Today’s random thoughts

• Paul Singer of Elliott Management has warned that hyperinflation is around the corner. Clearly, it’s not all about supply bottlenecks, but CB’s don’t like to take the blame.
• Everyone hates copper, uranium, gold, silver. Maybe it’s time to go long some producers. For example, $FCX, $CCJ, $GOLD, $PAAS. Not a recommendation, but they are all very hated right now. If we really are getting hyperinflation, Barrick Gold could literally be a gold mine. Uh, OK, it would be anyway.
• The gilts meltdown has shown the markets how quickly things can get ugly. The market have decided that gilts are a safe bet again, but how can they be sure that rebellious Conservative MPs who are going to be out of parliament next time can be whipped into voting for austerity yet again? If they don’t the finance bill will not pass and gilts will melt down again.
• Will China open up silently and boost demand for copper etc.? I have no idea, but I doubt if Xi will tell the world before he tells his cronies.
• Antonio Foglia attributes the strength of the US dollar to unwinding of hedging trades The argument is that if the US Long Bond has dropped by 20%, foreign holders who buy it for yield but then hedge out the FX risk by selling spot USD will have had to buy back a lot of spot USD to keep themselves hedged. If they lose interest in USTs, this will happen more. Sounds more plausible than the milkshake theory although much less compelling from a visual point of view.

Fear and loathing on the road to QT

This is fantastic:

What has gone away is our ability to hide the problem. QE, negative interest rates and rising indebtedness were the product and palliative of a condition caused by a prolonged deceleration in productivity growth to an average pace not seen since the 19th century. Real wages stagnated for several decades on the back of this deceleration, whilst asset prices soared due to the evaporation of risk-free interest rates. By redistributing shares of wealth and income to the high-saving top 10 per cent, the economic mix ensured that demand and inflation fell short, simultaneously dismantling the social contract that keeps politics non-toxic. Meanwhile, zero interest rates worsened the productivity slowdown by artificially prolonging the lifespan of the least productive enterprises. Then came Covid. In an economic condition of parlous growth, most developed countries responded to the shock by spending money, largely financed by central bank printing presses — some 13 per cent of GDP in the UK, 21 per cent in the US. This was a live experiment with the magic money tree, a policy long advocated as an antidote for the slow growth condition.

ZIRP has anaesthetized politics, but we’re waking up from narcosis into a world of fear and loathing. Eventually, something has to give, and there will be some redistribution and a return to normal productivity growth (which, in the long run really is everything).

The cost of Net Zero

As periodic reminder, the global energy transition to net zero will cost $150TN, or $5TN per year for 30 years, as much as the entire annual USA tax base (BofA). This means that the next crash will need to unleash global QE from every central bank to the tune of $3-5TN/year pic.twitter.com/T6OXQ9f0Kk

— zerohedge (@zerohedge) November 4, 2022

Wrap

Stocks and commodities were firmer Friday, with US indices trailing global peers, as growing expectations around China reopening fuelled ‘reopening’ trades in the backdrop of a mixed NFP report. The Dollar saw pronounced selling with the DXY down 2% at pixel time, its biggest daily fall since 2015, coming against broad non-Dollar currency strength, particularly the China-levered antipodes. Oil prices bounced by c. USD 4/bbl, their largest jump in a month, while industrial metals such as copper surged 8%. The Treasury curve saw pronounced steepening with inflation breakevens widening. While on the Fed path, money markets pared the terminal rate down slightly whilst moving further in favour of a 50bps December hike (vs 75bps) after the mixed October NFP report did little to argue against the Fed’s aims to decelerate the pace of tightening.

— Newsquawk

DXY turbocharged commodities generally, including gold, gold miners etc. It feels like we’re near a turning point in rates. Lots of chatter about Fed announcements, but if the Fed were going to pivot, they’d definitely send out the governors to throw up a lot of chaff to hide their intention from the radar.

Thoughts

https://journals.lww.com/co-cardiology/Abstract/2007/01000/Cost_effectiveness_of_automated_external.3.aspx

Summary: While highly targeted provision of automated external defibrillators in areas of greatest risk, such as casinos and airports, may be cost-effective, it will have little impact at a population level. Provision of more widespread public access defibrillation to sites with lower incidence of cardiac arrest is unlikely to be cost-effective, and may represent poorer value for money than alternative healthcare interventions in coronary artery disease.

https://pubmed.ncbi.nlm.nih.gov/23074470/

Conclusions: The OPALS study model appears cost-effective, and effectiveness can be further enhanced by training community volunteers to improve the bystander-initiated CPR rates. Deployment of AEDs in all public access areas and in houses and apartments is not cost-effective. Further research is needed to examine the benefit of in-home use of AEDs in patients at high risk of cardiac arrest.

It seems to me that people have terrible intuition about the frequency of occurrence of low-probability events. The proliferation of automatic external defibrillators (AEDs) in public places is a classic example of this. They are expensive to maintain and almost never save any lives, but they keep getting purchased by well-meaning public- and private-sector bodies who do not know any better but believe what the sellers of these devices tell them. (Yes, I know it’s quite conceivable that these have saved some lives, but (i) it’s never possible to definitely say that someone would have died without one of these things and (ii) if you really believe that if some lives are saved then buying an AED will have been worth it, maybe you’d like to advocate for MRI scans for everyone on a daily basis.)