Steve Bull's Blog, page 31
May 20, 2024
Why Unregulated Capitalism Always Leads to Enshittification
(right click to open chart in a new tab, or click here, to view full-size; like everything on my blog, my graphics are covered by Creative Commons licence)
Lots of ideas work well in theory, but many of them don’t work out so well in practice, especially when the idea becomes an ideology, pursued dogmatically without oversight to correct for malfunctions and abuses.
The idea of investment capital was one such idea, allowing, for the first time, a group of people to pool their money to enable major projects like factories or resource development or large-scale trade that no individual (other than rich monarchs) could finance.
While pooling of capital was a good idea, some people decided to turn the idea into an ideology, called capitalism, and this ideology, in its most extreme, unregulated form, now underlies many of the problems we face today. It has, in short, become utterly dysfunctional, leading to obscene disparities in wealth and income, catastrophic destruction of our environment and many people’s lives, monstrous amounts of waste of all kinds, and a globalized economy teetering on the edge of complete collapse.
Cory Doctorow has dubbed the process by which initial good ideas, without constant attention and oversight, can devolve into dysfunction, as enshittification. (His article is well worth reading in its entirety.) He explains how this has inevitably happened with Amazon, with Facebook, with Twitter, and other “platforms”, and most recently with TikTok and Google Search:
Here is how platforms die: First, they are good to their users; then they abuse their users to make things better for their business customers; finally, they abuse those business customers to claw back all the value for themselves [ie the managers and shareholders]. Then, they die.
…click on the above link to read the rest of the article…
Notes from the edge of civilization: May 12, 2024
Solar flares could cause disruptions – are you ready?; conflicts could bubble over – is the US military ready?; and how classical music can help with cognition, memory, and emotion.
Skywatchers across the country saw dazzling northern lights this week, reaching as far south as Georgia, Florida, and Texas. The phenomenon was sparked by intense solar activity causing geomagnetic storms.
Back in March, Cyrus D. Harding told Collapse Life viewers this would happen: “We will see solar flares increasing in number and intensity,” he said, explaining that this is both a good and bad thing.
On the plus side, increased solar flares and sun spot intensity can block harmful cosmic energy coming in from outside our solar system. But, Harding cautioned that satellite communications, navigation systems, and electrical power grids can be affected and could create havoc in our daily lives.
That threat hasn’t passed yet; it could actually get worse. So gird yourself and your family to be vigilant and have some backups in place for power, food, and water. You know, follow the old adage: an ounce of prevention is worth a pound of cure.
The term ‘flare up’ is often used to refer to conflicts and unrest that break out quickly and unexpectedly. Flare is also a term used in the oil and gas business. For anyone paying attention, there‘s zero surprise we sit at the precipice of some very difficult and potentially violent times, should saner heads not prevail. Just today, an unmanned Ukrainian drone hit a Lukoil refinery in Volgograd, Russia. That’s a ‘flare-up’ in both the literal and figurative sense. Between these incursions and news that F-16s are making their way to Ukraine, the collective West seems to be on a collision course with a rather unsavory conflict in which no one wins.
…click on the above link to read the rest of the article…
Wall Street Journal Boosts Gold FOMO
They hate that everyone suddenly wants physical metal
The Wall Street Journal just published a long article (reposted via MSN) lamenting the fact that everyone suddenly wants gold. So thanks, WSJ, for the FOMO boost:
Inside the 21st Century Gold Rush(MSN) – Eric Vazquez, a lineman for a power company in southwest Florida, says he’s holding a lot more gold than most financial advisers would recommend. Not just in his portfolio, but also in bars and coins spread between several secret locations.
It is a strategy for a world that he worries is growing more chaotic. The government keeps spending beyond its means. Stock prices can crash from a tweet. Ensuring his wife and children go to bed at night in peace, Vazquez said, requires owning tangible assets, not just a claim on them through some exchange-traded fund.
“At least in my adult life, nothing’s gotten better,” said Vazquez, who is 33. “And I just feel like I want to take as much of my own livelihood, my own safety, my own family’s safety, into my own hands.”
Worries about war, discord and mounting government debt have fueled a worldwide rush by individuals and institutions into what Wall Street calls “physical gold”— bars, coins, jewelry and nuggets. Widespread stockpiling has helped lift prices more than 40% since October 2022, to $2,367 a troy ounce.
The climb has at times perplexed analysts, because it didn’t coincide with a typical feature of prior rallies: mounting bullish bets in futures, options and ETF markets. Also, gold pays no income, and generally becomes less attractive to investors when rising interest rates drive up the payouts from other relatively safe assets, like bonds. Yet the metal’s sharpest ascent occurred between this past February and April, just when the Fed started signaling that rates might stay higher for longer then Wall Street expected.
…click on the above link to read the rest of the article…
Weekend reads: The American press gets its groove back
U.S. media is ‘dragging itself back from the brink.’ Will Canada follow?
Bettmann/Getty ImagesA story broke last weekend that I’ve been waiting a long time to see. In an interview with Ben Smith at Semafor, Joe Kahn, the executive editor of The New York Times, effectively announced the return of journalism to its pre-Trump era standards, stating that the role of the news media “is not to skew your coverage towards one candidate or the other.” Kahn pushed back on the activist ethos in newsrooms, blasted journalists that expect their work to be a reflection of personal politics, and acknowledged the Times went “too far” in 2020 and is now re-establishing norms in the wake of these “excesses.”
It was a stunning moment.
Speaking about the story on MSNBC’s Morning Joe, Ben Smith described the Grey Lady as being “focused on dragging itself back from the brink.” He said that “what’s happening inside the New York Times is a sense that, during particularly the summer of 2020, they aligned themselves too much with particularly the progressive wing of the Democratic Party.” And that Khan considers it his job to pull the institution back.
The context for Kahn’s stance is ongoing tensions between the Times and the White House (in part because the President won’t grant the paper a sit-down interview), and comments from podcaster and former Obama aide Dan Pfeiffer in particular. The Pod Save America co-host recently complained in a Substack post that the Times is “often too worried about seeming balanced to truly articulate the danger of Trump.” And that journalists “do not see their job as saving democracy or stopping an authoritarian from taking power.”
…click on the above link to read the rest of the article…
A Concise History of the Global Empire
Like all past empires, the Global Empire has gone through its parable of growth and glory and is now starting to decline. There is not much we can do about it; we must accept that this is how the universe works.
For everything that exists, there is a reason, and that’s true also for that gigantic thing that we sometimes call “The West” or perhaps “The Global Empire.” To find that reason, we may examine its origins in an older but similar empire: the Roman one.
As someone might have said (and maybe someone did), “Geography is the mother of Empires.” So, the Romans exploited the geography of the Mediterranean basin to build an empire based on maritime transportation. Rome was the center of a hub of commerce that outcompeted every other state in the Western region of Eurasia and North Africa. It was kept together by a “Lingua Franca,” Latin, and by a financial system based on coinage, in turn based on the availability of gold and silver mined from the Empire’s mines in Spain. More than all, it was based on a powerful military system created by the Roman wealth.
Like all empires, the Roman one carried inside the seeds of its own destruction: the limited amount of its mineral resources. Roman gold and silver were used to pay not just for the legions but also for expensive commodities coming from China that the Empire couldn’t produce in its territory. As long as the Romans could keep producing precious metals, the amounts lost to China to pay for silk and spices didn’t matter so much…
…click on the above link to read the rest of the article…
The Biggest Risks of This Decade
Since the 2020 pandemic, many things have changed, but nothing more than geopolitics. Wars and clashes that used to be largely national have given way to more regional conflicts that threaten to upend the current world order. The Ukraine War and Israel-Iran conflicts have the potential to lead to world war.
The international arena once dominated by the United States has gradually changed into a more multipolar stage. China and India have grown in economic and military significance, and Russia and Iran have reasserted their influence. Rising world powers are increasingly challenging the over-extended leading power.
“The disintegration of the old order is visible everywhere…It is close to collapse.”
Half of world’s nations feel that they are victims of economic and political inequality. A similar sentiment is found in the rising tide of populism—even in rich countries—because most people know that their economic situation has worsened in recent decades. At the core of both is the higher cost of energy and materials.
Figure 1 shows that oil price, inflation and interest rates rise and fall in tandem, and are considerably higher now than during the period before the Covid pandemic. The Ukraine War contributed to an energy shock that has moderated but oil prices have averaged nearly 60% higher after 2020 than they were in the six previous years. U.S. interest rates and inflation are more than three times higher.
Figure 1. U.S. inflation and oil price fell in 2023 but federal funds rate increased. Inflation was lower in Q1 2024, oil price rose and federal funds rate was marginally higher.Source: St. Louis Federal Reserve Bank, EIA & Labyrinth Consulting Services, Inc.
French president Emmanuel Macron observed in 2022 that these changes are probably secular.
…click on the above link to read the rest of the article…
May 19, 2024
Because We’re Still Not Sufficiently Indebted…
Now the government wants your home equity
Zero Hedge just posted a long look at how the “buy now, pay later” (BNPL) industry now accounts for about $700 billion of largely unreported “phantom debt”. This, speculates ZH, is why the economy hasn’t fallen into recession.
Now come the unintended consequences:
Pernicious effects of BNPL credit are piling up: the Harris Poll survey conducted last month, provides some crucial clues about how Americans use BNPL. For one, splitting payments into smaller chunks encourages more spending, obviously.
More than half of respondents who use BNPL said it allowed them to purchase more than they could afford, while nearly a quarter agreed with the statement that their BNPL spending was “out of control.” Harris also found that 23% of users said they couldn’t afford the majority of what they bought without splitting payments, while more than a third turned to the services after maxing out credit cards…
…In other words, not only do we not know just how big the BNPL problem is, it is actively masked by credit agencies which can’t accurately calculate the FICO score of tens of millions of Americans, and as a result their credit capacity is artificially boosted with far more debt than they can handle… and that’s why the US consumer has been so “strong” in recent years, defying all conventional credit metrics.
BNPL is obviously dangerous and stupid because the last thing working people need is another way to wrack up more unpayable debt. But it’s not the worst thing the US is considering:
Enter…Government-Funded Home Equity Loans
$3 trillion could be injected into the U.S. economy without any federal spending by tweaking this corner of the mortgage market, ‘Oracle of Wall Street’ says
…click on the above link to read the rest of the article…
I’ve Got A Bad Feeling About This
Ideally, I would have written this on May 4th not 14th, but I am going to talk Star Wars.
I was a fan in 1977, kept the flame alive when only battered VHS cassettes of the original trilogy existed, and was delighted to get prequels. Until the opening crawl announced, “The taxation of trade routes to outlying star systems is in dispute.” I recall thinking, “This is my job – boring!” But the prequels were better than the sequels and all the TV shows I don’t watch. Indeed, the prequels’ clunky theme of democracy crumbling into autocracy, dispute over trade routes, then war, seems even more prescient than my 2016 ‘Thin Ice’ report, which underlined how the 21st century could echo the 20th, and our more detailed fragmented ‘World in 2030’ report in 2020.
In just the last week: the IMF warned the world risks splitting into walled-off FX/trade blocs; The Economist stated “The liberal international order is slowly coming apart,” with “a worrying number of triggers that could set off a descent into anarchy”; Germany flagged conscription for all 18-year olds and spending over 3% of GDP on defence; China introduced military training for all High School students; Biden raised tariffs on Chinese EVs to 102.5%, and Trump said he would make it 200%, with tariffs on used cooking oil likely next; Bloomberg warned “The US, China, Russia are in a spiral towards war”; the manager of the Hong Kong trade office in London was arrested for spying; and, as some underline Russia has shifted to a full war economy that incentivises the martial, my prediction that markets will serve national security going forwards came true in Putin firing his defence minister to appoint an economist to the role instead.
…click on the above link to read the rest of the article…
Record Household Debt, Jump In Delinquencies Signal “Worsening Financial Distress”, Fed Warns
While the market remains focused on tomorrow’s CPI print, and to a lesser extent the April retail sales reports, which will both be released at 8:30am on May 15. we should flag another important report that doesn’t typically get a lot of attention: the New York Fed’s Household Debt and Credit Report for 1Q 2024 which was just published, and where the latest data on credit card debt and delinquencies has recently been the most important part of the report.
While we already know that in the latest monthly consumer credit report published by the Fed last week and covering the month of March, total consumer debt hit a record high (despite a sharp slowdown in credit card growth) even as the personal savings rate plunged to an all-time low, hardly a ringing endorsement for the strength of the US consumer…
… today’s report provided more granular details which however did not change the conclusion: the US consumer is getting weaker, and while not in a crisis just yet, will get there soon enough.
As the chart from the NY Fed shows, at the end of the first quarter, US household debt reached a record and more borrowers are struggling to keep up: overall US household debt rose to $17.69 trillion, the NYFed’s Quarterly Report on Household Debt and Credit revealed (link here). That’s an increase of $184 billion, or 1.1%, from the fourth quarter.
Consumers have added $3.4 trillion in debt since the pandemic, and that increased debt bears much higher interest rates.
And with both credit card rates and total credit at all time highs, the data corroborate the mounting financial pressures on American families in an age of elevated inflation. The persistent rise in the prices of essentials such as food and rent have strained household budgets, pushing people to borrow against their credit cards to pay for necessities.
…click on the above link to read the rest of the article…
Inflation is a Policy. Gold Does Not Reflect Monetary Destruction, Yet
The money supply is rising again, and persistent inflation is not a surprise. Inflation occurs when the amount of currency increases significantly above private sector demand. For investors, the worst decision in this environment of monetary destruction is to invest in sovereign bonds and keep cash. The government’s destruction of the purchasing power of the currency is a policy, not a coincidence.
Readers ask me why the government would be interested in eroding the purchasing power of the currency they issue. It is remarkably simple.
Inflation is the equivalent of an implicit default. It is a manifestation of the lack of solvency and credibility of the currency issuer.
Governments know that they can disguise their fiscal imbalances through the gradual reduction of the purchasing power of the currency and with this policy, they achieve two things: Inflation is a hidden transfer of wealth from deposit savers and real wages to the government; it is a disguised tax. Additionally, the government expropriates wealth from the private sector, making the productive part of the economy assume the default of the currency issuer by imposing the utilization of its currency by law as well as forcing economic agents to purchase its bonds via regulation. The entire financial system’s regulation is built on the false premise that the lowest-risk asset is the sovereign bond. This forces banks to accumulate currency—sovereign bonds—and regulation incentivizes state intervention and crowding out of the private sector by forcing through regulation to use zero to little capital to finance government entities and the public sector.
Once we understand that inflation is a policy and that it is an implicit default of the issuer, we can comprehend why the traditional sixty-forty portfolio does not work.
…click on the above link to read the rest of the article…
