Rearming, Reshoring, Energy transition.
Taken in combination examples of these would be:
• Building factories for batteries, Chips, subsidizing energy transitions,
• Military expansion in Japan, Europe etc, inventory mgt increases. Onshoring of factories etc
• All of these amounts are government money. It will be matched by company money as well

This will cause Two Outcomes
1. Commodity prices will remain high from constrained supply and increased expenditures
2. We are at the beginning of a domestic infrastructure investment renaissance

Notable: ‘The investment portion will be quite powerful, perhaps to the point of us not even having a recession’
The 3 Gov’t themes will push counter the recessionary forces that undoubtedly accompany rate hike regimes. Consumption will get crushed. But investment will grow.

All these things are being done with a sense of urgency as (economic) national security and sovereignty is a big factor in each.. we need to do it yesterday

The above paragraphs argue against the old commodity adage “the cure for high prices is high prices”. I think there is another way of thinking about it that. Nothing has changed to alter the underlying relationship of the commodity markets but perhaps prices are not yet high enough to cure themselves. 

A  link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: stocks steady, gold rebounds, bonds yields pause, dollar steady, oil and natural gas weak, semiconductors rolling over, auto margin compression. 

Even with redoubled efforts to produce more clean energy at home, the United States and others will still depend on China for critical minerals and other clean energy components and technologies for years to come, creating vulnerabilities to Chinese-induced shocks. For instance, in recent months, China has suggested that it may restrict the export of solar energy technologies, materials, and know-how as a response to restrictions that Washington imposed last year on the export of high-end semiconductors and machinery to China. If Beijing were to follow through on this threat or curtail the export of critical minerals or advanced batteries to major economies (just as it cut off rare earth supplies to Japan in the early 2010s), large segments of the clean energy economy could suffer setbacks.

Traditional energy heavyweights are also recalibrating their positions in response to the changing geopolitical landscape in ways that increase energy security risks. Saudi Arabia, for instance, now sees its global stance differently than it did in the decades that followed the famous “oil for security” bargain struck by U.S. President Franklin Roosevelt and Saudi King Abdulaziz ibn Saud on Valentine’s Day in 1945. Riyadh is now far less concerned with accommodating Washington’s requests, overt or implied, to supply oil markets in ways consistent with U.S. interests. In the face of a perceived or real decrease in U.S. strategic commitment to the Middle East, Riyadh has concluded it must tend to other relationships—especially its links to China, the single largest customer for its oil. The kingdom’s acceptance of China as a guarantor of the recent Iranian-Saudi rapprochement bolsters Beijing’s role in the region and its global status. Relations with Moscow have also become particularly important to Saudi Arabia. Regardless of the invasion of Ukraine, the Saudi government believes that Russia remains an essential economic partner and collaborator in managing oil-market volatility. It will therefore be extremely reluctant to take positions that pit the Saudi leadership against Putin.

A war is underway in the energy markets. Suppliers are intent on sustaining high prices and eco-warriors fervently hope high prices will wean the world from its addiction. Consumers are caught in the middle and have little in the way of choice as they face increasing regulatory and infrastructure costs.  

However, lower risk in emerging markets isn’t just a China story. Fundamentals have also improved more broadly. Over the past 20 years, per capita GDP in emerging markets has roughly doubled as a share of developed markets (Exhibit 5, left side). Measures of external vulnerabilities have also improved from their periods of peak fragility in the 1980s and 1990s. Current account balances in emerging markets are now positive in aggregate, and measures of external debt sustainability (e.g., external debt as a percentage of exports) look much healthier (Exhibit 5, right side).

Bottom line: there are many reasons to believe that the relatively attractive valuations found in emerging markets represent a 5-10 year opportunity. In other words, the current expected premium is likely due to these markets being relatively underpriced, as opposed to representing compensation for assuming meaningfully greater portfolio risk.

The technology sector is a bet on the future and as such it is a long duration asset. When rates are low and credit is abundant, the penalty for taking long-term bets declines and the allure of those assets is boosted. Cashflows, valuations and sustainability are only truly relevant when there is a discount rate to compare them to. Another way of thinking about it is expected returns tend to fall when bond yields are high. In order to surmount the hurdle rate of money market funds, fundamentals and valuations matter. 

Perseus reaffirmed its gold production forecast for the second half-year.

SECOND HALF FORECAST
Still sees gold production 230,000 to 260,000 oz
Still sees all-in sustaining costs/oz $1,000 to $1,200

YEAR FORECAST|
Still sees gold production 498,370 to 528,370 oz
Still sees all-in sustaining costs/oz $1,000 to $1,100

THIRD QUARTER RESULTS
Gold production 130,275 oz, -0.5% q/q
All-in sustaining costs/oz $971, -1.2% q/q
Gold sales volume 135,111 oz, -33% q/q

COMMENTARY AND CONTEXT
Perseus’s strong operating performance is forecast to continue in the June quarter with both gold production and cost guidance for 1H and FY expected to be achieved strong quarterly cashflows further strengthened Perseus’s financial position with available cash and bullion of $471 million, zero debt, net cash and bullion balance increased by $66 million at quarter end
Development activities continued at Meyas Sand Gold Project with confirmatory and sterilisation drilling, Front-End Engineering and Design and site preparation, ahead of a possible FID during 2H 2023
Organic growth activities including Mineral Resource drill outs and feasibility studies for MSGP and Yaouré’s CMA Underground Project progressed on schedule; Results due in Sept. qtr

The team at Perseus are betting Sudan’s welcome for foreign investment will persist despite the threat of internal conflict. That was driven by the desire to acquire a promising asset at a discounted price. It’s a challenge every miner faces. New supplies of key resources are most often now found in politically unstable parts of the world. 

A link to today's video commentary is posted in the Subcsriber's Area. 

Some of the topics discussed include: US Regional Banks accelerate lower relative to big banks, 10-yr-3-mth continues to invert, precious metals steady, agricultural commodities extend breakouts, stocks short-term overbought.  

Total U.S. bank assets exceed $23 trillion.  Banks collectively are the biggest real estate lenders, and while we only have rough ranges for the data, they’re estimated to hold about 40% of the $4.5 trillion of CRE mortgages outstanding, or around $1.8 trillion at face value.  Based on these estimates, CRE loans represent approximately 8-9% of the average bank’s assets, a percentage that is significant but not overwhelming.  (Total exposure to CRE may be higher, however, as any investments in commercial mortgage-backed securities have to be considered in addition to banks’ holdings of direct CRE loans.) 

However, CRE loans aren’t spread evenly among banks: Some banks concentrate on parts of the country where real estate markets were “hotter” and thus could see bigger percentage declines; some loaned against lower-quality properties, which is where the biggest problems are likely to show up; some provided mortgages at higher loan-to-value ratios; and some have a higher percentage of their assets in CRE loans.  To this latter point, a recent report from Bank of America indicates that average CRE loan exposure is just 4.5% of total assets at banks with more than $250 billion of assets, while it’s 11.4% at banks with less than $250 billion of assets. 

Since banks are so highly levered, with collective equity capital of just $2.2 trillion (roughly 9% of total assets), the estimated amount the average bank has in CRE loans is equal to approximately 100% of its capital.  Thus, losses on CRE mortgages in the average loan book could wipe out an equivalent percentage of the average bank’s capital, leaving the bank undercapitalized.  As the BofA report notes, the average large bank has 50% of its risk-based capital in CRE loans, while for smaller banks that figure is 167%.

The exposure of smaller banks to both the rise in long-dated yields and the looming restructuring of commercial property leases raises important questions for depositors. The most pressing is why take the risk? 

European Union (EU) lawmakers have agreed on the world’s first binding quotas for using renewable hydrogen (H2) and derived fuels. The March 30, 2023 rules will create significant demand for renewable H2, mandating existing industrial hydrogen users replace at least 42% of their demand with renewable H2. They also mandate at least 1% of transport energy to be H2-based.

Member states should ensure 42% of existing industrial H2 demand is renewable by 2030, rising to 60% by 2035. The industry quota targets companies such as fertilizer and methanol producers, but excludes refineries, which are covered under the transport mandate. Member states will be legally required to adopt this agreement as national law and the European Court of Justice will determine penalties for states that fail to comply.

In transport, fuel suppliers need to replace 5.5% of final energy demand with H2 or advanced biofuels, with a minimum target of 1% for H2-based fuels by 2030. BNEF expects the hydrogen share to be closer to the minimum goal as meeting the combined target using H2 alone would require extensive use of the molecule in road transport. Advanced biofuels had already reached a 2.1% share in transport by 2021.

The EU remains committed to the zero carbon emissions quest and is pioneering the development of markets in alternative energy. High carbon emission prices are one half of the strategy and subsidies for wind, solar, biomass and hydrogen are the other half. 

Heavy rains are expected in both arabica and robusta producing areas this week, Climatempo meteorologist Nadiara Pereira says in a Tuesday report.

Increased rainfall and lower temperatures over robusta areas in Espirito Santo and southern Bahia may delay the final maturation phase of crops.

Heavy rains are expected for arabica areas in Sao Paulo and Triangulo Mineiro through Wednesday

Temperatures will fall in arabica region of southern Minas Gerais by the end of the week, though the risk of frost is low.

Rains could knock fruits off trees and in extreme cases cause them to ferment on the ground, HedgePoint analyst Natália Gandolphi says in report.

That would reduce uniformity of the beans and decrease quality of the crop for both varieties.

Brazil’s weather has been more volatile than usual over the last few years. With an El Nino on the brink of being confirmed there is a strong likelihood that drought is likely to be a more pressing fear later this year than excess moisture. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include:China, Australia, Mexico extend rebounds, EAFE outperforming MSCI World, Dollar Indes strengthens, bonds yields firm, gold eases, bitcoin pulls back. 

To Marinov, while there’s no surprise machines can now read almost as well as people, ChatGPT can potentially speed up the whole process. 

When Man AHL was first building the models, the quant hedge fund was manually labeling each sentence as positive or negative for an asset to give the machines a blueprint for interpreting the language. The London-based firm then turned the whole process into a game that ranked participants and calculated how much they agreed on each sentence, so that all employees could get involved. 

The two new papers suggest ChatGPT can pull off similar tasks without even being specifically trained. The Fed research showed that this so-called zero-shot learning already exceeds prior technologies, but fine-tuning it based on some specific examples made it even better. 

“Previously you had to label the data yourself,” said Marinov, who also previously co-founded a NLP startup. “Now you could complement that with designing the right prompt for ChatGPT.” 

Needing to label every individual clause in a run-on sentence was a big limiting factor for early AI. That’s equally true of the labelling of photos required to teach computers to identify items. Now that labelling is no longer required the use of AI will experience a step change in usage which is what has been priced into related stocks over the last few months. 

Dear Eoin, Does your bearish view on the US dollar imply that investors whose income and expenditure are in currencies other than the US dollar should note be holding any assets denominated in these dollars? Regards A

Thank you for this question which may be of interest to the Collective. I don’t believe absolutes are helpful when thinking about a reserve currency. A major bear market in a currency could mean it loses 50% of its value over a decade. That would boost the fortunes of exporters and potentially also raise interest rates to attractive levels. That suggests some stocks would do very well while the broader market would struggle to compensate a foreign investor relative to opportunities elsewhere. 

What is FedNow?
FedNow is an instant payments system—a sort of update to Fedwire and the Automated Clearinghouse (ACH). Individuals will not have direct access to FedNow, but they will have access to faster payments so long as their bank or credit union opts into the FedNow network. Although creating FedNow was not necessary to achieve faster payments, one big difference with FedNow will be that payments will no longer be held up on weekends, holidays, or after traditional business hours.
FedNow is Not a CBDC
Astute eyes will likely recognize that FedNow does vaguely resemble a wholesale CBDC. Where a wholesale CBDC would be restricted to financial institutions for use during interbank settlement, FedNow would also be restricted to financial institutions. The difference, however, lies in their design. Where a CBDC is a currency, FedNow is a payment rail. If we think of dollars and cents as water, then FedNow is the plumbing that gets those dollars and cents where they need to go. In contrast, a CBDC would involve replacing the water itself in this analogy.

Under the current system, interbank settlement is performed on the Federal Reserve’s payment rails, thus ultimately affecting retail banking customers’ settlement times. It’s for this reason that Federal Reserve Governor Michelle Bowman said, “My expectation is that FedNow addresses the issues that some have raised about the need for a CBDC.” This statement should not be misunderstood to say that FedNow will take CBDCs off the table, but it does show that the Federal Reserve itself sees FedNow and CBDCs as distinctly different.

There are many ways the Fed could speed up payments and transactions across the economy. Afterall, the USA is still somewhere cheques are commonplace. However, I think the reason they chose to use the FedNow protocol is to blunt the thrust of the digital currency movement. 

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So that’s where we are at the minute. I think they’re rushing round trying to do something piece-by-piece. I suspect that in the last-, since the blowout of gilt yields, I see a moving hand here, rather than someone playing whack-a-mole. I see a government, increasingly, that they’re somewhere in there, whether it’s in the treasury of somewhere else, that realises the direction of travel has to be financial repression. So, I think the best example of that in the UK is, I don’t know if he’s passed it yet, but Rishi Sunak was looked for the power to overhaul all our financial regulators to push that power into the hands of the prime minister. The question is why? As chancellor of the exchequer, this is not a power that he sought.

So, I think people are beginning to realise that, yes, you can go round and whack-a-mole, so it’s happening anyway, but there could come a time where we have to something more aggressive. For me, it’s pretty obvious what that aggressive is, which is forcing savings institutions to buy government bonds. That’s the core of a financial repression. We haven’t taken that giant leap yet, but I think since the crisis in the gilt market, there is evidence I think, that someone realises that that is where we might end up and they’re preparing to have to take that leap. To stress this is not a UK problem, it’s the entire developed world and actually, Japan might have to go first in terms of that major jump.

Inflation running well above the prevailing interest rate for a prolonged period will improve government debt to GDP ratios. The caveat is the total debt cannot simultaneously continue to accelerate higher. That’s the route to hyperinflation. Therefore financial repression works by changing the weightings of where credit is created and pushes the burden from the public sector back onto the private sector. 

Market watchers are bracing for volatility, should Japanese investors increase their sales of foreign securities and bring some of that cash home. Dai-ichi Life Holdings Inc., a life insurer with one of Japan’s largest institutional portfolios, said last month that it’s shifting more money to domestic bonds from US Treasuries and other foreign securities.

Some strategists expect the insurers to stay focused on domestic bonds, particularly longer-dated ones, with hedging costs for foreign investment still at elevated levels. Others see the potential for the overseas outflows to reverse, with the Federal Reserve expected to moderate the pace of its rate hikes and new BOJ governor Kazuo Ueda seen eventually tweaking policy.

Mizuho Securities Co. Chief Desk Strategist Shoki Omori expects life insurers to stay focused on domestic debt partly because they need to hold an additional ¥35 trillion of long-maturity Japanese government bonds to meet asset-liability management requirements by April 2025, when a new solvency regime will be implemented. In addition, controlling currency risk is too expensive now.

“They will continue to be cautious on overseas bonds as they see high grade bonds including sovereigns such as Treasuries being too rich on both a hedged and unhedged basis,” Tokyo-based Omori said. “Hedging costs are too high at around 5% and the dollar-yen is too high to go outright at current levels.”

Holding Treasuries was no party for investors over the last couple of years. That was doubly troublesome for Japanese investors when the Dollar peaked last year. 

The iShares Core 7-10 Year Treasury bond JPY Hedged ETF lost half its value and is still trending lower. Everyone is aware that the higher yields go, the better the long-term outlook is for returns when rates eventually do peak. However until that happens there is a risk yields will continue to rise.

Twitter has reportedly announced a new partnership with eToro that will enable users to view market charts and trade stocks and cryptocurrencies.

What Happened: According to CNBC, the move is part of Elon Musk‘s plan to transform Twitter into a super-app that allows users to access multiple services in one place.

With the eToro partnership, Twitter’s “cashtags” will expand to cover a more extensive range of instruments and asset classes, according to an eToro spokesperson, CNBC quoted.

Currently, Twitter cashtags show major cryptocurrencies such as Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO: ETH) and Dogecoin (CRYPTO: DOGE). This was in partnership with Robinhood.

Users will also be able to click a “view on eToro” button that takes them directly to eToro’s site, where they can buy and sell assets on the platform. EToro uses TradingView as its market data partner.

Elon Musk’s first fortune was built on the sale of PayPal which was one of the original online payments mechanisms. He is apparently looking to repeat that success by turning Twitter into a payments platform. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics covered include: necessary conditions for a bull market in gold, sequence of events inside a gold bull market, gold up, dollar weak, stocks steady, luxury goods overbought but still firm, copper steadies, bonds yields climb. 

“While the strong labour market trends and sticky core services inflation suggest a 25bp hike at the May FOMC, markets are increasingly looking toward the end of the hiking cycle, with cut timing also top of mind,” said Ryan McKay, a commodity strategist at TD Securities. 

Core CPI ex-Shelter peaked in September and continues to trend lower; albeit at a slower pace than it advanced. That suggests there is still some way to go in putting the inflation genie back in the lamp. It might seem presumptuous at present but deflationary pressures will eventually prevail because of the long and variable lags from rising rates, negative money supply and quantitative tightening.
That’s one of the reasons gold is pushing out to new highs. The potential is growth will moderate faster than inflation and that will force the Fed to ease up. It suggests a higher inflation rate will be tolerated for longer because the alternative would be both deep deflation and high unemployment. 

Warren Buffett called electric-car maker BYD Company Ltd. “extraordinary” and said chip manufacturer Taiwan Semiconductor Manufacturing Co. is a “fabulous enterprise.” That hasn’t stopped him from selling shares of both firms.

“We’ll find things to do with the money that I’ll feel better about,” the Berkshire Hathaway Inc. chairman and chief executive officer said of BYD in an interview with CNBC in Tokyo Wednesday. He said Berkshire wasn’t in a hurry to reduce that stake after recently trimming its holdings of BYD H shares to 10.9% from 11.13%, according to a filing this week.

The billionaire investor took credit for Berkshire’s investment in TSMC amid speculation that one of his investing deputies picked the stock. He said the decision to reduce its stake in the business by 86% in the fourth quarter — which could have fetched $3.7 billion assuming the shares were sold at the average price over the period — resulted from concerns over geopolitical tensions between China and Taiwan, conditions he described as being outside of the company’s control.

“I re-evaluated that part of it,” Buffett said. “I didn’t re-evaluate the business, the management, or anything of the sort.”

Warren Buffett has tended to be an investor in the USA and a trader internationally. There are two obvious reasons for choosing to sell out of both BYD and TSMC. The first is valuation. The second is politics. 

LVMH, Europe’s largest company by market value, has now made it to the world’s top 10.

A first-quarter sales beat sparked a 5% increase in the share price Thursday, giving the luxury powerhouse a 29% rally for the year. That, along with a gain in the euro against the dollar, lifted LVMH’s market capitalization to $486 billion, briefly ranking it as the world’s 10th-biggest company. Should it reach $500 billion, it would become the first European company to achieve that milestone.

Luxury goods represent an interesting paradox which must be among the marketing profession’s greatest triumphs. They have created an aura of desirability, mystique and aspiration for items that are not in limited supply. Of course, companies like Hermes ensure their most desirable bags are very hard to purchase, but the entire sector rides on the coattails of that limited supply argument. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: China stock rotation continues to new state champions, luxury goods bounds on China reopening, Fed close to peak of the hiking cycle, Nasdaq-100 eases, commodities firm on weaker Dollar, oll breaks higher, gold steady. 

To be sure, homeowners remortgaging on a fixed-rate deal are likely to benefit from a lower loan-to-value ratio than when they first secured a mortgage. That’s because UK house prices have grown by more than 11% since March 2021, according to Nationwide Building Society, and households have paid off a chunk of capital over the last two years.

Crucially, high-LTV lending makes up only a small fraction of UK mortgages, with 90% or higher LTV deals accounting for about 5% of all new home loans in the last quarter of 2022, BOE data shows. And even those borrowers who took out a 90% LTV in September 2021 are likely to see higher costs cushioned by stronger wage growth, according to Iwona Hovenko, an analyst covering European real estate for Bloomberg Intelligence.

“Homeowners who took mortgages at 90% LTV in 2021 could now see it drop to 75%,” she said. What’s more, “the extra post-tax pay after just two years could more-or-less offset the cash increase in monthly mortgage repayments.”

When inflation is running at 10% and wages are growing at 6.5% the cost of everything is rising quicker than wages. The jump in mortgage rates, as fixes roll off, represents a significant hit to household finances which will curtail the ability to spend on other items. That’s the primary reason the Bank of England has not been more aggressive in raising rates. 

The African country of Niger currently has the highest fertility rate, at 6.9, which means on average, a woman in Niger will have seven children in her lifetime.

With the exception of Afghanistan (14th), all of the top 30 countries are found on the African continent. In fact, it’s estimated that Africa will add 2.5 billion new people by 2100, while most continents will actually flatline in terms of population growth.

At the bottom of the rankings, the country with the lowest fertility rate is South Korea, at 0.84.

Interestingly, many of the current most populous countries of the world—including China, India, and the U.S.—are all below replacement levels of fertility, with parts of Europe and North America having had persistently low fertility levels since the 1970s.

I’m from a relatively large family. I had five siblings. I remember my mother saying “after the third, the older ones look after the younger ones” That confirms the existence of a child care efficiency ratio implied in larger families.

That’s lost when families are smaller and older generations are dispersed. In fact, the fewer children a family has the higher the cost because hopes for the future are poured into enhancing that child’s competitive edge. That can involve paying for tutors, sports, music, schools, better neighbourhoods etc. 

Investment is set to power a pickup in India's growth in the year ahead. An increase in public capital expenditure and incentives aimed at expanding manufacturing capacity are set to spark a private-investment cycle. The Reserve Bank's hold in April after a series of rate hikes to fight inflation also signals a shift to supporting growth.

Investment is set to power a pickup in India’s growth in the year ahead. An increase in public capital expenditure and incentives aimed at expanding manufacturing capacity are set to spark a private-investment cycle. The Reserve Bank’s hold in April after a series of rate hikes to fight inflation also signals a shift to supporting growth.

We forecast the expansion in GDP to accelerate to 5.9% year on year in the first quarter of 2024 from an estimated 5.0% in 1Q23.

On a full-year basis, growth will be distorted by pandemic effects — a low base contributed to a surge to 7.1% in fiscal 2023. Coming off the high comparison, growth is poised to slow to 6% in fiscal 2024.

Inflation is likely to slide to 5.3% on average in fiscal 2024 from 6.7% in fiscal 2023, due to lower commodity prices, lagged impacts of the RBI’s rate hikes, and base effects.

We see the RBI keeping its repo rate on hold at 6.5% through the end of 2023, avoiding over-tightening that could damage the economy. As consumer prices cool, we expect it to ease in 1Q24 to add support for the recovery.

India’s politicians have to create friendly conditions for employment growth over the next decades if some semblance of civility is to be sustained. Modi’s administration has played up nationalistic fervour by feeding into sectarianism. That’s not great for standards of governance which means there will need to be more focus on how well develop goals are executed. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: bitcoin breaks out with limited supply driving enthusiasm. gold steady, oil firms, bonds steady ahead of CPI but megacap tech eases, non-US assets benefit from a weaker dollar. 

Shares of Pioneer Natural Resources Co. powered up 6.4% toward an eight-week high, to pace the S&P 500's premarket gainers, after the Wall Street Journal reported that the fracking company has held preliminary talks with Exxon Mobil Corp. over a possible acquisition. Exxon's stock fell 0.9% while futures for the S&P 500 shed 0.5%. ahead of Monday's open. Citing people familiar with the matter, the WSJ report published Friday said the discussions have been informal, but with Exxon flush with cash after recording record profits in 2022, the oil giant has been exploring options. Pioneer Natural's stock has lost 8.9% year to date through Thursday, while Exxon shares have tacked on 4.3% and the S&P 500 has gained 6.9%.

The pace of M&A activity is heating up in the resources sector. Exxon Mobil’s proposed merger with Pioneer suggests the shale oil and gas sector is maturing. The days of the wildcat land grab are over. The resources are well understood and the unique attributes of unconventional supply allow production to be dialled up and down as needed. That is an attractive add on for a global major. 

Ether's dominance rate remains stagnant between 19% and 20%. That compares with a rise to 21% from 14% in the weeks before a software upgrade last September known as the Merge. That technological overhaul replaced Ethereum's at-the-time energy-intensive proof-of-work mechanism of verifying transactions with a proof-of-stake system and set the stage for Shanghai. Staking involves depositing coins in the blockchain to boost the network's security and verify transactions in return for rewards.

Investor caution in pricing ether ahead of Shanghai stems from several factors, including concerns tokens unlocked after the upgrade will flood the market and regulatory issues.

"The Shanghai upgrade will unlock over 18 million ether staked since late 2020. The market is worried that the unlocking may bring about a sell-off, causing uncertainty in the market," Griffin Ardern, a volatility trader at crypto asset-management firm Blofin, told CoinDesk.

Ethereum has been lagging bitcoin for the last couple of months as traders price in the risk of additional supply coming back onto the market. However, that does not explain why bitcoin is breaking out to new recovery highs. 

Blackstone Inc. has closed on its largest global property drawdown fund, targeting opportunistic deals across sectors such as rental housing, hospitality and data centers. 

The company secured $30.4 billion of total capital commitments for the fund, called Blackstone Real Estate Partners X, according to a statement Tuesday. Blackstone’s latest fund is the largest of that type, according to PitchBook data going back to 2002.

The real estate market has come under pressure over the past year due to a pullback across commercial-property lending, as borrowing costs skyrocketed. At the same time, the stocks of public real estate investment trusts have also suffered amid the uncertainty in the market and increasing concerns about certain property types such as offices. 

“Pullback with all forms of capital will create opportunities,” said Kathleen McCarthy, global co-head of Blackstone Real Estate. “We can use our capital and expertise to capitalize on the moment for our investors.”

Blackstone’s latest fundraising helps cement the private equity firm’s status as a powerhouse in the real estate market. Blackstone’s real estate business, which started in 1991, now has $326 billion of investor capital under management.

The vintage of property funds is likely to be a major conversation piece over the next few years. Those that closed on purchases between 2019 and 2022 in commercial real estate paid top prices and will be sitting on implied and real losses for years. They are in much the same position as investors that bought bonds with negative yields. 

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

China’s dominance is underlined further by the fact that it is a key trade partner for the commodity exporters, which have industrial cycles that clearly track the ebb and flow of the Chinese credit cycle. And after the attack on Ukraine, China’s financial influence over isolated Russia has risen further.

It is obvious but Chinese strategic interests are not especially aligned with those of the other countries. One of China’s priorities is finding somewhere to park its external surpluses beyond the reach of the US Office of Foreign Assets Control and finding stores of value other than US Treasuries. While none of the other four Brics members can provide liquid assets, they can provide investment opportunities especially in raw materials. As with the Belt and Road Initiative, Chinese authorities prefer to have control in such matters.

Russia and the gulf energy exporters prefer to accumulate “rainy day” sovereign wealth funds away from the US. However, the alternative to the US is not a diversified group of growing countries, but essentially one country — China — with a vast thirst for energy and other raw materials.

So not only are there practical challenges in a common Brics currency. In seeking one to challenge US hegemony in foreign exchange, the non-Chinese members of countries of the group may just increase their dependence on Beijing.

During the Global Financial Crisis of 2008, the US took the decision to debase the currency in service to avoiding a depression. Money supply exploded and purchasing power of the dollar collapsed as asset prices leaped higher. Like any major event, there are both positive and negative outcomes. An even more severe economic decline was avoided. The downside was political populism has gained a foothold in many countries and the USA’s creditors became suspicious that they are no longer willing to take the hard decisions necessary to support the value of the currency. 

“Kuroda will be recognized as having been an outstanding central bank governor who has been quite innovative,” former International Monetary Fund chief economist Kenneth Rogoff said. “The BOJ under Kuroda has forcefully adopted more or less every idea there is for raising inflation expectations, but until recently, to no avail.”

At Kuroda’s last Group of 20 meeting in Bengaluru, India, in late February, central bankers and finance ministers from across the globe rose to their feet to applaud the ever-smiling governor. European Central Bank President Christine Lagarde was one of the first to clap, according to people familiar with the matter.

“Haruhiko Kuroda is a master of his trade. He steered the monetary policy of Japan through challenging times. These are big shoes to fill for any successor – and times are certainly not getting any easier,” said Swiss National Bank President Thomas Jordan. “It was always a pleasure to have in-depth discussions with him over dinner, ranging from culture to economics to politics.”

I don’t think there is nearly enough of questioning whether it was possible for Japan to create inflation when the global economy was in a disinflationary trend for decades. Japan is a highly open, developed economy. The money created by the Bank of Japan did not stay at home but was invested abroad in an aggressive manner. That leakage did not create the upward pressure on wages to break the deflationary trend. Against a background of demographic contraction and the related lack of credit demand it was likely impossible to create an inflationary trend. 

India may not approve additional sugar exports in the year ending September, Food Secretary Sanjeev Chopra said at a briefing Thursday.

Country’s sugar production is likely to be 200,000 to 400,000 tons lower than target this year

NOTE: India has already permitted 6m tons of exports this year, with potential for another 1m tons if production meets govt estimate

That looks unlikely now; an industry group said Wednesday that India’s October-March sugar output fell 3.3% y/y

Chopra said impact of unseasonable rains on wheat harvest will be marginal

Govt will likely meet its target of procuring 34.15m tons of wheat from the new crop

India curtailing exports is bumping up against rising demand from China as consumer activity picks up and eating out becomes ubiquitous once more. That’s putting upward pressure on the price. Brazil’s harvest is now underway but it will need to be a bumper crop to mitigate the steep backwardation right across the futures curve. 

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Some of the topics discussed include: bond yields compress but partially rebound towards the close, the 3-month yield still prices in potential for one more hike, stocks also partially rebound, dollar steady, gold and oil pause, soft commodities break higher stoking stagflation fears. 

The group’s index of new orders at service providers dropped more than 10 points to a three-month low of 52.2. While still consistent with expansion, the scale of the drop suggests a significant slowing in the pace of bookings growth. The business activity measure, which mirrors the ISM’s factory production index, slipped to 55.4.

“There has been a pullback in the rate of growth for the services sector, attributed mainly to a cooling off in the new orders growth rate, an employment environment that varies by industry and continued improvements in capacity and logistics,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement.

The pandemic shutdown represented a massive dislocation which pulled the pendulum of demand into sharply negative territory. Massive fiscal and monetary stimulus was implemented to revive. That ensured when demand recovered, it swung to an extreme level in the opposite direction. Like any pendulum there are several swings to less extreme amplitudes, before it settles back to equilibrium. 

It shouldn’t have taken more deaths for Prime Minister Narendra Modi’s administration to act. The red flags have been there for years. What’s lacking is political will, and transparency. The FDA publishes different reviews of new drug applications on its website, along with detailed notes. The European Medical Agency gives similarly expansive information. There is no such openness in India.

As Thakur explained to me, the pharmaceutical industry is India’s manufacturing success story, providing a major source of foreign exchange and soft power. Any criticism is seen through the lens of nationalism, he said, and framed as defaming the industry. So why does contamination with such deadly substances occur so regularly? “The simple answer is that Indian pharmaceutical companies quite often fail to test either the raw materials or the final formulation before shipping it to market,” Thakur said.

India relies on the weak oversight of developing countries that make up the bulk of its exports — that’s how it can continue to push substandard and often deadly medicines there. As a paper on the Gambia poisonings published in March by the CDC noted, “inadequate regulatory structures make the sale of medications from international markets an especially high-risk activity in low-resource settings.” But what about countries with supposedly strong regulatory systems, like the US? This latest scare should prompt further reform of the FDA’s overseas inspections regime.

In the absence of a global framework for pharmaceutical safety, what can be done to make the generic drugs that consumers around the world have come to rely on safer and effective? For a start, the WHO’s prequalification program, which facilitates the purchase of billions of dollars’ worth of medicines through international agencies such as Unicef, must be overhauled. Then there’s the question of holding these companies to account for the harm they cause inside and outside India via legal avenues and victim’s compensation.

Any headline where children are dying is a headwind to public confidence in any company’s products. There is absolutely no doubt tighter safety controls are highly desirable and movement on that front would greatly improve outcomes. However, it is also true that having a friendly domestic regulator, in what is a low margin, high volume business, is also highly desirable from a business perspective. There is also a significant difference between the largest, most successful companies, and smaller less well capitalized businesses. 

China is willing to maintain close communication with Airbus and help it deepen its China presence, Zheng Shanjie, head of the National Development and Reform Commission, told Airbus Chief Executive Guillaume Faury during a meeting in Beijing, according to an NDRC statement.

China will provide broad opportunities for Airbus and other multinational companies to develop in the country: Zheng.

Separately, Civil Aviation Administration of China chief Song Zhiyong also met with Faury in Beijing, according to a statement.

They exchanged in-depth views on Airbus’ business development in China and strengthening cooperation in aviation safety, airworthiness certification, green development, digital transformation.

Vladimir Putin incorrectly concluded European countries could be bullied into submission. They should really have paid attention to China, who long ago concluded it was much easier to buy European cooperation. It remains to be seen how much longer that policy will be successful.  

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Job Openings trending down, Treasury yields compress, gold breaks out, silver breaks downtrend, dollar weak, stocks steady. oil hold yesterday's gain. 

Treasury 10-year note futures spike to fresh session highs after February JOLTS job openings declined more than estimated with January revised lower. At the same time February factory orders missed estimates for headline and ex-transport readings. 

US 10-year yields flip to richer on the day into the move as 10-year futures top at 115-28, with around 60k 10-year note contracts changing hands over 3-minute period

Belly- and front-end-led gains steepen 2s10s, 5s30s spreads onto session wides, higher by 7bp and 4bp on the day

Fed-dated OIS for May meeting drops to around 15bp of additional hikes priced, giving up around 5bp of hike premium in the aftermath of the data

Job openings are down two million in the last 15 months. It is arguable how much predicative power the jobs openings have primarily because it is a relatively new data series and there are questions about how the number reflects conditions on the ground. However, there is no dispute a top is in place and the number is trending lower. It stands to reason that job openings should be a lead indicator for decisions on firing workers since it should be a lead indicator. Afterall most firms stop hiring before they fire workers. 

"The recent failures of Silicon Valley Bank (SVB) in the United States and Credit Suisse in Europe, and the related stress in the banking system, underscore that simply satisfying regulatory requirements is not sufficient. Risks are abundant, and managing those risks requires constant and vigilant scrutiny as the world evolves," Dimon wrote. 

The JPMorgan CEO instead called for more forward-looking regulation. He pointed out that the held-to-maturity bonds that have become problems for many banks are actually highly rated government debt that scores well under current rules, and that recent stress tests did not game out a rapid rise in interest rates. 

"This is not to absolve bank management – it's just to make clear that this wasn't the finest hour for many players. All of these colliding factors became critically important when the marketplace, rating agencies and depositors focused on them," Dimon wrote.

He said that regulation should be "less academic, more collaborative" and that policymakers should be more wary of potentially pushing some financial services to nonbanks and so-called shadow banks. 

Too often financial sector regulation focuses on placating retail investors who lost money in a crash. However, that does not negate the fact that commercial banking is a different business than investment banking. One is conservative and the other is based on risk taking. Merging them supplies the risk takers with a large base for leverage. That has allowed banks to balloon in size over the last twenty years. There is no appetite to reverse the process so tighter scrutiny of leverage mismatches need to be implemented and not least because government bonds were never risk free.

The US’s largest car insurer, State Farm Mutual Automobile Insurance Co., reported a $13.4 billion (!) underwriting loss last year, the largest shortfall in its 100-year history; Allstate Corp.’s auto-insurance underwriting loss was $3 billion, while Berkshire Hathaway Inc.’s Geico car-insurance unit lost $1.9 billion.

In the UK, Direct Line Insurance Group Plc’s chief executive departed in January after mounting losses at the motor division forced it to scrap its dividend. The stock has declined more than 50% in the past year.

These woeful results have shaken confidence in the industry’s purported ability to assess risk and forecast accurately. Insurers are belatedly hiking premiums, though often not as quickly as they’d like. Customers who drive Range Rovers and other vehicles prized by thieves, may struggle to get coverage at all.

Soaring used-car prices are the proximate cause of insurers’ woes – a textbook example of how supply chain upheaval can cascade through the economy. Historically, vehicles were a depreciating asset, but suddenly the cost of replacing a stolen or damaged vehicle was far more than insurers had calculated.

The insurance sector is not in the habit of sustaining losses on underwriting so premiums are most assuredly going up. That’s true of every area of the insurance business and not only automotive rates. Everything from commercial, to health to cyber rates are rising.

This news struck me as interesting because it follows hot on the heels of Piguet Ademar’s issuing a replacement guarantee on any high end watches bought over the last couple of years. The threat of theft has growth so high it is impacting sales of their timepieces. 

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4: Export Curbs
Other levers the Biden administration has at its disposal include limiting the export of gasoline and diesel. The White House considered that option last year as a potential means to tame pump prices, which reached an all-time high in June, but it never pulled the trigger. Analysts said moving ahead with the curbs could backfire and actually lead to higher prices in some parts of the US.

“If we go into the summer with gasoline at $4 a gallon, I would think they would also revive consideration of product export restrictions,” said Bob McNally, president of consultant Rapidan Energy Group and a former White House official. “If this leads to an overtightening of the oil markets — as they say in the Navy, stand by for heavy rolls.”

Requiring oil companies to store more fuel in inside the US — mandatory stockpile requirements that were considered last year in response to previously low fuel inventories — is an option that could return to the table as well if gasoline prices remain high, McNally said.

OPEC+ needs high energy prices to come close to balancing their budgets. The last thing they want is the profound volatility of the last few years where oil prices have swung from lows near -$40 to highs near $130. The fact the USA is energy independent and no longer a big buyer from OPEC+ means it is a competitor in supply and therefore unable to dictate terms to the group. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

 

After Tesla cut prices of its top-selling Model Y by as much as 20% and discounted its most expensive vehicles by tens of thousands of dollars, Musk said in late January that orders were running at almost twice the rate of production. The figures reported Sunday indicate there was a slowdown later in the quarter, as the company ended up making almost 18,000 more cars than it sold.

“Continued excess production over deliveries will keep the debate going on price elasticity versus general demand weakness,” Philippe Houchois, a Jefferies analyst with a buy rating on Tesla stock, said in a note.

If you cut prices and sales don’t jump there are only two options. Either you have the wrong price or the wrong product. I bought a new car a year ago. I test drove a Model Y and Model 3 and decided to go with another SUV instead. The price points were about the same after added extras and the subsidies did not apply because of income limitations. That seems like a major issue for Tesla. They are attempting to compete with luxury brands on quality alone. That is a hard sell against brands with decades of reliability and customer relationships.

Glencore faces a tight deadline to sweeten its proposal. Teck’s plan to separate its coal business and wind down the dual-class share structure will go to a shareholder vote on April 26. Glencore Chief Executive Officer Gary Nagle told investors in a Monday conference call that its proposal can’t be implemented if Teck’s shareholders approve that plan.

Teck Resources’ plan is to spin off its coal assets from its copper production. That would allow it to meet many of its carbon mitigation goals in one fell swoop. The reason Glencore wants to buy the company is Teck has some of the best potential for copper production growth among the mid-sized miners. Additionally, Glencore is much more comfortable than most with holding coal assets. 

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The announcement came during a Brazil-China business forum in Beijing on Wednesday in which government officials and company executives from both sides discussed trade and investment opportunities. Much of Brazil’s agricultural and mineral products are shipped to the Asian nation.

Brazilian President Luiz Inacio Lula da Silva was due to be in China for an official state visit this week, but was forced to postpone after he was hospitalized with pneumonia.  

China and Brazil also agreed to settle trade in their own currencies, without the need of an intermediary currency like the US dollar, according to a statement from the Brazilian Trade and Investment Promotion Agency. The expectation is to reduce the costs of commercial transactions with the direct exchange between Brazilian reais and yuan.

Tatiana Rosito, Brazil’s Secretary of International Affairs at the Finance Ministry, says the goal is to boost liquidity of the Chinese currency, giving options to investors and traders.

“It’s not a game changer in relation to the impact on short-term trade, but it has the potential to expand transactions and familiarize agents” with transactions in yuan, she said in a telephone interview.

The entire global financial sector is built on trust. It is logical for countries trading with one another to accept their respective currencies in exchange for goods and services. The reason it is not commonplace is because currencies are volatile and bilateral relationships have no fallback if one of the party’s proves unreliable. 

LVMH shares rise to a record high, contributing most to gains in the French and European indexes on Friday as analysts upgrade their estimates for the French luxury behemoth. Peer Hermes International also hits an all-time peak.

News that foot traffic is ramping up in Macau is clearly positive news for the luxury goods sector as Chinese consumers hit the shops after a lengthy hiatus. 

The measures are part of the 27-nation region’s plan to cut emissions by at least 55% from 1990 levels by 2030 and reach net zero by 2050. 

The EU wants to be a global leader in the green shift, an increasingly challenging objective after US President Joe Biden’s landmark climate package and competition from China in low-carbon technologies and critical materials. At the same time, the bloc is grappling with an unprecedented energy crisis triggered by a cut in gas supply from Russia following the war in Ukraine.

“It is now more important than ever for the EU to get and stay on track to climate neutrality and resilience, providing a positive example to galvanize global action and to work with our partners worldwide to develop the solutions needed for all to transition to climate neutrality,” the commission said. 

The EU indicated an emissions cut of 75% to 80% would follow the average trajectory between 2030 and climate neutrality in 2050. Lowering pollution by more than 90% would signify “a very high ambition, close to reaching climate neutrality already in 2040,” the commission said. 

The commission signaled it is considering various options on the evolution of the EU Emissions Trading System, the bloc’s flagship carbon cap-and-trade program. They included an extension to cover new sectors, potential inclusion of all fossil-fuel uses and accounting for carbon capture technologies.

It also said removing carbon dioxide from the environment is indispensable and sought views on how to tackle emissions from agriculture, including putting a carbon price on greenhouse gases from the sector. 

The EU is an energy importer and its reliance on imports has been emphasised following Russia’s invasion of Ukraine. That has also removed the partial salve of being able to pay for energy in their own currency so the EU is now even more committed to curtailing imports to the greatest extent possible. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: CMBS spreads rising, yield curve further inverts, stocks firm, bonds ease, dollar under pressure. 

This year’s survey, however, collected information on $400 billion of bank-held commercial and multifamily mortgages—23 percent of the outstanding universe. Using this year’s survey results, for the first time we are expanding our loan maturity analysis to include an estimate of the maturity profile of all commercial and multifamily mortgages—including the more than $1.7 trillion on bank balance sheets.

The analysis estimates that of approximately $4.4 trillion of outstanding commercial/multifamily mortgages, $728 billion (16%) matures in 2023 with another $659 billion (15%) maturing in 2024. Hotels/motels see the largest share maturing in 2023 (34%) followed by office (25%). Multifamily is the property type with the smallest share of outstanding mortgage maturing this year (9%).

Among capital sources, 26 percent of the outstanding balance of loans held by credit companies and other investor-driven lenders will mature this year, as will 23 percent of the balances held by depositories and 22 percent held in CMBS. Only 7 percent of life company loans and 2 percent of GSE/FHA loans come due this year.

The high yield corporate sector used the pandemic to refinance. The maturity of that part of the debt market is now a lot closer to the end of the decade. Commercial real estate did not have that opportunity because vacancy rates were so high, no one was willing to throw money at them. 

“The broad ideas are orthodox and the government does agree with the idea of stabilizing debt,” said Katrina Butt, a senior economist at AllianceBernstein LP. “Still, there are some unanswered questions and the government seems to bank on economic growth to be able to achieve the targets, given an increase in the tax burden doesn’t look feasible at this moment.”

The proposal is crucial for President Luiz Inacio Lula da Silva to win over investors, who have been worried about the health of public finances since the leftist leader obtained congressional authorization to boost outlays, bypassing current spending rules that will be replaced by the new fiscal framework. Since then, concerns about swelling debts have helped to fuel inflation expectations keeping, in turn, borrowing costs high.

Brazil was very early in raising rates and now has some of the highest real rates of any country. That begs the question, what will be required for rates to begin coming back down? The fiscal agreement announced today is a step toward placating hawks at the central bank who are reluctant to ease up while the government is talking about major giveaways. 

Hi, I don't understand when you say that you are "reweighting" the Autonomies portfolio.

Is this an investment fund managed by you?

Thanks in advance.

Thank you for this question which may be of interest to the Collective. Chris Moore at WM Capital Management approached me following the publication of Crowd Money and asked if I would be interested in setting up a fund. It was launched in 2015. He is listed as the fund manager but I do the stock selection.

Here is a link to the FT’s information page for the fund. The basic premise is to hold 100 of the 169 Autonomies on an equal weighted basis. Reweights are every quarter. Favour is given to oversold positions relative to the MA and overbought positions are downsized at the reweighting. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: soft commodities breaking higher, dollar steadies, oil eases at first area of potential resistance, stocks firm, bonds ease. markets pricing in potential central banks will settle for a partial victory over inflation. 

I am reweighting the Autonomies portfolio as we are approaching the end of the quarter. It’s a tumultuous three months with banks and several retailers experiencing steep selling pressure. Meanwhile several luxury goods companies are at new highs. Technology companies have staged impressive rebounds and commodity stocks are very steady. The biggest surprise for me is how varied the performance of the financial sector is. That clearly suggests there will be big winners and losers from the unfolding market environment. 

Kelley Blue Book sales data gathered from the state Registry of Motor vehicle showed registrations of 8,145 Rivian vehicles in the first quarter, analyst Chris Pierce said, citing information from Cox Auto’s first-quarter 2023 “Industry Insight Calls.” This compares to the consensus estimate of 7,167 vehicles, he added.

The analyst also noted that first-quarter used vehicle data showed that fewer used Rivian vehicles were on sale relative to Lucid Motor Group (NASDAQ:LCID) and Ford Motor Co.’s (NYSE:F) Lightning EV pickup truck, which is a direct competition to Rivian’s R1T pickup truck.

Rivian has a market cap of $13 billion and had $11.5 billion in cash at the end of last year. The improvement in sales suggests the run rate on its loss is unlikely to accelerate which supports the view it will not go bust this year. That gives the share some optionality to the view it might well survive if production can successfully be ramped up.   

Buyers are facing difficulties building up stockpiles as crops in several regions have been poorer than expected. Low fertilizer application in Thailand, excessive rains in India, and dryness in Europe, Mexico and parts of China led to several downward revisions to supply estimates.

In Thailand, the world’s fourth biggest grower, all but 5 of 57 millers already stopped crushing due to a lower-than-expected harvest, the Thai Sugar Millers Corp. said. Egypt and Algeria recently announced measures to restrict sugar outflows from the countries.

Crop issues removed 4 million metric tons from world trade flows in the first quarter of this year, StoneX analyst Ricardo Nogueira wrote in a report. Such volumes would be crucial to help ease current tightness in global supplies, especially since it will take time before a large output from Brazil can reach destinations. 

However, Brazilian supplies may not bring much relief to the refined sugar market, said Michael McDougall, managing director at Paragon Global Markets. The country is the world’s top supplier of raw sweetener, but its production of refined is small.

The global growing environment was impacted last year. That’s having an effect on agricultural product prices this year. However, the renewed enthusiasm for biofuels, continued strength of crude oil and Dollar weakness are probably more important factors in the recent strength in the soft commodity sectors. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: dollar extends decline, oil rebounds, bitcoin holds breakout, bond yields steady, stocks ease, non-US markets fare better. 

Investors are worried about a potential recession, but you have said that discretionary retail spending is already in a recession. How do you expect it to unfold?

It seems that in the past few months, we've seen a consumer-discretionary recession. The consumer still has money, but you don't need a new big-screen TV if you bought one during the Covid pandemic, or new outerwear if you bought a new coat last year as people started going out again.

We are seeing consumers return to prepandemic behaviors -- things we were talking about 10 years ago, such as shopping close to need, shopping during events, looking for promotions. The problem, which has been consistent but sequentially improving, is that inventories can't adjust that fast. Also, when stimulus dollars were flowing, consumers weren't that price-sensitive because they had money in their pockets. Now the sensitivity has increased.

Is inflation now semipermanent?
I think so. Prices will stick, and there might be disinflation, but there won't be deflation. We are at a new level because of labor; we will see some relief in freight and the average unit cost of some ingredients, but labor costs will be sticky. Apparel has been problematic, because the price of shirts basically has stayed the same for a decade. A little bit of inflation is healthy, but this level has been wreaking havoc in demand trends. Your food cost at Walmart was up by a midteens percentage [in recent months]. That's a good indicator of how the whole country is faring.

Penny pinching has arrived in the consumer sector and that is about the clearest sign of reduced spending power we can observe. Unemployment has not yet started to tick higher, so for now consumers do not have to make big spending adjustments. However, tightening monetary conditions continue to tighten the noose so caution is warranted. 

Sweden has long fallen short on its constitutional pledge to provide an affordable place to live for all of its 10.4 million people, but until recently that was masked by the growing economy which had helped disguise flaws in the system. 

The shortage of affordable accommodation is hitting recruitment. The Stockholm Chamber of Commerce reported last year that three out of four heads of human resources said the housing situation was making it harder for their firms to hire new staff. 

Rents are negotiated annually by landlords and the tenants association. Advocates say the system helps create a rental market in Stockholm where teachers, police officers, street cleaners and other public sector workers can afford to live alongside bankers, software developers and government officials. Yet supply hasn’t kept up with demand for decades. Average waiting times for a rent-controlled apartment is now 9.2 years, but can stretch up to 20 years in some parts of the capital.

Socialism’s only hope of functioning is to ensure the cost of living never rises. That means creating a social contract where the only means of generating personal wealth is through ingenuity and productivity. It’s a high bar and apparently unachievable for long. 

Santander’s blockchain-powered foreign exchange platform is currently live in four different countries — Spain, the U.K., Brazil and Poland. A wider roll-out is expected in coming months, the bank said.

Innoventures, a $200 million fintech, or financial technology, venture capital fund set up by Santander, was one of a number of investors to participate in Ripple’s first round of funding in 2015.

Ripple has struck partnerships with multiple banks and other financial institutions, including Santander. Banks are less keen to use the firm’s digital currency XRP, but earlier this year two money transfer firms, MoneyGram and Western Union, announced projects involving the cryptocurrency.

On Wednesday, Ripple invested $25 million into a fund started by Blockchain Capital, a venture capital firm dedicated to blockchain.

Ripple first gained notoriety as the favoured token of banks but nothing much came of the initial enthusiasm. Ethereum later became the favoured vehicle and went on to have a significant bull trend.

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Some of the topics discussed include: oil steadies, stocks eases into the close, yields rise, dollar weak

Fund managers are also concerned. A systemic credit event poses the biggest threat to global markets, and the most likely source of one is US shadow banking, according to a survey of investors published last week by Bank of America Corp.

The US government’s top financial regulators signaled in February that they would consider whether any nonbank firms merit tougher oversight as systemically important institutions. 

The Financial Stability Oversight Council will put “nonbank financial intermediation” back on the table as a priority for 2023, according to a statement from the Treasury Department. The Federal Reserve, the Federal Deposit Insurance Corp. and the Financial Stability Board declined to comment for this story. 

European Central Bank Vice President Luis de Guindos warned in an interview with Business Post published on the ECB website Sunday that nonbanks “took a lot of risks” during the era of low interest rates and potential vulnerabilities “can come to the surface” as monetary policy changes. 

It has been my view for at least the last 2 years that the epicentre of risk resides in private markets. What does that mean? It was where leverage was focused in the bull market and where valuations have increased the most. It is therefore the most likely to experience stress as liquidity tightens. Trouble within the sector is also likely to be the catalyst for central bank easing as they move to forestall the risk of a deep recession. 

The agency said that Zhao, Lim, other senior managers failed to properly supervise Binance’s activities and took steps to violate US laws, including instructing American customers to use virtual private networks, or VPNs, to obscure their location and directing “VIP customers” with US ties — often institutional market participants — to open Binance accounts under the name of shell companies. 

In its complaint, the CFTC also said Binance’s own documents for the month of August 2020 showed that the platform earned $63 million in fees from derivatives transactions, and that about 16% of its accounts were identified as being held by US customers.

Documents
The CFTC alleged that the company intentionally destroyed documents. At the same time, Binance makes frequent use of the encrypted messaging app Signal to communicate with US customers, at Zhao’s instruction, the agency said.

Since at least 2021, the CFTC has been probing Binance over whether it failed to keep US residents from buying and selling crypto derivatives. CFTC rules generally require platforms to register with the agency if they let Americans trade those products.

I had an interesting conversation over the weekend with a former crypto exchange employee. He reported that most people are in the space to make money and the primary focus on venture capital is to come up with the next Ethereum killer. Solana’s success in doing just that has sparked a great deal of investment in trying to repeat the feat. That diversifies talent across a large number of ventures while bitcoin continues to attract a broad swathe of purists who continue to work on applications. 

E-fuels, made using renewable energy and carbon dioxide captured from the air, aren’t seen as a viable solution for the vast majority of cars, given their high cost and current lack of availability. Instead, the bulk of carmakers in the region are expected to remain focused on battery-powered vehicles.

“We see e-fuels as a useful addition to the existing fleet of combustion engines and for special applications such as emergency vehicles or limited series, the Porsche 911 for example,” Volkswagen said in a statement. Europe’s biggest carmaker said that it remained committed to the electrification
of its fleet.

The deal, announced on Saturday, was enough for Germany to drop its opposition to the proposal.  A push by the country’s pro-business FDP party, the junior member of Chancellor Olaf Scholz’s governing alliance, for the commission to come forward with more assurances on e-fuel cars had delayed a vote earlier this month.

 

2035 is little more than a decade from now and that is a short period of time to completely remake the industrial infrastructure of the European heartland. High performance sports cars are a niche business and e-fuels are unlikely to gain significant market share without a major breakthrough in production costs or a significant rise in energy prices more generally which would also improve competitiveness. 

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Treasury Secretary Janet Yellen will convene a meeting of the Financial Stability Oversight Council Friday.

FSOC comprises the heads of the nation's top financial regulators, and was created in the wake of the 2008 financial crisis to enable the government to coordinate efforts at combating systemic risks to the U.S. economy.

The announcement comes amid concerns over the health of the banking sector following the recent failures of Silicon Valley Bank and Signature Bank.

The uncertainty is being felt overseas as well with shares of Germany's Deutsche Bank (DBK.XE) slumping as its credit default swaps widened.

Financial sector equities (XLF) were under pressure Friday, ranking as the worst performing sector in the S&P 500 in morning trade.

The Plunge Protection Team is convening so the monetary and fiscal authorities are fully aware of the $1.7 trillion in unrealised losses in the US banking sector. The simple fact is anyone who bought long-dated bonds between 2019 and 2022 is sitting on fat losses. 

Collapses of Large Banks on Fridays:

- Friday, Mar. 14, 2008: Bear Stearns hit by liquidity crisis

- Friday, Sept. 12, 2008: Last trading day before Lehman Brothers declares bankruptcy

- Friday, Sept. 26, 2008: Washington Mutual seized by regulators marking largest bank collapse in US history

- Friday, Mar. 10, 2023: SVB seized by regulators, marking 2nd biggest bank failure in US history

- Friday, Mar. 10, 2023: Signature Bank sees $10 billion in withdrawals, seized by regulators 2 days later

- Friday, Mar. 17, 2023: UBS bids for Credit Suisse, $CS, to avoid its collapse

- Friday, Mar. 24, 2023: Deutsche Bank, $DB, credit default swaps hit 4-year high on contagion fears

Just about every large bank failure in recent history has occurred on a Friday.

This can't be a coincidence.

Giving regulators time to make an announcement over the weekend helps to avert market panic. That’s as good a reason as any to announce bad news as close to the market close as possible on a Friday. 

“What’s changed in the last few weeks is the credit markets,” said Rich Hill, chief of real estate strategy research at Cohen & Steers Capital Management Inc. “It went from a story of work-from-home and the impact on occupancy and the lack of rent growth to also the compounding of tighter financial conditions given everything happening with banks.”

Fears of tighter credit are adding to risks for offices that have been building for some time, Green Street analysts wrote in a Tuesday report. Hedge fund manager Jim Chanos, Marathon Asset Management and Polpo Capital Management founder Daniel McNamara are among those who have been betting for months that landlords will struggle to lure staff back to workplaces. 

“This regional banking crisis is just throwing fuel on the fire,” McNamara said in a telephone interview. “I just don’t see a way out of this without a lot of pain in the office sector.” 

Commercial real estate is a massive and highly diversified sector that forms the basis for most alternative asset portfolios. That’s because it is the only asset class large enough to absorb the flow of cash out of conventional assets when yields were too low to meet pension and institutional return requirements. 

The PDI-P, which secured 22 per cent of parliamentary seats in 2019, is the only party that can nominate candidates without having to ally with other parties. Both Mr Widodo and Mr Ganjar are members of PDI-P.

For Mr Ganjar, the main obstacle to being named PDI-P’s presidential candidate is his own party, said Padjadjaran University political communication expert Kunto Adi Wibowo.

“If Ganjar wants the nomination, PDI-P should be the one to nominate him. He doesn’t want to quit his own party. But will Megawati (Sukarnoputri) give the ticket to Ganjar while she is grooming Puan (Maharani)?,” he said.

Ms Megawati is PDI-P’s chief, while Ms Puan, her daughter, is the House of Representatives Speaker and ranks low in electability rating polls.

Prof Firman noted that both PDI-P and Gerindra may finally have to strike a “tough deal” if they cannot come up with their nominees amid the constant rise in popularity of Dr Anies, given the solidity of his support. 

“If they are forced by pressing circumstances, they will make a deal and resort to the most popular candidates,” he said.  

President Widodo has been a stabilizing force for Indonesia throughout his tenure. The biggest test of sound governance is in the transfer of power. If the sound base he has built can be sustained, the long-term outlook for Indonesia’s potential will be upgraded by investors. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: banks break lower again, AI beneficiaries short-term overbought, gold firms, oil eases, bond yields contracting in preparation for a deflationary shock. 

“As we keep on telling our LPs, we are not alternative anymore,” said Lockhead. “Every deal that gets done, private credit is in the mix.”

Regulatory arbitrage is one of the commonest ways new financial sector solutions thrive. For example, Alibaba circumvented China’s wide difference between the lending and deposit rate by going direct to consumers via the internet and created Ant Financial. When regulators felt threatened by the company they move to contain its growth.

The fintech sector is attempting to carve a piece out of traditional banking operations by going online and direct to consumer via mobile apps. Companies like Block and PayPal avoid banking regulation but offer credit services in the same ways as credit card companies.

The cryptocurrency sector is primarily aimed at further disrupting the payments and international transfer market.

Private lending and private equity more generally thrived in a falling interest rate environment because asset prices of all varieties rose. Active markets were created in everything from businesses to fine wine and whiskey.  

WeChat’s fledgling short-video feed has been a rare bright spot in Tencent’s portfolio. The company is under pressure to better monetize China’s most ubiquitous app, just as users and marketers flee to rivals like ByteDance. WeChat’s video accounts tripled in views last year, garnering more than 1 billion yuan of ad sales through the feature in the fourth quarter.

“The ads turnaround is pretty positive, showing that WeChat video accounts is a real opportunity for Tencent,” said Vey-Sern Ling, senior equity advisor for Asia technology at Union Bancaire Privee. “New approvals of game titles for the domestic market could also help growth this year.”

It’s unlikely Xi Jinping is suddenly going to reverse his suspicion of the video gaming industry but there are clearly efforts underway to boost confidence that capricious policy changes will be well telegraphed in future. 

Hardly. The world’s population of people aged 60 years and older is expected to double by 2050, according to the World Health Organization, while fertility rates are in long-term decline. The financial strain is challenging old-age support systems and leaving many countries facing tough choices about raising the age of retirement, cutting benefits or lifting taxes. Pension shortfalls will be the equivalent of about 23% of world output by 2050, the Group of 30 consultancy estimated. One key measure is the old-age dependency ratio — the number of older people compared to the population that is working age. In Europe and North America, that ratio will be about 50 per 100 by 2050, according to UN forecasts, a rise from 30 per 100 in 2019. In short, we’re on a trajectory toward a smaller share of people paying taxes and a higher proportion drawing pensions. By 2035, the basic US system known as Social Security will no longer be able to cover payments, forcing a 20% reduction in benefits, according to its trustees. 

Very few people are keen on the idea of working more than they have to. That has been one of the primary selling points of union negotiators for decades. You might not like your job, but we’ll make sure you are looked after in your (lengthy) retirement. With union workers negotiating favourable terms, government pensions have also become more generous. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Fed raises rates and flags tightening credit as doing the job of tightening, gold firms, dollar declines, Nasdaq-100 downside key reversal, 2-year yield on cusp of breaking lower. 

“We are committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so,” Chair Jerome Powell said at a press conference following the Fed’s two-day meeting. “It is important that we sustain that confidence with our actions as well as our words.”

Officials are prepared to raise rates higher if needed, he said.

Powell also emphasized the US banking system is sound and resilient, reiterating what officials said in their post-meeting statement, and said the agency is prepared to use all of its tools to maintain stability.

He also acknowledged recent banking turmoil is “likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes,” but added, “It’s too soon to tell how monetary policy should respond.”

Fed policymakers projected rates would end 2023 at about 5.1%, unchanged from their median estimate from the last round of forecasts in December. The median 2024 projection rose to 4.3% from 4.1%.

The Fed raised rates as expected and left the door open to hiking further. The bond market continues to expect rate cuts before the end of the year. That implies inflationary pressures are expected to contract significantly this year. That entails higher unemployment and a recession risk. 

After the GICS change, Financials will account for roughly 14% of the S&P 500 Index versus its current 11% weight. Information Technology will lose 11 stocks, resulting in the largest reduction in market capitalization among the 11 GICS sectors.2

Reclassification Within FinTech and Impacts on the Financials Sector

Mobile payments and payment processing companies have been the center of a digital revolution in banking, disrupting the traditional banking industry as society has become increasingly cashless. Up until now, some of these FinTech companies have been classified as Data Processing & Outsourced Services within the Information Technology sector. As part of the GICS sector changes, this portion of the FinTech theme will be reclassified to Transaction & Payment Processing Services, a proposed new sub-industry within the Financials sector.

Focusing on the S&P 500 Index, the GICS sector reshuffle will involve eight companies moving from Information Technology to Financials. These firms account for roughly 10% of their present home in the Information Technology sector. Following the GICS changes, the eight payment companies will account for roughly 12% of the Financials sector, based on Bloomberg data as of March 16, 2023. The remaining three firms currently classified as Data Processing & Outsourcing Services will be moved to Industrials under a new sub-industry of Human Resources & Employment Services.

The chart below shows current industry and sub-industry group weights for the Financials sector versus proposed weights by GICS. The new sub-industry, Transaction & Payment Processing Services, is also included.

Visa, Mastercard, PayPal, Fiserv, Fidelity National Information Services, Global Payments, FleetCor, and Jack Henry are all now financial services companies according to the GICS sector classification. The net effect is the financial services sector is being beefed up and the information technology sector looks more like a semiconductor and pure tech group now. 

“This is an ugly report, and especially disappointing after the false hope given by the drop in core inflation in the January report,” said Antoine Bouvet, a strategist at ING Groep NV. “This cements the call for another 25-basis-point hike.” 

UK food and non-alcoholic drink prices soared 18%, the fastest pace in 45 years, and increases in clothing costs accelerated. Core prices — which exclude volatile food and energy — also picked up last month to 6.2% after decelerating to 5.8% in January. Services inflation jumped to 6.6% from 6%, a sign of increasing domestic wage pressures that is closely watched by the BOE.

The report will likely intensify the debate at the BOE, where divides have emerged on the Monetary Policy Committee over how much further to raise rates given the headwinds to growth. Officials raised the benchmark rate to 4% in February, extending a tightening cycle that has lifted borrowing costs from 0.1% in late 2021. Money-market pricing implies around 65 basis points of further hikes, up from around 40 basis points at Tuesday’s close. 

Energy prices are a major component in UK inflation because they impact both domestic costs and those of imported goods. The other big contributor was the excessive spending deployed during the pandemic which boosted demand. The retreat from living standard creep is as painful for countries as it is for individuals. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Fed meeting tomorrow. market expects this is the top of the hiking cycle and the return of easy monetary conditions can't be far away. With such a deep inverted yield curve and tightening lending standards I'm not so sure. oil rebounds, Tesla firms, dollar pauses, gold pulls back. 

Dear Eoin, When you started the Corporate Autonomies Fund it was based on the correct hypothesis that globalisation was the future trend and therefore it was wise to invest in companies that had, or would have, a global footprint. Now it seems that there is a trend away from globalisation and towards the repatriation of national production. What does this mean for the fund and for our investment strategy?

And

Thanks for consequential audio Friday in both content and timing. Overlaying today with 2007-09 is key at this time.

Your focus on the 1980 - 2022 bull market in bonds I found spot on and would like a little more commentary on that. The bubbles of housing (2007) and technology (2000) have been put away but Japan (1990) has not. We've punctured a rather big bubble. How do you see this playing out moving forward as far as global U.S. Treasury ownership is concerned in scope (range in long rates) and timing (years to repair damage) considering how many bonds are and will stay underwater if not sold? It took U.S. stocks 25 years to unwind the 1929 bubble and Japan is 33 and counting.

Considering the bond bubble is arguably the mother of all bubbles this side of 1929 and 1980 I would find it helpful to at least make a run at how it ranks in the standings.

Thank you for these topical questions which should be of interest to other subscribers. The basis for the bull trend, which the Autonomies benefit from, was based on a confluence of factors. The assumptions we made were:

1. The rise of the global consumer, driven by economic growth, adoption of capitalism and demographic sweet spots would boost demand for just about everything.

2. The shale revolution would allow the USA to become energy independent and a lengthy contraction in energy prices would boost demand and economic potential.

3. The march of technological innovation would create efficiencies that drive profitability for both creators and consumers.

4. The best hedge against inflation is companies that have growing business and solid competitive edges.

The list of Autonomies was compiled with these characteristics in mind and picked only the most attractive companies from each sector that offered exposure to these themes. In many respects it is a list compiled of oligarchies which dominate specific niche businesses.

Let’s consider the main questions everyone is considering today. 

Good morning, Eoin I hope you and yours are well. I am considering baby steps into Bitcoin ownership. I would welcome any guidance you may have. Particularly, where best to purchase and how to hold/protect. Many thanks for the excellent ongoing guidance.

Thank you for this question which may be of interest. At present, the safest way to hold bitcoin is in a cold storage wallet. Then you must ensure that it is kept somewhere safe. The second best option is a fund like the Grayscale Bitcoin Trust which has done a reasonable job of tracking the price. The last would be to buy bitcoin miners which offer leverage to the price. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Bonds yields steady, banks rebound on open swap lines, dollar eases, stocks rebound, China bonds steady, stocks weak, gold steady, bitcoin pauses. 

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

Crisis-era swap lines were reopened over the weekend to ensure Europe has sufficient liquidity to deal with its unfolding banking crisis. Credit Suisse will not be the only bank caught on the wrong side of bonds with negative yields suddenly having positive yields.

The Fed’s balance sheet jumped last week in response to the actions to support the US banking sector. While this is not technically QE, it is certainly confidence boosting. The conclusion is clear. If they are willing to unwind half of the quantitative tightening program to deal with the collapse of several mid-sized banks, what will they do when unemployment rises and earnings roll over?  

DB’s CDS has widened by virtually the same as UBS’s over the last month, even though it has not had to digest a rival with $575 billion in assets over a weekend.

Deutsche Bank’s revenues have fallen over most of the last decade, and the bank has faced questions around its governance, with BaFin, the German bank regulator, censuring it over its money-laundering controls. However, over the last two years the investment bank has spearheaded a recovery, with revenues and profitability improving.

Nonetheless, DB lagged the rebound seen in European bank shares that began last summer, while its price-to-book ratio remains subterranean.

Contagion risk is much lower than it was in 2008, but it is not zero. And contagion is not always fully logical: Credit Suisse’s tier 1 capital ratio was higher than DB’s.

No one reads prospectuses until they must. They are both long and boring, so file searches will now be underway to identify those with similar characteristics to the CoCos issued by Credit Suisse and UBS. Bond investors are not in the habit of being zeroed, and particularly so when the equity is still trading.

I would be grateful if Mr Treacy could provide comment on which casualty will government and central banks choose

The way I see the situation now is:

Printing money to save banks = increasing inflation + sinking small people
Raising interest rates = reducing inflation + sinking banks + sinking small people with adjustable/variable mortgages
EQUALS
government and central banks caught in vicious circle of their own making

Which casualty will in Mr Treacy's opinion governments + central banks choose going forward?

Thank you for this question which may be of interest to other subscribers. The big question is about the permanence of inflationary pressures.

In your first scenario, the return of excessive money printing takes place before inflationary pressures are under control. That would greatly increase the scope for a wage price spiral and would result in significantly higher interest rates than are currently in place. The net result would be a complete repricing of asset prices and financial risk which equates to market crashes in stocks, bonds and property. That sinks everyone not just small people. In fact, the lease affected would be those with fewer assets.

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

Analysts at JPMorgan Chase & Co. estimated $2 trillion as an upper level for how much liquidity the new backstop could ultimately provide, although they also developed a smaller calculation of around $460 billion based on the amount of uninsured deposits at six US banks that have the highest ratio of uninsured deposits over total deposits.

I think everyone has been perplexed by the relative strength of the Nasdaq-100 over the last week. The market-to-market losses on bank balance sheets are unresolved, even with the backstop for depositors. At a minimum that means less credit will be available over the next year. That increases the likelihood of a recession. 

any comments from US officials as-to when they start to replenish the US strategic oil reserve…….?

Thank you for this question which may be of interest to other subscribers. I’ve been contemplating the same question over the last week, but I framed it differently. Can the US government afford to refill the Strategic Reserve? 

Volkswagen’s China joint venture with SAIC Motor is offering 3.7 billion yuan ($540 million) in cash subsidies to boost sales, according to a statement on the company’s Wechat account, making the German automaker the latest participant in the ongoing price war. 

The venture will provide a subsidy of between 15,000 yuan and 50,000 yuan on any model in its lineup until April 30, which includes brands like Teramont, Lavida, Lamando, Tiguan, Passat, Touran, and the all-electric ID. series

Other incentives include short-tern interest-free loans, lifelong service packages, upgraded components and buy-back guarantees.

It’s been a busy week for Volkswagen. They are attempting to compete on price in China. The company revealed the design of a compact electric vehicle slated for mass production and costing around €25,000. Then they are also talking about direct investments in mining companies to boost access to resources. That all sounds expensive. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Semiconductor stocks rebounds sharply, bitcoin firms on the assumption liquidity is on the rise, dollar stable, oil firms. QT is generally followed by massive QE so how does that work with high inflation?

Support from the Swiss National Bank, which offered as much as 50 billion francs ($54 billion) from its liquidity facility, had brought some temporary relief to Credit Suisse and risk gauges for the broader European banking sector. That fizzled amid comments from the European Central Bank that some of the region’s lenders could be vulnerable to monetary policy tightening, followed by its decision to proceed with a planned half-point increase in interest rates.

The continued selloff signals more action may be needed to arrest a collapse in confidence that’s prompted clients to step back from the Swiss lender and banks to shield their finances from the potential fallout. While the panic surrounding Credit Suisse has so far shown little sign of infecting the broader financial system, any further turmoil would pose a significant risk for markets already on edge amid soaring interest rates and rampant inflation.

I have always been intrigued by the idea of Aleph null. It’s the infinity of infinities [ℵ0]. The set of natural number is infinite, but so is the set of even numbers, and so is the set of uneven numbers. There is also an infinite number of times a single number can be divided. Most of the time that is an academic novelty but when it comes to confidence and bailouts infinity matters. 

Fears that anything but a half-point hike would trigger panic among investors helped settle the European Central Bank’s interest-rate decision on Thursday, according to people familiar with the talks.

As officials met over the past two days, traders were scouring financial markets for signs that other lenders might suffer the same strains that had hammered Credit Suisse Group AG and Silicon Valley Bank. ECB Vice President Luis de Guindos already warned European finance ministers earlier in the week that banks could be vulnerable to rising borrowing costs.

While the ECB dropped language in their Thursday statement on the future path for rates, there remains a live discussion on the need for more increases to bring inflation under control once market turmoil subsides, said the people who declined to be identified because such deliberations are confidential.

Several hawkish officials still see the terminal rate well above the current 3%, the people said, pointing to President Christine Lagarde’s remark that the ECB “would have more ground to cover” if its baseline outlook for the economy were to be confirmed. Yet, some are questioning whether the peak in borrowing costs might now be lower than previously thought. 

The beginning of a hiking cycle leads to central banks trying to re-establish credibility they will do what is necessary to combat inflation. That also implies they will accept whatever pain in the economy is necessary to achieve that goal. The end of a hiking cycle forces them to reverse course because the economic pain grows so intense that it overwhelms the desire to appear credible. 

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.