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Consequences, Consequences, Who Would Have Guessed…

Consequences, Consequences, Who Would Have Guessed…

Authored by Bill Blain via MorningPorridge.com,

“The downright bleeding obvious is often a surprise!”

Markets are great at reacting to a single stimulus but are like a frog in a…

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Consequences, Consequences, Who Would Have Guessed...

Authored by Bill Blain via MorningPorridge.com,

“The downright bleeding obvious is often a surprise!”

Markets are great at reacting to a single stimulus but are like a frog in a pan of warming water when it comes to consequential events. Forget “Black Swans” or “no-see-ums”, but figure out how the increasingly complex picture of unfolding events and consequences are driving markets!

This morning I am struggling to find a single topic for my usual Friday rant. There are literally so many separate threads driving markets, from recession/recovery indicators, company earnings reports, domestic politics, geopolitics, and rising dissent, that it’s difficult to focus on any one point and paint it as the dominant factor.

But, one month in, I’ve formed a pretty unshakable view on the year ahead: 2022 is going to be very different. That does not necessarily mean very bad. Different and Bad are not mutually reinforcing unless you let them be… Whatever happens in coming months, this will be a year of tremendous opportunity… but also danger.

When we think about volatility, we tend to think about steep lines on a price and volume chart, and the Vix fear index. Fast moving prices mean opportunities to extract extra value from the market – or lose more. However, we need to think more about event volatility – if that is the right expression.

Events generate consequences, which are often unforeseen and unpredictable. We tend to think of events in binary terms of “no-see-ems”, or Black Swans as they’re now called – things that come out of no-where to shock markets. Markets are far less unsettled by consequential effects – where small events occur, follow and reinforce each other. The cumulative negative effects from a cascade of small events, each of which will have spawned consequences of their own – can suddenly result in catastrophe. They can become slow moving train-wrecks, but are often retrospectively completely predictable – meaning they fail the black swan test.

In many ways markets can be a bit like the proverbial frog in a pan of water. It seems utterly unconcerned and unaware as the heat is turned up. But, threaten a frog with a sudden sharp pointy knife, and you won’t see it for slippery dust… Or maybe markets are like kids stretching a rubber band, knowing it’s going to snap, but still excitedly pulling it.

The way which markets suddenly break down is a branch of chaos theory. In a stable market the amplitude of prices moves within an apparently predictable band (to which analysts assign standard deviation, sigma, risk labels). The point where markets suddenly break out is usually unexpected. Suddenly the price will pass the chaos point. What triggers these chaotic break outs? Market over-exuberance and/or the multiplying consequences of events on prices.

What never ceases to surprise me about markets is how quickly prices can rise and fall on a single piece of company news, a single line on the annual report, a single word from a central banker, or a single (one of many) mistake by a politician. Yet, show markets a series of unfolding events and there is a stubborn reluctance to put them together in the bigger jigsaw of the economy. We understand single events better than a complex series of events – because that’s the way we’re programmed; survive the immediate fight or flight threat and face the next set of consequences.

Looking at the markets this morning and trying to figure out where its all going, I can’t think when I’ve ever seen the picture look so complex. We’ve got so many “events” happening, each of which will trigger ripples and consequences across markets – that the possibility of chaotic break-out seems very high.

Let me try to explain with a snapshot: (I could probably spend hours writing pages on each of these, and others, but I’ve a got a day-job to do):

  • Over the past few days we’ve seen various firms, including Apple and Tesla, post stronger earnings despite supply chain problems. Yet the world’s second largest economy, China, remains in effective lockdown and supply chains multiply. Successful firms are finding new ways to operate – which has massive consequences for those that don’t.

  • We’ve seen analysts predicting stronger US and UK recovery in months ahead (although the IMF recently knocked back estimates for both countries). House prices remain unaffordable. Inflation, increased taxes, energy bills are all set to eliminate discretionary consumer spending.

  • While the UK economy slides into a backchannel in terms of trade treaties – the prime concern of the political classes is to not let Boris have his cake or eat it. The US has failed to pass critical infrastructure development funding due to political gridlock. Political failure has massive forward consequences – which will magnify ahead of this year’s mid-terms.

  • We’ve got the Bank of England and the Fed both expected to tighten. After 12 years of over-easy money and cheap capital, the consequences on markets are obvious in terms of inflated financial assets – but there are equally dangerous consequences from unwinding over-abundant capital in the ways companies have reacted to it – most visibly in profitless tech sectors and speculative bubbles like crypto.

  • We’ve got a real or imagined threat of war in Ukraine from which a billion potential consequences will flow.. Even if nothing happens (my call) the growing tension in Ukraine, rising tension on Taiwan, while Russia and China apparently come together, could spell distraction disaster for US policy, Biden and the dollar.

  • Marcelo Claure of Softbank walking out after he didn’t get a $1 bln bonus from Masayoshi-Son.

Curiously, I have suspicion it’s all going to go badly wrong in the UK first as we approach a political chaotic break. Nothing surprises me in the news anymore. How did we ever get here? Let me explain.

Later today I will pay taxes to HMRC. Worst day of the year.

If you are a large supranational you might decide to make a token payment, and instruct your Panama based lawyers to come to an arrangement with your tame tax inspector. You might suggest you cover the inconvenience with, say £1 in ever £1000 the HRMC has assessed your taxes due from UK earnings. The HMRC will be pragmatic – and accept the deal, even give you a certificate of tax compliance or some such paper you can wave at protesters to conclusively demonstrate you are not a tax dodger. The HMRC doesn’t have the time or money to waste chasing down expensively lawyered-up corporates.

They chase the low hanging fruit instead.

If you are a barely solvent middle class family juggling escalating bills and fees, it’s about this time you get hit with an additional surcharge or payment, or a demand for money on account. There is no appeal – pay or expect to suffer. Young professionals working in London (I am de-facto banker to two of them), have been surviving on stale bread since last Wednesday, wondering how they are going to pay next month’s gas bill, and how they can afford their flat after their earnings are slashed when taxes and national insurance hikes kick in. They are living anything but “Their Best Lives” the glossy mags and social media show everyone else is having…

And if you are a struggling single parent trying eke out any kind of life on your wholly inadequate benefits, it’s about this time of year the HRMC sends you a letter saying a clerical error means you’ve been overpaid £100 per month for the last 18 months, and you have 3 days to repay the entire £1800 with interest – if not the bailiffs will attend and throw you and your brood out into the snow. There is no appeal and even though the bulk of such demands that taken up by MPs are subsequently dropped, the HMRC follow a proud tradition of tax-gatherers through history – pick on the weak.

And then you might pick up the papers and read how the much the PPE companies that secured Fast-track VIP government contracts (because they were friends of Tory MPs), have made from the pandemic.

Or maybe you will read about how the bounce-back loan programme became a fraudsters dream – £47 bln of credit given to 1.6mm applicants – of which £20 bln is never going to be repaid. We’re all familiar with stories like the small businessman next door who suddenly bought a Porsche, or the family that got the new holiday home in Rock. Lord Agnew, the counter-fraud minister, resigned, citing “desperately inadequate” efforts to stop tax-payers money being effectively stolen.

Or maybe it will be the news well fancied Tory Leadership contender Nadhim Zahawi was apparently instrumental in speeding Greensill loans to the crooked Sanjeev Gupta’s steel businesses last summer, after former PM David Cameron had trousered millions working for Greensill? Or that Lynn Truss spent £500k flying herself to Australia or back..? Or maybe it will be the local authority officers on the Isle of Wight taking bungs from Big Pharma to push drugs on the Island? And, I haven’t even mentioned Party Gate.

The point is that news is cumulative. I suspect the Tory strategists are betting we don’t see that. I’m betting the Brits are approaching that chaotic breaking point when it comes to political patience. If there was an election tomorrow, I have some pretty harsh questions for my Tory MP… and I won’t be making the mistake of voting for Boris again – back to Labour for me. I suspect many more of my neighbours will just vote Liberal instead.

And I can’t think of anything worse….

Tyler Durden Fri, 01/28/2022 - 08:50

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Government

Survey Shows Declining Concerns Among Americans About COVID-19

Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat"…

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Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat" to the health of the US population - a sharp decline from a high of 67% in July 2020.

(SARMDY/Shutterstock)

What's more, the Pew Research Center survey conducted from Feb. 7 to Feb. 11 showed that just 10% of Americans are concerned that they will  catch the disease and require hospitalization.

"This data represents a low ebb of public concern about the virus that reached its height in the summer and fall of 2020, when as many as two-thirds of Americans viewed COVID-19 as a major threat to public health," reads the report, which was published March 7.

According to the survey, half of the participants understand the significance of researchers and healthcare providers in understanding and treating long COVID - however 27% of participants consider this issue less important, while 22% of Americans are unaware of long COVID.

What's more, while Democrats were far more worried than Republicans in the past, that gap has narrowed significantly.

"In the pandemic’s first year, Democrats were routinely about 40 points more likely than Republicans to view the coronavirus as a major threat to the health of the U.S. population. This gap has waned as overall levels of concern have fallen," reads the report.

More via the Epoch Times;

The survey found that three in ten Democrats under 50 have received an updated COVID-19 vaccine, compared with 66 percent of Democrats ages 65 and older.

Moreover, 66 percent of Democrats ages 65 and older have received the updated COVID-19 vaccine, while only 24 percent of Republicans ages 65 and older have done so.

“This 42-point partisan gap is much wider now than at other points since the start of the outbreak. For instance, in August 2021, 93 percent of older Democrats and 78 percent of older Republicans said they had received all the shots needed to be fully vaccinated (a 15-point gap),” it noted.

COVID-19 No Longer an Emergency

The U.S. Centers for Disease Control and Prevention (CDC) recently issued its updated recommendations for the virus, which no longer require people to stay home for five days after testing positive for COVID-19.

The updated guidance recommends that people who contracted a respiratory virus stay home, and they can resume normal activities when their symptoms improve overall and their fever subsides for 24 hours without medication.

“We still must use the commonsense solutions we know work to protect ourselves and others from serious illness from respiratory viruses, this includes vaccination, treatment, and staying home when we get sick,” CDC director Dr. Mandy Cohen said in a statement.

The CDC said that while the virus remains a threat, it is now less likely to cause severe illness because of widespread immunity and improved tools to prevent and treat the disease.

Importantly, states and countries that have already adjusted recommended isolation times have not seen increased hospitalizations or deaths related to COVID-19,” it stated.

The federal government suspended its free at-home COVID-19 test program on March 8, according to a website set up by the government, following a decrease in COVID-19-related hospitalizations.

According to the CDC, hospitalization rates for COVID-19 and influenza diseases remain “elevated” but are decreasing in some parts of the United States.

Tyler Durden Sun, 03/10/2024 - 22:45

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International

Rand Paul Teases Senate GOP Leader Run – Musk Says “I Would Support”

Rand Paul Teases Senate GOP Leader Run – Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump…

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Rand Paul Teases Senate GOP Leader Run - Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump into the race to become the next Senate GOP leader, and Elon Musk was quick to support the idea. Republicans must find a successor for periodically malfunctioning Mitch McConnell, who recently announced he'll step down in November, though intending to keep his Senate seat until his term ends in January 2027, when he'd be within weeks of turning 86. 

So far, the announced field consists of two quintessential establishment types: John Cornyn of Texas and John Thune of South Dakota. While John Barrasso's name had been thrown around as one of "The Three Johns" considered top contenders, the Wyoming senator on Tuesday said he'll instead seek the number two slot as party whip. 

Paul used X to tease his potential bid for the position which -- if the GOP takes back the upper chamber in November -- could graduate from Minority Leader to Majority Leader. He started by telling his 5.1 million followers he'd had lots of people asking him about his interest in running...

...then followed up with a poll in which he predictably annihilated Cornyn and Thune, taking a 96% share as of Friday night, with the other two below 2% each. 

Elon Musk was quick to back the idea of Paul as GOP leader, while daring Cornyn and Thune to follow Paul's lead by throwing their names out for consideration by the Twitter-verse X-verse. 

Paul has been a stalwart opponent of security-state mass surveillance, foreign interventionism -- to include shoveling billions of dollars into the proxy war in Ukraine -- and out-of-control spending in general. He demonstrated the latter passion on the Senate floor this week as he ridiculed the latest kick-the-can spending package:   

In February, Paul used Senate rules to force his colleagues into a grueling Super Bowl weekend of votes, as he worked to derail a $95 billion foreign aid bill. "I think we should stay here as long as it takes,” said Paul. “If it takes a week or a month, I’ll force them to stay here to discuss why they think the border of Ukraine is more important than the US border.”

Don't expect a Majority Leader Paul to ditch the filibuster -- he's been a hardy user of the legislative delay tactic. In 2013, he spoke for 13 hours to fight the nomination of John Brennan as CIA director. In 2015, he orated for 10-and-a-half-hours to oppose extension of the Patriot Act

Rand Paul amid his 10 1/2 hour filibuster in 2015

Among the general public, Paul is probably best known as Capitol Hill's chief tormentor of Dr. Anthony Fauci, who was director of the National Institute of Allergy and Infectious Disease during the Covid-19 pandemic. Paul says the evidence indicates the virus emerged from China's Wuhan Institute of Virology. He's accused Fauci and other members of the US government public health apparatus of evading questions about their funding of the Chinese lab's "gain of function" research, which takes natural viruses and morphs them into something more dangerous. Paul has pointedly said that Fauci committed perjury in congressional hearings and that he belongs in jail "without question."   

Musk is neither the only nor the first noteworthy figure to back Paul for party leader. Just hours after McConnell announced his upcoming step-down from leadership, independent 2024 presidential candidate Robert F. Kennedy, Jr voiced his support: 

In a testament to the extent to which the establishment recoils at the libertarian-minded Paul, mainstream media outlets -- which have been quick to report on other developments in the majority leader race -- pretended not to notice that Paul had signaled his interest in the job. More than 24 hours after Paul's test-the-waters tweet-fest began, not a single major outlet had brought it to the attention of their audience. 

That may be his strongest endorsement yet. 

Tyler Durden Sun, 03/10/2024 - 20:25

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Government

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While “Waiting” For Deporation, Asylum

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several…

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The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several months we've pointed out that there has  been zero job creation for native-born workers since the summer of 2018...

... and that since Joe Biden was sworn into office, most of the post-pandemic job gains the administration continuously brags about have gone foreign-born (read immigrants, mostly illegal ones) workers.

And while the left might find this data almost as verboten as FBI crime statistics - as it directly supports the so-called "great replacement theory" we're not supposed to discuss - it also coincides with record numbers of illegal crossings into the United States under Biden.

In short, the Biden administration opened the floodgates, 10 million illegal immigrants poured into the country, and most of the post-pandemic "jobs recovery" went to foreign-born workers, of which illegal immigrants represent the largest chunk.

Asylum seekers from Venezuela await work permits on June 28, 2023 (via the Chicago Tribune)

'But Tyler, illegal immigrants can't possibly work in the United States whilst awaiting their asylum hearings,' one might hear from the peanut gallery. On the contrary: ever since Biden reversed a key aspect of Trump's labor policies, all illegal immigrants - even those awaiting deportation proceedings - have been given carte blanche to work while awaiting said proceedings for up to five years...

... something which even Elon Musk was shocked to learn.

Which leads us to another question: recall that the primary concern for the Biden admin for much of 2022 and 2023 was soaring prices, i.e., relentless inflation in general, and rising wages in particular, which in turn prompted even Goldman to admit two years ago that the diabolical wage-price spiral had been unleashed in the US (diabolical, because nothing absent a major economic shock, read recession or depression, can short-circuit it once it is in place).

Well, there is one other thing that can break the wage-price spiral loop: a flood of ultra-cheap illegal immigrant workers. But don't take our word for it: here is Fed Chair Jerome Powell himself during his February 60 Minutes interview:

PELLEY: Why was immigration important?

POWELL: Because, you know, immigrants come in, and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than native Americans do. But that's largely because of the age difference. They tend to skew younger.

PELLEY: Why is immigration so important to the economy?

POWELL: Well, first of all, immigration policy is not the Fed's job. The immigration policy of the United States is really important and really much under discussion right now, and that's none of our business. We don't set immigration policy. We don't comment on it.

I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last, year a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.

PELLEY: The country needed the workers.

POWELL: It did. And so, that's what's been happening.

Translation: Immigrants work hard, and Americans are lazy. But much more importantly, since illegal immigrants will work for any pay, and since Biden's Department of Homeland Security, via its Citizenship and Immigration Services Agency, has made it so illegal immigrants can work in the US perfectly legally for up to 5 years (if not more), one can argue that the flood of illegals through the southern border has been the primary reason why inflation - or rather mostly wage inflation, that all too critical component of the wage-price spiral  - has moderated in in the past year, when the US labor market suddenly found itself flooded with millions of perfectly eligible workers, who just also happen to be illegal immigrants and thus have zero wage bargaining options.

None of this is to suggest that the relentless flood of immigrants into the US is not also driven by voting and census concerns - something Elon Musk has been pounding the table on in recent weeks, and has gone so far to call it "the biggest corruption of American democracy in the 21st century", but in retrospect, one can also argue that the only modest success the Biden admin has had in the past year - namely bringing inflation down from a torrid 9% annual rate to "only" 3% - has also been due to the millions of illegals he's imported into the country.

We would be remiss if we didn't also note that this so often carries catastrophic short-term consequences for the social fabric of the country (the Laken Riley fiasco being only the latest example), not to mention the far more dire long-term consequences for the future of the US - chief among them the trillions of dollars in debt the US will need to incur to pay for all those new illegal immigrants Democrat voters and low-paid workers. This is on top of the labor revolution that will kick in once AI leads to mass layoffs among high-paying, white-collar jobs, after which all those newly laid off native-born workers hoping to trade down to lower paying (if available) jobs will discover that hardened criminals from Honduras or Guatemala have already taken them, all thanks to Joe Biden.

Tyler Durden Sun, 03/10/2024 - 19:15

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