David Swensen on the investment industry

The mutual fund industry is not an investment management industry.  It's a marketing industry.

~ David F. Swensen, chief investment officer at Yale University from 1985-2021

Gary Mishuris on sticking to the investment process

You have to have the temperament to be successful in this business.  And so if you start worrying about what clients are going to think or what someone else is going to think, you're going about it all wrong.

[...]

Where I can succeed is where a lot of other people I see folding to the pressure and saying, "the market's changed, value investing doesn't work."  I can actually stick to a process when it's really painful to do so.  Most people can't.

~ Gary Mishuris, interview with Dan Ferris, Stansberry Investor Hour, April 15, 2024

Savita Subramanian on the brain drain from active equity investing

My thesis is we've seen a brain drain from active public equity investors to private equity or passive.  That public equity component has been squeezed out by either reaching for growth in private equity - and that's where people are looking for their long-term fundamental exposure - or they're getting low-cost and moving to passive index funds for exposure to the S&P 500.

I think there are massive inefficiencies in the public equity market right now that haven't necessarily been sussed out by expert stockpickers.

~ Savita Subramanian, "Markets Aren't as Efficient as They Seem. Look Closer.," Barron's, February 17, 2024

Patti Domm on the decline of active investing

In 2000, pensions had about 80% of their equity allocation in active public equities.  That has shrunk to about a third of overall equity allocation, with holdings in private equity and passive investments also at about a third each, [BofA Global Research strategist Savita] Subramanian says.

The mutual fund world has also seen big changes.  The number of funds in U.S., long-only, large-cap funds has dropped by 40% since 2013, found BofA Global Research.

[...]

The average number of sell-side analysts covering an S&P 500 stock has fallen by 15% from a peak at the start of 1990, according to BofA.

~ Patti Domm, "Markets Aren't as Efficient as They Seem. Look Closer.," Barron's, February 17, 2024

Burton Malkiel on how the AI revolution is different from the internet bubble of 2000

AI has the promise to make enormous advances in productivity and could be as important as the Industrial Revolution.  And if Nvidia grew its earnings at the rate expected by security analysts in 2024, it would be selling at only 33 times forward earnings.  No wonder its supporters consider it a cheap stock.  Nvidia today doesn't resemble Cisco in January 2000 [which sold at a triple-digit multiple of both trailing earnings and expected results for 2000].

~ Burton G. Malkiel, "Yes, Tech Stocks Really Can Keep Going Up," Barron's, March 9, 2024

Fred Hickey begins buying gold stocks

I bought a slug of Newmont Mining shares at $23.60 that I still happily hold today.  The antithesis of a tech stock, this giant gold mining company is a bet on the end of the 20-year bear market in gold.  It is a bet on an anticipated plunge in the dollar.  It is a bet against Greenspan and the Fed, who I fear will flood the system with money as the stock market and economy continues to contract.  It is a bet against undisciplined fiscal spending and budget deficits.

~ Fred Hickey, The High-Tech Strategist, August 3, 2002

Kevin Duffy on economics and investing

Our ideal economy would safeguard the property of its people, limit the meddling of its government, appreciate the efforts of its entrepreneurs and refrain from watering down its currency.  Sadly, no such state of nirvana exists.  We are all grading on a curve.

~ Kevin Duffy, "Western Media Hates China: For contrarians, what's not to love?," The Coffee Can Portfolio, April 15, 2024

Kevin Duffy on Nvidia's $2.2 trillion valuation

As we speak, Nvidia commands a market value of $2.20 trillion, roughly 3.5 times the annual sales of the entire semiconductor industry. 

[...]

As the table below shows, the 40 or so analysts who follow Nvidia expect the company to sustain 65% operating margins this year and next, more than twice the average of the past five years. The bear case rests on capitalism’s knack for hammering down excess profits. If 2025 revenue comes in 15% light with margins closer to 40%, analysts will be forced to cut their earnings estimates in half. Add some valuation compression and Nvidia could easily lose its trillion dollar market cap status. 

As Bob Farrell, a keen observer of investor sentiment, would say, “When all the experts and forecasts agree – something else is going to happen.”

~ Kevin Duffy, "Bubble? What Bubble?," The Coffee Can Portfolio, April 15, 2024

Kevin Duffy on bitcoin

I heard someone say bitcoin is 80% speculation and 20% hedge against the fiat money experiment blowing sky high. That sounds about right. While I’m largely agnostic on bitcoin, mainly because it is outside my circle of competence, the speculative forces are hard to miss. Exhibit A: MicroStrategy, a modest software business turned large-scale holding company for bitcoin, has been extremely aggressive with its buying lately. In the past at least, that’s been a sign of a top. 

On March 8, MicroStrategy (MSTR) issued $800 million worth of convertible notes paying just 0.625%, above the $650 million initially hoped for. The offering was so well received that, five days later, the company announced plans to raise another $500 million. The fact that investors are handing substantial sums of money over to MSTR on such favorable terms to go speculate in bitcoin is a clear red flag.

~ Kevin Duffy, "Mailbag," The Coffee Can Portfolio, April 15, 2024

Jeffrey Evan Brooks on socialism

Socialism is like Neil Diamond music.  It's not good and belongs in the past, yet there's a group of people who think that it will eventually catch on if only they keep playing it.

~ Jeffrey Evan Brooks

Kevin Duffy on gold

“Gold,” says Jim Grant, “is not so much an inflation hedge as an investment in monetary disorder.”  Havoc is the unfortunate consequence of creating money out of thin air in a desperate attempt to let governments spend more than they take in.  Expenditures on war and luxury, and popular support for their continuance, are the genesis of all fiat money experiments, past and present. 

The tidal wave of extravagant spending in response to Covid got its start under the Trump administration and continued under Biden.  That both men, well over the retirement age, are vying this November to influence the federal purse strings is not lost on goldbugs.  Frugality is not on the ballot.

~ Kevin Duffy, "Gold's Epic Breakout," The Coffee Can Portfolio, April 15, 2024

Cathie Wood on supply and demand slowing Nvidia's growth

Q: What other factors could drag on Nvidia’s growth? 

A: China is working hard on developing its own chips, and so are the cloud-service providers such as Google, Amazon.com, and Microsoft.  Tesla is also designing its own chips since they are mission critical for autonomous driving.  Tesla has already pulled some Nvidia chips out of its cars. 

A lot of demand for chips was pulled forward as companies double- or triple-ordered from Nvidia during the chip shortage, trying to get enough supplies.  That cyclical dynamic could play out in the next few months.  Elon Musk recently said that he’s not having trouble getting chips anymore.

~ Cathie Wood, "Cathie Wood Thinks Nvidia Has More to Prove. Her Favorite AI Stocks—and Why She Still Loves Tesla.," Barron's, April 13, 2024

Alasdair Macleod on BRICS (China's Plan B)

Anyone who's got debt is in trouble.  Anyone who hasn't has counterparties who have debt and they're in trouble.  It also means that the valuation of credit is going to suffer hugely.  If you look at the collateral side of things, collateral for the whole system is basically property and financial assets.  And if they go down in value, commercial banks are going to go out of business, they're going to have nonperforming loans as the euphemism is.

Our Chinese friends are looking at this.  Now they do have a Plan B.  We don't.  Our Plan A stopped at getting rid of gold back in 1971.  But the Chinese have a Plan B.  They have been accumulating, off balance sheet as it were, hidden in various national accounts like the youth wing of the Communist Party, the PLA and so on and so forth.  I reckon that by 2002, when they set up Shanghai Gold Exchange and allowed people - ordinary Chinese people - to buy gold, that they'd already accumulated some 20,000 tonnes.  Remember, there's a big bear market, which allowed them to do that.  From 1983, when the legislation in appointing the People's Bank of China to manage the government's monopoly on this - and not only that, they became invested in becoming the largest gold miners in the world - Russia didn't do this until fairly recently.  But they've now accelerated.  My sources tell me that there are two other funds - call them sovereign wealth funds if you like - that hold precious metals, and the Russians have probably got in the region of 12,000 tonnes.

Their Plan B is quite simple and that is to cut themselves off from all the risks in the West.  What they are doing is quite simple: They are building a trans-Asia industrial revolution based on communications, silk roads, electrification, bringing in the energy providers.  These people aren't woke.  They know what they're doing and they are after developing their economies and improving the conditions for all their population...

It's about 60% of the world's population and 30% of GDP are tied up in Asia, BRICS, Shanghai Corporation Organization and those who have applied to join BRICS.  This is a global anti-Western assembly of nations escaping from the problems we have created for ourselves.

~ Alasdair Macleod, "Ready for the Gold Roller Coaster?," Gold Forum Europe, April 9, 2024

Rick Rule on the disconnect between gold price and equities

Q: Gold is now at an all-time high, but the majority of gold stocks are around 5-year lows.  Can you explain the disconnect?

Rick Rule: Absolutely.  And first of all, gold is only in all-time highs in nominal terms.  In real terms, against the U.S. dollar at least, gold is not at all-time highs.  And people need to understand that when they think about where gold might go.  The second thing is, with regards to the underperformance of the gold price, it's worth noting that the buying of gold is not widespread.  You are not seeing retail buying of gold except in China and India.  The gold purchases that you're seeing are central bank purchases.  And those central bank purchases are really looking for an asset that could be a medium of exchange outside the U.S. dollar.  It's the weaponization of the dollar, rather than the fear of inflation, that is the driver of gold itself.  These gold buyers, central banks, are not buyers traditionally of gold equities, or equities at all, for that matter.  So it makes perfect sense... to say that the gold bull market and the market in gold stocks thus far is disconnected because while the buyer has a need for gold to circumvent the U.S. dollar, the buyer doesn't have a need for gold stocks.

But there's a second reason that I think is worth discovering and that is the chronic underperformance of gold mining companies as businesses for the last 50 or 60 years.  Lucijan, if you were as old as I, which I can tell you're not, you would remember the decade of the 1970s when the gold price went from $35 to $850, the best bull market for gold stocks probably in recorded history.  The hangover from that, if you will, is that the gold stocks the most in that bull market were the ones that exhibited the most leverage to gold.  And the most leveraged companies, ironically, are the most marginal.  If you're a high cost producer and the gold prices goes up, your margin increases faster, ironically, than a more efficient producer.  When the investor, which they have now for the last... 50, 60 years, looked at gold investments, they looked for the most leverage, which is to say the most marginal.  And the industry became very very marginal.

If you look back to the decade 2000 to 2010, the gold price in U.S. dollars was up more than seven-fold and yet free cash flow per share among the XAU [PHLX Gold and Silver Sector Index] in the U.S. declined!  It took real skill to screw up a market where the selling price of your product increased seven-fold and you reduced free cash flow per share.

So the expectations that the investment community has around gold mining companies are extraordinarily low.  From my point of view, that's good news.  It's good news because I don't have much competition on the bid for gold mining stocks.  And I would suggest to you that some investor expectations have become more rational.  I would suggest that most of the management teams that presided over the destruction of capital in the period 2000 to 2010 have been allowed to pursue other employment opportunities.

So I think that the gold industry is held in ill-repute, ironically, right at the beginning of its renaissance and I regard this as a particular opportunity.

~ Rick Rule, interview with Lucijan Valkovic, 7:20 mark, March 28, 2024

Rick Rule on the long bull market in commodities

If you look around a range of commodities over the last two decades; pick one: oil, coal, copper, nickel, even the ones that are down substantially in the last 18 months like lithium.  We are clearly in a bull cycle.  And the reasons for that are really simple: There are eight billion of us on the planet; every day there's more.  For 40 years we've done a great job lifting the poorest of the poor worldwide - 1.5 billion people - out of dire poverty, making them merely poor, as opposed to extremely poor.  Is there a lot more to be done?  Absolutely!  But we've done a great job.  The consequence of that, Lucijan, is that when poor people get more money, which has happened on a wonderful scale for 40 years - the stuff they want to buy is made of stuff.  When you and I get more money we buy some little gadget from Apple or we buy a service.  But when poor people get more money they replace a thatched roof with a metal roof, they replace mud waddle with concrete, they go from barefoot to shoes to bicycles to 55cc motorcycles to a Toyota Hylux.  And this is going on around the world.

Is the bull market going to continue?  Of course!  There's a billion people with no access to primary electricity... a billion!  There's another 2 billion people on earth with access to either intermittent or unaffordable power.  And the same can be said for calorie counts.  The same can be said for the whole range of the material standards of living.  Meanwhile, you want to live better, too.  You want your children to live better than you do.  All of this requires stuff.

~ Rick Rule, interview with Lucijan Valkovic, 5:10 mark, March 28, 2024

Jim Grant on Asian central bank buying of gold

Not everyone cheered when Western authorities immobilized some $350 billion of Russian foreign-currency reserves following the Putin-ordered invasion of Ukraine.  Nor does everyone agree with recent Western proposals to commandeer that cash to shore up Ukraine's defenses.  China, in particular, has withheld its applause, and it may not be coincidental that March marked the 17th consecutive month of Chinese gold purchases.  [The People's Bank of China bought a record 735 tonnes of gold in 2023 according to The Gold Observer.]  Even such central banks as Singapore and Poland, the governments of which harbor no known extraterritorial ambitions, have been stocking up on the legacy monetary asset, the World Gold Council reports.

"The U.S. is essentially throwing its weight around, maybe a little too much," Pierre Lassonde, a cofounder of Franco-Nevada Corp. and a dean of the Canadian mining community, opines to deputy editor Evan Lorenz.  "Looking at the finances of the United States and the enormous budget deficits, just interest on the debt is more than the defense budget.  The dollar used to be called TINA, i.e., There is No Alternative.  Gold is the new alternative.  I call here GINA."

~ Jim Grant, "Gold rush," Grant's Interest Rate Observer, April 11, 2024

Jim Grant on how interest expense was removed from CPI in 1983

"The Cost of Money Is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly," a scholarly paper published in February by the National Bureau of Economic Research, examines the source of the paradoxical detachment of consumer sentiment, which registered 79.4 on the University of Michigan survey (down from 101 on the eve of the pandemic), from GDP growth, which, in the fourth quarter, printed at an annual rate of 3.4%.

The authors' search leads them to a 1983 overhaul of the Consumer Price Index that eliminated interest expense from the cost of living.  Add it back, and today's inflation data look more like the double-digit shockers that may have cost President Jimmy Carter the White House in 1980.

[...]

"When interest paid is considered as a cost borne by consumers and included in the CPI," write the authors, who include former Treasury Secretary Lawrence H. Summers, "the year-on-year inflation rate increases by one percentage point throughout [2023].  When both personal interest payments and the cost of homeownership are accounted for in the CPI, the [year-over-year] inflation rate increases from 3% to 9% in November..."

~ Jim Grant, "Consumers on the couch," Grant's Interest Rate Observer, April 11, 2024

Dan Ferris on decision making

Huge life lesson: if some decision or situation or idea doesn't feel right, there's a reason for that.

Sometimes the reason is that it's outside your comfort zone, but you know it's good for you, so you move forward through the (often merely momentary) discomfort. 

Other times it doesn't feel right because you know it's wrong. Stop. Get out. Immediately. 

Wish I'd learned this a lot sooner.

~ Dan Ferris, tweet, April 11, 2024

Jeremy Hammond: Biden's concerns for humanitarian situation in Gaza is a cynical PR ploy

Under the administration of President Joseph R. Biden, the US government has been portraying itself as being seriously concerned about the humanitarian situation in the Gaza Strip, where Israel has been waging a devastating military assault that the International Court of Justice (ICJ) on January 26 judged to be a plausible genocide...  Biden also said that his administration had been “working non-stop to establish an immediate ceasefire” that would “ease the intolerable humanitarian crisis”. 

“We have been very, very clear about our concerns over the humanitarian situation there and how unacceptable it is that so many people are in such dire need,” White House National Security Communications Advisor John Kirby told reporters.

But the reality is that the US government has been fully supporting Israel’s military assault on the civilian population of Gaza, including by arming Israel and repeatedly blocking ceasefire resolutions in the United Nations (UN) Security Council aimed at enabling the delivery of urgently required humanitarian aid.  Transparently, the Biden administration’s proclaimed desire to help the people of Gaza is a cynical public relations effort aimed at trying to create an illusion that the US government is not complicit in Israel’s ongoing crimes against humanity.

The Biden administration is seeking to distance itself from responsibility for the humanitarian catastrophe because of the support he has been losing among members of his own Democratic party, and with the ICJ already having judged the situation to be a plausible genocide, US government officials are undoubtedly motivated by a desire to avoid potential future charges of complicity and failing in its own moral and legal obligation under the 1948 Genocide Convention to act to prevent genocide.

[...] 

The objections to the Biden administration’s support for Israel’s months-long assault on the civilian population of Gaza coming from within his own political party have created a public relations problem for the White House during an election year, but American voters should not delude themselves into the belief that the US government is a part of the solution rather than a part of the problem. The American people have the power to change the course of history for the better, but they have to actually use it. A simple first step would be to recognize that there are certain positions that ought to automatically disqualify a presidential candidate from consideration—and supporting a genocide is certainly one of them. 

If upholding basic moral values this way rules out all three of the top contenders in the presidential race—Joe Biden, Donald Trump, and Robert F. Kennedy, Jr.—then so be it. 

~ Jeremy R. Hammond, "US Humanitarian Aid to Gaza Is a Cynical PR Ploy," Foreign Policy, March 20, 2024

John Hathaway on central banks replacing U.S. dollars with gold

At this point, one can only speculate on the reasons for the behavior of gold bullion.  There are many interrelated forces at work to explain the slump in the U.S. dollar (USD) relative to the gold price.  However, in our opinion, the most obvious is a general loss of trust in the USD as a store of value and U.S. Treasury bonds as a safe asset. 

Widespread evidence includes record purchases of gold by central banks replacing U.S. dollars and other paper currencies for bullion at a record level in 2023 (1,037 tonnes).  For central banks, unlike mainstream investors, the math on the U.S. fiscal situation dictates immediate action.  The $168 billion increase in U.S. government debt over the last 20 days equals the entire U.S. deficit in 2002, as noted by Fred Hickey in the 4/02/2024 High-Tech Strategist.  By year-end, interest on the national debt is likely to be the largest single U.S. government outlay, according to Bank of America chief market strategist Michael Hartnett (FFFT, The Forest for the Trees, 4/06/2024).  Non-U.S. investors have been voting with their feet, as the steady decline in the USD as a share of global foreign exchange reserves illustrates (see Figure 5).

~ John Hathaway, "What Does the Gold Price Breakout Mean?," Sprott Gold Report, April 10, 2024

What

John Hathaway on the recent gold breakout

The breakout in gold prices since February has been largely ignored by mainstream investors.  Over the past few weeks, gold has moved swiftly from a year-to-date low of $1,993 per ounce on February 13 to $2,230 at the end of Q1 to $2,350 at this writing — a nearly 18% move from its February low.  Continued outflows from gold-backed ETFs attest to the disinterest.  For the 12 months ending 3/31/2024, holdings of global gold-backed ETFs declined nearly 12%.  In addition, 75% of investment advisors have less than 1% exposure to gold, the highest percentage of aversion since 2019, as shown in Figure 1.  

Gold bullion's breakout is significant in that it represents the positive resolution of a three-year standoff, consolidation, or tug of war between bulls and bears.

~ John Hathaway, "What Does the Gold Price Breakout Mean?," Sprott Gold Report, April 10, 2024

The Economist on the decline of active investing

The clearest casualty of passive funds has been active managers...  During the past decade the number of active funds has declined by 40%.  According to Bank of America, since 1990 the average number of analysts covering firms in the S&P 500 index has dropped by 15%.  Their decline means fewer value-focused soldiers guarding market fundamentals.

[...]

For the time being, at least, passive investors have the upper hand.  And unless the concentration of America's stockmarket decreases, it seems unlikely that the fortunes of active managers will truly reverse.

~ "Too efficient: Having killed off stockpickers, are passive funds behind market mania?," The Economist, March 2, 2024

Seth Klarman on contrary investing

Generally, the greater the stigma or revulsion, the better the bargain.

~ Seth Klarman

Meb Faber on investing in China

China's stock market reminds me of Japan.   It's gone nowhere for 30 years and it's in single digit P/E ratios.  We owned very little China for a long time only because the stocks, on average, were very expensive, they weren't doing buybacks, they weren't paying dividends.  It's all speculative type of securities.  We've now slowly started adding China...

~ Meb Faber, "Ignore the Mega-Bubble and Prioritize Shareholder Yield," Stansberry Investor Hour, 44:35 mark, April 8, 2024

John Zolidis on top retailers signaling economic distress

The market is focused on tech, but consumer spending is still 2/3 of the U.S. economy.

I am not a fan of making macro-economic predictions.  Some of the smartest people I know who try to do it are basically always wrong.  However, as a consumer sector specialist, I am close to retailers and restaurant companies.  Their reports provide an important window onto the single largest segment of the U.S. economy.  This in turn lets me pretend I have some insight into the macroeconomic state of things.  Last year, what we saw was weakness develop in the lower-income consumer cohort.  Higher prices (inflation) for basic goods and services were a problem, and any excess monies saved during Covid had been spent.  Outside this group, further up the income spectrum, the balance of the country kept spending.  Last year’s concern was that weakness would eventually leak into more of the consumer base.  This didn’t happen.  The 2023 Holiday season was solid, resumed student-loan payments be damned. 

2024’s early signals are decidedly squishier.  A 1,600-store chain of low-priced discretionary goods, Five Below (FIVE) recently reported that the year had started “soft”.  Lululemon (LULU) later said the same thing.  Then, last week, retailer Ulta Beauty (ULTA) messaged a deeper-than-expected slow-down in the category.  What’s noteworthy about these three retailers is that they all had better-than-expected 2023 revenues.  LULU serves a high-income consumer.  The beauty category had been among the strongest segments in all of retail.  FIVE was seeing accelerating transactions through most of the year.  We can add these signals to already entrenched troubles at footwear retailers, home improvement superstores, car wash operators and the sales of discretionary products at mass retailers among others.  Worrisome?  Maybe rate cuts will save us.

~ John Zolidis, "That Irritating Noise Being Ignored is Sound of Favorite Consumer Companies Signaling Distress," Quo Vadis Capital, April 8, 2024

Sarah Katilyn on the evolution of modern man

Society's problem?  We're bored.  Overestimulated, but utterly bored.  Human beings are hardwired for adventure.  To hunt and hoard, to fight and fuck and conquer.  To rise against challenges and adversaries and emerge victorious.  Failure wasn't an option.  It was victory or death.  What we were not wired for is a placid life on a hamster wheel of 9-5s, endless streaming services, processed foods, social media scrolls & 30 second Tiktoks.  We adapt to our environment.  Too many are walking around numbed out in pastel Crocs with shrimp spines and plus sized fupas.  Couldn't fight a pigeon and win.  What a fucking tragedy. 

~ Sarah Katilyn, tweet, August 6, 2023

Mahmoud Issa on the economic costs of the Gaza invasion

Israel's retaliation has killed more than 33,000 people, with thousands more still unrecovered in the rubble, according to Gaza health authorities. Most of the territory's 2.3 million people are now homeless.

Long blockaded by Israel, Gaza's economy had struggled for years before the current conflict, suffering one of the world's highest unemployment rates.

The economic shock inflicted by the latest war - the deadliest in decades of Israeli-Palestinian conflict - is one of the largest observed in recent history, the World Bank and the United Nations said in a recent report.

As of Jan. 31, it said, the enclave had suffered some $18.5 billion of damage to critical infrastructure - equal to 97% of the GDP in 2022 of Gaza and the West Bank, where Palestinians exercise limited self-rule under Israeli military occupation. 

~ Mahmoud Issa, "A life's work destroyed - Palestinian counts cost of Gaza war," Reuters, April 5, 2024

Palestinian owner of a mobile phone business
holds phones inside his shop which was
destroyed in an Israeli strike

The Economist: "the supposed decoupling between America and China is in fact illusory"

Last year The Economist argued that lots of the supposed decoupling between America and China is in fact illusory.  Look closer, we wrote, and the two countries' economic relationship is holding strong, even if this fact is masked by tricks on both sides.  Since then a growing body of evidence confirms, and strengthens, our original findings.  The economics of America and China are not coming apart.  Indeed, some changes to supply chains may be binding the two countries even closer together.

[...]

A complete picture of Chinese-American trade would cover trade in services, including America's use of Chinese apps and China's love of American films.  But these are difficult to track, meaning that economists have focused their attention on trade of goods, which customs officials measure reasonably accurately.

[...]

The headline [trade] figures do not tell the whole story, however.  To understand why, start with Mr Trump's tariffs, which Mr Biden has largely kept in place.  Before their introduction in 2018, American statistics suggested that America received many more imports from China than did Chinese statistics.  Now the opposite is true.  China reports that its exports to America rose by $30 bn between 2020 and 2023 whereas America says its Chinese imports fell by $100 bn.  If China's data are correct, the country's share of American imports still declined, but by much less.

[...]

Other data provide additional reason for skepticism about decoupling.  "Input-output" tables, as published by the Asian Development Bank, show the share of a country's economic activity that can be traced back to others.  Examining 35 industries, we calculate that in 2017 the Chinese private sector contributed on average 0.41% of American firms' inputs.  That may not sound like much, but it beat the 0.38% that came from Germany and the 0.24% from Japan.  By 2022 China's share had more than doubled to 1.06%, a larger proportional increase than for either Germany or Japan.

[...]

We estimate that since 2019 China's global exports of intermediate goods have risen by 32%, compared with a rise in other sorts of exports, such as finished goods, of only 2%.  The surge is driven by exports to countries such as India and Vietnam, which are two of the American government's preferred trading partners.  American trade with these countries is, in turn, increasing - from 4.1% of its goods imports in 2017 to 6.4% today.  In combination, these trends imply that the two countries often act as something akin to packaging hubs for goods made with Chinese inputs that are destined for America's shores...  Vietnam's trade with America is booming...  [T]he South-East Asia manufacturing high-flyer increasingly plays a role as a conduit, matching Chinese production to American demand.

~ "Still coupled: Why both Donald Trump and Joe Biden have failed to cut ties with China," The Economist, March 2, 2024

Michael Fritzell on China's economic experiment: "A return to Mao-era governance seems unlikely"

It seems to be true that China’s development has occurred in fits and starts, in periods of opening up and closing off.  Perhaps we are now in one of those latter periods. 

I’m not convinced the change will be as dramatic as some might fear.  Private companies face weakening construction activity, reduced access to credit and meddling by Communist Party committees.  But many of them are doing well, and I wouldn’t rule out continued global market share gains in specific sectors of the economy despite weaker headline GDP growth.

A return to Mao-era governance seems unlikely.  While China under Xi has certainly become less free-wheeling than in the past, that doesn’t necessarily mean that the capitalist experiment is over.

~ Michael Fritzell, "China’s capitalist experiment," Asian Century Stocks, March 20, 2024

A poster of Deng Xiaoping demonstrating his commitment
to further economic reforms

Bloomberg Businessweek on muted impact of stimulus in China

The economy is besieged by deflation, a persistent housing market slump and a stock selloff.  And Beijing's piecemeal stimulus policies - such as lowering bank reserve requirements to encourage more lending and issuing more government bonds to fund construction projects - don't seem to be improving sentiment.

[...]

Chinese government advisers' calls for more stimulus reached a fever pitch last summer, and Beijing responded with an unusual midyear dose of deficit spending.  While the timing signaled a welcome flexibility, the scale of the effort, at 1 trillion yuan ($139 billion), paled compared with past interventions.

[...]

Stubbornly low confidence among households and businesses is blunting the impact of stimulus...  One sign Chinese families are feeling less secure: Rather than investing in housing or stocks, they're socking away money away in savings accounts at banks.  Companies are being showered with credit, but outside of growth sectors such as EVs and cleantech, business owners appear to be reluctant to expand amid weak demand and falling prices.

~ "China Limps Into the Year of the Dragon," Bloomberg Businessweek, February 12, 2024

The Economists: "Foreign investors are fleeing Chinese stocks"

Foreign investors are fleeing. They have been net sellers for months, dumping $2 bn-worth of shares in January alone… As miserable as the performance of Chinese stocks has been for most of their three-decade history, the present downturn feels different. That is because China’s economic prospects are gloomier than at any point in recent history. 

~ “Fanning the flames: China’s stockmarket nightmare is nowhere near over,” The Economist, March 2, 2024

The Economist: China's retail investors have lost interest in risk assets

Mutual funds, which invest in stocks and are hard to redeem, saw their smallest inflows in a decade last year.  Money-market funds, which can be sold instantly, grew from 8.1 trn yuan in 2020 to 12.3 trn in July...  Retail investors’ hitherto growing interest in stocks, bonds and investment funds, which the government had hoped would reduce Chinese savers’ fixation with property, has reversed. 

~ “Disrupting dreams: Markets are pummeling China’s well-to-do,” The Economist, March 2, 2024

Colonel Douglas Macgregor on Chuck Schumer's speech on the Gaza invasion

Cyrus Janssen: Senate Majority Leader Chuck Schumer, he did come out a couple of weeks ago and say Netanyahu is the biggest obstacle to peace in the Middle East.  He had a very powerful speech that obviously not supported by the Netanyahu regime.  He was very upset about that, immediately came out blasting him.  Of course you have some people within our Senate and our Congress who had pushed back against Schumer.  Do you think that was really the Democrats trying to somehow save some face here?  Because at one point we just passed a bill for an additional $3.8 billion to Israel and at the same standpoint we are blocking now foreign aid to the UNRWA, which is the only relief agency which actually provides humanitarian assistance to the people in Gaza...

Colonel Douglas Macgregor: Well, first of all I don't think Chuck Schumer was terribly serious about any of it.  That was sort of a smokescreen designed to give, as you say, the Democrats and President Biden some cover.  It wasn't taken seriously in Israel because they know he's not serious.  You heard him speak: "I've supported Israel all my life.  There's no one more supportive of Israel than I am.."  Effectively declaring himself an Israeli.  

~ Colonel Douglas Macgregor, interview with Cyrus Janssen, 12:20 mark, April 3, 2024

Kevin Duffy on Phil Duffy's new book 'A Tale of Four Cities'

To economic historians, the “hockey stick of human prosperity” is that irresistible bright shiny object. Up until 1800, the human population and living standards grew at a snail’s pace, but then a strange thing happened: both took off.

[...] 

In A Tale of Four Cities, Phil Duffy asks an intriguing question: “What if the real inflection point took place 100 years or so earlier?”  Have economic archeologists been unearthing evidence in all the wrong places?  Have they drawn false conclusions?

Challenging simple narratives often leads to valuable, contrarian insights.  By shifting the timeline of the starting gun on human progress back a century, Duffy unlocks a treasure trove.  First, he asserts that the actual dawning was the Agricultural Revolution, which laid the foundation for the Industrial Revolution.  Second, he discovers Richard Cantillon, the first economist to recognize the critical role of the entrepreneur in creating wealth.  Cantillon’s Essay on the Nature of Trade in General was written in 1730, long before Adam Smith’s seminal work, The Wealth of Nations.  Third, he makes a compelling case that Smith suppressed Cantillon’s work and removed the role of the entrepreneur, paving the way for misguided theories which treated entrepreneurship as vulgar and exploitative.

This would largely explain why many people in America, far from appreciating their good fortune, are openly hostile towards ultra-rich entrepreneurs like Amazon’s Jeff Bezos.  It also explains why those same billionaires give openly to anti-capitalistic charities.  It explains why so many countries have destroyed themselves by ingesting toxic theories on wealth creation, from sub-Saharan Africa, to the former Soviet Union, to Cuba and Venezuela.  It explains why governments in the West have grown to oppressive levels, threatening to strangle their productive hosts. 

If Duffy is correct, much of the world today enjoys a level of wealth unimagined by our ancestors despite worshipping false idols like Adam Smith, paper money and democracy.  Future economic progress is not a guarantee.  In fact, the human experiment appears to be at a crossroads.  Choosing the right path may just require getting the timeline right on that bright shiny object.

~ Kevin Duffy, Forward to A Tale of Four Cities, April 8, 2023

Henry Hazlitt on how FDR suspended gold conversion for Americans in April 1933

The possibility of a discriminatory capital-gains tax on gold ‘profits,’ or even of outright confiscation, cannot be wholly dismissed.  We must remember that in 1933, when private citizens began to exercise their clear legal right to convert their Federal Reserve notes and gold certificates into gold, President Franklin D. Roosevelt suspended the conversion, ordered the citizens to exchange their gold for paper money, and made it illegal for private citizens to hold or own gold.  In other words, the government not only broke its solemn and explicit pledge to convert its notes into gold on demand, but treated the holder (and dupe) who had taken the pledge seriously as the real culprit.  And the Supreme Court later upheld the president’s act and the new law. 

~ Henry Hazlitt

1933 St. Gaudens $20, world's most valuable coin,
sold at auction for $18.9 million in 2021

Ron Unz on the ideological transformation of Jeffrey Sachs

Considering both his international stature and the very broad range of his courageous public positions, Prof. Jeffrey Sachs may easily rank as the most consequential American ideological defector of the last one hundred years, with no comparable name coming to my mind.

~ Ron Unz, "The Transformation of Prof. Jeffrey Sachs; America's Most Consequential Ideological Regime Defector," The Unz Review, April 2, 2024

Alex Kane on the Democrat fantasy about blaming Netanyahu for the Gaza catastrophe

[Senator Chuck] Schumer’s address is the most notable of several recent public statements in which Democrats have positioned Israel’s ongoing genocidal assault on Gaza—which has killed at least 32,000 Palestinians and engineered a looming famine for over a million—as “Netanyahu’s war.” ... 

But despite Democrats’ repeated suggestion that Netanyahu is the impetus for Israel’s war, political analysts say that in reality the prime minister’s actions are in step with Israel’s political mainstream.  “Schumer is operating in this fantasy that if you get rid of Netanyahu, you might be able to get somebody else who’s more moderate who could then save the relationship between the US and Israel under the pretense of support for progressive values and democracy,” said Omar Baddar, a Palestinian American political analyst.  But this narrative ignores how Israeli politicians almost across the board agree with Israel’s conduct in Gaza, as do the majority of Israelis.  Yair Lapid, the former prime minister and head of the Israeli opposition, supports the ongoing assault, as does war cabinet member Benny Gantz, Netanyahu’s main political rival and the man who, according to polling, would become prime minister if Israel held elections today...

Instead of constituting a substantive shift in US support for Israel, experts say, Democrats’ emboldened critique of Netanyahu should be understood as an attempt to respond to growing voter frustration without changing policy, as the Biden administration remains unwilling to use US aid and arms exports to Israel as leverage to demand a change in behavior.  In this context, the choice to focus on Netanyahu “is a political decision to avoid outright criticism of Israel’s war conduct,” said Lara Friedman, president of the Foundation for Middle East Peace.  For Schumer, in particular, blaming Netanyahu as an individual was a way “to avoid the implication that he is lessening his support for the Israeli state or the Israeli people,” she said. “Instead, Schumer is focusing on a man who is unpopular among Democrats to say, ‘See, we are standing up for our values, so voters should stop being mad at us.’”

~ Alex Kane, "Chuck Schumer and Democrats’ New Line on 'Netanyahu’s War' The majority leader’s recent speech exemplifies his party’s effort to isolate Netanyahu and pacify voters without changing policy," Jewish Currents, March 26, 2024

Schumer speaks at November 14th
"March for Israel" in Washington, DC

Caitline Johnstone on Israel's targeting of hospitals in Gaza

Why would Israel want to destroy Gaza’s healthcare infrastructure?  The answer to that question has been clear for months: to make the land uninhabitable for the Palestinians.  The same reason they’re deliberately starving Gazans, destroying their homes, continually moving them from place to place and bombing every “safe zone” they create. 

This is naturally giving rise to a situation in which the inhabitants of Gaza will either die or flee to some other country — which just so happens to be exactly what Israel wants them to do. 

It’s so obvious what’s happening here.  Painfully obvious.  Poke-you-in-the-eyeballs obvious.  But we’re still subjected to a western political-media class who keeps forcefully telling us that this blatant ethnic cleansing campaign is not what it looks like.  Telling us that all this starvation and destruction and elimination of healthcare services and the way it directly places pressure on the Palestinians to leave their homeland is just a series of coincidences arising from Israel’s “war” of “defense,”  That only by pure happenstance does it look exactly the same as the advancement of an agenda that Israelis have sought to advance for generations. 

Well I personally am through with having my intelligence insulted, and I hope you are too.  The sky is blue, a spade’s a spade, the emperor has no clothes, and Israel is conducting a very obvious ethnic cleansing campaign in Gaza.

~ Caitline Johnstone, "Israel's Savage Destruction Of Gaza's Healthcare System Is Exactly What It Looks Like," Caitline's Newsletter, April 1, 2024