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Blain: Forget The ‘Dead Cat Bounce’, It’s All About Inflation & The Dollar

Blain: Forget The ‘Dead Cat Bounce’, It’s All About Inflation & The Dollar

Authored by Bill Blain via,




Blain: Forget The 'Dead Cat Bounce', It's All About Inflation & The Dollar

Authored by Bill Blain via,

“It’s either the devil or the deep blue sea?”

There is nothing like a dead cat bounce to cheer up the already doomed, but the real issues are inflation and dollar strength. Both can be addressed, and the treatment will hurt. Smile and get used to it.

So much to unpack about markets this morning – so apologies its late and it’s going to be short as lots of stuff going on!

There is nothing like a good old fashioned dead cat bounce – like yesterday’s green stock market! The shorts were squeezed, and half-a-dozen market talking heads declared – it’s time to buy again! It’s probably not… One swallow less does not an autumn make.

Even the ECB is on the shock and awe interest rate rising path – so the fight against inflation is very real. Unfortunately, there is the law of consequences – higher rates will go down like a kick in the head across struggling European economies, stirring up political unrest, getting populists elected and reopening the prospect of a full-blooded Euro-sovereign crisis – again. (Got some ideas on that – and it could be a great opportunity to be a contrarian!)

Interest rates are rising, yet the market is still – foolishly – taking the perspective global central banks are probably close to done. I would like a quarter of whatever they’ve been smoking – when inflation was last in double digits like today, during the 1970s, the Fed (under Arthur Burns) thought it could address inflation with gradual interest rate hikes – achieving nothing. It wasn’t till Paul Volker applied a dramatic series of big hikes – 1000 basis points in matter of months – that inflation got the message and finally abated.

Yesterday morning I had a cup of coffee with a political chum close to the Mother of Parliaments. She was trying to persuade me to give Liz Truss some slack, time to settle into her new job – and even give her some credit for the coming energy bailout package.  My chum suggested its not sterling weakness, but dollar strength I should be blaming for the apparent unravel going on across all Western Economies. It’s not just sterling that’s crashing. Yen and the Euro are in a similar spot.

The “inflation problem” is this global inflation pandemic has not been triggered by money supply, wages outpacing supply, or any of the other monetarist reasons conventionally unpinning inflation.

It was triggered by an exogenous energy shock and war.

The dollar problem is… different. Its strong on the back of the growing sense of global crisis and uncertainty. At some point the Fed will realise that’s not a good thing. (Dollar strength is contributing to the expectation interest rate rises will be muted, to keep dollar strength down.)

Although inflation was triggered by the war, the fact all the endogenous inflationary firewood to blevy into a price-stability conflagration was lying around ready to spontaneously ignite is important: the money printing done by central banks through the decade of monetary experimentation (via NIRP and QE) didn’t find its way into the real economy because it was immediately invested in financial assets (stocks and bonds.) Inflation is now apparent as more and more of that money in financial assets now seeps into the real economy via real assets like property.

That’s why this inflation pandemic still has damage to do – everyone is talking wages, social unrest and a housing shock in the west, but it’s not happened yet. We are still seeing buyers clambering onto the market, thinking houses are an inflation hedge, and rates wont go much higher. The same is true against depreciating assets like car and boat loans – boat dealers tell me order books are buoyant because folk believe these bad times will be short-lived.

Reality takes time to establish itself. How can we have a consumer cost-of-living crisis, yet consumers taking out more debt – unless they believe rates are set to revert lower? And that wont happen till inflation is licked, and energy prices stabilise. And currencies stabilise – a major source of imported inflation.

The crisis in Europe is made worse because of imported dollar strength driving inflation. It’s even more damaging for the UK as we’re no longer part of the single trading block – and sterling now looks the weakest link. UK Prices are going to remain more volatile – no matter what government tells us about UK energy security. On its own, sterling is vulnerable. Euro is stronger because it’s a pack economy.

The current market is all about inflation. The Fed has given enough clues about how much more its prepared to raise rates. The problem for the Fed is they need to aggressively hike rates to stem inflation, but that will only make the dollar stronger. The ECB and BOE have little choice to follow – if they don’t the currencies weaken further. If they do, their economies weaken further. My political chum accepted that is something of a conundrum.

The ever excellent John Authers on Bloomberg addresses the question of dollar strength this morning: Nothing Will Stop the Dollar from Getting Stronger.

Apples and Apples…

Among the many stocks to prosper yesterday was Apple – showing off a new iPhone 14 and new watch. Fantastic. Tremendous..

Not sure I need this years must-have Apple gimmick: a Satellite SOS System – already got a host of stuff that does that on the boat. Not sure I need information on whether I am ovulating at my age (and gender) either…

My Apple watch stopped working months ago, and Apple shrugged their shoulders and told me it was out of warranty. My iPhone 12 is working fine. I am trying to save some money to help my kids. I am being shouted at by Mrs Blain to switch off lights and save energy. I am not going to rush out and buy one – especially since they are priced at a sub-dollar parity in the UK – it costs more pounds than dollars: £1199 vs $1099! Why? Sounds like a FROAD to UK consumers.

Since my iWatch doesn’t work, I am looking for a health wearable to replace it. Any suggestions?

And that should terrify Apple executives.

If Bill Blain, a self-confessed Apple-holic is about to shake his addiction to New Bright Shinny Things – then how many others are thinking the same? I will have mild Cold Turkey that my Air-pods aren’t the latest version, and my phone is 2 years and 1 day old. But my company provided home computer system is as good as my iMac, and my company laptop does everything my IMac Pro did.

I have sold my Apple position – months ago. It was my largest holding at one point. Big companies stay big – for a while, till the next thing comes along. It’s just a brand.

Tyler Durden Thu, 09/08/2022 - 11:15

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High fossil fuel prices mean UK cannot delay transition to low emissions steel

Steelmaking with green hydrogen is now a less expensive prospect relative to alternatives.




Norenko Andrey/Shutterstock

Steel is essential for making many of the technologies that will end fossil fuel combustion, including electric vehicles, wind turbines and solar panels. Unfortunately, to produce a lot of steel, manufacturers need to burn a lot of fossil fuel.

Steel production accounted for 2% of the UK’s emissions in 2019 and ranks second for energy consumption among the country’s heavy industries. Roughly two-thirds of this energy comes from coal.

The blast furnaces of steelworks burn a special type called coking coal (which is converted to a hard and porous fuel known as coke) at temperatures of up to 2,000°C, producing large amounts of carbon dioxide (CO₂) – around 1.8 tonnes for each tonne of steel. This method accounted for 82% of steel production in the UK in 2021, and 71% of all steel made worldwide that year.

While coal-based steelmaking can be decarbonised to an extent by capturing the CO₂, there has to be a suitable storage site nearby or sufficient demand for using that CO₂ in other industries. This is not the case for the blast furnaces in Port Talbot, Wales, which account for half of UK steel production.

Coking coal prices have more than doubled since the beginning of the pandemic and the invasion of Ukraine has disrupted supplies. In 2021, the UK imported 39% of its coking coal from Russia, with almost all of the rest coming from the US and Australia.

Another option is to use natural gas, another fossil fuel. But since 2020, gas prices have also risen considerably. These recent fuel cost hikes demand a reassessment of how steel is made.

A metallurgical plant at night with chimneys belching smoke.
High coal prices make coal-based steelmaking less attractive for producers. ArtEvent ET/Shutterstock

Steelmaking with green hydrogen (hydrogen that has been split from water using electricity generated by renewables or nuclear power) removes fossil fuels from the process altogether. As a result, it could be insulated from increases in fossil fuel prices and carbon taxes, all of which have made steelmaking with fossil fuels more expensive in recent years.

The UK steel industry is currently given a free allocation of emissions allowances, which significantly lowers the effective carbon price paid by steel producers. Our recent research shows that, if this exemption were phased out gradually, steelmaking with green hydrogen produced using wind and solar electricity would in fact be cheaper than all other options.

Green steel

Hydrogen can convert iron ore to a pure form known as sponge iron through a process known as direct reduction. This involves heating hydrogen to between 800 and 1,000°C which reacts with the oxygen in iron ore to leave pure iron and water vapour, with no carbon emissions. The sponge iron is then processed in an electric arc furnace to produce steel.

Electric arc furnaces can also recycle scrap metal, and while the UK has no direct reduction furnaces, it already has five electric arc furnaces that recycle scrap to provide 18% of the nation’s steel. If renewable electricity powered these furnaces and was used to generate the hydrogen that fuels the production of sponge iron, then total emissions from the steel industry could be zero.

A suspended cylinder spewing molten metal.
Electric arc furnaces cut out fossil fuels, but are still expensive to run. D.Alimkin/Shutterstock

The EU and UK have both committed to ending imports of Russian coal in 2022, and large producers such as Tata Steel and ArcelorMittal have already stopped using Russian commodities in their supply chains.

While high gas and electricity prices are making some industries revert to burning coal, our findings show that green hydrogen offers a cheaper alternative to steelmakers. At recent fossil fuel prices, we estimate that direct reduction steelmaking with green hydrogen could be roughly 15% cheaper than the cheapest coal-based option (including carbon capture and storage) over a typical 25-year project lifetime.

Steelmaking with green hydrogen and electric arc furnaces uses lots of electricity. So, in a recent paper, we looked at reducing industrial electricity bills by removing green levies (which raise funds to spur the deployment of renewable technology and support vulnerable customers) and energy network maintenance costs and moving them to general taxation instead.

This would put the UK’s steel industry on an equal footing with France’s and Germany’s. We found that price parity could be achieved by increasing the average income tax bill by around 68p, rising to around £5.50 if UK steel production switched entirely to direct reduction with green hydrogen.

The UK government is considering exempting industries that consume a lot of energy from paying green levies. But soaring fossil fuel prices have hiked wholesale electricity costs so much that removing them and network maintenance fees will not significantly affect bills.

Instead, steelmakers and other heavy industries could access cheap renewable electricity directly in a green power pool.

The UK cannot afford to keep coal-based steelmaking in its decarbonisation strategy and must ensure the steel industry is ready to transition to using green hydrogen fuel instead.

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Clare Richardson-Barlow is a non-resident fellow at the National Bureau of Asian Research.

Andrew Pimm and Pepa Ambrosio-Albala do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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What Is Helicopter Money? Definition, Examples & Applications

What Is Helicopter Money?What’s a surefire way to encourage spending, and thus, spur growth? How about dropping money from the sky? As far-stretched…



Former Fed Chair Ben Bernanke describes helicopter money as a “money-financed tax cut.”

Public DomainPictures from Pexels; Canva

What Is Helicopter Money?

What’s a surefire way to encourage spending, and thus, spur growth? How about dropping money from the sky?

As far-stretched as this idea seems, it actually has credence in schools of economic thought, particularly during times of recession or supply shocks. Helicopter money policies inject large sums into the monetary supply either through increased spending, direct cash stimulus, or a tax cut.

This policy has two goals in mind:

1. Expand the supply of money, which improves liquidity

2. Spur economic growth

Economists consider helicopter money to be an option oflast resort, after other measures, such as lowering interest rates or quantitative easing, have either failed to lift an economy out of recession or because interest rates are already as low as they can get. This conundrum is known as a liquidity trap, when the economy is at a standstill because people are hoarding their savings instead of spending.

Since the practice of helicopter money also tends to foster inflation, it typically works best during periods of deflation, when prices, along with overall monetary supply, contract without a corresponding decrease in economic output. One relevant example is the Great Depression. Bank runs resulted in a reduction in both the monetary supply as well as in the overall prices of goods and services.

It takes a whole lot to lift an economy from such dire straits, and in such cases, helicopter money can be a viable option.

Example of Helicopter Money: The COVID-19 Recession

At the onset of the COVID-19 pandemic, the stock market crashed, and GDP nosedived, thrusting the economy into recession. While the Federal Reserve slashed interest rates and instituted a new round of quantitative easing measures, the U.S. government responded with helicopter money.

  • Under the Coronavirus Aid, Relief, and Economic Security Act (CARES), the Trump administration authorized two rounds of direct-to-taxpayer stimulus payments, of $1200 and $600 per person, in 2020.
  • In addition, as part of the Paycheck Protection Program (PPP), payroll loans were offered to thousands of small businesses—and many were quickly forgiven. The Federal Reserve also provided increased liquidity to banks so that they could offer loans to businesses to help them stay afloat.

Who Coined the Term Helicopter Money?

In a 1969 paper entitled “The Optimum Quantity of Money,” economist Milton Friedman coined the term “helicopter drop” as a method to increase monetary policy during times of economic stress. He wrote:

“Let us suppose now that one day a helicopter flies over [the] community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.”

The point was that the easiest way to lift an economy out of troubled times would be to give its population a direct injection of money. This would both expand the monetary supply and as well as increase the disposable income of the populace, resulting in greater consumer spending and increased economic output.

Who Made the Concept of Helicopter Money Popular?

In the 1990s, Japan was facing a deflationary crisis. Its central bank had implemented crippling rate hikes to calm its housing bubble—to disastrous economic effects.

In a 2002 speech to the National Economists Club, then-Fed Governor Ben Bernanke proposed that Japan’s central bank could have re-started the country’s economy through fiscal programs:

“A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money”

However, critics interpreted Bernanke’s words as his way of authorizing indiscriminate money printing, and the moniker “Helicopter Ben” took hold.

Bernanke would go on to chair the Federal Reserve from 2006–2014, and many of his theories were put into practice during the Financial Crisis of 2007–2008 and subsequent Great Recession. In fact, President Barack Obama credited Bernanke’s leadership during the crisis with averting a second Great Depression.

Helicopter Money vs. Quantitative Easing

While helicopter money and quantitative easing are both monetary policy tools, and both increase the monetary supply, they actually have different effects on a central bank’s balance sheet.

Through quantitative easing, a central bank buys trillions of dollars’ worth of long-term securities, such as Treasury securities, corporate bonds, mortgage-backed securities, or even stocks. This increases its reserves and expands its balance sheet. These purchases are also reversible, meaning the central bank can swap out its assets if it chooses.

Helicopter money, on the other hand, involves fiscal stimulus: distributing money to the public. It has no impact on a central bank’s balance sheet. The practice of helicopter money is irreversible, which means it is permanent—and cannot be undone.

In effect, helicopter money is less a long-term economic solution than it is a “one-time” or short-term operation.

Pros of Helicopter Money

In a 2016 blog post written for the think-tank Brookings Institution, Bernanke admitted that his helicopter money reference gave him some bad PR. In fact, he said that their media relations officer, Dave Skidmore, had warned Bernanke against using the term, saying “It’s just not the sort of thing a central banker says.”

But Bernanke insisted, and the moniker stuck.

To this day, Bernanke continues to believe in the practice of helicopter money as a tool the Fed could use in response to a slowdown in the economy. His successor at the Federal Reserve, Janet Yellen, agreed, stating that helicopter money “is something that one might legitimately consider.”

Other central bankers support the concept, particularly in Europe, which suffered from debt crises that mired its economy throughout the 2000s, igniting deflationary pressures like low demand and weak lending, and made recovery exceedingly difficult.

Cons of Helicopter Money

The biggest drawback of helicopter money is the inflation it tends to ignite. And since inflation is notoriously difficult to manage, once the inflationary fires have been stoked, what’s to prevent them from growing out of control—and fostering hyperinflation? That’s what happened in countries like Argentina and Venezuela, when their central banks printed money and gave it to their governments, who in turn gave it to the people. Inflation surged.

Helicopter money also leads to weakened currencies, because as more and more money is printed, its value decreases significantly. It could also deter currency traders from making long-term investments if the practice is prolonged.

Clearly, helicopter money is not a practice a central bank should undertake lightly.

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Arsenal’s $55.9M Loss An Improvement Over Previous Fiscal Year

Arsenal took a heavy loss but saw reasons for optimism.
The post Arsenal’s $55.9M Loss An Improvement Over Previous Fiscal Year appeared first on Front…



As a team in transition, Arsenal saw some losses in its last`fiscal year — but also saw signs of hope.

The Premier League team took an operating loss of $55.9 million in the fiscal year ending May 2022.

  • That figure was a significant improvement on last year’s $131.9 million loss.
  • The team saved around $39 million in wages compared to the previous year.
  • But broadcasting revenue dropped from $225 million to $178 million.

Arsenal benefitted from the lifting of pandemic restrictions, with matchday revenue rising by around $51.6 million to $453.7 million.

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Streak Snapped

The club failed to qualify for any European competitions in the 2020-21 season for the first time since 1994-95, which led to heavy spending on player contracts. 

“This investment recognises that the Club has not been where it wanted to be in terms of on-field competitiveness and that, as a minimum, qualification for UEFA competition needed to be regained, as a prerequisite to re-establishing a self-sufficient financial base,” the club wrote.

Arsenal credited owners Kroenke Sports & Entertainment for its willingness to invest in the team.

The move has borne fruit this season with Arsenal’s return to the Europa League, the second-tier competition to the UEFA Champions League. The team has already earned $8.4 million for its appearance there, with total potential earnings up to $22.1 million.

The post Arsenal’s $55.9M Loss An Improvement Over Previous Fiscal Year appeared first on Front Office Sports.

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