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The $31 Trillion Dollar Question – Can The Fed Afford To Pivot?

The $31 Trillion Dollar Question – Can The Fed Afford To Pivot?

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

In my other role…

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The $31 Trillion Dollar Question – Can The Fed Afford To Pivot?

Authored by Tom Luongo via Gold, Goats, 'n Guns blog,

In my other role as a secret apologist for Russia and Vladimir Putin, I was contacted yesterday by Sputnik News to comment on the official US debt number surpassing $31 trillion. I’m always grateful for the opportunity to talk about these issues.

I am, after all, a fiscal hawk extraordinaire.

At the same time, I’m completely hip to why Sputnik (and RT) wanted to discuss this issue. They are running their own framing campaign, propaganda if you will. I’m no one’s useful idiot when it comes to these matters.

They may have been looking for a dissident American voice to berate the US for its reckless spending, which fits the Russian media narrative that the US cannot sustain its current pressure campaign against Russia.

This is meant to counter the West’s narrative that Russia can’t sustain its military operations in Ukraine.

Hey, everyone’s got a truth to tell. I get it, it’s a war out there. All I can do is make the best use of the opportunities in front of me and tell my version of those truths. Because talking about things truthfully may actually get us one step back on the path towards peace rather than global war. That said, if I see no upside to the opportunity, the best thing to do is turn it down politely and wait for the next one.

At the same time we all have to realize that Russian media outlets have a hard time booking guests at this point due to the massive political pressure. So, as always, I see the opportunity as a way to talk to everyone to further understanding these things, not just feed one side’s attempt to shift the Overton Window.

In this particular case the US debt is a major issue and part of my general thesis of how the gameboard maps out in real time — faction by fractious faction. So, I was happy to throw my thoughts into the mix.

In short, the US is staring at a massive fiscal decision in the coming months and years. The situation isn’t insolvable but it also isn’t going to be easy for get through. We’re staring at a global recession, at a minimum, as well as a sovereign debt crisis in the West and in some Emerging Markets. Turkey has already been blown up.

However, the US is still a major player in the global financial system and the Federal Reserve the most powerful of these institutions. Understanding the Fed’s role in fixing what is broken is something all sides need to consider.

So, while, I’m sure it pleases my Russian paymasters (sic) that I believe there’s a split at the top of the US political establishment, it may not afford them the opportunities they think that split implies.

The reality is that the Fed has charted its own path here and this week’s pathetic appeal from the United Nations to urge central banks from raising interest rates is the best evidence I can present to you that my arguments about the Fed are correct.

The UN basically asked the Fed to, “Think of the CHILDREN!” Bail out the world for the common good. Now is not the time for unilateral action. Think globally, act locally.

You know, all the usual bromides to cover the reality that a hawkish Fed gores the wrong people’s oxen.

But the not-so-subtle point I think Sputnik was trying to make is that can the Fed actually do this with the US dealing with a $31 trillion debt overhang.

It is the question of the century.

For me, it’s simple. We won’t ever know if we don’t try. And given that the alternative to a few years of global depression to burn out the excesses of the Davos-controlled Fed during the Bernanke/Yellen years or turning the West over to Klaus Von CommieSchnitzel and his Minority Report future, I don’t think the decision is a difficult one for most people to make.

Here is the full Q&A between myself and Sputnik to ponder.

According to the NYT, the breach of the threshold comes at an inopportune moment, as historically low interest rates are being replaced with higher borrowing costs as the Federal Reserve tries to combat rapid inflation. What consequences does this policy bring from a mid-term perspective? 

There was so much money printed during the COVID-19 period that it’s left the Fed with a massive dilemma. It needs to flush the global economy of excess dollars and shrink its balance sheet without destroying the US economy in the process.

It’s clear that FOMC Chair Jerome Powell is acting with regards only towards the US’s needs. For the first time in decades the world is having to come to grips with the idea that the Fed will not be there to bail them out if they get into trouble.

The medium term will be a period of extreme dollar strength. Because during this loose dollar period, post-2008, the world loaded up on cheap dollar-denominated debt. That is now reversing itself hard. Emerging markets and even developed markets like the UK, Europe and China are vulnerable to this reversal of dollar outflow.

The political problem for the “Biden” administration is that this is making it very difficult for them in this mid-term election cycle. “Biden” wants inflation down but they baked far too much of it into the global economy contain it even with this aggressive rate hike cycle from the Fed.

This sets the Fed and Congress at odds with each other. But it also sets the stage for a political shift after November. If Congress tries to keep spending beyond its means then the US will enter a very ugly inflationary cycle that the Fed is powerless to contain.

Do you see any alternatives to the existing policy?

Yes. Congress needs to rein in spending to previous levels. The Fed is doing its job raising the cost of capital to divert money out of the unsustainable and into the sustainable. Monetary policy can signal entrepreneurs and investors to rebuild what’s degraded and look to where the economy has been neglected.

But it can’t do that if Congress also wants to get in the act spending money that fuels keeping prices too high and crowding out investment where it wants to go, rather than where Congress wants it to go.

This will require a complete 90-degree shift in our political thinking, similar to the Reagan/Volcker years. We have half of the policy in place, Powell acting like fir Arthur Burns and implying he will also be Volcker.

We need the other half of the policy by getting rid of the ruinous and reckless “Biden” politics of envy – eating the rich, fomenting wars, etc.

But, sadly, I see “Biden” and the people he’s aligned with only wanting war to cover the insolvency of national governments.

Who are the losers and winners in this situation?

If the Fed can help force a political rethink in the US, and the national polling seems to suggest that Americans are ready for this, then a more balanced US fiscal and monetary policy coming into the 2024 presidential cycle would make most of the world a winner because it would put an end to the current insanity.

In the short to medium term, however, the pain for much of the world will be intense, including the US. Much of the deflation in certain sectors of the US economy from the Fed’s intense interest rate policy should be offset by capital inflow from those who have lived beyond their means because of the weak dollar in the past.

The prime beneficiaries of this have been Europe and their overly generous entitlement/pension systems, which are teetering on full collapse as we saw in the UK recently, and China with its massive trade surplus with the US.

The winners will be those who produce and export base commodities. Because in broad strokes, assets inflated through easy credit for over a decade, like gov’t bonds, stocks, real estate and mid-to-high end consumer goods, will be deflating. On the flip side, base commodity prices, the main driver of inflation today, will continue rising – oil, gas, gold, metals, food, etc.

In short, the easy money of the post-2008 era fueled stock, bond and real estate booms which will now bust, suppressing investment into base commodities. With the credit cycle reversing so too will this dynamic.

If servicing the debt becomes more expensive, what will it mean, in practical terms, for the country’s economy? How can this situation affect ordinary Americans?

The downside of all of this is that US debt servicing will rise, helping to force Congress into tightening its belt. If “Biden” doesn’t stop trying to spend money in ways that would make drunken sailors think twice, then he’s deliberately trying to destroy the US fiscal position to degrade the country he’s supposed to be leading. It will be evidence of his administration being staffed in all key positions with vandals.

The US has a lot of debt that needs rolling over in 2023. It will have to happen at higher rates. The Fed will likely stop rate hikes in Q1 to help that situation. But a slow down in government spending without the concomitant relaxing of regulations to free up the flow of capital will keep the US economy sputtering for 2023 even with the inflow from overseas.

Even with a GOP win in November, the battle for the future here will be intense. I don’t expect it to go well and it means recession, political paralysis and the possibility of the White House to continue pursuing ruinous policy because Congress abdicated all of its responsibilities towards foreign policy to the president two decades ago after 9/11.

Practically, after the mid-terms, we will all struggle with high energy and food prices, limited good employment options, frozen capital searching for a decent investment while the economy slowly unwinds the ugly situation it is currently in where supply and demand for basic goods and services are completely out of whack, per Powell’s recent statement at Jackson Hole.

My advice to people is the same as it’s been for years. Get and stay out of debt, minimize expenses where you can, and develop strong local communities to assist each other while the geopolitical tensions continue to rise.

p.s. all references to my being a Russian secret agent are pure, unadulterated sarcasm, in case anyone reading this is devoid of a sense of humor, or a Democrat… but I repeat myself

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Tyler Durden Sat, 10/08/2022 - 12:05

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Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

In response to the virus pandemic and nationwide…

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Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

In response to the virus pandemic and nationwide Black Lives Matter riots in the summer of 2020, some elite colleges and universities shredded testing requirements for admission. Several years later, the test-optional admission has yet to produce the promising results for racial and class-based equity that many woke academic institutions wished.

The failure of test-optional admission policies has forced Dartmouth College to reinstate standardized test scores for admission starting next year. This should never have been eliminated, as merit will always prevail. 

"Nearly four years later, having studied the role of testing in our admissions process as well as its value as a predictor of student success at Dartmouth, we are removing the extended pause and reactivating the standardized testing requirement for undergraduate admission, effective with the Class of 2029," Dartmouth wrote in a press release Monday morning. 

"For Dartmouth, the evidence supporting our reactivation of a required testing policy is clear. Our bottom line is simple: we believe a standardized testing requirement will improve—not detract from—our ability to bring the most promising and diverse students to our campus," the elite college said. 

Who would've thought eliminating standardized tests for admission because a fringe minority said they were instruments of racism and a biased system was ever a good idea? 

Also, it doesn't take a rocket scientist to figure this out. More from Dartmouth, who commissioned the research: 

They also found that test scores represent an especially valuable tool to identify high-achieving applicants from low and middle-income backgrounds; who are first-generation college-bound; as well as students from urban and rural backgrounds.

All the colleges and universities that quickly adopted test-optional admissions in 2020 experienced a surge in applications. Perhaps the push for test-optional was under the guise of woke equality but was nothing more than protecting the bottom line for these institutions. 

A glimpse of sanity returns to woke schools: Admit qualified kids. Next up is corporate America and all tiers of the US government. 

Tyler Durden Mon, 02/05/2024 - 17:20

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…

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To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….

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Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 

 

About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. www.insilico.com 


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