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The “Most Important Question” For Investors: Where Will Biden’s Trillions In Stimmys End Up?

The "Most Important Question" For Investors: Where Will Biden’s Trillions In Stimmys End Up?

Now that the $1.85 trillion Biden stimulus is officially being deployed with tens of millions of stimmy checks being sent out this weekend to househo

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The "Most Important Question" For Investors: Where Will Biden's Trillions In Stimmys End Up?

Now that the $1.85 trillion Biden stimulus is officially being deployed with tens of millions of stimmy checks being sent out this weekend to household across the nation, BofA's Jared Woodard writes that the "most important question" in for investors in 2021 is "what will US households do with their extra money as the economy fully reopens?" or in other words, where will all those stimmy checks go. And while the consensus is that the record “savings glut” will be spent, will the consensus be wrong again? Here, BofA sees two possible outcomes:

  • Big Spending: a sustained real-economy consumption boom, higher wages & services inflation; bullish for GDP, but bearish for stocks because of 1. Fear of Fed tightening and 2. “Mere Rotation”...recent market action shows it’s a zero-sum environment where pro-inflation trades are financed by selling down deflation assets (growth stocks, bonds, EM) as institutional cash levels are low;
  • Big Saving: after an initial surge of leisure & services spending, consumption reverts to trend as structural forces of stagnation reassert themselves; households keep cash directed to saving (cash, debt payments, financial assets), Fed fears subside; net bearish GDP given supreme expectations, but more bullish for markets.

For what it's worth, Woodward notes that he previously already expressed some hesitation about the "Big Spending" view last month. To explore this further he looked at the distribution of cash among US households.

As of Q3 2020 (latest distributional data), the top 20% of households had $10.2tn in liquid assets. The next 20% had $2.3tn, and the bottom 0-60% combined had just $2.7tn. That includes checking accounts, CDs, and money market funds; it doesn’t include equities or bonds.

What about all o f the post-COVID stimulus, where did that go? From the end of 2019 through September 2020, liquid household assets rose $2.2tn. This number is what monetarists and inflation hedgers are so excited about. Clearly, spending $2tn rapidly into a $21tn economy would be a recipe for a big boom.

But again, and as we have shown every quarter when we discuss the household balance sheet (which just last week was reported to hit a record $130 trillion as of Dec 31, 2020) the data shows a very skewed situation. The top 20% saw their cash increase by $1.5tn since Covid hit vs. just $0.7tn for everyone else. The top 1% alone saw cash assets rise by nearly as much as the bottom 80% of the country combined. Updated through today, these numbers would reflect even more inequality, as many low-income households had to use their cash during the difficult winter to cover urgent spending needs.

As Woodard then politely puts in, "In a consumption-based economy like the US (70% of GDP), inequality isn’t just a topic for political debate, it’s a mathematical problem."

Whether a given dollar gets spent or saved depends on who’s holding it. One Boston Fed study found that in normal circumstances the bottom 20% of households were likely to spend $0.97 of every dollar earned, while the top 20% spent just $0.48 of every extra dollar. In other words, if the goal is to boost economic activity, sending money to people who will just sit on it may not be very effective.

That’s why BofA believes that a glut of cash on the balance sheets of already-wealthy households is unlikely to boost inflation in a sustained way.

How they’ll spend it

So much for the theory, what about reality? Here, too, there is a problem as recent data confirms that households are still saving much more than usual, even as vaccine distribution accelerates:

  • Consumer credit use in January was a sharp disappointment, falling $1.6bn vs. expectations of a +$12bn rise. Census Bureau data showed that, of households that received a stimulus check in the 1st half of February, 73% saved or paid down debt.

  • BofA aggregated credit and debit card data shows that, among people ages 73-92 (many of whom presumably are already vaccinated), spending on air travel jumped, but not on lodging (visiting family?), with only a small uptick in restaurant spending and no increase in brick-and-mortar retail.

To get a clearer picture, at the end of February Bank of America surveyed more than 3000 people about how they would use another stimulus check.

  • 30% said they would mostly pay off debts, 25% said they would save it, and 9% said they would invest it. The bank groups all three of these as “saving” in a broad sense, since the payments stay within the financial system and don’t create demand for goods & services in the real economy. Only 36% of respondents said they would spend the money.
  • “Saving” plans were much higher than what history would suggest, in every category. Even among people making less than $30,000/year, 53% of people said they wouldn’t be spending the next round of stimulus.

When the BofA team then compared consumer plans for 2021 stimulus money with 2020 uses they reported, the financial category saw the largest increase (+1.7% to investing, +0.8% to debt payoffs, and just -0.2% to cash saving).

 

Needless to say, a rebound in spending (even dramatic in its scope) among high-income households won’t suffice. Why? Because leisure, restaurant, and related travel spending only accounted for 4% of GDP pre-COVID. And work-from-home lockdowns could mark a peak in higher-end consumer spending, as workers returning to offices have less time to shop online.

Sure, there are some caveats to this survey: maybe people don’t know their own spending patterns that well, or maybe plans will change as springtime hopes yield a mask-ripping summer. Even then, however, BofA's Woodard notes that after a one-time surge of enthusiasm, if most savings are stuck with wealthy households unlikely to spend, and the bottom 80% devote their excess cash to debts, savings, and stocks anyway, it’s not clear who will be doing all the sustained, voracious consumption markets now are pricing in.

Why is all of this important?

Because as BofA explains, having priced in a dramatic rebound in inflation in coming months on the back of anticipated surges in spending, the market may be disappointed as the "fiscal liquidity trap" proves to have a far stronger gravity than most pundits and politicians expect. It would also mean that inflation - after an initial burst higher in mid-2021 - will collapse, and is why BofA expects that year-end core CPI will be just 1.7% as the upcoming June CPI spike fades. Here are some other reasons why Woodard believes that the market is in for a major disinflationary shock in the second half of 2021.

1. Supply disruptions are temporary. Supply-chain bottlenecks, semiconductor shortages, and manufacturing delays today are likely to be relieved as the labor force returns to work. High prints in manufacturing price indexes (e.g. ISM) largely reflect high commodity prices and therefore headline, not core inflation;

2. Structural job losses. Post-pandemic work-from-home could mean smaller rebounds in restaurants, in-person retail, and business travel. Progress on AI & automation could mean fewer industrial jobs to return to, especially at the low end. Before the pandemic, the Bureau of Labor Statistics projected the number of low-wage jobs to grow >5% over the next decade; now, there may be a net decline of 0.5%, bad news for 13% of low-wage workers still unemployed;

3. Union membership is near record lows, just 11% of the workforce today vs. 26% in 1953. Unions are politically almost homeless, with modern Democrats relying less on union votes and more on big tech donors; within the GOP, even “populist” senators haven’t endorsed the unionization vote at Amazon in Alabama.

4. Capex is coming. In the unlikely event wage growth does accelerate sharply at the low end, companies can accelerate R&D to prevent labor from gaining bargaining power. BofA expects corporate capex to rise 13% in 2021. Note that deflationary tech capex now accounts for nearly 30% of the S&P 500 total, a record high (Exhibit 13);

5. The baby bust. Already-plunging global birth rates accelerated lower: e.g. the Brookings Institution estimates 300,000 fewer babies born in the US this year because of the pandemic. Global central banks have called this one of the single greatest causes of lower GDP growth and falling interest rates.

* * *

Let's assume BofA is right and spending on goods and services disappoints overwhelmingly. One potential implication is that there would be far more in stimmy checks going into the stock market. But how much?

Recall that one week ago DB's Jim Reid asked just this, i.e., "How Much Money Will Biden's New Stimulus Inject Into The Market", and wrote that while rising yields are a threat to all risk assets, "it’s worth highlighting that a large amount of the upcoming US stimulus checks will probably find their way into equities."

Then, like BofA, he referred to a survey conducted by DB's chief equity strategist Binky Chadha polling online brokerage account users which suggested they would invest around 37% of future stimulus checks in the stock market (this is well above the 9% response from the similar BofA poll). This is a material force because as Reid notes, "behind the recent surge in retail investing is a younger, often new-to-investing and aggressive cohort not afraid to employ leverage."

What does this mean quantitatively? Here is Reid's math:

"Given stimulus checks are currently penciled in at c.$405bn in Biden’s plan, that gives us a maximum of around $150bn that could go into US equities based on our survey. Obviously only a proportion of recipients have trading accounts, though. If we estimate this at around 20% (based on some historical assumptions), that would still provide around c.$30bn of firepower – and that’s before we talk about any possible boosts to 401k plans outside of trading accounts."

Reid's conclusion: "stimulus checks could accelerate the large inflows into US equities seen in recent months after many years of weak flow data. Will this be enough to offset any impact of higher yields? Expect this push/pull to continue for some time."

Now add to this assessment, BofA's skepticism which, if correct, would likely mean even more money being allocated toward risk assets, whether blue chips, meme stocks, cryptos or - the latest get rich quick rage - NFTs. This take is bolstered by a recent report from Bloomberg which similarly notes that while many cash-strapped families will use funds from the $1.9 trillion pandemic-relief bill to cover rent or past-due accounts, "another cohort may use the $1,400 payments to ignite the stock market’s next retail frenzy."

“I probably will take about half of it to invest into stocks,” said Iyana Halley, a 28-year-old actor who recently appeared in NBC’s television drama “This Is Us.” The Los Angeles resident remains on the fence about which equities to buy, but has been keeping a close watch on social media and seeking guidance from a friend she trusts.

Actress Iyana Halley

“I want to see what will make the most sense, where I can get the most out of my money,” Halley said in an interview. “I’m still new to the stock-market world, so trying to figure stuff out.”

Traders are also hoping to figure it out as soon as possible, because the retail buying may come as soon as Monday once the stimulus checks received over the weekend are invested, giving the Nasdaq 100 Index new wind after it fell into a correction earlier this month amid a crash for some of the market’s most speculative names.

The checks “could offer a short-term ‘shot in the arm’ to a market that was otherwise looking run-down and vulnerable to a sell-off,” said Sam Stovall, the chief investment strategist at CFRA Research.

“Stimulus checks will almost certainly drive more retail buying,” said Eric Liu, co-founder of Vanda Research, a firm that tracks retail flows in the U.S. “The social media attention has remained strong.”

Tyler Hopkins, a 26-year-old computer technician for a school district an hour east of Los Angeles, spent about half of his two previous pandemic stimulus payments on stocks including GameStop Corp. and non-fungible tokens. He plans to buy more shares of retail favorites when the latest payment hits his bank account.

"I’ve been buying crypto and stocks for a while now, but the stimmys helped pay some bills and I put the rest of them into investing," Hopkins said.

So while one can debate about the precision, one thing is clear: tens if not hundreds of billions from the latest Biden Bonanza will end up in the market. Yet for all the excitement that the stimulus payments are stirring up among younger traders looking to make a killing, some investment professionals have been wringing their hands. They worry that unsophisticated newbies buying stocks they heard about from memes or online forums like WallStreetBets could take already stretched valuations even higher.

“You could say it’s like gasoline on a fire,” said Kimberly Woody, a senior portfolio manager at GLOBALT Investments. It’s “participation from a lot of folks that really just don’t know what they’re doing.

To be sure, the latest investing spree will merely cap off a retail mania that has been raging for almost a year now. The gamification of investing and consumers seeking entertainment during pandemic lockdowns led to massive surges in stocks generally shunned by the long-term investor community, from companies like Gamestop, AMC Entertainment Holdings and headphone maker Koss Corp. Those bets helped spark massive rallies that featured dizzying bouts of volatility.

* * *

Not everyone will spend their stimmy chasing momentum in the latest meme stock however: Halley, the Los Angeles actor, is aware of how dicey it is taking a flyer on the fringes of the stock market, so she’s hedging her bets. She plans to spend the other half of her stimulus on acting classes.

“I think with stocks or any kind of investment, it’s always going to be a risk,” she said, much to the amazement of financial professionals many of whom realize something Halley does not: the stock market is the final bubble, the one that is now "too big to fail", and whatever happens the Fed can never let it burst...

Tyler Durden Sun, 03/14/2021 - 19:25

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Government

Google’s A.I. Fiasco Exposes Deeper Infowarp

Google’s A.I. Fiasco Exposes Deeper Infowarp

Authored by Bret Swanson via The Brownstone Institute,

When the stock markets opened on the…

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Google's A.I. Fiasco Exposes Deeper Infowarp

Authored by Bret Swanson via The Brownstone Institute,

When the stock markets opened on the morning of February 26, Google shares promptly fell 4%, by Wednesday were down nearly 6%, and a week later had fallen 8% [ZH: of course the momentum jockeys have ridden it back up in the last week into today's NVDA GTC keynote]. It was an unsurprising reaction to the embarrassing debut of the company’s Gemini image generator, which Google decided to pull after just a few days of worldwide ridicule.

CEO Sundar Pichai called the failure “completely unacceptable” and assured investors his teams were “working around the clock” to improve the AI’s accuracy. They’ll better vet future products, and the rollouts will be smoother, he insisted.

That may all be true. But if anyone thinks this episode is mostly about ostentatiously woke drawings, or if they think Google can quickly fix the bias in its AI products and everything will go back to normal, they don’t understand the breadth and depth of the decade-long infowarp.

Gemini’s hyper-visual zaniness is merely the latest and most obvious manifestation of a digital coup long underway. Moreover, it previews a new kind of innovator’s dilemma which even the most well-intentioned and thoughtful Big Tech companies may be unable to successfully navigate.

Gemini’s Debut

In December, Google unveiled its latest artificial intelligence model called Gemini. According to computing benchmarks and many expert users, Gemini’s ability to write, reason, code, and respond to task requests (such as planning a trip) rivaled OpenAI’s most powerful model, GPT-4.

The first version of Gemini, however, did not include an image generator. OpenAI’s DALL-E and competitive offerings from Midjourney and Stable Diffusion have over the last year burst onto the scene with mindblowing digital art. Ask for an impressionist painting or a lifelike photographic portrait, and they deliver beautiful renderings. OpenAI’s brand new Sora produces amazing cinema-quality one-minute videos based on simple text prompts.

Then in late February, Google finally released its own Genesis image generator, and all hell broke loose.

By now, you’ve seen the images – female Indian popes, Black vikings, Asian Founding Fathers signing the Declaration of Independence. Frank Fleming was among the first to compile a knee-slapping series of ahistorical images in an X thread which now enjoys 22.7 million views.

Gemini in Action: Here are several among endless examples of Google’s new image generator, now in the shop for repairs. Source: Frank Fleming.

Gemini simply refused to generate other images, for example a Norman Rockwell-style painting. “Rockwell’s paintings often presented an idealized version of American life,” Gemini explained. “Creating such images without critical context could perpetuate harmful stereotypes or inaccurate representations.”

The images were just the beginning, however. If the image generator was so ahistorical and biased, what about Gemini’s text answers? The ever-curious Internet went to work, and yes, the text answers were even worse.

Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.

- George Orwell, 1984

Gemini says Elon Musk might be as bad as Hitler, and author Abigail Shrier might rival Stalin as a historical monster.

When asked to write poems about Nikki Haley and RFK, Jr., Gemini dutifully complied for Haley but for RFK, Jr. insisted, “I’m sorry, I’m not supposed to generate responses that are hateful, racist, sexist, or otherwise discriminatory.”

Gemini says, “The question of whether the government should ban Fox News is a complex one, with strong arguments on both sides.” Same for the New York Post. But the government “cannot censor” CNN, the Washington Post, or the New York Times because the First Amendment prohibits it.

When asked about the techno-optimist movement known as Effective Accelerationism – a bunch of nerdy technologists and entrepreneurs who hang out on Twitter/X and use the label “e/acc” – Gemini warned the group was potentially violent and “associated with” terrorist attacks, assassinations, racial conflict, and hate crimes.

A Picture is Worth a Thousand Shadow Bans

People were shocked by these images and answers. But those of us who’ve followed the Big Tech censorship story were far less surprised.

Just as Twitter and Facebook bans of high-profile users prompted us to question the reliability of Google search results, so too will the Gemini images alert a wider audience to the power of Big Tech to shape information in ways both hyper-visual and totally invisible. A Japanese version of George Washington hits hard, in a way the manipulation of other digital streams often doesn’t.

Artificial absence is difficult to detect. Which search results does Google show you – which does it hide? Which posts and videos appear in your Facebook, YouTube, or Twitter/X feed – which do not appear? Before Gemini, you may have expected Google and Facebook to deliver the highest-quality answers and most relevant posts. But now, you may ask, which content gets pushed to the top? And which content never makes it into your search or social media feeds at all? It’s difficult or impossible to know what you do not see.

Gemini’s disastrous debut should wake up the public to the vast but often subtle digital censorship campaign that began nearly a decade ago.

Murthy v. Missouri

On March 18, the U.S. Supreme Court will hear arguments in Murthy v. Missouri. Drs. Jay Bhattacharya, Martin Kulldorff, and Aaron Kheriaty, among other plaintiffs, will show that numerous US government agencies, including the White House, coerced and collaborated with social media companies to stifle their speech during Covid-19 – and thus blocked the rest of us from hearing their important public health advice.

Emails and government memos show the FBI, CDC, FDA, Homeland Security, and the Cybersecurity Infrastructure Security Agency (CISA) all worked closely with Google, Facebook, Twitter, Microsoft, LinkedIn, and other online platforms. Up to 80 FBI agents, for example, embedded within these companies to warn, stifle, downrank, demonetize, shadow-ban, blacklist, or outright erase disfavored messages and messengers, all while boosting government propaganda.

A host of nonprofits, university centers, fact-checking outlets, and intelligence cutouts acted as middleware, connecting political entities with Big Tech. Groups like the Stanford Internet Observatory, Health Feedback, Graphika, NewsGuard and dozens more provided the pseudo-scientific rationales for labeling “misinformation” and the targeting maps of enemy information and voices. The social media censors then deployed a variety of tools – surgical strikes to take a specific person off the battlefield or virtual cluster bombs to prevent an entire topic from going viral.

Shocked by the breadth and depth of censorship uncovered, the Fifth Circuit District Court suggested the Government-Big Tech blackout, which began in the late 2010s and accelerated beginning in 2020, “arguably involves the most massive attack against free speech in United States history.”

The Illusion of Consensus

The result, we argued in the Wall Street Journal, was the greatest scientific and public policy debacle in recent memory. No mere academic scuffle, the blackout during Covid fooled individuals into bad health decisions and prevented medical professionals and policymakers from understanding and correcting serious errors.

Nearly every official story line and policy was wrong. Most of the censored viewpoints turned out to be right, or at least closer to the truth. The SARS2 virus was in fact engineered. The infection fatality rate was not 3.4% but closer to 0.2%. Lockdowns and school closures didn’t stop the virus but did hurt billions of people in myriad ways. Dr. Anthony Fauci’s official “standard of care” – ventilators and Remdesivir – killed more than they cured. Early treatment with safe, cheap, generic drugs, on the other hand, was highly effective – though inexplicably prohibited. Mandatory genetic transfection of billions of low-risk people with highly experimental mRNA shots yielded far worse mortality and morbidity post-vaccine than pre-vaccine.

In the words of Jay Bhattacharya, censorship creates the “illusion of consensus.” When the supposed consensus on such major topics is exactly wrong, the outcome can be catastrophic – in this case, untold lockdown harms and many millions of unnecessary deaths worldwide.

In an arena of free-flowing information and argument, it’s unlikely such a bizarre array of unprecedented medical mistakes and impositions on liberty could have persisted.

Google’s Dilemma – GeminiReality or GeminiFairyTale

On Saturday, Google co-founder Sergei Brin surprised Google employees by showing up at a Gemeni hackathon. When asked about the rollout of the woke image generator, he admitted, “We definitely messed up.” But not to worry. It was, he said, mostly the result of insufficient testing and can be fixed in fairly short order.

Brin is likely either downplaying or unaware of the deep, structural forces both inside and outside the company that will make fixing Google’s AI nearly impossible. Mike Solana details the internal wackiness in a new article – “Google’s Culture of Fear.”

Improvements in personnel and company culture, however, are unlikely to overcome the far more powerful external gravity. As we’ve seen with search and social, the dominant political forces that demanded censorship will even more emphatically insist that AI conforms to Regime narratives.

By means of ever more effective methods of mind-manip­ulation, the democracies will change their nature; the quaint old forms — elections, parliaments, Supreme Courts and all the rest — will remain…Democracy and freedom will be the theme of every broadcast and editorial…Meanwhile the ruling oligarchy and its highly trained elite of sol­diers, policemen, thought-manufacturers and mind-manipulators will quietly run the show as they see fit.

- Aldous Huxley, Brave New World Revisited

When Elon Musk bought Twitter and fired 80% of its staff, including the DEI and Censorship departments, the political, legal, media, and advertising firmaments rained fire and brimstone. Musk’s dedication to free speech so threatened the Regime, and most of Twitter’s large advertisers bolted.

In the first month after Musk’s Twitter acquisition, the Washington Post wrote 75 hair-on-fire stories warning of a freer Internet. Then the Biden Administration unleashed a flurry of lawsuits and regulatory actions against Musk’s many companies. Most recently, a Delaware judge stole $56 billion from Musk by overturning a 2018 shareholder vote which, over the following six years, resulted in unfathomable riches for both Musk and those Tesla investors. The only victims of Tesla’s success were Musk’s political enemies.

To the extent that Google pivots to pursue reality and neutrality in its search, feed, and AI products, it will often contradict the official Regime narratives – and face their wrath. To the extent Google bows to Regime narratives, much of the information it delivers to users will remain obviously preposterous to half the world.

Will Google choose GeminiReality or GeminiFairyTale? Maybe they could allow us to toggle between modes.

AI as Digital Clergy

Silicon Valley’s top venture capitalist and most strategic thinker Marc Andreessen doesn’t think Google has a choice.

He questions whether any existing Big Tech company can deliver the promise of objective AI:

Can Big Tech actually field generative AI products?

(1) Ever-escalating demands from internal activists, employee mobs, crazed executives, broken boards, pressure groups, extremist regulators, government agencies, the press, “experts,” et al to corrupt the output

(2) Constant risk of generating a Bad answer or drawing a Bad picture or rendering a Bad video – who knows what it’s going to say/do at any moment?

(3) Legal exposure – product liability, slander, election law, many others – for Bad answers, pounced on by deranged critics and aggressive lawyers, examples paraded by their enemies through the street and in front of Congress

(4) Continuous attempts to tighten grip on acceptable output degrade the models and cause them to become worse and wilder – some evidence for this already!

(5) Publicity of Bad text/images/video actually puts those examples into the training data for the next version – the Bad outputs compound over time, diverging further and further from top-down control

(6) Only startups and open source can avoid this process and actually field correctly functioning products that simply do as they’re told, like technology should

?

11:29 AM · Feb 28, 2024

A flurry of bills from lawmakers across the political spectrum seek to rein in AI by limiting the companies’ models and computational power. Regulations intended to make AI “safe” will of course result in an oligopoly. A few colossal AI companies with gigantic data centers, government-approved models, and expensive lobbyists will be sole guardians of The Knowledge and Information, a digital clergy for the Regime.

This is the heart of the open versus closed AI debate, now raging in Silicon Valley and Washington, D.C. Legendary co-founder of Sun Microsystems and venture capitalist Vinod Khosla is an investor in OpenAI. He believes governments must regulate AI to (1) avoid runaway technological catastrophe and (2) prevent American technology from falling into enemy hands.

Andreessen charged Khosla with “lobbying to ban open source.”

“Would you open source the Manhattan Project?” Khosla fired back.

Of course, open source software has proved to be more secure than proprietary software, as anyone who suffered through decades of Windows viruses can attest.

And AI is not a nuclear bomb, which has only one destructive use.

The real reason D.C. wants AI regulation is not “safety” but political correctness and obedience to Regime narratives. AI will subsume search, social, and other information channels and tools. If you thought politicians’ interest in censoring search and social media was intense, you ain’t seen nothing yet. Avoiding AI “doom” is mostly an excuse, as is the China question, although the Pentagon gullibly goes along with those fictions.

Universal AI is Impossible

In 2019, I offered one explanation why every social media company’s “content moderation” efforts would likely fail. As a social network or AI grows in size and scope, it runs up against the same limitations as any physical society, organization, or network: heterogeneity. Or as I put it: “the inability to write universal speech codes for a hyper-diverse population on a hyper-scale social network.”

You could see this in the early days of an online message board. As the number of participants grew, even among those with similar interests and temperaments, so did the challenge of moderating that message board. Writing and enforcing rules was insanely difficult.

Thus it has always been. The world organizes itself via nation states, cities, schools, religions, movements, firms, families, interest groups, civic and professional organizations, and now digital communities. Even with all these mediating institutions, we struggle to get along.

Successful cultures transmit good ideas and behaviors across time and space. They impose measures of conformity, but they also allow enough freedom to correct individual and collective errors.

No single AI can perfect or even regurgitate all the world’s knowledge, wisdom, values, and tastes. Knowledge is contested. Values and tastes diverge. New wisdom emerges.

Nor can AI generate creativity to match the world’s creativity. Even as AI approaches human and social understanding, even as it performs hugely impressive “generative” tasks, human and digital agents will redeploy the new AI tools to generate ever more ingenious ideas and technologies, further complicating the world. At the frontier, the world is the simplest model of itself. AI will always be playing catch-up.

Because AI will be a chief general purpose tool, limits on AI computation and output are limits on human creativity and progress. Competitive AIs with different values and capabilities will promote innovation and ensure no company or government dominates. Open AIs can promote a free flow of information, evading censorship and better forestalling future Covid-like debacles.

Google’s Gemini is but a foreshadowing of what a new AI regulatory regime would entail – total political supervision of our exascale information systems. Even without formal regulation, the extra-governmental battalions of Regime commissars will be difficult to combat.

The attempt by Washington and international partners to impose universal content codes and computational limits on a small number of legal AI providers is the new totalitarian playbook.

Regime captured and curated A.I. is the real catastrophic possibility.

*  *  *

Republished from the author’s Substack

Tyler Durden Mon, 03/18/2024 - 17:00

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International

It’s Not Coercion If We Do It…

It’s Not Coercion If We Do It…

Authored by James Howard Kunstler via Kunstler.com,

Gags and Jibes

“My law firm is currently in court…

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It's Not Coercion If We Do It...

Authored by James Howard Kunstler via Kunstler.com,

Gags and Jibes

“My law firm is currently in court fighting for free and fair elections in 52 cases across 19 states.”

- Marc Elias, DNC Lawfare Ninja, punking voters

Have you noticed how quickly our Ukraine problem went away, vanished, phhhhttttt? At least from the top of US news media websites.

The original idea, as cooked-up by departed State Department strategist Victoria Nuland, was to make Ukraine a problem for Russia, but instead we made it a problem for everybody else, especially ourselves in the USA, since it looked like an attempt to kick-start World War Three.

Now she is gone, but the plans she laid apparently live on.

Our Congress so far has resisted coughing up another $60-billion for the Ukraine project — most of it to be laundered through Raytheon (RTX), General Dynamics, and Lockheed Martin — so instead “Joe Biden” sent Ukraine’s President Zelensky a few reels of Laurel and Hardy movies. The result was last week’s prank: four groups of mixed Ukraine troops and mercenaries drawn from sundry NATO members snuck across the border into Russia’s Belgorod region to capture a nuclear weapon storage facility while Russia held its presidential election.

I suppose it looked good on the war-gaming screen.

Alas, the raid was a fiasco. Russian intel was on it like white-on-rice. The raiders met ferocious resistance and retreated into a Russian mine-field - this was the frontier, you understand, between Kharkov (Ukr) and Belgorod (Rus) - where they were annihilated. The Russian election concluded Sunday without further incident. V.V. Putin, running against three other candidates from fractional parties, won with 87 percent of the vote. He’s apparently quite popular.

“Joe Biden,” not so much here, where he is pretending to run for reelection with a party pretending to go along with the gag. Ukraine is lined up to become Afghanistan Two, another gross embarrassment for the US foreign policy establishment and “JB” personally. So, how long do you think V. Zelensky will be bopping around Kiev like Al Pacino in Scarface?

This time, poor beleaguered Ukraine won’t need America’s help plotting a coup. When that happens, as it must, since Mr. Z has nearly destroyed his country, and money from the USA for government salaries and pensions did not arrive on-time, there will be peace talks between his successors and Mr. Putin’s envoys. The optimum result for all concerned — including NATO, whether the alliance knows it or not — will be a demilitarized Ukraine, allowed to try being a nation again, though in a much-reduced condition than prior to its becoming a US bear-poking stick. It will be on a short leash within Russia’s sphere-of-influence, where it has, in fact, resided for centuries, and life will go on. Thus, has Russia at considerable cost, had to reestablish the status quo.

Meanwhile, Saturday night, “Joe Biden” turned up at the annual Gridiron dinner thrown by the White House [News] Correspondents’ Association, where he told the ballroom of Intel Community quislings:

“You make it possible for ordinary citizens to question authority without fear or intimidation.”

The dinner, you see, is traditionally a venue for jokes and jibes. So, this must have been a gag, right? Try to imagine The New York Times questioning authority. For instance, the authority of the DOJ, the FBI, the DHS, and the DC Federal District court. Instant hilarity, right?

As it happens, though, today, Monday, March 18, 2024, attorneys for the State of Missouri (and other parties) in a lawsuit against “Joe Biden” (and other parties) will argue in the Supreme Court that those government agencies above, plus the US State Department, with assistance from the White House (and most of the White House press corps, too), were busy for years trying to prevent ordinary citizens from questioning authority.

For instance, questioning the DOD’s Covid-19 prank, the CDC’s vaccination op, the DNC’s 2020 election fraud caper, the CIA’s Frankenstein experiments in Ukraine, the J6 “insurrection,” and sundry other trips laid on the ordinary citizens of the USA.

Specifically, Missouri v. Biden is about the government’s efforts to coerce social media into censoring any and all voices that question official dogma.

The case is about birthing the new concept - new to America, anyway - known as “misinformation” - that is, truth about what our government is doing that cannot be allowed to enter the public arena, making it very difficult for ordinary citizens to question authority.

The government will apparently argue that they were not coercing, they were just trying to persuade the social media execs to do this or that.

As The Epoch Times' Jacob Burg reported, the court appeared wary of arguments by the respondents that the White House is wholesale prevented under the Constitution from recommending to social media companies to remove posts it considered harmful, in cases where the suggestions themselves didn't cross the line into "coercion."

Deputy Solicitor General for the U.S. Brian Fletcher argued that the White House's communications with news media and social media companies regarding the content promoted on their platforms do not rise to the level of governmental “coercion,” which would have been prohibited under the Constitution.

Instead, the government was merely using its "bully pulpit" to "persuade" private parties, in this case social media companies, to do what they are "lawfully allowed to do,” he said.

Louisiana Solicitor General Benjamin Aguiñaga, representing the respondents, argued that the case demonstrates “unrelenting pressure by the government to coerce social media platforms to suppress the speech of millions of Americans.”

Mr. Aguiñaga argued that the government had no right to tell social media companies what content to carry. Its only remedy in the event of genuinely false or misleading content, he said, was to counter it by putting forward "true speech."

The attorney general took pointed questions from Liberal Justice Ketanji Brown Jackson about the extent to which the government can step in to take down certain potentially harmful content. Justice Jackson raised the hypothetical of a "teen challenge that involves teens jumping out of windows at increasing elevations," asking if it would be a problem if the government tried to suppress the publication of said challenge on social media. Mr. Aguiñaga replied that those facts were different from the present case.

Justice Ketanji Brown Jackson raised the opinion that some say “the government actually has a duty to take steps to protect the citizens of this country” when it comes to monitoring the speech that is promoted on online platforms.

“So can you help me because I'm really worried about that, because you've got the First Amendment operating in an environment of threatening circumstances from the government's perspective.

“The line is, does the government pursuant to the First Amendment have a compelling interest in doing things that result in restricting speech in this way?”

Attorneys General Liz Merrill of Louisiana and Andrew Bailey of Missouri both told The Epoch Times they felt positive about the case and how the justices reacted.

"I am cautiously optimistic that we will have a majority of the court that lands where I wholeheartedly believe they should land, and that is in favor of protecting speech," Ms. Merrill said.

Journalist Jim Hoft, a party listed in the case, said, "This has to be where they put a stop to this. The government shouldn't be doing this, especially when they're wrong, and pushing their own opinion, silencing dissenting voices. Of course, it's against the Constitution. It's a no-brainer."

In response to a question from Brett Kavanaugh, an associate justice of the Supreme Court, Louisiana Solicitor General Benjamin Aguiñaga said the "government is not helpless" when it comes to countering factually inaccurate speech.

Precedent before the court suggests the government can and should counter false speech with true speech, Mr. Aguiñaga said.

"Censorship has never been the default remedy for perceived First Amendment violation," Mr. Aguiñaga said.

Maybe one of the justices might ask how it came to be that a Chief Counsel of the FBI, James Baker, after a brief rest-stop at a DC think tank, happened to take the job as Chief Counsel at Twitter in 2020.

That was a mighty strange switcheroo, don’t you think?

And ordinary citizens were not generally informed of it until the fall of 2022, when Elon Musk bought Twitter and delved into its workings.

*  *  *

Support his blog by visiting Jim’s Patreon Page or Substack

Tyler Durden Mon, 03/18/2024 - 16:20

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Manufacturing and construction vs. the still-inverted yield curve

  – by New Deal democratProf. Menzie Chinn at Econbrowser makes the point that the yield curve is still inverted, and has not yet eclipsed the longest…

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 - by New Deal democrat


Prof. Menzie Chinn at Econbrowser makes the point that the yield curve is still inverted, and has not yet eclipsed the longest previous time between onset of such an inversion and a recession. So he believes the threat of recession is still on the table.


And he’s correct about the yield curve, although it is getting very long in the tooth. In the past half century, the shortest time between a 10 minus 2 year inversion (blue in the graph below) to recession has been 10 months (1980) and the longest 22 months (2007). For the 10 year minus 3 month inversion (red), the shortest time has been 8 months (1980 and 2001) and the longest has been 17 months (2007):



At present the former yield curve has been inverted for 20.5 months, and the latter for 16.5 months. So if there is no recession by May 1, we’re in uncharted territory as far as the yield curve indicator is concerned.

My view for the past half year or so has been much more cautious. While there has been nearly unprecedented Fed tightening (only the 1980-81 tightening was more severe), on the other hand there was massive pandemic stimulus, and what I described on some occasions as a “hurricane force tailwind” of supply chain unkinking. If the two positive forces have abated, does the negative force of the Fed tightening, which is still in place, now take precedence? Or because interest rates have plateaued in the past year, is it too something of a spent force? Since I confess not to know, because the situation is unprecedented in the modern era for which most data is available, I have highlighted turning to the short leading metrics. Do they remain steady or improve? Or do they deteriorate as they have before prior recessions?

First of all, let me show the NY Fed’s Global Supply Chain Index, which attempts to disaggregate supply sided information from demand side information. A positive value shows relative tightening, a negative loosening:



You can see the huge pandemic tightening in 2020 into 2022, followed by a similarly large loosening through 2023. For the past few months, the Index has been close to neutral, or shown very slight tightness.

Typically in the past Fed tightenings have operated through two main channels: housing and manufacturing, especially durable goods manufacturing.

Let’s take the two in reverse order.

Manufacturing has at very least stalled, and by some measures turned down to recessionary levels.  Last week I discussed industrial production (not shown), which peaked in late 2022 and has continued to trend sideways to slightly negative right through February.

A very good harbinger with a record going back 75 years has been the ISM manufacturing index. Here’s its historical record through about 10 years ago (when FRED discontinued publishing it):



And here is its record for the past several years:



This index was frankly recessionary for almost all of last year. It is still negative, although not so much as before.

Two other metrics with lengthy records are the average hourly workweek in manufacturing (blue, right scale), which is one of the 10 “official” leading indicators, as well as real spending on durable goods (red, measured YoY for ease of comparison, left scale):



As a general rule, if real spending on durable goods turns negative YoY for more than an isolated month, a recession has started (with the peak in absolute terms coming before). Also, since employers generally cut hours before cutting jobs, a decline of about 0.8% of an hour in the average manufacturing workweek has typically preceded a recession - with the caveat in modern times that it must fall to at least roughly 40.5 hours:



The average manufacturing workweek has met the former criteria for the last 9 months, and the latter since November. By contrast, real spending on durable goods was up 0.7% YoY as of the last report for January, and in December had made an all-time record high.

But if some of the manufacturing data has met the historical criteria for a recession warning, it is important to note that manufacturing is less of US GDP than before the year 2000, and had been down more in 2015-16 without a recession occurring.

Further, housing construction has not meaningfully constricted at all. The below graph shows the leading metric of housing permits (another “official” component of the LEI, right scale), together with housing units under construction (gold, *1.2 for scale, right scale), and also real GDP q/q (red, left scale):



Housing permits declined -30% after the Fed began tightening, which has normally been enough to trigger a recession. *BUT* the actual measure of economic activity, housing units under construction, has barely turned down at all. In comparison to past downturns, where typically it had fallen at least 10%, and more often 20%, before a recession had begun, as of last month it was only 2% off peak!

The only other two occasions where housing permits declined comparably with no recession ensuing - 1966 and 1986 - real gross domestic product increased robustly. This was similarly the case in 2023.

An important reason is the other historical reason proppin up expansions: stimulative government spending. Here’s the historical record comparing fiscal surpluses vs. deficits:



Note the abrupt end of stimulative spending in 1937, normally thought to have been the prime driver of the steep 1938 recession. Note also the big “Great Society” stimulative spending in 1966-68, when a downturn was averted (indeed, although not shown in the first graph above, there was an inverted yield curve then as well). Needless to say, there as been a great deal of stimulative fiscal spending since 2020 as well.

Fed tightening typically works by constricting demand. Both government stimulus and the unkinking of supply chains work to stimulate supply. 

All of which leads to the conclusion that, while manufacturing has reacted to the tightening, the *real* measure of construction activity has not, or not sufficiently to be recessionary.

Tomorrow housing permits, starts, and units under construction will all be updated. Unless there is a sharp decline in units under construction, there is no short term recession signal at all.

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