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It’s the First Not Last Place To Start

The term “geopolitics” has a specific meaning, though in the context of assessing markets and their equally ubiquitous though purposefully non-specific “jitters”, it’s basically a catch-all, too. Should the stock market, in particular, take…



The term “geopolitics” has a specific meaning, though in the context of assessing markets and their equally ubiquitous though purposefully non-specific “jitters”, it’s basically a catch-all, too. Should the stock market, in particular, take a bad step, reflexive commentary is quick to call up geopolitics.

Such was absolutely the case late in January 2018 into the following month of February. Stocks were down. Kim Jung Un was firing missiles. Crazy-man Trump in all the Western media. These things were purportedly raising the global temperature to the point that it was in danger of becoming a flashpoint. Therefore, it sounded plausible (I guess) even stocks would pause their (latest) epic rise if to reassess these dangers.

There was even some absurd fuss about the imminent launch of World War III.

And if not geopolitics, of course, there’s always the Fed. If you didn’t think there was much to Korean weapons tests, and there wasn’t, then it must have been Janet Yellen’s hawkish successor Jay Powell to worry about once February 2018 began. After all, across all the news was this idea that good news was bad news; the better the US economy was doing, the more hawkish Powell would evolve in his first months and year in office.

One of my favorites:

“Economic news from the US has been stronger than anticipated,” said David Kuo, chief executive of financial services advisory Motley Fool. “So, perversely, the market correction has been caused by positive economic news”.

Markets worldwide suffer most when the most fundamental parts of them are doing their utmost best? Only if you think the Federal Reserve is the source of all life and energy.

The problem with these views is that they begin from an unchallenged assumption (taken from the other one that the Federal Reserve is the source of all life and energy).

We are taught from the start to believe that the economy is either in recession or booming. And if not the former, it can only be the latter. So, should markets tinge with uncertainty outside of any declared trough to the business cycle, our list of approved causation is inappropriately too limited (this assumption had actually been the mainstream view throughout the first half of 2008).

Must be “geopolitics”, then. Which one? Doesn’t matter. Pick one. There’s always something bad and the possibility for worse going on in the world.

Start with the unearned certainty on growth and inflation pressures, account for only temporary factors as necessary, leaving hunky dory sunshine never more than a news cycle away. The underlying suggestion is that the baseline is robust if not too much; thus, resolve today’s issue-of-the-day and we go right back to sunshine as if nothing happened.

See? Nothing to really worry about.

As it would turn out, neither the Fed’s rate hikes nor North Korea’s tempestuousness had anything to do with 2018 going the wrong way even though what did go wrong did end up with 2019 as a total economic, not geopolitical, mess. The underlying guess of a booming economy, globally synchronized growth, that is what was actually being questioned (flat curves especially) right from January 2018.

With very good reason, though more Japan than Korea.

This is not to downplay the high stakes and seriousness of various problems across the globe, including right now January 2022 in Ukraine and Communist arms surrounding Taiwan.

How about a growth scare that more and more seems, perhaps, not a scare? It’s the one possibility we’re never meant to ponder even for a moment.

Tracking PMI data on that account, the last half of last year had left a very clear downside trend that with the initial sentiment data for 2022 indicates at best its continuation or maybe an acceleration further downward to it.

Last week, I highlighted the Federal Reserve’s New York branch and its Empire Manufacturing survey which, frankly, collapsed in January. Dropping by more than thirty points in its headline index along with the same level for new orders, though just one month for one survey I thought it worth mentioning anyway.

The conventional explanation has been – while markets supposedly get more jittery from geopolitics – the pandemic, specifically omicron. It’s a plausible explanation, after all, New York being at the epicenter of the new variant’s seasonal uptick.

Very close to New York, however, the Fed’s Philadelphia branch rebounded in January from its own plunge during December. In this other one, the overall manufacturing estimate tumbled almost 25 pts last month, with the index for new orders giving up nearly 35. This month, the topline number recovered but only eight pts while new orders increased by barely more than four.

We’ve had our eyes on new orders specifically for matters unrelated to massed armies or even government pandemic overreactions. The vast and vastly obscured inventory cycle, however, and the potential for, again, a material slowdown keeps showing up in the data – and not just that for sentiment, nor for just the US.

Earlier today, IHS Markit marked down its own manufacturing numbers for the whole US economy. At a flash January reading of 55.0, that’s down from 57.8 in December, noticeably distant from July’s 63.8, and very clearly having gone decidedly in the wrong direction ever since.

On the services side of its ledger, Markit released some shocking data in the form of a major decline for the non-manufacturing PMI. This one crashed from 57.0 in December down to just barely 50 (50.8) the flash for January. That’s nearly four points less than the previous cycle low, September 2021, which, of course, had been immediately blamed entirely on delta.

Governments in the US were clearly provoked substantially more, and in substantially more places, by delta than have been due to omicron. So, while we might consider the latter as having had some negative impact maybe concentrated in a short timeframe like December or January figures, it sure doesn’t explain the overall trend and where things seem to be headed regardless of these transitory interruptions.

Lower highs, lower lows.

Furthermore, new orders. What IHS Markit had to say about them (both services and manufacturing) in its January data was one part spin, a bigger part uh oh:

New orders for goods and services continued to rise strongly, albeit registering the weakest rise since December 2020. The upturn in new orders was supported by the service sector, as manufacturers stated that new sales growth was often held back by weaker demand from clients amid price rises and efforts to work through inventories. [emphasis added]

A strong rise in orders that’s also the worst in thirteen months, technically true, sure, meaningless nonetheless though standard stuff which begins with the binary assumption I stated from the outset (if it isn’t recession, must be great). More important was that last bit: “efforts to work through inventories.”

That this is something new in the commentary is itself a substantial shift.

In other words, we know in bonds almost for certain what’s been keeping a lid on growth and inflation expectations for long-term yields going back almost a year now, even as the Fed’s rate hikes are incorporated into them, and it hasn’t been geopolitics nor particular strains of pandemic interruptions.

There’s been two of those over the preceding year and the growth scare just won’t go away; it sticks around in a way that neither “geopolitics” or coronavirus strains has nor is really meant to.

We’re never supposed to question the boom when that’s usually the first place to start.

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Fighting the Surveillance State Begins with the Individual

It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in…



It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in place, collecting data on the entire populace. This has been proven beyond a shadow of a doubt by people like Edward Snowden, a National Security Agency (NSA) whistleblower who exposed that the NSA was conducting mass surveillance on US citizens and the world as a whole. The NSA used applications like those from Prism Systems to piggyback on corporations and the data collection their users had agreed to in the terms of service. Google would scan all emails sent to a Gmail address to use for personalized advertising. The government then went to these companies and demanded the data, and this is what makes the surveillance state so interesting. Neo-Marxists like Shoshana Zuboff have dubbed this “surveillance capitalism.” In China, the mass surveillance is conducted at a loss. Setting up closed-circuit television cameras and hiring government workers to be a mandatory editorial staff for blogs and social media can get quite expensive. But if you parasitically leech off a profitable business practice it means that the surveillance state will turn a profit, which is a great asset and an even greater weakness for the system. You see, when that is what your surveillance state is predicated on you’ve effectively given your subjects an opt-out button. They stop using services that spy on them. There is software and online services that are called “open source,” which refers to software whose code is publicly available and can be viewed by anyone so that you can see exactly what that software does. The opposite of this, and what you’re likely already familiar with, is proprietary software. Open-source software generally markets itself as privacy respecting and doesn’t participate in data collection. Services like that can really undo the tricky situation we’ve found ourselves in. It’s a simple fact of life that when the government is given a power—whether that be to regulate, surveil, tax, or plunder—it is nigh impossible to wrestle it away from the state outside somehow disposing of the state entirely. This is why the issue of undoing mass surveillance is of the utmost importance. If the government has the power to spy on its populace, it will. There are people, like the creators of The Social Dilemma, who think that the solution to these privacy invasions isn’t less government but more government, arguing that data collection should be taxed to dissuade the practice or that regulation needs to be put into place to actively prevent abuses. This is silly to anyone who understands the effect regulations have and how the internet really works. You see, data collection is necessary. You can’t have email without some elements of data collection because it’s simply how the protocol functions. The issue is how that data is stored and used. A tax on data collection itself will simply become another cost of doing business. A large company like Google can afford to pay a tax. But a company like Proton Mail, a smaller, more privacy-respecting business, likely couldn’t. Proton Mail’s business model is based on paid subscriptions. If there were additional taxes imposed on them, it’s possible that they would not be able to afford the cost and would be forced out of the market. To reiterate, if one really cares about the destruction of the surveillance state, the first step is to personally make changes to how you interact with online services and to whom you choose to give your data.

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Stock Market Today: Stocks turn higher as Treasury yields retreat; big tech earnings up next

A pullback in Treasury yields has stocks moving higher Monday heading into a busy earnings week and a key 2-year bond auction later on Tuesday.



Updated at 11:52 am EDT U.S. stocks turned higher Monday, heading into the busiest earnings week of the year on Wall Street, amid a pullback in Treasury bond yields that followed the first breach of 5% for 10-year notes since 2007. Investors, however, continue to track developments in Israel's war with Hamas, which launched its deadly attack from Gaza three weeks ago, as leaders around the region, and the wider world, work to contain the fighting and broker at least a form of cease-fire. Humanitarian aid is also making its way into Gaza, through the territory's border with Egypt, as officials continue to work for the release of more than 200 Israelis taken hostage by Hamas during the October 7 attack. Those diplomatic efforts eased some of the market's concern in overnight trading, but the lingering risk that regional adversaries such as Iran, or even Saudi Arabia, could be drawn into the conflict continues to blunt risk appetite. Still, the U.S. dollar index, which tracks the greenback against a basket of six global currencies and acts as the safe-haven benchmark in times of market turmoil, fell 0.37% in early New York trading 105.773, suggesting some modest moves into riskier assets. The Japanese yen, however, eased past the 150 mark in overnight dealing, a level that has some traders awaiting intervention from the Bank of Japan and which may have triggered small amounts of dollar sales and yen purchases. In the bond market, benchmark 10-year note yields breached the 5% mark in overnight trading, after briefly surpassing that level late last week for the first time since 2007, but were last seen trading at 4.867% ahead of $141 billion in 2-year, 5-year and 7-year note auctions later this week. Global oil prices were also lower, following two consecutive weekly gains that has take Brent crude, the global pricing benchmark, firmly past $90 a barrel amid supply disruption concerns tied to the middle east conflict. Brent contracts for December delivery were last seen $1.06 lower on the session at $91.07 per barrel while WTI futures contract for the same month fell $1.36 to $86.72 per barrel. Market volatility gauges were also active, with the CBOE Group's VIX index hitting a fresh seven-month high of $23.08 before easing to $20.18 later in the session. That level suggests traders are expecting ranges on the S&P 500 of around 1.26%, or 53 points, over the next month. A busy earnings week also indicates the likelihood of elevated trading volatility, with 158 S&P 500 companies reporting third quarter earnings over the next five days, including mega cap tech names such as Google parent Alphabet  (GOOGL) - Get Free Report, Microsoft  (MSFT) - Get Free Report, retail and cloud computing giant Amazon  (AMZN) - Get Free Report and Facebook owner Meta Platforms  (META) - Get Free Report. "It’s shaping up to be a big week for the market and it comes as the S&P 500 is testing a key level—the four-month low it set earlier this month," said Chris Larkin, managing director for trading and investing at E*TRADE from Morgan Stanley. "How the market responds to that test may hinge on sentiment, which often plays a larger-than-average role around this time of year," he added. "And right now, concerns about rising interest rates and geopolitical turmoil have the potential to exacerbate the market’s swings." Heading into the middle of the trading day on Wall Street, the S&P 500, which is down 8% from its early July peak, the highest of the year, was up 10 points, or 0.25%. The Dow Jones Industrial Average, which slumped into negative territory for the year last week, was marked 10 points lower while the Nasdaq, which fell 4.31% last week, was up 66 points, or 0.51%. In overseas markets, Europe's Stoxx 600 was marked 0.11% lower by the close of Frankfurt trading, with markets largely tracking U.S. stocks as well as the broader conflict in Israel. In Asia, a  slump in China stocks took the benchmark CSI 300 to a fresh 2019 low and pulled the region-wide MSCI ex-Japan 0.72% lower into the close of trading.
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Forget Ron DeSantis: Walt Disney has a much bigger problem

The company’s political woes are a sideshow to the one key issue Bob Iger has to solve.



Walt Disney has a massive, but solvable, problem.

The company's current skirmishes with Florida Gov. DeSantis get a lot of headlines, but they're not having a major impact on the company's bottom line.

Related: What the Bud Light boycott means for Disney, Target, and Starbucks

DeSantis has made Walt Disney (DIS) - Get Free Report a target in what he calls his war on woke, an effort to win right-wing support as he tries to secure the Republican Party nomination for president. 

That effort has generated plenty of press and multiple lawsuits tied to the governor's takeover of the former Reedy Creek Improvement District, Disney's legislated self-governance operation. But it has not hurt revenue at the company's massive Florida theme-park complex.  

Disney Chief Executive Bob Iger addressed the matter during the company's third-quarter-earnings call, without directly mentioning DeSantis.

"Walt Disney World is still performing well above precovid levels: 21% higher in revenue and 29% higher in operating income compared to fiscal 2019," he said. 

And "following a number of recent changes we've implemented, we continue to see positive guest-experience ratings in our theme parks, including Walt Disney World, and positive indicators for guests looking to book future visits."

The theme parks are not Disney's problem. The death of the movie business is, however, a hurdle that Iger has yet to show that the company has a plan to clear.

Boba Fett starred in a show on Disney+.

Image source: Walt Disney

Disney needs a plan to monetize content 

In 2019 Walt Disney drew in more $11 billion in global box office, or $13 billion when you add in the former Fox properties it also owns. In that year seven Mouse House films crossed the billion-dollar threshold in theaters, according to data from Box Office Mojo.

This year, the company will struggle to reach half that and it has no billion-dollar films, with "Guardians of the Galaxy Vol. 3" closing its theatrical run at $845 million globally. 

(That's actually good for third place this year, as only "Barbie" and "The Super Mario Bros. Movie" have broken the billion-dollar mark and they may be the only two films to do that this year.)

In the precovid world Disney could release two Pixar movies, three Marvel films, a live-action remake of an animated classic, and maybe one other film that each would be nearly guaranteed to earn $1 billion at the box office.

That's simply not how the movie business works anymore. While theaters may remain part of Disney's plan to monetize its content, the past isn't coming back. Theaters may remain a piece of the movie-release puzzle, but 2023 isn't an anomaly or a bad release schedule.

Consumers have big TVs at home and they're more than happy to watch most films on them.

Disney owns the IP but charges too little

People aren't less interested in Marvel and Star Wars; they're just getting their fix from Disney+ at an absurdly low price. 

Over the past couple of months through the next few weeks, I will have watched about seven hours of premium Star Wars content and five hours of top-tier Marvel content with "Ahsoka" and "Loki" respectively. 

Before the covid pandemic, I gladly would have paid theater prices for each movie in those respective universes. Now, I have consumed about six movies worth of premium content for less than the price of two movie tickets.

By making its premium content television shows available on a service that people can buy for $7.99 a month Disney has devalued its most valuable asset, its intellectual property. 

Consumers have shown that they will pay the $10 to $15 cost of a movie ticket to see what happens next in the Marvel Cinematic Universe or the Star Wars galaxy. But the company has offered top-tier content from those franchises at a lower price.

Iger needs to find a way to replace billions of dollars in lost box office, but charging less for the company's content makes no sense. 

Now, some fans likely won't pay triple the price for Disney+. But if it were to bundle a direct-to-consumer ESPN along with content that currently gets released to movie theaters, Disney might create a package that it can price in a way that reflects the value of its IP.

Consumers want Disney's content and they will likely pay more for it. Iger simply has to find a way to make that happen.

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