Zero­Hedge News

• Gold And The Shrink­ing Trust Hori­zon
  Gold And The Shrink­ing Trust Hori­zon

  Via John Rubino’s Substack,

  Last week I posted an arti­cle on the implo­sion of the offi­cial vac­cine narrative.

  That’s a con­tro­ver­sial topic so not sur­pris­ingly it gen­er­ated some heat on both sides. And a few read­ers expressed the wish that I’d stay in my lane (pre­cious met­als invest­ing) and avoid ven­tur­ing into unre­lated and less well under­stood territory.

  But believe it or not, the pub­lic health estab­lish­ment los­ing its cred­i­bil­ity is related to pre­cious met­als, via some­thing called the trust hori­zon. It works like this: When things are good and the peo­ple in charge of big sys­tems seem to be run­ning them well, we’re con­tent to trust the experts. We keep most of our money in banks, bro­ker­age houses, and crypto wal­lets that exist for us only as web­sites. We buy pro­duce that’s grown in a dif­fer­ent hemi­sphere and shipped via boats, trains, and trucks to cor­po­rate chain gro­cery stores. We vac­ci­nate our­selves and our kids accord­ing to the sched­ules set by the NIH or the CDC. We pop pills on our doctor’s orders with­out doing any research. We eat processed foods on the assump­tion that the FDA keeps them free of dan­ger­ous addi­tives. And we believe what we see on cable news.

  In other words, our trust hori­zon, defined as the dis­tance from our­selves at which we’ll believe what we’re told, is global. We assume every­thing every­where is work­ing for our ben­e­fit and we’re thus will­ing to put our wel­fare in those dis­tant hands.

  But let some big sys­tems fail to take proper care of us and we pull back, find­ing peo­ple and insti­tu­tions closer to home that we can see and judge first-​hand.We move our money out of dis­tant banks and bro­kers and into local credit unions whose man­agers live down the street. We start buy­ing gro­ceries from farm­ers mar­kets or directly from local farm­ers. Instead of pop­ping what­ever pill is stan­dard for our ail­ments we look into “food as med­i­cine” and other lifestyle reme­dies like exer­cise, sup­ple­ments, and med­i­ta­tion. We home­school our kids and join gun clubs. We buy home­steads and start rais­ing chickens.

  So where are today’s Amer­i­cans on the trust hori­zon spec­trum?Well, the mil­i­tary indus­trial com­plex is start­ing (poten­tially nuclear) wars all over the place. Gov­ern­ment debt is grow­ing expo­nen­tially. Wall Street has turned the mar­kets into one big casino. Uni­ver­si­ties have become (very expen­sive) insane asy­lums. Con­gress is full of insider traders who amass for­tunes while “serv­ing the pub­lic.” And our pres­i­dents, well, insert your sar­cas­tic phrase here.

  It’s safe to say that for a grow­ing num­ber of dis­il­lu­sioned peo­ple, trust now extends to – maybe — the governor’s man­sion, city hall, local farm­ers, their church and one or two com­mu­nity banks. And that’s about it.

  Where does gold come in?

  The biggest of the big sys­tems that the experts have failed to man­age is money. If we can’t trust the mon­e­tary author­i­ties to main­tain the value of the dol­lar (and in the past year we’ve learned that we emphat­i­cally can­not) then we need other forms of money to trust. And that would be gold and sil­ver, the forms of money that dis­il­lu­sioned peo­ple have been run­ning to since lit­er­ally before the Roman Empire.

  The advan­tage of pre­cious met­als lies with the con­cept of “coun­ter­party risk.” Fiat cur­ren­cies and pretty much every­thing else in today’s world require some­one (the coun­ter­party) to keep a promise for the thing in ques­tion to per­form as advertised.

  For your dol­lars to hold their value, the Fed must keep the money sup­ply under con­trol. For your bank account to work your bank has to stay sol­vent. Like­wise your bro­ker­age house. But gold and sil­ver have no coun­ter­party risk. No one must keep a promise for them to stay valu­able. They are what they are, regard­less of the behav­ior of the world’s experts. That’s why those experts hate pre­cious met­als and why reg­u­lar peo­ple redis­cover them every few generations.

  Looked at this way, you can draw a direct line from the vac­cine mess to gold and sil­ver coins and bars stored in a safe place. And the line is get­ting thicker and stronger with every new scandal.

  * * *

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  Tyler Dur­den Tue, 01/​31/​2023 — 11:41
• France ‘Open’ To Send­ing Fighter Jets To Ukraine While UK Says “Not Prac­ti­cal“
  France ‘Open’ To Send­ing Fighter Jets To Ukraine While UK Says “Not Prac­ti­cal“

  Here we go again… French Pres­i­dent Emmanuel Macron in Mon­day com­ments sig­naled open­ness to send­ing Ukraine advanced fighter jets, some­thing which Kiev has broadly asked its allies for since nearly the start of the Russ­ian invasion.

  “Noth­ing is excluded in prin­ci­ple,” Macron said imme­di­ately fol­low­ing talks with Dutch Prime Min­is­ter Mark Rutte when pressed by reporters about the ques­tion of fighter jets for Ukraine. The Dutch pre­mier him­self had weighed in too say­ing, “There is no taboo but it would be a big step.“But he noted, “It is not at all a ques­tion of F-​16s, there has been no demand (from Ukraine).”

  Macron added that the French “are not mak­ing this request at the moment for fighter jets” — in what appears a first con­fir­ma­tion that the Ukrain­ian gov­ern­ment has not yet gone through with a for­mal ask. Macron’s fresh remarks, how­ever, are likely to be seen from Kiev as an invi­ta­tion to pro­ceed with a for­mal request, while will putting more pres­sure on Paris and the West­ern alliance. Ukrain­ian offi­cials have long been going through Poland, it seems, to press the jet issue with NATO com­mand in Brussels.

  Macron stip­u­lated that jets for Ukraine must “not be esca­la­tory” — mean­ing that they would “not be likely to hit Russ­ian soil but purely to aid the resis­tance effort.” But obvi­ously advanced fight­ers would be esca­la­tory by the very nature of send­ing them after Moscow has reit­er­ated its “red lines”.

  As for the rest of Europe, on the same day that the White House said that it would not be send­ing jets, Britain’s Prime Min­is­ter Rishi Sunak said it would not be prac­ti­cal.

  “The UK’s … fighter jets are extremely sophis­ti­cated and take months to learn how to fly. Given that, we believe it is not prac­ti­cal to send those jets into Ukraine,” a spokesper­son for the British prime min­is­ter told reporters. “We will con­tinue to dis­cuss with our allies about what we think what is the right approach.”

  Indeed given train­ing on the Abrams M1 tank could take at min­i­mum six months, some­thing as sophis­ti­cated as Western-​made fighter jets could take years for pilots unfa­mil­iar with their sys­tems to get com­bat ready on. Ger­many too has issued a firm “no” amid mount­ing pres­sure from Ukraine for jets.

  Mean­while it’s no sur­prise that the Euro­pean coun­try press­ing the hard­est to send jets con­tin­ues to be Poland. War­saw has been press­ing the rest of NATO to trans­fer jets since the open­ing months of the war.

  On Mon­day Pol­ish offi­cials expressed readi­ness to send US-​made F-​16s to Ukraine, but empha­sized it would only do so in coor­di­na­tion with NATO. “We will act in full coor­di­na­tion here,“Pol­ish Prime Min­is­ter Mateusz Moraw­iecki said.

  Since he started lob­by­ing for F-​16 deploy­ments so quickly, is it rude to point out that Admi­ral Stavridis is a Man­ag­ing Direc­tor of the Car­lyle Group, whose recent acqui­si­tions include Stan­dar­d­Aero, a global defense con­trac­tor that pro­vides main­te­nance ser­vices for F-​16 engines https://t.co/pgdBROIywf

  — Michael Tracey (@mtracey) Jan­u­ary 30, 2023

  A spokesman for the Ukrain­ian presidency’s office, Andrii Yer­mak, posted a state­ment to Telegram say­ing “Work on obtain­ing F-​16 fight­ers con­tin­ues. We have pos­i­tive sig­nals from Poland, which is ready to pass them on to us in coor­di­na­tion with NATO.”

  The Ukrain­ian offi­cial then aimed his state­ment at Moscow, stress­ing provoca­tively that “Tanks, fighter jets — a great com­bi­na­tion for turn­ing Russ­ian ene­mies into fertilizer.”

  Tyler Dur­den Tue, 01/​31/​2023 — 11:20
• Blain: Euphoric, Hasty Mar­kets Are Mis­priced
  Blain: Euphoric, Hasty Mar­kets Are Mis­priced

  Authored by Bill Blain via Morn​ing​Por​ridge​.com,

  “These beans will make you rich son…..”

  Mar­kets have a habit of get­ting over-​excited. They get FOMO and become over hasty. Although the out­look is improv­ing, there is cer­tainly lit­tle to jus­tify some of the more spec­u­la­tive hype dom­i­nat­ing mar­ket moves. Time a bit of ratio­nal think­ing and com­mon sense – con­sider Tesla as an exam­ple of mis­placed hopes…

  Com­mon Sense vs Hastiness

  This morn­ing I find myself strug­gling to fig­ure out this mar­ket. Mar­kets are broadly risk-​on, when all my logic is scream­ing risk-​neutral until we really see how infla­tion and inter­est rates are likely to set­tle. We will get more direc­tion when we see and hear what Cen­tral Banks actu­ally do – the Fed tomor­row and the BOE and ECB on Thurs­day – rather than how the mar­ket hopes they will act!

  The fact the IMF is now revis­ing global GDP fore­casts higher in the light of US strength, China reopen­ing and gen­eral resilience is pos­i­tive. It’s clear the over­all global pic­ture is much less bleak than it seemed just a few weeks – a clear exam­ple of my mantra: “Things are never as bad as you fear, but sel­dom as good as you hope.”

  Curi­ously, I am less wor­ried about macro geopol­i­tics – China will have absorbed lessons from Ukraine, and is as keen for an eco­nomic boom as any­one else. Rus­sia is effec­tively a busted but rabid mad dog – which is a prob­lem. Energy inse­cu­ri­ties are being addressed. That said, we should be look­ing at a new World Order – fig­ur­ing out what the ren­im­ibi­sa­tion of com­modi­ties, the rise of an inde­pen­dent post-​US Gulf as the world’s pre­mier cap­i­tal spigot, and the emer­gence of a real South Asian eco­nomic growth block, col­lec­tively mean. Clue: significant.

  On the imme­di­ate threat-​board I’m wor­ried how poten­tial fail­ure in domes­tic pol­i­tics across the West will play out. I can’t help but feel the lat­est polit­i­cal incom­pe­tency in the UK spells fur­ther desta­bil­is­ing ruc­tions within the Con­ser­v­a­tive Party to come.

  But what wor­ries me most is the appar­ent return of Overly Euphoric mar­kets.Stocks are behav­ing as if earn­ings are about to boom, con­sumer and gov­ern­ment spend­ing is about to go through the roof, and rates are going to return to neg­a­tive yields – all of which are highly unlikely. The cost of liv­ing cri­sis, unsus­tain­able debt, embed­ded infla­tion, plus the need to unravel the con­se­quences of a decade of over-​easy rates, need to be addressed – not brushed under the equity mar­ket carpet!

  The worst thing you can ever believe about mar­kets is they are intel­li­gent. They aren’t. They are sim­ply the sum of what every­one is think­ing. The crit­i­cal thing about the sum of what every­one is think­ing: not every­one is right. Some views are eas­ier to accept than oth­ers. This becomes impor­tant in equity markets.

  • The worlds of equity tend to be inhab­ited by opti­mists – who are always pre­pared to believe the eco­nomic glass is half full. This makes then sus­cep­ti­ble to the dread mar­ket con­di­tion of Euphoric Shock – and believe fool­ish things. The issue with Eupho­ria is its dan­ger­ously infec­tious and trig­gers the dan­ger­ous con­di­tions of FOMO (fear of miss­ing out) and Hasti­ness. This means equity mar­kets are vul­ner­a­ble to opti­mistic upside mean­ing stocks tend towards overvaluation.

  • In con­trast, debt/​fixed income investors are a dour bunch of pes­simists who spend their lives star­ing into half-​empty cups – always assum­ing the worst about every­thing. They are vul­ner­a­ble to DnG – Doom and Gloom – always assum­ing the worst is yet to hap­pen. As a result bonds tend to be soberly priced to the down­side risks.

  Its more fun to go to par­ties with equity investors, but you are likely to have a least bad hang­over if you go to ones hosted by bond traders…. Human his­tory is lit­tered with exam­ples of putting our trust in the wis­dom of oth­ers, when the real­ity is they didn’t have a clue what was hap­pen­ing. Get­ting it absolutely wrong is not uncom­mon. Par­tic­u­larly in markets.

  A good exam­ple may be the cur­rent furore over Indian ports-​to-​energy-​to-​everything con­fab­u­la­tion called Adani. (Inter­est­ing to see Gulf SWF’s osten­ta­tiously sub­scrib­ing to the new equity IPO yes­ter­day – what’s the deal one won­ders?) Hin­den­burg called Adani out as swim­ming naked last week, and the com­pany has been forced into dam­ag­ing rebut­tals that have only increased the sense they are wrong-​uns. $25 bln of debt now looks dis­tinctly dis­tressed in the face of the many ques­tions invest­ment com­mit­tees and audi­tors will be ask­ing from their posi­tions of per­fect hind­sight. That there might be “incon­sis­ten­cies at the core” of one of the largest Indian com­pa­nies will, I am sure, be a mat­ter of con­sid­er­able shock and sur­prise to many investors… Ahem..

  No mat­ter how much we analyse, con­sider, stress test, sce­nario model, and delve into the mar­ket out­look – try­ing to pre­dict the out­comes.. there is always that ele­ment of doubt. What am I miss­ing about the down­side? What fac­tors haven’t I spot­ted that will sup­port upside? It boils down to that most rare of mar­ket imputs.. Com­mon Sense.

  But in peri­ods of Eupho­ria – we have the onset of FOMO and Hasti­ness. They act like lever­age.This is a lit­tle under­stood mar­ket phe­nom­ena – hasti­ness occurs when FOMO is rife, and peo­ple feel they need to make deci­sions in a hasty way. Hasti­ness is the antithe­sis of Com­mon Sense.

  Let me try to explain by pick­ing one of the overly-​hasty stock sto­ries of the cur­rent mar­ket: Tesla.

  Reg­u­lar read­ers will know I am not a fan of Elon Musk, but I have no prob­lem with Tesla. It’s a very good auto com­pany. They deserve full credit for the emer­gence of the EV mar­ket, and should prob­a­bly trade at a pre­mium to the sec­tor – while they retain a clear mar­ket lead. But today, Tesla is mas­sively over­priced for what it is and what can hap­pen around it. I see its fair value being on a P/​E about ¹⁴⁄₁₅ times – at the moment it trades on 55! Its auto-​competitors trade in sin­gle dig­its. It is a good firm, but way, way too expen­sive to its future prospects.

  I sim­ply don’t get the cur­rent enthu­si­asm for Tesla. The stock is up nearly 50% this year. 66% of ana­lysts rate it a buy, only 9% reckon it’s a sell. Fol­low­ing rather puffy results last week, the stock soared 33% over the week. That’s stag­ger­ing for a stock that already looked over­priced, but it can still be explained by fac­tors like “the Musk effect”: which basi­cally boils down to the hope his com­pa­nies will still pro­duce extra­or­di­nary returns, no mat­ter what the pedes­trian truth might be. There is a large ele­ment of froth.

  One of my col­leagues – who is a Tesla fan – sent me a sum­mary of all the pos­i­tive Tesla com­ments from ana­lysts. They boiled down to the following:

  • Improved visibility/​demand trajectory.

  • 2mm units in the com­ing year is very achievable.

  • Strong quar­terly results and cor­po­rate message.

  • Build­ing a moat round cus­tomer base by cut­ting margins

  • Price cuts will trig­ger fur­ther demand, swamp­ing production.

  • Order rates out­pace capac­ity by fac­tor of 2:1

  • Bat­tery pro­duc­tion increasing.

  • Falling auto mar­gin will be off­set by stronger energy and ser­vices revenues.

  • Main­tain­ing lead­er­ship in EVs.

  Good pos­i­tive stuff.. They paints a pic­ture of a com­pany at the fore­front of its sec­tor. But nowhere in any of the buy-​side analy­sis is any of the kind of stuff we used to read about Tesla when it was described as the most inno­v­a­tive auto dis­rup­tor on the planet. The cur­rent reports are sur­pris­ingly quiet about the kind of data dri­ven, tech mul­ti­pli­ers, or the auto-​driving rev­o­lu­tion the ana­lysts promised us were going to make Tesla worth tril­lions – back when it was a “dis­rup­tive”, hi-​tech, hi-​growth stock.

  Now it’s just a stock – albeit a good one. Today. Tomor­row is another place entirely.

  Telsa has matured. For­get the hype – all that mat­ters is the price. What makes Tesla worth 50 times earn­ings when Toy­ota is worth 10 times but pro­duces 7 times as many cars? Telsa makes great EVs, but so do lots of oth­ers. I recently drove the new Volvo. Not a Tesla.. but very fine in its own way, and high­lights the com­pe­ti­tion is learn­ing. In China, where ana­lysts expect Tesla to do well, it faces mas­sive com­pe­ti­tion. It is too many years since Tesla intro­duced a new model. Detriot, Ger­many, Japan and else­where have all played catch-​up and fill­ing Tesla’s shal­low com­pet­i­tive moat.

  What has hap­pened to Tesla’s E-​Truck? What hap­pened to autonomous dri­ving? How does cut­ting their mar­gins (they slashed car prices a few weeks ago) jus­tify a stock rally – when halv­ing its mar­gins means it has to run twice as fast to stand still?

  You could argue it’s all about out­look – as EVs increas­ingly dom­i­nate the Auto­sec­tor, Tesla’s 17% mar­ket share will increase. That’s fine – let’s assume it becomes as large as Toy­ota. Why would it be worth a greater mul­ti­ple? Now it’s a large, grow­ing busi­ness, but recent price cuts demon­strate its com­pet­i­tive moat is shal­low. Declin­ing mar­gins and increas­ing com­pe­ti­tion isn’t a good look – espe­cially when all the evi­dence on con­sumers strug­gling to keep up pay­ments on car leases is look­ing bleak.

  One ana­lyst, Vijay Rakesh of Mizuho was in the press say­ing that lates num­bers show “good results” and “mar­gins bet­ter than feared”. He warned about “weak con­sumers and afford­abil­ity” as chal­lenges, but he still expects a fur­ther 33% upside to $250! Why?

  I remain highly scep­ti­cal and uncon­vinced. If EVs really are the future of per­sonal trans­port. I have my doubts across lithium bat­ter­ies, power grids and charg­ers, and alter­na­tives. I expect the mar­ket will get even more com­pet­i­tive. It took 20 years for Tesla to go from “inter­est­ing story – but will it ever mean any­thing” to poten­tially the most over­priced stock in mar­ket. Who knows who may do cre­ate another new par­a­digm shift in autos via hydro­gen, or capac­i­tance, or hybrid? Any­thing is possible.

  Look at the his­tory of any other new emerg­ing tech sec­tors and ask how many of the orig­i­nal air­craft man­u­fac­tur­ers sur­vived the first 30 years… What­ever hap­pened to Wright Broth­ers, Sop­with, Fokker, Curtis…

  Tyler Dur­den Tue, 01/​31/​2023 — 11:00