Today’s News 13th June 2021

• "It Won't Be Pleasant" – Mark Carney Unveils Dystopian New World To Combat Climate 'Crisis'
  “It Won’t Be Pleasant” – Mark Carney Unveils Dystopian New World To Combat Climate ‘Crisis’

  Authored by Peter Foster via NationalPost.com,

  What Carney ultimately wants is a technocratic dictatorship justified by climate alarmism…

  

  In his book Value(s): Building a Better World for All, Mark Carney, former governor both of the Bank of Canada and the Bank of England, claims that western society is morally rotten, and that it has been corrupted by capitalism, which has brought about a “climate emergency” that threatens life on earth. This, he claims, requires rigid controls on personal freedom, industry and corporate funding.

  Carney’s views are important because he is UN Special Envoy on Climate Action and Finance. He is also an adviser both to British Prime Minister Boris Johnson on the next big climate conference in Glasgow, and to Canadian Prime Minister Justin Trudeau.

  Since the advent of the COVID pandemic, Carney has been front and centre in the promotion of a political agenda known as the “Great Reset,” or the “Green New Deal,” or “Building Back Better.” All are predicated on the claim that COVID, and its disruption of the global economy, provides a once-in-a-lifetime opportunity not just to regulate climate, but to frame a more fair, more diverse, more inclusive, more safe and more woke world.

  Carney draws inspiration from, among others, Marx, Engels and Lenin, but the agenda he promotes differs from Marxism in two key respects. First, the private sector is not to be expropriated but made a “partner” in reshaping the economy and society. Second, it does not make a promise to make the lives of ordinary people better, but worse. Carney’s Brave New World will be one of severely constrained choice, less flying, less meat, more inconvenience and more poverty: “Assets will be stranded, used gasoline powered cars will be unsaleable, inefficient properties will be unrentable,” he promises.

  The agenda’s objectives are in fact already being enforced, not primarily by legislation but by the application of non-governmental — that is, non-democratic — pressure on the corporate sector via the ever-expanding dictates of ESG (environmental, social and corporate governance) and by “sustainable finance,” which is designed to starve non-compliant companies of funds, thus rendering them, as Carney puts it, “climate roadkill.” What ESG actually represents is corporate ideological compulsion. It is a key instrument of “stakeholder capitalism.”

  Carney’s Agenda is promoted by the United Nations and other international bureaucracies and a vast and ever-growing array of non-governmental organizations and fora, especially the World Economic Forum (WEF), where Carney is a trustee. Also, perhaps most surprisingly, by its corporate victims. No one wants to become climate roadkill.

  Carney clearly feels himself to be a man of destiny. “When I worked at the Bank of England,” he writes in Value(s), “I would remind myself each morning of Marcus Aurelius’ phrase ‘arise to do the work of humankind’.” One is reminded of French aristocrat and social reformer Henri de Saint-Simon, the “grand seigneur sans-culotte,” who ordered his valet to wake him with similar words: “Remember, monsieur le comte, that you have great things to do.”

  That is not the only thing Carney has in common with Saint-Simon, who believed that society should be ruled by savants such as himself; an alliance of engineers and other technocratic intellectuals, along with bankers. Carney is very much a banker technocrat, not merely at ease gliding along the corridors of global bureaucratic power, but expert at framing arguments that support an ever-expanding role for his class.

  His expansive pretensions first appeared at the Bank of Canada. If the economy is like a game of ice hockey, then central bankers should, ideally, be like Zamboni drivers, whose job is to keep the ice flat (Carney had in fact been a goalie during his academic years at both Harvard and Oxford). At the Bank of Canada, he often seemed like the Zamboni driver who thought he was Wayne Gretzky. He could never resist lecturing private businesses to stop sitting on “dead money,” or telling them they were too timid in the international arena, or advising consumers that they were spending too little, or borrowing too much. He promoted “macroprudence,” the idea that regulators, in their panoptic wisdom, would focus on the forest, not the trees. Now, he wants to establish himself as an intellectual.

  Carney has a lot to put straight with the world. According to his new book, and the related BBC Reith Lectures that Carney delivered last year, the three great crises of credit (2008–09 version), COVID and climate are all rooted in a single problem: People in general, and markets in particular, are not as wise, moral or far-seeing as Mark Carney. He sums up this failing as the “Tragedy of the Horizon,” a phrase he concocted for a speech ahead of the 2015 Paris climate conference.

  However, Carney is sophistic when it comes to the alleged moral shortcomings of capitalism. It has been one of the most tedious tropes of the left since at least The Communist Manifesto that the rise of commerce would drive out all that is virtuous in society, leaving nothing but the “cash nexus” of trade. One of Carney’s favourite philosophers is Harvard’s Michael Sandel, who produces endless trivial examples suggesting that we have moved from a “market economy” to a “market society.”

  “Should sex be up for sale?” Carney thunders, following Sandel. “Should there be a market in the right to have children? Why not auction the right to opt out of military service? Why shouldn’t universities sell admission to raise money for worthy causes?” But the very fact that people reflexively feel uneasy about — or outright reject — such notions entirely disproves his point. People do not believe that everything is, or should be, for sale.

  Carney notes the long debate, going back to classical times, on the nature of commercial value. This was theoretically resolved by the “marginalist revolution,” which put paid to the “paradox of value” that puzzled over the (usually) low price of useful water and the (usually) high price of useless diamonds. The marginalists pointed out that commercial value isn’t determined by usefulness or labour input. It is inevitably subjective, based on personal preferences and available resources. There is no paradox. Someone dying of thirst in the middle of the desert might be more than willing to offer a bucket of diamonds for a bucket of water.

  

  Mark Carney is a UN Special Envoy on Climate Action. PHOTO BY TOLGA AKMEN/POOL VIA REUTERS/FILE

  However, market valuations are essentially different from moral values, a distinction Carney continually muddles. He misrepresents the marginalist/subjectivist perspective, claiming that it implies that anything not commercially priced is not considered valuable. “Market value,” he writes, “is taken to represent intrinsic value, and if a good or activity is not in the market, it is not valued.” But who holds such an idiotic view? Nobody “prices” their family, children, friends, community spirit or the beauties of nature, although there is certainly lots of calculation going on in the background. Carney constantly berates “market fundamentalist” straw men who employ “standard economic reasoning” and who believe that people are rational and markets perfect.

  He incorrectly claims that Adam Smith — in his first great book, The Theory of Moral Sentiments— said that a sense of morality was “not inherent.” In fact, Smith believed that we are born with such a sense, which is then fine-tuned by the society in which we grow up. However, Carney — like all leftists — leans towards the blank slate, nurture-over-nature perspective because it suggests that human nature might be beneficially reformed under the right (that is, left) social arrangements.

  Carney believes our moral sentiments started going astray around the time of the publication of Smith’s better-known book, The Wealth of Nations, in 1776, when the Industrial Revolution was beginning to take off. He rightly suggests that one should read both books to gain a full appreciation of Smith’s insights, but he seems to have missed the significance of Smith’s putdown of “whining and melancholy moralists,” his cynicism about “insidious and crafty” politicians, and his thoroughgoing skepticism about those who would “trade for the public good” (that is, the ESG crowd). Moreover, Smith noted that the greatest corrupter of moral sentiments was not commerce but “faction and fanaticism,” that is, politics and religion, which come together in the toxic stew of climate alarmism and ESG.

  ESG used to be called Corporate Social Responsibility, or CSR. The Nobel economist Milton Friedman warned against its subversive nature 50 years ago. He noted that taking on externally dictated “social responsibilities” beyond those directly related to a company’s business opened the floodgates to endless pressure and interference. The big questions are responsibility to whom? And for what?

  Carney also typically misrepresents Friedman, suggesting that he claimed that shareholders should rank “uber alles,” and to the exclusion of other legitimate stakeholders such as employees and local communities. Carney claims that “At times, large positive gains could accrue to society if small sacrifices were made on behalf of shareholders.” But by what right would management “sacrifice” shareholders, and who would decide which sacrifices should be made?

  Carney admits that the “integrated reporting” required by ESG is a morass: “ESG ratings consider hundreds of metrics, with many of them qualitative in nature… Putting values to work is hard work, but as with virtue, it should become easier with sustained practice.” No need to ask whose version of values and virtue is to prevail.

  *  *  *

  Despite his thorough castigation of market society, Carney somehow also believes this “corroded” society is clamouring to make great personal sacrifices for draconian climate actions and the UN’s Sustainable Development Goals.

  Carney has been a prime pusher of “net-zero,” the notion that climate-related human emissions must be entirely eradicated, buried or offset by 2050 if the world is to avoid climate Armageddon. He claims that net-zero is “highly valued by society.” In reality, the vast mass of people have no clue what it entails; when Carney talks about this version of “society,” he is talking about a small, radical element of it.

  Carney peddles the non-sequitur that because the world wasn’t ready for COVID, this confirms that the world is being short-sighted about climate catastrophe. But COVID is an obvious reality; an existential climate catastrophe is a hypothesis (frequently promoted — admittedly with great success — by those with agendas). He claims that “A good introduction to this subject can be found in journalist David Wallace-Wells’ The Uninhabitable Earth,” a work heavily criticized even by prominent climate-change scientists for its factual errors and exaggerations. Indeed, even its author admitted its tendentious purpose.

  Carney also commends the knowledge and wisdom of Swedish teenager Greta Thunberg: “The power of Greta Thunberg’s message lies in the way she drives home both the cold logic of climate physics and the fundamental unfairness of the climate crisis.”

  Anybody who cites an anxious 17-year-old as an authority on climate science and moral philosophy should be an object of deep suspicion, but then, according to Carney, climate science is easy. Greta’s “basic calculations” are ones that she could “easily master and powerfully project.” (Carney says he once gave Greta a tour of the Bank of England’s gold vaults. One wonders if she also offered up tips on monetary policy.) But then, in early 2020, Greta demonstrated her complete disconnect from reality when, at the WEF in Davos, she called for an immediate cessation of emissions, which would tank the world economy and potentially kill millions. Even Carney admits deviating from her wisdom on that point.

  Far from demonstrating a firm knowledge of the climate system himself, Carney cites scary but misleading statistics. “Since the 1980s,” he writes, “the number of registered weather-related loss events has tripled, and the inflation-adjusted losses have increased fivefold. Consistent with the accelerated pace of climate change, the cost of weather-related insurance losses has increased eightfold in real terms over the past decade to an annual average of $60 billion.”

  I asked Professor Roger Pielke, Jr., an expert on climate and economics at the University of Colorado, to comment. He replied “(Carney) has confused economics with weather. The increase in losses he describes is well understood to occur for two main reasons: more wealth and property exposed to loss and better accounting of those losses. To assess trends in extreme weather one should look at weather data, not economic loss data.”

  

  Among Mark Carney’s current responsibilities since leaving the Bank of England as its governor is advising Prime Minister Justin Trudeau. PHOTO BY SEAN KILPATRICK/THE CANADIAN PRESS/FILE

  Carney’s confusion is hardly innocent since his Agenda depends on incessantly claiming that “What had been biblical is becoming commonplace.”

  Fortunately, Carney has been making claims about worsening weather for long enough that we can assess some of his predictions. In his recent book Unsettled: What Climate Science Tells Us, What It Doesn’t, and Why It Matters, Steven Koonin, former undersecretary for science at the Obama-era U.S. Energy Department, cites the speech Carney made to Lloyd’s of London before the Paris climate conference in 2015. The speech was designed to frighten the insurance industry into divestment from fossil fuels, on the basis that many oil and gas reserves would be “stranded” as we exhaust our allowable carbon “budget.” Carney pointed out that the previous U.K. winter had been the “wettest since the time of King George III.” He went on to say, “forecasts suggest we can expect at least a further 10% increase in rainfall during future winters.” For support he cited the U.K. Met Office’s forecast for the next five years. It turned out to be dead wrong. The six winters after 2014 averaged 39-per-cent less rainfall than the 2014 record. Meanwhile a Met Office report in 2018 acknowledged that the “largest source of variability in U.K. extreme rainfalls during the winter months was the North Atlantic Oscillation mode of natural variability, not a changing climate.”

  “(I)t’s surprising,” notes Koonin, “that someone with a PhD in economics and experience with the unpredictability of financial markets and economies as a whole doesn’t show a greater respect for the perils of prediction — and more caution in depending upon models.”

  During his BBC Reith Lectures last year, on the topic of “How We Get What We Value,” Carney received few challenges from his handpicked questioners, but a couple came from eminent historian Niall Ferguson. Ferguson asked Carney why, in his discussion of the climate issue, he made no reference to Bjorn Lomborg (a much more knowledgeable Scandinavian than Greta), and in particular to Lomborg’s book, False Alarm, in which Lomborg establishes — using “official” science — that there is no existential climate crisis, that adapting to climate change is manageable, and that the kinds of policies promoted by Carney are likely to be far more costly than any impact from extreme weather.

  Carney of course hadn’t read that book, but he dismissed Lomborg by saying that “it’s 15 or 20 years ago when he first came out with his ‘Don’t worry about the climate.’ How’s that working out for us?” But Lomborg never said “Don’t worry about the climate,” he just suggested that we had to put risks into perspective. Meanwhile Lomborg’s non-alarmist thesis is working out much better than that of doomsayers such as Carney.

  This offhand rejection of someone as widely respected as Lomborg exposes the hypocrisy of Carney’s statement in Value(s) that “experts need to listen to all sides…All of us as individuals have a responsibility to be more open and to engage respectfully with different views if we want constructive political debates and to make progress on important issues.” Except, climate-catastrophe dissenters don’t make it into the debate. There can be zero diversity of views on net-zero.

  Ferguson put another thorny question to Carney at that Reith lecture: He pointed out that since the 2015 Paris agreement, China had been responsible for almost half the increase in global carbon emissions, and it was building more coal capacity in the current year than existed in the entire United States. What did China’s promises of net-zero by 2060 mean, Ferguson asked, if it was “actually leading the pollution charge”? Carney’s non response was that China is the largest manufacturer of zero-emission cars, and the leading producer of renewable energy.

  Koonin notes in his book that Carney “is probably the single most influential figure in driving investors and financial institutions around the world to focus on changes in climate and human influences upon it…. So it’s important to pay close attention to what he says.”

  *  *  *

  Mark Carney cries crocodile tears at the possible viability of the Marxist perspective in today’s political environment. But if there is one sure sign of a Marxist, it’s a belief that capitalism is — or is about to be – in “crisis.” His new book has an appendix on Marx’s theory of surplus value: that all profits are wrung from the hides of labour. He also cites Marx’s collaborator, Friedrich Engels. In particular he notes “Engels’ pause,” the one period in capitalist history, early in the 19th century, when workers may not have shared the increases in productivity brought about by industrialization.

  Carney projects that the “Fourth Industrial Revolution” (a phenomenon much invoked by the WEF) might bring about a similar period, thus providing a source of political unrest. “(I)t could be generations before the gains of the Fourth Industrial Revolution are widely shared,” he writes. “In the interim, there could be a long period of technological unemployment, sharply rising inequalities and intensifying social unrest… If this world of surplus labour comes to pass, Marx and Engels could again become relevant.”

  He rather seems to hope so.

  Carney claims powerful parallels between Marx’s time and our own. “Substitute platforms for textile mills, machine learning for the steam engine, and Twitter for the telegraph, and current dynamics echo those of that era. Then, Karl Marx was scribbling the Communist Manifesto in the reading room of the British Library. Today, radical viral blogs and tweets voice similar outrage.”

  In fact, Marx wrote The Communist Manifesto, based on a tract by Engels, in Brussels, not at the British Library, but it’s more important to remember where Marx’s misguided and immutable outrage led: to a disastrous economic and political model that generated poverty and mass murder on an unprecedented scale. Meanwhile “outrage” is surely a dubious basis for policy. The outraged are certainly a useful constituency for those seeking power, however, which brings us to the influence on Carney of the man who first tried to put Marxism into practice.

  When it comes to the COVID crisis, writes Carney, “We are living Lenin’s observation that there are ‘decades when nothing happens and weeks when decades happen’.” Strange that Carney would cite one of the most ruthless murderers in history for this rather bland insight, but then Carney’s Agenda is not without its own parallels to Lenin (minus, one presumes, the precondition of rampant bloodshed).

  Although Vladimir Lenin didn’t know much about business or economics, he declared that “’Communism is Soviet power plus the electrification of the whole country.” Carney’s plan is global. “We need,” he claims, “to electrify everything and turn electricity generation green.” The problem is that wind- and solar-powered electricity needs both hefty government subsidies and fossil-fuel backup for when the wind doesn’t blow and the sun doesn’t shine. Green electricity is inflexible, expensive and disruptive to grids.

  Carney cites Joseph Schumpeter’s concept of “creative destruction,” but his own version involves not the metaphorical and benign process of market innovation making old technologies redundant, but a deliberate suppression of viable technologies to make way for less reliable and less economic alternatives.

  When Lenin wrecked the Russian economy after brutally seizing power in 1917, he was forced to backtrack and allow some private enterprise to prevent people starving. However, he assured his radical comrades that he would retain control of “the commanding heights” of heavy industry. Carney’s plan is to control the global economy by seizing the commanding heights of finance, not by nationalization but by exerting non-democratic pressure to divest from, and stop funding, fossil fuels. The private sector is to become a partner in imposing its own bondage. This will be do-it-yourself totalitarianism. Indeed, companies in our one-party ESG state are already pleading like show-trial defendants, making suicidal net-zero commitments, lest banks cut them off.

  

  Left: A portrait of Karl Marx. Top right: Vladimir Lenin makes a speech in Red Square on the first anniversary of the Bolshevik Revolution. Below right: Teenage Swedish climate activist Greta Thunberg delivers brief remarkssurrounded by other student environmental advocates in 2019. Mark Carney draws on all three in his agenda to address the “climate emergency,” writes Peter Foster. PHOTO BY FILE; HULTON-DEUTSCH COLLECTION/CORBIS/CORBIS VIA GETTY IMAGES; SARAH SILBIGER/GETTY IMAGES/FILE

  To further that end, Carney has helped to start a key organization, the Network for Greening the Financial System (NGFS), a collection of central banks and regulators. He has also signed up an ever-growing constituency of activist policy wonks who peddle emissions measurement and certification, eco audits and ESG rankings. This agenda is inevitably appealing to transnational organizations such as the International Energy Agency (IEA), the IMF, the World Bank and the OECD, whose empires are all lucratively intertwined with the global governance thrust. In May, the IEA issued a report calling for an immediate end to fossil fuel investment to get to net-zero.

  Part of Carney’s strategy is to force “voluntary” standards on banking and industry, then have governments make those standards compulsory. The major accounting firms appear keen to promote the possibility of endless auditing extensions, under which the relatively straightforward metric of money is to be replaced by the infinitely malleable concepts of “purpose” and “impact.”

  Carney has also helped turn the accounting screw though “carbon disclosure.” Companies are pressured to make explicit the kind of damage they might suffer if the alarmists’ worst nightmares are realized. Such disclosure is a variant on that famous loaded question “When did you stop beating your spouse?” Instead, carbon disclosure asks the climate equivalent of “If you were to beat your spouse, what sort of injuries might he/she suffer?” Companies must also disclose their plans to deal with the presumed crisis. No company dares to say “We do not believe your apocalyptic forecasts.” They meekly regurgitate the required climate porn about floods and droughts and hurricanes, and make elaborate fingers-crossed emissions-reductions commitments. This in turn leads them into arrangements such as buying emissions offsets, a complex scheme analogous to the medieval Catholic Church’s sale of indulgences. Carbon markets have inevitably led to a surge in work for offset generators, certifiers and auditors. Carney projects this market could be worth $100 billion.

  Ironically, earlier this year Carney found himself tangled in the murky metrics of offsets. In 2020, he was appointed a vice chairman with Toronto-based Brookfield Asset Management, where he is in charge of “impact investing.” As historian Tammy Nemeth points out in her critical study of the “Transnational Progressive Movement,” of which Carney is a leading light: “(I)t is perhaps ethically murky for someone who is actively working within the UN and advising two different governments on how to change national and global financial rules to be working for a company that will be a direct beneficiary of those rule changes.” Still, who better to lead your company through a minefield than the person who planted the mines?

  Except that Carney was hoist with his own petard when he claimed that Brookfield, which has major investments in fossil fuels and pipelines, was already “net-zero” due to emissions “avoided” as a result of its investing in renewable energy. Carney’s claim produced instant refutation and accusations of greenwashing. The Financial Times called it a “major stumble.” A representative of CDP (formerly the Carbon Disclosure Project) castigated those who attempt to hide “dirty coal issues.” Carney subsequently issued a qualified mea culpa on Twitter: “I have always been — and will continue to be — a strong advocate for net zero science-based targets, and I also recognize that avoided emissions do not count towards them.”

  *  *  *

  H. L. Mencken observed that “The urge to save humanity is almost always a false-front for the urge to rule.” So, just how big a threat is the agenda of Mark Carney and his fellow “transnational progressives”?

  In his book, Value(s), Carney lays out rationalizations and autocratic pretensions, although he is less forthcoming about his motivations. He writes that “Leaders need to renounce power for its own sake and discern the power of service.” Mencken would be amused.

  The shambolic response to COVID of many governments, not least in Canada, and the distinctly unsettled nature of pandemic “science,” have not done much for the credibility of either governments or experts. The Carney-backed agenda is not predicated on working through democratic institutions but on circumventing them. Still, he is also reported to have more conventional political aspirations, namely to join the federal Liberal party and rise within it, very possibly to prime minister. (Carney recently gave a speech at the Liberal national convention, where he pledged his full support.)

  He thus has a rather ill-fitting section in Value(s) on “How Canada Can Build Value for All.” It reads like a Liberal party stump speech. According to Carney “We (in Canada) routinely transcend the limitations of our size to model values and policies for other countries.” It’s the old chestnut that no progressive Canadian leader ever seems to tire of: The world needs more Canada.

  Carney is a classic example of what Friedrich Hayek called the “fatal conceit” of constructivist rationalism: the belief that the largely spontaneous institutions of the market order should be rejected in favour of more deliberately planned arrangements. Carney is undoubtedly an intelligent man, but Hayek stressed that the thing that intelligent people tend most to overestimate is the power of intelligence — particularly if they happen to be socialists.

  Carney is also of the class that philosopher Karl Popper described as “enemies” of an “open society.” Popper noted that social upheavals tend to bring forth prophets who claim to understand the forces shaping the future, and promise salvation if they are given absolute power. Such was Plato’s model — in response to the upheavals of the Peloponnesian War and the first wave of democracy — of a necessary dictatorship in which the rulers lived as communists, using a specially bred military to control a cattle-like populace. Similarly, Marx’s communism was a response to the turmoil of the Industrial Revolution.

  Considering the squalor of Manchester in the 1840s, one might forgive Marx and Engels for thinking a radical response was in order. But given the success of capitalism and the horrors of autocratic systems in the intervening period, it takes considerable chutzpah to be promoting net-zero totalitarianism.

  Still, Carney claims that great crises demand great plans. He cites Timothy Geithner, secretary of the U.S. Treasury under president Obama, saying “plan beats no plan.” But Geithner was talking about the very real and immediate 2008–09 financial crisis. Carney’s climate plan is much closer to the notion of Soviet central long-term planning. Clearly, when it came to the subsequent welfare of the Russian people, “no plan” would certainly have beaten “plan.”

  What Carney ultimately wants, like Saint-Simon, is a technocratic dictatorship justified by climate alarmism. He suggests that “governments can delegate certain aspects of the calibration of specific instruments… to Carbon Councils in order to improve the predictability, credibility and impact of climate policies.” These carbon councils will be able to demand that national governments “comply or explain” when they inevitably fall short of targets. How these commissars will bring governments into line is unclear, although Nobel economist William Nordhaus has suggested “Climate Clubs” that will punish recalcitrants with punitive tariffs.

  The threat of punishment will clearly be necessary because governments are doing little more than hypocritical tinkering on climate policy. China and India are hardly even playing lip service to the “climate emergency.” Nevertheless, according to Carney “political technology” is needed to “build a broad consensus around the right goals.” No question of debating the goals, or the science, just building a consensus to support them.

  Carney is a man on a mission to change global society. “Business as usual” — the most hated phrase in the socialist lexicon — is “ultimately catastrophic,” he writes. There is too much “misplaced acceptance of the status quo.” But somehow the new socialism will not be socialism as usual. This time it’s different. We can because we must. The threat is too great to permit any argument. It’s surprising that as he was picking out choice quotes from Lenin for his book, Carney missed this one: “No more opposition now, comrades! The time has come to put an end to opposition, to put the lid on it. We have had enough opposition!”

  Tyler Durden
  Sat, 06/12/2021 – 23:30

• Visualizing The Biggest Companies In The World In 2021
  Visualizing The Biggest Companies In The World In 2021

  Since the COVID-19 crash, global equity markets have seen a strong recovery. The 100 biggest companies in the world were worth a record-breaking $31.7 trillion as of March 31 2021, up 48% year-over-year. As a point of comparison, the combined GDP of the U.S. and China was $35.7 trillion in 2020.

  In today’s graphic, Visual Capitalist’s Jenna Ross uses PwC data to show the world’s biggest businesses by market capitalization, as well as the countries and sectors they are from.

  

  The Top 100, Ranked

  PwC ranked the largest publicly-traded companies by their market capitalization in U.S. dollars. It’s also worth noting that sector classification is based on the FTSE Russell Industry Classification Benchmark, and a company’s location is based on where its headquarters are located.

  Within the ranking, there was a wide disparity in value. Apple was worth over $2 trillion, more than 16 times that of Anheuser-Busch (AB InBev), which took the 100th spot at $128 billion.

  In total, 59 companies were headquartered in the United States, making up 65% of the top 100’s total market capitalization. China and its regions was the second most common location for company headquarters, with 14 companies on the list.

  Risers and Fallers

  What are some of the notable changes to the biggest companies in the world compared to last year’s ranking?

  Tesla’s market capitalization surged by an eye-watering 565%, temporarily making Elon Musk the richest person in the world. Food delivery platform Meituan and PayPal benefited from growing e-commerce popularity with their market capitalizations growing by 221% and 151% respectively.

  Tech companies TSMC and ASML Holdings were also among the top 10 risers, thanks to a shortage of semiconductor chips and growing demand.

  On the other end of the scale, Swiss companies Nestlé, Novartis, and Roche Holding were all among the bottom 10 companies by market capitalization growth. China Mobile was the only company to decline with a -12% change. The company was delisted from the New York Stock Exchange as a result of an executive order issued by former president Donald Trump, and recently announced its intention to list on the Shanghai Stock Exchange.

  A Sector View

  Across the 100 biggest companies in the world, some sectors had higher weightings.

  

  Technology had the highest market capitalization and was also the most common sector, with Big Tech dominating the top 10. Companies in the consumer discretionary, financials, and health care sectors also had a strong representation in the ranking.

  Despite having only five companies on the list, the energy sector amounted to almost 10% of the top 100’s market capitalization, mostly due to Saudi Aramco’s whopping valuation.

  An Uncertain Recovery

  From near market lows on March 31, 2020, all sectors saw increases in their market capitalization. However, top 100 companies in some sectors outperformed their respective industry index, while others did not.

  

  Basic materials and industrials, both cyclical sectors, were high performers in the top 100 and outperformed their respective industry indexes. Technology companies also outperformed, and accounted for $255 billion or 31% of all shareholder distributions by the top 100, far more than any other sector. Apple alone spent $73 billion on share buybacks and $14 billion in dividends in the 2020 calendar year.

  On the other hand, the worst-performing sectors in the top 100 were health care, utilities, and energy. While the index performance for health care and utilities was also relatively poor, the wider energy sector performed fairly well.

  It’s perhaps not surprising that all sectors saw positive returns since their low levels in March 2020, buoyed by fiscal stimulus and central bank policies. As countries begin to reopen, will the value of the biggest companies in the world continue to climb?

  Tyler Durden
  Sat, 06/12/2021 – 23:00

• Trump Huddles With GOP Congress Members To Plan How To Flip House In 2022
  Trump Huddles With GOP Congress Members To Plan How To Flip House In 2022

  Authored by Zachary Stieber via The Epoch Times,

  About a dozen Republicans in the House of Representatives met with former President Donald Trump this week, going over the border crisis and how the GOP plans to flip the lower chamber in 2022.

  

  Then-President Donald Trump speaks to media before departing on Marine One en route to Ohio and Texas, from the White House South Lawn in Washington on Aug. 7, 2019. (Charlotte Cuthbertson/The Epoch Times)

  Leaders of the Republican Study Committee, which bills itself as the largest conservative caucus in the House, went to Florida to meet with the former president.

  The committee said the meeting included a discussion of “the challenges facing our nation.”

  “From securing our border to combatting soaring inflation and the deficit, #RSC is fighting for working families. Thank you President Trump, for developing an agenda that puts Americans first!” it said, sharing photographs of Trump with members.

  “It was so great meeting with President Trump last night to discuss a number of conservative priorities. From border security and election integrity to inflation and beyond,” said Rep. Kat Cammack (R-Fla.).

  Rep. Jim Banks (R-Ind.), chairman of the committee, told the New York Post that most of the nearly two-hour meeting was about the work the panel is doing to fight for what he described as “the Trump agenda.”

  “We talked about our election integrity bill, The Save Democracy Act, which he was very supportive of, and we talked about what we’ve done to define immigration moving forward,” he said.

  Republicans flipped 15 House seats, primarily from Democrats, in the 2020 presidential election. The GOP remains in the minority, with an eight-seat deficit, but is confident it can take back control of the chamber in the 2022 midterms, though Democrats believe they’ll retain control.

  

  Rep. Jim Banks (R-Ind.) on Capitol Hill in Washington on March 27, 2019. (York Du/NTD)

  “We believe we take back the majority by focusing on the Trump agenda, and President Trump plays a big role in that,” Banks said.

  “He’s obviously planning to go out and hit the road and campaign for candidates who share our vision, and we were excited to talk to him about that.”

  “We have arrived at an understanding with a broad unity within the Republican Study Committee and recognizing that the Trump agenda is the winning agenda, we will win back the majority in ’22 and the White House in 2024 so Republicans can run on the Trump agenda,” he added to Breitbart News, explaining that the platform includes tough immigration policies, legislation to rein in Big Tech, and election integrity bills like the Save Democracy Act.

  Trump has not publicly commented on the meeting, nor has his spokesman, Jason Miller. But Trump will soon be more visible after largely staying out of the spotlight after leaving the presidency because of how much he opposes the President Joe Biden and House Speaker Nancy Pelosi (D-Calif.) agenda, Banks said.

  “He feels like he has a duty to get back out and hold on, hold the rallies, engage with the American people and weigh in on how disastrous the Biden-Pelosi agenda is for our country,” he said. “So I think we’re getting … we’re gonna be seeing a lot more of him. And I think that’s good for Republicans. It’s good for … it’s good for America.”

  Tyler Durden
  Sat, 06/12/2021 – 22:30

• Pentagon Announces $150 Million In Defense Aid To Ukraine For Bolstering Borders With Russia
  Pentagon Announces $150 Million In Defense Aid To Ukraine For Bolstering Borders With Russia

  Days ahead of the June 16 Biden-Putin summit in Geneva, the Pentagon announced a $150 million defense allocation for Ukraine to help “bolster its borders against Russia.” 

  A Friday Defense Department statement detailed that the large package for the Ukraine Security Assistance Initiative includes “training, equipment, and advisory efforts to help Ukraine’s forces preserve the country’s territorial integrity, secure its borders, and improve interoperability with NATO.”

  

  The statement further notes that it will fund “counter-artillery radars, counter-unmanned aerial systems, secure communications gear, electronic warfare and military medical evacuation equipment, and training and equipment to improve the operational safety and capacity of Ukrainian Air Force bases.”

  It’s being made available through the State Department’s foreign military financing budget, and was previously approved by Congress on a conditional basis for fiscal year 2021, based on whether Ukraine would meet “progress” on ongoing anti-corruption efforts and reforms. 

  On this front, the Pentagon said it “was able to certify that Ukraine has made sufficient progress on defense reforms this year,” according to press secretary John Kirby.

  Meanwhile, leaders in Kiev have continued their recent renewed push to be fast-tracked for NATO membership, and all of this will no doubt add to already soaring tensions going into the Biden-Putin meeting. 

  Poor Joe knows he would be outwitted by Putin at joint press conference.

  Biden will hold solo press conference after Putin meeting https://t.co/o1OrXN1kBz #FoxNews

  — Reidar Roll (@reidar_roll) June 12, 2021

  https://platform.twitter.com/widgets.js

  The White House indicated on Saturday morning that President Biden plans to appear in a solo press conference following this upcoming week’s meeting with Putin in Switzerland, instead of the usual joint presser that’s more typical of such bilateral summits, saying it’s necessary for the US President to interact with a “free press” – though we fail to see how that wouldn’t be the case if it also included Putin. 

  “We expect this meeting to be candid and straightforward and a solo press conference is the appropriate format to clearly communicate with the free press the topics that were raised in the meeting—both in terms of areas where we may agree and in areas where we have significant concerns,” a White House official said.

  Tyler Durden
  Sat, 06/12/2021 – 22:00

• Group Of Seven Illustrates Existential Global Problem Not Solution
  Group Of Seven Illustrates Existential Global Problem Not Solution

  Via The Strategic Culture Foundation,

  The G7 represents much about the world order that is totally unsustainable: elite wealth promoting false conflicts among nations instead of implementing genuine cooperation and peace.

  Posing as problem-solvers of the globe’s ills, the leaders of the so-called Group of Seven (G7) nations are gathered in an English seaside resort this weekend for an annual summit. It’s a spectacle that has lost any illusion of luster. Indeed, the gathering of such an elitist and effete group looks ridiculous against the backdrop of urgent global needs for cooperation and development.

  A fawning media headline hailed the forum as “democracy’s most exclusive club”. How’s that for an absurd contradiction that inadvertently speaks of grotesque reality?

  It is US President Joe Biden’s first overseas trip since he entered the White House nearly five months ago. He will be convening with counterparts from Britain, France, Germany, Italy, Canada and Japan, as well as leaders of the European Union.

  The G7 forum has existed since 1976 and it is a fair question to ask what has it ever achieved in terms of actually helping global development? The forum has become something of an anachronism that no longer reflects the realities of a world that has changed significantly from nearly half a century ago.

  The G7 nations claim to represent over 70 percent of the world’s wealth. Yet in economic output terms, the group currently accounts for only about 30 percent. The imbalance speaks of shameful structural inequality and therefore the so-called advanced group is really an emblematic sign of the problem that Western capitalism creates, not solves.

  

  There is a palpable sense of embarrassing spectacle. Posing as “great and good” the politicians in Cornwall look “impotent and frivolous”. In the past year, the world has been hit by a pandemic and most of the globe’s 7.7 billion population remains unvaccinated while the United States and Britain have hoarded their supplies of vaccines. Biden comes to the summit “pledging” that the US will soon donate 500 million doses of anti-Covid-19 shots to the rest of the world. That offer has been dismissed as a “drop in the bucket” given the billions of people needing immunization.

  Yet the American president and his “elite” allies are posing as saviors of the world, a world that they have largely ignored.

  If G7 leaders had any genuine intention of global development, they would seek to work with other major nations instead of demarcating the world into artificial camps under misleading labels of “democracies” and “autocracies”. The latter pejorative term has been applied to China and Russia. Both of these nations have done much more in getting vaccines to other countries, only to be disparaged by Western opponents for having alleged cynical interests in using “vaccine diplomacy”.

  The elitism and divisiveness that underlies the concept of G7 is something that should be repudiated as a relic of a bygone era.

  Today, China is the world’s biggest economy, according to some reckoning. Or at least the second biggest after the United States. China has overtaken the US as the largest trade partner for the European Union. Why isn’t its leader, President Xi Jinping, attending the forum in England this weekend?

  Apologists would say because the group has “shared values” of “democracy” and “human rights” which China does not possess. Sorry, but that sounds like lame excuses for making gratuitous global divisions. The real reason is that the G7 is an instrument for asserting American hegemony and trying to exclude perceived rivals.

  The arbitrariness of the G7 is an indication that it is a political construct for partisan objectives.

  Back in 2008, the group abruptly became the G8 after the admission of Russia to the fold. That was during the leadership of Boris Yeltsin whom the United States was trying to co-opt as part of its global hegemony. When Vladimir Putin succeeded Yeltsin and charted a more independent geopolitical course, then Russia fell out of favor with the Americans and their Western partners. In 2014, the Ukraine crisis engendered by Western meddling provided the pretext for ejecting Russia from the club. Not that Moscow gives a fig about that.

  But the point is the arbitrariness and anomalies that make up the G7.

  It’s a petty theater to showcase Western elite concerns rather than the democratic concerns of humanity. For his part, President Biden wants to demonstrate that “America is back” after four years of policy chaos under his predecessor Donald Trump. In doing so, Biden is trying to corral Western partners to adopt a more hostile stance towards China and Russia. He is due to meet with the Russian leader on June 16 in Geneva, and the G7 has been used as a platform for Biden to espouse belligerence towards Russia. What’s that got to do with solving a pandemic crisis, addressing climate change, or promoting global development to improve the lives of billions of poor? Precisely, none.

  

  For British Prime Minister Boris Johnson, he gets the chance to play a “world statesman” (instead of the buffoon that he really is) who is supposedly rebranding his nation as “Global Britain” following the ragged and bitter departure from the European Union.

  It’s easy to dismiss the Group of Seven as a useless talking shop for pompous politicians. Yes, it is that of course. Nevertheless, the manifest consequences are serious enough and should focus global efforts to seek real solutions, rather than indulge in vain distractions. What the group signifies is the apartheid world that Western capitalism creates: massive inequality and the futile destructiveness of foisting divisive relations onto the rest of the world that leads to conflict and ultimately war.

  With bitter irony one of the subjects on the agenda this weekend is “sustainable development”. The G7 represents much about the world order that is totally unsustainable: elite wealth promoting false conflicts among nations instead of implementing genuine cooperation and peace.

  Tyler Durden
  Sat, 06/12/2021 – 21:30

• Bank of America: Everyone Knows The Fed Will Stop Tapering As Soon As The S&P Drops 10%
  Bank of America: Everyone Knows The Fed Will Stop Tapering As Soon As The S&P Drops 10%

  There has been much discussion and fierce debate whether the current blast of inflation is permanent, or as the recent sharp drop in bond yields and breakevens despite ever higher CPI prints, which are now annualizing 8.3% or the highest since 1092…

  

  … and which we discussed on Friday in “Here’s Why The “Reflation” Trade Is Collapsing“, the market is already fading the current spike in prices in anticipation of deflation. This is, in fact, the $64 trillion question.

  But what if the market is not actually bothering with timing the inflation peak, nor extrapolating how much longer the current inflationary swell can deflect the deflationary continental drift that has been unleashed by the triple-3Ds of debt, demographics and disruption over the past decade. What if the market is far more pragmatic and is merely pricing in the fact that any upcoming taper will force the Fed to untaper yet again.

  That’s the argument made by BofA CIO Michael Hartnett who in his latest “flow show” report writes that “nobody knows how to trade inflation, everybody knows how to trade “don’t fight the Fed.”

  What does he mean by that?

  Well, when looking at stubbornly negative real rates, which DB’s Jim Reid discussed on Friday when he pointed out that the current gap between 10yr US yields (1.5%) and US CPI (5.0%) is a whopping 3.5%, the highest since 1980 (In fact, the gap has only been more negative for 10 months in the last 70 years, all of which were in 1974, 1975 or 1980)…

  

  … he said that this is a clear sign that the market views the Fed’s taper is nothing more than  “paper tiger” because investors know Fed will stop tapering at first hint of trouble, most likely the moment the S&P drops 10%.

  Meanwhile, the market’s liquidity addiction remains, even though speculative froth has been hit in stocks & crypto (Chart 3), for now, but it is now swinging back to IG & junk credit (Chart 4).

  

  This means that trader sentiment now is that “it’s a free call option on credit & stocks” until “return-to-office” Sept payroll (released Oct 8th), the taper announcement some time around Jackson Hole in late August, and return of Goldilocks as macro cannot get any hotter  as the (combo of inflation & labor shortages at US small businesses is the highest since 1974.

  

  And yet, to BofA this is not an “all clear” sign; instead, the surging wage growth (which however will reverse in September when extended payroll benefits end), means lower yields are transitory and H2 stagflation means risk-return for stocks (+3-5% vs -10-15%) poor.

  There is another ‘simple’ reason why BofA sees the inflation trade ending: inflation itself. As a reminder, soaring prices are about to crush record profit margins (companies can’t pass on the full input cost spike to consumers even if they tried), and as the chart below shows, global EPS peaked around +40% YoY in April according to BofA Global EPS Model (driven by China FCI, Asia exports, global PMI, US yield curve).

  

  Additionally, not only is the Fed’s monetary stimulus about to be tapered: fiscal stimulus has also peaked (infrastructure hopes for $2tn down to $1tn)…

  

  … and jump in inflation (headline up 8.4% annualized in past 3 months = 9th fastest since WW2 – Chart 8) will reduce purchasing power and spending (US homebuilding stocks an excellent example of market anticipating inflation negatively impacting spending on real estate).

  

  As Hartnett concludes it is “little wonder “peak CPI” since WW2 has led to 67bps drop in Treasury yields in following 3-months (Table 1); so Q3 should see defensives outperform cyclicals.”

  

  Finally for those who are still unconvinced and believe there is much more to the inflation is here to stay vs inflation is transitory argument, the BofA CIO says that there is a quick and dirty way to determine the temporal nature of inflation, and it has to do with jobs and wages after the current “Biden benefits” run out.

  Consider that last week we learned US unemployment claims dropped to 385k, closing in on pre-COVID average of 300k; while small company job offerings are off-the-charts. However, that’s all about to reverse: by end-June 21 states (representing 27% of labor market) will opt out of extended unemployment benefits (by Sept 5th benefits end in all 50 states).

  

  So putting those variables together, Hartnett concludes that “if July/Aug payrolls show jobs ↑, Average Hourly Eearnings ↓ stay-of-execution for Goldilocks; but if jobs ↑, AHE ↑ = inflation here to stay.”

  Tyler Durden
  Sat, 06/12/2021 – 21:00

• Real Interest Rates Suggest It's A Good Time To Buy And Hold Gold
  Real Interest Rates Suggest It’s A Good Time To Buy And Hold Gold

  Authored by Mike Shedlock via MishTalk.com,

  Let’s investigate the relationship between real interest rates and the price of gold.

  

  Real means inflation adjusted. 

  I calculated the real interest rate by subtracting year-over-year CPI from the current 3-month T-bill yield. 

  One could also use the Fed Funds Rate or 1-month T-Bill rate as the yields are all about the same. 

  

  The following chart puts the negative interest rate theory to the test,

  Real Interest Rate vs Price of Gold 

  

  The chart above shows the monthly gold close, not monthly highs. That explains why the 1980 top does not show.

  Synopsis

  Gold took off in the stagflation years then collapsed from $850 to $250 an ounce with inflation every step of the way.

  Note that between 1980 and 2000, the Fed kept real interest rates in positive territory except for one minor and brief moment.

  In response to the DotCom bust, housing bust,  and Covid-19 recessions, rates have been generally negative.

  The first question mark around 2006, gold kept rising despite positive rates, but that is if one believes the CPI. If one factors in housing, real rates were indeed quite negative.

  One might also argue the chart reflects anticipation of the financial stress of a housing collapse.

  The second question mark pertains to ECB president Mario Draghi’s statement “We will do whatever it takes to save the Euro and believe me, it will be enough”.  

  Simultaneously, in the US, expectations there was endless speculation about Fed normalization, ending QE, Tapering, hiking rates, etc. 

  People actually believed the Fed would do all those things and that made for a rough spell as gold fell from over $1900 an ounce to around $1100.

  Timing vs Magnitude

  Real interest rates suggest nothing about magnitude of the move. Rather, it’s a directional indicator. 

  It goes along with what I have stated previously about faith in central banks. 

  

  When the Fed has positive real rates, gold tends to do poorly. 

  Real interest rates approached 7% in early 1980’s. If that happened now, the 3-month T-bill would yield an astonishing 12%. 

  How likely is that?

  *  *  *

  Like these reports? I hope so, and if you do, please Subscribe to MishTalk Email Alerts. Subscribers get an email alert of each post as they happen.

  Tyler Durden
  Sat, 06/12/2021 – 20:30

• Thor Industries Now Has $14 Billion Order Backlog Amid Booming Demand For RVs 
  Thor Industries Now Has $14 Billion Order Backlog Amid Booming Demand For RVs 

  About two months after we discussed recreational vehicles are “on pace for a blowout year“ and “sales just hit an all-time high,” we got the latest confirmation from Thor Industries CEO Bob Martin. He spoke with Jim Cramer on “Mad Money” earlier this week about the manufacturer’s massive order backlog. 

  

  Thor Industries — Airstream, Heartland RV, Jayco, Livin Lite RV, and others — first began to experience an uptick in sales after lockdowns ended in May and June 2020. Without a vaccine, people were too afraid to fly or stay in hotels or resorts, so they bought campers and traveled. The RV industry also saw a lot of first-time buyers, especially with the millennial generation. 

  

  The RV boom has left many dealers with limited inventory or even empty lots. Thor’s backlog of orders is a whopping $14.32 billion as of late April, the company’s latest filing said. That’s up 32.5% from $10.81 billion at the end of January and up 550% from a year ago.

  Martin told Cramer in an interview on Tuesday evening that the company is “pretty much sold out for the next year” with new RV inventory already headed to customers instead of sitting on dealers’ lots. 

  “We have backlogs that are full of retail orders, so those will hit the dealer’s lot and then leave, and so we’re still not able to build inventory at our dealer’s lots,” he said.

  Without the ability to build inventory at dealer lots, one would suspect an RV shortage for Thor brands is developing. 

  The virus pandemic rewired people’s brains as they became more in touch with the outdoors and explored small towns and parks rather than big cities and resorts. 

  “Right now, we see this as a long-term trend, and if we get people in at an entry-level price and entry-level product, they grow throughout their lifetime,” he said. “People trade every 3 to 5 years, but right now we’re seeing it a little bit quicker, and we see this for a long runway.”

  At the moment, the company’s North American supplies are quickly dwindling to about 75,000 RVs last quarter, down from 106,000 in 2020, and well below 132,500 in 2019. 

  This seems like an RV shortage is in the making, which suggests that used RV prices should increase in price. 

  Tyler Durden
  Sat, 06/12/2021 – 20:00

• A "Slippery, Bootlicking A.G."? MSM Goes Silent As Garland Sides With Barr's 'Controversial' Positions
  A “Slippery, Bootlicking A.G.”? MSM Goes Silent As Garland Sides With Barr’s ‘Controversial’ Positions

  The media has caught a not-so-curious case of amnesia when it comes to Attorney General Merrick Garland – who’s been royally pissing off Biden supporters after the DOJ has shown an increased tendency to side with the Trump administration in legal wranglings that were considered ‘bombshell’ controversies under AG Barr.

  Unpacking the hypocrisy is legal scholar Jonathan Turley, who notes the MSM’s glaring double standards:

  

  Authored by Jonathan Turley via jonathanturley.org (emphasis ours)

  When Joe Biden nominated Merrick Garland to be attorney general, many — including me — heralded Garland as an honorable, apolitical judge who would follow the law. He was not, the Washington Post editors insisted, “a lackey who will serve as the president’s personal attorney” like Donald Trump‘s AGs. Garland has indeed followed the law, but some are not thrilled by where it has taken him.

  President Biden’s Department of Justice (DOJ) has adopted some of the same positions taken by the Trump administration that a host of legal and media experts once denounced. This week, the DOJ sought to replace itself as the defendant in a lawsuit against Trump brought by writer E. Jean Carroll, who alleges that Trump raped her. The week before, it sought to dismiss a Black Lives Matter lawsuit over the clearing of Lafayette Park during a June 2020 protest.

  This time last year, both positions were cited by legal and media experts as grotesque examples of then-Attorney General Bill Barr’s political bias. Now, those same experts are silent as Garland takes the same positions Barr took in federal court.

  Garland is free, of course, to reject prior legal positions of Barr, but he has reached the same conclusion as his predecessor on several points of law thus far. In yet another adherence to Trump-era policy, the DOJ will defend opposing the ability of Puerto Ricans to receive social security disability benefits before the Supreme Court. Likewise, Garland agreed with Barr that a DOJ memo finding no legal basis for an obstruction charge against Trump should not be released to the public in its entirety.

  Is Garland a Trumpist mole, part of some “deep state” resistance to his own president? Or is the more likely alternative that some in the media and many others in politics or the law knowingly distorted past legal controversies to use those as political fodder against Trump?

  The general lack of media criticism — or even coverage — has never been more striking than with the latest filing in the Carroll case. In November 2019, Carroll sued Trump, claiming he defamed her when he denied sexually assaulting her. She alleges that Trump raped her in a Manhattan department store dressing room in the 1990s.

  The Biden administration has told the United States Court of Appeals for the Second Circuit that it — rather than Trump — should be the defendant because his comments were made as part of his official capacity as president. Said the Biden DOJ: “Courts have thus consistently and repeatedly held that allegedly defamatory statements made in that context are within the scope of elected officials’ employment — including when the statements were prompted by press inquiries about the official’s private life.”

  That is the identical position taken by then-AG Barr last year.

  A district court rejected that effort, and the Trump administration appealed. While I disagree with the treatment of any such statements as part of a president’s official duties, I stated at the time that there was support for the position in the governing federal statute and case law.

  However, some media outlets featured an array of experts who denounced Barr’s legal move. Vanity Fair was typical of the coverage with a column titled “Bill Barr Sinks To New Low, Uses Justice Department To Try To Kill Trump’s Rape Defamation Suit.” In it, writer Bess Levin explained that the move proved that Barr was “willing not just to do [Trump’s] dirty work but to do it completely out in the open and without a scintilla of shame.” Citing the DOJ effort to replace Trump as a party in the suit, Levin declared that experts confirmed that “this special arrangement is wholly unique to Trump and his slippery, bootlicking A.G.” She cited University of Texas law professor and CNN legal analyst Steve Vladeck and an array of other experts cited in a New York Times article. The Times wrote how “some current and former Justice Department lawyers, speaking on the condition of anonymity, echoed Mr. Vladeck’s concerns, saying they were stunned that the department had been asked to defend Trump in Ms. Carroll’s case.”

  One would expect that these same media outlets and experts would denounce Garland now as another “slippery, bootlicking A.G.” doing Trump dirty work. But … no.

  The same is true with the Biden DOJ ‘s recent filing in the BLM lawsuit. Last year news stories stated as fact that Barr ordered Lafayette Park to be cleared of protesters to make way for Trump’s controversial photo op before St. John’s Church. From the outset, the Trump/Barr conspiracy claim had little support, and soon there were reports contradicting it. As I explained in my testimony to Congress on the protest, the plan to clear the park area to establish a wider perimeter was due to an extreme level of violence by protesters over the preceding two days, including the injury of a high number of federal officers. The violence was so great that Trump had to be moved to a bunker. (An IG investigation debunked the conspiracy theory). None of that mattered. Viewers on CNN, MSNBC, and other news outlets wanted to hear that it was all a conspiracy. Experts like Vladeck continued to claim that Barr ordered federal officers “to forcibly clear protestors in Lafayette Park to achieve a photo op for Trump.”

  Now the Biden administration is arguing that the BLM case should be dismissed. Moreover, it is advancing the same position as Barr’s DOJ that “Presidential security is a paramount government interest that weighs heavily in the Fourth Amendment balance.” The DOJ’s counsel, John Martin, added that “federal officers do not violate First Amendment rights by moving protesters a few blocks, even if the protesters are predominantly peaceful.”

  The Biden administration is not reluctant to change positions in litigation when it disagrees with the prior administration. However, in these cases the Biden administration insists that Barr was right on the law, even if it disagrees with Trump’s statements themselves. That would likely come as a surprise to many viewers of CNN or MSNBC.

  Reasonable people can disagree about such legal disputes — but the point of much of the past coverage was that there was no real dispute, just raw political abuse by Barr.

  As we watch the anger and divisions growing in our nation, we need to be honest about the role that media coverage continues to play in our age of rage. It is little surprise that many are enraged when legal experts state as a fact that the Justice Department is acting without legal basis; that makes for undeniably good ratings. Now that the ratings have receded, however, the law has again emerged — with the Biden administration in full agreement with its predecessor’s legal arguments.

  Jonathan Turley is the Shapiro Professor of Public Interest Law at George Washington University. You can find his updates on Twitter @JonathanTurley.

  Tyler Durden
  Sat, 06/12/2021 – 19:30

• Visualizing The History Of US Inflation Over 100 Years
  Visualizing The History Of US Inflation Over 100 Years

  Is inflation rising?

  The consumer price index (CPI), an index used as a proxy for inflation in consumer prices, offers some answers. In 2020, inflation dropped to 1.4%, the lowest rate since 2015. By comparison, inflation sits around 5.0% as of June 2021.

  

  Given how the economic shock of COVID-19 depressed prices, rising price levels make sense. However, as Visual Capitalist’s Dorothy Neufeld notes, other variables, such as a growing money supply and rising raw materials costs, could factor into rising inflation.

  To show current price levels in context, this Markets in a Minute chart from New York Life Investments shows the history of inflation over 100 years.

  

  U.S. Inflation: Early History

  Between the founding of the U.S. in 1776 to the year 1914, one thing was for sure – wartime periods were met with high inflation.

  At the time, the U.S. operated under a classical Gold Standard regime, with the dollar’s value tied to gold. During the Civil War and World War I, the U.S. went off the Gold Standard in order to print money and finance the war. When this occurred, it triggered inflationary episodes, with prices rising upwards of 20% in 1918.

  However, when the government returned to a modified Gold Standard, deflationary periods followed, leading prices to effectively stabilize, on average, leading up to World War II.

  The Move to Bretton Woods

  Like post-World War I, the Great Depression of the 1930s coincided with deflationary pressures on prices. Due to the rigidity of the monetary system at the time, countries had difficulty increasing money supply to help boost their economy. Many countries exited the Gold Standard during this time, and by 1933 the U.S. abandoned it completely.

  A decade later, with the Bretton Woods Agreement in 1944, global currency exchange values pegged to the dollar, while the dollar was pegged to gold. The U.S. held the majority of gold reserves, and the global reserve currency transitioned from the sterling pound to the dollar.

  1970’s Regime Change

  By 1971, the ability for gold to cover the supply of U.S. dollars in circulation became an increasing concern.

  Leading up to this point, a surplus of money supply was created due to military expenses, foreign aid, and others. In response, President Richard Nixon abandoned the Bretton Woods Agreement in 1971 for a floating exchange, known as the “Nixon shock”. Under a floating exchange regime, rates fluctuate based on supply and demand relative to other currencies.

  A few years later, oil shocks of 1973 and 1974 led inflation to soar past 12%. By 1979, inflation surged in excess of 13%.

  The Volcker Era

  In 1979, Federal Reserve Chair Paul Volcker was sworn in, and he introduced stark changes to combat inflation that differed from previous regimes.

  Instead of managing inflation through interest rates, which the Federal Reserve had done previously, inflation would be managed through controlling the money supply. If the money supply was limited, this would cause interest rates to increase.

  While interest rates jumped to 20% in 1980, by 1983 inflation dropped below 4% as the economy recovered from the recession of 1982, and oil prices rose more moderately. Over the last four decades, inflation levels have remained relatively stable since the measures of the Volcker era were put in place.

  Fluctuating Prices Over History

  Throughout U.S. history. there have been periods of high inflation.

  As the chart below illustrates, at least four distinct periods of high inflation have emerged between 1800 and 2010. The GDP deflator measurement shown accounts for the price change of all of an economy’s goods and services, as opposed to the CPI index which is a fixed basket of goods.

  It is measured as GDP Price Deflator = (Nominal GDP ÷ Real GDP) × 100.

  

  According to this measure, inflation hit its highest levels in the 1910s, averaging nearly 8% annually over the decade. Between 1914 and 1918 money supply doubled to finance war efforts, compared to a 25% increase in GDP during this period.

  U.S. Inflation: Present Day

  As the U.S. economy reopens, consumer demand has strengthened.

  Meanwhile, supply bottlenecks, from semiconductor chips to lumber, are causing strains on automotive and tech industries. While this points towards increasing inflation, some suggest that it may be temporary, as prices were depressed in 2020.

  At the same time, the Federal Reserve is following an “average inflation targeting” regime, which means that if a previous inflation shortfall occurred in the previous year, it would allow for higher inflationary periods to make up for them. As the last decade has been characterized by low inflation and low interest rates, any prolonged period of inflation will likely have pronounced effects on investors and financial markets.

  Tyler Durden
  Sat, 06/12/2021 – 19:00

• Seattle Police Crack Down On Shoplifting, 53 Arrested In One Day
  Seattle Police Crack Down On Shoplifting, 53 Arrested In One Day

  By John Sexton of HotAir

  Last year there was a proposal circulating in the Seattle City Council to consider making drug abuse and mental disorders a defense against most misdemeanor crimes. In essence, that would have been a green light for an army of homeless shoplifters to steal at will knowing they’d face no chance of being punished. But it appears Seattle police have decided to do something about aggressive shoplifters. This Wednesday they arrested 53 shoplifters in 9 separate stores:

  “These are organized groups that hit retailers with the sole purpose of stealing to either resell them or use them as currency for other things,” said Sgt. Randy Huserik, public information officer for the Seattle Police Department…

  Huserik said large retailers and grocery stores have been losing thousands of dollars in merchandise due to ongoing problems with organized theft groups. He said some places are still struggling to recover from the pandemic.

  “Not only does that impact the store itself with their losses and their bottom line, but the every-day people who walk into those stores that are buying things from those stores because of the losses those stores are sustaining, they have to raise their prices and then that impacts everybody,” said Huserik.

  These cases will now be passed of to King County Prosecutor. Hopefully their office will follow through and put some of these people in prison.

  Most big retailers have a policy of not chasing shoplifters through the store. This case from a Staples store in Seattle shows what can go wrong if workers get too aggressive pursuing thieves:

  [Elizabeth] Pratt was shopping at the Staples in Burien in August 2018 when a teenager suddenly rushed past her, knocking the then 85-year-old to the ground.

  According to reports filed by King County Sheriff’s Deputies, the collision happened as the juvenile suspect was “running from employees.” Pratt and her attorneys believe Staples workers should have let the suspected shoplifter go.

  Mike Kelly, of Gehrke Baker Doull Kelly Attorneys at Law in Des Moines, said “over-pursuing, or overly aggressively pursuing shoplifters” to the point where “non-involved, innocent business invitees or shoppers” can be injured fails to protect the public. Kelly believes Staples employees failed in their duty to protect Pratt the day she broke her hip.

  There’s video of this incident and it was clearly the shoplifter who knocked over Mrs. Pratt. But because a store employee was trying to get to him before he could leave the store is being sued. To ensure employees don’t get aggressive, many stores let them know they can be fired for even trying to stop a shoplifter.

  But those policies designed to avoid lawsuits mean retailers are often at the mercy of local police to try to discourage this behavior. And in some locations, that just doesn’t happen. Last tear I wrote about the absolute looting of drug stores in San Francisco. All workers could do as people walked out with armloads of merchandise was make sarcastic comments. A number of Walgreens locations were shut down in San Francisco because they had been stripped bare.

  In Seattle, retailers have complained for years about the lack of attention to this problem. Last February KOMO News did a story about it:

  One complaint is that shoplifters are sometimes set free hours after being arrested. Mindy Longanecker with the Seattle City Attorney’s Office said the laws around holding people in custody prior to a trial are set by the state, not local prosecutors.

  “If you are upset with those laws, that is out of our hands,” Longanecker said. “That is in the hands of the Legislature.”

  Another perception is that shoplifting simply doesn’t get prosecuted. Officials said it depends on the facts of the case, but the reality is that trials are expensive.

  “There is something of a cost-benefit analysis, particularly if this person is not a prolific offender, whether or not we prosecute,” Longanecker said.

  In short, prosecuting someone over $100 theft doesn’t make a lot of sense, but what if that person is actually stealing that much day after day from a number retailers? At some point the legal system has to put a stop to it if for no other reason than to send a message.

  So it’s good to see Seattle PD making an effort to do something about this, but given the other problems Seattle has dealing with homeless people and repeat offenders it’s going to take a lot more than a one day effort to really see any change.

  Tyler Durden
  Sat, 06/12/2021 – 18:30

• Mexican Drug Cartel Unveils "Grupo Elite" Special Forces Unit Hunting Rivals
  Mexican Drug Cartel Unveils “Grupo Elite” Special Forces Unit Hunting Rivals

  Drug cartels such as the powerful Jalisco New Generation Cartel, or CJNG, have upgraded their arsenals with an elite special forces unit, according to atlas.news. 

  CJNG released a video of their “Grupo Elite” otherwise known as special forces team, “outfitted with signal jammers and heavily modified rifles,” said atlas.news. The video also shows the unit in what appears to be a bulletproof vehicle. 

  CJNG released the video (watch here) on the prospects of expanding their control into Naucalpan de Juárez, a city located just northwest of Mexico City in the neighboring State of Mexico. They appear to be threatening local drug lord Nestor Arturo Lopez Arellano, otherwise known as “El 20.”

  In the video, a Sicario says, “Citizens of Naucalpan. We are already here for one sole objective. And that’s for all the cheap and dirty scumbags, the sons of bitches who are collecting fees, and extorting. You’re charging a tariff with citizens who work honestly. As well with public transportation workers. This message goes out to you Nestor Arturo Lopez Arellano.”

  

  He continued his saying, “We’re going to be stationed here in Naucalpan. Regardless of where you choose to run away. We will be right behind you. Because you made the mistake of getting involved with the monster of numerous heads. We respect citizens who work for society. We respect the authorities who do their jobs honestly. But the policemen who are on your side. That have sold themselves out for a miserable sum of money,” adding that “They’ve sold out to stop protecting the honest workers of society. We haven’t come here to extort anyone. Much less to keep this fucking drug corridor. We’ve all come here to take you out. So that the citizens of Naucalpan can be allowed to work without worries.” – atlas.news

  

  Last year, CJNG released a video displaying a convoy of armored vehicles with dozens of combat-uniformed gunmen.

  Abrazos, no balazos.
  👇 pic.twitter.com/UgvQwzAcj3

  — Héctor de Mauleón (@hdemauleon) July 18, 2020

  https://platform.twitter.com/widgets.js

  CJNG — which is known for kidnappings, torture, and murders across Mexico and the US, has been blamed for the fentanyl crisis. 

  Tyler Durden
  Sat, 06/12/2021 – 18:00

• Answering The "$64 Trillion Question": A New Theory Of Inflation
  Answering The “$64 Trillion Question”: A New Theory Of Inflation

  By Michael Every, Elwin de Groot and Philip Marey of Rabobank

  A structural inflation framework outlook

  Summary

  • This special report looks at the ‘hot topic’ of ‘hot’ inflation, and asks if it is really back to stay 

  • Inflation is crucial for financial markets, but we lack an accurate economic theory of what causes it, leading to inaccurate modelling and policy/forecasting errors

  • We draw a broader framework of the eight structural factors currently driving global inflation: a ‘bullwhip’ effect; the Fed; fiscal policy; speculators; psychology; Chinese demand; labour vs. capital; and the role of global supply chains/the distribution of production

  • We then look at how these factors can combine, and show which of them are the ‘prime-movers’ if global inflation is to return

  • This approach shows that understanding the global inflation outlook is currently more about (geo)politics/geoeconomics than it is about just economics or econometrics

  • We conclude that when encompassing this logic, the range of potential future inflation outcomes –and market reactions– varies hugely. Indeed, this is only to be expected given the implied structural, not cyclical, changes involved

  

  Inflation in inflations

  The topic of inflation is very much on the mind of markets and businesses. Despite a dip in recent weeks, Google Trends shows the highest global interest in the topic since the Global Financial Crisis of 2008 (Figure 1).

  

  One can see why inflation is a topic of discussion: it is supremely important in determining the valuation of tens of trillions of USD in global financial assets, from stocks to bonds to property to currencies. Moreover, after decades of slumber, its future direction is unclear.

  Some key measures of inflation are at multi-year or multi-decade highs: US CPI, ex- food and energy, on a rolling 3-month annuali\ed basis hit 5.6% in April, the highest since 1991; the US Michigan consumer sentiment survey year-ahead inflation expectations index rose to 4.6% in May, the highest level since August 2008 (Figure 2); the 10-year US breakeven inflation rate (a proxy for investor expectations) has also moved to 2013 levels (Figure 3); gold has started to climb since May; and despite recent dips in some commodities, the FAO’s global price index was the highest since 2014 in April (Figure 4).

  

  

  However, not all inflation indicators are moving in the same direction. Benchmark US 10-year Treasury yields are still around 1.55% rather than pushing to 2.00%; and Bitcoin, taken as a proxy inflation hedge, has also seen its price tumble (Figure 5).

  

  In short, will current high inflation prove “transitory”, as central banks tell us, or “sticky”, as consumer surveys suggest, or could it even break higher – or much lower? This is the proverbial ‘$64 trillion question’ given the scale of assets involved.

  If we could, we would

  The problem is, we seem universally incapable of answering it by forecasting inflation correctly!

  

  Figures 6 and 7 show the large forecast errors on inflation in the low-inflation and politically predictable Eurozone, as just one example. Figure 8 shows the market forecast of what the Fed was expected to do on interest rates in response to presumed inflation: it suggests that both markets and the Fed are flying blind – or very unlucky!

  …but we can’t

  This inaccuracy is rooted in the fact that in an ergodic sense, there is no one accepted, robust theory of how inflation actually works. (Indeed, what do we even mean by inflation – RPI/CPI/PPI? Headline/core? Goods, services, or assets?) For a smattering of examples of  the lack of agreement, and in strictly chronological order:

  • The Classical World said inflation was due to debasing the coinage – but this is of little value under today’s fiat money system;

  • Say said it is about supply, which creates its own demand and does not allow for gluts – but this is clearly not an observable outcome;

  • Marx said it is about money supply, cost-plus mark-ups, the Labour Theory of Value, and financialisation – but his teleological predictions failed;

  • George said it was about land prices – but this overlooks too many other factors;

  • Kondratiev said it was about long waves of technological development – but this cannot be modelled;

  • Keynes said it was about demand – but Keynesian inflation models are often very wrong;

  • Austrians said it was about debt creation – but that one cannot model the economy at all;

  • Post-Keynesians said it was a mixture of many factors, including the political – and also can’t be modelled;

  • Monetarists said it is about money creation – but monetarist inflation models are usually wrong;

  • Minsky said it was about debt creation and politics – and while we are moving closer this being modelled, markets and central banks are not there yet; and

  • Demographers argue it plays a key role – but it is hard to forecast, slow to play out – but then hits tipping points

  True, there are many areas of overlap in those different theories. Marx’s “fictitious capital” going into asset inflation, not productive investment, sounds Austrian; his “high prices caused by an over-issue of inconvertible paper money” sounds monetarist; polar opposites like Keynes and Friedman agree that inflation can be a stealth tax; and even rivals Minsky and the Austrians share many assumptions about the dangers of credit bubbles.

  However, there is no unified view of all the intersecting structural causes of inflation that can be modelled – and this is before we include issues such as productivity, and whether an economy is open or closed to international trade – China joining the WTO clearly had an impact on inflation that traditional models failed to incorporate.

  

  Structural, not cyclical

  Consequently, while supply vs. demand is a simple truth, inflation is a multi-faceted, multi-disciplinary, structural phenomena.

  One can still forecast near-term cyclical changes in inflation with some degree of accuracy, just as for any economic variable with a relatively low level of month-to-month volatility. However, to make accurate long-run forecasts must involve understanding all the structural drivers, and how these can change over time.

  Here, existing market models fall short. As former Fed Governor Tarullo revealed in October 2017: “Central bankers are steering the economy without the benefit of a reliable theory of what drives inflation.”

  Indeed, inflation stayed low through the 1950s and 1960s – then surged in the late 1960s and 1970s, proving one set of official inflation models wrong. Inflation was proudly on target in the early 2000s, as we proclaimed ‘an end to boom and bust’ – right before the Global Financial Crisis, which ushered in a new world of inflation persistently below target.

  As we shall explore, perhaps we stand at another such structural juncture at present.

  Framework, not a theory; scenarios, not a model

  Crucially, this report does not pretend to offer a new holistic theory of inflation, or the belief that we can model it.

  Instead, we aim to describe what we believe to be the eight most important structural factors currently driving inflation (Figure 9) as a form of framework. These are: the ‘Bullwhip’ Effect; the Fed; fiscal policy; market positioning; psychology; Chinese demand; labour vs. capital; and the role of global supply chains/the distribution of production.

  We will explore each of these in turn ahead, and will then look at all the permutations of their various interactions, before showing which of the eight matter most, and so could potentially drive a return to global inflation.

  In short, only one combination of the three key factors leads in that direction – and while unlikely, this is now at least more plausible than at any time in the past four decades.

  However, as shall also be shown, even having just a few inflation factors does not mean it is easy to make macroeconomic forecast or model. Rather, we will outline just how wide the range of potential global inflation outcomes, and market reactions, still is.

  1) Bullwhip Effect

  Covid-19 and the recent Suez Canal blockage again exposed the weaknesses of our globalized system of production and international trade. Optimized ‘Just In Time’ supply chains are vulnerable to major disruption, just as they were to pre-Covid trade tensions.

  All have caused severe dislocations in demand, supply, and logistics. In turn, these are causing severe price fluctuations, as can be seen in commodity markets and gauges of producer prices. These are not new market phenomena, but the current scale is extraordinary. The  key questions are: i) how long these fluctuations will last; and ii) whether there is now also a structural component. To answer, we need to understand what is exactly going on: enter the ‘Bullwhip Effect’.

  Asymmetric information

  In a nut-shell, this occurs when there is an unexpected change in final (downstream) demand, which causes increasingly sharp variations in demand and supply as we move up the supply chain. Think of orders placed by consumers at a retailer, who in turn buys from a  wholesaler, who obtains the product from a manufacturer, and so on (Figure 10).

  

  The main cause of these variations is asymmetric information within the supply chain. As no one can entirely foresee the final demand situation downstream, there will be a tendency to rely on the information provided by the nearest customer in the chain. If that information is further limited to simply ‘orders placed’ by direct customers, rather than a reflection of the true state of actual final demand all the way down the stream, this is likely to cause a cascade of demand forecasting errors all the way back upstream.

  Of course, some of these errors could cancel each other out. Yet when there is a bias to exaggerate orders, perceived demand is likely to be amplified the further we travel up the supply chain. In particular, over-ordering is expected to take place when: i) current inventories are low; ii) prices are low and/or are expected to rise; or iii) the customer is expecting to be rationed by his or her suppliers (i.e. not all orders are likely to be fulfilled). Over-ordering tends to raise prices and, again, more so upstream than in the downstream part of the supply chain.

  An additional element is the logistics process: transport can be a major source of additional volatility. Bear in mind that it takes time (and therefore money) to move goods from A to B, and in the meantime they are of ‘out of view’ of the production chain, while transport costs can be volatile due to sharp fluctuation in global energy prices.

  

  Although information sharing and electronic data exchange solutions may help to offset some of these Bullwhip issues, it is also clear that a complex global supply-chain with limited infrastructure/transport alternatives raises the risks of asymmetric information issues and logistical chokepoints.

  A recent World Bank Report points out only a handful of sectors truly drove the expansion of Global Value Chains (GVCs) over 1995-2011: machinery, transport, and electrical and optical equipment. However, many businesses are finding out that even a single, seemingly-innocuous product can nowadays often be the result of manufacturing and assembly in multiple countries. Indeed, even those wishing to buy a garden shed or deckchair –let alone a semiconductor– are facing long delays and/or price hikes.

  So how does the Bullwhip Effect work in practice? Here’s a short narrative of what happened since Covid-19 struck:

  • In early 2020, China went into lockdown and closed a swathe of its factories, leading to a big drop in exports. This was aggravated by Europe and the US also locking down from February-March onwards, causing a significant drop in global trade;
  • In Q2, China began to reopen, and by mid-2020 its exports had rebounded. Weak demand kept global trade subdued, however;
  • As Chinese demand recovered into end-2020, US and EU exports did the same. Western households also bought more (imported) goods and fewer (local) services, pushing demand for freight up. Higher commodity prices, i.e., oil, and a misallocation of containers in Asia also saw shipping costs move sharply higher;
  • By early-2021, vaccine roll-out was starting, but many countries faced rising infections. In the US, the Democrats won Georgia’s two senate seats, potentially opening the door for massive fiscal stimulus, with a USD1.9 trillion package quickly passed. Demand for goods soared again, even though global logistics were not ready for the extra load, creating a further feedback loop; and
  • In March, the Suez canal was blocked for 6 days, creating a domino effect on global trade, and further exacerbating the above problems.

  We can illustrate parts of this Bullwhip Effect using German data, firstly because it is a key exporter of manufactured goods, and plays a key role in global value chains. From Q4 2020, orders started to outstrip output, and this gap consistently widened as time progressed; by March, growth of orders for German machinery hit 30% y/y (Figure 12).

  To illustrate what this does to prices, we show the assessment of inventory levels (Figure 13) and selling price expectations (Figure 14). These clearly illustrate inventories dropped off from 2020 onwards, and were seen as insufficient from the start of 2021. Even more telling is that this effect becomes more pronounced the further you travel up the supply chain. (Assuming basic metals and chemicals are upstream, fabricated metals, machinery, and wholesale are midstream, and retail is downstream). This in turn is translating into the sharpest increases in selling price expectations in the sectors most upstream. In other words, the Bullwhip Effect in practice. So what next?

  First, past price rises are still working through the supply chain; and given EU and US consumer demand is likely to recover as lockdown restrictions are eased –and if more fiscal stimulus is passed– the Bullwhip may have more sting in it yet. Indeed, producer prices upstream are likely to filter downstream, so broadening upward price pressures, even if this is a lagging cyclical phenomena rather than a structural one.

  However, as long as there are still large parts of the world grappling with the virus, we should expect logistics disruptions to play a significant role, suggesting firms will over order ‘just in case’. The closure of Shenzhen’s Yantian port, one of China’s busiest, is an example.

  

  Moreover, global trade flows may continue to face other disruptions, with larger ripple effects. Consider the accident at Taiwan’s Kaohsiung port (14th busiest in the world); protests at US ports; cyberattacks on a key US oil pipeline and major meat producers; and, potentially, the Russian threat to the neutrality of civilian airspace.

  Meanwhile, geopolitics –which we will explore as part of the final factor driving inflation– presents a potential risk of the Bullwhip Effect becoming more embedded in markets.

  2) The Fed

  It goes without saying that the central role of the Fed as either enabler or disabler of inflationary pressures cannot be overstated.

  For the Fed, the inflationary impact of reopening the economy does not come as a surprise. The central bank sees this as a temporary or “transitory” phenomenon which will fade once the economy is back to normal after Covid-19. In its eyes, during the reopening of the economy, mismatches between demand and supply are difficult to avoid. What’s more, restarted supply chains have trouble to keep up with pent-up demand. To add to the distortions, fiscal policy –more on which after this– is boosting personal consumer spending, while at the same time holding back labour supply through generous federal unemployment benefits (see section 7: Labour vs. Capital).
  Overall, the official view is that these mismatches between supply and demand in the markets for goods, services, and labour are causing upward pressure on wages and prices.

  In contrast to the Fed, markets and consumers are alarmed by the economic data and stories about supply bottlenecks, both from the Bullwhip Effect already covered, and the bigger picture geopolitical angle (which will be covered in section 8).

  These all come at the same time as the base effects that are pushing up year-on-year readings of inflation. Indeed, since we are now comparing the price level of a reopening economy with the price level of an economy in lockdown, we are getting high inflation numbers. On top of that, the demand-supply mismatches, visible in month-on-month data, are pushing up the year-on-year inflation rates even further. No wonder inflation expectations are rising and that bond investors are requiring a higher compensation for inflation.

  The Fed is pushing back against these expectations by repeatedly stressing the transitory nature of both the base effects and the supply bottlenecks caused by reopening the economy. After all, central bankers think it is crucial to keep long-term inflation expectations in check, because that is supposed to stabilize inflation at central bank target rates.

  The standard example of what could go wrong is a wage-price spiral, in which consumers demand higher wages because they expect higher prices. In turn, the higher wages will push prices up further, etc. (Again, see section 7).

  Fed speakers are right in explaining the transitory nature of base effects and supply bottlenecks caused by reopening.

  

   

  However, we fear they are not paying enough attention to the permanent shifts that are taking place in the global economy. For example, the strained geopolitics of recent years is leading to a rethinking of supply chains. This could have an inflationary impact that stretches beyond transitory. The recent reactions of most Fed speakers suggest that they do not spend a lot of time trying to understand such structural changes, and are still focused on inequality within the US.

  Worryingly, this means that any permanent impact of these changes will take them by surprise. It could very well be the case that the current monetary policy pursued by the Fed turns out to be far too accommodative, and its reaction function delayed.

  The Fed decided last year to change its monetary policy framework by shifting to ‘flexible average inflation targeting’ (FAIT). Instead of pre-emptive rate hikes to stabilize inflation near target, they are now willing to let inflation overshoot in order to make up for past undershoots. In other words, the Fed has moved into an extreme position, doubling down on the assumption that the Phillips curve is flat (after years of thinking it wasn’t).

  The current rate projections of the FOMC imply not a single rate hike before 2024. This means that the Fed will be even more “behind the curve” than other central banks when the permanent shifts in the global economy become visible in the inflation data.

  What’s more, the US is the country with the most expansive fiscal policy among the OECD, adding to the inflation risk (see the next section). At present, the Fed expects inflation to come down after “transitory” factors fade. However, if the structural changes on the supply side and the demand impulses from fiscal policy cause inflation to remain elevated, the Fed will be caught off guard – and we all know how destabilising for markets this can be.

  Crucially, we are seeing the risk of the Fed being behind the curve on inflation for the first time since the 1970s.

  The Summer of Taper Talk

  In the meantime, we are heading for a summer of ‘taper talk’. The minutes of the FOMC meeting on April 27-28 revealed that a number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.

  Since the FOMC meeting, we have had a very disappointing and then a somewhat disappointing Employment Report, but also a CPI report massively stronger than market expectations, so that much awaited taper talk may be coming soon. Many participants highlighted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases.

  We think if unemployment falls to 4.5% in Q4, as projected by the FOMC, we could see a formal announcement of tapering then.

  Since Powell has promised to warn us well in advance, we could get a signal in Q3. This time schedule underlines it is about time the FOMC started to talk about what they actually mean by ‘substantial further progress’. The potential risks if they don’t are clear from inflation history.

  3) Fiscal Stimulus

  Once deeply-unfashionable fiscal policy is now very much on trend – and this has huge potential inflation consequences. See here for a recent summary and comparison of relative G20 Covid fiscal packages: but the scale of proposed stimulus ahead in the US makes it the central global inflation focus for markets.

  US President Biden has already passed the $1.9trn American Rescue Plan, a Covid relief package to support the economy through to September. It contained: $400bn in one-time direct payments of $1,400; enhanced federal unemployment benefits of $300 per week through September 6 (now being rolled back in some states); $350bn to state and local governments; and an expansion of the child tax credit from $2,000 to $3,000. Following on, Biden has presented three other huge fiscal proposals.

  The American Jobs Plan offers $2.3trn in spending on social and physical infrastructure out to 2030. The largest item is transportation, including electric vehicles, bridges, highways, roads, public transit, and passenger and freight trains. The plan also supports manufacturing, including US production of semiconductors, as well as green energy, buildings, and utilities; R&D and training; upgrading and building new public schools; and large-scale home- and community-based care for the disabled and elderly.

  The American Families Plan proposes an additional $1.8trn on health care, child care, and poverty reduction.

  The fiscal 2022 budget (starting 1 October) proposes federal spending of $6.0trn compared to $4.4trn in 2019, even though the economy should be fully re-opened. Spending is also projected to keep rising to $8.2trn by end-2031 – double what it was before 2017, and 33% above 2022’s level. As such, federal debt will exceed the historical post-WW2 peak within a few years and hit 117% of GDP by end-2031, vs. around 100% of GDP now. In short, we are in a new structural paradigm on the political will for higher federal expenditure.

  On taxation, the White House initially proposed to raise the corporate rate to 28% from 21%, double capital gains to 39.6%, increase top income tax to 39.66%, let the Trump tax cuts lapse when they expire, and ramp up IRS enforcement. Notably, all of the taxed groups have a lower marginal propensity to consume than those who would see higher federal spending, so this redistribution of income would benefit consumer demand.

  Remarkably, the economic projections in the budget do not expect a surge in US growth from all this federal spending.

  

   

  Real GDP growth is seen averaging 2% y/y through to 2031, compared to 2.3% from 2010-19. Moreover, inflation is expected to stay moderate at just 2.3% y/y despite the current evidence suggesting that such a surge in fiscal stimulus into a log-jammed logistical network would produce a more pronounced Bullwhip Effect.

   

  The key issue now is if these measures can pass

  Congress. The Democrats’ preference for using Budget Reconciliation to get bills through the 50-50 Senate, with the Vice-President holding the decisive vote, has been complicated by the Senate parliamentarian. The issue is also putting pressure on relations between progressives and centrists in the Democrat Party: Senator Manchin in particular has repeatedly said he does not believe reconciliation is appropriate, and prefers bipartisan legislation.

  Therefore it remains to be seen how much of this fiscal agenda will materialize before the mid-term elections in November 2022, which could then change the Congressional balance of power. For markets, this is a critical issue – but it requires political, not econometric forecasting skills!

  4) Market Positioning

  A further factor playing into inflation fears, and arguably both reacting and driving it, is the role of financial markets and their positioning.

  Commodities are one of the best performing asset class year-to-date, registering gains of 21% to 29% depending on which index you look at (Figure 20). The commodity rally has been broad-based in nature, sparking widespread inflation fears. Unsurprisingly, commodity futures returns are positively correlated with the US CPI index, which is also currently spiking, and especially energy markets, given the high pass-through cost to consumers. As such, investors and large asset managers are increasing commodity index exposure to mitigate inflation risks across their portfolios with nearly $9bn of inflows or “new” money into the commodity ETF space alone (Figure 21).

  These figures are only what is publicly available, but the trend is clear: commodities are back in vogue as an asset class. Indeed, the true sum of investor inflows is likely multiplies of what is shown here when considering the less transparent investment vehicles such as privately managed accounts and hedge funds.

  In fact, assets under management at commodity index funds (ETFs and mutual funds) remain significantly below the highs from the early 2010s, suggesting we are still in the early stages of a strategic rotation. This potential buying pressure is likely to keep a strong bid under commodity prices, creating a positive feedback loop with inflation fears.

  Admittedly, we have seen some hedge funds and large speculators scale back “long” positions in recent data. However, there are key  distinctions amongst the different group of large commodity speculators as it relates to their trading behaviour and motivations. The scaling back in positions seen so far has been more related to systematic and even discretionary “long/short” traders. These flows typically have little to do with inflation, and more to do with momentum, trend, and carry signals on the systematic side, or on commodity-specific fundamentals for discretionary traders – which remain bullish in many cases.

  On the other hand, we have the phenomenon of commodity index investors, a distinct class of speculators who were dormant up until recently. This category of investors is comprised mostly of institutional money such as pension funds and large asset managers, who are investing in “long-only” commodity indices for the specific goal of mitigating inflation risks to their portfolios.

  

  As such, their investment dollars tend to be much “stickier” than other groups of traders, who are constantly moving in and out of markets. These inflation-based flows have remained very strong, and late May saw a record inflow of over $1bn (Figure 22). This could soon see the reduction in positioning from the “long/short” crowd reversed, leading them into forced buy-back positions at higher prices – something we may already be seeing in grains markets aside from weather-related developments.

  5) Psychology

  Very high –or low– inflation can exacerbate socio-political problems, as many of the inflation quotes on the first page underline: it is an intensely political issue. Moreover, it can even produce a change in national psychology.

  The German Weimar Republic and its early 1920’s hyperinflation serves as an infamous example that still leads Germans to fear inflation  and lean towards ‘sound money’ and fiscal prudence. Of course, we can remember things wrong: this focus on inflation overlooks the subsequent, deliberate crushing Weimar deflation of 1929/the early 1930s, which was more clearly the path leading to Nazism.

  Current socio-political tensions and rising populism are widely recognised by politicians and central banks alike. A period of sustained high inflation that hits the poorest in society the hardest should be extremely concerning.

  Fortunately, most OECD economies have not seen sustained high inflation for a generation, e.g., CPI (or RPI) was last above 5% in the US and Japan in the early 1980s; in France, in the mid-1980s; and in the UK, in the early 1990s (Figure 23).

  However, this is also a problem. To have been an adult (21 or over) with working experience of high inflation one would today have to be aged over 60 in the US and Japan; over 55 in France; and over 50 in the UK. Even in China, an emerging market which has seen more recent bursts of inflation, one would have to be aged over 30.

  Anyone younger working in markets or at central banks has spent their career without serious inflation. Or, to put it another way, they are experienced in fighting a phony war rather than a real one. As such, one must ask if OECD markets are psychologically prepared for higher inflation, were it to occur.

  

  On one level, this means inflation is less likely, as it is simply not ‘on our radar’: we don’t expect to see it last.

  Yet equally, after decades of low inflation, it is unclear what a sustained reversal might do to business and consumer behaviour, if seen.

  In emerging markets with persistent inflation problems, such as Argentina or Turkey, there are preferences for hoarding hard assets or hard currencies; indexing rents to the USD; repaying loans or accounts outstanding slowly, as the real value of debt deflates; spending money as soon as one has it; and against long-term business lending or planning.

  In Western asset markets such as residential property, one can also witness the assumption that “prices always go up”, and what that does to consumer behaviour. Should we see that dive-in-and-hold attitude flow back to a broader basket of goods and services, it would be deeply concerning. It would also exacerbate the Bullwhip Effect already mentioned.

  As already shown, breaking the entrenched (Keynesian) inflation psychology that had developed in the West over the late 1960s and 1970s required a period of exceptionally high nominal rates under the Volcker Fed, and major structural economic reforms that deregulated the economy. Today, there is no social or political appetite for either – if anything quite the opposite is true as we shift away from raw globalisation. So how could we fight it, if we had to?

  That again leaves one wondering exactly what businesses and consumers would do if they began to suspect that those in charge of inflation were abdicating that responsibility. The huge shift of interest towards crypto assets, rather than productive investment, may be part of the answer – and not a happy one.

  Of course, both Fed Chair Powell and US Treasury Secretary Yellen are old enough to recall the Volcker Fed and what preceded it. “I came of age and studied economics in the 1970s and I remember what that terrible period was like,” Yellen told Congress in testimony. “No one wants to see that happen again.” Moreover, an influential, growing slice of the OECD population –pensioners– would stand to lose out hugely from high inflation.

  Yet while it is good to have leadership able to recognise the damage from high inflation, it remains to be seen if just not wanting to see a repeat of the 1970s is enough: most so when key structural assumptions are changing, and the US Treasury is –accurately– using 1970s terminology like “labour vs. capital”.

  6) China Demand

  Though many tried, it has long been impossible to discuss global inflation without also discussing China. This was true in 2004, when Chinese nominal GDP was $2.2trn and its export engine was driving the global cost of manufactured goods down to the “China price”; and it is even truer today when the still-growing $15.4trn Chinese economy is an even larger exporter – and an importer of many commodities at a time of rising commodity price inflation.

  Of most immediate cyclical concern is the risk of Chinese PPI (rising 6.8% y/y) feeding through into CPI (0.9% y/y) and hence on into imported inflation around the world. However, China has seen previous cycles of PPI-CPI divergence, and they have not so far proved to be inflation events for global markets as much as margin crushing ones for Chinese firms (Figure 24). They may well be again.

  

  From a structural perspective, we must also focus on Chinese imports. There has been a surge in commodity import volumes in 2021: is this really demand-pull, translating into global cost-push inflation, and so meaning central banks are wrong to think the inflation we are now seeing is “transitory”? Is China now inflationary not deflationary?

  In the agri space, this is our long-held view, and has been exacerbated by problems like African Swine Fever. China’s May 2021 soybean volumes are up 36% over May 2019; wheat 262%; corn 339%; barley 80%; and edible oils 76%. This is clearly inflationary for the rest of the world, if maintained. However, how about the broader commodity picture?

  First, the import volume picture is almost as extreme across a range of hard commodities, but also including the likes of pulp/paper (Figure 26). This is happening despite the fact that GDP growth –looking past the distortions of 2020– is still on a declining trend (Figure 27), and as the shift to a services economy continues, so China should logically be moving towards lower commodity intensity. So where are these commodity imports actually going, and is this surge in import demand sustainable? They are questions of the highest global importance.

  

  Inventory data for key hard commodities, while rising, are generally below previous peaks (Figure 28), which suggests imports are finding final demand – although the reliability of such numbers has been called into question in the past, most notably with the ‘rehypothecated’ copper scandal in 2014.

  

  Chinese steel production vs. the iron ore inventory held at ports also does not suggest excess stocks are being built up (Figure 29).

  

  Rather than ask what each individual commodity is doing, the key question in terms of global inflation then becomes where this Chinese demand is being seen – and the answer appears to be three-fold: construction, exports, and speculation.

  

  Construction area was up 10.9% y/y on a 3-month average in April (Figure 30), the highest reading since late 2014. On exports the picture is also obvious (Figure 31) and is arguably responsible for much of the demand for pulp/paper, rubber, and plastics, etc. However, from an inflationary perspective if these goods were being made elsewhere, there would still be the same commodity demand – just more geographically dispersed.

  

  Finally we have speculation, which is not reserved to US funds. Chinese authorities have recently intensified a campaign to prevent such activity pushing commodity prices higher. The government has vowed “severe punishment” for speculators and “spreading fake news”, and stated it will show “zero tolerance” for monopolies in spot and futures markets, as well as any hoarding. These announcements saw an initial knee-jerk move lower in many commodity prices on Chinese exchanges.

  However, unless GDP growth –and construction– slow, which does not appear politically palatable to Beijing, then ultimately demand for commodities, and speculation to chase it, are likely to return again.

  Of course, high prices themselves could destroy demand. Anecdotally, copper prices (up 47% since the start of 2020 and 23% since the start of 2021) are causing significant problems for many related firms in China.

  A related factor is the currency. The PBOC has made clear it is not willing to allow CNY to appreciate to dampen imported commodity inflation: indeed, this would arguably exacerbate it as demand would be able to stay high. Conversely, a weaker currency would help cap demand via higher prices – but would be deflationary for the world and suggest a de facto ‘speed limit’ for Chinese growth: it is unlikely that the PBOC would be prepared to flag that.

  In short, cyclical fears of a China-to-global inflation pass-through are overstated; but unless we see a shift towards lower Chinese growth, its increasing commodity appetite still risks a structural shift higher in cost-push inflation outside the agri sector, as well as within it.

  7) Labour (vs. Capital)

  For years, markets expected inflation and bond yields to rise: and for many years we said those forecasts would be wrong – and were consistently right. This is because the political-economy Marxist/Post- Keynesian/Minsky view of the importance of the bargaining power of labour is not incorporated into inflation models. They look at an expansion of money supply, or credit, or QE, and assume it will filter through to wages. An atomized workforce in a globalised, financialised economy says it will not – and Covid-19 has only increased these pressures.

  However, when the US Treasury Secretary is talking about labour vs. capital(!), Western governments about ‘Building Back Better’, and central banks are focused not just on inflation and unemployment, but inequality, we might potentially be on the cusp of a structural break that would have enormous implications. On the other hand, cost-push inflation pressures will collapse under their own weight if wages don’t follow. This all makes the wage outlook crucial.

  Nonetheless, most of these data are being affected by temporary factors such as composition effects. Many low-paying service jobs were shed or furloughed during Covid-19, for instance, which pushed average pay up, and most so in the more timely and ‘market relevant’ metrics, such as average hourly earnings (AHE) in the US, or average weekly earnings (AWE) in the UK.

  Further out, this composition effect may start to act as a drag on wages. Once employment in service industries fully recovers, the increased relative weight of these wages will pull down the average again. This even holds when wages for these workers exceed their pre-pandemic trend.

  On which note, wage inflation will first appear to rise sharply over the next few months due to these effects, adding to an already combustible mix of inflationary signals. Yet this will happen regardless of the underlying strength of the labour market (see Figures 32 and 33). In the UK, for example, y/y wage growth could spike to as high as 7% before falling back as these effects fizzle out.

  Meanwhile, in many countries customers are coming back to shops, restaurants and other establishments faster than employers are able to add staff at prevailing wages (Figure 34). In the US, employers are competing with generous unemployment benefits in some states, while health and childcare issues may also be keeping people out of the workforce. In Europe, employees are shielded by the security of furlough schemes. Australia has just begun to phase these out; the UK will do so from July to September.

  

  Importantly, these are temporary factors, suggesting no real motivation for employers to pay structurally higher wages than previously, and they would be better off offering one-offs or sign-on bonuses instead: anecdotally, this is exactly what is happening: some US states are paying ‘return to work bonuses’ of up to USD2,000; US restaurants are offering adjusted hours and gift cards; and UK restaurants are giving finders’ fees of GBP2,000 for workers who bring a friend to fill an empty position.

  Of course, leisure/hospitality wages are far lower than in other sectors, and we therefore think it is unlikely that there will be a spill-over. Indeed, the opposite didn’t happen in March-April 2020: even as 7m US leisure/hospitality jobs were lost this had no effect on wages in construction, manufacturing, or other services. In short, US job vacancies are rising to new record highs (Figure 35), but this reflects a resumption from locked-down services activities rather than an overall extremely-tight labour market that can drive up wage expectations.

  However, this does not mean there are no such risks ahead. First, the labour market is likely to heal far faster than after the GFC. Due to extensive state support measures, ‘scarring’ effects aren’t as extreme, and most furloughed workers will eventually be reintegrated into the labour market. Indeed, even as measures of unemployment are being depressed by the drop in participation rates, surveys suggest the recovery to pre-pandemic unemployment rates will be rapid. We currently forecast US unemployment to be below 4% in late-2022, and Euro area unemployment should stabilize at 8.5% before it eventually starts declining too (Figure 36).

  Admittedly, the NAIRU –the unemployment rate trigger for higher wage inflation– hasn’t been a useful forecasting tool for years, for reasons we already covered. However, pre-Covid there had already been signs of wage inflation beginning to reappear. Indeed, one of the few iterations of the US Phillips Curve that actually has a slope (Figure 37) suggests if the recovery in prime-age US employment continues to progress at a solid pace, real pay growth will remain positive. Likewise, in the Eurozone, the cyclical component of wage growth may also become more relevant once things have normalized.

  But then we come to wild card: politics, and the structural changes it may bring.

  The back-to-work bonuses being seen in the UK and US may not be structural wage-inflationary – but they are a clear indication of just how much wage-inflation the ‘Built Back Better’, full-employment economy aimed for by proponents of fiscal stimulus, or MMT, would imply.

  Is this where we are heading under the present seemingly irresistible force of a labour-friendly zeitgeist and massive fiscal stimulus? If so, there will be huge obstacles from — and equally huge implications for– global supply chains, the last inflation factor to be covered.

  Or will globalisation prove the more immovable object, with white collar middle class jobs sent abroad now that remote working has become normalised, as some believe may occur?

  

  In short, if forecasting inflation requires forecasting wages, then forecasting wages requires being able to forecast the outcome of political-economy. No model is able to do so – but the risks of a structural break towards labor and away from capital, while low, appear higher now than at any point in the past four decades. That alone makes it even more imperative to look at the wage/earnings data – and political developments.

  8) Supply Chains

  Supply chains are vitally important in any inflation framework for three reasons: one deflationary, and two inflationary:

  1) DEFLATION: The easier supply chains can move off-shore in response to rising wages, the lower the ceiling for wages is. In short, labour’s power is limited by free trade. This uncomfortable truth is one of the key reasons global inflation forecasts have been so wrong for so long.

  2) INFLATION: The Bullwhip Effect. On 2 June, Elon Musk tweeted: “Our biggest challenge is supply chain, especially microcontroller chips. Never seen anything like it. Fear of running out is causing every company to overorder – like the toilet paper shortage, but at epic scale. That said, it’s obv not a long-term issue.” However, production is not expected to be able to match demand for several years, with a flow-through effect to everything from PCs and cars to toasters.

  3) INFLATION: The above may now be helping the political tide turn away from parts of free trade. Indeed, where semiconductor plants are to be built is now a deeply geopolitical issue.

  The US-China trade war, followed by the Covid crisis and the obvious shortfalls of PPE, ventilators, and vaccines (and then the Suez Canal blockage), has seen growing official recognition that ‘just in time’ production needs to shift to a more ‘resilient’, ’just in case’ model. The deepening US-China Cold War makes this ideological for some as well.

  Yet even for those who do not wish to be involved in this issue, supply chains are intimately linked to any plans to ‘Build Back Better’ and/or for Green transitions, which are now common. For example:

  • The UK, with its post-Brexit aim of Green “Levelling Up”;

  • The EU, where the Commission’s 2021 Trade Policy Review said: “A stronger and more resilient EU requires joined up internal and external action, across multiple policy areas, aligning and using all trade tools in support of EU interests and policy objectives.” In this case, ensuring quality EU jobs, even by subsiding EU green exports – and, as soon as 2023, introducing ‘Green tariffs’ on iron, steel, aluminium, cement, and fertilizer;

  • Japan, which is using public funds to incentivise firms to come home from China and which has just announced a “national project” to boost semiconductor production;

  • China, whose “Dual Circulation” policy aims to retain industry, attract new FDI with its market size, develop domestic R&D, and to win the high-end of the global value chain – including semiconductors; and most importantly

  • The US, where to the surprise of some, the Biden White House has taken some of the trade rhetoric of the Trump administration much further.

  Cynics will point out talk – like imports – is cheap. However, the shift towards fiscal policy is clear; many Western politicians recognise not just their leadership, but the liberal world order is under pressure; and this all now being linked to ‘Green’ is significant. It holds the promise of securing our safety, and higher economic growth, better employment, and a commanding position in an uncertain future of climate, social, and geopolitical change, which echoes the 1950’s Space Race. Everyone wants to produce the industrial goods of the future, like electric vehicles, batteries, and solar panels.

  Yet it should also be obvious that it is not possible for the US, China, the EU, Japan, the UK, etc., to all ‘Build Back Better’ with Green domestic production without global decoupling; nor for all to be net exporters. As such, this threatens a new (or rather, old) global paradigm: instead of businesses seeking the lowest cost production anywhere, they may have to seek sustainable production –with social and national security parameters– closer to/at home. Geospatially, this means no more hub-and-spokes focus, but a distributed, multi-modal approach around economic centres of gravity able to bend Green rules of trade/regulation to their advantage.

  Of course, globalised businesses will not like this, and most are so far ignoring missives from their governments to bring supply chains and jobs home. However, a mixture of carrots (fiscal incentives) and sticks (tariffs and/or non-tariff barriers) could move production, as we already see.

  Yet things are even more complicated than that. Even if a factory is opened in the US, the Bullwhip Effect shows it can be rendered useless without a reliable supply of all the intermediate goods and raw materials needed for final assembly. China has built this at home and along the Belt and Road Initiative (BRI) to coax foreign production to agglomerate there. 75% of global solar panels are now made in China, for example, and it intends to dominate Green production.

  Indeed, new US electric car battery plant would need lithium, nickel, cobalt, and copper – but can supply be assured? Consider the potential for China to disrupt crucial rare-earth mineral exports required for electronic goods production (Figure 38); and what is happening with US restrictions on much-needed high-tech exports to China.

  The US or Europe would arguably need to replicate what China has done all the way down the supply chain –in a zero-sum game– to ensure true ‘resiliency’. On that note, the June 2021 G7 summit will include a commitment to a Green (democratic) alternative to China’s BRI.

  In short, our commodity-price inflation sits alongside a global ‘race for resources’ that mirrors the late 19th century – when mercantilism (and empire) was fashionable. That implies huge structural shifts in supply chains – and a flow-through to labor markets.

  

  Into this mix we also see flux over reserve currencies, central bank digital currencies (CBDC), and payments systems. China has already launched a pilot CBDC; and the ECB has argued a CBDC might facilitate digital “dollarisation” (or “yuanisation”?) in weaker economies, while strengthening the global status of the currency in which the CBDC is denominated. The ECB openly flags concerns over domestic and cross-border payments being dominated by non-domestic providers, where “individuals and merchants alike would be vulnerable to a small number of dominant providers with strong market power”.

  This all presents the tail-risk of a global bifurcation of technology, production, payment systems, currencies, and supply chains – and labour markets. Moreover, if we do move in that direction, it will not be a gradual, linear process like a series of snowballs to be dodged: it will be a tipping-point to a rapidly exponential process, like an avalanche.

  Of course, none of this may come to pass: but that does not mean that the zero-sum game goes away. Somebody will still get to ‘Build Back Better’ with domestic production; somebody will produce the Green goods required; somebody will have reserve currency status globally; and somebody will have the easier access to raw materials and logistics supply chains required to do all of the above. Yet it may not be all the same economy or currency.

  As we will now show, global inflation will depend on how this all plays out, alongside the other seven factors previously listed.

  Whipping into a (new) shape

  We have just shown the eight primary factors we see driving global inflation. What we now need to do is look at how they interact.

  Let’s begin by making a simple assumption: that each of the factors can have a binary state that is either inflationary (1) or deflationary (0). As such, there are 64 potential combinations. That can’t be modelled, and we won’t try. But we can weigh up which factors have logical prime-mover status –or ‘primacy’– over the others. This can help us complete an inflation framework.

  Let’s take factor #7 (Labour) and factor #2 (The Fed). Both are crucial to any understanding of inflation pressures. If labour is in a strong bargaining position, e.g., if supply chains are being on-shored, then higher inflation would appear. Likewise, if the Fed were to fall behind the curve on rates, inflation would rise.

  However, can a tight labour market prevent the Fed from raising rates and bringing inflation –and wage inflation– down? No, as Volcker showed in the early 1980s. The Fed may opt NOT to act on rates, but it cannot be prevented from doing so by unions – unless US politics changes completely. In short, the Fed has primacy over labour.

  Let’s look at factor #6 (China) against factor #5 (Market Positioning). Market positioning can push commodity prices higher, and so can China. But if China stopped buying, prices would fall and market positioning would shift. On the other hand, if markets kept pushing prices higher China may not like it, but it would not necessarily have to stop buying. In reality, it would probably do to markets what markets can’t do to China: regulation. So China has primacy.

  Another example is factor #8 (Supply Chains) against factor #1 (Bullwhip Effect). Both are inflationary, but one is prime. A shift to a new supply-chain system might replicate a Bullwhip Effect to begin with: but after that it would help prevent one from happening. The opposite does not hold true. So supply chains have primacy over inflation trends.

  How about factor #3 (Fiscal policy) and #2 (The Fed) – there is a prospective clash of the titans! Again, only one matters most. If we were to see loose fiscal policy, monetary policy can be tightened in response to reduce inflation pressures. On the other hand, Congress could not keep spending or cutting taxes to compensate for rising rates – unless US politics changes completely. As such, the Fed still holds primacy.

  Then we come to perhaps the most interesting one: factor #8 (Supply Chains) against #2 (The Fed.)

  Imagine we see the tail-risk supply-chain shift scenario unfold: Western unemployment tumbles, and broad wage inflation matches that being seen in the return-to-work bonuses of the furloughed US and UK services sectors.

  The Fed cannot encourage firms to offshore – but it can stop some of those jobs from being created by raising rates and slowing the economy and/or pushing the dollar higher. So returning supply chains cannot force the Fed not to act – unless US politics changes completely, as under a new Bretton Woods with capital controls, for example. As such, the Fed once again has primacy.

  Meanwhile, what the Fed ‘has’ to do because of supply-chains is unclear. It is possible to run a trade surplus without high inflation as Germany, Japan, and China all show – but it seems unlikely the US can shift economic structure to this degree.

  Table 1 uses the prime-mover lens to show only two factors emerge as truly crucial for global inflation: the Fed, and supply chains

  

  This doesn’t mean US fiscal policy is not vital – it also is. But more so is what the Fed does in response; and if the White House starts to shift global supply chains.

  Figure 39, on the next page, is an adjusted version of Figure 9 that better reflects the relative importance of each of the eight interacting factors we have covered so far.

  

  Does this give us an inflation forecast? Again – no! One has to forecast what Congress will do, what the Fed will do in response – and what the White House does on supply chains. That is two political forecasts and a monetary one that is more political too. What can say from the framework, however, is that the inflation outlook shifts enormously depending on these projected outcomes. Indeed, we can draw up 4 scenarios focusing on the most important factors of Fed, fiscal, and supply chains:

  1) If the Fed stays behind the curve, the White House can’t pass a fiscal package, and nothing is done on supply chains, then inflation is likely to rise near term due to the Bullwhip (and other factors) – but this would mean lower real wages, and the risks of a drop in spending and then a return to low-flation/deflation.

  2) If the Fed stays behind the curve, but the White House can pass a fiscal package, and nothing is done on supply chains, then inflation will spike much higher near term due to the exacerbation of the Bullwhip Effect. However, labour’s bargaining power will remain limited, and there would then be larger real income declines and then deflationary pressure.

  3) If the Fed stays behind the curve, and the White House passes a fiscal package, and this is accompanied by an aggressive plan to shift global supply chains, things get complicated. Near term, we would see much higher inflation and a bullwhip to end all bullwhips. Provided that market positioning and consumer/business psychology did not shift too far from our past low-flation norms, however, after far more than “transitory” price hikes, inflation could stabilise at a higher than previous level, but with local supply meeting local demand in a more ‘decoupled’ economy. (In short, a partial reversing of the global economic paradigm of the past four decades.) This would be an earthquake for markets, of course.

  4) If the above scenario played out but markets speculated, consumers and business hoarded as in emerging markets, unions pushed for huge pay rises, and China also snapped up key commodities, then we would risk returning to the inflation of the 1970s. However, this is by far the least likely of these four outcomes.

  Meanwhile, the implications vary for the EU and China (and the rest of the world). US inflation, or deflation, would flow through to them. Yet scenario 3 would be deflationary for net exporters to the US (see Figures 40-43 as a summary).

  

  NB In the Figures above, green denominates that a factor is overall deflationary, and red denominates it is overall inflationary. The key two/three factors (the Fed, fiscal policy, and supply chains) are highlighted to underline their relative importance.

  On the right side one sees the indicative near and longer term inflation outcomes for the US, EU, and China, as well as the trade impact. The latter is indicative that without a shift in supply chains, fiscal stimulus flows to production abroad and not at home so ‘Build Back Better’ is built elsewhere.

  

  NB Figure 42 shows that while each factor for inflation is generally red or green, a shift towards fiscal and monetary stimulus, and a supply chain shift could not help but strengthen the power of labour vs. capital. However, the extent to which supply grows faster than demand, and productivity, would then be key.

  At the same time, Figure 43 underlines just how destabilising all factors shifting back in an inflationary direction at once would be!

  ‘Whipping’ markets around

  Crucially, in each of the four given scenarios, inflation rises near term – which we already see around us; and more so with each additional inflation factor that flips red.

  In scenarios 1 and 2, inflation falls back again subsequently because labour does not have any bargaining power, and extra demand is met by offshore rather than onshore supply. This is “transitory” inflation – yet it means significant pain for consumers and businesses. The difference between no fiscal stimulus and fiscal stimulus is also hugely significant near-term, with scenario 2 pushing inflation much higher with a much larger Bullwhip Effect (and so real wages lower).

  Yet it is only a shift in supply chains –‘Made in America/Buy American’ policy, and/or US, EU, or UK tariffs on others’ Green goods– in tandem with fiscal and monetary stimulus that sees a sharp move higher in inflation near term, and a structural long-term shift higher. At that point, should labour power and mass psychology also change in an inflationary direction, as in scenario 4, then even a partial mirroring of the 1970’s experience is theoretically possible.

  In terms of the potential impact on bond yields and the US Dollar, we therefore have the following hypothetical outcomes – and one can see how wide a range there is:

  

  Conclusion

  • What we hope to have shown in this report is that:

  • Inflation is vital to understand – but no economic theory captures it well enough to model accurately;

  • As a result, an inflation framework works better than a model;

  • Right now, we are stuck with high inflation due to a Bullwhip Effect, which economic models do not factor into their projections;

  • There are currently seven other major factors in our inflation framework, of which 2/3 are the most important from a structural perspective (the Fed, global supply chains, and fiscal policy);

  • Predicting what these key factors will do is not within the purview of any economic or econometric forecast – but is rather a political/geopolitical call (most so for the latter two);

  • How one projects the various outcomes of these key swing factors has enormous implications for both near term and long term inflation;

  • We could logically see moderate, high, or very high inflation, and/or deflation afterwards, depending on how this all plays out.

  If this implied volatility fails to satisfy a market looking for a simple, cyclical answer to its $64 trillion structural inflation question, then one needs to get cracking.

  First, on understanding political economy at a national level – which would have predicted the recent structural change in the Fed’s reaction function; and second, on understanding geopolitics/geoeconomics/great power theory at an international level – which would have predicted the current Cold War, and the ensuing push for supply-chain decoupling.

  We could also have just looked at history, and noticed how inflation never remains in the nice, stable range we would like it to for too long – because underlying social and economic structures don’t stay the same, even if our models do!

  Or, we can take an even bigger picture view than that:

  “It’s hard to build models of inflation that don’t lead to a multiverse. It’s not impossible, so I think there’s still certainly research that needs to be done. But most models of inflation do lead to a multiverse, and evidence for inflation will be pushing us in the direction of taking [the idea of a] multiverse seriously.” Alan H. Guth

  Tyler Durden
  Sat, 06/12/2021 – 17:44

• Inflation Is Starting To Get Really Crazy… And It Is Worse Than You Think
  Inflation Is Starting To Get Really Crazy… And It Is Worse Than You Think

  Authored by Michael Snyder via The Economic Collapse blog,

  Inflation is making headlines all over the country, but the mainstream media is not being honest about the true severity of the crisis.  We are being told that the official rate of inflation is still in single digits, but what we aren’t being told is that the way inflation is calculated has changed dramatically over the years.  In fact, according to Forbes “the government has changed the way it calculates inflation more than 20 times” over the past 30 years.  The rate of inflation directly affects so many other things in our system, and the government would like to keep that number as low as possible.  So they tinkered and tinkered with the formula until they got it just where they wanted it.

  

  But even with the highly modified formula that they are now using, the rate of inflation still rose at the fastest pace in almost 13 years last month…

  The consumer price index, which represents a basket including food, energy, groceries, housing costs and sales across a spectrum of goods, rose 5% from a year earlier. Economists surveyed by Dow Jones had been expecting a gain of 4.7%.

  The reading represented the biggest CPI gain since the 5.3% increase in August 2008, just before the financial crisis sent the U.S. spiraling into the worst recession since the Great Depression.

  We all remember what happened in the months following August 2008.

  Hopefully we will not have a repeat of that.

  Of course the truth is that consumer prices are not just rising at a 5 percent rate in the United States right now.

  According to John Williams of shadowstats.com, if the rate of inflation was still calculated the way that it was back in 1990, it would be above 8 percent right now.

  And if the rate of inflation was still calculated the way that it was back in 1980, it would currently be sitting at about 13 percent.

  But 5 percent inflation sure sounds a whole lot better than 13 percent, doesn’t it?

  One thing that I am keeping a very close eye on is food inflation.  Earlier today, I came across a story from one CBS affiliate in which they used the term “sticker shock” to describe what consumers are now experiencing at the grocery store…

  You may have noticed a significant jump in prices at the grocery store.

  More and more grocery shoppers are experiencing sticker shock every day. The price of food — especially meat, fruit and vegetables — is going up.

  If prices were increasing at just a 5 percent annual rate, that wouldn’t be a big deal.

  Sadly, the reality is much worse than that, and that is especially true for meat prices.  According to one deli owner, the true rate of inflation for meat prices is “probably closer” to 20 or 30 percent…

  Jeff Cohen, a deli owner and meat wholesaler, said those factors are making the price of meat out of control.

  “They said on national news it’s 10 percent. But that’s not true. it’s probably closer 20, 30 percent,” Cohen said.

  We will continue to get a lot of happy talk from the Biden administration and from the Federal Reserve, but this is becoming a real national crisis.

  When CBS News interviewed one shopper in Maryland, she said that she is now spending about twice as much on groceries as she did before…

  Abby Walter said she started noticing her grocery bill creeping up earlier this year. Prior to January, the Maryland resident had typically spent about $75 a week on groceries. Now her bill is averaging about $150 or even more.

  I still remember when I could get an entire shopping cart of food for just 25 dollars.

  Now if I can get an entire cart of food for less than 200 dollars, I consider that to be a monumental achievement.

  I try really hard to take advantage of sales and make every dollar stretch as far as I can.  But these days some of the sale prices are higher than the old regular prices.

  As global commodity prices have exploded higher in recent months, companies have been forced to pass those increases along to consumers, but they are attempting to use language that will not cause widespread alarm…

  If you ask Pampers maker Procter & Gamble Co., it’s not raising prices, it’s “taking pricing.” Rival Unilever, known for Dove soap and Axe body spray, says it’s been “very active with pricing.” The prize for creativity — so far at least — has been home-improvement retailer Lowe’s Cos., whose finance chief told investors Wednesday that it was “elevating our pricing ecosystem.”

  What in the world is a “pricing ecosystem”?

  I would love to have a representative from Lowe’s define that for me.

  Executives from General Mills are also using language that borders on the absurd…

  Then there’s cereal maker General Mills Inc., whose jargon includes arcane phrases like “strategic revenue management” and “holistic margin management,” which is not language you’d ever find on the back of a box of Lucky Charms. The company uses those terms so often, in fact, that its CEO now just refers to them by the acronyms SRM and HMM.

  Why can’t they just say that they are “raising prices”?

  These days, I cringe whenever I go down the cereal aisle.  It is hard for me to believe that cereal prices are so high now, but I know that they will eventually get a whole lot higher.

  We have way too many dollars chasing way too few goods and services, and instead of taking emergency measures to get inflation under control our leaders seem intent on making things even worse.

  The Biden administration wanted to spend 2 trillion dollars on infrastructure, but a group of U.S. Senators is currently working on a “compromise deal” that would only provide 1.2 trillion dollars in new infrastructure spending.

  This is on top of the trillions upon trillions of dollars that we have already borrowed and spent during this crisis.

  We can’t do this anymore.

  It is complete and utter insanity.

  But our politicians in Washington don’t seem to care.  They are going to continue to borrow and spend giant mountains of money that we do not have, and the Federal Reserve is going to continue to shovel enormous gobs of cash into the financial system.

  So more inflation is on the way, and the standard of living for most Americans is going to continue to go down.

  *  *  *

  Michael’s new book entitled “Lost Prophecies Of The Future Of America” is now available in paperback and for the Kindle on Amazon.

  Tyler Durden
  Sat, 06/12/2021 – 17:30

• Ford's Electric F-150 Lightning Reservations Pass 100,000
  Ford’s Electric F-150 Lightning Reservations Pass 100,000

  While Tesla’s Cybertruck was revealed far in advance of Ford’s F-150 Lightning electric pickup, the Lightning has several things going for it.

  First, it actually appears to exist, and is planned to roll off the assembly line in Spring 2022 – unlike the Cybertruck, the current status of which is up in the air. Second, the Ford F-150 Lightning now has 100,000 reservations in just the 3 short weeks since its introduction. 

  Emma Bergg, Ford spokeswoman, told the Detroit Free Press on Thursday: “We’re super excited about the demand. Reservations are getting added all the time.”

   

  The Lightning was released 3 weeks ago and packs 563 horsepower and 775 lb.-ft. of torque. In the first 48 hours after its release, the company received 44,500 pre-orders. President Biden was at the truck’s release last month and even gave the Lightning a test drive and some free press. “This sucker is quick,” Biden said, after taking off in the truck on a closed course. 

  By comparison, since 2019, Tesla’s Cybertruck has accumulated over 1 million reservations. 

  Tesla’s official website doesn’t denote an expected delivery date. As of May, it was expected that the Cybertruck would begin production in “late 2021”. 

  Ford, meanwhile, is taking $100 refundable deposits for the Lightning and the truck starts at $39,974.

  Tyler Durden
  Sat, 06/12/2021 – 17:00

• Venezuela Says US Sanctions Blocking COVID Vaccines: 'Global Health System' As Geopolitical Weapon
  Venezuela Says US Sanctions Blocking COVID Vaccines: ‘Global Health System’ As Geopolitical Weapon

  Authored by Brett Wilkins via via CommonDreams.org,

  Venezuelan Vice President Delcy Rodríguez has accused the US-backed international financial system of blocking the country’s access to Covid-19 vaccines under the COVAX program, even though Venezuela has paid all but $10 million of the $120 million it owes.

  Appearing in a televised address, Rodríguez said Venezuela was unable to pay the remaining $10 million because it was being blocked from transferring funds to the Switzerland-based GAVI Vaccine Alliance, which directs COVAX. “The financial system that also hides behind the U.S. lobby has the power to block resources that can be used to immunize the population of Venezuela,” she said.

  

  Venezuelan Foreign Minister Jorge Arreaza tweeted a letter from COVAX stating that it “received notification from UBS Bank” that four payments, totaling just over $4.6 million, were “blocked and under investigation.”

  Arreaza said that “Venezuela has paid all of its commitments,” adding that “the bank has arbitrarily blocked” the country’s final payments and calling the situation “a crime.”

  The vice president and foreign minister’s remarks follow accusations from Venezuelan President Nicolás Maduro last week that “organizations of US imperialism” are engaged in an effort to stop vaccine producers from selling doses to the country.

  “Venezuela might be the only country in the world that is subject to a persecution against its right to freely purchase vaccines,” said Maduro, according to Venezuelanalysis. “Venezuela is besieged so that it cannot buy vaccines.”

  

  Successive US administrations have targeted Venezuela with economic sanctions that critics say have devastated the nation’s once-thriving economy and have caused tremendous suffering for the poor and working-class people whose dramatic uplift was once hailed as the great success of the Bolivarian Revolution launched under the late President Hugo Chávez. 

  According to a 2019 report from the Center for Economic and Policy Research, a progressive think tank based in Washington, D.C., as many as 40,000 Venezuelans have died due to sanctions, which have made it much more difficult for millions of people to obtain food, medicine, and other necessities. 

  Maduro also denounced the World Health Organization (WHO) for its role in delaying vaccine delivery to Venezuela. The president had expected “many millions” of the Covid-19 jabs to be delivered in July and August. “The COVAX system owes a debt to Venezuela,” asserted Maduro. “We made a deposit in April and we are waiting for the vaccines.”

  That $64 million deposit to GAVI came after a rare deal between the Maduro administration and Juan Guaidó, the coup leader recognized by the United States and dozens of other nations as Venezuela’s legitimate head of state despite never having been elected.

  In an attempt to mitigate the efforts that Cuba, Venezuela and Russia are making in South America to combat the spread of COVID-19, the US Office of Global Affairs (OGA) made use of diplomatic relations with Brazil to prevent the use of Sputnik V.https://t.co/OhwzXk4OL0

  — MV English (@MV_Eng) June 8, 2021

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  Adept at circumventing US interference in its affairs, Venezuela turned to China, Russia, and Cuba to launch its mass vaccination program, which aims to inoculate 70% of the population this year. Earlier this month, the country reached a deal to buy and locally manufacture the Russian EpiVacCorona vaccine. Venezuela has also already acquired about three million doses of the Russian Sputnik V and Chinese Sinopharm jabs, and last month began clinical trials on Cuba’s Adbala vaccine.

  Compared to other nations in the region, Venezuela has reported a very low rate of coronavirus infections and deaths. According to Johns Hopkins University’s Coronavirus Resource Center, there have been nearly 248,000 reported cases and 2,781 deaths in the country of 28.5 million people during the ongoing pandemic. Neighboring Colombia, with just over 50 million people, has reported more than 3.6 million cases and over 94,000 deaths.

  Tyler Durden
  Sat, 06/12/2021 – 16:30

• Gluten-Free Generation: Children With Celiac Disease Doubles In 25-Years 
  Gluten-Free Generation: Children With Celiac Disease Doubles In 25-Years 

  According to a new study, the rising prevalence of celiac disease in Europe is absolutely astonishing and has more than doubled over the last 25 years. 

  Researchers at Marche Polytechnic University in Ancona, Italy, found that celiac disease, sometimes called celiac sprue or gluten-sensitive enteropathy, an immune reaction to eating gluten, a protein found in wheat, barley, and rye, can cause painful damage to small intestines over time, doubled in school children compared to a similar study by the same group 25 years ago.

  

  Approximately 7,760 children aged from five to 11 in eight provinces of Italy were given a blood test to see if they had specific gene mutations which predispose them to celiac disease. If they tested positive, the researchers checked them for antibodies to gluten. Researchers concluded the overall prevalence of the autoimmune disease in Italian children was 1.6%, much higher than the global average of around one percent. 

  “Our study showed that prevalence of celiac disease in schoolchildren has doubled over the past 25 years when compared to figures reported by our team in a similar school age group,” said lead-author Elena Lionetti, a professor at the university. “Our sentiment is that there are more cases of celiac disease than in the past, and that we could not discover them without a screening strategy.”

  Lionetti continued: 

  “At the moment, 70% of celiac disease patients are going undiagnosed, and this study shows that significantly more could be identified, and at an earlier stage, if screening were carried out in childhood with non-invasive screening tests. Diagnosis and avoiding gluten could potentially prevent damage to the villi (finger-like projections that line the gut), which can lead to malabsorption of nutrients and long-term conditions such as growth problems, fatigue, and osteoporosis (a fragile bone condition).

  “The study has shown that screening is an effective tool for diagnosing celiac disease in children which could potentially help avoid a lot of unnecessary suffering from what can be a hard-to-detect condition.”

  StudyFinds noted around one percent of the US population, or 3 million people have celiac disease. Similar to Europe, celiac disease continues to increase among Western populations. 

  

  People with the autoimmune disorder may not be aware they have the disease as intestinal damage from gluten causes fatigue, brain fog, diarrhea, bloating, weight loss, and anemia. 

  Other studies have shown “celiac disease can increase the risk of dying prematurely.” 

  A simple solution to see if you have a gluten intolerance or even celiac disease is to get a food allergy test covered under most insurance plans. 

  In recent years, better access to gluten-free foods has made it easier for people with the autoimmune disease to eat better food.

  It appears gluten-filled Western diets are poisoning the youth. 

  Tyler Durden
  Sat, 06/12/2021 – 16:00

• Gold: "Heads You Win, Tails You Don't Lose"
  Gold: “Heads You Win, Tails You Don’t Lose”

  Authored by James Rickards via DailyReckoning.com,

  Boring. I never thought I would say that about gold prices, but the gold price action for the last nine months has been boring.

  And that’s actually a good thing. Why?

  After beginning with the boring part, I’ll explain. Let me unpack this…

  Gold prices hit an all-time high of $2,069 per ounce on August 6, 2020.

  The yield-to-maturity on the 10-year Treasury note hit an interim low of 0.508% on August 4, 2020. The near simultaneity of those two benchmarks is no coincidence.

  The interest rate on the 10-year note has been practically the sole determinant of the dollar price of gold since that August convergence of low rates and high gold prices.

  But that isn’t always the case…

  More Than Meets the Eye

  Many factors can affect gold prices, including fundamental supply and demand, geopolitical and other external shocks, liquidity preferences in market drawdowns, and the distinction between real rates and nominal rates.

  I watch all of those factors closely and include them in my analyses.

  Still, those other factors haven’t mattered much to the gold price lately.

  Supply and demand are in a rough balance. Global mining output is flat, and Russia, a major gold buyer, is curtailing its large-scale buying. We’ve also had geopolitical shocks in Ukraine and, most recently, Gaza.

  We’ve had other external shocks, such as the U.S. presidential election debacle and a riot in the Capitol.

  None of these events seemed to matter to gold.

  In short, these external, non-rate factors haven’t mattered to gold. The gold price is looking exclusively at the yield on the 10-year note.

  At the same time, there haven’t been any major market drawdowns in stocks.

  Information Rich

  The yield on the 10-year note is not an isolated data point. In fact, it’s information-rich. That yield represents expectations on economic growth, inflation, disinflation, exchange rates, capital flows, and returns on alternative asset classes such as stocks, private equity, venture capital and commodities.

  The yield on the 10-year note is also a good proxy for capital spending and business investment plans because they involve a five-to-twenty-year forecast.

  If you’re building a skyscraper, for example, you don’t finance it in the overnight repo market. You get a two-year construction loan and replace it with a 30-year mortgage. The average period of home ownership for a particular property in the U.S. is approximately seven years.

  In short, the 10-year note rate is a summation of a range of rates for investment activity in the real economy. This means we have to break down the drivers of the 10-year note rate to see what it’s really telling us…

  Lower Highs, Lower Lows

  The 10-year note rate — which is currently about 1.61% — is almost exclusively a reflection of inflation expectations.

  There’s no doubt that inflation expectations have been rising, especially after a spike in the CPI core and non-core data, which was reported on May 12.

  From the low yield of 0.508% on August 4, 2020, the 10-year note yield peaked at 1.745% on March 31, 2021, and hit a recent peak of 1.704% on May 13 (intraday) on the CPI news before backing down a bit to the current level.

  The dollar price of gold has moved down in lockstep as the yield on the 10-year note has risen.

  Still, there’s less than meets the eye in the recent increase in rates. As recently as November 4, 2018, the yield on the 10-year note was 3.238%. On November 4, 2019, the yield was 1.942%.

  The fact is today’s “high yields” are actually quite low and are much lower than the two interim peaks of the past three years. That means the historic 40-year bull market in bonds, which began in 1980 with yields around 14%, is alive and well.

  What we’re seeing is a classic technical pattern of lower highs and lower lows. Based on that pattern, I expect that rates are near their highs for this cycle and will soon retreat to new lows around 0.50% or lower.

  I know that puts me out of the consensus. All you hear about now is inflation and rising interest rates. But I’ve seen this movie before.

  The One Wild Card

  The only shock that would break this cycle and cause rates to reach 3.0% or higher is real inflation. But real, sustained inflation is unlikely to materialize soon. The same forces that have held inflation in check for the past decade and more are still in effect. We’ll have inflation eventually, but not yet.

  You can’t look at recent price increases as proof of sustained inflation. Temporary price spikes in lumber, for example, are the product of pandemic-induced shortages, not a general rise in overall prices.

  The surge in CPI reported on May 12 was driven predominately by base effects (lockdowns produced such low numbers that the year-over-year numbers were bound to be stronger). April 2020 marked one of the steepest output declines in U.S. history. Prices plunged.

  Many of those prices are recovering especially in the areas of travel, airfares, hotels, restaurants and other service sectors that were almost completely shut-down in the first half of 2020. Year-over-year price gains off the low 2020 base are normal. They are also transitory because the 2020 output collapse was transitory.

  As we move into the third quarter of 2021, the new base will reflect the strong growth in Q3 2020, when many lockdowns eased. That’s a higher baseline. That means a much steeper hill to climb for inflation metrics.

  That’s why I believe inflation will come down sharply, and the ten-year note yield will come down with it.

  That’s also why gold’s boring price performance has been a good thing. Essentially, gold is off the top but is nowhere near new lows; (gold was only $1,184 per ounce as recently as August 12, 2018).

  The gold bull market is entirely intact…

  The Running of the Gold Bull

  Gold has traded in a narrow range between $1,700 and $1,900 with very few exceptions since last summer. That’s about a 10% overall range and just 5% above and below the central tendency of $1,800.

  

  In a world of volatile stocks, commodity prices and exchange rates, the price of gold has been well-behaved.

  And that’s the good news.

  Given rising interest rates, a case could be made that the price of gold should be much lower. But gold has held its own against stocks and fixed income alternatives (not to mention Bitcoin and other high-flying speculations that compete with gold for investor dollars).

  If inflation does not appear and rates retreat, gold will rally. If inflation does appear, rates may rise but gold will also rally on inflation fears.

  We have been stuck in a rut where inflation expectations are driving rates higher but no sustained inflation has appeared. That’s a tough environment for gold. Still, gold has held its own.

  Technically, this is what we call an asymmetric trade.

  Downside is limited because of residual inflation fears, but upside is huge because gold prices have been moving inversely to interest rates and a plunge in rates is likely to occur.

  You can call it, “Heads I win, tails I don’t lose.” When it comes to investing, that’s as good as it gets.

  Tyler Durden
  Sat, 06/12/2021 – 15:30

• Baltimore City Responds After Dozens Of Businesses Threaten Not To Pay Taxes
  Baltimore City Responds After Dozens Of Businesses Threaten Not To Pay Taxes

  This weekend, the Baltimore Police Department (BPD) closed down multiple city streets around the Inner Harbor, in a stretch called “Fells Point,” after dozens of local businesses threatened the new city government, run by Mayor Brandon Scott, to not pay taxes because they’re “fed up and frustrated” with the outburst of violence. 

  Last week, 37 restaurants and small businesses sent a letter to the mayor’s office titled “Letter to City Leaders From Fells Point Business Leaders.” They threatened to stop paying city taxes and other fees until “basic and essential municipal services are restored.” This comes as Madam State’s Attorney Marilyn Mosby halted petty crimes during the pandemic and made such a measure permanent – the idea was to decrease violent crime, but that seems to have severely backfired.

  What’s happened in the historic bar strict is absolute mayhem at night, transformed into a dangerous area where violent and rowdy crowds have ruined the once pleasant atmosphere along with multiple shootings. 

  So this weekend, BPD closed down streets around Fells Point, which includes parts of Aliceanna, Thames, and Bond streets.

  Current look at Fells Point. pic.twitter.com/quABeTzhNn

  — Eddie Kadhim (@EddieKadhimWMAR) June 11, 2021

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  In addition, Maryland State Police will conduct sobriety checkpoints in Fells Point. 

  Local news WJZ13’s Mike Hellgren tweets a couple of images of the increased police presence across Fells Point.

  Fells Point tonight: Police car and command post on Thames Street. @wjz #FellsPoint pic.twitter.com/cRVRRuffgJ

  — Mike Hellgren (@HellgrenWJZ) June 11, 2021

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  One of the 37 concerned business owners on the list is Bill Packo, who owns Barley’s Backyard and has been operating in Fells Point for three decades. He spoke with WJZ13 about the out of control violence and public drunkenness:

  “It’s a shame. What they’re letting happen to Fells Point is what they let happen in the Inner Harbor, and now it has made its way here,” Packo said. “There’s alcohol being sold by individuals out there, drugs, and clearly we all know about the shootings that took place last weekend. But there needs to be some control out there. There is none whatsoever.”

  BPD’s mobile police command was spotted outside another shop in the bar district. It looks very dystopic. 

  

  Meanwhile, Scott, who was newly elected, skipped out on the virtual community town hall meeting on Thursday at 7 p.m that was to address the issues in Fells Point. 

  Packo called out Scott for not attending the meeting: 

  “It’s an embarrassment to the city. It’s an embarrassment to the mayor no matter what the schedule was,” he said.

  Again, as we’ve said before, the chaos in Fells Point comes as the city descends into what could be the most violent period ever. Mosby has halted police officers going after petty crimes that have inadvertently backfired. Another liberal-run town with good intentions in policies not exactly panning out as they thought. 

  Local news WMAR2’s Eddie Kadhim interviewed a man who summed up the city’s response in Fells Point: 

  One Man’s opinion on the city response in Fells Point from a man who comes fishing down here every weekend. pic.twitter.com/mhO9GMj3qw

  — Eddie Kadhim (@EddieKadhimWMAR) June 12, 2021

  Another man said the violent crime in low-income neighborhoods is just spilling over into the downtown area. 

  “Why should Fells Point get help when so many other areas are suffering”. A fair question that I am hearing a lot. I talked to Munir Bahar @thecorcommunity about the violence that plagues the WHOLE city and how it trickles down EVERYWHERE into what he called this “powder keg”. pic.twitter.com/SKDfSzSCnJ

  — Eddie Kadhim (@EddieKadhimWMAR) June 10, 2021 

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  Tyler Durden
  Sat, 06/12/2021 – 15:00

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