Where finance and media intersect with reality


In the Blind Spot (Short Squeeze, Autos as Currency, Energy Curves)

Screenshot 2023-02-04 at 02.57.31

This edition of the Blind Spot Wrap was compiled by Izabella Kaminska. It’s been a busy week for The Blind Spot, so apologies for light content this week. A quick heads up that this is the last free edition of this wrap. As of next Friday, this becomes part of our basic premium package. Anjuli Davies will be hosting Spot Markets Live this Monday, with special guest Helen Thomas of Blonde Money.

Finance, Business, Econ etc:

  • Paul Krugman had some views about the Argentinian/Brazilian currency union news. He’s not a fan.
  • Some EU countries were not very happy about Brussels’ plan to expand state aid for industry to counter soaring energy prices..
  • Former European Competition Commissioner Neelie Kroes waxed lyrical about Uber founder Travis Kalanick to Dutch Prime Minister Mark Rutte in 2015, comparing him to her grandson.
  • Spotify can’t make a profit, and CEO Daniel Ek admitted he went too far on podcast spending.
  • Amazon reported its worst annual loss in years, and CEO Andy Jassy revealed that AWS customers were cutting back on processing.
  • There was a record jump in factory fires, which could have a ripple effect on global supply chains.
  • Markets responded erratically to news that global inflation may have peaked. This included a violent round of short covering and derivative cross-positioning.

    As Larry Summers stated in Davos, it’s been a long time since the global economic outlook was so uncertain. Economic indicators may have come in better than expected this past quarter (with most Western economies escaping outright recessions) but markets still haven’t been convinced by the the idea that positive outcomes will be sustained for the long term. Market positioning has proven schizophrenic as a result – as if pricing in a calm before the storm. This saw a lot of money move into so-called anti-momentum shorts, pumping tails ahead of the FOMC meeting. When Wednesday’s Fed guidance eventually tipped things in favour of a “soft landing”, traders moved to reposition towards the centre of the risk curve. A short-covering feedback loop followed, courting chaos in the market. As @PauloMacro recounted on Twitter, the reaction saw the most heavily shorted names roof aggressively. This can be seen in the reaction of the GS Liquid Most Shorted Index:


    Relatedly, the FT’s Chris Giles challenged Governor Andrew Bailey during the scheduled BoE press conference on why the MPC had decided to “put to one side” its notorious fan charts when deciding its current policy path. This came after the Bank had raised rates, by 0.5 per cent, to 4 per cent. The charts currently forecast CPI should hit 2 per cent by the early part of 2024, suggesting a more dovish course could be necessary.

    Governor Bailey took issue with the assertion, explaining that central projections must be offset by the fan chart’s broader range. This, he said, was now indicating the largest upside risk in the history of the Monetary Policy Council.

    MPC member, Dave Ramsden, added: “We are using the forecast but are having to use it in a more nuanced way than we did in the first 10 years of the MPC.” The implication was that the economy had never faced a more uncertain time and market madness is reflecting this.

  • The BoE said inflation may have peaked, but kept its options open with respect to further rate hikes.

    The Bank of England’s original failure to get ahead of inflation has, in some circles, been linked to models that relied too much on input on quickly shifting energy forward curves. With energy driving disinflationary trends, Bailey’s reluctance to ease up on tightening too quickly, likely, reflects a fear of making the same mistake again. “Energy prices may not fall as much as expected in financial markets,” Bailey said. Better to err on the side of caution seems to be the feeling at the BoE, especially given the potential transitory nature of energy effects.

  • But, hey, the real Fed Funds Rate finally went positive:

  • The world’s largest pension fund — the government pension fund of Japan, posted a $14bn loss in the last quarter. Bloomberg reported this was its longest losing streak in two decades.

Automobiles as Currency:

  • Tesla defied the haters by delivering its most profitable year on record, with 1.8m Tesla units in 2023 predicted to be in production.
  • Tesla also said its Shanghai plant would increase average weekly output to almost 2,000 vehicles from February.

    Elon Musk’s critics often note that the billionaire’s commitment to free speech stops oddly short of criticising China or Chinese government officials. While they no doubt have a point, I do wonder if there’s something else motivating Elon’s stance on China than sheer greed. Those who remember the Cold War no doubt remember the critical role Western cars played in undermining the narrative that the communist bloc could stand on its own two feet.

    Nobody really wanted a Trabant or a Lada. What everyone wanted was a Mercedes-Benz. The higher up you went in the official communist hierarchy, the greater your chance of getting your hands on a foreign-made car.

    Overall, it’s amazing how many Western cars managed to flood into the system — to the extent it was the Mercedes-Benz, not the Trabant, which was immortalised in the Rocky IV training montage video as the preferred carriage of the KGB snoops tracking Rocky through the snow:

    While British and German businessmen regularly appeared at trade fairs in the Comecon bloc — because the trade corridor was never truly closed between East and West — the bloc’s import capacity was ultimately limited by a lack of hard currency to pay for top quality Western goods. State control over import-export deals, meanwhile, assured what hard currency there was stayed in the hands of communist elites to be used on goods, like Mercedes cars. In the end, the Mercedes became an aspirational good for most Eastern Europeans in a way that helped to shift sentiment on the ground, ever more, in favour of the West.

    China has a similar appreciation of Western top quality goods and brands. But, unlike the former communist bloc, it does not have a shortage of hard currency. This begs the question whether Tesla car sales could become a critical mechanism for repatriating much of that dollar wealth, and in so doing become an important stealth funding source for Elon’s extracurricular “free speech” operations all over the world (not just in the US).

    At the end of the day, criticising the Chinese from outside of China isn’t ever going to be half as effective as getting the Chinese themselves to speak their minds. But how do you fund dissident groups on the ground when capital and exchange controls constrain your ability to get hard currency in and out of the system? The most obvious way might be to find a way to tap that wealth from the inside and use it to bankroll groups with the capacity to influence change (while distributing cars with the potential to connect to a free and uncontrolled Starlink internet). Sadly, it seems some Chinese officials might be on to the plan.

  • Aswath Damodaran justified his Tesla valuation to haters on both the bull and bear side.

Money Printers:

  • With all eyes on the Fed, the ECB and the BoE, you may have missed that BoJ governor, Haruhiko Kuroda, confirmed that the unrealised loss on the BoJ’s government bond holdings increased to 8.8 trillion yen ($68 billion). Gulp.
  • British central banker, Paul Tucker, published a book called Global Discord. The most shocking thing about it isn’t even that it asserts that the United States needs a course change in monetary diplomacy “beginning with being clearer about the provision of dollar liquidity insurance to other states” but that it costs £22.75 on Kindle.
  • Elon Musk is reportedly adding payments functionality to Twitter while applying for regulatory licences.
  • The ECB’s Frank Elderson channelled Kate Bush in his latest missive on banking supervision and environmental risk.

    While Elderson admits he never really knew the song in his youth, he says it grabbed his attention following its run in Netflix hit Stranger Things because of its underlying message “about a woman and a man in a relationship swapping places to better appreciate the challenges each of them faces”. And wait for it, that’s related to banking supervision because…. while “supervisors and bankers cannot legally swap places like the woman and the man in the song by Kate Bush”, the “ECB’s joint industry events are likewise about us better understanding the challenges each of us faces in pursuing common objectives”. Yep.

The Adani Story in Three Bullet Points:

  • Meet Hindenburg Research, the small short-selling firm founded by Nathan Anderson, which started the trouble for Adani, the Indian conglomerate nobody had heard of until two weeks ago when Hindenburg published its latest short-seller attack.
  • The Adani scheme, purportedly, used shell companies to manipulate the price of the listed ones by holding large positions. Very shades of Enron.
  • As David Ingles pointed out, despite a drop of 50 per cent, Adani Gas was still trading at 360 times earnings this week.

You’re Fired/Hired!

The shift from tech jobs to non-tech jobs continues. The question is: Will this help boost productivity?

Commodity Corner:

  • MIT study finds huge carbon cost to self-driving cars.

    Just because it’s digital doesn’t mean it is green. The brain is the most energy-intensive organ in the human body, so we shouldn’t be surprised that artificial intelligence may prove equally energy intensive in relative terms.

  • Non-Western central banks continued their gold-buying spree.

    According to the World Council this was the ninth consecutive month of net reported additions, with the PBOC leading the way with the largest increases.

  • Shell profits soared to $42bn last year.
  • Cardbox box demand plunged at rates unseen since the great recession, according to FreightWaves.

Media Matters:

It was a bad week for mainstream media.

  • The Columbia Journalism Review’s Jeff Gerth took on Russiagate in a multipart series.

    The 24,000 word piece concluded that news outlets and watchdogs weren’t forthright in examining their own Trump-Russia coverage. The man who brought down Nixon himself, Bob Woodward, meanwhile acknowledged that “news coverage of the Russia inquiry wasn’t handled well and that he thought viewers and readers had been cheated”. He also apparently urged newsrooms to “walk down the painful road of introspection”.

    Many prospective patient zeros were flagged as incubators of the Russia Collusion narrative, among them economist Paul Krugman, who, early on, labelled Trump “the Siberian candidate”.

    Even more fascinatingly, the piece also threw a spotlight on the role played by Fusion GPS — a small group of former journalists-turned-private-investigators operating out of Washington — who hired former British spy Christopher Steele to write the infamous Trump dossier. Gerth reveals the group once tried to hire him for a Trump-related project.

    Gerth says he reached out to more than sixty journalists about the story but only about half responded. And that, “of those who did, more than a dozen agreed to be interviewed on the record. However, not a single major news organization made available a newsroom leader to talk about their coverage.”

  • Not everyone was impressed with the CJR’s Russiagate take. David Corn, Washington Bureau chief at Mother Jones, claimed the piece mirrored “Donald Trump’s own efforts of the past six years to escape accountability for his profound betrayal of the nation”.
  • Matt Taibbi, referenced in the piece, was mad that the mainstream news was once again ignoring the story.
  • John Paul Mac Issac, the computer repair man Hunter Biden left his infamous laptop with, is suing the US President’s son for $75,000 in defamation damages, following reports Biden’s team is seeking a criminal investigation into his conduct.
  • A BBC coverage review found too many journalists “lacked understanding of basic economics”.
  • Love him or hate him, Donald Trump has a talent for coining disparaging monikers. First we had “Crooked Hillary” and “Ron DeSanctimonious”. But now, in the latest assault on the “fake news” media, Trump has delivered “The Failing New York Times“, MSDNC (sometimes referred to as MSNBC) and the Washington Compost (sometimes referred to as the Washington Post). Trump also cautioned everyone to beware the Marxists and Communists who got into government with the help of the fake news.
  • The Washington Post argued against two-sided journalism, saying, “newsrooms that move beyond ‘objectivity’ can build trust”.
  • Danish newspaper Ekstra Bladet apologised to readers for not questioning the government’s data and narratives throughout the first two years of the pandemic.
  • Newsweek gave a platform to medical student Kevin Bass, who argues that, “it’s time for the scientific community to admit we were wrong about Covid and that it cost lives”.

From the “Fake News” zone:

  • Peter Hitchens urged anyone with an opinion on Ukraine to read Benjamin Abelow’s explanation of how the West brought war to Ukraine.
  • Dominic Cummings declared that “the deep state is real” but defended its role in supporting lockdown.
  • Big Brother Watch published an extended report based on Subject Access Requests and FOIs it had undertaken into the role played by British authorities, specifically the Rapid Response Unit (RRU) and Counter Disinformation Unit (CDU), in suppressing and deamplifying speech that was critical of government policy.
  • Peter Hitchens shared some thoughts with UnHerd’s Freddie Sayers about being targeted by the UK’s disinfo 77th army brigade, as revealed by Big Brother Watch.
  • The Rand Corporation published a report which argued that US interests would be better served by avoiding a protracted conflict in Ukraine. It noted: “The costs and risks of a long war in Ukraine are significant and outweigh the possible benefits of such a trajectory for the United States”.

    The think tank highlighted four ways the US could prevent a protracted war: 1) by clarifying its plans for future support to Ukraine; 2) making commitments to Ukraine’s security; 3) issuing assurances regarding the country’s neutrality, and 4) setting conditions for sanctions relief for Russia. The question needs to be asked: Has the Pentagon-affiliated think tank become a Russian apologist disinformation outlet? Or is what it’s saying just increasingly obvious to all?

  • The German media wasn’t very confident about the capabilities of its army.

Holy Wars:

  • UnHerd reported on the Catholic civil war, which is prompting a traditionalist revival that has led to Latin Mass parishes and communities attracting disproportionate numbers of young priests and worshippers.
  • RT reported on how conflict between the Orthodox Christian Church and the Soviet Union helped define modern Russia. *You’ll need a VPN for this one.

    Yes, it’s an RT propaganda piece, and should be treated with kid gloves. But it’s still worth reading. The holy war dimension of the Ukrainian/Russian conflict remains poorly understood. Its connection to schismatic goings-on in the Catholic Church is even less well understood. The Blind Spot’s interest in the story stems from the fact that religious goings often have the capacity to influence geopolitics and money.

    On that basis alone, it’s worth familiarising oneself with how the Russians, given communism’s atheistic roots, view metaphysical issues in the modern age. Of note is the fact that even the communists were happy to join forces with the Church to fend off the Nazis. And it was the Orthodox Church which helped the state raise millions of roubles for the needs of the front during the war. The message from Russia is that the Orthodox Ukrainian Church is being persecuted precisely because it could serve as an instrument of reconciliation between the Russian and Ukrainian people. The Ukrainians on the other hand see the church as a Russian fifth column in their country.

  • The North Atlantic Fella Organization, a.k.a NAFO, (an unofficial counter-Russian trolling battalion operating on the pro-Ukrainian side) inexplicably leaned into the satanic trope the Russian side has been propagating.

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