US demographics are bad but still way better than China, Germany or Japan.

The world is running out of people. At least, it’s running out of people of working age. Labour and capital are complementary factors of production. A collapse in labour supply will depress demand for capital, and with it returns on capital. This is why global rates have been so low, and why central banks want to get rid of cash. (They want to deny savers the option of keeping notes under the mattress.)

The world is in a bad shape, but the least bad part of it is the USA, especially if it does not get taken over by Trumpians hell-bent on building walls at the border with Mexico.

The conclusion of all this is bullish for USD, just like Brent Johnson said.

Image

John Bulmer pic.twitter.com/hvrmXS7NWK

— Daniel Brami (@Daniel_Red_Eire) May 12, 2022

Wrap

(Written before London close, because I am leaving early.) Today was a massive risk rebound. Yields, equities, commodities, non-US currencies, crypto all jumped. Polkadot cryto token (me neither) jumped 37%, as Terra & Luna are pulled down in a death spira. Near-dated oil futures jumped 3.5%, but the longer-dated contracts moved much less (i.e. the backwardation increased).

There didn’t seem any obvious catalyst for this. Presumably, it was just the market getting ahead of itself, and deciding on a bear market rally. Or, maybe that’s it: the whole drop in risk assets over the last week or so was just a bull market pullback. I haven’t the faintest idea what’s going on, but it’s interesting that $VOLQ (the NDX vol index) was over 38 yesterday, whereas it has read as low as 18 only this year (back in Jan).

Luna/Terra repercussions?

From Alex M:

–While inflation figures this week were higher than expected, the ten yr treasury vs inflation-indexed note spread declined to a new recent low 259 bps. In other words, by destroying asset prices, the Fed is succeeding in lowering future inflation expectations. Bravo. The meltdown in terra/luna stablecoins was dismissed by Yellen as not being large enough to be systemically threatening, although the WSJ notes that $1T of crypto ‘wealth’ has vanished in six months. On a human level it’s awful as message boards are now including suicide hotlines. Often, people comment that money from one sector is being pulled out and is flowing to another sector, as if the total remains the same. This isn’t a flow. It’s just gone. The other aspect of markets which is constantly underappreciated is that in some cases, a relatively inconsequential pocket of stress can be easily absorbed, and in other cases, it can spark a series of wildfires — if the tinder is dry enough. It’s always the stuff at the margins. And that’s the stuff that the experts typically shrug off. “Subprime: it’s a mile wide and an inch deep.”