Authored by Michael Maharrey via SchiffGold.com,

Silver is significantly undervalued right now. One analyst called the current price in the $22 an ounce range “inexcusably low.”

But many analysts are bullish on silver in the medium term with projections of prices climbing to $50 to $100 an ounce over the next two to five years.

The question is when will we finally start to see this correction?

Silver has languished in 2023. While gold is up over 4% on the year, the price of silver has declined by over 5%.

We can see the growing spread between silver and gold in the silver-gold ratio, currently running at over 84-1. That means it takes over 84 ounces of silver to buy one ounce of gold. To put the current ratio into perspective, the average in the modern era has been between 40:1 and 50:1.

Historically, the ratio has always returned to that mean. And when it does, it does it with a vengeance. The ratio fell to 30-1 in 2011 and below 20-1 in 1979.

When the spread gets this wide, silver doesn’t just outperform gold, it goes on a massive run in a short period of time. Since January 2000, this has happened four times. As this chart shows, the snapback is swift and strong.

Current Dynamics

Silver has faced the same headwinds as gold with the Federal Reserve pushing interest rates higher to battle price inflation. Fed monetary policy has strengthened the dollar and sticky price inflation has kept investors on edge with expectations of more rate hikes. This has pressured the price of both gold and silver lower.

Silver has faced additional bearish sentiment due to a slowing economy. Sagging demand for consumer electronics has impacted industrial demand for both silver and gold. BMO Capital Markets commodities analyst Colin Hamilton noted that while the global economy has held up better than expected in the face of monetary tightening, “This is almost solely down to resiliency in the services economy while the manufacturing side is clearly feeling the strain.”

This disproportionately impacts silver because industrial demand makes up over 50% of total silver demand, as compared to only ~7% of gold.”

But looking at the longer term, the supply and demand dynamics are bullish for silver. In fact, there is a looming supply shortage.

Analysts believe that the growing demand for silver in the solar power industry will likely put a significant squeeze on supply in the coming years, and the current price of silver does not reflect the likely shortages.

We’re already seeing a tightening silver supply. While silver demand set records in every category in 2022, supply was flat with mine output falling by 0.6%. This resulted in a 237.7 million ounce market deficit in 2022.

It was the second consecutive annual deficit in a row. The Silver Institute called it “possibly the most significant deficit on record.” It also noted that “the combined shortfalls of the previous two years comfortably offset the cumulative surpluses of the last 11 years.”

This trend is not expected to reverse. Silver Bullion Pte Ltd. CEO Gregor Gregersen recently noted that silver mine production has fallen due to a lack of investment.

Production cannot be materially increased over the short term as it can take over 10 years to commence new mining operations. Therefore, increased silver prices will not lead to increased mine production for a long time.”

Meanwhile, we are likely about to see a huge increase in demand for the white metal thanks to the push for green energy.

Due to its outstanding electrical conductivity, silver is an important element in the production of solar panels. It is used to conduct electrical charges out of the solar cell and into the system. Each solar panel only uses a small amount of silver, but with the demand for solar panels growing exponentially every year, those small amounts of silver add up.

According to a research paper by scientists at the University of New South Wales, solar manufacturers will likely require over 20% of the current annual silver supply by 2027. And by 2050, solar panel production will use approximately 85–98% of the current global silver reserves.

Recession worries would typically dampen industrial demand for silver, but the photovoltaic industry and the “green energy” sector more generally are essentially recession-proof due to support from governments around the world. With battling climate change a priority, it is highly unlikely investment in solar power and other green energy technologies will fall, even in the midst of an economic downturn.

And it’s important to keep in mind that while silver is an industrial metal, more fundamentally, it is money. Despite being more volatile in the short term, silver tends to track with gold over time. If you are inclined to think the Federal Reserve will lose the inflation fight, you should be bullish on both gold and silver.

At some point, investors will have to reckon with the shrinking supply of silver coupled with rising demand, along with the Fed’s inability to bring inflation back to its 2% target. When that happens, the price of silver will likely take off.

Given the supply and demand dynamics, the skewed silver-gold ratio and the likelihood that the Fed will not beat price inflation, $22 silver looks like a great buying opportunity.

As we reported in July, China’s youth unemployment in prior months reached new record highs against a backdrop of disappointing second quarter GDP growth. China’s jobless rate for 16-to-24-year-olds surpassed 20% in June for the first time (at 21.3%, compare this to 12% just before the pandemic), with the next round of data out this week showing the official national figures had risen to 5.3% in July.

But now it seems in classic CCP fashion the “solution” is to simply make these troublesome figures disappear. 

And so, the overseers of the world’s second-largest economy are taking firm steps to do more to shore up confidence the only way they know how – Beijing will now stop releasing youth unemployment figures altogether.

A government spokesman confirmed the decision Tuesday, vaguely alluding to a “generally stable” employment situation among recent college graduates. Fu Linghui of the National Bureau of Statistics claimed that withholding the data going forward is a matter of refining the way unemployment figures are calculated.

“The economy and society are constantly developing and changing. Statistical work needs continuous improvement,” the spokesman stated.

The decision appears to confirm the very thing Beijing authorities are the most concerned about, and it’s been met with swift backlash online, at a moment China’s post-pandemic economic recovery is obviously slowing, and amid growing concerns over the crisis-hit property market. 

“They are lying every day,” 24-year old Cassie Sun, who is unemployed, said to NBC.

One commenter on Weibo complained, “The National Bureau of Statistics is being capricious,” and added:

“The unemployment rate is an important indicator of national economic development and should not be arbitrarily decided whether to release or not. The public has the right to know the truth.”

“As long as I don’t announce it, then nobody is unemployed,” another poster said. If only…

Problematically, the youth population is an important driver for overall consumption: the 15-24 year-old group accounted for 17% of total consumption (2010 data, based on household surveys and academic research). This age group tends to spend more on culture and education, residence (for example paying rents), transportation and communication.

Compounding the emerging unemployment crisis is, as FT notes, the news that China has officially fallen into deflation:

“Deflation is feared because declining prices persuade people to defer purchases, cooling the consumer vigor that Beijing has been trusting to propel a recovery from the pandemic,” the outlet observes.

Concerning unemployment, if there is one thing Beijing wants no part of, it is tens of millions of young Chinese sitting idle, doing and earning nothing as they watch their big city pals sport the latest gadget du jour, and getting angry – if not regime changey – thoughts.

FT presents an example of how President Xi’s dominant “comprehensive national security” emphasis is weighing heavy on the young, adding to the uncertainty…

The concerns of Wang Ning (not his real name), who works for a technology consultancy in Beijing, help demonstrate the way in which worries over China’s political direction are crimping people’s desire to spend. Even though he earns an above-average salary of Rmb35,000 a month, Wang has begun imposing spending quotas on himself, arranged by specific categories.

Dining out, for instance, is limited to Rmb1,000 a week while spending on clothes and other items is similarly subject to fiscal discipline. The reasons for his austerity are a mix of big picture geopolitics and job market insecurity. Like many big city dwellers these days, his long-held belief in a better tomorrow has been undermined by what he sees as Beijing’s preoccupation with national security at the expense of generating GDP growth.

“I save as much as I can to prepare for black swan events like an invasion of Taiwan or a collapse in real estate markets,” Wang says. Speculation over whether and when China might seek to attack Taiwan — which it regards as its own territory — has become a feature of private conversations in large cities, with 2027 often cited as a likely date.

Meanwhile, the government has given no timeline on this temporary suspension on publishing youth joblessness data.

This is China.

A country with an economy so bad (and getting worse by the day) and a government so oppressive (and getting worse by the day) that the best it can do for its economy is to prohibit talking about it.

This is China. https://t.co/KRjTwye4IV

— Dan Harris (@danharris) August 15, 2023

What we can be sure of though, is that the censors are busy clamping down on those Chinese citizens brave enough to vent their anger and frustration online.

Of course, this kind of censorship is nothing new, as the FT reports, Chinese authorities are (again) putting pressure on, which is a polite way of saying barring, prominent local economists to “avoid discussing negative trends such as deflation, as concerns mount about Beijing’s ability to boost a flagging recovery in the world’s second-biggest economy.”

Finally, although a little tongue in cheek, we did offer a ‘solution’ to China’s youth unemployment crisis.

Commodore Research notes that “it is becoming increasingly uncomfortable that the world’s concerns of a coming war in Taiwan are intensifying at the very same time that China’s youth unemployment is surging.”

And while caveating its prediction, the firm cautions that “the record level of China’s youth unemployment, concerns over Taiwan, and countless Ukrainian and Russian youth already engaged in a European land war all continue to weigh heavily on our mind.”

Authored by Bryan Jung via The Epoch Times,

The smash box-office success, “Sound of Freedom,” is continuing to rake in earnings as it surpassed the latest Indiana Jones movie over the weekend.

The 131-minute film, about the crime of child trafficking, has beaten major Hollywood studio films, doing so with just a budget of $14.5 million, much of it through crowdfunding.

Walt Disney Company shelved “Sound of Freedom” in 2018 until Angel Studios obtained the distribution rights with it opening in U.S. cinemas on July Fourth and going on to beat Disney’s “Indiana Jones and the Dial of Destiny.”

The Indiana Jones movie reportedly had an estimated production budget of $294 million, not counting marketing, making the film a loss thus far.

As of Aug. 13, “Sound of Freedom” has so far raked in $172,813,772 at the domestic box office, just ahead of the $172,624,353 made domestically by the fifth movie in the Indy franchise, the first since Disney bought it from its creator George Lucas.

The Indiana Jones movie opened on the weekend of June 30 to an underperforming $60 million.

Overcoming Studio Hurdles

“Sound of Freedom” is based on a real-life former Department of Homeland Security (DHS) agent Tim Ballard, who saved children from international child sex trafficking rings. Mr. Ballard quit his DHS job and journeyed into the jungles of Colombia to save children from sex slavery.

The film also features Academy Award-winner Mira Sorvino and Bill Camp from “12 Years a Slave”. 

The film was directed by Alejandro Monteverde and produced by Eduardo Verastegui. 

Mr. Ballard is portrayed in the film by Jim Caviezel, best known for playing Jesus Christ in Mel Gibson’s 2004 hit Christian film, “The Passion of the Christ” and as Edmond Dantès in 2002’s “The Count of Monte Cristo.”

The movie has been the greatest surprise at the domestic box office in 2023, surpassing other anticipated films like “Mission: Impossible—Dead Reckoning Part One,” “Elemental,” and “The Flash,” according to Box Office Mojo.

Angel Studios CEO and co-founder Neal Harmon told the Washington Examiner last month that “Sound of Freedom” was “initially made with [21st Century] Fox.”

“After it was completed, Fox was acquired by Disney, who said, ‘We can’t release this film,’” said Mr. Harmon.

“Eduardo spent over a year before [Disney] released the rights to the film. At that time, he tried to take it to theaters, but just as they were, COVID hit, and another three years passed.”

“We want to answer the prayers of children as soon as possible,” Mr. Harmon said after independent investors saved the film from obscurity, despite discouragement from industry experts who said a summer release would be a disaster due to blockbuster competition from the big studios.

Jim Caviezel (L), actor in the new human trafficking action film “Sound of Freedom,” and Tim Ballard (R), a former Department of Homeland Security special agent and founder of Operation Underground Railroad, speak during an interview in Washington on June 21, 2023. (Madalina Vasiliu/The Epoch Times)

Hollywood Critics Call Film Too Political

The film was screened by former President Donald Trump at his golf course in Bedminster, New Jersey, who praised the film as inspirational.

“It’s something that I’m not sure you’re supposed to enjoy or learn [from]. It’s a combination,” said Mr. Trump, who later posed with the star Mr. Caviezel at the screening.

“That was a great movie. And now I understand why it is doing so well. It’s an incredible inspiration,” he said.

In response to critics who called the film political, Mr. Monteverde and co-writer Rod Barr, wrote an Aug. 14 opinion piece in Hollywood Reporter, stating that the movie was “not in the least bit political.”

“Child trafficking is not a conservative or a liberal issue. It is a fundamental human rights issue, one that strikes at our very core as human beings,” the two said.

“Everyone who has seen Sound of Freedom knows that the movie itself is not in the least political. It is based on the story of a real person, Tim Ballard, who quit his job at Homeland Security to rescue trafficked children.”

“In the development, research and writing of the story, we don’t recall a single conversation with Tim about politics. Why? Because personal politics should be irrelevant when you are rescuing children from human trafficking,” they wrote.

Image from the “Sound of Freedom” movie, starring Jim Caviezel, that was released nationwide on July 4, 2023. (Courtesy Angel Studios)

Mr. Monteverde and Mr. Barr added that Americans should not let politics “prevent us from doing the work necessary in the ongoing fight to end child trafficking.”

Mr. Caviezel, who has been a critic of the alleged sexual scandals in Hollywood, hit back at media criticism of the movie.

“They’re scared. Quaking in their boots. And it’s because the public are listening to their hearts, which is what this film tells you to do,” referring to those in the industry who wish to silence the film in a July interview.

“Child trafficking is a global issue, and we hope to build on the incredible momentum here in the States and share the film’s powerful message worldwide,” said Jared Geesey, senior vice president of global distribution for Angel Studios.

The film has only been released in North America but will be released internationally on Aug. 18, when it premiers in South Africa.

The film will later be rolled out in Australia and New Zealand on Aug. 24 and in other countries.

Moviegoers in Mexico, Guatemala, El Salvador, Colombia, Bolivia, Peru, and Costa Rica, will first see the film on Aug. 31.

Authored by Mike Shedlock via MishTalk.com,

Bidenomics and the EPA have America on a path of inflationary and environmental madness that’s all pain and no gain…

Painful and Pointless

Please consider the Heritage Foundation article China Abandons Paris Agreement, Making U.S. Efforts Painful and Pointless

Three Key Takeaways

1. China has repeatedly stated that it has no intention of going along with the Western push to net-zero.

2. EVs are not emissions-free, because they need electricity to charge them, and electricity generation creates emissions.

3. All these costs will result in no reduction in global emissions. The EPA has America on a path to all pain and no gain.

It was a bad week for anyone who thought China would cooperate on emissions reduction. President Xi Jinping reiterated that his country would set its own path on the issue and not be influenced by outside factors, according to the Washington Post and Bloomberg. This contradicts Xi’s 2015 Paris Agreement pledges to reduce its carbon emissions at the latest after 2030.

This should not be news, because Xi gave the same message last fall. In October 2022, he said that China would not abandon coal-fired power plants before renewables could substitute for the lost fossil fuel.

In April, the EPA released a proposed tailpipe rule that would require 60 percent of new vehicle sales to be battery-powered electric by 2030, and two-thirds by 2032. And in May, the EPA proposed a power-plant rule that would require most power plants to sequester, or bury, 90 percent of their carbon emissions, or go out of business by 2040.

These rules would result in tens of billions of dollars in annual costs to the U.S. economy—and with no reduction to global emissions, if China replaces U.S. emissions with its own emissions.

EVs are not emissions-free, because they need electricity to charge them, and electricity generation creates emissions. Even the EPA states in the proposed rule that “we expect that in some areas, increased electricity generation would increase ambient SO2, PM 2.5, ozone, or some air toxics.”

The power-plant rule would raise the cost of electricity just as the EPA plans to have millions of new EVs access the grid. Sequestering 90 percent of carbon emissions on such a large scale has never been done before, and it is not an “adequately demonstrated” technology. The only proven option for a power plant to comply with the proposed regulation is to close down.

The rule would remove power from the grid at a time when America needs more power for planned electrification, and it would likely cause more blackouts. Blackouts can have serious consequences, including death, especially if they occur during periods of unusually high or low temperatures when power is most needed.

In addition, higher costs of electricity will have adverse economic effects. Prices will rise, manufacturing will go offshore, and layoffs and unemployment will increase. All this will lower GDP growth and reduce Americans’ standard of living.

The EPA has America on a path to all pain and no gain.

Second Thoughts in the EU

Because of rising costs to achieve climate goals, the EU is having second thoughts .

Also, support for the Green party in Germany is crumbling and support for Marine Le Pen is rising in France.

Behold, the Rise of the Anti-Greens

Please consider my July 24, 2023 post Behold, the Rise of the Anti-Greens

A major revolt is underway in the EU. Citizens have finally had enough of Green nonsense. The latest polls provide all the evidence you need.

The German AfD party is now polling 22 percent ahead of every party other than Union (CDU/CSU).

None of this should be surprising. The costs of the EU’s climate change mandate are soaring and people have had enough of it.

Electric Vehicles for Everyone?

On July 19, I asked Electric Vehicles for Everyone? If the Dream Was Met, Would it Help the Environment?

My follow-up post was What Do MishTalk Readers Think About “Electric Vehicles for Everyone?”

Math Does Not Add Up

The EV math does not add up in the EU or here. But the Economic and Monetary Union (EMU), better known as the Eurozone, has economic debt brakes and budget rules that make matters more painful for the 20 EMU countries.

In the US, deficits pile up as do the economic impacts of a massive wave of Bidenomic regulations and mandates.

We pretend that deficits don’t matter and mainstream media not only looks the other way, but is in on the act with countless fearmongering stories.

As a direct consequence, the US is riding a huge wave of inflationary and environmental madness. The only way to stop it is for Republicans to oust Biden in the next presidential election.

A reader ignorantly commented “My Tesla S can easily over a hundred miles per gallon equivalent. As utilities get cleaner so does my car. ”

I replied: Well la de da.

Where did the minerals come from for your battery? At what cost? At what cost if everyone stupidly did the same?
At what environmental cost to extract the minerals.
At what cost to build the infrastructure so everyone can plug in?

No one has ever scaled EVs to estimate the mining costs and infrastructure costs if everyone did the same thing.

It’s like all these free money experiments of giving people money to see if it makes their lives better.

No one has ever scaled EVs to estimate the mining costs and infrastructure costs if everyone did the same thing.

It’s like all these free money experiments of giving people money to see if it makes their lives better.

Zuckerberg Supports Universal Basic Income

For discussion, please see Zuckerberg Supports Universal Basic Income

*  *  *

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Hoax-funding election denier Hillary Clinton sat down with MSNBC‘s Rachel Maddow this week to cackle over the prosecution of Donald Trump.

According to Clinton, who destroyed evidence with bleachbit and hammers, ran an illegal server out of her house containing highly classified documents, and was given a ‘no reasonable prosecutor’ pass by the FBI, Trump’s indictments represent a “terrible moment” for America, and that “The only satisfaction may be that the system is working.”

Hillary Clinton and Rachel Maddow share a laugh about Trump being indicted in Georgia. pic.twitter.com/G7CiY4QLR1

— Kevin Tober (@KevinTober94) August 15, 2023

Things got a little awkward, however, when Maddow launched into a screed over election denial – during which Hillary Clinton sat in silence.

Rachel Maddow says to Hillary Clinton “if bad actors tell us falsely that every election is stolen and that the only way an election is trustworthy is that if they come out on top of it, it tells you something not just about that person but it wounds us as a democracy in a way… pic.twitter.com/QEt1yl9FhG

— Greg Price (@greg_price11) August 15, 2023

Awkward!

Earth to Rachel Maddow…

In 2019, Hillary Clinton said, “You can run the best campaign, you can even become the nominee, and you can have the election stolen from you.” pic.twitter.com/WLtvtkcgoU

— Steve Guest (@SteveGuest) August 15, 2023

Watch the entire Maddow-Clinton interview below:

Authored by Charles Hugh Smith via OfTwoMinds blog,

After all, “they can always print more money.” That’s always the solution until it becomes the problem.

What we call economics is best understood as:

1. A mechanism that distributes resources asymmetrically: some benefit more than others.

2. The running of the herd: humans are a social-herd species.

3. Everyone seeks a windfall: something for nothing, or grabbing more while doing less.

4. Everyone seeks to make windfalls permanent by rigging the mechanism to favor their interests.

5. The mechanism is a system of self-reinforcing feedback loops that generate diminishing returns, blowback and unintended consequences.

This perspective helps us understand the progression of the economy from 2021 to 2024. In a nutshell:

• 2021: massive stimulus, “meme stock” bubble

• 2022: “Revenge” splurging, inflation

• 2023: AI stock bubble, “soft landing”

• 2024: Forced Frugality

So massive stimulus initially triggers the locked-down herd into meme stocks, inflating a bubble. Once the lockdowns end, this massive stimulus unleashes “revenge spending” where price no longer matters, we need a vacation, a new wardrobe, etc., never mind the cost.

Unsurprisingly, this tsunami of price-insensitive spending while the distribution mechanism was still struggling to reconnect disrupted global supply chains leads to 1) rampant price gouging / profiteering and 2) rampant inflation as costs are passed up the food chain.

Many costs are “sticky” and rarely decrease: taxes, fees, wages and benefits, healthcare, rent, insurance, childcare, etc. typically only ratchet higher. Any ratchet lower is rare and modest, and eventually reversed.

The net result is self-reinforcing inflation, as stimulus never really stops: windfalls are rigged to be permanent, even as broad-based stimulus dries up.

Two things happen when windfalls are rigged to be permanent: 

• 1) the distribution of resources (“money,” entitlements, tax breaks, subsidies, goodies of all kinds) becomes increasingly asymmetric (the already-rich get much richer at the expense of those barely holding their ground) and

• 2) the source of the supposedly permanent windfall generates self-reinforcing feedback loops that lead to diminishing returns, blowback and unintended consequences.

In other words, the asymmetric distribution either self-corrects or enters run to failure feedback. Either way, the sources of the windfall cease functioning, and the result is forced frugality. Windfalls that were presumed to be permanent are revealed as temporary asymmetries whose own dynamics generate decay, diminishing returns, blowback and run-to-failure.

And always, of course, the gravy train ending is “impossible” because recency bias encourages us to think the distribution mechanism has god-like powers and permanence. Bur frugality ends up being forced one way or another, even if the stimulus appears to increase. Bubbles deflate and windfalls shrink and then reverse into doing more to get less.

After all, “they can always print more money.” That’s always the solution until it becomes the problem.

  *  *

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Russia’s defense minister Sergei Shoigu in fresh remarks before a security conference in Moscow acknowledged that while the special military operation in Ukraine has been a real test for Russia, the reality is that Ukraine’s ability to fight and its resources have been “almost exhausted”. 

He further said the Russian military has learned much about the West’s advanced weapons systems in the process. “In the special military operation, the Russian army has debunked many myths about the superiority of Western military standards,” he said in the rare public speech, as cited in Reuters.

“The preliminary results of combat operations show that Ukraine’s military resources are almost exhausted,” he emphasized at one point, but without providing further specifics.

Importantly, China’s own defense chief, Li Shangfu, was in the audience for the event. The Kremlin has recently said that a Putin trip to Beijing to meet with President Xi Jinping is “on the agenda”, to happen by year’s end.

Shoigu during the speech touted the large numbers of Western-supplied tanks and armored vehicles that have been taken out on the Ukrainian battlefield. 

“We have data on … the destruction of German tanks, American armored vehicles, British missiles and other weapons systems,” he said. “We are ready to share our assessments … with our partners.” 

Likely he had China in particular in mind, also as he followed by comparing the West’s deep involvement in Ukraine to the Taiwan situation. He then said: “Under these conditions, bilateral relations between Russia and China have surpassed the level of strategic ties in all respects, becoming more than just allied.”

While time may soon tell whether or not Ukraine’s defenses are “almost exhausted” – it has become very clear that the counteroffensive is not going well, and Biden’s ‘all in’ support to Kiev is becoming politically unpopular and an additional liability for Democrats going into the 2024 presidential election.

Perhaps the biggest geopolitical legacy of the Ukraine war will be strengthening the China-Russia relationship. https://t.co/yxOspAZJJT

— Max Abrahms (@MaxAbrahms) August 15, 2023

Another key part of the Russian defense chief’s speech touched on nuclear weapons. He blasted allegations by the West that Putin is ready to use them: 

“From a military point of view, there is no need to use nuclear weapons in Ukraine to achieve the set goals,” Shoigu said at an international security conference in Moscow.

He slammed media speculation that Russia could potentially use nuclear or chemical weapons to compensate for slow progress in its nearly six-month military campaign in Ukraine as “absolute lies.”

Alarmist headlines related to the potential for nuclear apocalypse in international press reports grew especially after Moscow moved tactical nuclear weapons into neighboring Belarus. The Kremlin, however, noted the US had long kept nukes in Europe and Turkey under NATO’s nuclear-sharing arrangement. Russian officials have also emphasized that nuclear doctrine has not changed.

Yet another stunning move in European NatGas on Tuesday as prices soared 15% following last week’s 40% jump due to increasing labor action risks in Australia. 

Bloomberg spoke with energy traders who said the Gorgon facility on Barrow Island off the northern coast of Western Australia had reduced sales over the increasing risks of a strike. 

Talks were scheduled to take place between union officials and Woodside Energy Group Ltd., one of the two companies operating the affected liquefied natural gas facilities. –BBG

A Goldman Sachs analysis revealed potential strikes at three top LNG sites operated by Chevron and Woodside Energy Group Ltd. could disrupt global supplies. These three locations account for as much as 10% of global LNG exports.

“The potential for strike action at LNG export plants in Australia once again highlights the fact that we are now clearly in a globalised gas market,” ICIS analyst Tom Marzec-Manser told the Financial Times.

“Europe has understandably backfilled Russian pipeline supply with versatile LNG. But that versatility leads to increased price volatility.”

On Monday, Australia’s Fair Work Commission approved workers at Chevron’s Wheatstone offshore platform to vote on possible industrial action. This follows earlier labor action votes for workers at Wheatstone and Gorgon downstream facilities and at Woodside’s North West Shelf. 

Australia’s Top Producing LNG Areas

Today’s news sent European benchmark NatGas futures up 15%. Prices soared 40% last week after the first report of potential labor action at various LNG facilities in Australia could threaten global supply. 

The good news for Europe is that demand for NatGas remains soft. Storage facilities across the continent are 89.45% full, the highest level for this time of year in over a decade. 

Before Europe and much of the Northern Hemisphere realize it, the heating season will arrive in the next couple of months, driving demand for NatGas higher.

The bad news is that Europe’s decoupling of reliable and cheap NatGas flows from Russia subjects it to sourcing the fuel elsewhere around the globe, making it prone to supply snarls and or what could soon be labor actions in Australia.

“The crisis is not over yet,” the chief executive of E.ON, one of Germany’s biggest utilities, said earlier this month.

“We must continue to work on the issue of austerity. This is the best way to ensure affordability for customers and also to achieve competitiveness of our society and our economy.”

If the CEO of E.ON is talking about austerity—not exactly a popular idea among regular electricity consumers—then the situation must be serious. It suggests there is no great chance of abundant LNG supply and weak competition from Asia that would make the commodity cheaper. That leaves limiting demand as the only choice.

Winter is coming

By Michael Every of Rabobank

The Real Barbenheimer

Key emerging markets are ‘bombing’:

• Despite rising oil prices, the Russian RUB briefly fell past 102, with an emergency central bank meeting today likely to raise rates.

• Despite rising agri commodity prices, Argentina officially devalued ARS by 18% and raised interest rates 2,100bps to 118% – as Bloomberg puts it, “to reassure investors as assets went into free fall Monday after a populist who vowed to burn down the central bank won surprisingly strong support in a primary vote.“

• Despite soaring auto exports and a vast trade surplus, China’s CNY and CNH are brushing 2022 lows, with rumours of massive FX intervention to prevent a slump to levels last seen 20 years ago: yet the PBOC worked in the opposite direction in surprising markets today with a 15bps cut to its 1-year Medium-Term Lending Facility Rate to 2.50%.

Yes, Russia has a near war-economy, Argentina’s leading presidential candidate wants to dollarize the economy without holding any dollars, and China has massive economic problems. But JPY is also 145.5 despite a bumper Q2 print of 6.0% y-o-y annualized vs. 2.9% expected, which will put more pressure on the BOJ to allow 10-year yields to drift higher. Indeed, what we are seeing is a market chain reaction that was both predictable and arguably deliberate – it just takes the correct theoretical way of understanding the world to grasp it.

This kind of thinking is not something Mr. Market likes to do because it’s hard and uncomfortable. For example, in the movie Oppenheimer it’s revealed that once Einstein released his Theory of Relativity in 1905 it would inevitably lead to a deadly global nuclear arms race decades later: Ouch! Equally, economic theories implemented since the 1980s which made Mr. Market rich have inexorably led us to exploding financial assets today.

If willing, start by recognizing the global economy has vast structural problems related to neoliberal financialisation and asset bubbles replacing physical production from the late 1970s until the Global Financial Crisis in 2008; then idiotic negative-rates-and-austerity can-kicking to bail out the rich; then a Covid lockdown and fiscal surge with no local supply chains; and now rapid rate hikes, which are straining global asset classes. The results have been simply awful.

‘The Long, Slow Death of Global Development’ outlines how Global South economies used to have industrial sectors as growth drivers until neoliberalism hollowed them out, leaving only volatile commodity and rates cycles and low-productivity services “wage hunters and gatherers”, “too many workers and far too few good jobs to put them in”, and “premature financialization” of a “highly predatory character.” That’s Argentina, and many others. There is no easy fix, which is why ‘dollarisation’ is flagged as well as ‘dedollarisation’, global commodity producers try to move up the value chain, and we see war and coups.

Yet today the West looks like the Global South too. Its YouTubers, TikTok influencers, and gig jobbers can’t afford to buy or rent a home, marry or have kids, or even eat well or stay warm: they flood into digital pyramid schemes. Governments seem incompetent or powerless. Populism is surging. The Guardian argues, ‘Let’s stop kidding ourselves we’re a rich nation and get real… the UK’s gone bust’, and that: “Britain has to start thinking of itself not as a rich industrial country but as a poor country facing first-order economic development challenges. Large parts of the UK are scarcely better off than middle-income developing countries, and on current trends are about to get poorer.” I was saying DM = EM in 2022, if you recall.

China didn’t follow the neoliberal script with its mercantilist state-capitalism, and post-2008 relied on massive debt/over-investment as well as a property bubble. Yet there is a limit to how high property prices can usefully go, how low the consumption share of GDP can fall, how much debt can be carried, and how much investment can be productively absorbed – and those limits have all been exceeded, with everything made worse by a trade and tech war with the US.

Indeed, local government finances and the national economy are reportedly “on the verge of collapse, and the thunder will explode at any time.”; Country Garden just defaulted; Zhongzhi Enterprise Group missed payments on high-yield investment products; recent bank loan data were terrible; and today saw industrial production 3.7% y-o-y (4.3% expected), retail sales 2.5% y-o-y (vs. 4.0%), fixed asset investment 3.4% y-o-y year-to-date (vs. 3.7%), property sales -8.5% y-o-y year-to-date (vs. -8.1%), and unemployment 5.3% vs. 5.2%. Summing it up, China “has fallen into a psycho-political funk,” says the FT, as its youth tell Soviet jokes again or say ‘let it rot’, and a high-earning Beijing worker is quoted as saving as much as he can to prepare for a property crash or a move against Taiwan.

So, yes, theories implemented decades ago are coming home explosively. But what now?

Mr. Market thinks there is an easy way out. There isn’t. Rate cuts won’t help China and will put more pressure on CNY, which will create more global protectionism, while Chinese FX intervention will risk pushing US Treasury yields higher, pushing the dollar up more. More fiscal stimulus into over-priced property or under-utilised infrastructure or capital stock won’t help growth, nor will more consumer debt. Deep structural change is needed, but isn’t politically acceptable.

The same is true for the West. There, Mr. Market sees the solution as rate cuts and austerity. Both will only accelerate metastasizing Brazilification. Stimulus into over-priced property would also be useless, although unlike China it can go into over-utilised infrastructure or capital stock.

So can we project forward using Einstein > Oppenheimer theoretical logic of what might help? Yes.

I mentioned at the beginning that the explosion being seen in EM today was arguably deliberate. Allow me to expand on that.

As ‘The Long, Slow Death of Global Development’ concludes:

Western elites “have not forged a new developmentalism that they can offer the poor world in the aftermath of global deindustrialization. In the absence of a new paradigm… it is the blind who are leading the blind. Indeed, the intellectual exhaustion of the elite “development community” is hard to fathom. In its upper echelons, those who still believe in the hoary orthodoxies of past decades –free trade, democratization, the extraordinary importance of what are nebulously referred to as “inclusive institutions”– coexist uneasily with more humble types who will admit, in private, that they have no real answer at all.”

And the same applies to the Global North, which also needs to relearn development theory rapidly.

Yet Mr. Market, with the greatest array of intellectual firepower since Los Alamos, is not focused on this theoretical thinking because he now lives in Barbie World and only wants pink plastic rate cuts, higher asset prices, and more China stimulus: welcome to the real ‘Barbenheimer’!

But others outside markets are thinking more deeply. Even though there are Fed doves backing rate cuts, Powell appears to recognize what the Pentagon and White House do: that the US needs to shift to production from financialisation; to higher defense spending vs. China and Russia; to industrial policy; and on-/near-/friend-shore supply chains alongside its green transition. Moreover, while unemployment needs to rise a little, it cannot be allowed to spike for fear of the political consequences. Overall, this process will take years, and it will be inflationary throughout. But the alternative is arguably worse from a national-security perspective.

Ironically, this is a partial reversal to the pre-1971 Bretton Woods pattern of industrial production that neoliberalism rejected, for some at least: expect it to get more intellectual flesh on its bones as time passes. Just not from many in markets.

As such, the one thing that the Fed can do to accelerate this transition is to keep rates higher for longer, at least relative to others. (Like the RBA, who are clearly still very much into over-priced property and financialisation rather than physical production, as their latest minutes show they think they can see rates peak at just 4.1% despite a stronger economy than the UK or US. Property spruikers will be out cracking open the champagne as we speak.)

Via a higher US dollar, the Fed can then help cap commodity prices, which are rising again, risking an inflation upswing in H2 2023 and H1 2024 – and hurting Russia and ‘dedollarization’ rivals to boot; it can push back against bullish China stories and pull capital into US markets; and it will see more headlines bewailing the struggles of the private equity industry, or that the ‘Number of China hedge funds falls for first time since 2012’, as ‘Investors bemoan end of an era for offshore China hedge funds’: wait until the number of US hedge funds falls too, then private equity firms, then other forms of shadow banking predicated on financialisation, not national-security physical production.

“I am become Death, the destroyer of Barbie World,” says the Fed as rates rise and stay high; and the PBOC too, as they cut them.

Of course, there is a vast indeterminacy about such global-strategy, theoretical, long-term forecasts, and there is a near-term to focus on. Maybe we get a 2008-style downturn ahead if EM explosions spread to the West, and all bets are off; or maybe markets wobble ahead but the real economy doesn’t, and the Fed cut rates too deeply too soon and then has to backpedal; or maybe ‘Brazilification’ is too far gone to be reversed, and it’s stagflation ahead. (Bill Gross certainly seems to dislike US stocks and bonds right now, and thinks the former should be lower, and the latter at 4.50% for 10 year Treasuries.)

Most importantly, let’s try to be realistic while staying theoretical: it would be fantastic if we could get those in Barbie World to play with facts, not toys, and focus on the next 20, 30, or 40 days, let alone weeks or years. But it’s unlikely to happen.

At the start of August, Fitch Ratings downgraded the US government’s top credit rating. Last week, Moody’s cut the credit ratings of small and midsized US banks because of higher funding costs, potential regulatory capital weaknesses, and rising risks tied to commercial real estate loans. Now, another week, another possible downgrade, this time of major banks.

Fitch analyst Chris Wolfe told CNBC another round of turmoil could be nearing for the banking industry. He said the ratings agency is mulling over sweeping rating downgrades for dozens of banks, including ones as big as JPMorgan Chase. 

“Another one-notch downgrade of the industry’s score, to A+ from AA-, would force Fitch to reevaluate ratings on each of the more than 70 US banks it covers,” Wolfe told CNBC at the firm’s New York headquarters. 

He continued, “If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions.” 

Wolfe said lowering of the operating environment score for US banks to ‘aa-‘from ‘aa,’ reflecting downward pressure on the US sovereign rating, gaps in the regulatory framework and structural uncertainty around the normalization of monetary policy, went “largely unnoticed because it didn’t trigger downgrades on banks.” 

This comes one week after a triple whammy of factors of regional banks: Higher funding costs, potential regulatory capital weaknesses, and rising risks tied to CRE loans prompted Moody’s to lower credit ratings for ten small and midsize US banks; and noted in a slew of notes that it may downgrade major banks.

“Collectively, these three developments have lowered the credit profile of a number of US banks, though not all banks equally,” the ratings agency wrote in some of the assessments.

Perhaps Fitch is sending out trial balloons for Wall Street to inform them that the potential for another round of bank downgrades is a real risk for the market. 

More from CNBC on the conversation with Wolfe:

The problem created by another downgrade to A+ is that the industry’s score would then be lower than some of its top-rated lenders. The country’s two largest banks by assets, JPMorgan and Bank of America , would likely be cut to A+ from AA- in this scenario, since banks can’t be rated higher than the environment in which they operate. 

And if top institutions like JPMorgan are cut, then Fitch would be forced to at least consider downgrades on all their peers’ ratings, according to Wolfe. That could potentially push some weaker lenders closer to non-investment grade status.

The timing of the next round of bank downgrades wasn’t disclosed but serves as a warning for more banking turmoil as the Federal Reserve has hiked interest rates to 22-year highs. 

“What we don’t know is, where does the Fed stop? Because that is going to be a very important input into what it means for the banking system,” he said.

Rates on swap contracts referencing future Fed policy meetings suggest the rate hikes might be peaking with the potential for cuts to begin in the second half of 2024. 

The interview continued:

A related issue is if the industry’s loan defaults rise beyond what Fitch considers a historically normal level of losses, said Wolfe. Defaults tend to rise in a rate-hiking environment, and Fitch has expressed concern on the impact of office loan defaults on smaller banks.

“That shouldn’t be shocking or alarming,” he said. “But if we’re exceeding [normalized losses], that’s what maybe tips us over.”

Meanwhile, days ago, we quoted a note from Vishwanath Tirupattur, a strategist at Morgan Stanley, who said, “We are skeptical that the turmoil in the regional banking sector which came to the fore in March is behind us.” 

… and this all comes after Fitch downgraded the US credit rating from AAA to AA+ earlier this month. Of course, the Biden administration blamed Trump. 

Shares of big banks are already sliding premarket on the CNBC report. 

Clearly banking turmoil is not over.