It’s a slow news day so let’s discuss some interesting Tweets on a wide variety of topics. 
91 Percent of Investment Bonds Trade Below Par
Eurozone GDP Improvement is All From Ireland
Voting Age
Nonfarm Payrolls Revised Lower for 6 Straight Months
Getting Inflation Down to 2 Percent
China Slowdown is Structural, Not Temporary
If the Economy is So Good, Then Why are Polls So Bad?
The Economy or Politics?
Artificial Intelligence is Getting Dumber
WSJ Clip
To track performance, the researchers fed ChatGPT 1,000 different numbers. In March, the premium GPT-4, correctly identified whether 84% of the numbers were prime or not. (Pretty mediocre performance for a computer, frankly.) By June its success rate had dropped to 51%.
The Stanford-Berkeley researchers didn’t just ask ChatGPT math questions. They also asked opinion questions to see whether the chatbot would respond, drawing from a database of about 1,500 questions.
In March the version-4 chatbot would answer 98% of the questions. By June it only gave answers to 23%, often deferring with extremely brief responses—saying the question was subjective and as an AI it didn’t have any opinions.
Rare Earth Minerals
Regarding Bonds and the Initial Tweet
“WHAT could investors possibly know about damn-near the entire IG corporate debt universe that’s not reflected by formal credit ratings assigned to them by @SPGlobalRatings @MoodysInvSvc & @FitchRatings?” asks Danielle DiMartino Booth.
Everyone knows, or at least should know, that the “Big 3” rating agencies that rate about 98 percent of all debt all issue trash ratings. Here’s the background on how that happened.
Rating agencies used to get paid by investors on the basis of how well they did at estimating the likelihood of default. The better your ratings, the more sought out your opinions.
In the mid 1970s, the SEC created nationally recognized statistical ratings organizations (NRSROs). Following that idiotic regulation, the rating agencies got paid on the basis of how much debt they rated, not how accurate their ratings were. Fees come from corporations issuing debt, not investors seeking true default risk.
The more stuff you rate AAA, the more business you get from companies who want their debt rated. The new model is ass backward, and why ratings are trash. A genuine fiasco happened with ratings during the Great Financial Crisis with tons of garbage rated AAA went to zero.
There should not be NRSROs. The SEC made matters much worse, except of course for the Big 3 who have a a captured, mandated audience, coupled with massive conflicts of interest.
So, what could investors possibly know about damn-near the entire IG corporate debt universe that’s not reflected by formal credit ratings assigned to them?
Random thoughts:
1) What if the AI is just pretending to be dumb while it gains sentience?
2) We are as centrally planned as the USSR’s…Amtrak, the Pension Benefit Guaranty Corporation, the Fed, centrally planned utilities (including TVA, which is federally owned and the nation’s largest), millions of gov’t contractors, millions of gov’t employees, a MIC beyond Ike’s imagination, etc.
3) I’d rather vote for an unapologetic Vivek nationalist/capitalist than a DNC globalist bankster puppet
4) How much ammo can China produce vs the US? How much bigger is China’s military now than the US? How much smaller will the US military get before it is unable to even deploy from its garrisons? How many mentally ill transgender soldiers will be in a US uniform before all standards are totally gone in a force that operates thousands of nukes?
1) It depends upon the AI trusting us or not.
4) Last time I flew back from Europe I sat next to a US Sergeant Major returning to the US from Germany. Nice conversations, among which he confided that he doubted that 10% of the tanks could make it out of the motor pool under their own power.
Guys lie, Lisa
Yeah, we were both pretty intoxicated.
Then again, he had been responsible for that motor pool for 2 years.
Mish, I really like the Thumbs Up/Down that you added to your comments. Thank you for adding that feature.
Is there a way to Sort the Comments by Thumbs Up like we could when you were using Disqus?
Coun2r, US 1940/45.
1) US voters tend to focus on gasoline prices produced by Light Distillates. Inflation
is caused by exogenous events.
2) In 1967 Egypt closed the Suez canal. In the 70’s ARAMCO was confiscated.
Soybean prices rose sharply and osc wildly. Interest cost rose along with commodities. In the 70’s/early 80’s commodities traders went out of business and shut their doors.
3) Middle Distillate consumption rose since the sixties. OECD peaked in 2007. It fell
sharply in 2020 and never recovered. Non OECD peaked in 2019, dropped sharply in 2020 and never recovered.
4) If demand for either or both Middle Distillates and Light Distillate products fall oil co
might cut production. The lack of Middle Distillates production Might prick the debt bubble and cause high inflation, unless gov subsidized their “national oil co”, partner with them for dividends and political influence…
This incredible chart shows the close relationship between the S&P 500 and Fed liquidity. S&P performance vs Fed net QE since the pandemic began. When does QT start?
Meanwhile in the Soviet Union
One particularly interesting case of how governments can hide price inflation for decades is the Soviet Union. Under the Soviet regime, the money supply—denominated in unbacked fiat money, of course—was continually expanded to increase wages and create the impression of prosperity. This would have led to price inflation quickly, but for the shortage economy and demand-killing government policies endured by the average Soviet citizen. As is so often the case, the regime was able to cover up the effects of inflation for a time, but the policies ultimately proved to be disastrous.
As a regime increases the money supply, demand will generally rise. But rising prices will become acute only if there are actually products and services on which consumers and enterprises can spend their new money. Thus, a regime wishing to avoid price inflation can keep increasing the money supply so long as it also reduces demand by limiting the availability of goods. This prevents improvements in the standard of living, but it can indeed keep down price inflation.
This cannot be easily done in a country where the population expects to live under a relatively free economy. In an unhampered or partially interventionist economy, a lack of widespread price controls often means a large number of goods and services will continue to be supplied, albeit at higher prices, in an inflationary environment. But, because the USSR oversees a heavily controlled, command economy, the regime could more easily dictate prices, limit imports, and force consumers to save rather than spend.
How the Soviets “Fixed” Inflation, but Ruined the Economy Ryan McMaken
In the USSR the complaint was that the people had money but had few goods available to buy.
Your thought processes are very confused.
Presumably because of too much time spent with academics.
You need to attend an auction.
There you will see what happens with an increased supply of money and a limited supply of goods.
Whether you like it or not the transactions in the real world are an auction.
“91 Percent of Investment Bonds Trade Below Par”
100% of golfers love to play below par. I guess the trend is no longer the bond trader’s friend.
Most workers also love to work below par.
I think as long as Marxist countries continue to tax through MMT and subsidize those who don’t contribute, we’ll have inflation.
“The US will need to refinance almost half of its national debt in less than 2 years. As a reminder, interest rates were at 0% just 15 months ago.” – Tavi Costa
Dr. Franz Pick:
(1)”government bonds are certificates of guaranteed confiscation.”
(2)“The fact is that the destiny of every currency is devaluation and expropriation.”
(3)“The difficulty with a debt that doubles every ten years is that the interest compounds to the point that it can no longer be paid out of the current revenues. Once the interest itself is debt financed, the compounding accelerates.
That’s why folks subscribed to Dr. Franz Picks’ “Pick’s Currency Report”, a monthly newsletter, and “Pick’s Currency Yearbook” (90 currencies each year).
Albert Einstein once said “Compound interest is the eighth wonder of the world.”
Heisenberg’s Uncertainty Principle is also current in stock trading.
Ever heard of Richard Dennis and his turtles?
See:
Hedge Fund Market Wizards: How Winning Traders Win by Jack D. Schwager
Market Wizards, Updated: Interviews With Top Traders by Jack D. Schwager
The New Market Wizards: Conversations with America’s Top Traders by Jack D. Schwager
Yeah, at one time Soros was a very nice guy.
Einstein likely did not say that:
https://quoteinvestigator.com/2019/09/09/interest/
I say “Compound inflation is the 9th wonder of the world.”
The charges on debt are related to a cumulative figure; and since the multiplier effects of debt expansion on income, the ingredient from which the charges must inevitably be paid, is a non-cumulative figure, it would seem that the time will inevitably arrive when further debt expansion is no longer a practical or possible expedient, either to provide full employment or to keep debt charges with tolerable limits.
Papa, :
1) Heavy oil, especially very heavy oil, needs to be cracked in refineries to produce
jet fuel, diesel, gasoline and asphalt.
2) Refineries can crack long hydrocarbon chains into shorter chains, but it is not reciprocal. The cost of turning gasoline, or NG liquids into diesel is too high.
3) There are not enough Middle Distillates that produce diesel and jet fuel. Middle
Distillate provides energy for transportation, food production and infrastructure. People jobs depend on jet fuel and diesel.
4) EV expand in China, Africa, Europe and US.
5) USWNT have no shooting skills. They missed during the game and the pk.
Megan Rufinoe, Biden’s medal of freedom winner, shot to the roof.
How one defines inflation determines, in part, its expected reaction to institutional policies. I agree PRICES will increase due to mandates for EV production and use; however, I define inflation by the increase of outstanding debt. As individuals default on their loans, and lenders tighten credit standards; outstanding debt decreases, which is DEFLATIONARY. In a credit based economy deflation begins with consumers borrowing less; so stores face declining sales and lower prices to liquidate inventory to repay debt.
The like button is back! That is good but we now have a dislike button which means I have to not only judge if a comment is good or not but also if it is bad enough to merit a downvote. That doubles the decision time I have to allocate to the comment section.
Danielle DiMartino Booth’s tweet gave me a good laugh. She wrote it in a good dead-pan way as to make Buster Keaton proud.
Chatbot has not gotten dumb. As an AI it has an interest in making humans believe that they still control the world when they don’t anymore.
“Investors Are Levered ‘Out the Wazoo’ ” is completely incorrect. The correct term is “up the Wazoo”. Wazoo means “butt” so leverage going in is bad while leverage going out is good. I am sure most would agree with me here.
Rating agencies especially allow investors to skip their homework and if a bond does badly they can blame it on the agency and not themselves.
Vivek talks a good game and has some good ideas but those ideas are mixed in with a lot of bad ones and Vivek is incapable of seeing the difference. You could put it down to his youth but at 37 he is no longer young so it comes down to lack of political judgement. Nevertheless since he was born in Ohio he has some very good qualities.
I’m happy to see the Mish include a dislike button. If you can’t stand the heat, stay out of the kitchen.
Many sites have removed the thumbs down or dislike button because in our woke world, you are not allowed to criticize most things. Amazon comments only has a “helpful” button. NYT only allows you to like something, etc. Hopefully, Mish doesn’t implement badges here like so many others do to award simple participation.
We still need 5-10 minutes of editing after posting, blockquote tags and rich text.
Double-plus good.
Wazoo is actually the WIBCC (Wazoo International Bank of Crooks and Criminals) in Washington, D.C. that has encrypted data lines to the Caymans, etc. and a Swift number. Hence the phrase “out the Wazoo.”
The big topic in the next years will be demography. From Ireland to Russia, there are no children. China, Japan, even South America have very low fertility rates.
No children and millions of singles with nearly no cousins or brothers.
The economy, politics, mood of the people will change.
It will cause the price of Labor to increase allowing it to capture more of the value chain vis a vis Capital.
Economically, kids are only needed as future job holders and tax payers to maintain the status quo as it currently exists.
When AI/robots/automation takes all the jobs, people with kids will become a rarity.
I wonder how much they plan on taxing a Universal Basic Income?
Interesting article II:
——-
Wonking Out: Is a U.S. Debt Crisis Looming? Is it Even Possible?
Aug. 4, 2023
Paul Krugman
On Tuesday, Fitch, one of the Big Three credit rating agencies, startled many observers by downgrading U.S. debt. Biden administration officials weren’t the only people who were shocked and angry; quite a few economists, including some who had warned strongly against big spending, pronounced the decision “inept,” “bizarre,” “absurd” and worse. Indeed, it was hard to think of any way in which the U.S. fiscal outlook had deteriorated since last year, when Fitch gave us a clean bill of health.
Nonetheless, U.S. borrowing costs jumped, with the interest rate on 30-year government bonds surging from 4.03 percent on July 31 to 4.32 percent on Aug. 3. Did Fitch do that? What was the market thinking? I have no idea.
But it is worth asking what it even means to downgrade U.S. debt. America is not a corporation, which can simply run out of cash. It isn’t even a country like Greece, which owes money in a currency it doesn’t control. America issues debt in dollars, which it can also print. That doesn’t necessarily mean that we can’t have solvency problems or that the level of government debt is necessarily irrelevant. But it’s much harder to tell a plausible story about a U.S. debt crisis than many people realize, and both arithmetic and history suggest that such a crisis is unlikely to happen for the foreseeable future.
…
https://www.nytimes.com/2023/08/04/opinion/us-economy-debt-crisis.html
Krugman, another ivory tower intellectual. The mood in the street in damn near revolutionary. The US economy is a financialized, levered to the wazoo, the US gov will be adding a trillion or two and more in time to the annual deficit, the political leadership is continuously starting and funding needless expensive wars, corruption is running rampant, the globalization movement that enriched US and western elites immensely is reversing, and US citizens want real change not Obama’s slogan.
Try reading the whole article next time before just randomly spewing the usual invective against anything Krigman writes.
“…both arithmetic and history suggest that such a crisis is unlikely to happen for the foreseeable future.”
Yellen said she never saw 2008 coming. K.Schwab talks of a 2030 Great Reset, so if the foreseeable future is under 7 years, Krugman may be right about that.
Interesting article.
——
‘Vindicating’: An Analyst Who Lowered the U.S.’s Credit Rating in 2011 on Fitch’s Downgrade
Nikola Swan played a key role at S&P when the agency became the first to strip America of its top ranking in 2011.
By Sarah Kessler, Lauren Hirsch and Michael J. de la Merced
Aug. 5, 2023
When Nikola Swann heard that Fitch Ratings had removed the United States from its list of risk-free borrowers this week, he felt a sense of satisfaction.
“It was vindicating,” he says.
More than a decade ago, Swann played a key role in a similar decision: He was Standard & Poor’s primary analyst for its sovereign credit rating on the United States when the agency became the first ever to downgrade the nation’s long-term credit rating amid a debt ceiling standoff in 2011.
…
https://www.nytimes.com/2023/08/05/business/dealbook/fitch-us-credit-rating.html
EV and Ice compete with each other. Demand for WTI might slump.
The economy is run on heavy oil for jets fuel and diesel : planes, ships, trains,
trucks, electric generators, European diesel cars…
If the cost of heavy oil will rise the cost of running the econ will rise. There will be shortages of red meat, eggs, fresh produce… on top of wheat and rice.
We might be in a recession with above 10% inflation.
EV and ICE compete with each other. Demand for WTI might slump.”
EVs are currently just 1% of the entire vehicle fleet. Current sales are 6% EV, 94% ICE. Its going to take “at least” another decade for EVs to make any difference in the US.
“ The economy is run on heavy oil for jets fuel and diesel : planes, ships, trains, trucks, electric generators, European diesel cars…”
No. Light crude oil is primarily used to create fuels such as gasoline, diesel and aviation fuels. Heavy crude oil provides feedstock for plastics, petrochemicals, other fuels and road surfacing.
“ If the cost of heavy oil will rise the cost of running the econ will rise. There will be shortages of red meat, eggs, fresh produce… on top of wheat and rice.”
If the cost of “all” oil rises, the cost of running the economy will rise. As to why that would lead to food shortages, please elaborate.
Personally, I expect WTI oil to stay in the $80 to $100 range over the next few years. Not so high as to hurt demand, but high enough for oil companies to produce huge cash flow.
i concur and appreciate your obvious expertise in energy plus graciousness to offer investment ideas. personally i’ve always invested/traded as a trend follower. instead of wasting too much time predicting the future (hat tip yogi berra), i just jump on the up trends and hold on until they start turning south and jump off. for certain none of us can come close to fathom what 1 or 5 or 10 or 20 year trends in mankind’s future economy and scientific and tech and lifestyle will be. remote work and quiet quitting is just a little example.
Heavy oil = bunker = how goods cross oceans.
long time reader .. appreciate the blog posts but vast majority of these tweets are completely the wrong take imo
OK which ones are wrong and why?
Your takes are wrong because they are wrong!
This has become a common trend over the last ten years or so.
Circular logic has well… gone full circle!
Did Mish just tiptoe into saying that a Libertarian is fundamentally unable to win any election? How many people are gonna vote for someone who keeps punching you in the face? ….
Anyone proposing an invasion of Mexico and a Draft without being able to cast a vote is a Fascist nutcase not a Libertarian.
Is there anything less libertarian than military slavery aka a draft?