Economic links for October 2019

“Same with politics. Stop voting for ridiculous candidates and the parties will stop selling them to you. Refusal is the most powerful weapon we’ve got, as both investors and as citizens.

On The Great Jihad And Other Possible Futures

Each of these possible futures has different implications for financial markets and the financial advice business.
-The Great Jihad:leads to big wars and violent revolutions
-The Zombification of Everything: This is a policy controlled world of zombie companies, zombie investors and zombie civic institutions.
-The Great Reset: I see two possible paths here. The first (and more unnerving) is that of debt jubilee and MMT. Here it is common knowledge that neither debt nor deficits matter. This is a future of structurally higher inflation. It’s only a question of degree. To me, this is the highest probability future of the three examined here.

The US Economy Isn’t In The Clear. A Recession is Still on The Table –
The stock market is once again nearing record highs amid investor hopes that a recession is off the table — at least for now. After all, economic data like retail sales and the jobless rate don’t look disastrous, a trade deal with China may be in the works and Federal Reserve Chairman Jerome Powell said Wednesday he expects the economy to remain strong, even as the Fed cut interest rates for …

Recovery in the second half of 2020 will quickly give way to a US (and global) economy that is gaining ground on the upside of the business cycle. We are scouring the leading indicators in anticipation of seeing empirical data to support our upside forecast for 2H20 and 2021.
This is going to be crucial input because our theoretical input to the next rising trend is telling us the cyclical ascent will be milder than many people will expect.
“[We] have received a lot of questions regarding the timing of the upcoming cyclical low and the reasons behind our expectations for a rising trend in the economy in the second half of next year.”



When the Product is Free, You’re the Product

As an investor in or an employee of ANY financial services company, on the other hand … maybe it’s time for a good cry and a hard look at your future prospects.

As the Epsilon Theory saying goes … capital markets are being transformed into political utilities.

If you don’t see that every facet of the financial services world is being transformed into a collection of two or three massively scaled and massively regulated behemoth corporations – into ACTUAL utilities – then you’re just not paying attention. The common denominator of each of these winning behemoths is that they have a narrative that fits the modern Zeitgeist – a profoundly status quo spirit of the age, dominated by the Nudging State and the Nudging Oligarchy.

As I put it in a post three years ago, “recessions typically follow periods of excesses—e.g., soaring home prices, rising inflation, widespread optimism—rather than periods dominated by risk aversion such as we have today.” It’s not slow growth that precipitates a recession, it’s too much risk-taking and too much optimism that eventually collide with the reality of tight money. Recessions happen when the future proves to be radically different—in a bad way—than it was presumed to be, and people are thus forced to do an about-face.

Macrovoices recently had on Variant Perception:

MMT paper
Notes: slowing is consensus, is there a recession? Growth slowdown
Recessions: regime shifts with feedback loops/Simultaneous deterioration in hard and soft data: credit spreads widen, truck sales, building permits, initial employment claims. (ISM and yield curve only 2 areas)
China leading indicator negative. Long march: survival mode
Global liquidity: mid 2020 onwards. relfation wave EM,
No signs of EM double liquidty cycle: em liquidity increasing faster than dm, buildup of fx reserves, loosening of monetary policy, big reflation wave: first capital inflows chasing yield, then easing
tail risk hedges left and right: Ratio call spreads

Nancy Lazar pushed out her recession base case to 2022 at the earliest on her 2020 global outlook call earlier today. #economics #recession #GDP

This is similar to ITR’s call that that this is a slowdown and the earliest recession is 2022.

Chart 4: The Fed is the main driver of the growth slowdown, not Trump!/article/54033/fx-weekly-the-50-bs-caused-the-downturn-so-what-about-the-60-bs

On the topic of false narratives, the Fed may be even more wrong on trade than it was on Quantitative Tightening (QT). The Fed has been arguing that the growth slowdown is largely caused by trade frictions – something the Fed can do very little about. Sure, global economic-political uncertainty is bad news for capex, but we did call for a global slowdown of the manufacturing sector already back in November 2017 – a call based in part on the monetary policy tightening then put in place by the Fed, and a call well before the gradual escalation of the so-called trade war.
To put it bluntly, the wide-spread narrative that the global growth slowdown is caused by “Trump’s trade war” is false, which makes the current situation more dangerous than it needs to be – since the Fed is mistakenly believing in this untrue narrative. It also means that market participants will react more positively to de-escalating trade tensions than they actually should…

We believe that trade uncertainty has been the primary catalyst behind the global growth slowdown — not the lagged impact of Fed rate hikes. As such, with the Chinese delegation already in town and U.S.-China trade talks scheduled to restart on Thursday, investors will be intently watching for any signs of a deal. – Wolfe Research

If this is the case, Cam Hui’s ratios could be useful in monitoring the outlook:

The Fiscal Impulse is moderating as well:
EHBM2xVXkAIDd1l (1)

Even With the Budget Deal, Fiscal Stimulus Is Set to Fade
Contribution of Fiscal Policy to U.S. Real GDP Growth
The 2018–2019 boost to fiscal spending and tax cuts will fade in 2020, offsetting any tailwind from lawmakers’ two-year budget deal.The budget deal is good news for the economy (we are setting aside longer-term fiscal sustainability issues for the time being), and on the margin reduces the odds of a downturn beginning next year.
However, investors should not get too excited about this budget deal, as the 2018–2019 boost from federal spending and tax cuts will still fade next year. Meanwhile, we expect to see a drag from state and local government spending following a construction binge this year.

Source: Guggenheim


The new cold war against China has begun. Please check out previous links i’ve posted from GaveKal that talk about this.

Clash of Empires: Currencies and Power in a Multipolar World

An Investment Thesis for the 2020s

Investing For A New Cold War

More on Future Fiscal (really a 2021 story):
MacroVoices #187 Eric Peters: The Era of Monetary Dominance will give way to Fiscal Dominance

How the market could melt-up

As Millennials grow older and participate in the political process, their influence will grow. Over time, they will flex their political muscles, and the implementation of MMT will deliver the inflation that will favor their generation at the expense of the older Boomers. Whether that happens in 2020, or in the years beyond, is an open question. The midterm election of 2018 saw more Millennials participate in the political process, and expect that generation’s political power to grow as time goes on.

What update wouldn’t be complete without repo articles:

“Overnight repo is where the interest rates that central banks SET meet the interest rates that real economic actors USE. The dislocations we’re seeing in repo are the result of a new common knowledge about central banks. And yes, it changes EVERYTHING.”

The Northern Lights, Solar Cycles and Climate

Luckily last labour day weekend there was a geomagnetic storm, so it was possible to photograph the northern lights near Toronto. Here is a timelapse I shot:

For anyone interested in trying to photograph the northern lights, here are some great resources:
– Check an Aurora forecasting service to see if anything is expected in the next few days. Spaceweatherlive has a good forecast and also shows the level/phase of moonlight. Less moonlight increases the chances of seeing faint auroras
-Check could cover at:
-Get out of the city and light polution, check:
– Get a good camera, preferably with a wide lens with large aperture. ISO 2000, f3.5, 20-30 second manual exposure, manual focus, constant temp

Other resources:

It may have been the wrong time to get into trying to photograph the northern lights, as in 2015 we were near the peak in the current solar cycle and now we are near the trough. The next cycle is projected to the be the lowest in hundreds of years.

Source: NOAA

“The Sun’s activity rises and falls in an 11-year cycle. The forecast for the next solar cycle says it will be the weakest of the last 200 years. (Emphasis added) The maximum of this next cycle – measured in terms of sunspot number, a standard measure of solar activity level – could be 30 to 50% lower than the most recent one. The results show that the next cycle will start in 2020 and reach its maximum in 2025.”

You can see where we are in the current solar cycle and some potential projections of the future cycle:



“SUNSPOTS FROM THE NEXT SOLAR CYCLE: Solar Minimum is here, but it won’t last forever. In fact, the next solar cycle made a brief appearance this week. On July 1st, a small sunspot materialized in the sun’s southern hemisphere (S21W02), then, hours later, vanished again. The polarity of its magnetic field marks it as a likely member of Solar Cycle 25:
Southern sunspots from old Solar Cycle 24 have a -/+ polarity. This ephemeral sunspot was the opposite: +/-. According to Hale’s Law, sunspots switch polarities from one solar cycle to the next. The unnumbered sunspot of July 1st appears to be a herald of Solar Cycle 25.
Solar cycles always mix together at their boundaries. Indeed, ephemeral sunspots belonging to Solar Cycle 25 have already been reported on Dec. 20, 2016; April 8, 2018; Nov. 17, 2018; and May 28, 2019. Now we can add July 1, 2019, to list. The slow transition between Solar Cycle 24 and Solar Cycle 25 is underway.

Earlier this year, an international panel of experts predicted that Solar Minimum would deepen in 2019 and begin to rebound sometime next year. The increasing pace of ephemeral sunspots from the next solar cycle is roughtly consistent with their forecast.

It has been suggested that the solar cycle has much more affect on global climate change than other factors such as C02. This remains to be seen, but if its true, the climate emergency has the potential to be in the complete opposite direction if the forecast for a very weak solar cycle is true.

Global cooling predictions:

EBfSQjwX4AA23BP (1)

China scientists warn of global cooling trick up nature’s sleeve

“The 2014 research, which drew on 5,000 years’ worth of data, suggested the current warm phase of the cycle could terminate over the next several decades, ushering in a 250-year cool phase, potentially leading to a partial slowdown in man-made global warming.
Wu said the latest study, with 10,000 years’ worth of new data, not only helped to draw a more complete picture of the 500-year cycle, but also revealed a previously unknown mechanism behind the phenomenon, which suggested the impact of the sun on the Earth’s climate may be greater than previously thought.
According to Wu, the variation in solar activity alone was usually not strong enough to induce the rapid changes in vegetation the research team recorded in the sediment cores of Moon Lake. Instead, the scientists found the warming impact was amplified by a massive, random interaction between surface seawater and the atmosphere in the Pacific Ocean known as the El Nino-Southern Oscillation.
As a result of the research findings, Wu said she was now more worried about cooling than warming.”

While the solar cycles effects on climate are yet to be seen over the next decade, make no mistake, we are killing the environment in others ways:

Mapping the Flow of the World’s Plastic Waste

There seems to be increasing doubt on the quality of the temperature data, as well as the type and consistency of adjustments made in predicting global warming. Then you have media bias compounding this effect, its hard to sort through the noise when you don’t know what is the truth, and who is being funded by what organization.

Are forest fires as bad as they seem?




A future Time cover?


Coddling of the American Mind and other links

Coddling of the American Mind: A fantastic book, Here is the video interview with Jonathan Haidt from the Agenda:

Some quotes from the book:
“Paranoid parenting is a powerful way to teach kids all three of the Great Untruths. We convince children that the world is full of danger; evil lurks in the shadows, on the streets, and in public parks and restrooms. Kids raised in this way are emotionally prepared to embrace the Untruth of Us Versus Them: Life is a battle between good people and evil people—a worldview that makes them fear and suspect strangers. We teach children to monitor themselves for the degree to which they “feel unsafe” and then talk about how unsafe they feel. They may come to believe that feeling “unsafe” (the feeling of being uncomfortable or anxious) is a reliable sign that they are unsafe (the Untruth of Emotional Reasoning: Always trust your feelings). Finally, feeling these emotions is unpleasant; therefore, children may conclude, the feelings are dangerous in and of themselves—stress will harm them if it doesn’t kill them (the Untruth of Fragility: What doesn’t kill you makes you weaker).”

“A. Place clear limits on device time. Two hours a day seems to be a
reasonable maximum, as there does not appear to be evidence of
negative mental health effects at this level. For younger children,
consider banning the use of devices during the school week entirely,
in order to delay for as long as possible the incorporation of devicetime
into daily routines.
B. Pay as much attention to what children are doing as you do to how
much time they spend doing it. In chapter 7, we presented the
principle that social network sites and apps should be judged by
whether they help or hinder adolescents in their efforts to build and
maintain close relationships.38 Talk with your children about the apps
that they and their friends use and how they use them. Which ones
are essential for their direct communication? Which ones do they
experience as triggering FOMO (“fear of missing out”), social
comparison, and unrealistically positive presentations of the lives of
other kids? Read Twenge’s book iGen (as a family, if you can) and
then bring your teenager into the discussion of how to minimize the
potential hazards of heavy device use. These devices and apps are extremely appealing and addictive, so it may be difficult for children
to self-regulate. You may need to use a parental-restrictions app39 or
the parental-restrictions setting on your child’s devices to manage and
monitor usage.40 And pay attention to what you are doing, too. Is your
device use reducing the quality of your time with your child?”

Epsilon theory had an interesting take related to helicopter parenting:

“But we don’t believe in free-range kids just because a safer world means we can. We believe in it because we should. In other words, we think there are important developmental, psychological, civic and philosophical reasons to walk away from constant close supervision of our children. In doing so, we express a belief that freedom from excessive guidance promotes the development of intellectual autonomy. Of adaptivity to changing circumstances. Of self-worth. Of enduring challenges, disagreement and difficulty. Of hearing and seeing disagreeable things without being drawn in or repelled by them in counterproductive ways. Of a rock-solid belief in the autonomy, sovereignty and value of others.

It is this cause that gives me pause, not only about our kids, but about us – about investors.

The transformation of capital markets into political utilities isn’t just similar to helicopter parenting. It IS helicopter parenting.

The power of capitalism that has lifted billions out of poverty is the power of price. It is the power that we have together, when we become a market, to determine what something is worth so that capital can be allocated most efficiently to produce the things and services that make our lives easier, if not always better. …..

I worry about the transformation of capital markets into political utilities – in part – because of the unavoidable tangible outcomes of that policy. Capitalism made us wealthier and more productive in part because we allowed bad ideas to fail. It made us wealthier and more productive in part because the people willing to take big, short-vol type risks were compensated commensurately. It made us wealthier in part because investors who could identify relative mispricings were paid for doing so.

Nobody today wants to do any of those things – not because they aren’t being rational or ethical, but because they are…….

What worries me is that when this Zeitgeist has grown up, when we’re all done being helicopter-parented by policymakers, we will all be crippled as investors – capable of and conditioned to allocate among asset classes which no longer have the same meaning they once did (e.g. Emerging markets), trained in the art of using shoddy empirical techniques to validate our dispositions (e.g. all you need is US Large Cap!), skilled in the assessment of which Culturally Important Institution policymakers need to leverage asset prices to protect, and utterly incapable of determining whether we should provide capital to a business or government venture, and under what terms.

The greatest threat to capitalism isn’t the AOCs or Bernie Sanders of the world. It isn’t even oligopolistic cronyism (although I suppose I could probably be convinced). The greatest threat to capitalism is a generation of investors and business executives helicopter-parented by policy-makers, a generation of people who haven’t learned how to evaluate, take and endure risk.

It isn’t us today. But it could be us in the future.

Interesting take on the fall of the Simpsons:

Some Older Wisdom from Douglas Rushkoff:

Old but I really enjoyed Lanier’s book recently:

Economic Links:

I”m just reading GaveKal’s new book: Clash of Empires: Currencies and Power in a Multipolar World. Here are some GaveKal links:
“The global growth environment remains lackluster, and the risk is that it will deteriorate from here. As a result, you need to “pay up” for what little growth you can find. And the only obvious area where you can find growth is in technology, partly because so many tech companies enjoy quasi-monopoly situations thanks to scale and network effects. In fact, being a massive company
is no longer a hindrance to growth, because you can now operate on a global scale and capture monopoly rents.”

Pair with: When will the remarkable run of the FANGs end? Peering into 2020: New decade, new paradigm
“Assuming that the US-China standoff is not merely a trade war but the start of a new cold war then
the shift in the US-China relationship will cast a long shadow over financial markets. As reviewed
above, the new cold war could end up being:
-Bearish for US technology stocks
-Bearish for the US dollar
-Bullish for Russia
-Bearish for Chinese growth
-Bullish for renminbi bonds
In short, for a world that may be going through a dramatic shift, one wants to be long the assets that
no-one today owns, like Chinese and Russian bonds, and underweight those that everyone and their
dogs are overweight like the US dollar and US technology stocks.”

Update 2019/08/24 new GaveKal links:

Teddy Vallee’s historical post on bonds using intermarket and liquidity indicators:

NOSPINFORECAST The Employment Situation: Sample report from a great economic analysis firm

ITR on Canada

“[We] have received a lot of questions regarding the timing of the upcoming cyclical low and the reasons behind our expectations for a rising trend in the economy in the second half of next year.” – ITR Director of Speaking Services Alex Chausovsky.

Update 9/23:

Links for April 2019

We’ve talked about Data as Labour before and Bunz seems to be leading the charge:

See some video’s from RadicalXchange:

Great article on Andrew Yang:

“But the decidedly nonpartisan Yang hasn’t been hanging around on the outskirts of Congress or in a governor’s mansion waiting for his shot. He’s not in the field because he wants to make a name for himself and become a Democratic-party fixture going forward. He’s there because he thinks he actually has the substance to speak to our current moment. Plenty of people agree that we’re facing cultural disintegration, he says, but too few are proposing an actual plan for recovery.”

Another interesting candidate highlighted by Glen Weyl:

More on Hashgraph as an alternative to Blockchain:

Economic Links:

Updates on the economic cycle from ITR economics:
“While the International Monetary Fund and other observers have been relatively upbeat and are only now revising their forecasts downward, Zulauf has been expecting a slowdown in the second half of 2019 for a couple years.

“I think the consensus is moving closer to my view,” he said. “Right now, the consensus believes the world economy is bottoming out. I think that is a little bit too early.”

Instead, he expects more negative surprises ahead into Fall or later this year, which will likely produce a shock. Nominal GDP in essentially all major economies around the world could decline substantially.

He expects the U.S. could see a decline from over 5 per cent to maybe 3 percent in nominal terms. China is already at 3 percent real growth and around 2 percent inflation, and those figures could decline further as well.

“The current optimism that things are bottoming out by those who have been wrong for quite some time is premature,” Zulauf said. “I think the consensus will be disappointed again in the second half, and that will have implications for the corporate sector’s earnings situation.””
“After ugly macro data this winter, a spring rebound – led by employment and housing – is underway. A recession in 2019 looks unlikely. ”

Nordea View May 2019_Amended.pdf

Check out the notes on Felix Zulauf’s presentation:

Macrovoices Variant Perception Update Podcast
Variant Perception Simon White Chartbook

Juliette Declercq Macrovoices Podcast Chartbook May 2nd



“Yet it would be naive to deny the long awaited real estate correction has started.

You don’t need to see more graphs about Canadian consumer indebtedness. We all know what they look like. The story is so well told it’s pointless to repeat any part of it.

A correction was coming, the only question left unanswered was timing.

Well, I think it’s now obvious that we are in the midst of that adjustment.

The only help I can offer is to point out that real estate cycles are long. Really long. The mistake will be assuming it will be over quickly. It won’t.

And my favourite trade?

I love buying the short end of the yield curve in Canada against selling the US equivalent tenor.

Probably the easiest way to play it is a long BAX DEC 2019 vs ED DEC 2019 spread:”

Economic/Market Narratives:

MMT has blown up in the news media. I’ve thought about doing a post with MMT related links, instead i’ll post some key ones here. In the future, we will likely see an even larger fiscal impulse since monetary policy is limited with interest rates so low. Good or bad, a macro investor needs to consider the scenarios and consequences.


When Money Dies: The Economics of Inflation (MMT)


“I would like to reaffirm one point. There are two parts to MMT; how the modern fiat-based economy works and then the policies that are advocated to maximize output under these conditions.

You might not like the political parts of MMT. I am not trying to convert anyone. Nothing is more annoying than when your best friend discovers some keto-diet and spends all day extolling its benefits.

But I will let you in on a little secret. When I wrote my original MMT piece – “Everything you wanted to know about MMT (but were afraid to ask)”, I was shocked by the individuals who reached out to me. Really impressive people who had spent time examining MMT and concluded that it was extremely useful in their analytical thinking. They sent me papers they had written, notes they had taken from their meetings with these MMT professors and analysis they had created in their attempt to better understand the modern economy and markets. The quality of these people and their thinking astounded me.

It’s easy to dismiss MMT as the ravings of the far-left, but if you do so, you are mixing economics with politics. MMT theory is extremely useful in understanding how the economy actually works. You might not like it. You might wish it were different. But I think the hallmark of a great trader/investor is to stay open-minded. In that vein, I think the MMT framework is a most useful tool for macro trading.”

“As traders/investors our job is not to decide the best way to organize society (we leave that to the much smarter politicians and economists), but to construct portfolios that will perform best under the existing circumstances. If you want to rail against MMT, then you are free to do. But I happen to believe you are missing a valuable tool for understanding how the economy and markets behave in the post gold-standard fiat-based world.

If in the coming years politicians adopt MMT policies, your outrage will do your portfolio little good. Therefore you might as well try as best you can to unemotionally analyze the implications of these potential policy implementations.

So without further ado, let’s try to determine how best to adapt to the MMT possibility.”

“The conclusion is simple: MMT proponents know nothing about economic history, do not understand the nature of money, which is not a state monopoly but a common good, and believe unquestioningly in their theories without pursuing them to their logical conclusions.”

“A clash of generations
Analyzing theories like MMT to determine whether they represent good policy is futile for investors. Even if it turns out to be bad policy, the consequences won’t be felt for years, and investors should instead focus on the likelihood of its implementation, and its fiscal effects.

Here are two perspectives on MMT that represent some out of the box thinking. Srinivas Thiruvadanthai, Director of Research at the Jerome Levy Forecasting Center, wrote a Twitter thread that framed MMT as a generational conflict between Baby Boomers and MIllennials:

‘My pet theme: inflation is everywhere and always a political phenomenon in the current context of clash of generations, between Millennials and Boomers. In a way reflected in AOC vs Schultz.

The Boomers are entering retirement and sitting on assets that are richly valued. Inflation is poison in more ways than one. In fact, rising wages are poison because it cuts into their living standards. They want sell down their big houses and downshift.

The same thing happened in Japan but was decisively won by the retirees because they were preoponderant. In contrast, the Millennials are more or less the same size as the Boomers. So, the clash won’t be so decisively settled.

Ironically, Boomers when they were in the same position as Millennials today, i.e in the 1970s, won the battle decisively because they were dominant demographically. That is one reason why we had inflation.

The point being economic theories don’t have as much influence as people think. People use them to rationalize whatever policies favors them. Part of the reason for MMT gaining strength is it appeals to a constituency and the increasing divergence of interests.’

As Millennials grow older and participate in the political process, their influence will grow. Over time, they will flex their political muscles, and the implementation of MMT will deliver the inflation that will favor their generation at the expense of the older Boomers. Whether that happens in 2020, or in the years beyond, is an open question. The midterm election of 2018 saw more Millennials participate in the political process, and expect that generation’s political power to grow as time goes on.”

Ray Dalio on MMT

Ben Hunt (@EpsilonTheory) tweeted at 10:36 AM on Sat, Jan 19, 2019:
QE is a stagflation machine for market-world, where we’ve inflated prices for fin’l assets and crushed productive corporate growth.

MMT will be a stagflation machine for real-world, where we will inflate prices for goods/services and crush productive private sector growth.

VP on MMT:

Ben Hunt’s interesting articles:

In You Are Here, I wrote that the investment Zeitgeist is changing in three ways.

-Deflationary expectations, now 40+ years old, are becoming inflationary expectations.
-Cooperative and multi-play games in both international politics and domestic politics, now 70+ years old, are becoming competitive and single-play games.
-Modern capital markets, now 150+ years old, are becoming political utilities.
Time to add a fourth.

-Capitalist productivity, now 200+ years old, is becoming capitalist financialization.
What is financialization?Financialization is profit margin growth without labor productivity growth….Financialization is the zombiefication of an economy and the oligarchification of a society.


“The reason companies aren’t investing more aggressively in plant and equipment and technology is BECAUSE we have the most accommodative monetary policy in the history of the world, with the easiest money to borrow that corporations have ever seen. Why in the world would management take the risk — and it’s definitely a risk — of investing for real growth when they are so awash in easy money that they can beat their earnings guidance with a risk-free stock buyback? Why in the world would management take the risk — and it’s definitely a risk — of investing for GAAP earnings when they are so awash in easy money that they can hit their pro forma narrative guidance by simply buying profitless revenue? Why in the world would companies take any risk at all when the Fed has eliminated any and all negative consequences for playing it safe?”

That’s from Gradually and Then Suddenly, written in July 2017. It’s worth your time.


And then take this to heart.

-What are the Narratives (story arcs) I am being told?
-What are the Abstractions (categorizations) presented to me?
-What are the Metagames (big picture games) I am playing?
-What are the Estimations (the roles of chance) shaping outcomes here?
-Am I acting to promote Reciprocity (potentially cooperative gameplay)?
-Am I acting in a way that reflects my Identity (autonomy of mind)?”

This is older but referenced in the above article, and relates to investment outcomes:

The Three Horsemen of the Investing Semi-Apocalypse

-The Fed keeps on raising interest rates and shrinking its balance sheet, ultimately causing a nasty recession in the US and an outright depression in emerging markets.
-China drops a trade war atom bomb by letting the yuan devalue sharply, sparking a global credit freeze that makes the 1997 Asian crisis look like a mild autumn day.
-Italy and its populist government play hardball with Germany and the ECB in a way that Greece could not, leading to a Euro crisis that dwarfs the 2012 crisis.
The Fourth Horseman of the Investing Apocalypse

-Inflation is not a cyclical blip and inflationary expectations are not “controllable” by the Fed without taking politically suicidal actions. They don’t commit political suicide, and the world enters a new inflationary regime.”

It’s the only question that long-term investors MUST get right in order to minimize their maximum regret. You don’t have to get it right immediately. You don’t have to track and turn with every small perturbation in its path. But you MUST get this question roughly right.

Am I in an inflationary world or a deflationary world?

For the past 30+ years, we have been in a non-inflationary world. For the past 10 years, we have been in a deflationary world. I don’t mean that prices in lots of things haven’t gone up. I don’t mean that inflation hasn’t been a monster in many places. What I mean is that inflation expectations have been declining for 30+ years, and they have been rock-bottom for the past ten. What I mean is that for a decade now, all of our investment behaviors – and by all of us I mean everyone from the smallest individual investor to the Chair of the Federal Reserve – have been predicated on the belief that a) there’s no chance of future inflation for bad reasons (a currency that has lost the confidence of the world), and b) there’s no chance of future inflation for good reasons (robust economic growth). Instead, the most pervasive and powerful piece of common knowledge in investing is simply this: we are on a long gray slog to Nowheresville, a future of too much debt and not enough growth, a pleasant enough if thoroughly meh world.


Here’s what preparing your portfolio for an intrinsically inflationary world requires:

Zombies and Oligopolies: We are headed towards a world with increasing zombie firms due to low interest rates (described above) while simultaneously there are oligopoly structures and a lack of competition in many sectors.
“The difference with the Asian or the 2008 crisis is that this time the excess risk is hidden under central banks’ balance sheets and will continue to do so.
So, if risk is hidden under a perennial money supply-growth carpet, why should we worry? Because the endgame is not likely to be a 2008-style bang, but a slow, painful and unstoppable zombification of the global economy. As the evidence of stagnation rises, governments get more nervous. What do they do? Stop the monetary madness? Allow high productivity sectors to thrive? Promote deleveraging and prudent investment? No. More white elephants, massive unproductive spending at the expense of taxpayers and savers in what is likely to be yet another massive transfer of wealth from salaries and savers to governments with fancy names.
Investors are forced into riskier assets for lower returns and the crowding out of productive sectors in favour of government and crony subsidised sectors accelerates, sending money velocity lower, productivity growth collapses and mainstream economists hail the financial repression madness with the excuse that “there is no inflation”, while citizens all over the world complain and demonstrate -rightly- against the rise in cost of living. Intensifying financial repression under the “there is no inflation” excuse is the most ludicrous mantra ever. It is like running a car at full speed down a highway under the premise that “we have not crashed yet”.
Many economists defend the zombification of economies under a false social premise. The argument is the following: What is bad about following the example of Japan? It has low unemployment, its debt is cheap and the economy survives rather well. It is a social contract and debt does not matter.
Everything is wrong with this argument. Japan’s low unemployment has nothing to do with monetary and fiscal policy and everything to do with demographics and lack of immigration. Japan’s low cost of debt is not a blessing. It is the result of using the savings of citizens to perpetuate an almost-Ponzi scheme that does not prevent the country from spending more than 20% of its budget on interest expenses. The idea that it is irrelevant because the Treasury buys more bonds tells us how insane we are defending such policies. It is a massive kick-the-can policy transferring the risk to the next generations. It is no wonder that Japanese citizens don´t spend or invest as much as their central planners would want them too. They are not stupid. They know that the government is going to confiscate wealth via monetary and fiscal means at some point. This endless debt machine makes the economy less dynamic, and stagnation is guaranteed. But the strength of the Yen and the low cost of Japanese debt are only supported by the high level of international reserves and strong financial flows of the country. Japàn keeps its imbalances because it is one of the few that has undertaken this concerted policy of zombification. This cannot be transferred to the rest of the world, because the result would not be Japanese-style stagnation but Argentina-style crisis chain.”

Source: WSJ

“Canada’s economy is in the throes of a zombie outbreak and it’s threatening to devour the country’s productivity.

That, more or less, is the conclusion of a new report from Deloitte, which found that at least 16 per cent of publicly traded firms here could be classified as “zombies” — defined as mature firms more than 10 years old that lack sufficient revenue to cover interest payments on their debt.

The concept comes from a 2017 report by the Organization for Economic Co-operation and Development (OECD) that explored how inappropriate insolvency structures in Europe kept companies intact when a competitive marketplace would have forced them to liquidate or restructure.

In Canada, Deloitte looked at 2,274 companies listed on the TSX and TSX Venture Exchange from 2015 to 2017, and found that 350 firms fit the definition.”

Source: FP, Deloitte

Age of Monopoly/Oligopoly:

Only 30 percent of Canadian firms consider any form of innovation to be extremely or very important, according to a recent survey, and just 15 percent would assume significant financial risk to pursue it. Why? Because they don’t have to. Trying to surpass rivals and attract more customers isn’t something you knock yourself out to do when there’s not much rivalry. Six companies dominate the Canadian banking industry. Four companies dominate the Internet service provider market. Three companies dominate English-language television broadcasting, the supermarket industry and wireless telecommunications. A duopoly dominates the airline industry. And so on. (How we can win – Page 65)

Since the early 1980s, market concentration has increased severely. As we’ll document in this book:
-Two corporations control 90% of the beer Americans drink.
-Four airlines completely dominate airline traffic, often enjoying local monopolies or duopolies in their regional hubs.
-Five banks control about half of the nation’s banking assets.
-Many states have health insurance markets where the top two insurers have an 80–90% market share. For example, in Alabama one company, Blue Cross Blue Shield, has an 84% market share and in Hawaii it has 65% market share.
-When it comes to high-speed Internet access, almost all markets are local monopolies; over 75% of households have no choice with only one provider.
-Four players control the entire US beef market and have carved up the country.
-After two mergers this year, three companies will control 70% of the world’s pesticide market and 80% of the US corn-seed market.
The list of industries with dominant players is endless.
It gets even worse when you look at the world of technology. Laws are outdated to deal with the extreme winner-takes-all dynamics online. Google completely dominates internet searches with an almost 90% market share. Facebook has an almost 80% share of social networks. Both have a duopoly in advertising with no credible competition or regulation.
Amazon is crushing retailers and faces conflicts of interest as both the dominant e-commerce seller and the leading online platform for third party sellers. It can determine what products can and cannot sell on its platform, and it competes with any customer that encounters success. Apple’s iPhone and Google’s Android completely control the mobile app market in a duopoly, and they determine whether businesses can reach their customers and on what terms.
Existing laws were not even written with digital platforms in mind. So far, these platforms appear to be benign dictators, but they are dictators nonetheless. – Myth of Capitalism

These other FinancialSense Videos have been taken down unfortunately:


Some great timelapses

I saw this fantastic timelapse of the northern lights and thought i’d post it along with the original timelapses that inspired me to start shooting the landscapes, skies and stars….

“SOUTH POLE AURORA VIDEO: Imagine living and working in darkness, 24 hours a day for 6 months out of every year. Robert Schwarz does just that. He’s a professional telescope operator for the Keck Telescope Array at the Amundsen-Scott South Pole Station. And his hobby is astrophotography. For the past 14 winters, he has been taking pictures of the south polar night, witnessing scenes unlike anyplace else on Earth. His work is highlighted in a newly-released video entitled “South Pole | Night In Antarctica.”
A longtime contributor to, Robert Schwarz is a pioneer in cold-weather astrophotography. At the South Pole, temperatures routinely drop below -70o C. Modern DSLR cameras are not made for such temperatures. LCD displays freeze instantly, mirror mechanisms get stuck, batteries fail, and time-lapse sequences often end after only 30 or 40 frames. To mitigate these problems, Robert has developed heated camera housings and motorized trackers with insulation, allowing his optics to follow the pirouette of the stars overhead even in deep Antarctic cold.

Cinematographers Christoph Malin and Martin Heck created the video using a year’s worth of Schwarz’s unique footage. They’re looking forward to more. Right now, Robert is traveling to the South Pole for a record-setting 15th “overwinter,” and of course he’s taking his cameras. Stay tuned!

Adventure Is Calling from Shane Black on Vimeo.

Adventure Is Calling II from Shane Black on Vimeo.

Good luck in 2019 and a timelapse

Happy new year and good luck in 2019!

I just finished my annual timelapse compliation, check it out below and put quality to maximum:

Also I found Josh Wolfe’s Lux Capital annual dinner presentation regarding entrepreneurship, technology, progress and people fascinating and inspirational (albeit understandably a little self-promotional).  I think a lot progress will also come from the adoption of good market/economic ideas, which will be the subject of a future post.



AI working for the people or against the people

AI and technology can be used for good or bad. Currently some AI use cases involve monitoring the population and invading privacy. For example, look at this glimpse into China’s social credit system, an Orwellian nightmare:

Another big use case is addicting people to their devices through design to sell more advertising and capture their valuable attention (what Albert Wenger calls the new scarcity). We’ve posted links to podcasts by Tristan Harris before talking about the arms race in technology to capture your attention. This slide from the Internet Trends presentation shows how people are using their devices more and more:

Source: Mary Meeker, Internet Trends

Here are some interesting video/links on flipping AI and technology on its head to serve the interests of the people. Why not monitor the government for corruption, in service of individuals? Why not create an AI sidekick or bot for individuals that monitors their weaknesses and does tasks like purchase the cheapest possible item. These seem like much better projects than some of the current ones….. (video)
“We can use the technology in many different ways. I mean for example we now are using AI mainly in order to surveil individuals in the service of corporations and governments. But it can be flipped to the opposite direction. We can use the same surveillance systems to control the government in the service of individuals, to monitor, for example, government officials that they are not corrupt. The technology is willing to do that. The question is whether we’re willing to develop the necessary tools to do it.”

“YNH: The system in itself can do amazing things for us. We just need to turn it around, that it serves our interests, whatever that is and not the interests of the corporation or the government. OK, now that we realize that our brains can be hacked, we need an antivirus for the brain, just as we have one for the computer. And it can work on the basis of the same technology. Let’s say you have an AI sidekick who monitors you all the time, 24 hours a day. What do you write? What do you see? Everything. But this AI is serving you as this fiduciary responsibility. And it gets to know your weaknesses, and by knowing your weaknesses it can protect you against other agents trying to hack you and to exploit your weaknesses.”

“So we think about this is like the whole framework of humane technology is we think this is the thing: We have to hold up the mirror to ourselves to understand our vulnerabilities first. And you design starting from a view of what we’re vulnerable to. I think from a practical perspective I totally agree with this idea of an AI sidekick but if we’re imagining like we live in the reality, the scary reality that we’re talking about right now. It’s not like this is some sci-fi future. This is the actual state. So we’re actually thinking about how do we navigate to an actual state of affairs that we want, we probably don’t want an AI sidekick to be this kind of optional thing that some people who are rich can afford and other people who don’t can’t, we probably want it to be baked into the way technology works in the first place, so that it does have a fiduciary responsibility to our best, subtle, compassionate, vulnerable interests.

NT: So we will have government sponsored AI sidekicks? We will have corporations that sell us AI sidekicks but subsidize them, so it’s not just the affluent that have really good AI sidekicks?”

World After Capital By Albert Wenger – bots to serve the people

Update 2019-03-16:
Will-I-Am wrote a great article in the economist:
We need to own our data as a human right—and be compensated for it

AI odds and ends:
“But there is an alternative: an emerging class of business models in which internet users are also the customers and the sellers. Data creators directly trade on the value of their data in an information-centric future economy. Direct buying and selling of information-based value between primary parties could replace the selling of surveillance and persuasion to third parties. Platforms would not shrivel in this economy; rather, they would thrive and grow dramatically, although their profit margins would likely fall as more value was returned to data creators. Most important, a market for data would restore dignity to data creators, who would become central to a dignified information economy.”

Syllabus for Glen Weyl’s very interesting course:

AI winter update: I’ve posted quite a few optimistic videos about autonomous driving so i’ll even it out with this reality check. Some great links in this piece.

“While on the self-driving car subject, one of the main criticisms of my original AI winter post was that I omitted Waymo from my discussion, them being the unquestionable leader in autonomy. This criticism was a bit unjustified in that I did include and discussed Waymo extensively in my other posts [1], but in these circumstances it appears prudent to mention what is going on there. Luckily a recent very good piece of investigative journalism shines some light on the matter. Apparently Waymo cars tested in Phoenix area had trouble with the most basic driving situations such as merging onto a freeway or making a left turn, [1]. The piece worth citing from the article:

‘There are times when it seems “autonomy is around the corner,” and the vehicle can go for a day without a human driver intervening, said a person familiar with Waymo. Other days reality sets in because “the edge cases are endless.”’

Some independent observations appear to confirm this assessment. As much as I agree that Waymo is probably the most advanced in this game, this does not mean they are anywhere near to actually deploying anything seriously, and even further away from making such deployment economically feasible (contrary to what is suggested in occasional puff pieces such as this one). Aside from a periodic PR nonsense, Waymo does not seem to be revealing much, though recently some baffling reports of past shenanigans in google chauffeur (which later became Waymo) surfaced, involving Anthony Levandowski who is responsible for the whole Uber-Waymo fiasco. To add some comical aspect to the Waymo-Uber story, apparently an unrelated engineer managed to invalidate the patent that Uber got sued over, spending altogether 6000 dollars in fees. This is probably how much Uber payed their patent attorneys for a minute of their work…

Speaking of Uber they substantially slowed their self-driving program, practically killed their self driving truck program (same one that delivered a few crates of beer in Colorado in 2016 with great fanfares, a demo that later on turned out to be completely staged), and recent rumors indicate they might be even looking to sell the unit.

‘Generally the other self driving car projects are facing increasing headwinds, with some projects already getting shut down by the government agencies, and others going more low-key with respect to public announcements. Particularly interesting news came recently out of Cruise, the second in the race right after Waymo (at least according to California disengagement data). Some noteworthy bits from the Reuters article:

Those expectations are now hitting speed bumps, according to interviews with eight current and former GM and Cruise employees and executives, along with nine autonomous vehicle technology experts familiar with Cruise. These sources say that some unexpected technical challenges – including the difficulty that Cruise cars have identifying whether objects are in motion – mean putting GM’s driverless cars on the road in a large scale way in 2019 is looking highly unlikely.

“Nothing is on schedule,” said one GM source, referring to certain mileage targets and other milestones the company has already missed.”

“Now I could not care less about results in game domains, since as I stated multiple times on this blog [1, 2], the only problem really worth solving in AI is the Moravec’s paradox, which is exactly the opposite of what DeepMind or OpenAI are doing, but I nevertheless found this media misfire hilarious.”

Data should be seen as labor rather than capital (Glen Weyl):