CAD as petro currency
Pinecone likes CAD and dislikes JPY. Sounds like a good call.
Governance and investment returns
- SPACs and LSE,
- dual voting structure for FB etc.,
- Berkshire Hathaway,
- HP & Carly F,
- Schroders,
- Ford, and bankruptcy,
- Fiat,
- BMW, VW, Walmart, Exor list,
The sheer insanity of the US budget
Taps Coogan has pointed this out before, and I have no doubt he’ll poing it again, but the US can never raise enough taxes to pay off the national debt or, even to realistically reduce it.
What we ‘need’ more than just inflation is interest rates that are lower than the inflation rate. i.e. negative real interest rates. However, negative real rates and rising nominal rates and rising inflation is the absolute worst scenario for the bond investors that are supposed to be financing the ever growing national debt. That mix represents a guaranteed loss of real wealth for bond holders. How are bond holders supposed to lend ever more money to the government while they are busy going broke?
For that reason, negative real interest rates don’t persist for long in a rising nominal rate environment without massive interventions by central banks. The ECB and Bank of Japan have had to buy virtually all debt issuance from their respective governments to enforce negative nominal rates and their bond investors haven’t had to worry about rising nominal yields, at least not until recently.
The BoJ has been monetizing the Japanese national debt for a long time, but it’s largely held by Japanese nationals (and so is ‘money we owe ourselves’ in Krugman-speak). For the USA, it’s different. While China is getting a small nominal return on the debt, it will wear it, especially as it has largely succeeded in keeping its currency down relative to the dollar. If the inflationary impact of QE starts to leak into the exchange rate, I am not sure how long China will want to continue financing helicopter money for US citizens.
Curiously, this article from the NY Times sort of agrees that the budget is out of control but that the real economy will be fine because at last it will start to be allowed to run hot. It’s true that the 40’s, 50’s and (early) 70’s had pretty good growth. A collapse in bond prices would act as a phenomenal transfer of real resources to young people in the USA and away from the old and Chinese (well, all holders of US long dated debt).
Allison Reichel agrees with the NYT that we’re going to see overheating, and that’s perfectly OK with her. Nobody ever writes that we are heading for deflation …
The sheer insanity of NFTs and aggregate US wealth
Alex Manzara nails it. Assets are priced at the margin. If one person in a million manages to get an insane price for crap, a lot of people are, on paper at least, a lot wealthier.
Wrap
Fairly risk on/deflationary. Stimulus checks being punted on stocks on Robinhood. Elon Musk changes his job title to “Technoking” or similar to distract from erosion of market share in many markets.
- NDX up, other equities also up, but by less,
- most sectors up, apart from energy,
- commodities mainly down, because of oil, nat. gas down, as always,
- yields down a tad,
- precious metals slightly up.
The futures price for natural gas is around 0.8 cents/kWh, about 15% of the retail price. It’s really extremely hard to see how any ‘green’ energy source can seriously compete with this, especially in emerging markets where governments simply do not have the money to subsidize sales of Teslas.
Tweet thread of the day
Government officials don't meet with outsiders to get new ideas. They just don't. They meet with outsiders to encourage them to defend the Administration publicly. This is about damage control.https://t.co/US7uwEWXKz
— Dr. Jeffrey Lewis (@ArmsControlWonk) March 15, 2021
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