Month: August 2023

This is a statue of Joan of Arc outside the Église St. Augustin, a church in the 8th arrondissement of Paris. It looks like this picture has a forced perspective from being taken up close with a wide angle lens, but no. This is what the statue actually looks like. If you take a look at the lettering on the pedestal you can see that it looks perfectly normal.

Statues of Joan all look like this. For some reason she's usually portrayed as tall and thin, even though in real life she was 5' 2" and "thickly made."

Predictions of GDP growth for Q3 are all over the map right now. The Atlanta Fed's GDPNow forecast is currently at an eye-popping 5.8% while the Fed's Open Market Committee is effectively forecasting 0%.¹ Here's the range:

So what's really going to happen? I sure wouldn't bet the ranch on 5.8%, but 0% seems a wee bit pessimistic. Maybe 1.5%?

¹Their latest forecast is 1% growth for the whole year. Since GDP is already up more than that in the first half of the year, this implies zero or slightly negative growth in the second half of the year.

Here's a quick summary of reasons to believe the economy is either heading toward recession or heading toward a soft landing. Snip it and then stick it on your refrigerator door.

Bad news:

• Bond prices up.
• Housing prices high.
• China imploding.
• Fed rate hikes starting to bite.
• Personal savings depleted.
• Inverted yield curve.

Good news:

• Unemployment still low.
• GDP forecasts solid.
•  Inflation dropping.
• Consumer spending steady

The Wall Street Journal says bond yields are back to normal. That is, they're rising toward old definitions of normal:

10-year Treasury yields are up 76 basis points since the beginning of April and TIPS yields (inflation protected) are up 69 basis points.

This is not the first time this has happened. Yields were similarly high for a brief period in late 2022 after a run-up caused by the Fed's increase in interest rates. But yields then dropped until the recent steady increase.

If rates stay this high—or rise higher—it's likely to slow down the economy. This is potentially good news for inflation but not such good news for employment. The next few months are not written in stone. Anything could happen.

This chart from John Burn-Murdoch of the Financial Times shows that life expectancy in the US is several years lower than Britain's at all income levels:

However, the difference in UK/USA life expectancy isn't what really strikes me about this chart. Rather, it's the fact that both countries show almost identical curves based on income. In Britain, the richest live 11 years longer than the poorest; in the US it's 14 years. The difference within each country dwarfs the difference between them.

The other thing that's always struck me about this chart is the spike at the very richest level. It's easy to understand why the rich might live longer than the poor, but why does someone in the top 1% live three years longer than someone in the top 5%? Both are likely to have excellent health coverage, so it's probably not that. That means it's likely to be some kind of systemic lifestyle difference. But what?

If you withhold economic data, it means that things must be even worse than anyone can imagine:

China released more bad economic news on Tuesday, but it was the number that wasn’t included in the official data dump that stood out: Beijing said it would stop publishing figures for youth unemployment, weeks after it hit a record high of 21.3 percent in June.

....China has been publishing less economic data since Xi Jinping rose to power. In recent months, authorities have reportedly told Chinese economists to avoid discussing negative trends. Officials have also instructed lawyers working on I.P.O.s to soften their wording on the country’s risks.

Is China just in the midst of a temporary downturn? I suppose that's the way to bet, but I'm not so sure. I think it's more likely to be a harbinger of a permanent slowdown in China's economy, due partly to fundamentals like population growth and partly to Xi Jinping's steady abandonment of free-market policies.

I've often said that if you believe in free-market capitalism as a growth engine, then you should believe in free-market capitalism as a growth engine. I do, with obvious caveats, and this means I don't believe in China. Their housing bubble economy of the moment will eventually recover, just as ours did after the Great Recession, but their long-term growth is going to be weak if they steadily move further away from free-market principles and instead clamp down on private business while tying themselves ever more tightly to the anchor of state-owned enterprises weighing them down.

Needless to say, China will remain a major economic force during all this. And if Xi decides to roll the dice and invade Taiwan while he's still alive to see it, it will be a disaster for the world economy no matter who wins. At a 10,000 foot level, however, the future does not belong to China, no matter how many people say it.

Home Depot is bullish on inflation:

Chief Executive Ted Decker said on a call with analysts Tuesday that commodity inflation in the company’s second quarter declined year over year and is down meaningfully from peak levels. Inflation in product and transportation costs is coming down, and new requests from suppliers for price increases are “negligible” at this point, he said.

....“We’re encouraged that the cycle of inflation is essentially behind us,” he said.

"Negligible." In other words, close to zero. This is promising real-world confirmation that inflation in goods really is in the rear-view mirror.

This is a view from Highway 243 on the way up the mountain toward Idyllwild. It wasn't snowing on the day I was there, but it had snowed a day or two before and the clouds were still a little bleak.

I've been more relaxed than most people about Elon Musk's changes to Twitter, but even I admit that today's news is pretty ominous. Apparently Musk has inserted a 5-second delay when you click on links to sites that he dislikes for one reason or another:

The delayed websites included X’s online rivals Facebook, Instagram, Bluesky and Substack, as well as the Reuters wire service and the Times. All of them have previously been singled out by Musk for ridicule or attack.

....Reuters and the Times previously have been attacked by Musk for reporting on his businesses. Reuters recently published an investigation that found that another Musk company, Tesla, had “suppressed” drivers’ complaints about overly optimistic range predictions for the company’s electric cars.

Musk has berated the Times as “propaganda” and the “Twitter equivalent of diarrhea.” In April, he removed the “verified” badge from the news outlet’s now 55-million-follower account, making it harder for viewers to distinguish it from fake accounts. He also criticized the paper this month related to its coverage of South African politics.

The delay itself is bad enough, but the bigger issue is obviously the fact that Musk routinely retaliates against anyone who annoys him—even if it degrades his own website. It's hard to say which is worse about this: The increasing public childishness of Musk's behavior itself or the fact that his childishness is ruining a once-great resource.

Japan and South Korea are suddenly good buddies:

Having had custody of trilateral relations in GW Bush's second term, I find the meeting at Camp David mind blowing. We could barely get South Korean and Japanese leaders to meet with us in the same room.

https://t.co/OrrtpJsNph

— Dennis Wilder偉德寧 (@dennisw5) August 15, 2023

As they say, an imminent execution concentrates the mind wonderfully. Fear of China is now more important than leftover WWII grievances, just as fear of communism united a fractious Europe and the US during the Cold War.

It's conventional wisdom these days to say that democracy is waning and authoritarianism is ascendant. The evidence for this is paper thin, based on little more than the turning of normal political cycles and a few larger-than-life assholes on the world stage. But these things are transitory. Wait a few years and they turn again. Suddenly Brazil is leftist again, the Tories are facing annihilation in Britain, and Donald Trump is dealing with four separate felony trials.

More important by far are the fortunes of the world's two most powerful anti-democratic regimes, Russia and China. Both are in bad shape. Vladimir Putin has united his neighbors in almost unanimous hatred of him. The ruble has crashed and sanctions are squeezing his economy. Xi Jinping is in little better shape. His bellicose rhetoric has increasingly turned his neighbors against him and the Chinese economy is in turmoil as property values collapse and foreign investment dries up.

Despite everything, Western democracies are in pretty good shape while the world's two biggest autocracies are flailing. This is the real shape of the world. By comparison, momentary autocratic impulses in places like Hungary and Italy, while deserving of resistance, are fundamentally small beer. Eyes on the prize, people.