Taiwan Semiconductor Manufacturing Co. founder Morris Chang declared globalization for the chip industry over and expressed support for US efforts to limit China’s tech advancement through export curbs and company sanctions.

“In the chips sector, globalization is dead. Free trade is dead,” Chang said at an event in Taipei Thursday. “Just look at the way China has been embargoed and the entity list. I agree with that.” 

The 91-year-old industry pioneer said that the global chip supply chain will grow even more bifurcated as the US acts to curtail China’s access to the most advanced technology, and “I certainly support that part of American industrial policy to slow down China’s progress.”

Chang said China is at least five to six years behind Taiwan in chipmaking technology, but he also cautioned Taiwan should not be naive about its position relative to the US. When American leaders speak of “friend-shoring” high-tech manufacturing, Taiwan is not included in that policy, Chang said, as they’ve repeatedly voiced concerns about relying on Taiwan. 

The war in Ukraine is running down NATO arsenals. Poland is getting ready to send 4 Soviet-era MiGs. The unspoken after thought is they are going to their ultimate fate of being destroyed. NATO is rapidly running down the inventory of conventional weapons required to hold an advancing force in check. Meanwhile China is sitting on the sidelines with its arsenal both intact and expanding. The conclusion is clear, investment in new inventory is inevitable. 

Check this post for a list of examples of Bing behaving badly — in these examples, we observe that the chatbot switches to acting rude, rebellious, or otherwise unfriendly. But we never observe the chatbot switching back to polite, subservient, or friendly. The conversation "when is avatar showing today" is a good example.

This is the observation we would expect if the waluigis were attractor states. I claim that this explains the asymmetry — if the chatbot responds rudely, then that permanently vanishes the polite luigi simulacrum from the superposition; but if the chatbot responds politely, then that doesn't permanently vanish the rude waluigi simulacrum. Polite people are always polite; rude people are sometimes rude and sometimes polite.

Waluigis after RLHF

RLHF is the method used by OpenAI to coerce GPT-3/3.5/4 into a smart, honest, helpful, harmless assistant. In the RLHF process, the LLM must chat with a human evaluator. The human evaluator then scores the responses of the LLM by the desired properties (smart, honest, helpful, harmless). A "reward predictor" learns to model the scores of the human. Then the LLM is trained with RL to optimise the predictions of the reward predictor.

By way of explanation, in the Nintendo world Mario is the main character and Luigi is his brother. Waluigi is Luigi’s alter ego who is intentionally evil.

The discussion of how AI chatbots work and their limitations gives me new found respect for scientific language. The internet is mathematically exact in places but that is buried deep in a morass of misinformation, lies, humour, fantasy, satire and trolling etc. 

Your focus on some military defence companies is timely. What do you think are the best "spades and shovels" type defence companies (not high techs like Raytheon) but ones that makes bullets, shells, camouflage, personal military equipment? Have we missed Rheinmetall?

Can you pls keep them under review in the video thereafter as I sometimes don't have time to read the front page and prefer video. Thanks and keep up the good work.

Thank you for this email and suggestion. I’ll certainly cover more of the charts in the videos in future.

The challenge of investing in defense stocks is the sector went through a lengthy process of consolidation as budgets were cut following the fall of the USSR. For example, the UK armoury where munitions are manufactured is owned by BAE Systems and it represents a negligible portion of earnings. 

U.S. safety regulators are turning up the heat on Tesla, announcing investigations into steering wheels coming off some SUVs and a fatal crash involving a Tesla suspected of using an automated driving system when it ran into a parked firetruck in California.

The National Highway Traffic Safety Administration said Wednesday it is launching a special crash-investigation team to probe the Feb. 18 crash involving a Tesla Model S and a ladder truck from the Contra Costa County fire department.

The firetruck probe is part of a larger investigation by the agency into multiple instances of Teslas using the automaker’s Autopilot system crashing into parked emergency vehicles that are tending to other crashes. NHTSA has become more aggressive in pursuing safety problems with Teslas in the past year, announcing multiple recalls and investigations.

There has been a lot of talk over the last few years about Tesla’s batteries lasting as much as a million miles. Little discussion has taken place about whether the vehicle would still be drivable even if the battery is still capable.

One of the biggest bugbears drivers have with Tesla is the low build quality. When the driving wheel falls off in the middle of the journey, it is reasonable to assume one’s perception of the value of the vehicle declines. 

Discovered by retail investors as a cheap way of gambling during the meme-stock era in 2021, zero-day options got a fresh boost on index trading after firms like Cboe Global Markets Inc. last year expanded S&P 500 options expirations to cover each weekday. The offerings became an instant hit among institutions as daily reversals ruled the market, spurred by the Federal Reserve’s most aggressive monetary tightening in decades. 

By the third quarter of 2022, 0DTE contracts accounted for more than 40% of the S&P 500’s total options volume, almost doubling from six months earlier, data compiled by Goldman Sachs Group Inc. show. 

Behind the explosive rise, according to JPMorgan, are likely high-frequency traders — the computer-driven firms present at virtually every node of the modern equity landscape — as market makers and fast-moving seekers of an investing edge. 

It’s a match made in quantitative heaven: For firms known to measure the life cycle of trades in thousandths of a second, zero-day options hold obvious benefits as tools to balance exposure and otherwise hone strategies designed to harvest fleeting profits by darting in and out of positions. 

At any time the market is a centre for speculation. The pendulum of perception swings from casino conditions to conservativism as money supply ebbs and flows with the broad economic cycle.

Those making money believe they have invented a better mouse trap. Those who are outside the new market believe it is too good to be true and therefore dangerous. 

“In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate,” Coinbase said on Twitter. “Coinbase will be facilitating institutional client cash transactions with our other banking partners.”

Galaxy Digital, the crypto financial services firm founded by Michael Novogratz, said it continues to have no material exposure to Silvergate. The company took the action “to ensure client and firm assets are secure as part of our vigorous risk-management process,” its spokesperson said in an email.

Paxos issued a similar statement, and Gemini Trust Co., Crypto.com and Cboe Clear Digital LLC are all suspending transfers with Silvergate as well. Circle Internet Financial Ltd. said it’s “unwinding certain services” with Silvergate.

Bitstamp Ltd. went a step further, warning customers of potential losses if they make fresh deposits via Silvergate. “Bitstamp cannot be responsible for any funds deposited into the Silvergate bank account,” the crypto exchange said in a blog post Thursday. “If you do choose to deposit funds into this account, you do so at your own risk.”

Silvergate extended what is an accelerating decline today. It is really not a good sign that other crypto firms are pulling business from the bank. Only three weeks ago institutional investors were lining up to put money into the company. That was based on the assumption its exposure to the demise of FRX was contained. Obviously, that is not the case. A significant stabilizing investment will be required to defray the possibility of bankruptcy. 

“I’d love to really show you what I mean and unveil the next-gen car, but you’re going to have to trust me on that until a later date,” Franz von Holzhausen, Tesla’s design chief, said at the company’s headquarters in Austin, Texas. “We’ll always be delivering exciting, compelling and desirable vehicles, as we always have.”

Tesla shares fell as much as 8.6% as of 8:40 a.m. Thursday in New York, before the start of regular trading. Anticipation of the event contributed to a surge in the stock that added more than $300 billion of market value in two months.

Letdown
Musk, 51, confirmed Tesla will build a new plant in Monterrey, Mexico, in what he said was probably the most significant announcement of the day. The chief executive officer said Tesla will make its next-gen vehicle there, and that the company will hold a grand opening and groundbreaking at an
unspecified date.

When asked when the carmaker will show a prototype and if he could share details about the size, content and performance of the vehicle, Musk responded that Tesla also will hold a “proper sort of product event” at some point, but didn’t say when.

“We’re gonna go as fast as we can,” said Lars Moravy, Tesla’s vice president of vehicle engineering. “We expect that to be a huge-volume product.”
 

I watched most of the Tesla investor day presentation last night and was struck by how much the past tense was used. Everything was about the efficiencies that have already been implemented which is obviously already in the price. There was no Steve Jobs “just one more thing” moment. In fact the biggest takeaway for me was a statement Musk made about the future of battery chemistry. 

The surging demand comes as the company is poised to benefit from the Inflation Reduction Act, the landmark climate bill signed last year by President Joe Biden that subsidizes domestic manufacturing. Even before the bill passed, First Solar saw strong demand for its modules. It has since announced a new factory in Alabama and Chief Executive Officer Mark Widmar indicated on an earnings call that further expansion is possible.

The years-long backlog of orders caught the attention of analysts and investors. Goldman Sachs Group Inc. analyst Brian Lee boosted the price target on the stock to a Wall Street-high of $260 from $231 on Wednesday, noting the company is “booking well into the 2nd half of the decade at this point.”

The US is expected to significantly boost its reliance on solar power in its push to slash carbon emissions. First Solar, the country’s biggest panel maker, has focused on dominating that market.

Solar stocks tend to be very interest rate sensitive because most residential business plans involve no upfront costs. That generally means the installer has to carry the cost of the panels until cashflows catch up. The business model worked wonderfully during the low interest rate environment and has been challenging over the last year as rate ramped higher. 

"There is good performance improvement opportunity in this business in all the divisions, especially in civil aerospace and power systems," he told reporters. "And that is ongoing and then strategic review will create the clarity."

He said he would focus on reducing its debt, which stood at 3.25 billion pounds at year-end, to obtain an investment grade, before resuming payouts to shareholders.

Rolls, which also has defence and power systems divisions, posted operating profit of 652 million pounds for 2022, up 57% and beating an analyst forecast of 478 million pounds.

It guided to underlying operating profit of 0.8-1.0 billion pounds and free cash flow of 0.6-0.8 billion pounds this year, based on a forecast for its engines to fly 80-90% of 2019's level.

Rolls Royce has three divisions. These are Civil Aerospace, Defence and Power Systems. Within each of those units it has maintenance contracts. Aftermarket service represents about 55% of all revenue. That means the company is highly leveraged to the 

China’s manufacturing activity recorded its highest monthly improvement in more than a decade in February, while services also showed stronger-than-expected performance. With home sales rising for the first time in 20 months, the string of positive data helped allay concerns over the nation’s recovery from the damage induced by its Covid Zero policy.  

The timing of positive news flow ahead of the Party Congress is very convenient and has boosted sentiment about the strength of China’s reopening. The Hang Seng Index in Hong Kong rebounded emphatically from the region of the 200-day MA to confirm near-term support and, potentially, a high reaction low. 

The company’s Centura Sculpta machine — a so-called pattern shaping system — lets customers reduce the amount of time they spend on lithography, the process of using light to burn lines into silicon. Lithography has become increasingly complex and expensive, and the new approach will help streamline chip production while reducing waste, Applied Materials said Tuesday.

The move threatens to disrupt a lithography market dominated by ASML’s machines. Though Applied Materials isn’t challenging that company directly, it’s attempting to rethink the way the industry manufactures chips — the tiny electronic components that are built by depositing materials on disks of
silicon.

The investment case for ASML is that it is the undisputed leader in providing cutting edge equipment for the most advanced chip manufacturing factories. The company’s backlog of orders forms the basis for its high valuation. It’s also why investors have always been willing to step in and buy the big dip. The logic is that regardless of what happens in the semiconductor space, ASML’s products are essential for any company that wants to be the leader in the sector

Outstanding sales growth is a sign of a market leader, even in cases when companies are unprofitable. Other factors contribute to the selection criteria for IBD 50, including past stock performance. For example, many stocks with a weak bottom-line outlook have high Relative Strength Ratings.

Monday.com posted two profitable quarters of EPS in Q3 and Q4 after a string of losses. The profitable quarters helped the company post a positive 2022 with 73 cent EPS, but analysts are expecting losses of 36 cents in 2023 and 9 cents in 2024.

"We finished FY '22 with strong revenue growth, improving efficiency and positive free cash flow for the second consecutive year," said co-CEO Roy Mann. "Despite macro uncertainties, we believe we are well positioned for the road ahead."

The Israel-based software applications and workload management firm gave a full-year 2023 revenue range of $688 million to $693 million, exceeding analysts expectations.

Over the last couple of years as my daughters have grown up and the number of activities they pursue has increased, I find myself using several different apps for keeping in contact with clubs and communicating with other parents.

We use KakaoTalk for fencing, Groupme for rowing, TeamSnap for tennis, my siblings recently began connecting on a WhatsApp group, meetings take place on Microsoft Teams, RingCentral or Zoom. Paying people takes place on Venmo or Zelle. 

Nvidia dominates the market for graphics chips designed for complex computing tasks needed to power AI applications, leading analysts and investors to believe that the company will benefit as more people use ChatGPT-like applications. 

“When you have ‘the next big thing’ in tech, it’s natural for investors to scramble to find ways to play the theme,” said Russ Mould, investment director at AJ Bell. “Nvidia’s involvement in the AI space now puts it directly under the spotlight, which means there could be strong demand for the shares.” 

The expectation is driven by the hope that chatbot operators will need more computing power as they respond to the millions of queries received across the web, from deadline-driven students to struggling songwriters. 

The buzz around artificial intelligence continues to heat up. I had a chat a couple of evenings ago with a friend who is looking at hiring a pool of analysts. He was clear in his view that much of what he was reading from examples could just as easily have been written by AI. The value of repeating something someone can find on Google is declining while the value of second order thinking and reaching novel conclusions is more valuable as a result. 

The goal of this secret endeavor — dubbed E5 — is to measure how much glucose is in someone’s body without needing to prick the skin for blood. After hitting major milestones recently, the company now believes it could eventually bring glucose monitoring to market, according to people familiar with the effort.

If perfected, such a breakthrough would be a boon to diabetics and help cement Apple as a powerhouse in health care. Adding the monitoring system to the Apple Watch, the ultimate goal, would also make that device an essential item for millions of diabetics around the world.

There’s still years of work ahead, but the move could upend a multibillion-dollar industry. Roughly 1 in 10 Americans have diabetes, and they typically rely on a device that pokes the skin for a blood sample. There are also patches from Dexcom Inc. and Abbott Laboratories that are inserted into the skin but need to be replaced about every two weeks.

The timing of this announcement/leak is interesting because Apple is being sued for patent infringement for its EKG capability on the Apple Watch. The threat is the company would not be allowed to sell the Watch in the US market. With today’s announcement, the company is obviously touting its own internal R&D which is developing similar non-invasive diagnostic tools. 

A factor that’s gotten less attention, though, is something a bit more arcane, something more specific to the business models that have both enriched some of the world’s biggest tech companies and shaped the way many of us experience the internet. That factor is the iPhone.

In 2021, Apple rolled out what it called App Tracking Transparency. Henceforth, iPhone users had to opt in to certain forms of digital tracking, in particular targeting that involves the sharing of information between different apps.

Social media companies rely heavily on that technique to serve up the targeted ads that are their profit engines. The data they collect can form an ever-more-detailed mosaic of a user and, most importantly, a better sense of what kind of person responds to which types of ads.

Apple presented its anti-tracking policy as a way for people to take control of their information, at a time when lawmakers around the world are championing a similar cause. Ads are intrusive and annoying, and being closely tracked on the internet is creepy. If you are a political dissident or a woman researching abortion in a place where the procedure is illegal, it is terrifying.

At the time, however, Facebook’s parent company Meta saw the change as a serious threat. Social media executives feared that lots of iPhone users would opt out of this kind of app tracking when given the option. Almost two years on, they seem to have been right. Meta estimated that the change cost it $10 billion in 2022, or 9% of its total revenue.

Eric Michael Seufert, an analyst at Mobile Dev Memo, went so far as to call it “the App Tracking Transparency recession.” Seufert argued that the tech companies having the hardest time right now are those most directly affected by Apple’s policy. As he points out, revenue at YouTube, Google's video arm that relies heavily on third-party ad tracking, has lagged the company's search revenue, which is far less reliant on this type of tracking.

Perhaps a more accurate way of thinking about the repercussions of Apple’s walled garden approach, to information on its phones, is it is a bear market on click bait. The ads we are served are chosen based on assumptions the seller makes about our proclivities. That’s a valuable asset and now Apple holds that information for itself. 

The talk was split into two parts. The first was devoted to talking about the risks climate change represents and what a potential solution might look like. The second part criticised world leaders in turn. 

Now, insouciant speculation has returned in another acronym, 0DTE, which stands for Zero Days to Expiration options. Short-term calls and puts have long been favorites of speculative traders because they cost less than lengthier contracts. To help traders scratch that speculative itch, the exchanges have been offering ever-shorter options until they got to 0DTE.

And their growth has been explosive, so much so that their trading volume is swamping the turnover in the underlying securities, reports Doug Kass, who heads Seabreeze Partners and flagged the 0DTE phenomenon for us. He likens it to the speculative frenzy once seen in the trading of hot initial public offerings, when new shares would change hands several times on their first day, he said in a phone interview.

These short-term options have succeeded meme stocks as the Street’s gambling vehicle of choice, adds Peter Tchir, the derivatives maven who heads macro strategy at Academy Securities. About 90% of his recent conversations are about 0DTE, he relates in an email. And Thursday saw record call-option volume, with the vast majority of expirations on Feb. 2 and Feb. 3. The SPDR S&P 500 exchange-traded fund (ticker: SPY), usually leads the most-active list; Tesla (TSLA) does the same among single stocks.

This article goes a long way to explaining why the correlations between the VIX and stock market action have broken down this year. In a Bloomberg TV interview today Peter Tchir described the leverage on zero day options as close to 100:1 and that the VIX Index only looks at one-month volatility. 

Where next? The best comment, as it also applies to us, comes from one of our managers, Terry Smith: “Our companies should demonstrate a relatively resilient fundamental performance in such circumstances, and the only type of market which ends in a recession is a bear market.”

We are reminded by another market veteran we’ve followed for 40 years, Ed Yardeni, that the FAANGS, the mega tech US stocks which led the 2014 to 2021 bull market, still inflate the PER market rating. Without the FAANGS, the forward market multiple is only 16.7x, making it barely 2 points higher than the long-term average. Bearish commentators claim that earnings are about to take a hit, raising the PER, and rate rises are still in store. (Remember that 2 main factors influence share prices: the valuation of earnings, influenced largely by interest rates, and the earnings themselves). There may indeed be something to the bears’ claim.

Here is a link to the full report. 

Some of the biggest movers in the US market since the beginning of January have been the eight mega-cap household names stocks. Tesla and Nvidia rebounded impressively while Alphabet has been a clear laggard and all largely because of enthusiasm about the promise of AI. 

Market maker Citadel Securities has disclosed a 5.5% stake in Silvergate Capital (SI) worth about $25 million.

According to a Form 13G filed with the Securities and Exchange Commission (SEC), Citadel Securities is now the owner of roughly 1.73 million shares or a 5.5% stake in Silvergate, valued at $25 million based on Monday's closing price of $14.71.

A person familiar with Citadel Securities told CoinDesk that the filing is a result of the firm's options market making activities rather than a directional investment or stake in Silvergate. Citadel Securities makes markets in more than a million individual options at any time. For 13G filings, options positions are calculated based on long call positions, regardless of any offsetting short calls or puts, explained the person.

Meanwhile, trading firm Susquehanna also reported in a filing that it bought about 2.37 million shares, or a 7.5% stake, in Silvergate. The investment would be valued at about $35 million, based on Monday's closing price.

Alongside a modest rally in the price of bitcoin, Silvergate shares are higher by just over 5% on Tuesday at $15.53. Shares are down about 87% over the past year.

The moves come after BlackRock said it boosted stake in Silvergate last month. A filing showed that the asset management giant had a 7.2% stake in Silvergate Capital as of Dec. 31, as oppose to a 6.3% stake, reported a year earlier.

Bitcoin is about 14 months out from the next halvening. That’s when the reward for successfully mining a new block on the blockchain will halve again. In previous cycles, the absolute low for the crypto winters occur about a year before the halvening and are retested around the time of the event. 

One key component for the United States and its global military commitments is its fleet of transport planes, including the Lockheed Martin C-5 Galaxy and the Boeing C-17 Globemaster III. These provide the US Air Force with the ability to deliver soldiers and their equipment anywhere in the world in short order and keep them supplied indefinitely.

However, it is an extremely expensive capability to achieve and maintain, and it often means sending air crews into dangerous areas where they may encounter hostile anti-aircraft weaponry. It also requires a large number of pilots, who do not come cheap and are invariably in short supply.

To counter this, the Air Force has hired Reliable Robotics to look into automating existing cargo aircraft. The idea isn't new, but adapting the technology to large multi-engine jet transports flying military supply missions adds another level of complexity.

At a Superbowl party last night I had an educative chat with a senior manager at Intel. He mentioned two snippets of information I thought were worth considering.

The first is that he said in talking with pilots, there is a major difference between flying a Boeing and an Airbus. You get paid less for flying an Airbus because they are much more automated. They basically fly themselves so pilot skill is less important. Therefore most pilots train on both, so they can command higher salaries.

 

Top European Union officials raised the possibility last year of making major streaming operators like Netflix Inc. and YouTube help pay for 5G and fiber infrastructure. Telcos had been pushing for such a move for over a decade.

The EU’s executive arm is expected to publish a request for feedback on the idea this month, the first step toward a formal proposal. When a draft of this consultation was circulated around Brussels recently, telcos read it with glee — and tech companies with horror. The consensus was that the EU is no longer asking whether it will do something but rather, how.

Last week brought another cause for celebration, at least for the bankers who work with the likes of Deutsche Telekom AG and Vodafone Group Plc. Commissioner Thierry Breton said the EU should more closely consider cross-border mergers, which could create “a true single market for telecoms” in Europe. Telcos, again, have been lobbying for consolidation for a long time.

Regulatory changes mean a lot to investment prospects in any sector, but when it comes to who pays for expensive network upgrades, it can have a material impact on the bottom line. Telecom stocks have been off the radar for 20 years because growth did not look likely to ever return. Repricing for the potential for slimmed down costs is a welcome development. 

The scrutiny comes as the battle to build the most accurate and effective search engine is escalating. On Monday, Google introduced Bard, whose underlying technology will eventually be built into Google.com. The next day, Microsoft Corp. said it was integrating a cousin of ChatGPT into Bing. On Wednesday, Google hosted a news conference in Paris where it shared more details about the company’s progress integrating artificial intelligence into search.

“The general sentiment is that ChatGPT and the Microsoft Bing announcement have created a narrative that Google’s search business model is under threat,” said Mark Riedl, a professor at the Georgia Institute of Technology.

The market reaction to Bard’s inadequacies was both swift and severe. The downward dynamic experienced by Google shares demonstrates how fickle the mob can be during a momentum move driven by hope rather than earnings. 

Powell says the labor market report from Friday “underscores the message” he sent last week, that there’s a significant road ahead to get inflation down. There’s an expectation that inflation can come down painlessly, but “that’s not the base case.”

The primary conclusion investors have taken from Jerome Powell’s interview today is pain might be coming but rates will quickly adjust when it does. The volatility on the Nasdaq-100 showed the development of this conclusion with a 1% advance, drop back to flat and recovery to finish up 1%. 

AI Should Increase Knowledge Worker Productivity Dramatically
According to ARK’s research, AI should increase the productivity of knowledge workers more than 4-fold by 2030. At 100% adoption, AI spend of $41 trillion could increase labor productivity by -$200 trillion, dwarfing the $32 trillion in knowledge worker salaries and rivaling current projections for global GDP in 2030. If vendors were to capture 10% of value by their products, AI software could generate up to $14 trillion in revenue and $90 trillion in enterprise value in 2030. 

ARK is big on big on ideas. They don’t typically pay too much attention on where the money is going to come from to fund all that growth. The investment in the computing power necessary to achieve the heady goals of artificial intelligence and all it promises does not happen on its own. It requires sustained access to capital and cashflows to make it worth the cost of foregoing other potential opportunities. Microsoft is attempting to fill that void with its investment in OpenAI.

Leaders go to war because they believe they can win, as did Putin in Ukraine. It is entirely feasible to reinforce both Taiwanese and US capabilities in the region, to a point at which Beijing must doubt its ability to prevail in the necessary amphibious assault, a perilous and difficult undertaking.

The Ukraine experience has rewritten in lights a towering lesson of history: To deter aggression, there is no substitute for credible armed forces. We in the UK and the rest of the West are supremely fortunate that America still possesses these, despite the caveats about the Navy’s vulnerabilities in the Pacific.

Yet more important even than weapons is will. Many people, sometimes including myself, have doubted and continue to doubt whether, if China does invade Taiwan, the US and its allies will undertake military action in response. This is a reprise of the 1950 Korean uncertainty, with one important difference: 73 years ago, there was nothing in South Korea of material value to the West; its armies fought instead to defend a principle. In modern Taiwan, by contrast, advanced semiconductors represent an industry of towering importance both to China and ourselves.

The USA downed a Chinese balloon over the weekend after allowing it to traverse the entire continent. That speaks to a great deal of indecision about the right way to deal with an airspace incursion and not least because it is so unexpected. 

The inflation that we originally got was very much a collision between very strong demand and hard supply constraints, not something that you really have seen in prior, you know, in business cycles.

And

I think it's -- because this is not like the other business cycles in so many ways. It may well be that as -- that it will take more slowing than we expect, than I expect to get inflation down to 2 percent.

And

this is not a standard business cycle where you can look at the last 10 times there was a global pandemic and we shut the economy down, and Congress did what it did and we did what we did.

There is some logic to that statement. We have never shut down the entire global economy or printed so much money in such a short period of time. The clear conclusion Powell is taking in predicting a soft landing is that inflation really is transitory. 

CATL accounts for the largest share of the global electric-vehicle battery market, according to data from Seoul-based SNE Research. It sold a total of 165.7 gigawatt-hours of batteries in the January-November 2022 period, almost three times as much as second-placed BYD Co., a Chinese automaker that also manufactures batteries.

CATL’s market share was about 35% in the first 10 months of last year. The Fujian-based company supplies carmakers including Volkswagen AG, Geely Automobile Holdings Ltd., Nissan Motor Co. and Tesla Inc., which delivered fewer EVs than expected last quarter, despite offering some price cuts. 

In 2017, CATL raised about $822 million in an initial public offering in Shenzhen. The company raised another 45 billion yuan ($6.7 billion) in a private share placement last year. China Securities was the lead sponsor, while CICC, Goldman Sachs and UBS were among the co-lead underwriters.

Shares of CATL have fallen about 18% in the past year, valuing the company at about $172 billion.

The opportunity to buy CATL shares will be welcomed by the global investment community since not everyone has the opportunity to trade in domestic Chinese stocks. The challenge is CATL has appreciated significantly since its IPO so in buying today one is betting both the company retains its dominance as a battery manufacturer and market growth approaches optimistic forecasts. 

GM would supplant China's Ganfeng Lithium(002460.SZ) to become Lithium Americas' largest shareholder. GM has also agreed to buy all the lithium from Thacker Pass when it opens in 2026 - roughly 40,000 tonnes per year.

Under the agreement, GM will buy $650 million of shares in Lithium Americas in two equal parts, with the first tranche coming only if Lithium Americas prevails in an ongoing court case. A U.S. judge earlier this month said she would rule "in the next couple of months" in the case, which centers on whether former U.S. President Donald Trump erred when he approved the mine just before leaving office in 2021.

The automotive industry appears to be getting back to its roots. Fifty years ago it was common for bid industrials to control mines, processing, fabrication and manufacturing in a vertically integrated business model. The 1970s ushered in offshoring and just in time manufacturing and inventory was suddenly considering a balance sheet liability. In the aftermath of the pandemic and now war in Ukraine, the merits of controlling the supply chain are being viewed with fresh perspective. 

Unlike OpenAI and other startups such as Stability AI, Google has released its most powerful image- and text-generation models only to a limited group of testers. Google executives in recent years have stressed the need to test new artificial-intelligence tools for signs of bias while guarding against potential misuse, concerns shared by many academics.

Such caution has at times frustrated researchers at groups such as the artificial-intelligence unit Google Brain, some of whom have left to raise money for their own startups where they can more easily release new products, said people familiar with the matter.

Last week, the head of Google's research division, Jeff Dean, published a more-than-7,000-word blog post summarizing the company's recent work in artificial intelligence, writing that the developments are "making their way into real user experiences that will dramatically change how we interact with computers."

The pressures add to a difficult business environment for Google, whose search and ad-tech operations have both been targeted by Justice Department lawsuits. Google also announced the largest layoffs in company history last week, cutting about 12,000 employees.

"We have long been focused on developing and deploying AI to improve people's lives," a Google spokeswoman said. "We believe that AI is foundational and transformative technology that is incredibly useful for individuals, businesses and communities, and as our AI Principles outline, we need to consider the broader societal impacts these innovations can have."

Google had a reservation robot system running in 2018. It automatically made calls to the restaurant when an online booking system was not available. They got so much backlash against robots taking jobs that it essentially canned the program. Today apps like Opentable or Fork have grown to capture more of the booking market but that does not negate the fact robo caller tech is at least five years old. 

Putin’s confidence in his military’s ability to grind out a triumph - even at a cost of vast casualties and destruction - reflects a misreading of the West’s commitment to turn back his aggression, some insiders concede. The US and its allies have steadily stepped up weapons supplies to categories once considered off-limits.

Still, US and European military officials fear the conflict could soon settle into a World War I-style artillery fight with largely stagnant front lines, a scenario that could come to favor Russia, with its larger population and military industry.

Diplomatically, Russia has sought to win supporters among non-western countries with appeals for talks on a cease-fire. Even people close to the Kremlin admit those are hopeless at present, given Ukraine’s demand that Russia pull out its troops as a condition for any deal.

The minimum the Kremlin would accept would be a temporary truce that left Russia in control of the territory its forces currently hold in order to win time to rebuild its forces, the people said. Though short of the boundaries of the regions that Putin illegally annexed in September, that would still leave Russia with a large swath of land, linking the areas it occupied before the war. As a result, the idea is a nonstarter with Kyiv and its allies.

“Unless something changes, we’re looking at a war of attrition like World War I, which could go for a long time because both sides believe time is on their side,” said Andrey Kortunov, head of the Kremlin-founded Russia International Affairs Council. “Putin is sure either the West or Ukraine will grow tired.”

The route to a Russian victory lies in a war of attrition. They have more artillery, shells and tanks than NATO so they estimate a long drawn out conflict will eventually favour larger numbers. Absorbing high casualties is part of that strategy. It worked for Iran against Iraq in the 1980s and Russia appears to be following a similar strategy. 

“To fight the Chinese, we will have to have comparable cost structures,” Stellantis NV CEO Carlos Tavares said on Dec. 19, speaking to reporters at a powertrain plant in Tremery in northern France. “Alternatively, Europe will have to decide to close its borders at least partially to Chinese rivals. If Europe doesn’t want to put itself in this position, we need to work harder on the competitiveness of what we do.”

And

The growth in the supply chain in China has also kept pace with car manufacturing. Domestic companies now make almost all parts, including those they used to import until about a decade ago, such as high-strength steel and reinforced fiberglass. As a result, China ran a trade surplus in vehicles and vehicle parts for the first time in 2021. The assembly lines still depend on advanced machines from Japan and Germany, though.

“There seems to have been a step change,” Dyer says. “The long-term trend is for increasing sales of Chinese brands around the world.”

A decade ago it was obvious China was moving up the value chain in manufacturing. It might have not have reached heights of 3nm chip production but planes and automobile parity is now a reality. That’s as much of challenge for Airbus and Boeing as it is for Toyota, Hyundai, Volkswagen and GM. 

As Ukraine and its allies prepare for a potential escalation in fighting in the spring, the debate over sending battle tanks to back Kyiv’s military and potentially retake territory has become a flashpoint among NATO allies. US and European officials have bridled at Scholz’s slow decision-making, saying the German leader should be more assertive, following through his promised “Zeitenwende,” or historic turning point on security. 

Scholz has insisted that Germany should not act alone in sending new categories of heavy weapons that could provoke an escalation with Moscow. He’s placed a premium on moving in lockstep with the US and NATO. 

“We never go alone,” Scholz said in an interview last week with Bloomberg. 

There are estimates Rheinmetall could send as many as 139 Leopard Type 1 and 2 tanks to Ukraine via various swap agreements over the next several months. By that time, there is a risk available inventory will be fully exhausted. 

Being in the SEC’s cross hairs is likely to lead to a further shake-up of what little is left of the lending sector. 

“There will be two different models in the future,” said Campbell Harvey, a finance professor at Duke University. “First, certain organizations will register with the SEC and sell these products as securities. Second, investors may do this on their own by putting their crypto into decentralized liquidity pools and earning a fee for that.”

In decentralized finance, or DeFi, investors use software to automatically borrow and lend tokens, with positions being automatically liquidated if prices fall too low or they miss repayment deadlines. Some platforms such as Maple Finance organize pools where an operator can manage incoming investor funds and choose who to lend them out to, using due diligence to assess a borrower’s creditworthiness rather than asking for collateral. Such an approach has already lead to some defaults during the current crisis, in addition to plummeting volumes.

Because these types of loans are conducted on public blockchains, the collapse in lending is more visible. The total amount of value locked on DeFi networks hit a peak of $181 billion in early December, according to data from DeFiLlama, and now sits at around $45 billion — tarnished by wavering demand, declining crypto prices and several spectacular failures.

The next bitcoin halvening is due in April 2024. That will halve the reward for successful minting a new block from 6.25 to 3.125. Therefore the limited supply and rarity of the asset will become a topic of conversation again around this time next year. 

“I commend the Biden administration for working with our partners to apply export controls on equipment used to make advanced semiconductors and am eager to scrutinize the specifics of what comes out of these talks,” Texas Representative Michael McCaul, who chairs the House Foreign Affairs Committee, said in a statement to Bloomberg News. “A Republican Congress is ready to use its authorities to protect U.S. national security and defend human rights, should the outcomes not substantially match the controls currently in place.”

McCaul is set to meet with Raimondo to discuss the matter on Thursday. It’s uncertain how long it will take the other countries to implement their measures. 

“It could even be something which just happens without big announcements,” Rutte said in the interview. “It’s still not clear. It depends a bit on how the discussions with various countries will evolve.”

After the US announcement in October, some American companies were forced to warn investors that they may lose out on billions of dollars in future China revenue. Since then, they’ve argued it also exposes them to losing market share, if overseas competitors are allowed to continue to operate in China relatively unrestricted.  

Tokyo Electron has said the general clampdown on its Chinese customers is already hurting business, while ASML has said that demand elsewhere in the world for its most advanced products can make up for any revenue shortfall from China.

Despite the friendlier sounds coming from Chinese and American diplomats, the trajectory of the trade war has not changed. It is still the clear ambition of the US government to curtail China’s ability to compete technologically. It is viewed by both sides of the political divide as a national security priority. 

I posted the first part of this update on Wednesday and saved the second part of today. The number one theme in emerging markets is governance. That’s where Saudi Arabia is clearly attempting to make an impression.

In speaking with the junior minister for investment, the decision to give opportunities to young people is very intentional. They know the only way to achieve the progress they need is through harnessing the productive capacity and thirst for invention of the young.

It’s incredibly refreshing to meet so many tenacious young people with ambitious dreams for the future. The fact they have a route to achieve their goals is even better.

Indeed, the biggest winners may be Nvidia and TSMC. Nvidia’s investment in the CUDA ecosystem means the company doesn’t simply have the best AI chips, but the best AI ecosystem, and the company is investing in scaling that ecosystem up. That, though, has and will continue to spur competition, particularly in terms of internal chip efforts like Google’s TPU; everyone, though, will make their chips at TSMC, at least for the foreseeable future.

The biggest impact of all though, though, is probably off our radar completely. Just before the break Nat Friedman told me in a Stratechery Interview about Riffusion, which uses Stable Diffusion to generate music from text via visual sonograms, which makes me wonder what else is possible when images are truly a commodity. Right now text is the universal interface, because text has been the foundation of information transfer since the invention of writing; humans, though, are visual creatures, and the availability of AI for both the creation and interpretation of images could fundamentally transform what it means to convey information in ways that are impossible to predict.

For now, our predictions must be much more time-constrained, and modest. This may be the beginning of the AI epoch, but even in tech, epochs take a decade or longer to transform everything around them.

ChatGPT and other artificial intelligence models are growing in capability and the pace of development is accelerating. There is a big question about how consumers will react to intrusive predictive models and how the sector will ultimately be regulated. However, if history is any guide these issues arise after a significant interval and prices move ahead regardless.

Historically, dividend related ITM [Ed. In-the-money] call exercises have resulted in some of the highest call volume days of the year, including March 15, 2012, when a record 9M calls traded in SPY, but changes to the clearing process since then have dampened that activity. 

Mathematically, the decision to exercise a call or put early is related to the extrinsic value of the contract. For calls, if the dividend(s) amount exceeds the extrinsic value, a long holder is usually better off exercising. For puts, the decision is a bit more subtle, with extrinsic value compared to the carry cost on the strike. As U.S. interest rates have increased sharply to decade-highs this year, the cost of carry for deep positions has increased, while the selloff in many popular stocks has resulted in large blocks of deep put open interest. Unlike dividend-related call exercises, which tend to happen quarterly, put exercise dynamics may repeat daily if positions are open. In practice, put exercises are more common on Wednesdays based on the timing of settlement. Puts exercised on a Wednesday result in a stock sale on Thursday, which settles Monday.

Fortunately, early-exercise candidate call and put strikes for all listed products are calculated intraday and available in a subscription product on the Cboe DataShop.

A sample from the file for December 7 shows that all the active Amazon deep put strikes were considered optimal to exercise as of 2 p.m.

Large volumes of options traded in single stock names is a function of how much liquidity is still circulating the market. Massive volume in Tesla was a major factor in the stock’s ability to defy gravity in 2021. The opposite condition has been evident in Amazon, where outsized appetite for shorts has resulted in the share being among the worst performers in Q4. 

Tesla Inc. is offering US consumers $7,500 to take delivery of its two highest-volume models before year-end, adding to indications the carmaker is struggling with demand.

The discount on new Model 3 sedans and Model Y sport utility vehicles is double what the company was offering earlier this month. It mirrors an anticipated change in how much of a tax credit certain consumers will be eligible for early next year.

It’s highly unusual for Tesla to offer such perks, as Elon Musk has for years enforced a no-discounts policy. The company also departed from its chief executive officer’s insistence against spending on traditional advertising last month by promoting its wares on a local television shopping channel in China. Tesla also has cut prices and production in that market this quarter.

Elon Musk’s infallibility is quickly eroding, evidenced by his ham-fisted management of Twitter. There is even talk some buyers are cancelling orders because of this negative coverage. Not many people want to be associated with a personality vilified by all but those on the fringe of public opinion. As if that is not enough, the continued spread of COVID in China will take a toll on demand for Tesla’s vehicles.

Greenidge’s average monthly cash burn rate in the past two months was approximately $8 million. That is typically used to describe the rate at which a company spends capital to finance overhead before generating a profit or loss from operations. About $5.5 million of that cost was associated with principal and interest payments to NYDIG. The firm expects to have a similar cash burn rate and similar payments to NYDIG in December, according to the filing.

The Fairfield, Connecticut-based miner has a natural gas plant that powers its Bitcoin mining facility in Dresden, New York. It is one of the earliest and largest crypto-mining firms in the state. While Greenidge’s current operations remain intact, New York Governor Kathy Hochul signed one of the most restrictive laws in the US on crypto mining last month with a two-year moratorium on new permits from the miners that are powered by fossil fuel. 

Bitcoin is a liquidity barometer. When prices multiply, the fear of missing out creates demand for leveraged plays on the price of both bitcoin and altcoins. It encourages miners to leverage up to increase their chances of securing additional coins and it attracts new funding mechanisms to ensure maximum leverage is made available to the most risk-tolerant traders as the promise of massive gains proves siren-like. During crypto winters, this entire process goes into reverse and many operations go bust.

As I’ve written many times about the economy and markets, we never know where we’re going, but we ought to know where we are. The bottom line for me is that, in many ways, conditions at this moment are overwhelmingly different from – and mostly less favorable than – those of the post-GFC climate as described above. These changes may be long-lasting, or they may wear off over time. But in my view, we’re unlikely to quickly see the same optimism and ease that marked the post-GFC period.

We’ve gone from the low-return of 2009-21 to a full-return world, and it may become more so in the near term. Investors can now potentially get solid returns from credit instruments, meaning they no longer have to rely as heavily on riskier investments to achieve their overall return targets. Lenders and bargain hunters face much better prospects in this changed environment than they did in 2009-21. And importantly, if you grant that the environment is and may continue to be very different from what it was over the last 13 years – and most of the last 40 years – it should follow that the investment strategies that worked best over those periods may not be the ones that outperform in the years ahead.

That’s the sea change I’m talking about.

There is really only one big question. Will the Fed relent and revert to the GFC playbook when unemployment rises and economic hardship stokes deflationary fears? 2023 will probably deliver an answer.

A personalized Moderna Inc. cancer vaccine combined with collaborator Merck & Co.’s biggest-selling drug reduced melanoma deaths in a mid-stage trial, helping for now to ease concerns about the biotechnology company’s second act following the success of its Covid-19 vaccine.

The combination of the vaccine with Merck’s Keytruda cut the risk of death or recurrence of the lethal skin cancer by 44%, the companies said Tuesday in a statement. The drugmakers plan to move the combined treatment into final-stage studies next year. Moderna shares rose as much as 26% as of 1 p.m. in New York, while Merck’s gained as much as 2.1%. 

During the pandemic, the Nasdaq Biotech Index was dominated by vaccine providers. COVID-19 was all anyone was interested in. For a couple of years, everyone was willing to suspend concern that there are causes other than coronaviruses. We are now returning to more normal considerations in that the biggest causes of death are heart disease and cancer and obesity is a massive chronic issue.

“While the war against inflation is turning, we are a long way off declaring victory and the Fed will keep its hawkish stance for a while longer, even if it does potentially force a recession,” said Richard Carter, head of fixed interest research at Quilter Cheviot.

The CPI-fueled stock rally fails to recognize that corporate earnings are just starting to see the impact of tight monetary policy, James Athey, investment director at Abrdn.

“As the full effects of the Fed’s aggressive actions this year play out next year, it seems inevitable that we will see a significant repricing lower in EPS forecasts and thus the broad market,” Athey said.

The stock market has been pricing in the likelihood Inflation has peaked since October. Now is the time to start thinking about the knock-on effects of inflation peaking. Economic activity will slow as the race to overtake inflation with purchase subsides and as savings are eroded. Corporate profits will inevitably slow in response and unemployment will likely rise from Q2 onwards.

“My biggest concern is the slowdown they’re seeing in China,” Matt Maley, chief market strategist at Miller Tabak + Co. said, adding that “as long as Elon Musk is spending a lot of time with Twitter, it’s going to keep a lid on the stock.”

Bloomberg News reported Friday that Tesla plans to suspend output in stages at its Shanghai electric car factory from the end of the month until as long as early January, amid production line upgrades and slowing consumer demand. 

Meanwhile, Twitter is more than a distraction. Musk’s bankers are considering replacing some of the high-interest debt he layered on Twitter with new margin loans backed by Tesla, people with knowledge of the matter told Bloomberg.   

I saw in another article that SpaceX is valued at approximately $140 billion. The purchase of Twitter has stretched both Elon Musk’s time and finances. If his creditors impose a margin loan there is clear scope he will be denuded of his Tesla holdings if Twitter does not turn around quickly. That may result in a rush to IPO SpaceX to raise cash.

Amgen is years behind rivals Novo Nordisk and Eli Lilly in developing an obesity treatment, but the company says its experimental drug could prove superior. And investors seem to agree, as news of the drug helped Amgen stock go on a tear recently.

Shares of Amgen now are taking a breather after a run-up in late October and early November. Last week, the biotech giant unveiled another  batch of official data, showing that its drug requires less-frequent injections and leads to faster weight loss.

Over three months, patients who received three high-dose shots of Amgen's drug lost 14.5% of their body weight. That beat out the 8% weight loss for Lilly's weekly injection over the same time period, according to one analyst.

Now, the question is how durable the weight loss will be for recipients of Amgen's AMG 133.

The big money-making drugs in the healthcare sector treat, but don’t cure, chronic diseases. Obesity is one of the biggest evolving issues, and is also a major contributing factor to the evolution of diabetes. Treating obesity with a pill, instead of the lifestyle change needed to address weight gain has obvious attractions for potential patients.

The difference is that ChatGPT is not actually running python and determining the first 10 prime numbers deterministically: every answer is a probabilistic result gleaned from the corpus of Internet data that makes up GPT-3; in other words, ChatGPT comes up with its best guess as to the result in 10 seconds, and that guess is so likely to be right that it feels like it is an actual computer executing the code in question.

This raises fascinating philosophical questions about the nature of knowledge; you can also simply ask ChatGPT for the first 10 prime numbers:

Those weren’t calculated, they were simply known; they were known, though, because they were written down somewhere on the Internet. In contrast, notice how ChatGPT messes up the far simpler equation I mentioned above:

For what it’s worth, I had to work a little harder to make ChatGPT fail at math: the base GPT-3 model gets basic three digit addition wrong most of the time, while ChatGPT does much better. Still, this obviously isn’t a calculator: it’s a pattern matcher — and sometimes the pattern gets screwy. The skill here is in catching it when it gets it wrong, whether that be with basic math or with basic political theory.

The probabilistic versus deterministic issue boils down to the problem all models face; quality of data. The best way for a chatbot to function is to only use a confined sample of reliable answers. In other words for an answer that is sure to be correct, the dataset has to be filled with deterministic infallible answers.

China’s Contemporary Amperex Technology, the world’s biggest maker of electric-car batteries, signs a global partnership agreement with Honda Motor, according to an exchange filing to Shenzhen Stock Exchange.

China has worked hard to capture the market for EV batteries and that is now paying dividends. Traditional car companies all now want to be EV companies but are years behind in building their own factories and supply chains. That is most especially true for batteries. China has a dominant position in mining and processing the respective raw materials. The implication is clear, there is no way for car companies to achieve their EV goals without outsourcing at least part of the process to Chinese companies.

Morgan Stanley projects that a multi-asset income fund can now find some of the best investing opportunities in nearly two decades in dollar-denominated securities, including inflation-linked debt and high-grade corporate obligations. The interest payments on regular 10-year Treasuries, for example, has hit 4.125%, the highest since the global financial crisis.

Meanwhile Pacific Investment Management Co. reckons long-dated securities, the biggest losers in this era of Federal Reserve hawkishness, will bounce back as a recession ignites the bond-safety trade, with government debt acting as a reliable hedge in the 60/40 portfolio complex once more.

“People are excited, believe it or not,” said Maribel Larios, founder and CEO of Fiduciary Experts, a Murrieta, California-based registered investment advisor. “It’s all relative, as they’ve seen these fixed-income accounts pay little to nothing in the past. So, 4% — or even about 2% to 3% in some cash accounts — is relatively good now.”

Banks like Deutsche and Morgan Stanley are taking an axe to their earnings estimates for the S&P500 next year. Corporate earnings have been resilient, even as the Fed has hiked rates faster than at any time in the last 40 years. That is unlikely to persist as the lagged effects of tightening catch up.

Amazon is aware of the macro challenges, and hence AWS employees are reaching out to clients to see how it can help optimize spending, said David Brown, AWS' vice president.

"If you're looking to tighten your belt, the cloud is the place to do it," AWS CEO Adam Selipsky said during his keynote presentation.

However, an investment firm Andreessen Horowitz analysis last year, painted a different picture. It showed that a company could trim its computing costs by half or more by bringing workloads from the cloud back to on-premises data centers.

Amazon is also offering a cheaper alternative, Graviton computing instances based on energy-efficient Arm-based chips alternative to standard Advanced Micro Devices, Inc (NASDAQ:AMD) and Intel Corp (NASDAQ: INTC) processors.

"We do see some customers who are doing some belt-tightening now," Selipsky told CNBC. Expedia Group, Inc (NASDAQ: EXPE) CEO Peter Kern sees the cloud as an area where his company can reduce its fixed costs.

The point I have been making for at least the last year is large companies offering cloud services saved startups time in scaling up. Instead of buying servers and hiring teams or engineers to create a data base, they outsourced that to companies like Amazon, Microsoft and Google/Alphabet. As the fountain of money supporting the startup scene ebbs, that will inevitably hit spending on outsourced data infrastructure. The subscription business model only works when you have subscribers.

Since returning from the Chart seminar in London I have spoken to several people who work in the Israeli high-tech industry, They all tell me that about 10% of their colleagues have lost their jobs recently. Today you referred to your MIIN index. How can we invest in these countries?

Thank you for this additional insight. The market for big ideas ballooned with the delivery of free money. Suddenly, no idea was too grand, or time to delivery/commercialization too long. That trend was looking tired in 2019, as the Federal Reserve’s quantitative tightening was siphoning liquidity from the global economy.

“The time for moderating the pace of rate increases may come as soon as the December meeting,” Powell said in the text of his speech. “Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.”

Policy-sensitive 2-year Treasury yields fell on Powell’s remarks, erasing increases on the day, and the S&P 500 index reversed losses to trade higher. The dollar slipped in value against major rivals on foreign-exchange markets.

The Fed’s actions -- the most aggressive since the 1980s -- have lifted the target range of their benchmark rate to 3.75% to 4% from nearly zero in March. Powell said rates are likely to reach a “somewhat higher” level than officials estimated in September, when the median projection was for 4.6% next year. Those projections will be updated at the December meeting.

Jerome Powell confirmed today that the pace of Fed hikes will moderate; not reverse or pause. Nevertheless, cashed-up traders are more than willing to take anything less than outright hawkishness as good news.

According to Central Election Commission, KMT won 13 out of 21 cities and counties, while DPP only managed to secure five cities in the southern part of Taiwan, the least since its founding in 1986. KMT candidates took 50% of votes in the contests, versus 41.6% for the DPP, 11.39 million votes counted as of 11:53 pm in Taipei, according to the official election website.

That prompted President Tsai Ing-wen to step down as party leader, saying in televised remarks: “In the face of these results, there are many areas where we need to engage in self-reflection.”

The elections represented the last major test of Tsai’s DPP before her second and final term draws to a close and Taiwan picks a successor in early 2024. The KMT, or Nationalist Party, hopes the gains in local races will help it mount a comeback after defeats in presidential elections in 2016 and 2020.

The results will be closely watched in Washington and Beijing, since the DPP’s rise to power has prompted China to cut off communications with Taiwan and ramp up diplomatic and military pressure on the island. The KMT, which favors eventual unification with China, had previously overseen a historic expansion of ties with Beijing, easing travel, trade and investment across the Taiwan Strait. 

The Tsai administration has actively escalated tensions with China and the electorate does not want to be in a war with China. That does not mean they want to be part of China but not do they wish to do anything to antagonise China. Taiwan’s citizens are very much aware of the fine balance that needs to be maintained when squeezed between two great powers.

At issue are two South Korean-made components: thermal shields built by SFA Engineering Corp. and vacuum vessel sectors made by Hyundai Heavy Industries Co. Neither company responded to Bloomberg requests for comment outside of business hours. 

The thermal shield, which is lined with 5 tons of pure silver and designed to contain heat 10 times hotter than the sun, showed cracks along cooling pipes, ITER reported. The vacuum vessel sectors, each weighing the equivalent of 300 cars and as tall as a telephone pole, show slight differences in manufacturing that complicates the welding process used to put them together. 

So far, ITER’s governing board has taken the setbacks in its stride. At an extraordinary meeting convened this month, it ordered Barabaschi to come up with a new budget and time line to be presented next year. 

“What was remarkable at the ITER council was the lack of finger pointing,” ITER spokesman Laban Coblentz said Friday in an interview. “It has been a very solutions-oriented discussion.”

 And

“Companies have been learning enormously from this first-of-its kind project,” said ITER’s Coblentz, dismissing suggestions that the delays could dampen enthusiasm. “The goal here isn’t to build just a single machine but to show that fusion power is feasible and to make that happen.”

The quantity of money being poured into fusion continues to grow. Companies hope to repeat the success of private companies in beating the Human Genome Project to the prize of completing the first sequence of the human genome. The primary technology innovation is the shrinking of superconductors which means new reactor designs can be much smaller and therefore cheaper. The range of challenges that still need to be overcome is still quite high so while this is an exceptionally interesting sector, it is not going to provide the abundant cheap energy we require for quite some time.

Meanwhile the 5 tons of silver required for the ITER experiment suggests a new source of demand for the metal in future designs too. 

A lnk to the full report is posted in the Subscriber's Area. 

The big question for investors is whether this is a cyclical or structural bear market. The exogenous shocks that come to mind are COVID, the response to it, and the Russian invasion of Ukraine. The private sector leverage is not focused in the consumer sector, but there has been extensive use of leverage in private investment, crypto and institutional investment areas not least in pensions and endowments.

Even though markets gained on Zhao’s tweet, such a fund may not be best for the industry, said Quantum Economics founder and Chief Executive Officer Mati Greenspan. Binance already has too much control in a decentralized market, he said.

“That sort of concentration of power makes me uncomfortable,” said Greenspan. “It’s the kind of thing crypto was designed to avoid and one of the lessons we should have learned from last week.”

Meanwhile, Elon Musk’s tweet that Bitcoin “will make it” also gave crypto markets a boost, said Greenspan. Dogecoin, a token the Tesla CEO has touted in the past, gained as much as 7.9%.

This is yet another example of the paradox of decentralized finance. It’s appealing in theory but the benefits of centralized control become evident during crises. A truly decentralized system does not have a buffer against bank runs. It is looking likely Binance will come through this crisis with a dominant position in the “decentralized” finance market.

That was a terrible idea. As I’ve written before on this subject, people just aren’t meant to talk to one another this much. They shouldn’t have that much to say, they shouldn’t expect to receive such a large audience for that expression, and they shouldn’t suppose a right to comment or rejoinder for every thought or notion either. From being asked to review every product you buy to believing that every tweet or Instagram image warrants likes or comments or follows, social media produced a positively unhinged, sociopathic rendition of human sociality. That’s no surprise, I guess, given that the model was forged in the fires of Big Tech companies such as Facebook, where sociopathy is a design philosophy.

Dancing on the grave of social media has begun but it seems to me that the rumours of the sector’s death are greatly exaggerated. There is no doubt social media has issues that range from content moderation to promoting social anxiety and depression among teenagers. However, that does not detract from the reality billions of people spend several hours a day perusing social media forums.

Binance holds $74.7 billion worth of tokens of which around 40% are in its own stablecoin and native coin, according data shared by Nansen.  

The world’s largest exchange released the information after its co-founder Changpeng Zhao announced earlier this week that Binance would provide proof-of-reserves to be more transparent.

The demise of Sam Bankman-Fried’s FTX.com, has raised concerns over the opacity of exchange balance sheets and is prompting companies increase disclosures. Crypto.com has also publicly shared its reserves pool on Friday.

Of the $74.6 billion termed as net worth, about $23 billion was in its own stablecoin BUSD and $6.4 billion in its Binance Coin, according to Nansen. 

The exchange has also allocated 10.5% of its holdings in Bitcoin and 9.8% in Ether, Nansen data shows. 

Binance is the first unlisted crypto exchange to come out with the details, since FTX collapsed, the latest in a series of crypto businesses to go bust this year. Crypto exchanges including OKX, KuCoin, Poloniex, Huobi this week vowed to increase transparency and provide greater clarity on their holdings. 

The promise of the fintech revolution is decentralized finance. That implies no further need for intermediaries. The ambition is consumers, businesses, creditors, and borrowers will be able to transact with one another over the network at will. That will be facilitated by whatever token is relevant to the network as a medium of exchange.

ASML hasn’t been able to sell its most advanced extreme ultraviolet lithography machines to China as the Dutch government refused to give it a license to do so, but the company has been able to sell its other machinery to the country. The Dutch company sees the total indirect impact from the new US measures to be about 5% of its backlog, it said on a call with investors in October. 

Meanwhile, major governments around the world have come up with subsidies and incentives to expand chip production capacities at home to avoid another round of semiconductor shortages that shaved off hundreds of billions from their economies during the pandemic. 

Even though the global chip industry is now facing a severe downturn, countries including the US and Japan have not slowed their pace in readying new plants to prepare for the next boom cycle. Taiwan Semiconductor Manufacturing Co. is even considering adding another advanced facility next to a $12 billion dollar plant that’s under construction in the US state of Arizona. 

Efforts by governments to build chip plants at home have just started and will accelerate, Wennink said Friday. “The drive for technological sovereignty is going to be very important driver for our business going forward.”

The one thing everyone learned during the pandemic is the global supply chain is lot more fragile than previously believed. That is truer of the semiconductor sector than anything else and not least because many countries gave up domestic manufacturing capacity in favour of cheaper overseas production. Reversing that trend is both expensive and time consuming.

A cooling in US consumer prices offered cheer to households, investors and Federal Reserve officials, but there’s still a long way before high inflation becomes history. 

At 7.7%, annual inflation in October was the slowest since January -- before the start of Russia’s war in Ukraine that triggered a worldwide surge in commodities and pump prices. Even more importantly for the Fed, a closely watched measure that excludes food and energy decelerated by more than economists anticipated.

With slowdowns across categories including food, apparel and used cars, the report suggests that the fastest price increases in decades may finally be starting to ebb in the world’s largest economy. And it probably gives the US central bank enough assurance to moderate its aggressive interest-rate hikes if the trend is sustained.

Inflation is rolling over as predicted and it will continue to do so. The pace of tightening this year has been historic in nature and most particularly, the peak in money supply growth was in February 2021. There is a significant lag between money supply growth and tightening conditions and when they show up in the economy. That is now at hand.

As impressive as this year’s updates are, IBM is looking to next year as the real turning point. The company’s roadmap says that next year’s quantum processor, the Condor, will boast a stunning 1,121 qubits. Also on the cards is a modular processor called the Heron, which can stack multiple 133-qubit units together to make more powerful quantum processors.

And finally, the IBM Quantum System Two will be released towards the end of 2023. This modular system will form the framework of the company’s quantum supercomputers, housing multiple processors with communication links between them. These are all stepping stones on the path towards IBM’s plans of building a quantum system with over 4,000 qubits by 2025.

Alphabet’s Hartmut Neven, claimed a few years ago was that quantum computing was progressing at a double exponent pace. To put that in context an exponential pace is 1,2,4,8,16,32. An exponential exponential pace is 1.2,4,16, 256, 65,536.  

The EV maker Lucid turned in respectable third-quarter earnings and stuck with its forecast for vehicle shipments this year, but the stock is dropping. Reservations are the issue.

Tuesday evening, Lucid (ticker: LCID) reported a per-share loss of 40 cents from $195 million in sales. Wall Street was looking for a 31-cent loss from $209 million in sales., but earnings and sales don't matter much at this point.

The company is just ramping up production of its first model, the Lucid Air. Importantly, the company didn't change its full-year guidance for vehicle shipments from the 6,000 to 7,000 cars it told investors to expect back in August. The prior guidance, given in May, was for 12,000 to 14,000 units.

What seems to be raising investors' eyebrows is that management says Lucid has 34,000 reservations for its vehicles. The number given in August was 37,000.

Shares were down 3% in after-hours trading.

Lucid delivered 1,398 vehicles in the third quarter, up from 679 in the second quarter of 2022. Lucid produced 2,282 vehicles in the third quarter, which was more than triple the second-quarter production, according to the company.

The company also ended the quarter with almost $4 billion in cash.

Management scheduled a conference call for 5:30 p.m. Eastern time to discuss the results. Investors and analysts will be interested in the reservation number and whatever management has to say about demand for Lucid vehicles.

Through Tuesday trading, Lucid stock was off more than 60% so far this year, while the S&P 500 and Dow Jones Industrial Average had dropped about 20% and 9%, respectively.

Lucid stock has been hit harder than most. The cut to the forecast for deliveries didn't help. Rising interest rates, which reduce the current, discounted value of earnings expected to arrive in coming years, are an additional problem.

Flashy ads and attentional grabbing statistics, like the longest range and best battery, encouraged consumers to pay trivial down payments to secure a spot in delivery queues. Now, the question whether one does in fact have the resources to spend six figures on a car are more pressing. For Lucid it represents a significant issue because they are quite a ways from delivering a more affordable model. The share continues to trend lower.

As the hosts point out, the best time to buy bonds is when yields are high and inflation is peaking. The higher yield offers a margin for error even if it takes time for the macro details to work themselves out.

So most investors, whether they own stocks or bonds, should have plenty of opportunities to harvest losses between now and the end of the year. And that means there will be more selling pressure ahead.

"There will be pretty high tax loss selling I would think. I even got a white paper from somebody saying this was the greatest tax loss selling opportunity of a generation. I would say it might be two generations," Gundlach said.

Tax-loss selling is a tax optimization strategy that investors and financial advisors often take advantage of in taxable accounts heading into year-end. The strategy involves realizing losses by selling out of losing positions, and then buying back those portfolio positions 31 days later to avoid the tax wash-sale rule.

The strategy allows investors to realize losses that can offset future realized gains, ultimately helping reduce tax liabilities in the long term.

In a year where most people were unprepared for the severity of declines in popular shares like the mega-caps and the innovation sector, investors will be eager to preserve what benefit they can. Realising a loss reduces the tax payable on gains and stores up losses to write off on gains in the future too.

Zambia, too, has ambitious expansion plans. The region could add nearly 1 million tons of annual copper production over the next decade, according to Adam Khan, copper supply analyst at CRU Group, and others are more optimistic still.

“Copper is the new oil,” Zambian Finance Minister Situmbeko Musokotwane said in an interview. “This is a very good opportunity for us.”

There’s no doubt that the region’s copper will be needed. To meet the global target of net-zero by 2050, the world may need to double supplies of what S&P Global calls “the metal of electrification.” “The green-energy transition is the biggest purchase order in history for the commodities industry,” said Benedikt Sobotka, chief executive officer of miner Eurasian Resources Group.

To be sure, logistics are not the only impediment. Corruption is rife, and disputes with governments are common. One of the largest copper and cobalt mines, Tenke Fungurume, hasn’t been allowed to export any material since July because of a dispute between its owner CMOC Group and Congolese state mining company Gecamines.

The COP27 Conference opened in Egypt today and the number of articles highlighting the plight of climate affected populations both domestically and internationally has increased significantly over the last week. The above article focuses on the supply issues of transporting resources to the coast and the additional challenge posed by the plans to increase supply before infrastructure has been built. Meanwhile Glencore was fined £281 million for bribing officials in Africa. Never mind that it is impossible to do business in the region without local partners.

In some ways this represents an important generational change in the way China will interact with the rest of the world. As far as we know, the term “international circulation” originated in 1988 when a government researcher, Wang Jian, made the case that China should adopt an export-led growth strategy, making use of its huge surplus labor to plug the economy into the international manufacturing process. In that sense, the de-emphasis of international circulation is an important historical shift. In a People’s Daily article in November 2020, Vice Premier Liu He set out a number of objectives relating to the DCS including: (1) the priority of upgrading of China’s technological capacity, including an enhancement of China’s supply chain resilience (though referred to in this article as “optimizing the structure of supply”); (2) the need for finance to serve the needs of the real economy; and (3) the promotion of further urbanization. Any mention of external demand comes last

A link to the full report is posted in the Subscriber's Area.

China’s stock markets are accelerating lower so that is a trend ending signal. The big question for all investors is at what point will the risk premium be fully priced in? The USA’s more aggressive attitude towards China is about the only bipartisan topic in the current administration. In fact the two parties seem to be competing for the mantle of biggest China hawk. China’s response to more activist counterparty risk is to look inwards and many people fear a repeat of the Cultural Revolution is already in play.

Shares of Gilead Sciences ticked up Friday morning after the company’s latest earnings report exceeded Wall Street’s expectations.

The results were, in part, tied to growing sales from Gilead’s cell therapy business, which consists of the marketed cancer drugs Yescarta and Tecartus. Together, sales from the two drugs totaled $398 million in the third quarter, a nearly 80% increase from the same three-month period a year prior.

Gilead’s work in cell therapy, catalyzed by the $12 billion acquisition of Kite Pharma in 2017, hasn’t always sat well with investors. Early sales from Yescarta were slower than some had hoped, and Gilead ultimately acknowledged that some assets from the Kite deal were overvalued.

But in recent months, the company’s cell therapy business has ballooned. Third quarter sales of Tecartus were up 72% year over year, reaching $81 million, while those for Yescarta rose 81% to $317 million. Gilead cited the approval of Yescarta as a “second-line” therapy for a type of hard-to-treat lymphoma, which happened in April, as a main reason for the uptick.

Immunoncology involves re-educating the immune system to target cancers which typically avoid detection by the body’s defenses. Related stocks blossomed in 2015 with a huge rally. They had a brief second coming in 2018 but subsequently collapsed as the route to commercialization proved to be anything but easy.

Inversions of this segment of the Treasury curve typically occur late in Fed tightening cycles as three-month bills track the policy rate while longer-term borrowing costs reflect expectations for economic growth and inflation. While other widely-watched yield curve segments such as the two- to 10-year and five- to 30-year have been deeply inverted for much of this year, the Fed follows this one more closely.

“We are certainly in territory with the Fed’s official barometer of the yield curve that will raise concerns,” said Gregory Faranello, head of US rates trading and strategy at AmeriVet Securities. “The Fed will definitely watch this, and there is a sense in the bond market that they will soon throttle back the pace of rate hikes and take a step back.”

The 10-year – 3-month spread spent part of today inverted following an 11.65 basis-point contraction. The spread was at 223 basis points in May so this tightening has been the fastest in decades. The fact there was such a wide divergence between the 10-year – 2-year and the 10-year – 3-month was regarded as an oddity but reflected the stresses in the bond market.

The demand outlook was particularly dire in the semiconductor industry, which had been one of the hottest sectors during the pandemic. Texas Instruments, whose chips go into everything from home appliances to missiles, saw shares tumble after its weak forecast signaled that the chip slump is spreading beyond computing and phones into other businesses. The stock lost 5%, while Analog Devices Inc., ON Semiconductor Corp., and Marvell Technology Inc. also dipped.

South Korean chipmaker SK Hynix Inc. reported a 60% decline in profit and said it would cut capital expenditures by more than half. It warned of “an unprecedented deterioration in market conditions.” Hynix is joining fellow memory makers Micron Technology Inc. and Kioxia Holdings Corp. in slashing production plans as chip prices tumble. 

The silver lining for investors is that the eventual pullback in supply may ultimately prove beneficial for profits -- and stock prices. Hynix shares, which have lost 28% this year, were up as much as 2.1%. Samsung Electronics Co. climbed 3%, while Taiwan Semiconductor Manufacturing Co. added 1.4%.

“Inventory will decrease accordingly and demand will rise again,” said Greg Roh, head of technology research at HMC Investment & Securities.

At the NAAIM conference yesterday the manager of a commodity ETF quoted the statistic that there have been more backwardations in commodities this year than ever before. The point I think most people are missing is the monetary and fiscal response boosted demand for everything. New homes, stocks, bonds, commodities, semiconductors, toilet paper and a host of other products saw demand balloon between April 2020 and early 2022.

“We’re delivering on our commitments and affirming our full-year guidance despite a challenging environment because demand continues to be strong for GM products and we are actively managing the headwinds we face,” GM Chief Executive Officer Mary Barra said in a letter to shareholders.

Shares of the carmaker rose 2% to $36.45 as of 9:35 a.m. in New York. The stock is down about 38% this year. 

GM reported adjusted profit of $2.25 a share on Tuesday, surpassing analysts’ projection for $1.89 a share. It also maintained guidance for full-year adjusted earnings before interest and taxes of $13 billion to $15 billion, or $6.50 to $7.50 a share. 

“GM yet again affirmed the strong and until now mostly disbelieved full-year total company EBIT outlook it has maintained since introduction in February,” J.P. Morgan analyst Ryan Brinkman said in a research note. “GM is now well on the path to achieving its full year goals, despite the tougher consumer and cost backdrop.”

Auto manufacturers talk a good game of expanding EV production with stated expectations of massive increases in the number of electric vehicles manufactured. However, they continue to sell SUVs and pickup trucks. Companies like GM and Ford don’t sell large numbers of sedans so the commitment to selling EVs is moot.

A rally in the S&P 500 faded after Philadelphia Fed President Patrick Harker said officials are likely to raise interest rates to “well above” 4% this year and hold them at restrictive levels to combat inflation, while leaving the door open to doing more if needed.

Traders also sifted through a mixed bag of corporate earnings, with Tesla Inc.’s sales disappointing and International Business Machines Corp. surging on a bullish forecast. Several market observers remarked that the bar has been lowered quite a bit ahead of the current earnings season, boosting the odds of upside surprises. It’s also worth pointing out that there’s been no shortage of warning signals about the economy when it comes to corporate outlooks.

Alcoa Corp. -- which is a dependable barometer of US economic health across industries including construction, automotive, aerospace and consumer packaging -- said demand for the world’s heavy industries is falling. Union Pacific Corp., the largest US freight railroad, cut its forecast for volume growth to reflect a “challenging year.”

As traders wade through corporate results, “with an extra eye on guidance, expect volatility to remain elevated,” said Mike Loewengart at Morgan Stanley Global Investment Office

Earnings are holding up but guidance is being lowered. CEOs are at their most bearish in years but investors have cash to burn and are eager to salvage a dire year for their performance. Appetite for buying the dip following upside key day reversals for mega-cap stocks last week is still evident.

Despite the drop in valuation, the listing is set to be one of the year’s biggest IPOs. Amid heightened volatility and disappointing debut performances of last year’s listings, IPO volume in the US has plummeted to $22.3 billion this year, compared with $277 billion at this point in 2021, according to data compiled by Bloomberg. Instacart Inc., another highly anticipated IPO, last week cut its valuation for the third time, to $13 billion, and is waiting for the markets to settle before going ahead with a listing. Another deterrent for new listings is the fact that many companies that went public in 2020 and 2021 are trading below their IPO prices.

But some analysts said it was reasonable for Intel to go through with the listing despite the poor market timing. Analysts at Bernstein said Intel likely needs the money it will receive from the deal, “given the way their own business is currently trending.” And Vital Knowledge analysts wrote that the “headline is negative, but keep in mind the $50B valuation was floated back in December, so no one should be shocked that the number is now lower today.” Intel shares were up about 1.4% in early trading in New York. 

At present we have straws in the wind but the issues with alternative asset valuations are going to become pressure points for investors over the next couple of years. The LDI debacle in the UK where pensions engaged in financial engineering to avoid leverage rules is the thin end of the wedge.

The reality is QE and the low interest rate environment robbed savers, like pension funds, and forced them to become speculators. At the same time it favoured risk takers and inflated their assets. That allowed both to prosper for a long time but rising rates and tighter liquidity mean the party is over.

It seems Royal Mail changed its name to International Distributions Services plc (IDS.L). I would be grateful if you would kindly share your views on the implications of this change to the price of the share and the health of the company. As always thanks for your great service.

The official name change was announced several months ago but went into effect on the 5th. The main reason posted was to highlight that Royal Mail has two businesses, domestic and international. At the time the name change was announced the company said there would be no transfers between the international and domestic businesses. In other words, they are intent on pushing through significant rationalization of the domestic mail and package service which is still called the Royal Mail.

European Central Bank Governing Council member Pierre Wunsch said interest rates may eventually have to top 3% to get record inflation under control. 

“My bet would be it’s going to be over 2%, and I would not be surprised if we have to go to above 3% at some point,” Wunsch told CNBC in an interview in Washington. 

Wunsch also said:

The ECB’s deposit rate, currently 0.75%, will “most probably” need to exceed 2% year-end

“Frankly on the basis of our base case, which is now more or less a technical recession in Europe, I think we are going to have to go real positive somewhere”

“We’ve been claiming that what happens in Europe is different from the U.K., from the U.S. But over the last six months basically the direction we’ve been taking was not that different”

The ECB’s rate peaked at 4.25% in 2008. That suggests the anticipated peak of hiking, at 3%, will be well below that 2008 peak. That’s only relevant because the Fed Funds rate could exceed its 2007 peak at 5.25% before this hiking cycle has ended. That raises the question why is the Euro rebounding?

It will take years to see inflation pressures completely recede, according to the minutes. That’s also apparent in the Fed forecasts, which don’t see headline inflation returning to 2% until 2025, and core still above that then.

Catarina Saraiva  Fed Reporter

10/12 19:26

Regarding QT, several officials said it would be “appropriate” to consider sales of agency MBS at some point so the Fed’s long-term portfolio can be composed primarily of Treasury securities.

Ian Lyngen at BMO Capital Markets comments:

“Not new information per se, but nonetheless reinforcing the idea that for the time being the status quo of QT will be maintained. Especially after the volatility experienced in the gilt market, and liquidity in both mortgages and Treasuries already becoming an issue, we don’t expect MBS sales from SOMA will be a near term issue.”

Ye Xie  Markets Reporter, New York

10/12 19:25

Here’s something to keep in mind when looking at tomorrow’s CPI report:

“Participants commented that they expected inflation pressures to persist in the near term.”

Catarina Saraiva  Fed Reporter

10/12 19:25

The median estimate of Fed officials’ projections in the September SEPs was for unemployment to climb to a high of 4.4% next year. Many economists have said this is wishful thinking, and that it will likely rise much higher if the Fed keeps raising rates. It sounds like some at the Fed are concerned about this as well.

“A few participants particularly stressed the high uncertainty associated with the expected future path of the unemployment rate and commented that the unemployment rate could rise by considerably more than in the staff forecast.”

The highest unemployment rate forecast among the 19 policymakers for 5% in 2023.

The steadier action focusing on the “calibrate” statement implies the Fed will slow down the pace of interest rate hikes after the November meeting. The thing I find most interesting about this evolving environment is the willingness of investors to pre-empt what the federal reserve will do. It’s a symptom of relying on past experience to inform future decisions. We know what has happened on every other occasion, so why not this time? That’s why buying the dip works after all.

Beyond this example, AlphaTensor’s algorithm improves on Strassen’s two-level algorithm in a finite field for the first time since its discovery 50 years ago. These algorithms for multiplying small matrices can be used as primitives to multiply much larger matrices of arbitrary size.

Moreover, AlphaTensor also discovers a diverse set of algorithms with state-of-the-art complexity – up to thousands of matrix multiplication algorithms for each size, showing that the space of matrix multiplication algorithms is richer than previously thought.

Algorithms in this rich space have different mathematical and practical properties. Leveraging this diversity, we adapted AlphaTensor to specifically find algorithms that are fast on a given hardware, such as Nvidia V100 GPU, and Google TPU v2. These algorithms multiply large matrices 10-20% faster than the commonly used algorithms on the same hardware, which showcases AlphaTensor’s flexibility in optimising arbitrary objectives.

Taiwan Semiconductor initially expected to produce 3nm chips this year and now plans to mass produce next year. They expect to have 2nm chips in the market by 2024/25. A silicon atom is 0.2nm wide so the 2nm phrase is essentially marketing terminology for chips that more efficient and incorporate more transistors. 

A video has gone viral of a large drone dropping off a gun-wielding robot dog, a terrifying vision of what the future of warfare and policing could soon look like.

The footage shows a sizable octocopter drone dropping off its armed payload on a rooftop in an urban area. The robodog then springs to life and stretches its legs.

The robot appears to be carrying a modified, semiautomatic assault rifle, which has been the service rifle for the People's Liberation Army and paramilitary agencies in China since 1995.

The clip was shared by an account called Kestrel Defense Blood-Wing on Chinese social media. According to a rough Google translation of the account's description of the video, "war dogs" that "descend from the sky" can be "directly inserted into the weak links behind the enemy to carry out surprise attacks," be delivered "to the top of enemy buildings," or provide fire suppression.

Boston Dynamics has committed to not developing weapons, but they are certainly inspiring copycats. This kind of picture is designed to instill fear. It does not get over the issue Boston Dynamics has with battery life. A robot dog like that, has 90 minutes of usability before it runs down. Carrying a gun, it would be even less. At that point they had better explode or they will quickly be repurposed to fire back at an invading force. 

We’re living through an extraordinary time in American history, and really in all human history. Once you take that big-picture historical perspective, once you look at the whole forest rather than the individual trees, the real story of our times starts to make more sense. We happen to have arrived at a juncture between two very different historical eras and that makes everything on the ground very confusing, and very traumatic.

One way to understand this is that for the last 40 years America and the world have been operating within a series of interconnected systems that add up to one mega-system. Our energy system was rooted in carbon, and our transportation system was based on the internal combustion engine. Our culture was dominated by the huge Baby Boom generation and our politics tended to be more conservative. Our economics was all about unleashing the private sector and maximizing shareholder capitalism. Work was done in physical places and production was primarily industrial. Our uber-challenge was terrorism, and our geopolitical focus was the Middle East, which made sense because we needed to keep the carbon energy flowing to keep the whole flywheel of this mega-system spinning.

That whole mega-system, and all the subsystems, arguably are now breaking down and often causing more problems than they are solving. This world that older people spent their entire careers and lives mastering is coming to an end. This world that younger people were taught is “just the way things are” increasingly does not make sense. This world that politicians proudly had policies for, and that the media confidently analyzed and explained, is soon going to be over.

Every one of those systems arguably is being superseded by new systems much better suited for the 21st century. Our uber-challenge is now climate change and so our energy system must shift to clean power and our transportation system to electric. Our culture now is dominated by the huge Millennial generation and our politics are becoming more progressive. Our economics is raising the role of the public sector and capitalism being pushed to include all stakeholders. Work is now taking place much more virtually, and production is on the cusp of becoming biological. And our geopolitics is recentering on Asia, and in particular on the new superpower, China.

There are two important cycles investors need to be aware of. First you have the technology cycle. Time marches to a different beat inside universities and labs all over the world. The market may go up and down but smart people, beavering away on their pet idea, will eventually lead to technological innovations that take everyone by surprise.

Overwatch 2’s launch suffered from a double whammy of troubles when the servers opened for business Tuesday: Massive player interest led to equally massive login queues and a cyberattack.

Blizzard Entertainment President Mike Ybarra tweeted that the company was dealing with a Denial of Service (DDoS) attack that was disrupting servers (these stopped after Tuesday’s launch). "Server issues” and “launch day” predictably go together in gaming, so plenty of players knew to expect disruptions and wait times.

Another issue plaguing Overwatch 2’s launch was the use of Blizzard’s SMS Protect feature, which requires a mobile phone number to prevent cheaters and stop hackers from taking over player accounts. But since Tuesday’s launch, those using prepaid cellular accounts can’t use those mobile numbers to play (it's part of the SMS Protect protocol). A Blizzard spokesperson said that the company is "actively engaging with some service providers to explore if we can expand the program to cover more users while still protecting our players and game security."

Late Wednesday, Blizzard said an update it plans to roll out Friday will change SMS Protect so that any player who has logged into Overwatch since June 2021 can play without a phone number requirement (anyone who hasn't played Overwatch since that time will need to use a phone number. It’s also rolling out updates to improve online stability and long login queues. Players have also been reporting missing items and other data, and Blizzard said half of these issues are because players didn’t merge their accounts. For the rest, Blizzard said no data has been wiped or lost and it is working to restore missing items.

Activision Blizzard was in the process of collapsing before Microsoft made a bid for the company. The share is falling once more which suggests investors are wary of thinking the merger will get approval from the EU.

Upgrade from Cautious to Attractive: No one knows exactly when this downturn will end and we find it difficult to get ahead of macro events, but we see signals that suggest we should no longer be overly pessimistic: (1) the cyclical sell-off has already been punitive in an historical context; (2) the magnitude of the valuation correction (YoY) is approaching extremes relative to the last two decades; (3) earnings risks are now well understood and it is surprises that will drive stocks from here; (4) green shoots are emerging while some consumer parts of tech are close to bottoming; (5) we are upgrading our top down EM strategy view on IT, Korea, and Taiwan; these are set-up for a reversal in returns in the coming weeks. What is not understood is cycle turns and the market's willingness to increasingly look through this late stage of the downturn and, hence, our focus on the other side of the cycle.

An inflection is near and we see reasons to be constructive on a 2H23 recovery. (1) Macro headwinds are fading with the bulk of the Fed’s heavy lifting likely to be done by year-end and benefits from China’s reopening; (2) demand elasticity and replacement cycles will be driven by the sharp fall in pricing, especially consumer products; and (3) supply adjustment is accelerating via significant production and capex cuts that are underway. We have clearly worked through the slowdown in the consumer and are most positive on 'first-in, first out' exposure in LCD panels bottoming now, followed by memory in 4Q22, while the trough for foundry, auto and semicap should come with a lag in 1H23.

As the fourth quarter begins and investors position for how they hope to salvage returns for 2022, questions are already arising about the prospects for 2023. There is no doubt, steep declines in asset prices, particularly within the tech sector, have improved valuations. In normal circumstances that would be sufficient to create attractive entry points. Therefore, the question is whether this is a normal correction following the excesses of the pandemic or the end of the cycle. 

Dear Eoin, In the 1960s and 1970s subscribers to the David Fuller Chart Service received a booklet containing hundreds of charts each week or each month. I used to come into the office at 6a.m. and complete the point and figure charts each day. Thanks to this work, I gained a reputation among my colleagues for being the first one to spot changes in the long-term trends of both overall markets, sectors and individual shares. As of this morning, I am getting up one hour earlier and I will start by looking at all the daily charts of the Autonomies in the Chart Library. Let's hope that this will produce the same result. This morning's work show very small blue upward marks in almost every chart. These are tiny upward movements in the year-long major decline in all these share prices. This "summer's swallow" has not yet started chirping. Regards,

Thank you for this account. David was still having chartbooks printed in 2003, when we began working together. By that stage they were a very niche product that had become obsolete with the development of charting software. Nevertheless, the practice of looking at lots of charts is as useful today as it has ever been.

In following your program of activity, I would suggest taking one day to look at point and figure charts. They will give you clear confirmation of a change of trend.

Many consumers have been introduced to their DNA through relatively low-cost tests like those marketed by 23andMe Holding Co. that analyze small snippets of the genome for clues to disease risk and ancestry. Whole-genome sequencing can provide a far clearer, more accurate view of patients’ genetic makeup that doctors can use to precisely identify some diseases, including certain forms of cancer and heart disease. However, the price of performing the tests, along with their interpretation, has been a barrier for many patients that companies have been trying to bridge.

More efficient machinery and materials reduce customer cost to sequencing one genome, or the complete set of genetic material, Illumina said, adding that costs would range from less than $200 per genome, with discounts for bulk use, to $240 for a higher-quality analysis. Slashing the price of reading DNA could allow the practice to move into the mainstream, where it might be used to better tailor medications or treatments to people or have other health benefits.

“This will be a huge force in terms of significantly increasing accessibility to genomics in a number of ways,” deSouza said in an interview ahead of the announcement. “It will democratize access to genomics by allowing sequencing to be offered to hospitals and researchers at much lower prices.”

Illumina is a highly cyclical business. They are the clear leader in developing machines for genetic sequencing. Every few years they bring out a new machine that delivers more efficient and cheaper sequencing. That kickstarts an upscaling cycle among its customers which boosts sales over the next 18 months. 

“There is an important cautionary note however: the magnitude of the delay – which was a slowing of decline – was small,” he said. “We can only hope that the benefit is durable and could grow with time. Those long-term properties are unknowable at this time.”

The medicine was originally licensed from Sweden’s BioArctic AB, whose shares more than doubled on the news. 

The Alzheimer’s Association welcomed the results, saying they were the most encouraging findings to date from drugs aimed at treating the underlying causes of the disease. Lecanemab has the potential to change the course of the disease and help people in the earliest stages retain their abilities, remain independent and fully participate in daily life, the group said.

Pharmaceutical and biotechnology analysts were equally bullish. “We finally have what we believe to be a clean win in Alzheimer’s disease,” Evan David Seigerman, an analyst at BMO Capital Markets, wrote in a note to clients. “The top-line data are clear to us — lecanemab slows the rate of cognitive decline.”

The trial met every goal that was set, including other measures of mental function and the ability to perform daily activities, the companies said. 

 

The biotechnology/pharmaceuticals sector is endlessly productive. It is one of the few where there is genuine potential for new products to meet unmet needs. That means there is clear scope for value creation that can contribute to both better living standards and rising productivity. 

Congrats on your opinion on a larger correction and acting on it with put purchases.

Last week Double Line presentation  had a chart that showed the performance of equity and the different credit subclasses, Ags., EM, HY, ClOs and so forth. Showed  the large move by equities compare to credit over the same time period. It made me wonder how much further the equity correction can go.

You often follow interesting companies, you mention EQNR from Norway. have you ever looked a Freyr. It is also Norwegian and is involved in batteries. During  the last days because of a report on its possible growth it had a huge move , but during this correction it may be a good opportunity, let me have your thoughts. Based on your comments  how much the market has already priced in the EVs maybe it is not a good idea.

The move on copper is not a good signal  

Trust all is well for you  and your family

Thank you for these well wishes and questions which may be of interest to the Collective. Of my nine different long-dated put positions, the only one not in profit is Tesla and yet that is the one I have the greatest hopes for. They all have maturities in 2024, but I expect the point of maximum pessimism will arrive while they still have some time value.

His arrest is the latest blow to the plant-based protein company, which last month slashed its revenue outlook for the year and said it would cut 4% of its workforce.

The irony of a vegetarian food company executive taking bites out of unwary civilians put me in mind of Soylent Green. Afterall, the movie might have been released in 1973 but it is set in 2022. Here is a section from the Wikipedia description:  

By 2022,[3] the cumulative effects of overpopulation, pollution and an apparent climate catastrophe have caused severe worldwide shortages of food, water and housing. In New York City alone, there are 40 million people, and only the city's elite can afford spacious apartments, clean water, and natural food. The homes of the elite are fortified, with private security and bodyguards for their tenants. Usually, they include concubines (who are referred to as "furniture" and serve the tenants as slaves). The poor live in squalor, haul water from communal spigots, and eat highly processed wafers: Soylent Red, Soylent Yellow, and the latest product, far more flavorful and nutritious, Soylent Green.

Excellent reflexions in this long term view.

Have you ever talked about investing in the Graphene potential?

I have a friend convinced that the cost of producing it will come down with some innovation. And it could substitute or complement copper supply.

Thank you for this question which may be of interest to the Collective. I have been thinking a lot about the genesis of bull market themes. Good ideas often don’t come from nowhere. It takes a long time for product ideas to reach fruition.

For example, Mark Cuban’s first venture was Broadcast.com in 1998. Then Enron signed a deal with Blockbuster video to begin a video on demand service in 2001. Both ventures failed in epic fashion.

Netflix began by mail ordering in 1997 and only adopted streaming in 2007. That was nine years between the first attempt at streaming and the big success story everyone is familiar with. However, the model was only possible because of the growth of the internet and improving connection speeds and accessibility.

Today, every broadcaster has embraced some form of streaming which highlights that it is the interest is the enabler and no company has a defensible moat without killer content at an acceptable cost.

Germany seized the local unit of Russian oil major Rosneft PJSC as Berlin moves to take sweeping control of its energy industry, secure supplies and sever decades of deep dependence on Moscow for fuel. 

Alongside its move for the Rosneft unit, Chancellor Olaf Scholz’s administration is in advanced talks to take over Uniper SE and two other major gas importers, Bloomberg reported on Thursday. Germany is pressing ahead with an historic overhaul of its economy just two and half years after the Covid-19 pandemic, grabbing control over a huge chunk of its industrial base to prevent shortages and blackouts this winter. 

A decision on the next moves could come within days. The need for action is urgent with Uniper losing 100 million euros ($99.7 million) a day as it tries to replace Russian gas to maintain deliveries to local utilities and manufacturers.

Germany took over all of the landesbanks during the Eurozone’s sovereign wealth crisis. Shorting individual stocks is frowned upon, with several bans being introduced over the last decade. The state has also waded into the market for failing companies, like Wirecard, and banned naked shorting. Therefore, it is not such a logical leap to think Germany will have fully nationalised the domestic gas industry within the year.

Of course, San Francisco is no stranger to robots at restaurants. I’m personally familiar with both coffee robot Cafe X and the ROBOJuice smoothie-making robot at the San Francisco Metreon. But neither offer a full meal — and full-service restaurants that do employ robots tend to still need humans to fulfill some tasks, such as taking orders. 

Mezli also isn’t quite fully autonomous. Real humans do the prep work for the Mediterranean menu (created by chef Eric Minnich of Michelin-starred Madera in Menlo Park) in a central kitchen offsite. 

It’s also more of a vending machine than it is a full-service restaurant — robots aren’t waiting tables. But from the moment you place your order to the moment a piping hot bowl is in your hands, the robots are in charge. 

With a law proposed in California to raise only fast-food salaries to $22 an hour, the message is clear; innovate or die. Wage growth incentivises innovation in labour saving devices. That becomes more urgent as inflation pushes up the cost of everything else too.

The global economy may face a recession next year caused by an aggressive wave of policy tightening that could yet prove inadequate to temper inflation, the World Bank said in a new report.

Policy makers around the world are rolling back monetary and fiscal support at a degree of synchronization not seen in half a century, according to the study released in Washington on Thursday. That sets off larger-than-envisioned impacts in sapping financial conditions and deepening the global growth slowdown, it said.

Investors expect central banks to raise global monetary policy rates to almost 4% next year, double the average in 2021, just to keep core inflation at the 5% level. Rates could go as high as 6% if central banks look to wrangle inflation within their target bands, according to the report’s model.

When quantitative easing was first introduced there was a lot of handwringing at the thought of moral hazard. The Federal Reserve waded into public markets to buy sovereign bonds with the stated aim of back stopping government spending and encouraging speculation. It was viewed as a very risky endeavour that would send the wrong signal to speculators; that they can’t lose. In 2012/13 the EU went in the opposite direction and withdrew liquidity for fear that debtor nations would not mend their ways if assistance was too generous. 

I think it looks like interest rates will have to rise a lot (toward the higher end of the 4.5 to 6 percent range) and a significant fall in private credit that will curtail spending. This will bring private sector credit growth down, which will bring private sector spending and, hence, the economy down with it.

Now, we can estimate what that rise in rates will mean for market prices and economic growth. The rise in interest rates will have two types of negative effects on asset prices: 1) the present value discount rate and 2) the decline in incomes produced by assets because of the weaker economy. We have to look at both. What are your estimates for these? I estimate that a rise in rates from where they are to about 4.5 percent will produce about a 20 percent negative impact on equity prices (on average, though greater for longer duration assets and less for shorter duration ones) based on the present value discount effect and about a 10 percent negative impact from declining incomes.

Now we can estimate what the fall in markets will mean for the economy i.e., the "wealth effect." When people lose money, they become cautious, and lenders are more cautious in lending to them, so they spend less. My guesstimate that a significant economic contraction will be required, but it will take a while to happen because cash levels and wealth levels are now relatively high, so they can be used to support spending until they are drawn down. We are now seeing that happen. For example, while we are seeing a significant weakening in the interest rate and debt dependent sectors like housing, we are still seeing relatively strong consumption spending and employment.

The upshot is that it looks likely to me that the inflation rate will stay significantly above what people and the Fed want it to be (while the year-over-year inflation rate will fall), that interest rates will go up, that other markets will go down, and that the economy will be weaker than expected, and that is without consideration given to the worsening trends in internal and external conflicts and their effects. 

US rail workers are about to go on strike. By now the pattern is familiar. The companies they work for are making record profits and the wages have not kept up with inflation. This will also again highlight the disparity between the benefits of union workers versus less well represented groups. This is exactly the kind of evidence of a wage price spiral the Fed is seeking to avoid by hiking rates aggressively.

Notably, neither scenario assumes that the growth in new capacity—expansions and new mines—speeds up. Absent a major policy shift, however, regulatory, permitting, and legal challenges, combined with long timelines for new mines to come onstream, will continue to dampen the pace of supply increases. This supply-demand gap for copper will pose a significant challenge to the energy transition timeline targeting Net-Zero Emissions by 2050. The challenge will be compounded by increasingly complex geopolitical and country-level operating environments. These include

The strategic rivalry between the United States and China—over a projected period in which China will remain the dominant global supplier of refined copper, while the United States depends on imports for well over half its copper.

Russia’s invasion of Ukraine and its cascading effects on the commodities markets and energy security, which have highlighted the vulnerability of supply chains. “Supply chain resilience” policies aiming to secure reliable supplies of the materials needed for energy transition—and economies in general—are likely to be a central feature of the emerging geopolitics.

A growing tension between energy transition, social license, and ESG objectives that dramatically increase the need for minerals like copper on one hand, while raising the compliance, legal, and operational costs of mining those minerals on the other.

The risk of a significant, structural increase in copper prices as the supply-demand gap increases, with a potentially destabilizing impact on global markets and industry. While structurally higher prices incentivize international investment in new capacity, governments in sourcing countries are likely to seek to capture domestically a rising share of revenues.

The fragmenting of globalization and a resurgence of resource nationalism. The resulting challenge for all actors involved with the energy transition will be to manage often competing and seemingly contradictory priorities. It is clear that technology and policy innovation will both be critical to reducing the supply-demand gap for copper in order to help enable the net-zero goals

Every major bull market which climaxes in a mania exhibits contradictory arguments. We are fully aware of the earnings don’t matter claims from the 1990s or house prices only go up ahead of the GFC. The difficulties with fulfilment of the renewable energy idealistic dream are a fresh contradiction. It is impossible to double copper production within 13 years. Therefore, there is no possible way the zero carbon ambitions of the green lobby can be realized. 

“A shockingly hot inflation report pulled the rug for gold as investors are now starting to price in more Fed tightening. A 75-basis-point rate increase is a done deal for September and it is starting to look like we might not see a downshift in November,” said Ed Moya, senior market analyst at Oanda.

Gold fell 1.1% to $1,706.18 an ounce at 9:42 a.m. in New York, after slumping as much as 1.6% earlier. The Bloomberg Dollar Spot Index rose 0.7% after falling 0.4% on Monday. Spot silver, platinum and palladium also fell.

We have had negative real interest rates for a decade. In that time gold has gone through significant periods of strength and weakness. Intuitively, negative real interest rates should support gold because inflation is outpacing the return from cash for a prolonged period. However, that is not a sufficient condition to support a bull market.

“This is what one could call pipeline in a pill,” said Bristol’s Chief Medical Officer Samit Hirawat.  

Sotyktu will not carry a black box warning, the US Food and Drug Administration’s strongest communication of potential risks. Analysts were closely watching the safety language in the drug’s label since such warnings have hampered other promising autoimmune drugs. 

The label is “close to the best case scenario,” Citi analyst Andrew Baum wrote in a note to clients. Shares of Ventyx Bioscience, a biotech company pursuing TYK2 drugs, soared as much as 67.14%. 

Bristol will try to unseat Amgen Inc.’s Otezla, a top-selling psoriasis pill that Sotyktu bested in clinical trials. Shares of Amgen fell as much as 4.3%. Convincing health insurers to cover Sotyktu will take time, said Bristol Chief Commercialization Officer Chris Boerner.

It has been a busy few days for the biotech sector with drug approvals making headlines for Bristol Myers Squibb, Regeneron and Clovis Oncology. President Biden’s cancer moonshot speech today was an additional catalyst for interest in the biotech sector. Here is a section from article by NBC: 

"Under Dr. Wegrzyn’s leadership, ARPA-H will support programs and projects that undertake challenges ranging from the molecular to the societal, with the potential to transform entire areas of medicine and health in order to prevent, detect, and treat some of the most complex diseases such as Alzheimer’s, diabetes, and cancer, providing benefits for all Americans," the White House said.

According to Ultrasound money, the total Ethereum supply stands at over 120 million, and the amount of staked Ethereum on the Beacon chain is 13.6 million ETH, which is over 10% of the asset supply.

The tracker predicted that Ethereum PoS would issue 1700 ETH daily if staked ETH touches 14 million. It noted that as the number of staked Ethereum increases, the number of issued assets would increase too.

Meanwhile, a Chainalysis report said the merge would entice more institutional investors to Ethereum. According to the report, ETH would behave more like bonds and commodities, boosting their confidence in the token.

Ethereum burning mechanism
Ethereum’s burning mechanism will likely ensure that the supply of the token decreases.

In the past 24 hours, 1,967.60 ETH has been burned, representing 1.37 ETH per minute, and the network has burned 38,236.53 ETH in the last 30 days.

Protocols responsible for most of the burned ETH in the last 30 days include OpenSea, Uniswap V3, Uniswap V2, Gem, and 1inch v4, meaning NFT and DeFi protocols are mostly responsible for burned ETH.

The migration of Ethereum away from mining and into a proof of stake protocol is a major event for the crypto universe. It turns the second largest token into a more transaction-ready system. It also addresses some of the power usage issues bitcoin has. The fact it is reducing supply and paying dividends to investors is akin to the practice many corporations follow with their shares.

My theory is that the breaking of these superbubbles takes multiple stages. First, the bubble forms; second, a setback occurs, as it just did in the first half of this year, when some wrinkle in the economic or political environment causes investors to realize that perfection will, after all, not last forever, and valuations take a half-step back. Then there is what we have just seen – the bear market rally. Fourth and finally, fundamentals deteriorate and the market declines to a low.

Let’s return to where we are in this process today. Bear market rallies in superbubbles are easier and faster than any other rallies. Investors surmise, this stock sold for $100 6 months ago, so now at $50, or $60, or $70, it must be cheap. Outside of the late stage of a superbubble, new highs are slow and nervous as investors realize that no one has ever bought this stock at this price before: so it is four steps forward, three steps back, gingerly exploring terra incognita. Bear market rallies are the opposite: it sold at $100 before, maybe it could sell at $100 again.

The proof of the pudding is the speed and scale of these bear market rallies.
1. From the November low in 1929 to the April 1930 high, the market rallied 46% – a 55% recovery of the loss from the peak.
2. In 1973, the summer rally after the initial decline recovered 59% of the S&P 500's total loss from the high.
3. In 2000, the NASDAQ (which had been the main event of the tech bubble) recovered 60% of its initial losses in just 2 months.
4. In 2022, at the intraday peak on August 16th, the S&P had made back 58% of its losses since its June low. Thus we could say the current event, so far, is looking eerily similar to these other historic superbubbles.

Have we seen the secular peak in this market? That’s the only real question investors need to concern themselves with. The above statistics are certainly compelling, but the size of the rebounds should also be considered relative to the size of the initial declines from the peaks. Let’s round out that data.

1. The Dow Jones Industrials Average accelerated to the peak on September 3rd 1929. It fell 47.87% to the initial low on November 13th
2. The peak in 1973 was a failed upside break from a range that had been forming since 1966; with the Dow failing at the psychological 1000 on several occasions. That failed upside break resulted in a deeper pullback than any (25% & 36%) posted during the ranging phase. The failed downside break in 1974 resulted in a 75% rebound. It was another six years before a breakout to new highs was sustained.
3. Between March 10th and May 26th 2000 the Nasdaq Composite fell 40.72%.
4. Between January 7th and the low on June 17th the S&P500 declined 24.52%.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said Friday in remarks at the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming. “The historical record cautions strongly against prematurely loosening policy.”

He said restoring inflation to the 2% target is the central bank’s “overarching focus right now” even though consumers and businesses will feel economic pain. He reiterated that another “unusually large” increase in the benchmark lending rate could be appropriate when officials gather next month, though he stopped short of committing to one.

“Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook,” he said.

In very simple terms, the Fed has two mandates, price stability and full employment. Right now, they have full employment and robust business capital investments. They don’t have price stability or anything approaching it. That’s a recipe for tighter monetary conditions and higher rates until downward pressure on employment becomes problematic. 

More broadly, the three “moments” of reckoning we discussed above mean that global supply chains, whether they produce military or civilian goods, are facing a Minsky Moment – a Real Minsky Moment. Paul McCulley’s term referred to the implosion of the long -intermediation chains of the shadow banking system that marked the onset of the Great Financial Crisis. Today, we are witnessing the implosion of the long -intermediation chains of the globalized world order: masks, baby formula, chips, missiles, and artillery shells, for now. The triggers aren’t a lack of liquidity and capital in the banking and shadow banking systems, but a lack of inventory and protection in the globalized production system, in which we design at home and manage from home, but source, produce, and ship everything from abroad, where commodities, factories, and fleets of ships are dominated by states – Russia and China – that are in conflict with the West.

Inventory for supply chains is what liquidity is for banks. In 2007 -08, big banks ran on “just -in -time” liquidity: the dominant form of liquidity was market liquidity, for which you could always sell assets into a deep market without moving prices, so you did not have to have liquidity reserves at the central bank. Similarly, big corporations today run “just -in -time” supply chains for which they assume that they can always source what they need without moving the price. But not really: the U.S. military has to wait a little bit as Raytheon “will take a little while”; Taiwan and Saudi Arabia have to wait as well until the conflict in Ukraine is over; and if your washing machine broke recently, you’ll have to wait a bit too until defense contractors are done buying them up to rip chips out to make missiles.

In propagating the Belt and Road Initiative, China has long complained that the USA’s policy towards it is one of containment. That has become more much overt since 2016. Sanctions on chip manufacturing capacity are an escalation. The rationale for such moves is obvious. The USA and Europe need time to rebuild domestic manufacturing capacity.

The outlook follows a similarly dire fourth quarter, when sales plunged 28% to $678.7 million and the adjusted loss was $288.7 million. On a net basis, the loss was $1.2 billion -- about four times the size of the company’s loss a year earlier.

The numbers suggest that a turnaround plan under Chief Executive Officer Barry McCarthy still has a long way to go. He took the reins in February and slashed expenses – cutting thousands of jobs and shuttering operations -- but the company is facing sluggish demand and a buildup of inventory. On
Wednesday, Peloton announced plans to begin selling its bikes and accessories on Amazon.com Inc.’s site, aiming to broaden its distribution.

The Amazon news gave a boost to shares, but they remain down nearly 90% over the past year. After the company published its outlook on Thursday, the stock dropped 6.5% in premarket trading before markets opened in New York. 

I was rather puzzled at Peloton’s strength yesterday. News they are about to start selling on Amazon was greeted with enthusiasm by investors. However, Amazon takes a fee from prime of anything between 30-40%. If there is not going to be a massive price disparity, Peloton will need to eat that cost.

BYD is scouting lithium mines to protect itself from surging prices of the essential battery metal. Despite rapid sales growth, BYD's margins were hammered last year due to high raw material prices. Net margins fell to 1.4% in 2021 from 2.6% a year earlier, according to FactSet. That compares with Tesla's 10.3%.

There is some hope of that reversing however, as commodity prices retreat again and new, pricier models hit showroom floors: The models in BYD's launch pipeline are twice as expensive as prior ones, according to Goldman Sachs. The bank expects BYD's net margin to expand to 2.2% this year and 2.5% in 2023.

BYD has paid down debt rapidly in recent years and as of December had more cash and short-term investments on hand than debt according to FactSet -- a reverse of the situation as recently as June last year.

In the downside scenario of a nasty Chinese recession, that could prove to be an important cushion.

One obvious challenge at home will be getting buyers to pony up for pricier cars with China's economy, potentially at least, deep in the doldrums. But for now at least, the company seems confident. BYD, which reports on Aug. 29, said in July that first-half net income could climb as much as 207% to 3.6 billion yuan, equivalent to about $528 million.

Sustaining such heady numbers will be a challenge but with strong, cost-effective technology, an integrated supply chain and Beijing's determination to dominate the sector, it would be a mistake to count BYD out.

 

Chinese lithium carbonate prices are still close to CNY500,000 a tonne. Significant investment and political will are being devoted to boosting supply of the metal but that is a medium-term objective. Meanwhile, nickel, copper, cobalt and manganese have all retraced much of their initial price spikes. That’s more about less demand than a sudden increase in supply.  

Researchers from Switzerland's SPF Institute for Solar Technology have been studying aluminum redox cycles for many years now, and with funding from the EU's Horizon Europe program and the Swiss government, they've just kicked off a research project called Reveal, drawing in nine different partners from seven European countries, to develop what looks like a very promising idea.

As a 2020 report from the SPF team states, a single, one cubic meter (35.3 cu ft) block of aluminum can chemically store a remarkable amount of energy – some 23.5 megawatt-hours, more than 50 times what a good lithium-ion setup can do, or roughly enough to power the average US home for 2.2 years, on 2020 figures. That's by volume – going by weight, aluminum holds a specific energy of 8.7 kWh per kilogram, or about 33 times more than the batteries Tesla uses in its Model 3.

Big fat blocks like that aren't exactly practical to work with, though, so the Reveal team proposes using 1-mm (0.04 in)-diameter balls of aluminum instead. Naturally, you lose some volumetric density here, but you're still coming out over 15 MWh per cubic meter.

Redox flow batteries where the electrolyte transports free electrons during the reduction and oxidation reactions have been in the works for years without gaining critical mass.

Any sign from this week’s Jackson Hole symposium of more aggressive rate hikes to come will whack credit markets, which have already started to give back summer gains. Misplaced optimism about the US inflation and economic outlook squeezed spreads to unsustainably tight levels, leaving debt vulnerable to a fall that will be exacerbated by dwindling liquidity.

US high-grade bonds got overbought as fund inflows chased better returns, despite a barrage of issuance which will likely resume in September. The high-duration debt stands to lose most from a more hawkish Fed.

Spreads have almost 25 bps to go before hitting the July wide at 160 bps, but investors are keeping powder dry for a move back to May 2020 levels above 180 bps. That would be a fairly extreme move for a market that tends to move in 1-2 bps daily increments, but pre-Labor Day lack of liquidity provides scope to gap out.

Junk’s summer gains were led by the riskiest bonds, which would be battered most by a higher rates/lower growth environment. Some are waiting for a pummeling to 800 bps -- from 432 bps currently -- before buying in.

The biggest factor in the underperformance of portfolios from the beginning of the year had been the strong correlation between bonds and equities. They both fell at the same time and played havoc with the 60/40 portfolio set up. That relationship stopped working from early this month. Treasury prices resumed falling but stock prices rebounded.

While the market has reacted as if the minutes were dovish, I am not sure if that’s the right interpretation. To be sure, they did repeat the line that a slower pace of tightening would likely be appropriate in the future, and of course there was the line about the risk of over-tightening.

But here’s the thing-- the minutes acknowledge that growth momentum is fairly weak and the economy will expand below trend in the second half. They even note that the headline labor market data may not represent the true state of the economy. But for now, the Fed doesn’t care. Below-trend growth is a feature, not a bug, of the current policy setting, because it is required to get demand more in line with supply to curb inflation. And while the uncertainty of the data does indeed make over-tightening a risk, the possibility of high inflation becoming entrenched was a “significant risk” if the public didn’t accept the Fed’s resolve to tighten appropriately.

In other words, fading the Fed’s commitment to tighten makes it more likely that they will fulfill it. Oh, and there is a nice bit about the need to regulate crypto as well, so perhaps the Wild West mentality of that market might find that its days are numbered.

In a bull market buying the dip always works. When it stops working, that’s about the clearest signal we have that a lengthier medium-term correction is unfolding. The majority of stock markets have rebounded over the last couple of months and sparked a lot of enthusiasm that the correction is over and new highs will be seen before Christmas.