The End of an Era

Welcome to This Week’s Leyendecker View

If you survive long enough to see tomorrow, it may bring you the answer that seems so impossible today.
– Ben Horowitz on the tough road of entrepreneurship

A BIG THINK

The End of an Era

Way back in 1981, the price of oil, inflation and interest rates were all peaking. Those were difficult days for US businesses and consumers. The 1970s inflation motivated labor to demand more and more wages. And you had to wait in line to buy gasoline that had effectively tripled in price in less than a decade. To buy a house, you had to put 20% down and pay a mortgage interest rate as high as 15%.

Lucky for businesses and consumers, China had recently opened for business, providing the cheap labor that could buffer higher oil prices, higher inflation and higher wages. With expensive energy, expensive capital and expensive labor, Western companies rushed into China as fast as they could. America’s reasonably well-paying blue color industrial jobs moved to China.

Thus began a forty year cycle that has recently ended.

Over those forty years, the prices of goods and inflation declined, while Western wages stagnated. Western companies anticipated and earned greater profits from their Western consumer markets as well as new profits from the cheap-labor emerging market economies.

For forty years, the cost of capital declined, the global cost of labor declined and global supply chains provided ever cheaper intermediate and finished goods prices. Notwithstanding a few global skirmishes, everyone went along to get along and the global economy flourished.

Those days are now over.

Covid’s China origin called into question their alignment with Western values. In time, it became obvious that China had stolen a lot of western technology. How else could a country on the edge of starvation ascend to the top of the global economic heap in a mere thirty-ish years?

The wars in Ukraine and Gaza are much more than skirmishes. These are Westernized countries killing each other’s citizens. They are tearing apart the global fabric that, for forty years, held together the pursuit of profit and fun over historical grievances and ambitions.

We have ended one era and begun a new one. Forty years of ever declining interest rates are no longer in our future. Forty years of ever declining labor costs are no longer in our future. Forty years of evermore productive global supply chains are no longer in our future. Forty years of deflationary influences are no longer around to counterbalance any increases in energy and other natural resource costs.

All of us are reasonably adept at handling incremental change. But handling and adapting to step change is much more difficult. Yet today, investors, companies and people are still stuck thinking the trend lines from 1981 to 2021 will return. They will not. What comes of this new economic and geopolitical era, we really can’t project. Today there are no old trendlines to follow, just new trendlines in the making.

THE ECONOMIC VIEW

JPMorgan CEO throws water on soft landing
Interest rates could hit 8%, he says.

Consumers borrow their way to prosperity
Just like the federal government
Credit card delinquency rates set record

Small business optimism falls
It’s at its lowest level since 2012.

INFLATION, DEFLATION, OR BOTH?

Consumer prices are rising again
So are producer prices
So much for rates declining.

Commodities have rallied
Industrial metals prices jump
Will this be inflationary?
Gasoline prices hit 6-month high

China shock 2.0
What will it be, deflation or a trade war?
China plans massive industrial investment program
Deflation is at China’s door

THE LABOR VIEW

The hottest US job markets
Salt Lake City leads the pack.

You can suck as a CEO.
And still make $33MM a year

A four-day work week is coming
So says billionaire and Mets owner.

MEANWHILE IN EUROPE

Is a German rust belt coming?
Can they compete with China?
Germany’s industrial production grows
Climbing out of the Ukraine realignment.

ECB prepares for June rate cut
Europe’s economy is sputtering

Europe takes climate change seriously.
The Swiss have been convicted of negligence

THE GLOBAL GAME

IMF chief warns the world.
Global economy faces a decade of weak growth
Cheap Chinese exports hurt Western goods makers

Is global debt growth out of control?
How can countries rein in spending?

The big winner in US-China trade war
Go long on Mexico!
Mexico’s inflation undershoots expectations

THE UKRAINE FIRE

Russia destroys largest Kyiv power plant
Ukraine claims to hit Russian warship
Ukraine hits Russian drone factory
This war seems far from over.
But is Ukraine at a breaking point?

US drones in Ukraine under perform
So Ukraine turns to Chinese drones.

Germany sells arms to Israel.
Are they responsible for genocide?

US sends Ukraine Iranian weapons
Captured from the Houthis.

THE GAZA FIRE

Israel kills Hamas leader’s sons
Iran floods the West Bank with weapons
Folks, a real big war looks to be coming.

Everyone wants a Gaza cease-fire.
Except Israel and Hamas

Iran prepares retaliation against Israel.
And tells the US to step aside
Iranian missiles likely headed to Israel

THE SLIPPERY SLOPE

AUKUS group has expansion plans
Western allies line up their buddies.

US-China tensions
Are escalating in the South China Sea
Japan and Philippines side with the US
China pushing foreign chips out

Russia and China are getting chummier
In defiance of the US.
Plotting their offense

FINANCE

VC fund returns are improving.
They are getting less negative

Can regional banks stay relevant?
Not if they follow McKinsey’s advice
McKinsey starts layoffs as business slows

Is an AI IPO boom coming?
Euphoria is subsiding, so better get after it.

Does Blackstone have a cash flow problem?
They’re about to borrow $1B to shore up PE

REAL ESTATE

Realtors aren’t lowering commissions
Unless buyers and sellers demand it.
The hidden costs of homeownership skyrocket

The real estate nightmare in St. Louis
Canary in the coal mine?

Blackstone bets big on apartments
Focus is on the rich renters.

TECHNOLOGY

Apple’s India transition ramps up
Which other companies will follow?

Big tech is covered up in cash
How about they pay down our federal debt?
And they’re cutting corners to train AI

How to fix the internet
Good luck with that.

CHIPPY DAYS AHEAD

Samsung says chip woes are over
They go big in Texas
Japan wants to be big in chip game
Google wants proprietary chips
Intel building its own AI chip
Taiwan chip-maker to get $6B+ US subsidies
]Samsung to get $6B in US subsidies
Is a chip glut coming?
The US lacks capable chip workers

THE CHAT ON AI

AI could collapse social order
Suggests two Japanese companies.

Deepfake nudes of teens
Have blasted their way around schools.

AI to overtake human intelligence next year
Says Elon Musk.
AI models are now capable of reasoning

OUR GOOD FRIEND, FAILURE

California spent $24B on the homeless
And didn’t fix anything.

Seattle gets rid of advanced courses
Meritocracy must be racist.

Care robots are not living up to the hype
They may even create more problems.

THE NEXT NORMAL

Millions of students write papers with AI
Does it make them smarter?

US centenarian population to increase.
By 400% in the next 30 years

A classical liberal arts college closes
The new wave of education
Is old-school style

THE WAR ON CARBON

“The world needs oil & gas.”
Barclays restarts coverage of the sector

Methane-eating microbes
Show promise on wiping out emissions.

The US halted new LNG plant development
It’s gonna make Qatar even wealthier
China wants in on the LNG boom

THE ENERGY TRANSITION

AI has insatiable energy needs
How can it use less energy?

Want your home to be more carbon friendly?
Get ready to shell out the big bucks

The fusion update from MIT
Let’s not give up on this one.

THE EV DREAM

VW created a total EV factory
Can they compete with China?

In India, electric rickshaws
Are leaving EVs in the dust

Chinese EVs are stacking up in Europe
Ports have turned into “car parks.”
China minister defends their EV industry

THE CHINA SYNDROME

Fitch cuts China’s credit rating
Rising risks of public debt.

Xi wants manufacturing to rescue China
Will it work, or will it cause big time deflation?

US private funds are stuck in China
How will they get their money out?

THE WASHING-TONE

Biden plans order to limit border crossings
If it weren’t for the election…

Defense Sec Austin  tells Ukraine to back off refinery targets
They could drive energy prices higher.

Biden goes after 30 million voters.
With a new college debt forgiveness program

THE ELECTION DISTRACTION

Independents are drifting to Republicans
Purdue versus Connecticut?

Abortion wants to be an election issue
Killing fetuses or a woman’s rights?
Trump leaves it up to the states
Democrats want it to be THE issue

The next TikTok content explosion
May be from politicians

MAKING A BETTER YOU

Rather than fearing getting old
Embrace it!

Bathroom fixtures
Will soon monitor your health

You’re only as good
As your worst day

HOW ABOUT A BREAK

Does science fiction shape our future?
Here is what some authors think

This dude really did it in 352 days
He ran from south to north Africa.

A trillion coming your way soon.
A trillion of cicadas, that is

PLANNING A VACATION?

UNESCO announces newest geoparks
More for your bucket list.

The most charming small towns
In all fifty states.

India, a hiker’s paradise
It’s a rising tide country!

SONG OF THE WEEK

“Time after Time”
Eva Cassidy’s beautiful rendition.
She passed at 33 back in 1996.

Bonus track…

The new glamboy, Conan Gray.
“Allie Rose”

CASTING AROUND THE PODS

The difference between discipline and motivation
Shane Parrish interviews Dr. Julie Gurner.

VIDEOS OF THE WEEK

Coup de Chance trailer.
Woody Allen is still at it.

And how about…
The new Doctor Who.

Were $1 Italian homes really worth it?
Learn from other Americans’ experiences.

FROM THE HEADHUNTER’S KITCHEN

Gen Z is into perpetual stew
The stew that never ends.

I discourage you from making this recipe.
Heavenly carrot cake

And do not try
These butter chicken meatballs

THE RANDOMS

As the price of oil fell, so did inflation. Now the price of oil is rising and inflation has stopped falling. If there’s a lag effect here, future inflation could look hotter if the price of oil and other commodities move higher.

Lately we’ve been blessed with cheap natural gas prices, which turns into cheap electricity. What do you think is going to happen with inflation when natural gas prices start rising again? And no, wind and solar are not cheaper forms of energy. Both require expensive commodities to produce.

China is ready to flood the world with cheap goods, particularly cheap green energy goods. Will this cause deflation or a trade war?

So what’s it going to be? Inflation? Deflation? Or what about stagflation?

Has ever more fiscal and monetary stimulus by our federal government over the last forty-ish years created a consumption addiction in our culture?

The stock market boom may be what’s really holding up the economy. With the personal savings rate well below average, what happens if the stock market falls hard?

Some high schoolers are already full of wisdom. As an example, a high school junior named Jadon Chung sent an email to Substack writer Ted Gioia: “I am witnessing my peers and younger kids begin to resent technology simply because of everything it has taken from them. It has robbed them of a life that is fulfilling and actually worth living. Technology has altered people’s perception of reality and it has created an absolute echo chamber of villainizing and dehumanization.”

Not to worry folks, the youngsters have our back. Will Gen Z be our future role models? Are they being set up to be The Next Greatest Generation?

IN CASE YOU MISSED IT

What’s Killing the Golden Goose
April 5, 2024

When Guilt Goes Pagan
March 29, 2024