Concerns are mounting over the potential for radioactive fallout and disaster at the Russian-occupied Zaporizhzhia nuclear power plant in Ukraine following large explosions heard at the site over the weekend. 

Like with prior incidents of shelling and fighting coming near the sensitive facility, each warring side is blaming the other for these latest attacks. “Explosions shook the Zaporizhzhia nuclear power plant in Ukraine over the weekend in what appeared to be renewed shelling of the facility and the surrounding area, according to the United Nations’ International Atomic Energy Agency (IAEA),” The Hill reports Sunday. 

The BBC cites local sources who say over a dozen powerful explosions were heard Saturday night at or in the vicinity of Zaporizhzhia plant, which remains Europe’s largest nuclear facility.

IAEA Director General Rafael Grossi called the reports “extremely disturbing” and “completely unacceptable”. He urged for fighting to halt there immediately. “Whoever is behind this, it must stop immediately. As I have said many times before, you’re playing with fire!”

The IAEA said that in prior weeks there had been a “period of relative calm” in the area, which has now ended. “I’m not giving up until this zone has become a reality. As the ongoing apparent shelling demonstrates, it is needed more than ever,” Grossi stated.

The UN atomic watchdog still has a team of experts on location at the plant, but there’s been no definitive word on which side was behind the renewed shelling which risks destabilizing the plant. 

Most Western media reports have blamed Russia for the powerful explosions which reportedly continued into Sunday, despite Russian troops still being the ones to occupy and oversee the actual site. Ukrainian state energy company Energoatom charged that Russia is “once again… putting the whole world at risk.”

“This morning on Nov. 20, 2022, as a result of numerous Russian shelling, at least 12 hits were recorded on the territory of the Zaporizhzhia nuclear power plant,” Energoatom said.

“You are playing with fire!”

Director General of the international Atomic Energy Agency reacted to reports that the Zaporizhzhia nuclear power plant is being shelled and said: “whoever is behind this, it must stop immediately.”

Latest: https://t.co/X3flQUBL0r

📺 Sky 501 pic.twitter.com/L9897zapHB

— Sky News (@SkyNews) November 20, 2022

Russia fired back, with its own nuclear agency Rosatom saying the following: 

Kyiv “does not stop its provocations aiming at creating the threat of a man-made catastrophe at the Zaporizhzhia nuclear power plant,” the Russian army said in a statement on Sunday. 

Despite the shelling, radiation levels “remain normal,” the army added.

It said missiles exploded around a power line that feeds the plant, the fourth and fifth power units and “special building number 2.”

Renat Karchaa, an adviser to the Russian nuclear agency Rosatom, told state-run agency TASS that the “special building” contained nuclear fuel.

As for assessed damage as a result of the weekend explosions, the IAEA said at this point the damage to the buildings is not “critical.”

However, there fears this means escalation in fighting around the plant, with the IAEA statement underscoring the shelling is “abruptly ending a period of relative calm at the facility and further underlining the urgent need for measures to help prevent a nuclear accident there.”

By Eric Peters, CIO of One River ASset Management

“Buyer traffic is becoming increasingly scarce,” explained the Chairman of the National Homebuilder Association. “Even as home prices moderate, building costs have yet to follow.”

When prospective homebuying is this weak, the Fed is typically cutting rates. Yet markets are prepared for another 100bps of rate hikes through next Spring.

US existing home prices were down each of the past four months across all four regions. Price discounts aren’t enough – inventory ratios are higher as nobody wants to move unless they must.

Bond markets are convinced that inflation is going to fall hard – higher real rates, a weaker economy, a stronger US dollar, and a massive deflationary impulse from global trade make it a safe bet.

But there are oddities in the background. Labor is gaining strength. This doesn’t usually happen with a weaker economy and falling inflation. But it is happening.

“Overtime and minimum wage violations are common violations found in food service industry investigations,” said the Department of Labor. Krispy Kreme quickly settled damages filed by 516 workers on Nov 7th. Starbucks workers staged their largest labor action on Red Cup Day, one of their busiest of the year.

“If the company won’t bargain in good faith, why should we come to work,” the mood captured by a shift manager.  US rail strikes are scheduled to start on Dec 5 – key chemicals shipments will stop days before. “Congress must quickly intervene to ensure a disruption does not occur,” the National Retail Federation warned. And it isn’t just the US – labor tensions are rising in the UK, Canada, Finland. Central bank balance sheets make unusual the new normal.

The QT theme continues; the “T” for tightening bit has paused. Fed excess reserves rose again last week, having bottomed seven weeks ago. It’s a complication that policy has never experienced. Demand for US dollars has declined as investors fish for an equity bottom, pushing excess liquidity back onto the Fed’s balance sheet.

Warren Buffet is one of those investors on the hunt for value. Berkshire’s 13F focused on cyclical infrastructure – semiconductors, energy companies, transportation over banks and technology stocks.

What to make of this mix of marbles?

There is a thirst to place current circumstances into a package that resembles the past, to give some comfort that the future isn’t as unknown as it seems. But it isn’t the 1920s or the 1970s, pre-war or post-war. There is no analog. Today’s starting points are like none we have seen.

The biggest risk is extrapolating to the future from a past that feels comfortable, confirmed by recent data. Disequilibrium is the new equilibrium.

Central banks must remove emergency support measures once financial crises are over to avoid causing moral hazard in the market, former Bank of Japan deputy governor Hiroshi Nakaso said on Thursday. Which is ironic coming from the one central bank that not only institutionalized moral hazard and MMT, keeping rates at or below zero for the past 30 years, but also ushered in QE and now owns more than half of the entire JGB market, and even the merest hint of a pull back in BOJ support would spark financial armageddon for Japan where the country’s pensions would be wiped out in a millisecond should a central bank backstop ever be removed.

According to Reuters, Nakaso, who is considered one of the top candidates to become next BOJ governor, also said that once an economy was running below potential capacity, a central bank could more easily normalize ultra-loose monetary policy. Which is easy for him to say now that he is in the running for next BOJ head: we just somehow doubt he will demonstrate the same conviction if and when he becomes the next BOJ head.

Echoing what we have said for the past 13 years, Nakaso said that investors had come to (correctly) assume that central banks would always come to the rescue when financial markets destabilized because of the massive monetary support deployed during the COVID-19 crisis, Nakaso said.

“This moral hazard must be removed once the crisis is over, though this is easier said than done because it’s a contradictory issue,” Nakaso said in a seminar hosted by the University of Tokyo and International Monetary Fund. And yet he said it, because the wave against relentless central bank intervention – which sparked record inflation across the world in the aftermath of the Covid crisis – is turning. Then again, it will promptly make another U-turn the moment tens of millions are left without a job as the financial tightening spawned by central banks in the past year finally hits the economy instead of just markets.

“Crisis management is like creating … artificial moral hazard,” he said. “It shouldn’t stay forever.” Yes it shouldn’t, which is precisely what we said in 2009, and yet no official or politician will ever have the guts to pull the plug knowing very well that the alternative is overnight collapse of the financial system.

None of this fazed Nakaso who continued citing what monetary policy should look like, not what it looks like now: to avoid moral hazard, central banks could design their lending facilities so they were less costly to tap for investors in crisis situations but became more costly when the market normalised. Oh you mean like ending QE 2, 3, Twist and so on, instead of holding on to them for years and for dear life. Yes, well, we tried suggesting that pretty much every single year since 2009 and it didn’t work. It won’t work now either, and it’s why – as Elliott correct predicted – we are facing tens of trillions more in monetary stimulus as the alternative is total collapse.

“Maybe this is something we can revisit and study” in preparing tools to combat the potential next financial crisis, Nakaso said. Maybe. Or maybe not, because once it is up to Nakaso to pull the plug on Japan’s unprecedented easing and collapse what’s left of Japan’s economy and market – as it is now far too late to try and “normalize” – he will never dare to do it.

Nakaso’s remarks come amid growing debate about how and when the next BOJ governor will reduce its massive stimulus, considered by some to be distorting market pricing.

“Inflation pressure that proved persistent … can be attributed at least … to generous monetary and fiscal support by the authorities,” Nakaso said, debunking relentless lies by central bankers in Europe and the US who have feigned ignorance and claimed none of the galloping inflation observed today is the result of their actions.

Nakaso and incumbent BOJ deputy governor Masayoshi Amamiya are considered among top candidates to succeed BOJ Governor Haruhiko Kuroda, whose current term will end in April.

Nakaso was speaking at the online symposium from Bangkok, where he was joining a meeting of national economic leaders along with Kishida. Their being there together may stoke speculation about Nakaso’s closeness to the premier.

Of course, all of this is just posturing and jawboning: as analysts quoted by Reuters note, neither would rush into tightening monetary policy, given the fragility of Japan’s economy and the need to keep low the cost of funding its huge public debt. And if they don’t tighten now, they never will.

Still, compared with Amamiya, Nakaso is seen more in favor of dialing back Kuroda’s radical stimulus. In a book published this year, he laid out in detail how the BOJ could end ultra-loose policy. What he left out is how JGBs go bidless, how trillions in Japanese pensions evaporate overnight, and how a global financial shockwave crushes the western financial system which is inextricably linked to the continued stability of the Japanese bond market.

By Matt Stoller, author of the BIG Substack

“It’s truly amazing that 2.4 million people got tickets, but it really pisses me off that a lot of them feel like they went through several bear attacks to get them.” – Taylor Swift

Over the past week, there has been fiasco in the sale of Taylor Swift tickets, with millions of angry fans despondent at not being able to see their favorite singer, and frustrated at the incredibly poor service, inexplicable pricing, and high fees of the Ticketmaster software system used to sell them.

Swift is the most popular artist in America, and hadn’t done live shows for four years. When she announced a tour, Ticketmaster was the ticketing agent. Due to under-investment in its platform, the corporation’s site and app crashed, unable to handle the demand for tickets. Somehow, though, scalpers managed to get plenty of tickets and put them on sale for much more than the original list price.

Why was Ticketmaster’s system so poorly structured? To answer that it helps to look at the firm’s stock price. In the face of such a high-profile embarrassment, a firm without market power would suffer in the marketplace. Investors would assume that customers would switch to a competitor’s services, much as, say, Ford’s stock drops when it has to do a recall of a line of cars. But Live Nation’s stock didn’t move at all. No investors were afraid that artists or venues would use a competitor’s software system. Because they can’t. There aren’t any meaningful rivals.

The problem, as this new generation of fans is learning, isn’t just that Ticketmaster is a bad system. The problem is Ticketmaster is the only system. It’s a monopoly.

And so Swifties, as they are known, demanded answers. These kinds of bitter cries tend to go into the void, just one more piece of evidence we have too many greedy people at the top and a government that cannot act. But this time, something different happened. Yesterday, David McCabe reported that the Department of Justice Antitrust Division has been investigating Live Nation, the parent company of Ticketmaster, for antitrust violations. And THAT revelation caused the stock to drop.

Members of the antitrust division’s staff at the Justice Department have in recent months contacted music venues and players in the ticket market, asking about Live Nation’s practices and the wider dynamics of the industry, said the people, who spoke on the condition of anonymity because the investigation is sensitive. The inquiry appears to be broad, looking at whether the company maintains a monopoly over the industry, one of the people said.

The Ticketmaster monopoly story goes back to the 1990s. It started with a merger. In 1991, Ticketmaster acquired its main rival in computerized ticketing, Ticketron, which put 90% of the ticketing business in the hands of one firm. This was a milestone. Indeed, Ticketmaster brags about this unlawful merger on its own website.

Three years later, the fees for ticketing had gotten out of hand. So Pearl Jam, then the biggest band in the world, got mad. The band was angry at the high prices and hidden fees the firm charged their fans, and they wanted a straightforward ticket price – $1.80 service fees clearly spelled out on $18 tickets, which was lower than what Ticketmaster sought. But Ticketmaster refused. So the band boycotted what was the then-new Ticketmaster monopoly. They ran a pressure campaign, testifying to Congress, embarking on a lobbying campaign, and pointing to the firm’s acquisitions of rivals and other underhanded tactics in its attempt to control the industry.

Ticketmaster struck back, bribing music venues to only accept Ticketmaster as a booking system, which meant that Pearl Jam couldn’t play at most normal locations. Pearl Jam’s 1995 tour was thus a catastrophe, because they had to play in places like sporting fields which couldn’t hold concerts, so most of their shows were canceled. The cost to Pearl Jam was in the millions, and it devastated the band. This was a remarkable potential moment for antitrust enforcement, with the biggest music act in the world brought to its knees by a ticketing monopoly.

And yet, enforcers did nothing. Under Clinton, Bush, Obama, and Trump, Ticketmaster grew, buying up rivals, becoming more and more powerful. Then, enter the other major powerhouse of the industry, Live Nation, a firm that rolled-up live events until it ultimately became the world’s largest concert promotion company. Live Nation was sick of paying Ticketmaster’s fees, and the two firms had been battling at the bargaining table. Finally Live Nation simply built its own ticketing software and threatened to compete directly with Ticketmaster. Competition would have hit profits for both firms. So instead the two worked out a deal to merge, so the combined entity could have all the fees – and more – to itself.

This new giant of the industry would open the door to an array of opportunities to grab cash. The merger combined the biggest owner of venues, the monopolist of ticketing software, and Front Line Management, a roll-up of artist management firms that came to control most of the biggest names in the business, making Live Nation the most powerful live entertainment firm America had ever seen.

The deal was so outrageously arrogant that the combined firm was to be chaired by Irving Azoff, who – in a New York Times profile – confessed himself a serial liar and talked about how he put pictures of himself giving the middle finger on his own stationary. Initially, people thought Obama, who had talked tough on antitrust on the trail, would block the merger. Not doing so would look weak. If you weren’t going to go after Ticketmaster, the scourge of the 1990s, then would you go after anyone?

But the Obama administration approved the merger, with Antitrust Assistant Attorney General Christine Varney leading negotiations over what concessions Live Nation would have to offer. Immediately after the merger, Live Nation began violating its consent decree with the Antitrust Division, charging outrageous fees, and not stopping the sale of tickets to bots. It suppressed competitors who had developed ways of blocking scalpers, like Songkick. Live Nation acted in such bad faith that the Trump Antitrust Division eventually had to rework the consent decree.

Today, the choice by the Obama administration looks inexplicable. “The people who came in to oversee this transaction were very interested in doing everything imaginable to create more competition in ticketing in the marketplace,” said former Antitrust Division chief counsel Gene Kimmelman, who worked on the deal. “We were frustrated that the options were unbelievably limited.”

The concerns of Obama-era enforcers weren’t outlandish. From the 1980s onwards, it had become increasingly hard to prevail in antitrust claims. This ideological turn is one reason Clinton didn’t act despite Pearl Jam’s advocacy, and why the Bush, Obama, and Trump administrations allowed it to fester and worsen.

The post-1982 model used in antitrust cases, known as the consumer welfare standard, made it hard to show harm, because large firms could claim they were large not because they engaged in predatory behavior, but because they were efficient. And plenty of bought-off people in the industry would validate Live Nation, and very few opponents – after seeing what had happened to Eddie Vedder – would be willing to speak out publicly for fear of retribution. By the Obama administration, antitrust enforcers had come to see themselves as deal-makers, working with merging firms to help them make deals, rather than law enforcers trying to constrain corporate power.

But then something changed. Starting in the early 2010s, but then picking up steam over the decade, a new anti-monopoly movement began challenging the standard by which dominant firms such as Google and Amazon acquired their power. A range of writers, lawyers, businesspeople, workers, and ordinary citizens began learning, reading, researching, and talking. While a lot of people assumed that big tech was the only focus, the target was much broader. In 2021, my organization released a report called Courage to Learn, in which we highlighted a litany of Obama antitrust failures, including allowing the Ticketmaster/Live Nation merger. We recommended that the incoming Biden administration appoint new enforcers and engage in a far more aggressive strategy, including “unwinding” that merger.

Joe Biden listened. He appointed Jonathan Kanter to the Antitrust Division, and Lina Khan to the Federal Trade Commission. And they embarked on a series of new choices within the agencies, sparking controversy and in some cases bitterness within the white collar antitrust bar. A month ago, we published a research report on Live Nation, and were part of a coalition of fans and artists called Break Up Ticketmaster. 40,000 people have since asked for action.

And then came the Taylor Swift fiasco. It’s deeply embarrassing for the antitrust enforcers who facilitated the Live Nation merger, because the premise of their merger was that bigness begat efficiency. And yet the firm couldn’t handle an easily predicted demand spike that it induced by sending out marketing codes to Swift fans.

Politicians began speaking out, such as the state attorneys general of Tennessee and North Carolina, who pledged investigations. Members of Congress wrote letters to the Department of Justice, and Senators Amy Klobuchar and Mike Lee said they would hold hearings. And yet, the firm itself acted as a monopolist would, treating the fiasco as something of a joke. The first words out of a Live Nation executive at the Liberty Investor meeting two days ago was “Everyone has a Taylor swift ticket underneath their seat.” The harm Live Nation caused was irrelevant to its owners, who profited mightily regardless. Then, when the Chair of Live Nation, Greg Maffei, was asked on CNBC about the ticketing fiasco, he blamed… Taylor Swift.

Finally, Swift herself spoke out. On Instagram, she expressed anger at the exploitation of her fans. “It’s really difficult for me to trust an outside entity with these relationships and loyalties,” she said, “and excruciating for me to just watch mistakes happen with no recourse.” The statement was mostly heartfelt and personal, but the ‘no recourse’ phrase suggests something else. ‘Recourse’ is not the word choice of a songwriter, but of a lawyer trying to make a point about market power. Swift – or perhaps Swift’s lawyer – is saying that Ticketmaster is, as it was when Pearl Jam was the biggest act in the world, a monopoly. “We asked them,” she said, “multiple times, if they could handle this kind of demand and we were assured they could.” Even Swift, as the most powerful artist in music, could not prevent her fans from being cheated by Ticketmaster.

And now we know the Antitrust Division is on the case. It’s going to take time for this suit to move forward. They’ve been doing interviews for months, but there’s more work needed to put together a complaint. To some extent the lawyers can short-circuit the process since there’s a consent decree, but a judge will still drag it out. There are many more wrinkles to the Live Nation antitrust case. But that’s the gist of it.

It’ll be interesting to see if Live Nation decides to throttle back a bit on its fees, alleged coercive practices, and rumored retaliatory behavior. Firms in the crosshairs often do, and that’s probably why the stock went down, an expectation from investors that Live Nation might have to eat some margin loss for PR purposes. Somehow, though, I suspect they won’t. Live Nation is still guided by its original chairman’s love of putting up a middle finger to the world.

That’s what at least two generations of music fans have experienced.

It only took 40 hours for CBS News to realize what absolute morons they’d been to stop posting on Twitter over “security concerns” with the platform.

“After pausing for much of the weekend to assess the security concerns, CBS News and Stations is resuming its activity on Twitter as we continue to monitor the situation,” the news organization’s communications team tweeted Sunday morning.

After pausing for much of the weekend to assess the security concerns, CBS News and Stations is resuming its activity on Twitter as we continue to monitor the situation.

— CBS News PR (@CBSNewsPress) November 20, 2022

The outlet announced on Friday that they would be pausing its activity on the social media platform “out of an abundance of caution,” which was apparently no longer an issue by Sunday morning. The massive virtue signal marked perhaps the most significant organization to protest the threat of free speech at the Musk-owned social media giant – after multiple advertisers announced that they would be pausing ad spending amid the chaos of locked-out employees and fired executives.

Musk took Twitter private on Oct. 27 – firing the senior management team and appointing himself as CEO, before then firing 50% of the company. On Nov. 17, hundreds of Twitter employees resigned after Musk set a deadline for workers to agree to “extremely hardcore” working conditions.

According to Variety, CBS News was particularly concerned about the security of information on Twitter, as key personnel related to that area had departed.

The news outlet has been closely watching the situation to see if any of Twitter’s critical functions break down and whether Twitter is susceptible to hacking attacks.

The mass employee exodus from Twitter — now with a headcount estimated to be less than 2,500, down from 7,500 prior to Musk’s $44 billion acquisition — has escalated fears that the platform may start to break down operationally. -Variety

The decision by CBS News comes after Musk reinstated former President Donald Trump’s account following a 24-hour poll.

The responses, as expected, have been hilarious.

https://t.co/hyNeBg9hbg pic.twitter.com/FJCS3VUCQ1

— Dr. DW (@ZombyWoof2022) November 20, 2022

Your heroism will not go unrewarded.

— 🫃🏼🇺🇦💉Hollaria Briden, Esq. (@HollyBriden) November 20, 2022

During that pause, everyone on this app was safe from misinformation.

— Chef Andrew Gruel (@ChefGruel) November 20, 2022

Authored by Tom Ozimek via The Epoch Times (emphasis ours),

A federal judge on Friday ordered the unsealing of documents featuring the real names of some of the “John Does” relating to deceased sex trafficker Jeffrey Epstein, according to multiple media outlets.

Judge Loretta Preska ruled on Friday to disclose the identities of a number of previously anonymous individuals in documents filed by Epstein victim Virginia Giuffre against the convicted pedophile’s associate Ghislaine Maxwell in a defamation case, according to Insider.

Epstein died in jail awaiting trial while Maxwell was convicted of sex trafficking and sentenced to 20 years behind bars.

Giuffre’s civil lawsuit against Maxwell has generated a trove of documents relating to Epstein, which contain a number of redacted names, some of which Preska ordered unsealed on the premise that public interest outweighs the right to privacy, according to Daily Mail.

Already Disclosed to the Public

Eight “Non-Party Does” referred to in documents as Does 12, 28, 97, 107, 144, 147, 171, and 183, sought to remain anonymous amid concerns that their disclosure would harm their reputations, Fox News reported.

Preska disagreed in some cases, saying that much of the “purportedly sensitive information” had already been disclosed to the public during Maxwell’s trial, per Daily Mail.

While a timeline for the release of the documents and names has not been set, Preska identified some of the Epstein-linked individuals during the hearing.

The judge identified Doe 147 as Epstein victim Sarah Ransome, who testified publicly at Maxwell’s sentencing and published a book about her experience, and granted numerous interviews, according to Insider.

Another individual Preska identified was Emmy Tayler, a former personal assistant to Maxwell who was accused of playing a role in the sexual abuse of some of the victims, according to Daily Mail.

Tayler, who has denied any wrongdoing, was named in a batch of publicly available documents from another lawsuit, Preska said and ordered its release, according to Daily Mail, though it’s unclear which of the Does is used in reference to Tayler.

‘Intense Media Coverage’

Preska also ordered documents relating to Doe 183 unsealed as the individual has been the “subject of intense media coverage” and their name was disclosed during Maxwell’s trial. But in order to allow Doe 183 an opportunity to appeal her decision, Preska put a stay on the release until Nov. 28.

She also ordered the name of Tom Pritzker, billionaire executive chairman of the Hyatt Hotels, to be unsealed, according to Insider. Preska said Pritzker had only a marginal connection to Epstein as his name came up in a deposition in which a witness said they didn’t recognize him.

Pritzker argued against the disclosure on the premise that it could harm his reputation but Preska overruled his objection.

The judge did concede to some of the individuals who raised objections, however.

Doe 12 will remain anonymous as they were a “classic outsider,” the judge said, describing them as “neither victim nor associated with Epstein or Maxwell,” according to Daily Mail.

The name of Doe 28 will also remain sealed as they’re a sexual assault victim who the judge said “continues to experience trauma,” per Daily Mail.

Meanwhile, Maxwell recently alleged that a fellow inmate plotted to kill her in her sleep.

She also said that she found Epstein’s death, which was ruled a suicide, to be “profoundly suspicious” and that she doubts he really killed himself.

When he died, Epstein was awaiting trial on federal sex-trafficking charges. He was convicted in 2008 on similar charges but received a light sentence.

By Vishwanath Tirupattur of Morgan Stanley

Our 2023 Outlook – What We Debated

This has been our outlook week. We published our year-ahead global economics and strategy outlooks last Sunday, and the more detailed asset class and country-specific outlooks have been streaming out during the week, with more to follow. At Morgan Stanley Research, the outlooks are the culmination of a process involving much deliberation and spirited debate among economists and strategists across all the regions and asset classes we cover. In a highly interconnected world with myriad uncertainties, we are convinced that this collaborative exercise in which we challenge each other’s views is critically important. In last week’s Sunday Start, my colleague Andrew Sheets summarized the outcome of the process – our outlook for 2023 across markets and economies. This week, I will focus on some of the key debates we engaged in during the process.

Unsurprisingly, we spent a lot of time on inflation. Given the many upside surprises to inflation through much of the year, there was understandable skepticism around our forecast that US inflation will show a steady decline. Our economists acknowledged the uncertainty but took some comfort in base effects, normalizing supply chains, and weaker labor markets. They also saw deflation (not just disinflation) in certain core goods such as autos and a reset in medical services prices exerting a steady drag on core inflation. To be clear, our US inflation forecast takes into account that while shelter inflation will slow, it will remain a persistent driver of above-target inflation for a few more quarters.

Our FX strategists changed their bullish stance on USD to neutral, a notably out-of-consensus call. With our outlook debates taking place against the background of a hawkish-sounding post-FOMC press conference at which the Fed chair signaled the policy rate peaking higher than previously thought, this change was vigorously debated. Our strategists argued that a decline in inflation as our economists forecast would limit upside potential for US rates. Furthermore, monetary policy in the US is now in restrictive territory, implying that we will see more downside surprises in individual data points. Also, the outlook for China, while still challenging, appears to be shifting, with a decent chance that the authorities take steps toward ending the Covid-zero policy. This would help to bring greater balance to the global economy, with less upward pressure on the dollar.

Our economists’ base case expectation that the Fed will stop hiking in January led to a discussion of how markets would behave following the end of a hiking cycle. In some cases, the end of a hiking cycle was good for markets over the following 12 months (February 1995) but not in others (May 2000). We noted that the key to the outcome for markets seems to be whether a recession follows the end of a hiking cycle.

While our forecast for the US is a ‘soft landing’ (no recession), our economists pointed out that the landing won’t feel all that soft and the margin for error is small. This makes the risk/reward for US stocks challenging. It is worth highlighting that in both 1995 and 2000 the 10-year US Treasury yield rallied, consistent with what our rates strategists expect by the end of 2023.

There was debate around why we only see high yield default rates rising to ‘long-term average’ levels (4-4.5%), given slower growth and higher borrowing costs. Our credit strategists contended that the modest maturity walls over the next two years, cash on balance sheets, and healthy coverage and leverage ratios will mitigate near-term default pressures. However, they did note the potential for a longer default cycle, as maturities start to matter more in 2024.

Another topic of discussion was our housing strategists’ view that US housing will experience a significant decline in activity (sales, starts, and permits) comparable to the steep declines seen in the aftermath of the GFC, yet only a modest drop in home prices, unlike what we saw post-GFC. The divergence in activity and prices is rooted in the prospect of much lower forced sales through foreclosures due to tight mortgage lending standards post-GFC, the substantial equity in many existing homes, and the lock-in effect of existing mortgages.

The future of the Fed’s quantitative tightening (QT) was also much debated, particularly when it might end and its sequencing with a rate cut. History is really no guide here since we only have one data point to go by. As our chief global economist Seth Carpenter noted, the Fed sees the two policy tools as independent, and stopping QT depends on money market conditions and bank demand for reserves. Thus, QT could end before or after December 2023, when we anticipate gradual rate normalization to start. That said, QT could stop abruptly for two reasons:

1. A recession that forces the Fed to contemplate rate cuts of 100bp or more; or
2. Dysfunctional markets along the lines of March 2020 or the recent episode in the gilt market.

More in the full note available to pro subscribers.

The cannabis industry has flourished in New York as more than 200 farms last spring received growing permits from the state. Since then, harvest is only now finishing up with hundreds of thousands of pounds of flower but nowhere to sell, according to Bloomberg. 

A report via the Office of Cannabis Management (OCM), which oversees cannabis licenses, reveals stockpiles are quickly building across the farms. Estimates show stockpiles have topped 300,000 pounds, worth a whopping $750 million. 

“If farmers don’t get their harvest into stores soon, that near-billion-dollar revenue will eventually start to dwindle,” said Bloomberg. But how can farmers get their crops to market when the state has yet to approve the opening of dispensaries? 

Modern hippies running growing operations must figure out how to store flower in an environment that’s not just guarded by security 24/7 but also the right temperature and humidity-controlled environment, so the crop doesn’t deteriorate ahead of sale. 

Bloomberg outlined the bottleneck of what’s preventing marijuana from being sold: 

Applicants for one of the initial 150 individual retail licenses and 25 nonprofit licenses expect to hear back from the state any day, but a green light from the OCM is only the beginning of the long process involved in opening a storefront. 

… and OCM has some very serious planning issues. 

Now growers are nervous about their ability to store cannabis for an extended period before it deteriorates: 

“Old cannabis starts to have a brownish glow,” Melany Dobson, chief executive officer of Hudson Cannabis, a 520-acre farm just two hours north of NYC, said.

Dobson said the timeline of when dispensaries open remains “unclear.” 

“We’ve been told again and again that dispensaries will open before the end of the year. I’ve acted as though that’s our single source of proof, so we’re prepared for that,” she added. 

The clock is ticking. If OCM doesn’t approve dispensaries opening in time, farmers could be looking at a significant loss. 

“The goal is to open dispensaries by the end of this year,” said Aaron Ghitelman, a spokesperson for OCM. “We’re still gunning to get the first sales on board” by 2023.

It seems like farmers aren’t holding their breath for OCM. Dobson’s financial model showed revenue would start pouring in around November. She laughed: “Which is this month … so that’s clearly not the case.”

Amid the frenzied scramble to divulge all of FTX’s dirty secrets, including where the fate of those $8 billion in stolen client funds which were handed over to Alameda ahead of the largest crypto exchange bankruptcy in history, there is one topic that the company’s new CEO (and one-time Enron liquidator) John J. Ray wants to keep under wraps: the identity of its creditors (and FTX clients).

Consider the following curious sequence of events that developed over the past week (conveniently summarized by the FT’s Kadhim Shubber): on Monday, FTX said that it will file a list of its top 50 creditors “on or before November 18”).

Just one day later, in John J. Ray’s Affidavit in Support of First Day Motion, FTX revealed that this may be a problem since “the Debtors are unable to create a list of their top 50 creditors that includes customers without access tot he data repositories at issues.”

Fast forward to Saturday when in a surprise twist, the Enron liquidator is now asking the judge to keep the names of the company’s creditors and customers (which we assume have been identified), confidential in order to “protect the estate or any entity in respect of a trade secret or other confidential research, development or commercial information.”

In retrospect, considering that FTX previously estimated that it has over 1 million creditors – which ostensibly includes all clients of the FTX brokerage from the smallest mom and pop investors to massive Chinese money laundering whales – this is probably not all that surprising, although it will be interesting to see how Judge John Dorsey, who is the appointed Delaware Bankruptcy Court judge on the FTX bankruptcy, will rule on November 22, 2022 at 11:00 a.m. (at Courtroom #5 on the 5th floor at 824 North Market Street in Wilmington) when the First Day hearing takes place.

As an aside, since the creditors of FTX also includes FTX clients, one wonders if there is a political push to keep certain names hidden, despite official denials?

A fundraising crypto foundation @_AidForUkraine used @FTX_Official to convert crypto donations into fiat in March. Ukraine’s gov never invested any funds into FTX. The whole narrative that Ukraine allegedly invested in FTX, who donated money to Democrats is nonsense, frankly 🤦‍♂️

— Alex Bornyakov (@abornyakov) November 14, 2022

And then of course, this:

Tangentially, as the FT notes in other recent cryptocurrency bankruptcy cases involving Voyager Digital and Celsius Networks, “a key legal question has been determining whether account holders are unsecured creditors or have a higher priority status in determining who gets recovery payments first. Another question likely to arise is whether account holders who withdrew their money just before the bankruptcy filing are subject to clawbacks.”

And in a separate filing pushed out later on Saturday, FTX published a list of its top unsecured 50 creditors – with all names and addresses redacted – which shows that the largest creditor (or is that FTX customer) had $226 million parked at the company, and that all of the top 10 creditors had over $100 million in debt with FTX.

In total, FTX owed its top 50 creditors a total of $3.1 billion. The full list of the 50 unnamed creditrs can be found here.

In another filing, FTX said the company had 330 workers around the world but was experiencing “extraordinary attrition”, and asked the court’s permission to continue paying remaining employees which were critical to the bankruptcy case.

FTX also disclosed that the new CEO Ray is billing his time at $1,300 an hour and had been paid a $200k retainer fee.

The bankrupt exchange also retained three new executives to assist in the bankruptcy including a chief financial officer.

Authored by Jimmy Song via BitcoinMagazine.com,

Fiat money leads to a degradation of incentives, creating a society motivated only by the consumption of resources and zero value production.

We want nice things. We want to live in a nice house, eat good food and have fulfilling relationships. We want to travel to exotic places, listen to great music and experience fun. We want to build something that lasts, achieve something great and leave a better world for tomorrow.

These are all part of being human, of participating in society and of progressing humanity. Unfortunately, all these things and more get ruined by fiat money. We want nice things, but we can’t have them, and the reason is because of fiat money.

Governments want the power to decree prosperity, fulfillment and progress into existence. They’re like the alchemists of yesteryear, who wanted to turn lead into gold through some formula. Actually — they’re worse. They’re like a five-year-old that thinks by wishing hard enough, that she can fly.

Being the delusional power-drunk politicians that they are, the elites think that by decreeing something to be so, it magically happens. That’s indeed where the word “fiat” comes from. The word literally means “Let there be,” — in Latin and in English, it’s become an adjective to describe creation by decree. This can be most easily seen in Genesis 1:3 in Latin. The phrase there is “fiat lux” which means “let there be light.”

Of course, creation by decree doesn’t quite work like it does in Genesis. If you want a building, you can’t just say, “Let there be a building.” Someone has to dig, pour a foundation, add framing, etc. Decrees don’t really do anything without capital and labor. In the absence of the market forces of supply and demand, decrees require people and resources to be enlisted. In other words, as much as governments would love for reality to be different, a decree by itself doesn’t really do anything. By itself, a decree is about as useless as an old man yelling at the sun. There has to be some coercion involved to fulfill the decree. Fiat decrees are a euphemism for using force and violence.

For buildings, it’s obvious that creation by decree doesn’t do anything. Yet for money, decreeing it into existence seems legit, maybe even compassionate. Keynesian economists see fiat money as something that by itself does something. Of course, they’re wrong and no amount of calling it “debt we owe to ourselves,” changes the fact that it’s theft. That’s about as honest as Enron’s accounting.

The deviousness of fiat money is that it makes government violence look like a market process. Fiat money printing steals from the other holders of the currency and pays people to do the government’s bidding. That theft is hidden and combined with a good dose of Keynesian propaganda, which makes fiat money seem innocuous, perhaps even benevolent.

In a sense, fiat money is less violent than other forms of fiat rule. But that’s like saying mobsters that give you a chance to pay them off are less violent than street thugs.

Dictators use obvious violence to compel their citizens to fulfill the desires of the dictator. Forced conscription, war and poverty are common in these societies, and theirs is a miserable existence with little human freedom to speak of. Fiat rule is terrible for humanity as can be clearly seen in how backwards the Soviet Union was or how backwards North Korea is now. Progress is very hard in a society built on slave labor.

Fiat money, by contrast, at least looks voluntary. Yet in many ways, it’s still very harmful to civilization. Fiat money is more like organized crime, which makes everything seem voluntary.

FIAT MONEY RUINS INCENTIVES

Fiat money ruins many market incentives. The reason is because there’s a special buyer in the market that has much less price sensitivity. That buyer, of course, is the fiat money creator. They can and do print money for all sorts of reasons — some benevolent (welfare for the poor), others not (military buildup). They spend like drunken sailors who just found pirate treasure.

The problem with a buyer like the government is that someone always sits in the middle. It’s not the “government” per se, that actually buys a fighter jet or an office building. There’s always someone that acts as an agent of the government that does this buying. The agent works on behalf of the government to procure various goods and services and the government entrusts the agent with the authority to spend on its behalf.

Unfortunately, this arrangement is ripe for abuse. The agents are essentially spending other peoples’ money for other peoples’ gain, so they aren’t incentivized to trade very efficiently. Their incentives are as skewed as the Leaning Tower of Pisa.

When we are buying and selling in the market with our own money for our own benefit, we do complicated economic analyses to figure out whether we’ll benefit enough from the good or service to be willing to part with our money. Thus, we’ll be price sensitive and attempt to get the most value for the money we pay.

For a government bureaucrat that’s in charge of procurement, however, getting value for the money is not their priority. They are incentivized to spend in a way that’s for their own benefit and not the governments’. This doesn’t have to be in obvious ways as with bribes. They can spend much less time examining the goods and services, or buy from people that they like. The result is generally a bad trade where the agent gets some small benefit at a much larger expense to the government. In a sound money economy, the government would fire such people — but in a fiat money economy, the government doesn’t care as much since money is abundant and they’re not price-sensitive. You can do that when there’s a cookie jar that you can always steal from.

So in the final math, the agent benefits at the expense of everyone else. These people are what we call rent seekers. They don’t add any benefit but still get paid. And it’s not just government bureaucrats. If you are an investment banker that takes extremely leveraged bets, you are a rent seeker, too. Generally, they get to keep the profits when their investments win, but get bailed out when their investments lose. They, too, don’t add anything and leech off of society. What’s worse, these are supposed to be some of the most talented and driven people in society. Instead of building things that would benefit civilization, they’re engaged in grand larceny! Of course, they’re not the only ones guilty of rent-seeking theft. Sadly, most jobs in a fiat money society have a huge rent-seeking component.

One rule of thumb that we’ll get to later in this article about how to tell if something is rent seeking is by seeing how much of the job is political and not value-adding. The more politics involved, the more rent seeking there generally is.

Rent-seeking jobs cheat the system and when people have the incentive to cheat, many will. You only need to look at online gaming to know that. Cheating is attractive because it’s a lot easier than doing hard work and if the cheating is normalized, as it is today, there’s little moral impediment. We’ve all become that soccer player that pretends to be in pain to influence the referee.

Rent seeking is understandable since creating a good or service that the market wants is not only hard, but it’s very fickle. What you produce today is an innovation away from becoming obsolete. Rent-seeking positions, even with less compensation, are nevertheless more desirable because of their certainty. Is it any wonder that rent-seeking positions are so sought after?

Think about how many people want to become investment bankers, venture capitalists or politicians. They’re way more profitable than providing a good or service, require way less effort and have lots more certainty.

Fiat money incentives are more broke than Sam Bankman-Fried.

FIAT MONEY RUINS MERITOCRACY

The existence of so many rent-seeking positions means that a large part of the economy does not run on normal supply-demand market forces. Even the possibility of rent seeking means that goods and services need to account for a tilting of the playing field. Fiat money ruins meritocracy.

In a normal market system, the best products win. Not the most politically-connected products. Not the products that employ the most people. The best products win because they satisfy the needs and wants of more people. Fiat money changes the equation by adding politics.

When the government can print money, the people that benefit the most are the people that get access to that money first. This is called the Cantillon Effect and it’s the reason why rich people get richer without adding much, if anything. So how does the government determine who gets access to the money? As with everything government related, decisions on who gets what money is determined through politics. And when the money printer is political, everything else becomes political. Politics is a cancer that spreads through the entire market.

The “haves” in a fiat money economy tend to be the ones that are good political players. They know how to get newly printed money directed toward them and they have a large advantage over those that don’t. Politically savvy companies will do better than the non-politically savvy companies that make better products. Thus, surviving companies in a fiat money economy are very politically savvy. It’s no wonder so many companies seem to be led by politicians rather than entrepreneurs, especially as these companies age.

Thus, politically savvy incumbents have a tremendous advantage in a fiat money economy. They will saddle newcomers with regulatory costs and get subsidized by newly printed money, ossifying their position. The marketplace will be filled with older, worse goods and newer, better goods will never come to market given these unfair advantages. The incumbents get to play CalvinBall and change the rules whenever they’re losing.

Labor unions, zombie companies and old politicians are all indicators that institutions last way beyond their usefulness to society. They all use political means to make up for their lack in fulfilling market desires. The decrepit and the dying never die to make room for the innovative. Politics stifles entrepreneurialism and creativity. It is a cancer that destroys the good cells that keep the body alive.

Merit, in other words, has been overtaken by politics everywhere.

FIAT MONEY RUINS PROGRESS

The ubiquity of politics over merit means that it’s become harder than ever for civilization to improve. Better stuff doesn’t necessarily win and markets tilt toward the political. Fiat money protects the existing politically connected players against the newer, more dynamic players from gaining market share.

Hence, fiat money ruins progress. Civilization ossifies because the incumbent players have way more power to stop new players. The incumbents often will put up huge regulatory moats, under-price newer competitors through fiat subsidization, hire away the best employees with fiat money or as a last gasp, just buy out the new players altogether. All of these strategies work through access to newly printed money. The zombies survive by eating brains.

We should have nuclear powered everything right now, but that technology is completely stifled by regulation. Government can enforce this mandate through fiat money. Oil, natural gas and coal continue to dominate because we don’t make scientific progress on other ways to provide better energy. Technologies like wind and solar get government backing because they’re politically popular, despite their clear inferiority in variance, energy density and portability. We’re going backwards in energy.

The Luddites win in a fiat monetary system because fiat money and political considerations essentially force everything to stay the same. It’s profoundly conservative in that the old and decrepit are saved at the expense of the new and meritorious. If that sounds familiar, it should. That’s the exact math that was used to justify the lockdowns of the past few years.

We can see this dynamic in the airline industry. The time to travel from New York to London is worse now than it was 50 years ago. We can also see this dynamic in dishwashers. A dishwasher 50 years ago could clean a full load in under one hour. It now takes more than 3 hours. Regulations protect incumbents and put politics as a priority over merit. The result is that civilization doesn’t progress.

Instead, fiat money has regressed civilization. The nuclear engineers of yesteryear are working on React.js apps and scammy Web3 products because that’s where the money is. The inventors of yesteryear are investment bankers creating high-frequency trading systems. The incentives are broken — merit is no longer a consideration, so is it any wonder we’re regressing as a civilization?

We peaked as a civilization in 1969 when we landed a man on the moon. Everything since then hasn’t pushed humanity forward, but turned it inward. At best, it’s preserved what we already have. At worst, it’s destroying humanity’s progress.

What’s worse, all this rent seeking has inflamed the entitlement mindset. Having good political connections, these rent seekers think they are entitled to these negative-sum positions. Nothing is more toxic to progress than people whose incentives are to keep things from getting better. Fiat money changes productive people into entitled brats.

FIAT MONEY IS PROFOUNDLY CONSERVATIVE

Bad incentives are at the core of fiat money. If you can steal instead of work, most people will steal — and they can, through politics. Politics, unfortunately, is a negative-sum game and that means regression for civilization. Like war, politics is about consuming accumulated capital.

Fiat money redistributes wealth so that the incumbents can stick around.

There’s little room for new ideas or new goods or new products because the incumbents have so much political clout.

Indeed, we’ve reached a tipping point where there’s more rent seekers than there are productive people creating stuff. How many people work email jobs? How many people even work? Way too many people are happy with an XBox, a mattress and pizza delivery. Do these people benefit society in any way? It’s no wonder so many people are so depressed.

The politicization and zombification of the economy has had real consequences in how society functions. Building codes make new forms of housing very difficult to build. Airline regulations make new designs completely illegal. Nuclear regulations make different, more efficient forms of energy really expensive.

Ancient industries, companies long past their expiration date suck productivity out of the economy. They provide little value, but continue getting subsidized through fiat money. Industries like oil, trains, airlines and cars have all become zombies and are protected from extinction through fiat money. Heck, even some electronics producers, and software companies, which are relatively new to the economy, are zombies at this point. The zombies are winning.

And the zombification is accelerating. Facebook probably transitioned from producer to rent seeker much more quickly, than, say, IBM.

Sadly, this is the reality of fiat money. The producers at a certain point turn into rent seekers as they politicize. The zombies soon start outnumbering the normal people and everything goes downhill.

BITCOIN FIXES THIS

The good news is that Bitcoin fixes these incentives. Removing fiat money means the normal market process of supply and demand and prices can work. Politics takes much less of a role and the zombification of the economy reverses. Civilization can progress again. Bitcoin is the antidote and the great hope for reversing the decline.

Unfortunately, we have about 100 years of rot to clear out and that’s going to take some time. The people most embedded in the current system, the Cantillon winners, such as Ivy League business school graduates, rich old people and bureaucrats of all types, are the least likely to convert to Bitcoin and will fight tooth and nail to preserve their positions. These people are not going away quietly and you can already see that they’re making their own bid to further zombify with CBDCs.

Thankfully, Bitcoin has the advantage of time on its side. The Cantillon losers, such as young people, citizens of developing countries and actual producers of goods and services will inevitably turn toward the much fairer system in Bitcoin. The zombies will be consuming themselves.

Welcome to the revolution. Now go save civilization.