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GROWTH: From Microorganisms to Megacities

GROWTH: From Microorganisms to Megacities

Vaclav Smil’s latest book explores growth in nature and society. It examines the rules and patterns of growth in four key domains, those of the living world; human energy consumption; human artifacts; and human populations, societies and economies. The author is a passionate advocate of quantitative analysis, and thus Growth is filled with numbers, graphs and mathematical notation. Yet it’s written to be easily understood by non-mathematicians, making brilliant but accessible use of statistics to illustrate salient features of growth in all its terrestrial forms (the book’s scope is limited to Earth). In short, Growth is a compelling read for statisticians and non-statisticians alike.

A favorite author of Microsoft cofounder Bill Gates and a Foreign Policy magazine Top 100 Global Thinker, Smil is known for his multidisciplinary approach, energy-related expertise and penchant for packing his many books with all manner of fascinating facts. Growth‘s chapter on the biological realm supplies as fine a sampling of this latter propensity as can be found. Did you know that average dinosaur body volumes declined at the beginning of the final period of the Mesozoic era but then made a near-comeback to their previous highs by the time of the dinosaurs’ extinction? You will after reading this book–and if you’re as much of a nerd as I am, you’ll relish this and innumerable other scientific tidbits. You’ll also be awed by the 100-page bibliography and the fact that scarcely a sentence goes by without some bit of quantitative analysis or scholarly citation.

A Novel

Prehistoric trivia aside, Smil’s chapter on the living world rightly focuses on those life forms most necessary to humanity’s survival and the functioning of the biosphere. These include, of course, modern-day trees and forests, microorganisms, agricultural crops and animals.

 …click on the above link to read the rest of the article…

The Silver Series: The Start of A New Gold-Silver Cycle (Part 1 of 3)

The Silver Series: The Start of A New Gold-Silver Cycle (Part 1 of 3)

The world has experienced a decade of growth fueled by record-low interest rates, a burgeoning money supply, and historic debt levels – but the good times only last so long. 

As the global economy slows and eventually begins to retract, can precious metals offer a useful store of value to investors?

Part 1: The Start of a New Cycle

Today’s infographic comes to us from Endeavour Silver, and it outlines some key indicators that precede a coming gold-silver cycle in which exposure to hard assets may help to protect wealth. 

The Start of a New Gold-Silver Cycle

Bankers Blowing Bubbles

Since 2008, central bankers around the world launched a historic market intervention by printing money and bailing out major banks. With cheap and abundant money, this strategy worked so well that it created a bull market in every sector — except for precious metals. 

Stock markets, consumer lending, and property values surged. Meanwhile, the U.S. Federal Reserve’s assets ballooned, and so did corporate, government, and household debt. By 2018, total debt reached almost $250 trillion worldwide. 

Currency vs. Precious Metals

The world awash in unprecedented amounts of currency, and these dollars chase a limited supply of goods. Historically speaking, it’s only a matter of time before the price of goods increases or inflates – eroding the purchasing power of every dollar. 

Gold and silver are some of the only assets unaffected by inflation, retaining their value.

Gold and silver are money… everything else is credit.

– J.P. Morgan

The Perfect Story for a Gold-Silver Cycle?

Investors can use several indicators to gauge the beginning of the gold-silver cycle:

  1. Gold/Silver Futures

    Most traders do not trade physical gold and silver, but paper contracts with the promise to buy at a future price. Every week, U.S. commodity exchanges publish the Commitment of Traders “COT” report. This report summarizes the positions (long/short) of traders for a particular commodity. 

 …click on the above link to read the rest of the article…

Why the ECB should raise, not cut rates

Why the ECB should raise, not cut rates

Negative rates are likely one of the reasons behind the lacklustre European growth. Negative rates have worked as a tool to transfer wealth from savers to the indebted governments that have abandoned all structural reforms, while these extremely low rates have also perpetuated overcapacity, incentivised the refinancing of zombie companies and effectively worked as a disguised subsidy on low productivity. Not only those measures have damaged banks, but they have also created very dangerous collateral impacts (read “Negative Rates Have Damaged Banks But This Is Not The Worst Effect”).

In recent weeks we have heard of a likely new stimulus plan that would include a new repurchase program and further rate cuts. A new asset purchase program is completely unnecessary and unlikely to spur growth when all Eurozone countries already have sovereign debt with negative yields in 2-year maturities and the vast majority have negative real or nominal yields in the 10-year bonds.  Why would the ECB repurchase corporate and sovereign bonds when the issuers are already financing themselves at the lowest rates in history?  Furthermore, by reading some statements one would believe that the ECB has stopped supporting the economy. Far from it, when it repurchases all debt maturities in its balance sheet and has implemented another liquidity injection TLTRO in March 2019.

The main problem of those who defend further purchases and more negative rates is one of diagnosis. The central planners believe the Eurozone problems come from lack of demand, and that investment and credit growth are not what they would want them to be only because investors and corporates believe that rates will ultimately rise, leading to defensive positioning.

 …click on the above link to read the rest of the article…

It’s Happening Again: Maersk Halts Asia-Europe Loop Amid Global Slowdown

It’s Happening Again: Maersk Halts Asia-Europe Loop Amid Global Slowdown  

Growth in the world continues to collapse into late summer, so much so that Maersk and Mediterranean Shipping Company (MSC) had to “temporarily suspend” their AE2/Swan Asia to North Europe loop until mid-November, removing 20,000 twenty-foot equivalent unit (TEU) a week from trade, reported The Loadstar.

Collapsing demand and plunging shipping container rates have led to pain for carriers who sail their vessels along the route. This is the second time Maersk and MSC have suspended the circuit, and the last time this happened was last fall.

Maersk and MSC said it’s working hard to “balance its network to match reduced market demand for the upcoming [Chinese factory shutdown] Golden Week.”

Maersk and MSC said the AE2/Swan suspension would “help us to match capacity with the expected weaker demand for shipping services” from Asia to Europe.

Maersk and MSC said the service would resume “in line with demand pickup,” suggesting the suspension could be extended into 1H20 as global trade isn’t expected to pick up for the next six to eight months. 

Maersk and MSC adopted a similar strategy last year, suspending AE2/Swan Asia to North Europe loop from September to December, this was right around the time when stock markets across the world crashed from October to December, on fears the world economy was slowing. It just so happens that the global synchronized slowdown is much worse this year, likely the world has entered a manufacturing/trade recession in late summer 2019.

The suspension of AE2/Swan loop will see 12 17,800-20,500 TEU vessels idled for the next several months. 

The last time the AE2/Swan loop was halted, it was during the period when world stocks collapsed last fall.

Freightos freight data for China to Europe 40 ft shipping containers shows muted price recovery over the last several years.

 …click on the above link to read the rest of the article…

Lacalle: A Day Of Reckoning Looms For The Global Economy

Lacalle: A Day Of Reckoning Looms For The Global Economy

European and Asian economic data is deteriorating, says economist and author Daniel Lacalle.

“I’d call right now the day of reckoning,” Lacalle says, in this video excerpt of our soon-to-be released podcast In The Arena.

 “The entire message from mainstream consensus is ‘Yes there was a global slowdown,’ but using the trade war as an excuse.”

Lacalle argues that the global growth slowdown has absolutely nothing to do with the trade war and says the trend in economic data around the world suggests Wall Street estimates for global growth are still too high.

“We’re now in the reality check period,” Lacalle says.

“Now, the risk of recession is starting to build up.”

Keep it Simple

Keep it Simple

Markets blow up on Friday on a series of tweets, markets jam higher on the pronouncement of dubious phone calls on Monday. The rapid back and forth has many heads spinning and makes for dramatic headlines as people are searching for explanations. To which I say: Keep it simple, especially in the age of the great confusion.

Background: In 2019 market gains have been driven by pure multiple expansion resting on 2 pillars of support in the face of deteriorating fundamentals: 1. Hope for rate cuts and Fed efficacy 2. Trade optimism. But in process little to no gains are notable since the January 2018 highs, in fact most indexes are down sizably since then.

And when markets are purely reliant on multiple expansion the risk for accidents increases when confidence gets shaken. Friday’s escalation on the trade war front again highlights this point.

And in context of global growth slowing an escalation in the trade war is akin to playing with fire as it risks being a trigger to nudge the world economy into a global recession. After all 9 economies are either in recession or on the verge of going into recession.

This morning I was speaking with Brian Sullivan and he asked me what matters most here, the China trade war, the Fed, or technicals. The short answer is they all matter as it is a battle for control, but how to delineate a complex interplay of conflicting forces into some clarity?

Let me give you my take on all 3 fronts. Before I do, for background here’s the clip from this morning:

China:

Occam’s Razor: The simplest explanation is often the best one and that’s really what’s happening on the China trade war front as far as I’m concerned.

 …click on the above link to read the rest of the article…

Major Recession Alarm Sounds

Major Recession Alarm Sounds

Major Recession Alarm Sounds

Red, red, in every direction we turn today… red.

The Dow Jones shed 800 scarlet points on the day.

Percentage wise, both S&P and Nasdaq took similar whalings.

The S&P lost 86 points. And the Nasdaq… 242.

And so the market paid back all of yesterday’s trade-induced gains — with heaps of interest.

Worrying economic data drifting out of China and Germany were partly accountable.

Chinese industrial production growth has slackened to 4.8% year over year — its lowest rate since 2002.

And given China’s nearly infinite data-torturing capacities, we are confident the authentic number is lower yet.

Meantime, the economic engine of Europe has slipped into reverse. The latest German data revealed second-quarter GDP contracted 0.1%.

Combine the German and Chinese tales… and you partially explain today’s frights.

But today’s primary bugaboo is not China or Germany — or China and Germany.

Today’s primary bugaboo is rather our old friend the yield curve…

A telltale portion of the yield curve inverted this morning (details below).

An inverted yield curve is a nearly perfect fortune teller of recession.

An inverted yield curve has preceded recession on seven out of seven occasions 50 years running.

Only once did it yell wolf — in the mid-1960s.

An inverted yield curve has also foretold every major stock market calamity of the past 40 years.

Why is the inverted yield curve such a menace?

As we have reckoned prior:

The yield curve is simply the difference between short- and long-term interest rates.

Long-term rates normally run higher than short-term rates. It reflects the structure of time in a healthy market…

Longer-term bond yields should rise in anticipation of higher growth… higher inflation… higher animal spirits.

Inflation eats away at money tied up in bonds… as a moth eats away at a cardigan.

Bond investors therefore demand greater compensation to hold a [longer-term] Treasury over a [short-term] Treasury.

 …click on the above link to read the rest of the article…

BOOM! Fossil Fuel Combustion and the Mother of All Economic Busts

BOOM! Fossil Fuel Combustion and the Mother of All Economic Busts

Photograph Source: Eric Kounce TexasRaiser – Public Domain

William Catton focussed on what follows a boom in the human population. He spelled out the scenario in his 1980 book, Overshoot: The Ecological Basis of Revolutionary Change. As one reviewer put it, “Catton believed that industrial civilization had sown the seeds of its own demise and that humanity’s seeming dominance of the biosphere is only a prelude to decline.”

Catton hasn’t been alone. Many others have warned or at least implied an inevitable human population bust. But that inevitability is no longer likely to hit solely from overshoot alone, and not in some far-distant future. Instead, with the added pressure from our booming combustion of fossil fuels, a human population bust could plausibly be kicked into gear sometime “by” — a.k.a. before — 2050, or within the next 30 years.

This could be the mother of all economic busts.

The human population boom has been the bedrock of economic boom in sector after sector. It’s been the bedrock foundation of a profit boom for the fossil fuel combustion industries that now put it at risk. In the US alone, the booming human population has been the wellspring for surging numbers of visitors to the likes of Yellowstone National Park, city managers bent on promoting growth, the basis of soaring demand for logging to supply housing for a growing human herd.

Booms thus enjoy considerable public approval and political popularity. Over and over again, the long-ongoing human population boom has afforded the political elites and local boosters an opportunity to boast of a booming economy, sometimes raising local and even national concerns that they tout growth at any cost.

Bust, on the other hand, is a dirty four-letter word.

 …click on the above link to read the rest of the article…

Decoupling is dead! Long live degrowth!

Decoupling is dead! Long live degrowth!

Thomas Hawk

If making the degrowth case was like baking a cake, disproving the plausibility of green growth would be the equivalent of turning the oven on. Decoupling is only “a myth” or “a fantasy,” some would say, a notorious fallacy that requires as much attention as the confabulations of Flat Earthers. And yet, faith in decoupling is strengthening in environmental agendas all around the world, including the OECD, European Commission, World Bank, UNEP, as well as the Sustainable Development Goals where it even has its own target.

War of the de- words

The concepts of “degrowth” and “decoupling” are actually the same age. Décroissance (the French ancestor of degrowth) was born at a colloquium in 2002 and decoupling first adopted by the OECD in 2001. Since then, the squabbling has been incessant. Decouplers tout efficiency as a recipe for more goods and services at a lower environmental cost while degrowthers plead for sufficiency, arguing that less commodities is the only road to sustainability.

Reading over government reports today, it would seem that decoupling has won. But has it really? In a recent report (Decoupling debunked: Evidence and arguments against green growth), my co-authors and I have enquired to determine if the scientific foundations behind the decoupling hypothesis were robust. After reviewing the bulk of the latest empirical studies, our finding is clear: the decoupling literature is a haystack without a needle.

The validity of the green growth discourse relies on the assumption of an absolute, permanent, global, large and fast enough decoupling of Gross Domestic Product from all critical environmental pressures. Problem is: there is no empirical evidence for such a decoupling having ever happened. This is the case for materials, energy, water, greenhouse gases, land, water pollutants, and biodiversity loss, for which decoupling is either only relative, and/or observed only temporarily, and/or only locally.

 …click on the above link to read the rest of the article…

The Planetary Insanity of Eternal Economic Growth

The Planetary Insanity of Eternal Economic Growth

This is the fantasy: we can rebuild our entire global industrial society every generation or two forever. 

“Earthrise” is one of the most influential photographs ever published. Taken on the Apollo 8 mission in late December 1968 by astronaut Bill Anders, it captures Earth’s uniqueness, isolation and modest scale: a blue and white dot on a vast sea of lifeless darkness.

The revelation that strikes me is the insanity of pursuing eternal economic growth, not as an option but as the only possible path: there is literally no alternative to extracting ever greater quantities of the planet’s resources to enable ever greater consumption by the planet’s 7.7 billion humans.

Stripped to its essence, this mad drive is about profit and power. The necessity is sold as the only path to prosperity for humanity, but it’s really about securing wealth and power for the few.

A recent article in Scientific American magazine highlights how the idealistic impulses of protecting the planet’s diverse life from the machinery of “growth” are inevitably subsumed by the necessity for profit: The Ecologists and the Mine.

Here’s what these kinds of articles never say: markets cannot price in the value of non-monetized natural assets such as diverse ecosystems. Whatever cannot be monetized right now is worthless, as markets lack any mechanism to price in what cannot be valued by market supply and demand in the moment.

There is no way to fix this fatal flaw in markets, and attempts to do so are merely excuses deployed to enable the profitable exploitation and resulting ruin.

(Recall that neoliberalism is the quasi-religious ideology of turning everything on Earth into a market, so it can be exploited and financialized by the few at the expense of the many.)

 …click on the above link to read the rest of the article…

Blain’s Morning Porridge – July 11 2019 – Man on the Moon Day!

Blain’s Morning Porridge – July 11 2019 – Man on the Moon Day! 


“The Sky is not the limit – there are footprints on the Moon.” 

So many choices for this morning’s quote. The classic Armstrong “One Step” was too obvious. I did think about “To infinity and beyond”. But the one I chose is perhaps the best. Points if you can name who said it. Only four of the 12 men who walked on the Moon are still with us. It was a long time ago, but last night my wife, son and I were out to dinner in the West End. As we walked back past the Lego Store inn Leicester Square – look what was in the window! I’m going back to buy it later today!  

It took me back 50 years – July 11 1969. I was in the back garden in Fox Covert, Edinburgh, staring excited at the moon, asking Dad where the spaceship was. He tried to explain how far away it was and since it was only the size of a car, I’d not be able to see it. It was a terribly exciting day – the BBC showed the film of HG Well’s First Men on the Moon. Then came the iconic music; Also Sprach Zarathustra, which defined the whole Apollo era. Patrick Moore and James Burke explained what was going on. James Burke is still making sense today! We waited and waited and then the words. At some point I must have fallen asleep because I woke up in bed with my Action man lying on the floor in his (Gemini) spacesuit. 

It would be a terrible pity if we don’t go back to the Moon. Does it make commercial sense for us to go further?

 …click on the above link to read the rest of the article…

Trying To Prevent Recessions Leads To Even Worse Recessions

Trying To Prevent Recessions Leads To Even Worse Recessions

Deutsche Bank strategists Jim Reid and Craig Nicol wrote a report this week that echos what I and other Austrian School economists have been saying for many years: actions taken by governments and central banks to extend business cycles and prevent recessions lead to even more severe recessions in the end. MarketWatch reports – 

The 10-year old economic expansion will set a record next month by becoming the longest ever. Great news, right? Maybe not, say strategists at Deutsche Bank.

Prolonged expansions have become the norm since the early 1970s, when the tight link between the dollar and gold was broken. The last four expansions are among the six longest in U.S. history .

Why so? Freed from the constraints of gold-backed currency, governments and central banks have grown far more aggressive in combating downturns. They’ve boosted spending, slashed interest rates or taken other unorthodox steps to stimulate the economy.

“However, there has been a cost,” contended Jim Reid and Craig Nicol at the global investment bank Deutsche Bank.

“This policy flexibility and longer business cycle era has led to higher structural budget deficits, higher private sector and government debt, lower and lower interest rates, negative real yields, inflated financial asset valuations, much lower defaults (ultra cheap funding), less creative destruction, and a financial system that is prone to crises,’ they wrote in a lengthy report.

“In fact we’ve created an environment where recessions are a global systemic risk. As such, the authorities have become even more encouraged to prevent them, which could lead to skewed preferences in policymaking,” they said. “So we think cycles continue to be extended at a cost of increasing debt, more money printing, and increasing financial market instability.”

 …click on the above link to read the rest of the article…

The Fed’s Dangerous Inflation Game

The Fed’s Dangerous Inflation Game

The Fed’s Dangerous Inflation Game

By now you’ve heard that the U.S. economy expanded at an annualized rate of 3.2% in the first quarter of 2019. That was reported by the Commerce Department last Friday morning.

That strong growth coming on top of 4.2% in Q2 2018 and 3.4% in Q3 2018 means that in the past twelve months, the U.S. economy has expanded at about a 3.25% annualized rate. That’s a full point higher than the average growth rate since June 2009 when the expansion began and it’s in line with the 3.22% growth rate of the average expansion since 1980.

It looks as if the “new normal” is back to the old normal of 3% or higher trend growth. Or is it?

The headline growth rate of 3.2% was certainly good news. But, the underlying data was much less encouraging. Most of the growth came from inventory accumulation and government spending (mostly on highway projects). But, business won’t keep building inventories if final demand isn’t there. That’s where the 0.8% growth in personal consumption is troubling.

The consumer didn’t show up for the party in the first quarter.

If they don’t show up soon, that inventory number will fall off a cliff. Likewise, the government spending number looks like a one-time boost; you can’t build the same highway twice. Early signs are that the second quarter is off to a weak start.

Dig deeper and you can see that core PCE (the Fed’s preferred inflation metric) cratered from 1.8% to 1.3%. That’s strong disinflation and dangerously close to outright deflation, which is the Fed’s worst nightmare.

The data just show that the Fed is as far away as ever from its 2% target. But why should it even have 2% as its target?

 …click on the above link to read the rest of the article…

Globally Synchronized…

Globally Synchronized…

The economic sickness is predictably spreading. While unexpected in most of the world which still, somehow, depends on central banking forecasts, it really has been almost inevitable. From the very start, just the utterance of the word “decoupling” was the kiss of death. What that meant in the context of globally synchronized growth, 2017’s repeatedly dominant narrative, wasn’t the end of synchronized as many tried to say but the end of growth.

This was more than an economic factor. A fixed system leading into full, meaningful recovery was supposed to heal more than economy. Those political extremists who had multiplied and spread while waiting for it would be revealed as illegitimate, their complaints nothing more than some form of evil “ism.” The New York Times in January 2018 succinctly described its wider significance:

A decade after the world descended into a devastating economic crisis, a key marker of revival has finally been achieved. Every major economy on earth is expanding at once, a synchronous wave of growth that is creating jobs, lifting fortunes and tempering fears of popular discontent.

Well, purported significance anyway. If globally synchronized growth was “tempering fears of popular discontent”, the risks are pretty clear should there not be any. I wrote last September what wasn’t any sort of special insight:

From 2003 to 2009, it went: globally synchronized growth, decoupling, globally synchronized downturn. From 2010 to 2012, it went: globally synchronized growth, decoupling, globally synchronized downturn. From 2013 to 2016, it went: strong global growth (not synchronized), decoupling, synchronized downturn.

Last year [2017] to this year [2018], it has gone: globally synchronized growth, decoupling. What comes next?

The answer is here before us. Yesterday, the Bank of Canada throws in the towel on its end of the global economy. Last October, the Canadians were thinking how they had to get serious with their rate hikes. Now, officials admit in all likelihood there won’t be any more.

Something sure changed.

 …click on the above link to read the rest of the article…

Fake Growth? Exploring The Big Mystery In Friday’s GDP Report

Fake Growth? Exploring The Big Mystery In Friday’s GDP Report

We have become accustomed to the miraculous economic data ‘surprises’ that are propagandized out of China month after month – not too hot, not too cold, but just right – but in the latest US GDP data, as MarketWatch’s Greg Robb investigates, mystery theater comes to American government data…

It is a case that would make Sherlock Holmes proud.

Growth in the first quarter smashed expectations, fueled in part by strong inventory building. According to the government, $32 billion of goods were added to inventories this quarter, or $128 billion annualized.

This stockpiling of goods boosted first-quarter GDP growth by about 70 basis points and helped propel growth to a 3.2% annual rate, well above forecasts.

The problem is that it is not at all obvious where these inventories came from. Goods have to come from somewhere, either produced by domestic firms or imported from abroad.

The mystery is that both production and imports fell in the first three months of the year, according to government data.

“You can’t stockpile what you do not import or do not produce,” said Robert Brusca, chief economist at FAO Economics.

The Fed reported last week that industrial output slipped at a 0.3% annual rate in the first quarter.

And the government’s GDP report estimates that imports fell 3.7% in the first three months of the year.

The one other explanation — that consumption fell sharply enough to leave businesses with unexpected unsold goods — also doesn’t fit the evidence, Brusca said.

Consumption did not fall faster than industrial production or imports to generate any surplus, he said. To be sure, spending on consumer durable goods fell 5.3%, the biggest drop in 10 years. Business spending on equipment was also weak.

“Any way you slice it, this GDP report…is an apparent mess,” he said.

 …click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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