Category: zerohedge

By Larry McDonald of The Bear Traps Report

We believe the U.S. is walking into the early stages of the Fourth Turning, a subject entertained below. In this note we break down the ideal 2020-2030 portfolio and why it is so different from the 2010-2020 vintage. Above all, by now it should be clear to a five year old; Global Central Banks are working together in a dollar containment regime. With conviction, we laid out this thesis a year ago (April 2020) in our “Lessons from Omaha” and it became the foundation under our overweight positioning in commodities, global large cap value, and emerging markets.

The good news is, the commodity cycle is still in the early innings.

There are trillions of U.S. dollars married to deflation bets (fixed income bonds and tech stocks) and the lawyers are writing up the divorce papers as we speak. Unintended consequences are popping up weekly, the latest variety points to a significant labor shortage developing in the U.S. with colossal side effects moving our way.

It’s going to be hilarious. Just when the last economist threw in the Phillips Curve towel, wrote the long winded obituary it will come roaring back to life. Wage inflation is about to explode, and this sword is swinging in the direction of profit margins.

Above all, the Fed is staring down the barrel of  runaway inequality, inequality that the Fed itself has created. The American Dream just isn’t the 1950s-2000s bright blue, a touch of grey has moved in forging left wing populism. If you listen carefully to U.S. Treasury Secretary Janet Yellen and Fed Chair Jay Powell, they are focused on U 6 unemployment near 11% and the 9 million Americans who have left the Non Farm Payrolls since January 2020.

Now listen to the Bank of Canada and the Bank of England, planet earth has new alpha male central banks positioning themselves FAR more hawkish than the FOMC – dollar bearish. Strategically so, it’s all part of the plan. These brain trusts have FINALLY figured out a runaway dollar will obliterate emerging market balance sheets loaded with fresh and deep, Covid 19 wounds.

The $64T of global GDP outside the U.S. is stabilizing relative to the $20T inside the 50 U.S. states. This is a colossal dollar bearish driver just what Powell placed on the menu. Today, inflation expectations are finally moving faster than bond yields, placing a strong bid under the emerging market equities, and delivering a gold silver tailwind that is picking up speed. The dollar is the near term problem solver, but once they lose control of the beast they will move face to face with the inflation shock around the corner.

An interesting market development this week was Treasuries rallying despite commodities continuing to surge. Bonds likely rallied with growth stocks in major pain again (investors looking for safety) however; wheat, platinum, corn, soybeans, crude oil, etc. were ALL green, so this was not a ‘deflationary scare’.

“This is all about stagflation. I think the yield curve is going to flatten, front end less anchored. The Fed is handcuffed. Not good. Inflation is going to choke growth in 3q/4q into 2022… This is a big problem for high yield and small caps in the longer term.“ – Senior Credit Portfolio Manager

But first inflation gets really hot.

“Larry I spoke to a number of our Food Brokers today (they represent man y manufacturers). Of the 30 Consumer Products Manufacturers, they represent 12 who have already taken a price increase this year. Three took Price Increases YESTERDAY. Increases range from 7% to 10%. (Everything from Frozen Potatoes to Baby Food going up). The companies that are not raising prices are reducing product sizes ( Hidden Cost Increase ) or reducing promotions. Net, Net a Hidden Price Increase. The majority of manufacturers give a 60 90 Day notice on price increases. The increase to consumers in stores will hit in Q3/Q4 2021, and Q1 2022″

Even billionaire Sam Zell is now pitching gold as an antidote to 1970s style inflation: “Obviously one of the natural reactions is to buy gold, it feels very funny because I’ve spent my career talking about why would you want to own gold? It has no income; it costs to store. And yet, when you see the debasement of the currency, you say, what am I going to hold on to? Oh boy, we’re seeing it all over the place,” Zell said of inflation.

“You read about lumber prices, but we’re seeing it in all of our businesses. The obvious bottlenecks in the supply chain arena are pushing up prices. It’s very reminiscent of the ‘70s.”

Bloomberg’s Commodity Spot Index hit its highest level in 9 years this week. This is directly correlated to the continued rotation from growth to value equities. Higher inflation and higher yields means a higher discount rate for the net present value of future cash flows. Growth equity valuations discounted DECADES of future cash flows in 2020 when credit risk was ‘taken off the table’. These cash flows are now being eroded by inflation expectations. Meanwhile, the cash flows coming fro m commodity producers will likely surge higher with inflation.

The Long View – The reversal in the Russell 1000 value to growth ratio looks eerily like the early 2000s reversal. This points to a looooong way to go in the value vs. growth trade (value outperformance to continue )… A decade of austerity, tea parties, taper tantrums, brexits trade wars, covid has pushed trillions into overcrowded deflation assets. Exit visas are in many hands today.

Stay overweight global value, EM, and commodities. The tremors have joined us nearly every month this year, but the quake will soon have assets pouring out of tech in search of inflation protection.

Millennials and the Fourth Turning

The commodity bull case and the Fourth Turning go hand in hand. Also known as the Strauss Howe generational theory, our awareness is crucial here. Discovered by William Straus and Neil Howe, historical events are related to repeated, cyclical generation types. Each  generation starts a fresh era (a turning) lasting about 20-25 years, after having grown up in the prior era. Every four generations equals a “saeculum” or a long human life of 80-100 years. The Fourth and last phase of a saeculum is a crisis. There follows a First Turning, a recovery. During the recovery generation, community values dominate. The next generations after that attack the communal institutions in the name of autonomy , freedom, and individualism. This eventually leads to another crisis .

On the balance sheet the good news is over the next 15 years $65T to $70T will pass from Baby Boomers and Gen Xers to Millennials. The bad news is the $30T of U.S. national debt and $160T of unfunded liabilities that will be hoisted upon these blossoming youngsters. After a colossal feast at the dinner table, Millennials are NOT happy with being left the check! Can you blame them?

The Fourth Turning gets rid of the old order and replaces it with a new one. The First Turning is “the High,” followed by “the Awakening,” followed by “the Unraveling,” followed by “the Crisis,” which is the Fourth Turning. After that, there is another First Turning, another “High.” The last 1st Turning, the last “High,” was the generation of the post World War II era, starting in 1946. It ended with JFK’s assassination. During “the Awakening,” the Second Turning, formerly beloved institutions are criticized and the focus shifts to spiritual independence. Social progress leads to exhaustion with the discipline that created it. Self awareness becomes more important. The most recent Second Turning lasted from the campus and racial unrest of the 1960’s to the rejection of high taxes in the 1980s. The Third Turning, “the Unraveling,” is quite different than the First. At this point social institutions are weak, and people have lost faith in them. Individualism is now at its height. People of this generation just want to enjoy themselves. Society is not cohesive. The last Third Turning began in the 1980s through the 1990s economic boom and our culture wars.

Then comes the Fourth Turning. The crisis can be extreme and take the form of a war or revolution or civil war. The nation’s survival is at stake. In response, old institutions are replaced with new ones. The slate is wiped clean in a period of creative destruction. A new consensus is formed from selective synthesis of certain ideas generated by both sides of the opposing camps from the prior period.

The last Fourth Turning began with the crash of 1929 and ended with the conclusion of WWII. As traumatic as this period was, it was also foundational for the world we live in today, but that world is going away as new foundations are being prepared. The G.I. generation was the generation of heroes. Born between 1901 and 1924, they had guts, self confidence, and a collective view. In many ways, so does the Millennial Generation, with its confidence in collective action and sensitivity to others (politeness). During the generation of crisis, the nation itself appears to society to be at risk. As a result, profound secular change occurs. The external orders reconfigure, and private behavior goes through profound change. These Fourth Turning crises are not purely bad, provided one survives them.

We are in the Fourth Turning now. It began with the collapse of Lehman Brothers and the crash it engendered. The rise of left wing populism (think AOC) is classic Fourth Turning.

This helps contextualize who the Millennials (also known as Gen Y) really are. And they clearly aren’t Boomers. They hold very different ideals on the government’s role in society, on community, on the goals of the nation, on markets. Millennials were raised by helicopter moms who convinced each one that they are special, but also on the ideal of cooperation. They were protected, coddled, and schooled in the value of teamwork. They are highly attached to their families. They build through consensus and are personally most confident once team consensus has been established. And they care about the world at large. This is just the type of generation that will create the new world order out of the crisis and conflict of the Fourth Turning.

When polled about what is more important, individualism or community, Boomers split close to 50% 50%, but Millennials favor community overwhelmingly, 71% 29%. The favoriting of the community over individualism is irrespective of political party affiliation.  These forces are large scale MMT (modern monetary theory) debt forgiveness drivers and are NOT deflationary. Bullish commodities, ten year view.

Generation X, the generation after the Baby Boomers, born 1961-1981, was raised in the opposite way of the Millennials: they were left alone by parents focused on their own self awareness and voyages of self discovery. They were taught to survive on their own, to exercise personal agency. Generation X are often the parents of Millennials. Generation X is also referred to as the “latchkey generation” since they enjoyed (or suffered) much less parental oversight vs prior generations as a result of much higher divorce rates and more mothers in the workforce. This is the disaffected and cynical generation of punk and heavy metal. However, in mid life they often achieve a work life balance precisely because of their rejection of their Baby Boomer parents’ self absorption. Thus, they spent and spend much more time actively and directly engaged in raising the next Greatest Generation: the Millennials. So, it is the Millennials’ collectivism that will create a new cultural norm out of the crisis of the Fourth Turning.

A former Facebook project manager, author, and journalist who uprooted his life in Washington to take a job with Apple is livid, after a woke mob of employees circulated a petition demanding his ouster over controversial statements from a book he wrote five years ago.

The petition took aim at Cuban-American Antonio García Martínez over his book, Chaos Monkeys  (dedicated to “all my enemies”) – an autobiography which traces his journey from Wall Street to Silicon Valley. Martínez has described the book as “total Hunter S. Thompson/Gonzo mode.”

According to woke Apple employees, it’s both racist and sexist. And of course, when it comes to Silicon Valley, divergent opinions need not apply. Except, Martínez did apply, and was hired – despite Apple being “well aware” of his writing, according to a pissed-off Martinez.

In Chaos Monkeys, Martínez compares Bay Area women in tech to a broad-shouldered British woman he met who “made Bob Vila of This Old House look like a fucking pussy.” In comparison, Bay Area women in tech are soft and weak, cosseted and naive despite their claims of worldliness, and generally full of shit.  They have their self-regarding entitlement feminism, and ceaselessly vaunt their independence, but the reality is, come the epidemic plague or foreign invasion, they’d become precisely the sort of useless baggage you’d trade for a box of shotgun shells or a jerry can of diesel.”

Obviously, the jerry can brigade didn’t take too kindly to that, and organized a woke mob to cancel Martínez.

According to a Friday Twitter thread by Martínez, Apple knew about his writing going in, and is now defaming him.

1. Apple actively recruited me for my role on the ads team, reaching out via a former colleague to convince me to join. Apple found my experience in the ads space, specifically around data and privacy, highly relevant to their efforts and persuaded me to leave my then role.

— Antonio García Martínez (@antoniogm) May 14, 2021

3. Apple was well aware of my writing before hiring me. My references were questioned extensively about my bestselling book and my real professional persona (rather than literary one).

This set of prominent Valley VCs and execs are all willing to assert as much under oath.

— Antonio García Martínez (@antoniogm) May 14, 2021

5. Apple has issued a statement that clearly implies there was some negative behavior by me during my time at Apple. That is defamatory and categorically false.

— Antonio García Martínez (@antoniogm) May 14, 2021

He also notes that his book was extremely well received before the witch-hunt.

Just to do a sanity check on my awful book and just how boiled our political frog has been over the past five years, this is just a small sample of the globally positive reviews from elite mainstream institutions at the time.

“Who controls the past controls the future.” pic.twitter.com/LnWNOrdDnF

— Antonio García Martínez (@antoniogm) May 15, 2021

Antonio has received overwhelming support from friends and ideological allies alike. 

The tiny screenshots from your book were funny and written well enough that I put it on my list of books to read.
Besides, why does it matter what you write in a book when all that matters should be how you perform at work?

— Rising serpent 🇺🇸 (@rising_serpent) May 14, 2021

It’s getting to the point where I can’t really take someone seriously as a public intellectual unless they’ve been cancelled at least once.

— Mike Saint-Antoine (@mike20731) May 14, 2021

As a woman who has worked in Tech/Bay Area for over 12 years I support @antoniogm
. Cancel culture is out of control. To be an expert in your career is no longer enough. You now have to be defined by others’ expectations of what a “good person should say/do. This is terrifying.

— mdsjql80 (@mdsjql80) May 15, 2021

Just read about the case, fucking idiots, the whole thing has just gone too far. The whole thing sucks but you’re gonna find a better place. Talent always has a space. All the best.

— Martín del Palacio Langer (@martindelp) May 15, 2021

Stay strong, Antonio!

— Cristian Nyari (@Cnyari) May 14, 2021

Authored by MN Gordon via EconomicPrism.com,

“The way to Hell is paved with good intentions,” remarked Karl Marx in Das Kapital.

The devious fellow was bemoaning evil capitalists for having the gall to use their own money for the express purpose of making more money.

Marx, a rambling busybody, was habitually wrong.  The road to hell is paved with something much more than good intentions.  Grift, graft, larceny, corruption and fake money are what primarily composes the pavement.  Good intentions are merely dusted in to better the aesthetic.

If you want to understand what’s going on with exploding price inflation then you must understand this…

Right now in the United States we have a scam currency that’s controlled by central planners.  Specifically, we have what Marx envisioned in Plank No. 5 of his Communist Manifesto:

“No. 5.  Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.”

The Federal Reserve System, created by the Federal Reserve Act of Congress in 1913, is indeed a ‘national bank’ and it politically manipulates interest rates and holds a monopoly on legal counterfeiting in the United States.

Without the Fed’s policies of mass credit creation the U.S. government could have never run up a national debt over $28 trillion.  Without the Fed’s policies of extreme credit market intervention the U.S. trade deficit for March of $74.4 billion – a new record – would have never been possible.  Without the Fed’s printing press money the U.S. government could have never run annual budget deficits over $3 trillion.

The fact is centralized credit in the hands of a central bank always leads to money supply inflation.  Asset price inflation and consumer price inflation then follow in strange and unpredictable ways.

These price distortions are not defects of capitalism.  They’re symptoms of a scam currency managed by central planners.

Here’s why…

The Nobel Planner

The economy is a complex living organism.  It continuously evolves and is always subject to change.  One relationship at one moment can be completely different at another moment.  Supply and demand are incessantly adjusting and readjusting to meet the conditions of the market.

These continuous interactions provide a natural and efficient response to supply shortages and gluts.  Even in a moderately free market economy, bakeries do not run out of bread when there’s a wheat crop shortage.  The shelves never go empty.  Rather, the price of bread rises and consumers adjust their spending accordingly.

Centrally planned economies, on the other hand, are inclined to frequent, intensive and chronic shortages.  Bureaucrats, armed with spiral bound planning reports and pie graphs, are incapable of fixing the proper prices for gumballs and gasoline by diktat.  There’s simply too much going on and too many moving parts for them to consider.

With the best of intentions, the noble planner makes their best guess of the appropriate price control.  So, too, graft and corruption takes over to ensure the fake money flows to preferred industries and providers.  Then things invariably go haywire.

The supply of certain goods or commodities may be more than adequate.  But when a price administrator enforces an artificially low price, consumers are prone to wasteful behavior.  They’re compelled to demand a greater amount than is supplied.  Hence, the store shelves remain perpetually empty.

Certainly, uniform standards work well for units and measurements.  They’re critical to building consistency and standardization of hardware and parts.  They’re even necessary to effective communication and computer programming.  For certain things, however, uniform standards come up short…

When it comes to the pricing of goods, commodities and services, commanding fixed prices by a central authority is an utter failure.  This was effectively proven by the experiences of the centrally planned economies of the old communist Eastern Bloc countries during the second half of the 20th century.

Without market determined prices for goods and services via free exchange it is impossible to establish prices that reflect actual conditions.  Without prices that are grounded in reality the production and consumption relationship becomes distorted.  In the absence of the natural corrective mechanism of market determined prices, oversupply or scarcity conditions extend out to absurdity.

Karl Marx’s Road to Hell is Paved with Fake Money

The planners are never able to get things quite right.  In time, these absurdities become ubiquitous.  For example, in a socialist economy you’ll find supermarkets with long lines of people and empty shelves.  Another definitive gift of socialist economies is toilets without toilet seats.  How is this even possible?

Regrettably, price controls don’t stop with just goods, commodities, and services.  The United States – like Europe and Japan – has been doing its darnedest during the early years of the 21st century to illustrate how the experiences of the old Eastern Bloc also apply to credit.

Remember, credit, like a commodity or good, has a price attached to it.  The price of credit is the rate of interest a lender charges to a borrower.  Like fixing the price of a commodity or good by a central planning authority, fixing the price of credit by a central bank – such as the Federal Reserve, European Central Bank, or Bank of Japan – is also an utter failure.

Someone with even a dim perception of the world around them can peer out and discern many strange and grotesque occurrences: Housing prices that far outpace incomes.  Total household debt at $14.56 trillion.  Crypto millionaires.  And an entire generation of Millennials that went $1.57 trillion in student loan debt for college degrees that have been debased in stature to what a high school diploma represented for prior generations.

These represent gross misallocations of capital.  What’s more, they would’ve never come into existence or ballooned out to this magnitude without the Fed’s credit market price controls and counterfeiting operations.

Indeed, the results of government intervention are always the same.  Stagnation, inflation, declining living standards, and widespread social disorder.  No doubt, they’ll be repeated to insanity.

True capitalism requires an honest currency and market determined pricing.  Remember this in the weeks to come.  As prices rise, politicians and central planners – people like Alexandria Ocasio-Cortez and Janet Yellen – will look to pin inflation on evil capitalists and price gouging business owners.

Don’t believe their lies.  Just follow the fake money back to its origin…

There you’ll find the Fed, hard at work, applying the pavement to Karl Marx’s road to hell.

Buckle up!

Readers have all experienced the moment when an advertisement has creepily shown up on their social media feed after talking about it. And while companies swear they’re not using smartphone apps to tap into your conversations for advertising purposes, there’s a concept app that throws fuel on this fire. 

The concept app brought to you by Matt Reed, a creative technologist at Red Pepper who made a tool that allowed Zoom users to create a digital twin of themselves, so they didn’t have to sit in calls – said his latest creation is still in the “development phase” but would one day allow people to name-drop brands in everyday conversations and get “immediately compensated in return.” 

“Once permissions are granted, SayPal eavesdrops on your background microphone feed and applies advanced Natural Language Processing AI for keyword identification. If a sponsored brand is detected, you get paid. The more you name-drop, the more you earn. It’s that simple,” Reed said. 

He said SayPal would send crypto to a person’s wallet for saying brand names in conversations. 

We’re not entirely sure if the app is a joke or if Reed is for real. Because someone could repeat the word “Quesalupa” or “Big Mac” for hours and potentially get paid. There needs to be filters or perhaps geolocation for this app to viable and for brands to go along with the idea. 

If you want a taste of a dystopic world where people get paid to name-drop brands in conversations – look no further than the movie “Idiocracy.” 

Authored by Jack Phillips via The Epoch Times,

Dr. Anthony Fauci, the head of the U.S. National Institute of Allergy and Infectious Diseases (NIAID), said that about 40 percent of his agency’s employees have not received the COVID-19 vaccine, while a deputy at the U.S. Food and Drug Administration (FDA) said the agency is reporting similar numbers.

WATCH: pic.twitter.com/ogN9XZSB68

— Breaking911 (@Breaking911) May 14, 2021

During a Senate hearing, Sen. Richard Burr (R-N.C.) asked Fauci, the FDA’s Director of the Center for Biologics Evaluation and Research Peter Marks, and Centers for Disease Control and Prevention (CDC) Director Rochelle Walensky about the percentage of their employees that were vaccinated against COVID-19.

“I’m not 100 percent sure, senator,” Fauci said in response, “but I think it’s probably a little bit more than half. Probably 60 percent.”

Marks then told Burr that he could not say the exact number, but “it’s probably in the same range” as what Fauci reported.

He added that some FDA employees were vaccinated at their facility and others were vaccinated outside their facility.

Walensky said that CDC staff has “the option to report their vaccination status” and said the agency is encouraging federal employees to get vaccinated.

“The federal government is not requiring it, so we do not know” the vaccination percentage, Walensky said.

The Office of Management and Budget (OMB), in response to an inquiry about inconsistent access to vaccines, said that only “a small number of agencies” such as the Department of Defense or Department of Veterans Affairs distribute vaccines directly to their employees, according to the Federal News Network.

“For the vast majority of agencies, their employees receive vaccinations through states and localities, pursuant to the prioritizations established by those jurisdictions,” said the OMB.

Meanwhile, within the military, the Marine Corps said that as of April 23, approximately 93,500 Marines had received the COVID-19 vaccine while 52,900 Marines have declined a shot, or about 36 percent. An additional 92,300 Marines have yet to be offered one.

In comments to the “Today” show on April 30, President Joe Biden said he might force the military to get the vaccine.

“I don’t know. I’m going to leave that to the military,” Biden said in response to a question about mandatory vaccines.

 “I’m not saying I won’t. I think you’re going to see more and more of them getting it. And I think it’s going to be a tough call as to whether or not they should be required to have to get it in the military, because you’re in such close proximity with other military personnel.”

COVID-19 is the illness caused by the CCP (Chinese Communist Party) virus.

The Epoch Times has contacted the CDC, NIAID, and the FDA for comment.

The Bank of Canada appears to be on to the scent of its own bullsh*t. 

The central bank of Canada admitted on Thursday of last week that “some of the monetary policy tools it is using to address the COVID-19 pandemic, such as quantitative easing (QE), could widen wealth inequality,” according to a new report from the Financial Post.

As a result, it said it was “looking closely” at the issue. We won’t hold our breath for any type of major breakthrough in thinking…

That being said, the bank admitting that its QE program was “boosting wealth by inflating the value of assets” is a step in the right direction. 

Governor Tiff Macklem said last week: “…these assets aren’t distributed evenly across society. As a result, QE can widen wealth inequality. We will look closely at the outcomes of QE here and elsewhere and will work to more fully understand its impact on both income and wealth inequality.”

The Bank of Canada had been buying CA$4 billion in government bonds per week and recently cut that to CA$3 billion. It is the first major central bank to taper, signaling that it could also raise interest rates next year.

And for us, looking for any semblance of common sense, beggars can’t be choosers. Macklem, in the same breath, reiterated that the bank’s benchmark rate would stay at 0.25% until inflation sustainably hit 2%. 

“Today, we are in the sharpest and most unequal economic cycle in our lifetime,” he concluded.

And while he may be right – we can’t help but wonder: does he know why that is?

Authored by Bryce Coward via Knowledge Leaders Capital blog,

This week saw some doozy inflation readings beginning on Wednesday with the CPI reading and then again on Thursday with the PPI. CPI came in at 4.2% year-over-year, but a whopping 0.8% month-over-month. For context, 0.8% MoM implies 10% annualized inflation! The PPI was also hot, coming in at 6.2% YoY and 0.6% MoM.

But here’s the thing. The Federal Reserve has been telling the whole world inflation will be transitory and a few hot readings will not bring forward rate hikes. A number of Fed speakers went on record last week saying as much…and then again after this week’s inflation reports.

As we have been saying for weeks now, the market has gotten ahead of itself in expecting the Fed to tighten policy at a faster rate than the Fed itself has been communicating.

That may have started to change this week. In reviewing rate hike expectations as priced by the Fed Funds market and the eurodollar market, the extremely hot inflation readings did not do much at all to market expectations for rate hikes. In the case of the Fed Funds, the market went into the week pricing 40bps of hikes in 2023 and ended pricing 44bps of hikes. In the case of the eurodollar market, it went into the week pricing 92bps of rate hikes, and also ended only a few basis points from that level. Given the magnitude of the CPI and PPI overshoots, we would have expected the bond market to start expecting a much faster rate of Fed tightening, but that did not happen to the extent we would have expected.

All this tells us that the market…maybe…just maybe…is starting to believe the Fed when they say they will continue asset purchases for “some time” and that liftoff for the Fed Funds rate will not start until the back part of 2023. Of course, a few more inflation readings like we got this week and that could start to change.

Let’s assume for a second that the Fed does what it says it will do and that inflation continues to come in strong. All else equal, this would tend to suppress interest rates below their “natural” level and create even more negative real interest rates. As the reader can see in the chart below, the 10-year real interest rate based off of CPI is already at a 40-year low (T-bond yields are 1.64% and inflation was 4.2% YoY).

Of course, some of the YoY inflation number was due to base effects – comparing strong inflation this year to weak inflation last year. But much of it was not. As mentioned earlier, the MoM reading was a red hot 0.8%, or 10% annualized. The 3-month annualized rate was 7.5%, the second highest reading outside of a recession since 1980!

That is to say, there appears to be plenty of near-term inflation momentum that is entirely separate from base effects. This argues for more hot inflation numbers to come and a persistently negative real interest rate…so long as the Fed sticks to its narrative and the market continues to buy in.

We’ve all experienced the intrusive moment when an advertisement has creepily shown up on our social media feed after talking about it. This is super annoying in a world where corporate America spies on users via smartphone sensors. What’s even more intrusive is Ford Motor Company’s new patent wants to use a vehicle’s camera to detect billboard advertisements then blast the information on its infotainment display.

Prepare to be bombarded with corporate advertisements in future Ford vehicles if the new patented system, called “Billboard Interfaces For Vehicle Displays,” is integrated into cars. 

The United States Patent and Trademark Office (USPTO) granted Ford the patent on May 6. It reads:

Method and apparatus are disclosed for billboard interface for display of vehicle. An example method for generating a billboard interlace for a vehicle display includes obtaining, via a camera, an image of a billboard and identifying, via a processor, a segment of the image. The example method also includes determining an event associated with the segment and generating a billboard interlace to include a hyperlink of the segment tlial initiates the event. The example method also includes communicating, via a communication module. the billboard interface to a vehicle display for presentation to a user.

Here’s a screenshot of the patent via the USPTO website. 

Despite less traffic on highways because of the virus pandemic shifted office work to home, billboards are still very important for advertisers because they reach consumers on an unconscious level. Now Ford wants to bring billboards inside the car, which would be irritating if you’re trying to enjoy a peaceful Sunday drive.  

Advertisements on your computer, advertisements on your phone, and advertisements on streaming television – now prepare for advertisements in your car. 

Authored by Charles Hugh Smith via The Daily Reckoning,

I see the same question in forums, threads, articles and emails: what can I do to protect myself and my family from whatever lies ahead?

Given the uncertainties and extremes that are so evident, recognizing risk is a useful first step, a recognition that is very much out of fashion.

If we glance at the charts of margin debt (loans taken against one’s stock portfolio) which is at record highs, and short interest (bets that stocks will drop) which is at record lows, it seems the primary risk on investors’ minds is FOMO (fear of missing out) of all the fat, juicy guaranteed gains just ahead.

For the few still asking about the source of risk, the general answer takes one of two paths: inflation leading to hyper-inflation or a deflationary collapse of defaults and popping asset bubbles.

It’s easy to find pundits arguing for one or the other, but do we have the initial conditions, variables and functions we need to solve this problem and get a clear answer, inflation or deflation?

Consider two variables that are rarely visible in pundits’ arguments:

1) What will benefit the banks?

2) What will benefit the nation’s place in the geopolitical pecking order?

The Inflationary Camp

The inflationary camp holds that the soaring debt, public and private, can only be serviced if incomes inflate so households, companies and governments have enough income to make the payments on their soaring debts.

Since this is a self-reinforcing spiral — more inflation leads to more inflation — central banks will be forced to print their currencies into oblivion, i.e. hyper-inflation.

If they ever stop printing, the house of cards (soaring debt) will collapse.

This logic seems sound enough. But once hyper-inflation takes off and people are earning $250,000 a month and a loaf of bread is $250, how will banks profit from households paying off their once-stupendous mortgage (that required 30 years of monthly payments to pay off) with a single month’s pay?

Hyper-inflation will destroy not just the currency but the entire banking sector, which is politically powerful. Will the banks just sit by passively watching their wealth and income being destroyed by high inflation?

One suspects they will use their political power to avoid being ground into dust by hyper-inflation.

Who Benefits?

The banks would much prefer defaults that they can shift to the government (via bailouts) and deflation, where every monthly credit card/mortgage payment has greater purchasing power than the previous month.

Next, consider the consequences of hyper-inflation on the nation’s currency: it loses virtually all its value. Nobody will want to trade real goods for worthless dollars.

In terms of a nation’s economic power, its currency is the foundation, because if the currency plummets to near-zero then everything denominated in that currency also loses value on the global stage.

A reserve currency — a national currency that is widely held globally because it it’s expected to hold its value, and the market for everything denominated in that currency is extremely large and liquid — is the crown jewel of whatever nation (or entity, in the case of the EU) issues it.

Who would benefit from the destruction of a nation’s reserve currency?

Virtually no one. The nation would be impoverished. So why is hyper-inflation — the destruction of the currency — so broadly accepted as inevitable?

Linear vs. Non-linear

It’s also widely assumed that the Federal Reserve and other central banks control all the variables in setting bond yields, interest rates and inflation. But what if some variables are outside the Fed’s control? What if their claim of controlling all variables is mere PR?

We also don’t know what function inflation or deflation might manifest. Will it be arithmetic— 1 + 1 = 2 + 1 = 3, etc.—or geometric— 1 + 1 = 2 + 2 = 4 + 4 = 8 + 8 = 16?

This makes an enormous difference: arithmatic inflation is predictable — 5% a year, for example — but geometric increases lead to hyper-inflation and complete destabilization of the economy and society.

Very few pundits reckon the central banks and governments will choose default and deflation because these will be painful – but what could be more painful than wiping out the value of the currency?

If the wealthy elite own precious metals, farmland, manufacturing, government bonds, etc., then the default of zombie households and corporations (zombies defined as entities that have to borrow more to remain among the living), then why would they care?

Corporate bondholders and marginal lenders would be destroyed, but again, the wealthy need only avoid owning marginal debt to avoid the debacle of default losses.

Ace in the Hole

The politically powerful elites have their ace in the hole: they can demand politicians (who need their contributions to fund their re-election campaigns) bail out the banks, transferring the losses from defaults from private banks to the public sector, exactly what happened in 2008-09.

But once again, are the elites and government fully in control of all variables, or could they be assuming arithmetic functions when geometric functions might actually manifest?

Deflationary defaults can destroy bank assets just as quickly as hyper-inflation, as once buyers vanish (markets go bidless) then the value of assets pledged as collateral plummets to levels no one believes possible.

Entire highrise buildings are sold for the value of the elevator system. Yes, it happened in the Great Depression.

A little inflation or deflation is a good thing, manageable by the government and elite, but geometric inflation or deflation undermines the entire financial system, including the finances of governments and elites.

How do we calculate the probability and potential intensity of destabilizing social disorder?

Humans Are Only Human

It’s widely assumed that the U.S. could never experience the sort of massive, widespread social disorder that occurs in developing-world nations during crises. But humans are humans, and when put under pressure by high inflation/deflation and declining prosperity, people respond in ways that can very quickly escape the control of authorities.

If the consequential variables and functions are not measurable, then seemingly small disorders can spread throughout the entire society — or supply chain.

Where does all this leave us?

We know from studies of human psychology that humans don’t feel comfortable with uncertainty and seek a haven of certainty as quickly as possible. They will cling to anchored beliefs in the face of conflicting evidence and strengthen their attachment to beliefs when challenged. We’re wired for a decisive commitment to a belief structure.

Sustained indecision and ambiguity is uncomfortable. We want an answer, and if there isn’t one, then we’ll make one up or commit to an answer proposed by a pundit, even though that person has no better grasp of the initial conditions, variables and functions as anyone else.

Alternatively, if we can’t possibly answer the question of what happens next, we have to accept that this era’s uncertainties may not be resolvable.

This is an exceedingly valuable insight, as if we embrace this uncertainty, we can avoid defaulting to a rigid, brittle false certitude that can only lead us astray if events don’t follow the path we’ve committed to.

In other words, we all want certainty, but this isn’t possible because 1) the variables are invisible 2) the functions are unknown and 3) the “solution” (predicted path) depends entirely on the initial conditions, in which small changes completely change the outcome.

Faced with the knowledge that so-called fat tail risk (i.e. a geometric function replacing an arithmatic function, and small events triggering large consequences, i.e. non-linear dynamics) is real but unpredictable, then we’re forced to think through these supposedly low-probability risks and devise a response that we can implement because we already thought it out.

This is the difference between having a pre-planned response and panic.

Everyone Has a Plan Until…

Mike Tyson’s memorable quote offers great insight into risk and uncertainty: “Everyone has a plan until they get punched in the mouth.”

The average person considers the odds of getting punched in the face as very low. The martial arts student doesn’t follow the line of thinking that because the odds appear low, there is no need to learn self-defense. Rather, being prepared to defend oneself is a permanent state of readiness, perhaps rusty and imperfect, but there nonetheless.

Events that devastate the majority financially greatly enrich the few who bet on non-linear dynamics.

But that doesn’t mean we can’t embrace uncertainty and fat-tail risks and think through responses in advance, and plan a hedging strategy that accounts for possibilities from 1) nothing changes to 2) everything changes.

We don’t have to respond perfectly to be successful. We simply need to have prepared responses for contingencies from whatever we consider most likely to whatever we consider very unlikely but still possible.

The point here is that embracing uncertainty means we accept that the market might still punch us in the face, and we might make mistakes or fail to perform as we’d hoped.

But the process of planning layers of response may well help protect us from irreversible losses and bad decisions made in the chaos of fear and panic.

Despite widespread vaccination availability and even the U.S. CDC saying that vaccinated people no longer need to wear masks, Toronto has decided to cancel an entire summer’s worth of social functions.

The city has cancelled “all major in-person events for a second straight summer,” CBC reported on Friday.

As the city continues to fight off large numbers of Covid cases during the pandemic’s third wave (whatever that even means at this point), it has made cancellations all the way through Labour Day. Previously, provincial officials had been hoping for normalcy beginning in July or August.

That doesn’t look like it’s going to be the case. The city has cancelled events like the Canadian National Exhibition, Taste of the Danforth, the Caribbean Carnival and Salsa in Toronto. 

The city is making the decision in May because organizers asked for “as much advanced notification as possible”. So now they have it: Toronto will officially have nothing going on during the summer. 

Mayor John Tory said that he thought the city would be in better shape by late summer, but he wasn’t sure it would be safe to be “shoulder to shoulder” with large groups of people. 

Darrell Brown, Executive Director of the Canadian National Exhibition called the news “devastating for the community and staff” who will now face layoffs. “At this point in time we’re living on borrowed money in the short-term and will be completely out of funds by December,” he said. The event has lost more than $70 million in revenue over the course of the pandemic and it generates $128 million for the Ontario economy each year. 

Last year was the first time the event was closed since World War II. Despite asking the government for relief, it has only gotten $20,000 from Ontario’s small business relief fund.

Tory said: “I am working with the Canadian National Exhibition to help the fair through this difficult year and prepare for a bigger and better in-person event in 2022.”

Toronto, meanwhile, has delivered 1.6 million doses of Covid vaccines. The city’s population stands at about 3 million. Despite this, the city’s stay at home order will remain in place until “at least” June.