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History, Humility, and Wishful Thinking

The UK election and the “I will protect you, but forgot my umbrella” Tory campaign have both been shaken up by its pledge to bring back conscription for 18-year-olds. This is seen as a desperate gamble and sad joke by many commentators, and even ex-military leaders say it’s silly to enroll unskilled, unwilling young adults when the armed forces need more equipment of all sorts, which the recent 2.5% of GDP defense spending pledge falls very far short of. Yet the joke must also be on those laughing when the global backdrop is so very serious.

Stop thinking about Friday’s US PCE deflator data for a moment and look at the bigger picture. The main Bloomberg headline today is the G7 warning China over its trade practices. They want “balanced and reciprocal collaboration,” and will “consider taking steps to ensure a level playing field.” The US is already going to let tariff exclusions on hundreds of Chinese items expire, and the EU may be leaning towards a high tariff on Chinese EVs. Elsewhere, China is asking South Korea to maintain stable supply chains, as it moves closer to the US, and even Brazil, Chile, and Mexico have recently raised tariffs on Chinese steel.

In short, global trade war looms, and as Bastiat noted, “If goods don’t cross borders, soldiers will.” The problematic inverse is that even Adam Smith implied if some goods cross borders, soldiers don’t need to, and others won’t be able to when needed.

It’s not just trade war to fear. China just finished a huge military exercise that clearly rehearsed a blockade of Taiwan and says it will no longer accept US congressional delegations to Taipei: one including the CEO of Nvidia just opted to visit anyway…

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

War; Economic War; War; Military; War; Economic War – Do You Spot A Pattern?

November 1, 2022

War; Economic War; War; Military; War; Economic War – Do You Spot A Pattern?

The times are not just a-changin’ – they have changed. Let’s take six of the top seven headlines in the Financial Times this morning in Asia as Exhibit A:

‘Biden claims oil companies are ‘war profiteering’ as he floats windfall tax’
‘The Long View. Is Europe winning the gas war with Russia?’
‘Military Briefing: Russia and Ukraine prepare for the rigours of winter war’
‘The Big Read. Egypt and the IMF: will Sisi take the economy out of the military’s hands?’
‘The nuclear threats that hang over the world’
‘Live news updates: Putin says grain deal ‘suspended’ not terminated’’

Do you spot a pattern? War; economic war; war; military; war; economic war. Are you incorporating them into your forecasts? I can assure you that the vast majority of analysts still aren’t because this is apparently ‘exogenous’. If so, what is endogenous is irrelevant. Anyway, on we go into those murky waters, via a mini-edition of the Global D’Oily.

The White House has come out all guns blazing against Big Oil, calling them war profiteers (which the US is no stranger to: **cough** The 2003 Iraq War **cough**), and threatening windfall taxes. President Biden gave a public address and specifically tweeted that: “The oil industry has a choice. Either invest in America by lowering prices for consumers at the pump and increasing production and refining capacity. Or pay a higher tax on your excessive profits and face other restrictions.” Recall when in 2016 I talked of geopolitical ‘Thin Ice’ we could fall through, after which markets would no longer operate the way they used to? Well, it wasn’t just about tariffs: the US is now laying down the law to not only the Russian energy industry, but its own.

…click on the above link to read the rest…

Rabobank: It’s A Depressing Idea To Admit We Have No Ideas

June 22, 2022

Rabobank: It’s A Depressing Idea To Admit We Have No Ideas

It is said that small minds talk about people, average minds talk about events, and great minds talk about ideas – and I would add the smallest of minds talk about themselves.

The smallest-minded market view is what your individual asset class did yesterday. For example, I see across Bloomberg that ‘equities went up’, ‘bond yields went up’, and ‘oil went up’. No joined-up thinking as to what this means jointly.

The small-minded market view is President Biden telling the CEO of Chevron he was “mildly sensitive” for pointing out to the government how the energy market actually works, as oil rises again.

The average-minded market view is that the White House may cut gasoline taxes for 4 July. Yet even an average market mind should also be able to see this would be bad economics because it won’t help supply, while boosting demand. But careful now, that’s an idea!

The great-minded market view it is to accept what this Daily –and many others– have stressed repeatedly: that to raise rates means huge pain (and I add: and US geopolitical gain); and to cut rates means huge pain (and I add: and US geopolitical loss). There are no good choices. So, cheering equities going up while bond yields and energy also do makes no sense.

However, as Tom Hardy says to Leonardo DiCaprio in ‘Inception’, “Dream a little bigger, darling.”

I recently underlined that central banks have *never* been in real control of inflation. Their inflation-fighting success –or ‘over-success’ pre-Covid, when inflation was “too low”– was *always* reflected the local and global political-economic environments, neither of which they set. One can go back over history to show that fact very simply with a long-run CPI chart for the UK, transposing different local and global backdrops on top.

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

Rabobank: We Are In An Undeclared Global Economic War, And Worldwide Famine Is Coming

May 20, 2022

Rabobank: We Are In An Undeclared Global Economic War, And Worldwide Famine Is Coming

How Dare You

Markets whipsawed yesterday after bad US initial jobless claims and Philly Fed data, with stocks down and bond yields also lower, as was the US dollar. Commodities were a mixed picture, however, and oil prices rose around 5% again from its intra-day low to close over $111. Referring again to a bond yields/commodities matrix, that suggested the Fed falling behind the curve, not getting ahead of it, in crushing demand to fit restrained supply. Lo and behold, we then got the headline, ‘Fed’s George Says ‘Rough’ Market Won’t Alter Fed Tightening Plan’. So, how far down can bond yields go when actual Fed Funds are still going up? Likewise, how far down can the US dollar go when the 1-month Treasury bill is 41bps, and trending lower, when Fed Funds is 100bps, and trending higher – which screams ‘Eurodollar collateral shortage’?

As I tried to flag yesterday, those (valid) questions are desperately small beer in the face of what now confronts us globally – or at they should be. That is because The Economist’s front page and main story this week is ‘The coming food catastrophe’, replete with a graphic of sheaves of wheat made up of human skulls. The summary concludes,

“The high cost of staple foods has already raised the number of people who cannot be sure of getting enough to eat by 440m, to 1.6bn. Nearly 250m are on the brink of famine. If, as is likely, the war drags on and supplies from Russia and Ukraine are limited, hundreds of millions more people could fall into poverty. Political unrest will spread, children will be stunted, and people will starve.”

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

No Trucking Way

November 2, 2021

No Trucking Way

The financial economy and real economy used to live with each other happily: now they are in a long-distance relationship reliant on logistics to keep in touch. What happens when those logistics break down? (Very bad things, as I was discussing here the other day.)

We have covered the ocean-carrier side of this crisis (‘In Deep Ship’), and the new fee equivalent to $1m a day, and rising $1m each following day, for a 10,000 TEU vessel whose cargo is stuck in LA/LB port. However, we stressed in that report that the supply chain issue is more systematic. So, allow me to share quotes from an article exposing there is ‘No Trucking Way’ we are about to return to normal:

So when the coastal ports started getting clogged up last spring due to the impacts of COVID on business everywhere, drivers started refusing to show up. Congestion got so bad that instead of being able to do three loads a day, they could only do one. They took a 2/3 pay cut and most of these drivers were working 12 hours a day or more…

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

Rabo: Global Supply Chains Simply Will Not Be Able To Cope With Even More Stimulus

October 8, 2021

Rabo: Global Supply Chains Simply Will Not Be Able To Cope With Even More Stimulus

The Story is the Story

Today is a US payrolls Friday. I have covered 277 of these releases. A handful were of any lasting interest, signalling something the market didn’t already know beforehand, and a few dozen more were higher/lower enough to get a few days of trading from. The expectation is 500K, which I remind everyone is way, waaay lower than the implied “1 million a month” that was promised at the start of the year. And that is all I feel I need to add, given there will be 279 to follow, and so on (and on). Meanwhile, ongoing stories vastly outweigh the significance of any data.

The US debt-ceiling can is being kicked to 3 December. Hurrah for cans and hurrah for kicking! None of the larger problems on fiscal stimulus are being addressed, however. Indeed, the latest news is that Senator Manchin is insisting $1.5trn is as high as he will go. However, there are also suggestions that this may not mean choosing between three key programs Progressives want, but would instead see the 10-year timeframe compacted. In other words, a smaller headline bill with all the inflationary demand-boosting effects up front for a few years (presumably into the next election cycle…). And against a backdrop of global and US supply chains that simply will not be able to cope. That’s a story we will keeping seeing all over.

Global food prices in September already leaped again according to the FAO. That might not be seen in certain locations which no longer allow the FAO website to be accessed. However, the global story is still there even if the data aren’t…

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

Rabobank: As With Evergiven, Evergrande Is Just The Symtpom Of Far Larger Problems

September 21, 2021

Rabobank: As With Evergiven, Evergrande Is Just The Symtpom Of Far Larger Problems

It’s Ever Something

On 23 March, the giant cargo vessel Evergiven got stuck in the Suez Canal and blocked it for six days. Obviously, this dominated global headlines. Even Joe Shmoe could see global supply chains were not operating efficiently because of their gigantism. Six days, six months ago: yet today bullwhip supply-chain problems are still passing through the global system in escalating waves. Evergiven was just a symbol for those who had not been paying any attention to the underlying ‘too big to sail’ problems it represented. These were decades in the making, and will be years in the solving; will involve lots of money; and because they will also involve a different way of doing things, we haven’t even started yet in most places.

Evergrande, a giant Chinese property developer, has also run aground. Suddenly everyone in markets knows who it is, and is worrying about it. It is huge, and its debts are equally huge: $300bn, perhaps more. The whisper is that this could be China’s “Lehman moment”. Even with Chinese markets closed until Wednesday, we are seeing knock-on sell-offs around the world. Naturally, the upside specialists are also out there: Bloomberg today suggests market panic makes a bailout more likely: I think that dynamic only works on the US fiscal policy front.

Indeed, within China there is a spectrum of possible government approaches to the crisis. At one extreme, ‘the Austrian’, where the pieces fall where they may. I don’t think any economy anywhere would allow that to happen. At the other extreme, ‘socialism for the rich’, where everyone gets to carry on as if nothing happened, which is what we have seen in OECD since 2008…

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

Rabobank: We Live In A World Without Consequences Where Everyone Is Corrupt

September 17, 2021

Rabobank: We Live In A World Without Consequences Where Everyone Is Corrupt

Salo News Day

Regular readers will know I am a cynic. Try writing a Daily for over two decades and not be – and events over the last 24 hours underline that fact. Indeed, you could call it a “Salo News Day” in reference to the controversial Italian film “Salò, or the 120 Days of Sodom”, a loose adaptation of the 1785 novel by the Marquis de Sade. As Wikipedia puts it: “The film explores themes of political corruption, consumerism, authoritarianism, nihilism, morality, capitalism, totalitarianism, sadism, sexuality, and fascism.” In other words, a typical day at work in the markets of 2021.

After all, the Wall Street Journal reports “World Bank Cancels Flagship ‘Doing Business’ Report After Investigation”, frustrating to economists who rely on it. The rub is: “Chinese officials in 2018 were eager to see their ranking improve, and so Mr. Kim and Ms. Georgieva and their staff held a series of meetings to discuss ways that the report’s methodology could be altered to improve China’s rankings.” So untrustworthy World Bank data – and no consequences; a World Bank boss with a stained reputation – and no consequences; and an IMF boss with a stained reputation – and no consequences. That makes it two in a row for the IMF, with the previous one now running the ECB.

At the Fed, “Powell orders ethics review after Fed presidents disclosed multimillion-dollar investments”. Somehow this ethical violation on the part of the people running the global financial system passed them by until now. Yet is this really rare? How about if a rate-setter at a central bank told you over lunch about the land their company was snapping up for development? That happens – just not at the Fed. (As far as I know.)

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

Rabobank: The Market Has Become “Springtime For Hitler”

August 20, 2021

Rabobank: The Market Has Become “Springtime For Hitler”

Buy-all-the-stocks and Boom?

Readers will know my view that we are living in a black comedy. There is plenty of evidence of this, but US President Biden saying it is the Taliban who are in the midst of “an existential crisis” takes the biscuit today given the US is charging $2,000 for its citizens to be evacuated from Kabul while refugees go free, and the Wall Street Journal both reports the White House *was* told Afghanistan would likely collapse back in July, and op-eds “How Biden Broke NATO”.

Black comedy dates back to antiquity, but was defined academically by Sigmund Freud’s 1925 essay ‘Humour’ as when: “The ego refuses to be distressed by the provocations of reality, to let itself be compelled to suffer. It insists that it cannot be affected by the traumas of the external world; it shows, in fact, that such traumas are no more than occasions for it to gain pleasure.”

Which brings me to markets. There is always slapstick comedy on Wall Street: e.g., banks opening wealth management shops in China just as China launches a “wealth redistribution” campaign (and shares of European luxury brands slump, showing it is real), or buying shares in Chinese firms that are IOUs in the Caymans. There is surreal comedy: e.g., NFTs –literally infinite digital flatulence– becoming an ‘asset class’ as a hedge against fiat inflation. There are (illegal!) inside jokes: e.g., when certain names tell us to buy something they actually want to get out of. And there are bad jokes: e.g., central-bank inflation and growth forecasts. Yet right now, the most important dynamic is black comedy, in that traumas are no more than occasions to gain pleasure.

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

Rabobank: Does The Fed Have The Intelligence To Prevent A Collapse

August 19, 2021

Rabobank: Does The Fed Have The Intelligence To Prevent A Collapse

You came in like a wrecking ball

“There was nothing that I or anyone else saw that indicated a collapse in 11 days.”

Does the Fed have the intelligence to prevent such a collapse from happening? When one sees in the minutes that “some participants raised the possibility of imbalances arising from a protracted period of low interest rates and widely increased asset prices” one thinks perhaps not. Do those in DC really not know what they have wrought? Do those on the ground really not transmit the actual landscape upwards to the Beltway?

While the Fed were writing this, food prices were rising sharply. Property prices were rising sharply. And in ‘crypto province’, NFTs of a penguin were being bought on a Monday for $4K and sold on a Tuesday for $7K; “cute, sassy” Ethereum Kitty images were being bid at up to $4K each; and Christies was auctioning NFTs, as Old Money finds it can’t resist so much very new…

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

Rabo: Please Don’t Make Us Look At The Inflation

May 12, 2021

Rabo: Please Don’t Make Us Look At The Inflation

Markets continue to reel: “Risk crumbles”, says Bloomberg. Why? Because there is a plaintive plea from everyone from the Fed and the Treasury down to simple peddlers of exotic derivatives: please don’t make us look at the inflation! Yes, it’s US inflation-data day – and nobody wants to see any. If there is an upside surprise in CPI, to reflect the surges in the prices of so much around us, it will embarrass the Fed, and the US Dollar, and Yellen, and many others. Some pre-emptive positioning may already be underway: the White House said Tuesday it takes “the possibility of inflation seriously”, or should that have been “serious inflation is possible?”; and the Fed’s Bullard added the US will see inflation in 2021 and some will “hang on” in 2022. Is that still transitory?

China’s PPI surprised to the upside, which may prove a worrying harbinger: and, anecdotally, prices for shipping between to the US this summer is now up to seven times what it was a year ago on some routes. Of course, the delayed 2020 census was a harbinger too – of mercantilism. (See “A Midwife Crisis”: and thinking Fudd not Fed, this should have been titled “A Midwife Cwisis”, with the subtitle “Be Vewy, Vewy Quiet. I’m hunting positive demogwaphics. Huh huh huh.”

The German ZEW survey (of analysts, so irrelevant) perked up too, while the US NFIB survey (of businesses, so relevant) showed that despite the weak payrolls number on Friday, it is now the most difficult to find workers ever. Crucially, “owners are raising compensation, [and] offering bonuses and benefits to attract the right employees,” the survey added…

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

Rabo: We Are Edging Closer To A Biblical Commodity Price Increase Scenario

April 28, 2021

Rabo: We Are Edging Closer To A Biblical Commodity Price Increase Scenario

We Need Some Serious Remodelling

Yesterday’s Daily saw me float the model hypothesis that the Fed would like everyone to have all their money in stocks, so they would have a practical mechanism for inflating and deflating the economy above and beyond the need to mess around with interest rates or QE. Of course, this was a huge over-simplification. In particular, it overlooked housing: why bother only inflating stocks when not everyone holds them, when you can do the same to housing, which everyone needs? Lo and behold, yesterday’s S&P/CoreLogic 20-city prices were up 11.9% y/y. (A figure the RBA will look at with smug contempt: “That’s all you got?”)

Presumably the matching rise in US consumer confidence was driven more by stimulus checks in the mail than rent checks going out the door, or chats with realtors about affording a home in a country not exactly famous for its lack of available land. Yet surely the Fed is still missing a trick? Just switch to a digital currency, like China, and assets can be turned on and off at will, and there is no need to go through with the pretense of inflating asset markets in lieu of the general economy.

Yesterday’s Daily was also a vowel-less attempt to emphasize what is missing from the macro-models the Fed uses to form the view it will share with the world later today – in-between pushing up stock and house prices:

Functioning banks and credit are not part of it. Professor Steve Keen’s ‘Minsky’ software is unlikely used in the Eccles Building to spit out hockey-stick recoveries; or, if it is, the users really don’t understand what it implies is going to happen next;

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

Are We Staring At A Coming Systemic Breakdown & The End Of Capitalism?

March 25, 2021

Are We Staring At A Coming Systemic Breakdown & The End Of Capitalism?

Michael Every of Rabobank is concerned we are

For any problems they face, governments all over the world are now conditioned to simply deficit spend or issue new $trillions in ‘thin air’ currency.

So how in danger are we of that recklessness leading to a breakdown of the entire system?

Respected financial analyst Michael Every suspects we’re closer than most realize.

As governments continue to flood the world with debt-funded stimulus, they not only fan the flames under the social powderkeg of wealth inequality, but they are destroying their own powers in the process.

Up until the Great Financial Crisis, a dollar in new federal debt issued resulted in more than $1 in incremental GDP. But no longer:

Federal Debt Growth vs GDP Growth

That indicates the government is now at the ‘pushing on a string’ phase: it can’t grow out of its problems. Issuing new debt only digs the insolvency hole deeper at this point.

Which is why Michael agrees that now, more than ever, is the time to partner with a financial advisor who understands the nature of the risks and opportunities in play, can craft an appropriate portfolio strategy for you given your needs, and apply sound risk management protection where appropriate:

adam taggart, peak prosperity, michael every, rabobank, capitalism, money printing, credit expansion, central banks, monetary stimulus, growth, risk

On The Verge Of A Global Crisis: One Bank Warns Of A “Biblical” Surge In Food Prices

March 19, 2021

On The Verge Of A Global Crisis: One Bank Warns Of A “Biblical” Surge In Food Prices

Biblical, Lean, and Mean: ‘Dreams’ of an agri-commodity super-cycle

Then Pharaoh said to Joseph: “Behold, in my dream I stood on the bank of the river. Suddenly seven cows came up out of the river, fine looking and fat; and they fed in the meadow. Then behold, seven other cows came up after them, poor and very ugly and gaunt, such ugliness as I have never seen in all the land of Egypt. And the gaunt and ugly cows ate up the first seven, the fat cows. When they had eaten them up, no one would have known that they had eaten them, for they were just as ugly as at the beginning. So I awoke.”

– Genesis 41:17-21

Summary

Key feed and food prices have been pulled to 9-month and 7-year highs
We explore the ‘dream’ of Biblical scarcity; its origins and impacts; and draw comparisons with Joseph, the trader and central planner who avoided starvation for ancient Egypt
One point is clear: global food insecurity falls heaviest on lower income, importing nations, who spend a far greater share of their income on food than the richer ones
The Fed would play an ironic role in this process even as it embraces fighting poverty and inequality alongside inflation
This could exacerbate (geo)political risk – potentially even regarding institutional architecture

Our Base Commodity Call

At time of writing, our forecasts for three of the world’s key agri commodities, soybeans, corn, and wheat are as follows:

The First Big Commodity Call

In the Bible, Joseph interpreted Pharaoh’s dream as meaning great abundance for seven years would be followed by an equal famine. He was then entrusted with ensuring Egypt’s storehouses were full of grain so the country could survive – which he, and it, did.

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

Rabo: If Powell Does Nothing, We Will See Godzilla-Sized Shockwaves Across Markets Everywhere

March 15, 2021

Rabo: If Powell Does Nothing, We Will See Godzilla-Sized Shockwaves Across Markets Everywhere

“Quadzilla is approaching Tokyo!”

[Cue epic music] “Up from the depths; 30 trillion high; Breathing fire; Its name in the sky — Quadzilla! Quadzilla! Quadzilla!” [Sudden switch to comedy music] “…and Godz-EU-ki.”

They’ve already agreed to a joint Covid vaccine plan, where US vaccines will be produced in India, and Japan and Australia will help with the finances and logistics to distribute this throughout Asia. That’s powerful PR and diplomacy (even if India was already doing most of this alone, overlooked by Western media). Moreover, the Quad countries have pledged to ensure emissions reductions based on the Paris climate accord, as well as to cooperate on technology supply chains, 5G networks, and biotechnology. There are also defence agreements between most of them. It doesn’t take Austin going along for the ride to realize this is all about countering that other economic giant, China – which is as big and powerful as King Kong. So Quadzilla vs. Xi-ng Kong? That’s a movie already supposed to be released this year, coincidentally.

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

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