Discover more from American Economy Daily
Inefficiency, Ineptitude, and Severe Corruption: South Africa in Energy Crisis.
In this week we will be looking at 4 separate sources for our macro recap.
South Africa's Energy Crisis: Inefficiency & Corruption.
FOMC Meeting Update: 10 Months of Rate Increases and Expectations of Below-Trend Growth
Investing in the Goldilocks Regime.
The Rise of Decentralized Authority.
Let’s Dive In!
Title: South Africa's Energy Crisis Could Spark A Political And Economic Disaster
Author: Haley Zaremba
Here are the top takeaways:
South Africa's energy crisis is teetering on the edge of a major political and economic crisis. Bogged down by inefficiency, ineptitude, and severe levels of corruption, the country's power utility Eskom has proven incapable of providing sufficient and reliable energy to the nation's grid, despite the domestic abundance of coal.
Rolling blackouts, known locally as load shedding have become a normal and expected part of day-to-day life in South Africa. In the last 12 months, these blackouts have gone into overdrive, with the power going out several times a day and up to 12 hours at a time. Adding insult to injury, Eksom has added a steep energy tariff to help bolster their own failing finances.
The issue has transformed to a semi-accepted nuisance to a barrier to local livelihoods and the functioning of the national economy. Supply chains that rely on refrigeration to keep the shelves stocked, such as the dairy industry, have had to throw out their products.
Civil unrest is on the rise, and protesters are not only targeting Eksom but also the ruling African National Congress (ANC) party. Challenging Eksom won't be easy as the utility has shown that it isn't afraid to fight dirty. Former CEO Andr de Ruyter tried looking into the company's systematic corruption, and was fed cyanide-laced coffee in his office in what is now being looked into as an assassination attempt.
The ANC, too, is protective of the current way of running things and starkly opposes taking away Eksom's monopoly by privatizing South African power plants. Many ANC delegates have expressed that they think the current power crisis will likely cost the party the next election.
Cleaning up South Africa's act is an essential part of pathway to keeping global warming within acceptable limits. At present, coal represents 80% of the country's energy mix, more than any other industrialized nation.
Phasing out coal and building up green energy infrastructure is a huge challenge for any country but especially so for a nation that's already cash-strapped and lacking energy security even with plenty of fossil fuels.
The United States and Europe are currently working on putting together an $5 billion international aid package to help fund South Africa's green energy transition.
Wealthy nations have historically fallen dismally short with their climate finance pledges, some world leaders are starting make good on those promises and South Africa is set to be one of the first and biggest benefactors.
Website: Wolf Street
Title: What Powell Actually Said
Here are the top takeaways:
At today's meeting, the FOMC raised its five policy rates by 25 basis points, as widely expected. The Fed has now hiked by 450 basis points in 10 months which brings the upper end of the range to 4.75%.
Ongoing rate increases will be needed to get rates to be sufficiently restrictive to return inflation to 2% over time. Shifting to a slower pace of rate hikes will better allow the Committee to assess the economy's progress towards it’s goals. If the economy performs broadly in line with the Fed's expectations, it will not be appropriate to cut rates this year.
At the same time, if the data comes in the other direction, we will make data-dependent decisions. The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done, Powell said.
Restoring price stability will likely require maintaining a restrictive stance for some time. Our forecast is that it will take some time and patience, and we will need to keep rates higher for longer. This is a very difficult risk to manage.
Whereas, we have no incentive or desire to over-tighten, but if we feel we have gone too far, and inflation is coming down faster than we expect, we have tools that would work on that.
Despite the slowdown in growth, the labor market remains extremely tight. Reducing inflation is likely to require a period of below-trend growth and softening of labor market conditions.
Powell said financial conditions have tightened significantly over the last year and that it is important for market participants to reflect the tightening that we are putting in place with our policy decisions. Until we see inflation coming down, we have to be honest with ourselves and see ourselves as having perhaps more persistent inflation which will take longer to get down. We have to complete the job.
The minutes from the meeting will be released in three weeks and will provide more detail on the decision.
Newsletter: Fidenza Macro
Title: The road to recession passes through Goldilocks.
Here are the top takeaways:
The global economy is in a transition period from a hot economy and rate hike cycle to a recession and rate cut cycle. This is a confusing time for investors, as asset prices can grind higher even while some recessionary data is starting to emerge.
Chuck Prince, the former CEO of Citigroup, famously said in 2007 that "as long as the music is playing, you've got to get up and dance." This quote is often seen as an example of the complacency that led to the financial crisis of 2008.
2007 was a Goldilocks regime, where the economy was neither too hot nor too cold. This made it difficult for investors to correctly predict which way the market would go. Bears lost money from shorting a rising market and bulls were ridiculed for overstaying their welcome.
Goldilocks is the transition period from a hot economy and a rate hike cycle to a recession and a rate cut cycle. This is the regime we are in right now. We have seen some recessionary-looking data, but we are not yet in a textbook risk-off scenario where unemployment surges, volatility explodes, and asset prices sell off.
As long as inflation is falling faster than growth (allowing for PE expansion), asset prices have an excuse to grind higher, especially given the amount of cash sitting on the sidelines.
This is a period when consensus bearish positions get squeezed (US growth, crypto) while underinvested asset managers are forced to re-enter the market to avoid falling behind their benchmarks.
While it may be tempting to pile into equities and risk-on trades, it is also dangerous to be short or aggressively positioned risk-off. The best course of action is to carefully select investments that will perform well in this transition period.
YouTube Channel: Mark Moss
Title: This Is Ground Zero for the WEF's Testing Grounds | Marty Bent
Here are the top takeaways:
Despite many signs of economic stress, the overall economy has remained relatively strong. Factors like falling prices in used cars & commercial real estate coupled with consumers overextending themselves financially, blowing through their savings and adding more debt have yet to hamper this economy.
Part of this is due to many people not cutting their spending, even as prices for goods and services have risen. However, it is only a matter of time before this economic stress catches up with consumers and the economy as a whole. When it does, it is likely to result in a recession or even a depression.
The Fed continues to raise interest rates and decrease the amount of money in circulation in hopes that people will be less likely to spend money, which would results in reduced inflation. This approach is misguided and will ultimately do more harm than good.
If the Japanese central bank abandons its yield curve control policy, it could have a negative impact on the Federal Reserve's plans, as Japan is a major holder of US Treasury bonds. China is beginning to move away from the dollar-denominated oil trade, which could further undermine the dollar's position as the world's reserve currency.
The World Economic Forum is proposing that the banking sector and intelligence agencies should be merged in order to better combat cybercrime. This would represent a massive consolidation of power and could have negative consequences for privacy and civil liberties. The FBI is known for entrapment and has been accused of inciting people to give up their rights. The agency has also been linked to the Iran Contra scandal, in which drugs were sold in US streets to fund weapons purchases for the Iranian government.
People are moving away from traditional forms of authority, like the government and towards more decentralized, sovereign forms of authority. This trend is being accelerated by various factors, including the retirement of baby boomers, the coronavirus pandemic, and inflation.
There are many benefits to this trend, including the ability to build alternative communication protocols that are censorship-resistant and the potential to create a parallel economy that is not controlled by the government. This parallel economy would be based on principles of private property rights and freedom of transaction, which would be underpinned by Bitcoin.
There are also some risks associated with this trend, including the possibility that the government will crack down on alternative forms of authority and the potential for abuse by those in positions of power.
Thanks For Reading!
If you find value in this newsletter and want to make sure you don't miss any important updates, you should definitely consider subscribing. By subscribing, you'll be the first to know about new articles and special offers.
We also offer a paid service which will give a breakdown of every source we cover that will be sent out almost daily.
Our Wednesday newsletter will always be free, but to make sure YOU are not missing anything be sure to sign up for our paid subscription.
So DON'T WAIT - hit the subscribe button now and join our community of informed readers.
If you have any newsletters you wish to see in our lineup, please reach out and let us know. We will continually look to incorporate more sources to our weekly wrap-up
Thanks for reading The Macro List! Subscribe now to receive new posts and support our work.