A lengthy and wide-ranging New York Times assessment of “Putin’s War” detailing the last ten months of how a “walk in the park” became a catastrophe for Russia – as the story is sub headed – includes a particular bombshell buried deep within the narrative which has yet to be subject of widespread reporting.

US officials cited in the report say that Ukraine’s military and intelligence attempted to assassinate General Valery Gerasimov, Chief of the General Staff of the Russian Armed Forces, even after American officials urged against such a brazen action of unpredictable consequences, on fears it would invite uncontrollable Russian military escalation. 

While the key details embedded within the dozens of pages-long NYT Saturday report have received scant notice in broader US mainstream media, Russian state media has certainly already taken note, with TASS – among others – highlighting it.

The alleged Ukrainian attempt for a ‘decapitation strike’ on Russia’s top commander and Putin’s military right-hand during the planning phase involved Washington pleading for Kiev to call off an attack, only for US officials to find out they already launched it.

It reportedly happened in late April, during a time period in which unnamed American officials boasted that US intelligence was helping the Ukrainians take out Russian generals who were positioned on or just behind front-lines of fighting, as we detailed at the time.

In its new reporting, the Times says that last Spring, Russia’s top military brass decided it was necessary for generals to make trips to the front lines due to worsening morale: “But the generals made a deadly mistake: They positioned themselves near antennas and communications arrays, making them easy to find, the Americans said.” NYT describes further as follows in this key section of the report, thus allowing US intel to begin identifying top commanders’ whereabouts on the Ukrainian battlefield:

“Ukraine started killing Russian generals, yet the risky Russian visits to the front lines continued. Finally, in late April, the Russian chief of the general staff, Gen. Valery Gerasimov, made secret plans to go himself.”

The US apparently knew of the ‘secret’ trip in real-time, leading to the dilemma of whether to share the information with the Ukrainians. But the Times’ sources say Washington “kept the information from the Ukrainians, worried they would strike.”

The driving concern was that a provocation of that magnitude would increase the likelihood of direct war between nuclear-armed superpowers. The NY Times reveals what happened next: 

The Ukrainians learned of the general’s plans anyway, putting the Americans in a bind. After checking with the White House, senior American officials asked the Ukrainians to call off the attack.

“We told them not to do it,” a senior American official said. “We were like, ‘Hey, that’s too much.’”

The message arrived too late. Ukrainian military officials told the Americans that they had already launched their attack on the general’s position.

Dozens of Russians were killed in the strike, officials said. General Gerasimov wasn’t one of them.

Gerasimov is the equivalent of Gen. Mark A. Milley, chairman of the US Joint Chiefs of Staff, the highest-ranking military officer…

The Ukrainian authorities tried to kill the Chief of the General Staff of the Armed Forces of the Russian Federation Valery Gerasimov, according to The New York Times https://t.co/QqQoh5uJx3 pic.twitter.com/XdAnOZBOc0

— vicktop (@vicktop555) December 17, 2022

And as the report concludes of that key time period of April to May, “Russian military leaders scaled back their visits to the front after that.”

In May, unnamed senior American officials had begun leaking to US media greater intelligence-sharing with Kiev. This had reportedly led to the Ukrainians having killed in pinpoint strikes an estimated 12 Russian generals, which during those opening months of the invasion was an astonishingly high number (given the rarity in any war of deaths from among these highest officer ranks).

The month prior to that, Defense Secretary Lloyd J. Austin bluntly admitted of policy aims in Ukraine that the US wants to see a greatly “weakened” Russia. “We want to see Russia weakened to the degree it cannot do the kinds of things that it has done in invading Ukraine,” he had said at the time.

If the Ukrainians had managed to kill Gen. Gerasimov, it’s very possible the world could have already been in the throes of nuclear Armageddon. But thankfully this scenario until now has been avoided, but very narrowly …if the fresh NYT revelations are indeed accurate.

Authored by Claudio Grass via The Mises Institute,

Throughout the better part of 2022 there has been one question that has consistently, and predictably, popped up in conversations with my friends, clients and readers. Those who know me and are familiar with my ideas are well aware of my position on precious metals and the multiple roles they serve, so I can’t blame them for them for being curious whether I still “stick to my guns” in this era of irrationality in the markets and the economy.

Especially for those not versed in monetary history, which is regrettably the vast majority of the population, it is natural to wonder: “If gold is such a great hedge against inflation, why hasn’t it skyrocketed now that inflation is finally here?”

Well, there are a couple of reasons for that, some more obvious than others. The interest rate hikes that the Fed spearheaded and repeatedly escalated are the most straightforward explanation. At least that’s the answer most mainstream economists and analysts will give you. And it makes sense: If gold pays you no interest for holding it, then why not switch to something that does? This is the mindset of most investors and that weakens demand, which in turn drags the price down. That’s how the theory goes anyway. 

If, however, we’re willing to examine the question a little more closely, we might begin by scrutinizing its premises. The question takes for granted that gold has underperformed this year. But has it really? If you’re saving, getting your paycheck and paying your bills in a currency other than the dollar, you’re likely to have a very different view on this issue. In euros, gold is up around 6.6 percent. In yen, it’s up 17.9 percent In Egyptian pounds is up over 45 percent. What this clearly shows us, is that perspective matters. 

And for those that can see the bigger picture, that perspective is even clearer: Thinking about the gold price in terms of any fiat currency, not just the USD, is not really helpful. It’s not gold’s value that fluctuates, what fluctuates is the perceived and totally imaginary value of all these useless pieces of paper. After all, as all long-term, responsible precious metals investors know very well, there’s only one important trend and it’s an obvious one, as the chart below shows.

As I mentioned many times, I do not believe that short-term price considerations should play a pivotal role in the decision-making process of investors who hold gold for the right reasons and who understand why they do. What is important, however, is to look beyond the mainstream headlines and to be able to separate the signal from the noise. In our case, for example, one can find a million analyses and forecasts on gold’s outlook, all highlighting superficial dynamics and featuring simplistic arguments. Monetary policy projections are chief among them, and the narrative goes “Since we expect central bankers to do so and so, gold is projected to react in this way.”

Well, instead of trying to divine the intentions of central bankers, to guess what they’ll do and how it might affect the gold market, wouldn’t it make more sense to look at what those central bankers have actually done, rather than what they say? Cause what they did in 2022 speaks volumes: Globally, central banks accumulated gold reserves at a pace unseen since 1967, back when the dollar was still backed by the precious metal.

Consider this for a moment and then recall all their official statements and projections about the economy and how a recession is avoidable, about inflation and how it’s definitely, absolutely under control and about their faith in their own currencies. Feel free to draw your own conclusions about what’s coming. 

Looking forward to the next year, it is clear that there are many reasons to be concerned. The conflict in Ukraine shows no signs of abating and all the preexisting problems it seriously aggravated can also be expected to linger, if not get worse. Inflation is set to continue to plague the real economy, no matter how hard government statisticians try to cook the numbers: Even if CPI goes down, real households will continue to feel the pain. There’s an abundance of supportive forces working in favor of gold and the dynamics are so striking that even the big banks couldn’t help but notice. In early December, Saxo Bank put out an “outrageous” price forecast of $3,000/ounce, in its most “extreme” scenario of a worldwide “war economy.”

While price gains will certainly be more than welcome for physical gold investors, the metal’s real value is likely to become apparent too in the months and years to come. As States get increasingly desperate and fail to find a way out of the fiscal, monetary and sociopolitical hole they dug for themselves, they are bound to get more aggressive, as they’ve always been known to do. Threats to financial sovereignty, government power grabs, increased monitoring and control over private assets and savings, are all likely to become more dire. And under these conditions, physical gold really shines, especially when it’s securely and compliantly held outside one’s own jurisdiction, as well as, outside the traditional banking system.

The days of “SPAC Jesus,” Chamath Palihapitiya, have been over for a while.

It has been apparent that the special-purpose acquisition companies (SPAC) bubble peaked in 1Q21 and has been in freefall ever since.

The Securities and Exchange Commission’s (SEC) crackdown on SPACs, top investment banks scaling back activity in the space, and mounting macroeconomic headwinds have led to a surge in SPAC liquidations and Initial Business Combination (IBC) terminations, as well as perhaps the start of a possible de-SPAC bankruptcy wave. 

The latest figures about the SPAC market collapse come from a recent note via Water Tower Research’s chief analyst Robert Sassoon, who told clients, “one-quarter of the companies de-SPACed since the start of 2021, currently trading below the $1 level.” 

“We are likely to see more de-SPAC bankruptcies in addition to the six that filed for bankruptcy this year, but at some point, the value hunters, whether they be strategic or financial buyers, will look through the de-SPAC wreckage for the hidden gems,” Sassoon said. 

Sassoon’s note titled “SPACs and the Hype Cycle” provides the view the winter cycle in SPACs could be nearing a trough, but before that happens, more pain is likely in the space. 

“While we think there will be more de-SPAC bankruptcies declared, we may be close to the trough of disillusionment stage of the cycle. This may be the point that value hunters may be readying themselves to seek out the hidden gems among the de-SPAC wreckage.” 

The analyst pointed out the model used by management consulting firm Gartner about the new adoption of new technologies, particularly the adoption life cycle of new technology. With the hype cycle over, Sassoon believes a “trough of disillusionment” could soon arrive. 

Even though a trough in SPACs is inevitable, that doesn’t mean a bust cycle can worsen in the intermediate timeframe. Sassoon showed liquidations and IBC terminations are soaring this year, with the risk of increased de-SPAC bankruptcies next year. 

He said, “the surge of liquidations is that it is helping to accelerate the re-balancing of the SPAC market.”

Here’s a complete list of all the SPAC liquidations completed in the first half of December. 

Nearly a quarter of all de-SPACs trade below $1. 

What could be evident is that the SPAC winter cycle might worsen amid a challenging macroeconomic environment but could be nearing a trough, as Sassoon’s note explains. Our view would include the need for the Federal Reserve to loosen financial conditions for that to happen, which could occur as soon as late ’23, if not early ’24. 

One infamous British banker and politician from the Rothschild family, Baron Rothschild, once said the best time to buy is “when there is blood in the streets.” 

Authored by Thomas McArdle via The Epoch Times,

Your attention please. This century’s scheduled performance of the apocalypse has been postponed indefinitely, ladies and gentlemen. Your tickets will be refunded at the box office…

On Dec. 5, 2022, scientists at the Lawrence Livermore Laboratory’s National Ignition Facility in California aimed 192 laser beams at a pinhead-sized target containing deuterium and tritium and a fusion reaction succeeded in releasing more energy than the amount delivered by the lasers. But this achievement of inertial confinement fusion is not only the first time in history that nuclear fusion has worked under controlled conditions (in contrast to a thermonuclear bomb); those lasers also disintegrated the green energy fanatics’ arguments in favor of dismantling the world’s 90 percent-plus fossil fuel-based $85 trillion economy. They have now been discredited as much as Martin Fleischmann and Stanley Pons’s sloppy claims of having conducted fusion at room temperature in 1989, despite the two’s up-until-then impressive scientific credentials.

Until Dec. 5, California Gov. Gavin Newsom’s banning of gasoline-powered cars by 2035 was excessive in the extreme; now it is simply illogical. The global rise of nearly 3 degrees Celsius in temperatures by the end of the century that the United Nations fears will now be headed off in half that time, likely less, thanks to mankind’s scientific ingenuity. The same kind of scientific ingenuity that in latter decades has allowed oil companies to reach and extract more than 7 billion barrels of oil and 600 trillion cubic feet of natural gas in “impossible to reach” locations thanks to the engineering breakthrough of hydrofracking. The results have included millions of new jobs for Americans, the reduction of greenhouse gas emissions, lower energy prices, and (until Joe Biden became president of the United States) American energy independence.

Nuclear fusion is the means of energy generation conducted within the sun, and for mankind’s needs it is a source of energy that is for all practical purposes infinite. Unlike the nuclear fission utilized in today’s nuclear power plants, fusion would not generate unstable nuclei that remain radioactive for millions of years and must thus be transported for permanent disposal to nuclear waste sites. Nor would fusion entail the risk of accidents releasing fatal amounts of radioactivity to populated areas (the danger of which from fission reactors the nuclear power industry has minimized in recent decades); nor could a fusion apparatus be used to construct nuclear weapons.

Now that we know inertial confinement fusion works in a controlled laboratory setting, the challenges in bringing about its widespread industrial use, which pertain to energy delivery to the target; availability of tritium or the development of the use of an alternative such as boron or helium-3; symmetry control; heating and density of the fuel; hydrodynamic stability; and shockwave convergence, can all be expected to be solved within the next 40 years. The United States, after all, is the nation that constructed the hydrogen bomb in a tight time frame, landed a man on the moon within a decade, and invented the microprocessor whose improved versions in budget smartphones of today dwarf the computation power of NASA’s supercomputer of the 1960s.

And none of the progress that can be expected from this month’s breakthrough precludes further study and experimentation of other possible forms of nuclear fusion—colliding beam fusion, inertial electrostatic confinement, muon catalyzing, photoelectric fusion, and hybrid fusion-fission. Like fracking, breakthroughs in these areas can arrive unexpectedly and change the game entirely.

But if you think the left, both here and around the world, is going to stand for their mission to cripple capitalism being derailed by a scientific breakthrough, you don’t know them. Fusion opens the floodgates of energy; radical environmentalists, on the other hand, want energy to trickle down and be rationed in accordance with government edicts. Instead of a world of limitless possibility in which even those who are now poor can live out their dreams, the left’s dream is a world of severe restrictions on economic prosperity and individualism, a global economy in which solar panels and windmills and mass transit are forced on the public as a duty. A society in which the freedom of driving your own family car is replaced by the mobility limits, enforced conformity, and artificial community—not to mention discomforts, lack of privacy, and crime—of the bus and train for all (except possibly the likes of Biden climate envoy John Kerry and other climate policemen among our governmental betters, who are wedded to private luxury travel).

Beyond the bugaboo of possible accidents and the health effects of marginally increased radiation produced by fission plants, the anti-nuclear movement’s arguments (pdf) against nuclear energy have revolved more in recent years around high costs, and the many years it inevitably takes to plan, license, and construct new plants; and in the years to come we can expect them to insist on unreasonably heavy regulatory hurdles imposed by government when fusion becomes industrially feasible. In other words, artificial impediments to the realization of fusion’s benefits for mankind.

There can be no forgetting, however, that the environmentalist left is driven by the irrationality of pure fanaticism, and their objective is to revolutionize society into complete unrecognizability. Only in September, Jane Fonda was asked how her new climate-focused political action committee “will be able to deliver on a fully de-carbonized America.”

Instead of presenting any science, Fonda replied: “There would be no climate crisis if there was no racism. There would be no climate crisis if there was no misogyny,” adding that “we need to take a good look at” America’s free market economic system. “All of the experts, and I’m not one, say this will force us and this will be an opportunity to restructure the way humanity lives on the planet. … Between now and 2030, we could cut fossil fuels in half, but then we have to do a whole lot of other things.”

We can be sure that in the coming years Democrats will invent obstacles to private research on nuclear fusion, and that “Big Fusion” will replace Big Oil as the new demons of capitalism. Fusion bursts one of the Democratic Party’s biggest political bubbles: Democrats won’t be able to fundraise on the idea of the world coming to an end when a fusion-powered economy is a few decades away and will solve climate change and all the other energy problems they can concoct.

But if we want nuclear fusion to come on line cheaply as soon as possible and produce the definitive solution to a hotter earth, we will let private industry be in charge, largely unfettered, instead of dreaming up a plethora of new, excessive regulations.

And in the meantime, with total global oil shale resources 1,000 times greater than the more than 1.6 trillion barrels of crude oil reserves in the world that by themselves will last us another half century; plus 100 years of clean natural gas that is now reachable within the United States alone thanks to fracking, the fusion breakthrough means no apocalypse for our grandchildren to suffer after all.

So in the near term, keep solar panels and windmills secondary, and drill, baby, drill.

By Peter Tchir of Academy Securities

The Path to Q1 Deflation

The odds that we get at least one month of negative inflation data in Q1 is increasing. Will deflation become a concern in Q1? That is possible (and maybe even probable) if we continue on the course of action that we are currently taking. I do not believe that we will be worried about inflation in a meaningful way by the end of Q1. In fact, as you can tell from Inflation Risk Factors and 2 + 2 = 5, I think that we have already set ourselves on a course that we will regret.

Today we will outline how and why Q1 deflation is a bigger risk than having high inflation in Q1. I use the term “risk” because the deflation will be linked to a recession that starts sooner and will be worse than consensus (Friday’s data makes me wonder if it hasn’t already started).

Inflation

Let’s start with a closer look at where we are with inflation today.

Inflation Elimination/Simplification

This chart includes three common measures of inflation – CPI, CPI Core, and PCE Core. The point of this chart is to justify only looking at Core CPI. They all move more or less in line, with overall CPI being a little more volatile and PCE being a month behind in terms of data. So, when we use CPI in charts in later sections, we will use Core CPI because we don’t give up much information in terms of the narrative that we are creating and the charts will be much simpler to understand.

Core CPI – Chart Looking Better

Two things that stand out on this chart:

1. We have not seen an increase in the monthly data for 3 months (the trend is looking good). If this was a stock chart, it is starting to look like one that is giving up the gains and returning to normal. I’m not sure that charting and technicals are the right ways to look at economic data, but they are meant to take the emotion out of decisions and help us recognize patterns (this may be more relevant than we think).
2. The past two months have been at levels that are below the top end of the range for the five years leading up to COVID. The past two months are “nothing burgers” in terms of inflation if examined from an objective viewpoint. Wasn’t the goal to get inflation lower? Wasn’t that the policy intent? Hasn’t it worked?

The Lag Effect in Action

I’ve used the two-year yield here as it is a good representation of what the market is pricing in for monetary policy at the front-end (the 10-year “marches to the beat of many drums” and the front-end only responds to the actual hikes, not the anticipation of hikes, which is a monetary policy tool in and of itself).

This chart, while volatile, seems to offer some reasonably clear evidence that:

1. In 2021, the easy money helped drive inflation.
2. There is a lag effect in terms of monetary policy reducing inflation. Rates started rising in late 2021 and accelerated in 2022. Inflation data remained uncomfortably high as rates rose.
3. Rates continued to rise, and inflation started to behave much better. I guess you could argue that it took higher yields to tame inflation (and that certainly helps), but I suspect part of it is that it takes time for higher yields to make their mark. People don’t lease a new car every day and not every mortgage resets immediately. Not everyone changes their prices to reflect changes in behavior. Certain purchases, already committed to, will still happen. The cost of carrying inventory goes up slowly as well. There is a lag effect, and my belief is that much of the “good” behavior we are seeing in inflation data is a response to prior hikes and the more recent hikes are only beginning to kick in!
4. For the soft or even “Squishy Landing” crew, the fact that 2-year yields are stable recently is good. We are pricing in less future action so there is a chance that more of the policy decisions are priced in. However, this is wishful thinking as the inflation reaction is heavily skewed to prior hikes and actions, so we haven’t fully seen the impact yet (a bit disturbing since inflation for the past couple of months looks to be more and more under control).

The lag effect is real and even with that lag, inflation is behaving better. What happens when more hikes (that have already been announced) kick in? Deflation seems to come to mind, but we have potentially only just begun to go down that path.

Let’s Not Forget the Balance Sheet

Quantitative Easing:

• Directly impacts asset prices (the riskier the asset the bigger the benefit from QE).
• The wealth effect is real in that it affects spending and is therefore inflationary.
• I believe that QT reduces asset prices. Since they are only using run-off, it isn’t as impactful as buying long-maturity assets, but it is real and will decrease wealth (in stocks, bonds, housing, and crypto to name a few areas).
• Like other parts of monetary policy, it is not always a straight line on a daily basis and there is a lag effect (it takes time for the increase in wealth to convert to greater spending, and vice versa).

So, while the market is fixated on terminal rate projections (more on that in the next section), maybe we shouldn’t ignore the impact of QT which no one has talked about changing (and they shouldn’t). I’m convinced that someone will win a Nobel Prize for highlighting how dangerous QE is as a policy tool.

To summarize this first section:

• Recent inflation data is pretty good and getting into the “normal” zone.
• The lag effect seems real, making the changes we have already seen in inflation more powerful.
• Balance sheet reduction is likely affecting asset prices and inflation.
• If not for 2021’s “failure” to identify inflation and kill QE early, we’d be pretty comfortable with the recent inflation data. We were still doing QE in 2022 even as we were discussing rate hikes.

Part of me would like to type QED now and say that we’ve proved our point and enjoy the rest of the weekend, but there is a lot more to write about to convince you why deflation is the path that we are on.

Don’t “They” Know Better?

If the policy makers had a great record of success, then I wouldn’t be worried that we are making a huge mistake and their efforts to fight inflation risk are creating a deeper recession than is necessary. But they did miss inflation and there is no reason to believe that they are any more likely to get it correct this time. In fact, you could argue that they are more likely to get it wrong, because they are dealing with the damage to their reputations from missing inflation and may have a problem acting objectively.

The DOTS – 1 Year Apart

This week the Fed spent time convincing the market that the terminal rate needs to be higher. This time last year not a single person had rates above 3% (at any time) out to 2024! By this time last year, the “transitory” story had started to shift, but we were still doing QE and talking about possible hikes, though the consensus was for less than 1% by the end of 2022! This wasn’t just a little wrong, it was very wrong! Sure, Russia’s invasion was unknown, but all throughout the year they increased the dots and terminal rate. I look at this dot plot and it gives me the energy to continue to the next section. At least I can be on the record if their hiking goes “pear shaped” and hurts the economy and the country far worse than was likely necessary!

Oil and Sauron

There are several “next steps” I could take on the path to deflation, but let’s start with oil. I guess Sauron could refer to Putin, but I was thinking more in terms of “one ring to rule them all.” There is no commodity as important as oil because it permeates the economy. It impacts the cost of producing goods, the cost of shipping goods, and how much money consumers have to spend on goods.

If Russia has to capitulate and come to some sort of a truce oil will drop even further, but that is not part of the current analysis.

Oil – Not Great, but Not Horrible

Despite OPEC+ curtailing production, the ongoing war in Ukraine, the alleged re-opening of China, and the U.S. making some purchases to refill the Strategic Petroleum Reserve, oil prices are coming down. From a CPI perspective (not Core because it excludes energy), it will be a good thing.

The two biggest “benefits” are that production and transportation costs will drop which will help to reduce inflation. But as discussed in Incongruous we should be careful what we wish for.

I use the 6-month forward WTI contract to smooth things out, but typically as oil goes up, stocks do well (and vice versa). That was the case from 2016 until just recently.

The same pattern holds true for the 2003 to 2011 period (with a couple of short exceptions).

Even from 1999 until 2002 the pattern held up pretty well.

In any case, I’m not sure we should cheer low oil prices. Maybe what is counteracting all of the potential reasons for oil to be higher is that the economy is slowing much faster than is currently showing up in the official data.

I argued (vehemently) back in 2015 that higher energy prices were great for jobs and the economy overall and I still believe that.

At the time, energy was a big part of the high yield market which struggled during that timeframe (there was even an “ex-energy” ETF launched in early 2016). I think back to how that one sector so heavily affected some markets and the economy and cannot help but think of parallels to today.

The Disruptive Economy

We highlighted this so much last weekend in Inflation Drivers that I won’t rehash the argument here. What I will add is that when I look at some jobs data, “management” makes up 6.3% of the workforce but 13.4% of the income and it seems like those jobs are under pressure.

Computer and math jobs are only 3.3% of the workforce, but 5.7% of the costs. This area is still strong, but I am seeing the reshuffling of jobs as some big companies are cutting back here.

These two areas, which rank 1 and 3 in terms of wages (legal is number 2) could face pressure. That will make even small amounts of jobs lost more impactful.

Just like “energy” was the main focal point of economic (and market) problems in 2015, “disruption” seems to be front and center right now. However, while this sector isn’t a big part of the debt markets, it is a large part of the equity markets (and alternatives) and why there could be a lot more pressure if the slowdown persists (rates aren’t the main driver here, but they are not helping).

Take This Job Data and Shove It

In 2 + 2 = 5 we highlight the issues around job data, particularly the Philly Fed’s report that Q2 jobs were overstated by more than 1,000,000 in the NFP reports!

The year started with 1.3 million more workers on the Establishment Survey than on the Household Survey. They differed by 950k in Q2 (maybe the Philly Fed report has some substance).

There are a lot of issues with both sets of data, but it seems a bit “optimistic” to only focus on one measure, especially after the work the Philly Fed just did.

To put this in a different perspective, in March the unemployment rate was 3.6% (it is now 3.7%). That is based on the Household Survey. The Establishment Survey showed that 2 million more jobs were created since then, so if those jobs had shown up in the Household Survey, the unemployment rate would be about 2.2%. Just think about that. If the jobs in the Establishment Survey are correct, even from just the start of the year, we’d have sub 3% unemployment. Does this feel like an economy running that hot?

There are so many questions on the quality of the job data (and ADP is somewhere in between since they started republishing this year with their amended methodology) that it seems difficult to base our view on the job market on these numbers.

ISM Jobs Story Seems More Realistic

2021 was HOT! Lately, not so much! Not awful, though several months below 50 this year (even for services) doesn’t hint at a job market that is out of control, especially for the high paying jobs that really drive inflation!

I’m trying to get better at pulling data directly from indeed.com. I’m told, by some good people, that it is dropping faster than JOLTS, but I cannot yet verify that myself (at least not in an intelligible way).

This Policy Mistake Will Be Worse Than the Last

It is bad to miss inflation (especially when there were so many telltale signs that it was real and not transitory) but it will be worse to trigger a recession that is avoidable.

Who cares what the stock market does over a day or a week? Who cares if financial conditions improve a bit when so many other factors (including QT) are combining in a “perfect storm” to “normalize” inflation!

I am extremely worried that we have already done too much, and that we are pushing our economy into unnecessary danger zones when we should be focused on transforming our energy industry, redeveloping supply chains, improving trading relations, and ensuring that we are “safe” from pandemics (or at least more in control of the necessary materials).

The fight against inflation is now misplaced, and I’d rather see us living with 3% inflation and striving to accomplish a lot, rather than creating unnecessary job losses and opportunities for our competitors.

The path to deflation is becoming less avoidable and beating inflation (so badly) is not the victory that we should be striving for.

This week’s “risk-off” trading with low yields and lower equities may be a harbinger of things to come based on our apparent policy priorities and data “analysis.”

Many industries were hit hard by the global pandemic, but it can be argued that air travel suffered one of the most severe blows.

The aviation industry as a whole suffered an estimated $370 billion loss in global revenue because of COVID-19. And, as Visual Capitalists’ Carmen Ang explains below, while air travel has been slowly recovering from the trough, flight passenger traffic has yet to fully bounce back.

Where is the industry at in 2022 compared to pre-COVID times, and when is air passenger travel expected to return to regular levels? This graphic by Julie R. Peasley uses data from IATA to show current and projected air passenger ridership.

Air Travel Traffic: 2021 and 2022

After an incredibly difficult 2020, the airline industry started to see significant improvements in travel frequency. But compared to pre-pandemic levels, there’s a lot of ground to cover.

In 2021, overall passenger numbers only reached 47% of 2019 levels. This influx was largely driven by domestic travel, with international passenger numbers only reaching 27% of pre-COVID levels.

From a regional perspective, Central America experienced one of the fastest recoveries. In 2021, overall passenger numbers in the region had reached 72% of 2019 levels, and they are projected to reach 96% by the end of 2022.

In fact, the Americas as a whole has seen a quick recovery. Both North America and South America also reached above 50% of 2019 ridership in 2021, and are projected to reach 94% and 88% ridership in 2022, respectively.

On the opposite end of the spectrum, Asia Pacific has experienced the slowest recovery. This is likely due to stricter lockdowns and travel restrictions put into effect in this region (which was harder hit by SARS in 2003), especially in places like Shanghai.

Forecasting Traffic in 2023 and Beyond

While recovery has looked different from region to region, airlines are largely expected to see a full recovery to their ridership levels by 2025.

This recovery is a signifier of a much broader mindset shift, as governments continue to reassess their COVID-19 management strategies.

But while the future seems promising, IATA stressed that the forecast does not take into account the potential impact of the Russia-Ukraine conflict and other geopolitical concerns, which could have far-reaching consequences on the global economy (and travel) in the coming years.

By Stephan M Kessler, global head of quantitative investment strategies (QIS) research at Morgan Stanley, and Vishwanath Tirupattur, global head of Quantitative Research at Morgan Stanley,

As year end approaches, one thing is clear: we will remember 2022 as a dismal year for traditional investment strategies across asset classes.

With around 10 trading days remaining, major equity markets across the globe have posted double-digit negative returns for the year, with the S&P 500 down ~19%. Government bonds, which typically come to the rescue when equities see a significant drawdown, didn’t deliver as global central banks raised policy rates dramatically, taking the World Government Bond Index down ~17% year to date. Credit markets declined as well, with the Bloomberg Global Aggregate Credit Total Return Index posting a negative total return of ~15%. For traditional investment strategies, there really was nowhere to hide. Nevertheless, 2022 has turned out to be a decent year for systematic factor or quant investing. As measured by the SG Alternative Risk Premia Index, quant strategies posted a healthy positive total return of 3.9%, providing both diversification and capital appreciation in a difficult market environment. We will explore why systematic factor strategies performed relatively well and what 2023 may hold for them.

We are often asked how quant strategies, which are predicated on historical data, can handle a volatile market environment with few historical precedents. Don’t current dynamics “break” quant strategies? In our view, quant’s strong outperformance in 2022 resulted from a diverse set of catalysts. We think that the monetary policy tightening unleashed by global central banks led to substantial and durable macro trends that could be captured by “trend-following” strategies. A re-emergence of dispersion in interest rates across the globe sparked the revival of “carry” strategies. Equity value investing re-emerged as higher rates forced investors to focus more closely on fundamental valuations, increasing the efficiency of the “value” factor. Disruption in valuations related to technological advances has receded – e.g., the normalization of Tesla’s valuation versus the broader auto sector. Similarly, communications sector disrupters have surrendered some of their outperformance. More broadly, we saw the gap between value and growth valuations shrink.

We think these performance patterns are likely to continue in the coming year. Our economists anticipate a transition from an environment with generally rising policy rates to one where inflationary pressure recedes and our macro strategists look for rates curves to steepen. During this transition, we expect global growth to slow, with G10 GDP growth bottoming at 0.2%Y in 3Q23. Not surprisingly, our chief investment officer Mike Wilson expects US equity markets to sell off in 1Q23, reaching levels as low as 3,000-3,300 for the S&P 500 before ending the year about flat at 3,900. From a quant perspective, these significant market swings tend to favor short-to-medium-term trend-following strategies. As the differences in central bank policies across the globe persist, “carry” returns should be attractive. Indeed, being long bonds in regions with high rates may benefit investors as their holdings appreciate when rates eventually normalize. Finally, defensive value investing tends to be well placed to deliver returns offsetting the higher cost of capital.

In our 2023 Global Strategy Outlook, we highlighted a range of quantitative strategies that we feel particularly strongly about for 2023. One way to capitalize on the outlook for the continuation of trending markets and peaking rates is through a rates trend-following strategy with a long bias toward rates. While the environment continues to be favorable for value investing, with market volatility remaining high investors should concentrate on undervalued stocks of high quality – crossing value filters with quality filters, in quant speak. Equity value improvements we have suggested in the past – reducing accounting noise, considering sector effects, and incorporating cyclical effects on performance – should be additive. Value-investing benefits extend to rates value strategies as well. In fact, translating our rates strategists’ views into expected returns, the outlook for a rates value strategy is strong.

Finally, 2022 was challenging for sellers of rates volatility. With policy rates peaking and inflation decelerating, strategies that incorporate systematically selling rates volatility should be profitable in 2023. While we would overweight the strategies outlined above, we continue to emphasize that success in quant investing requires careful portfolio construction that diversifies across different quant strategies.

Enjoy your Sunday, and we wish you all a festive holiday season and prosperous new year.

Days ago Russia’s defense ministry (MoD) publicized a video showing off its ability to quickly deploy a powerful nuclear ICBM anywhere within the country – with a range capable of striking anywhere in Europe or the United States – as it was seen being loaded into a missile silo after being rapidly transported via land.

Below is video released by the Russian MoD, subsequently republished and circulated in Western press reports: 

The Kremlin described that the military had loaded an “intercontinental ballistic missile into a silo launcher” in Kozelsk, in western Russia, soon after the Biden administration said it is mulling providing Ukraine with Patriot missile anti-air defenses, which would mark yet another significant escalation of Washington’s involvement in the war.

The MoD statement identified the missile as a “Yars” – possessing a nuclear warhead – which was the same type test-fired by Russian nuclear forces in October.

According to Newsweek, citing regional press reports: 

Komsomolskaya Pravda reported that the Yars missile complex which was loaded in the Kaluga region had the capacity that was “12 times greater than the American bomb that destroyed Hiroshima,” referring to the atomic weapon dropped on the Japanese city on August 6, 1945.

The mass circulation paper’s report also outlined some of the missile’s specifications, which included an operational range of up to 12,000 kilometers which can strike the U.S. or anywhere in Europe, and a payload of up to 500 kilotons.

The Kremlin’s release of the footage, coming so close in time to prior ICBM tests, seems a clear response to the White House saying it might send Patriots to Kiev.

President Putin recently restated the country’s traditional nuclear doctrine, underscoring he doesn’t seek to deploy nuclear arms, but also warned he is ready to do so if Russian territory comes under existential threat. This after Ukraine has over the past months launched a series of brazen drone, missile, and sabotage attacks inside Russia-held Crimea, and even deep into Russian territory itself in cross-border raids. Western media took Putin’s words as another nuclear threat aimed at Ukraine and its military backers.

Authored by Dale Steinreich via The Mises Institute,

December 16, 2022, was the fifteenth anniversary of the modern Tea Party. That fact will come as a surprise to many readers who take the mainstream narrative about the Tea Party at face value. The mainstream account begins on February 19, 2009, when Rick Santelli, live on CNBC from the trading floor of the Chicago Mercantile Exchange (CME), declared a rebellion against “socialism” one month into the Obama administration.

If you’re already sensing something amiss, that’s understandable. An editor at establishment NBC lighting the fire of an anti-establishment rebellion? An uprising over mere proposed Obama bailouts of mortgage holders coming four months after silence over (if not a defense of) George W. Bush’s $700 billion TARP bailout of Wall Street? If this mainstream narrative seems fishy the more you delve into it, that is because it is.

What really happened 15 years ago and how was the Tea Party transformed from a libertarian grass-roots movement to today’s almost completely dead establishment version? What are some of the lessons that can be learned?

The Ron Paul Revolution (October 2007)

The ground-zero event that founded the Tea Party was the registration of the domain TeaParty07.com on October 24, 2007, by supporters of Ron Paul’s first presidential campaign. Here is archive.org’s snapshot of the site on November 13, 2007 displaying the famous original curled flyer:

Twelve days after the site registration came Guy Fawkes Night on November 5, 2007, when Paul supporters set off the first “money bomb,” a campaign fundraiser which (for Internet fundraising) raked in a record $4.3 million. Then on December 16, 2007, came the 234th anniversary of the Boston Tea Party. Paul supporters in Boston re-enacted the dumping of tea into Boston Harbor and a newcomer to politics, ophthalmologist Rand Paul, spoke at Faneuil Hall. A second money bomb set off on this commemoration of the Tea Party raised over $6 million, shattering the previous record set 41 days earlier.

What was this schism on the American Right about? It was a rebellion against the Republican Party’s wars (in particular, the twin disasters of Afghanistan and Iraq), its drunken-sailor federal spending (e.g., a $500 billion unfunded expansion of Medicare for a new prescription drug program), and its burgeoning post-9/11 federal spy and police state (for example, the Patriot Act signed into law on October 26, 2001).

From Grass-Roots Activism to Big-Money Corporatism (February 2009)

By February 2009, the GOP lay in complete tatters. In addition to its endless wars and domestic spending spree, it had added a $700 billion bailout of Wall Street after the financial crisis of 2008. This in addition to a series of earlier post-9/11 outrages including a new Transportation Security Administration (TSA) in November of 2001 (by all common sense, a massive encroachment on a function each airline should have been responsible for to begin with), the so-called No Child Left Behind Act in January of 2002, and a Frankenstein consolidation of 22 executive-branch agencies into a new, gigantic Department of Homeland Security (DHS) in November of 2002. 

As if all that weren’t bad enough, instead of nominating Ron Paul in 2008, the GOP had nominated conservative “war hero” John McCain and Alaska governor Sarah Palin. A war-weary public completely rejected the ticket in favor of a younger, articulate Barack Obama who promised peace and a revived economy. 

The Santelli rant sprang the conservative and GOP establishments into action to transform a marketing vehicle that would serve to not only distract the public from their recent colossal policy failures, but also serve as a gold mine of self-enrichment: t-shirts, coffee mugs, bumper stickers, Taxed Enough Already (TEA) yard signs, fluff books from the conservative pundit class, Glenn Beck rallies promoted by the Fox News Channel, and Rush-Limbaugh brand iced tea and children’s books.

As Sarah Palin replaced Ron Paul as the face of the movement, a surreal change in advocacy followed. The anti-interventionist Tea Party, once outraged about the endless occupations of Afghanistan and Iraq, was now wanting the U.S. to bomb and invade Iran just as it had Iraq. Rally chants of “End the Fed” were replaced with “USA! USA! USA!” a paean to the U.S. military-industrial empire.

A Tea Party in February?

By 2014, the faux Tea Party’s fifth anniversary, it was clear that the mainstream media were firmly on board advancing the new, ersatz establishment narrative, as 2014 headlines such as “Tea Party Marks Fifth Anniversary” made clear.

Still, glaring inconsistencies remained. The grass-roots Paulist Tea Party began on December 16, 2007, the 234th anniversary of the original Sons of Liberty protest of 1773. The conservative and GOP forgery of February 19, 2009, was not connected to anything but the advancement of the self-serving and corporatist interests of Big Conservatism and the GOP. Even the latter’s supposed founder, Rick Santelli, was quickly pushed offstage while the Fox News Channel, Glenn Beck, Sean Hannity, Rush Limbaugh, and others took center stage.

Epilogue: Decentralization vs. Fighting to Gain Control of Leviathan

While the Ron Paul Revolution, from the spread of homeschooling to Austrian economics, continues on fifteen years later educating people around the world, conservatives and the GOP in late 2022 find themselves in circumstances much like those of early 2009. Unfortunately, they have no quick scam to hoodwink the public with this time around.

The Trump presidency, bereft of any consistent underlying philosophy seen so clearly in both Ron Paul presidential campaigns, promised to drain the D.C. swamp but then, in complete contradiction, worked to maintain the empire by hiring a series of crazed war hawks (including Bush-era fossil John Bolton), bombing Syria, assassinating Iranian military officer Qasem Soleimani, and creating a new wing (Space Force) of the military-industrial complex that did little more over four years of Trump’s presidency than try its best to undermine Trump at every turn. Going along with the oppressive Fauci-Birx economy-killing COVID lockdowns and other measures sealed Trump’s fate in terms of destroying his chances of re-election.

While the conservative pundit class now focuses obsessively on the recent Twitter files documenting how social media actively worked against Trump’s 2020 re-election campaign, they are already quickly forgetting the 2022 midterm Big Red Wave that quickly vanished on election day, never mind their promised 2012 Mitt Romney landslide against Obama that never materialized. 

While Twitter’s spiking of the October 14, 2020, New York Post story about Hunter Biden’s laptop undoubtedly had an impact on the 2020 election, in effect it was nowhere near the daily impact of the most successful progressive and Democratic Party super PAC that ever was: the government “schools.” The conservative pundit class has zero solutions to it other than vouchers and charter schools that only serve to shift and repackage Marxist indoctrination. They cannot comprehend the idea that once government has its hands on tax revenue, it has all the leverage and spends it in a manner that best advances its interests, which is always progressive causes.

Now pundits such as Laura Ingraham are seriously proposing that the GOP’s only way to counter the Democrats is to outdo the Democrats at their ballot-and-vote-manipulation schemes. (This from the woman who championed Mitt Romney over Ron Paul in 2012, then after Romney’s defeat, proposed reviving Richard Nixon’s Southern Strategy as the new ticket to endless future GOP victories.)

A national breakup is the only way to truly save Red states from the growing pathologies in the Blue ones (high crime, taxes, onerous business-smothering red tape), but the conservative pundit class won’t go for it in a million years. As part of his legacy, Ron Paul may have persuaded them to no longer want any part of new wars such as those in Syria and Ukraine that they would have loved under George W. Bush. However, they have no intention of truly dismantling the U.S. military-industrial empire. Leave Puerto Rico and Guam? Are you kidding?! USA! USA! USA!

Journalist Matt Taibbi hit back at Rep. Ted Lieu (D-CA), who called him a liar for suggesting that the FBI has been “analyzing and mass-flagging social media posts” instead of “chasing child sex predators or terrorists.”

Dear @mtaibbi: I’m on the House Judiciary Committee that has oversight over the @FBI and you are lying. The FBI has lots of agents chasing child sex predators and terrorists. Please stop undermining and lying about federal law enforcement. https://t.co/nUcrwRyjRU

— Ted Lieu (@tedlieu) December 17, 2022

Taibbi responded to Lieu, suggesting that he could shed light on actual figures:

“Being on that committee,” Taibbi replied, referring to the House Judiciary Committee Lieu brought up, “you should know:

– How much has been spent, and how many DHS/DOJ employees have been assigned, to monitoring and flagging social media? – Why is the FBI asking for “location information” about ordinary Americans and media outlets like @RSBNetwork ?

Taibbi also asked Lieu “What “law enforcement” objective is served by asking for Billy Baldwin’s location information?” and why the FBI and DHS are in the business of analyzing and flagging social media content at all.

– What “law enforcement” objective is served by asking for Billy Baldwin’s location information?
– Why is the FBI/DHS in the business of analyzing and flagging social media content at all? When were these programs created and who approved them? pic.twitter.com/vEigT4ksKV

— Matt Taibbi (@mtaibbi) December 17, 2022

Your turn Ted…

*  *  *

Following the latest ‘TWITTER FILES‘ drop, which revealed that “Twitter’s contact with the FBI was constant and pervasive, as if it were a subsidiary,” journalist Matt Taibbi commented that “Instead of chasing child sex predators or terrorists, the FBI has agents — lots of them — analyzing and mass-flagging social media posts.”

Instead of chasing child sex predators or terrorists, the FBI has agents — lots of them — analyzing and mass-flagging social media posts. Not as part of any criminal investigation, but as a permanent, end-in-itself surveillance operation. People should not be okay with this.

— Matt Taibbi (@mtaibbi) December 16, 2022

In response, California Democratic Rep. Ted Lieu lashed out – telling Taibbi: “I’m on the House Judiciary Committee that has oversight over the @FBI and you are lying,” adding “The FBI has lots of agents chasing child sex predators and terrorists. Please stop undermining and lying about federal law enforcement.”

To which researcher Tracy Beanz asked FBI whistleblower Steve Friend to chime in.

Oh? Hey @RealStevefriend !! Maybe you wanna hop in here and help him?

— Tracy Beanz (@tracybeanz) December 17, 2022

Friend, a former 12-year veteran of the FBI and a SWAT team member, notably came out in October to claim that the agency went into hyperdrive to track down and investigate January 6th cases to promote the appearance of right-wing domestic terrorism, at the expense of other investigations – such as child trafficking.

Friend was suspended and stripped of his gun and badge in September for refusing to participate in SWAT raids against January 6th subjects accused of misdemeanor offenses, according to the NY Post.

As Taibbi wrote in November of Friend;

He worked a child pornography detail before being transferred to the assignment that would upend his life: investigating J6. The FBI not only took Friend off vital work chasing child predators to pursue questionable investigations of people maybe connected with the Capitol riots (often in some misdemeanor fashion), they used dubious bureaucratic methods he felt put him in an impossible spot.

Essentially, the FBI made Friend a supervisory agent in cases actually being run by the Washington field office, a trick replicated across the country that made domestic terrorism numbers appear to balloon overnight. Instead of one investigation run out of Washington, the Bureau now had hundreds of “terrorism” cases “opening” in every field office in the country. As a way to manipulate statistics, it was ingenious, but Friend could see it was also trouble.

As a member of a dying breed of agent raised to focus on making cases and securing convictions, Friend knew putting him nominally in charge of a case he wasn’t really running was a gift to any good defense attorney, should a J6 case ever get to trial.

“They’re gonna see my name as being the case agent, yet not a single document has my name as doing any work,” Friend says. “Now a defense lawyer can say, ‘Hey, the case agent for this case didn’t perform any work.’ Labeling the case this way would be a big hit to our prosecution.”

And so, in response to Lieu’s tweet, Friend wrote: “Hey @tedlieu, I’ll be happy to explain how I was moved from investigating child exploitation and human trafficking and told to focus on January 6. I was told child pornographers should be considered a “local matter.””

Absolutely @tracybeanz. Hey @tedlieu, I’ll be happy to explain how I was moved from investigating child exploitation and human trafficking and told to focus on January 6. I was told child pornographers should be considered a “local matter.” https://t.co/iE7KJ9fZt7

— @RealStevefriend (@RealStevefriend) December 17, 2022

So far crickets from Lieu, though he’s quite the prolific Tweeter so maybe Friend will get a response.

The FBI, meanwhile, responded to Taibbi’s “The Twitter Files” thread, in which he said that between January 2020 and November 2022, former Twitter Senior Director of Trust & Safety, Yoel Roth, had exchanged over 150 emails with the agency.

“The FBI regularly engages with private sector entities to provide information specific to identified foreign malign influence actors’ subversive, undeclared, covert, or criminal activities,” the FBI said in a statement. “Private sector entities independently make decisions about what, if any, action they take on their platforms and for their customers after the FBI has notified them.”