A #TALE OF TWO CITIES - #ECONOMICS AND #SCIENCE COLLIDE

 SURREAL ECONOMICS OR CONCRETE SCIENCE?

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

Charles Dickens

A Tale of Two Cities

It is fascinating to note that the profound symbolism contained in what many believe to be the greatest novel ever written can be metaphorically applied to the human condition today. The great question facing humanity centers on how to measure its state, progress, and the remaining possible extent of human activities.  Are we wisely using the planet's resources and how long can these resources last and thereby human activities be sustained? To answer these questions we need metrics and numbers to know how we're doing and to see where we're going; for how long.

CITY ONE - SURREAL ECONOMICS

Over time the two cities have evolved to provide the metrics to answer these questions. The first city we refer to as the Theories of Surreal Economics. Its primary metric is global GDP and as we can see from the chart below human progress and achievements have been utterly astounding over the past 300 years, and by the way, so has population growth. What could be better?

GLOBAL POPULATION GROWTH

CITY TWO - CONCRETE SCIENCE

Well, the second city we refer to as the Truths of Concrete Science as they use a different set of metrics that present an opposing view of the human condition and the physical state of the planet's resources and what is required to sustain human activities. The key metrics thus work to measure the overall physical climate, resources, and ecology.  In other words, the real wealth of the planet and, not the abstract surreal version used by the first city.

Here are some charts that show how we're doing using these concrete metrics.

First, here is a recent report from our contact and friend Dr. James Hansen, a world-renowned climate scientist who was the first to testify before the US congress in 1988 and warn the lawmakers about the impending warming of the planet. The chart presented in Table 1  below is deeply disturbing - as it forms a graphical hockey stick similar to the GDP and Population charts above. 

This means that there is a high correlation and good chance of causality between GDP/Population growth and global warming. Extending these variables forwards means that we are heading to ever higher temperatures unless immediate actions are taken to either mitigate or somehow reverse this terrible trend. 

But climate is not the only concern of the second city. The next is resource consumption and how long before these critical resources are practically exhausted for global economic purposes.  Some researchers have targeted the exhaustion date at 2050 based on the current known planetary supplies. We can see from the hockey stick chart below - that just our consumption of critical energy sources over the past 200-plus years also strongly correlates with charts for GDP/Population growth.

These exponential growths in human activity, population, and global warming also adversely affect the other plants and creatures living on the planet which all work together to form the ecology and thereby provide a survivable habitat for humanity. There is also always the possibility that should any small critical link in the ecology be broken, then the whole system could crash into an abyss where unknown, unknowns would prevail.  

The hockey stick chart below again shows a correlation that infers increased human activity, GDP, and population growth results in species' extinctions increasing in tandem. We know that they can survive without us - but, can we survive without them?

CONCLUSION:

So there you have it - two different cities with the two views and realities that they assert. One says don't worry everything is fine - be happy. The other says we are rapidly heading into the abyss where we face the unknown, unknowns of dire consequences. It is truly amazing that what Charles Dickens historically wrote in 1859, can also apply symbolically to our world today - however, the biggest difference today is - we are simply running out of time to get it right.  

And so it is:

'we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.' 

- Charles Dickens

Global Temperature in 2022 FULL ONLINE REPORT 12 January 2023 James Hansen, Makiko Sato, and Reto Ruedy

Global surface temperature in 2022 was +1.16°C (2.1°F) in the GISS (Goddard Institute for Space Studies) analysis[1],[2],[3] relative to 1880-1920, tied for 5th warmest year in the instrumental record. The current La Nina cool phase of the El Nino/La Nina cycle – which dominates year-to-year global temperature fluctuation – had maximum annual cooling effect in 2022 (Fig. 1). Nevertheless, 2022 was ~0.04°C warmer than 2021, likely because of the unprecedented planetary energy imbalance (more energy coming in than going out). The already long La Nina is unlikely to continue, tropical neutral conditions are expected by Northern Hemisphere spring, with continued warming as the year progresses. Thus, 2023 should be notably warmer than 2022 and global temperature in 2024 is likely to reach +1.4-1.5°C, as our first Faustian payment of approximately +0.15°C is due.

Table 1. Rank of 10 warmest years in the instrumental record, based on GISS temperature analysis.

READ MORE MORE THAN A MOVIE

THE GUARDIAN - #OVERPOPULATION LEADS TO #CLIMATE, #BIOSPERE AND #RESOURCE DISASTERS

 

Population growth is a key driver of climate breakdown and biodiversity loss

We should heed the words of the late environmentalist James Lovelock on overpopulation, says Robin Maynard

People gathered in Paris for the New Year’s Eve fireworks. ‘Humanity topped 8 billion last year.’ Photograph: Julien de Rosa/AFP/Getty Images

Damian Carrington catalogues the environmental events of 2022 (Environmental review of 2022: another mile on the ‘highway to climate hell’, 30 December), which he sees as symbolising the “climate breakdown that humanity is careering towards”. He rightly notes that it’s not just our climate that’s breaking down catastrophically, but nature wholesale – with the World Wide Fund for Nature’s Living Planet report 2022 (it would be better titled the Dying Planet report) recording a 69% loss of all wildlife populations over the past half century.

SADLY WE WERE WARNED BY NUMEROUS TOP RESEARCHERS FOR DECADES

Over that same 50-year period, our human population has more than doubled – a key driver of both climate change and biodiversity loss conspicuously absent from the article. Not least the event of humanity topping 8 billion last year on 15 November.

Carrington ends by noting the death of James Lovelock, the brilliant scientist behind the Gaia hypothesis and someone who did not shy away from highlighting inconvenient facts, who once said: “Those who fail to see that population growth and climate change are two sides of the same coin are either ignorant or hiding from the truth. These two huge environmental problems are inseparable and to discuss one while ignoring the other is irrational.”

Robin Maynard
Executive director, Population Matters

BOTTOM LINE - WE CANNOT GROW EXPONENTIALLY ON  A FINITE PLANET

READ ARTICLE & RELATED STORIES

THE #FUTURE #OUTLOOKS - KEY AREAS OF #CONCERN AND #RISK

 

Economic and Markets 2023 Outlook

WARNING 

What Worked for the Past Decades Will Not For The Next

WHAT'S COMING - GLOBAL RECESSION? DEPRESSION? COLLAPSE? 

The era of easy money is over.

Russia’s invasion of Ukraine on February 24, 2022 immediately reversed a decades-long push for globalization as NATO pushed its pledged boundaries.

Rampant inflation proved more structural than transitory as record stimulus led to inflation. This is now causing global central banks to pursue aggressive interest rate increases to tighten monetary policy as they attempt to reign in runaway prices. Good luck.

You can’t sell a NFT picture of an ape or a rock for $1M anymore.

Crypto seemed to learn nothing from the Lehman collapse, while Sam Bankerman-Fried (FTX) seems to have learned everything from the late Bernie Madoff.

Buffett took Woods out to the…Woodshed.

Value investing is cool again, and consensus looks to play defense in the first half of 2023.

WHERE IS BUFFET INVESTING?

In the months ahead our BLOG POSTS are going to walk through what we think are the most important concerns for 2023 and beyond:

• Cash Flow Matters Not Earnings Multiples

• 
  

• Defensive vs. Cyclical Growth Asset Classes

• Energy, Materials, Minerals, Arable Land and 

• Other Key Resource Declines

• Beware of Crypto Currency and Blockchain Scams or the “Next New AI Thing”

• Collapsing National Economies and Currencies Events 

• 
  

Nature Bats Last - Climate, 2050 Limits to Growth, Extreme Overpopulation Exponentials - Foreshadow End Times?

The New Arena

For sure, it’s now all about rates and what their knock-on effects are. In 2022, the impact that rates had was most heavily felt in financial markets.

For equities (e.g. NASDAQ, et al) - it was the effect of a total multiple collapse amongst the growth names that saw the unprofitable tech basket wipe 60-90% off their values. Taking a basket of high-growth software companies, they started the year off trading at an average of 35x EV/Revenue and now trade at 7x. That is a massive collapse of confidence in growth.

In the fixed-income market - over the last decade, we were in an environment of “There is No Alternative”  and now we are in a market where “There are Many Alternatives”.  As rates increased, bond prices got crushed to the point where they put up the second worst year ever on record, (you have to go back to the Great Depression to get #1)

However, you can now find yield everywhere across credit and bond markets instead of having to fish into the nefarious barrel of the red-hot alternatives of scam and criminal markets. As more capital crowds around fixed income markets, lighter volume in equities and crypto hoaxes will cause higher volatility making for a bumpy ride this year.

Of course, rates do not exist in a vacuum and are a global central bank tool used to navigate exogenous factors, but it helps us frame how the reactive policies dictate our investment profiles and keeping in mind that above all else: 

Nature Bats Last and thus humanity cannot defeat the physical outcomes of Exponential Mathematics.

Cash Flow Matters

A lot of ETF and factor people will proclaim that this was the year of value investing and that value investing is back. What they’re really trying to say is that operating margins and cash flow matter, and we couldn’t agree more.

Or else...

2023 BRINGS MOTHER OF ALL COLLAPSES

Executive Committee

Woodgreen Tenants' Association

January 1, 2023

CAN THE #HOUSING #AFFORDBILITY CHALLENGE BE #SOLVED?

 

https://financialpost.com/real-estate/canada-housing-affordability-government-cmhc

Canada's housing affordability problem too big for governments to solve alone: CMHC report

'The scale of the challenge is so large that the private sector must be involved'

MAJOR CRISIS IN THE MAKING

The scale of Canada’s housing affordability problem is too big for governments to solve alone, according to a new report released Monday by the Canada Mortgage and Housing Corporation.

“The scale of the challenge is so large that the private sector must be involved — governments cannot do this on their own,” the CMHC argued, suggesting solutions that vary from financial support and more construction of social and affordable housing for those with lower incomes, as well as increased supply of housing aimed at the market.

The report, authored by the agency’s deputy chief economist, Aled ab Iorwerth, cited statistics showing Canada has experienced the second-highest rate of growth in house prices among a range of developed countries over the last decade.

Since 2010, the price of housing in Canada has skyrocketed by 105 per cent — just behind New Zealand’s 111 per cent growth — the report released Monday said. By comparison, prices in the United States have grown 47 per cent over the same period.

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RBC AFFORDABILITY GETTING WORSE

#BANKS' LEVERED #RISK EXPOSURES #TIGHTENS HOUSING AND RENTAL #MARKETS

 COMMENTS:

OUR VISIONS

Are Highly Durable and Economically Profound...

To all, the very best of the holiday season and for all the coming years... 

OUR FAVORITE TIME OF YEAR

https://youtu.be/EIHdPkaCKbA

 BANKS' LEVERED RISK EXPOSURES TIGHTENS HOUSING AND RENTAL MARKETS

With Canada’s scorching-hot housing markets getting summarily cooled by the central bank’s efforts to dampen inflation, the Big Six banks will face a crucial test to their resilience, according to a new report from DBRS Morningstar. Drawing on data from Statistics Canada and the Canadian Real Estate Association, the report noted that national home prices have dropped for three straight months, with June representing the steepest monthly drop since 2005.

“Although the magnitude of the impact of monetary policy tightening on the housing market is still unclear, rising rates will continue to erode housing affordability at current price levels, further depressing demand and putting downward pressure on housing prices,” the report said. In all, this leads us to reiterate the global economic concerns/factors we reported a month ago as evidence that the Canadian Banks and the economy are also  being swept under the rug by the terrible economic conditions in global housing, food, energy and interest costs.

 Here is a summary of critical global factors that can be tied to the fact that the planet is reaching its limits to growth. Meaning that we have reached the tipping point that cannot be reversed with local band aid approaches. If we do not address these global factors - then the outlook for global society beyond a few more years is highly speculative, at best. 

 

KEY GLOBAL FACTORS

RAPID DEPLETION OF ENERGY AND RESOURCES,

RISING INTEREST RATES, LEADING TO ASSET VALUE DEPRECIATION, CURRENCY/ECONOMIC COLLAPSES

UNSUSTAINABLE EXPONENTIAL POPULATION GROWTH- DOUBLES IN 50 YEARS?

CLIMATE AND ECOLOGICAL DECLINE, MELTING ARCTIC ICE

GROWING GEO-POLITICAL TENSIONS - POPULATION/RESOURCE IMBALANCE WILL LEAD TO MORE CONFLICTS

As  a consequence of this variable equation, there are 50 countries now facing severe economic difficulties breeding social unrest and shortages of living essentials. As they collapse the interdependent global economy will add more countries to the list as both supply chains and currencies disappear from existence.  Regional conflicts will therefore run the risk of quickly spreading as nations become desperate. to maintain civil order.

The underlying cause for all this economic decline and turmoil relates to the historic teachings of surreal and fictitious Salvadore Dali type economic theories and beliefs espoused by top schools, universities and institutions. Teachings and ideas that  failed to understand that the world economy is a quantitative system with limited absolute physics-based materials and minerals available; powered by depleting finite energy reserves.

                         Now look at the mess we're in!

Executive Committee

December 22,2022

https://financialpost.com/fp-finance/banking/banks-more-vulnerable-to-economic-shocks-due-to-decline-of-government-backed-mortgage-insurance-moodys-finds

Banks more vulnerable to economic shocks due to decline of government-backed mortgage insurance, Moodys finds

Wind-down in government stimulus support expected to result in uptick in mortgage delinquencies

Canada’s big banks have become more vulnerable to losses from economic shocks after increasing exposure to red-hot real estates markets in Vancouver and Toronto at a time when the level of government-backed residential mortgage default insurance was declining, according to a new report from Moody’s Investors Service.

Another contributing factor is the winding down of COVID-19 government support programs such as the Canada Recovery Benefit, which have been keeping households solvent and helping to maintain high overall credit quality, the ratings agency said in the report to be widely released on Wednesday.

TOP ECONOMIST WARNS

' We Are In Debt Trap...'

“Our view is that there will be an uptick in residential mortgage delinquency once all support measures are exhausted,” said the report’s author Jason Mercer. “Mortgage losses will likely rise as stimulus wanes.”

The ratings agency noted that the supports including income supplements put in place to offset the economic impact of COVID-19 pandemic restrictions are disappearing at a time when fewer residential mortgages are insured.

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CANADIANS LOSE $500 BILLION IN MOSTLY REAL ESTATE WEALTH

IMF DEEPLY CONCERNED