Media Worth Consuming – March 2023

Top 5 Articles

Whilst US goods inflation has dropped significantly, services inflation remains high leaving the Fed’s preferred inflation measure well above target. Europe is the seeing the same shift, with core inflation at a record high.

Rent controls and high migrations levels have made Swedish housing significantly unaffordable.

Exercise beats pills according to a recent study on depression.

The meaning and history of Easter.

Finance

You can make a good case for either a soft landing or a hard landing. The US leading economic indicators have fallen for the 11^th month in a row, pointing to a heightened risk of recession. American wholesalers are overstocked, which will likely be a drag for future GDP readings.

Earnings quality for American listed companies is at a 30 year low as growing accruals lead to only 88% conversion of profits to cash. The SEC is cracking down on non-GAAP earnings announcements. The gap between cashflow and earnings is usually largest just before a recession. A no name auditor is often the first indicator of fraud at a large corporation. By one measure, earnings manipulation by US corporates is at its highest level in 40 years.

Silicon Valley Bank (SVB) stood out amongst its peers for its high exposure to fixed rated debt investments, with Bank of America well back in second place for unrealised losses. SVB paid out its annual bonuses hours before regulators took control and its CEO sold $3.6 million of shares 11 days before the collapse. The failures of SVB and Signature Bank were the second and third largest bank failures in US history behind Washington Mutual.

SVB’s failure from such an obvious risk points to a failure of American bank regulators. Financial regulation for banks is similar to debt covenants for corporate borrowers. The sudden rating downgrade for SVB is another lesson in the very limited value of credit ratings for banks. Although SVB shareholders lost their investments, it doesn’t mean that moral hazard has been eliminated.

People associated with Signature Bank are claiming that the bank was shut down because of its crypto clients. However, the FDIC has pointed out that the bank had a deficit in its account with the Federal Reserve was unable to provide detail on its liquidity position. The buyer of Signature Bank’s loan book left behind $11 billion of loans to rent stabilised apartments, with the value of the apartments falling by 50% after a 2019 law change restricted the owner’s ability to raise rents in line with market levels. First Citizens Bank bought most of SVB’s assets off the FDIC at 23% discount.

Five academics have estimated that hundreds of American banks are in a worse mark to market position than SVB, but their analysis appears to exclude any impact of interest rate hedging. Charles Schwab’s depositors are pulling their funds as its unrealised losses increase.

Private lenders are bypassing investment banks and working directly with private equity firms on $5 billion leveraged loans. Emerging market debt has been hit hard with Tunisia, Pakistan, Bolivia and Egypt all considered distressed. The London Metals Exchange found stones instead of nickel in its warehouse in Rotterdam affecting 0.14% of its contracts.

Some holders of bank hybrids were margin called after panic selling following the zeroing of Credit Suisse’s hybrids. European regulators are trying to calm down hybrid investors after the Swiss regulator wiped out Credit Suisse’s hybrids. Bank regulators have blamed Deutsche Bank’s sell-off on a single €5 million CDS trade. American banks are increasingly competing for deposits offering rates above 5%. An Austrian and a Russian bank are working on a capital swap to release funds each has stuck under sanctions, but there’s a good chance regulators will block it.

81% of American early-stage startups have less than 12 months of capital, pointing to a wave of shutdowns in late 2023 and early 2024 now that funding conditions have tightened. A handful of elite Australian graduates are earning over $500,000 per year as traders straight out of university. Contrary to popular belief, when Matt Levine takes a day off markets tend to be less volatile.

Politics & culture

Australia’s whistleblower laws have failed to protect a public sector whistleblower who followed the protocols from facing trial over disclosing information. The Western Australian government program that aims to assist low and middle income earners to purchase a house has been criticised for having interest rates of 8%, as loans are priced for the higher risk from borrowers with low deposits.

France’s pension changes are a choice between reform or bankruptcy with the country’s bloated welfare state unsustainable. The US government is pointing the finger at a pro-Ukrainian group for the explosion at the Nord Stream gas pipeline. How the Chinese government’s spy network recruits foreigners to steal intellectual property.

Economics & work

Australia’s net migration was around 400,000 in 2022, which along with the rate of housing formation has put a rocket under residential property rents. Commonly cited poverty rates are horribly misleading. There are not enough rich people to finance a welfare state, low and middle income earners must also pay significant taxes. A study based on a Spanish UBI experiment found recipients were 14-20% less likely to work after two years and the reduced willingness to work lasted even after the free transfers stopped.

Venezuela is another lesson in the disaster that comes with Socialism and MMT. Argentina’s inflation rate topped 100%, a rate it last hit in the early 1990’s. In Zimbabwe, credit slips are being used to overcome the lack of trust in the national currency and a lack of US dollars.

A study from the San Francisco Fed came to the obvious conclusion that low interest rates lead to yield chasing, which ends up causing financial crises. American taxpayers are set to lose $800 billion from the Fed’s QE4 bond buying. Japan’s Frankenstein monetary policy will end with either default or high inflation.

30 razor sharp quotes from Thomas Sowell. The Economist’s dictionary of economic terms. Austrian economics is ignored in government policy because it acknowledges the truth that models and plans rarely work. A new book by two economists argues that consultants are good at creating the “impression of value” but deliver little of substance.

Miscellaneous

Despite having contracted Covid at least twice, Novak Djokovic is still banned from travelling to the US for tennis tournaments due to not being vaccinated. 10 points of misinformation that were promoted by governments and “experts” on Covid. Kinder Surprise is banned in the US for the perceived choking hazard, with border officials seizing tens of thousands each year.

The research on artificial sweeteners is unclear, with some studies pointing to them creating a greater craving for sugar amongst some consumers. Latvia is aiming to cut drink driving rates by donating the cars seized from drinker drivers to Ukrainian hospitals and military units. Does the world need water sommeliers?

A male powerlifter temporarily identified as a woman and broke a world record to make a point about transgender policies in sport. The WWE wants to legalise gambling on its matches, even though the matches are scripted well ahead of the event. A long article about the laid back king of cliff diving.