Month: July 2021

After 7 consecutive days of gains propelling US stocks to fresh all time highs, a feat last achieved in 1997, US equity futures were flat during Monday’s subdued holiday session…

… as WTI crude rose for a fourth day in five as the UAE held out against an extension of output increase by the OPEC+ alliance, threatening a collapse of the oil cartel which is meeting later today in what may be a decisive meeting for oil. The dollar dropped for a second day.

“Today’s public holiday suggests trading will be quiet, although the Fed story will very much re-emerge on Wednesday evening when investors pore through the minutes of the pivotal June 16th FOMC meeting,” ING Groep strategists including Chris Turner wrote in a note. “Before then, we expect much focus on the commodity complex.”

“Markets in general are still trying to find their feet,” said James Athey, investment director, Aberdeen Standard Investments. “Equities, of course, continue to shrug off or ignore anything that might be considered remotely negative as they continue their merry and complacent dance towards an inevitable reckoning.”

The S&P closed 0.8% at a new all-time high for a seventh straight day on Friday as data showed U.S. job growth surged the most in 10 months, although below the surface it was weaker than expected prompting some to question the Fed’s commitment to tapering as soon as later this month. Investors will watch Didi Global when U.S. markets reopen after China accelerated in crackdown on the ridehailing company.

“The goldilocks print suggests there is no need to accelerate the tapering timeline or the implied rate hike profile,” Tapas Strickland, an analyst at National Australia Bank, wrote in a client note. “Overall the level of payrolls is still 6.8 million below pre-pandemic February 2020 levels and is still below the level of substantial progress needed by the Fed. As such there is nothing in this report for the Fed to become hawkish about.”

The MSCI All Country World index closed at a record 724.66 last week, and was 0.1% higher on Monday. Europe’s STOXX 600 index rose 0.2%, reversing earlier losses after data showed euro zone businesses expanded activity at the fastest rate in 15 years in June. Activity for British services firms also soared in June, albeit at a slightly slower rate.

Wm Morrison shares rose as much as 12% to the highest since 2018 after Apollo Global Management said it’s considering an offer, heating up a takeover battle for the U.K. grocer which over the weekend agreed to a 6.3 billion-pound bid from a consortium led by Fortress Investment Group. Peers also rose: Sainsbury +2.1%, Tesco 1.8%, Marks & Spencer 3.7%

In France, stocks slipped 0.4% as Health Minister Olivier Veran warned France could be heading for a fourth wave of the pandemic due to the highly transmissible Delta variant.

Here are some of the biggest European movers today:

• European mining stocks gained, with the Stoxx Europe 600 Basic Resources Index rising as much as 1.4%, as base metals gain on Chinese demand.
• Diversified miners advance: BHP +1.5%, Anglo American +1.4%, Rio Tinto +1.5%, Glencore +1.5% after naming new chairman and completing leadership overhaul.
• Landis+Gyr shares jumped as much as 11%, their biggest intraday increase on record, after the Swiss smart-meter maker signs a 20-year pact with National Grid in the U.S. for a grid modernization project.
• Altri shares gained as much as 3.3%, highest intraday price since June 18. Some investors are buying shares to receive Greenvolt stock in the upcoming IPO, according to Antonio Pedro Fonseca, head of trading at Banco Invest.
• Electricite de France shares fall as much as 4.9% after French Finance Minister Bruno Le Maire said it will be difficult for the country to accept the European Commission’s requests regarding a proposed reorganization of the company tied to regulatory reform.
• Naspers and Prosus shares fell following weakness in Tencent stock after China expanded a cybersecurity probe beyond Didi Global. Naspers declined as much as 4.5%, unit Prosus slides as much as 5%.
• Nobina shares extended its losing streak to a second day, dropping as much as 7% after Nordea downgraded to hold from buy post earnings.

Earlier in the session, MSCI’s broadest index of Asia-Pacific shares outside Japan, was flat as gains in technology-hardware stocks were offset by declines in Chinese internet giants. Chipmakers TSMC and Samsung were among the biggest boosts to the MSCI Asia Pacific Index. Tencent and Alibaba took a beating after local regulators moved to block Didi Chuxing from app stores just days after the ride-hailing firm’s U.S. listing. Tencent fell as much as 4.2%.

“The near-term focus for markets will be the Fed/U.S. monetary policy outlook, Delta variant and the earnings season,” Nomura strategists led by Chetan Seth wrote in a note. “Overall, we maintain our view that any weakness in Asian equities stemming from potentially tighter U.S. monetary policy outlook will likely be short-lived and less disruptive (vs 2013) and eventually an opportunity for investors to raise allocations.”

Taiwan led advances around Asia Pacific on Monday, with its benchmark rising more than 1%, while Hong Kong led decliners. Japanese equities fell following a drop in U.S. Treasury yields and mixed local-election results. China’s CSI 300 Index fluctuated after plunging 2.8% on Friday. China’s blue chip stock index recovered from earlier losses to close 0.1% higher as pledges by Beijing to continue policy support for its tech sector helped counter worries about a crackdown on ride-hailing giant Didi Global and scrutiny of other platform companies in the country.

Meanwhile, on the economic front an index of China’s services industry slowed sharply in June following virus outbreaks in some parts of the country and weaker new orders. The survey showed a deeper downturn in services than the official non-manufacturing gauge released last week.

COVID-19 angst also weighed on Japan shares, with the Nikkei falling 0.6%, to a two-week low, following a surge in infections in Tokyo, just weeks before the city hosts the Olympics.

In rates, Treasury cash trading was closed while eurozone government bond yields nudged higher but analysts expect the recent downward trajectory to resume after the U.S. payrolls data. Germany’s 10-year Bund yield was up by half a basis point at -0.231%.

In FX, the dollar was mostly flat on Monday after dropping from a three-month high at the end of last week, pressured by the weaker details of the U.S. payrolls report. The greenback climbed by about 0.2% to $1.1859 per euro and traded flat at 111.05 yen.

In commodities, crude oil was rangebound as OPEC+ talks dragged on. Saudi Arabia’s energy minister pushed back on Sunday against opposition by fellow Gulf producer the United Arab Emirates to a proposed OPEC+ deal and called for “compromise and rationality” to secure agreement when the group reconvenes on Monday. Brent crude added 0.1% $76.21 a barrel, and U.S. crude gained 0.1% to $75.25 a barrel. Gold was up 0.3% to $1,792.30 an ounce.

Later this week, attention will turn to the minutes of the Federal Open Markets Committee meeting from last month, when policymakers surprised markets by signalling two rate hikes by the end of 2023. Commentary by Fed officials since then has been more balanced, particularly from Chair Jerome Powell, and investors parse Wednesday’s release for further clues on the timing of policy tightening.

DB’s Jim Reid concludes the overnight wrap

A happy Independence Day for yesterday, and holiday today, to all our US readers. Why you all wanted to leave the union with the U.K. some 245 years ago I’ll never know. If you’d have stayed you could have won Euro 2020 as England have marched into the semi-final after a 4-0 win on Saturday. I annoyingly missed the first three goals as we had a water emergency. To prepare for the football we had the kids’ dinner done early and just as we were about to put them to bed we noticed we had no water from the taps. After an initial check around ourselves we tried to call a plumber. As you can imagine trying to find a plumber within one hour of a major national football match was impossible. Not one person picked up the phone. The water company told us to turn off the stopcock in case of a leak and as the first goal went in I was at the road side with a wrench lifting up a big manhole cover and turning off the supplies. I heard the neighbours celebrate that gave me a clue to the first early goal. I juggled my wrench in joy. At half time the kids were in bed and my wife went to try to make some toast. The toaster wasn’t working which given it was new (see Friday’s EMR), led us to check the electricity circuit. Basically one ring of appliances had tripped without us knowing and it then dawned on us that the water pump we had installed to ensure we always get full pressure had also tripped. So we wondered whether the water was fine after all. I went outside again with my big wrench and turned the water back on. Bingo! It worked. However another two cheers from my neighbours whilst I was doing that indicated we were 3-0 up. So England march on to a Wednesday night semi against Denmark. Given that me not watching is a lucky omen if you need any plumbing done in the south east of England on Wednesday night give me a shout. I’ll come with my wrench.

Turning ourselves away from football, normally the week after payrolls is relatively quiet for fresh schedule data/newsflow but given the first Friday of the month was so early we still have PMIs/ISM from the service sector to look forward to today and tomorrow (US). Outside of that the main event of the week will be the release of the last FOMC minutes (Wednesday) given the surprise move at the meeting. Elsewhere a gathering of G20 finance ministers and central bank governors (Friday) will be interesting, especially after the news that 130 countries had signed up to the minimum tax agreement last week. Finally the development of the delta variant is never going to be too far from the top of the headlines. It has certainly put a dampener on the reopening trade for now. The U.K. is at the top of the global charts for new cases again, yet it seems to be powering ahead towards a full reopening two weeks today. So this is going to be an enormous test case as to whether heavily vaccinated countries can live with the virus.

Going through the main highlights to look forward to this week in more detail now. Firstly we have the release of the global services and composite PMIs today and tomorrow. The flash readings we’ve already had were pretty strong, with the Euro Area composite PMI at a 15-year high of 59.2, while the US number came in at 63.9. Overnight, China’s Caixin June services PMI came in at 50.3 (vs. 54.9 expected and 55.1 last month), the lowest level since April 2020. On prices, the statement along with the release added that “Prices in the service sector were stable, as inflationary pressure eased. High commodity and labor prices continued to push up costs for services companies, but the growth of input prices slowed.” Japan’s final services PMI came in at 48.0 vs. 47.2 in flash.

Back to week ahead and also in focus will be the ISM Services index from the US, after the ISM manufacturing reading last Thursday saw the employment index move below 50 for the first time since November. And on top of that, the prices paid measure hit its highest since 1979, so we can expect there to be continued focus on signs of inflationary pressures. On employment, it’ll be worth looking out for the latest US JOLTS data for May on Wednesday will also be closely watched as this has shown a much healthier labour market than payrolls of late.

The main highlight outside of data will probably be the release of the FOMC minutes from their June meeting on Wednesday. That has the potential to shed further light on the hawkish shift that saw the median dot move to project two rate hikes in 2023, up from zero back in March. All signs of how the committee felt about the taper will also be devoured but we have heard from several members on this topic since the FOMC. Otherwise, there’ll be a few speakers to look forward to, including ECB President Lagarde and Bank of England Governor Bailey. In terms of monetary policy decisions however, the only G20 decision scheduled for this week is from the Reserve Bank of Australia (Tuesday), where the consensus expectation is that they’ll keep their cash rate target unchanged at 0.10%.

The G20 finance ministers and central bank governors meeting on Friday, which is taking place in Venice, will be interesting to see if there’s any discussion on the ongoing OECD negotiations on reforming the global corporate tax system, which, it was announced, 130 countries and jurisdictions have now signed on to. The main changes would see companies pay more taxes in the jurisdictions they operate in, including digital companies, and also a global minimum corporate tax rate.

Asian markets are a bit directionless this morning ahead of the US holiday with the Nikkei (-0.60%) and Hang Seng (-0.45%) down while the Kospi (+0.42%) and Shanghai Comp (+0.16%) are up. Futures on the S&P 500 are down -0.12% while those on US treasuries are broadly flat. In FX, the US dollar index is up +0.13% recouping part of Friday’s -0.40% decline.

In terms of the latest on the OPEC+ meeting, the stalemate in talks have continued as the UAE has still not stepped into line with the next meeting to break the deadlock scheduled for today (c. 2pm BST). As things stand, all the members of OPEC+ including Russia have agreed that the group should increase production over the next few months, but also extend its broader agreement until the end of 2022 for the sake of stability while, the UAE is against the extension of the deal, supporting only a short-term increase and demanding better terms for itself for 2022. Saudi Arabia’s Prince Abdulaziz has said that without the extension of the agreement, there’s a fall-back deal in place, under which oil output doesn’t increase in August and for the rest of the year. This could of course risk a spike up in oil. However this could break the OPEC+ alliance under a more extreme scenario which could lead to a production free for all and a price slump. So lots to play for and one for the game theorists.

In other news, the ECB executive board member Isabel Schnabel said that she sees “growing evidence” inflation expectations are finally starting to align with the ECB’s target of just-under 2%, but that continued monetary and fiscal stimulus is needed to ensure that happens. She added that it is “necessary and proportionate” that inflation overshoots the institution’s goal for a while as the economy recovers. The comments come as the ECB prepares for a special meeting this week to debate changing its price-stability strategy.

Turning to the pandemic, French Health Minister Olivier said in a tweet over the weekend that a wave of infections may hit France by the end of July because of the delta variant, based on what’s happening in the UK. Meanwhile across the other side of the Atlantic, a Washington Post/ABC News poll showed that more than a quarter of people in the country are unlikely to get a Covid-19 shot, with 20% saying they definitely won’t and 9% saying they probably won’t. So it looks as though the US will struggle in the last mile of the vaccination campaign which of course has implications.

Recapping last week now, it was a fairly divergent performance for financial markets, with the US seeing a strong performance, whereas other regions were relatively weaker. By the end of the week, the S&P 500 had risen +1.67% (+0.75% Friday) to hit yet another fresh all-time high, whilst the VIX index of volatility was down -0.55pts (-0.41pts Friday) to hit a post-pandemic low. Sentiment in the US was supported by what can only be described as a goldilocks jobs report from markets, as it was sufficiently strong to reassure investors about the recovery, but also not so strong that it triggered worries that the Fed would pare back their stimulus more rapidly than expected. The headline number for nonfarm payrolls was up +850k (vs. +720k expected), marking the strongest job growth in 10 months. However, the unemployment rate unexpectedly ticked up a tenth to 5.9% (vs. 5.6% expected). US Treasuries similarly had a decent performance, with 10yr yields down -10.0bps (-3.4bps Friday), as strong technicals, delta, and faith in the Fed dominated.

Over in Europe last week saw a more subdued performance, with the STOXX 600 falling -0.18% (+0.26% Friday), whilst rising geopolitical tensions in Asia saw the Nikkei fall -0.97% (+0.27% Friday) and the Shanghai Composite fall -2.46% (-1.95% Friday). Covid-sensitive assets were another group to struggle amidst the continued spread of the delta variant, with the STOXX Travel & Leisure index down -1.01% (+0.57% Friday) in its 3rd successive weekly decline, whilst the S&P 500 airlines index fell -1.85% (-0.38% Friday) in its 5th successive weekly decline. On the other hand, commodities continued to recover from their losses after the Fed meeting, with WTI oil prices up +1.50% (-0.09% Friday) in its 6th successive weekly advance. Agricultural prices also performed strongly after weather-related disruption and weaker-than expected supply data, with corn prices up +9.54% (-3.13% Friday), and soybeans up +9.17% (+0.35% Friday).

Authored by Charles Hugh Smith via OfTwoMinds blog,

We have a fine-sounding word for running with the herd: momentum. When the herd is running, those who buy what the herd is buying and sell what the herd is selling are trading momentum, which sounds so much more professional and high-brow than the noisy, dusty image of large mammals (and their trading machines) mindlessly running with the herd.

We also have a fine-sounding phrase for anticipating where the herd is running: front-running. So when the herd is running into stocks, those who buy stocks just ahead of the herd are front-running the market.

When the Federal Reserve announces that it’s going to make billionaires even wealthier with some new financial spew, those betting that stocks will never go down because the Fed has our back are front-running the Fed.

There are two remarkable assumptions at the heart of momentum and front-running: The momentum herd and those front-running the herd base their behavior on the assumption that there will always be other rich people who will sell all the shares they want to buy at today’s prices before the run-up to new highs.

Front-running and the Greater Fool Theory

Since only rich people own stocks, we know that those selling stocks are selling to other rich people and those buying stocks are buying from other rich people. So the assumption of those front-running the market is that there is a large enough sub-herd of rich people who for whatever reason aren’t smart enough to front-run the herd, and who will foolishly sell their stocks just before they double in value.

The second assumption is that there will also be a large enough sub-herd of rich people who will buy all the shares they want to sell at the top, just before the bubble pops and the value of the newly purchased shares falls in half.

There are various ways to state this, but the bottom line is that momentum and front-running are only profitable if you sell at the top, just before the bubble bursts.

You would be forgiven for anticipating that the same sub-herd front-running the herd and the Fed on the way up to the top of the bubble would be just as prescient and active in front-running the inevitable bursting of the bubble, but this is not how running with the herd works.

Short interest recently plumbed multi-year lows, indicating that very few are front-running the market crash.

‘I’ll Bail in Time’

Those trading momentum and front-running the herd/Fed are making a remarkable assumption, an assumption which is visible in a great volume of financial-media content: the stock market, we’re told, will continue to make new highs like clockwork until some point in the third or fourth quarter, at which point there may well be a spot of bother, i.e., a crash.

The assumption is that all the rich people who own stocks will be so splendidly stupid that they will hold their shares until the crash and then sell them at prices far lower than they can fetch today.

Put another way, the market participants who decide this is close enough to the top to liquidate their positions today and not wait around for the crash to wipe them out assume that that the herd of other rich people who will be delighted to buy their insanely overvalued shares at today’s prices is large enough to absorb all their selling with no downward pressure on valuations.

In other words, the assumption being made is: I can wait until just before the crash to sell, because there will be boatloads of splendidly stupid rich people who will buy all the shares I want to sell at today’s lofty prices — or higher, and this liquidation won’t push valuations off a cliff.

As a general rule, people don’t all become rich by being splendidly stupid, i.e., failing to anticipate what other rich people are about to do, and so this raises the question: what if everyone in the market realizes it’s now the moment to front-run the crash?

Perception vs. Reality

The risks arise from the disconnect between the precariousness of the manipulated market and the extreme confidence punters have in its stability and predictability. This stability is entirely fabricated and therefore it lacks the dynamic stability of truly open markets.

Markets that are being distorted/manipulated to achieve a goal that is impossible in truly open markets — for example, markets that only loft higher with near-zero volatility — lull participants into a dangerous perception that because markets are so stable, risk has dissipated.

In actuality, risk is skyrocketing beneath the surface of artificial stability because the market has been stripped of the mechanisms of dynamic stability. This artificial stability derived from sustained manipulation has the superficial appearance of low-risk markets, i.e., low levels of volatility, but this lack of volatility derives not from transparency but from behind-the-scenes suppression of volatility.

Another source of risk in distorted markets is the illusion of liquidity.

The Illusion of Liquidity

In low-volume markets of suppressed volatility, participants are encouraged to believe that they can buy and sell whatever securities they want in whatever volumes they want without disturbing market pricing and liquidity.

In other words, participants are led to believe that the market will always have a bid due to the near-infinite depth of liquidity: no matter how many billions of dollars of securities you want to sell, there will always be a bid for your shares.

In actual fact, the bid is paper-thin and it vanishes altogether once selling rises above very low levels. Heavily manipulated markets are exquisitely sensitive to selling because the entire point is to limit any urge to sell while encouraging the greed to increase gains by buying more.

The illusions of low risk, essentially guaranteed gains for those who increase their positions and near-infinite liquidity generate overwhelming incentives to borrow more and leverage it to the hilt to maximize gains.

The blissfully delusional punter feels the decision to borrow the maximum available and leverage it to the maximum is entirely rational due to the “obvious” absence of risk, the “obvious” guaranteed gains offered by markets lofting ever higher like clockwork and the “obvious” abundance of liquidity, assuring the punter they can always sell their entire position at today’s prices and lock in profits at any time.

In the Fed We Trust

On top of all these grossly misleading distortions, punters have been encouraged to believe in the ultimate distortion: the Federal Reserve will never let markets decline again, ever. This is the perfection of moral hazard: risk has been disconnected from consequence.

In this perfection of moral hazard, punters consider it entirely rational to increase extremely risky speculative bets because the Federal Reserve will never let markets decline. Given the abundant evidence behind this assumption, it would be irrational not to ramp up crazy-risky speculative bets to the maximum because losses are now impossible thanks to the Fed’s implicit promise to never let markets drop.

This is why distorted, manipulated markets always end the same way. First, in an unexpected emergence of risk, which was presumed to be banished; second, a market crash as the paper-thin bid disappears and prices flash-crash to levels that wipe out all those forced to sell by margin calls, and then the collapse of faith in the manipulators (the Fed), collapse of the collateral supporting trillions of dollars in highly leveraged debt and then the collapse of the entire delusion-based financial system.

Amidst the ruins generated by well-meaning manipulation and distortion, the “well meaning” part will leave an extremely long-lasting bitter taste in all those who failed to differentiate between the false signals and distorted information of manipulated markets and the trustworthy transparency of signals arising in truly open markets.

In summary: risk has not been extinguished, it is expanding geometrically beneath the false stability of a monstrously manipulated market.

Risk cannot be extinguished, it can only be transferred. By distorting markets to create an illusion of low-risk stability, the Federal Reserve has transferred this fatal supernova of risk to the entire financial system.

Authored by Mike Shedlock via MishTalk.com,

Investors appear to be growing more and more optimistic about how their portfolios will perform in the years to come. Disappointment is bound to follow…

The image (plus my comment about a bone) and the lead comment are from the WSK article When a 59% Annual Return Just Isn’t Enough

Let’s compare investor expectations in the WSJ to John Hussman’s latest expectations starting with some snips from the Journal.

In a recent survey of 750 U.S. individual investors, Natixis Investment Managers found these people expect to earn 17.3% this year, after inflation.

That might not sound like pie in the sky. The S&P 500 returned 18.4% last year, counting dividends, and is up 15.9% so far in 2021. Recent past returns always mold future expectations.

Over the long run, however, the people in the Natixis survey anticipate earning an average of 17.5% annually, after inflation—even higher than for this year. That’s up from the 10.9% long-term return they expected in 2019, the previous round of the survey.

It’s also more than twice the return on U.S. stocks since 1926, which has averaged 7.1% annually after inflation.

I asked Wharton Research Data Services, which analyzes business and investing information, to rank all U.S. stocks and exchange-traded funds over the last 10 years.

WRDS counted 3,790 stocks and ETFs that traded continuously over the 10 years that ended May 31, 2021. Only 14% earned total returns that exceeded 17.5% annually. Fully 22% earned negative returns.

In short, investors were more likely to lose money than to compound it by at least 17.5% a year.

It’s the Starting Point Stupid! 

Author Jason Zweig hits the right idea with his final assessment at the end of the article:   

From today’s levels of interest rates and stock prices, I’d be thrilled if stocks returned at least 4% annually over the next decade or two after inflation. I’d also be surprised.

Alice’s Adventures in Equilibrium

With that, let’s take a look at John P. Hussman’s latest assessment in Alice’s Adventures in Equilibrium.

The chart below shows the ratio of nonfinancial market capitalization to corporate gross value-added, including estimated foreign revenues. This is the valuation measure that we find best-correlated with actual subsequent market returns across a century of market cycles, as well as in recent decades.

Nonfinancial Market Capitalization

Presently, we estimate clearly negative average annual total returns for the S&P 500 over the coming 12-year period. The scatter below reflects two of our most reliable valuation measures: nonfinancial market capitalization to corporate gross value-added (including estimated foreign revenues) in data since 1950. I’ve extended the chart back to 1928 by setting valuations in proportion to our margin-adjusted P/E (MAPE) in data prior to 1950. The valuation of the U.S. stock market on June 11, 2021 was easily the highest level in history. [Mish Comment: It’s even higher now.]

Expected 12-Year Annualized Returns

It’s important to recognize that while valuations are extremely informative about prospective market returns on a 10-12 year horizon, and potential market losses over the completion of any market cycle, valuations are not reliable short-term measures. If elevated valuations were enough to drive the market lower, we could never observe the sort of extremes that emerged in 1929, 2000 and today. Over shorter horizons, we have to attend to whether investors are inclined toward speculation or risk-aversion, and we find that this psychology is best gauged by the uniformity or divergence of market internals across thousands of individual stocks, industries, sectors, and security-types, including debt securities of varying creditworthiness.

Widest Difference of Opinion in History

• People in the Natixis survey anticipate earning an average of 17.5% annually, after inflation.

• Hussman expects deeply negative returns for a full 12 years, about -5% annually if I interpret the arrow on his chart correctly.

Expectations Gap

I believe this is the widest long-term expectations gap in history but I cannot prove it. 

Regardless, it is immense. 

Not only do investors fail to take current conditions into consideration, they have extrapolated them the wrong way far into the future.

It’s important to note that is how we got here in the first place.

*  *  *

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We have been extensively documenting the amount of natural resources that are going to be necessary to make the world-wide shift to EVs that it looks like the globe is on the cusp on. Considering the amount of raw materials necessary, and the way that they are mined, is paramount in trying to visualize the carbon footprint of EVs that use many rare earth minerals in their batteries. 

And so, as the industry shifts more toward EV, so comes new infrastructure – and that’s exactly what General Motors is planning, according to a new report from Reuters. The major U.S. automaker is now investing in a U.S. lithium project that could become the largest in the country by 2024.

It makes GM one of the first automakers to develop its own source of lithium. The company said last week it will be making a “multimillion-dollar investment” and will help develop Controlled Thermal Resources (CTR) Ltd’s Hell’s Kitchen geothermal brine project near California’s Salton Sea.

GM Director of Electrification Strategy Tim Grewe said: “This will supply a sizeable amount of our lithium needs.”

The lithium from the project will be used to build EVs in the U.S., and General Motors engineers and scientists will visit the site once pandemic travel restrictions have lifted.

Reuters speculates that the move could spark a race for other automakers to secure lithium. Demand for lithium is expected to outstrip supply by 20% within 4 years, the report notes.

It is estimated that up to 60,000 tons of lithium could come from the Hell’s Kitchen project by 2024. This is enough to make “roughly 6 million EVs”. It would make the site the largest U.S. producer of lithium. 

Rod Colwell, CTR’s chief executive, said: “There’s a great window of opportunity here to develop more lithium in the United States.”

General Motors is also reportedly talking with other U.S. lithium companies for supply, Grewe said.  

Of other global EV manufacturers, only China’s Great Wall Motor Co. and BYD have also invested in lithium producers. But even they haven’t taken the “aggressive step” to vertically integrate like GM, the report says. 

Authored by David Stockman via InternationalMan.com,

Socialist central planning has been elevated to a new art form based on control of the economy from the commanding heights of finance.

Central banks were once in the money business, in the sense of securing its availability, liquidity, and stable value. But the contemporary Fed never says a peep about the place where money arises and dwells — the financial markets — while gumming endlessly about the Main Street economy and the condition of and its targets for the components and constituents of GDP.

During the last 43 years, total financial assets held by the household sector have increased by a staggering $100 trillion. And that’s just a proxy for the massive levels of bank deposits, money market funds, bonds, publicly traded shares, and private equities that flow through the warp and woof of the nation’s $21 trillion GDP.

Total Household Financial Assets, 1977–2020

The Fed spent the last 13 years capping and smothering the money market rate.

That’s socialism by any other name.

Ironically, it’s leading to the same outcome as in the old Soviet Union: a failing economy for the masses and a concentration of wealth and privilege among the few elites who are close to the levers of control.

The chart below shows the real federal funds rate, calculated by subtracting the year-over-year trimmed mean-CPI increase from the Fed’s target rate. During the last 169 months (since March 2008) the rate has been deeply negative for 96% of the time and just a tad positive for a grand total of 7 months, all in 2019. And now, after last year’s money-printing orgy, the real federal funds rate stands at –2.37%, nearly the deepest level ever.

Never in a million years would participants in voluntary exchange on the free market lend money — even overnight — at a negative real rate. It defies economic logic and sanity itself.

Real Federal Funds Rate, 2008–2021

But these new mechanisms of socialist control — just like in the old Soviet Union — were not remotely up to the task. Among the manifold failings and ills in the latter, was the fact that central planning tended to produce enormous unintended malign effects owing to erroneous incentives and price signals.

For instance, Soviet nail factory managers got measured and rewarded by the tonnage produced. The story goes that one enterprising chap massively exceeded his quota by producing only ten-ton nails!

Effectively, that’s what is happening in the financial markets today. The central bankers are aiming at the personal consumption expenditure deflator and the U-3 unemployment rate, but the enormous injections of liquidity designed to keep the interest rate control dial on target never really leave the canyons of Wall Street.

Instead, they radically inflate the price of financial assets and deflate the carry cost of debt, thereby causing economic actors to copy the Soviet nail factory manager.

For instance, the C-suites foolishly cripple their balance sheets by allocating trillions to financial engineering maneuvers such as stock buybacks and uneconomic M&A deals.

The chart below shows the net equity flow into the US business economy since 1994, as tracked by the Federal Reserve. During that 26-year period, there was but a single year (2002) when nonfinancial corporations raised a positive amount of net equity, while liquidating a total of $8 trillion of book equity over the period.

Stated differently for the better part of the last three decades the C-suites of corporate America have liquidated an average of $310 billion of corporate equity per year.

Effectively, they are running glorified hedge funds, not Main Street businesses.

Net Corporate Equity Raised or Liquidated, 1094–2020

There is no mystery as to where all the corporate cash used to buy back shares and buy out other companies went: the top 1% and 10%, who own 40% and 71% of the stock, respectively, and the top 20%, who own 93% of the total.

When it comes to the task that the free market, not the central banking branch of the state, is suited for — generating rising living standards and real, sustainable wealth — the Fed — like the Soviet planners—is producing a lot of useless 10-ton nails.

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The Fed has already pumped enormous distortions into the economy and inflated an “everything bubble.” The next round of money printing is likely to bring the situation to a breaking point. If you want to navigate the complicated economic and political situation that is unfolding, then you need to see this newly released video from Doug Casey and his team. In it, Doug reveals what you need to know, and how these dangerous times could impact your wealth. Click here to watch it now.

After a year-long superyacht depression during the virus pandemic, economies and borders are reopening, and it appears the wealthiest are mooring their yachts in Greece. 

According to Bloomberg, at least 194 superyachts are moored off the county’s shores as of June 25. That’s an increase of more than 80 last month as the Mediterranean Sea summer season begins. 

In yellow are superyacht positions with clusters throughout the Mediterranean. Many are spotted across the coast of Italy, bordering the Ligurian and Tyrrhenian seas. There’s also a bunch in the Adriatic Sea, along with a massive cluster off Greece. 

Vessel tracking data shows some notable billionaires are anchored off the coast of Greece, including David Geffen, Abdullah al Futtaim, and Ernesto Bertarelli. 

Superyacht traffic is increasing off Greece’s coast because the country reopened its borders to foreign tourists on May 14 with no quarantined required. Just show a negative COVID test or proof of vaccination. 

Where are the superyachts?

We noted in the early days of the virus pandemic, the superyacht industry hit rough waters as countries’ borders closed and anyone and everyone was forced into lockdown. Some of the most exclusive harbors for billionaires experienced depressionary yacht activity, but this year’s season is on fire. 

Besides activity in the Mediterranean, superyacht sales are “roaring” this year as the Federal Reserve and federal government chose to inflate asset prices, allowing those who own assets, like stocks, bonds, and real estate, such as the wealthy, to rake in records amounts of gains in such a short period. This increased the demand for new superyachts and resulted in the second-hand market becoming absolutely red hot. 

How long until Jeff Bezos sails his 417-foot long megayacht into the Mediterranean? Or is he too busy preparing to go to space?