawdown in his or her first three months in office.
A new Fed chair, weakest seasonality of the four-year cycle, record IPO supply, and a liquidity cycle that is cresting — all lining up into October. History says that's not the warning. Buy the Dip.
....... Twelve new chairs, twelve drawdowns, an average of roughly −12%. Not one got a free pass.
..................... 2026 is a mid-term year.
Bubble Fare:
And mid-term years have a script so consistent it borders on the mechanical: the market sells off into the weakest stretch of the four-year presidential cycle, bottoms in the back half of the year, and then it runs.
........ Ten mid-term years. Ten meaningful drawdowns. Not one skipped its turn. The mildest was 1994’s −8% — a year the Fed hiked seven times. The average sits around −21%, which is to say: a bear-market-sized scare, arriving on schedule, in the second year of every presidency for half a century, under Republicans and Democrats, in inflations and disinflations, in secular bulls and secular bears alike.
........ We are in July.
The weakest window is directly ahead. Inflation is running above 4% again after the spring oil shock, which means the Fed cannot simply promise rescue. Washington is heading into an election that will decide whether the current administration keeps Congress. And the man whose job it is to steady the ship has been in the role for eight weeks. The script does not need to repeat exactly. It only needs to rhyme — and the stage is set precisely as it was set in 1974, 1982, 1990, 1998, 2010, 2018 and 2022.
.............................. And here is the part that flips the whole thing. Every single one of those ten mid-term drawdowns was a buying opportunity.
Not most of them.
All of them.
..................................... First: hold your quality. The temptation, having read four thousand words about an autumn washout, is to sell everything and wait in cash for the low. Resist it. The pattern is reliable in shape but not in schedule — some mid-term lows came early, some shallow, some in pieces — and selling everything obliges you to make two perfect decisions, the exit and the re-entry, against a market that took out its prior high four times out of five within the following year. Round-tripping great businesses to feel clever in October is how you miss 2027. We are not selling compounders to sidestep a drawdown we cannot time. We would rather be approximately invested than precisely absent.
Second: keep dry powder, and attach a shopping list to it. Dry powder without a list is just anxiety with a cash yield. Decide today — calmly, at a VIX of 18 — which businesses you want to own cheaper and at what prices, so that when the VIX is at 28 and X is wall-to-wall crash memes, you are executing a plan instead of forming one. ....................
Bubble Fare:
Hussman: Mountain, Cliff, or Ocean
Stock markets can be valued, and because they can be valued, the long-term risks involved in holding stocks vary from time to time. When stocks are cheap these risks are small, but when they are expensive the risks become very great indeed. In current conditions, the risks in holding stocks are too great to make them sensible investments. This approach is completely different than claiming that it is possible to know when the stock market has hit a peak or a trough. All that the ability to value stocks provides is the ability to assess when holding them becomes too risky. On every occasion in the past that we can find, when a stock market has become as overvalued as Wall Street was at the end of the twentieth century, the consequences have been extremely bad for the economy as well as for investors.Andrew Smithers & Steven Wright, Valuing Wall Street, March 2000
On that point, we remain as emphatic as usual: Nothing in our investment discipline relies on a retreat in valuations toward their historical norms, nor any retreat at all. Indeed, our investment stance has been at least briefly constructive (albeit with a safety net) even in recent weeks. As I wrote in February and May, I expect that to be a regular occurrence going forward, even at present valuations, whether this bubble ultimately collapses or continues higher forever. ........
Our estimate of 55-75% downside risk is just that: a downside risk estimate. What, then, is our forecast? We don’t need one. We can use historically-informed valuation measures and risk estimates without making our investment stance dependent on any of them. Mountain, cliff, or ocean in the distance, we choose our footing for the terrain beneath us. Rather than attaching ourselves to forecasts and views, we’re content to respond with our best mindfulness as the evidence changes.
In the financial markets, as always, we consider the return/risk profile associated with the market conditions we observe, and our actions reflect that ............
Long-term returns are always set by valuation arithmetic – which determines the “slope” between the current price and the very long-term stream of cash flows that will be delivered into the hands of investors far into the future. Yet at any particular moment, the market price will be whatever the collective psychology of investors chooses it to be. Short-term returns are driven by data only to the extent that the data affects what’s in the minds of speculators and investors. That’s why – beyond valuations – our discipline attends to measures like market internals, investor sentiment, credit spreads, implied volatility, commitments of differing sets of futures traders, insider transactions, and other measures that offer a look into the psychology prevailing in the heads of market participants.
When I write about not “discriminating” against the bubble, it doesn’t mean that we don’t have a long-term outlook, or that we’ve suddenly embraced the bubble generally (we haven’t). Non-discrimination doesn’t erase discernment. It frees discernment from coarse, rigid, dualistic concepts that imply coarse, rigid, dualistic responses. .................
A.I. Fare:
...................... China is going to eat America’s lunch on this. If they ban Chinese AI (harder than it seems, given it’s open source) all that means is writing off the rest of the world. And since American models are handicapped, smaller American companies will be stuck with worse AI.
Since Chinese AI is far cheaper, as well, I’d expect American companies to set up subsidiaries overseas to use it, rather than be stuck with American AI.
The entire situation is a complete clusterfuck. Major companies have taken on serious debt in order to build data centers which have a lifecycle of five to seven years, and often less (since new generations of GPUs are much better.) But the Chinese product is cheaper, open source, lacks nearly as much sovereign risk and I’ll bet multiple models will soon be about as good as Anthropic and OpenAI’s.
Where’s the business case that spending all these trillions of dollars is going to produce enough revenue from US AI to pay for all of it?
There isn’t one. It doesn’t exist.
And that means that, at least in America, this is an AI bubble. All bubbles burst and this will not be an exception. If the government bails them out it will be the last major US bailout.
This is also very likely one of the last major tech revolutions which will start in the US (which it did.) Going forward they China will produce the vast majority of them.
This is the endgame. The turning point where China obtains not just the industrial base but the absolutely undisputed tech lead. From now on China will like America in the 1950s — it’s where almost everything new is created, the dynamic center of the world, and soon people will be competing to move there, because everyone knows it is the future.
........... I’ve predicted, for a couple years now, that Chinese AI models will be the main models used in most of the world, including in much of the West, assuming they aren’t banned outright, because they’re open and cheap. Costs of running them are about twenty times lower than the US frontier models made by OpenAI and Anthropic. They’re almost as good, and they aren’t that far behind.
The problem with US models is not just that they’re expensive (though that’s huge, there are tons of reports of AI use being cut back) but that they are CLOSED: meaning you can easily be cut off, or have prices raised, or have the model changed on you with no recourse. Open models you can adapt the model, you can run it on your own servers, or various server companies can, will and do run them for you on their servers which you rent.
It’s clear that Xi gets this, and thus that the CPC understands it as well. Open Source isn’t a liability, there’s a reason why Linux runs most of the world’s servers: closed tech is the liability. Open Source is the advantage. ......................
China just keeps coming across as smarter, more strategic and more human than the West. It’s sad, in a way, but it is what it is.
And I remain convinced that Chinese AI will be the winner over American.
The incident is a first and signals a seismic shift in cybersecurity.
and what we should do about it
........................................... What professionals are most concerned about is not stock prices themselves but the leverage structure underlying them. The current loop runs: AI expectations → semiconductor prices rise → leverage increases → ETF buying → index gains → additional leverage. In this structure, gains accelerate rapidly on the upside. On the downside, a chain reaction can develop: margin call → forced selling → further price decline → additional margin calls. The June 5th episode — a 3x leveraged semiconductor ETF losing 31% in a single session — is not an outlier. It is a preview.
............... A colder and more precise analysis of the current situation is the prerequisite for setting direction. At present, ordinary investors, professional daily traders, and institutional investors alike are riding a roller coaster. The April through June period saw indices and individual names — including AI and semiconductor stocks — move with volatility levels that defied prediction. This cannot be characterized as normal equity market behavior. The presence of overheating driven by credit investment and leverage strategies must be acknowledged .........
A new statement signed by 16 Nobel laureates marks a shift among economists who once greeted such warnings with skepticism
Investing Fare:
Are you still looking for a great summer read for your vacation? The Best Book Ever Written About Emotions, Markets, and Why You Sell at the Bottom
....................................................... The first kind of sitting happens before you own anything.
Livermore spent enormous stretches of his career doing nothing at all. Not analysing, not hedging, not “keeping a toe in” — flat, in cash, waiting for a setup that met his standard. The pivotal point either arrived or it did not. If it did not, he did not trade.
This is far harder than it sounds, .....
Livermore’s counter-position is blunt: not trading is a trade. A flat book is an active expression of the view that nothing on offer is good enough. He put it best in the line that deserves to be as famous as the first:
“There is a time to go long, a time to go short, and a time to go fishing.”
Charts:
(not just) for the ESG crowd:
Abstract. Emerging climate extremes should draw public attention to human-caused climate change. We expect unusual sea surface temperature (SST) and global warming the rest of this year to make 2026 hotter than 2024, despite 2024 being a peak El Nino year, while 2026 is only the lead-in year of an emerging El Nino. Beware the “surprise” record high being blamed on an extreme El Nino on top of global warming otherwise consistent with IPCC estimates. Instead, record warmth provides additional evidence of high climate sensitivity and increased net climate forcing in the past decade. These two factors are driving an unusual increase in global SSTs with major consequences.
................................................... O.K., so we were grasping for straws. We didn’t really have good news. If we want the accelerated warming to slow down, we must get Earth’s energy imbalance (lower panel of Fig. 6) to decrease. That means the world needs to get serious about reducing the humanmade climate forcing, and the world has not got very serious yet. Sorry, we will keep searching for some good news in our planet’s data.
(How not to deal with Canada's wildfire smoke situation)
............... boreal fires are very different than the kinds of fires in the Western US which can more feasibly be managed with brush clearing in the forest understory: “The Canadian boreal is not the Sierra Nevada. It burns in infrequent, high-intensity, stand-replacing crown fires that kill the whole stand on natural fire cycles measured in many decades to centuries”. In other words, to truly reduce the fire risk in the boreal forest ecologically you need to actually burn the forest, or remove it.
As such, effective forest management to prevent boreal wildfires thus means either a) logging the forest entirely (which takes away the risk on a temporary basis, but could increase fire risk in the long run according to the Canadian Parks and Wilderness Society); or b) controlled burns (which, unless timed to occur during periods of north-facing winds, could also cause large amounts of smoke to filter down to the US).
One of the main problems with both of these proposed solutions is scale. It simply isn’t feasible (nor desirable) to log or prescribe burn 1.3 billion acres of boreal forest. It’s simply too large and most of it too remote. ..................
A new study finds that tiny deep-ocean turbulence drives sea level rise, fisheries collapse and carbon absorption within a human lifetime - but current climate models fail to capture its speed or scale.
A hard look at the possible severity of the coming global food crisis and how it demands new approaches to analysis and decisions.
Even though this site, like many many others, warned early on that reduced fertilizer supplies and high energy costs, particularly of diesel, would translate into higher food costs. The added whammy of a super El Nino means even greater harvest shortfalls, bigger price increases for staples, and not just widespread hunger but starvation. Yet like many, we’ve been engaging in a bit of “drunk under the streetlight” behavior. Public officials and following them, the press and pundits, have intently covered war action, political positioning, and the most visible and imminent resource to come in short supply, oil and key distillates like diesel, gas, and jet fuel. Even though baked-in food shortages will produce not just desperation but could kick off social upheaval (recall food riots during the 1997 Asia crisis; Arab Spring was also triggered in large measure by a spike in food costs), they are getting bizarrely little interest now. The implicit attitude seems to be that there is nothing that can be done, so why worry, or worse that poor people, i.e., those who don’t matter much anyhow, will be the ones to suffer, while will merely have to do some belt-tightening.
Ruben lays out the sobering scope of the interconnected shortages and how the lack of data-gathering on farm planting means that officials are flying blind on how large the fall in agricultural output could be. He attributes the bizarre pervasiveness of “business as usual” thinking in the face of a looming disaster as the result of the strong preference for linear, narrow thinkers in most analytical/decision-making positions as opposed to those who take a broader, systems perspective. ..................
I’ve been thinking a lot lately about why climate change is so difficult to discuss calmly.
For some, it is the defining challenge of our time. For others, it is exaggerated or even a hoax. How can intelligent, well-intentioned people look at the same evidence and reach such different conclusions?
For me, the starting point is simple. The Earth is warming, and it’s warming faster than at any time since civilization emerged. It’s as if our civilization has developed a fever.
I’m not a climate scientist by training. I’m an Earth systems scientist. That gives me a somewhat different perspective—not because I know more about climate, but because I’m interested in how complex systems behave and adapt. ..................
U.S. B.S.:
Have you noticed how the liberal establishment hasn’t been nearly as emotional and outraged about Trump’s second term as they were about his first? Now that he’s the president who bombed Iran, the entire western political/media class is cool with him.
The term “Trump Derangement Syndrome” has always been used by the MAGA crowd as a blanket pejorative to protect the president from criticism, but during Trump’s first term it wasn’t entirely unfair. You’d see Democrats shrieking their lungs out over Trump doing things that other US presidents did all the time ..............
We’re not seeing any of that in Trump’s second term. ..........
Which is nuts, because he’s quantifiably far worse this time around. His domestic policies are much more tyrannical. He’s as evil a warmonger as the White House has ever seen. He’s so corrupt that he’s just openly admitting to being bought and owned by Zionist oligarchs while making his family a fortune using the power of his office. .................
................... They view him as one of their own now. When he finally dies, he will be lovingly eulogized by all the same liberal institutions which called him a second Hitler during his first term. He did enough to reassure them that the presidency of the United States had not been accidentally awarded to a decent human being.
.................... One of the dumbest popular narratives you see today is the idea that Zionists persuaded a reluctant Trump to start a war with Iran after he was re-elected, like they were chasing him around going “Would you like to bomb Iran?” like the guy from Green Eggs and Ham while he yelled “Not in a box! Not with a fox!” until he eventually caved in.
It is now abundantly clear that this war was planned a long time ago. ...............
War Fare:
.......................... Anything can happen in war, but I don’t see any way for the US to win this war if Iran stays the course, and we haven’t even included all the shortages coming down the line, especially now Ansar-Allah has closed another strait.
......... If America were even marginally competently run this would be the point where Congress would impeach Trump. He won’t admit defeat and oil stockpiles are running low. He has no viable part to victory, but keeps acting as if he does. He’s turning a military defeat into an economic catastrophe thru his delusional disconnect from reality, or perhaps because he’s being blackmailed. Whatever the reason for his behaviour, he needs to go. (Yes, I’m aware this won’t happen, that’s the point.)
In all my life, and I’m getting old now, I have never seen a stupider war or an American elite more determinedly detached from reality.
No1: Nothing to see here
Move along
A drone crashed into an oil tanker at Basra on Thursday morning.
No fire. No damage. Or so they said. Nobody got hurt.
And just because nothing happened, Iraq suspended loading at every export terminal it owns.
Until further notice.
The day before, Washington had reimposed its naval blockade of Iran and during seven hours was blasting the same hangars and inflatable launchers they already “love-tapped” thrice before.
West Texas crude closed twenty-six cents higher.
… Just because.
You are excused if you didn’t know that there’s a frickin’ war going on...
NOTHING makes any sense any longer.
The closer you stand to the actual stuff, the less you believe its price.
And because the strait itself is the running headline, let’s start with that:
Iran says Hormuz is closed until further notice.
Central Command says it isn’t.
IT IS - IT ISN’T - IT IS - … playground squabbles on the world stage.
Who knew Idiocracy would arrive this early?
The answer to “Schrödinger’s Strait” is the billion (maybe even trillion) dollar question. It’s only a fifth of the planet’s oil after all... And the whole artifice of abundant money and debt and derivatives is built on… I don’t know… A working economy??? Which without oil is kinda like … not working, you know? .....................
Geopolitical Fare:
More also have confidence in Xi than Trump, according to a survey in three dozen countries
Other Fare:
Aurelien: No Direction Home.
And no home either, come to that.
....................................................................... Today we have not heroes but victims, and we live in a world of competitive victimhood. This victimhood is a curious phenomenon, inasmuch as it is largely collective and identitarian. You are automatically a victim if you are a member of a “marginalised” or “historically disadvantaged” community, or one which suffers “structural discrimination.” It is rarely, these days at least, a status gained from identifiable personal experience, except of the kind “I was obviously discriminated against because I was …” Of course, the motives behind such assertions are comprehensible and even banal, if we understand that they are essentially entrepreneurial in nature, and amount to moral claims on others for money, power and influence, and special treatment. The problem arises when victimism becomes the default lens through which we view the world, and where people come to see themselves and others not as actual or potential actors, but just as passive victims.
We can see this in the way that coverage of conflicts and emergencies in the world is increasingly fixated on trying to count alleged victims, at the expense of trying to understand the issues. .................
But of course identifying yourself as a victim only makes sense as a strategy if you can thereby persuade or coerce some greater power or authority into helping you, or intervening in your favour. .............
This is why the learned helplessness of victimism is so dangerous at all levels. There have been bad times in history before now—worse, I should say—but there has never been a time I can think of when the necessary mental and moral resources to address and try to overcome challenges have been so lacking. .................
.................. So, basically, there is no psychologists’ consensus on question 1 at all. There is no credible broadly accepted definition of inner speech, or any of the terms used synonymously for it. Some papers argue that most people ‘have’ inner speech. Others, just as long and convoluted and full of (often reciprocal) citations, assert that most people don’t have it.
Living With Unbearable Knowledge in an Era of Polycrisis
................ While it is almost impossible to not know about these threats in the digital age, at least on some elementary level, it may also be unbearable to live with this knowledge, in which case people typically choose to willfully ignore what they cannot tolerate knowing. As Upton Sinclair famously quipped: “it’s difficult to get a man to understand something, when his salary depends upon his not understanding it.”
In his review of Mark Lilla’s book, Ignorance and Bliss: On Not Wanting to Know, Robert Pogue Harrison highlights T.S. Eliot’s observation that “humankind cannot bear very much reality,” nor Harrison adds, “can it bear much truth.” Humans have a remarkable capacity to willfully ignore realities and truths that threaten their identities, core values and beliefs, sense of belonging, and physical and economic security. As Harris explains:
Just as our sensory organs filter out all but a fraction of what surrounds us, our minds deflect from consciousness a great deal of what we can bear only in small measures. Our ability to ignore, repress, and deny is matched only by our ability to believe the unbelievable and to give chimeric notions the power to found religions, nations, and institutions. .................
Johnstone: Revolutionary Optimism Takes Practice
No comments:
Post a Comment