Distinction Matter - Subscribed Feeds

Authored by Charles Hugh Smith via OfTwoMinds blog,

Behind the facade of normalization, even high-income lifestyles have been ghetto-ized.

Consider the defining characteristics of a ghetto:

1. The residents can't afford to live elsewhere.

2. Everything is a rip-off because options are limited and retailers / service providers know residents have no other choice or must go to extraordinary effort to get better quality or a lower price.

3. Nothing works correctly or efficiently. Things break down and aren't fixed properly. Maintenance is poor to non-existent. Any service requires standing in line or being on hold.

4. Local governance is corrupt and/or incompetent. Residents are viewed as a reliable "vote farm" for the incumbents, even though whatever little they accomplish for the residents doesn't reduce the sources of immiseration.

5. The locale is unsafe. Cars are routinely broken into, there are security bars over windows and gates to entrances, everything not chained down is stolen--and even what is chained down is stolen.

6. There are few viable businesses and numerous empty storefronts.

7. The built environment is ugly: strip malls, used car lots, etc. There are few safe public spaces or parks that are well maintained and inviting.

8. Most of the commerce is corporate-owned outlets; the money doesn't stay in the community.

9. Public transport is minimal and constantly being degraded.

10. They get you coming and going: whatever is available is double in cost, effort and time. Very little is convenient or easy. Services are far away.

11. Residents pay high rates of interest on debt.

12. There are few sources of healthy real food. The residents are unhealthy and self-medicate with a panoply of addictions to alcohol, meds, painkillers, gambling, social media, gaming, celebrity worship, etc.

13. Nobody in authority really cares what the residents experience, as they know the residents are atomized and ground down, incapable of cooperating in an organized fashion, and therefore powerless.

I submit that these defining characteristics of ghettos apply to wide swaths of American life. Ghettos are not limited to urban zones; suburbs and rural locales can qualify as well. The defining zeitgeist of a ghetto is the residents are effectively held hostage by limited options and high costs: public and private-sector monopolies that provide poor quality at high prices.

Daily life is a grind of long waits / commutes, low-quality goods and services, shadow work (work we have to do that we're not paid for that was once done as part of the service we pay for) and unhealthy addictions to distractions and whatever offers a temporary escape from the grind.

We've habituated to being corralled into the immiseration of limited options and high costs; the immiseration and sordid degradation have been normalized into "everyday life." We've lost track of what's been lost to erosion and decay. We sense what's been lost but feel powerless to reverse it. This is the essence of the ghetto-ization of daily life.

Behind the facade of normalization, even high-income lifestyles have been ghetto-ized. But saying this is anathema: either be upbeat, optimistic and positive or remain silent.

What's worse, the ghetto-ization or our inability to recognize it and discuss it openly?

*  *  *

Become a $3/month patron of my work via patreon.com.

Subscribe to my Substack for free

Authored by Eric Lundrum via American Greatness,

On Wednesday, lawmakers in the U.S. House of Representatives called for the Internal Revenue Service (IRS) to begin investigating the financial links between China and anti-Israel groups that have been protesting throughout the United States since October 7th.

According to the Washington Free Beacon, the request comes from members of the House Ways and Means Committee, who wrote a letter expressing concerns that “foreign adversaries are taking advantage of loopholes to impact American political activity with little-to-no transparency.”

One such example is The People’s Forum, a group that organized anti-Israel protests such as public school walkouts in New York City.

The group is bankrolled by Neville Roy Singham, a tech mogul with pro-China sympathies, as documented by the New York Times.

The People’s Forum urged students to chant anti-Semitic phrases, including “from the river to the sea, Palestine will be free,” which calls for the extermination of all Israelis.

Another example is The Energy Foundation, a U.S.-based nonprofit group that focuses primarily on global warming, yet operates mostly out of China and has deep ties to the ruling Chinese Communist Party (CCP).

This organization has repeatedly advocated for “green” energy policies that would hurt the United States’ energy production, to the benefit of China.

“Not only do these activities raise serious national security concerns, but they also raise questions about whether organizations like this receive foreign funding from America’s adversaries and whether the Internal Revenue Service (‘IRS’) is conducting oversight of entities like these,” said the letter sent by lawmakers to IRS commissioner Daniel Werfel.

The committee members asked if the IRS has “a definition of antisemitism in place within the agency that it considers when evaluating the claimed exempt purpose of a tax-exempt organization,” for the purposes of cracking down on such radical groups. The letter also asked if the IRS would eventually start an investigation into the various financial links between China and various domestic groups.

After the first two Mag7 companies were a study in market paradoxes, when TSLA missed across the board and soared (after guiding much better than expected) and META beat across the board but plunged (after guiding weaker than expected while boosting its spending forecast), moments ago two of the Mag7 giants, GOOGL and MSFT, both reported and this time there was far less drama: both beat, and saw their stock soaring after hours.

Focusing on Google parent Alphabet, Goldman said ahead of earnings that positioning here was not as excessive (at 7/10) which may be why the stock is soaring some 13% after the close on what otherwise appears to be a solid beat. Here are the details:

• EPS $1.89, beating estimate $1.53, and up more than 50% vs the $1.17 a year ago.
   
• Q1 Revenue $80.54 billion, beating the estimate of $79.04 billion, and up 15% YoY
  • Google advertising revenue $61.66 billion, beating the estimate $60.18 billion
  • YouTube ads revenue $8.09 billion, beating the estimate $7.73 billion
  • Google Services revenue $70.40 billion, beating the estimate $69.06 billion
  • Google Cloud revenue $9.57 billion, beating the estimate $9.37 billion
  • Other Bets revenue $495 million, beating estimate $372.4 million
     
• Operating income $25.47 billion, beating estimate $22.4 billion
  • Google Services operating income $27.90 billion, beating the estimate $24.3 billion
  • Google Cloud operating income $900 million, beating the estimate $672.4 million
  • Other Bets operating loss $1.02 billion, beating the estimate loss $1.12 billion

• Operating margin 32%, beating the estimate 28.6%
• Capital expenditure $12.01 billion, beating the estimate $10.32 billion
• Number of employees 180,895, down from 190,711

A quick point on YouTube: it was bought by Google in 2006 for $1.65 billion; YouTube now generates $1.65 billion of revenue every 18 days.

The results visually:

While Google's cloud numbers were stellar, with revenue rising from $7.5BN to $9.6BN, and beating estimates of $9.4BN, what investors wanted to hear was more about the company's progress on AI. This is what it had to say:

As announced on April 18, 2024, we are consolidating teams that focus on building artificial intelligence (AI) models across Google Research and Google DeepMind to further accelerate our progress in AI. AI model development teams previously under Google Research in our Google Services segment will be included as part of Google DeepMind, reported within Alphabet-level activities, prospectively beginning in the second quarter of 2024.

Like other Big Tech companies, Alphabet has been plowing money into developing artificial intelligence, a strategy that has helped drive demand for its cloud services, which saw revenue rise 28% in the first quarter. While Google remains a distant third in the cloud computing market, trailing Amazon and Microsoft, the company’s prowess in AI could help it close the gap.

Google has developed much of the underlying technology being used in the AI boom today, and has woven it into products from web search to its suite of enterprise software from Gmail to Google Docs. Yet ever since OpenAI’s ChatGPT was released in late 2022, Google has been battling the perception that it’s lagging behind Microsoft and OpenAI in rolling out new generative AI tools. The arrival of popular chatbots such as ChatGPT  — which answers questions in a conversational tone rather than providing lists of links to other websites — has posed a threat to Google’s two-decade stranglehold on search. The company is struggling to compete in generative AI without cannibalizing its core profit machine.

Google has been scrambling to reassert its early lead in AI, after its early efforts were marred by embarrassing blunders, including a scandal over how its AI model Gemini handled race that forced the company to suspend image generation of people.

Commenting on the results, CFO Ruth Porat said: “Our strong financial results for the first quarter reflect revenue strength across the company and ongoing efforts to durably reengineer our cost base. We delivered revenues of $80.5 billion, up 15% year-on-year, and operating margin expansion.”

It certainly delivered, and just to make sure the market rewarded it, the company not only announced the start of new cash dividend at 20 cents...

Alphabet’s Board of Directors today approved the initiation of a cash dividend program, and declared a cash dividend of $0.20 per share that will be paid on June 17, 2024, to stockholders of record as of June 10, 2024, on each of the company’s Class A, Class B, and Class C shares.

... but also announced a new stock buyback program for $70 billion!

Alphabet’s Board of Directors today authorized the company to repurchase up to an additional $70.0 billion of its Class A and Class C shares in a manner deemed in the best interest of the company and its stockholders, taking into account the economic cost and prevailing market conditions, including the relative trading prices and volumes of the Class A and Class C shares.

While investors have shown they are excited about the prospects of AI, they want tech companies to continue to focus on revenue and profit in the meantime. Meta, which competes with Google in AI and also digital advertising, suffered its worst stock decline since October 2022 after reporting that it would spend billions of dollars more this year on AI efforts and projecting weaker revenue for the current quarter. For its part, Google - which does not do forecasts - paid $12BN in capex in the quarter, $1.7 billion more than estimated.

For all the hoopla about AI, search advertising remains the engine of Google’s lucrative business, and the company is facing heightened competition there, too. Meta has been seeding AI tools throughout its advertising business and Snap Inc. has also undergone a total revamp of its ad business to improve ad targeting. The digital ad market is recovering from a post-pandemic slump, buoyed by the Olympics Games this summer, but Google is increasingly vying for those ad dollars with Meta and Snap.

If consumers gravitate from Google search to the new wave of chatbots, that could imperil the company’s search advertising juggernaut, which is expected to generate nearly $200 billion in revenue this year and the bulk of Alphabet’s profit.
Cloud has been a bright spot for Google, after it first became profitable early last year. Many young AI startups are founded by former Google employees, creating a strong pipeline of cloud clients.

For now, however, these concerns were on the backburner, with GOOGL stock exploding about 12% after hours, and trading at a new all time high.

Authored by Eric Lundrum via American Greatness,

Despite the fact that Joe Biden signed into law a bill that will ban the Chinese social media app TikTok if its parent company does not sell it, his campaign will continue to use the app in the meantime.

As Fox News reports, campaign officials confirmed on Wednesday that the Biden campaign “will stay on TikTok,” even after Biden signed a massive foreign aid package which included the provision on TikTok.

The law requires ByteDance, the Chinese parent company of TikTok, to sell the app within nine months or else the app will be banned from use in the United States.

The law banning TikTok had been in the works on Capitol Hill for some time, with lawmakers on both sides of the aisle expressing national security concerns over TikTok’s close ties to the Chinese government, as well as privacy concerns regarding users’ personal data.

The provision to ban TikTok was included in the broader $95 billion foreign aid bill, which included money for Ukraine, Israel, and Taiwan.

A standalone bill on TikTok had stalled in the Senate, so Republicans simply worked the legislation into the overall aid package in order to guarantee its passage. The bill passed both houses with overwhelming support.

Whereas the original TikTok bill gave ByteDance six months to sell the app, the final version gives the company nine months to sell, thus setting the deadline after the November election.

If a sale is confirmed to be in the process, the legislation gives the company an extra three months to finalize the deal.

TikTok has refused to capitulate to the new law, repeatedly denying accusations of privacy breaches or being a national security threat.

“At the stage that the bill is signed, we will move to the courts for a legal challenge,” said Michael Beckerman, TikTok’s head of public policy for the Americas, in a memo sent to all employees on Saturday.

“This is the beginning, not the end of this long process.”

Following the passage of the law, TikTok declared the new legislation to be “unconstitutional.”

“This unconstitutional law is a TikTok ban, and we will challenge it in court,” the company said in a statement on Wednesday.

“We believe the facts and the law are clearly on our side, and we will ultimately prevail.”

“This ban would devastate seven million businesses and silence 170 million Americans,” the statement continued. “As we continue to challenge this unconstitutional ban, we will continue investing and innovating to ensure TikTok remains a space where Americans of all walks of life can safely come to share their experiences, find joy, and be inspired.”

Investors can exhale after META's meltdown as MSFT just reported better-than-expected revenues in Q3 of $61.86 billion (estimate $60.87 billion).

All the business segments also beat expectations:

• Productivity and Business Processes revenue $19.57 billion, estimate $19.54 billion

• More Personal Computing revenue $15.58 billion, estimate $15.07 billion

With the AI-exposed segments strong:

• Microsoft Cloud revenue $35.1 billion, estimate $33.93 billion

• Intelligent Cloud revenue $26.71 billion, estimate $26.25 billion

“This quarter Microsoft Cloud revenue was $35.1 billion, up 23% year-over-year, driven by strong execution by our sales teams and partners,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Azure revenue gained 31% in the quarter, above an average prediction of 29%, picking up slightly from the 30% growth in the previous period.

“Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry," said Satya Nadella, chairman and chief executive officer of Microsoft.

Investors are liking what they are seeing from the earnings so far with MSFT up around 5% after hours, erasing the META-driven losses during the day...

Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast.

By Mish Shedlock of MishTalk

Why is the choice between shutting down the border and no controls at all? And what about demographics? Fertility rates?

Immigration Talks We Should Be Having

Eurointelligence discusses the Immigration Talks We Should Be Having.

The ideas also apply to the US.

Last week, the European Commission set out its ambitions to strike a deal with Lebanon, to stop asylum-seekers reaching the EU from there. Giorgia Meloni [Italy’s Pime Minister] now spends so much time in Tunisia, where the EU signed another agreement to limit migration, that she should consider buying a time-share in Bizerte.

Fabio Panetta, the Banca d’Italia’s governor, recently made a welcome intervention on this. He made a point which you do not hear very often: that without more immigration, the EU will sink demographically. That will mean both its economic and fiscal situation becoming unsustainable. According to Panetta, a common EU-level policy is necessary. Migrants, legally or not, come into the EU as a whole. Even if they are legally restricted to one member state, practically speaking there is often little to stop them moving across borders in a border-free Schengen area.

In Panetta’s own home country, the situation is especially bad. Italy’s total fertility rate is now 1.25 as of 2021. This is far below the so-called replacement level of 2.1, which is necessary to keep a country’s population stable. The only thing stopping its population from cratering is the immigration it receives already. Even if the government could stumble on a way to increase the total fertility rate to replacement level, something virtually no developed country has managed, there would still be inertia.

This basic demographic reality is acute in Italy, but not unique to it. The only countries mitigating it so far are those that accept high numbers of immigrants and integrate them into the workforce, like the UK, Spain, and Portugal. Yet it is something politicians skirt around, for fear that their voters are not prepared to hear the truth.

What you end up with is a worst-of-both-worlds situation. Politicians, especially if they act on their own and not on the EU level, cannot get a handle on irregular migration and asylum-seekers, despite repeatedly promising to. All they accomplish is raising the issue’s salience, while driving disillusioned voters to the far-right.

But on the other hand, they dodge the other side of the coin, the need to accept and properly integrate migrants to keep demographic, and fiscal, balances stable. Until governments are prepared to acknowledge these trade-offs, we should be wary of the feasibility of any commitments they make to consolidate public finances in the long term.

US Fertility Rate

The lead image is from MacroTrends.

The following snip is from VOX.

In the US, the birth rate has been falling since the Great Recession, dropping almost 23 percent between 2007 and 2022. Today, the average American woman has about 1.6 children, down from three in 1950, and significantly below the “replacement rate” of 2.1 children needed to sustain a stable population. In Italy, 12 people now die for every seven babies born. In South Korea, the birth rate is down to 0.81 children per woman. In China, after decades of a strictly enforced one-child policy, the population is shrinking for the first time since the 1960s. In Taiwan, the birth rate stands at 0.87.

The US numbers from VOX are a bit low. The lead chart is more current but I like the VOX discussion. Were it not for immigration, the US population would be in decline.

Is that necessarily a bad thing? At what point does increasing population become a Ponzi scheme due to the energy and food needs?

There are a lot of questions and the only thing everyone seems to agree on is that uncontrolled migration is bad. Even Biden admits that, but he is unwilling to do anything about it.

Progressive Irony

Progressives want open borders but they also want guaranteed living wages, clean energy, slave reparations, a right to shelter, a right to free health care, and net zero carbon. The goals are incompatible.

In the next 5 years employment in age groups 60+ will drop by ~12.5 million

On March 21, I commented In the next 5 years employment in age groups 60+ will drop by ~12.5 million

Due to age demographics, I expect employment in age groups 60 and over to decline by about 12.5 million. Let’s go over the math to see how I arrived at that number.

Government + Social Assistance Accounted for Nearly 60% of Job Growth in 2023

On January 5, I noted Government + Social Assistance Accounted for Nearly 60% of Job Growth in 2023

The welfare state is booming along with social assistance for illegal immigrants.

Family Formation

Taking a step back from immigration policy, why is it that family formation is so low? The unfortunate answer is Fed policy and fiscal policy is so inflationary, that young adults have come to expect they will be worse off than their parents.

If so, and that seems accurate, this will be the first time in US history.

Importantly, houses are too expensive. Zoomers and younger millennials are angry over housing costs. And millions of illegal immigrants need a home and services.

Rent is so expensive and anger so high over housing costs that People Who Rent Will Decide the 2024 Presidential Election

Finally, a recurring theme: The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate

The Fed is largely responsible for the housing mess and Biden/Congress is responsible for the rest.

Yet Biden refuses to do anything lest he upset the Progressives who want open borders, guaranteed living wages, clean energy, a right to shelter, a right to free health care, and net zero carbon.

Via Middle East Eye

Iranian military commanders and high-ranking officials have warned they could change their approach in developing the country’s nuclear program after increasing tensions with Israel, implicitly announcing their readiness to take it into a military phase.

Before the recent direct military confrontation with Israel, Iran had always insisted that its nuclear program solely had peaceful goals. This stance dramatically changed in recent weeks. Javad Karimi Qudousi, a member of the Iranian parliament's National Security and Foreign Policy Commission, on Monday implicitly claimed that Iran was only one week away from its first nuclear weapon test. The lawmaker wrote on X: "If the order is issued, it will be one week before the first test." 

A man walks past a banner depicting missiles along a street in Tehran on 19 April 2024 (AFP)

Karimi Qudousi did not mention Ayatollah Ali Khamenei, but such an order would come from supreme leader who has a final say in all matters in Iran.

On Tuesday, in two videos posted on X, he stressed that the targets of Iran’s potential military nuclear program would not only be Israel but also European countries supporting Tel Aviv.

Moreover, hours after the Israeli attack on an air force base in Isfahan last Friday, Ahmad Haqtalab, the commander of the Nuclear Centers Protection and Security Corps, suggested the same idea. "It is possible and conceivable to revise the nuclear doctrine and policies of the Islamic Republic of Iran and deviate from previous considerations," he was quoted as saying.

On Monday, the Javan daily, affiliated with the Islamic Revolutionary Guard Corps (IRGC), highlighted Haqtalab’s remarks, adding "Israel has taken this threat seriously and retreated from their [aggressive] stances."

Teacher given 11 years for teaching Kurdish language

A teacher in the Kurdish regions of Iran has been handed an 11-year prison sentence by the Islamic Revolutionary Court for his role in establishing a cultural centre where the Kurdish language was taught, local media reported.

Soma Pourmohammadi, a Kurdish language educator and a board member of the Nozhin cultural and social organisation in Sanandaj, received the lengthy sentence along with exile in two separate cases. 

According to the verdict delivered on Saturday, he was convicted of "forming groups and factions with the intention of disrupting the security of the country" and given a 10-year prison term and exile to Kermanshah prison. 

Prior to this ruling, another court had sentenced Pourmohammadi to one year suspended imprisonment for "disturbance of public order".

The Nozhin Social-Cultural Association, an independent cultural group, has been actively engaged in various cultural endeavors over recent years, including conducting free Kurdish language classes in different Kurdish cities.

Despite several languages such as Kurdish, Turkish, and Balouchi being spoken in different parts of Iran, Farsi remains the country's only official language. 

https://t.co/hudKW8YQLk
UN nuclear chief: Iran is just weeks away to have enough enriched uranium to make a nuclear bomb

Private jet imports spark controversy

While government authorities have banned the import of many goods, such as expensive mobile phones, due to the economic crisis, the import of private jets has become the center of public attention.

Focus on the issue began when the head of the Civil Aviation Organisation, Mohammad Mohammadi Bakhsh, told the Ilna news agency: "The purchase and sale of seven-seater jet planes is open to the public. Many people are currently utilizing this option, including businessmen, officials, sports teams, and economic teams."

The announcement sparked a widespread backlash in local media, with both reformist and conservative outlets criticizing it. 

On Monday, the pro-reformist daily Etemad published an article under the headline: "Goods for those who are better than us," questioning why the purchase and sale of private jets was permitted for a select class amid the country’s economic crisis.

"Why, in the current tight currency situation where many goods are categorized as 'luxury' and importation is prohibited, is the purchase and sale of private jets unrestricted for a privileged few? This perpetuates inequality in society," said the daily. The newspaper also demanded transparency, urging authorities to disclose the names of individuals who own private jets.

Rokna, another Farsi-language media outlet, characterized the publication of this news as emblematic of the profound social class divide. "While the purchase and sale of jet aircraft has been liberalized, the general public lacks the means to afford even a domestic car," Rokna highlighted.

Update (1255ET):

Speaking on condition of anonymity, two sources close to top Anglo American investors told Reuters that BHP Group's proposed all-share deal, valued at £31.1 billion ($38.9 billion), is not attractive. 

One source said the offer did not address the complexities of demerging the Anglo American Platinum and Kumba Iron Ore businesses in South Africa. 

Reuters expects Anglo's board to respond in the coming days. BHP has until May 22 to submit a binding bid. 

A successful takeover would give BHP control of about 10% of the world's copper mining supply. There are talks of dwindling supply and soaring demand in the coming years because of electrification trends, such as the proliferation of generative AI data centers, electric vehicles, and onshoring manufacturing. 

*   *   * 

The world's largest global diversified miner, BHP Group, is making a monster bet on surging future copper demand with the proposed takeover of Anglo American Plc. The bet is based on the thesis that the world's power grids need a major overhaul and that the electrification of the economy will unleash new demand for base metals. This also comes as market observers have warned about an impending shortfall of global copper mining supply.

According to Bloomberg, BHP proposed an all-share deal valued at £31.1 billion ($38.9 billion). The transaction depends on Anglo spinning off its South African iron ore and platinum businesses to its shareholders. The offer is conditional and non-binding at £25.08 a share, or about a 14% premium to Anglo's closing share price on Wednesday. 

Anglo shares in London jumped 13% to £24.89, giving the company a market capitalization of about £30.5 billion. 

BHP's proposed acquisition of Anglo would dwarf its 2023 takeover of Australian copper producer OZ Minerals. The top miner believes copper demand will double over the next three decades. 

Copper is a critical base metal for infrastructure and renewable energy. BHP bets that the world's power grids must be upgraded as fossil fuel demand slides and the global economy's electrification ramps up. 

If the deal closes, BHP will become the world's biggest copper producer (controlling roughly 10% of the global copper mining supply), which comes as some market observers are warning about supply shortfalls. 

About a year ago, billionaire mining investor Robert Friedland explained to Bloomberg TV in an interview that copper prices are set to soar because the mining industry is failing to increase supply ahead of 'accelerating demand.' He warned: 

"We're heading for a train wreck here." 

Friedland is the founder of Ivanhoe Mines Ltd. He continued, "My fear is that when push finally comes to shove," copper prices might explode ten times. 

Jefferies' commodity desk recently warned, "Disruptions have significantly increased, and a market deficit is now increasingly likely. We could be at the foothills of the next copper cycle."

BofA recently warned, "The copper supply crisis is here." 

Let's not forget about our note titled "The Next AI Trade," which explains the investment opportunities in upgrading the nation's grid as generative AI data centers increase power demand. 

And Jefferies is on it: "Copper Demand in Data Centers." 

Back to BHP, the company said in a statement to London Stock Exchange that the takeover would increase its "exposure to future-facing commodities through Anglo American's world-class copper assets" as well as "complementing BHP's iron ore and metallurgical coal portfolios." 

Jefferies analysts commented on the proposed takeover, indicating BHP might face competition in its pursuit of Anglo. 

"Our analysis suggests that Anglo consists of an undervalued portfolio of multiple tier 1 assets several of which are in low-risk jurisdictions (Australia, Chile, Peru and Brazil)," Jefferies said.

Jefferies Christopher LaFemina said:

"We would be surprised if this is BHP's final offer," adding, "We estimate that a price of at least £28/sh would be necessary for serious discussions to take place, and a takeout price of well above £30 per share would be the outcome if other bidders were to get involved."

A successful takeover would mark the first mega mining deal in more than a decade and signify the importance of critical metals and their use in upgrading the world's power grid. 

Baltimore City filed a lawsuit against the owner and operator of the container ship that crashed into the Francis Scott Key Bridge last month, causing it to collapse. 

Attorneys for Baltimore's mayor and City Council claim the bridge collapse was caused by "negligence of the vessel's crew and shoreside management," according to the Washington Post. 

In the early morning hours of March 26, the Dali, a 213-million-pound container ship owned by Grace Ocean Private Limited and managed by Synergy Marine PTE LTD., lost power and slammed into one of the main pillars of the 1.6-mile long Key Bridge, instantly crumpling the bridge and blocking the only shipping channel in and out of the Port of Baltimore. 

Source: Bloomberg 

"The Dali slammed into the bridge, causing the bridge's immediate collapse, killing at least six individuals, destroying Baltimore property, and bringing the region's primary economic engine to a grinding halt," the city said in court filings. 

"None of this should have happened," the attorneys said, adding, "Reporting has indicated that, even before leaving port, alarms showing an inconsistent power supply on the Dali had sounded. The Dali left port anyway, despite its clearly unseaworthy condition."

Earlier this month, Grace Ocean and Synergy Marine submitted a request in federal court to cap their potential liability at $43.6 million. Baltimore on Monday requested that the court dismiss the companies' petition to limit liability.

The court filing also called the crew of the Dali "incompetent" and lacked proper skill or training, adding they were "inattentive to their duties" and "failed to comply with local navigation customs."

The source of the "inconsistent power supply" has yet to be identified, and the Federal Bureau of Investigation and the US Coast Guard have launched a criminal investigation into the crash. 

Meanwhile, the city of Baltimore failed to install fender systems to prevent ships from crashing into the bridge. These fenders could have prevented the collapse. 

Why did the city, county, or whoever manages the bridge fail to install fender systems? Were progressive lawmakers in the city and state too distracted with their socialist agenda to focus on upgrading critical infrastructure? 

Authored Robert Burrows via BondVigilantes.com,

Renowned for its role as a hedge against economic uncertainty and inflation, gold has long captivated investors. One key factor influencing gold’s price is the relationship between real yields and inflation. Over the long term, gold has protected one against the pernicious effects of inflation and remains a powerful diversifier within an investment portfolio:

Source: M&G, Bloomberg, 23 April 2024

Real yields, also known as inflation-adjusted yields, represent the return on an investment after accounting for inflation. They are calculated by subtracting the inflation rate from the nominal yield of a financial instrument, such as a government bond. Real yields provide a more accurate measure of an investor’s purchasing power and the true return on their investment. Historically, gold prices have exhibited an inverse correlation with real yields. When real yields are low or negative, indicating that inflation-adjusted returns on fixed-income investments are meagre or eroded by inflation, investors seek alternative stores of value, such as gold. Conversely, when real yields are high, offering attractive returns relative to inflation, the opportunity cost of holding gold increases, leading to downward pressure on the gold price.

The below chart demonstrates this general trend:

Source: M&G, Bloomberg, 23 April 2024

While the trend is not perfect, the following chart demonstrates that correlations have been negative for the bulk of the time:

Source: M&G, Bloomberg, 23 April 2024

So why is gold going up? If these correlations hold and real yields are moving higher, the gold price should be trending lower. There is something else at play. Investors will generally point to global instability, with geopolitical concerns being obvious. The other would be the challenging fiscal backdrop of many major economies, which I have written about. These concerns are well founded; however, they do not seem to be showing up in other risk assets.

BBB US corporates are trading at their all-time tights, so there is nothing to see here:

Source: M&G, Bloomberg, 23 April 2024

Volatility is not exploding, as shown by the volatility index VIX:

Source: M&G, Bloomberg, 23 April 2024

A quick look at China shows some interesting developments. We know why interest rates have gone up: to combat inflation. However, yields may still be pressured higher due to countries selling down their treasury reserves. China, for example, has been reducing its treasury reserves for some years. This is not the sole reason for higher yields but will be a contributory factor. The below chart shows Chinese treasury reserves falling plotted against the 10-year treasury yield (inverted):

Source: M&G, Bloomberg, 23 April 2024

Where are these funds going? Bolstering gold reserves it would seem...

Source: M&G, Bloomberg, 23 April 2024

..., and China is not alone in this thinking:

Source: M&G, Bloomberg, 23 April 2024

We have witnessed many responses with the onset of the war in Ukraine, one of which is sanctions. The sanctions have attempted to lock out a country from its reserves. The West’s freezing of Russia’s gold and forex reserves in response to the conflict appears to have triggered this shift. More recently, there have been threats to confiscate Russian reserves and use these funds to support Ukraine’s efforts. This will undoubtedly make other countries somewhat nervous, especially those not 100% aligned with the West’s worldview. 

Clearly, the Gold price is influenced by a multitude of factors, and one cannot point to any one single issue. However, it doesn’t seem as though gold is currently being bought for its safe-haven appeal at this stage. Where would the gold price be if the Fed starts cutting and the geopolitics worsen?

$1.027 million...or about 16 bitcoin.

That's what the infamous 'Buy Bitcoin' scribble drawing on a yellow legal pad, once held up at a televised Congressional testimony behind Federal Reserve Chair Janet Yellen, just sold for at auction, according to Bloomberg. 

The report notes that the sign quickly became iconic in the crypto community, symbolizing the industry's revival. Bitcoin's price soared from about $2,300 to a peak of nearly $74,000 in March, boosted by major financial firms like Fidelity and BlackRock.

As retail interest came around, early Bitcoin memorabilia like the pad regained popularity. NFTs...well, not so much.

An anonymous buyer secured the item with a bid of 16 Bitcoin on the auction site Scare City, the report notes, although a temporary glitch suggested a mistaken bid of $6.4 million before correction.

Give them a break. After all, not everyone is on the bitcoin to USD conversion standard just yet...

But if the price of the pad is any indicator, interest in the crypto remains hot. 

“The page with the sign drawing was removed from the notepad shortly after the hearing. It has since been reattached with clear archival wire,” the item's description read at the auction. 

Christian Langalis, a 22-year-old intern at the Cato Institute, created the sign during a 2017 House Financial Service Committee hearing featuring Janet Yellen. After being televised, Langalis was escorted out. The auctioned item, described as "Ink Drawing on Legal Pad," also includes his notes from the session.

$1.027 million...or about 16 bitcoin.

That's what the infamous 'Buy Bitcoin' scribble drawing on a yellow legal pad, once held up at a televised Congressional testimony behind Federal Reserve Chair Janet Yellen, just sold for at auction, according to Bloomberg. 

The report notes that the sign quickly became iconic in the crypto community, symbolizing the industry's revival. Bitcoin's price soared from about $2,300 to a peak of nearly $74,000 in March, boosted by major financial firms like Fidelity and BlackRock.

As retail interest came around, early Bitcoin memorabilia like the pad regained popularity. NFTs...well, not so much.

An anonymous buyer secured the item with a bid of 16 Bitcoin on the auction site Scare City, the report notes, although a temporary glitch suggested a mistaken bid of $6.4 million before correction.

Give them a break. After all, not everyone is on the bitcoin to USD conversion standard just yet...

But if the price of the pad is any indicator, interest in the crypto remains hot. 

“The page with the sign drawing was removed from the notepad shortly after the hearing. It has since been reattached with clear archival wire,” the item's description read at the auction. 

Christian Langalis, a 22-year-old intern at the Cato Institute, created the sign during a 2017 House Financial Service Committee hearing featuring Janet Yellen. After being televised, Langalis was escorted out. The auctioned item, described as "Ink Drawing on Legal Pad," also includes his notes from the session.

If the Biden admin was to have any hopes of the Fed cutting rates and monetary easing ahead of the election, the tires would need to start falling off the US economy right... about... now... Which is why we didn't find it at all surprising that moments ago the Biden Bureau of Economic Analysis reported that in Q1, US GDP unexpectedly collapsed to just 1.6%, down more than 50% from the Q4 print of 3.4%, the lowest print since Q2 2022 when the US underwent a brief technical recession (one which the NBER never admitted of course), and a huge miss to the 2.5% estimate.

Almost as if on purpose, the GDP printed below the lowest estimate (that of SMBC Nikko) which was at 1.7% (the highest forecast was 3.1% from Goldman Sachs which was off by the usual 50%), and was a 3-sigma miss to the median estimate of 2.5%.

But while a collapse in the US economy is just what the "soft landers" wanted, the huge GDP miss was just half the story because at the same time, the BEA reported that the GDP Deflator (price index) came in at 3.1%, hotter than the 3.0% expected and almost double the 1.6% in Q4. Worse, the all important core PCE for Q1 soared from 2.0% to 3.7%, blowing away estimates of 3.4% (we will get a more accurate core PCE print tomorrow for the month of March) and suggesting that the US is about to not only not pass go, and overshoot soft-landing island completely, but crash-land straight into a stagflationary recession...

... unless the Fed does something, although what it can do - with inflation rising and growth slowing - is anyone's guess.

Taking a closer look at the absolute data, the BEA said that the increase in the first quarter primarily reflected increases in consumer spending and housing investment that were partly offset by a decrease in inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

• The increase in consumer spending reflected an increase in services that was partly offset by a decrease in goods. Within services, the leading contributors to the increase were health care as well as financial services and insurance. Within goods, the leading contributors to the decrease were motor vehicles and parts as well as gasoline and other energy goods.
• The increase in housing investment was led by brokers’ commissions and other ownership transfer costs as well as new single-family housing construction.
• The decrease in inventory investment was led by decreases in wholesale trade and manufacturing.  

Compared to Q4, the deceleration in GDP in Q1 reflected decelerations in consumer spending, exports, and state and local government spending and a downturn in federal government spending. These movements were partly offset by an acceleration in housing investment. Imports accelerated.

Digger deeper into the data, we find that it was once again the slowdown in consumption that was the biggest culprit, with Personal Consumption rising 2.5%, a big drop from the 3.3% in Q4 and below the 3.0% expected. Taking a step back we find that consumption has now missed on 6 of the past 10 prints.

As discussed extensively here, while the consumption missed, it was still positive, and reflects the latest drop in the savings rate, to 3.6% in the first quarter from 4% in the fourth quarter of last year, as consumers continue to drain their bank accounts and max out their credit cards. Economists have been wondering how long that can go on, but so far it shows no signs of abating. The (until recently) relentless rise in equity prices may be playing a role here.

In terms of actual components we find the following picture:

• Personal Consumption added 1.68% to the bottom line GDP print, or more than 100% of it. This was down notably from 2.20% in Q4.
• Fixed Investment rose modestly, to 0.91% of the bottom line contribution, up from 0.61% in Q4.
• The Change in Private inventories continued to detract from GDP for the 2nd quarter in a row, reducing the bottom line GDP print by 0.35%, a modest improvement from the -0.47% in Q4.
• Net trade was a big delta, and after contributing 0.25% to the Q4 3.4% GDP print, in Q1 it subtracted 0.86% from the actual print.
• Finally, government continues to be a contribution but in Q1 it added just 0.21%, a big drop from the 0.79% in Q4 and the lowest since Q2 2022 when it reduced GDP by 0.29%.

And visually:

That was the GDP side of things, what about the inflation/PCE? Well, this is where things get really bad, because after PCE came in hot in Q4, it came in even hotter in Q4, as GDP prices, the prices of goods and services purchased by U.S. residents, increased 3.1% in Q1 after increasing 1.9%, and above the 3.0% estimate. Excluding food and energy, prices increased 3.2% after increasing 2.1%.

Turning to the all important PCE, Personal consumption expenditures prices increased 3.4% in the first quarter after increasing 1.8% in the fourth quarter. And the punchline: excluding food and energy, the all important core PCE price index increased 3.7% after increasing 2.0%, and coming far hotter than the 3.4% estimate; in fact it came in above the highest estimate!

This, according to Fed-whisperer Nick Timiraos, implies that the March core PCE number which is reported tomorrow, must be higher than +0.22, closer to +0.3% (which is precisely where the estimate is), and would imply upside revisions to Jan and Feb.

Commenting on the report, Fitch economist Olu Sonola writes that "the hot inflation print is the real story in this report. If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach."

The bottom line: while a sharp slowdown in growth would have been just the "bad news is good news" the market was desperately hoping for, throw in the unexpected surge in prices and suddenly the threat of a full-blown stagflationary shock is once again front and center... at least until tomorrow, when we wouldn't put it past this admin to come out with another fabricated core PCE print which makes no sense and somehow comes in well below the 0.3% MoM estimate.

By Michael Every of Rabobank

The Golden Path

USD/JPY is at 155, a fresh 34-year high, with the Yen slumping 10.2% year-to-date and suggestion that intervention may not come until we get to 160, a level last seen in 1986. USD/CAD is off recent lows at 1.37 but under pressure (as noted by Christian Lawrence): some suggest the Loonie could fall as far as 2 (so CAD/USD at 0.5) a decade from now. So, a higher US dollar. Which FX dominoes haven’t fallen yet, and when might they?

Australian CPI data suggest it will be hard to cut rates in 2024, as the median Sydney house price moves up to A$1.6m with them at 4.35%. Mexican CPI surprised to the upside, also suggesting further rate cuts may not roll out as had been priced in. Bank Indonesia shocked markets with a 25bp rate hike to 6.25% to try to relieve downwards pressure on IDR. So, what looks like higher rates for longer than had been expected. What breaks where, and when?

Geopolitical tensions will also be higher for longer. Europe made a dawn raid on a Chinese firm as Politico says: ‘EU to China: Open your public markets or we’ll close ours’. US Secretary of State Blinken is in Beijing against headlines warning of US sanctions on Chinese banks for helping Russia. President Biden signed the TikTok divest-or-ban bill, which Bloomberg warns will see China target US firms in kind. US military aid is already flowing to Taiwan, Ukraine, and Israel: the US is planning to convert old Pacific oil platforms to military bases; Ukraine was striking Russian energy targets even before it got access to new, longer-range US missiles; and Israel is closer to moving against Hamas in Rafah and Hezbollah in Lebanon, if not Iran (for now). The New Statesman echoes warnings made here since the mid-2010s: ‘The age of danger: order is breaking down as the great powers take sides in multiple wars’.

Economic policy also continues to get more populist: although it has no chance of happening, President Biden has proposed a 44.6% capital gains tax, the highest in US history, and a 25% tax on unrealized gains by high net-worth individuals. More realistic, perhaps, France’s opposition has proposed financing the country’s green transition with entirely with QE.

Let’s be frank, it’s hard to see a ‘Golden Path’ for markets ahead. It’s even harder to see ‘The Golden Path’ - a global economic system that allows maximum market/personal freedoms, yet with minimal inequality both domestically and internationally, and so socioeconomic and geopolitical stability. Yet absent that Path, we end up Hamiltonianism or mercantilism, economic war, real war, and a Great-Power-struggle ‘age of danger’.

Bloomberg just made reference to this (‘Geostrategy Industrial Complex Is a Win-Win’) vis-à-vis the real economy, noting corporate and foreign policy elites are talking more to each other, “which is good for both sides”. Yet financial markets continue to ignore foreign policy elites! Where are the macro forecasts adjusted for a world of Great Power struggles? Most still look remarkably similar to ones without that backdrop. (By contrast, note our ‘geopolitical’ work on Europe’s growth and inflation.) Where are the FX, rates, equity, credit, commodity, and property scenarios for a world of Great Power struggles? Again, most still look remarkably similar to ones without that backdrop – correct me if I am wrong, but it seems only our Fed watcher Philip Marey is predicting Trump tariffs would be a roadblock to ongoing Fed cuts in 2025.

Let’s be Frank Herbert.

Bloomberg also praises Hollywood’s ‘Dune 2’ for predicting the future better than Fukuyama for its old-and-new high-tech, feuding Great Houses struggling for control of the Spice without which the economy can’t function, as religion sweeps people to violent jihad. That comparison is true, but there is a deeper parallel to our present situation. Those who have read the Dune series repeatedly know all that backdrop supports two central overarching themes:

• First: “Don’t follow charismatic leaders.” Paul Atreides is no hero: he is directly responsible for the deaths of 61 billion people.

• Second: “The Golden Path.” Paul doesn’t have the stomach to follow through on what he needs to do for mankind, but his son, Leto II, does. **SPOILER ALERT** He fuses himself with a sandworm to become a dictator for 3,500 years, destroying Spice, space travel, and the economy, to teach people “a lesson they will remember in their bones”: that once they can break free of his reign, which he eventually allows, they should become as diverse and far-flung as possible to never allow anyone or anything to threaten them in their entirety again.

The conflict between humanity's stated desire for peace and their actual need for volatility is the central message of the Dune series.

We built a centralised neoliberal global system that repressed volatility as QE Spice flowed. But while Great Houses thrived, and some got very rich selling shadow-bank Spice derivatives, that system only increased, not decreased, our fundamental vulnerabilities to key threats. Returning to a world of Great Power struggles may ironically create healthier economic systems and societies over time, in some respects.

True, that likely won’t allow such free markets. But while we need some volatility to get stronger --think of Taleb’s anti-fragility-- we don’t need other kinds, like a sandworm swallowing us whole (or the financial market equivalent as past vol-repression has to be unwound), or people launching jihads at home or abroad. Which there is rather too much of right now.

So, Trump fusing with a sandworm may teach us all a geopolitical lesson “in our bones”: does his orange skin reflect excess McMelange consumption even if his eyes aren’t blue-in-blue?

Back to markets: the God Emperor of Dune, Leto II, maintains a complete monopoly on melange, the real currency in the universe; but apart from that, the books don’t say much about rates or FX. I’m just not sure what the Golden Level of rates is on our Golden Path. Then again, neither do central banks. And financial markets mostly have their heads deep in the sand.