Month: May 2021

At a moment that President Biden’s defense budget, the largest in history, is seeking to spend heavily on ‘China deterrence’ as well as nuclear funding to modernize America’s ageing Cold War era arsenal and systems – which many critics lambasted as a classic case of threat inflation in order to fatten the already bloated DoD budget (a yearly exercise) – Beijing has responded by warning it stands ready to in turn expand its own defenses and nuclear arsenal accordingly.

This apparent game of threat inflation begetting threat inflation, however, is about to have serious real world consequences in terms of dangerously beefed up nuke capabilities among the superpowers, with Chinese state-run English language mouthpiece Global Times issuing these alarming words on Friday:

“Facing a serious strategic threat from the US, China was urged to increase the number of nuclear weapons, especially its sea-based nuclear deterrent of intercontinental submarine-launched ballistic missiles, to deter potential military action by US warmongers, Chinese military experts said on Friday, after reports that the US’ new defense budget will modernize its nuclear arsenal to deter China,” GT wrote. 

So essentially the Communist-run newspaper is teasing a preview of what’s likely to come in response to the Pentagon shifting its strategic priorities to China and the Asia-Pacific region (and it should be noted… away from two-decades of Middle East quagmires in which Beijing could sit back and watch one US military ‘crisis’ after another unfold).

“Having a nuclear arsenal appropriate to China’s position will help safeguard national security, sovereignty and development interests and establish a more stable and peaceful world order, which will be beneficial for the world, they said,” GT continues. 

Since 2020 there’s been an array of official forecasts coming out of Washington’s own “defense experts” saying China is planning to double its current nuclear warhead stockpile over the next decade. Most current estimates range from 200 nukes in possession of China on the lower end to 300 or more, with over 600 projected for the near-future. This in comparison to the United States some 3,800 nuclear warheads, including a range of 800 ballistic missiles and aircraft capable of delivering them. 

Elsewhere in the column, GT suggests that by seeking to bolster its missile and radar capabilities off southeast Asia via friendly ‘partner countries’ the US and its regional allies are actually “burning themselves”. It’s here that the Beijing mouthpiece newspaper warns that any rapid expanse in Chinese nuclear capabilities will ultimately be the fault of Washington planners…

Chinese analysts said China has never taken aim at US military spending, nor does China want to engage in any form of arms race with the US. 

But the US has applied greater military pressure on China, sending warships and warplanes at an increasing frequency to the South China Sea and Taiwan Straits.

The US is also preparing what US media called its “biggest navy exercise in a generation with 25,000 personnel across 17 time zones,” as it’s preparing for a “possible conflict” with China and Russia. 

“How could the US be overtaken if it spends more on defense than the next 10 countries combined?

The answer lies in purchasing power disparities and asymmetries of investment across different budget categories……

“China could soon outgun the U.S.”https://t.co/brOh6X8TpD pic.twitter.com/rZ41SCQoRq

— james crabtree (@jamescrabtree) May 28, 2021

The op-ed then goes on state the consequences of this current path of escalation to be potentially triggered by Congress passing the mammoth, China-centric defense budget – set to be taken up Friday. “Considering that the US deems China its top imaginary enemy, China needs to increase the quantity and quality of nuclear weapons, especially submarine-launched ballistic missiles, to effectively safeguard its national security, sovereignty and development interests, Song Zhongping, a Chinese military expert and TV commentator, told the Global Times on Friday,” GT continued.

And further: “Some military experts said China should increase the number of its most advanced intercontinental ballistic missiles (ICBM), the DF-41, which has the longest operational range among all Chinese ICBMs,” GT writes. This is to also include expanding plans for weaponizing space, and increasingly considering regional US partner countries like Australia, Japan, or even India to be threats to which China must react. 

Facing a serious strategic threat from the #US, #China was urged to increase the number of nuclear weapons, especially its sea-based nuclear deterrent of intercontinental submarine-launched ballistic missiles, Chinese military experts said. https://t.co/GWiya9iXLm

— Global Times (@globaltimesnews) May 28, 2021

Of interesting note in particular is the Chinese state outlet’s language and emphasis on the new Biden defense budget being based on a “top imaginary enemy”. 

It seems we’re in a situation (with echoes of the Cold War no doubt) of mutually contemplated rapid nuke and defense spending expansion being fueled on either side by assessing the “enemy” in a way that’s akin to gazing at carnival funhouse mirrors.

The US says “look at China, spend more!”… to which China says, “look at what the US is doing in reaction to us ‘appearing’ scary and threatening to them! let’s in turn spend more!”… on and on it goes, regardless of which “threat” or imagined appearance is the “real” one. And everything is distorted leading to self-projected and self-fulfilling prophesies in this ‘super power funhouse mirrors’ foreign policy carnival of threat inflation with very real disastrous consequences looming. 

Authored by Bruce Abramson via RealClear Politics (emphasis ours),

Every now and then, I’m lucky enough to meet someone who “follows the science.” I count on such folks to teach me some science that I do not yet know. Being scientifically literate, I like to start by asking them some basic questions:

How are key data terms defined? How are data collected and reported? What theories guided the design of the models that process the raw data? What studies validated the models? How sensitive are the models to variations in inputs? How well do the models perform using historical data? Do the models have a track record at prediction — and if so, how well have they done? What alternative hypotheses were considered? How were the hypotheses tested?

Anyone surprised by such questions can’t plausibly claim to understand the science, much less to follow it. Most likely, they’ve confused “the science” with a selected scientist, a claimed scientific consensus, or the scientific establishment. Or, worse, partisan politics masquerading as science.

The confusion stems from a common misconception — an improper line many people draw between scientists working for corporations and scientists working for universities or government agencies. While most people understand that corporate scientists tend to support positions that serve corporate interests, many have been fooled into believing that academic and government scientists serve objective scientific truth.

Employment incentives are important to all scientists. The only difference is that it’s easier for outsiders to guess what a corporation wants its scientists to say than it is to understand what drives career advancement in academia or government.

With the absence of a bottom line or market feedback, success in academic or government science often flows to those most adept at flattering their more senior colleagues. Because the greatest form of scientific flattery is building upon someone else’s work, promotions and prestigious appointments invariably go to scientists who confirm that their supervisors moved “the science” in the right direction, and push it a little bit further in that same direction. Those who suggest that their predecessors have moved science in the wrong direction tend to have short, unhappy careers.

In other words, corporate scientists are motivated to confirm the excellence of their employers’ new products. Academic and government scientists are motivated to confirm the excellence of their employers’ old research.

What’s more, scientists often let their own biases color their work. Over the past 15 months, for example, vast numbers of Americans have trusted Dr. Anthony Fauci to make hugely consequential decisions about their lives, families, communities, and livelihoods.

At first blush, that choice seems reasonable. Dr. Fauci has a long record of public service and prestigious appointments. Before trusting him to rewrite America’s economic and social structures, however, it might have been a good idea to notice that he favors “rebuilding the infrastructures of human existence, from cities to homes to workplaces” in ways that “prioritize changes in those human behaviors that constitute risks for the emergence of infectious diseases,” including “crowding at home, work, and in public places.”

For Americans who share Fauci’s vision and values, such advice was golden. For those of us who see humans as something other than carriers of pathogens, however, the changes he imposed may run counter to our own values and beliefs. How many of the Americans who’ve followed Fauci understand that what they’ve been following is not “the science,” but rather an idiosyncratic scientist who views the drastic impositions on our lives as having “nothing to do with liberty.”

He’s but one example. There are many others. The United States has fallen into a cult of expertise. Far too many Americans place credentialed experts on a pedestal, confuse their personal and professional biases with objective science, and hide from the open inquiry that’s supposed to animate scientific investigation.

Worse, they trust these experts on critical questions unrelated to their narrow areas of expertise. Was it really a good idea to let an immunologist who advocates social restructuring and deurbanization, but not liberty, shutter our businesses, schools, and churches?

Such misplaced trust is hardly an anomaly. Today’s Green Party true believers would deprive billions of people of affordable energy because an alleged 97% of scientists whose prestige and funding would disappear if science determined that a climate crisis was not imminent agree that a climate crisis is imminent. Yet it’s wrong to express skepticism, examine their motivations, or question their credibility?

The cult of expertise is a clear and present danger. Self-serving scientists — many trapped so deeply in the system they don’t even know they’re serving themselves — have convinced gullible Americans that their opinions represent objective science.

There are no shortcuts. If you want to follow the science, you must first study, question, and understand the science. Otherwise, you’re at the mercy of some scientist’s personal incentives, biases, and values. Far from science, that’s such a clear act of faith that it animates the biblical warning, “Put not your trust in princes, nor in the son of man, in whom there is no help.”

*  *  *

There was much excitement in the markets yesterday when the NYT leaked that Biden will propose a $6 trillion budget on Friday. Only… as Goldman’s Alec Phillips explains, the recent headlines around US infrastructure spending and the overall federal budget are vastly overblown and do not represent nearly as much incremental spending as they appear.

For one thing, here is the $6 trillion number in its proper context: according to Goldman, even if Congress makes no further policy changes this year, the federal government is on track to spend $5.6 trillion in fiscal 2022.

Or consider that the latest Senate Republican “compromise” offer of a “1 trillion” (really $928BN) infrastructure proposal counts already-projected spending (i.e., over the next 8 years, the Congressional Budget Office projects highway spending of $400bn and transit spending of $95bn. Senate Republicans propose $506bn and $98bn respectively, an increase of $109bn in those two categories combined) leaving new spending in the proposal at a fraction of what the White House proposes: in total, the Senate Republican proposal amounts to less than $300bn in new spending. By contrast, all of Biden’s $1.7 trillion proposal is new spending, which leaves the two proposals well over $1 trillion apart.

Here are the full details behind all those big numbers being thrown about, courtesy of Goldman:

1. Bipartisan infrastructure talks haven’t come very far. The latest Republican proposal on infrastructure has been reported as “$1 trillion”, which at first glance would put it more than halfway to President Biden’s $1.7 trillion proposal. However, the gap between the proposals is much wider than it might seem. The figures in the proposal sum to $928bn, rather than $1 trillion. More importantly, most of that amount reflects spending that is already projected to occur without policy changes. For example, over the next 8 years, the Congressional Budget Office projects highway spending of $400bn and transit spending of $95bn. Senate Republicans propose $506bn and $98bn respectively, an increase of $109bn in those two categories combined. The other areas of spending in the proposal face similar issues, such that the Senate Republican proposal appears to amount to less than $300bn in new spending. By contrast, all of President Biden’s $1.7 trillion proposal is new spending, which leaves the two proposals well over $1 trillion apart.

2. Headlines that the White House will propose $6 trillion in spending are less surprising than they might sound. This spending level appears to simply reflect the cumulative effect of what President Biden has already laid out, rather than new proposals. The CBO baseline for federal spending in FY2022 is $5.05 trillion. However, this projection was published prior to enactment of the American Rescue Plan (ARP), which adds $529bn to the deficit in FY2022. The baseline for the President’s proposal is therefore around $5.6 trillion in FY2022. The White House already sent a request to Congress for $118bn in additional discretionary spending, which would take total spending in FY2022 to around $5.7 trillion. The remaining $300bn or so likely reflects the effect of the roughly $4.4 trillion in spending the President has proposed in his American Jobs Plan and American Families Plan.

3. Friday’s budget releases will nevertheless include important information. Although the White House budget looks unlikely to include substantial new fiscal proposals beyond what the President has already outlined, it should provide detail on the expected timing of spending under those proposals; we expect that it will take 2-3 years for several of the new programs the President proposes to reach their run-rate. Markets are also likely to pay attention to the tax proposals, known as the “Green Book”, that the Treasury is likely to release around the time the White House releases the budget. One area of interest will be the effective date of tax proposals: Goldman expects that the Treasury will propose to make most of the tax increases effective January 1, 2022, but the capital gains rate could be proposed to take effect during 2021.

4. Congress will make many changes to whatever the White House proposes. Democratic control of the House and Senate and an active fiscal policy agenda makes the President’s Budget more important than such budget submissions usually are. Even so, these proposals represent a menu of options that Congress will consider, and many are likely to be modified or omitted entirely from the legislation that Congress ultimately passes. Goldman expects that Congress will pass slightly more than $3 trillion over ten years in new spending and tax breaks, financed by around half as much in tax increases (mainly on corporate and capital gains income).

5. The budget will be released at 1:30pm. Traditionally, the Treasury’s Green Book follows shortly after the White House budget. The timing of this release itself has significance. The White House has decided to release what is arguably the most important policy document of the year on a Friday afternoon before a 3-day weekend at the start of a congressional recess, when it is likely to receive little attention, rather than the traditional Monday morning release when Congress is in session.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Bear markets matter, and they matter much more than you think. (Read Part 1 Here)

In part-1, we discussed the differences between a “correction” and a “bear market.” But what is often missed by mainstream analysis is the long-term damage done to investor’s financial outcomes.

Now and then, you will see a version of the following chart floating around suggesting that over the long-term, “bear markets” don’t matter.

If you only do a cursory analysis of the chart, such would undoubtedly seem to be the case.

The problem is the analysis is exceptionally deceptive due to how math works.

It’s The Math

Notice that the chart uses percentage returns. As noted, that is a deceptive take if you don’t examine the issue beyond a cursory glance. Let’s take a look at a quick example.

Let’s assume that an index goes from 1000 to 8000.

• 1000 to 2000 = 100% return

• From 1000 to 3000 = 200% return

• The next 1000 to 4000 = 300% return

• …

• The final 1000 to 8000 = 700% return

No one would argue that a 700% return on their money wasn’t fantastic.

So, why should you worry about a correction when you just gained 700%.  Right?

The problem with using percentages to measure an advance is that there is an unlimited upside. However, you can only lose 100%. 

In our example, while our hypothetical investor garnered a 700% return, a 100% loss reverses that gain to zero. Nothing. Zip. Nada.

That is the problem of percentages.

Valuations & Forward Returns

As noted in Part-1, the other issue investors must account for over the long term is inflation. The first chart above is the inflation-adjusted S&P index. For all examples in this article, I am using Dr. Robert Shiller’s monthly data for consistency.

As we discussed, the three most important factors are drawdowns, inflation, and life expectancy. 

Of course, these long periods of very low returns are a function of valuations.

While it may “appear” that investing your money will assure you a return over time, the problem is there are extended periods where returns have been close to zero and even negative. 

The two charts below show the inflation-adjusted total (dividends included) return over both 10-year and 20-year periods.

You will notice that in both charts there are very long periods of near-zero or negative returns. The reason is that declines in markets from previous peaks erased most, if not all, of the preceding gains.

Therefore, if we remodel the “percentage” chart above to reflect each cycle’s “point” gains and losses, the damage becomes apparent. As shown in the chart below, a large chunk of each preceding “bull market” advance has eventually gotten reversed by the subsequent decline.

While many suggest that simply ignoring “bear markets” is survivable in the long run, that brings into question just how long is “the long-run.”

When You Start Matters

Investing for the long term is essential. However, as noted above, there are exceptionally long periods in market history that have denoted sub-par returns.

Over the last 120-years, the one factor that denotes the success or failure of the investment journey has been “valuations” when you started. Such is why, if you are near to, or entering, retirement, there is a solid argument to be made for rethinking the amount of equity risk currently being undertaken in portfolios.

In the short term, a period of one year or less, political, fundamental, and economic data has very little influence over the market. Such is especially the case in a late-stage bull market advance where the momentum chase has exceeded the grasp of the risk undertaken by investors.

In other words, in the very short term, “price is the only thing that matters.”

Price measures the current “psychology” of the “herd” and is the clearest representation of the behavioral dynamics of the living organism we call “the market.”

But in the long-term, fundamentals are the only thing that matters. Both charts below compare 10- and 20-year forward total real returns to the margin-adjusted CAPE ratio. Review the two charts above showing the historical 10- and 20-year total returns. Given we are currently pushing the second-highest levels of valuations in market history, the charts below confirm that historical data. Investors should expect very low rates of future returns.

Unfortunately, most investors remain woefully behind their promised financial plans. Given current valuations and the ongoing impact of “emotional decision making,” the outcome is not likely going to improve over the next decade.

Conclusion

For investors, understanding potential returns from any given valuation point are crucial when considering putting their “savings” at risk. Risk is an important concept as it is a function of “loss.” The more risk an investor takes within a portfolio, the greater the destruction of capital will be when reversions occur.

The analysis above reveals the important points that individuals should OF ANY AGE should consider:

• Investors should downwardly adjust expectations for future returns and withdrawal rates due to current valuation levels.

• The potential for front-loaded returns in the future is unlikely.

• Your life expectancy plays a huge role in future outcomes. 

• Investors must consider the impact of taxation.

• Investments allocations must carefully consider future inflation expectations.

• Drawdowns from portfolios during declining market environments accelerate the principal bleed. Plans should be made during up years to harbor capital for reduced portfolio withdrawals during adverse market conditions.

• Over the last 11-years, the yield chase and the low rate environment have created a hazardous environment for investors. 

• Investors MUST dismiss expectations for compounded annual return rates in place of variable rates of return based on current valuation levels.

In conclusion, chasing an arbitrary index that is 100% invested in the equity market requires you to take on far more risk than you most likely realize. Over the last decade, two massive bear markets have left many individuals further away from retirement than they ever imagined.

Investing for retirement should be done conservatively and cautiously to outpace inflation over time. Trying to beat some random, arbitrary index with nothing in common with your financial goals, objectives, and most importantly, your life span has tended to end badly.

Bear markets matter, and they matter much more than you think.

President Biden’s decision to give intelligence agencies 90 days to determine the origins of the coronavirus, along with last night’s revelation that US intelligence agencies have been sitting on a massive pile of evidence suggesting that SARS-CoV-2 leaked from the Wuhan Institute of Virology, has prompted the CCP to fire up its propaganda machine.

In comments made Thursday, a top spokesman for China’s Foreign Ministry revived one of the CCP’s favorite false narratives from the early days of the outbreak: the notion that the virus was created in the US (not China), and was purposefully deployed by the American military to undermine Chinese society.

Speaking on Thursday, Chinese Foreign Ministry spokesman Zhao Lijian asked the White House to reflect on its own role in the pandemic and not “dump” responsibility on Beijing. He also demanded that Washington provide “an explanation” for a respiratory disease outbreak in northern Virginia, along with the outbreak of the “vaping disease”, which occurred shortly before the pandemic began, and has been used in Chinese media to spread uncertainty about the virus’s origins.

Citing the 33 million COVID-19 cases in the US and 600K deaths, Zhao asked “How safe is your conscience?”

But mostly, the comments focused on the “unexplained” disease in northern Virginia, and an unsubstantiated claim about a biolab at Maryland’s Fort Detrick, which has become a hot topic on China’s twitter-like Weibo. The wild claims are based on startling little evidence: the CDC issued a “cease and desist” order to halt operations at the lab over safety concerns. But that hasn’t stopped speculation (bolstered by government agents) from festering that the lab might have had something to do with the outbreak.

“I also want to emphasize that the Fort Detrick base is full of suspicions. There are more than 200 biological laboratories in the United States spreading around the world. How many secrets are there?”

Zhao’s comment comes after US President Joe Biden said on Wednesday that he was giving intelligence agencies 90 days to pinpoint the origins of Covid-19. Biden said his administration would continue to push China to “participate in a full, transparent, evidence-based international investigation and to provide access to all relevant data and evidence.”

Reinforcing a statement from the Chinese Embassy in Washington, DC on Wednesday evening, Zhao called on the US to stop “ignoring facts and science” and refrain from “repeatedly clamoring to reinvestigate China.”

While there’s no evidence to substantiate any of these theories, a report by WHO scientists that claimed the “lab leak” theory was possible but unlikely has been discredited in recent weeks, with the WHO promising to undertake another investigation of the virus’s origins.

Fortunately for Beijing, the CCP doesn’t need to rely solely on its official spokespeople to spread misleading narratives. Because just this week, a NYT reporter who has been tasked with covering the COVID-19 pandemic tweeted that it was “racist” to even talk about the Wuhan lab leak theory, despite the mounting evidence.

“Someday we will stop talking about the lab leak theory and maybe even admit its racist roots. But alas, that day is not yet here,” tweeted Mandavilli.

She faced immediate pushback and subsequently deleted the tweet, including the following comments from Glenn Greenwald: “Oh my god: I didn’t realize what her job is,” remarked investigative journalist Glenn Greenwald. “Can someone explain to me why it’s racist to wonder if a virus escaped from a Chinese lab, but it’s not racist to insist that it infected humans because of Chinese wet markets? If anything, isn’t the latter more racist?” he asked.

The CCP, on the other hand, is probably happy to signal-boost anyone accusing skeptics of being racist. Since they would prefer that the world just stop talking about the virus’s origins so we can move on from any talk of accountability for the government that allowed the worst pandemic in a century to escape its borders despite early warnings from scientists and doctors who were, in most cases, punished or silenced.

By Michael Every of Rabobank

The Six Trillion Dollar Man / The Fall Guy

Oscar Goldman (Sachs): “Joe Biden, President: a man barely alive. Gentlemen, we can rebuild him. We have the technology. We have the capability to make the world’s first bionic man. Joe Biden will be that man. Better than he was before. Better, Stronger, Faster. And much Greener.”

The above in an updated version of the intro of the TV show ‘The Six Million Dollar Man’, starring Lee Majors, which ran from 1974-78. At that time, USD6m was enough to build an Elon Musk-style superhero: now it doesn’t even buy an Elon Musk-style house. And today US President Biden will propose the next US federal budget (at 13:30 New York Time, just ahead of a three-day weekend): and it will contain $6 trillion in spending, making him the Six Trillion Dollar Man.

To put this in a context other than schlocky TV, the last CBO projection from February said the US was set to spend USD5.7 trillion in fiscal 2021 – although that was before the recent passage of the one-off USD1.9 trillion Covid-19 stimulus package. Considering we all hope the US economy has re-opened by October, when the next budget kicks in, this is a huge step-up from the pre-Covid level of spending. Indeed, the budget would boost federal spending by 5% above the 2021 projected level, and spending will keep rising to reach USD8.2 trillion by end-2031. At the same time, federal debt will exceed the historical peak seen at the end of WW2 within just a few years –despite the war against the virus being over– and hit 117% of GDP by end-2031, versus around 100% of GDP now.

Back in 1974, when ‘The Six Million Dollar Man’ was first on TV, the federal spend was USD320bn, and US public debt 30.8% of GDP. When the show went off TV in 1978, the figures were USD486bn and 31.9%, respectively.

A few observations can be made without the need for a bionic eye:

• This obviously encompasses the multi-trillion dollar (man) packages already flying around DC, from infrastructure to,…infrastructure, given almost everything is now classified as such;

• This is unlikely to pass Congress in the present form without reconciliation, and even then we know moderate Democratic senators such as Manchin may prove an obstacle;

• Republicans are willing to meet the White House on infrastructure spending, up to almost USD1 trillion, providing there is less inflation in the use of the term;

• If one was wondering if the inflation surge we have been experiencing is over or not, then the market answer is probably not, if more stimulus is seen. The Budget apparently argues that US CPI inflation will not go above 2.3% in any year ahead despite all this extra spending: but how could it argue otherwise? Let’s see what markets will make of it – and could the Fed still say inflation is “transitory” against that kind of public demand backdrop? Relatedly, with many states having now rolled back their supplementary USD300 per week unemployment benefits, weekly initial jobless claims unsurprisingly showed a hefty drop yesterday; and

• Supply chain pressures are not going to be eased by a further US demand surge. The cost for shipping a container from Rotterdam to Shanghai just moved to over USD10,000, up 485% y/y(!) Factor in an ongoing rise in US public spending on the ground at US ports, or one ring-fenced for ‘Made in America’ at a time when so little actually is, and imagine what supply chains and cost-push inflation might look like.

On the latter front, President Biden yesterday also announced he would take measures to “combat supply-chain pressures” in the next few weeks. But how, exactly? An executive order to bring key US industries back from China, or at least to relocate them nearer to home in Central America and Mexico? Highly unlikely as that is, such a step would at least be logically consistent with the message sent out by Kurt Campbell, the US coordinator for Indo-Pacific affairs on the National Security Council, who yesterday stated: “The period that was broadly described as engagement has come to an end,” and US policy toward China will now operate under a “new set of strategic parameters,” where “the dominant paradigm is going to be competition.” The competition seems primarily in heated rhetoric so far, from the US side so far, however.

But more than words can fly – and research argues China could soon out-gun the US military. The linked report claims the annual USD value of PLA procurement is on course to eclipse that of the US military as soon as 2024, well within the time period of the budget path President Biden is to propose today. Indicatively, in 2000, US procurement was 6.67 times the PLA’s by value; by 2019, it was only 1.42 times greater; and by 2024 PLA procurement is projected to exceed that of the US. On that basis, “by about 2030 the US will no longer boast the world’s most advanced fighting force in total inventory value.” That is what happens when one side focuses on supply chains, and on production, and the other doesn’t focus on supply chains, and on consumption. Just imagine what US federal spending will have to look like to try to stop this trend from developing – and what the geopolitical and geostrategic consequences will be if it doesn’t. These issues, uncomfortable as they are for markets, are not going to be “transitory” for as long as realpolitik exists.

Back to the analogy of real schlocky TV though. The next hit series for Lee Majors after ‘The Six Million Dollar Man’ was the car-off-a-cliff-plane-into-a-warehouse-jump-off-a-bridge-face-into-a-bale-of-hay tale of an unknown LA stuntman, ‘The Fall Guy’, which ran from 1981-86. Back in 1981, US federal spending was USD709bn and public debt was 31.4%, and in 1986 the figures were USD1.03 trillion and 47.6%, respectively. But that debt surge was at least the start of the US winning the last Cold War.  

On which, as flagged in the Daily yesterday, Europe not only faces cost difficulties in shipping its goods east, it faces practical difficulties in flying east. Russia has made clear that EU flights to Moscow which avoid Belarus will not be able to use its airspace as an alternative. Hence either Brussels gives in to Minsk and Moscow, or Minsk and Moscow become much further away in real as well as political terms. Effectively, we would be going back a century to the era of train travel – which takes around 41 hours. So who is ultimately going to be ‘The Fall Guy’ if this trend continues?

Happy Friday!