Category: zerohedge

Authored by Lance Roberts via RealInvestmentAdevice.,com,

Market Review & Update

Last week, we said:

“While the market remains in a very tight range, the ‘money flow’ sell signal (middle panel) is reversing quickly. Importantly, note that the money flows (histogram) are rapidly declining on rallies which is a concern.”

This past week, market action was sloppy as investors are finding fewer reasons to push stocks higher. Friday’s very disappointing jobs report provided some catalyst as the Fed is assured not to reduce monetary support anytime soon. However, despite the push, the overall conviction was lacking.

Notably, the “money flow buy signal” seemed to cross; however, we need some follow-through action on Monday to confirm. As shown, the uptick in money flows did allow us to add some exposure to portfolios in holdings we had taken profits in with the previous “sell” signal. 

Again, we do want to see confirmation that the breakout above the consolidation range can hold. The last breakout failed, so, again, we do need “follow-through” to confirm buyers are indeed back. Notably, the MACD “sell signal” in the lower panel remains, which suggests upside likely remains limited at this juncture. If the “buy signals” align, we will have a much higher level of conviction about higher prices. 

Overall, the market trend remains bullish, so there is no need to be overly defensive. Just a regular process of tweaking risk and managing exposures is all that portfolios require for now. Such is what we have recommended over the last several weeks, so we are now in a position to take advantage of a short-term bullish move. 

For the rest of this week’s message, we will go into deeper detail on the issues I discussed in the latest “3-Minutes” video:

1. Peak Earnings,
2. Inflation, and Margins, and
3. Hedgefund selling.

Peak Earnings?

Over the last few weeks, we have seen numerous companies report stellar earnings growth. Yet, the market has failed to reward the good news as stocks get sold off. As the chart below shows, it has not been just a few select isolated cases. 

There are a couple of reasons for this. 

The first is that earnings guidance has not been “exuberant.” Many companies are starting to express concerns over inflationary costs (including labor) and weaker future demand as stimulus fades. Secondly, the problem with earnings in the near term is that most earnings improvement has come from expanding net margins. 

That massive boost to net margins came from the economic shutdown. With reduced workforces, a shift to lower-cost “work-from-home,” and increases in productivity through technology, the surge in margins is not surprising. However, as the economy “reopens,” that tailwind to earnings will fade quickly. The rise of inflationary inputs, increased employment, and potentially higher taxes will shrink net margins dramatically in the quarters to come. 

Such also suggests that analyst’s extremely optimistic earnings revisions will likely need to shift down as well. If the market is indeed sniffing out an “earnings peak” short term, it could be increasingly difficult to justify currently high asset prices and valuations. 

Here is the problem for investors currently. Given analysts’ assumptions are always high, and markets are trading at more extreme valuations, such leaves little room for disappointment. As shown, using analyst’s price target assumptions of 4700 for 2020 and current earnings expectations, the S&P is trading 2.6x earnings growth.

In other words, is the recovery all priced in? The bond market thinks so.

Bonds Aren’t Buying It.

Over the last couple of weeks, we have discussed the correlation between rates and economic growth. To wit:

“As shown, the correlation between rates and the economic composite suggests that current expectations of sustained economic expansion and rising inflation are overly optimistic. At current rates, economic growth will likely very quickly return to sub-2% growth by 2022.”

Not surprisingly, given the substantial rise in asset prices, the ratio of stocks to bonds (S&P Index / Bond Total Return) surged to a record high. It is worth noting that previous stock/bond ratio peaks have coincided with corrections and bear markets. 

Given we already know high valuations equate to low long-term returns, the outlook for returns gets confirmed by the extreme stock/bond ratio,

Importantly, as discussed here, indicators like stock/bond ratios, valuations, and fundamentals all suggest low returns over the longer term. However, in the short-term, the next few weeks or months, there is very little correlation. 

It will be the Federal Reserve that controls the near term.

The Fed May Not Like What It Gets

Over the last couple of weeks, both Fed members and Treasury Secretary Janet Yellen floated “trial balloons” that it may be time for the Fed to start lifting rates. The latest comments came from Dallas Fed President Robert Kaplan when he noted the Fed is likely to achieve its “substantial progress” metric as the economy recovered faster than expected.

As I discussed last week: 

“The Fed is again suppressing rates but should be using the massive liquidity injections and economic recovery for hiking rates and taper bond purchases to prepare for the next downturn.” 

Over the next couple of months, there will be an evident surge in inflation, which the Fed wanted. However, that surge in inflation may come in a lot “hotter” than they anticipated. If that occurs, bond yields will jump higher, effectively “tightening” monetary policy very quickly. 

“The Fed has been very articulate in the message they are sending, and as I mentioned the last time, they are placating the equity market. But at the same time, daring the bond market to push rates higher. If the Fed gets its wish of higher inflation, it will push long-term rates significantly higher from here, and there is no way for the equity market to combat that.

The problem is that the market already is trading at its most overvalued levels vs. the 10-year since the mid-2000s when all of this low rate policy began.The higher stocks and yields move, the more overvalued the equity market grows, and the more dangerous it becomes.” – Mott Capital Management

Maybe More Than Just Talk

While the Fed continues to push the narrative, they “aren’t even thinking about thinking about tapering,” the recent “trial balloons” from both the Fed and Treasury may suggest differently. More importantly, as Mott concludes:

“While it sounds all fine and great for the equity market now, it won’t be if rates get just a little bit higher. Powell clearly made the correct call at the March meeting, buying himself another six weeks, but with a slew of economic data coming in the next few days that will show a lot of inflation, he may find the next six weeks harder to endure.”

While the “bullish mantra” has continued to be, correctly, keep buying dips as long as the “Fed Goes BRRRRR,” there is a rising possibility the “printing presses” may need to be turned off. The Fed faces the problem and understands that if inflation runs hot, interest rates will rise. When that happens, it isn’t just the equity market that comes under pressure. Every market built on debt from houses to automobiles, credit markets, mortgage markets, and consumer credit is at risk. 

Of course, the biggest issue of all is when the reversal in equities occurs. That reversal will ignite the leverage that now extends into levered ETF’s, cryptocurrencies, options, and a myriad of other speculative investments. 

In other words, the Fed got trapped between continuing to suppress interest rates or deflating the most significant asset bubble in financial history. While the hope is that the Fed can do it in a controlled manner (a soft landing), the Fed’s past attempts have been less than successful.

Portfolio Update

As we noted last week,

“Another reason we don’t expect a lot of upside to markets because the recent “consolidation” failed to work off any of the overbought conditions. Notably, the market remains more than 5% above its 50-dma, which is historically extreme. Such gets corrected, usually through a price decline or a consolidation.” 

Our “sell signals” have kept us somewhat underexposed to equities and slightly overweight cash. However, the deterioration of “money flows” concerns us and aligns with hedgefund liquidations over the last several weeks. 

Given the more extreme selling pressure and the current short-term oversold condition of the market, we have begun nibbling at exposures that we like. There is also a reasonable expectation we will start to see the major tech companies pick up a bid as managers look for positions with lots of liquidity as we head into the weaker summer months. 

As shown, we are continuing to run a “barbell” approach to portfolios by overweighting our inflation sectors and underweighting our deflation sectors relative to the benchmark. (60/40 index) We have a very short-duration bond portfolio, which is why our “cash” is overweight. (Primarily 1-3 year duration holdings)

Once we get the next “buy” signal, we will adjust our weightings accordingly, but for now, we remain comfortable with our exposures. We continue to “tweak” the allocation as needed to adjust for risk as our intermediate-term concerns remain.

As David Rosenberg recently noted:

“The worst thing anyone can do is to extrapolate to the future. As Bob Farrell once said: ‘When all the experts and forecasts agree, something else is going to happen.’ The consensus has never been more lopsided, and that is reflected in asset allocations that heavily weight stocks relative to bonds.”

We agree.

Once upon a time Saturday Night Live was a celebration of acting talent, of impromptu creativity and most importantly, of humor, which is why it launched the careers of too many comedians to count. Alas, over the past few decades, SNL lost its way, and become preachy podium for virtue signaling poseurs, for status quo apologists and for countless people who reveled in the “uniqueness” of their identity politics yet can’t cobble together a simple joke if America’s Universal Basic Income depended on it. It’s also why over the past few decades the viewership of SNL collapsed and countless Americans forgot about the show. Well… many got a stark reminder last night when millions turned on SNL for first time in years (or ever) only to be immediately reminded why they never watched it anymore: yet another catastrophically boring, uninspired and trite attempt by a cast of talentless hacks to be funny yet failing miserably.

And then there was Elon Musk.

The world’s 2nd richest man was the main reason why an entire generation of young Dogecoin “traders” turned on SNL for the first time in their lives…. only to see their favorite joke of a cryptocurrency (which it is by definition) demolished after weeks of breathless buildups for what Elon Musk had in store. Unfortunately, as with most things Musk, the action was all in the fervent anticipation of the main event… which turned out to be a fiasco.

Having surged to a record high of 73 cents (making it the fifth most valuable cryptocurrency) on Saturday ahead of the show, it started to drop as soon as Musk took the microphone….

Doge: 0.658

— zerohedge (@zerohedge) May 9, 2021

… then dropped more as Musk’s rambling monologue and boring skits failed to excite…

Doge 0.55

— zerohedge (@zerohedge) May 9, 2021

… or properly promote his favorite joke of a cryptocurrency. It ultimately dumped as low as 42 cents at of 8:05 a.m. ET… 

… a 35% decline in 24 hours and a disappointment for all those who had expected that Musk’s SNL appearance would be the catalyst that pushes the “dog” above parity with the dollar. Or, as Baird’s Michael Antonelli put it, “bad jokes and no funny memes leading to a Doge crash absolutely makes sense to me. It’s like an earnings miss but for a new era.”

Bad jokes and no funny memes leading to a Doge crash absolutely makes sense to me. It’s like an earnings miss but for a new era.

— Michael Antonelli (@BullandBaird) May 9, 2021

The furious selling that emerged after Musk’s appearance also affected Robinhood, which said earlier that it was having some issues with crypto trading, citing high volume and volatility.

Update: We’re currently experiencing issues with crypto trading. We’re working to resolve this as soon as possible. For the latest updates, check https://t.co/ZS733G6N1J

— Robinhood Help (@AskRobinhood) May 9, 2021

So what about the overhyped Musk appearance? It was, in a word, forgettable, his opening monologue flat and boring, which perhaps can be chalked up to Musk’s disclosure that he had Asperger’s, although once again Musk had some trouble with reality – he said he was the first person with Asperger’s to host the show, which is false: Dan Aykroyd was…

… in which Musk incorporated his first Dogecoin reference, a throwaway line from Musk’s mother, who joined him onstage and asked if her Mother’s Day gift would be Dogecoin; Musk replied that it would be. Clearly unhappy with the angle Musk had chosen, just minutes later the doge faithful proceeded to dump the currency, which fell 25% to 50 cents from 66 cents at the start of the show.

Leading into the episode, Alameda Research trader Sam Trabucco (who said in a previous Tweet that he was “studying the typical SNL episode structure to try and understand when a DOGE mention would be the most natural”) speculated that if a joke or mention didn’t come in Musk’s opening monologue, it would be “all over.” And despite getting a very brief mention during the monologue, traders still responded quite negatively.

What he did next did not help: when Musk was asked repeatedly during the “Weekend Update” segment to explain what Dogecoin is. After reciting multiple facts about the cryptocurrency in the character of a “financial expert”, he was asked if Dogecoin was a “hustle.” He responded, “yeah, it’s a hustle” after previously claiming that Dogecoin “the future of currency, it’s an unstoppable financial vehicle that’s going to take over the world.”

Lloyd Ostertag stopped by the desk to talk cryptocurrency. pic.twitter.com/cuILxOBJlj

— Saturday Night Live – SNL (@nbcsnl) May 9, 2021

Sadly, that skit was also unfunny and fell flat as did most of Musk’s other attempts at humor.

Dogecoin dropped nearly a third during Elon Musk’s SNL appearance, recovering slightly later; in a skit he conceded Dogecoin was merely a “hustle” (@pierce / Protocol)https://t.co/mkDf0Lonsahttps://t.co/Mn8ygXBGD7

— Techmeme (@Techmeme) May 9, 2021

Meanwhile as Musk was sweating before the live audience as well as on YouTube (NBC chose for the first time ever to live-stream the episode on Youtube) Barry Silbert — the founder and CEO of Digital Currency Group, the parent company of crypto investment vehicle company Grayscale — announced a public short on DOGE via the FTX exchange. In a series of follow-up Tweets, he revealed that the position was $1 million in size, and that any proceeds or remaining funds after closing the short would be donated to charity.

Okay $DOGE peeps, it’s been fun. Welcome to crypto!

But the time has come for you to convert your DOGE to BTC

[disclosure: we’ve gone short DOGE via https://t.co/s8Qde2Ub4Z]

— Barry Silbert (@BarrySilbert) May 8, 2021

As dogecoin was routed, so was the rest of the crypto space, with bitcoin sliding more than 2% to as low as $56,500 while most altcoins were also dragged lower.

Perhaps sensing that his vastly overhyped appearance would lead to turmoil for dogecoin, on Friday Musk tweeted a that cryptocurrencies are “promising, but please invest with caution” linking to a video that showed him talking about the merits of crypto, particularly Dogecoin. That followed months of Twitter posts from Musk about Dogecoin, all of which exuded praise and snared millions of his easily impressionable followers into buying the “joke.”

Cryptocurrency is promising, but please invest with caution! https://t.co/A4kplcP8Vq

— Elon Musk (@elonmusk) May 7, 2021

That said, despite the overnight tumble, Dogecoin is still up more than 16,000% in the past year and while Musk has been among its biggest boosters, fans also include Mark Cuban, Snoop Dogg and Gene Simmons.

Authored by Doug French via The Mises Institute,

May is on its way, and the old investment saw, “Sell in May and go away,” will be tested once again. Jared Blikre, writing for Yahoo Finance, provides the history behind what may or may not be good advice.

“The full axiom was originally, ‘Sell in May and go away, and come on back on St. Leger’s Day,’” he explains.

“It has its roots in the City of London. Financial professionals would go on holiday in May for approximately four months to escape the summer heat and return for the St. Leger derby in mid-September.” 

While we’re told there’s a pent-up demand for travel, people’s phones and trading apps will still be close by, begging for attention in the summer sun. Robinhood and Coinbase alerts won’t hide from the weary traveler parked under an umbrella, toes in the sand, piña colada in hand. 

Dogecoin will not get the hell out of Dodge this summer. The cryptocoin, created as a joke, is surprisingly not obscure. My newest doctor and I, while he drained the goo from a ganglion cyst on my wrist, discussed the trading action of dogecoin after I mentioned I had done some work on booms and busts. 

As I write, Dogecoin is up after Elon Musk, who will add Saturday Night Live guest host to his resume on May 8, called himself “the dogefather.” Musk’s Tesla shares continue to defy logic and gravity, but could the coming guest-hosting gig signal a market top, at worst, or a reason to sell in May, at least?

DOGE, created by software engineers Billy Markus and Jackson Palmer, was also discussed at dinner the other night, when a couple, who admitted they have no idea what they’re doing, said with a shrug, “Yeah, we’ve each doubled our money in a few months trading stocks.” Nothing as exotic as DOGE, but reopening plays like cruise line and airline shares.

Kevin Duffy, proprietor and author of the Coffee Can Portfolio newsletter, provides thirteen rules for investing, not speculating. Number 12 is, “The retail investor is always late to the party.”

To the sensible and experienced, it seems late indeed.

But is piling into US dollars, made less worthy each day by the Powell Fed, a good idea?

The US central bank now has a climate change mandate, in addition to full employment. Soundness of the currency used to be top of mind for central bankers, but that horse left the Eccles Building long ago.

“Climate change and the transition to a sustainable economy also pose risks to the stability of the broader financial system. So a second core pillar of our framework seeks to address the macrofinancial risks of climate change,” Fed governor Lael Brainard said recently. 

With Brainard, Jerome Powell, and Treasury secretary Janet Yellen focusing on the climate, the M1 money supply has gone parabolic, from just over $4 trillion in February to $18.6 trillion in March.

This is right out of Gideon Gono’s playbook. The once governor of the Reserve Bank of Zimbabwe, said, among many outrageous things, “There is a positive correlation between the drought and inflation.” 

So there you have it. And you thought monetary policy and climate were mutually exclusive. I wrote on mises.org in 2010,

“Forget about money printing. Inflation is all about the weather, lack of support from other nations, and political sanctions. In Governor Gono’s mind, he has had nothing to do with the hyperinflation in his country. ‘No other [central-bank] governor has had to deal with the kind of inflation levels that I deal with,’ Gono told Newsweek. ‘[The people at] my bank [are] at the cutting edge of the country.’”

Gono took his job in 2003 with that nation’s inflation rate at 619 percent per year. Five years later, in mid-November 2008 the inflation rate peaked at 79,600,000,000 percent per month.

Maybe we should head toward DOGE this summer, after all.

Two longtime bitter enemies who have for much of the past couple decades battled for influence in the Middle East while clashing through proxies have entered unlikely secret talks. On Friday a Saudi foreign ministry official confirmed previously widespread rumors of the past weeks that the kingdom is in communications with Iran in order to reduce regional tensions. Earlier reports suggested the talks secretly took place in Baghdad.

“We hope they prove successful, but it is too early, and premature, to reach any definitive conclusions,” Saudi ministry Ambassador Rayed Krimly told Reuters. He said that Riyadh needs to see “verifiable deeds” before evaluating the talks, with Bloomberg noting that Iraqi officials are mediating, with a focus on de-escalating the situation in Yemen – where Riyadh and Tehran are supporting rival sides of the civil war.

Iran’s foreign ministry responded by saying “bilateral co-operation is important in ensuring security and stability in the region.” Late last month the two sides had denied the talks, despite the persistent rumors.

As the Abu Dhabi-based The National recounts, Saudi crown prince MBS for the first time spoke of openness to talks with the Islamic Republic recently:

Last month Saudi Arabia’s Crown Prince Mohammed bin Salman said the kingdom was open to improving relations with Iran.

“Iran is a neighboring state. We are seeking to have good relations with Iran,” Prince Mohammed said.

“We have interests in Iran, we aim to see a prosperous Iran,” he said in a television interview.

“We are working with our partners in the region to overcome our differences with Iran, especially with its support for militias and the development of its nuclear program.”

Syria and Lebanon have also been key battlegrounds for the Shia and Sunni divide, with Shia Iran being Hezbollah’s biggest international backer. The Saudis have long directly armed, trained, and funded Sunni jihadists seeking to topple Assad in Syria while also rolling back Hezbollah’s influence. 

This latest revelation and confirmation of Saudi-Iran talks also comes as the Saudis are reaching out the the Assad government in Damascus. Earlier this week on Tuesday multiple international reports revealed that Saudi Arabia’s powerful intelligence chief traveled to Damascus Monday to meet with his Syrian counterpart in what’s being seen as a major step toward detente. The two broke off relations since near the start of the war in 2011, especially as it became clear the Saudis were a key part of the Western allied push for regime change.

A Saudi foreign ministry official confirmed his country is in talks with Iran to reduce tensions in the Middle East, bringing weeks of private diplomacy between the two regional powerhouses into the open https://t.co/vzhRVxy4pC

— Bloomberg (@business) May 7, 2021

The US and Western alliance has long supported in the Saudi Sunni side of the ‘long war’ for the Middle East. This is particularly after the Shia ascendancy in Baghdad which was the direct result of Bush’s war to topple Saddam Hussein in 2003 (a Sunni secular dictator).

It’s very likely this is directly related to the ongoing Vienna nuclear negotiations involving signatories to the 2015 JCPOA deal, and most notably the ‘indirect’ talks between Tehran and Washington there. A crucial component to any lasting peace in the region would have to involve the Iranians and Saudis agreeing to halt their military support for rival proxies in the region.

However, for Iran its support of groups like Hezbollah, Hamas, and Iraqi Shia militias is mostly geared against Israel as well as US interests. So it’s unlikely Tehran will ever stop such support to any significant degree. At the same time the Saudi Wahhabi interpretation of Islam is deeply embedded within the kingdom’s religious and state establishment, making it a key source of continued ideological support to Sunni jihadism and terrorism globally.

Authored by Gail Tverberg via Our Finite World blog,

We live in a world where words are very carefully chosen. Companies hire public relations firms to give just the right “spin” to what they are saying. Politicians make statements which suggest that everything is going well. Newspapers would like their advertisers to be happy; they certainly won’t suggest that the automobile you purchase today may be of no use to you in five years.

I believe that what has happened in recent years is that the “truth” has become very dark. We live in a finite world; we are rapidly approaching limits of many kinds. For example, there is not enough fresh water for everyone, including agriculture and businesses. This inadequate water supply is now tipping over into inadequate food supply in quite a few places because irrigation requires fresh water. This problem is, in a sense, an energy problem, because adding more irrigation requires more energy supplies used for digging deeper wells or making desalination plants. We are reaching energy scarcity issues not too different from those of World War I, World War II and the Depression Era between the wars.

We now live in a strange world filled with half-truths, not too different from the world of the 1930s. US newspapers leave out the many stories that could be written about rising food insecurity around the world, and even in the US. We see more reports of conflicts among countries and increasing gaps between the rich and the poor, but no one explains that such changes are to be expected when energy consumption per capita starts falling too low.

The majority of people seem to believe that all of these problems can be fixed simply by increasingly taxing the rich and using the proceeds to help the poor. They also believe that the biggest problem we are facing is climate change. Very few are even aware of the food scarcity problems occurring in many parts of the world already.

Our political leaders started down the wrong path long ago, when they chose to rely on economists rather than physicists. The economists created the fiction that the economy could expand endlessly, even with falling energy supplies. The physicists understood that the economy requires energy for growth, but didn’t really understand the financial system, so they weren’t in a position to explain which parts of economic theory were incorrect. Even as the true story becomes increasingly clear, politicians stick to their belief that our only energy problem is the possibility of using too much fossil fuel, with the result of rising world temperatures and disrupted weather patterns. This can be interpreted as a relatively distant problem that can be corrected over a fairly long future period.

In this post, I will explain why it appears to me that, right now, we are dealing with an energy problem as severe as that which seems to have led to World War I, World War II, and the Great Depression. We really need a solution to our energy problems right now, not in the year 2050 or 2100. Scientists modeled the wrong problem: a fairly distant energy problem which would be associated with high energy prices. The real issue is a very close-at-hand energy shortage problem, associated with relatively low energy prices. It should not be surprising that the solutions scientists have found are mostly absurd, given the true nature of the problem we are facing.

[1] There is a great deal of confusion with respect to which energy problem we are dealing with. Are we dealing with a near-at-hand problem featuring inadequate prices for producers or a more distant problem featuring high prices for consumers? It makes a huge difference in finding a solution, if any.

Business leaders would like us to believe that the problem to be concerned with is a fairly distant one: climate change. In fact, this is the problem most scientists are working on. There is a common misbelief that fossil fuel prices will jump to high levels if they are in short supply. These high prices will allow the extraction of a huge amount of coal, oil and natural gas from the ground. The rising prices will also allow high-priced alternatives to become competitive. Thus, it makes sense to start down the long road of trying to substitute “renewables” for fossil fuels.

If business leaders had stopped to look at the history of coal depletion, they would have discovered that expecting high prices when energy limits are encountered is incorrect. The issue that really happens is a wage problem: too many workers discover that their wages are too low. Indirectly, these low-wage workers need to cut back on purchases of goods of many types, including coal to heat workers’ homes. This loss of purchasing power tends to hold coal prices down to a level that is too low for producers. We can see this situation if we look at the historical problems with coal depletion in the UK and in Germany.

Coal played an outsized role in the time leading up to, and including, World War II.

Figure 1. Figure by author describing peak coal timing.

History shows that as early coal mines became depleted, the number of hours of labor required to extract a given amount of coal tended to rise significantly. This happened because deeper mines were needed, or mines were needed in areas where there were only thin coal seams. The problem owners of mines experienced was that coal prices that did not rise enough to cover their higher labor costs, related to depletion. The issue was really that prices fell too low for coal producers.

Owners of mines found that they needed to cut the wages of miners. This led to strikes and lower coal production. Indirectly, other coal-using industries, such as iron production and bread baking, were adversely affected, leading these industries to cut jobs and wages, as well. In a sense, the big issue was growing wage disparity, because many higher-wage workers and property owners were not affected.

Today, the issue we see is very similar, especially when we look at wages worldwide, because markets are now worldwide. Many workers around the world have very low wages, or no wages at all. As a result, the number of workers worldwide who can afford to purchase goods that require large amounts of oil and coal products for their manufacture and operation, such as vehicles, tends to fall. For example, peak sales of private passenger automobile, worldwide, occurred in 2017. With fewer auto sales (as well as fewer sales of other high-priced goods), it is difficult to keep oil and coal prices high enough for producers. This is very similar to the problems of the 1914 to 1945 era.

Everything that I can see indicates that we are now reaching a time that is parallel to the period between 1914 and 1945. Conflict is one of the major things that a person would expect because each country wants to protect its jobs. Each country also wants to add new jobs that pay well.

In a period parallel to the 1914 to 1945 period, we can also expect pandemics. This happens because the many poor people often cannot afford adequate diets, making them more susceptible to diseases that are easily transmitted. In the Spanish Flu epidemic of 1918-1919, more than 50 million people worldwide died. The equivalent number with today’s world population would be about 260 million. This hugely dwarfs the 3.2 million COVID-19 deaths around the world that we have experienced to date.

[2] If we look at growth in energy supply, relative to the growth in population, precisely the same type of “squeeze” is occurring now as was occurring in the 1914 to 1945 period. This squeeze particularly affects coal and oil supplies.

Figure 2. The sum of red and blue areas on the chart represent average annual world energy consumption growth by 10-year periods. Blue areas represent average annual population growth percentages during these 10-year periods. The red area is determined by subtraction. It represents the amount of energy consumption growth that is “left over” for growth in people’s standards of living. Chart by Gail Tverberg using energy data from Vaclav Smil’s estimates shown in Energy Transitions: History, Requirements and Prospects, together with BP Statistical Data for 1965 and subsequent years.

The chart above is somewhat complex. It looks at how quickly energy consumption has been growing historically, over ten-year periods (sum of red and blue areas). This amount is divided into two parts. The blue area shows how much of this growth in energy consumption was required to provide food, housing and transportation to the growing world population, based on the standards at that time. The red area shows how much growth in energy consumption was “left over” for growth in the standard of living, such as better roads, more vehicles, and nicer homes. Note that GDP growth is not shown in the chart. It likely corresponds fairly closely to total energy consumption growth.

Figure 3, below, shows energy consumption by type of fuel between 1820 and 2010. From this, it is clear that the world’s energy consumption was tiny back in 1820, when most of the world’s energy came from burned biomass. Even at that time, there was a huge problem with deforestation.

Figure 3. World Energy Consumption by Source, based on Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects and together with BP’s Statistical Review of World Energy data for 1965 and subsequent years. (Wind and solar are included with biofuels.)

Clearly, the addition of coal, starting shortly after 1820, allowed huge changes in the world economy. But by 1910, this growth in coal consumption was flattening out, leading quite possibly to the problems of the 1914-1945 era. The growth in oil consumption after World War II allowed the world economy to recover. Natural gas, hydroelectric and nuclear have been added in recent years, as well, but the amounts have been less significant than those of coal and oil.

We can see how coal and oil have dominated growth in energy supplies in other ways, as well. This is a chart of energy supplies, with a projection of expected energy supplies through 2021 based on estimates of the IEA’s Global Energy Review 2021.

Figure 4. World energy consumption by fuel. Data through 2019 based on information from BP’s Statistical Review of World Energy 2020. Amounts for 2020 and 2021 based on percentage change estimates from IEA’s Global Energy Review 2021.

Oil supplies became a problem in the 1970s. There was briefly a dip in the demand for oil supplies as the world switched from burning oil to the use of other fuels in applications where this could easily be done, such as producing electricity and heating homes. Also, private passenger automobiles became smaller and more fuel efficient. There has been a continued push for fuel efficiency since then. In 2020, oil consumption was greatly affected by the reduction in personal travel associated with the COVID-19 epidemic.

Figure 4, above, shows that world coal consumption has been close to flat since about 2012. This is also evident in Figure 5, below.

Figure 5. World coal production by part of the world, based on data of BP’s Statistical Review of World Energy, 2020.

Figure 5 shows that coal production for the United States and Europe has been declining for a very long time, since about 1988. Before China joined the World Trade Organization (WTO) in 2001, its coal production grew at a moderate pace. After joining the WTO in 2001, China’s coal production grew very rapidly for about 10 years. In about 2011, China’s coal production leveled off, leading to the leveling of world coal production.

Figure 6 shows that recently, growth in the sum of oil and coal consumption has been lagging total energy consumption.

Figure 6. Three-year average annual increase in oil and coal consumption versus three-year average increase in total energy consumption, based on a combination of BP data through 2019 from BP’s Statistical Review of World Energy, 2010 and IEA’s 2020 and 2021 percentage change forecasts, from its Global Energy Review 2021.

We can see from Figure 6 that the only recent time when oil and coal supplies grew faster than energy consumption in total was during a brief period between 2002 and 2007. More recently, oil and coal consumption has been increasingly lagging total energy consumption. For both coal and oil, the problem has been that low prices for producers cause producers to voluntarily drop out of coal or oil production. The reason for this is two-fold: (1) With less oil (or coal) production, perhaps prices might rise, making production more profitable, and (2) Unprofitable oil (or coal) production isn’t really satisfactory for producers.

When determining the required level of profitability for these fuels, there is a need to include the tax revenue that governments require in order to maintain adequate services. This is especially the case with oil exporters, but it is also true in general. Energy products, to be useful, produce an energy surplus that can be used to benefit the rest of the economy. The way that this energy surplus can be transferred to the rest of the economy is by paying relatively high taxes. These taxes allow changes that aid economic growth, such as improvements in roads and schools.

If energy prices are chronically too low (so that an energy product requires a subsidy, rather than paying taxes), this is a sign that the energy product is most likely an energy “sink.” Such a product acts in the direction of pulling the economy down through ever-lower productivity.

[3] Governments have chosen to focus on preventing climate change because, in theory, the changes that are needed to prevent climate change seem to be the same ones needed to cover the contingency of “running out.” The catch is that the indicated changes don’t really work in the scarcity situation we are already facing.

It turns out that the very fuels that we seem to be running out of (coal and oil) are the very ones most associated with high carbon dioxide emissions. Thus, focusing on climate change seems to please everyone. Those who were concerned that we could keep extracting fossil fuels for hundreds of years and, because of this, completely ruin the climate, would be happy. Those who were concerned about running out of fossil fuels would be happy, as well. This is precisely the kind of solution that politicians prefer.

The catch is that we used coal and oil first because, in a very real sense, they are the “best” fuels for our needs. All of the other fuels, even natural gas, are in many senses inferior. Natural gas has the problem that it is very expensive to transport and store. Also, methane, which makes up the majority of natural gas, is itself a gas that contributes to global warming. It tends to leak from pipelines and from ships attempting to transport it. Thus, it is doubtful that it is much better from a global warming perspective than coal or oil.

So-called renewable fuels tend to be very damaging to the environment in ways other than CO2 emissions. This point is made very well in the new book Bright Green Lies by Derrick Jensen, Lierre Keith and Max Wilbert. It makes the point that renewable fuels are not an attempt to save the environment. Instead, they are trying to save our current industrial civilization using approaches that tend to destroy the environment. Cutting down forests, even if new trees are planted in their place, is especially detrimental. Alice Friedemann, in her new book, Life after Fossil Fuels: A Reality Check on Alternative Fuels, points out the high cost of these alternatives and their dependence on fossil fuel energy.

We are right now in a huge scarcity situation which is starting to cause conflicts of many kinds. Even if there were a way of producing these types of alternative energy cheaply enough, they are coming far too late and in far too small quantities to make a difference. They also don’t match up with our current coal and oil uses, adding a layer of time and expense for conversion that needs to be included in any model.

[4] What we really have is a huge conflict problem due to inadequate energy supplies for today’s world population. The powers that be are trying to hide this problem by publishing only their preferred version of the truth.

The situation that we are really facing is one that often goes under the name of “collapse.” It is a problem that many civilizations have faced in the past when a given population has outgrown its resource base.

Needless to say, the issue of collapse is not a story any politician wants to tell its citizens. Instead, we are told over and over, “Everything is fine. Any energy problem will be handled by the solutions scientists are finding.” The catch is that scientists were not told the correct problem to solve. They were told about a distant problem. To make the problem easier to solve, high prices and subsidies seemed to be acceptable. The problem they were asked to solve is very different from our real energy problem today.

Many people think that taxing the rich and giving the proceeds to the poor can solve our problem, but this doesn’t really solve the problem for a couple of reasons. One of the issues is that our scarcity issue is really a worldwide problem. Higher taxation of the rich in a few rich countries does nothing for the many problems of poor people in countries such as Lebanon, Yemen, Venezuela and India. Furthermore, taking money from the rich doesn’t really fix scarcity problems. Rich people don’t really eat a vastly disproportionate amount of food or drink more water, for example.

A detail that most of us don’t think about is that the military of many different countries has been very much aware of the potential conflict situation that is now occurring. They are aware that a “hot war” would require huge use of fossil fuel energy, so they have been trying to find alternative approaches. One approach military groups have been working on is the use of bioweapons of various kinds. In fact, some groups might even contemplate starting a pandemic. Another approach that might be used is computer viruses to disrupt the systems of other countries.

Needless to say, the powers that be do not want the general population to hear about issues of these kinds. We find ourselves with narrower and narrower news reports that provide only the version of the truth that politicians and news media want us to read. Citizens who have developed the view, “All I need to do to find out the truth is read my home town newspaper,” are likely to encounter more and more surprises, as conflict situations escalate.

Via AlMasdarNews.com,

Egyptian military sources reportedly told RT Arabic this week that Egypt is preparing to open the new headquarters of its armed forces. 

The headquarters of the new Egyptian army, dubbed “the Octagon”, was designed to resemble the ancient temples of Thebes, with their huge columns and towering walls, but was also clearly inspired by the US Pentagon.

The sources said that Egyptian Prime Minister Mostafa Madbouly went to the building on Wednesday, on the orders of Egyptian President Abdel Fattah El-Sisi, to find out the developments in the opening of the new defense capital and put the final touches.

During his stay there, the Egyptian Prime Minister said that President Abdel Fattah El-Sisi was assigned to start preparing for the celebration of the inauguration of the new “administrative capital”.

Madbouly indicated that the ceremony will be at the highest level, through which it will express a clear message about the “new republic”, which the Egyptian President announced.

The new Egyptian army headquarters, consisting of eight-faceted buildings in the Pharaonic style, appeared compact in the form of a circle that includes administrative buildings.

The Octagon building includes all the headquarters of the Egyptian Armed Forces, and its construction is scheduled to be completed soon.

The #Octagon is designed to house command apparatus of the #Egyptian Armed Forces’ (4) branches: the Army, the Navy, the Air Force, and the Air Defense Forces along with its (8) Agencies and Departments. pic.twitter.com/Z0Z5yTxZxk

— Amir Pharaoh (@AmirPharaoh) July 25, 2020

The project is located on a total area of ​​189,000 square meters, while the actual area of ​​the building is estimated at 45,000 square meters.

There are two ministerial buildings located in the center of the circle, and they are connected to each other and the rest of the eight external buildings (the number of the Egyptian army departments) by longitudinal corridors.

By Ryan Fitzmaurice of Rabobank

Don’t fight the Fed

• Inflation remains a key concern for investors as was clear from Warren Buffett’s comments at the Berkshire Hathaway annual event this past weekend
• Commodity index inflows picked up substantially this week as institutional investors return to the alternative asset class in a big way
• Strong investor interest is providing steady and reliable demand for oil futures

The Fed commodity “put”

Inflation concerns are top of mind for many investors these days, as is clear from the never-ending financial news media coverage of the topic lately. In fact, just last weekend Warren Buffett’s Berkshire Hathaway held its annual shareholder meeting and commodities and inflation were hot topics, unsurprisingly. At the televised event, Buffett talked up mounting inflationary pressures indicating that Berkshire is already seeing substantial inflation in many of its own businesses. Buffett explained, “We are raising prices. People are raising prices to us, and it’s being accepted.” He went on to describe that the spike in input costs and raw materials is being passed on to consumers without much push back given the loose monetary and fiscal policies at play, saying that “people have money in their pocket, and they are paying higher prices”. As is clear from these well-supported comments, there are good reasons to be concerned about inflation given everything that has transpired with the pandemic this past year and now as we look towards the inevitable recovery with financial markets well lubricated from historic stimulus and central bank easing. In fact, the Fed has stated quite clearly that it wants inflation to run hot above 2% for some time to achieve its “longer-term” average of 2% and it appears to be getting what it wants. This is not surprising given what a powerful market force the Fed can be and, as such, investors are generally wise not to stand in its way. To that end, the Fed is telling the market it wants higher oil and commodity prices to achieve this “longer-term” average of 2% inflation. As a result, commodities markets continue to benefit from this widely perceived Fed commodity “put”, with year-to-date gains anywhere from 19% to 27%, depending on which index you look at.

Strategic rotation

Commodity index inflows picked up substantially this week as institutional investors return to the alternative asset class in a big way. In fact, roughly +1bn USD of inflows were reported in just the last five trading sessions bringing the year-to-date total firmly above the 8bn mark. The 10-day average inflow is now firmly above the +100mm USD per day mark, a level not seen since early March. As is clear from Figure 4, this trend of “new” money into commodity index funds has been in place all year as institutional investors rush to add inflation hedges to their portfolios. Increasing commodity prices are often key drivers of inflation themselves, so naturally commodity-related investments are widely perceived to act as an inflation hedge and the asset class has indeed performed well in high inflationary periods throughout history.

These large inflows suggest that a strategic rotation is taking place across asset classes with investors seeking out higher commodity exposures while likely reducing other holdings on the margin. The increase in investor commodity exposure is clear though when looking at the most actively traded commodity index ETFs which have seen money pour into them this year with the exception of a brief period in late March and early April when the US Dollar rallied sharply, temporarily alleviating inflation fears. Since then, the US Dollar has resumed its downtrend and with that inflows have increased steadily. In our view, we are likely still in the early to mid-stages of this strategic rotation back into commodity markets, given how much money left the space over the past five to seven years coupled with the loose financial conditions currently at play. As we have explained in the past, these funds generally have high oil market weightings, so these inflows have provided steady and meaningful demand for oil futures all year and we fully expect that trend to continue. In addition, CTA funds are heavily “long” oil futures as well on bullish trend, momentum, and “carry” signals. As a result, we expect the speculative interest to remain overwhelming on the “bid” side of oil for the foreseeable future, barring any spikes in volatility or the dollar that could trigger a liquidation event. So in short, we see a strong case to be “long” oil futures, especially in the deferred months, given the Fed’s willingness to let inflation run “hot” in the near-term coupled with the likelihood of continued strong investor appetite for oil futures.

Looking Forward

Looking forward, we see upside risks developing for oil prices as we approach the high demand summer months in conjunction with the re-opening of key cities and regions. We expect this year’s strong investor interest in commodities to be more persistent in nature and related to an ongoing strategic rotation across asset classes. As a result of these strong inflows, OPEC+ appears to be in a position of strength assuming they are restrained in returning supply to the market. That’s not to say there are not downside risk lurking, such as the big job data miss in the US or the still worrisome virus data out of India, but we still see no reason to fight the Fed/trend.

After Friday’s bizarro jobs report, which was the 2nd biggest miss to expectations on record as a result of millions not looking for work thanks to Biden’s trillions in stimmy checks which pay unemployed Americans more for sitting on their ass than having a job, two seemingly contradictory stories are circulating in capital markets according to BofA’s Ethan Harris. One is about relatively widespread labor shortages in the US. The other is about the robotics revolution and machines replacing people. How will this play out?

According to the BofA economist, the short answer to the question above is that we need to be clear about the time frame. While the COVID crisis has likely sped up structural changes in the labor market, these multi-decade changes are much slower than the dynamics of the business cycle. For example, economists from MIT and Boston College estimate that robots could replace 2 million workers in manufacturing by 2025. That could mean about 400,000 jobs displaced each year. To put that in perspective, BofA expects US job growth to average more than 500,000 per month this year and next.

A look back at history offers some useful insight into how structural changes and laborsaving technology impact the labor market. The most important insight is that the labor market always re-invents itself. There is no trend in the unemployment rate. Over the last 70 years, US productivity has increased almost 400%, while the unemployment rate has bounced around a mean of 5.6%.

However, there are good and bad second-order implications from labor-saving technology. On the negative side:

• Pockets of people tend to be left behind with each wave of innovation, as promises of retraining are rarely fulfilled.
• It also appears that technological advances have contributed to a widening of the income distribution in recent decades.
• And rapid structural changes can create a period of high “frictional unemployment” as people find themselves in the wrong industry with the wrong skills. This is what happened after the oil shocks of the 1970s.

On the positive side:

• Technological advances—in both home “production” and paid production—have dramatically increased leisure hours, a trend that likely continues. This is a huge welfare gain for everyone.
• There have also been instances in which technological change helped lower the unemployment rate. For example, the New Paradigm productivity surge from 1995 to 2005 lowered business costs, delayed the onset of inflation and allowed the Fed to experiment with a very low unemployment rate and rising wages.

Historically, at the peak of the business cycle the unemployment and GDP gaps tend to be proportionate. In this cycle, however, much of the recovery in jobs will be held back. Hence economists expect a bigger (positive) gap for overall GDP than for unemployment. Thus by the end of 2022 BofA estimates a 4.7% output gap, but a smaller -0.9% unemployment gap.

In sum, robots and other labor-saving technology will not prevent a red-hot economy, an almost-as-hot labor market and upward pressure on wages and prices. In other words, BofA’s previous forecast for “transitory hyperinflation” is likely to pan out.

New York’s Times Square was temporarily cordoned off on Saturday after at least three people were injured in a shooting, according to NBC News, citing police. The suspect, pictured below, was caught on camera.

Earlier today, 3 people were shot in @TimesSquareNYC, including a 4-year-old child.

Help your @NYPDDetectives identify the man pictured below — they want to talk him about the incident.

Call 800-577-TIPS with info. pic.twitter.com/GrgPUu7nCC

— Commissioner Shea (@NYPDShea) May 9, 2021

The victims, a four-year-old girl, a 23-year-old and a 43-year-old received non-fatal wounds after one of four men involved in an altercation drew a gun around 5 p.m. and opened fire. All of the victims were bystanders, while the little girl underwent surgery and is expected to survive.

“Two shots. They was bleeding the toddler was bleeding and the mom was crying,” said one Times Square vendor.

All of the people struck were bystanders. They include a four-year-old, 23-year old, and 43-year-old. None are related. One is a tourist visiting the city from Rhode Island. They were struck when one of four men in a dispute pulled a gun and fired shots, per sources.

— Myles Miller (@MylesMill) May 8, 2021

A shooting in #TimesSquare: A four-year-old was hit.

All of these officers are on scene to help. A female officer, with the child in her arms, trucks it to the ambulance down the block. pic.twitter.com/nDfq8BaJAd

— Pete Goode (@720threat) May 9, 2021

It is unclear what the dispute was over which led to the shooting. No suspects have been detained. The shooting came just one hour before a scheduled rally in memory of Daunte Wright, a black man who was fatally shot by a police officer in Minnesota in early April. Police have not linked the shooting to the event at this time.

There have been 416 shootings in New York City through May 2 of this year, up 83% from this time last year when everyone was locked down, accordsing to police data.

“A child in one of the top tourist spots in the world on a spring Saturday isn’t safe from this nation’s gun violence epidemic,” said local TV reporter Steve Keeley of Fox29.

A child was one of two people shot this Saturday afternoon in Times Square. A child in one of the top tourists spots in the world on a spring Saturday isn’t safe from this nation’s gun violence epidemic @FOX29philly https://t.co/5RFuiaAfUB

— Steve Keeley (@KeeleyFox29) May 8, 2021

The shooting comes amid a spate of attacks against asians committed primarily by black suspects. Last Sunday, two Asian women were assaulted by a black woman wielding a hammer – leading to one of the victims, a 31-year-old Taiwanese woman, being hospitalized with a head wound.

Real estate on the no-longer sleepy island of Kauai has gotten so hot that people are buying multi-million dollar homes sight-unseen, as the pandemic-fueled housing boom continues seemingly unabated.

According to the Wall Street Journal, luxury properties on Kauai – with a population of 72,000 permanent residents – start at $3 million, while just 3% of the island’s 550 square miles are open to development, meaning that housing stock in all categories is scarce. And according to the report, Californians looking for primary and secondary homes are squeezing prices even higher.

Ms. Cook, 46, a former commercial real-estate broker, and her husband, 51, a lawyer, had considered looking for a new home in the suburbs north of San Francisco, but were reluctant to test their luck in a seller’s market, where all-cash deals and multiple bidders had become the rule.

“I looked at him,” says Ms. Cook, “And I said, ‘OK, great, when are we leaving?’ ”

The Cooks made an offer of $1.8 million, sight unseen, on a furnished three-bedroom, three-bathroom bungalow located on Kauai’s North Shore, which is known for its verdant mountains and beautiful beaches. The 2,200-square-foot house, with a great room that opens to the outdoors, is on a ¼-acre lot that is a five-minute drive from the ocean. The couple and their two boys, now 4 and 5 years old, moved in time for Thanksgiving. -WSJ

Kauai, once a sleepy and very rainy destination, has become the state’s prime destination for luxury-minded homeowners – with Mark Zuckerberg and wife Priscilla Chan having snapped up 1,400 contiguous acres – including approximately 600 acres just purchased in March, according to a family spokesman.

Matthew G. Beall, CEO of Hawai’i Life real-estate, says the island’s residential sales above $3 million went from 23 in 2019 to 38 last year, and that 2020’s top sale on the island (and all of Hawaii in fact), was a 1.7 acre waterfront compound on Hanelai Bay on the North Shore of Kauai.

The home has eight bedrooms and 10 bathrooms spread across three structures. It sold for $36.7 million last April in an all-cash deal to an undisclosed buyer. The agent on the sale, Neal Normal of Hawai’i Life’s luxury platform, says that more buyers are making pandemic-era offers without a viewing. Last year, he said that of the 30 or so residential sales he handled with an average price of around $10 million, six were sold sight unseen. In his previous 30 years as an agent, just one listing was bought without a viewing.

Despite some 80 inches of rain per year (and 360 inches at the center of the island at Mount Awialeale – over 5,000 feet above sea level), Kauai’s North Shore has become the island nation’s most expensive market, according to the Big Island’s Rebecca Keliihoomalu – VP of Corcoran Pacific Properties.

Last year, there were six residential sales on the island north of $10 million, compared to just two in the Wailea-Makena area of southwest Maui, and three above Honolulu.

That said, buying properties on Kauai is not without risks.

“Every year we have two or three floods,” said Kauai landscaper Brandon Miranda, a third-generation islander, whose home-care and landscaping business looks after high-end estates for second-home owners.

“Everyone wants to be on the beach,” says Miranda. “But this is a tropical environment and all that moisture causes problems,” which affect everything from electrical outlets to AC units – on top of the flooding.

This spring, Kauai and other islands were hit by torrential rains and isolated flooding. A resulting mud slide has impeded access to Hanalei. Mr. Miranda says local Hanalei owners can expect problems for months to come.

What Mr. Miranda calls super-high-maintenance homes sit on what Hawai’i Life’s Mr. Beall calls “one of the most incredibly beautiful places on the planet.” -WSJ

Just months ago, one Hanalei oceanfront five-bedroom house sitting on 1.11 acres went on the market for an asking price of $24.75 million.

Another home on the market belongs to Canadian entrepreneur Brent Naylor, 75, and his wife Gayle, 74. They bought an empty 4/5 of an acre lot perched above Hanelai for $1.6 million, then proceeded to spend around $18 million to construct an 8,200 sqft four-bedroom house, which includes an outdoor kitchen and a 1,200 sqft master suite with a fireplace and private terrace.

It’s been listed for sale for over 200 days at $22.75 million – so perhaps even Hawaii’s hottest market has limits.