Energy, Consolidation, & Fed rates. (12-21 to 12-28)
In this week we will be looking at 6 separate newsletters for our macro recap.
We strive to incorporate as many independent views into this newsletter. We want to identify & synthesis this data for our audience, allowing you to get an understanding from a high level what is happening, then be able to quickly dig into the details of the newsletters linked below.
Let's Dive In!
Newsletter: Stenos Signals
Article: The Great Game #6 European Gas Drought?
Link: https://andreassteno.substack.com/p/the-great-game-6-european-gas-drought
Here are the top takeaways from this article:
European countries are worried about gas shortages next winter due to the recent cut-off of Russian pipelines.
A price cap on gas was proposed in order to protect European consumers, but it was met with opposition from some countries.
Germany agreed to the price cap, but only in exchange for a speed-up of renewable energy permits.
Hungary was the only country to vote against the price cap, but it is unclear if they will be able to maintain their position.
The long-term goal of the energy transition is to move away from fossil fuels, but this could take many years and may not be enough to prevent shortages next winter.
There is still a misconception that gas imports from Russia could be quickly re-established, but this is not possible due to the destruction of Nordstream.
Newsletter: Exorbitant Privilege
Article: Exorbitant Chat.
Link: https://exorbitantprivilege.substack.com/p/exorbitant-chat
Here are the top takeaways from this article:
Geoffrey Wood is an economics professor who believes in the Quantity Theory of Money, which says that the amount of money in circulation affects both nominal growth and inflation.
Recently, there has been a push by establishment figures to discredit the Quantity Theory of Money.
In response to accusations that Quantitative Easing may have caused inflation, a former Bank of England Monetary Policy Committee member made a comment that was both intellectually dishonest and depressing.
The scientific definition of a theory is that it is a proof that it is not a conjecture - and the Quantity Theory of Money meets this definition.
There is historical precedent for shocks to the price level that are not caused by fluctuations in the money supply.
What went wrong during the COVID crisis is that the bank made a fundamental misdiagnosis of what was going on and eased money.
Newsletter: BIG
Article: Why Do Analysts and CEOs Keep Calling for Consolidation?
Link: https://mattstoller.substack.com/p/paramount-ceo-bob-bakish-consolidation
Here are the top takeaways from this article:
In recent years, there has been an increase in corporate consolidation in America due to easy money policies and lax antitrust enforcement.
This era may be coming to an end, as interest rates rise and antitrust enforcement begins to crack down on consolidation.
Some executives believe that consolidation will continue unabated, while others are beginning to realize that the old model of deal-making may no longer work.
If the latter is true, then corporate managers will need to learn new business strategies, since monopolization will no longer be an option.
The software industry is one sector that is expected to see a lot of consolidation activity in the next year.
The grocery industry is another sector where consolidation is expected to continue, with Kroger's recent merger with Albertsons paving the way for more deals.
Newsletter: The Market Breakdown
Article: Are you paying attention yet?
Link: https://themarketbreakdown.substack.com/p/are-you-paying-attention-yet
Here are the top takeaways from this article:
The Federal Reserve is widely expected to raise interest rates by 50 basis points at their next meeting in December, and this move is already priced into markets.
However, if job growth and inflation continue to decelerate, the Fed may only raise rates by 25 basis points in February, which would be bullish for risk assets.
Retail investors are mostly out of the market at this point, so it would take capitulation by larger professional investors to push prices lower.
The market is bearish, but if Binance weathers the questions about its solvency, then the worst may be over.
Bitcoin needs to rally for this to happen, and retail investors won't join in a meaningful way, but that's okay because they don't have the supply to hold back the rally.
The author believes that if Binance can stay afloat, then the market will begin to turn around soon.
Newsletter: Retail Economist
Article: The Greatest Capital Misallocation in History.
Link: https://dillonevans.substack.com/p/the-greatest-capital-misallocation
Here are the top takeaways from this article:
The Dot-Com bubble of the 1990s was followed by an even bigger bubble in 2020-2021, fueled by speculation in housing, SPACs, VC, crypto, and NFTs.
Three companies tried to corner the housing market, but lost billions and are now down over 90%.
Sophisticated private investors have also lost billions in the housing market.
The Fed is raising rates in 2023 to curb financial speculation.
Asset bubbles will keep popping in 2023, but a depression is not on the horizon.
Powell has my full support.
Newsletter: Commodity Report
Article: The Commodity Report #83.
Link: https://commodityreport.substack.com/p/the-commodity-report-83
Here are the top takeaways from this article:
The US LEI decreased in November, reflecting weak economic growth.
The only positive contributor to the US LEI in November was stock prices.
The labor market, manufacturing, and housing indicators all weakened in November.
A recession is likely to start around the beginning of 2023, according to a think tank.
Lemon prices have surged in China amid a medicine shortage.
Farmland prices in the Midwest have jumped 20% just in the third quarter from a year earlier.
Newsletter: Stenos Signals
Article: Bond Watch #1 - Why Bank of Japan's YCC tweak may be positive for US Treasuries.
Link: https://andreassteno.substack.com/p/bond-watch-1-why-bank-of-japans-ycc
Here are the top takeaways from this article:
The Japanese government has been trying to get out of a period of stagnation and deflation since the early 1990s. In order to combat this, the government has taken on record-breaking debt and unfunded liabilities.
Yesterday, the Bank of Japan changed its yield curve control policy in a way that caused yields on Japanese government bonds to go up.
Governor Kuroda said that this measure was not a rate hike or an exit strategy, but the market wasn't buying it.
If 8 or 9 year bond yields start trading above 10s during Q1, the BoJ is likely to increase its liquidity measures.
The long USD/JPY trade has been THE policy divergence trade of 2022 and the market has been net short the JPY throughout the year.
If the YCC move from BoJ pulls the rug from under the USDJPY long, it is likely going to make life easier for BoJ in FX-terms by allowing them to rebuild USD reserves.
Newsletter: BIG
Article: Too Much Winning: Antitrust Reform to Become Law.
Link: https://mattstoller.substack.com/p/too-much-winning-antitrust-reform
Here are the top takeaways from this article:
The final version of the government funding bill includes important antitrust reforms.
Key tech antitrust provisions were dropped at the insistence of Senate Majority Leader Chuck Schumer.
The new law will make it easier for state attorneys general to pursue antitrust claims, and applies retroactively to pending cases.
It also requires firms merging to disclose any Chinese subsidies they receive, and expands the information-gathering authority of antitrust agencies.
Funding for the FTC and Antitrust Division will increase by 14%, but this is still not enough to bring them back to their 1970s levels.
These changes signal a more aggressive enforcement policy by the government against monopolies.
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