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Things Are Never As Bad As You Fear… Are They?

Things Are Never As Bad As You Fear… Are They?

Authored by Bill Blain via,

“If you are feeling depressed, then stop…



Things Are Never As Bad As You Fear... Are They?

Authored by Bill Blain via,

“If you are feeling depressed, then stop reading the Daily Mail. It will most certainly help.”

The news looks bleak. A cataclysm of gloom is set to sink Europe and the UK – but, maybe things aren’t as bad as we think. Good news and a realisation things can get better could stabilize sentiment, and build a recovery base. Maybe?

Perhaps the most important of Blain’s many Market Mantras is: “Things are never as bad as we fear, but seldom as good as we hope.” 

Try to remember it as you read about the multiple challenges facing Occidental Economies:

  • The Ukraine War: Uncertainty on what may happen next and how it could further escalate, and otherwise remain a long-term barrier to growth.

  • The Energy Spike and Energy Insecurity: A massive lightbulb moment for governments, with the threat of economies being destroyed by the rise in energy costs. Power outages and energy rationing are set to cripple Europe – apparently.

  • Embedded inflation and rising social discontent on the back of wage inflationary pressures: increasing discord is expected across Europe

  • Ongoing Supply Chain disorder: China no longer exporting deflation through cheap goods, while key strategic products (including chips) remain scarce.

  • Geopolitical Instability changing established relationships: the support the West traditionally assumed from the Gulf and Asia is no longer apparent as China eyes Taiwan and digests Hong Kong.

  • Political Instability: Populist politics in the US, UK and Europe raise increasing doubts on currencies, bond markets and economic growth. Italy’s next government will call for Europe to reach an accommodation with Russia

Plus, all the usual stuff:

  • Unravelling the massive stock and bond market distortions following 14 years of monetary experimentation and mispriced money

  • Inflation, inflation and inflation…

  • Consumer Cost of Living Crisis hitting debt sustainability.

  • Central Banks hiking interest rates to combat inflation – even as governments are splurging on fiscal rescues.

  • The rising risk of recession and stagflation.

It’s not a pretty picture out there…

But maybe we are being unduly gloomy?

Get over it. Things are never as bad as we fear! Markets, expectations and outcomes evolve – and when things look bleakest, they often tend to move in a more generally positive direction than feared. (True – sometimes they get worse…)

The thing is… we like to scare ourselves.

Any newspaper editor will confirm horror headlines garner most hits, and sell more subscriptions than good news. Negative headlines drive and magnify negative reactions, and curiously are easier to accept than good news. We are biased to always assume the worst – which is why if you put 5 market talking-heads in a room to talk about growth, they will always agree the world is about to end in a cataclysm – which never happens. (In my experience..)

If you are feeling particularly nervous – then whatever you do, not read the new Nouriel Roubini end-of-everything book: “MegaThreats: Ten Dangerous Trends that Imperil our Future”. It’s classic Econo-dysto-Porn. It is apparently so miserable it will sell millions of copies. You would never have heard of Roubini if his books were about how successful the US economy is – he would be correct, but who wants to read about it?

Dr Doom appeals to the current doom and gloom zeitgeist. He called the 2008 crisis. Now he says were heading for the ultimate economic disaster; “a great stagflation that will make the 1970s look moderate.”. Oh dear. I guess I better get the bunker ready. The “preppers” who blame the Davos Cabal and other rich conspiracy theories for all our woes, will say he underestimates the coming “great reset”. Whacky populist Politicians will use it to argue for economic isolationism. A chum was joking the right portfolio composition now is 40% Gold, 40% Tinned Goods, and 20% Small Arms.

If you are of a nervous disposition, don’t buy the Roubini (actually, it’s not published till October..) He will upset you with his recipe for debt crises, geopolitical tension, serial pandemics, migration, climate change and host of other nasty things… They will only upset you further. That other voice of professional global economic misery, Nassim Taleb says: “I have never read a more lucid and nuanced account of our financial condition.”

Again, I say… Relax. Get over it.

Things are not going to be easy… but the end of the World is a long, long way away…

So even though Liz Truss has packed her cabinet with yes-men, and binned anyone who even shook Rishi Sunak’s hand, while Europe is scrabbling to find ways to bailout consumer and small business energy bills through windfall taxes and unravelling renewable pricing agreements…. things could yet surprise us to the upside.

I’m serious. When everyone else is fearful, when everyone else is out… that’s the time to be brave. (Or to put it another way – if we’re doomed.. go out with a boom!)

Humanity is generally more inventive and innovative than we give ourselves credit for. Give us a chance and we tend to find solutions. (Even Americans will eventually stumble on the right solution – after first exhausting every other possibility!) The work-around, muddle-through process works best in market economies, rather than in stultified command economies – meaning Russia and China are set to suffer most, a lesson their new friends in the Gulf, Asia and Latin America will come to rue.

Long term I have zero doubt the West will emerge from the current crisis in stronger shape! We will definitely emerge stronger than either Russia or China. Tech, health and welfare are going to be so much better here. Demographics and taxes – the two most powerful forces in the galaxy – will ensure it. The Occident is ageing, but wealthy (and marginally more healthy!) Russia is poor and old. China got old without getting rich.

The cycle of despair can turn very quickly – one piece of good news can trigger a chain reaction of positivity.

Let’s start with the Ukraine war. It’s a desperate bloody affair for Ukraine, and even more so for Russia. The losses, and the unsustainability of the logistical inventories on both sides, mean a peace is likely. An increasing number of analysts believe Putin will shortly announce he has won, and offer a peace based on the current front lines. He will put the onus on Europe to pressure Ukraine to accept by playing his energy card.

Matteo Salvin of the Italian League, who will be in the next Italian government, has called for an end to Russian sanctions across Europe, to support Italian consumers. Italy is demanding Europe reopens the gas taps by kowtowing to Moscow.

But, much as it will pain the Ukrainian people, we’d be wrong to accept. Winning is important. Whatever the Russian troll-bots would have you believe, there is no moral equivalency between Ukraine and Putin. Letting Putin win would be appeasement, and just be a problem delayed. Russia is the aggressor and must be seen to lose and lose badly. We don’t give folk the credit for understanding that.

It can happen. Europe’s energy situation is not nearly as bad as we think. We don’t need to be beholden to Russia. Putin’s big bluff is founded on persuading us he holds all the keys and has an absolute lock on our energy. He does not. Once we realise Russia can lose, the mood changes.

The latest numbers show Europe’s gas reserve tanks are ahead of the expected curve – the winter storage facilities will soon by 90% full, even with NordStream 1 pipeline remaining shut and not a molecule more from Russia. Even Germany has been able to replenish stocks faster than expected. It’s been costly. Europe has paid top dollar – filling the tanks by buying at the top of a highly distorted market. Europe has paid the cost – now we have to figure out how we afford it without bankrupting SMEs, beggaring consumers and destroying our economies. The blueprints on how to do so are still there from the Pandemic.

Even though I gleefully read that JP Morgan is going to repatriate bank staff from Frankfurt to London because of power cut risks, if we get a normal European winter (as opposed to a very cold one) Europe, including Germany, will avoid power cuts. Things are not as bleak as we fear.

Meanwhile, European businesses are successfully diversifying their energy and raw material supply chains – I was hearing how BASF is keeping fertiliser markets open by importing ammonia from the USA, which ends up being cheaper overall, is less energy dependent, and has the advantage of taking fertiliser security out of Russia or Chinese control. That’s just one single example of how the entire Occidental economy is cutting its reliance on the outside world, and making the group economy of the Democratic West stronger.

Liz Truss is going to announce an imperfect £100-150 bln bailout package. It shows UK government can deliver; biting the bullet to absorb the massive increases in consumer and SME energy bills. It will keep inflation closer to 10% than Goldman’s 22% horror snapshot.

Solving for Europe is not without challenge. Bailing out consumers and SMEs is not so simple – although the EU is talking windfall taxes. How the EU and EBC hold together the Euro in the wake of growing social unrest, recession, job cuts, denied wage demands, the apparent income inequality in society, and the cost of living crisis, is going to spawn a host of naysayers saying the Euro will collapse.

But here’s the thing. It’s easy to explain how Euro will disappear in a puff of logic – but historically that’s not what happens. It’s more likely to surprise its detractors by surviving – external pressures pulling it together rather than apart. Europe is not stupid – they have seen what Brexit has done – and is doing – to the UK.

How quickly market sentiment shifts depends on how quickly we can bring down inflation. That’s a problem for smart governments and aware Central Banks to coordinate. In Europe, the big fear is the new right-wing (and probably kompromated) Italian government will cave, and demand Europe surrenders also. Europe might do best to simply sling them out – why not?

Rather than the end of the World, what we have is a crisis. It doesn’t necessarily end the way we fear most. Yes, there will be problems, unrest and instability, but the reality is better than we think: Europe will survive the winter. That’s a good starting point.

The UK will stagger through yet another likely Tory embarrassment till the next election, and idiots will continue to tell me anything is better than a Labour government. No its not – a change will do us all good. We will survive the winter, and while inflation still has to work its way through the economy – it will not be the end of everything.

Head to the grindstone, keep the portfolios under review. Crisis is coming, but it’s never the end of the World – well, not yet anyway.

Tyler Durden Wed, 09/07/2022 - 08:30

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Highlights of My Weekly Reading and Viewing

Timothy Taylor, “Some Economics of Pharmacy Benefit Managers,” The Conversable Economist, September 28, 2023. This is the nicest treatment of the facts…



Timothy Taylor, “Some Economics of Pharmacy Benefit Managers,” The Conversable Economist, September 28, 2023. This is the nicest treatment of the facts that I’ve seen. I confess that I’ve seen PBMs as something of a black box rather than doing the standard middleman treatment that Tim does.

Tim highlights the work of Matthew Fiedler, Loren Adler, and Richard G. Frank in “A Brief Look at Key Debates About Pharmacy Benefit Manufacturers,” Brookings Institution, September 7, 2023.

Ending paragraph:

As in most economic discussions about the role of middlemen, it’s important to remember that they (usually) don’t just sit around with their hands out, collecting money. Some entity needs to negotiate on behalf of health insurance companies with drug manufacturers and pharmacies. Some entity needs to process insurance claims for drug prices. I do not mean to defend the relatively high drug prices paid by American consumers compared to international markets, nor to defend the costs and requirements for developing new drugs, nor to defend some of the mechanisms used by drug companies to keep prices high. But while it might be possible to squeeze some money out of PBMs for slightly lower drug prices, and it’s certainly possible to mess up PBMs in a way that leads to higher drug prices, it doesn’t seem plausible that reform of PBMs is going to be a powerful lever for reducing drug prices.

Thomas W. Hazlett, “Maybe Google Is Popular Because It’s Good,” Reason, September 27, 2023. I think Hazlett is the best writer in economics. This piece is a good sample.

An excerpt:

The innovation was simple in design, complex in execution, and radical in result. The business achieved a rare triple play: First, a robust new web crawler devised a superior method for finding and tagging the world’s digital content, deploying cheap PCs linked in formations to achieve momentous computing power (Brin’s genius). Second, this more prolific database of global digital content was better cataloged. A clever “Page Rank” score evaluated keyword matches, countering the influence of scammers by scrutinizing the quality of their web page links (Page’s inspiration). Third, “intention-based advertising” displayed commercial messages to searchers self-identified as ready to buy. For instance, the internet user wondering about “coho salmon, Ketchikan, kids” gave Hank’s Family Fishing B&B in Alaska a digital target for its 10 percent off coupon, while signaling to Olay not to bother advertising its skin care products. This solved the famous marketing dilemma: “I know I’m wasting half my ad budget, I just don’t know which half.” Businesses loved these tiny slices of digital real estate, and Google mined gold.

Fiona Harrigan, “America’s Immigrant Brain Drain,” Reason, October 2023.


In June, The Hechinger Report outlined how foreign governments are welcoming U.S.-trained international students. The United Kingdom offers a “high potential individual” visa, which authorizes a two-year stay and is available to “new graduates of 40 universities….21 of them in the United States.” Recruiters from Australia are “attending job fairs and visiting university campuses” in the United States. From 2017 to 2021, according to the Niskanen Center, a Washington-based think tank, Canada managed to attract almost 40,000 foreign-born graduates of American universities.

Most international students want to stay in the U.S. after graduating, but very few are able to do so. The U.S. does not have a dedicated postgraduate work visa. Canada and Australia, meanwhile, have streamlined the steps from graduation to employment to permanent residency. Graduates in the U.S. can complete Optional Practical Training, but it does not lead to permanent residency and lasts a maximum of three years.

Personal note: Actually the maximum of 3 years for Practical Training sounds good. When I took advantage of the F-1 Practical Training visa to be on the faculty of the University of Rochester, the max was only 18 months.

David Friedman, “Consequences of Climate Change,” September 24, 2023. David does his typical calm, clear, masterful job of laying out the facts. He takes the IPCC reports as given and then follows the implications, uncovering a lot of misleading claims in the process. While David takes as given that the earth will heat about another degree centigrade by about the end of the century, he lays out why we can’t be sure that the net effects are negative or positive. Watch about the first 35 minutes of his speech, before he gets to Q&A. I would point out highlights but there is zinger after zinger. And he references his blog and his substack where you can get details.

The pic above is of David Friedman giving his talk.


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Russia’s Military Budget Set To Rise By 70%

Russia’s Military Budget Set To Rise By 70%

Via Remix News,

Russian military spending is set to rise by almost 70 percent — to €106…



Russia's Military Budget Set To Rise By 70%

Via Remix News,

Russian military spending is set to rise by almost 70 percent — to €106 billion — by 2024, according to a Russian Finance Ministry document published Thursday, an increase that illustrates Moscow’s determination to continue its military intervention in Ukraine despite the human and economic costs.

According to the document, Russian defense spending will increase by 68 percent in 2024 compared to this year and will reach 10.8 trillion rubles (€106 billion).

As a result, the amount allocated to defense will represent about 30 percent of total federal spending in 2024 and 6 percent of GDP — a first in Russia’s modern history.

The budget for internal security is set to rise to 3.4 trillion rubles (€33 billion), almost 10 percent of annual federal spending.

The priorities for this budget are outlined as “strengthening the country’s defense capacity” and “integrating the new regions” of Ukraine whose annexation Moscow has demanded, as well as “social aid for the most vulnerable citizens,” just months ahead of the Russian presidential elections in spring 2024.

Conversely, total spending on education, healthcare and environmental protection accounts for barely a third of the defense budget, according to ministry figures. Overall, federal spending will total 36.7 trillion rubles (€359 billion), a dramatic 20 percent increase over 2023.

The government, however, has explained little about how it will finance this large increase, as Russian Prime Minister Mikhail Musustin said last Friday that revenues from the sale of hydrocarbons will be down sharply and will account for “a third of next year’s budget” in 2024, whereas before the invasion of Ukraine, they accounted for half the budget.

The sector used to drive Russia’s growth, hydrocarbon sales are declining due to international sanctions and the European Union’s determination to move away from energy dependence on Moscow.

One indication that the government expects a delicate month ahead for the Russian economy is that it has announced that it has based its budget forecast on the assumption of a dollar worth around 90 rubles, thus betting on a weakening of the national currency in the medium term. The draft budget law for 2024-2026 is due to be sent to the State Duma, Russia’s lower house of parliament, on Friday.

Tyler Durden Sun, 10/01/2023 - 08:10

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Atlantic Overfishing: Europe’s Worst Offenders

Atlantic Overfishing: Europe’s Worst Offenders

Each year, agriculture and fisheries ministers decide on total allowable catches (TACs) for…



Atlantic Overfishing: Europe's Worst Offenders

Each year, agriculture and fisheries ministers decide on total allowable catches (TACs) for commercial fishing.

Scientific bodies, such as the International Council for the Exploration of the Sea (ICES), provide information on the state of fish stocks around the world and recommend maximum catch levels per zone to ensure sustainable fishing.

However, this scientific advice is all too often ignored by the authorities, jeopardizing the sustainability of marine resources.

Statista's Martin Armstrong shows in the following infographic, based on the latest report from the New Economics Foundation, these European countries are the worst offenders for this, having on numerous occasions set their fishing quotas in the North-East Atlantic in excess of the sustainability recommendations in recent years.

You will find more infographics at Statista

Sweden exceeded its recommended TAC by almost 33 percent in 2020 (the latest year available), equivalent to 12,000 tonnes of fish, followed by Denmark (6 percent, 20,000 tonnes) and France (6 percent, 17,000 tonnes).

Ireland, Belgium, Spain and the UK all exceeded their targets by between 2 and 4 percent.

The year before, in 2019, the overshoot of the sustainable fishing threshold in the zone was even more pronounced: 7 percent of the recommended TAC for Spain, 9 percent for France, 10 percent for Belgium, 18 percent for Germany, 20 percent or more for Denmark, the United Kingdom and Ireland, and 52% for Sweden.

Tyler Durden Sun, 10/01/2023 - 07:35

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