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Thanos Was Wrong: From Currency Resets To Limiting Infinite Growth

Thanos Was Wrong: From Currency Resets To Limiting Infinite Growth Authored by Tom Luongo via Gold, Goats, 'n Guns blog, A couple of weeks ago, RT ran a story purporting to explain the mystery behind the rise in exchange rate of the Russian ruble. It touched on a concept I’ve talked about vis a vis Russia for years: the disparity between nominal GDP which yields a number roughly the size of Canada and Purchasing Power Parity (PPP) GDP which puts Russia on par with Germany. While everything quoted here I feel is worth considering seriously, that GDP disparity that is what is important. … the West had defaulted on its obligations to Russia when it froze the assets of the country’s central bank. “This is the abolition (something like cancel culture) of the rules of international financial relations based on global total return swaps, redistribution of risk, guarantees of property rights and distribution of seigniorage.” It was these rules that determined the old ruble exchange rate and the approaches to its establishment that we are accustomed to, the expert said, adding that those rules “no longer apply.” Kopylov explained that the strengthening of the ruble is due to the fact that it is now based purely on exports and imports, and its value is determined by its purchasing power parity (PPP). The International Monetary Fund (IMF) estimated the Russian currency’s PPP at the end of 2021 at 29.127 rubles per one dollar. According to the Big Mac Index, that rate stood at 23.24 rubles to the dollar. I have pointed out for years that all discussions of the Russian economy in terms of nominal GDP are bogus.  Nominal GDP is spending within the Russian economy converted through the RUB/USD exchange rate. But that metric is irrelevant.  It doesn’t say anything about what that spending buys the average Russian. GDP is a stupid metric.  It should be called GNS, Gross National Spending. It is a dumb way to measure the ‘output’ of a society.  It’s at best a very gross approximation but it is, again, just aggregated spending. This is the fundamental fallacy of Keynesian demand-side economics and all theories about which economies are expanding or contracting based on spending are literally bogus. But we have all been trained to believe in GDP as some all-powerful measure of growth and power.  It’s not anything of the sort.  When you have the ability to print money at will to bid up the cost of the goods purchased with that money, how is that telling you anything about the health of the country, the people… or frankly anything at all? What it’s telling you is that spent money, but did you take that money from the pool of real savings and deploy it into sustainable economic projects? Or did you print the money out of thin air, issue debt that borrows against the future labor of the country’s citizens (or their kids…. or their grandkids) and pay someone to fulfill a ‘shovel-ready’ job of digging a hole and filling it back in? GDP, in statistical terms, is NOT an independent variable because of this. It’s value is dependent completely on the people controlling the inputs to it.  Therefore, as data, it is worthless.  As a scientist, I would throw it out of any discussion because it can’t be controlled for.   This is why the discrepancy between the ruble’s purchasing power internally is so much higher than its purchasing power externally.  Pre-war the ruble traded at 75 or so versus the dollar. But it’s PPP value was less than 30?  This means Russian GDP is at least (by this flawed metric) 2.5 higher than the nominal value. This is how the Russian economy in PPP terms is actually larger than Germany’s. But even then, PPP GDP is still a terminally flawed metric as a measure of output. It gets us closer to fair comparisons between country’s but it still says nothing about the economic value of the things the country spent their money on. The funny thing is Russia’s economy shouldn’t be larger than Germany’s in real terms, since most of Russia’s output is base commodities, which have the lowest value-added component of any good in a market.  The whole point of a sophisticated division of labor and economic system is to build up value through each stage in the production chain. Cars, for example, should have more ‘value’ associated with them than the iron ore that went into making the frame. This tells you how out of whack the world is in terms of the diversion of capital to unsustainable activity it actually is if a commodity producer is leading a manufacturing giant in wealth generation.  This is exactly why the currency shift from debt-based to commodity-based money is going to be so painful. And why the debt issuers are willing to risk nuclear war over it occurring. To them this is the end state of their power.   From Finite World to Infinite Growth In a recent article on this blog, I did a quick and dirty takedown of the globalist talking point about infinite growth in a finite world. That gaslighting was at the core of the conflict in the big story of the Marvel Cinematic Universe of films, which centered on Thanos coming to bring balance by destroying half of the life in the Universe. Davos has gaslit two entire generations of westerners in the Malthusian talking point that you can’t have infinite growth in a finite world. All of their economic dogma is predicated on this. It doesn’t matter that this talking point is predicated on an inane premise, truth is, after all treason, at this point in the economic and cultural cycle. But, to try and explain quickly for the slow-witted. GDP growth is not necessarily real growth. It’s just spending. It says nothing for the quality of the spending or whether, in real terms, the people spending the money are materially better off than they were at a previous point in time. What isn’t measured by GDP is VALUE. Value is what we crave, the ability to plan further into the future, using our ingenuity to find better mousetraps to build and more efficient, and yes sustainable, ways of deploying scarce capital and time. When you have a monetary system and regulatory regime designed to thwart that to stop growth then you have the world we live in today. That infinite growth is a subjective, not objective, measure…. not in GDP terms but in the ‘alleviation of human misery’ terms. Davos absolutely doesn’t want this because a world where everyone gets maximal value for their time is a world without our need for them. But in order for us to have a discussion about this, I need to lay out some base assumptions. First, that we have owners who agree with Julian Huxley that growth will lead to destruction of the planet, therefore we should not have any more meaningful growth. Second, only those who are currently with power have the will, intelligence and expertise to guide us to this next phase of humanity’s existence. In service of these controlling ideas: They have erected systems and barricades to real growth for decades in real terms, i.e. energy usage per unit ‘wealth’ … some call this EROEI = Energy Returned over Energy Invested.   They have stymied more efficient use of human capital by running us around in mazes which are dead ends — Light Water Nuclear Reactors vs. oil, replacing both with Solar, Wind, Electric Vehicles, etc. They foment wars to divert capital to useless weapons rather than applying it things which make our lives better, more predictable.  They specifically divert spending (GDP) to humans building systems which increase chaos and unpredictability rather than decrease it. They empower and expand bureaucracy to keep otherwise ‘useless people’ employed with meaningless jobs They have supported cultural degradation which undermined the nuclear family and local culture by promoting women into the workforce, divorcing them from their core strength as mothers and caregivers and putting them effectively on welfare, UBI. These are all the basic distractions which force us to waste most of our productive time running around on a hamster wheel of arbitrary obstacles in order to eke out some small measure of comfort. The basic reason for Human Action, as defined by Mises, is to alleviate future uncertainty.  Man acts purposefully towards that end, otherwise he wouldn’t act or he would act differently.   That said, we can have our rationality diverted to purposes which do not serve our better interests because of the perverse incentives placed in front of us through artificial barriers to capital formation.   Therefore, if we were acting with purpose towards our most efficient and creative ends to a more predictable future, infinite GDP growth would be a no-brainer. This isn’t to say infinite GDP growth is infinite resource utilization.   Because as you travel up the production chain to higher order goods, you produce more value relative to the input commodities… if you didn’t, then you wouldn’t do it. You would do something that did. What’s more valuable a tree growing on your property or the lumber you turn it into and then use to build a shelter? For an even more idiotic example, is there really $10,000 difference between a BMW 230i starting at $37.5k and a Ford Mustang in terms of raw input commodities, especially when, in the real world we’re talking more like $15,000?  No.  Both are roughly 3500 lbs of aluminum, steel, leather and plastic. So, where’s the value difference?  In the materials?  Again, not really.  It’s in the intellectual property of the engineering, the final driving experience and the perception of value by the consumer.   But in terms of them being a tool for potential wealth creation, the two care are, really fungible.  They can transport up to 3 people (realistically) and a little bit of cargo somewhere to do whatever it is that they do. Is that reflected in the purchasing price of these cars?  No.  Not at all.  But, if we sell more BMW’s as a percentage of Mustangs sold, are we expected to impute a higher capability of sustaining wealth production because of higher overall spending as measured by GDP? Sadly yes. And that’s where the disconnect is.   This is why, fundamentally, GDP is a poor measure of ‘growth.’   That said, absent the diversion of capital to the unsustainable as practiced by Davos you can have constant ‘growth’ in value terms. It is better stated that ‘growth’ is the alleviation of human suffering and/or uncertainty, which is what value is.   This is true because if we’re driving costs down to utilize natural resources ever more efficiently thanks to proper pricing of the money used to procure the input commodities, then we can move more of our spending out of base commodities into higher order goods with higher returns of perceived value. Moreover, the Malthusian/Huxleyian argument presupposes somehow that the Universe isn’t governed by the Laws of Conservation. Iron isn’t destroyed when a car is trashed, we just store it in a junkyard. The same goes for landfills and plastic. The problem we have today is that we act within a system which skims all the wealth created by our actions to the betterment of the people who produce nothing at all. All they produce is money and bad ideas, the former of which is based on your future labor and the latter sustained by it. Then they dupe you into selling your future labor back to you at a vig while trying to take all the intellectual property rights for your innovation and skill. We call these people Venture Capitalists. No wonder the Marxists see this system as exploitative. It is! But it’s also not the only way things can and/or should be organized. This isn’t a fault of capitalism and property but of our not properly pricing the cost of the State and all of its enforcement of our ‘rights.’ This is what leads to the concentration of power in the hands of rent-seeking douchebags and vandals. Sustainable growth where all factors of production are properly priced up the value-adding chain is the first step. That will lead to the rewards being shared more equitably by all involved. That model is not only possible, it’s the only system that is inevitable. Davos decided if we were not controlled and forced onto low-margin hamster wheels we would strip-mine the planet and destroy it.  That’s why it needs to be controlled and real growth curtailed.   What we have now is a system of maximal wastage of natural resources with minimal returns: cheap money begetting conspicuous consumption of resources while erecting barriers to new, competitive technologies at the expense of the producers of those input commodities. Thanos in the Marvel films makes the same mistake Davos and Huxley made, deciding in their hubris and arrogance that because they couldn’t see a solution to a problem they’d defined, that solution did not exist. This justified their acquisition of power unlimited to re-make the world in their image. The truly despicable nature of the Marvel films is that they spend so much time trying to make Thanos’ quest a noble one, a sympathetic one, rather than the rantings of a small-minded homunculus. I wonder who ordered that rewrite of the script to Infinity War? The Return of the Commodity King This is why the ruble is so undervalued, up until recently commodities had been driven below their cost of production through the corruption of all of us into the land of cheap money. It is why now, with the changes coming to the monetary architecture of the world, the ruble’s real purchasing power will finally be expressed, forcing commodity inflation in real terms on those whose currencies are overvalued. Gresham’s Law has never been wrong. Overvalued money circulates to procure unearned goods in the real world. Undervalued money is hoarded because savings is the pre-requisite of capital deployment. We are at the end of the cycle where the pile of real wealth has built up for decades unable to express itself while the ultimate psy-op fuels the biggest Ponzi scheme in history. When the confidence in the overvalued money (debt) falls, inflation rises rapidly as people demand goods and eschew money.  This will raise the prospect of the undervalued money (commodities) entering into circulation as its true value is finally expressed in the market. At that point you will then see what the real growth rate of the world is.  Gary North used to say that prior to the early 1800’s the real rate at which wealth compounded was ~1% annually.  Then something changed and it doubled to 2% and that scared the bejeesus out of the elites because too many people were getting rich too quickly to need them to look out for their interests.   Now you know why the Club of Rome began in the 1850’s, why central banking was so bitterly fought over here in the US then. It’s why Marx’s insane ideas were adopted by those with generational power.  It was to STOP our growth as a species, not keep it from destroying the planet, but their system of unearned privilege. *  *  * Join my Patreon if you like earning things Tyler Durden Sat, 05/21/2022 - 07:00.....»»

Category: blogSource: zerohedgeMay 21st, 2022

Thanos Was Wrong: From Currency Resets To Limiting Infinite Growth

Thanos Was Wrong: From Currency Resets To Limiting Infinite Growth Authored by Tom Luongo via Gold, Goats, 'n Guns blog, A couple of weeks ago, RT ran a story purporting to explain the mystery behind the rise in exchange rate of the Russian ruble. It touched on a concept I’ve talked about vis a vis Russia for years: the disparity between nominal GDP which yields a number roughly the size of Canada and Purchasing Power Parity (PPP) GDP which puts Russia on par with Germany. While everything quoted here I feel is worth considering seriously, that GDP disparity that is what is important. … the West had defaulted on its obligations to Russia when it froze the assets of the country’s central bank. “This is the abolition (something like cancel culture) of the rules of international financial relations based on global total return swaps, redistribution of risk, guarantees of property rights and distribution of seigniorage.” It was these rules that determined the old ruble exchange rate and the approaches to its establishment that we are accustomed to, the expert said, adding that those rules “no longer apply.” Kopylov explained that the strengthening of the ruble is due to the fact that it is now based purely on exports and imports, and its value is determined by its purchasing power parity (PPP). The International Monetary Fund (IMF) estimated the Russian currency’s PPP at the end of 2021 at 29.127 rubles per one dollar. According to the Big Mac Index, that rate stood at 23.24 rubles to the dollar. I have pointed out for years that all discussions of the Russian economy in terms of nominal GDP are bogus.  Nominal GDP is spending within the Russian economy converted through the RUB/USD exchange rate. But that metric is irrelevant.  It doesn’t say anything about what that spending buys the average Russian. GDP is a stupid metric.  It should be called GNS, Gross National Spending. It is a dumb way to measure the ‘output’ of a society.  It’s at best a very gross approximation but it is, again, just aggregated spending. This is the fundamental fallacy of Keynesian demand-side economics and all theories about which economies are expanding or contracting based on spending are literally bogus. But we have all been trained to believe in GDP as some all-powerful measure of growth and power.  It’s not anything of the sort.  When you have the ability to print money at will to bid up the cost of the goods purchased with that money, how is that telling you anything about the health of the country, the people… or frankly anything at all? What it’s telling you is that spent money, but did you take that money from the pool of real savings and deploy it into sustainable economic projects? Or did you print the money out of thin air, issue debt that borrows against the future labor of the country’s citizens (or their kids…. or their grandkids) and pay someone to fulfill a ‘shovel-ready’ job of digging a hole and filling it back in? GDP, in statistical terms, is NOT an independent variable because of this. It’s value is dependent completely on the people controlling the inputs to it.  Therefore, as data, it is worthless.  As a scientist, I would throw it out of any discussion because it can’t be controlled for.   This is why the discrepancy between the ruble’s purchasing power internally is so much higher than its purchasing power externally.  Pre-war the ruble traded at 75 or so versus the dollar. But it’s PPP value was less than 30?  This means Russian GDP is at least (by this flawed metric) 2.5 higher than the nominal value. This is how the Russian economy in PPP terms is actually larger than Germany’s. But even then, PPP GDP is still a terminally flawed metric as a measure of output. It gets us closer to fair comparisons between country’s but it still says nothing about the economic value of the things the country spent their money on. The funny thing is Russia’s economy shouldn’t be larger than Germany’s in real terms, since most of Russia’s output is base commodities, which have the lowest value-added component of any good in a market.  The whole point of a sophisticated division of labor and economic system is to build up value through each stage in the production chain. Cars, for example, should have more ‘value’ associated with them than the iron ore that went into making the frame. This tells you how out of whack the world is in terms of the diversion of capital to unsustainable activity it actually is if a commodity producer is leading a manufacturing giant in wealth generation.  This is exactly why the currency shift from debt-based to commodity-based money is going to be so painful. And why the debt issuers are willing to risk nuclear war over it occurring. To them this is the end state of their power.   From Finite World to Infinite Growth In a recent article on this blog, I did a quick and dirty takedown of the globalist talking point about infinite growth in a finite world. That gaslighting was at the core of the conflict in the big story of the Marvel Cinematic Universe of films, which centered on Thanos coming to bring balance by destroying half of the life in the Universe. Davos has gaslit two entire generations of westerners in the Malthusian talking point that you can’t have infinite growth in a finite world. All of their economic dogma is predicated on this. It doesn’t matter that this talking point is predicated on an inane premise, truth is, after all treason, at this point in the economic and cultural cycle. But, to try and explain quickly for the slow-witted. GDP growth is not necessarily real growth. It’s just spending. It says nothing for the quality of the spending or whether, in real terms, the people spending the money are materially better off than they were at a previous point in time. What isn’t measured by GDP is VALUE. Value is what we crave, the ability to plan further into the future, using our ingenuity to find better mousetraps to build and more efficient, and yes sustainable, ways of deploying scarce capital and time. When you have a monetary system and regulatory regime designed to thwart that to stop growth then you have the world we live in today. That infinite growth is a subjective, not objective, measure…. not in GDP terms but in the ‘alleviation of human misery’ terms. Davos absolutely doesn’t want this because a world where everyone gets maximal value for their time is a world without our need for them. But in order for us to have a discussion about this, I need to lay out some base assumptions. First, that we have owners who agree with Julian Huxley that growth will lead to destruction of the planet, therefore we should not have any more meaningful growth. Second, only those who are currently with power have the will, intelligence and expertise to guide us to this next phase of humanity’s existence. In service of these controlling ideas: They have erected systems and barricades to real growth for decades in real terms, i.e. energy usage per unit ‘wealth’ … some call this EROEI = Energy Returned over Energy Invested.   They have stymied more efficient use of human capital by running us around in mazes which are dead ends — Light Water Nuclear Reactors vs. oil, replacing both with Solar, Wind, Electric Vehicles, etc. They foment wars to divert capital to useless weapons rather than applying it things which make our lives better, more predictable.  They specifically divert spending (GDP) to humans building systems which increase chaos and unpredictability rather than decrease it. They empower and expand bureaucracy to keep otherwise ‘useless people’ employed with meaningless jobs They have supported cultural degradation which undermined the nuclear family and local culture by promoting women into the workforce, divorcing them from their core strength as mothers and caregivers and putting them effectively on welfare, UBI. These are all the basic distractions which force us to waste most of our productive time running around on a hamster wheel of arbitrary obstacles in order to eke out some small measure of comfort. The basic reason for Human Action, as defined by Mises, is to alleviate future uncertainty.  Man acts purposefully towards that end, otherwise he wouldn’t act or he would act differently.   That said, we can have our rationality diverted to purposes which do not serve our better interests because of the perverse incentives placed in front of us through artificial barriers to capital formation.   Therefore, if we were acting with purpose towards our most efficient and creative ends to a more predictable future, infinite GDP growth would be a no-brainer. This isn’t to say infinite GDP growth is infinite resource utilization.   Because as you travel up the production chain to higher order goods, you produce more value relative to the input commodities… if you didn’t, then you wouldn’t do it. You would do something that did. What’s more valuable a tree growing on your property or the lumber you turn it into and then use to build a shelter? For an even more idiotic example, is there really $10,000 difference between a BMW 230i starting at $37.5k and a Ford Mustang in terms of raw input commodities, especially when, in the real world we’re talking more like $15,000?  No.  Both are roughly 3500 lbs of aluminum, steel, leather and plastic. So, where’s the value difference?  In the materials?  Again, not really.  It’s in the intellectual property of the engineering, the final driving experience and the perception of value by the consumer.   But in terms of them being a tool for potential wealth creation, the two care are, really fungible.  They can transport up to 3 people (realistically) and a little bit of cargo somewhere to do whatever it is that they do. Is that reflected in the purchasing price of these cars?  No.  Not at all.  But, if we sell more BMW’s as a percentage of Mustangs sold, are we expected to impute a higher capability of sustaining wealth production because of higher overall spending as measured by GDP? Sadly yes. And that’s where the disconnect is.   This is why, fundamentally, GDP is a poor measure of ‘growth.’   That said, absent the diversion of capital to the unsustainable as practiced by Davos you can have constant ‘growth’ in value terms. It is better stated that ‘growth’ is the alleviation of human suffering and/or uncertainty, which is what value is.   This is true because if we’re driving costs down to utilize natural resources ever more efficiently thanks to proper pricing of the money used to procure the input commodities, then we can move more of our spending out of base commodities into higher order goods with higher returns of perceived value. Moreover, the Malthusian/Huxleyian argument presupposes somehow that the Universe isn’t governed by the Laws of Conservation. Iron isn’t destroyed when a car is trashed, we just store it in a junkyard. The same goes for landfills and plastic. The problem we have today is that we act within a system which skims all the wealth created by our actions to the betterment of the people who produce nothing at all. All they produce is money and bad ideas, the former of which is based on your future labor and the latter sustained by it. Then they dupe you into selling your future labor back to you at a vig while trying to take all the intellectual property rights for your innovation and skill. We call these people Venture Capitalists. No wonder the Marxists see this system as exploitative. It is! But it’s also not the only way things can and/or should be organized. This isn’t a fault of capitalism and property but of our not properly pricing the cost of the State and all of its enforcement of our ‘rights.’ This is what leads to the concentration of power in the hands of rent-seeking douchebags and vandals. Sustainable growth where all factors of production are properly priced up the value-adding chain is the first step. That will lead to the rewards being shared more equitably by all involved. That model is not only possible, it’s the only system that is inevitable. Davos decided if we were not controlled and forced onto low-margin hamster wheels we would strip-mine the planet and destroy it.  That’s why it needs to be controlled and real growth curtailed.   What we have now is a system of maximal wastage of natural resources with minimal returns: cheap money begetting conspicuous consumption of resources while erecting barriers to new, competitive technologies at the expense of the producers of those input commodities. Thanos in the Marvel films makes the same mistake Davos and Huxley made, deciding in their hubris and arrogance that because they couldn’t see a solution to a problem they’d defined, that solution did not exist. This justified their acquisition of power unlimited to re-make the world in their image. The truly despicable nature of the Marvel films is that they spend so much time trying to make Thanos’ quest a noble one, a sympathetic one, rather than the rantings of a small-minded homunculus. I wonder who ordered that rewrite of the script to Infinity War? The Return of the Commodity King This is why the ruble is so undervalued, up until recently commodities had been driven below their cost of production through the corruption of all of us into the land of cheap money. It is why now, with the changes coming to the monetary architecture of the world, the ruble’s real purchasing power will finally be expressed, forcing commodity inflation in real terms on those whose currencies are overvalued. Gresham’s Law has never been wrong. Overvalued money circulates to procure unearned goods in the real world. Undervalued money is hoarded because savings is the pre-requisite of capital deployment. We are at the end of the cycle where the pile of real wealth has built up for decades unable to express itself while the ultimate psy-op fuels the biggest Ponzi scheme in history. When the confidence in the overvalued money (debt) falls, inflation rises rapidly as people demand goods and eschew money.  This will raise the prospect of the undervalued money (commodities) entering into circulation as its true value is finally expressed in the market. At that point you will then see what the real growth rate of the world is.  Gary North used to say that prior to the early 1800’s the real rate at which wealth compounded was ~1% annually.  Then something changed and it doubled to 2% and that scared the bejeesus out of the elites because too many people were getting rich too quickly to need them to look out for their interests.   Now you know why the Club of Rome began in the 1850’s, why central banking was so bitterly fought over here in the US then. It’s why Marx’s insane ideas were adopted by those with generational power.  It was to STOP our growth as a species, not keep it from destroying the planet, but their system of unearned privilege. *  *  * Join my Patreon if you like earning things Tyler Durden Sat, 05/21/2022 - 07:00.....»»

Category: blogSource: zerohedgeMay 21st, 2022

Whither Bitcoin?

Whither Bitcoin? Authored by Eric Yakes via BitcoinMagazine.com, The world stands on the precipice of a monetary restructuring, with bitcoin seemingly the most likely to be adopted... albeit slowly. INTRODUCTION The world is reorganizing. People are attempting to comprehend the implications of recent events across a variety of dimensions: politically, geopolitically, economically, financially and socially. A feeling of uncertainty has eclipsed global affairs and individuals are developing an increased reliance on the thoughts of those bold enough to attempt comprehension. Experts are everywhere, but the expert is nowhere. I am not claiming to be an expert on anything, either. I read, write and do my best to piece together an understanding of vague and complex concepts. I’ve spent some time reading and thinking through various concepts and believe we are witnessing an inflection point of global trust. My goal is to explain the framework that led me to this conclusion. I’ll generally avoid discussing geopolitics and focus on the monetary and financial implications of this shift we are witnessing. The best place to start is understanding trust. THE WORLD RUNS ON TRUST We are witnessing a shift in global trust, setting the table for a new global monetary order. Consider Antal Fekete’s introduction from his seminal work Whither Gold?: “The year 1971 was a milestone in the history of money and credit. Previously, in the world's most developed countries, money (and hence credit) was tied to a positive value: the value of a well-defined quantity of a good of well-defined quality. In 1971 this tie was cut. Ever since, money has been tied not to positive but to negative values -- the value of debt instruments.” Debt instruments (credit) are built on trust — the most fundamental construct of organization. Organization allowed humanity to genetically eclipse its ancestors. Relationships, whether between individuals or groups, hinge on trust. Societies developed technologies and social structures to reduce the need for trust through reputations, security and money. Reputations reduce the need to trust because they represent an individual’s pattern of behavior: You trust some people more than others because of how they’ve acted in the past. Security reduces the need to trust that others will not hurt you in some form. You build a fence because you don’t trust your neighbors. You lock your car because you don’t trust your community. Your government has a military because it doesn’t trust other governments. Security is the price you pay to avoid the costs of vulnerability. Money reduces the need to trust that an individual will return a favor to you in the future. When you provide an individual a good or service, rather than trusting that they will return it to you in the future, they can immediately trade money to you, eliminating the need to trust. Stated differently, money reduces the need to trust that positive outcomes will happen while reputations and security reduces the need to trust that negative outcomes won’t happen. When money became entirely unanchored from gold in 1971, the value of money became a function of reputations and security, requiring trust. Before then, money was tied to the commodity gold, which maintained value through its well-defined quality and well-defined quantity and therefore didn’t require trust. Trust at a global level appears to be shifting across reputations and security, and thus credit money: Reputations — countries are trusting each other’s reputations less. The U.S. government’s reputation throughout recent history has been a global pillar of political stability and standard of financial and economic prudency. This is changing. The rise of U.S. populism has hindered its reputation as a politically stable country that allies depend on and rivals fear. Unprecedented economic and financial policy measures (e.g., bailouts, deficit spending, monetary inflation, debt issuance, etc.) are causing international powers to question the stability of the U.S. financial system. A hindrance to the reputation of the U.S. is a hindrance on the value of its money, to be discussed below. Security — countries are witnessing a contraction in global military order. The U.S. has been reducing its military presence and the world is shifting from a unipolar to a multipolar structure of order. The U.S.’ withdrawal of its military presence abroad has reduced its role as the monitor of international order and given rise to the military presence of rival nations. Reducing the assurance of its military presence internationally reduces the value of the dollar. Money — countries are losing trust in the international monetary order. Money has existed as either a commodity or credit (debt). Commodity money is not subject to trust through the reputations and security of governments while credit money is. Our modern system is entirely credit-based and the credit of the U.S. is the pillar upon which it exists. If the global reserve currency is based on credit, then the reputation and security of the U.S. is paramount to maintaining international monetary order. Trust in political and financial stability impacts the value of the dollar as does its holders’ demand for liquidity and stability. However, it’s not just U.S. credit money that is losing trust; it’s all credit money. As political and financial stability decline, we are witnessing a shift away from credit money entirely, incentivizing the adoption of commodity money. U.S. DEBT IS NOT RISK FREE Most recently, the reputation of U.S. credit has declined in an unprecedented way. Foreign governments historically trusted that the U.S. government’s debt is risk free. When financial sanctions froze Russia’s foreign exchange reserves, the U.S. undermined this risk-free reputation, as even reserves are now subject to confiscation. The ability to freeze the reserve assets of another country removed a foreign government’s right to either repay its debts or spend those assets. Now, international observers are realizing that these debts are not risk free. As the debt of the U.S. government is what backs its currency, this is a significant cause for concern. When the U.S. government issues debt, and demand from domestic and foreign buyers of it isn’t strong enough, the Federal Reserve prints money to purchase it in the open market and generate demand. Thus, the more U.S. debt countries are willing to buy, the stronger the U.S. dollar becomes — requiring less money printing by the Fed to indirectly enable government spending. Trust in the U.S. government’s credit has now been damaged, and thus so has the credit of the dollar. Further, trust in credit is declining in general, leaving commodity money as the more trustless option. First, I will examine this shift in the U.S. which applies specifically to its reputation and security, and then discuss the shifts in global credit (money). U.S. Dollar Dominance Will foreign governments attempt to de-dollarize? This question is complex as it not only requires an understanding of the global banking and payment systems but also maintains a geopolitical background. Countries around the world, both allies and rivals, have strong incentives to end global dollar hegemony. By utilizing the dollar a country is subject to the purview of the U.S. government and its financial institutions and infrastructure. To better understand this, let’s start by defining money: The above figure from my book shows the three functions of money as a store of value, medium of exchange and unit of account, as well as the supporting monetary properties of each below them. Each function plays a role in international financial markets: Store of Value — fulfilling this function drives reserve currency status. U.S. currency and debt is ~60% of global foreign reserves. A country will denominate its foreign exchange reserve assets in the most creditworthy assets — defined by their stability and liquidity. Medium of Exchange — this function is closely tied to being a unit of account. The dollar is the dominant invoicing currency in international trade and the euro is a close second, both of which fluctuate around ~40% of total. The dollar is also 64% of foreign currency debt issuance, meaning countries mostly denominate their debt in dollars. This creates demand for the dollar and is important. Since the U.S. issues more debt than domestic and foreign buyers are naturally willing to buy, they must print dollars to buy it in the market, which is inflationary (all else equal). The more foreign demand they can create for these newly printed dollars, the lower the inflationary impact from printing new dollars. This foreign demand becomes entrenched as countries denominate their contracts in the dollar, allowing the U.S. to monetize their debt. Unit of Account — Oil and other commodity contracts are often denominated in U.S. dollars (e.g., the petrodollar system). This creates artificial demand for the dollar, supporting its value while the U.S. government continually issues debt beyond amounts domestic and foreign buyers would be willing to purchase without the Fed creating demand for it. The petrodollar system was created by Nixon in response to a multi-year depreciation of the dollar after its fixed convertibility into gold was removed in 1971. In 1973, Nixon struck a deal with Saudi Arabia in which every barrel of oil purchased from the Saudis would be denominated in the U.S. dollar and in exchange, the U.S. would offer them military protection. By 1975, all OPEC nations agreed to price their own oil supplies in dollars in exchange for military protection. This system spurred artificial demand for the dollar and its value was now tied to demand for energy (oil). This effectively entrenched the U.S. dollar as a global unit of account, allowing it more leeway in its practices of money printing to generate demand for its debt. For example, you may not like that the U.S. is continually increasing its deficit spending (hindering its store of value function), but your trade contracts require you to use the dollar (supporting its medium of exchange and unit of account function), so you have to use dollars anyway. Put simply, if foreign governments won’t buy U.S. debt, then the U.S. government will print money to buy it from itself and contracts require foreign governments to use that newly printed money. In this sense, when the U.S. government’s creditworthiness (reputation) falls short, its military capabilities (security) pick up the slack. The U.S. trades military protection for increased foreign dollar demand, enabling it to continuously run a deficit. Let’s summarize. Since its establishment, the dollar has served the functions of money best at an international level because it can be easily traded in global markets (i.e., it’s liquid), and contracts are denominated in it (e.g., trade and debt contracts). As U.S. capital markets are the broadest, most liquid and maintain a track record of secure property rights (i.e., strong reputation), it makes sense that countries would utilize it because there is a relatively lower risk of significant upheaval in U.S. capital markets. Contrast this idea with the Chinese renminbi which has struggled to gain dominance as a global store of value, medium of exchange and unit of account due to the political uncertainty of its government (i.e., poor reputation) which maintains capital controls on foreign exchange markets and frequently intervenes to manipulate its price. U.S. foreign intervention is rare. Further, having a strong military presence enforces dollar demand for commodity trade per agreements with foreign countries. Countries that denominate contracts in dollars would need to be comfortable trading away military security from the U.S. to buck this trend. With belligerent Eastern leaders increasing their expanse, this security need is considerable. Let’s look at how the functions of money are enabled by a country’s reputation and security: Reputation: primarily enables the store of value function of its currency. Specifically, countries that maintain political and economic stability, and relatively free capital markets, develop a reputation for safety that backs their currency. This safety can also be thought of as creditworthiness. Security: primarily enables the medium of exchange and unit of account functions of its currency. Widespread contract denomination and deep liquidity of a currency entrench its demand in global markets. Military power is what entrenches this demand in the first place. If the reputation of the U.S. declines and its military power withdraws, demand for its currency decreases as well. With the shifts in these two variables in front of mind, let’s consider how demand for the dollar could be affected. OVERVIEW OF THE GLOBAL MONETARY SYSTEM Global liquidity and contract denomination can be measured by analyzing foreign reserves, foreign debt issuance, and foreign transactions/volume. Dollar foreign exchange reserves gradually declined from 71% to 60% since the year 2000. Three percent of the decline is accounted for in the euro, 2% from the pound, 2% from the renminbi and the remaining 4% from other currencies. More than half of the 11 percentage point decline has come from China and other economies (e.g., Australian dollars, Canadian dollars, Swiss francs, et al.). While the U.S. dollar decline in dominance is material, it obviously remains dominant. The primary takeaway is that most of the decline in dollar dominance is being captured by smaller currencies, indicating that global reserves are gradually becoming more dispersed. Note that this data should be interpreted with caution as the fall in dollar dominance since 2016 occurred when previous non-reporting countries (e.g., China) began gradually revealing their FX reserves to the IMF. Further, governments don’t have to be honest about the numbers they report — the politically sensitive nature of this information makes it ripe for manipulation. Source: IMF Foreign debt issuance in USD (other countries borrowing in contracts denominated in dollars) has also gradually declined by ~9% since 2000, while the euro has gained ~10%. Debt issuance of the remaining economies was relatively flat over this period so most of the change in dollar debt issued can be attributed to the euro. Source: Federal Reserve The currency composition of foreign transactions is interesting. Historically, globalization has increased the demand for cross-border payments primarily due to: Manufacturers expanding supply chains across borders. Cross-border asset management. International trade. International remittances (e.g., migrants sending money home). This poses a problem for smaller economies: the more intermediaries that are involved in cross-border transactions, the slower and more expensive these payments become. High-volume currencies, such as the dollar, have a shorter chain of intermediaries while lower-volume currencies (e.g., emerging markets) have a longer chain of intermediaries. This is important because it is these emerging markets that stand to lose the most from international payments and for this reason alternative systems are attractive to them. Source: Bank of England If we look at the trend in composition of foreign payments it’s evident that the dollar's share of invoicing is materially greater than its share of exports, illuminating its outsized role of invoicing in proportion to trade. The euro has been competing with the dollar in terms of invoicing share, but this is driven by its usage for export trade among EU countries. For the rest of the world, export share has been, on average, greater than 50% while invoicing share has remained less than 20% on average. Source: Journal of International Economics Lastly, let’s discuss the volume of trade. A currency with high volume of trade means that it is relatively more liquid and thus, more attractive as a trade vehicle. The chart below shows the proportions of volume traded by currency. The dollar has remained dominant and constant since 2000, expressing its desirability as a liquid global currency. What’s important is that the volume of all major global reserve currencies have declined slightly while the volume of “other” smaller world currencies has increased from 15% to 22% in proportion. Source: BIS Triennial Survey; (Note: typically these numbers are shown on a 200% scale — e.g., for 2019 USD would be 88.4% out of 200% — because there are two legs to every foreign exchange trade. I’ve condensed this to a 100% scale for ease of interpretation of the proportions). The dollar is dominant across every metric, although it has been gradually declining. Most notably, economies that are not major world reserves are: Gaining dominance as reserves and thus world FX reserves are becoming more dispersed. Utilizing the dollar for foreign transactions in significantly greater proportions than their exports and limited by a long chain of intermediaries when attempting to use their domestic currencies. Hurt the most by long chains of global intermediaries for their transactions and thus stand to gain the most from alternative systems. Increasing their share of foreign exchange volume (liquidity) while all the major reserve currencies are declining. There exists a trend whereby the smaller and less dominant currencies of the world are expanding but are still limited by dollar dominance. Pair this trend with the global political fragmentation occurring and their continued expansion becomes more plausible. As the U.S. withdraws its military power globally, which backs the dollar’s functions as a medium of exchange and unit of account, it decreases demand for its currency to serve these functions. Further, the dollar’s creditworthiness has declined since implementing the Russian sanctions. The trends of declining U.S. military presence and creditworthiness, as well as increased global fragmentation, indicate that the global monetary regime could experience drastic change in the near term. THE GLOBAL MONETARY SYSTEM IS SHIFTING Russia invaded Ukraine on Feb. 24, 2022, and the U.S. subsequently implemented a swath of economic and financial sanctions. I believe history will look back on this event as the initial catalyst of change towards a new era of global monetary order. Three global realizations subsequently occurred: Realization #1: Economic sanctions placed on Russia signaled to the world that US sovereign assets are not risk free. U.S. control over the global monetary system subjects all participating nations to the authority of the U.S. Effectively, ~$300 billion of Russia’s ~$640 billion in foreign exchange reserves were “frozen” (no longer spendable) and it was partially banned (energy still allowed) from the SWIFT international payments system. However, Russia had been de-dollarizing and building up alternative reserves as protection from sanctions throughout previous years. Now Russia is looking for alternatives, China being the obvious partner, but India, Brazil and Argentina are also discussing cooperation. Economic sanctions of this magnitude by the West are unprecedented. This has signaled to countries around the world the risk they run through dependence on the dollar. This doesn’t mean that these countries will begin cooperating as they are all subject to constraints under an international spiderweb of trade and financial relationships. For example, Marko Papic explains in “Geopolitical Alpha” how China is heavily constrained by the satisfaction of its growing middle class (the majority of its population) and fearful that they could fall into the middle-income trap (GDP per capita stalling within the $1,000-12,000 range). Their debt cycle has peaked and economically they are in a vulnerable position. Chinese leaders understand that the middle-income trap has historically brought the death of communist regimes. This is where the U.S. has leverage over China. Economic and financial sanctions targeting this demographic can prevent growth in productivity and that is what China is most afraid of. Just because China wants to partner with Russia and achieve “world domination” does not mean that they will do so since they are subject to constraints. The most important aspect of this realization is that U.S. dollar assets are not risk free: they maintain a risk of appropriation by the U.S. government. Countries with plans to act out of accordance with U.S. interests will likely start de-dollarizing before doing so. However, as much as countries would prefer to opt out of this dollar dependency, they are constrained in doing so as well. Realization #2: It’s not just the U.S. that has economic power over reserves, it’s fiat reserve nations in general. Owning fiat currencies and assets in reserves creates uncertain political risks, increasing the desirability of commodities as reserve assets. Let’s talk about commodity money vs. debt (fiat) money. In his recent paper, Zoltan Pozsar describes how the death of the dollar system has arrived. Russia is a major global commodity exporter and the sanctions have bifurcated the value of their commodities. Similar to subprime mortgages in the 2008 financial crisis, Russian commodities have become “subprime” commodities. They’ve subsequently declined materially in value as much of the world is no longer buying them. Non-Russian commodities are increasing in value as anti-Russia countries are now all purchasing them while the global supply has shrunk materially. This has created volatility in commodity markets, markets that have been (apparently) neglected by financial system risk monitors. Commodity traders often borrow money from exchanges to place their trades, with the underlying commodities as collateral. If the price of the underlying commodity moves too much in the wrong direction, the exchanges tell them that they need to pay more collateral to back their borrowed money (trader get margin-called). Now, traders take both sides in these markets (they bet the price will go up or that it will go down) and therefore, regardless of which direction the price moves, somebody is getting margin-called. This means that as price volatility is introduced to the system, traders need to pay more money to the exchange as collateral. What if the traders don’t have more money to give as collateral? Then the exchange has to cover it. What if the exchanges can’t cover it? Then we have a major credit contraction in the commodity markets on our hands as people start pulling money out of the system. This could lead to large bankruptcies within a core segment of the global financial system. In the fiat world, credit contractions are always backstopped — such as the Fed printing money to bail out the financial system in 2008. What is unique to this situation is that the “subprime” collateral of Russian commodities is what Western central banks would need to step in and buy — but they can’t because their governments are the ones who prevented buying it in the first place. So, who is going to buy it? China. China could print money and effectively bail out the Russian commodity market. If so, China would strengthen its balance sheet with commodities which would strengthen its monetary position as a store of value, all else equal. The Chinese renminbi (also called the “yuan”) would also begin spreading more widely as a global medium of exchange as countries that want to participate in this discounted commodity trade utilize the yuan in doing so. People are referring to this as the growth of the “petroyuan” or “euroyuan” (like the petrodollar and eurodollar, just the yuan). China is also in discussions with Saudi Arabia to denominate oil sales in the yuan. As China is the largest importer of Saudi oil, it makes sense that the Saudis would consider denominating trade in its currency. Further, the lack of U.S. military support for the Saudis in Yemen is all the more reason to switch to dollar alternatives. However, the more the Saudis denominate oil in contracts other than the dollar, the more they risk losing U.S. military protection and would likely become subject to the military influence of China. If the yuan spreads wide enough, it could grow as a unit of account, as trade contracts become denominated in it. This structure of incentives implies two expectations: Alternatives to the U.S. global monetary system will strengthen. Demand for commodity money will strengthen relative to debt-based fiat money. However, the renminbi is only 2.4% of global reserves and has a long way to go towards international monetary dominance. Countries are much less comfortable utilizing the yuan over the dollar for trade due to its political uncertainty risks, control over the capital account and the risk of dependence on Chinese military security. A common expectation is that either the West or the East is going to be dominant once the dust settles. What’s more likely is that the system will continue splitting and we’ll have multiple monetary systems emerge around the globe as countries attempt to de-dollarize — referred to as a multipolar system. Multipolarity will be driven by political and economic self-interest among countries and the removal of trust from the system. The point about trust is key. As countries trust fiat money less, they will choose commodity-based money that requires less trust in an institution to measure its risk. Whether or not China becomes the buyer of last resort for Russian commodities, global leaders are realizing the value of commodities as reserve assets. Commodities are real and credit is trust. Bitcoin is commodity-like money, the scarcest in the world that resides on trustless and disintermediated payment infrastructure. Prior to the invasion of Ukraine, Russia had restricted crypto assets within its economy. Since then, Russia’s position has changed drastically. In 2020, Russia gave crypto assets legal status but banned their use for payments. As recently as January 2022, Russia’s central bank proposed banning the use and mining of crypto assets, citing threats to financial stability and monetary sovereignty. This was in contrast to Russia’s ministry of finance, which had proposed regulating it rather than outright banning it. By February, Russia chose to regulate crypto assets, due to the fear that it would emerge as a black market regardless. By March, a Russian government official announced it would consider accepting bitcoin for energy exports. Russia’s change of heart can be attributed to the desire for commodity money as well as the disintermediated payment infrastructure that Bitcoin can be transferred upon — leading to the third realization. Realization #3: Crypto asset infrastructure is more efficient than traditional financial infrastructure. Because it is disintermediated, it offers a method of possession and transfer of assets that is simply not possible with intermediated traditional financial infrastructure. Donations in support of Ukraine via crypto assets (amounting to nearly $100 million as of this writing) demonstrated to the world the rapidness and efficiency of transferring value via just an internet connection, without relying on financial institutions. It further demonstrated the ability to maintain possession of assets without reliance on financial institutions. These are critical features to have as a war refugee. Emerging economies are paying attention as this is particularly valuable to them. Bitcoin has been used to donate roughly $30 million to Ukraine since the start of the war. Subsequently, a Russian official stated that it will consider accepting bitcoin, which I believe is because they are aware that bitcoin is the only digital asset that can be used in a purely trustless manner. Bitcoin’s role on both sides of the conflict demonstrated that it is apolitical while the freezing of fiat reserves demonstrated that their value is highly political. Let’s tie this all together. Right now, countries are rethinking the type of money they are using and the payment systems they are transferring it on. They will become more avoidant of fiat money (credit), as it is easily frozen, and they are realizing the disintermediated nature of digital payment infrastructure. Consider these motivations alongside the trend of an increasingly fragmented system of global currencies. We’re witnessing a shift towards commodity money among a more fragmented system of currencies moving across disintermediated payment infrastructure. Emerging economies, particularly those removed from global politics, are postured as the first movers towards this shift. While I don’t expect that the dollar will lose primacy anytime soon, its creditworthiness and military backing is being called into question. Consequently, the growth and fragmentation of non-dollar reserves and denominations opens the market of foreign exchange to consider alternatives. For their reserves, countries will trust fiat less and commodities more. There is a shift emerging towards trustless money and desire for trustless payment systems. ALTERNATIVES TO THE GLOBAL MONETARY SYSTEM We are witnessing a decline in global trust with the realization that the age of digital money is upon us. Understand that I am referring to incremental adoption of digital money and not full-scale dominance — incremental adoption will likely be the path of least resistance. I expect countries to increasingly adopt trustless commodity assets on disintermediated payment infrastructure, which is what Bitcoin provides. The primary limiting factor to this adoption of bitcoin will be its stability and liquidity. As bitcoin matures into adolescence, I expect this growth to increase rapidly. Countries that want a digital store of value will prefer bitcoin for its sound monetary properties. The countries most interested and least restrained in adopting digital assets will be among the fragmented developing world as they stand to gain the most for the least amount of political cost. While these incremental shifts will be occurring in tandem, I expect the first major shift will be towards commodity reserves. Official reserve managers prioritize safety, liquidity and yield when choosing their reserve assets. Gold is valuable in these respects and will play a dominant role. However, bitcoin’s trustless nature will not be overlooked, and countries will consider it as a reserve despite its tradeoffs with gold, to be discussed below. Let’s walk through what bitcoin adoption could look like: Source: World Gold Council; Advanced reserve economies includes the BIS, BOE, BOJ, ECB (and its national member banks), Federal Reserve, IMF and SNB. Since 2000, gold as a percentage of total reserves has been declining for advanced economies and growing for China, Russia and the other smaller economies. So, the trend towards commodity reserves is already in place. Over this same period gold reserves have fluctuated between nine and 14% of total reserves. Today, total reserves (both gold and FX reserves) amount to $16 trillion, 13% of which ($2.2 trillion) is gold reserves. We can see in the below chart that gold as a percentage of reserves has been rising since 2015, the same year the U.S. froze Iran’s reserves (this was ~$2 billion, a much smaller amount than the Russia sanctions). Source: World Gold Council. Reserves have been growing rapidly in China, Russia and smaller economies as a whole. The chart below shows that non-advanced economies have increased their total reserves by 9.4x and gold reserves by 10x, while advanced economies have increased total reserves by only 4x. China, Russia and the smaller economies command $12.5 trillion in total reserves and $700 billion of those are in gold. Source: World Gold Council. The growth and size of smaller economy reserves is important when considering bitcoin adoption among them as a reserve asset. Smaller countries will ideally want an asset that is liquid, stable, grows in value, disintermediated and trustless. The below illustrative comparison stack ranks broad reserve asset categories by these qualities on a scale of 1-5 (obviously, this is not a science but an illustrative visualization to facilitate discussion): Countries adopt different reserve assets for different reasons, which is why they diversify their holdings. This assessment focuses on the interests of emerging economies for bitcoin adoption considerations. Bitcoin is liquid, although not nearly as liquid as fiat assets and gold. Bitcoin isn’t stable. Standard reserve assets, including gold, are much more stable. Bitcoin will likely offer a much higher capital appreciation than fiat assets and gold over the long run. Bitcoin is the most disintermediated as it has a truly trustless network — this is its primary value proposition. Storing bitcoin doesn’t require trusted intermediaries and thus can be stored without the risk of appropriation — a risk for fiat assets. This point is important because gold does not maintain this quality as it is expensive to move, store and verify. Thus, bitcoin’s primary advantage over gold is its disintermediated infrastructure which allows for trustless movement and storage. With these considerations in mind, I believe the smaller emerging economies that are largely removed from political influence will spearhead the adoption of bitcoin as a reserve asset gradually. The world is growing increasingly multipolar. As the U.S. withdraws its international security and fiat continues to lose creditworthiness, emerging economies will be considering bitcoin adoption. While the reputation of the U.S. is in decline, China’s reputation is far worse. This line of reasoning will make bitcoin attractive. Its primary value-add will be its disintermediated infrastructure which enables trustless payments and storage. As bitcoin continues to mature, its attractiveness will continue to increase. If you think the sovereign fear of limiting its domestic monetary control is a strong incentive to prevent bitcoin adoption, consider what happened in Russia. If you think countries won’t adopt bitcoin for fear of losing monetary control, consider what happened in Russia. While Russia’s central bank wanted to ban bitcoin, the finance ministry opted to regulate it. After Russia was sanctioned, it has been considering accepting bitcoin for energy exports. I think Russia’s behavior shows that even totalitarian regimes will allow bitcoin adoption for the sake of international sovereignty. Countries that demand less control over their economies will be even more willing to accept this tradeoff. There are many reasons that countries would want to prevent bitcoin adoption, but on net the positive incentives of its adoption are strong enough to outweigh the negative. Let’s apply this to the shifts in global reputations and security: Reputations: political and economic stability is becoming increasingly riskier for fiat, credit-based assets. Bitcoin is a safe haven from these risks, as it is fundamentally apolitical. Bitcoin’s reputation is one of high stability, due to its immutability, which is insulated from global politics. No matter what happens, Bitcoin will keep producing blocks and its supply schedule remains the same. Bitcoin is a commodity that requires no trust in the credit of an institution. Security: because Bitcoin cannot trade military support for its usage, it will likely be hindered as a global medium of exchange for some time. Its lack of price stability further limits this form of adoption. Networks such as the Lightning Network enable transactions in fiat assets, like the dollar, over Bitcoin’s network. Although the Lightning Network is still in its infancy, I anticipate this will draw increased demand to Bitcoin as a settlement network — increasing the store of value function of its native currency. It’s important to understand that fiat assets will be used as a medium of exchange for some time due to their stability and liquidity, but the payment infrastructure of bitcoin can bridge the gap in this adoption. Hopefully, as more countries adopt the Bitcoin standard the need for military security will decline. Until then, a multipolar world of fiat assets will be utilized in exchange for military security, with a preference for disintermediated payment infrastructure. CONCLUSION Trust is diminishing among global reputations as countries implement economic and geopolitical warfare, causing a reduction in globalization and shift towards a multipolar monetary system. U.S. military withdrawal and economic sanctions have illuminated the lack of security within credit-based fiat money, which incentivizes a shift towards commodity money. Moreover, economic sanctions are forcing some countries, and signaling to others, that alternative financial infrastructure to the U.S. dollar system is necessary. These shifts in the global zeitgeist are demonstrating to the world the value of commodity money on a disintermediated settlement network. Bitcoin is postured as the primary reserve asset for adoption in this category. I expect bitcoin to benefit in a material way from this global contraction in trust. However, there are strong limitations to full-scale adoption of such a system. The dollar isn’t going away anytime soon, and significant growth and infrastructure is required for emerging economies to utilize bitcoin at scale. Adoption will be gradual, and that is a good thing. Growth in fiat assets over Bitcoin settlement infrastructure will benefit bitcoin. Enabling a permissionless money with the strongest monetary properties will spawn an era of personal freedom and wealth creation for individuals, instead of the incumbent institutions. Despite the state of the world, I’m excited for the future. Whither Bitcoin? Tyler Durden Fri, 04/15/2022 - 13:00.....»»

Category: dealsSource: nytApr 15th, 2022

Malthusianism, Prometheanism, & The Hyper-Bitcoinized World To Come

Malthusianism, Prometheanism, & The Hyper-Bitcoinized World To Come Via Cathedra.com, 2021 Letter to Shareholders Dear Fellow Shareholders of Cathedra Bitcoin Inc: In 1798, a British economist was concerned that the incessant increase in population would cause humanity to run out of food. As a solution, he supported a variety of measures aimed at curbing the rate of population growth (e.g., taxes on food) to improve the living standards for those humans who did survive. The economist in question, Thomas Malthus, was raised in a country house in Surrey, was educated at Jesus College Cambridge, became a Fellow of the Royal Society in 1818, and–in simple terms–championed policies designed to limit (or end) human life to prevent this population bomb. “Instead of recommending cleanliness to the poor, we should encourage contrary habits. In our towns we should make the streets narrower, crowd more people into the houses, and court the return of the plague.” – Thomas Malthus, “An Essay on the Principle of Population” (1798) Looking back, we can see that such predictions have (fortunately) not come to fruition. The human population has grown ninefold since Malthus penned his infamous piece, “An Essay on the Principle of Population.” Meanwhile, technology has given humanity the ability to channel energy in ways unimaginable to Malthus, allowing us to enjoy levels of prosperity that make the elitist Malthus look like a serf in comparison. Yet we are not without our troubles. In response to COVID-19, the last two years have seen an unprecedented degree of government intervention around the world, through mandates as well as record-breaking fiscal and monetary stimulus. Meanwhile, food shortages have visited the developed and developing worlds alike. Housing, asset, and commodity prices are soaring, with even the dubious Consumer Price Index reaching its highest level in four decades in the U.S. And around the world, civil unrest is on the rise. We believe the root causes of these issues are quite simple: unsound money and unsound energy infrastructure. In this first annual letter to Cathedra Bitcoin shareholders, we examine the current state of both and discuss how they inform our vision for the future of the company. Macro Update: Energy The European Energy Crisis For the last six months, headlines have been filled with a “European Energy Crisis.” As the global economy surged back to life after 18 months of lockdowns, a perfect storm of events unfolded: over the summer, China increased natural gas imports following a coal shortage, causing power prices to rise in Europe; in September, a wind shortage beset northern Europe, resulting in enormous sums being paid to dispatch other (“dirtier”) forms of generation; reduced natural gas imports from Russia left Europe with historically low natural gas reserves; in December, unusually cold temperatures hit the continent, sending shockwaves through energy markets (even serving as a catalyst for the civil unrest in Kazakhstan); and Russia’s invasion of Ukraine in recent weeks has sent oil and gas prices surging, bringing calls for increased domestic energy production. These events have conspired to cause a sharp increase in energy prices around the continent. One is tempted to point to any one of the above as a “black swan event” driven by unforeseeable forces beyond our control (in hindsight, it will be even more tempting to blame this crisis on Putin’s invasion of Ukraine). But in reality, Europe has been systematically dismantling its stable energy infrastructure for over a decade. And unfortunately, they are not alone. Take California, for example: over the last decade, the state has seen energy prices rise 7x more than those in the rest of the U.S., and blackouts have become “almost daily events.” If one looks deeper, a far subtler cause reveals itself: misguided policies that subsidize intermittent renewables and shutter stable forms of generation, the net effects of which are energy insecurity and higher energy costs. The Real “Energy Transition” Beginning in the early 2000s, governments around the world began reorienting energy policy around climate change. These “net-zero” policies push for an “energy transition” away from CO2-emitting energy sources toward 100% “renewable” energy, primarily via subsidies to intermittent wind and solar generation. On the surface, these policies seem to have worked. EU power generation from renewables has increased 157% in the last ten years. As a result, in 2020, renewable generation in Europe surpassed that of fossil fuels for the first time, providing 38% of the region’s electricity (vs. fossil fuels’ 37%). And these policies are only accelerating: in July 2021, the EU announced its even more ambitious goal to reduce greenhouse gas emissions by 55% by 2030, requiring an estimated tripling of wind and solar generation from 547 TWh in 2020 to ~1,500 TWh in 2030. These pro-renewables policies have been paired with the abandonment of more stable forms of generation. Coal continues to be pushed out of the generation stack due to its heavy carbon footprint and the rising cost of carbon credits. Additionally, despite the seemingly obvious importance of nuclear energy in a “net-zero” carbon future, regulators have been shutting down nuclear reactors around the world in response to environmentalist movements[1] (a trend that accelerated in the wake of the Fukushima disaster). Germany alone shut down 16 GW of nuclear power since 2011, and plans to retire its last three nuclear power plants this year. With hydro being geography-dependent and long-term energy storage unsolved, natural gas is left as the main  viable form of dispatchable generation. Given self-imposed fracking bans, Europe has no choice but to import natural gas via LNG or pipelines (largely from Russia). Returning to California, we see the same dangerous combination of policies. Despite the aforementioned rising electricity costs and grid fragility, the state is decommissioning its last nuclear power plant at Diablo Canyon–responsible for ~10% of the state’s electricity–while reasserting goals to achieve “net-zero” by 2045. Unfortunately, even if stable forms of generation are not discarded by mandates, renewables subsidies distort market signals. This auxiliary revenue stream of carbon or renewable energy credits allows wind and solar farms to sell power to the grid at negative prices, often driving unsubsidized, baseload generation out of business. The net result? The hollowing out of sound energy infrastructure, which increases both the costs and fragility of the energy system. In her book Shorting the Grid, Meredith Angwin warns of a “fatal trifecta” affecting grids around the world: (1) overreliance on renewables, (2) overreliance on natural gas, often used to load-follow renewables, and (3) overreliance on energy imports. When demand outpaces supply, either due to diminished output from renewables or heightened demand (e.g., during a cold snap), grid operators seek to dispatch additional generation. But natural gas and energy imports are both vulnerable to disruptions, as natural gas is typically delivered just-in-time via pipelines and neighboring regions are likely to experience correlated supply or demand shocks (read: weather). This results in more expensive energy (increased demand chasing limited supply) or enforced blackouts (e.g., Texas in February 2021). “Grid fragility” may sound like a highly abstract concept, but its real-world consequences are severe. It means industry halting, hospitals losing power, and even access to clean water being threatened. Such effects are so severe that energy-insecure countries tend to rely on more rudimentary forms of energy, including expensive backup diesel generators, to keep the lights on. Robert Bryce has termed this phenomenon the “Iron Law of Electricity”: people, businesses, and governments will do whatever they must to get the electricity they need[2]. We fear these confused policies are causing an energy transition of the wrong kind–one toward energy insecurity. Its effects are clear in the U.S., where “major electric disturbances and unusual occurrences” on the grid have increased 13x over the last 20 years. Meanwhile, Generac, a leading gas-powered backup generator company, saw 50% growth in sales in 2021 (it's worth highlighting the contradiction between the stated aims of these “net-zero” policies and their downstream effects). A Malthusian Approach to Energy Energy insecurity is also expensive. Dependence on intermittent renewables often results in paying top-dollar for energy when it’s needed most. During its September wind shortage, the UK paid GBP 4,000 per MWh to turn on a coal power plant–a clear demonstration that not all megawatt hours are created equal. The quality of energy matters. With renewables, humanity is once again at the mercy of the weather. This is the underlying logic of these “net-zero” policies: make energy more expensive so that we use less of it. In fact, economists advising the European Central Bank view rising energy costs (“greenflation”) as a feature, not a bug–a necessary consequence of the energy transition. Rising energy prices are a regressive tax on the least well-off in society. We all require energy to survive (heating/cooling, food, water, etc.), regardless of our wealth. These requirements are effectively a fixed cost; the lower one’s income, the greater the percentage of it one spends on energy. There is a point beyond which rising energy costs become unsustainable, sending people to the streets to fight for their survival–as we saw in Kazakhstan after the spike in LPG prices. Researchers estimate that each 1% increase in heating prices causes a 0.06% increase in winter-related deaths, with disproportionate effects in low-income areas. “If energy is life, then the lack of energy is death.” – Doomberg, “Shooting Oil in a Barrel” (2021) Energy is the key input for every other good and service in the economy, and over time accounts for all wealth in an economy. To the extent energy gets more expensive, so does everything else (including and especially food), making society poorer. This is the Malthusian approach to energy. Expensive “green” energy that the elites can afford, while the unwashed masses bear the brunt of those rising costs. Energy for me, but not for thee. We question the political and social sustainability of such an approach. Enter Entropy Energy’s role is even more fundamental to the economy and human well-being than most understand. As we’ve discussed elsewhere, what is commonly understood as “energy generation” is really just the conversion of energy into a more highly ordered form; it is the reduction of entropy locally by shedding even greater amounts of entropy elsewhere. Despite the universality of this entropy reduction, some energy resources are inherently lower-entropy than others (highly dense nuclear fission vs. low-density wind power). We depend on this entropy reduction to sustain us through the food and energy we need to maintain the order of civilization. This entropy reduction is cumulative; without sufficient entropy-reducing energy infrastructure, we cannot maintain our existing order. We cannot create entropy-reducing energy infrastructure without adequate pre-existing infrastructure. And we cannot advance further as a civilization (i.e., create more order) unless we develop even more entropy-reducing infrastructure. “We never escape from the need for energy. Whatever the short-term variations might look like, the trend over time is for greater energy use, to deliver and crucially to maintain and replace a human sphere that is progressively further away from thermodynamic equilibrium. There is no point at which you sit down and have a rest.” – John Constable, “Energy, Entropy and the Theory of Wealth” (2016) There is no free lunch when it comes to energy. If a country’s economy grows while reducing energy consumption, it is only through de-industrialization, exporting its energy footprint to other countries (the same often holds true for carbon emissions). The second law of thermodynamics is indeed a law, the best attested regularity in natural science, not a tentative suggestion: the entropy must go somewhere. Unfortunately, distortions caused by our current monetary system have convinced many otherwise, a deception that has had dire consequences. Macro Update: Money For the last 50 years the world has participated in an unprecedented experiment: a global fiat monetary standard. In 1974, a few years after “Tricky Dick” Nixon rug-pulled the other governments of the world by severing convertibility of the U.S. dollar into gold, the U.S. struck a deal with Saudi Arabia to cement the dollar’s status as the global reserve currency: the OPEC nations would agree to sell oil exclusively for U.S. dollars, and the Saudis would receive the protection of the U.S. military in return. This arrangement, which survives to this day, became known as the “Petrodollar system,” and it has had enduring economic, social, and political consequences: securing the dollar’s status as the reserve currency of the world; bidding up U.S. asset prices via petrodollar “recycling;” displacing U.S. manufacturing capabilities and increasing economic inequality between American wage-earners and asset-owners; and contributing to the secular decline in interest rates, causing an accumulation of public- and private-sector debts and distortions in the pricing mechanism for all other assets (typically viewed in relation to the “risk-free rate” of interest on Treasuries). In recent years, cracks in the foundation of this system have begun to show. A half-century of irresponsible fiscal and monetary policy has pushed sovereign and private sector debt to the brink of unsustainability and fragilized financial markets. The once steady foreign demand for Treasuries is evaporating, forcing the Fed to begin monetizing U.S. deficits at an increasing rate. The U.S.’s share of global GDP is waning, and the role of the dollar in key trading relationships is diminishing. Even the once-mighty U.S. military—on whose supremacy the entire Petrodollar system was predicated—shows signs of degeneration. The U.S. response to the COVID-19 pandemic has accelerated many of these trends. Through a series of legislative and executive actions in 2020 and 2021, Congress and the Trump and Biden administrations approved nearly $7 trillion of spending on COVID relief, a large majority of which increased the federal deficit. Not to be outdone, the Fed authorized its own emergency measures to the tune of $7 trillion. In the nearly two years since these extraordinary actions, the U.S. and the global economy has been defined by record-low interest rates (which is part of the explanation for the interest in subsidized renewables); acute supply chain disruptions (read: shortages) across critical markets; a continuation of the asset price inflation of prior decades; and the highest levels of consumer price inflation in 40 years. This last development—“not-so-transitory” CPI inflation—is perhaps most significant given it represents a departure from economic conditions since the Great Financial Crisis. The Fed now faces a predicament. With mounting cries from the public and political officials over the runaway CPI, the pressure is on Jay Powell & Co. to arrest inflation by raising interest rates. But the current state of public and private sector balance sheets complicates matters. As the Fed increases rates, so too does it increase the federal government’s borrowing cost, not to mention that of a private sector which is also saddled with dollar-denominated debt. If corporates are unable to service or refinance their debt, they will be forced to reduce costs, resulting in higher unemployment. Rest assured; rates aren’t going higher for long. Global balance sheets will not allow it. This suggests to us that we may be entering a period of financial repression, whereby inflation is allowed to run hot while interest rates remain pinned near zero, producing negative real returns and deleveraging balance sheets over several years. We also find it likely that the Fed will be forced to implement some version of a yield curve control program. Under such a policy, the central bank commits to purchasing as many bonds as necessary to cap the yields of various maturities of Treasuries at certain predetermined levels. There is precedent for a maneuver of this sort: the Fed implemented a version of the policy throughout the 1940s to inflate away the national debt during and after WWII. At the end of the long-term debt cycle, the only option is to inflate away the debt and debase the currency. But unlike in the 1940s, citizens, businesses, and governments now have several monetary alternatives available to them. We therefore believe the coming period of structural inflation will hasten a transition to a new monetary standard. The Currency Wars Cometh The writing is on the wall; the post-Bretton Woods monetary system is in its death throes. The question is not if we will see a paradigm shift away from the present dollar-based monetary order, but when. And the far more interesting question, in our view, is: what will replace it? We believe the next global monetary system will be built atop Bitcoin—with bitcoin the asset and Bitcoin the network working together to offer final settlement in a digitally native, fixed-supply reserve currency on politically neutral rails. Bitcoin uniquely enables this value proposition, and game theory and economic incentives will compel nation-states to take notice amid the collapsing monetary order. But it is not without competition. Central Bank Digital Currencies Bitcoin is the ideological and economic foil to another candidate for heir to the petrodollar: the central bank digital currency (“CBDC”). The retail CBDC—which is the variety most often discussed in policy circles—is a natively digital form of fiat money that is issued, managed, and controlled by the central bank. Their proponents claim CBDCs would enable many of the same benefits as cryptocurrencies—near-instant final settlement, programmability, high availability, etc.—without many of the attendant “disadvantages”—decentralization, untraceability, etc. CBDCs open up a whole new design space for monetary authorities, empowering them to implement creative and fine-grained policies which heretofore have been confined to masturbatory thought-experiments in BIS papers (e.g., negative interest rates). They would also allow for all manner of fiscal policies which today are operationally or technically infeasible; one can imagine government-imposed parameters around how and when a given sum of CBDC money is spent, digitally programmed into one’s Fed wallet. A universal basic income program could be effected with a single keystroke. In many ways, the CBDC is the perfect Malthusian implement. Their inherent programmability allows for granular, top-down rationing of resources for whatever “greater good” suits the politically powerful. “I’m sorry, sir. Your card has been declined, as you have already exceeded your weekly beef quota. Might we suggest a more environmentally friendly alternative, such as a Bill Gates pea protein patty?” Such a system amounts to highly efficient regulatory capture; citizens are only permitted to spend money on those goods and services favored by The Powers That Be (or the corporate interests that fund them). Expect CBDCs to further distort the pricing mechanism, leading to a variety of market failures (such as the current energy crises). Skeptics of such claims need only be reminded of the U.S. government’s recent history of abusing its power to restrict politically undesirable financial activities. It should come as no surprise that the CBDC model is being pioneered by the Chinese Communist Party in the form of a “digital renminbi.” Make no mistake—wherever a CBDC is implemented, it will be weaponized by the State for political ends. In the West, such a system would be readily abused to create a Chinese-style social credit system—but one cloaked in the neo-liberal parlance of “financial inclusion,” “climate justice,” and “anti-money laundering.” CBDCs: Coming to A Country Near You? We remain cautiously optimistic that the U.S. will forgo implementing this dystopian technology. The U.S. remains among the freest nations in the world, both politically and culturally. A CBDC is wholly incompatible with American values, and we expect millions of Americans would resist the complete usurpation of their financial lives by the State. Additionally, a retail CBDC implemented by the Fed would transfer power from the commercial banks whose interests the Fed was conceived to protect to the federal bureaucracy[3]. And is there any doubt that the U.S. now lacks the state capacity to implement a CBDC, a feat which would require a high degree of technical and operational competence? Figure 1: Which Way, Western Man? BTC vs. CBDC Bitcoin for America So, how can the U.S. extend its financial leadership of the 20th century amid the decaying Petrodollar system? The U.S. is already the frontrunner in nearly all things Bitcoin—trading volumes, mining activity, number of hodlers, entrepreneurial and business activity, capital markets activity, etc. We submit that the path of least resistance would be for America to lean into its leadership in the Bitcoin industry and embrace the technology as a privacy-respecting, open-source, free-market, and fundamentally American alternative to the totalitarian CBDC. What does “adopting Bitcoin” look like for a country like the U.S.? It is likely some combination of: (i) authorizing bitcoin as legal tender, (ii) removing onerous capital gains tax treatment, (iii) subsidizing or sponsoring mining operations (which could support domestic energy infrastructure, in turn), (iv) purchasing bitcoin as a reserve asset by the Fed and/or Treasury, or (v) making the dollar convertible into bitcoin at a fixed exchange rate. We see early signs that such a move by the U.S. may not be so far-fetched. Notably, major American policymakers have already signaled support for bitcoin as an important monetary asset and nascent industry. The “crypto” sector has grown into an important lobby in D.C. and represents a highly engaged, motivated constituency—politicians are taking notice. In our estimation, Bitcoin’s economic incentives and congruence with American values make it the leading candidate for U.S. adoption as a successor to the present monetary order. As the current dollar-based system continues to deteriorate, we are excited by the potential for a U.S.-led coalition of freedom loving nations moving to a Bitcoin Standard. Money, Energy, and Entropy Energy is the fundamental means to reduce entropy in the human sphere, and money is our tool for the direction of energy towards this end. We use money to communicate information about economic production, resolving uncertainty about how scarce resources ought to be employed. And we seek out highly ordered sources of energy to resist the influence of entropy on our bodies and societies. In his lecture, “Energy, Entropy and the Theory of Wealth,” John Constable of the Renewable Energy Foundation observes that all goods and services—and indeed, civilizations—are alike in that they are thermodynamically improbable. All require energy as an input and necessarily create order (i.e., reduce entropy) in the human domain, shifting the local state further away from thermodynamic equilibrium. So then, wealth can be understood as a thermodynamically improbable state made possible through human entropy reduction. If material wealth is measured by the goods and services one has at one’s disposal, then wealth creation on a sound monetary standard is the reduction of entropy for others, and one’s wealth is a record of one’s ability to reduce entropy for fellow man. Unsound money (of the sort the Malthusians celebrate) increases uncertainty—and therefore, entropy—in economic systems. Active management of the money supply confuses the price signal, reducing the information contained therein and erecting an economic Tower of Babel. Fiat money therefore contributes to malinvestment—entrepreneurial miscalculations which produce the wrong goods and services and increase societal entropy. Nowhere is this more apparent than in our energy infrastructure: unsound money has caused malinvestment in unsound sources of generation. As noted above, a half-century of government subsidies and declining interest rates made possible by the Petrodollar system has steered capital towards unreliable renewables that invite greater entropy into the fragile human sphere, dragging us ever closer toward thermodynamic equilibrium (read: civilizational collapse). Cathedra Bitcoin Update Our macro views on energy and money inform everything we’re doing at Cathedra. Chief among them is the belief that sound money and cheap, abundant, highly ordered energy are the fundamental ingredients to human flourishing. Our company mission is to bring both to humanity, and so lead mankind into a new Renaissance—one led by Bitcoin and the energy revolution we believe it will galvanize. Accordingly, with Cathedra we’ve set out to build a category-defining company at the intersection of bitcoin mining and energy. One which is designed to thrive in the turbulent years of the present energy and monetary transition and in the hyperbitcoinized world we believe is to come. In December we announced a change of the company’s name from Fortress Technologies to Cathedra Bitcoin. Our new name reflects our aspirations for the company and for Bitcoin more broadly. The gothic cathedral is a symbol of bold, ambitious, long-term projects; indeed, any single contributor to the monument would likely die before its completion, but contributed nonetheless—because it was a project worth undertaking. So it is with Cathedra, and so it is with Bitcoin. The religious connotations of the name “Cathedra” are not lost on us. Rather, they’re an indication of the seriousness with which we regard this mission. Ours is a quest of civilizational importance. Our new name also hints at another distinguishing feature of our business: we focus our efforts on Bitcoin, and Bitcoin only. The difference between Bitcoin and other “crypto” networks is one of kind, not degree. Bitcoin is the only meaningfully decentralized network in the “crypto” space, which is why bitcoin the asset will continue to win adoption as the preferred form of digitally native money by the world’s eight billion inhabitants. Bitcoin seeks to destroy the institution of seigniorage once and for all. Your favorite shitcoin creator just wants to capture the seigniorage himself. We feel strongly that our long-term mission of delivering sound money and cheap, abundant energy to humanity can be best achieved through a vertically integrated model. In the long-term, Cathedra will develop and/or acquire a portfolio of energy generation assets that leverages the synergies between energy production and bitcoin mining to the advantage of both businesses. In a decade, Cathedra may be as much an energy company as a bitcoin miner. Vertical integration will allow us to control our supply chain and rate of expansion to a greater degree, in addition to giving us a cost advantage over our competitors. As a low-cost producer of bitcoin, we will also be positioned to deliver a suite of ancillary products and services to customers in the Bitcoin and energy sectors. And we’ve begun making strides toward this goal. Earlier this year, the Cathedra team expanded by three with the hires of Isaac Fithian (Chief Field Operations and Manufacturing Officer), Rete Browning (Chief Technology Officer), and Tom Masiero (Head of Business Development). Each of these gentlemen brings years of experience in developing and deploying mobile bitcoin mining infrastructure in off-grid environments. With this expanded team, we recently began production of proprietary modular datacenters to house the 5,100 bitcoin mining machines we have scheduled for delivery throughout 2022. We’re calling these datacenters “rovers,” a nod to their mobility, embedded automation, and capacity to operate under harsh environmental conditions in remote geographies. The modularity and modest footprint of our rovers will allow us to produce them at a rapid pace and deploy them wherever the cheapest power is found, in both on- and off-grid environments. We are proud to be manufacturing our fleet of rovers entirely in New Hampshire, working with the local business community to bring heavy industry back to the U.S. As bitcoin miners, we view ourselves as managers of a portfolio of hash rate. As in the traditional asset management business, diversification can be a powerful asset. Whereas most of the large, publicly traded bitcoin miners are pursuing a similar strategy to one another—developing and/or renting space at hyperscale, on-grid datacenters in which to operate their mining machines—we have optimized our approach to minimize regulatory, market, environmental, or other idiosyncratic risk within our portfolio of hash rate. If one has 90% of one’s hash rate portfolio concentrated in a single on-grid site, 90% of one’s revenue can be shut off by a grid failure or other catastrophic event—an occurrence which is sadly becoming more common, as highlighted in our Energy Update. To our knowledge, Cathedra is the only publicly traded bitcoin miner with both on- and off-grid operations today. We increasingly believe that the future of bitcoin mining is off-grid. On-grid deployments are already vulnerable to myriad unique risks today, and we believe their economic proposition will become less attractive over time. As power producers continue to integrate bitcoin mining at the site of generation themselves, large on-grid miners positioned “downstream” in the energy value chain will see their electricity rates rise. Today, “off-grid” describes any arrangement in which a bitcoin miner procures power directly from an energy producer. Popular implementations include stranded and flared natural gas and behind-the-meter hydro and nuclear. In the long-term, we believe the only way to remain competitive will be to vertically integrate down to the energy generation asset. Mining bitcoin is a capital-intensive business. To ensure we have access to the capital we’ll require to execute on our vision, we’ve embarked on several capital markets initiatives. In February, Cathedra commenced trading on the OTCQX Best Market under the symbol “CBTTF.” This milestone represents a significant upgrade from our prior listing on the OTC Pink Market and should enhance our stock’s accessibility and liquidity for U.S. investors. We intend to list on a U.S. stock exchange in 2022 to further increase the visibility, liquidity, and trading volume in our stock. We recently announced that Cathedra secured US$17m in debt financing from NYDIG, a loan secured by bitcoin mining equipment. When it comes to borrowing in fiat to finance assets that produce bitcoin—an asset which appreciates 150%+ per year on average—almost any cost of debt makes sense. We intend to continue using non-dilutive financing in a responsible manner where possible, with a sober appreciation for the risks debt service presents as an additional fixed cost. Accumulating a formidable war chest of bitcoin on our corporate balance sheet is a priority for us. If one believes, as we do, that the next global monetary order will be built with Bitcoin at its center, then those companies with the largest bitcoin treasuries will thrive. We will continue to hold as much of our mined bitcoin as possible and may even supplement our mining activities with opportunistic bitcoin purchases on occasion. At time of writing, Cathedra has 187 PH/s of hash rate active, and another 534 PH/s of hash rate contracted via purchases of mining machines we expect to be delivered from April through December of this year. Since we replaced the prior management team in September, we have grown Cathedra’s contracted hash rate by more than 300%. And we’re just getting started. Conclusion We stand today at a crossroads between two divergent movements defined by conflicting visions for the future: Malthusianism and Prometheanism. The Malthusians believe progress is zero (or even negative) sum; resources are finite and “degrowth” is the only viable path forward; we ought to judge human action first and foremost by whether it disturbs the natural world. This movement is characterized by totalitarian CBDCs and a desire to make energy more scarce and expensive, so that earth’s resources can be appropriately rationed. On the other hand, the Prometheans carry with them a more optimistic vision: progress is positive-sum; human creativity allows us to liberate and employ resources in novel ways, in turn preserving the natural world for our own benefit; and that human flourishing is the moral standard by which we should evaluate human action. These are social, cultural, and spiritual choices we are all called to confront. “The century will be fought between Malthusians (“resources are finite”; obsessed with overpopulation; scarcity mindset; zero-sum, finite games) and Prometheans (“human imagination is the most valuable natural resource”; abundance mindset; positive sum, infinite games).” – Alpha Barry (2020) The Malthusian camp wants top-down, centralized management of resources via CBDCs and energy rationing policies. They believe our energy resources are fixed; the only path forward is backward, farming for energy using huge swaths of land controlled by the privileged few. “Industrialization for me but not for thee.” “You’ll own nothing and be happy.” These are the slogans of the Malthusian movement. This is not the path that took us to space and lifted billions out of poverty. We, Cathedra, choose the other path. That of Prometheus, who stole fire from the gods to benefit humankind. We believe in a future of sound money that brings property rights to eight billion humans around the world. A world of beautiful, free cities powered by dense and highly ordered forms of energy generation. Small modular nuclear reactors with load-balancing bitcoin miners (and no seed oils). A future in which technology is employed to improve the human condition–not only for those who walk the earth today, but for generations to come. Bitcoin mining is a powerful ally to the Promethean cause. As the energy buyer of last resort, Bitcoin promotes sound money and sound energy infrastructure. No two forces are more fundamental to keeping disorder at bay and advancing human civilization. We at Cathedra are not alone; there are other Prometheans working tirelessly to further this vision of a freer, more prosperous tomorrow. Human flourishing is earned, not given. Together, we win. Drew Armstrong President & Chief Operating Officer AJ Scalia Chief Executive Officer Tyler Durden Mon, 03/14/2022 - 19:40.....»»

Category: dealsSource: nytMar 14th, 2022

Futures Fade As Yields Soar, Oil Slides And China Stocks Crater

Futures Fade As Yields Soar, Oil Slides And China Stocks Crater US equity futures held on to modest gains overnight as the market desperately clung on to hope that the latest ceasefire talks between Russia and Ukraine which started on Monday, may yield results (clearly forgetting how the rug was pulled from under the market on Friday in an identical setup), which initially sent stocks higher especially in Europe, despite a surge in 10Y TSY yields to 2.10%, the highest since July 2019, two days ahead of the first Fed rate hike, and a complete collapse in Chinese stocks. And while U.S. index futures were still pointing to a positive open around 8am ET this gain is fading fast, with spoos now up just 0.5% after rising 1% earlier... ... as headlines from the Kremlin suggested that a ceasefire is the last thing on Putin's mind. *KREMLIN: RUSSIA WILL REALIZE ALL ITS PLANS IN UKRAINE OPERATION *KREMLIN: UKRAINE OPERATION WILL BE COMPLETED ON SCHEDULE *KREMLIN: RUSSIA DIDN'T REQUEST CHINA MILITARY AID FOR OPERATION *KREMLIN: RUSSIA HAS RESOURCES NEEDED TO COMPLETE UKRAINE ACTION And while futures would normally be deep in the red by now, and will be shortly now that AAPL is at LOD... APPLE FALLS TO SESSION LOW, DROPS 1.6% IN PREMARKET TRADING ... this morning algos are confused by the drop in oil which has emerged as an inverse barometer for peace, however the reason oil is down today is due to the unprecedented lockdown of China's Shenzhen, announced over the weekend, and which the market is worried may spread to the rest of the market and lead to another Chinese shutdown (spoiler alert: it won't, but it will cripple US-facing supply chains as the Russia-China alliance makes itself felt). Meanwhile, and as previewed last night, in addition to the latest surge in covid cases and Shenzhen lockdown, Chinese stocks listed in Hong Kong had their worst day since the global financial crisis, as concerns over Beijing’s close relationship with Russia and renewed regulatory risks sparked panic selling. The Hang Seng index dropped more than 4%, sliding below 20,000 to the lowest level since 2015... ... while the Hang Seng China Enterprises Index closed down 7.2% on Monday, the biggest drop since November 2008. The Hang Sang Tech Index tumbled 11% in its worst decline since the gauge was launched in July 2020, wiping out $2.1 trillion in value since a year-earlier peak, after the southern city of Shenzhen, a key tech hub near Hong Kong, was placed into lockdown to contain rising Covid-19 infections. The broader Hang Seng Index lost 5%. “If the U.S. decides to impose sanctions on China in total or on individual Chinese companies doing business with Russia, that would be a concern,” said Mark Mobius, who set up Mobius Capital Partners after more than three decades at Franklin Templeton Investments. “The whole story is still up in the air in this case.” In premarket trading, U.S.-listed Chinese stocks resumed a steep selloff on Monday, following an 18% rout last week, as concerns about Beijing’s close relationship with Russia added to losses spurred by a Chinese crackdown on tech giants and the growing risk of U.S. delistings. Alibaba (BABA US), JD.com (JD US) both fall 5%. U.S. casinos stocks are also lower in premarket, with multiple headwinds weighing on the sector, including inflation, while listed names with exposure to Macau face additional pressure from surging Covid cases in China’s Guangdong province and in Hong Kong. Wynn Resorts (WYNN US) -1.8%; Las Vegas Sands (LVS US) and MGM Resorts (MGM US) also down in thin trade. Meanwhile, Apple is down 1.6% after supplier Foxconn announced it was halting operations at its Shenzhen sites, one of which produces iPhones, in response to a government- imposed lockdown on the tech-hub city. Apple +0.2% in premarket. Besides all the geopolitical chaos, this week’s main focus will be on the Fed’s policy meeting, with traders expecting a quarter percentage-point rate hike. “There is little a central bank can do about commodity prices -- Fed Chair Powell can hardly dig an oil well in the middle of Washington D.C.,” said Paul Donovan, chief economist at UBS Global Wealth Management. “The concern will be about second-round effects -- prices encouraging higher wage costs.” In Europe, the Stoxx 600 was 1.7% higher with automakers and banks leading gains, while miners and energy stocks underperformed.  Tech investor Prosus falls as much as 11% in Amsterdam, the most since March 2020 and touching a record low, following a continued selloff in Chinese technology shares as concerns about Beijing’s close relationship with Russia added to worries over regulatory headwinds. Naspers, which holds a 29% stake in Chinese online giant Tencent through Prosus, slides as much as 15% in Johannesburg, the steepest plunge since November 2000. Here are some of the biggest European movers today: VW preference shares jump as much as 8.7% in Frankfurt and are among the top performers in a buoyant Stoxx 600 Automobiles & Parts Index after the carmaker pre-released results late Friday. Stifel called it a strong fourth quarter and a “surprisingly confident” outlook. Uniper gains as much as 11%; the power plant operator might benefit from the U.K. government’s potential plans to extend the life of coal-fired power plants, RBC says. Telecom Italia shares rise as much as 9.7% after the firm agreed to a deeper review of KKR’s takeover proposal and said it will ask the private equity giant for more details about its business plan. Phoenix Group shares rise as much as 3.7% after reporting full-year results, with Peel Hunt saying the insurer’s cash generation was “better than expected.” Danone rises as much as 5.6% after Bernstein says the French yogurt maker “seems to be doing everything right” under new management. The brokerage raises its recommendation on Danone and downgrades Reckitt and Unilever. Prosus shares fall as much as 11% in Amsterdam, the most since March 2020, following a continued selloff in Chinese technology shares as concerns about Beijing’s close relationship with Russia added to worries over regulatory headwinds Sanofi slumps as much as 6.2% after the French drugmaker says its mid- stage trial for amcenestrant in breast cancer didn’t meet the primary endpoint. Basic resources shares drop in Europe as commodity prices decline, underperforming the benchmark Stoxx Europe 600, which is gaining on Monday. Rio Tinto falls as much -4.2%, Glencore -4.5%, Anglo American -5.3% lead drop in the Stoxx Europe 600 basic resources sub-index. As noted above, Asian stocks plunged, led by a record 11% plunge in Chinese tech shares as a lockdown in Shenzhen added to woes including Beijing’s crackdown on the sector and mounting concerns about the economic fallout from sanctions on Russia. The MSCI Asia Pacific Index dropped as much as 1.5% to reach a low last seen September 2020, with heavyweights Alibaba and Tencent diving 11% and 9.8%, respectively. The Hang Seng Tech Index plunged 11% after the southern city of Shenzhen, a key tech hub near Hong Kong, was placed into lockdown to contain rising Covid-19 infections. The broader Hang Seng Index lost 5%. “The latest coronavirus outbreak is raising uncertainties over the Chinese economic outlook while high commodity prices are a drag for the Chinese economy no less than for many other countries, limiting the room for monetary easing,” said Aw Hsi Lien, a strategist at Tokai Tokyo Research. “There’re rising perceptions that this year’s growth target of 5.5% is becoming difficult to achieve.”    Investors also remain on edge over risks for Chinese companies stemming from U.S. actions due to Russia’s invasion of Ukraine. Sentiment was also rattled late last week as U.S. regulators identified Chinese companies that could be kicked off exchanges if they fail to open their books to U.S. auditors. While the delisting risk has been known since last year, the Securities and Exchange Commission’s list served as a “wake up call,” said Willer Chen, an analyst at Forsyth Barr Asia Ltd. “I see no way to solve the dispute” between the U.S. and China under current policies, he said.  The historic sell-off in China also drove many peer Asian equity gauges into the red. Still, shares in resource-rich Australia gained and Japan’s Topix climbed amid expected benefits for exporters from the yen’s fall to a five-year low near 118 per dollar. Japanese equities climbed, rebounding after last week’s losses, as a weaker yen bolstered the outlook for exporters and a decline in oil provided a respite amid recent inflation concerns. Auto makers and banks were the biggest boosts to the Topix, which gained 0.7%. Tokyo Electron and Advantest were the largest contributors to a 0.6% rise in the Nikkei 225. The yen approached 118 per dollar, extending its loss after weakening more than 2% last week.  The Nikkei 225 dropped 3.2% last week, its worst since November, while the Topix fell 2.5%. In addition to developments on Russia’s war in Ukraine, investors this week will be monitoring monetary-policy decisions from the Bank of Japan and Federal Reserve. “As Japan’s economy and wage growth are more subdued than in the U.S., and, thus, the BOJ will be slower to tighten than the Fed, the yen may well trend weaker, although any move beyond 120 would not be encouraged by officials,” Nikko Asset Management strategist John Vail wrote in a note. In FX, the Bloomberg Dollar Spot Index inched inched lower and the greenback traded mixed against its Group-of-10 peers. European currencies, lead by the Swedish krona and Norwegian krone, were the best performers while the Australian and New Zealand dollars, as well as the yen, fell. Sweden’s krona rallied as much as 1.8% as sentiment improved and as economists expect the country’s central bank to make a policy U-turn later this year, after inflation reached a new 28-year high last month and as price increases are seen accelerating on the fallout from Russia’s invasion of Ukraine The pound was steady after falling to November 2020 lows on Friday, while gilts slumped. Focus this week will be on the Bank of England, which is expected to raise interest rates for a third time in a bid to control inflation. The yen fell to a five-year low against the dollar as traders boosted bets on the pace of the Federal Reserve’s rate hikes this year amid accelerating U.S. inflation and as risk reversals backed a less-favorable outlook for the Japanese currency. Australia’s dollar dropped for a second day as oil and iron ore lead commodity prices lower, while sliding Chinese equities weighed on risk sentiment. In rates, as noted above, Treasuries sold off, led by the belly, following wider losses across bunds as core European rates aggressively bear-steepen. Treasuries and the 5-year Treasury yield topped 2% for the first time since May 2019 while the yield on 10-year Treasuries rose to 2.10%, the highest since July 2019, before easing back to 2.06%. The US front-end slightly outperforms, steepening 2s5s and 2s10s spreads by 1.7bp and 1.3bp. IG dollar issuance slate empty so far; volumes projected for the week are around $30b, following one of the busiest weeks on record In commodities, WTI drifts ~5% lower to trade at around $103. Brent falls more than 4% to the $107 level. Spot gold falls roughly $27 to trade near $1,962/oz. Spot silver loses 2.6% near $25. Most base metals trade in the red; LME aluminum falls 3.6%, underperforming peers. Bitcoin was initially subdued beneath USD 38,000 ahead of an EU vote on environmental sustainability standards measure that could lead to a ban on Bitcoin, but later recovered with support also seen following a tweet from Elon Musk. Elon Musk tweeted "I still own & won’t sell my Bitcoin, Ethereum or Doge fwiw". Japan demanded that cryptocurrency transactions be blocked if they are sanctions related. Besidesall that, it is a quiet start to thge week with no macro news on today's calendar. Market Snapshot S&P 500 futures up 0.5% to 4,223.50 STOXX Europe 600 up 0.4% to 433.05 German 10Y yield little changed at 0.31% Euro up 0.4% to $1.0952 MXAP down 1.4% to 168.91 MXAPJ down 2.1% to 549.22 Nikkei up 0.6% to 25,307.85 Topix up 0.7% to 1,812.28 Hang Seng Index down 5.0% to 19,531.66 Shanghai Composite down 2.6% to 3,223.53 Sensex up 1.2% to 56,207.96 Australia S&P/ASX 200 up 1.2% to 7,149.40 Kospi down 0.6% to 2,645.65 Brent Futures down 2.7% to $109.60/bbl Gold spot down 0.8% to $1,971.65 U.S. Dollar Index down 0.21% to 98.92 Top Overnight News from Bloomberg The U.S. and China plan to hold their first high-level, in- person talks since Moscow’s invasion on Monday. The meeting comes after China rejected accusations by U.S. officials that Russia had asked it for military equipment to support the invasion of Ukraine Chinese stocks listed in Hong Kong had their worst day since the global financial crisis, as concerns over Beijing’s close relationship with Russia and renewed regulatory risks sparked panic selling Global bond markets are flirting with a 10% drawdown for the first time in over a decade as surging inflation forces yields higher. The Bloomberg Global Aggregate Index, a benchmark for government and corporate debt, has fallen about 9.9% from a high in early 2021, the biggest decline from a peak since 2008, the data show Already pivoting to tightening monetary policy amid the fastest consumer price gains in four decades, Fed Chair Jerome Powell and colleagues now have to deal with the economic fallout of the war, which threatens to deliver the twin blows of weaker growth and even-quicker inflation ECB Governing Council member Martins Kazaks says “it’s very possible that the bond-buying program will end in the third quarter” Germany’s coronavirus infection rate hit a record for the third straight day on Monday, with the renewed surge prompting the country’s top health official to issue a grim warning Leveraged fund net short aggregate Treasuries bets across the curve have hit the highest in over a year, the latest CFTC data show. The U.S. Treasury market just endured one of its worst weeks of the past decade, with yields propelling toward their highest levels of the past year thanks to worsening inflation and the imminent expected shift in policy The yen’s plunge to a five-year low shows no signs of easing as surging commodity prices have worsened the outlook for Japan’s trade balance and put pressure on the currency’s haven credentials. The nation is a net importer of a long list of raw materials from crude oil and grains to metals, exposing it to higher costs as prices of all these have risen due to sanctions imposed on Russia over its invasion of Ukraine Russia has already lost access to almost half of its reserves and sees more risks to President Vladimir Putin’s war chest due to increased pressure from the West on China, said Finance Minister Anton Siluanov Nickel’s 250% price spike in little more than 24 hours plunged the industry into chaos, triggering billions of dollars in losses for traders who bet the wrong way and leading the London Metal Exchange to suspend trading for the first time in three decades. It marked the first major market failure since Russia’s invasion of Ukraine jolted global markets, showing how the removal of one of the world’s largest exporters of resources from the financial system in the space of weeks is having ripple effects across the world A more detailed look at global markets courtesy of newsquawk Asia-Pacific stocks were somewhat mixed as participants digested varied geopolitical headlines ahead of key risk events. ASX 200 was underpinned by strength in its largest-weighted financial sector and encouragement from M&A related headlines. Nikkei 225 benefitted from further currency weakness but failed to hold above the 25,500 level. Hang Seng and Shanghai Comp. were pressured amid several headwinds, including COVID-19 concerns with the technology hub of Shenzhen under a one-week lockdown, which pressured tech and weighed on Macau casino names, as well as dragged the Hong Kong benchmark beneath the 20K level for the first time since 2016 Top Asian News Developers Sink After Weak Home Mortgage Data: Evergrande Update Marcos Keeps Big Lead in Philippine Presidential Survey Funds Managing $130 Trillion Target Lobbying in Climate Plan Hang Seng China Stock Gauge Sinks 7.2%, Most Since Nov. 2008 China Locks Down Shenzhen, Entire Jilin Province as Covid Swells European bourses are firmer, Euro Stoxx 50 +2.1%, following a mixed APAC handover amid conflicting headlines as we await details of the latest Ukrainian-Russia talks. Stateside, US futures are firmer across the board but with magnitudes more contained, ES +0.9%, ahead of multiple risk events. Sectors in Europe are mostly firmer though some of the more defensive names are lagging modestly, Autos outperform post-Volkswagen Top European News European Gas Slumps as Russia, Ukraine to Hold Further Talks British Airways-Operator Comair Still Grounded in South Africa Funds Managing $130 Trillion Target Lobbying in Climate Plan ECB’s Kazaks: ‘Very Possible’ Net Bond-Buying Will End in 3Q U.S.-Listed Chinese Stocks Sink Again as China-Russia Ties Weigh In FX, Aussie bears the brunt of reversal in commodity prices; AUD/USD hovering around 0.7250 ahead of RBA minutes tomorrow. Yen extends decline on yield and BoJ policy divergence towards 118.00 vs the Dollar. Euro rebounds with risk appetite amidst hopes of constructive Russian-Ukrainian dialogue; EUR/USD finds support around 1.0900 where 1.84bln option expiries reside to trade above 1.0960. Rouble firmer on the premise that positive words will speak louder than negative actions. Yuan depreciates as Covid cases mount in China and PBoC sets a weaker than expected onshore midpoint rate, USD/CNH probes 6.3800 at one stage. Swedish Crown strong in line with latest inflation data and hawkish Riksbank rate calls from Nordea and SEB, EUR/SEK tests Fib support circa 10.5252 In commodities, WTI and Brent continue to unwind geopolitical premia amid mixed Russia-Ukraine developments and the possibility of progress soon. Currently, benchmarks lie near fresh lows of USD 103.42/bbl and USD 107.59/bbl respectively, further impeded by IEA's Birol. Iraq set April Basrah medium OSP to Asia at Oman/Dubai + USD 3.50/bbl, OSP to Europe at Dated Brent - USD 3.05/bbl and OSP to North and South America. UK PM Johnson is seeking a mega oil deal with the Saudis and is pushing for solar and nuclear energy to cut reliance on foreign oil, while the UK is also considering keeping some coal-fired power stations operational, according to Express and The Times. IEA Chief Birol says responsible producers should increase oil output. French PM Castex said the government will offer EUR 0.15/litre rebate on petrol prices from April to counter high prices with the rebate on fuel to last four months and is expected to cost around EUR 2bln. Japanese PM Kishida will look at measures for high oil prices and raw material food prices whilst watching the situation carefully, according to the Japanese ruling party secretary general; subsequently, Japanese government is to increase the petrol subsidy to around JPY 24/litre and close to the ceiling of JPY 25/litre. Gazprom says it is continuing shipping gas to Europe via Ukraine, Monday's volume is broadly unchanged at 109.5mln cubic metres; does not intend holding spot gas sale sessions on its electronic sales platform this week. China is planning to boost its coal output by as much as it imports. Spot gold and silver are pressured unwinding safe-haven appeal in-fitting with other typical havens In Fixed income, the debt rout rages on on as futures take out near term technical supports and yields reach or breach psychological levels. Curves continue to steepen on resurgent risk sentiment rather than any read respite from sharp retracement in crude prices. USTs and Gilts anticipating tightening from the Fed and BoE later this week. US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap I've tried to keep the introductory paragraphs fairly sober in recent weeks as the challenging time for the world doesn't really need my flippancy. However I have to share with you this morning that 5 minutes before I started typing this I started walking again for the first time in 6 weeks. The crutches were left by the bed and my morning coffee made without hopping between the cupboard, the sink and the fridge, and then working out how to get my coffee back upstairs while on crutches. It's amazing how good normality felt. Fingers crossed this operation will buy me a few years before knee replacement. We will see. The newsflow didn't look good late on Friday as some earlier positive signs on the conflict talks petered out. In terms of developments there was mixed news last night though as on the positive side some progress seemed to be made on talks, but on the negative side the FT reported that US officials suggested that Russia have asked China for military and economic assistance since the invasion began. The article said that the officials didn't details China's response but this came just few hours after White House officials announced that a high-level delegation from the US would meet with a top Chinese official in Rome today. On the positive side however, Ukrainian negotiator and presidential adviser Mykhailo Podolyak tweeted and posted a video online saying, "Russia is already beginning to talk constructively... ... I think that we will achieve some results literally in a matter of days,". A Russian delegate echoed the sentiment and US Deputy Secretary of State Wendy Sherman also highlighted that Russia was showing signs of willingness to engage in substantive negotiations. DM equity futures are making modest gains in Asia with contracts on the S&P 500 (+0.59%), Nasdaq (+0.35% and DAX (+0.59%) all trading higher. US Treasuries are seeing a pretty big move for an Asian session with the 5-yr yield (+6.3bps) moving above 2% for the first time since May 2019 whilst the 10-yr yield is up +5.3bps to 2.044%. Elsewhere Brent futures (-1.93%) are down to $110.50/bbl while WTI futures (-2.41%) are at $106.70/bbl. Asian equity markets are mostly trading lower though as we start the week following the broadly negative cues from Wall Street on Friday. The Hang Seng (-3.81%) is leading losses across the region with Chinese tech stocks again seeing major declines. Shares in mainland China are also weak with the Shanghai Composite (-1.30%) and CSI (-1.73%) both in negative territory after the southern Chinese tech hub Shenzhen was put under a citywide lockdown over the weekend to slow an outbreak of Covid-19. Elsewhere, the Kospi (-0.72%) is down but the Nikkei (+0.95%) is trading up this morning, reversing its previous session's losses. Coming back to the Covid news, the Chinese authorities have placed 17.5 million residents of Shenzhen under lockdown after the city reported 66 fresh Covid cases on Sunday while the nationwide official figure nearly doubled to 3,400. The lockdown and suspension of public transport will last until March 20 and will be accompanied by three rounds of mass testing of residents. At the same time, the surge in cases across China has also prompted the authorities to shut schools for students from kindergarten through middle schools next week in Shanghai. In the neighbouring Hong Kong, the health authorities reported 32,430 new Covid-cases on Sunday with city leader Carrie Lam highlighting that the outbreak has not past its peak yet despite recent number of daily cases “slightly levelling off”. Looking forward now, and as we all know it's a big central bank week with the Fed the obvious focal point mid-week. The BoE and the BoJ also hold meetings, along with some of their emerging markets counterparts. We'll also see CPI for Japan and Canada and a number of housing market statistics in the US and China. Earnings will include Volkswagen, FedEx and Enel, among others. Wednesday will also be a landmark day even outside of the Fed as this is the date that two Russian Eurobonds have coupon payments. These are small (c.$120bn out of c.$1.75bn of annual hard currency coupons) but will be hugely symbolic. Speaking to one of our EM strategists, Christian Wietoska, and one of our European economists, Peter Sidorov, over the weekend their view was that this would likely mark the start of the 30-day grace period that issuers have before a default is officially triggered. 30-days still gives time for there to be a negotiated end to the war and therefore this probably isn't yet the moment where we see where the full stresses in the financial system might reside. There has already been a huge mark to market loss already anyway with news coming through or write downs. However this is clearly an important story to watch. Onto the Fed now and the FOMC concludes on Wednesday, with the Fed expected to raise rates for the first time since December 2018. Markets are pricing in a +25bps hike, in line with the rhetoric from Chair Powell at his congressional testimonies a couple of weeks back. Before the invasion we thought a 50bps was likely this week and the problem is that by delaying such a move they may have to do more later. The market seems to agree to some degree as at Friday's close the market was pricing in 6.7 hikes this year, the most seen in this cycle and above the post invasion intra-day lows of 4.45. This morning we are at 6.92. A full preview from our US economists is available here. With regards to QT, they anticipate that the Fed will use this upcoming meeting to announce caps determining the maximum monthly runoff and, in May, announce QT that would begin in June. They think we will see $800bn of runoff this year and an additional $1.1tn drawdown in 2023, a cumulative reduction we think is roughly equal to between three and four rate increases (see "QT update: The sooner the better"). The fascinating thing for me is what this does to the yield curve if they are correct. For me nirvana for the Fed is getting to around neutral, somewhere with a 2 handle on Fed Funds and trying to ensure that 10yr yields rise enough to prevent inversion but not enough to lead to a tightening of financial conditions. So if in 12-18 months time 2 year yields are 2.25-2.5%, 10 year yields are 2.75-3% and inflation is coming back towards trend then the Fed have pulled off a masterstroke. If however, 2yr yields are above 2% and 10yr yields below this level, the inversion will likely bite. On the other hand, if the curve steepens up too much and longer end yields are notably above 3% the risk is that financial conditions tighten too much given the global debt load. So the Fed are trying to thread a needle and its possible inflation will give them an impossible task. Time will tell. Ahead of the Fed watch out for US PPI (Tuesday) and Retail Sales (Wednesday). They are highly unlikely to change the equation for this FOMC but will be important for the direction of the economy and inflation thereafter. We also get a plethora of US housing data to end the week with Thursday's housing starts and Friday's existing homes sales. These are going to be important for both activity and the rents component in CPI. Back to central banks and on Thursday, it will be the BoE's turn. Our UK economist previews the meeting here, and is expecting a +25bps hike to 0.75%, the pre-pandemic level. Their projected terminal rate is 1.75%. Finally, on Friday, the Bank of Japan will hold a meeting as well and a preview can be found here. The central bank is expected to hold the key rate steady but there is a chance of economic assessment being downgraded. The Bank of Russia's decision on the same day will be scrutinised for the response to risks to the economy from the ongoing geopolitical turmoil. Back to the week that was now. The war in Ukraine raged on, while negotiations continued to generate little tangible progress as leaders managed expectations down for any near-term resolution. However, there were various green shoots throughout the week when it appeared both Ukrainian and Russian officials left some room for compromise from their original positions. The glimmers of hope on the war front, along with a more hawkish-than-expected ECB sent sovereign bond yields higher on both sides of the Atlantic this week. Positive news about the supply of oil and gas sent futures lower on the week, despite the US and UK moving to restrict Russian imports. Oil and European natural gas prices fell -5.07% (+3.05% Friday) and -30.15% (+3.82% Friday) over the week, following a proclamation from President Putin that Russia would honor its energy export commitments, instead of unilaterally cutting off supply in retaliation to sanctions. For its part, the Iraqi oil minister noted OPEC would increase oil production were supply to reach scarcity levels. The other major story on the week was the ECB meeting, where the central bank signaled more focus on price stability than the potential downside impact to growth from the war. The governing council announced an accelerated tapering of its APP purchases, which would end in Q3, maintaining the option for increases to their policy benchmark rate sometime thereafter should the data merit. The ECB also updated their forecast for 2022 inflation to 5.1 percent and 2.1 percent for 2023. The tighter than expected policy stance gave rise to higher sovereign bond yields on both sides of the Atlantic, with 10yr bunds, OATs, gilts, and Treasuries rising +31.8bps (-2.5bps Friday), +28.9bps (-2.6bps Friday), +28.3bps (-3.2xbps Friday), and +26.1bps (+0.5bps Friday), respectively. For 10yr bunds that was the largest weekly gain since June 2015, 10yr gilts the largest weekly gain since September 2017, September 2019 for Treasuries, and March 2020 for OATs. Money markets ended the week pricing +40.5bps of ECB tightening this year, up from +24.1bps of tightening at last week’s close. European equities latched on to this week’s marginally more optimistic news, with the STOXX 600 finishing +2.23% (+0.95% Friday), the first weekly gain in a month. The DAX and CAC also finished the week +4.07% (+1.38% Friday) and +3.28% (+0.85% Friday) higher, respectively. US investors proved more pessimistic, with the S&P 500 retreating -2.88% (-1.30% Friday), with tech underperforming again, as the NASDAQ fell -3.53% (-2.18% Friday). The US indices took a leg lower Friday afternoon after Europe called it a week when Ukrainian leadership didn’t strike as optimistic a tone as Russian leaders surrounding the prospects of negotiations, as well as reports that Belarussian troops were about to join the invasion of Ukraine. University of Michigan consumer inflation expectations for the next year increased to 5.4 percent, above expectations of 5.1 percent on Friday. This followed the February US CPI data which showed headline and core measures increasing to their highest readings in four decades, which would have headlined just about any other week. In line with this, market-based measures of inflation expectations increased, with 10yr Treasury breakevens widening +27.3bps on the week. Tyler Durden Mon, 03/14/2022 - 08:15.....»»

Category: blogSource: zerohedgeMar 14th, 2022

Fiat Currencies Are Going To "Fail Spectacularly": Lawrence Lepard

Fiat Currencies Are Going To "Fail Spectacularly": Lawrence Lepard Submitted by QTR's Fringe Finance Friend of Fringe Finance Lawrence Lepard released his most recent investor letter a few weeks ago with his updated take on the monetary miasma spreading across the globe. Larry had joined me for several interviews last year and I believe him to truly be one of the muted voices that the investing community would be better off for considering. He’s the type of voice that gets little coverage in the mainstream media, which, in my opinion, makes him someone worth listening to twice as closely. Lawrence Lepard (Photo: Kitco)Larry was kind enough to allow me to share his thoughts heading into 2022. Before Russia invaded Ukraine, Larry predicted that a “crack up boom” could be on its way and also offered his take on gold, inflation, monetary policy, bitcoin, fiscal policy, the ongoing supply chain crunch, and much, much more. That analysis is included. Now, the invasion of Ukraine has helped catalyze a number of his predicted scenarios. Here are several Fringe Finance excerpts from Larry’s thoughts on the Ukraine invasion and the markets heading into 2022, from prior to the invasion. Russia Invading Ukraine Has Caused A ‘Monetary Earthquake’ What just happened in the last two weeks is enormously important and misunderstood by many investors. The Russian invasion of Ukraine and the corresponding Western sanctions and seizure of Russian FX reserves are nothing short of a monetary earthquake. The last comparable event was Nixon's abandonment of the gold standard in 1971.  Russia, with the backing and support of China, just told the world that it is no longer going to sell its oil, gas and wheat for Western currencies which are programmed to debase.  The West in its response just said to all countries around the world: “If you have foreign exchange reserves, held in our system, they are no longer safe if we disagree with your politics.”  Russian FX ReservesIt is similar to what the Canadians did when they moved to seize the bank accounts of Canadians who had demonstrated support for the truckers without due process of law. Both of these political moves are blatant advertisements for what I call "non state controlled money without counterparty risk", like gold and bitcoin. If governments can weaponize their money when they do not like what you are doing, what is the natural defense? Gold Will Rip Higher Because Of What Russia Is Doing The US Dollar has been the reserve currency of the world since WW II and the Bretton Woods agreement. This has given the US an enormous advantage and subsidy from the rest of the world because everyone else needs to produce goods and services to obtain dollars and the US can simply produce dollars at no cost by printing them.    Putin is now cast in the role of Charles de Gaulle who complained about the "exorbitant privilege" of the US with its dollar hegemony. As we all know, de Gaulle demanded gold in exchange for France's US dollar FX surpluses and this outflow forced Nixon to close the gold window.    Recall that post this event, gold went from $35 per ounce to $800 per ounce (23x).  Russia's move will lead to a similar move in favor of gold. Putin could see that the US fiscal and monetary situation was becoming untenable and he decided to use this to create an existential threat to the US and the world financial system.  He undoubtedly knows that the West has artificially suppressed the price of gold and that is why he has been building his gold reserves steadily for the past 20 years. Putin just shot "King Dollar" in the head.  We can see it in the financial markets, as the price of everything commodity related is going up relentlessly in dollar terms.  Russia is long commodities, long gold and doesn't need fiat currency. His debt to GDP ratio is low and taxes are low. If the world financial markets collapse on a relative basis, the position of Russia will be improved significantly. This is what I believe he is playing for. If investors do not recognize this they will be caught wrong footed as I believe many are today. The implications for investors are quite clear. None of us own enough gold, real assets or commodities. Fiat currencies are going to fail spectacularly, and soon, in my opinion. Before Russia invaded Ukraine, Larry predicted that a “crack up boom” could be on its way and also offered his take on gold, inflation, monetary policy, bitcoin, fiscal policy, the ongoing supply chain crunch, and much, much more. Now, the invasion of Ukraine has likely catalyzed a number of his scenarios. A Crack Up Boom Could Be Coming The bottom line is that the monetary system is exhibiting many of the early characteristics of a crack-up boom. A crack-up boom is the crash of the credit and monetary system due to continual credit expansion and price increases that cannot be sustained long-term.  In the face of excessive credit expansion, consumers' inflation expectations accelerate to the point that money becomes worthless and the economic system crashes.  Wow, does that sound familiar? “Real resource crunch” - do we have any shortages in commodities or labor? Well, ask the people in Europe who are worried about their costs for electricity, natural gas and heating oil this winter. Or, how about the labor shortages that we are seeing develop everywhere? How about the shortages of goods that are backed up in ships off the California coast? Supply chain issues have been blamed on COVID and government officials have, until recently, tried to spin the resulting inflation as transitory.  Certainly some of the current rip-roaring inflation could abate as supply chain delivery times improve (left chart below) which may permit PMI Input / Output prices to soften (right chart below): But to date there is little evidence of abatement. But perhaps there is also something else going on. Labor and product supply shortages can easily lead to further price increases and there is the potential for a vicious “cost-push” spiral upward. Eventually businesses may not be able to operate and business failures begin to occur. (They cannot get the necessary inputs, or properly price their goods and services). When highly levered businesses fail, the destruction of credit and demand soon follow. Historically, the Government response is to print more in a vain attempt to prevent failures - as if money printing could produce goods and services.  We are seeing some of this in our personal observations. We know of builders who cannot get needed supplies to build houses. One builder in Las Vegas reported that his cost of building a house went up 40% LAST QUARTER. We know of an interior designer who cannot source products (furniture delivery times of 6 months plus) and so his business is likely to fail. We are concerned that if inflationary expectations continue to grow, the path to a crack up will become clear. We believe that inflation expectations will continue to grow as this present inflation is “cost-push” rather than the more temporary “demand-pull” form of inflation.  Today’s blog post has been published without a paywall because I believe the content to be far too important. However, if you have the means and would like to support my work by subscribing, I’d be happy to offer you 22% off to become a subscriber in 2022: Get 22% off forever While we may not be on the precipice of a Crack Up Boom (yet), the probabilities of it occurring have certainly increased. We believe investors must begin to consider the “tail risk” that all confidence could be lost in our current monetary system.  When price signals are so distorted that markets no longer function, the only possible outcome is total collapse of the market structure. We believe that the US Treasury and Federal Reserve see these risks and that is why they are trying hard to control Government spending, and are accelerating the pace of tapering the extraordinary QE that was initiated in March 2020 when Jerome Powell vowed to do whatever it takes to keep the markets functioning (the Third Fed Mandate).  So, just how probable is a crack up boom? Sometimes it is easier to see these things visually. The US stock market below: And the Venezuelan Stock market just before its currency became worthless as a result of hyperinflation: The important driver here is inflationary expectations. Note the earlier quote on Crack Up Booms, “consumers' inflation expectations accelerate to the point that money becomes worthless”. This is the major point of the Austrian School Economists: when individuals discover that not only is inflation occurring, but it is the policy of government, and that inflation cannot and will not be reversed. Then there becomes a rush to substitute their store of value savings of the inflated fiat money with stores of value that are of more limited supply and will hold value for the future. This is Gresham’s Law: bad money drives out good. If people perceive that the money is becoming worthless they will spend it as quickly as possible on any tangible good before prices rise further.  We are not at or near that point yet, but inflation awareness and inflation expectations are growing. Here are some of Larry’s additional observations about 2021: The last time an inflation print came in at 7.0% (June 1982), 10-year Treasury yields exceeded 14%. Ten-year yields ended 2021 at 1.51%, with inflation-adjusted “real” yields deeply into negative territory. (-5.49%)  Producer Price Index (PPI) was up 13.3% in November y-o-y (highest since 1980). The Bloomberg Commodities Index jumped 27.1% in 2021.  The S&P hit over 70 new all-time highs, ending the year up 27%. Off the March 2020 low, the S&P is now up 113% and trading at 21.2x forward P/Ex, near its March 2000 peak P/Ex. The 2021 federal fiscal deficit reached $2.77 TN, with a historic $5.9 TN two-year shortfall (28% of GDP). The federal deficit was $3.1T in fiscal 2020 (September year-end). Recall that US Federal Tax Revenues totaled $3.86T in 2021. Budget deficit was 42% of total fiscal spending.  The Fed’s balance sheet inflated an astonishing $5.015 TN, or 135%, in the 120 weeks since QE was restarted in September 2019. Federal Reserve Assets have now inflated nearly 10x since the mortgage finance Bubble collapse. [went from $0.907T at Sept. 2008 to $8.766T today]  In the same time frame (2008-2021) the US CPI gauge of inflation went from 211.4 to 278.9 or an increase of 31.9% (annual average 2.2%). If inflation is a monetary phenomenon (we believe it is) there is a lot of catching up to be done as CPI increases to reflect money supply growth. During the same time frame (2008-2021) M2 (Money supply) went from $8.2T to $21.4T, growth of 161%, or annualized growth of over 7.7%.  o Notably, M2 growth since March 2020 has been 38.6%, a sharp acceleration above trend.∙ The monthly U.S. Goods Trade Deficit ballooned to a record $98 billion in November vs. a two decade average $56bn. Larry echoed the sentiments of Doug Noland when opining on inflation in 2021: Books will be written chronicling 2021. I’ll boil an extraordinary year’s developments down to a few simple words: “Things Ran Wild”. COVID ran wild. Monetary inflation ran wild. Inflation, in general, ran completely wild. Speculation and asset inflation ran really wild. More insidiously, mal-investment and inequality turned wilder. Bucking the trend, confidence in Washington policymaking ran - into a wall. M2 “money” supply inflated another $2.478 TN (12 months through November) to a record $21.437 TN – with egregious two-year growth of $6.185 TN, or 40.6%. Bank Deposits surged $1.957 TN over the past year (12.1%), with two-year growth of $4.812 TN (36%). Money Fund Assets rose another $408 billion y-o-y, or 9.5%, to $4.70 TN. The myth that QE effects remain well contained within Treasury and securities markets has been debunked.  And took to pointing out analysis by Trey Reik on gold: Between 3/31/20 and 12/31/21, the Fed grew its balance sheet $3.503 trillion (66.67%). During this time span, the S&P 500 appreciated 84.41% while spot gold increased just 15.98%. We find it bewildering that even though gold has been maligned for “not doing better” while stocks soared during 2021’s QE and inflation, now that the Fed is telegraphing tightening, consensus is equally confident that equity markets are well prepared and will power-through on the back of strong earnings, but gold will surely suffer.  Watching The Fed In March 2020, COVID erupted and the US Stock and Bond markets began to plunge. In a period of just 23 days, the S&P 500 Index plunged 35% from its high in late February to a low on March 23rd. At the same time, something very unusual happened in the US Treasury bond market. In the early part of the stock sell off, government bond prices rallied and yields declined as selling stock investors sought safety in US Treasuries. This was normal. But then suddenly, 10 year US Treasury bonds sold off hard too and the treasury yield went from 39 bps to 126 bps in a period of just 7 days! The Fed meeting minutes from that period discussed that for a brief period the US Treasury bond market went “no bid”. This led to Fed Chairman Jay Powell’s announcement on March 15, 2020 to cut the discount rate to effectively zero, resume quantitative easing and expand swap lines.  This was the Fed’s worst nightmare. If the market for US Treasury securities fails, the entire world financial system collapses. What transpired from there was another chapter of the long standing “Fed Put” that was initially written by Greenspan and then enthusiastically renewed by Bernanke, Yellen and now Powell. Originally the put only protected equities but at the base of the entire financial system is the so called “risk free” US Treasury bond. The put now clearly includes the US Treasury bond. Additionally, we have seen the Fed and financial commentators discuss an additional mandate: “maintaining orderly markets”. Powell has explicitly said that the Fed will take “whatever action is necessary” to maintain orderly markets which we believe is now a Third Fed Mandate, behind stable prices and full employment. In extremis, the Fed will print as much money as is necessary, perhaps a nearly infinite amount.  The stock and bond markets have taken the recent Fed “hawkish” policy shift in stride. Yes, there is still tons of liquidity in the system, but also, we believe investors realize that Powell will execute another “pivot” when the market stumbles. Perhaps investors are willing to front run the next episode of money printing. Thus the market behavior which looks like a “crack up boom” is actually rational if you know that the Fed can never stop printing.  Recently, to the Fed’s credit (and to preserve their credibility), Chairman Powell admitted that it is turning out that inflation is not transitory. Thus, they have announced that they will accelerate the tapering of QE which began slowly a few months ago. Today’s blog post has been published without a paywall because I believe the content to be far too important. However, if you have the means and would like to support my work by subscribing, I’d be happy to offer you 22% off to become a subscriber in 2022: Get 22% off forever At the current proposed rate they will not be purchasing any bonds in April of 2022. Furthermore, they have also indicated that taking interest rates off the zero bound in 2022 and the consensus dot plot is that the Fed Funds rate will go to 0.75% via three quarter point hikes this year. Now, whether the markets can handle this withdrawal of monetary stimulus appears to be an open question. [QTR: In the past few weeks, since this letter, inflation has continued, most recently at a 7.5% clip and investment banks are predicting up to 9 or 10 rate hikes for 2022]. In a system that is dependent upon the supply of new money and credit growing at an ever accelerating rate, it is merely a matter of time until the next crisis erupts and the Fed is forced to reverse course again. Hopefully for them, by that time inflation will have abated a bit and so we will start the next inflationary episode off a lower base. We fear that, as Luke Gromen said, that in trying to control the economy the Fed thinks they have a thermostat when it may be more akin to an on/off switch on a nuclear reactor!  Interestingly, given the Repo markets enhancements by the Fed, it’s possible the Taper of QE is irrelevant. As a former Federal Reserve Open Markets Senior Trader Joseph Wang points out:  There is still $1 trillion in Fed liquidity that will gradually flow into the private sector after QE stops. A large chunk of liquidity created by QE over the past two years never entered the banking system, but instead sat first in the Treasury’s Fed account and later in the RRP Facility. In the coming months Treasury will restart bill issuance and draw those funds out of the RRP into the TGA, and then spend those funds into the banking sector. Over time that will leave the banking sector with about $1T more in reserves, and the non-banks with a $1T more in deposits. If the past is any guide, that suggests more portfolio rebalancing where banks will purchase more Treasuries and non-banks more risk assets. Why Soft Gold And Bitcoin Prices? Gold and Bitcoin, analog and digital sound money, respectively, are the two monetary fire alarms in our system. Gold began 2020 at $1,550. It is at $1,830 at year end 2021, appreciation of 18%. Bitcoin began 2020 at $8,000 per coin. It closed 2021 at $47,000, appreciation of 487%. As we have discussed in the past, we believe the price of gold is heavily suppressed through the futures markets and the issuance of paper claims on gold. Bitcoin does not suffer from this problem yet, although there is a $20B futures market in Bitcoin. Bitcoin’s total market value is $966B and it trades approximately $25B of value per day in on chain transactions. We do not believe the futures market is a big factor in Bitcoin price discovery….yet. But there is no doubt that the leveraged Bitcoin exchanges and their growth have had an impact on prices. Still, Bitcoin is the monetary debasement fire alarm which is working.  Both the Bitcoin and gold prices are somewhat soft at present. Gold is 11% below its recent all-time high. Bitcoin is 40% below its recent all-time high. We believe this is occurring because the market is reacting to the threat of less monetary accommodation. And while we concede that the Fed is trying to slow down the printing (sort of), as stated above we do not believe that in the intermediate term they can stop in any sort of meaningful way. The prescient words of Richard Russell apply here: INFLATE OR DIE.  Our friend and Austrian based investor Ronnie Stoeferle recently posted this missive on Twitter which serves as a good reminder of how history often rhymes:  “Two years ago gold bugs ran wild as the price of gold rose nearly six times. But since cresting two years ago it has steadily declined, almost by half, putting the gold bugs in flight. The most recent advisory from a leading Wall Street firm suggests .that the price will continue to drift downward, and may ultimately settle 40% below current levels. The sharply reduced rates of inflation combined with resurgence of other, more economically productive investments, such as stocks, real estate and bank savings have combined to eliminate gold’s allure. Although the American economy has reduced its rate of recovery, it is on a firm expansionary course.”  - New York Times, August 1976  And as our friend Brien Lundin, CEO of the New Orleans Investment Conference points out: “Gold bottomed in early September 1976, but really took off when the Treasury began gold auctions in ’78. This overt manipulation for covert reasons was a desperation move that ironically fueled another 8x rise in the gold price!” History often rhymes indeed, in this case in terms of an inflationary decade like the 1970s and the reaction of hard money assets.  About Larry Lepard Larry manages the EMA GARP Fund, a Boston based investment management firm. Their strategy is focused on providing "Monetary Debasement Insurance". He has 38 years experience and an MBA from Harvard Business School. On Twitter he is @LawrenceLepard Managing Partner and, via email, he is llepard@ema2.com Disclaimer: QTR is long various gold and silver miners and have both long and short exposure to the market through equities and derivatives. I have no position in Larry’s funds. Larry is a subscriber to Fringe Finance and has been on my podcast. The excerpts from Larry’s letter, above, shall not be construed as an offer to sell, or the solicitation of an offer to sell, any securities or services. Any such offering may only be made at the time a qualified investor receives from EMA formal materials describing an offering plus related subscription documentation. There is no guarantee the Fund’s investment strategy will be successful. Investing involves risk, and an investment in the Fund could lose money. The strategy is also subject to the following risks: Currency Risk, Non-US Investment Risks, Issuer Specific Risk. Tyler Durden Sat, 03/12/2022 - 22:30.....»»

Category: worldSource: nytMar 12th, 2022

Bitcoin & The US Fiscal Reckoning

Bitcoin & The US Fiscal Reckoning Authored by Avik Roy via NationalAffairs.com, Cryptocurrencies like bitcoin have few fans in Washington. At a July congressional hearing, Senator Elizabeth Warren warned that cryptocurrency "puts the [financial] system at the whims of some shadowy, faceless group of super-coders." Treasury secretary Janet Yellen likewise asserted that the "reality" of cryptocurrencies is that they "have been used to launder the profits of online drug traffickers; they've been a tool to finance terrorism." Thus far, Bitcoin's supporters remain undeterred. (The term "Bitcoin" with a capital "B" is used here and throughout to refer to the system of cryptography and technology that produces the currency "bitcoin" with a lowercase "b" and verifies bitcoin transactions.) A survey of 3,000 adults in the fall of 2020 found that while only 4% of adults over age 55 own cryptocurrencies, slightly more than one-third of those aged 35-44 do, as do two-fifths of those aged 25-34. As of mid-2021, Coinbase — the largest cryptocurrency exchange in the United States — had 68 million verified users. To younger Americans, digital money is as intuitive as digital media and digital friendships. But Millennials with smartphones are not the only people interested in bitcoin; a growing number of investors are also flocking to the currency's banner. Surveys indicate that as many as 21% of U.S. hedge funds now own bitcoin in some form. In 2020, after considering various asset classes like stocks, bonds, gold, and foreign currencies, celebrated hedge-fund manager Paul Tudor Jones asked, "[w]hat will be the winner in ten years' time?" His answer: "My bet is it will be bitcoin." What's driving this increased interest in a form of currency invented in 2008? The answer comes from former Federal Reserve chairman Ben Bernanke, who once noted, "the U.S. government has a technology, called a printing press...that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation...the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to...inflation." In other words, governments with fiat currencies — including the United States — have the power to expand the quantity of those currencies. If they choose to do so, they risk inflating the prices of necessities like food, gas, and housing. In recent months, consumers have experienced higher price inflation than they have seen in decades. A major reason for the increases is that central bankers around the world — including those at the Federal Reserve — sought to compensate for Covid-19 lockdowns with dramatic monetary inflation. As a result, nearly $4 trillion in newly printed dollars, euros, and yen found their way from central banks into the coffers of global financial institutions. Jerome Powell, the current Federal Reserve chairman, insists that 2021's inflation trends are "transitory." He may be right in the near term. But for the foreseeable future, inflation will be a profound and inescapable challenge for America due to a single factor: the rapidly expanding federal debt, increasingly financed by the Fed's printing press. In time, policymakers will face a Solomonic choice: either protect Americans from inflation, or protect the government's ability to engage in deficit spending. It will become impossible to do both. Over time, this compounding problem will escalate the importance of Bitcoin. THE FIAT-CURRENCY EXPERIMENT It's becoming clear that Bitcoin is not merely a passing fad, but a significant innovation with potentially serious implications for the future of investment and global finance. To understand those implications, we must first examine the recent history of the primary instrument that bitcoin was invented to challenge: the American dollar. Toward the end of World War II, in an agreement hashed out by 44 Allied countries in Bretton Woods, New Hampshire, the value of the U.S. dollar was formally fixed to 1/35th of the price of an ounce of gold. Other countries' currencies, such as the British pound and the French franc, were in turn pegged to the dollar, making the dollar the world's official reserve currency. Under the Bretton Woods system, foreign governments could retrieve gold bullion they had sent to the United States during the war by exchanging dollars for gold at the relevant fixed exchange rate. But enabling every major country to exchange dollars for American-held gold only worked so long as the U.S. government was fiscally and monetarily responsible. By the late 1960s, it was neither. Someone needed to pay the steep bills for Lyndon Johnson's "guns and butter" policies — the Vietnam War and the Great Society, respectively — so the Federal Reserve began printing currency to meet those obligations. Johnson's successor, Richard Nixon, also pressured the Fed to flood the economy with money as a form of economic stimulus. From 1961 to 1971, the Fed nearly doubled the circulating supply of dollars. "In the first six months of 1971," noted the late Nobel laureate Robert Mundell, "monetary expansion was more rapid than in any comparable period in a quarter century." That year, foreign central banks and governments held $64 billion worth of claims on the $10 billion of gold still held by the United States. It wasn't long before the world took notice of the shortage. In a classic bank-run scenario, anxious European governments began racing to redeem dollars for American-held gold before the Fed ran out. In July 1971, Switzerland withdrew $50 million in bullion from U.S. vaults. In August, France sent a destroyer to escort $191 million of its gold back from the New York Federal Reserve. Britain put in a request for $3 billion shortly thereafter. Finally, that same month, Nixon secretly gathered a small group of trusted advisors at Camp David to devise a plan to avoid the imminent wipeout of U.S. gold vaults and the subsequent collapse of the international economy. There, they settled on a radical course of action. On the evening of August 15th, in a televised address to the nation, Nixon announced his intention to order a 90-day freeze on all prices and wages throughout the country, a 10% tariff on all imported goods, and a suspension — eventually, a permanent one — of the right of foreign governments to exchange their dollars for U.S. gold. Knowing that his unilateral abrogation of agreements involving dozens of countries would come as a shock to world leaders and the American people, Nixon labored to re-assure viewers that the change would not unsettle global markets. He promised viewers that "the effect of this action...will be to stabilize the dollar," and that the "dollar will be worth just as much tomorrow as it is today." The next day, the stock market rose — to everyone's relief. The editors of the New York Times "unhesitatingly applaud[ed] the boldness" of Nixon's move. Economic growth remained strong for months after the shift, and the following year Nixon was re-elected in a landslide, winning 49 states in the Electoral College and 61% of the popular vote. Nixon's short-term success was a mirage, however. After the election, the president lifted the wage and price controls, and inflation returned with a vengeance. By December 1980, the dollar had lost more than half the purchasing power it had back in June 1971 on a consumer-price basis. In relation to gold, the price of the dollar collapsed — from 1/35th to 1/627th of a troy ounce. Though Jimmy Carter is often blamed for the Great Inflation of the late 1970s, "the truth," as former National Economic Council director Larry Kudlow has argued, "is that the president who unleashed double-digit inflation was Richard Nixon." In 1981, Federal Reserve chairman Paul Volcker raised the federal-funds rate — a key interest-rate benchmark — to 19%. A deep recession ensued, but inflation ceased, and the U.S. embarked on a multi-decade period of robust growth, low unemployment, and low consumer-price inflation. As a result, few are nostalgic for the days of Bretton Woods or the gold-standard era. The view of today's economic establishment is that the present system works well, that gold standards are inherently unstable, and that advocates of gold's return are eccentric cranks. Nevertheless, it's important to remember that the post-Bretton Woods era — in which the supply of government currencies can be expanded or contracted by fiat — is only 50 years old. To those of us born after 1971, it might appear as if there is nothing abnormal about the way money works today. When viewed through the lens of human history, however, free-floating global exchange rates remain an unprecedented economic experiment — with one critical flaw. An intrinsic attribute of the post-Bretton Woods system is that it enables deficit spending. Under a gold standard or peg, countries are unable to run large budget deficits without draining their gold reserves. Nixon's 1971 crisis is far from the only example; deficit spending during and after World War I, for instance, caused economic dislocation in numerous European countries — especially Germany — because governments needed to use their shrinking gold reserves to finance their war debts. These days, by contrast, it is relatively easy for the United States to run chronic deficits. Today's federal debt of almost $29 trillion — up from $10 trillion in 2008 and $2.4 trillion in 1984 — is financed in part by U.S. Treasury bills, notes, and bonds, on which lenders to the United States collect a form of interest. Yields on Treasury bonds are denominated in dollars, but since dollars are no longer redeemable for gold, these bonds are backed solely by the "full faith and credit of the United States." Interest rates on U.S. Treasury bonds have remained low, which many people take to mean that the creditworthiness of the United States remains healthy. Just as creditworthy consumers enjoy lower interest rates on their mortgages and credit cards, creditworthy countries typically enjoy lower rates on the bonds they issue. Consequently, the post-Great Recession era of low inflation and near-zero interest rates led many on the left to argue that the old rules no longer apply, and that concerns regarding deficits are obsolete. Supporters of this view point to the massive stimulus packages passed under presidents Donald Trump and Joe Biden  that, in total, increased the federal deficit and debt by $4.6 trillion without affecting the government's ability to borrow. The extreme version of the new "deficits don't matter" narrative comes from the advocates of what has come to be called Modern Monetary Theory (MMT), who claim that because the United States controls its own currency, the federal government has infinite power to increase deficits and the debt without consequence. Though most mainstream economists dismiss MMT as unworkable and even dangerous, policymakers appear to be legislating with MMT's assumptions in mind. A new generation of Democratic economic advisors has pushed President Biden to propose an additional $3.5 trillion in spending, on top of the $4.6 trillion spent on Covid-19 relief and the $1 trillion bipartisan infrastructure bill. These Democrats, along with a new breed of populist Republicans, dismiss the concerns of older economists who fear that exploding deficits risk a return to the economy of the 1970s, complete with high inflation, high interest rates, and high unemployment. But there are several reasons to believe that America's fiscal profligacy cannot go on forever. The most important reason is the unanimous judgment of history: In every country and in every era, runaway deficits and skyrocketing debt have ended in economic stagnation or ruin. Another reason has to do with the unusual confluence of events that has enabled the United States to finance its rising debts at such low interest rates over the past few decades — a confluence that Bitcoin may play a role in ending. DECLINING FAITH IN U.S. CREDIT To members of the financial community, U.S. Treasury bonds are considered "risk-free" assets. That is to say, while many investments entail risk — a company can go bankrupt, for example, thereby wiping out the value of its stock — Treasury bonds are backed by the full faith and credit of the United States. Since people believe the United States will not default on its obligations, lending money to the U.S. government — buying Treasury bonds that effectively pay the holder an interest rate — is considered a risk-free investment. The definition of Treasury bonds as "risk-free" is not merely by reputation, but also by regulation. Since 1988, the Switzerland-based Basel Committee on Banking Supervision has sponsored a series of accords among central bankers from financially significant countries. These accords were designed to create global standards for the capital held by banks such that they carry a sufficient proportion of low-risk and risk-free assets. The well-intentioned goal of these standards was to ensure that banks don't fail when markets go down, as they did in 2008. The current version of the Basel Accords, known as "Basel III," assigns zero risk to U.S. Treasury bonds. Under Basel III's formula, then, every major bank in the world is effectively rewarded for holding these bonds instead of other assets. This artificially inflates demand for the bonds and enables the United States to borrow at lower rates than other countries. The United States also benefits from the heft of its economy as well as the size of its debt. Since America is the world's most indebted country in absolute terms, the market for U.S. Treasury bonds is the largest and most liquid such market in the world. Liquid markets matter a great deal to major investors: A large financial institution or government with hundreds of billions (or more) of a given currency on its balance sheet cares about being able to buy and sell assets while minimizing the impact of such actions on the trading price. There are no alternative low-risk assets one can trade at the scale of Treasury bonds. The status of such bonds as risk-free assets — and in turn, America's ability to borrow the money necessary to fund its ballooning expenditures — depends on investors' confidence in America's creditworthiness. Unfortunately, the Federal Reserve's interference in the markets for Treasury bonds have obscured our ability to determine whether financial institutions view the U.S. fiscal situation with confidence. In the 1990s, Bill Clinton's advisors prioritized reducing the deficit, largely out of a conern that Treasury-bond "vigilantes" — investors who protest a government's expansionary fiscal or monetary policy by aggressively selling bonds, which drives up interest rates — would harm the economy. Their success in eliminating the primary deficit brought yields on the benchmark 10-year Treasury bond down from 8% to 4%. In Clinton's heyday, the Federal Reserve was limited in its ability to influence the 10-year Treasury interest rate. Its monetary interventions primarily targeted the federal-funds rate — the interest rate that banks charge each other on overnight transactions. But in 2002, Ben Bernanke advocated that the Fed "begin announcing explicit ceilings for yields on longer-maturity Treasury debt." This amounted to a schedule of interest-rate price controls. Since the 2008 financial crisis, the Federal Reserve has succeeded in wiping out bond vigilantes using a policy called "quantitative easing," whereby the Fed manipulates the price of Treasury bonds by buying and selling them on the open market. As a result, Treasury-bond yields are determined not by the free market, but by the Fed. The combined effect of these forces — the regulatory impetus for banks to own Treasury bonds, the liquidity advantage Treasury bonds have in the eyes of large financial institutions, and the Federal Reserve's manipulation of Treasury-bond market prices — means that interest rates on Treasury bonds no longer indicate the United States' creditworthiness (or lack thereof). Meanwhile, indications that investors are growing increasingly concerned about the U.S. fiscal and monetary picture — and are in turn assigning more risk to "risk-free" Treasury bonds — are on the rise. One such indicator is the decline in the share of Treasury bonds owned by outside investors. Between 2010 and 2020, the share of U.S. Treasury securities owned by foreign entities fell from 47% to 32%, while the share owned by the Fed more than doubled, from 9% to 22%. Put simply, foreign investors have been reducing their purchases of U.S. government debt, thereby forcing the Fed to increase its own bond purchases to make up the difference and prop up prices. Until and unless Congress reduces the trajectory of the federal debt, U.S. monetary policy has entered a vicious cycle from which there is no obvious escape. The rising debt requires the Treasury Department to issue an ever-greater quantity of Treasury bonds, but market demand for these bonds cannot keep up with their increasing supply. In an effort to avoid a spike in interest rates, the Fed will need to print new U.S. dollars to soak up the excess supply of Treasury bonds. The resultant monetary inflation will cause increases in consumer prices. Those who praise the Fed's dramatic expansion of the money supply argue that it has not affected consumer-price inflation. And at first glance, they appear to have a point. In January of 2008, the M2 money stock was roughly $7.5 trillion; by January 2020, M2 had more than doubled, to $15.4 trillion. As of July 2021, the total M2 sits at $20.5 trillion — nearly triple what it was just 13 years ago. Over that same period, U.S. GDP increased by only 50%. And yet, since 2000, the average rate of growth in the Consumer Price Index (CPI) for All Urban Consumers — a widely used inflation benchmark — has remained low, at about 2.25%. How can this be? The answer lies in the relationship between monetary inflation and price inflation, which has diverged over time. In 2008, the Federal Reserve began paying interest to banks that park their money with the Fed, reducing banks' incentive to lend that money out to the broader economy in ways that would drive price inflation. But the main reason for the divergence is that conventional measures like CPI do not accurately capture the way monetary inflation is affecting domestic prices. In a large, diverse country like the United States, different people and different industries experience price inflation in different ways. The fact that price inflation occurs earlier in certain sectors of the economy than in others was first described by the 18th-century Irish-French economist Richard Cantillon. In his 1730 "Essay on the Nature of Commerce in General," Cantillon noted that when governments increase the supply of money, those who receive the money first gain the most benefit from it — at the expense of those to whom it flows last. In the 20th century, Friedrich Hayek built on Cantillon's thinking, observing that "the real harm [of monetary inflation] is due to the differential effect on different prices, which change successively in a very irregular order and to a very different degree, so that as a result the whole structure of relative prices becomes distorted and misguides production into wrong directions." In today's context, the direct beneficiaries of newly printed money are those who need it the least. New dollars are sent to banks, which in turn lend them to the most creditworthy entities: investment funds, corporations, and wealthy individuals. As a result, the most profound price impact of U.S. monetary inflation has been on the kinds of assets that financial institutions and wealthy people purchase — stocks, bonds, real estate, venture capital, and the like. This is why the price-to-earnings ratio of S&P 500 companies is at record highs, why risky start-ups with long-shot ideas are attracting $100 million venture rounds, and why the median home sales price has jumped 24% in a single year — the biggest one-year increase of the 21st century. Meanwhile, low- and middle-income earners are facing rising prices without attendant increases in their wages. If asset inflation persists while the costs of housing and health care continue to grow beyond the reach of ordinary people, the legitimacy of our market economy will be put on trial. THE RETURN OF SOUND MONEY Satoshi Nakamoto, the pseudonymous creator of Bitcoin, was acutely concerned with the increasing abundance of U.S. dollars and other fiat currencies in the early 2000s. In 2009 he wrote, "the root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust." Bitcoin was created in anticipation of the looming fiscal and monetary crisis in the United States and around the world. To understand how bitcoin functions alongside fiat currency, it's helpful to examine the monetary philosophy of the Austrian School of economics, whose leading figures — especially Hayek and Ludwig von Mises — greatly influenced Nakamoto and the early developers of Bitcoin. The economists of the Austrian School were staunch advocates of what Mises called "the principle of sound money" — that is, of keeping the supply of money as constant and predictable as possible. In The Theory of Money and Credit, first published in 1912, Mises argued that sound money serves as "an instrument for the protection of civil liberties against despotic inroads on the part of governments" that belongs "in the same class with political constitutions and bills of rights." Just as bills of rights were a "reaction against arbitrary rule and the nonobservance of old customs by kings," he wrote, "the postulate of sound money was first brought up as a response to the princely practice of debasing the coinage." Mises believed that inflation was just as much a violation of someone's property rights as arbitrarily taking away his land. After all, in both cases, the government acquires economic value at the expense of the citizen. Since monetary inflation creates a sugar high of short-term stimulus, politicians interested in re-election will always have an incentive to expand the money supply. But doing so comes at the expense of long-term declines in consumer purchasing power. For Mises, the best way to address such a threat is to avoid fiat currencies altogether. And in his estimation, the best sound-money alternative to fiat currency is gold. "The excellence of the gold standard," Mises wrote, is "that it renders the determination of the monetary unit's purchasing power independent of the policies of governments and political parties." In other words, gold's primary virtue is that its supply increases slowly and steadily, and cannot be manipulated by politicians. It may appear as if gold was an arbitrary choice as the basis for currency, but gold has a combination of qualities that make it ideal for storing and exchanging value. First, it is verifiably unforgeable. Gold is very dense, which means that counterfeit gold is easy to identify — one simply has to weigh it. Second, gold is divisible. Unlike, say, cattle, gold can be delivered in fractional units both small and large, enabling precise pricing. Third, gold is durable. Unlike commodities that rot or evaporate over time, gold can be stored for centuries without degradation. Fourth, gold is fungible: An ounce of gold in Asia is worth the same as an ounce of gold in Europe. These four qualities are shared by most modern currencies. Gold's fifth quality is more distinct, however, as well as more relevant to its role as an instrument of sound money: scarcity. While people have used beads, seashells, and other commodities as primitive forms of money, those items are fairly easy to acquire and introduce into circulation. While gold's supply does gradually increase as more is extracted from the ground, the rate of extraction relative to the total above-ground supply is low: At current rates, it would take approximately 66 years to double the amount of gold in circulation. In comparison, the supply of U.S. dollars has more than doubled over just the last decade. When the Austrian-influenced designers of bitcoin set out to create a more reliable currency, they tried to replicate all of these qualities. Like gold, bitcoin is divisible, unforgeable, divisible, durable, and fungible. But bitcoin also improves upon gold as a form of sound money in several important ways. First, bitcoin is rarer than gold. Though gold's supply increases slowly, it does increase. The global supply of bitcoin, by contrast, is fixed at 21 million and cannot be feasibly altered. Second, bitcoin is far more portable than gold. Transferring physical gold from one place to another is an onerous process, especially in large quantities. Bitcoin, on the other hand, can be transmitted in any quantity as quickly as an email. Third, bitcoin is more secure than gold. A single bitcoin address carried on a USB thumb drive could theoretically hold as much value as the U.S. Treasury holds in gold bars — without the need for costly militarized facilities like Fort Knox to keep it safe. In fact, if stored using best practices, the cost of securing bitcoin from hackers or assailants is far lower than the cost of securing gold. Fourth, bitcoin is a technology. This means that, as developers identify ways to augment its functionality without compromising its core attributes, they can gradually improve the currency over time. Fifth, and finally, bitcoin cannot be censored. This past year, the Chinese government shut down Hong Kong's pro-democracy Apple Daily newspaper not by censoring its content, but by ordering banks not to do business with the publication, thereby preventing Apple Daily from paying its suppliers or employees. Those who claim the same couldn't happen here need only look to the Obama administration's Operation Choke Point, a regulatory attempt to prevent banks from doing business with legitimate entities like gun manufacturers and payday lenders — firms the administration disfavored. In contrast, so long as the transmitting party has access to the internet, no entity can prevent a bitcoin transaction from taking place. This combination of fixed supply, portability, security, improvability, and censorship resistance epitomizes Nakamoto's breakthrough. Hayek, in The Denationalisation of Money, foresaw just such a separation of money and state. "I believe we can do much better than gold ever made possible," he wrote. "Governments cannot do better. Free enterprise...no doubt would." While Hayek and Nakamoto hoped private currencies would directly compete with the U.S. dollar and other fiat currencies, bitcoin does not have to replace everyday cash transactions to transform global finance. Few people may pay for their morning coffee with bitcoin, but it is also rare for people to purchase coffee with Treasury bonds or gold bars. Bitcoin is competing not with cash, but with these latter two assets, to become the world's premier long-term store of wealth. The primary problem bitcoin was invented to address — the devaluation of fiat currency through reckless spending and borrowing — is already upon us. If Biden's $3.5 trillion spending plan passes Congress, the national debt will rise further. Someone will have to buy the Treasury bonds to enable that spending. Yet as discussed above, investors are souring on Treasurys. On June 30, 2021, the interest rate for the benchmark 10-year Treasury bond was 1.45%. Even at the Federal Reserve's target inflation rate of 2%, under these conditions, Treasury-bond holders are guaranteed to lose money in inflation-adjusted terms. One critic of the Fed's policies, MicroStrategy CEO Michael Saylor, compares the value of today's Treasury bonds to a "melting ice cube." Last May, Ray Dalio, founder of Bridgewater Associates and a former bitcoin skeptic, said "[p]ersonally, I'd rather have bitcoin than a [Treasury] bond." If hedge funds, banks, and foreign governments continue to decelerate their Treasury purchases, even by a relatively small percentage, the decrease in demand could send U.S. bond prices plummeting. If that happens, the Fed will be faced with the two unpalatable options described earlier: allowing interest rates to rise, or further inflating the money supply. The political pressure to choose the latter would likely be irresistible. But doing so would decrease inflation-adjusted returns on Treasury bonds, driving more investors away from Treasurys and into superior stores of value, such as bitcoin. In turn, decreased market interest in Treasurys would force the Fed to purchase more such bonds to suppress interest rates. AMERICA'S BITCOIN OPPORTUNITY From an American perspective, it would be ideal for U.S. Treasury bonds to remain the world's preferred reserve asset for the foreseeable future. But the tens of trillions of dollars in debt that the United States has accumulated since 1971 — and the tens of trillions to come — has made that outcome unlikely. It is understandably difficult for most of us to imagine a monetary world aside from the one in which we've lived for generations. After all, the U.S. dollar has served as the world's leading reserve currency since 1919, when Britain was forced off the gold standard. There are only a handful of people living who might recall what the world was like before then. Nevertheless, change is coming. Over the next 10 to 20 years, as bitcoin's liquidity increases and the United States becomes less creditworthy, financial institutions and foreign governments alike may replace an increasing portion of their Treasury-bond holdings with bitcoin and other forms of sound money. With asset values reaching bubble proportions and no end to federal spending in sight, it's critical for the United States to begin planning for this possibility now. Unfortunately, the instinct of some federal policymakers will be to do what countries like Argentina have done in similar circumstances: impose capital controls that restrict the ability of Americans to exchange dollars for bitcoin in an attempt to prevent the digital currency from competing with Treasurys. Yet just as Nixon's 1971 closure of the gold window led to a rapid flight from the dollar, imposing restrictions on the exchange of bitcoin for dollars would confirm to the world that the United States no longer believes in the competitiveness of its currency, accelerating the flight from Treasury bonds and undermining America's ability to borrow. A bitcoin crackdown would also be a massive strategic mistake, given that Americans are positioned to benefit enormously from bitcoin-related ventures and decentralized finance more generally. Around 50 million Americans own bitcoin today, and it's likely that Americans and U.S. institutions own a plurality, if not the majority, of the bitcoin in circulation — a sum worth hundreds of billions of dollars. This is one area where China simply cannot compete with the United States, since Bitcoin's open financial architecture is fundamentally incompatible with Beijing's centralized, authoritarian model. In the absence of major entitlement reform, well-intentioned efforts to make Treasury bonds great again are likely doomed. Instead of restricting bitcoin in a desperate attempt to forestall the inevitable, federal policymakers would do well to embrace the role of bitcoin as a geopolitically neutral reserve asset; work to ensure that the United States continues to lead the world in accumulating bitcoin-based wealth, jobs, and innovations; and ensure that Americans can continue to use bitcoin to protect themselves against government-driven inflation. To begin such an initiative, federal regulators should make it easier to operate cryptocurrency-related ventures on American shores. As things stand, too many of these firms are based abroad and closed off to American investors simply because outdated U.S. regulatory agencies — the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission, the Treasury Department, and others — have been unwilling to provide clarity as to the legal standing of digital assets. For example, the SEC has barred Coinbase from paying its customers' interest on their holdings while refusing to specify which laws Coinbase has violated. Similarly, the agency has refused to approve Bitcoin exchange-traded funds (ETFs) without specifying standards for a valid ETF application. Congress should implement SEC Commissioner Hester Peirce's recommendations for a three-year regulatory grace period for decentralized digital tokens and assign to a new agency the role of regulating digital assets. Second, Congress should clarify poorly worded legislation tied to a recent bipartisan infrastructure bill that would drive many high-value crypto businesses, like bitcoin-mining operations, overseas. Third, the Treasury Department should consider replacing a fraction of its gold holdings — say, 10% — with bitcoin. This move would pose little risk to the department's overall balance sheet, send a positive signal to the innovative blockchain sector, and enable the United States to benefit from bitcoin's growth. If the value of bitcoin continues to appreciate strongly against gold and the U.S. dollar, such a move would help shore up the Treasury and decrease the need for monetary inflation. Finally, when it comes to digital versions of the U.S. dollar, policymakers should follow the advice of Friedrich Hayek, not Xi Jinping. In an effort to increase government control over its monetary system, China is preparing to unveil a blockchain-based digital yuan at the 2022 Beijing Winter Olympics. Jerome Powell and other Western central bankers have expressed envy for China's initiative and fret about being left behind. But Americans should strongly oppose the development of a central-bank digital currency (CBDC). Such a currency could wipe out local banks by making traditional savings and checking accounts obsolete. What's more, a CBDC-empowered Fed would accumulate a mountain of precise information about every consumer's financial transactions. Not only would this represent a grave threat to Americans' privacy and economic freedom, it would create a massive target for hackers and equip the government with the kind of censorship powers that would make Operation Choke Point look like child's play. Congress should ensure that the Federal Reserve never has the authority to issue a virtual currency. Instead, it should instruct regulators to integrate private-sector, dollar-pegged "stablecoins" — like Tether and USD Coin — into the framework we use for money-market funds and other cash-like instruments that are ubiquitous in the financial sector. PLANNING FOR THE WORST In the best-case scenario, the rise of bitcoin will motivate the United States to mend its fiscal ways. Much as Congress lowered corporate-tax rates in 2017 to reduce the incentive for U.S. companies to relocate abroad, bitcoin-driven monetary competition could push American policymakers to tackle the unsustainable growth of federal spending. While we can hope for such a scenario, we must plan for a world in which Congress continues to neglect its essential duty as a steward of Americans' wealth. The good news is that the American people are no longer destined to go down with the Fed's sinking ship. In 1971, when Washington debased the value of the dollar, Americans had no real recourse. Today, through bitcoin, they do. Bitcoin enables ordinary Americans to protect their savings from the federal government's mismanagement. It can improve the financial security of those most vulnerable to rising prices, such as hourly wage earners and retirees on fixed incomes. And it can increase the prosperity of younger Americans who will most acutely face the consequences of the country's runaway debt. Bitcoin represents an enormous strategic opportunity for Americans and the United States as a whole. With the right legal infrastructure, the currency and its underlying technology can become the next great driver of American growth. While the 21st-century monetary order will look very different from that of the 20th, bitcoin can help America maintain its economic leadership for decades to come. Tyler Durden Tue, 10/19/2021 - 23:25.....»»

Category: worldSource: nytOct 20th, 2021

America"s Funding Challenges Ahead

America's Funding Challenges Ahead Authored by Alasdair Macleod via GoldMoney.com, This article looks at the Fed’s funding challenges in the US’s new fiscal year, which commenced on 1 October. There are three categories of buyer for US Federal debt: the financial and non-financial private sector, foreigners, and the Fed. The banks in the financial sector have limited capacity to expand bank credit, and American consumers are being encouraged to spend, not save. Except for a few governments, foreigners are already reducing their proportion of outstanding federal debt. That leaves the Fed. But the Fed recently committed to taper quantitative easing, and it cannot be seen to directly monetise government debt. That is one aspect of the problem. Another is the impending rise in interest rates, related to non-transient, runaway price inflation. Funding any term debt in a rising interest rate environment is going to be considerably more difficult than when the underlying trend is for falling yields. There is the additional risk that foreigners overloaded with dollars and dollar-denominated financial assets are more likely to become sellers.Not only are foreigners overloaded with dollars and financial assets, but with bond yields rising and stock prices falling, foreigners for whom over-exposure to dollars is a speculative position going wrong will undoubtedly liquidate dollar assets and dollars. If not buying their own national currencies, they will stockpile commodities and energy for production, and precious metals as currency hedges instead. The Fed will be faced with a bad choice: protect financial asset values and not the dollar or protect the dollar irrespective of the consequences for financial asset values. And the Federal Government’s deficit must be funded. The likely compromise of these conflicting objectives leads to the risk of failing to achieve any of them. Other major central banks face a similar quandary. Funding ballooning government deficits is about to get considerably more difficult everywhere. Introduction Our headline chart in Figure 1 shows the excess liquidity in the US economy that is being absorbed by the Fed through reverse repos (RRPs). With a reverse repo, the Fed lends collateral (in this case US Treasuries overnight from its balance sheet) to eligible counterparties in exchange for overnight funds, which are withdrawn from public circulation. As of last night (6 October), total RRPs stood at $1,451bn, being the excess liquidity in the financial system with interest rates set by the RRP rate of 0.05%. Simply put, if the Fed did not offer to take this liquidity out of public circulation, overnight dollar money market rates would probably become negative. The chart runs from 31 December 2019 to cover the period including the Fed’s reduction of its funds rate to the zero bound and the commencement of quantitative easing to the tune of $120bn every month —they were announced on 19th and 23rd March 2020 respectively. Other than the brief spike in RRPs at that time which was a wobble to be expected as the market adjusted to the zero bound, RRPs remained broadly at zero for a full year, only beginning a sustained increase last March. Much of the excess liquidity absorbed by RRPs arises from government spending not immediately offset by bond sales. Figure 2 shows how this is reflected in the government’s general account at the Fed. The US Treasury’s balance at the Fed represents money not in public circulation. It is therefore latent monetary inflation, which is released into the economy as it is spent. Since March 2021, the balance on this account fell by about $800bn, while reverse repos have risen by about $1,400bn, still leaving a significant balance of liquidity to be absorbed arising from other factors, the most significant of which is likely to be seepage into the wider economy from quantitative easing (over two trillion so far and still counting). The US Treasury has draw down on its general account because had it accumulated balances from bond funding in excess of its spending ahead of the initial covid lockdown. And its debt ceiling was getting closer, which is currently being renegotiated. But this is only part of the story, with the Federal deficit running at about $3 trillion in the fiscal year just ended. That is a huge amount of government “fiscal stimulus”, and clearly, the private sector is having difficulty absorbing it all. The scale of this deficit, debt ceilings aside, is set to increase under the Biden administration. If the US economy is already drowning in dollars, it is likely to worsen. Assuming the debt ceiling negotiations raise the Treasury borrowing limit, the baseline deficit for the new fiscal year must be another $3 trillion. Optimists in the government’s camp have looked for economic recovery to increase tax revenues to reduce this deficit enough together with selective tax increases to allow the government to invest additional capital funds in the crumbling national infrastructure. A more realistic assessment is that unexpected supply disruption of nearly all goods and rising production costs are eating into the recovery, which is now faltering. And it is raising costs for the government in its mandated spending even above the most recent assumptions. It is increasingly difficult to see how the budget deficit will not increase above that $3 trillion baseline. This article looks at the funding issues in the new fiscal year following the expected resolution of the debt ceiling issue. The principal problems are its scale, how it will be funded, and the impact of price inflation and its effect on interest rates. Assessing the scale of the funding problem There are three distinct sources for this funding: the Fed, foreign investors, and the private sector, which includes financial and non-financial businesses. Figure 3 shows how the ownership of Treasury stock in these categories has progressed over the last ten years and the sum of these funding sources up to the mid-point of the last US fiscal year (31 March 2021). Over that time total Treasury debt more than doubled to nearly $30 trillion. The funding of further debt expansion from these levels is likely to be a significant challenge. Initially, the Fed can release funds by reducing the level of overnight RRPs, some of which will become absorbed directly, or indirectly, in Treasury funding. But after that financing will become more problematic. Since 2011, the Fed’s holdings of US Treasury debt have increased from 11% to 19% of the growing total, reflecting QE particularly since March 2020. At the same time the proportion of total Treasury debt owned by foreign investors has fallen from 32% to 24% today, and now that they are highly exposed to dollars, they could be reluctant to increase their share again, despite continuing trade deficits. Private sector investors, whose share of the total at 57% is virtually unchanged from ten years ago, can only expand their ownership by increasing their savings and through the expansion of bank credit. But with bank balance sheets lacking room for further credit expansion and consumers inclined to spend rather than save, it is difficult to envisage this ratio increasing sufficiently as well. Clearly, the Fed has been instrumental in filling the funding gap. But the Fed has now said it intends to taper its bond purchases. Unless foreign investors step in, the Fed will be unable to taper. Excess liquidity currently reflected in outstanding RRPs can be expected to be mostly absorbed by expanding T-bill and short-maturity T-bond funding, which might buy three- or four-months’ funding time and not permit much longer-term bond issuance. But after that, the Fed may be unable to taper QE. Foreign funding problems While we cannot be privy to the bimonthly meetings of central bankers at the Bank for International Settlements and at other forums, we can be certain that there is a higher level of monetary policy cooperation between the major central banks than is generally admitted publicly. On matters such as interest rate policy it is important that there is a degree of cooperation, otherwise there could be instability on the foreign exchanges. And to support the dollar’s debasement, policy agreements between important foreign central banks may need to be considered. This is because the dollar’s role as the reserve currency gives the US Government and its banks not just an advantage of seigniorage over the American people, but over foreign holders of dollars as well. Dollar M1 money supply is currently $19.7 trillion, approximately 50% of global M1 money stock.[i] Therefore, its seigniorage and the world-wide Cantillon effect from increasing public circulation is of great advantage to the US Government, not only over its own people but in transferring wealth from foreign nations as well. This is particularly to the disadvantage of any other national government which, following sounder monetary policies, does not expand its own currency stock at a similar rate while being forced to use dollars for international transactions. Ensuring currency debasement globally is therefore a compelling reason behind monetary cooperation between governments. By agreeing on permanent currency swap lines with five major central banks (the ECB, the Bank of Japan, the Bank of England, the Bank of Canada, and the Swiss National Bank) they are drawn into supporting a global inflationary arrangement which ensures the stock of dollars can be expanded without consequences on the foreign exchanges. Ahead of its massive monetary expansion on 19 March 2020, to keep other central banks onside temporary swap arrangements were extended to nine other central banks, ensuring their compliance as well.[ii] But notable by their absence were the central banks whose governments are members and associates of the Shanghai Cooperation Organisation, which will have found that their dollar holdings and financial assets (mainly US Treasuries) have been devalued without consultation or recompense. It is therefore not surprising that foreign governments other than those with permanent swap lines are increasingly reluctant to add to their holdings of dollars and US Treasuries. By selectively excluding major nations such as China from swap line arrangements, by default the Fed is pursuing a political agenda with respect to its currency. International acceptability of the dollar is being undermined thereby when the US Treasury is becoming increasingly desperate for inward capital flows to fund its budget deficits. Even including allied governments, all foreigners are now reducing their exposure to US dollar bank deposits, by 12.9% between 1 January 2020 and end-July 2021, and to US T-Bills and certificates by 20.7% over the same period. The only reason for holding onto longer-term assets is in expectation of speculative gains. The situation for longer-term Treasury bonds is not encouraging. The US Treasury’s “major foreign holders” list of holders of longer-maturity Treasury securities, shows the list to be dominated by Japan and China, between them owning 31.5% of all foreign owned Treasuries. Japan’s cooperative relationship with the Fed was confirmed by Japan increasing her holdings of US Treasuries, but only by 1.3% in the year to July 2021, while China and Hong Kong, which between them hold a similar amount to Japan, reduced theirs by 3%.[iii] The ability of the US Treasury to find foreign buyers other than for relatively smaller amounts from offshore financial centres and oil producing nations therefore appears to be potentially limited. We should also note that total financial assets and dollar cash held by foreigners already amounts to $32.78 trillion, roughly one and a half times US GDP — dangerously high by any measure. This total and its breakdown is shown in Table 1. If foreign residents are to increase their holdings in US Treasuries, it is most easily achieved by foreign central banks on the permanent swap line list drawing them down and further subscribing to invest in T-Bills and similar short-term securities. As well as being obviously inflationary, that recourse has practical limitations without reciprocal action by the Fed. But a far greater danger to Federal government funding comes from dollar liquidation of existing debt and equity holdings, especially if interest rates begin to rise, bearing in mind that for any foreign holder of dollars without a strategic reason for holding a foreign currency, all such exposure, even holding dollars and dollar-denominated assets, is speculative in nature. The question then arises as to what foreigners will buy when they sell their dollars. Governments without a strategic imperative may prefer at the margin to adjust their foreign reserves in favour of the other major currencies and gold. But out of the total liabilities shown in Table 1 official institutions only hold $4.284 trillion long- and short-term Treasuries, which includes China and Hong Kong’s holdings, out of the $7.2 trillion total shown in Figure 2 earlier in this article. The $3 trillion balance is owned by private sector foreign investors. Excluding China and Hong Kong’s $1.3 trillion, US Treasury debt held by foreign governments is under 10% of all foreign holdings of dollar securities and cash. What is held by foreign private sector actors therefore matters considerably more, bearing in mind that it can all be classified as speculative, being a foreign currency imparting accounting risk to balance sheets and investment portfolios. If interest rates rise because of price inflation not proving to be transient, it will lead to significant investment losses and therefore selling of the dollar, triggering a widespread repatriation of global funds. A global increase in bond yields and falling equity values will also force sales of foreign securities by US investors. But with US investors being less exposed to foreign currencies in correspondent banks and with a significantly lower level of foreign investment exposure, the net capital flows would be to the disadvantage of the dollar. Some of the proceeds from dollar liquidation by foreigners are likely to lead to commodity stockpiling and at the margin some of it will hedge into precious metals, driving their prices higher. The long-term suppression of precious metal prices would to come to an end. Domestic problems for the Fed Clearly, the resumption of government deficit funding will no longer be supported by foreign purchases of US Treasuries at a time when trade deficits remain stubbornly high. This throws the funding emphasis onto the Fed and domestic purchasers of government debt. But as stated above, the private sector will need to reduce its consumption to increase its savings. Alternatively, banks which have limited capacity to do so will have to expand credit to purchase Treasury bonds, which is not only inflationary, but diverts credit expansion from the private sector. Consumers are charging in the opposite direction from increasing savings, drawing them down in favour of increased consumption. This is partly due to them returning to their pre-covid relationship between consumption and savings, and partly due to a shift against cash liquidity in favour of goods increasingly driven by expectations of higher prices. With their fingers firmly crossed, the latter is believed by central bankers and politicians to be a temporary phenomenon, the consequence of imbalances in the economy due to logistics failures. But the longer it persists, the more this view will turn out to be wishful thinking. Increasing prices for energy and essential goods, which are notoriously under-recorded in the broader CPI statistics, are emerging as the major concern. So far, few observers appear to accept that they are the inevitable consequence of earlier currency debasement. There is a growing risk that when consumers realise that rising prices are not just a short-term and temporary phenomenon, they will increasingly buy the goods they may need in the future instead of buying them when they are needed. This alters the relation between cash liquidity-to-hand and goods, increasing the prices of goods measured in the declining currency. And so long as consumers expect prices to continue to rise, it is a process that is bound to accelerate until it is widely understood by the currency’s users that in exchange for goods, they must dispose of it entirely. If that point is reached, the currency will have failed completely. It is this process that undermines the credibility of a fiat currency. Before it develops into a total rout, it can only be countered by an increase in interest rates sufficient to stop it, as well as by strictly limiting growth in the stock of currency. And even then, some form of convertibility into gold may be required to restore public trust. This, the only cure for fiat currency instability, is too radical for the establishment to contemplate, and is a crisis that increases until it is properly addressed. The rise in interest rates exposes all the malinvestments that have grown and persisted while interest rates were suppressed from the 1980s onwards, finally ending at the zero bound. The shock of widespread business failures due to rising interest rates will impact early in the currency’s decline when it becomes obvious that initial increases in interest rates will be followed by yet more. Importantly, the supply of essential goods is then further compromised by business failures instead of being alleviated by improving logistics. And consumer demand shifts even more in favour of the essentials in life and away from luxury and inessential spending. The poor are especially disadvantaged thereby and the middle classes begin to struggle. The private sector’s growing economic woes further undermine government finances. Unemployment increases and tax revenues collapse, adding to the budget deficit and therefore to the government’s funding requirements. Mandatory costs increase more than budgeted. Interest charges, currently about $400bn, add yet more to the deficit. Today, in all the major currencies control over interest rates by central banks is being challenged. Like the Fed, other major central banks are also insisting that rising prices are temporary, while markets are beginning to suspect the reality is otherwise. All empirical evidence and theories of money and credit scream at us that statist control over interest rates is being eroded and lost to market-driven outcomes. The consequences for markets and government funding costs There is growing evidence that accelerating monetary expansion in recent years is feeding into a purchasing power crisis for major currencies. Covid and logistics disruptions, coupled with lack of inventories due to the widespread practice of just-in-time manufacturing processes have undoubtedly made the situation considerably worse. But in the history of accelerating inflations, there have always been unexpected economic developments. Shifting consumer priorities expose hitherto unforeseen weaknesses, so it would be a mistake to disassociate these problems from currency debasements. It is leading to a situation which confuses statist economists, who tend to think one-dimensionally about the relationships between prices and economic prospects. For them, rising prices are only a symptom of increasing demand. And so long as expansion of demand remains under control and is consistent with full employment, it is their policy objective. They do not appear to understand rising prices in a failing economy. But classical economics and on the ground conditions militate otherwise. Inflation is monetary in origin, and it is the destruction of the currency’s purchasing power that is evidenced in rising prices. And when the public sees prices of needed goods rising at an increased pace, they begin to rid themselves of the currency. And far from stimulating production and consumption, high rates of monetary inflation act as an economic burden. Monetary policy now faces the dual challenge of rising prices and rising interest rates as the economy slumps. When central banks would expect to reduce interest rates, they will now be forced to increase them. When deficit spending is deployed to stimulate the economy, it must now be curtailed. Just when they matter most, bond yields will rise along their yield curves from the short end, and equity market values will be undermined by changing yield relationships. Falling financial asset values become a consequence of earlier monetary inflation undermining a currency’s purchasing power. The Fed, the Bank of England, the Bank of Japan, and the ECB have all acted together to accommodate government budget deficits, to be funded as cheaply as possible by suppressing interest rates. That they have acted together has so far concealed the consequences from bond markets, whose participants only compare one government bond market with another instead of valuing bond risks on their own merits. And through regulation, banks have been made to view investment in government bonds as being risk-free for counterparty purposes. All this is about to change with the turn in the interest rate trend. Monetary policy will have two basic options to weigh; between supporting the currency’s purchasing power by increasing interest rates, or to support financial markets by suppressing them. If the latter is deemed more important than the currency, it will most likely require more quantitative easing by the Fed, not less. Expressed another way, either central banks will pursue the current policy of maintaining domestic confidence and the wealth effect of elevated financial asset values and let the currency go hang. Alternatively, they can aim to support their currencies, and be prepared to preside over a collapse in financial asset values and accept the knock-on consequences. It is a dirty choice, with either policy option likely to fail in its objective. The end of the neo-Keynesian statist road, which started out lauding the merits of deficit spending is in sight. Mathematical economics and the state theory of money are about to be shown for what they are — intellectualised wishful thinking. As the most distributed currency, the dollar is likely to lead the way for all the others, slavishly followed by the Bank of England, the Bank of Japan, and the ECB. And all their high-spending governments, addicted to debt, will face unexpected funding difficulties. Tyler Durden Mon, 10/11/2021 - 17:40.....»»

Category: personnelSource: nytOct 11th, 2021

Well Done Greta: Energy Crisis To Send Carbon Emissions To All Time Highs

Well Done Greta: Energy Crisis To Send Carbon Emissions To All Time Highs “I’m not in the transitory-inflation crowd. The private sector is allocating all the money to the fast-growing software, eating-the-world companies. It’s not allocating money to companies that actually make things and provide other kinds of services that people find less exciting, meaning there are shortages of these things now.” These comments from Greenlight Capital’s founder David Einhorn in a recent RealVision interview, while addressing the broader "transitory vs permanent" inflation debate, are especially apt in describing the transformation taking place in the energy sector where the recent ESG mania has deprived legacy fossil-fuel companies of much needed capital (not just growth capex but also maintenance) which has instead flown to "virtue-signaling" green projects. We discussed this dynamic back in June when we rhetorically asked "Will ESG Trigger Energy Hyperinflation" and explained that  "ESG is a negative supply shock that internalizes the climate cost of the production of goods and services. This negative supply shock will be inflationary until technological progress absorbs these costs. That could take years." And, as Deutsche Bank's credit analyst Jim Reid added, "pricing climate-change externalities more generally could make things more expensive over time. Are we on the verge of another change in inflation expectations due to oil and energy, one that is in large part due to ESG." Well, for those living in Europe, the answer has been a resounding yes - with 10Y breakevens surging higher - and it took just a few months to get there as the chart below shows; and since we still have a potentially very cold winter ahead of us, absent a flood of Russian gas (via the NS2 of course) it's about to get much worse. But the biggest irony is that in seeking to deprive fossil fuels of much needed growth capital to shrink fossil fuel output, the virtue-signaling assault by the green lobby spearheaded by hapless puppet Greta Thunberg, has achieved just the opposite. As Bloomberg writes, the ongoing global energy crisis, the coming winter weather and the release of pent-up pandemic demand have sent nations scrambling to stockpile fossil fuels, a move that portends a surge in global carbon dioxide emissions this year which is set to make new all time highs! The trajectory poses a new threat to the feel-good Paris Agreement goal of limiting global temperature increases to 1.5° Celsius as China, India and other developing economies are driving the demand for coal, but even the U.S. is poised to increase its consumption of the dirtiest fossil fuel in almost a decade, according to a forecast from the International Energy Agency. Here is Bloomberg's Javier Blas with more: Across the world, fossil fuels are making a remarkable comeback as a super-charged recovery from the pandemic boosts demand. For all the green energy promises and plans, that transition is in its infancy, and the world still leans heavily on fossils. It’s an addiction built up over two and a half centuries, and it runs deep. In Europe, where electric vehicles are becoming ever more popular, gasoline sales are booming, reaching a 10-year high in some countries. In the developing world, from Brazil to China, natural gas consumption is stronger than ever. The global hunger for energy has collided with constrained supply, itself the result of a tangle of factors, sending power prices surging in many countries. Adding it all up, fossil fuel demand is already flirting with pre-pandemic levels, which means emissions are on the rise too. On current trends, the combined consumption of coal, natural gas and oil is likely to hit an all-time high by mid-2022. “This is the revenge of the fossil fuels,” said Thierry Bros, an energy expert and professor at Sciences Po in Paris. Some history: global CO2 emissions peaked just prior to the onset of the Covid-19 pandemic, but then in 2020 registered the biggest annual decrease since at least 1965, according to BP Plc. However, since every action leads to a much more expensive reaction, releases of the greenhouse gas this year through August are already just 1% less compared with the same period in 2019, according to Carbon Monitor, an emissions monitoring group. And they are about to soar. Needless to say, this is a huge embarrassment for the green lobby, which to this day is simply using ESG as a smokescreen to demand trillions in taxpayer-funded government spending, of which a substantial portion quietly goes into the bank accounts of a select handful of the most vocal virtue-signalers, never to be seen again. As Bloomberg notes, the forecast for record emissions is a poor backdrop to the COP26 climate talks that will take place in Glasgow, Scotland in November. Hilarious, the United Nations is urging countries to submit more ambitious emissions plans by the time the discussions get underway, and officials from almost 200 nations are expected to gather for the fortnight of negotiations. Instead, many countries will be fighting populist anger and protests about energy hyperinflation. Some, like China, are already seeing a sharp hit to their economy as a result of widespread blackouts which have crippled industrial production. And so, we have gotten to the point where not only are emissions not dropping but the question of just how big the spike will be, will depend on how cold it gets: "Whether emissions reach new highs will probably depend on the weather", said Steven J. Davis, a professor at University of California, Irvine, and co-lead at Carbon Monitor. “Fossil fuels used to heat buildings could make up that 1% quickly if it’s cold.” Now if only someone had predicted this all too obvious outcome ahead of the push to defund the legacy fossil fuel infrastructure decades before alternative energy sources were ready to become the new energy leaders. The energy crisis has been concentrated in the power generation sector. Shortages of natural gas and electricity have been especially acute in China and the U.K. Emissions from electricity producers were already up 2.2% globally between January and August versus the same period in 2019, driven by increases in China, India and Brazil, Carbon Monitor data shows. To be sure, not everyone is set for new CO2 output records: emissions in the European Union and the U.K. during the first eight months of this year are down 4.7% compared with the same period in 2019, according to the group, which bases their estimates off on power generation, industrial activity, ground transport, domestic and international aviation and residential demand. In the U.S., they’re down 3.5%. Of course, the reason for that is that both the EU and UK are currently facing unprecedented supply bottlenecks which are preventing them from burning more fossil fuels. And considering that the trade off is energy hyperinflation, we are confident the local residents would be delighted at the trade off of much higher emissions if it means prices drop to historical levels. Incidentally, that's exactly what will happen once Putin finally starts sending nat gas to Europe via Nord Stream 2. What is striking is how long it took for the experts to realize what was patently obvious to most long ago: “I’m concerned hydrocarbon demand is not falling fast enough to match the potential under investment in fossil fuels,” said Jason Bordoff, dean of the Columbia Climate School and a former senior energy official in the Obama administration. Coal is paradigmatic. For nearly a decade, it appeared in terminal decline as investors shunned miners and European countries shut down coal-fired power plants. And yet, the world’s dirtiest fossil fuel won’t go away. Global consumption peaked in 2014, but rather than fall rapidly, as many expected, it stabilized in a gentle plateau. And now, just as the fight against climate change intensifies, it’s growing again, with the resurgence largely driven by China. Oil is another case where hopes of an early peak in demand are quickly fading. In 2020, Bernard Looney, the head of British oil giant BP Plc, said it was possible that Covid marked the moment of peak oil. That view has since shifted, with BP predicting in August that demand will reach pre-Covid levels in the second half of 2022. All of this means carbon dioxide emissions are rising too. The IEA estimates that they’ll post their second largest annual increase ever this year, reversing most of the decline during the lockdowns of 2020. On current trends, emissions will hit a fresh record in 2022 despite all government pledges bring them down, and quickly. Hilariously, none other than the de facto leader of the ESG movement, Bloomberg whose billionaire founder has emerged as the patron saint of climate change propaganda as he criss-crosses the world in his private jet, concedes that maybe it had it all wrong and writes that "another factor that could spur emissions growth is new skepticism over renewables in the face of the energy crisis. Disruptions the past few weeks have sparked debate about the impact of the world’s transition to cleaner power. While some see evidence of the intermittency of wind and solar power, others see equivalent if not greater vulnerability from extreme price swings and volatility triggered by disruptions in fossil fuel supply chains and dependency on petrostates like Russia." "My worry is there is a growing incorrect perception that the current energy crisis is caused because of renewables, or policies favoring renewables," said BloombergNEF analyst Ali Izadi-Najafabadi. The problem is that that perception is not incorrect - it is precisely the rabid push for "green" that is behind the energy crisis and price explosion, as we warned back in June. Remarkably, and showing how out of touch with reality the Green crusaders truly are, Bloomberg's analyst then said that “the rational response to higher fossil fuel commodity prices as well as higher emissions would be to accelerate the shift to renewables.” Actually no, that ridiculous statement encapsulates precisely the wrong response and all that is wrong with "green thinking" where the solution to a crisis is to make the crisis even bigger. In fact, that argument only makes sense in a world of infinite government spending that can be used to plug household funding holes such as those that have emerged now that we have energy hyperinflation. What should happen is that fossil fuels should receive appropriate capital for the next 3-4 decades until such time as alternative energy is competitive enough and widespread enough to be able to replace fossil fuels in their entirety. That won't happen until the 2040s. As such any push to outsource all fossil fuels today with a green sector that is unable to pick up the baseload energy generation will lead to catastrophe. Incidentally, none other than iconic Enron energy trader John Arnold put it best: "In the US, a (growing) majority of voters support efforts to address climate change. A majority also express reluctance to pay for these policies. If voters believe climate policy is causing a spike in energy prices, support for those actions will fall." In the US, a (growing) majority of voters support efforts to address climate change. A majority also express reluctance to pay for these policies. If voters believe climate policy is causing a spike in energy prices, support for those actions will fall. 4/ — John Arnold (@JohnArnoldFndtn) September 24, 2021 And unlike the Bloomberg crusaders, Arnold's conclusion is spot on: Like it or not, oil and gas will be widely used by Americans, and the world, this decade. The transition to clean energy will be eased if it's smooth: oil and gas prices stay at reasonable levels. Attempts to kill the industry are counterproductive to the broader effort. As for what happens next, the covid divide that split the world in two for the past year yet which is now fading away along with the pandemic, may soon shift to climate change as the most polarizing topic in the world: As political leaders prepare for COP26, the energy price spike has polarized views about the green transition, already an enormous challenge that involves rewiring the whole global economy. Climate change deniers and fossil fuel industry lobbyist have seized on it to campaign against green energy. On the other side, some climate activists say it shows the need to go even faster. “Inevitably, it wasn’t going to be a transition without tension,” said Morgan Bazilian, an energy expert and professor of public policy at the Colorado School of Mines. “The balancing act politically is becoming a lot harder.” And so we wait for the inevitable political turmoil that will follow as years of "green dream" waves crash into the rocks of a brutally hard - and very expensive - reality. Meanwhile for all those virtue-signalers listening and complying with Greta's endless platitudes (which bizarrely continue to omit China as the primary source of emissions), we hope you enjoy your next energy bill. Tyler Durden Sun, 10/10/2021 - 18:00.....»»

Category: personnelSource: nytOct 10th, 2021

How To Trade The Current Bear, And Plan For The Coming Bull

The best part about bear markets are the spectacular rallies that follow. Now is the time to start nibbling on your favorite stocks at bargain prices. Kevin Matras will keep you engaged and ready for the inevitable rebound. It’s been a rough year so far.In fact, we just ended the worst first half in more than 50 years, with the S&P falling by nearly -21%, making it the worst start since 1970.That time was also a period of high inflation like we’re experiencing now.Interestingly, the second half of that year saw the S&P up 27%.Of course, that does not mean that’s how it will go for the back half of 2022. But it doesn’t mean it won’t either.True, since 1957, negative first half performances had just as much of a chance for a negative back half performance as it did a positive one.But that being said, it’s important to look at where we are and what could be coming down the pike.The S&P officially entered bear market territory 3 weeks ago when it closed below the -20% threshold from its all-time high close made earlier this year.They joined the Nasdaq, which entered bear market territory in March.The Dow, so far, has technically avoided a bear market, but only by a couple of percentage points when the markets were at their lows.In spite of having the strongest labor market in decades (unemployment is near a 50-year low, while there’s literally millions more jobs available than there are unemployed people to fill them), inflation, and what that means for interest rates and the economy, has been weighing on the market.With inflation currently at 41-year highs, the fear is that the Fed will raise rates too high and too fast and send us into a recession.That remains to be seen.But the market has so far concluded that we will indeed see a recession.In fact, given the steep decline, it appeared the market was pricing in a worst-case scenario (hard recession vs. a soft or shallow one). Or at least that’s what it looked like, until the market rallied sharply off its lows the other week.That begs the question, what if the worst-case scenario doesn’t unfold?In that case, the economy and stocks could soar. And the pullback we’ve seen could be presenting an enormous opportunity. Especially with valuations now at the lowest levels in more than two years.Moreover, the Fed is forecasting full-year GDP to come in at 1.7% this year, and 1.7% again next year.And St. Louis Fed President, James Bullard, in a recent interview, said he sees a “pretty good second half,” driven by “strong consumption this year.”So the Fed is looking for growth. A far cry from the worst-case scenario that the market has been pricing in.More . . .------------------------------------------------------------------------------------------------------Alert: Buy These Ultimate Four Stocks ASAPThere's still time to get in early. These aren't just 4 promising stocks. They were handpicked from hundreds of strong companies by Zacks' experts because they present the greatest upside for Q3:Stock #1: Earnings soared +128.45 in 90 Days. Closing Acquisition in Market’s Hottest SectorStock #2: Agribusiness Giant Addresses Global Food Shortage and Rides Surging PricesStock #3: Small-Cap Shipper Is a Compelling Play as Europe Moves Away from Russian Natural GasStock #4: Record Sales Growth for Automotive Supplier as People Fix Cars Rather Than Buy New OnesDeadline to download our just-released Ultimate Four Special Report is Monday, July 4th.See Our “Ultimate” Stocks Now >>------------------------------------------------------------------------------------------------------For Perspective The average bear market decline for the S&P (going back 100+ years), is about -38%. With the S&P down by -23.6% at its worst, we got more than 61% there.Then again, over the last 13 bear markets during that time, there’s been a fair share (5 of them) that were down ‘only’ in the mid-25ish percent range (-21.5% to -29.7%).It should also be known that the faster a bear market begins, the shallower it tends to be.Regardless, no bear market is fun while it’s happening.But it’s worth noting (going back to the 1950’s), that the median returns for the market once a bear market has begun is nearly 3% one month later, more than 5% three months later, and more than 23% a year later.And the rallies that follow after a bear market has ended are even bigger.And given the strength of the economy going into this, it’s all the more likely that we’ll bounce back big and in record time.Trading The Bear  Just like stocks need to fall by -20% for a bull market to end and a bear market to begin, they also need to go up by 20% for a bear market to end and a bull market to begin.For the S&P, it needs to close at or above 4,400.12 for a new bull market to begin.And for the Nasdaq, it’s 12,775.32.Set yourself an alert. When we close above those levels, the bear market will officially be over and a new bull market will have begun.But that doesn’t mean you have to wait to start nibbling at your favorite stocks and their discount bargain prices.Some may go lower. And some may not. But they are likely much lower now than where they were just a few months ago, or even years ago. And much closer to the bottom (if they haven’t already hit it).That’s true for your favorite stocks. As well as plenty of new stocks that you probably haven’t even heard of yet.This pullback will usher in lots of new and exciting opportunities in the inevitable bull market that follows.It always does.So now is the time to start putting your list of dream stocks together. And staying engaged so you can discover what new stocks will lead the market when it goes back up.Riding The Bull  The big gains that follow a bear market can be quite spectacular.But since a large part of any bull market recovery typically comes at the very beginning, it’s imperative that you stay in the market.The trick is to get into the right stocks.There’s nothing wrong with raising cash by getting out of your laggards and poorest performers – stocks you know you should have gotten out of long before this pullback even happened. Or getting rid of those stocks that will have an uphill battle recovering even when this is over.But then make sure to replace them with the strongest stocks that will be the new market leaders.The point is, you want to be building your dream portfolio now, near the bottom.And by the time the new bull market is underway, you’ll be all in with the strongest stocks, and beating the market.Proven Profitable Strategies Picking the best stocks is a lot easier when you focus on proven, profitable strategies to do it.And by concentrating on what has proven to work in the past, you’ll have a better idea as to what your probability of success will be now and in the future.For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 28 of the last 34 years with an average annual return of 25% per year? That's more than 2 x the S&P with an annual win ratio of more than 82%.That includes 3 bear markets and 4 recessions.And did you know that stocks in the top 50% of Zacks Ranked Industries outperform those in the bottom 50% by a factor of 2 to 1? There's a reason why they say that half of a stock's price movement can be attributed to the group that it's in. Because it's true!Those two things will give any investor a huge probability of success and put you well on your way to beating the market.But you’re not there yet, as those two items alone will only narrow down a field of 10,000 stocks to the top 100 or so. Way too many to trade at once.So the next step is to get that list down to the best 5-10 stocks that you can buy.Stock Picking Secrets of the Pros One of the best ways to begin picking better stocks is to see what the pros are doing – the pros who use these methods to select the best stocks to buy.Whether you’re a growth investor, or a value investor, prefer fast-paced momentum stocks, or mature dividend-paying income stocks, there are certain rules the experts follow to maximize their gains.This applies to large-caps and small-caps, biotech and high-tech, ETFs, stocks under $10, stocks about to surprise, even options, and everything in between.Regardless of which one fits your personal style of trade, just be sure you’re following proven profitable methods that work, from experts who have demonstrated their ability to beat the market.The best part about these strategies is that all of the hard work is done for you. There’s no guesswork involved. Just follow the experts and start getting into better stocks on your very next trade.The Easiest, Fastest Way To Get Started Download our just-released Ultimate Four Special Report.It names and explains 4 stocks with strong fundamentals that are hand-picked by our experts to have the biggest upsides for Q3.And despite inflation there couldn’t be a better time to get aboard because stocks are substantially undervalued as the U.S. economy holds strong. Pent-up consumer demand continues to unleash, household income is high, corporate earnings are thriving, and the job market is booming.In particular, these 4 stocks are riding trends that could prove very lucrative for investors . . .  Stock #1: Looking for a powerhouse in energy, the market’s best-performing sector? This one is a rare combo of growth and value. Recently, earnings soared +128.4% in just 90 days! They’re closing a major acquisition in Q3, so don’t wait.Stock #2: Our agribusiness pick is already riding surging food prices. With war causing food shortages, it earned billions more in net sales last quarter. And that looks to be only the beginning for this consistent EPS estimate beater.Stock #3: Out of 63 shipping stocks, this small-cap looks to be the hottest play on Europe moving away from Russian natural gas. Its low valuation and soaring earnings estimates are compelling for investors.Stock #4: This automotive supplier could soar on the trend of fixing up cars instead of buying new ones. Improving margins and record sales growth are reasons to snap up shares right now.Previous Ultimate Four stocks have had wow returns. For example, NVIDIA jumped +51.4% in one quarter and went on to skyrocket +361.5% over the next 2 years.¹So don’t miss this chance to get in early on our latest Ultimate Four. We’re limiting the number of people who share that Special Report.There’s a hard deadline - the opportunity to download it ends midnight Monday, July 4th.See our Ultimate Four stocks right now >>Thanks and good trading,KevinKevin Matras serves as Executive Vice President of Zacks.com and is responsible for all of its leading products for individual investors. He invites you to download Zacks’ newly released Ultimate Four Special Report.¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.  Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksJul 1st, 2022

Futures, Global Markets Rally, Bonds Slide As Traders Turn More Bullish

Futures, Global Markets Rally, Bonds Slide As Traders Turn More Bullish Following the best week for stocks in one month, global stocks extended gains on Monday on continued easing of fears for a hawkish Fed; US futures rose, with the Nasdaq 100 advancing 0.5% as by tech giants Amazon, Apple and Microsoft all rose in premarket trading. Tech shares also boosted indexes in Europe and Asia. Treasuries slipped, pushing the rate on the US 10-year note to 3.17%. Yields have retreated from June highs on growth worries, but whether that marks the end of the Treasury bear market is a live debate. The dollar fluctuated while oil and bitcoin rose. In the US premarket, major US technology and internet stocks were higher, poised to extend gains. The tech-heavy Nasdaq 100 closed up 7.5% last week, its best week since March. Among notable movers: Apple +0.6%, Microsoft +0.6%, Amazon.com +1%, Meta +0.8%, Nvidia +1.6% in premarket trading. Other notable premarket movers include: JD.com (JD US) is among the top performers in US-listed Chinese stocks, rising 5% in premarket trading, after tech investor Prosus disposed of its stake in JD.com for about $3.67 billion. Coinbase (COIN US) shares fall 4% in premarket trading as the stock was downgraded to sell from neutral, with a joint Street-low price target of $45 at Goldman Sachs, which cited the “continued downdraft” in crypto prices and drop in industry activity levels. Robinhood (HOOD US) shares rise 3.9% in premarket trading as Goldman Sachs analyst William Nance raised the recommendation on the stock to neutral from sell Epizyme (EPZM US) jumps 64% to $1.56 in US premarket trading after Ipsen announced the acquisition of the US biotech firm for $1.45/share in cash plus a contingent value right of $1/share. Selective Insurance Group (SIGI US) shares may be in focus after Morgan Stanley initiated an overweight rating on the stock, citing a favorable business model that will help the company’s margin to outperform peers. Keep an eye on WEC Energy Group (WEC US) as KeyBanc Capital Markets raised the recommendation on the stock to overweight from sector weight, citing “valuation dislocations” triggered by the recent industry volatility. As Goldman traders speculated over the weekend, Friday's massive Russell rebalance may have helped flush out any leftover liquidation trades, while the upcoming month- and quarter-end portfolio rebalancing by pensions could boost stocks by as much as 7% this week according to JPM's Marko Kolanovic. Further boosting bullish sentiment - if only temporarily - one of Wall Street’s biggest bears sees the rally in US stocks extending, prior to the selloff recommencing. Morgan Stanley's Michael Wilson say the S&P 500 Index may climb another 5% to 7%, before resuming losses. Meanwhile, investors are also parsing incoming data to work out if the highest inflation in a generation is close to topping out as that will give the Fed latitude to ease up on sharp interest-rate hikes, something the market last week aggressively repriced. A more troubling scenario is of lasting price pressures and tighter policy even as the global economy falters. “There’s a feeling that things aren’t as bad as we thought they were going to be,” Carol Pepper, founder of Pepper International, said on Bloomberg Radio. She added “there’s a hope that perhaps we’ve oversold, perhaps there’s not going to be a recession.” Traders are also monitoring a summit of the Group of Seven leaders, who plan to commit to indefinite support for Ukraine in its defense against Russia’s invasion. The G-7 in addition is weighing a price cap on Russian oil. As reported yesterday, the US, UK, Japan and Canada also plan to announce a ban on new gold imports from Russia during the G-7 summit. Prices for the precious metal naturally rose. European equities trade off session highs as an earlier rally in Asian tech stocks buoys sentiment. Miners, tech and autos are the strongest performing sectors in Europe. Euro Stoxx 50 rallies 1%. DAX outperforms peers, adding 1.2%, FTSE MIB lags, dropping 0.2%.  Among notable European stock moves, Prosus NV soared on plans to sell more of its $134 billion stake in Chinese internet giant Tencent Holdings Ltd. to finance a buyback program. Mediobanca SpA fell after the death of Italian entrepreneur Leonardo Del Vecchio, the single largest investor in the bank.  Here are some of the biggest European movers today: Prosus shares surge as much as 17% in Amsterdam after the tech investor said it will sell down its holding in Tencent to finance an open-ended share buyback program, which could help close the gap between the firm’s market value and the value of the Tencent stake, according to analysts. Mining stocks lead gains in the Stoxx 600 Index on Monday as iron ore and base metals recover ground amid signs of improvement in China’s economy. Rio Tinto shares rise as much as 4.4%, Anglo American +4.6%, Glencore +4.2% Nordex shares jump as much as 12% after the firm announced a EU139.2m cash injection from Acciona in a bid to increase liquidity and strengthen its balance sheet to shield itself against the risks of short term headwinds in the industry. Kion shares rise as much as 7.7% after Morgan Stanley upgraded the stock to overweight from underweight, saying that the structural case for warehouse and forklift companies remains intact even amid a de-rating for the stocks. Lundbeck soars as much as 15% after the Danish pharmaceutical company reported positive data in a clinical study of agitation in patients with Alzheimer’s dementia. Ocado shares fall as much as 3.1% after the stock was cut to neutral from outperform and PT slashed to 960p from 1,600p at Credit Suisse, with the broker saying new disclosures from the online grocer indicate that its prior assumptions were “too optimistic.” Ipsen shares drop as much as 5.1% after the pharmaceutical company announced the acquisition of US biotech Epizyme for $1.45/share in cash plus a contingent value right of $1/share. Analyst had mixed reactions to the deal. Mediobanca shares fall as much as 4.4% in Milan after news that Italian entrepreneur Leonardo Del Vecchio, the single largest investor in the bank with a stake of about 19.4%, has died. Wise shares drop as much as 5.3% after the money transfer firm said its CEO is facing a probe by UK regulators. Tecnicas Reunidas shares tumble as much as 17% after the company said it began arbitrage to recover excess costs in a dispute with the Sonatrach-Neptune Energy consortium over a contract for the Touat Gaz Plant in Algeria. Elsewhere, Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut down payment routes. Earlier in the session, Asian stocks advanced after battered technology shares rebounded as easing recession fears underpinned investor sentiment.  The MSCI Asia Pacific Index rose as much as 2.1%, its biggest intraday gain this month, as chip and internet companies including TSMC and Alibaba climbed. Tech-heavy markets such as Taiwan and South Korea extended gains made Friday, while an index of Asian tech stocks rallied for a second straight session after dropping to the lowest since September 2020.  Asian equities are bouncing back from a two-year low, as US Treasury yields retreat. Almost all markets in the region rose, with Hong Kong’s Hang Seng Index leading gains and China’s benchmark coming closer to a bull market as Shanghai’s leader declared victory in defending the financial hub against Covid. A Chinese tech index in Hong Kong advanced 4.7%. Still, the rally in technology shares may be short-lived, as global demand for consumer electronics remains fragile.  “Korea and Taiwan have high leverage to tech products, and we’ve seen a lot of that come under pressure so the end demand has slowed down,” Ray Sharma-Ong, investment director at Abrdn Asia, said in an interview with Bloomberg TV. “We expect continued outflows post this relief rally.” Japanese equities climbed as the latest comments from Federal Reserve officials buoyed sentiment on the economy and a reading on US inflation expectations eased.  The Topix Index rose 1.1% to 1,887.42 as of market close Tokyo time, while the Nikkei advanced 1.4% to 26,871.27. Sony Group Corp. contributed the most to the Topix’s gain, increasing 2.3%. Out of 2,170 shares in the index, 1,490 rose and 568 fell, while 112 were unchanged. Australia's S&P/ASX 200 index rose 1.9% to close at 6,706, the benchmark’s biggest daily gain since Jan. 28, as investors in Asia assessed whether inflation is bottoming and recession can be averted. The index’s biggest gains were seen in the financial, energy and tech sectors. In New Zealand, the S&P/NZX 50 index closed 1.7% higher at 10,997.92, the benchmark’s best day since March 1 Emerging-market stocks climbed to the highest in more than a week as China’s recovery from its virus-induced slump propels the Asian nation’s equities toward a bull market. Technology stocks led emerging-market equity gains, with China’s economy showing some improvement in June amid a further easing of pandemic curbs in Shanghai. Chinese shares look to be the best home for fresh money in Asia amid a tough investment environment, according to abrdn plc’s regional chairman Hugh Young. China plans to extend the yuan’s trading hours as it seeks to increase global investor participation in onshore currency trading as part of its internationalization push. In FX, the Bloomberg dollar spot index fell 0.2% as the greenback weakened against all of its Group-of-10 peers apart from the Australian dollar.  AUD and CHF are the weakest performers in G-10 FX, SEK and GBP outperform. The volatility term structures for the Group-of-4 currencies focus on the upcoming central bank meetings as there is little demand for long gamma in the front-end. The euro advanced, nearing $1.06 and European bonds fell broadly, with the exeption of Greece and Sweden, as focus turns to ECB President Christine Lagarde’s speech. Sterling rose for a second day, supported by a rally in global stocks that is limiting demand for the dollar. Gilts extended their slide across the curve, while money markets raised BOE tightening bets as haven- buying was unwound amid equity advances. In rates, Treasuries are weaker amid a selloff in core European rates, which extended losses after EU’s sale of EU2.5b four-year bonds. US yields are cheaper by nearly 4bp at long end, steepening 2s10s by ~2.4bp, 5s30s by ~1bp on the day; 10-year is up 3.6bp at ~3.17% with bunds and gilts lagging by additional 8bp and 5bp in the sector.  As Bloomberg notes, the broad risk-asset rally puts added cheapening pressure on Treasury yields with S&P 500 futures and Estoxx50 rising led by big gains for Asia stocks. Two coupon auctions slated for Monday may also weigh: Monday’s auctions include $46b 2- year at 11:30am ET and $47b 5-year notes at 1pm. The WI 2-year yield near 3.07% (vs 2.519% last month) is above auction stops since 2007; WI 5Y near 3.22% (vs 2.736% in May) exceeds results since 2008. IG dollar issuance expectations for the week are around $15b, although remain highly dependent on market conditions. The long- end of the curve may benefit this week from anticipated month- end demand; Bloomberg Indices estimated a 0.07yr Treasury index duration extension for July 1, slightly below 12-month average. In Europe, Gilts underperform Treasuries and bunds, cheaper by about 5-6bps at the long end. In commodities, industrial metals rebounded, while oil rose. Copper steadied and most other base metals rebounded after their worst week in a year as China’s economy showed signs of recovering and Goldman Sachs said global supplies were still constrained. Oil fluctuated near $107 a barrel in New York as investors monitored developments from the gathering of Group of Seven leaders; G7 leaders met to decide on a Russian oil price cap ahead of Iranian nuclear talks and on the week of the OPEC+ meeting. French CGT unions will participate in strikes at LNG terminals and gas storage facilities this week; strike in the energy sector on June 28th. Most base metals trade in the green; LME tin rises 6.8%, outperforming peers. LME zinc lags, dropping 0.9%. Spot gold maintains gains, adding ~$13 to trade near $1,840/oz. as some G-7 nations plan to announce ban on new gold imports from Russia Looking at today's US calendar, we get the May durable goods orders, capital goods orders, pending home sales, and June Dallas Fed manufacturing index. Market Snapshot S&P 500 futures up 0.7% to 3,944.50 STOXX Europe 600 up 1.2% to 417.68 MXAP up 1.6% to 161.83 MXAPJ up 1.8% to 538.51 Nikkei up 1.4% to 26,871.27 Topix up 1.1% to 1,887.42 Hang Seng Index up 2.4% to 22,229.52 Shanghai Composite up 0.9% to 3,379.19 Sensex up 1.2% to 53,368.36 Australia S&P/ASX 200 up 1.9% to 6,705.95 Kospi up 1.5% to 2,401.92 Brent Futures up 0.2% to $113.31/bbl Gold spot up 0.7% to $1,840.40 U.S. Dollar Index down 0.29% to 103.88 German 10Y yield little changed at 1.49% Euro up 0.3% to $1.0580 Top Overnight News from Bloomberg ECB policy makers gather on a Portuguese hillside on Monday with the sinking feeling that their rush to tackle the inflation shock they failed to forecast risks both a recession and echoes of the euro area’s sovereign debt crisis It was while sitting apparently alone in a London hotel basement that Christine Lagarde engineered a fix to the euro zone’s most alarming debt turmoil since the pandemic struck The ECB is pushing back its policy decisions and the timing of the subsequent press conferences by 30 minutes as of July The US, UK, Japan and Canada plan to announce a ban on new gold imports from Russia during a summit of Group of Seven leaders that’s getting underway Sunday. Prices of the precious metal climbed Monday President Joe Biden rebooted his effort to counter China’s flagship trade-and- infrastructure initiative after an earlier campaign faltered, enlisting the support of Group of Seven leaders at their summit in Germany China’s economy showed some improvement in June as Covid restrictions were gradually eased, although the recovery remains muted China plans to extend the yuan’s trading hours as it seeks to increase global investor participation in onshore currency trading as part of its internationalization push Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut down payment routes to overseas creditors The world economy risks entering a new era of high inflation which central banks need to keep in check, the Bank for International Settlements said Signs of distress flashing in bond markets suggest the world’s poorest nations are set to see a wave of debt restructurings. But a growing cohort of investors say that’s a buying opportunity A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were higher across the board as the region took impetus from last Friday's firm gains on Wall St heading closer into month-end. ASX 200 enjoyed broad gains across its sectors although gold miners lagged as Evolution Mining shares dropped by more than 20% due to a cut in its FY output guidance. Nikkei 225 was lifted after the BoJ’s Summary of Opinions reiterated that they must maintain easy policy and with Tepco among the biggest gainers on tight electricity supply amid the hot weather. Hang Seng and Shanghai Comp. conformed to the upbeat mood as Hong Kong benefitted from a rampant tech sector and with the mainland encouraged by further easing of restrictions in Shanghai and Beijing, while the PBoC also upped its liquidity efforts with a CNY 100bln injection. Top Asian News Beijing will permit schools to resume in-class teaching as soon as Monday, ending one of the last major curbs in the capital, according to Bloomberg. Shanghai is to gradually resume dining-in at restaurants from June 29th, according to an official cited by Reuters. PBoC injected CNY 100bln via 7-day reverse repos with the rate at 2.10% for a CNY 90bln net injection, according to Reuters. China requested that banks make preparations for longer trading hours for the CNY, with trading in the onshore CNY potentially to extend until 03:00 local time the following day (20:00BST/15:00CDT), according to Bloomberg. BoJ Summary of Opinions from the June meeting stated the BoJ must maintain easy policy and keep a close eye out on the market and FX impact on the economy and prices. It also noted the number of goods seeing prices rise is increasing due to higher raw material costs and a weak yen but it is appropriate to keep easy policy as inflation is not driven by a positive economic cycle. Furthermore, it said maintaining ultra-easy policy is effective in sustaining a rise in wages and that a sharp fall in Yen would hurt the economy and heighten uncertainty. Japanese government issued power shortage warnings for Tuesday, for a second straight day, according to Reuters. Japan has proposed removing reference to the goal of 50% zero-emission vehicles by 2030; wants less concrete target, according to a draft cited by Reuters. BoJ's holding of JGBs has reportedly topped 50% of its total, according to Nikkei. European bourses are kicking off the week on the front-foot as global equities see tailwinds from Wall Street’s bounce on Friday. Sectors in Europe are mostly positive – but Utilities and Insurance are subdued, with the overall picture being a cyclical one. Stateside, US equity futures track sentiment higher – with the NQ the current outperformer vs the ES, YM, and RTY. Top European News ECB says as of the July meeting, the policy decisions will be released at 14:15CET and presser at 14:45CET, according to Reuters. ECB’s Pivot Toward Rate Hikes Feeds Fears of New Bond Crisis; ECB to Announce Rate Decisions 30 Minutes Later From July EU Confronts Low Gas Storage Risk in Test of Unity on Russia Gas Jumps as Europe Struggles to Fill Russian Gap UK’s Battered Economy Is Sliding Toward a Breaking Point FX Greenback continues to gravitate as risk sentiment improves, but could get a month end boost given models indicating broad rebalancing requirement - DXY pivots 104.000 within 104.120-103.790 range just shy of last week's low. Yen benefits from all round fix buying ahead of final trading day of June and Q2 on Thursday - Usd/Jpy not far from 134.50 at one stage overnight alongside declined in Yen crosses. Pound perks up as IMM spec accounts trim short positions again and Euro tests technical resistance ahead of 1.0600 vs Buck amidst firmer rebound in EGB yields - Cable probes 1.2300 at best, Eur/Usd touches 21 DMA at 1.0591. Aussie lags on Aud/Nzd headwinds, but Loonie pares losses in tandem with oil - Aud/Usd sub-0.6950, cross under 1.1000, Nzd/Usd hovering over 0.6300 and Usd/Cad back below 1.2900. Yuan underpinned by net PBoC liquidity injection and easing of Covid restrictions in China - Usd/Cnh and Usd/Cny both beneath 6.6900. Lira knee jerks higher after Turkey cuts credit to firms with more than Try 15 mn FX cash assets - Usd/Try down to 16.1040 or so before rebound towards 16.8900. Fixed Income Debt futures unwind more recovery gains with EGBs leading the way. Bunds retreat towards 146.50 vs 149.00 at one stage last Friday. Gilts closer to 113.00 than 114.00 and 10 year T-note near the base of 116-31/117-13 overnight range. US durable goods data ahead and a double dose of issuance comprising Usd 46 bn 2 year and Usd 47 bn 5 year auctions. Commodities WTI and Brent futures consolidate with modest intraday losses as G7 leaders meet to decide on a Russian oil price cap ahead of Iranian nuclear talks and on the week of the OPEC+ meeting. French CGT unions will participate in strikes at LNG terminals and gas storage facilities this week; strike in the energy sector on June 28th. Spot gold piggy-backs off the softer Dollar – with the yellow metal currently eyeing its 21 DMA (1,841.60/oz) and 200 DMA (1,845.20/oz) to the upside Base metals are largely rebounding following the recent rout – also aided by the Buck. US Event Calendar 08:30: May Durable Goods Orders, est. 0.2%, prior 0.5%; -Less Transportation, est. 0.3%, prior 0.4% 08:30: May Cap Goods Orders Nondef Ex Air, est. 0.1%, prior 0.4% 08:30: May Cap Goods Ship Nondef Ex Air, est. 0.2%, prior 0.8% 10:00: May Pending Home Sales YoY, prior -11.5% 10:00: May Pending Home Sales (MoM), est. -3.9%, prior -3.9% 10:30: June Dallas Fed Manf. Activity, est. -6.5, prior -7.3 DB's Jim Reid concludes the overnight wrap This morning we are launching our monthly survey which hopefully comes at an opportune time to assess what you all think about recession risk, whether the next big move in markets will be up or down, whether the BoJ will be able to hold the line on YCC, whether your market view includes the risk of Russian gas being cut off from Europe, and whether you think negative rates will be seen again in the next decade after the ECB likely moves away from it by September. There are a couple of other repeat questions to answer. It should take 2-3 minutes, is all anonymous, with answers likely Thursday morning. The link is here and all help gratefully received. A reminder that my chart book was out last week with lots of charts on one of the worst H1s in history, recession risks and lots more. See here for more. Without having a blockbuster event to look forward to this week there are plenty of things to keep us occupied in what are highly uncertain times. Perhaps the ECB's Forum on Central Banking in Sintra will be the key event to watch, with a policy panel on Wednesday which will bring together Chair Powell, President Lagarde and Governor Bailey together the likely highlight. Staying in Europe, all eyes will be on the June CPI numbers released for Germany (Wednesday), France (Thursday) and Italy and the Eurozone on Friday. Consensus expectations don’t suggest we’re yet at peak headline inflation with CPI expected to pick up a few tenths YoY this week. With commodity prices fading sharply in June the hope is that we will be near the top soon. In fact, our US economists put out an inflationary chart book last week that suggested that the peak will be in September (9.1% headline and 6.3% core). The problem is that even if headline dips because of energy, core won’t necessarily fall as quickly with wages and second round effects in full force. We had a small indicator of that last week as our economists also pointed out that the recent acceleration in US hospital workers’ wage growth from around 2.5% to almost 5% should serve to add an additional 50bps to core PCE inflation next year (link here). On Thursday, we’ll get the latest reading of the US core PCE deflator within the personal income and spending data. Core PCE is the Fed's preferred inflation measure so this and the healthcare news is important. Staying with US data, we have a fair amount to look forward to with the all important ISM on Friday (53.2 expected vs 56.1 last month). We'll also see the Chicago PMI on Thursday and regional Fed's manufacturing indices throughout the week. Durable goods orders (today) and wholesale and retail inventories (tomorrow) will be key to assessing inventory pressures flagged by several firms in recent weeks as well as corporate behaviour amid some easing in supply-chain backlogs. How the consumer is faring under rising rates and stubborn inflation will be another key theme, with the Conference Board’s June consumer confidence index out tomorrow (99.9 expected vs 106.4 last month). Elsewhere, China's industrial data and PMIs (Thursday), as well as key economic indicators from Japan, will be in focus. Even though we at the very back end of Q2 earnings, this week will see some bellwether consumer spending companies such as Nike (Monday), H&M and General Mills (Wednesday) report. Other corporates releasing results will include Prosus (Monday), Micron and Walgreens Boots Alliance (Thursday). Overnight in Asia, equity markets are continuing last week’s rally with the Hang Seng (+2.72%) leading gains thanks to a strong performance in Chinese tech firms. The Kospi (+2.08%), Nikkei (+1.04%), Shanghai Composite (+0.89%) and CSI (+1.24%) are all also up. Outside of Asia, DM equity futures point to further gains with contracts on the S&P 500 (+0.19%), NASDAQ 100 (+0.44%) and DAX (+0.79%) moving higher. Bitcoin is above $21,000 after falling to as low as $17,600 last week for the first time since December 2020, while 10yr US yields are up around +2.5bps. Earlier today, data released showed that China’s industrial profits (-6.5% y/y) contracted at a slower pace in May following a big fall of -8.5% in April as companies resumed their activity in major manufacturing hubs amid easing Covid restrictions. In other overnight news, Russia has defaulted on its foreign-currency sovereign debt ($100 million) for the first time in more than 100 years, after the grace period for the payment deadline expired on Sunday. Recapping last week now, markets grew increasingly concerned about a recession as the week went on, thanks to weak economic data, hawkish central bank rhetoric, and the threat of a Russian gas cut-off in Europe. That led to a significant rally in sovereign bonds as investors sought out safe havens and cast doubt on whether central banks could keep hiking into a downturn. Indeed, yields on 10yr bunds came down by -21.9bps over the week as a whole (+1.0bps Friday), which is their 3rd biggest weekly decline in the last decade. Yields on 10yr Treasuries also saw a similar, albeit less marked decline, with yields down -9.6bps (+4.3bps Friday). That decline in yields came in spite of continued hawkish central bank commentary, and on Friday we saw San Francisco Fed President Daly say that a 75bps hike in July was “where I’m starting”, thus joining a growing number of officials who’ve openly backed a 75bps move again. Bear in mind if the Fed did move by 75bps in July, that would mean the hiking cycle since March would now be at 225bps, which matches the entire hiking cycle we saw in 3 years between 2015 and 2018. Nevertheless, when it came to monetary policy expectations, the growing fears of a recession led investors to take out the probability of more aggressive tightening, with the fed funds rate priced in by December’s meeting down by -16.0bps over the week (-5.0bps Friday). And looking at the entire profile of meetings ahead, futures are now expecting the peak Federal funds rate to come as soon as March 2023, before pricing in cuts after that. With investors expecting somewhat more dovish central banks, global equities rallied strongly last week as they recovered from their worst weekly performance since the pandemic began. The S&P 500 gained +6.45% on the week, and its Friday advance of +3.06% was the best daily performance for the index since May 2020. Europe’s STOXX 600 put in a weaker +2.40% advance (+2.62% Friday), but matters weren’t helped by German equities, with the DAX losing -0.06% (+1.59% Friday) as concerns grew about a potential cut-off in Russian gas. That’s sent natural gas futures in Europe to a 3-month high, with last week seeing a further +9.14% gain (-3.63% Friday). Lastly, after the poor mid-week data including the flash PMIs for June, Friday’s releases did bring some modest respite. First, the final reading of the University of Michigan’s long-term inflation expectations was revised down to 3.1% (vs. 3.3% previously). The unexpected jump in that measure before the Fed’s meeting was said to be a factor in their move to 75bps, as they’re very concerned about the prospect that longer-term inflation expectations could become unanchored, making inflation much harder to control. Furthermore, new home sales for the US in May rose to an annualised rate of 696k (vs. 590k expected), whilst the previous month also saw upward revisions. To be fair though, it wasn’t all positive on Friday, and Germany’s Ifo business climate indicator fell to 92.3 in June (vs. 92.8 expected), which marks an end to two successive monthly increases in April and May. Tyler Durden Mon, 06/27/2022 - 08:06.....»»

Category: blogSource: zerohedgeJun 27th, 2022

Everybody"s Guilty: To The Police State, We"re All Criminals Until We Prove Otherwise

Everybody's Guilty: To The Police State, We're All Criminals Until We Prove Otherwise Authored by John W. Whitehead & Nisha Whitehead via The Rutherford Institute, “In a closed society where everybody's guilty, the only crime is getting caught.” - Hunter S. Thompson The burden of proof has been reversed. No longer are we presumed innocent. Now we’re presumed guilty unless we can prove our innocence beyond a reasonable doubt in a court of law. Rarely, are we even given the opportunity to do so. Although the Constitution requires the government to provide solid proof of criminal activity before it can deprive a citizen of life or liberty, the government has turned that fundamental assurance of due process on its head. Each and every one of us is now seen as a potential suspect, terrorist and lawbreaker in the eyes of the government. Consider all the ways in which “we the people” are now treated as criminals, found guilty of violating the police state’s abundance of laws, and preemptively stripped of basic due process rights. Red flag gun confiscation laws: Gun control legislation, especially in the form of red flag gun laws, allow the police to remove guns from people “suspected” of being threats. These laws, growing in popularity as a legislative means by which to seize guns from individuals viewed as a danger to themselves or others, will put a target on the back of every American whether or not they own a weapon. Disinformation eradication campaigns. In recent years, the government has used the phrase “domestic terrorist” interchangeably with “anti-government,” “extremist” and “terrorist” to describe anyone who might fall somewhere on a very broad spectrum of viewpoints that could be considered “dangerous.” The ramifications are so far-reaching as to render almost every American an extremist in word, deed, thought or by association. In the government’s latest assault on those who criticize the government—whether that criticism manifests itself in word, deed or thought—the Biden Administration has likened those who share “false or misleading narratives and conspiracy theories, and other forms of mis- dis- and mal-information” to terrorists. This latest government salvo against consumers and spreaders of “mis- dis- and mal-information” widens the net to potentially include anyone who is exposed to ideas that run counter to the official government narrative. In other words, if you dare to subscribe to any views that are contrary to the government’s, you may well be suspected of being a domestic terrorist and treated accordingly. In this way, government and corporate censors claiming to protect us from dangerous, disinformation campaigns are, in fact, laying the groundwork now to preempt any “dangerous” ideas that might challenge the power elite’s stranglehold over our lives. Government watch lists. The FBI, CIA, NSA and other government agencies have increasingly invested in corporate surveillance technologies that can mine constitutionally protected speech on social media platforms such as Facebook, Twitter and Instagram in order to identify potential extremists and predict who might engage in future acts of anti-government behavior. Where many Americans go wrong is in naively assuming that you have to be doing something illegal or harmful in order to be flagged and targeted for some form of intervention or detention. In fact, all you need to do these days to end up on a government watch list or be subjected to heightened scrutiny is use certain trigger words (like cloud, pork and pirates), surf the internet, communicate using a cell phone, limp or stutter, drive a car, stay at a hotel, attend a political rally, express yourself on social media, appear mentally ill, serve in the military, disagree with a law enforcement official, call in sick to work, purchase materials at a hardware store, take flying or boating lessons, appear suspicious, appear confused or nervous, fidget or whistle or smell bad, be seen in public waving a toy gun or anything remotely resembling a gun (such as a water nozzle or a remote control or a walking cane), stare at a police officer, question government authority, or appear to be pro-gun or pro-freedom. Thought crimes. For years now, the government has used all of the weapons in its vast arsenal—surveillance, threat assessments, fusion centers, pre-crime programs, hate crime laws, militarized police, lockdowns, martial law, etc.—to target potential enemies of the state based on their ideologies, behaviors, affiliations and other characteristics that might be deemed suspicious or dangerous. It’s not just what you say or do that is being monitored, but how you think that is being tracked and targeted. There’s a whole spectrum of behaviors ranging from thought crimes and hate speech to whistleblowing that qualifies for persecution (and prosecution) by the Deep State. It’s a slippery slope from censoring so-called illegitimate ideas to silencing truth. Security checkpoints and fusion centers. By treating an entire populace as suspect, the government has justified wide-ranging security checkpoints that subject travelers to scans, searches, pat downs and other indignities by the TSA and VIPR raids on so-called “soft” targets like shopping malls and bus depots by black-clad, Darth Vader look-alikes. Fusion centers, which represent the combined surveillance efforts of federal, state and local law enforcement, track the citizenry’s movements, record their conversations, and catalogue their transactions. Surveillance, precrime programs. Facial recognition software aims to create a society in which every individual who steps out into public is tracked and recorded as they go about their daily business. Coupled with surveillance cameras that blanket the country, facial recognition technology allows the government and its corporate partners to warrantlessly identify and track someone’s movements in real-time, whether or not they have committed a crime. Rapid advances in behavioral surveillance are not only making it possible for individuals to be monitored and tracked based on their patterns of movement or behavior, including gait recognition (the way one walks), but have given rise to whole industries that revolve around predicting one’s behavior based on data and surveillance patterns and are also shaping the behaviors of whole populations. With the increase in precrime programs, threat assessments, AI algorithms and surveillance programs such as SpotShotter, which attempt to calculate where illegal activity might occur by triangulating sounds and images, the burden of proof has been turned on its head by a surveillance state that renders us all suspects and overcriminalization which renders us all lawbreakers. Mail surveillance. Just about every branch of the government—from the Postal Service to the Treasury Department and every agency in between—now has its own surveillance sector, authorized to spy on the American people. For instance, the U.S. Postal Service, which has been photographing the exterior of every piece of paper mail for the past 20 years, is also spying on Americans’ texts, emails and social media posts. Headed up by the Postal Service’s law enforcement division, the Internet Covert Operations Program (iCOP) is reportedly using facial recognition technology, combined with fake online identities, to ferret out potential troublemakers with “inflammatory” posts. The agency claims the online surveillance, which falls outside its conventional job scope of processing and delivering paper mail, is necessary to help postal workers avoid “potentially volatile situations.” Threat assessments and AI algorithms. The government has a growing list—shared with fusion centers and law enforcement agencies—of ideologies, behaviors, affiliations and other characteristics that could flag someone as suspicious and result in their being labeled potential enemies of the state. Before long, every household in America will be flagged as a threat and assigned a threat score. It’s just a matter of time before you find yourself wrongly accused, investigated and confronted by police based on a data-driven algorithm or risk assessment culled together by a computer program run by artificial intelligence. No-knock raids. No-knock, no-announce SWAT team raids are what passes for court-sanctioned policing in America today, and it could happen to any one of us. Nationwide, SWAT teams routinely invade homes, break down doors, kill family pets (they always shoot the dogs first), damage furnishings, terrorize families, and wound or kill those unlucky enough to be present during a raid. No longer reserved exclusively for deadly situations, SWAT teams are now increasingly being deployed for relatively routine police matters such as serving a search warrant, with some SWAT teams being sent out as much as five times a day. Police carry out tens of thousands of no-knock raids every year nationwide. Militarized police. America is overrun with militarized cops—vigilantes with a badge—who have almost absolute discretion to decide who is a threat, what constitutes resistance, and how harshly they can deal with the citizens they were appointed to “serve and protect.” It doesn’t matter where you live—big city or small town—it’s the same scenario being played out over and over again in which government agents, trained to act as judge, jury and executioner in their interactions with the public, ride roughshod over the rights of the citizenry. This is how we have gone from a nation of laws—where the least among us had just as much right to be treated with dignity and respect as the next person (in principle, at least)—to a nation of law enforcers (revenue collectors with weapons) who treat “we the people” like suspects and criminals. Constitution-free zones. Merely living within 100 miles inland of the border around the United States is now enough to make you a suspect, paving the way for Border Patrol agents to search people’s homes, intimately probe their bodies, and rifle through their belongings, all without a warrant. Nearly 66% of Americans (2/3 of the U.S. population, 197.4 million people) now live within that 100-mile-deep, Constitution-free zone. Asset forfeiture schemes. Americans no longer have a right to private property. If government agents can invade your home, break down your doors, kill your dog, damage your furnishings and terrorize your family, your property is no longer private and secure—it belongs to the government. Hard-working Americans are having their bank accounts, homes, cars electronics and cash seized by police under the assumption that they have been associated with some criminal scheme. As libertarian Harry Browne observed, “Asset forfeiture is a mockery of the Bill of Rights. There is no presumption of innocence, no need to prove you guilty (or even charge you with a crime), no right to a jury trial, no right to confront your accuser, no right to a court-appointed attorney (even if the government has just stolen all your money), and no right to compensation for the property that's been taken.” Vehicle kill switches. Sold to the public as a safety measure aimed at keeping drunk drivers off the roads, “vehicle kill switches” could quickly become a convenient tool in the hands of government agents to put the government in the driver’s seat while rendering null and void the Constitution’s requirements of privacy and its prohibitions against unreasonable searches and seizures. As such, it presumes every driver potentially guilty of breaking some law that would require the government to intervene and take over operation of the vehicle or shut it off altogether. The message: we cannot be trusted to obey the law or navigate the world on our end. Bodily integrity. The government’s presumptions about our so-called guilt or innocence have extended down to our very cellular level. The debate over bodily integrity covers broad territory, ranging from forced vaccinations, forced cavity searches, forced colonoscopies, forced blood draws and forced breath-alcohol tests to forced DNA extractions, forced eye scans, and forced inclusion in biometric databases: these are just a few ways in which Americans continue to be reminded that we have no real privacy, no real presumption of innocence, and no real control over what happens to our bodies during an encounter with government officials. The groundwork being laid with these mandates is a prologue to what will become the police state’s conquest of a new, relatively uncharted, frontier: inner space, specifically, the inner workings (genetic, biological, biometric, mental, emotional) of the human race. “Guilt by association” has taken on new connotations in the technological age. Yet the debate over genetic privacy—and when one’s DNA becomes a public commodity outside the protection of the Fourth Amendment’s prohibition on warrantless searches and seizures—is really only beginning. Get ready, folks, because the government has embarked on a diabolical campaign to create a nation of suspects predicated on a massive national DNA database. Limitations on our right to move about freely. We think we have the freedom to go where we want and move about freely, but at every turn, we’re hemmed in by laws, fines and penalties that regulate and restrict our autonomy, and surveillance cameras that monitor our movements. For instance, license plate readers are mass surveillance tools that can photograph over 1,800 license tag numbers per minute, take a picture of every passing license tag number and store the tag number and the date, time, and location of the picture in a searchable database, then share the data with law enforcement, fusion centers and private companies to track the movements of persons in their cars. With tens of thousands of these license plate readers now in operation throughout the country, police can track vehicles and run the plates through law enforcement databases for abducted children, stolen cars, missing people and wanted fugitives. Of course, the technology is not infallible: there have been numerous incidents in which police have mistakenly relied on license plate data to capture suspects only to end up detaining innocent people at gunpoint. The war on cash and the introduction of digital currency. Digital currency provides the government and its corporate partners with a mode of commerce that can easily be monitored, tracked, tabulated, mined for data, hacked, hijacked and confiscated when convenient. This push for a digital currency dovetails with the government’s war on cash, which it has been subtly waging for some time now. In recent years, just the mere possession of significant amounts of cash could implicate you in suspicious activity and label you a criminal. The rationale (by police) is that cash is the currency for illegal transactions given that it’s harder to track, can be used to pay illegal immigrants, and denies the government its share of the “take,” so doing away with paper money will help law enforcement fight crime and help the government realize more revenue. A cashless society—easily monitored, controlled, manipulated, weaponized and locked down—plays right into the hands of the government (and its corporate partners). The Security-Industrial Complex. Every crisis—manufactured or otherwise—since the nation’s early beginnings has become a make-work opportunity for the government to expand its reach and its power at taxpayer expense while limiting our freedoms at every turn. What this has amounted to is a war on the American people, fought on American soil, funded with taxpayer dollars, and waged with a single-minded determination to use national crises, manufactured or otherwise, in order to transform the American homeland into a battlefield. As a result, the American people have been treated like enemy combatants, to be spied on, tracked, scanned, frisked, searched, subjected to all manner of intrusions, intimidated, invaded, raided, manhandled, censored, silenced, shot at, locked up, denied due process, and killed. These programs push us that much closer towards a suspect society where everyone is potentially guilty of some crime or another and must be preemptively rendered harmless. The ramifications of empowering the government to sidestep fundamental due process safeguards are so chilling and so far-reaching as to put a target on the back of anyone who happens to be in the same place where a crime takes place. The groundwork has been laid for a new kind of government where it won’t matter if you’re innocent or guilty, whether you’re a threat to the nation, or even if you’re a citizen. What will matter is what the government—or whoever happens to be calling the shots at the time—thinks. And if the powers-that-be think you’re a threat to the nation and should be locked up, then you’ll be locked up with no access to the protections our Constitution provides. In effect, you will disappear. As I make clear in my book Battlefield America: The War on the American People and in its fictional counterpart The Erik Blair Diaries, our freedoms are already being made to disappear. Tyler Durden Fri, 06/24/2022 - 23:00.....»»

Category: personnelSource: nytJun 24th, 2022

Autoliv (ALV) Pops More Than 9% in Tuesday"s Trading: Know Why

Despite industry headwinds, Autoliv (ALV) reaffirms its guidance for organic sales growth in the band of 12-17%. Shares of Autoliv Inc. ALV shot up 9.23% yesterday to close the session at $75.42 after the company reiterated its 2022 guidance despite the multiple industry woes. This Stockholm-based supplier of automotive safety systems notified that it is actively making efforts to adapt to new business conditions. Investors seemingly welcomed the fact that the firm is making intended price increase negotiations with customers to counter commodity inflation and supply chain disruptions.We know that the auto industry is reeling under microchip shortage — a byproduct of the COVID-19 pandemic that was only worsened by the Russia-Ukraine war — which is limiting vehicle supply. While demand is still strong, automakers are unable to meet the same amid supply chain disruptions and chip famine. The resurgence of COVID-induced lockdown in China has further compounded the problems. In April, light vehicle production (LVP) in China declined 40% year over year. While the figures for May remained flat on a year-over-year basis, IHS Markit now estimates second-quarter LVP in China to drop 11% more than its previous forecast.In the light of such circumstances, Autoliv’s price increase negotiations with customers are yielding results and compensating for the commodity inflationary pressure. Additionally, ALV is implementing cost containment initiatives to support its medium-term targets. It has backed its 2022 guidance of organic growth and adjusted operating margin in the band of 12-17% and 5.5-7%, respectively.Having said that, we believe it’s prudent to take advantage of yesterday’s price appreciation and the cash out of the stock now. Its worth noting that although the company has reaffirmed its guidance, its forecast of an adjusted operating margin of 5.5-7% is lower than 8.3% recorded in 2021. The chip crisis, soaring costs of raw materials, high capex requirements and unfavorable currency translations are likely to limit Autoliv's margins. While the company seems to be undertaking cost mitigation efforts, investors should wait for a clearer picture to ascertain whether the company is on the right track. Until then, it's better to avoid Autoliv.The Zacks Consensus Estimate for 2022 earnings implies a year-over-year decline of 13%. The consensus mark has moved south by 51.4% in the past 60 days to $4.37 a share. The stock currently carries a Zacks Rank #5 (Strong Sell).If you wish to invest in the auto space, consider placing bets on stocks like Lithia Motors LAD, Penske Automotive PAG and Group 1 Automotive GPI While Lithia and Penske sport a Zacks Rank #1 (Strong Buy), Group carries a Zacks Rank #2 (Buy).Lithia is valued at around $7.8 billion. The Zacks Consensus Estimate for LAD’s 2022 earnings has been revised 10.6% upward over the past 60 days. The company has a projected earnings growth rate of 19.5% for 2022.Lithia's aggressive buyouts and the Driveway platform are likely to boost its prospects. Robust cash flows and investor-friendly moves of the firm are further driving shareholders’ confidence.Penske is valued at around $8 billion. The Zacks Consensus Estimate for PAG’s 2022 earnings has been revised 3.4% upward over the past 30 days. The company has a projected earnings growth rate of 13.7% for 2022. Penske’s spree of buyouts, low leverage and commitment to maximize shareholder value augur well.Group 1 is valued at approximately $2.8 billion. The Zacks Consensus Estimate for GPI’s 2022 earnings has been revised 11.8% upward over the past 60 days. The company has a projected earnings growth rate of 23% for 2022. In 2021, Group 1 completed transactions representing $2.5 billion of acquired revenues. The AcceleRide platform, its online retailing initiative, active at most of the firm’s U.S. dealerships is likely to aid Group 1’s long-term prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.  5 Stocks Set to Double Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%. Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Autoliv, Inc. (ALV): Free Stock Analysis Report Penske Automotive Group, Inc. (PAG): Free Stock Analysis Report Group 1 Automotive, Inc. (GPI): Free Stock Analysis Report Lithia Motors, Inc. (LAD): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksJun 22nd, 2022

A Triple-Barreled Gun Is Destroying African Economies: Inflation, Government Debt, & Taxes

A Triple-Barreled Gun Is Destroying African Economies: Inflation, Government Debt, & Taxes Authored by Manuel Tacanho via The Mises Institute, Today it is conclusive that Africa's socialist experiments failed, as did the state-led development approach. Not only was the heavily statist approach unable to develop African economies, but it made poverty worse. In this context of repressive state-driven economic systems, most African countries are trapped in a morass of high inflation, high debt, high taxation, high dependency, worsening poverty, food insecurity, chronic mass unemployment, and other pervasive problems.  Barrel One: High Inflation Africa’s unstable and inflationary currencies have been a significant impediment to economic development because of their destabilizing and impoverishing effect. Organic and lasting economic growth must necessarily be driven by savings, not by debt, deficit spending, or money printing.  In the long run, inflation ends in the breakdown of the currency. This is what happened in Angola in the 1990s and in Zimbabwe in the first decade of the 2000s. Evidence from the past and present, from developed and developing countries, unequivocally shows that inflation is a government and central bank policy that cannot go on forever and that does come to a catastrophic end, however long the run may be.  Postcolonial Africa has been plagued by severe monetary instability due to inflation: currency crises, erratic currency fluctuations, currency devaluations, currency resets, and even hyperinflation. Such a chaotic, destabilizing, and impoverishing monetary situation is not accidental or natural. It is the inherent consequence of Africa’s fiat money systems in the context of monetary colonialism.  On the one hand, a stable and trustworthy currency spurs local capital formation (i.e., saving), leading to homegrown investment and entrepreneurship, which leads to organic, decentralized, and enduring economic growth. An economy based on a reliable currency (e.g., gold money), coupled with other factors like low taxes and economic freedom, also attracts more foreign capital and talent, which leads to broad-based prosperity.  On the other hand, untrustworthy and inflationary currencies, such as today’s African currencies, will have the opposite effect. In a context of monetary instability and rampant inflation, people will tend to save less, spend faster, and avoid long-term investments and business ventures. And capital formation, capital attraction, and long-term capital deployment are essential to industrialization and lasting prosperity. By shifting incentives from long-term thinking, savings, and production to short-term thinking, consumption, and short-term economic activities, inflationary currencies undermine economic development. They lead to deindustrialization and leave society more dependent on the state. Notice that the more a system depends on the state, the crueler, more oppressive, and thus unsustainable it becomes. Moreover, by maintaining monetary instability and high inflation, African governments are destroying local capital, undermining capital formation, and ensuring that local capital remains dismally scant. This keeps African countries poor and dependent on systemic aid (loans and grants) and foreign capital injections. This situation, created by misguided government policy, leaves African governments indebted and at the mercy of predatory foreign actors. Barrel Two: High Debt  Though debt is a global economic issue, debt burdens affect countries differently. The pernicious consequences of indebtedness are more crippling and swifter to manifest in developing countries than in developed ones. Unable or unwilling to see deficit spending for the ruinous model it is, many African governments are repeating past mistakes and driving their economies further into economic ruin by accumulating excessive debt (and consequently imposing heavier tax burdens). Although reports of an imminent debt crisis in Africa are likely an exaggeration, African countries’ debt buildup is alarming. Apart from Sudan, Eritrea, Cape Verde, Mozambique, Angola, Mauritius, and Zambia, which have debt-to-GDP ratios near or above the 100 percent threshold, the average debt-to-GDP ratio in Africa hovers around 60 percent, which is lower than the average ratio for developed countries, many of which have long passed the 100 percent benchmark. Still, Africa’s debt buildup is unwise, unsustainable, and dangerous.  Excessive debt is detrimental to African economies in eight ways: It perpetuates the state-led development approach, which has failed to generate economic prosperity and left most African economies in a precarious situation characterized by dependency, poverty, tyranny, corruption, rampant inflation, and deindustrialization. By perpetuating the state-driven development approach, debt-fueled government spending makes poverty worse, consolidates political and economic repression, and thus further delays promarket reforms that African societies urgently need to truly develop and weather global economic storms. Debt repayments further cripple already crippled economies by diverting increasingly significant portions of government revenue to debt servicing. Worse still, African countries pay much higher interest rates (5 to 16 percent) on their Eurobonds than developed countries, which, thanks to their central banks' artificial ultralow interest rates, tend to pay near-zero interest on their debt; Like most government spending, African government spending tends to be mired in corruption, cronyism, embezzlement, rent seeking, overbilling, and wastefulness, which ultimately means it does more harm than good. It leads only to further debt to keep the spending binge going—a vicious cycle that attracts more political and economic opportunists seeking office or to get rich on government spending and favor. It leads to injustice and a broader income and wealth inequality gap, as politicians and their associates (e.g., large businesses and other interest groups) benefit first and most from such money injections through various schemes. Debt-driven government spending also means a heavier (i.e., more oppressive) tax burden in the future. High taxes are one of the main impediments to economic development. Less development means more poverty, more human suffering, and more poverty-related deaths. Moreover, excessive debt leads to a situation where the people, their children, and even the unborn will have to be taxed to pay for today's largely wasteful and counterproductive government spending, which only makes politicians and associates rich. On top of all that, debt (loans and grants) traps African countries in poverty and vassalage to foreign governments (primarily Western states but others too, nowadays). Now, why do African politicians still willingly go for this ruinous model? Part of it is monetary colonialism; part of it is philosophical colonialism. But a significant reason is that this model is rather convenient politically. It enables politicians to make fairytale electoral promises. Barrel Three: High Taxation  Nnete Okorie-Egbe was a princess from Akwete in Nigeria who led a women's revolt against British colonial tyranny, particularly against oppressive taxation, in 1929.  Likewise, a famous folktale in Angola is that once, in protest against Portuguese colonial taxation, locals of the then village of Caxito did some magic and sent a crocodile with a bag of money in its mouth to the local colonial office to pay taxes. Although this is most likely a myth, the message is clear, and the symbolism is real. So much so that there is an alligator monument eternalizing this tale.  Protest stories such as these abound across Africa. This is unsurprising because the concept of permanent and excessive taxation is a colonial imposition that postcolonial African governments, instead of rejecting, have doubled down on. Precolonial Africa was characterized by little to no taxation due to the tradition of self-governance, free markets, and free trade. Stateless societies were ubiquitous in precolonial Africa. However, today’s Africa is characterized by such degrees of tyrannical taxation as would resuscitate Nnete Okorie-Egbe to lead another tax revolt or make the then villagers of Caxito send not one but a hundred crocodiles to the tax office in protest. Business Insider Africa reports that corporate tax rates are generally higher in developing countries. In Africa, the average corporate tax rate is 27.5%—the highest of any region. Chad, Comoros, Equatorial Guinea, Guinea, Sudan, and Zambia all tie for the second-highest corporate tax rate in the world at 35.0%. Many countries in the region also rank as the worse for ease of doing business, with high start-up costs and multiple barriers to entry. The fact that the poorest region has the highest business tax rates globally is both revealing and perplexing. Instead of maintaining some of the most oppressive tax regimes globally, Africa should boast the simplest and lowest tax burdens, which would greatly encourage local capital formation, investment, entrepreneurship, and lasting economic growth. Moreover, as we all know, developing countries can barely ever repay their debts because they lack a robust economy. Increasing the tax burdens in these precarious economies will only further impoverish already impoverished societies. In Closing Such is the triple-barreled gun with which most African governments, intentionally or unintentionally, bombard African societies. It is unclear why African, not colonial, governments would deploy such a destructive economic gun against the very people they should serve and uplift. What is clear is that by maintaining an environment of high inflation, high debt, and high taxation, African governments ensure that African societies remain trapped in tyranny, dependency, and poverty. Tyler Durden Sun, 06/19/2022 - 08:10.....»»

Category: blogSource: zerohedgeJun 19th, 2022

The Engineered Stagflationary Collapse Has Arrived – Here"s What Happens Next

The Engineered Stagflationary Collapse Has Arrived – Here's What Happens Next Authored by Brandon Smith via Alt-Market.us In my 16 years as an alternative economist and political writer I have spent around half that time warning that the ultimate outcome of the Federal Reserve’s stimulus model would be a stagflationary collapse. Not a deflationary collapse, or an inflationary collapse, but a stagflationary collapse. The reasons for this were very specific – Mass debt creation was being countered with MORE debt creation while many central banks have been simultaneously devaluing their currencies through QE measures. On top of that, the US is in the unique position of relying on the world reserve status of the dollar and that status is diminishing. It was only a matter of time before the to forces of deflation and inflation met in the middle to create stagflation. In my article ‘Infrastructure Bills Do Not Lead To Recovery, Only Increased Federal Control’, published in April of 2021, I stated that: “Production of fiat money is not the same as real production within the economy… Trillions of dollars in public works programs might create more jobs, but it will also inflate prices as the dollar goes into decline. So, unless wages are adjusted constantly according to price increases, people will have jobs, but still won’t be able to afford a comfortable standard of living. This leads to stagflation, in which prices continue to rise while wages and consumption stagnate. Another Catch-22 to consider is that if inflation becomes rampant, the Federal Reserve may be compelled (or claim they are compelled) to raise interest rates significantly in a short span of time. This means an immediate slowdown in the flow of overnight loans to major banks, an immediate slowdown in loans to large and small businesses, an immediate crash in credit options for consumers, and an overall crash in consumer spending. You might recognize this as the recipe that created the 1981-1982 recession, the third-worst in the 20th century. In other words, the choice is stagflation, or deflationary depression.” It’s clear today what the Fed has chosen. It’s important to remember that throughout 2020 and 2021 the mainstream media, the central bank and most government officials were telling the public that inflation was “transitory.” Suddenly in the past few months this has changed and now even Janet Yellen has admitted that she was “wrong” on inflation. This is a misdirection, however, because the Fed knows exactly what it is doing and always has. Yellen denied reality, but she knew she was denying reality. In other words, she was not mistaken about the economic crisis, she lied about it. As I outlined last December in my article ‘The Fed’s Catch-22 Taper Is A Weapon, Not A Policy Error’: ‘First and foremost, no, the Fed is not motivated by profits, at least not primarily. The Fed is able to print wealth at will, they don’t care about profits – They care about power and centralization. Would they sacrifice “the golden goose” of US markets in order to gain more power and full bore globalism? Absolutely. Would central bankers sacrifice the dollar and blow up the Fed as an institution in order to force a global currency system on the masses? There is no doubt; they’ve put the US economy at risk in the past in order to get more centralization.’ The Fed has known for years that the current path would lead to inflation and then market destruction, and here’s the proof – Fed Chairman Jerome Powell actually warned about this exact outcome in October of 2012: “I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons.First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market. Our models will always tell us that we are helping the economy, and I will probably always feel that those benefits are overestimated. And we will be able to tell ourselves that market function is not impaired and that inflation expectations are under control. What is to stop us, other than much faster economic growth, which it is probably not in our power to produce? When it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response. So there are a couple of ways to look at it. It is about $1.2 trillion in sales; you take 60 months, you get about $20 billion a month. That is a very doable thing, it sounds like, in a market where the norm by the middle of next year is $80 billion a month. Another way to look at it, though, is that it’s not so much the sale, the duration; it’s also unloading our short volatility position.” As we all now know, the Fed waited until their balance sheet was far larger and until the economy was MUCH weaker than it was in 2012 to unleash tightening measures. They KNEW the whole time exactly what was going to happen. It is no coincidence that the culmination of the Fed’s stimulus bonanza has arrived right after the incredible damage done to the economy and the global supply chain by the covid lockdowns. It is no coincidence that these two events work together to create the perfect stagflationary scenario. And, it’s no coincidence that the only people who benefit from these conditions are proponents of the “Great Reset” ideology at the World Economic Forum and other globalist institutions. This is an engineered collapse that has been in the works for many years. The goal is to “reset” the world, to erase what’s left of free market systems, and to establish what they call the “Shared Economy” system. This system is one in which the people who survive the crash will be made utterly dependent on government through Universal Basic Income and one that will restrict all resource usage in the name of “carbon reduction.” According to the WEF, you will own nothing and you will like it. The collapse is engineered to create crisis conditions so frightening that they expect the majority of the public to submit to a collectivist hive mind lifestyle with greatly reduced standards. This would be accomplished through UBI, digital currency models, carbon taxation, population reduction, rationing of all commodities and a social credit system. The goal, in other words, is complete control through technocratic authoritarianism. All of this is dependent on the exploitation of crisis events to create fear in the population. Now that economic destabilization has arrived, what happens next? Here are my predictions… The Fed Will Hike Interest Rates More Than Expected, But Not Enough To Stop Inflation Today, we are witnessing the poisonous fruits of a decade-plus of massive fiat money creation and we are now at the stage where the Fed will reveal its true plan. Hiking interest rates fast, or hiking them slow. Fast hikes will mean an almost immediate crash in markets (beyond what we have already seen), slow hikes will mean a drawn out process of price inflation and general uncertainty. I believe the Fed will hike more than expected, but not enough to actually slow inflation in necessities. There will be an overall decline in luxury items, recreation commerce and non-essentials, but most other goods will continue to climb in cost. It is to the advantage of globalists to keep the inflation train running for another year or longer. In the end, though, the central bank WILL declare that the pace of interest rates is not enough to stop inflation and they will revert to a Volcker-like strategy, pushing rates up so high that the economy simply stops functioning altogether. Markets Will Crash And Unemployment Will Abruptly Spike Stock markets are utterly dependent on Fed stimulus and easy money through low interest rate loans – This is a fact. Without low rates and QE, corporations cannot engage in stock buybacks. Meaning, the tools for artificially inflating equities are disappearing. We are already seeing the effects of this now with markets dropping 20% or more. The Fed will not capitulate. They will continue to hike regardless of the market reaction. As far as jobs are concerned, Biden and many mainstream economists constantly applaud the low unemployment rate as proof that the American economy is “strong,” but this is an illusion. Covid stimulus measures temporarily created a dynamic in which businesses needed increased staff to deal with excess retail spending. Now, the covid checks have stopped and Americans have maxed out their credit cards. There is nothing left to keep the system afloat. Businesses will start making large job cuts throughout the last half of 2022. Price Controls I have no doubt that Joe Biden and Democrats will seek to enforce price controls on many goods as inflation continues, and there will be a handful of Republicans that will support the tactic. Price controls actually lead to a reduction in supply because they remove all profits and thus all incentive for manufacturers to keep producing goods. What usually happens at that point is government steps in to nationalize manufacturing, but this will be substandard production and at a much lower yield. In the end, supplies are reduced even further and prices go even higher on the black market because no one can get their hands on most goods anyway. Rationing Yes, rationing at the manufacturing and distribution level is going to happen, so be sure to buy what you need now before it does. Rationing occurs in the wake of price controls or supply chain disruptions, and usually this coincides with a government propaganda campaign against “hoarders.” They will hold up a few exaggerated examples of people who buy truckloads of merchandise to scalp prices on the black market. Then, not long after, they will accuse preppers and anyone who bought goods BEFORE the crisis of “hoarding” simply because they planned ahead. Rationing is not only about controlling the supply of necessities and thus controlling the population by proxy; it is also about creating an atmosphere of blame and suspicion within the public and getting them to snitch on or attack anyone that is prepared. Prepared people represent a threat to the establishment, so expect to be demonized in the media and organize with other prepared people to protect yourself. Be Ready, It Only Gets Worse From Here On It might sound like I am predicting success of the Great Reset program, but I actually believe the globalists will fail in the end. That’s not going to stop them from making the attempt. Also, the above scenarios are only predictions for the near term (within the next couple of years). There will be many other problems that stem from these situations. Naturally, food riots and other mob actions will become more commonplace, perhaps not this year, but by the end of 2023 they will definitely be a problem. This will coincide with the return of political unrest in the US as leftist factions, encouraged by globalist foundations, demand more government intervention in poverty. At the same time, conservatives will demand less government interference and less tyranny. At bottom, the people who are prepared might be called a lot of mean names, but as long as we organize and work together, we will survive. Many unprepared people will NOT survive. Understand that the economic conditions ahead of us are historically destructive; there is no way that serious consequences can be avoided for a large part of the population, if only because they refuse to listen and to take proper steps to protect themselves. The denial is over. The crash is here. Time to take action if you have not done so already. Tyler Durden Fri, 06/17/2022 - 23:40.....»»

Category: worldSource: nytJun 18th, 2022

Futures Rise As ECB Panics And Fed Looms

Futures Rise As ECB Panics And Fed Looms After five days of non-stop losses, US index futures finally bounced modestly along with stocks in Europe as the ECB announced it would hold an emergency meeting to undo the damage done by its meeting from last week, and ahead of the Fed which today will hike by 75bps, the most since 1994, and will then scramble to undo the damage from pushing the US into a recession in coming days and weeks. Contracts on the S&P 500 and Nasdaq 100 posted modest gains, rising 0.8% and 1% respectively, ahead of the Fed, with markets fully pricing in the biggest rate hike since 1994 amid worries about the outlook for the economy. Europe's Stoxx Europe 600 index jumped more than 1%, snapping a six-day losing streak, while the euro strengthened and the region’s bonds advanced as the European Central Bank’s Governing Council started an emergency meeting. Treasury yields dipped and the dollar retreated from a two-year high. In premarket trading, major technology and internet stocks are higher in premarket trading along with US stock futures ahead of Wednesday’s Federal Reserve announcement, with investors expecting a 75 basis-point increase in rates. Bank stocks were also higher in premarket trading. Here are some other notable premarket movers: Spotify (SPOT US) shares gain 2.2% in premarket trading as Wells Fargo upgraded the stock to equal-weight, saying the music streaming firm’s recent investor day laid out a more profitable company than the brokerage has modeled historically. Chinese tech stocks are mostly higher in US premarket trading, with education shares continuing their winning streak since peer Koolearn’s livestreaming hit went viral. Alibaba (BABA US) +1.9%, Baidu (BIDU US) +3.6%, Pinduoduo (PDD US) +2.3%, New Oriental Education (EDU US) +8.4%, TAL Education (TAL US) +4.5%. iQIYI (IQ US) shares decline 3.9% in US premarket trading as Baidu is in talks to sell its majority stake in the streaming service in a deal that could value all of iQIYI at $7 billion, Reuters reported, citing people with knowledge of the matter. Cryptocurrency-related stocks fell in premarket trading on Wednesday as Bitcoin and Ethereum tumbled. MicroStrategy (MSTR US) -7.6%, Marathon Digital Holdings (MARA US) -7.6%, Riot Blockchain (RIOT US) -7%, Coinbase (COIN US) -6.6%. Apple (AAPL US) and other consumer computer-hardware stocks may be in focus today as Morgan Stanley cut its price targets for such shares due to risks related to a potential slowdown in consumer spending. Moderna’s (MRNA US) shares rose 1.2% in US after-hours trading on Tuesday, while analysts said that the unanimous verdict from an FDA panel, which supported the biotech firm’s Covid vaccine for children, came as no surprise. Qualcomm (QCOM US) stocks could be in focus after the company won a European Union court bid to topple a 997 million-euro antitrust fine for allegedly pressuring Apple to only buy its 4G chips. Fears of stagflation have driven stocks into a bear market and triggered a stunning selloff in bonds in recent days. Uncertainty is elevated heading into the Fed decision: increments of 50 basis points, 75 basis points and even 100 basis points have all been chewed over by commentators. Parts of the US yield curve remain inverted, signaling concerns that restrictive monetary policy will lead to an economic downturn. Today's main event is of course the Fed decision which is expected to include a 75bp rate hike, with latest forecasts released at the same time. Swaps market is currently pricing in around 70bp of rate hikes for the meeting with a combined 202bp of additional hikes priced for the June, July and September meetings. From the forecasts, focus will be on revisions to the Fed’s long-term rate; swaps market is currently pricing a rate peak at around 3.90% by the middle of next year (full preview here). “Markets are poised for aggressive rate hikes, but what of US economic growth?” said Nema Ramkhelawan-Bhana, an economist at Rand Merchant Bank in Johannesburg. “It might not be in recessionary territory just yet, but the landing is not going to be as soft as the Fed predicates. Anything less than 75 basis points or at least a strong willingness to make more significant adjustments will likely turn the market on its head, eroding total returns of global bonds and equities even further.” European equities trade well but off session highs. FTSE MIB outperforms, rallying as much as 3.3% before stalling. Stoxx 600 rises as much as 1.2% with travel, banks and insurance names doing much of the heavy lifting, while the euro strengthened and the region’s bonds advanced as the European Central Bank’s Governing Council started an emergency meeting. While new stimulus may not be on the agenda, officials will discuss a crisis strategy and the reinvestment of bond purchases conducted under the now-halted pandemic emergency program, Bloomberg reported. Here are the biggest European movers: Rate-sensitive sectors such as financials and technology gained in Europe as the ECB holds an ad hoc meeting to discuss market conditions and the Fed concludes its two-day policy meeting. Finecobank shares rise as much as 8.4%, Intesa Sanpaolo +7.5%, Assicurazioni Generali +5.3%. Europe auto stocks are among outperforming sectors in the wider equity gauge, led by French part suppliers Faurecia and Valeo, and carmaker Renault. Faurecia shares gain as much as 8.7%, Valeo +6.5%, Renault +5.6% Whitbread shares rise as much as 6.4% after the hotel operator reported quarterly sales, with Barclays noting the company’s “upbeat tone.” Gerresheimer shares rise as much as 17% after a Bloomberg report that the German maker of packaging for drugs and cosmetics rejected an informal takeover approach from Bain Capital in recent weeks. Nordic and European forestry and paper mill companies’ shares rebound, breaking sharp declines triggered after brokers cut their  respective outlooks for the sector in the past week. Smurfit Kappa stock rises as much as 5.3%, BillerudKorsnas +4.8%, Huhtamaki +5.6% H&M shares drop as much as 6.4% with uncertainty about the margin outlook and ongoing cost pressures overshadowing the apparel retailer’s 2Q sales beat. Getinge shares fall as much as 18% after the medical technology firm lowered guidance, projecting flat organic sales growth for the year. Nordea and JPMorgan downgraded their recommendations. Elia Group shares fell as much as 12% after the electricity transmission company laid out plans for a rights offering. Autoneum shares drop as much as 5.2% after the car- parts maker warned on profits. Vontobel analyst Arben Hasanaj noted the firm’s difficulty in passing on higher costs, along with further likely delays in car production recovery. Voltalia slumps as much as 9.1% after Oddo downgrades to neutral in note as it questions what level of growth is possible after 2023. “The ECB is between rock and a hard place, like most other central banks,” said Marija Veitmane, a senior strategist at State Street Global Markets. “Inflation is very high and shows little signs of quickly declining, while the economy is increasingly fragile, particularly with the war in Europe and ever-rising energy costs. So anything the ECB can announce to reduce systemic risk is very welcome.” Earlier in the session, Asian stocks posted modest declines as sentiment improved from earlier in the week, with Chinese shares rising after domestic economic data showed pockets of recovery. The MSCI Asia Pacific Index was down 0.4% as of 6:07 p.m. in Singapore, as losses in regional tech hardware shares offset advances in China’s internet giants. South Korea and the Philippines led declines, while Japanese stocks fell ahead of a central bank policy meeting this week. Gains in China and Hong Kong helped offset losses elsewhere as data showed the country’s industrial production unexpectedly increased in May. Meanwhile the nation’s central bank kept a key policy rate unchanged, avoiding further policy divergence as the Federal Reserve tightens. “A more accommodative policy and fiscal environment together with stronger corporate fundamentals should be positive for Chinese equity assets,” said Jessica Tea, an investment specialist at BNP Paribas Asset Management. The MSCI Asia gauge dropped almost 4% over the previous two sessions as inflation data from the US fueled bets of a 75-basis-point rate hike by the Fed at Wednesday’s meeting. Still, the index has outperformed a measure of global peers this year, with the latter now in a bear market. Japanese stocks dropped ahead of a Federal Reserve rate decision. A Bank of Japan review on Friday is also on the radar.  The Topix Index fell 1.2% to close at 1,855.93 while the Nikkei gauge declined 1.1% to 26,326.16. Keyence Corp. contributed the most to the Topix Index’s decline, decreasing 3.9%. Out of 2,170 shares in the index, 288 rose and 1,829 fell, while 53 were unchanged. “The sharp decline in JGBs is also contributing to the drop in stock prices as uncertainty mounts ahead of the BOJ meeting,” said Hajime Sakai, chief fund manager at Mito Securities Co Indian stocks fell after swinging between gains and losses for the most part of the session, as concerns over higher inflation and likely tighter monetary policy measures weighed on sentiment.   The S&P BSE Sensex slipped 0.3% to close at 52,541.39 in Mumbai to its lowest level since July 28. The NSE Nifty 50 Index also slipped by a similar magnitude. Reliance Industries Ltd. posted its longest run of losses in more than a month and was the biggest drag on the Sensex, which had 17 of 30 member stocks trading lower. Ten of the 19 sector sub-indexes compiled by BSE Ltd fell, led by a gauge of power stocks. Retail inflation in India held above the central bank’s target in May, while wholesale prices accelerated for a third-straight month as input costs continue to rise, hurting company earnings.  “Commodity prices continue to remain elevated and despite passing on the costs to consumers, India Inc. is still facing margin pressures,” Mitul Shah, head of research at Reliance Securities wrote in a note.   Australia's S&P/ASX 200 index fell 1.3% to close at 6,601.00, the fourth straight day of declines. All sectors finished lower, with mining stocks and banks the biggest drags on the index. During early trade, Australia’s industrial relations umpire raised the minimum wage by 5.2% from July 1, a larger-than-expected increase, affirming speculation of faster tightening by the central bank.  Meanwhile, in New Zealand, the S&P/NZX 50 index was little changed at 10,635.92., after entering a bear market Tuesday. The gauge has shed more than 20% from its January 2021 peak. In FX, the Bloomberg Dollar Spot Index fell as the greenback weakened against all of its Group-of-10 peers apart from the Canadian dollar. Risk-sensitive Scandinavian currencies and the Aussie dollar lead gains. The euro rose by as much as 0.9% to 1.0508, and the yield on 10-year Italian bonds fell as much as 30bps after the ECB announced the Governing Council would hold an ad-hoc meeting on Wednesday “to discuss current market conditions.” ECB officials will be invited to sign off on the reinvestment of bond purchases conducted under the now-halted pandemic emergency program, a crisis response that they flagged in their decision last week, according to people familiar with the matter. Three-month euribor fixes higher by the most in more than two years, climbing to the highest since April 2020 as funding rates seek to mirror ECB rate hike expectations. Japanese bond futures drop most since 2013 as traders ramp up bets BOJ will give in to tweak policy. Australian bonds slumped with three-year yields posting steepest two-day climb since 1994. The Aussie extended an advance after the Fair Work Commission said the minimum wage will be increased by 5.2%. Earlier, the RBA said it “will do what’s necessary” to bring inflation back down to its 2-3% target as Goldman sees three more half-point hikes. In rates, Treasuries pared a recent drop, with yields falling up to 8bps led by shorter maturities amid a TSY rally in Asia and early European sessions, leaving yields richer by as much as 12.5bp across front-end leading into US session.  Markets are pricing in 73bps worth of hikes from the Fed today. US 10-year yields around 3.36%, richer by 10bp on the day while front-end outperformance steepens 2s10s, 5s30s spreads by 3bp and 6.5bp respectively. Curve steepens as long-end lags front-end rally and some rate hike premium eases out the swaps market ahead of 2pm ET Fed policy decision. European bonds rallied after ECB announces emergency meeting to discuss market conditions, with French and UK outperforming along with Italy and other peripherals. In commodities, crude futures drop back toward the lows for the week. WTI falls 1.2% near $117.50. Most base metals trade in the green; LME tin rises 2.3%, outperforming peers. Spot gold rises roughly $16 to trade near $1,825/oz Looking to the day ahead, the main highlight will likely be the aforementioned FOMC decision and Chair Powell’s subsequent press conference. There’s also an array of ECB speakers, including President Lagarde, as well as the ECB’s Holzmann, Nagel, Centeno, Muller, De Cos, Panetta and Knot. Otherwise, data releases include Euro Area industrial production for April, US retail sales for May, the NAHB housing market index for June and the Empire State manufacturing survey for June. Market Snapshot S&P 500 futures up 0.8% to 3,768.50 STOXX Europe 600 up 1.2% to 412.15 MXAP down 0.4% to 159.27 MXAPJ little changed at 529.71 Nikkei down 1.1% to 26,326.16 Topix down 1.2% to 1,855.93 Hang Seng Index up 1.1% to 21,308.21 Shanghai Composite up 0.5% to 3,305.41 Sensex up 0.2% to 52,797.58 Australia S&P/ASX 200 down 1.3% to 6,601.03 Kospi down 1.8% to 2,447.38 Brent Futures down 0.2% to $120.90/bbl Gold spot up 0.6% to $1,818.80 U.S. Dollar Index down 0.56% to 104.93 German 10Y yield little changed at 1.77% Euro up 0.6% to $1.0479 Brent Futures down 0.2% to $120.90/bbl Top Overnight News from Bloomberg Federal Reserve Chair Jerome Powell, who’s carefully telegraphed interest rate hikes over four years, looks likely to abandon gradualism and move more forcefully to stamp out inflation along with growing concerns that it will persist The European Central Bank’s Governing Council is ready to step in if it considers moves in government bond markets to be unjustified, according to Belgium’s Pierre Wunsch, as the ECB prepared for an emergency meeting on recent euro-zone bond turbulence The European Union is restarting infringement proceedings against the UK and will launch two new legal actions after London proposed legislation to override part of the Brexit withdrawal agreement, according to an EU official The first batch of a Chinese offshore yuan sovereign bond sale saw the strongest demand in nearly two years, defying a recent stream of outflows at a time when the global debt market is showing deepening levels of stress Even after central banks recognized they got their inflation calls wrong last year, they’ve continued to flub their policy guidance, threatening greater damage to their credibility, roiling markets and undermining the pandemic recovery A more detailed look at markets courtesy of Newsquawk Asia-Pac stocks traded mixed amid cautiousness heading into the FOMC with markets pricing in a more than 90% chance of a 75bps rate hike, while the region also digested better-than-expected Chinese activity data. ASX 200 was led lower by energy, resources and tech, despite a 5.2% national minimum wage increase. Nikkei 225 failed to benefit from strong Machinery Orders data amid the ongoing currency-related jitters. Hang Seng and Shanghai Comp. were positive with encouragement from the latest activity data that showed surprise growth in Industrial Production and a narrower than feared contraction in Retail Sales, while attention was also on the PBoC which rolled over CNY 200bln through its 1-year MLF with the rate unchanged. Top Asian News PBoC injected CNY 200bln via 1-year MLF vs. CNY 200bln maturing with the rate kept at 2.85%, as expected. China's stats bureau said the main indicators show marginal improvement and the economy shows good recovery momentum, but added that the economic recovery still faces many difficulties and challenges. Furthermore, it said policies to stabilise economic growth gained traction and it expects economic performance to improve further in June due to policy support, but noted recovery is still at an initial stage and main indicators are at low levels, according to Reuters. Hong Kong reports 1047 new COVID cases. Appears to be the first time since early April that cases have surpassed the 1k mark. European equities are firmer across the board ahead of the impromptu ECB meeting, Euro Stoxx 50 +1.0%; unsurprisingly,  periphery-nation indexes are outperforming, FTSE MIB +3.0%, given upside in banking names. As such, the Banking sector outperforms with most of its peers also in the green, though the Energy sector lags amid benchmark pricing. Stateside, futures are firmer across the board deriving impetus from European performance, but with overall action somewhat more contained ahead of the Fed and uncertainty around 75bp, ES +0.3%. Baidu (BIDU) is in discussions with potential suitors to offload its 53% stake in video-streaming name Iqiyi, according to Reuters sources. +3.8% in the pre-market. Top European News UK PM Johnson is reportedly determined to reverse Chancellor Sunak's planned GBP 15bln tax raid on business as he tries to firm up support following last week's confidence vote, according to The Times. UK PM Johnson is understood to have told his cabinet to 'de-escalate' the Northern Ireland Protocol stand-off with the EU, according to The Telegraph. UK exports to the EU during H1 of last year fell by 15.6% amid Brexit frictions, according to a study by Aston University cited by FT. Swiss SECO Forecasts (summer): Inflation: 2022 2.5% (prev. 1.9%), 2023 1.4% (prev. 0.7%). GDP: 2022 2.8% (prev. 3.0%), 1.6% (prev. 1.7%) Central Banks BoJ offers an additional emergency bond buying operation; to buy unlimited amounts of 10yr JGBs on June 16th & 17th at 0.25%. Fall in JGB futures has triggered a circuit breaker at the Tokyo stock exchange, via Japan Exchange Group. Japan's Securities Dealer Association's Morita says the JPY may have weakened too much, via Reuters. 8/9 members (vs. 3/9 at the May meeting) of the Times' shadow MPC believe that the BoE should raise rates by 50bps at its policy meeting tomorrow, according to the Times. FX Buck backs off from best levels into FOMC and US data awaiting confirmation of the hawkish hype or half point hike signalled pre-hot CPI; DXY slips from 105.650 peak on Tuesday into 105.380-104.700 range. Aussie rebounds on risk grounds and more aggressive RBA tightening calls, AUD/USD reclaims 0.6900+ status. Yen takes note of latest verbal intervention and Hong Kong Dollar supported by more physical HKMA buying to keep it pegged; USD/JPY sub-134.50 vs 135.50+ overnight. Euro extends recovery rally as ECB holds ad hoc meeting to discuss fragmenting debt markets and Wunsch contends that gradualism does not rule out larger than 25 bp moves; EUR/USD pops over 1.0500 from just below 1.0400 yesterday. Yuan gleans impetus from better than expected or feared Chinese industrial production and retail sales, USD/CNH nearer 6.7200 than 6.7600, USD/CNY close to 6.7100 and not far from 21 DMA at 6.6965 today. Fixed Income Decent bear market retracement in debt approaching the FOMC. Bunds up to 143.79 at best vs new 143.25 cycle low, Gilts towards top of 112.48-111.88 band and 10 year T-note closer to 115-06 than 114-10. BTPs markedly outperform after near 3 full point bounce from Tuesday close in anticipation of an anti-fragmentation tool from the ECB as GC meets for crisis talks. Commodities Currently, WTI and Brent are lower by circa. USD 1.00bbl but reside within comparably narrow ranges of around USD 2.00bbl vs, for instance, yesterday’s USD +6.00/bbl parameters. Curtailed amid COVID updates from China and Hong Kong alongside Biden's reported push for an explanation from producers over why supply isn't increasing. US President Biden has demanded an explanation from oil companies over why they are refraining from putting additional gasoline on the market and wants concrete ideas as to how they can increase supplied, according to a letter seen by Reuters. US Energy Inventory Data (bbls): Crude +0.7mln (exp. -1.3mln), Cushing -1.1mln, Gasoline -2.2mln (exp. +1.1mln), Distillates +0.2mln (exp. +0.3mln) US DoE announced contract awards and issued the fourth emergency sale of crude oil from SPR (as previously announced), in which contracts were awarded to nine including Chevron (CVX), Exxon (XOM) and Marathon Petroleum (MPC). Kazakhstan has capped wheat exports at 550k tonnes and wheat flour at 370k tonnes until September 30th, according to the Agriculture Ministry, via Reuters. Spot gold derives impetus from the USD’s retreat and is now back above USD 1820/oz but still shy of yesterday’s USD 1831/oz best and the subsequent 200-, 10- & 21-DMAs ahead at USD 1842, 1843 & 1845 respectively. US Event Calendar 07:00: June MBA Mortgage Applications +6.6%, prior -6.5% 08:30: May Import Price Index YoY, est. 11.9%, prior 12.0%;  MoM, est. 1.1%, prior 0% May Export Price Index YoY, prior 18.0%; MoM, est. 1.3%, prior 0.6% 08:30: May Retail Sales Advance MoM, est. 0.1%, prior 0.9% May Retail Sales Ex Auto MoM, est. 0.7%, prior 0.6% May Retail Sales Control Group, est. 0.3%, prior 1.0% 08:30: June Empire Manufacturing, est. 2.2, prior -11.6 10:00: April Business Inventories, est. 1.2%, prior 2.0% 10:00: June NAHB Housing Market Index, est. 67, prior 69 14:00: June FOMC Rate Decision 16:00: April Total Net TIC Flows, prior $149.2b DB's Jim Reid concludes the overnight wrap In these crazy days for markets, I'm willing to stake my reputation that I've done something in the last 24 hours that no-one else reading this did. Yes, after a business trip to Europe yesterday, I watched the original Top Gun on my iPad on the plane ride home for the very first time, some 36 years after it came out. My wife wants to watch the sequel, so I thought I ought to see what all the fuss was about. She's seen it around 20 times and always asks what I was doing in my teenage years that's made me miss all the films of her youth. The truth is I was either studying or playing cricket or golf. Not much else. My review is that it was a decent film, but Mavericks' courting technique doesn't really age very well. I'm not sure Maverick and Goose would have been able to get out of the tight spot that the Fed are in at the moment very easily. After the astonishing price action over the previous 2 business days, markets have settled somewhat over the last 24 hours, but overall have continued to struggle as they await today’s all-important Federal Reserve decision. Up until the CPI report last Friday, that decision seemed like a lock in favour of a second consecutive 50bp hike, not because that was the right move, but because the Fed had firmly guided us to such an outcome. The CPI report raised doubts as to whether they could hold that line over the summer, but the WSJ article on Monday night broke the levee as a 75bps move tonight is now suddenly pretty much consensus. Our economics team agrees and have now updated their previously street leading view to have a +75bp hike tonight followed by another +75bp increase in July. The team believes fed funds will reach 3.5% by the end of the year, and hit a terminal rate of 4.1% in Q1 2023, sooner than they thought before the WSJ story. See their full updated call, available here. As we hit this big day, markets now fully price in a 75bps hike today. Indeed, 76.3bps is priced, so that actually incorporates a small risk of 100bps, something former New York Fed President Bill Dudley was openly considering yesterday, which may have contributed to the sentiment that drove the next leg of the selloff in the New York afternoon. A total of 289bps worth of rate hikes by year-end is now priced. So quite the turnaround from a few weeks back when some were even floating the strange idea of a “pause” in September. Clearly the 75bp call is mostly based on a WSJ article so we can't be certain but you would have thought the Fed would have tried to leak out a rebuttal if that wasn't what they wanted to guide the market towards. We will see. Whilst the size of any rate hike will be the focal point, today also brings the latest dot plot from the FOMC and offers an insight into the potential pace of rate hikes over the months ahead. Our US economists expect that to undergo substantial revisions, with the median dot likely rising to 3.5% and 3.8% for 2022 and 2023 respectively. Meanwhile on the economic projections, they think they’ll also show further movements towards a “softish landing”, with growth revised lower throughout the forecast, albeit stopping short of anticipating a recession. Ahead of all that, US equities slipped to fresh lows yesterday with the S&P 500 (-0.37%) falling to its lowest closing level since January 2021. Tech stocks outperformed, in contrast to the recent trend, with the NASDAQ (+0.18%) and the FANG+ Index (+1.97%) bouncing off of recent lows. Small-caps fared less well today and the Russell 2000 (-0.39%) fell to its lowest closing level since November 2020. Over in Europe, equities similarly fell to fresh lows and the STOXX 600 (-1.26%) likewise fell to levels unseen since March 2021. Rates sold off by a smaller magnitude than the previous two sessions (low bar to clear), but an initial rally gave way to a selloff in the European afternoon that continued to gather pace into the New York close. Yields on 10yr Treasuries were up +11.3bps to a fresh post-2011 high of 3.47%, supported by a further rise in the 10yr real yield (+13.7bps) that took it up to a 3-year high of 0.82 The 2s10s curve just about clambered out of inversion territory where it’d closed on Monday, steepening by +3.8bps to end the day at just 3.6bps. But even the Fed’s preferred yield curve measure of the near-term forward spread fell to its flattest level in 3 months, even if it’s still well out of inversion territory for now. This spread will likely collapse in the months ahead. As we go to press, yields on 10yr USTs (-4.63 bps) are moving lower to 3.42% with 2yrs -5.6bps. Today’s focus may be on the Fed, but over at the ECB we had Isabel Schnabel of the Executive Board give a significant speech last night about policy fragmentation. Recall, one of the key takeaways from last week’s ECB meeting was the apparent lack of progress on anti-fragmentation tools, shining a spotlight on Schnabel’s remarks last night. As our European economists emphasised last week, Schnabel argued that any tool would be reactionary, that is in response to more spread widening. She did not offer new details of any potential tool last night, instead echoing President Lagarde that PEPP purchase flexibility would be used to ensure smooth policy transmission in the interim. However, Schnabel also re-emphasised the ECB’s commitment to ensure smooth policy transmission. That Schnabel, a relative hawk on the committee and one that has expressed trepidation about a new facility in the past, so willingly supported the idea of doing what was needed to support policy implementation was an important shift for the ECB. The language Schnabel used last night may support the notion that the spread widening seen to date may already be approaching levels inconsistent with smooth policy transmission. It may not take much more pressure for the ECB to act but we are still in the dark on how they will. Earlier in the day, Dutch central bank governor Knot made some incredibly hawkish comments, saying that if “conditions remain the same as today, we will have to raise rates by more than 0.25 points” in September, and that “our options are not necessarily limited” to a 50bps move, so openly floating the potential to move by even more, which hasn’t been something discussed by the ECB to date. European sovereign bonds sold off significantly against that backdrop, with fresh multi-year highs seen for yields on 10yr bunds (+11.9bps), OATs (+13.7bps) and BTPs (+14.9bps). Peripheral spreads hit new post-Covid highs too, with the gap between Italian and German 10yr yields widening to 241bps. And there were some significant milestones on the credit side as well, with iTraxx Crossover widening +10.4bps to a fresh 10 year high of 544bps outside of 2-months around peak covid, and in North America we saw the CDX IG spread move above 100bps in trading for the first time since April 2020, before settling back at 99.0bps. In Asia markets are mixed with the Hang Seng (+1.44%) trading up boosted by technology stocks following the Nasdaq's overnight gain. Likewise, stocks in mainland China are also higher in early trade with the Shanghai Composite (+1.41%) and CSI (+1.57%) edging higher as the economy showed a slightly better than expected recovery in May (see below). However, the Nikkei (-0.73%) and the Kospi (-1.54%) are trading lower, extending earlier session losses. Outside of Asia, US equity futures are reversing losses this morning with contracts on the S&P 500 (+0.38%) and NASDAQ 100 (+0.59%) trading up. Early this morning, data released showed that China’s industrial production unexpectedly rebounded +0.7% y/y in May (v/s -0.9% expected), against a drop of -2.9% in April, whilst retail sales slid -6.7% in the period, less than -7.1% projected decline and slightly better than April’s -11.1% plunge. Meanwhile, Fixed-asset investment grew +6.2% in the first 5 months of the year (v/s +6.0% expected). Elsewhere, Japan’s core machinery orders strongly beat at +10.8% m/m in April, its fastest pace in 18 months (v/s -1.3% market consensus and +7.1% in March). Yesterday we also heard that the Bank of Japan had bought a record ¥2.2tn in government notes through its fixed-rate operation as they seek to defend their yield curve target and keep 10-year JGB yields beneath their stated limit of 0.25%. This has continued to put pressure on the Yen however, which fell to a closing level of 135.47 per dollar yesterday, thus moving beneath its 2002 closing low of 134.71 and leaving it at levels unseen since 1998. We're at just above 135 this morning after a small rally back. Speaking of currencies under pressure, Bitcoin fell to a 17-month low of $21,966 yesterday, having been trading around $30,000 just prior to the CPI release on Friday. This morning it's at $21,100. Elsewhere, brent crude and WTI futures reversed mid-day gains of near 2% to close -0.90% and -1.65% lower, respectively, following reports that the Biden Administration may pose a surtax on oil company profit margins, as another sign Biden is looking high and low for potential actions to curb oil gains into this year’s mid-terms. The big moves were seen in natural gas however, where US futures were down -16.5% and European futures were up +16.12% after the operator Freeport LNG said that they aiming for a partial resumption of operations at one of their Texas export terminals in 90 days, and that full operations wouldn’t return until late 2022. That’s a longer delay than was expected, and by keeping gas in the US led to that decline in US futures and the rise in European ones. Looking at yesterday’s data, the Fed got a fresh reminder about inflation pressures from the PPI release for May, where the monthly headline gain in prices rose to +0.8% in line with expectations, up from +0.4% in April. That left the year-on-year measure at +10.8% (vs. +10.9% expected), which does mark a second consecutive decline in that measure from its peak of +11.5% in March. One positive for the Fed ahead of today’s meeting is that elements that comprise a larger share of core PCE, such as healthcare, showed some softness, but time will tell. Separately, the UK employment data saw the number of payrolled employees in May grow by +90k (vs. +70k expected), but unemployment ticked up to 3.8% in the three months to April (vs. 3.6% expected). Finally, the ZEW survey from Germany saw an improvement relative to May’s readings, with expectations up to -28.0 (vs. -26.8 expected), and the current situation up to -27.6 (vs. -31.0 expected). To the day ahead now, and the main highlight will likely be the aforementioned FOMC decision and Chair Powell’s subsequent press conference. There’s also an array of ECB speakers, including President Lagarde, as well as the ECB’s Holzmann, Nagel, Centeno, Muller, De Cos, Panetta and Knot. Otherwise, data releases include Euro Area industrial production for April, US retail sales for May, the NAHB housing market index for June and the Empire State manufacturing survey for June. Tyler Durden Wed, 06/15/2022 - 07:53.....»»

Category: dealsSource: nytJun 15th, 2022

Transcript: Mark Mobius

    The transcript from this week’s, MiB: Mark Mobius on Emerging Markets, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is Masters in Business… Read More The post Transcript: Mark Mobius appeared first on The Big Picture.     The transcript from this week’s, MiB: Mark Mobius on Emerging Markets, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I once again have an extra special guest and I really mean an extra special guest. Dr. Mark Mobius is a legend in the world of emerging market and frontier investing. He is one of the first people or first Americans who went out and actually started kicking tires and looking at various companies all around the world. He’s been doing this so long, that when he first began, there were only six investable countries that you could put your money into. The rest of the world either didn’t have public companies or public markets. You couldn’t get cash in and out. There weren’t custodians. It’s amazing that this is the guy that essentially created EM. There were a couple of other folks doing something like this, but no one quite the way that Dr. Mark Mobius did. I found this conversation to be absolutely fascinating. I had like another three hours’ worth of questions for him. We barely got through an hour. If you’re at all interested in what the process is like of doing EM investing, what you find that either makes you more enthusiastic about a company or a company you’re enthusiastic that when you go and kick the tires, you start to find out that, hey, this season has presented. This is just an absolutely tour de force fascinating conversation. So with no further ado, my interview with Dr. Mark Mobius. ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. RITHOLTZ: This week, my extra special guest is Dr. Mark Mobius. He is the founding partner of Mobius Capital Partners. Previously, he spent 40 years working and traveling in emerging market and frontier markets. Before Mobius launched in 2018, he worked with Franklin Templeton Investments for more than 30 years, where he was Executive Chairman of the Templeton Emerging Market Groups. During his tenure there, he helped to expand the assets under management from $100 million to over $50 billion throughout Asia, Latin America, Africa and Eastern Europe. He ran a series of open-ends, closed ends and private EM funds, including private equity funds. He has also been on the World Bank’s Global Corporate Governance Forum. Dr. Mark Mobius, welcome to Bloomberg. MARK MOBIUS, FOUNDER, MOBIUS CAPITAL PARTNERS LLP: Thank you. It’s great being with you. RITHOLTZ: So that is quite a storied career. Let’s start in the early parts of it. You took a very different route than most people in finance. You worked at a talent agency. You were a communications teacher, a political consultant, and am I reading this right? Did you actually market Snoopy merchandise in Asia? MOBIUS: Yes, I did. That’s right. When I was in Hong Kong, I had a consulting firm. And one of my clients was looking for people who manufacture products. So she had a company in San Francisco called Turn To Turn Productions. They had the rights to all of the Snoopy merchandise, all the Peanuts merchandise. And she asked me to look for manufacturers in Asia. And one day I said, “Why don’t you start selling in Asia?” And they didn’t think about that. So they said, “Why don’t you do it?” And of course, that’s how I got involved in distributing these products in Asia, or at least in Hong Kong, in the Greater China area. RITHOLTZ: So is that how a kid from Hempstead, you grew up like 45 minutes from where I am right now, is that how you got involved in international business and investing? MOBIUS: That happened way before that because I got a scholarship to study in Japan, after I got my master’s degree at BU. And that really changed my life because, you know, the culture shock of being in Japan, completely different culture, an incredible country growing very rapidly at that time. That was really what changed me and I decided to go back, I got my PhD at MIT, and then went right back to Asia and started working. RITHOLTZ: So BU masters, Kyoto, postgraduate work, MIT PhD, you also studied at Wisconsin, Syracuse, New Mexico. That seems to be a very heavy focus on education. MOBIUS: It was. I was a professional student. I really didn’t want to leave university, and that’s the reason why I did a sort of a round robin of these different universities. But then, finally, when I got my PhD, I said, “Okay, let’s — let’s get real. Let’s find out what I — you know, what I should be doing in this world? RITHOLTZ: And how did you end up at the Mega International Investment Trust in Taiwan? MOBIUS: That was — yeah, International Investment Trust was a — before that, I was working for a broker in Hong Kong. It was a British broker, Vickers-da-Costa. And they sent me to Taiwan to open an office and also sit on the board of a joint venture they had with local banks and some other British firms, which was the very first investment management firm in Taiwan called International Investment Trust. And eventually, the guy that was running it left and I took over. So I became the head of that company, which they launched the Taiwan ROC Fund, which I think the remnants of it, they’re still listed in New York, I believe. RITHOLTZ: Wow. So over the course of your career, you’ve traveled well over a million miles. You’ve been to 112 countries. I have to ask what are some of your favorite places to travel? And what are some of the favorite foods you’ve eaten? MOBIUS: You know, it’s really interesting when I racked my brains and tried to figure out where I like it the best, I really can’t come up with an answer because every place I’ve been I’ve liked in some way or another. But probably if you ask me right now, where would you like to be? And probably it would be the beach of Rio de Janeiro in Brazil. That might be a place that would be nice to be, or a beach at Cape Town, South Africa. I love outdoor life. I love beaches and that sort of thing. But frankly, I lived in Japan and Korea and Taiwan, Philippines. I love all these places. I really can’t think of any one that’s particularly a favorite. RITHOLTZ: Let’s talk about food because I recall hearing you once say that you ate scorpions on toast. Is that right? That does not sound — MOBIUS: That’s right. RITHOLTZ: Is that sort of like softshell crabs? What do they actually taste like? MOBIUS: Actually, that was in Singapore, in a restaurant that specialized in special sort of medicinally beneficial foods supposedly, and this scorpion on toast. It was sort of like eating crispy shrimp, but it has a little bit of a bite to it so, you know, a little bit of a stingy taste to it. RITHOLTZ: And I assume they removed the poison first or is that — is that just digestible? MOBIUS: Yeah, they do. They do remove most of the poison, but some of the sting was still there. It was very similar to — in Japan, if you’ve ever had fugu, which is the blowfish. RITHOLTZ: Yes. MOBIUS: It still has a stinging sensation on your lips, which is supposed to be part of the experience. RITHOLTZ: I understand Singapore has become the food capital of Asia. What’s it like there? MOBIUS: It is true that Singapore has an incredible variety of dishes because you’ve got not only all the Chinese cuisines which, as you know, are very varied. And then you got cuisines in China that go from very, very spicy to very bland and so forth. But then you have the Malaysian and Indonesian foods. And added to that, of course, you have the Indian foods. So it is true that Singapore is quite varied in its menu. RITHOLTZ: Quite mouthwatering. So let’s talk a little bit about Franklin Templeton. No less than Sir John Templeton asked you to run their emerging markets division in 1987. Tell us what EM was like back then. I have to think the world has changed a lot in the ensuing 30 plus years. MOBIUS: That’s for sure. I mean, in 1987, I was sitting there in Taiwan running the fund management company that was doing the Taiwan fund, International Investment Trust, and I get a call from actually one of the deputies of the Templeton. I had made presentations to him in his space in Nassau, Bahamas a number of times, and I guess he remembered me. And as you know, at that time, emerging markets were just — the term was coined by the international finance organization. And they had — they had launched the emerging market fund, and then Templeton said that he wanted to do the same thing. So he approached me and said, “Let’s raise $100 million in New York and do this emerging markets fund.” And it was a great temptation for me because it enabled me to really expand out of Taiwan into something really exciting. But it was a tough decision as well because I didn’t really know what I was getting into. And we opened a small office in Hong Kong. I hired two analysts, two Chinese analysts who, by the way, stayed with me for those 30 years I was in Franklin Templeton. RITHOLTZ: Wow. MOBIUS: And yeah, and we started with only six countries. You must remember, in those days, most countries did not welcome foreign investment. RITHOLTZ: Right. MOBIUS: They were also either socialist or communist like China and Russia. Eastern Europe was out of the question, of course. So we had only six markets in which to invest, and then we started expanding. Gradually, markets opened up. And eventually we were investing in something like 70 different countries around the world. RITHOLTZ: Do you recall what the original six countries were? MOBIUS: They were Hong Kong, of course, Philippines, Malaysia, Singapore, Thailand and Mexico. RITHOLTZ: No Japan? No South Korea? MOBIUS: That’s right. No Japan and no South Korea. RITHOLTZ: They were considered — they were no longer considered EM countries? MOBIUS: Actually, South Korea was, but it was closed for one reason or another. There were difficulties in getting in. You must remember, you know, the whole idea of getting a custodian to safe keep your securities, all of these technical issues were there. And Japan, of course, had graduated into a developed country by that time. (COMMERCIAL BREAK) RITHOLTZ: So back in the 1980s, I’m going to assume there was no remote access. It was always boots on the ground. Is that how research was done? MOBIUS: That’s for sure. Don’t forget no Internet, no laptop computer, no cell phones. You know, technology has really changed things tremendously. RITHOLTZ: So tell us what did you learn from traveling as opposed to just a phone call, assuming you can actually call anybody? MOBIUS: Well, you know, it’s true that we’re able to do a lot on the phone these days, and particularly with video conferencing, because you could see the people. But there’s nothing like being in a country, smelling the smells that you get, looking at the people, getting a feeling for how people are living. And then you walk into a company, you look around, you observe what the nature of the company is like, what is the morale of the staff, et cetera, et cetera. So there’s nothing that beats that being on the ground and seeing for yourself what’s going on. So we always think that it’s important to be traveling and visiting companies as much as possible. RITHOLTZ: So let’s talk a little bit about your process. Is it top down, you start in a country and then dig into individual companies? Or do you go bottoms up, start with the company and then work your way through that local either country or region? MOBIUS: Well, we like to say that we’re bottom up investors in the sense that we look at the companies intensely. But that doesn’t mean we ignore the macro, the top down approach. Because obviously, you know, let’s say, if we wanted to invest in Sri Lanka today, obviously, you’d have to look at what’s happened to the currency, what’s happened to interest rates, what the government is doing, what kind of restrictions that are taking place for foreign investors to invest, that sort of thing. But after those critical issues, currency, ability to move money in and out, then we dig into the individual company, because that’s the key. Because one of the things I’ve found over the years is that a company can survive in a very difficult environment, and you shouldn’t be afraid to go into a country where the environment is not ideal, as long as you can get money in and out. That’s really the key. Even the currency, if the currency is declining or getting very, very weak, for one reason or another, there’s still opportunities because, for example, an export-oriented company can do very well in such an environment because they’re earning in dollars and their costs are in local currency. So I would say, yeah, we’re more ground up and more fundamentally company-oriented in the way we approach things. RITHOLTZ: So today, I could fly into a different country where I don’t speak the local language, use my iPhone with Google Translate or any one of a dozen other translation apps and be able to communicate with people. What did you do back in the ‘80s and ‘90s? I’m assuming you don’t speak dozens and dozens of languages. What happens when you show up and you’re not fluent? MOBIUS: Well, that’s very interesting and very good thing that we found when we traveled and went to these countries is that you always found people who spoke English, particularly when you were visiting listed companies, companies listed on various stock exchanges, which is where we were looking. Inevitably, in every company, you would find somebody who’s going to be able to translate for you. And more often than not, the top management were English speaking, English educated, you know, so they were — it was quite easy to get information and get face-to-face communications with these people. There are some exceptions, but not that often. It was quite good and quite easy to get people to communicate. And even if the company officials did not speak English, we were able to find translators easily enough. RITHOLTZ: And who else did you speak to? I mean, obviously, you spoke with management, but did you speak to local customers or workers at various places? How comprehensive was your boots on the ground due diligence? MOBIUS: Well, that’s one thing we found, much to our chagrin, that don’t talk to just the top management. We made many mistakes by just talking to top management. But you got to talk to the staff, talk to the customers, talk to competitors. Competitors are a great source of information. Because if you have a competitor who’s speaking very highly of the company, that’s a pretty good sign of the quality of the company you’re talking about. And then we do also talk to government officials. You know, are there any transgressions on the part of the company, or any problems in the industry? So you really have to open up to wide variety of sources. And by the way, that’s one of the advantages of being on the ground as well. RITHOLTZ: To say the least. So when we look at the environment today, active buy side managers, they use a lot of financial models. They use big data. They have the ability to crunch a lot of economic assumptions. What was it like in the 1980s and 90s? I’m going to assume you didn’t have access to all that modern technology and AI. MOBIUS: That’s right, that was not available. Of course, don’t forget, this was the age before method. You know the method program, where you had to separate brokerage fees and research. And in those days, we were able to get an awful lot of information free of charge from brokers who we’re dealing with. Of course, you might not say free of charge because we’re paying them brokerage commission. But we were going to give them orders anyway. So it was very easy to get information, a lot of research from brokers who were doing research. And there were also local research institutions who produce research. So gradually, the knowledge built up. Of course, at the beginning, in ‘87, there was almost nothing available. But by 1995, ‘96, at that time, there were lots of information flowing out of these various firms. RITHOLTZ: Really quite fascinating. So let’s talk a little bit about traveling to different countries and hunting down specific companies. What do you recall as a particularly spectacular investment that you discovered after traveling to a country and were just really surprised by what you found researching a company? MOBIUS: Probably the best example was in China. That was when we discovered a company in China that made the gears for wind power companies. That was about 15 years ago. That’s when, you know, the whole area of wind power was coming up strong. And this company was doing incredible work. We visited the factory and I noticed that the machine tools they were making were top notch, you know, automated machine tools. And they were doing very high quality work, according to their customers. So we decided we’d invest in that company and that turned out to be an incredible investment. That, you know, doubled or tripled the price we paid. So that was probably one good example of, you know, doing on the ground research and finding something that other people are not noticing. And by the way, I think that’s one of the pitches of good investing is finding something that other people are not finding. In other words, try to discover a company that has not been yet so-called discovered by market. RITHOLTZ: What about the opposite? Did you ever show up somewhere excited about a specific company and only to discover, hey, this isn’t what we were hoping for? MOBIUS: Many times. Because many times, we were fooled by the information we’re getting. And you know, we have varied missteps along the way. It is the feature of investing, anyway, as you know. But in emerging markets, you have to be special, and be very, very extra careful. RITHOLTZ: So — so when you started doing this in the late ‘80s, was anyone else from the United States or other U.S. investment firms actually traveling the world looking at companies? You’re sort of the Indiana Jones of this. How long did it take for other investment firms to say, hey, we need an EM or developed ex-U.S. funds, and we need someone like Mobius out kicking the tires? MOBIUS: It took about five years for, you know, the field to grow, where once they saw the results that we were getting, a lot of people began to jump on the bandwagon. You must remember that the pioneer on this was the IFC, the International Finance Corporation. They started emerging markets in (inaudible) funds about — a little earlier than we started our fund. So they were on that. As you know, they were the precursor to the index because this Capital International was the — they were the people that were doing researches of companies all around the world. RITHOLTZ: So you started venturing into Africa way earlier than just about everybody else. What led you to discover that continent, and how have the results been? MOBIUS: Well, you know, as the assets expanded, we really had to find new opportunities everywhere. And Africa was wide open, there were just — there was so much there. And of course, visits, initial visits there really excited us because we realized this is ground that has not been tilled in any direction, lots of opportunities, where there’s no information, which is an advantage, because if you’re on the ground, if you’re able to travel these places and get information, then you have an edge on any competitor that must come in. So I saw tremendous opportunities in places like South Africa, in Nigeria, in Kenya, and of course, Africa, so huge. There are so many countries. There’s tremendous opportunity. Of course, the big challenge was to find an equity market, a stock market — RITHOLTZ: Right. MOBIUS: — and liquidity. Of course, one of the biggest challenges you get, of course, is liquidity, getting enough of liquidity to be able to invest significant amounts of money. RITHOLTZ: You have to be able to move in and out, and not completely disrupt the price or the market. MOBIUS: Exactly. And by the way, that was one of the reasons why we got involved in private equity, because we found so many of these opportunities, but some of them, of course, we’re not listed. Some of them were listed, but there was no liquidity at all. And we decided, hey, why don’t we do a private equity fund, where you know, the holding period for the clients would be five, six, seven years, then we can develop these companies and bring it to the market with more liquidity as we expand. So that was a very, very good move for us. (COMMERCIAL BREAK) RITHOLTZ: And anything stands out as a particularly exceptional or shocking story that didn’t involve finance or a company when you were — when you were traveling all over the world? I have to imagine there were some pretty memorable snafus along the way. MOBIUS: Well, we got caught in a revolution in Philippines, where they’re shooting at the hotel, and we were able to get out, luckily, by helicopter from the roof of the hotel. That was one example. But they were fused post calls like that, but never deterred us, for some reason. Maybe we were too innocent. We felt that, you know, we have to roll with the punches, so to speak. But there’s always some kind of turmoil going on. As you know, I was recently in Sri Lanka. And you know, you can still work and you can still visit companies. But meanwhile, people are demonstrating on the street. RITHOLTZ: Wow. That’s pretty amazing. So let’s talk a little bit about emerging markets versus the United States. This is, I think, the 12th or 13th year prior to 2022, where the U.S. has outperformed emerging markets. I think that’s the longest run we’ve seen in a number of decades. What’s it going to take for EM to make its comeback against the United States in 2022? Maybe this is the year. MOBIUS: That’s a great question. One thing you’ve got to realize is that the world has changed to the extent that a lot of the emerging markets growth is now in the United States, because U.S. companies are manufacturing and selling and buying from emerging countries. RITHOLTZ: Right. MOBIUS: When we saw it in 1987, the whole premise of going into emerging markets was to capture the growth. Because these countries were — these were the low and middle income countries on a per capita basis, they were growing at more than double that of the developed countries, U.S., Japan, Europe, Australia, New Zealand. Now, what’s happened is that a lot of these companies based in the U.S. might even be called emerging market companies. For example, let’s take Apple. Now, 1% of their manufacturing is done in Asia, let’s say, or elsewhere, and 1% of their sales are in emerging countries like China. So it’s become much more difficult to define what is an emerging market. And if you travel to some of these countries, you will be amazed of the growth and the way they’ve developed. And you know, just the infrastructure is just incredible, what’s happened in many of these countries. So it’s become more and more difficult to define specifically what is an emerging market company and even the definition of country, (inaudible) country is blurred. For example, let’s say Korea, Korea was a very poor country when we started in 1987. Today, it ranks as one of the — on a per capita basis, one of the richer countries. RITHOLTZ: Right. MOBIUS: So the (Queens) has always been saying recently that they’re not an emerging market country. They’re more developed country, which I think rings true. RITHOLTZ: So do you still do the same degree of traveling you were doing 25, 30 years ago? Are you, you know, on the road eight months a year? What’s it like today? MOBIUS: Well, I try to travel as much as I can, but with COVID, it’s been so difficult. Thankfully, things are loosening up and I’m able to travel. I base myself now in Dubai. And of course, I have a place in Singapore, but Singapore has been so restrictive. Thankfully, they’re opening up. And other countries are beginning to open up. Recently, as I said, I’ve been in Sri Lanka, in Thailand, and I’m trying to get out to more countries as they open up and they get rid of these lockups. Of course, China is off the chart in terms of restrictions. So that’s out of the question at this stage. But yes, I’m trying to travel as much as I can. RITHOLTZ: So Dubai and Singapore. You know, if you’re bicoastal, if you’re in New York and London, or New York and San Francisco or LA, that’s what they would call it. What do you call splitting your time between Dubai and Singapore? Are those just base of operations for when you’re shooting off to those parts of the world? MOBIUS: Yeah. Singapore is great for visiting the rest of Asia, you know, a great — a lot of it has to do with the airlines. Singapore Airlines had great connections all over Asia. RITHOLTZ: Right. And it’s a great airline. MOBIUS: Great airline. And Emirates is even a better airline, in some ways. Emirates goes all over the world. And I’m able to come to here, to Europe, I’m now in London, and to the U.S. very easily. Excellent airlines. By the way, there’s two good examples of companies in, well, emerging markets, or maybe you could still call them emerging markets, that have really surpassed the U.S. airlines in terms of service, quality, et cetera, et cetera. So, yeah, these two bases are very good, probably because of time zones. In Dubai, the time zone is very convenient, but also because of the convenience of travel. RITHOLTZ: Really quite — quite interesting. So — so let’s talk about some of the bigger issues going on globally today. Russia has become a bit of an anathema internationally, given the invasion of Ukraine. Do we just write down our Russian stocks to zero? Are they ever going to be investable again in our lifetimes, or are they just a total pariah state at this point? MOBIUS: Well, in our fund, we were out of Russia about a year ago because we didn’t like the corporate governance issues that were popping up. You know, the oligarchs were taking over a lot of the companies. But I’m not writing off Russia by no means. I think there’ll be a day when we will go back in. And in fact, I personally keep an account in Russia. And of course, the stock — it’s a very small account, but the stocks in that account are way down. But I think eventually this will come back. But for our fund, we will not go in until things change dramatically in Russia. RITHOLTZ: Is that going to require Putin to leave power in order for the country to be investable again? Or can something significantly change to rehabilitate their image in the world? MOBIUS: It will probably mean Putin leaving, probably, because it would require a complete about face and it would require all of the Western countries to stop the sanctions. Because you must remember, even if I wanted today to invest in a Russian stock, I couldn’t do it because of custodians. RITHOLTZ: Right. MOBIUS: I’m not operating there, you know. RITHOLTZ: You talk about — talk about being canceled, it looks like very much like Russia was now. Previously, you were on the board of directors of Lukoil. I’m assuming that ended some time ago, if I recall reading correctly. And you were also involved with OMV Petrom in Romania. Tell us a little bit about those experiences. MOBIUS: Yeah. OMV Petrom came out about — that was about 10 years ago. We got the contract to run the country funds for the Romanian government. It was quite an unusual situation where they wanted to compensate people who had lost their assets during the (fiscal) period, and they put about 20% or 30% of all the government companies into a fund. And we won the contract to run that. And one of the companies was Petrom. And OMV, the Austrian company came in as a majority shareholder of that company, and we were still holding it and they asked me to be on the board. So we were looking at and getting very deeply involved in many of these Romanian companies. And it’s a great example of where a country, you know, took the decision to sort of privatize state-owned companies that were previously very corrupt, and made a tremendous success of it. And also, kudos go to the European Union, because being a member of the European Union, whenever we went to court, there were tremendous amounts of court battles, the judges would be looking over their shoulders at battles. So we were often treated much fairly than we would have been if they weren’t the members of the European Union. RITHOLTZ: All right. So — so let’s talk a little bit about China. Last year, they pretty much went after their own tech sector. Do we — first, do we still consider China an emerging market? And second, are they another country that’s becoming increasingly uninvestable? MOBIUS: Yes, it’s still an emerging country, defined as a low and middle income country. So that’s definitely there. The problem with China, of course, it’s gotten too big in the spectrum of emerging market economies. Because if you look at the emerging markets indexes, you’ll find that it’s 30% or so China. So whenever China gets hit, emerging markets look terrible. And that’s the reason why a lot of people have been sort of turned off because, as you know, so many people are buying ETFs and index funds. But it’s a good example of where government policy can have a very big impact on your companies. And the measures that China took against the large tech giants in China really damaged the market dramatically because of the impact of those big companies on the China index. So there are cases where you got to pay attention to those macro moves by the governments. But you have to focus on the economic or financial aspect rather than purely political aspects, unless, and this is a very important point, unless the political structure begins to change against free enterprise against companies. And a good example of that was in Venezuela. We were in Venezuela when Chavez came into power. And he started talking about taking over companies, about nationalizing companies. And immediately, we got out because we realized that this was not going to be very conducive. And it’s good we did get out because companies that we owned really crashed, and it was a very bad situation. So — but that doesn’t — recently, that doesn’t happen that often. But China is probably a good example of where government policies can really have a very damaging effect on individual companies. RITHOLTZ: What about inflation? It’s been a giant topic here in the U.S. and we’ve seen numbers around the world have spiked up. How does inflation affect emerging markets? MOBIUS: Well, you know, the great thing about inflation is that if you’re an equity investor, in other words, an investor in companies that can adjust their pricing in line with higher prices, then inflation is not a problem. In fact, sometimes it’s an advantage, because you see prices moving. And if you’re in a company, as I mentioned, with that pricing power, you can do very, very well, because they’re moving up prices at a rapid rate. It’s interesting. If you look at the correlation between inflation numbers and let’s say the S&P 500, there’s very low correlation in those numbers, and that’s probably one of the reasons because good companies that are adjusting their prices in line with the devaluation of the currency can do very well. By the way, I pointed out in the book I just came up with, about inflation, it’s called the inflation myth, and I mentioned this phenomenon, RITHOLTZ: That — that emerging market inflation is actually not a problem? MOBIUS: That’s correct. Provided, and this is the big proviso, you’re in companies that have pricing power. RITHOLTZ: Really interesting. The inflation myth and the wonderful world of deflation. MOBIUS: Yes. And you know, I mentioned that the reason why I put that in, the wonderful world of deflation, because most economists hate deflation, but I argue that deflation is a good thing because deflation means that costs are going down, and people are benefiting from lower and lower costs. And what I pointed out in the book is that technology is making things better and cheaper in terms of pricing power, in terms of earning power. And I’ve seen that my lifetime. You know, when I had my own research firm, I had to carry around this electric typewriter. There were no laptops. RITHOLTZ: Right. MOBIUS: There were no Word, no Excel, nothing of that sort. And when, you know, I mention to young people I had this electric typewriter, they ask me, “What is that?” So the technology has really made life so much easier and more affordable for so many people. RITHOLTZ: I don’t disagree. We’ve been in an era for the past, I don’t know, 30 years. That’s been primarily deflation, with these casual spikes of inflation. I find it kind of hard to understand how all of these older economists keep talking that we’re going back to the 1970s, when the world today seems so different than it was back then. MOBIUS: Exactly, exactly. You talk to any young person, you realize that they are even benefiting more because they know how to use this technology better than old timers like me. RITHOLTZ: So before I get to my favorite questions, I have one last question for you and it has to do with back in 2009, in the middle of the financial crisis, you pretty much called the start of a new bull market. Tell us about what you were seeing at the end of the great financial crisis, and what made you so confident that was a great time to jump back into equities. MOBIUS: Well, you know, my studies showed that all these bear markets are very short in duration, maybe they’re one or two years, at most, three years, you know. And unfortunately, many people measure a bear market from the peak of the previous bull to the peak of the next bull market. RITHOLTZ: Right. MOBIUS: And that’s a wrong way of measuring it. You should measure it from the peak to the bottom. And as soon as you get to the bottom, it starts moving, you’re in a new bull market and it’s a wonderful time to invest because, you know, the percentages are in your favor. So that’s what I saw. I looked at the history and I figured, hey, this is not going to last forever. People are very pessimistic. It’s a great time to be investing, and it turned out to be right. And by the way, that happened three years ago, three years ago now. You know, when we had the COVID situation, it was an incredible time to invest. And you know, that was less than a year that the market crashed and then started recovering. RITHOLTZ: Right. That 34% drop took place over six weeks. And I think by August, we were back to breakeven. It was pretty, pretty impressive. (COMMERCIAL BREAK) RITHOLTZ: I only have you for another five minutes, so let me get to my five favorite questions I ask all my guests. You can think of this as a speed rounds. Let’s quickly run through all five of these, starting with tell us what you’ve been streaming during the lockdown. What was keeping you entertained on either Netflix or Amazon Prime or whatever you were doing to entertain yourself? MOBIUS: Well, I found that YouTube is incredible educational — RITHOLTZ: Amazing. MOBIUS: — media and incredible programs. And of course, I also click on Bloomberg and look at news. If I want to know something about a country, I put news and then the country, and a lot of stuff pops up. So those are the two sources that I found to be very, very good. RITHOLTZ: Tell us about your early mentors who helped to shape your career. MOBIUS: Well, John Templeton was really that man. He was an incredible investor, a wonderful person. He really was an inspiration. And as you know, he lives on through his Templeton Prize. You know, Templeton Prize is larger than the Nobel Prizes. RITHOLTZ: Oh, really? MOBIUS: Because, yeah, he believed that a prize for religion for, you know, the science of religion was most important. So he said — he specified that his prize should be bigger than the Nobel Prize. And of course, it still is. They’ve got an incredible foundation. RITHOLTZ: Tell us about some of your favorite books and what you’re reading right now. MOBIUS: Well, I just finished a book called “Double Entry,” which is a wonderful book. You know, it sounds boring. It sounds like bookkeeping, but it’s not. It’s about the history of the double entry accounting. But it goes into the whole revolution that took place in the Middle Ages, and how people in the Middle Ages adopted the Arabic script and the calculations that came out of the Arab world. And it was — it’s an incredible book. So I’m reading that. I love the history. I’m also — I started the book on Cleopatra not necessarily because I’m fascinated by the woman Cleopatra, but by the era. It tells about what kind of environment she lived in, which is fascinating. So I think — RITHOLTZ: Cleopatra? MOBIUS: Cleopatra. Yeah. RITHOLTZ: Any others? Any longtime favorites that you really want to reference? MOBIUS: Well, I also like books about archaeology. So I’ve been reading a number of books on particularly Latin American archaeology, because I think a lot in Latin America has been overlooked. There was so much emphasis on Egyptian archaeology. But I think Latin American archaeology is incredibly fascinating. RITHOLTZ: Really intriguing. What sort of advice would you give to a recent college graduate who is interested in a career in either investing or emerging market and frontier market investing? MOBIUS: Well, first of all, travel, I mean, you’re young. You can get out. You can travel to all these countries. And that’s a tremendous learning experience to go to these different countries. And stay humble. You know, listen to what other people are saying. Read as much as you can, and keep on asking questions. Don’t think you have all the answers. Remember, John Templeton once said, “Those people who think they have all the answers don’t even know the questions.” And I think young people should, you know, remember that. It’s very important. RITHOLTZ: And our final question, what do you know about the world of investing today that you wish you knew 35 years ago when you first started in EM investing? MOBIUS: It’s not all in the numbers. In other words, you know, when we started, we looked at the balance sheet, the profit and loss statements, and we thought that was the most important thing. It’s not. The most important thing are the people. Who is running the company? What are the associates of that person doing? It’s very important to get to know the people because people create wealth. RITHOLTZ: Quite fascinating. Thank you, Mark, for being so generous with your time. We have been speaking with Dr. Mark Mobius now of Mobius Capital, previously with Franklin Templeton Investments. If you enjoy this conversation, and I do believe this is now the 400th one that showed up on iTunes, be sure to check out any of our previous 399 such discussions. You can find those at Spotify, iTunes, wherever you get your podcasts from. We love your comments, feedback, and suggestions. Write to us at mibpodcast@bloomberg.net. Follow me on Twitter @ritholtz. You can sign up for our daily reading list at ritholtz.com. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Mohamad Rimawi is my audio engineer. Atika Valbrun is our project manager. Paris Wald is my producer. Sean Russo is our head of Research. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio. 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Category: blogSource: TheBigPictureJun 13th, 2022

Sheryl Sandberg"s complicated legacy holds key lessons for leaders on what they can do to boost diversity at the top

The outgoing Meta COO, Sheryl Sandberg, wasn't perfect, but leaders can learn from both her pioneering work and her shortcomings, experts say. Sheryl Sandberg, who plans to step down from her role as COO of Meta, wrote the bestseller "Lean In" and established a nonprofit of the same name dedicated to advancing women's rights.Lean In Org/Sheryl Sandberg Outgoing Meta COO Sheryl Sandberg was a diversity pioneer, but some say she wasn't inclusive enough. Specifically, many Black women believed her bestseller, "Lean In," didn't include their voices.  Corporate consultants shared what other leaders can learn from Sandberg's work. If you walked past a bookstore, boarded a plane, or walked through a park in 2013, you might have seen someone clutching a copy of "Lean In," with Sheryl Sandberg's smiling face staring back at you. For many, the book by the exiting chief operating officer of Meta, the parent of Facebook, went from must-read to dust collector. Some female executives have leaned away from its lessons that, nearly a decade later, feel incomplete, particularly for Black women. The assessment of Sandberg's legacy is still unfolding following her announcement this month that she's giving up her executive role at Meta but will remain on the board. Yet several lessons have already emerged on how executives, both women and men, can help boost boardroom representation in the tech world and beyond, diversity experts told Insider. The to-do list, experts say, is clear: Make a concerted effort to be inclusive when you're trying to solve problems; use your platform to elevate the voices of marginalized groups; and intervene when you see bias unfolding. "Leaders in tech and corporate America — they have a lot of power," said Minda Harts, a diversity consultant and author of "The Memo," which is regarded by many as the "Lean In" for women of color. "I hope that leaders will ask, 'What are the issues that I need to help drive?'" Lesson 1: Be inclusive from the start Sandberg wrote from her own perspective, and there's nothing wrong with that, Harts said. But Harts believes if you are a leader today, you need to seek insight from people who don't share the same background as you."Sometimes leaders, though they are well-intentioned, talk about certain things, and don't think about the impact that it has on other groups that are not part of that conversation," Harts said. "If we're keeping equity in the equation at all times, then nobody's left behind."Minda Harts wrote "The Memo," which is regarded by many as the "Lean In" for Black women.Minda HartsTega Edwin, a career coach and the founder of Her Career Doctor, a leadership-development consultancy, said Sandberg contributed by highlighting how women sometimes allow their own limiting beliefs to stifle their career growth. However, Edwin said, Sandberg neglected to speak to the larger societal forces that create that negative self-talk."We live in a society that beats down women. Women are constantly being told they are less than. We internalize those messages and then get in our own way," Edwin said. Without confronting that internalized misogyny, women can unconsciously minimize their own value and sabotage opportunities for growth, she said.Sandberg called for women to take charge of their careers and claim a seat at the proverbial executive table. But doing so can be detrimental for Black women in the workplace, said Chantel George, a workplace-diversity expert and founder of Sistas In Sales, a networking community for women of color. "Lean In," however well-meaning, overlooks the racism and gender bias that Black women often face, she said."When we lean in, we are called aggressive and pushy. We get relegated to 'angry Black woman' status. We're not praised or applauded for being brave. Sandberg's advice comes from a place of privilege that most Black women do not have," George said.Cherie Caldwell — the head of diversity, equity, and inclusion, or DEI, at Salesloft, a software company — said that while Sandberg might not have hit all the right marks, she started a conversation that empowered some women. "It opened up a plethora of DEI jobs and employee-resource groups within organizations. There are more women Fortune 500 CEOs now than ever before. There is still work to be done, but she certainly had a role to play in moving the conversation forward," Caldwell said.Sandberg has addressed the criticism of "Lean In."  "I don't think I did a good enough of job bringing out stories of women of different backgrounds," she said in a 2020 interview with journalist Tamron Hall. Lesson 2: Use your platform Though "Lean In" faced criticism for not being inclusive enough, Sandberg's more recent work put greater focus on women of color. That's an important example of a powerful woman deploying her leverage to try and help others, experts said. Sandberg's shift came alongside broader conversations in the US about the barriers people of color, especially women, can face.  In 2015, Sandberg's LeanIn.org began working with the consulting firm McKinsey & Company to draw attention to the workplace inequity women of color, specifically Black women, face. The nonprofit offers resources for companies on how to fight gender and racial bias and encourages women from all backgrounds to join informal networking and peer-support groups. Tega Edwin, the founder of career consultancy Her Career Doctor, praised Sandberg's work to advance equality in the workplace, but said she failed to recognize the larger societal forces that often make white women's experiences different from those of women of color.Tega EdwinSandberg has also become a more outspoken advocate supporting women of color. Speaking with Insider in March 2021, Sandberg underscored the importance of recognizing unconscious bias and creating allyship. "It's really about recognizing that we all need to do better," Sandberg said. But the changes at Meta have been slow, critics have argued. In 2013, the company had zero Black executives, according to USA Today. By 2018, 3% of all executives were Black. Two years later, in 2020, that number had edged up to 3.4%. And in 2021, it rose to 4.7%, according to Meta's most recent diversity report. "That kind of worries me," Harts, the diversity consultant and author, said of Meta's progress in boosting its ranks of Black execs.A Meta spokeswoman said that the number of people of color at the director level and above, which is one step below executive level, has steadily increased over the years. "We are proud that we've made steady progress to drive representation not just in leadership roles but throughout the rest of the organization," she said.   Lesson 3: Be brave and take actionTo make change within your organization, people need to get comfortable intervening and interrupting the status quo, said Tara Jaye Frank, a diversity consultant and the author of "The Waymakers." Leaders can speak up, for example, if a succession plan doesn't include Black or Hispanic candidates, she said. Mentors and managers can and should also advocate for their colleagues from underrepresented backgrounds, Frank added. "Intervention is really critical to unlocking opportunity. And to me, that's not about being nice," Frank said. "It's knowing, when are the moments that matter? And how are you going to insert yourself in those moments to use your voice on behalf of someone else's promise and potential?"Advocating for others, especially underrepresented groups, isn't just the responsibility of women or women of color, experts say. Edwin said achieving workplace equality won't be possible without the help of men. "Corporate America is still very patriarchal — men listen to men," she said. "I don't see significant changes happening until men start speaking up on behalf of women."Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJun 12th, 2022

Will Ignoring Fundamentals Take Revenge on Bullish Traders?

While the Fed strives to tame inflation, short-term investors continue to ruin its efforts with bullish actions. Will their love of risk pay off? With the S&P 500 enjoying a mid-day rally on Jun. 7 and the GDXJ ETF (proxy for junior gold and silver mining stocks) following suit, the bulls warmed up to the […] While the Fed strives to tame inflation, short-term investors continue to ruin its efforts with bullish actions. Will their love of risk pay off? With the S&P 500 enjoying a mid-day rally on Jun. 7 and the GDXJ ETF (proxy for junior gold and silver mining stocks) following suit, the bulls warmed up to the idea of a “soft landing.” However, with a much higher U.S. federal funds rate needed to cool inflation, the short-term optimism should be short-lived. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Series in PDF Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q1 2022 hedge fund letters, conferences and more To explain, I've noted on numerous occasions that risk-on sentiment often reverberates across multiple markets. Therefore, when stocks bid higher, commodities usually follow, and this increases the Fed's inflation conundrum. As a result, investors' optimism enhances the pricing pressures. Please see below: The red bars above track the percentage of commodities experiencing a positive monthly return. If you analyze the right side of the chart, you can see that the negativity in April/May culminated with a smaller percentage of commodities moving higher. However, the red bar furthest to the right shows that more commodities are rising once again. As a result, if the stock market remains buoyant, the follow-through from commodities will only enhance inflation and elicit more hawkish policy from the Fed. Furthermore, while investors still hope for a dovish pivot, the U.S. labor market remains on solid footing. Thus, the Fed’s dual mandate of price stability and maximum employment points to more hawkish policy in the coming months. For example, The Conference Board released its Employment Trends Index (ETI) on Jun. 6. The index declined from 120.60 in April (an upward revision) to 119.77 in May. However, all-time highs shouldn’t materialize when the Fed is tightening monetary policy, and the immaterial decline signals there is plenty of work to do to moderate wage inflation. Agron Nicaj, Associate Economist at The Conference Board, said: “The Employment Trends Index fell slightly in May, signaling slowing, but positive job growth in the months ahead.... The labor market remains strong amid high inflation and the Federal Reserve is likely to continue its focus on stabilizing prices as a result. A strong response by the Fed risks higher unemployment rates by the end of 2022.” Please see below: In addition, while bear market rallies often create doubt among investors, the S&P 500 and the GDXJ ETF are unlikely to maintain their optimism in the months ahead. For example, Morgan Stanley’s Chief U.S. Equity Strategist, Mike Wilson, sees material downside in the summer months. He told clients that “stocks may rally further in the near term” and “can continue for a few more weeks until the Fed makes it crystal clear they remain hawkish, and earnings revisions fall well into negative territory.” After that, however, he expects the bearish cocktail to “take the S&P toward 3,400 by mid-late August.” Furthermore, with investors pricing risk like real yields are at all-time lows, I warned on May 19 that we’re likely far from a medium-term bottom. I wrote: While Fed officials realize that inflation will only subside if commodity and stock prices fall, a near 20% peak-to-trough decline in the S&P 500 still hasn’t spooked market participants. Moreover, while some claim that sentiment is extremely bearish on Wall Street, the reality is that no one fears the Fed. Please see below: To explain, the black line above tracks the S&P 500, while the green line above tracks the Cboe Volatility Index (VIX). If you analyze the relationship, notice how material spikes in the VIX often mark bottoms for the S&P 500? In a nutshell: when true fear is present, investors rush to buy put options (downside hedges) at any cost, and volatility skyrockets. Therefore, panic is what often creates long-term bottoms. However, if you analyze the right side of the chart, you can see that the VIX hasn’t even cracked 40 in 2022. Moreover, the VIX has actually declined, even though the S&P 500 remains in free fall. As a result, investors continue to buy call options (upside hedges) as they follow the post-GFC script and await the Fed’s dovish pivot. Supporting the thesis, Wilson notes that “the price remains wrong with the equity risk premium at 290 [basis points] bps” versus his fair market value of 345 bps. For context, investors discount future earnings/cash flows to determine the appropriate price of a stock, or in this case, the index. Moreover, when the equity risk premium rises, the discount rate rises, and the asset’s price falls. Thus, with investors still ignoring the risks ahead, a higher discount rate should weigh on the S&P 500 in the coming months. Likewise, there are many more pieces to the fundamental puzzle. For example, a hawkish Fed is bullish for U.S. real yields and the USD Index. As a result, it’s no surprise that all three moved in tandem in 2022. However, earnings revisions – which are upgrades versus downgrades – are negatively correlated to the U.S. dollar. In a nutshell: a rallying greenback reduces foreign demand for S&P 500 companies’ products and dampens their currency-adjusted earnings. For example, Microsoft warned about the dynamic on Jun. 2. Please see below: Source: Bloomberg Therefore, Wilson expects more S&P 500 companies to fall victim to the dollar’s wrath. To explain, the blue line above tracks the S&P 500’s earnings revision breadth (the spread of upgrades minus downgrades), while the gold line above tracks the inverted year-over-year (YoY) percentage change in the USD Index. For context, inverted means the latter’s scale is flipped upside down, and a falling gold line represents a rising USD Index. If you analyze the relationship, you can see that sharp YoY percentage increases in the USD Index often lead to sharp negative revisions in earnings expectations. Moreover, if you focus your attention on the right side of the chart, you can see that the gold line has declined materially, which implies plenty more downward earnings revisions in the months ahead. Likewise, when you combine the ominous data with two more likely 50 basis point rate hikes in June and July, it’s understandable why Wilson expects the S&P 500 to hit 3,400 before September. Also noteworthy, seasonal factors point to more earnings woes in the coming months. Please see below: To explain, the blue bars above track the average percentage change in earnings revision breadth since 1996. If you analyze the left side of the chart, you can see that earnings estimates tend to increase leading up to late spring/early summer. However, once the economic boost of warmer weather fades, revisions tend to turn negative as analysts make their fall and winter projections. For context, analysts and markets are forward-looking. So, the upward revisions in February, March, April, etc. reflect expected performance three and six months later. Likewise, the downward revisions in July, September, October, etc. also reflect expected performance three and six months later. Therefore, with the peak summer months soon to be here and gone, bearish estimates for fall and winter should materialize. On top of that, I’ve been warning for some time that the U.S. 10-Year real yield would rise in 2022. Moreover, while the metric consolidates in the 0.20% to 0.30% range, the Fed needs higher real yields to curb inflation. As such, further progress should weigh heavily on the S&P 500 and the PMs. Please see below: To explain, the blue line above tracks the U.S. 10-Year real yield. If you analyze the annotations, you can see that a higher U.S. 10-Year real yield coincided with the popping of the 2000 dot-com and the 2008 housing bubbles. However, inflation was lower during both of those calamities. As a result, the Fed confronts a more sinister problem today. If we line up the dates, the chart below shows that both recessions were preceded by much lower inflation, and therefore, the Fed could pacify investors. In contrast, the U.S. 10-Year real yield is completely out of whack with the current inflation rate. As a result, the Fed needs a miracle to achieve a “soft landing.” The bottom line? Short-term traders don’t care about fundamentals, and their actions can keep asset prices uplifted for days or weeks. However, fundamental realities always come to bear, and troubling economic developments are not fixed through wishes or words. Therefore, while investors hold on to the idea that things are fine now, history shows that severe shocks should dominate the headlines as the Fed attempts to rein in inflation. In conclusion, the PMs rallied on Jun. 7, as old habits die hard and the ‘buy the dip’ crowd was out in full force. However, with higher real yields and a stronger USD Index poised to keep the pressure on the S&P 500 and the PMs, lower highs and lower lows should confront the pair over the medium term. Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today. Przemyslaw Radomski, CFA Founder, Editor-in-chief Sunshine Profits: Effective Investment through Diligence & Care All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Updated on Jun 8, 2022, 11:25 am (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkJun 8th, 2022

Futures Drop As Yields Push Higher, Hawkish ECB Looms

Futures Drop As Yields Push Higher, Hawkish ECB Looms After yesterday's bizarro rally, US futures and European bourses dipped ending two days of gains, as yields reversed Tuesday's slide and climbed ahead of highly anticipated CPI data on Friday and a hawkish ECB meeting tomorrow, as traders try to predict the Federal Reserve’s policy path. Nasdaq 100 futures were flat at 7:30 a.m. in New York, with contracts on the S&P 500 and Dow Jones also modestly lower. European markets also dipped, with Credit Suisse shares tumbling after the Swiss bank announced that it expects a loss in the 2Q and is weighing a fresh round of job cuts. Meanwhile, Asian stocks rose as Beijing’s move to approve a slew of new video games bolstered bets that the outlook is improving for the Chinese technology sector. The yield on the 10-year US Treasury resumed its advance, climbing to 3%, while the dollar rose as the yen cratered to fresh 20 year lows, flat and bitcoin traded around $30K again. Among notable premarket movers, energy companies’ extended their Tuesday gains with Imperial Petroleum rising 8.3% and Energy Focus adding 20%. Western Digital shares climbed 4.1% in US premarket trading after the chipmaker said that it’ll consider splitting its main units as part of a review of “strategic alternatives” following talks with activist investor Elliott. US-listed Chinese stocks jump in premarket trading, on track for a third day of gains, after China approved a second batch of video games this year, providing a signal of policy support to the the country’s internet sector; Alibaba (BABA US) gained 5.8%, JD.com (JD US) +4.4%, Pinduoduo (PDD US) +5.9%, Baidu (BIDU US) +2.7%. Other notable premarket movers: Intel (INTC US) shares fell 1.9% in premarket trading as Citi lowered its estimates on the chipmaker after the company’s management mentioned at a conference that circumstances are worse than expected during the quarter. Altria Group (MO US) stock slid 2.4% in premarket trading as Morgan Stanley downgraded it to underweight, citing increasing macro pressures and competitive risks. Western Digital (WDC US) shares rise 4.1% in premarket trading, after the chipmaker said that it will consider splitting its main units as part of a review of “strategic alternatives”. Smartsheet (SMAR US) stock fell about 7% in premarket trading as analysts said the software company delivered a mixed set of results with billings growth decelerating to top estimates by a slimmer margin than in previous quarters. Novavax (NVAX US) shares jump as much as 22% in US premarket trading after the company’s coronavirus vaccine won support from an FDA advisory panel. DBV Technologies ADRs (DBVT US) gain as much as 22% in US premarket trading after a trial for the biotech firm’s peanut allergy treatment met its primary endpoint. Sentiment remains fragile on concerns rising rates will spark a recession as corporate earnings are set to slide. Thursday the ECB is set to wind down trillions of euros of asset purchases in a prelude to a rate hike expected in July that will mark the end of eight years of negative interest rates. "Higher yields will inevitably resume the pressure on valuations,” said Roger Lee, head of UK equity strategy at Investec Bank. Inflation now exceeds 8% in the euro area, and is expected to stay above that level in the US when May data comes out on Friday, increasing pressure on central banks to stick to aggressive rate hikes. “Recent bouts of optimism can only be short-lived for now, as they were based on the wrong assumptions, that lower growth would push central bankers to ease their aggressive path,” Olivier Marciot, a portfolio manager at Unigestion SA, wrote in a report. Yet some argue that central banks will be forced back into dovish mode, among them hedge fund founder Ray Dalio. The billionaire said central banks across the globe will be required to cut interest rates in 2024 after a period of stagflation. On Friday, focus will turn to the US CPI reading for hints on the Fed's tightening path following the central bank’s outsized hike on May 4. The data is expected to show inflation picked up from a month ago, but slightly slowed from a year earlier. Complicating the task of policy makers trying to arrest runaway inflation without choking off growth, the war in Ukraine shows no signs of ending. That’s ignited higher food and energy prices across the world, despite the best efforts of central banks to use higher rates to cool economies. In Europe, the Stoxx 600 Index was down 0.4%, with shares of basic resources companies and financial sector stocks leading the drop,  while the region’s bonds fell as traders braced for a crucial European Central Bank meeting. Credit Suisse shares tumbled as much as 7.6% after the Swiss bank announced that it expects a loss in the 2Q. In addition, people familiar with the matter said that the lender is weighing a fresh round of job cuts. European mining stocks also underperformed the Stoxx 600 benchmark as copper declines, while iron ore fluctuates with investors weighing signs of demand recovery against caution that China may seek to stabilize commodity prices. The Stoxx Europe 600 Basic Resources sub-index slid 1.1% as of 9:45 a.m. in London after rising to the highest since April on Tuesday. Here are the most notable European movers: Prosus’s shares jump as much as 8.6% in Amsterdam trading after China approved its second batch of video games this year, with a total of 60 titles. Naspers, which holds a 29% stake in Tencent through Prosus, up as much as 9.8%. Inditex shares gain as much as 5.3% after the Zara owner reported 1Q results. Analysts were impressed by the sales beat, with Bryan Garnier calling the company a “safe-haven choice” in the retail sector. UK and European retail stocks rise after Inditex’s results helped boost sentiment, with the retail segment the biggest gainer in the Stoxx 600 Index. Asos gained as much as +3.9%, Boohoo +3.1%, JD Sports +2.5%. Voestalpine shares rise as much as 4.5% after the company reported strong results for the business year, even as its guidance for FY23 points at a lack of visibility for fiscal 2H, according to analysts. Haldex shares rise as much as 45% after SAF-Holland offers SEK66 in cash per share for the Swedish brake and air suspension products maker, representing a 46.5% premium to its closing price on Tuesday. Wizz Air shares fall as much as 8.6% after the company reported results that were in line with expectations but flagged an operating loss for the 1Q of fiscal year 2023. European mining stocks underperform the Stoxx 600 benchmark as copper declines, while iron ore fluctuates. Anglo American shares fell as much as 1.7%, Rio Tinto -1.8%, Glencore -1.7%, Antofagasta -3.3%. Orpea shares declined as much as 5.9% as the company said that French police investigators began an evidence-gathering raid on Wednesday at its headquarters. Asian stocks rose as Beijing’s move to approve a slew of new video games bolstered bets that the outlook is improving for the Chinese technology sector.  The MSCI Asia Pacific Index advanced as much as 1.1%, with Alibaba and Tencent providing the biggest boosts. Benchmarks in Hong Kong outperformed on the approvals news, while Japanese equities climbed as the yen continued to weaken. Stocks in India fell after the country’s central bank raised interest rates as expected while Thai shares inched up after the Bank of Thailand kept its benchmark rate unchanged.  China approved more games in a step toward normalization after a months-long freeze amid the government’s crackdowns on the tech sector. The news follows a report earlier this week that regulators are preparing to conclude an investigation of ride-hailing giant Didi. “We think the significant dangers have passed” in Chinese equities markets, said Eric Schiffer, chief executive officer at California-based private equity firm Patriarch Organization, which holds positions in Alibaba and JD. “The approval on the game titles signals that policymakers are following through on their intention to back off tech regulation and reverse the pain that caused investors to leave the sector."  Optimism toward a less-harsh regulatory environment and China’s post-Covid economic reopening has helped Hong Kong’s tech stocks outperform US peers recently. The Hang Seng Tech Index is up more than 17% the past month compared with little change in the Nasdaq 100. The rebound in Chinese equities also helped the MSCI Asia Pacific Index stage a bigger recovery than the S&P 500 in the same period. Japanese equities advanced for a fourth straight day, as the yen’s weakness provided support for the nation’s exporters.   The Topix rose 1.2% to 1,969.98 as of market close, while the Nikkei advanced 1% to 28,234.29. Toyota Motor Corp. contributed the most to the Topix gain, increasing 1.8%. Out of 2,170 shares in the index, 1,646 rose and 435 fell, while 89 were unchanged. Stocks in India declined as the Reserve Bank of India said it would withdraw pandemic-era accommodation to quell inflation after raising borrowing costs for a second straight month.  The S&P BSE Sensex dropped 0.4% to 54,893.84, as of 2:46 p.m. in Mumbai, while the NSE Nifty 50 Index fell 0.6%. Both gauges erased gains of as much as 0.8% reached during the central bank’s briefing and are heading for a fourth day of declines. Of 30 shares in the Sensex, 13 rose and 17 fell. Sustained high prices could unhinge inflationary expectations and trigger second-round effects, central bank Governor Shaktikanta Das said in an online briefing, emphasizing that preserving price stability is key to ensuring lasting economic growth. Reliance Industries was the biggest drag on the Sensex, while State Bank of India gave the biggest boost. All except two of BSE’s 19 sector sub-gauges declined, with telecom and energy groups the worst performers as realty and metals gained In FX, Yen weakness extends in European trade, with JPY hitting the weakest level since 2002 at 133.77/USD after BOJ’s Kuroda reiterated easing stance. The dollar strengthened against all its group-of-10 peers with the yen and Australian and New Zealand dollars as the worst performers. The euro fluctuated around the $1.07 handle while bunds and Italian bonds fell alongside Treasuries, paring some of Tuesday’s gains. Australian and New Zealand dollars both weakened amid greenback strength and falling US stock futures. Aussie further was weighed by local yields giving up Tuesday’s RBA-driven gains. In rates, Treasuries drifted lower, giving back a portion of Tuesday’s gains and following bigger losses for bunds, which underperformed ahead of Thursday’s ECB policy meeting.  Yields are cheaper by 2bp-3bp across the curve with front-end marginally outperforming, steepening 2s10s spread by ~1.5bp and building curve concession for the auction; bunds underperform by 1.5bp in 10-year sector.  Focal points of US session include 10-year auction, following soft results for Tuesday’s 3-year. $33b 10-year reopening at 1pm ET is second of this week’s three auctions; $19b 30-year reopening is ahead Thursday. WI 10-year yield ~3.015% is above auction stops since 2011 and ~7bp cheaper than May’s, which tailed by 1.4bp. JGBs little changed, with benchmark 10-year bonds trading again after no transactions on Tuesday. Peripheral spreads widen to Germany; Italy lags, widening ~3bps to core at the 10y points ahead of the ECB on Thursday. In commodities, WTI drifts 0.6% higher to trade at around $120. Most base metals are in the green; LME tin rises 2.8%, outperforming peers. Spot gold falls roughly $5 to trade at $1,848/oz. Looking at To the day ahead now, and it’s a fairly quiet one on the calendar, but data releases include German industrial production and Italian retail sales for April, as well as the UK construction PMI for May and the final reading of US wholesale inventories for April. Market Snapshot S&P 500 futures down 0.4% to 4,144.00 STOXX Europe 600 down 0.3% to 441.39 MXAP up 0.8% to 169.14 MXAPJ up 1.1% to 559.98 Nikkei up 1.0% to 28,234.29 Topix up 1.2% to 1,969.98 Hang Seng Index up 2.2% to 22,014.59 Shanghai Composite up 0.7% to 3,263.79 Sensex down 0.4% to 54,907.55 Australia S&P/ASX 200 up 0.4% to 7,121.10 Kospi little changed at 2,626.15 Brent Futures up 0.3% to $120.92/bbl Gold spot down 0.3% to $1,847.71 U.S. Dollar Index up 0.34% to 102.67 German 10Y yield little changed at 1.33% Euro down 0.2% to $1.0686 Top Overnight News from Bloomberg Boris Johnson plans to press ahead with legislation giving him the power to override parts of the Brexit deal, three people familiar with the matter said, a move likely to anger some of his MPs and the EU The yen’s historic weakness is spreading from the dollar into other currency crosses as the Bank of Japan’s policy isolation grows. Bloomberg’s Correlation-Weighted Currency Index for the yen -- a gauge of its relative strength against a broad basket of Group-of-10 peers -- slumped to a seven-year low Wednesday Japanese investors sold US Treasuries for the sixth consecutive month in April, underscoring waning appetite for the securities as the Federal Reserve sticks to its aggressive monetary tightening path Inflation in Hungary exceeded 10% for the first time in more than 20 years, putting pressure on the central bank to tighten monetary policy further and prop up the forint Australian inflation is likely to breach 6% and potentially could go “well above” that level and remain there for the rest of the year, Secretary to the Treasury Steven Kennedy said Wednesday Economists and investors criticized Australia’s central bank for confusing communications after it raised interest rates by twice as much as expected, having previously signaled a preference for quarter-point moves The RBI delivered a 50 basis-point rate hike as predicted by 17 of 41 economists in a Bloomberg survey A slew of China video game approvals is giving stock bulls renewed hope that a nascent rebound in tech shares could become a sustainable rally. The Hang Seng Tech Index jumped more than 4% Wednesday after the government approved 60 licenses A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mostly higher following the gains on Wall St and optimism of China easing its tech crackdown. ASX 200 recovered from the prior day’s RBA-induced selling with nearly all sectors in the green, although financials underperformed. Nikkei 225 extended further above the 28k level on currency weakness and with Q1 GDP data revised upwards to a narrower contraction. Hang Seng and Shanghai Comp. traded mixed with tech fuelling the gains in Hong Kong after China’s NPPA approved the publishing licences for 60 games this month, while sentiment in the mainland gradually soured despite support efforts as an official also warned that China's foreign trade stabilisation faces uncertainties and large pressure. Top Asian News China Vice Commerce Minister Wang said China's foreign trade stabilisation faces uncertainties and a large pressure from domestic and external factors. Furthermore, he sees global demand growth as low, while he added that China will accelerate export tax rebates and MOFCOM will assist foreign trade companies in securing orders, according to Reuters. Chinese Retail Passenger Car Sales (May) +30% M/M, according to PCA's Prelim data cited by Bloomberg. Japan's CDP has, as expected, submitted a no-confidence motion against the governing administration within the Lower House, motion will be put to a vote on June 9th, via Asahi; Asahi adds that the move is not expected to go anywhere European bourses have trimmed initial upside, Euro Stoxx 50 -0.2%, with macro newsflow limited and the initial strength primarily a continuation of APAC/Wall St. leads. In specifics, Credit Suisse (-5%) issued a Q2 profit warning for the group and its Investment Bank division while noted Retail name Inditex (+4%) provided a positive update. Stateside, futures are modestly pressured overall but well within overnight ranges ahead of a slim docket; ES -0.4%. DiDi (DIDI) is in advanced discussions to own a one-third stake of Sinomach Zhijun, a China state-backed EV maker, according to Reuters sources. Top European News Euro-Zone Economy Grew More Than Estimated at Start of Year Even the ECB’s Most Dire Forecast May Have Been Too Optimistic Euro Options Point to Most-Pivotal ECB Meeting Since 2019 Ireland Accuses Johnson of Acting in ‘Bad Faith’ on Brexit Deal Saudi Wealth Fund Makes Second $1 Billion Bet on Swedish Gaming Central banks RBI hiked the Repurchase Rate by 50bps to 4.90% (exp. 40bps hike) via unanimous decision and dropped mention of "staying accommodative", while RBI Governor Das noted that inflation has increased above upper tolerance levels and they remain focused on bringing down inflation. Das added they will control inflation without losing sight of growth and that further monetary policy measures are necessary to anchor inflation, as well as noted that upside risk to inflation had intensified and materialised sooner than expected. RBI Governor says they dropped the word "accommodative" from their stance, but they remain accommodative; liquidity withdrawal going forward will be calibrated and gradual. BoJ's Kuroda says rapid weakening of JPY as seen recently is undesirable; various macroeconomic models show that a weak JPY is positive. I It is important for FX to move stably, reflecting fundamentals. BoJ is expected to maintain its view that the domestic economy is picking up as a trend and will likely continue improving, according to Reuters sources. PBoC international department official Zhou said the PBoC will keep guiding financing costs lower, while the PBoC also announced that China will extend the trading hours of the interbank FX market, according to Reuters. FX Buck bounces as Yen rout continues after soft verbal intervention from BoJ Governor and Japanese Economy Minister; DXY back around 102.500 axis, USD.JPY climbs to circa 133.86 at one stage. More Lira depreciation on multiple negative factors including unconventional easing policy stance aimed at returning inflation to target, USD/TRY touches 17.1500. Aussie and Kiwi undermined by Greenback rebound and fade in general risk sentiment; AUD/USD loses 0.7200+ status again, NZD/USD sub-0.6450. Franc and Pound down, but Euro and Loonie resilient as former awaits ECB and latter leans on strong crude prices; USD/CHF just shy of 0.9790, Cable under 1.2550, EUR/USD probing 1.0700 and USD/CAD pivoting 1.2550. Forint and Zloty underpinned post-strong Hungarian CPI metrics and pre-NBP that is expected to hike 75bp; EUR/HUF & EUR/PLN around 389.60 and 4.5700 respectively. Fixed Income Bunds and Gilts pare some losses after testing round and half round number levels at 149.00 and 114.50 respectively, with added incentive after solid demand for 10 year German and UK supply. US Treasuries await 2032 issuance with caution given a lukewarm reception at 3 year auction. 10 year note just off base of 118-03/13 overnight range. Commodities WTI and Brent have been moving in-line with broader risk; however, following the UAE Minister the benchmarks have extended to the upside and post gains in excess of USD 1.50/bbl. US Energy Inventory Data (bbls): Crude +1.8mln (exp. -1.9mln), Cushing -1.8mln, Gasoline +1.8mln (exp. +1.1mln), Distillates +3.4mln (exp. +1.1mln) Brazilian government is considering measures to monitor fuel prices at distributors, according to Reuters sources. UAE Energy Minister says situation is not encouraging when it comes to the amounts of crude OPEC+ can bring to the market, via Reuters; Notes conformity with the OPEC+ deal is more than 200%, are risks when China is back, in talks with Germany and other nations to see if they are interested in UAE natgas. Spot gold is essentially unchanged, and continues to pivot its 10-DMA, while base metals are primarily tracking broader risk sentiment. US Event Calendar 07:00: June MBA Mortgage Applications -6.5%, prior -2.3% 10:00: April Wholesale Trade Sales MoM, prior 1.7% 10:00: April Wholesale Inventories MoM, est. 2.1%, prior 2.1% DB's Henry Allen concludes the overnight wrap A reminder that Jim’s annual default study was released yesterday. His view is that while nothing much will change for the remainder of 2022, we might be coming to the end of the ultra-low default world discussed in previous editions. First, there’ll likely be a cyclical US recession to address in 2023, and after that, a risk that various trends reverse that have made the last 20 years so subdued for defaults. See the report here for more details. It’s been another topsy-turvy session for markets over the last 24 hours as investors look forward to the big macro events later in the week, namely the ECB tomorrow and then the US CPI print the day after. Initially it had looked like we were set for another day of higher rates, not least after the hawkish surprise from the RBA we mentioned in yesterday’s edition as they hiked by a larger-than-expected 50bps. But more negative developments subsequently dampened the mood, including an unexpected contraction in German factory orders, and then an announcement by Target (-2.31%) that they were cutting their profit outlook for the second time in three weeks. But then sentiment turned once again later in the US session, with equities seeing a late rally that put the major indices back in positive territory for the day. Against that backdrop, equities swung between gains and losses, but the S&P 500 rallied to a broad-based gain after the European close, finishing the day +0.95% higher after being as much as -1% lower following the open, with only the consumer discretionary (-0.37%) sector finishing in the red after Target updated their guidance again to now expect Q2’s operating margin to be around 2% amid price reductions to reduce inventory. For the index as a whole, it was also the first back-to-back positive start the week since in a month, that’s also seen it recover all of last week’s declines. Energy (+3.14%) was the biggest outperformer in the S&P amidst a further rise in oil prices, with Brent Crude (+0.89%) moving back above the $120/bbl mark. However, Europe’s STOXX 600 (-0.28%) missed the late rally and eventually settled in negative territory. Whilst equities had a mixed session, sovereign bonds put in a more consistent performance ahead of tomorrow’s ECB decision, with decent gains posted on both sides of the Atlantic. Yields on 10yr Treasuries were down -6.6bps to 2.97%, moving back beneath 3% again, although this morning’s +2.8bps rise has taken them just back above that point to 3.001% at time of writing. Yesterday’s moves lower in yields were more pronounced at the long end of the curve, with the 2yr yield essentially flat as investors’ expectations of the near-term path of Fed rate hikes remained fairly steady. Indeed, the futures-implied rate by the December meeting was also down just -1.5bps to 2.84%. It was much the same story in Europe too of lower yields and flatter curves, as the amount of ECB tightening priced in for the rest of the year fell a modest -1.4bps from its high of 125bps the previous day. Yields on 10yr bunds (-2.9bps), OATs (-3.6bps) and gilts (-3.3bps) all fell back, and there was a noticeable decline in peripheral spreads thanks to even larger reductions in the Italian (-12.1bps) and Spanish (-7.4bps) 10yr yields. Interestingly, another trend over recent days that continued was the fall in European natural gas prices (-3.57%), which fell for a 5th consecutive session to hit its lowest level since Russia’s invasion of Ukraine, at €79.61/MWh. Those late gains for US equities have carried over into Asia overnight, with the Hang Seng (+1.70%) the Nikkei (+0.85%) both advancing strongly. The main exception to that has been in mainland China however, where the CSI 300 (-0.41%) and the Shanghai Composite (-0.70%) have just taken a tumble this morning. We’ve also seen that in US equity futures too, with those on the S&P 500 down -0.335 this morning. On the data side, the final estimate of Japan’s GDP for Q1 showed a smaller contraction than initially thought, with GDP only falling by an annualised -0.5%, which is half the -1% decline initially thought. However, the Japanese Yen has continued to weaken overnight, and is currently trading at a fresh 20-year low against the US Dollar of 133.13 per dollar. It’s also at a 7-year low against the Euro of 142.19 per euro. Here in the UK, Brexit could be back in the headlines shortly as it’s been reported by multiple outlets including Bloomberg that legislation will be introduced that would enable the UK government to override the Northern Ireland Protocol. That’s the part of the Brexit deal that avoids the need for a hard border between Northern Ireland and the Republic of Ireland, but has been a persistent source of tension between the two sides since the deal was signed, since it creates an economic border between Northern Ireland and Great Britain that Northern Irish unionists are opposed to. Irish PM Martin said yesterday that Europe would respond in a “calm and firm” way, and Bloomberg’s report suggested the draft bill could be presented to the House of Commons tomorrow. Looking at yesterday’s data releases, German factory orders for April unexpectedly saw a -2.7% contraction (vs. +0.4% expansion expected). That was the third consecutive monthly decline, and was driven by a -4.0% decline in foreign orders. On the other hand, the final PMIs from the UK for May were revised up relative to the flash readings, with the composite PMI at 53.1 (vs. flash 51.8), helping sterling to strengthen +0.48% against the US Dollar. Finally, the World Bank yesterday became the latest body to downgrade their global growth forecast, now projecting a +2.9% rise in GDP for 2022 compared to their 4.1% estimate put out in January, and openly warned about the risk of stagflation. To the day ahead now, and it’s a fairly quiet one on the calendar, but data releases include German industrial production and Italian retail sales for April, as well as the UK construction PMI for May and the final reading of US wholesale inventories for April. Tyler Durden Wed, 06/08/2022 - 08:09.....»»

Category: dealsSource: nytJun 8th, 2022

Futures Slide As Sell-The-Rippers Emerge, Encouraged By Target"s Dismal Update

Futures Slide As Sell-The-Rippers Emerge, Encouraged By Target's Dismal Update It was a relatively quiet session for stocks with futures trading modestly lower overnight as yields eased their Monday surge and when the biggest news was Australia's unexpected 50bps rate hike (double consensus) before all hell broke loose at 7am, when Target cut guidance for the second time in two weeks due to the infamous bullwhip effect we had warned about just a few weeks ago, sending TGT stock crashing more than 9% and encouraging the cold risk-off wind that pushed S&P futures 0.8% lower to session lows around 4,080... ... while Nasdaq 100 futures fell 1% as Treasury yields hovered around 3.05%, their highest in nearly a month. Europe's Stoxx Europe 600 Index slipped as telecom and technology stocks weighed. In the premarket, shares of Target tumbled as much as 10% after the retailer cut its profit outlook for the second time in three weeks amid an inventory surplus. The news sent retailers such as Walmart and Costco also sliding premarket; WMT was down as much as 4.3% ahead of the bell, COST -2.9%, Kroger -1.3%, Macy’s -3%. Among other notable movers, cryptocurrency-exposed stocks tumbled in premarket trading as Bitcoin slid back below $30,000. Meanwhile Kohl’s shares rose 12% in premarket trading as the company holds exclusive talks with Franchise Group regarding a deal that would value the retail chain at about $8 billion. Here are some other notable premarket movers: Cryptocurrency-exposed stocks decline in premarket trading as Bitcoin slides back below $30,000, with another attempt at upward momentum losing traction amid risk-off markets. Riot Blockchain (RIOT US) -5%, Marathon Digital (MARA US) -3.7%. Kohl’s (KSS US) shares jump 12% in US premarket trading as the company holds exclusive talks with Franchise Group regarding a deal that would value the retail chain at about $8 billion. Peloton’s (PTON US) shares rose 1.4% in US after-hours trading on Monday. Former vice president of Amazon Web Services Liz Coddingtonis “well-positioned” to help Peloton in its next stage of growing subscribers, Citi says, after the exercise machine maker appointed Coddington CFO. Gitlab (GTLB US) shares rose 9.8% in postmarket trading on Monday after the software company’s first-quarter report. HealthEquity (HQY US) shares climbed 5.8% in postmarket Monday. It boosted its revenue guidance for the full year as its results beat the average analyst estimate in what RBC analyst Sean Dodgesaid could be the start of a years-long upside driven by rising interest rates. ProFrac (PFHC US) shares could be active after analysts initiated coverage of oil services firm with three overweight ratings and one buy, with both Piper Sandler and Morgan Stanley positive on the company’s valuation and vertical business model. Veru Inc. (VERU US) gained 2.8% in postmarket trading after Tang Capital Partners LPdisclosed a 5.2% passive stake in the firm. On Monday, investors once again sold the rip, showing their reluctance to take on risk amid fears policy to subdue inflation will go overboard and kill off economic recoveries, rather than cooling off price pressures in a so-called soft landing. “This debate around ‘are we going to see a recession, are we going to see a soft landing?’ -- that’s really keeping markets relatively range bound,” Laura Cooper, a senior investment strategist at BlackRock Inc., said in an interview with Bloomberg TV. “We likely need to see a dovish pivot from policymakers to really have conviction that we’re going to a sustained rally in equities." Rising bond yields are adding to worries about risks to economic growth as central banks ratchet up policy tightening. US benchmark Treasury yields stabilized near 3%, a psychological threshold that may burden new supply due this week before crucial inflation data. “The combo of declining growth, rising rates and falling liquidity is pretty ugly for equities,” said James Athey, investment director at abrdn. “Reluctant as investors in those market are to admit, the outlook for multiples and earnings isn’t great and is probably getting worse.” Meanwhile, Friday's CPI reading for May will be crucial for clues on the Federal Reserve’s pace of monetary tightening, especially the clothing and apparel component where we expect prices to plunge amid the inventory liquidation. Strong hiring data last week already cleared the way for the central bank to remain aggressive in its fight against inflation by raising interest rates. Higher rates particularly hurt growth sectors that are valued on future profits, like tech.  In Europe, the benchmark Stoxx 600 Index also resumed losses on Tuesday led by drops of more than 1% in technology and travel shares. European equities traded poorly with several indexes giving back over half of Monday’s gains. Euro Stoxx 50 drops as much as 0.8%, cash DAX underperforming at the margin. Tech, retail and telecoms are the weakest Stoxx 600 sectors. FTSE 100 trades flat.  The European Central Bank on Thursday is set to end trillions of euros of asset purchases and cement a path to exiting eight years of negative interest rates. Earlier in the session, Asian stocks declined with chipmakers coming under pressure as traders reassessed the outlook for demand, offsetting Japan’s boost from a weak yen. The MSCI Asia Pacific Index dropped as much as 1.2%, with TSMC and Samsung Electronics the biggest drags. Most sectors traded lower, while some Chinese internet giants and Japanese automakers were among the notable gainers. Tech hardware stocks fell as worries about demand for handsets and other gadgets outweighed hopes for a recovery in China on the easing of Covid lockdowns. South Korean equities dropped as the market reopened after a holiday, while shares in Australia slumped after the Reserve Bank of Australia blindsided the market with an outsized hike to combat rising costs. The RBA responded to price pressures with its biggest rate increase in 22 years -- predicted by just three of 29 economists -- and indicated it remained committed to “doing what is necessary” to rein in inflationary pressures. There are persistent worries about demand for semiconductors as the market consensus is that a demand slowdown for handsets and other consumer electronics is highly likely,” said Lee Jinwoo, chief strategist at Meritz Securities in Seoul. Most Chinese tech stocks finished lower in volatile trading after climbing Monday following a report that regulators are concluding their investigation of transport firm Didi. Japanese shares rose as the yen weakened to its lowest level in two decades, boosting exporters such as Toyota and Honda. Read: Yen Slides to Two-Decade Low, Reigniting Focus on Intervention Asian stocks are down in June after posting their first monthly gain in five months in May. Traders will be assessing the inflation and growth outlook ahead of the Federal Reserve’s meeting next week while monitoring the state of Covid restrictions in China.  “Stock market valuations have de-rated quite significantly and from our perspective, there is a lot of the bad news largely in the price. Possibly there’s more to go,” Chetan Seth, Asia Pacific equity strategist at Nomura Holdings said at a conference in Singapore In FX, Bloomberg dollar spot rises as much as 0.4% and the dollar was steady or higher against all of its Group-of-10 peers; NOK is the weakest G-10 performer. JPY softness extends, briefly trading at 133/USD. The yen extended its slump to a fresh 20- year low near 132.60/USD as BOJ’s Kuroda continued to emphasize persistent easing commitment. Senior Japanese government officials said they were closely watching currency markets with a sense of urgency Tuesday as they returned to a heightened state of alert following a renewed slide in the yen to fresh two-decade lows. The dollar’s steep rally to the 133 handle versus the yen and the Australian central bank’s biggest rate hike in 22 years make the case for long-volatility exposure in the major currencies and traders follow suit. The pound fell to an almost three-week low versus the greenback before paring losses to trade around $1.25. The gilt yield curve bull flattened. The euro was little changed, trading around $1.07. Bunds and European bonds reversed opening losses even as wagers earlier crossed half the way toward calling a historic half-point. In rates, treasuries swung from losses to gains, sending yields as much as 3bps lower as the yield curve flattened. Treasury futures rose led led by the long-end amid weakness in European stocks and S&P 500 futures.Bloomberg notes that gains were helped by block trade in 10-year note futures as cash yield eases back toward 3%. US yields were richer by nearly 3bp across long-end of the curve, flattening 2s10s, 5s30s by ~1bp; 10-year, down ~2bp to 3.02%, outperforms bunds slightly, while gilt is little changed. German bunds outperform, richening ~3bps from the 5y point out, gilts are relatively quiet. Peripheral spreads are slightly tighter to core, semi-core widens a touch. Australian bond yields soared and the Aussie briefly reversed a loss after the central bank surprised investors by raising its cash rate by 50 basis points -- the biggest increase in 22 years -- to 0.85%, a result predicted by just three of 29 economists. It also committed itself to “doing what is necessary” to rein in inflationary pressures. In commodities, crude futures drift higher with WTI near $120 and Brent back around $122. Spot gold adds ~$6 to near $1,847/oz. Base metals are in the red with LME nickel down over 3%. Bitcoin is pressured and back below the USD 30k mark and incrementally below last week's trough of USD 29.04k. Looking to the day ahead now, and data releases include German factory orders for April, the final UK services and composite PMI for May, as well as the US trade balance and consumer credit for April. Otherwise central bank speakers include the ECB’s Wunsch. Market Snapshot S&P 500 futures down 0.4% to 4,106.00 STOXX Europe 600 down 0.4% to 442.31 MXAP down 0.9% to 167.50 MXAPJ down 1.1% to 552.94 Nikkei up 0.1% to 27,943.95 Topix up 0.4% to 1,947.03 Hang Seng Index down 0.6% to 21,531.67 Shanghai Composite up 0.2% to 3,241.76 Sensex down 1.2% to 55,018.56 Australia S&P/ASX 200 down 1.5% to 7,095.74 Kospi down 1.7% to 2,626.34 Brent Futures up 0.3% to $119.88/bbl Gold spot up 0.1% to $1,843.79 U.S. Dollar Index up 0.10% to 102.54 German 10Y yield little changed at 1.30% Euro little changed at $1.0694 Top Overnight News The ECB will begin a new era of monetary policy this week as officials complete their pivot to confront the threat of inflation running out of control. Armed with new forecasts and with prices rising at a record pace, President Christine Lagarde and her colleagues will end trillions of euros of asset purchases and cement a path to exiting eight years of negative interest rates The yen has tumbled to a two-decade low against the dollar, caught in the crossfire between the two wildly different monetary policy regimes in Japan and the US. The Bank of Japan is pinning interest rates to zero in a bid to boost a sputtering economy and spur price growth, while the Federal Reserve is hiking furiously to beat back raging inflation Investors from Tokyo to New York are betting on further weakness in Japan’s currency, which is already wallowing at a two-decade low against the greenback Bank of Japan Governor Haruhiko Kuroda walked back some of his comments that consumers are now more willing to accept higher prices after criticism on social media and a grilling in parliament A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded cautiously amid recent upside in yields and ahead of upcoming risk events. ASX 200 declined with losses exacerbated after the RBA delivered a larger-than-expected rate hike. Nikkei 225 swung between gains and losses although a weak JPY boosted the index above 28k. Hang Seng and Shanghai Comp. were varied as the mainland was kept afloat by reopening optimism and with Hong Kong subdued by property names, although tech benefitted from hopes Beijing may be easing its crackdown on the sector with China reportedly to conclude the cybersecurity probe into certain companies. Top Asian News China's Tianjin city reopened all subway stations that were closed due to COVID, while Shanghai Port's daily volume rose to 95% of the normal level, according to local press. Labor Advisory Committee urged US President Biden to extend China tariffs, according to Axios. Japan set up a team to monitor land sales near bases and nuclear plants or on strategically located islands under a new law designed to prevent hostile foreigners from affecting national security, according to Nikkei. RBA hiked rates by 50bps to 0.85% (exp. 25bps increase) and said inflation in Australia has increased significantly, while it is committed to doing what is necessary to ensure that inflation in Australia returns to the target over time. RBA added that inflation is likely to be higher than was expected a month ago and the Board expects to take further steps in normalising monetary conditions over the months ahead with the size and timing of future interest rate increases to be guided by the incoming data and the assessment of the outlook for inflation and the labour market. Furthermore, it noted the Australian Economy is resilient although one source of uncertainty about the economic outlook is how household spending evolves, given the increasing pressure on Australian households' budgets from higher inflation. Japan's Economy Minister Yamagiwa says they are closely watching any impact of FX movements on the economy, wants to refrain from commenting on FX levels, via Reuters. European bourses are modestly pressured, Euro Stoxx 50 -0.9% , with newsflow relatively limited once more and participants looking ahead to the week's risks events. Stateside, performance is in-fitting with this directionally, though marginally more contained in terms of magnitudes, with a limited US docket ahead; ES -0.5%. EU lawmakers have come to an agreement on a single mobile charging point, via Reuters; will be USB-C by fall-2024. Top European News UK PM Johnson won the confidence vote, as expected, with total votes at 211 vs 148, according to Reuters. However, the Telegraph highlights that Johnson is not "out of the woods yet" given that he has lost the support of so many backbenchers. UK PM Johnson said he is grateful for colleagues' support and that they need to come together as a party now. PM Johnson added that they can now focus on what they are doing to help people in the country and have a chance to continue strengthening the economy, while he responded that is certainly not interested when asked about a snap election, according to Reuters. Subsequently, the 1922 Committee is, according to the understanding of UK MP Ellwood, looking at altering party rules to allow another no-confidence vote within a one-year period, via Sky's Degenhardt. Barclaycard UK May consumer spending rose 9.3% Y/Y, which reflected the rising cost of living and base effects, according to Reuters. FX Dollar takes time out after rallying further on yield factors and frailty of others, DXY midway between 102.830-450 range. Yen continues to underperform on rate and relative BoJ policy dynamics, with Franc also feeling the heat from SNB vs Fed, ECB etc policy divergence; USD/JPY touches 133.00 before easing back, USD/CHF tops 0.9675 and EUR/CHF crosses 1.0400. Kiwi hit by abrupt turnaround in AUD/NZD tide after RBA exceeded market expectations with a 50bp hike compounded by hawkish guidance; NZD/USD sub-0.6500 around 0.6450, AUD/NZD above 1.1100 and AUD/USD within sight of 0.7200. Sterling volatile after PM Johnson wins confidence vote, but significant minority of Conservative Party want him out; Cable choppy either side of 1.2500 and EUR/GBP whipsaws around 0.8550. Loonie softer with oil ahead of Canadian trade data and Ivey PMIs, USD/CAD near 1.2600 after probe beyond round number. Lira continues to slide after Turkish President Erdogan repeats intention to keep cutting rates irrespective of ongoing rise in inflation, USD/TRY tests 14.7500. Fixed Income Firm bounce in bonds following extension of bear run to new cycle lows. Bunds lead the way in core debt circles with a near full point recovery to 149.80, while BTPs remain to the fore at the margins between 121.27-122.86 bounds. Gilts flat after falling short of 115.00 before solid 2025 DMO auction, T-note a tad firmer and curve flatter for choice ahead of 3 year sale. Commodities Crude benchmarks have waned from initial upside stemming from bullish bank commentary amid a broader easing in risk sentiment. Thus far, WTI and Brent have been as low as USD 117.76/bbl and USD 118.62/bbl respectively, circa. USD 2.00/bbl from initial highs. Goldman Sachs hiked its Q3 Brent oil forecast to USD 140/bbl from USD 125/bbl and increased its Q4 forecast to USD 130/bbl from USD 125/bbl. Morgan Stanley's base case view is for Brent to reach USD 130/bbl during Q3 with an upside to the bull case estimate of USD 150/bbl. Spot gold languished near the prior day's lows amid a firmer greenback. JPMorgan continues to see gold trading softer towards USD 1,800/oz in Q3 2022 on an expected rebound in investor risk sentiment and continued push higher in US yields. Spot gold is firmer but capped by USD 1850/oz, which now coincides with its 10-DMA, after losing the level late on Monday; base metals are generally pressured, amid risk aversion and following yesterday's price action. US Event Calendar 8:30am: Revisions: Trade Balance 8:30am: April Trade Balance, est. -$89.5b, prior -$109.8b 3pm: April Consumer Credit, est. $35b, prior $52.4b DB's Jim Reid concludes the overnight wrap Yesterday I published the 24th Annual Default Study. While nothing much will change for the remainder of 2022, we think we might be coming to the end of the ultra-low default world we’ve discussed so much in previous editions. First, we will likely have a cyclical US recession to address in 2023, and after that, a risk of the reversal of trends that have made the last 20 years so subdued for defaults. We see US HY defaults peaking at just over 10% in 2024 with Europe just under 7% helped by a higher BB weighting. After that we see many of the trends of the last couple of decades reversing, helping to leave the ultra-low default era behind. You can read all about this in the note but these factors include: higher structural inflation, less ability for central banks to be as aggressive across all fixed income - they will be forced to pick their battles (eg Peripherals), less global FX reserve accumulation, a turn up in the free float of global government bonds, higher term premium, a structural fall from peak corporate profits, and shorter gaps between recessions. None of this need be a disaster just a change in the long-term trend. Clearly our view relies a lot on inflation being sticky and helping set off a 2023 recession and then remaining sticky after this, and thus changing the landscape of the last 20 years. If we’re wrong on both, the ultra-low default world will survive. See the report here. The biggest story yesterday was a surge in yields but before we get there, a big curiousity to those of us in the UK, albeit with very limited implications for global markets, was the confidence vote last night for Prime Minister Boris Johnson from within his own party. That came after the threshold of 15% of his own MPs called for a vote, and the final result saw him win by just 211-148, meaning that 41% of his own party’s MPs voted against him. For reference, that’s more than the 37% of MPs who voted against his predecessor Theresa May in a similar vote in December 2018, and it was only 5 months later that she announced her resignation after failing to deliver Brexit and witnessing a dramatic turn in the Conservatives’ poll ratings. The next big hurdle for Johnson will likely be two by-elections on June 23rd, one of which is in a “Red Wall” seat that the Conservatives gained off Labour for the first time in decades to win their majority at the last election, whilst the other is in a traditionally safe Devon seat for the Conservatives but where the bookmakers have the Liberal Democrats as the favourite to win. So bad showings in those two would keep questions about Johnson’s leadership in the headlines and further intensify the pressure on him. In theory the Conservative leadership rules give him another year before a repeat confidence vote can happen, but history tells us that once this process gets set in motion it is incredibly difficult to reverse the negative momentum, and both Theresa May and Margaret Thatcher resigned well within a year even though they also won a majority of their own MPs at the confidence vote. Sterling actually climbed around +0.5% in the morning as the vote was officially triggered before giving back half these gains as the day progressed. However even after the surprise result at 9pm last night Sterling didn't move, and this morning it’s just -0.09% lower, trading at 1.252 against the US dollar. Back to the main event, which was the global rates sell-off, where 10yr Treasury yields poked back up above 3% for the first time in nearly a month, whilst European yields hit fresh multi-year highs of their own ahead of this Thursday’s ECB meeting. There’ve been a couple of catalysts behind those moves higher, but a key one over the last week and a half has been the perception that near-term recession risks (at least in 2022) are fading back again, which in turn is set to give central banks the space to continue hiking rates and thus take bond yields higher. On top of that, the fact that recent inflation data has proven stickier than expected has also pushed yields higher, and investors are eagerly awaiting to see if we get another upside surprise from the US CPI reading out on Friday. All-in-all, those moves sent the 10yr Treasury yield up by +10.3bps yesterday to 3.04%, with a rise in real yields of +8.3bps behind the bulk of the move. That came as investors dialled back up their bets on Fed tightening over the rest of the year, with the implied rate by the December FOMC meeting at a 1-month high of 2.85%, whilst the rate priced in by the Feb-2023 meeting went back above 3% for the first time in a month as well. But it was in Europe where there were even more significant milestones, with the amount of ECB rate hikes priced in by December exceeding 125bps for the first time, meaning that markets are fully pricing in at least one 50bp hike by year-end, assuming the ECB begins liftoff at the July meeting. That prospect of a 50bp hike from the ECB sent yields on 10yr bunds up +4.9bps to 1.32%, which is their highest level since mid-2014, whilst the German 2yr yield (+3.0bps) hit its highest level since 2011. It was a similar picture elsewhere on the continent, with yields on 10yr OATs (+4.1bps) at a post-2014 high, and those on 10yr BTPs (+1.3bps) at a post-2018 high. Gilts underperformed however, with 10yr yields up +9.2bps as investors moved to price in at least one 50bp hike from the BoE by year-end. Those moves have gained further momentum overnight after the Reserve Bank of Australia hiked rates by a larger-than-expected 50bps, helping 10yr Treasury yields to rise a further +1.9bps this morning to hit 3.06%. Their statement also pointed to further tightening ahead, and said that they expect “to take further steps in the process of normalizing monetary conditions in Australia over the months ahead”, and that they were “committed to doing what is necessary to ensure that inflation in Australia returns to target over time.” Unsurprisingly, the Australian dollar is also the top-performing G10 currency this morning, up +0.50% against the US Dollar. The strong rise in bond yields wasn’t enough to stop equities from posting a decent start to the week, although they did pare back their initial gains following the US open. By the close, the S&P 500 (+0.31%) had held onto a broad-based advance, with 8 of 11 sectors advancing, even after paring back gains as high as +1.5% in the morning. Tech stocks fared slightly better than the broader index, with the NASDAQ gaining +0.40%. The clearest split was between mega- and small-cap shares, as mega-cap shares were clear outperformers as the FANG+ Index ended the day +1.68% higher while the small-cap Russell 2000 (+0.36%) lagged behind. It was much the same story in Europe too, where the STOXX 600 (+0.92%), the DAX (+1.34%) and the CAC 40 (+0.98%) all moved higher as well. Whilst equities were making further gains, there wasn’t much respite on the inflation side since commodities continued their advance, with Bloomberg’s Commodity Spot Index (+1.86%) hitting a fresh record on the back of the latest moves. Admittedly, Brent Crude (-0.18%) and WTI (-0.31%) oil prices fell back slightly, and we also saw European natural gas prices (-1.75%) fall to their lowest levels since Russia’s invasion of Ukraine began. But US natural gas prices surged another +8.37% to a fresh post-2008 high, whilst agricultural goods also saw some serious movements, with futures on corn (+2.13%), wheat (+5.10%) and sugar (+1.40%) all rising on the day. This morning we’ve seen even further momentum behind commodity prices, with Brent crude moving back above the $120/bbl mark thanks to a +0.69% gain. Overnight in Asia, equity markets have put in a pretty mixed performance as they grappled with that monetary tightening mentioned above. The Nikkei (+0.51%), the CSI 300 (+0.65%) and the Shanghai Comp (+0.48%) have all moved higher, but the Hang Seng (-0.12%) has posted a marginal decline and the Kospi (-1.37%) has lost significant ground. Meanwhile in Australia, the S&P/ASX 200 has deepened its loses since the RBA’s hawkish decision, and is currently down -1.63%, whilst futures in the US are also pointing lower, with those on the S&P 500 down -0.59% this morning. On the FX side, we’ve also seen the Japanese Yen fall to a 20-year low against the US Dollar of 131.88 by the close yesterday, and this morning it’s lost further ground to hit 132.86. That comes as the BoJ stands out among its global peers in not tightening policy, which is leading to a widening interest rate differential as other central banks continue hiking. Finally we started on credit so let's end there too before the day ahead preview. Our colleagues in the European Leveraged Finance Research team have just published their quarterly top trade ideas. You can find the report here. To the day ahead now, and data releases include German factory orders for April, the final UK services and composite PMI for May, as well as the US trade balance and consumer credit for April. Otherwise central bank speakers include the ECB’s Wunsch. Tyler Durden Tue, 06/07/2022 - 08:03.....»»

Category: blogSource: zerohedgeJun 7th, 2022