Markets/Econ
The Adani crisis - is Modi's house of cards at risk?
It is hard to exaggerate Adani’s pivotal significance to the story of India’s rise. Founded in the 1980s as a commodity trading group, Adani has become a conglomerate of both national and global significance. In 2022 he crowned his rise to national prominence as “India’s businessman” by acquiring the three national channels of the NDTV television network.
How big the risk to the Indian banking system actually is, is disputed. The CLSA brokerage points out that much of Adani’s debt is in the form of bonds and private Indian banks are on the hook only for a small fraction of its bank borrowing. But contagion is not just a matter of facts and figures. It is a matter of overall risk appetite. Worryingly, on Friday 27 as the depth of the collapse in confidence sank in, the contagion spread to the financial sector. Shares of Indian banks and Life Insurance Corp. of India plunged on Friday.
The Fed has cover if it wants to be more dovish.
US inflation set to fall sharply in the coming quarters
Secular stagnation is not over
I believe that global secular stagnation was and is driven by deep structural factors that neither COVID nor inflation have done anything to reverse. Once central banks have won the fight against inflation, which they will, we shall most likely return to a macroeconomic environment not dramatically different, at least in this respect, from the one before COVID. That means that safe interest rates—that is, rates for assets with no risk of default—will be low again. As a result, I see a high probability that r < g remains the prevalent regime for some time to come.
Data Update 2 for 2023: A Rocky Year for Equities—Of inflation and the economy...
Gold as International Reserves: A Barbarous Relic No More?
Aggregate evidence suggests that some reserve managers respond to relative costs and returns: they increase the gold share when the expected return is high while that on financial assets, such as U.S. Treasury securities, is low. They view gold as a hedge against economic and geopolitical risks: gold shares in advanced countries and emerging markets are increasing with a measure of economic uncertainty, and those in advanced economies increase in addition with a measure of geopolitical risk.
In addition, we find that reserve managers in emerging markets increase the share of reserves held in gold in response to sanctions risk. Many of the largest year-on-year increases in individual central banks’ gold holdings occur at times when those central banks are or have reason to think that they may be subject to financial sanctions. Our econometric results indicate that both the volume and value of gold reserves increases with the imposition of sanctions from the U.S., UK, Euro Area, and Japan in the current or immediately preceding years.
If These Two Variables Pan Out, It's A Matter Of How High Oil Prices Can Go
China and Russia will be the main drivers of the oil market this year. "How much will Russia's oil production fall" and "how fast will China's oil demand recover" will be the two key questions to solving how high or how low oil prices can go this year.
If things go our way and Russia does in fact lose ~500k b/d to ~700k b/d, while China shows +1.3 million b/d y-o-y in oil demand growth, then it will be a question of how high and how fast oil prices go.
Governor Waller suggests two significant changes to the Fed’s QT framework that effectively removes all obstacles to an extended QT. First, Waller suggests that the $2t in RRP balances should be consolidated with bank reserves when thinking of bank liquidity levels. This indicates that the Fed would be comfortable with bank reserve levels dropping below the roughly estimated $2.5t minimum level. Second, Waller appears to be open to maintaining QT even if policy rates are cut. This would reverse longstanding Fed dogma where both the policy rate and balance sheet must express the same stance of monetary policy. This post reviews these two developments and suggests that they represent an effort to re-tighten financial conditions by steepening the curve.
A fiscal theory fest at AEI, launch podcast, and official release.
Vince Ginn of the "Let People Prosper" Podcast did a very nice interview on FTPL (Fiscal Theory of the Price Level). Like many economists, Vince has a good monetarist heart, and explaining the difference between FTPL and monetarism was useful for me.
The magic of an SDR-denominated bond.
The world needs a bigger World Bank to boost financial flows to poorer countries, given declines in foreign aid and private financing, as well as for the longer-run and expensive clean energy transition(opens a new window). SDR bonds would be a simple and direct way to help mobilise the needed funds. Let’s do it.
Maybe the authors are correct and the US should be directing more resources to poor countries. But dishonest schemes like this that seek the ‘greater good’ while bypassing national and democratic oversight are the wrong way to do it.
The Debt Ceiling, Once More, with Feeling...
“Wacky” would describe the impossible, illegal, and unconstitutional scenarios being offered by The New York Times, the Treasury Department, and by Members of Congress. These mask the real danger, which is that this hocus-pocus will be used to force cuts in Social Security, Medicare, Medicaid, and much more, using a fake crisis to create a real one. That is the Republican plan. The danger is that Democrats may be trapped, by their own scary rhetoric, into capitulating.
Intel is the Antithesis of "Smart Capital"
The 2029 tenor of bonds is yielding 4.5%, yet the equity is yielding 5.5%. I don’t understand why they would let this happen to the capital structure; frankly, the debt looks absurdly priced. I think the debt is an interesting short if you can do that.
Right now, Intel’s capital structure is almost a ponzi scheme. They are borrowing debt to pay out equity to investors. I understand the fear of dividend funds being forced to sell Intel stock, but this is not sustainable, and as Intel gets more levered, they are screwing over their future even worse.
There are an increasing number of pundits suggesting that we may be on track for a soft landing. I don’t have strong views either way, but let’s assume that is the case; the US is increasingly likely to achieve a soft landing. What then? What should the Fed do next?
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But if the Fed insists on setting rates, and if the economy is indeed on track for a soft landing, then the least bad policy would be to have rates follow a path equivalent to the current market prediction.
My own view is that the risks are still slightly to the upside, toward overheating.
Foreign
At the start of the pandemic, I argued with friends about which industry was likely to emerge successfully out of the Chinese COVID containment effort, in the way that e-commerce emerged during SARS. COVID has been much bigger for China than SARS, and rather than spawning a few big companies, it introduced China’s youth to their destiny.
They might lose the battle, just like street protests and Congressional testimony didn’t end the war in Vietnam, but with time, their experience will have overtaken China’s entire national identity. The traumas of the elders have stunted the lives of their children, but also stimulated new sort of ideals, as China One’s bonsai tree generation grows upwards and outwards.
The Struggle for Israel’s Democracy
To be clear, the protest movement against judicial reform in Israel is not an effort to save democracy. Quite the opposite: It is an effort to save the power of the ruling progressive elite from democracy. For anyone willing to look at the details, it should have been abundantly clear that the reform would, in fact, begin to fix the anomaly of the Israeli juristocracy and make some important strides toward restoring a reasonable balance between the branches of government, moving Israel closer to the norm among Western democracies.
Even at the height of the Cold War, Kennan insisted that “we cannot be indifferent to the feelings of the Great Russians themselves.” Because the Russians would remain the “strongest national element” in the area, any viable “long-term U.S. policy must be based on their acceptance and their cooperation.” Again, Kennan likened the Russian view of Ukraine to the American view of the Midwest. A separate, independent Ukraine could “be maintained, in the last analysis, only by force.” For all these reasons, a hypothetical triumphant United States should not seek to impose Ukrainian independence on a prostrate Russia.
Tackling the European Energy Crisis:
Exiting the Energy Crisis: Lessons Learned from the Energy Price Cap Policy in France
An EU Price Cap for Natural Gas: A Bad Idea Made Redundant by Market Forces
US/Culture
The Fifth Wave: Twittermania—A twisted drama of faith, politics and media, in five acts
The ugly mood at the FBI suggests that the inquisitors of the church haven’t quite settled on a counterattack. The silence is provisional. Twitter Files, in the end, isn’t nothing. It can’t be waved off into oblivion. An adequately lurid tale must be concocted to distract attention: about sexual misconduct, say, or financial scandal. Everyone associated with the Files, from Musk to the cleaning persons at Weiss’ home, would do well to keep their ears open and their eyes peeled, because the hounds are surely on the hunt.
In other words, this creation is precisely what the ancient Gnostic heretics believed themselves tasked with escaping: an envious imitation of Creation, which tempts human souls into captivity within itself.
We should see the promise for what it is: To those thirsting for truth, it’s akin to the vinegar-soaked sponge offered to a dying man two thousand years ago. And when the world seems stripped of life, and of wonder, we should recall the mystery at the heart of that story: that death is not the end, and flesh is not the enemy.
How to Be 18 Years Old Again for Only $2 Million a Year.
This year, he’s on track to spend at least $2 million on his body. He wants to have the brain, heart, lungs, liver, kidneys, tendons, teeth, skin, hair, bladder, penis and rectum of an 18-year-old.
He’s taken 33,537 images of his bowels, discovered that his eyelashes are shorter than average and probed the thickness of his carotid artery.
When this guy dies from either autoerotic asphyxiation or an anti-aging intervention—assuming he’s an organ donor—I hope the recipients appreciate his young, supple organs.
In his defense there is a lot of excitement about epigenetic/methylation clocks—The Universal Clock of Aging
No booze at MSG? CEO James Dolan threatens a 'surprise' over facial recognition flap. James Dolan is a walking advertisement for a confiscatory inheritance tax.
A massive bronze statue of a demoness now adorns the roof of the Courthouse of the Appellate Division, First Department of the Supreme Court of the State of New York. The work of the sculptor Shahzia Sikander, it (and an accompanying figure in nearby Madison Square Park) consists of an unsettling, chimerical figure featuring ram’s horns and tentacular snake arms, but unclothed—apart from late Supreme Court justice Ruth Bader Ginsburg’s trademark Liberace-esque collar. It is a sculptural expression of the age of #MeToo, a symbol of new forms of power—and cruelty.
All of this allows us to view Sikander’s intervention not as a progressive feminist revision of the concept of justice, but a symbolic regression to more primitive forces, and specifically the force of the scapegoat mechanism, the ur-ritual underpinning all others. As the philosopher René Girard showed, the justice system originally derives from this mechanism and its ritualized forms, but domesticates it by submitting it to higher, theoretical principles. When the neutrality of this system is called into question—as it has been in recent years, not least by #MeToo—the primal impulse to discharge psychic violence through sacrificial propitiation resurfaces from the underworld to wander through the world in search of blood.