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In the Blind Spot (Dario’s Coup de Blind Spot Edition)

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Our one-stop source for central banking & monetary policy news.

COMMENTARY SNEAK PEEK

Explaining the potential impact of space-bound Russian nukes in orbit.

Why CBDCs will lead to the rise of alternative non-state-controlled currencies. 

Could Bill Ackman be wrong about the indoctrination of students at universities?

Greetings all. It’s with great jubilation that I announce your finance blind spot queen Izabella is currently on half-term, meaning her underling (me – Dario) has taken over The Blind Spot newsletter this week. In my first action as TBS potentate, I hereby announce there will be NO POLISH NEWS this week. Do clamour away. 

Some of you may have enjoyed a lovely Valentine’s Day with your partners this week. I too enjoyed a romantic candle-lit dinner with a bright date:

r/wallstreetbets - Valentine’s day plans

As pictured, my smile is about the fantastic news that Bitcoin continues on its up-and-up trajectory following normie inflows from the ongoing Bitcoin ETF frenzy. The tears, however, are not finance-related. 

 

BUSINESS, ECON AND FINANCE

 

GERMANY SIGNED A DEAL TO IMPORT LNG FROM ALGERIA for the first time, in a sign Europe’s industrial powerhouse is attempting to diversify its energy imports away from Russia to shore up its economy. 

BODY SHOP UK COLLAPSED INTO ADMINISTRATION with thousands of jobs at risk. Up to a 100 stores face closure as a result of poor Christmas sales and an inability to compete with rivals. The true cause behind the downfall of Anita Roddick’s runaway 80s success may or may not be related to its decision to stop stocking bath pearls en masse or its ‘Vanilla’ themed scents, which Izzy tells me were the primary reasons she ever went in there.

WASHINGTON FREAKED OUT OVER MUSK’S invitation to Chinese EV car part makers to come to Mexico. The eccentric billionaire said he hopes to purchase parts for Tesla through some of these Chinese producers that will eventually be produced in Mexican factories. This, we think, is a good excuse to repost the below chart from Barclays reflecting the sudden inflow of investment into Mexico since 2023:

THE GERMAN COMMERCIAL REAL ESTATE MARKET plunged to record lows, with prices falling by 12.1 percent year-on-year in the fourth quarter, and over 10 percent for 2023. The decline in the commercial real estate index was the largest on record since records began 20 years ago. 

JAPAN OFFICIALLY ENTERED A RECESSION as the Nikkei hit an all-time high outstripping the bubble heights set in the last days of 1989. The move calls into question the increasing divergence between economic fundamentals and the stock market.

AMERICA’S POPULATION GREW BY 3.8m, the largest one-year increase in American history, most of which came from increased amounts of immigration, according to official statistics.

THE LAST TIME THE US STOCK MARKET WAS AS CONCENTRATED AS THIS WAS IN 1929. So here’s a chart showing the top 10 percent of stocks by size versus the entire US market via the Daily Shot:
Image

And here, to compound the issue, is a chart via @MichaelAArouet showing how Europe’s stock markets compare:

Speaking of which, Izzy and her new Politico UK financial services colleagues will be ringing the LSE bell on Tuesday morning to help launch the UK dedicated service (which will be perfectly positioned to track the ongoing decline and fall of the City and/or its unexpected emergence.)

TUCKER CARLSON VISITED A RUSSIAN SUPERMARKET and outlined his surprise at the prevalence of Western brands while remarking on the relatively low display prices. This was just days before Putin’s political challenger Alexei Navalny died in a Russian prison.

GERMANY’S PLASTIC IMPORTS ROSE as their domestic production became more expensive than importing from outside the EU. 

SUEZ CANAL REVENUES DROPPED BY 46% in January 2024 after the Suez Canal saw a 36 percent decrease in traffic compared to January 2023 due to the Houthi blockade.

CHRONIC OF BRITISH WORKLESSNESS ON THE RISE as the Office of National Statistics confirmed that over 9 million people of working age are economically inactive, with over two and a half million having left the market on sickness grounds, including mental illness. Surprisingly, economic inactivity increased most among those aged 16 to 34.

DARIO COMMENT: As ever, however, we have little insight into activity in the unofficial labour market and whether this is compensating in any way.

JEFF BEZOS SOLD LARGE AMOUNTS OF AMAZON STOCK. The statistic to note is that out of the $27 billion the Amazon founder has sold since 1997, most of it has come in the last two years. Whether the sales are driven by the pressures of having to sustain a high-maintenance girlfriend or Bezos knowing something about Amazon that we don’t, is harder to tell. But it’s probably worth remembering the sales only make up around 4 percent of his overall holdings in the e-commerce giant. 

CBANKING

 

HEDGE ANALYTICS’ MEYRICK CHAPMAN WAS WORRIED ABOUT THE CASH/FUTURES BASIS TRADE noting late last month that the Fed, the BIS and the Bank of England have now all publicly aired their concerns over how highly leveraged non-bank financial intermediaries may be causing a dislocation in Treasuries as a result of the trade, with exposures holding a face value approaching $1tn, if not more.

THE PHILIPPINE CENTRAL BANK MAY ISSUE CBDCs in two years time, according to Eli Remolona, the central bank’s governor. 

DARIO COMMENT: We will be publishing a piece on the neoMedievalisation of the world this week, which argues that the digitisation of the world alongside the rise of global village is now giving way to a new form of localisation and decentralisation reminscent of the medieval era. CBDCs are likely to play an active role in that transition.

A neoMedieval world, we think, will see decaying centralized systems encourage the rise of CBDCs in a last-ditch attempt to retain power within a fastly fragmenting system. History, however, tells us the consequences of such actions could be disastrous.

Consider the parallel from the late Roman period. The Diocletian era experienced a surge of alternative currency issuance in response to the extended reach and expanding remit of Roman taxation. But rather than liberate people, the currency diversity led to value confusion, eventually opening the door to Diocletian’s monetary reforms focused on the introduction of a maximum price edict aimed at controlling pricing and consumption. Alongside this Diocletian issued a supposedly superior gold currency for trade that was supposed to be inflation-resistant. But rather than resolve the inflationary challenges in the era, the reforms only led to in-kind taxation and serf-like structures imposed by the remaining power systems, while gold coins were merely hoarded rather than spent.

Unlike Diocletian’s disastrous monetary reforms, CBDCs could in theory allow central banks to immediately reduce or increase the amount of currency in circulation, to keep inflation in check thus avoiding the perils of Gresham’s law.

But as with the Soviet Union, the risk lies with the degree to which black markets might flourish to cater to those denied access to goods by the system. Nor will the inherent trade flows be tackled by such a system.

The decline of the West relative to the East eventually saw most of its gold flow to Byzantine, allowing the increasingly prosperous East under Constantine to better control inflation, encouraging a positive economic feedback loop that saw power and influence shift to the East.

Over in the West, financial abuses and attempts at quasi-imperial control exerted by the Catholic Church meanwhile only paved the way for Protestantism and Calvinism and the emergence of small centralised kingdoms under local strongmen and protectorate lords.

Similar negative outcomes could await governments that opt for central bank digital currencies when faced with a litany of crises. It seems likely the real value of CBDCs for central banks is the promise of control. Unlike physical currencies or digitalised physical currencies, CBDCs provide issuers with the potential to programme how and where the money is spent (even if Cbanks insist programmability will only be made use of by private sector actors).

Should a war break out, CBDCs will also in theory provide the opportunity to ‘smartly’ ration goods and services, (even if cbankers claim such usage is not what is intended). Incoming shortages in one good could in theory be immediately tackled by prioritising consumption for certain social groups at the expense of others. Assets could also be frozen for those who refuse to enlist in the army (a move the Ukrainian government has already tried to enact, as referenced last week). In another parallel, it’s worth noting Rome’s only hard currency during its inflationary spell, the solidus, eventually became demarked by the in-kind goods and services necessary to keep a soldier happy. Hence, solidus etymologically gave rise to the word “soldier”.

THE STEALTH POLITICISATION OF CBANKING could pose significant inflation risks, argued Stephan Miran in City Journal earlier last month. The Federal Reserve’s large-scale QE exercises in 2008, and ever since, has erased the barrier between monetary and fiscal policy thus ceding key aspects of monetary policy to the politically appointed Treasury.

GOING GREEN WON’T MAKE US RICHER claimed Belgium’s top central banker, as he urged EU lawmakers to tell the truth about the real costs of “greening” the economy and the loss of wealth it will engender. “The transition is not going to make us collectively richer” he told the European Parliament “we should be more candid … don’t lure people into thinking that greening carries positive opportunities that could augment GDP and create millions of well-paid jobs.” Belgium’s top central banker echoed the concerns of Patrick Pouyanne, CEO of TotalEnergies, who claimed much the same in a recent Financial Times interview. 

 

GEOPOLITICAL HOT SPOTS


IMRAN KHAN USED AI FOR HIS POLITICAL CAMPAIGN 
despite being jailed throughout its duration. From behind bars, the former PM’s campaign openly used AI to replicate his voice and image in the publication of campaign videos. Izzy noted how authors celebrating the “deep fake” technology’s usage by political prisoners they deemed worthwhile inadvertently also explained Trump’s appeal. 

ANTI-WESTERN RIOTS IN THE CONGO were started by locals in the capital city of Goma, angered by Western support of neighbouring Rwanda, which is accused of backing the Tutsi-led M23 armed group whose advance in the DRC is threatening the key city of Goma in the country’s east. 

AZERBAIJAN WAS PLANNING A FULL-SCALE WAR against Armenia, claimed PM Nikol Pashinyan, after a skirmish on the border this week left four Armenian troops dead. Though both sides have engaged in peace talks since Azerbaijan’s invasion of Karabakh, the talks have failed to yield a breakthrough.

GERMANY WAS PLANNING TO NATIONALISE ROSNEFT’s enterprises in Germany, which accounted for 12 percent of Germany’s oil refining industry. The German government holds ownership of these companies under the “fiduciary management” of the Federal Network Agency and is scheduled to decide on the question by March.

OLAF SCHOLZ CALLED FOR THE URGENT MASS PRODUCTION of European armaments, as he warned the continent no longer lives in “times of peace”. The German PM argued European nations should pool orders together to provide the largely private defence industry with purchase guarantees over the next few decades. This would supposedly ensure the EU could build a substantial mass of European-produced armaments.

IRAN LAID CLAIM TO ANTARCTICA and planned to raise its flag on the continent to carry out military and scientific work, the regime announced in late September. These plans included the building of a naval base on its icy shores.

TRUMP PROMISED TO IMPOSE 60% TARIFFS on Chinese goods if he becomes President, which would effectively cease most US-China trade if enacted.

THE PRINCE OF WALES AIRCRAFT CARRIER’S DEPARTURE WAS HALTED only a week after the cancelled trip of its sister ship, whose presence on NATO exercises the Prince of Wales was supposed to replace. While the reasons for its delay haven’t been publicised, the reason for HMS Queen Elizabeth’s recent halting was related to problems with the starboard propeller.

UNCONTROLLED MIGRATION MUST BE STOPPED to ensure the survival of Western civilisation, claimed Polish Prime Minister and EU-phile Donald Tusk. Despite Tusks’ government claiming that pushbacks are “illegal from the perspective of international law”, he outlined his government’s intention to continue tight security along its border with Belarus.

IRAN UNVEILED ITS NEW MOBILE LAUNCHER that is… launched from a container ship. 

DARIO COMMENT: Iranian arms innovation continues to amaze. On one hand the nation spends so much money on the development of decent-quality missiles and equipment, on the other hand, they continue to innovate by constructing “drone-carriers” which are essentially modified commercial bulk carriers.

Meanwhile, they still refuse to launch their equipment from anything that isn’t a cargo container. See below the new Iranian mobile launcher on Iran’s drone carrier, and below the launch of Iranian Shahed drones. 


Iranian Shahed-136 drone just as deadly as Russian cruise missiles, admits  Ukrainian electricity company CEO
It’s almost like the individual in charge of developing their launch systems is an expat-educated Iranian who fell in love with New York’s grunge aesthetic during his 20s and refuses to let it go.

Jokes aside, there is a clear message behind such launches. What’s clear is the implication that any bulk carrier anywhere that has containers could presumably become a location from which Iranian missiles and drones are launched. 

Like I often say – necessity is the mother of all inventions, and Iranians trying to punch up to the Americans with a woefully inadequate economy have made them become experts at the cutting edge of tomorrow’s conflict: low-tech warfare. 

PUTIN CLAIMED HE PREFERS THE BIDEN PRESIDENCY OVER TRUMP’S, and argued that Biden is better for Russia because “he is predictable, he is a politician of an old formation”. His comments came on the back of Trump’s claim that he would encourage Russia to do “whatever the hell they want” to NATO members that don’t meet spending guidelines.
 
DID RUSSIA JUST PUT NUKES IN ORBIT? Alarms sounded in Western capitals as news that Russia’s Aerospace forces may have placed a nuclear warhead into orbit. 

DARIO COMMENT: The internet predictably exploded after US intelligence warned this week that Russia may have developed or executed the launch of a nuclear-powered device into orbit — technically called a Space-Based Anti-Satellite nuclear weapon — but the truth appears to be more complicated. 

This Wednesday, Rep. Mike Turner issued an unusual statement in the US House of Representatives’ intelligence committee regarding a “serious national security threat” which later reports confirmed was referencing Russian space-bound nukes.

Shooting down satellites with nukes may seem a bit of overkill, for sure. But the reality is more nuanced than that: these are likely nuclear-powered devices that can blind, jam, or fry the electronics inside satellites. These nuclear devices can create Electromagnetic Pulses, a nuclear-powered explosion that can fry the electronics within machines from miles away making them the ultimate so-called “orbital area-denial” weapon. 

And what could a proper nuclear explosion in space look like? The acronym is HAND — High Altitude Nuclear Explosion — the effects of which have been studied by the American defence community for decades:

The explosion would leave behind “excited” electrons in regions of the Earth’s upper atmosphere that would significantly degrade the electronics of satellites and rapidly destroy them, as these are only designed to account for low levels of radiation emanating from the sun and stars. If you find this interesting, I suggest reading SentinelOne’s brilliant summary of the topic.

But it all feels a bit absurd. Unless Russia has been secretly deploying satellites with hardened radiation protection, it sounds more like ultimate Mutually Assured Destruction, since their satellites would be just as damaged as those of Americans. And what is even gained from such a threat? The only possibility could be that Russia judges the American military to be that much more reliant on satellite communications than their own, so that such an explosion would give them an edge in an upcoming war.

The Kremlin, naturally, has dismissed these warnings by the United States as a “malicious fabrication.” And it’s worth noting that later disclosures by Antony Blinken that “this is not a (Russian) active capability” echoed later disclosures by US intelligence sources that claimed this possibility was “not an urgent threat” to the United States. 

So what was behind all this kerfuffle? Perhaps Edward Snowden is on the money. He claimed on his Twitter account that the panic memo was “a clumsy attempt by the House Intel Committee” to swing Congressional votes on Friday to A) prohibit spying on Americans without a warrant and B) to ban the government’s purchases of citizens’ private data for surveillance.” Alternatively, this may have been Turner’s way of egging lawmakers to approve the $60bn in additional aid for Kyiv. Recently approved by the Senate, the bill is currently under review in the House. 

While we can’t scoff at the possibility that a greater American dependence on satellite communication may grant Russia an edge should they deny the satellite realm in a potential total war, I can’t help but feel there is more to the story than we know about.

 

CRYPTO EVANGELISM


BITCOIN SURGED PAST $50K 
as continued inflows from ETFs push the price of the favoured cryptocurrency close to its all-time highs. 

JPMORGAN UPGRADED COINBASE’S RATING from Underweight to Neutral. The rationale behind the upgrade appeared to be the significant surge in Bitcoin’s price, which has directly and positively impacted Coinbase’s potential earnings.

MEDIA MATTERS

 
WESTERN CENSORSHIP IS MORE CONCEALED  and poses a greater threat to freedom of speech due to “how it operates in a more concealed, solid and enduring manner”, artist Ai Weiwei claimed in an interview. The Chinese artist and activist said he believed Western censorship was “sometimes even worse” than in Mao’s China. 

WE ALL HAVE AN INTEREST IN SAVING ASSANGE argued Peter Hitchens for The Daily Mail, saying that “even a self-respecting poodle would object to the way we are currently behaving towards the USA” for allowing the US government to seize an individual in the United Kingdom who has broken no laws.

A SUPERBOWL COMMERCIAL FOR RFK featured John F. Kennedy’s original campaign audio with vintage-style images of Robert Kennedy’s campaign. Financed by a Super PAC that is backing RFK, the Democratic National Convention’s increased criticism of Kennedy in recent weeks outlined the possibility his vote share may affect the outcome of the 2024 presidential race in favour of Trump.

WHO SPEAKS FOR BIDEN asked the New York Times, as the increasing presence of John Kirby, spokesman for the White House National Security Council continued to appear at more frequent intervals at press conferences than the official White House press secretary Karine Jean-Pierre.

THE US GOVERNMENT IS HIDING DOCUMENTS that incriminated the intelligence community for undertaking illegal spying and election interference, according to Michael Shellenberger’s Public.

THE “ENTREPRENEUR” WHO MANAGED PABLO ESCOBAR’S TRADEMARK was recently arrested in Marbella. The individual has been accused of fraud and money laundering, and the United States has asked the Spanish government for his extradition.

CBS CRITICISED AFTER FIRING CATHERINE HERRIDGE, an award-winning senior correspondent who sources claimed had run into “internal roadblocks” at the network for her coverage of the Hunter Biden laptop story. 

ACKMAN SAYS HE REALISED SOMETHING WAS UP in American universities when his Harvard-educated daughter began identifying as an “anti-capitalist”, and he felt she had been “indoctrinated” into a cult. 

DARIO COMMENT: Sorry, Bill – you have it wrong. The problem with modern universities isn’t that they encourage Marxist thinking. 

It’s nothing new. Most university students are inevitably drawn to the promise of egalitarian ideologies while they’re income-less and studying ideas. The quote frequently misattributed to Churchill comes to mind — “if you’re not a liberal when you’re 25, you have no heart.” 

Furthermore, there’s a great difference between Marxist and Communist thinking. Marx was ultimately a fascinating historian who wrote many interesting pieces — his work on alienation being a particularly brilliant example. While his Marxist theory of history, which divided historical periods into different struggles between classes, has shown its age, no student who’s read his works can convincingly claim he didn’t have something of a point. But similarly, any studious analysis of his pieces inevitably finds glaring incongruences — especially in his somewhat incoherent Das Kapital (the best parts of which are essentially copied from Adam Smith).

Don’t get me wrong — I’m not a Marxist. My student flat from 2016-2018 had a copy of the Communist Manifesto in our shared bathroom to use as ersatz toilet paper. 

My fundamental problem with this type of “anti-capitalist” thinking is how much it gets wrong about the nature of modern political and economic systems. That’s because today, being pro-capitalist is far more anti-system than being Marxist or anti-capitalist in general.

The economic systems put in place since the Second World War are fundamentally fascistic, which we remind our readers has less to do with capitalism and more to do with Marxism: the idea that state, industry, and workers should seek an alliance to guide the country towards a unified future. You need only read the otherwise critical accounts of Mussolini’s Italy to see most historians — some Marxist historians included — can’t do anything but praise some of his work to unify Italian industry and unions that cemented historic industry-worker agreements that arguably continue to this day. Precisely because in this measure, Mussolini was far ahead of his time: not just the welfare state, but the alliance between state, intelligence services, and industry which came into being during the Cold War.

The second problem with Ackman’s critique is how it misses the point on university indoctrination. We can’t hate places that study ideas — especially in the social sciences — because they turn ideological. It would be like hating a frog for jumping. 

The critical problem with universities is the extent to which positions not accepted by either the university or society are artificially restricted or cancelled. The issue is the ideology that opposing positions should be banned rather than discussed. And this is a problem shared by the left *and* right. 

I was recently talking with an avowedly Marxist PhD student at Boston University in political sciences. She expressed dismay that her university had specifically banned certain left-wing topics from being brought into discussion and that professors had been discouraged from probing into students’ beliefs lest they be offended. 

The problem with higher education can never be the education — but the artificial limits placed on it. Because if you want students to become anti-Marxist, they should read all the Marx they can get their hands on. 


TECHNOLOGICAL DEVELOPMENTS


WAYMO’S SELF-DRIVING CARS WERE RECALLED
after two of Google’s self-driving car unit hit the same truck minutes apart. Both cars appeared to incorrectly interpret what their cameras were seeing and how the truck would move in the same way, leading to a double collision only minutes apart.

APPLE FANS WERE RETURNING THEIR VISION PROS as issues with comfort, which included headache and eye strain, were listed as the top reasons for returns. One of the complaints includes The Verge’s product manager, who said using the device burst a blood vessel in his eye.

SHELL CLOSED HYDROGEN REFUELLING STATIONS for passenger cars in California on February 6 and cited “hydrogen supply issues and other external market factors” for its decision. Despite this, Shell has affirmed its commitment to operating hydrogen truck refuelling stations in the country.

SCIENTISTS ARE RESORTING TO GEOENGINEERING to cool down our planet. Our venerable pulpit of high-IQ, white-clothed self-appointed scientific leaders have decreed that several measures to save the environment, including dumping chemicals into the ocean, or injecting reflective particles into the sky, should be undertaken ASAP.

DARIO COMMENT: A serious logical quandary should quickly highlight the danger and idiocy of engaging in such practices. 

Take a browse through most of the assumptions regarding the nature of climate and science generally in the 19th century. Reading any scientific book written in the period suffices to understand my point; almost all their results and assumptions were eventually proven wrong. And there’s nothing wrong with that.
The point of science is the methodology — not the results. The point of the results is to permanently bring them into question via falsification.

We get into serious trouble when we start mistaking scientific results for truth. Why should now be any different than the 19th century? Do the individuals funding these dangerous experiments which may permanently damage our environment truly believe we now have a total and cohesive understanding of how the world works? 

An interesting anecdote that explains part of this point is the rogue wave phenomenon. Rogue waves are defined as waves whose height is more than twice the significant wave height — the standard largest possible waves based on usual deviations from the wave mean. They typically occur on the high seas. 

Rogue waves had only been recorded in the tales of seamen, who recounted terrifying stories of gigantic waves enveloping and destroying even the largest of ships like a watery Kraken. When scientific studies of waves began in the 19th century, individuals who seriously considered waves breaking the standard deviation were accused of engaging in mythmaking. One such individual was French explorer and naval officer Jules Dumon d’Urville. Despite his prestigious reputation, when Dumont reported on the existence of rogue waves, his claims were dismissed and he was even publicly ridiculed by then Prime Minister Francois Arago.
It was only in 1984, when a reinforced measuring platform in the North Sea was hit by a rogue wave that it was convincingly proved they existed. 
And why was the study of rogue waves ostracised until then? Because until the advent of steel-hulled ships in the 20th century most witnesses to rogue waves were killed, and any measurement devices were destroyed. 

The extent to which our scientific experiments rely on our human biases is part and parcel of the scientific method. There’s nothing wrong with that. But we will be exposed to terrible consequences if we start assuming we have all the answers we need, and use them as the basis to fund noxious experimentation.

MEDICAL MALAISE


PUTIN CLAIMED RUSSIAN SCIENTISTS WERE CLOSE TO DEVELOPING A CANCER VACCINE
though he did not specify which types of cancer the supposed breakthrough vaccines would target. Putin’s vaccine exists among a litany of similar cancer vaccines being researched by several countries and companies. In particular, the UK government signed an agreement with BioNTech last year to launch clinical trials for “personalised cancer treatments” that aimed to reach 10,000 patients by 2030.

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