Category: zerohedge

The pages of the ongoing semi-chip crisis continue to turn. 

Just days ago, we wrote an article that highlighted how Intel had pointed out the lack of semi chip production in the U.S., amidst estimates that the shortage could last well into 2022. Now, it looks as though Taiwan Semiconductor is going to try and address the issue by building “several more” chipmaking facilities in Arizona, beyond one it already has planned, according to Reuters. 

In May of 2020 the company announced it was building one $12 billion factory and setting up a 12 inch wafer fabrication plant that is expected to open in 2024.

Now, three sources have told Reuters that the company is planning up to five additional fabs for the state. “It is not clear how much additional production capacity and investment the additional fabs might represent, and which chip manufacturing technology they would use,” the report notes.

One source even said the “expansion was in response to a request from the U.S.”, telling Reuters: “The United States requested it. Internally TSMC is planning to build up to six fabs.” Another source said the company had already made sure there was enough space for expansion when buying the land for the first plant. 

TSMC CEO C.C. Wei said on a call last month: “But in fact, we have acquired a large piece of land in Arizona to provide flexibility. So further expansion is possible, but we will ramp up to Phase 1 first, then based on the operation efficiency and cost economics and also the customers’ demand, to decide what the next steps we are going to do.”

This report gels with comments from Commerce Secretary Gina Raimondo this week, who called for a “major increase” in U.S. production capacity of semiconductors, according to Bloomberg. 

On Tuesday, she commented: “Right now we make 0% of leading-edge chips in the United States. That’s a problem. We ought to be making 30%, because that matches our demand. So, we will promise to work hard every day, and in the short term also see if we can have more chips available so the automakers can reopen their factories.”

“In the process of building another half a dozen fabs in America, that’s thousands of Americans that get put to work,” Raimondo commented. The Bloomberg report also noted that the “Biden administration is in talks with Taiwan and Taiwan Semiconductor Manufacturing Co. to prioritize the needs of American automakers”.

Wait until the Biden administration finds out we don’t make anything anymore in the U.S. – it’s not just semi chips. 

The chip crisis has hit the auto industry so hard that it has forced rental car companies – already under immense pressure from ride sharing companies – to buy up used cars at auction to fulfill their inventory needs, Bloomberg also noted this week. 

Maryann Keller, an independent consultant who used to be on the board of Dollar Thrifty Automotive Group, commented: “You would never go into auction to buy routine sedans and SUVs. These are special circumstances. There is a shortage of cars.” We noted last month how these special circumstances have driven up the price of used cars. 

Recall, Intel’s CEO, speaking on 60 Minutes Sunday night, said: “We have a couple of years until we catch up to this surging demand across every aspect of the business.”

He also noted that U.S. dominance in the industry has fallen so much that only 12% of the world’s semiconductor manufacturing is done in the U.S., down from 37% about 25 years ago.

“And anybody who looks at supply chain says, ‘That’s a problem’. This is a big, critical industry and we want more of it on American soil: the jobs that we want in America, the control of our long-term technology future,” he said.

Days prior, we wrote that Morgan Stanley had also suggested the shortage could continue “well into 2022”. 

“Ford’s changed outlook was the first major profit warnings in auto since the worst of COVID,” the analysts wrote, calling the automaker’s report a “bit of a reality check” for investors who have been chasing momentum from OEMs.

Morgan Stanley’s report also took note of lack of manufacturing on U.S. soil, concluding with the realization that “on-shoring and diversification of geographic supply sourcing” should be thrust into focus. 

Last week, Ford was the latest auto manufacturer to slash its expectations for full year production as a result of the shortage.

Two weeks prior to Ford’s report, we wrote about how the chip shortage was becoming a self-fulfilling prophecy, due to a shortage of chipmaking equipment. In the days leading up to that report, we wrote that Taiwan Semiconductor was also warning that the global chip shortage may extend into next year.

In early April, we wrote that U.S. exporters of semiconductor chipmaking tools were struggling to get licenses to sell to China. The U.S. government had been dragging its feet in approving licenses for companies to sell chipmaking equipment to Chinese semi company SMIC, we noted at the time.

As the Group of Seven (G7) summit is now wrapping up in London, it’s been clear that a ‘united front’ for confronting China has been a controversial topic high on the discussion list. For starters it appears that an entire lengthy Tuesday night meeting was spent among G7 representatives exploring the ways China coerces “partner” countries into submission to Beijing’s will via Xi’s Belt and Road initiative as well as direct economic threats. The current meetings are geared toward laying the groundwork for the major June 11 summit, which President Joe Biden and other heads of state are expected to attend in person – an important first since the coronavirus pandemic. 

Bloomberg revealed the details of US representatives’ urging G7 allies to create a mechanism for “coordinated response” against China’s expanding influence, which has been particularly felt of late in places like the Balkans, central Asia, and Africa: “A paper was circulated before a two-day meeting of G-7 foreign ministers in London, according to officials, who were granted anonymity to discuss private talks… The U.S. wants a consultation mechanism that would involve the G-7 — as well as other stakeholders — to ensure a coordinated response to China’s moves and with the aim of bolstering the resilience of G-7 nations, according to another diplomat.”

On the eve of the two-day summit Secretary of State Antony Blinken had told CBS’ 60 Minutes that “Our purpose is not to contain China, to hold it back, to keep it down,” but instead the Biden administration hopes to “uphold this rules-based order that China is posing a challenge to.” He additionally vowed that “Anyone who poses a challenge to that order, we’re going to stand up and defend it” — and that confronting China will be a focus of President Biden at the upcoming major G7 summit in early summer. 

Boris Johnson and US Secretary of State Antony Blinken were also said to have focused on “close alignment” of US and UK foreign policies during their face-to-face meeting. And UK Foreign Secretary Dominic Raab notably said that the in-person gathering of foreign ministers and top officials from allied economies “demonstrates that diplomacy is back” (perhaps also a swipe at Trump?) and that countries are once again “getting together” after the ravages and disruption of Covid.

A G7 statement is expected to say that the group is “deeply concerned” about China’s human rights abuses, and is likely to call for a neutral rights team’s access to Xinjiang province to investigate, while also calling Beijing to account over prior promises to preserve Hong Kong autonomy. 

Today the world’s leading democracies 🇨🇦 🇪🇺 🇫🇷 🇩🇪 🇮🇹 🇯🇵 🇬🇧 🇺🇸 come together for #G7 talks and decisive action on the most critical global issues, including Russia, China, Iran, and Myanmar #G7UK pic.twitter.com/6cOiv4XKEt

— Dominic Raab (@DominicRaab) May 4, 2021

BBC summarized that a wide range of foreign policy issues were discussed, even including Syria and the continuing crisis in war-torn Libya, as well as the ongoing violence in Myanmar as a result of the military-led coup:

The spokeswoman added that foreign policy issues, including Afghanistan, Iran and China, were also discussed, and Mr Johnson “looked forward to welcoming” US President Joe Biden to the UK when he attends the leaders’ summit in June – his first overseas trip since his election victory.

Also notable is that a “Friends of Hong Kong” initiative was proposed and discussed, described as a mechanism to “to share information and concerns about the former British colony,” one unnamed diplomat told BBC.

Breaking News: G7 have reunited and are launching a new album!

New hits include: ‘One night in London’, ‘Always China on my Mind’, ‘I Ran Deal (So Far Away)’ and ‘Keep on Sanctioning in the Free World’. pic.twitter.com/RHl05Yu7m3

— R Mclean (@R_Mc_Lean) May 4, 2021

The G7 group, which includes many of the world’s largest economies – the UK, Canada, France, Germany, Italy, Japan and the United States – for the London meeting also involved representatives of Australia, South Korea, India, and South Africa as guests, given the UK is currently attempting to deepen trade ties with friendly Indo-Pacific nations. 

Popular British video sharing website “LiveLeak,” known for footage of war, politics, and many other world events usually censored on other video websites, like YouTube, was dissolved on Wednesday.

LiveLeak was founded in 2006 and was launched into the spotlight in 2007 after the unauthorized filming and execution of Saddam Hussein were posted on the site. 

LiveLeak was again in the spotlight in March 2008, hosting the anti-Quran film Fitna made by Dutch politician Geert Wilders. LiveLeak was known for its non-biased approach to violent content, cherishing freedom of speech within the site rules.

In 2014, LiveLeak shared an Islamic State terrorist video depicting the beheading of US journalist James Foley. While YouTube and Facebook quickly deleted the footage, LiveLeak kept hosting the video. 

In a move to curb free speech, Australian telecom Telstra denied millions of Australians access to LiveLeak (and even us) in 2019 as a response to the video of the Christchurch mosque shootings in New Zealand spreading. 

The edgy video content published on the website over the years appears to have struck a nerve with global elites who want nothing else than people of the world to watch videos on their highly censored platforms. 

Chiming in on censorship, it’s not a winning strategy for humanity. 

Anyone trying to click on LiveLeak is automatically redirected to a new website called “Itemfix,” where a website banner reads: 

“Dear Liveleak Visitor – Welcome to ItemFix. Click here to find out how you got here” 

Clicking on the link, Hayden Hewitt of Manchester, the creator of LiveLeak writes:

Dear LiveLeakers,

I’m sure you’re wondering what’s going on right now so it’s only right and proper that you get a full explanation.

Fifteen years ago we felt the project we were working on had peaked and it was time to move on, LiveLeak was born. Although it’s an overused analogy the last fifteen years have been an insane rollercoaster for all involved. Highs, lows, and some rather worrying bits where it felt like we were upside down. The thing is, it’s never been less than exhilarating, challenging and something we were all fully committed to. Nothing lasts forever though and – as we did all those years ago – we felt LiveLeak had achieved all that it could and it was time for us to try something new and exciting.

The world has changed a lot over these last few years, the Internet alongside it, and we as people. I’m sat here now writing this with a mixture of sorrow because LL has been not just a website or business but a way of life for me and many of the guys but also genuine excitement at what’s next.

I hope some of you will enjoy ItemFix and find it useful and entertaining. It’s something completely different, completely fresh, and something we feel energized about tackling and whilst I know many of you will be upset, possibly angry, about our decision I do hope you also understand our reasons and appreciate that, alongside you, we have walked together through some interesting times and some crazy ones. Sometimes it’s just the right time to chart a new path.

I’d like to wrap this up with thanks. Thank you to all the team past and present, the “inner circle,” the admins, the mods, the coders. You guys helped make the impossible possible for so long it’s unreal. If people truly knew what you’d put into this…they probably wouldn’t believe it. But I know and I can’t thank you enough.

To the members, the uploaders, the casual visitors, the trolls and the occasionally demented people who have been with us. You have been our constant companions and although we probably didn’t get to communicate too often you’re appreciated more than you realize. On a personal level you have fascinated and amused me with your content.

Lastly, to those no longer with us. I still remember you.

On behalf of the LiveLeak team and myself

Cheers,

Hayden

Authored by Robert Aro via The Mises Institute,

Last Wednesday, Federal Reserve Chair Jerome Powell showed how simple questions do not always get simple answers. When speaking to the media after the latest Federal Open Market Committee (FOMC) meeting, some difficult questions were asked. So much so, Powell had to repeat one question to himself, asking:

When will the economy be able to stand on its own feet?

He immediately followed with:

I’m not sure what the exact nature of that question is.

FOX News correspondent Edward Lawrence elaborated, asking when the Fed would lower the number of treasuries it buys, and when the economy would function “without having that support from the monetary side.” 

Powell found ways to avoid answering the idea of a nation which stands without central bank supports, but he did refer to various “tests” the Fed will do in order to make decisions like shrinking the balance sheet, explaining:

we’ve articulated our test for that, as you know, and that is just we’ll continue asset purchases at this pace until we see substantial further progress.

He went on to say that prior to making any decisions, such as buying fewer treasuries, they will give the public a lot of notice beforehand.

There was also a question related to the Fed’s influence in the housing market:

the housing market is strong, prices are up. And yet, the Fed is buying $40 billion per month in mortgage related assets. Why is that, and are those purchases playing a role at all in pushing up prices?

Despite amassing nearly $2.2 trillion of mortgage-backed securities (MBS), Powell defended the central bank on the grounds that:

I mean, we started buying MBS because the mortgage-backed security market was really experiencing severe dysfunction, and we’ve sort of articulated, you know, what our exit path is from that. It’s not meant to provide direct assistance to the housing market.

To be clear, the “severe dysfunction” occurred over a decade ago, when the Fed entered the MBS market. As for the public knowing the exit path or not providing assistance to the housing market, both ideas are highly debatable, to say the least.

But even more puzzling is when Powell says that during the current COVID crisis:

We bought MBS, too. Again, not intention to send help to the housing market, which was really not a problem this time at all.

Strange, the Fed would commit to buying $40 billion a month of MBS when, according to the Chair, there were no problems in the market. He concludes that purchases will go to zero over time, but the “time is not yet.”

The final question asked was in regards to market intervention:

if you get out of the markets, there aren’t enough buyers for all of the Treasury debt? And so, rates would have to go way up. Bottom line question is what do we get for $120 billion a month that we couldn’t get for less?

Powell never explained what exactly “we get for $120 billion” a month, but assured us the Fed was looking to reach its goals, and this was part of its plan. However, he did comment on purchases, saying:

But if we bought less, you know, no. I mean, I think the effect is proportional to the amount we buy… And we articulated the, you know, the test for withdrawing that accommodation. And we think, you know. So, we’re waiting to see those tests to be fulfilled, both for asset purchases and for lift off of rates. And, you know, when the tests are fulfilled, we’ll go ahead as, you know, we’ve done this before.

Between various tests to determine policy, vague responses, and a general avoidance of answering questions directly, not much was offered other than providing perpetual liquidity injections under accommodative monetary conditions. It was refreshing to see the mainstream media ask more questions about the plan ahead; we can only hope the mainstream economic community will do the same.

Iran’s powerful Islamic Revolutionary Guard Corps (IRGC) is stoking tensions once again as the Iranian foreign ministry is engaged in continued ‘indirect’ nuclear talks with the US in Vienna, early this week releasing a short video clip that features an imagined missile attack on the Capitol building in Washington D.C.

The footage aired on Iranian state television on the occasion of a major Sunday speech by the supreme leader Ali Khamenei on the “heroism” of Iran’s revolutionary guard. Set to patriotic music, the video further appears to be a tribute to the slain IRGC Quds Force commander Qassem Soleimani, killed in a US drone strike early last year.

In Broadcast Leading to Khamenei’s Speech, Iran TV Airs Nationalist Song Depicting Capitol Hill Being Destroyed by a Missile #Iran #JCPOA pic.twitter.com/1Z9onUPMPM

— MEMRI (@MEMRIReports) May 5, 2021

During the middle of the song a ballistic missile is seen launched from the Iranian desert, and that’s when a brief and shocking clip of the missile scoring a direct hit on the US Capitol is featured, with the building immediately engulfed in flames. 

Newsweek describes the central message of Tehran’s leadership as follows:

The footage of the fake attack also came out the same day Iran’s President Hassan Rouhani declared the U.S. had lost its “economic war” against his country, saying that sanctions against Tehran are at the “brink of extermination,” his rhetoric painting a grim picture for the prospect of the two nations reaching a mutual agreement on a revived Iran nuclear deal.

For much of the past week Iranian officials have issued surprisingly optimistic assessments of where things are headed in Vienna, saying that Washington is prepared to drop Trump-era sanctions, while Biden officials have in their statements put the brakes on, strongly suggesting any kind of final understanding is still far off.

The other interesting aspect to the timing of the IRGC propaganda video is that it comes on the heels of the ‘Zarif-Gate’ leaked audio scandal wherein Foreign Minister Javad Zarif is heard criticizing ‘national hero’ Qassem Soleimani, while also broadly accusing the military and IRGC in particular of often sabotaging diplomacy. 

Zarif basically admitted in the audio leak that the powerful IRGC runs the country and even overrides government decisions – something which has never been so bluntly confessed to by a top Iranian official. So the new video of the US Capitol burning could be an attempt to “save face” after the embarrassing Zarif leaked interview ordeal, and to return to the usual bellicose threats.

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

“In the beginning, God created the heavens and the earth” reads the first sentence of the bible. Later in the book of Genesis, God created cycles.

“Then Joseph said to Pharaoh, “Both of these dreams have the same meaning. God is telling you what will happen soon. The seven good cows and the seven good heads of grain are seven good years. And the seven thin, sick-looking cows and the seven thin heads of grain mean that there will be seven years of hunger in this area. These seven bad years will come after the seven good years.“ 

– Genesis 41:25-36

Eons later, famed mathematician Benoit Mandelbrot wrote on the similarity between naturally occurring cycles and market cycles. He used the terms Joseph Effect and Noah Effect to define the good and bad years, respectively.

Despite the sharp decline last year, equity markets are back to record highs, and the Joseph Effect is running strong. But, while investors are enthusiastic, the odds are growing that the Noah Effect may come sooner than most investors fathom. The math is clear that returns over the next ten years will pale in comparison to the last.

In this article, we diverge from the math and appreciate the behavioral traits that allow markets to reach extremes. These qualitative factors will help you make sense of today’s market and better prepare for tomorrow.

Smile, You’re On Candid Camera

From 1960 to 1975, Allen Funt hosted a TV series called Candid Camera. The show secretly filmed people doing peculiar things. In addition to being hilarious, the show highlights how inane behavioral traits drive our actions.

For example, the episode Elevator Psychology exhibits how humans tend to follow the lead of others. In market parlance, this is coined FOMO, or the fear of missing out.

In the first scene of the linked video, a man enters an elevator, followed by Candid Camera actors. The actors entering the elevator all face the rear of the car. Upon seeing this, the puzzled man slowly turns around and faces the rear of the elevator. In the second skit, another man not only follows the actors facing backward but then proceeds to rotate back and forth as the actors do. As the scene goes on, he takes off his hat and puts it back on, following the lead of the actors.

The skits highlight our instinctive need to follow the actions of others, regardless of the logic of such activities. Importantly, they highlight the stupid things we do to battle our fear of not conforming.

FOMO

Financial markets often experience similar behavioral herding. Most investors blindly mimic the behavior of other investors without seeking the rationality behind it.

Investors get gripped by a fear of missing out in the extremes of bull markets, aka FOMO. As asset bubbles grow and valuation metrics get stretched, the FOMO strengthens. Patient investors grow impatient watching neighbors and friends make “easy” money. One by one, reluctant investors join the herd despite their concerns.

“There is nothing so disturbing to one’s well-being and judgment as to see a friend get rich” -Charles Kindleberger: Manias, Panics, and Crashes

Famed investors, Wall Street analysts, and the media prey on ill-equipped investors by justifying ever-higher prices.  Their narratives rationalizing steep valuation premiums become widespread. Despite evidence to the contrary and historical precedence, investors always buy the hype. “This time is different,” say the promoters.

This time is rarely different. For a better appreciation of financial bubbles built on false premises and FOMO, we recommend reading “Manias, Panics, and Crashes” by Charles Kindleberger.

Per a recent report, J.P. Morgan had the following to say on bubbles:

“Both begin with a compelling narrative that eventually leads analysts to discard previous valuation yardsticks because “this time is different.” Occasionally times have changed, but often they haven’t.”

Defying Our FOMO

Our investing behaviors are quite different from our consumer behaviors. As consumers of goods, we seek discounts on products we want and shun products we think are too expensive. On the other hand, as investors, we seem to prefer to pay top dollar for stocks and avoid them like the plague when they trade at a deep discount. Dare to employ the logic of your inner consumer, not your average investor.

Markets fluctuate between periods where greed runs rampant such as today and periods of fear. Unfortunately, greed causes many investors to ignore or belittle facts and history.

Fear also prevents us from making intelligent decisions. Investors have a fear of catching the proverbial falling knife, even though a stock may already be discounted significantly.

To be successful investors, we must balance our Jekyll and Hyde personalities and silence the crowd’s din. As hard as it is to resist, we cannot fall prey to periods of grossly unwarranted market optimism, nor should we be shy to invest during periods of deep pessimism. TO repeat, avoiding our instincts, like not turning with the crowd in an elevator, is challenging to put it mildly.

How We Keep our Investment Zen

One way to find comfort in both booms and busts is to have well-thought-out investment strategies and risk limits. A good plan should encourage steady, long-term returns and employ active strategies. The plan should ensure you stay current with potential risks, technical setups, and market valuations.  These measures help keep us mindful and vigilant.

As of writing this, we are nearly fully invested in equities. Make no mistake, we are keenly aware current valuations portend poor and likely negative returns for the upcoming ten-year period. What we do not know is the path of returns for the next ten years. Will the market fall 70% tomorrow and rally back over the next nine years? Will it continue rallying to even greater valuations and tumble in a few years? The iterations are endless.

Given the current risks, we actively manage our exposure. If our shorter-term technical models indicate weakness, we reduce exposure and or add hedges. If they signal strength, we may add exposure. Of course, we always have a finger on the sell trigger.

The Coming Noah Effect

Hearing the crowd and sensing the palpable enthusiasm is easy. But, listening to the lessons of the math and history books is difficult. The graphs below are two examples of data and history that provide sobriety to help counter the pull of FOMO.

The first graph shows that the S&P 500 cycles between periods of strong returns and weak returns. Currently, returns for the last ten years are at the upper end of the range, portending weak forward returns.

The following graph uses four valuation techniques to highlight that returns are likely to be flat to negative over the next ten years.

The following quote is from our article Zen and the Art of Risk Management:

“When markets are frothy and grossly overvalued, greed takes over, leading to lofty performance expectations and excessive risk stances. Equally tricky is buying when fear grips the markets.”

“In both extremes and all points in between, we must maintain investor Zen. The best way to accomplish such mindfulness and awareness of market surroundings is to understand the risks and rewards present in markets. Zen-like awareness allows us to run with the bulls and hide from the bears.”

Summary

TINA is another popular acronym – “There Is No Alternative.” Despite popular logic today, there are alternatives to blindly employing passive strategies that will fully partake in the upside but leave investors facing significant downside risks.

As a steward of our client’s wealth, we take special care at market junctures like the present to understand the risks. Timing the market is impossible, but full-time awareness of the long-term goals will help our clients avoid the pitfalls that inevitably set investors back years.

Equally damaging for passive investors when the tables turn is the inability to take advantage of the multitude of opportunities that emerge when fear reigns market sentiment.

A month ago, The Wall Street Journal Editorial Board stated yet another true but unpopular fact: “Continuing government bans on eviction and foreclosure are doing more harm than good.”

The CDC invoked the 1944 Public Health Service Act, which allows the agency to take measures to prevent the spread of communicable diseases between states. People who get evicted might move in with family or friends and spread the disease, the CDC explained. What diktat couldn’t the CDC justify under this expansive rationale?

…

In short, the government is bludgeoning private businesses to fix a problem it created.

Suspension of rent and mortgage payments was justifiable last spring when states locked down and some 22 million workers lost jobs. But the jobless rate has dropped to 6% from 14.8%, and employers are desperate to hire.

…

Landlords say they increasingly can’t afford their mortgage payments, utilities, and maintenance costs because they can’t remove nonpaying renters.

…

These crisis programs are distorting the housing market.

Home values have soared in the past year amid increased demand (see nearby), so some borrowers currently in forbearance could avoid foreclosure by selling. Government forbearance may be contributing to a housing shortage by keeping people in homes they can’t afford and limiting supply for potential buyers.

Two weeks ago, we highlighted the plight of ‘mom and pop’ landlords.

According to Bloomberg, nearly $47 billion in rent relief from the Biden Administration has been slow to materialize, forcing “mom-and-pop” landlords into financial hardship – or forced to sell to wealthy investors. Bloomberg, perhaps to invoke sympathy for the landlord class, focused on the impact felt by minority landlords.

Like their tenants, these landlords are more likely to be nonwhite or to be immigrants using real estate for their economic foothold. Now, mortgage, maintenance and tax bills are piling up, putting landlords in danger of losing their buildings or being forced to sell to wealthier investors hunting for distressed deals.

…

The tens of billions of dollars that Congress allocated for rent relief — starting in December and then with a second allotment in March — was supposed to help by covering back rent and unpaid utility bills. But the rollout has been moving at the speed of bureaucracy, which varies from state to state. –Bloomberg

And today, a federal judge has vacated a nationwide freeze on evictions that was put in place by federal health officials to help cash-strapped renters remain in their homes during the pandemic.

The CDC under the Biden administration had sought to extend the eviction moratorium through June 30.

D.C. District Judge Dabney Friedrich ruled on the side of the plaintiffs, who alleged that the CDC overstepped its authority by extending the eviction moratorium — which was first included in the March CARES Act passed by Congress — to all residential properties nationwide.

“The pandemic has triggered difficult policy decisions that have had enormous real-world consequences. The nationwide eviction moratorium is one such decision,” Friedrich writes in an opinion.

“It is the role of the political branches, and not the courts, to assess the merits of policy measures designed to combat the spread of disease, even during a global pandemic.”

“The question for the Court is a narrow one: Does the Public Health Service Act grant the CDC the legal authority to impose a nationwide eviction moratorium? It does not.“

Read the full opinion below:

Finally, there are obviously consequences both ways on this, as we recently noted, homelessness exploded in the U.S. and other western countries in 2020. It’s still on the rise with no signs of getting better anytime soon. Some argue it’s not as bad as it would have been (and can become) without the aggressive forbearance and moratorium programs implemented by governments. But this has side effects. What will happen when these suspensions end? And if they extend, what will be the unintended consequences? It is hard to predict, but eviction waves could throw millions into the streets in months and years ahead if the crisis worsens.

During the 1930’s Great Depression, cities everywhere saw the growth of squatter areas and shantytowns. New York’s Central Park became Hooverville, a giant slum right in the middle of America’s biggest and wealthiest city at the time. Whole areas in L.A., San Francisco, and many other towns across the U.S. have already become tent cities. These are ripe for crime, exploitation, drug trafficking, violence, disease, and political manipulation.

Authored by Omid Malekan,

Like most things, the undulations of the crypto markets are cyclical and meme-based. But thanks to the blockchain’s elimination of many of the frictions of the traditional financial system, the cycles happen faster. Take the simple fact that crypto markets trade 24/7, while most traditional markets do not. In any normal week, crypto trades for five times as many hours as stocks. That’s five times as much greed, fear and price discovery.

Every bull market has multiple cycles, and each cycle has its own tenor.

The first cycle of the current run was fairly simple, it was the ascent of Bitcoin. It could be seen in the rise of Bitcoin dominance over all other coins, a metric that rose from last summer to the start of this year and peaked at 70%, a 4 year high.

Market cap dominance of different coins

The second cycle was the rise of the newer alts, alternatively known as the “Ethereum killers.” With Bitcoin’s purpose and brand now fully cemented — thanks in part to the entrance of institutional buyers — the focus shifted to what comes next. Ether has been the number two crypto asset for a long time, but unlike Bitcoin, it’s status has often been contentious, even within the crypto community. For whatever reason, some existing investors and many new ones have always been looking for an alternative. This dynamic led to a second cycle where its would-be competitors rallied. The resulting surge in coins such as ADA, BNB, DOT, AVAX and SOL led to a surprising drop in Ethereum dominance, hitting a low of 11% just over a month ago, and repeated testing of the crucial 0.03 ETH/BTC cross rate.

Surprisingly, this relative decline in value happened just as multiple applications living atop Ethereum took off in adoption. Unlike Bitcoin, Ethereum is a platform that’s meant to be used, and the simultaneous surge in stablecoins, DeFi and NFTs showed that it was. And yet, this usage did not translate to success. Bitcoin was rallying because it was Bitcoin, and the Killers were rallying on the hope that they could someday siphon off some of Ethereum’s traction. But ETH itself kept underperforming. This was akin to Apple stock not going up despite the success of the iPod, but instead Microsoft rallying because it would eventually release the Zune.

My confusion over this development led to me surveying a bunch of people who were smarter than me to find out why. They gave me three answers, only one of which I agreed with.

The first was that Ethereum fees were too high. This one struck me as shortsighted. Fees on any blockchain are a proxy for both adoption and security. Arguing that people would eventually abandon a platform because it’s too popular is akin to arguing that a crowded club would soon lose all its customers to an empty dive bar. Picking a decentralized platform is a lot like deciding where to party: going where the crowds are is the point — even if (and perhaps because) the cost of admission is high. The higher the mining revenues on any decentralized platform, the greater its security apparatus, so the higher the value amounts users are comfortable transacting.

The second argument was that Ethereum was technically inferior. This I agreed with, but only as a standalone observation. The original Ethereum white paper was published 8 years ago and all of the newer platforms have benefited from its stumbles. But those stumbles have also helped it (and its community) achieve a certain amount of antifragility, something its newer rivals lack. Having a more efficient consensus mechanism or better programming language are wonderful when they exist inside a white paper or on a ghost chain that nobody actually uses. They are a whole other thing with tens of billions on the line on a day like Black Thursday.

Whatever Ethereum lacks in terms of technical specs (which is plenty) it more than makes up for in terms of aggregate user experience, development tools and supporting infrastructure. When it comes to technological adoption, the best tech often does not win. The first application to reach critical mass does, because the switching costs are too high. This is especially true when there are network effects in play. To that point, I would argue that Ethereum has already passed the point of no return. Nevermind any comparison to its supposed rivals, it now routinely surpasses Bitcoin in terms of mining revenues, average transaction costs, dollar amount settled and total transaction count.

source: TheBlock

The third explanation was that crypto speculators are like little kids. They prefer shiny new toys they can fantasize to be capable of anything (over a million transactions per second! Using any programming language! saving the children in Africa!) over the real deal. This one resonated with me, as I’ve seen it before. To us grizzled veterans, the current wave of Ethereum killers are the third generation. There was a time when people were tripping over themselves to buy coins like EOS and Tron because their platforms were also better, faster and cheaper.

To paraphrase Orwell, people have a remarkable ability to assume false beliefs and hold on to them, despite mounting evidence to the contrary. But such false beliefs eventually bump up against reality, often on a battlefield. In crypto, the battlefield in question is one of adoption and evolution. Put differently, every doge has its day, but most eventually fade away because they serve no purpose beyond speculation. The world only needs so many decentralized platforms, and the energy consumption of proof-of-work or the cost of capital of proof-of-stake lead to certain winner-take-most tendencies. To the extent that everything in this world is about security, a smaller platform with a less valuable coin is a dangerous thing.

Bitcoin is and always will be Bitcoin. The race for #2 is not as interesting as it seems. There will always be niche platforms that serve specific functions, but those might be replaced by viable (and more secure) Layer 2 alternatives.

So here we are, and the price of ETH is suddenly surging, with ETH dominance back up to a more respectable 17% and the cross rate double the recent low. A lot of people have been asking me why. A more appropriate question might be what took so long.

*  *  *

The rebound in the price of ETH has some people wondering how one might value a different kind of cryptocurrency, one that’s not as singularly defined as Bitcoin. Here I find ethereum easier to tackle. Bitcoin is money, and the value of money is highly relative. Ethereum on the other hand is a digital platform, and smart people have been putting valuations on digital platforms for a long time. I’m not one of those people, and ultimately find price the least interesting aspect of crypto. But for those willing to try, I have a few suggestions. To value ETH, and to see why some people still consider it undervalued despite the recent surge, consider the following:

Payments:

Non-blockchain based payment platforms such as PayPal, Visa, Mastercard and Ant are currently among the most valuable properties around. Their combined market cap is greater than that of the world’s banks. Ethereum is also a payments platform, not just for crypto and a gazillion other things, but also for fiat. It’s far more versatile than the above, offers better economics and is growing rapidly, thanks to the killer application of fiat stablecoins.

On-chain stablecoin volume surpassed $500b in the month of April. That’s already twice what PayPal moves in an entire quarter. It has increased by 1600% since the last time I made the case for why ETH was undervalued on the payments potential alone, which was only 20 months ago. PayPal volume has only grown by 50% in that window and the card networks have grown far less. Ethereum will continue to take market share because it offers features that those legacy rails never will, such as global access (including for the unbanked), programmability, transparency, real-time settlement, and cryptographically guaranteed DVP vs an infinite number of other value stores. No amount of investment or upgrading of the existing payment infrastructure will achieve these features. Visa could spend a billion dollars upgrading VisaNet but it will never move stocks (that’s why it’s throwing in the towel and embracing stablecoins, just as PayPal is looking into issuing its own).

Banking:

So-called Neo banks, challenger banks and FinTechs are also hot properties. They may not be as valuable as the payment providers, but expected to be a disruptive force in financial services. Many are not that innovative, as they just take a hundred year old business model and execute it using APIs and the cloud. They are incremental in their innovation, more Blu Ray disk than Netflix.

Thanks to DeFi, Ethereum is home to the hottest and fastest growing true FinTechs in the world, some of which operate on business models that have never existed before. MakerDAO is already bigger than 97% of all American banks, thanks to a balance sheet that is almost 50x larger than the median (it also earns close to $160m a year in pure profit — enough to make many FinTechs drool).

Maker has a $4B loan portfolio & expected to make $160m in the next year

Uniswap V2 is less than two years old, but already trades more volume than most centralized crypto exchanges. It also boasts 35,000 different trading pairs, making it the most comprehensive financial market in the history of the world. It’s liquidity providers earned over $100m in revenues, in April!

There are many other examples and more funky DeFi solutions coming everyday. Cumulative revenues for DeFi properties on Ethereum have already surpassed $1b, having more than tripled this year alone.

NFTs:

Beeple’s “Everydays: The first 5000 days,” one of the most valuable works of art ever sold, lives on Ethereum. As does the second most valuable type of digital collectible, and a majority of the most popular digital art marketplaces. There are also popular virtual games such as Gods Unchained and virtual worlds such as Decentraland. Some of these properties boast over a billion dollars in accumulated value and tens of millions of dollars worth of daily trading volume. There is an Ethereum based music streaming service that has surpassed 3 million active users, placing it ahead of Jay-Z’s Tidal service by some measures.

A Meebit

I have no idea how one goes about putting a valuation on such things, but millions of people are engaged and committing real capital on a daily basis. If Spotify, Activision Blizzard and Substack are valuable, then so are these properties.

To be fair, not all of the value generated from the activities listed above go directly to the Ethereum platform. Many have contributors and governance token owners who capture a substantial amount of the value. But all inherit the overall security framework provided by Ethereum blockchain, and all pay for transaction fees in ETH. The more the above services grow, the greater the demand by their users to acquire ETH to pay for everything (Side note: this dynamic highlights the absurdity of the velocity of money approach to valuing crypto tokens that was the vogue a few years ago).

Part of the appeal of having all of these services on one platform — as opposed to fragmented across many — is their interoperability and composability. Fiat stablecoins often make up the most active trading pairs on Uniswap, and fractionalized NFTs are deposited as collateral into DeFi. The extent of innovation across these three functions is unlike anything that exists in the off-chain world, as we are witnessing a once in a lifetime reinvention of payments, banking and pop culture.

So, what’s an ETH worth? I don’t know.

What I do know however is that some of the fastest growing and most innovative developments out there are happening on this one platform. But unlike more traditional platforms, there is no Ethereum Inc. to invest in, no shares to buy. The only way to capture the network effects and value created by the platform is to own the coin. If that idea confuses you, then welcome to the future.

Lastly, some people are bothered by Ethereum’s linear inflation, as they’ve been trained by Bitcoin to expect their coin to be disinflationary. This is an incomplete argument, as it only looks at the supply side of a cryptocurrency. Just as important is the demand curve, and Ethereum has far more of it than any other smart contract platform. That’s not to say that we will once again revisit the flippening, but it explains the current surge. The timing is prescient, as we’ll soon also have the launch of various L2 solutions, and a disinflationary London Hard fork.

As I said, what took so long?

The New York Times just announced that in the first quarter since former President Donald Trump left office, digital subscriptions have slowed ‘sharply’ despite revenue rising 6.6%, according to the Wall Street Journal.

In its slowest growth since the second quarter of 2019, the leftist outlet signed up 167,000 new subscribers for its core news offering. When lower-cost digital products are included, the Times added a total of 301,000 digital subscriptions in the quarter, vs. 627,000 in the fourth quarter of 2020.

“In our last earnings call, I noted that fluctuations in the news cycle can lead to considerable variability in net digital subscription additions from quarter to quarter,” said CEO Meredith Kopit Levien in remarks to investors. “In February and March, our audiences declined from their historic highs last year, and we saw fewer net subscription additions in the latter part of the quarter.”

Kopit Levien also said that the company expects “moderated growth to continue through the second quarter, traditionally our softest of the year.”

Shares in the New York Times were down 5% in morning trading, dropping over 7% intra-day.

The company expects total net subscriber additions to be in the range of their 2019 levels, when they added over one million digital subscribers.

“There is no doubt that the news cycles of the last five years, capped by last year’s tumultuous presidential election, racial reckoning and the Covid-19 pandemic, created unprecedented demand for Times journalism and therefore accelerated subscription growth,” the CEO continued.

Subscription revenue rose 15.3% to $329.1 million in the quarter. Digital advertising revenue bounced back after a decline in the fourth quarter, growing 16.3% to $59.5 million, but print advertising revenue fell 31.6% to $37.6 million, reflecting declines in the entertainment, travel and luxury categories related to the Covid-19 pandemic.

Overall ad revenue was down 8.5%. The company is forecasting a major rebound in advertising in the second quarter, as the easing of the pandemic leads marketers to step up their spending. Ad revenue is expected to increase about 55% to 60% year over year, with digital advertising expected to jump 70% to 75%.

Other revenue fell 10% to $46.8 million in the first quarter, reflecting fewer television episodes and less revenue from live events, commercial printing and building rental income.

Net profit increased 25.1% to  $41.1 million, or 24 cents a share, compared with $32.9 million, or 20 cents a share, a year earlier. -WSJ

Maybe the Times could help matters if they asked President Biden a few tough, unscripted questions like they regularly pelted Trump with for four years?

Authored by Michael Every via Rabobank,

Israel’s Benjamin Netanyahu passed a milestone last night when his 28-day mandate to try to form a government expired without him being able to do so. It is possible that for the first time in 12 years he soon won’t be prime minister. I mention this not because of any direct market relevance, but because ‘Bibi’ in at least one way exemplifies one of the problems markets are grappling with: working out who is actually driving.

For example, in recent years Prime Minister Netanyahu was simultaneously head of a combination of up to four of the following at one time: the Communications Ministry; the Foreign Ministry; the Economy Ministry; the Regional Cooperation Ministry; the Ministry of Welfare; the Defence Ministry; the Ministry of Health; and the Ministry for Diaspora Affairs. He could almost hold a cabinet meeting all by himself, and one comedian phoned in for a skit trying to get an interview with several on the above list just to make the pained operator have to explain that they were all just one man – who wasn’t free to talk. So at least in Israel the question of ‘Who’s driving?’ was always clear: Bibi. Elsewhere it still isn’t.

At the head of the ECB we have a former French government minister; at the head of the Italian government we have a former head of the ECB; and at the head of the US Treasury we have a former head of the Fed – and the latter just displayed yet again that it’s sometimes easy to be a back-seat driver. Indeed, Janet Yellen caused market ructions when she noted in public that: “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy.”

Firstly, because rates aren’t the Treasury Secretary’s job to comment on – EVER. Yes, there is the same need for endless hockey-stick-projection optimism on growth, the same silken spiel, and the same one-size-fits-all Panglossian policy prescriptions (of various vintages: Slash taxes! Raise taxes!) in both roles: but there is a separation of powers between the two.

Secondly, because that very same Panglossian policy from the Fed has got global markets to the point where the mere idea of small increase in US rates is going to bring a whole lot of precariously-levered objects tumbling down. It’s a good job that interest rates never, ever, ever have to go up again then, isn’t?

Naturally, Yellen immediately had to walk back these comments when qualifying that rate increases “are not something that I am predicting or recommending.” So just what was the correct verb then? Speculating? Hypothesizing? Imagining? Dreaming? Deluding?

For now, markets can happily seize on all of the usual Fed-driven speculative hypotheticals to imagine, dream, and delude themselves to greater wealth as usual. US couples everywhere can keep fantasizing that they too can one day get a billionaire divorce. Yet it’s not as if Yellen doesn’t have just *a little* bit of experience in this rate field thing. It’s not as if she might not end up thinking a certain way on autopilot in the new job, and saying the quiet part out loud – is it?

Of course, the question of who is driving applies to the Fed itself. Yellen added: “If anyone appreciates the independence of the Federal Reserve I think that person is me.” Yet unlike the BOE, for example, the Fed allows US banks a major role (if not “ownership”) in its 12 regional Reserve Banks, alongside balancing presidential appointees. So it a fusion body, and even if it is independent of the Treasury, that is hardly true of all influence: the reason for having 12 regional Reserve Banks was originally to water down that of Wall Street. Yet how is that working out, and where are the union/labour representatives, for example? That’s a structural issue the US press doesn’t talk about much even as much of it obsesses about power structures everywhere else; but, sadly, anti-Semitic conspiracy theorists more than compensate, because that’s their defined role.

Meanwhile, we all know the Powell Fed is still firmly in pedal-to-the-metal mode. Yellen just agreed to stay in the back seat in that regard, even if her proposed fiscal policy is the equivalent of winding down the window and sticking her head out of it, like a dog having a good time, which should see any caring central bank driver reduce speed accordingly.

The question remains, however, as to exactly what is driving the massive surge in commodity prices we are still seeing all round us? Headlines yesterday were that corn hit USD7 a bushel, the highest since 2013. Today Bloomberg reports “Raw materials surging across tighter markets and recovery; Consumer prices rising as manufacturers pass on higher costs.” Once upon a time, central banks used to do something when headlines like this were seen. So why no need to brake? Because this is all transitory, as Powell and Yellen, at the second attempt, just underlined.

But how so? Is it Covid-19 related? We already hear that semiconductor supply will be pinched for years. Or perhaps it is all just happening “because markets”, as seems to be the general consensus? Or, just maybe, the Fed, and other major central banks, are also playing a role via their pedal-to-the-metal liquidity? Another key driver is Wall Street realising commodities are an inflation hedge too – even as that creates the inflation they are trying to avoid. (Don’t worry: they still get to eat. Others might not though.) Another is China’s voracious commodity appetite. (Don’t worry: they still get to eat. Others might not though.) One thing we can be sure of. Prices seem to be moving significantly higher, and not just due to the expected base effects.

Ironically, the only way in which Powell –and Yellen– can be sanguine about this is in the knowledge that even if prices go up, US wages almost certainly won’t. Yes, at the moment we are anecdotally seeing US labour shortages as millions of previously low-paid workers prefer to live off of their last stimulus cheque rather than report for the daily drudgery. But have you heard any anecdotes of wages going up as a result – or rather of businesses closing down, or automating? As has been repeated here many times, are the structures *really* being put in place to support sustained higher wages? If not, it’s just higher prices – and so lower real wages.

I am not sure that the 12 regional Reserve Banks and those in DC are aware of what that will feel like to Joe Public. More so if their logical response is to keep monetary stimulus high, and so pushing real wages even lower. If mishandled, this could easily drive us off a cliff. As such, who is really in the driver’s seat?

In the bigger geopolitical picture the same question applies. The UK and US are pushing the G7 to agree a co-ordinated response to all things China and Russia; the EU parliament has paused the EU-China CAI investment deal; and yet US Secretary of State Blinken has rejected claims of a Cold War – or at least he just doesn’t like that label for what is happening. The EU still don’t for sure.

On which note, and also asking who is doing the driving, the ruling New Zealand Labour Party has refused to use the term genocide in regards to Xinjiang in a key parliamentary debate on the topic, instead opting for “human rights abuses” and “in the region”. Next semantic step: the “slight possibility of some naughtiness happening somewhere.”