20 July

Climate change and the class struggle

The poor are different. They have less money. This means that action to combat climate change which results in essentials becoming more expensive hits them hardest. For example:

• heating for houses, often draughty,
• petrol, and diesel for older cars,
• flights to Spain,
• subsidies to landowners for set-aside, bio diesel, and “min-till,”
• subsidies for solar panels,
• subsidies for heat pumps and battery electric vehicles,
• increase in transport costs for cheap Chinese manufactures, and textiles.

Middle class people spend a lot of money on private education, land and big houses, posh cars and ponies.

We’ve seen what has happened in France. When will the gilets jaunes cross the Channel?

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Things I noticed from The Daily Shot today:

• US residents are no longer comfortable with buying, and more importantly, financing a house today (U Michigan),
• However, housing demand is still strong (reluctant buyers with no alternatives and Blackrock, presumably),
• Greensill Bank seems still to rank in the top ten UK ‘unicorns.’ The list is headed by Revolut, which is ten times the value of Oxford Nanopore, which at least has some patented and valuable technology,
• Funds have been flowing into Columbia’s local currency debt, while its economy takes a dive.

Things I noticed in The Market Ear newsletter:

• GS are convinced that oil is heading higher,
• BTC is struggling to regain momentum, in spite of a general risk-on tone to the markets,
• the ‘blackout’ period for buybacks has ended and now is the season for CEOs of SP500 companies to not spare the balance sheet in pursuit of their bonuses.
• the Morgan Stanley Global Risk Demand Index is flashing green: it’s reading -2.13, which constitutes ‘extreme risk aversion’. I have no idea how this is computed, but it tends to reverse once it gets to these levels, leading to a strong rebound in risk appetite.
• 10Y yield is looking overstretched on the downside. At about 1.1%, it’s discounting something approaching deflation in the next ten years, which no serious macro forecaster is (pace Lacey Hunt). This has caused a real flattening in the curve.

Breakevens, which go as the yield on Treasury bills less the yield on TIPS, have been falling. Presumably, this reflects two parts of the bond market not agreeing about the future.

The falling yields have hammered ‘short duration’ stocks like XOM, relative to long duration stocks, such as Google.

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Basically, this was a bounce back from Monday’s swoon. Not based on any particular news, as far as I can tell. Most markets bouncing back, especially oil and related commodities. As far as I can tell, the volatility is all driven by nervousness about Covid variants. Well, maybe not so much the variants as the (over)reaction we can expect from nervous governments.