Economic Homeostasis

Welcome to This Week’s Leyendecker View

It is only men who are free, who create the inventions and intellectual works, which, to us moderns, make life worthwhile.
–Albert Einstein

THINKING OUT LOUD

Economic Homeostasis

Are we in the midst of a soft landing? Have we avoided recession? The answer is “yes” and “no” to both of these questions. The answer is a matter of time; it is dependent upon at what point in time it is asked.

We did avoid a recession in 2023. This has led us to believe our economy is in the midst of a soft landing. But no economy avoids a recession forever. Another will invariably surface, as they always do. The moment we start thinking our economy is bullet proof, some catalyst will likely surface to prove us wrong.

Remember back in 2021, when Fed Chair Powell said that inflation would be “transitory”? Now that inflation has subsided measurably, we can say that it was transitory. But all inflationary periods come to an end eventually. So by the mere passage of time, inflation is always transitory. What Powell didn’t know back in 2021 was for how long inflation would continue to increase. It lasted longer than most everyone expected. The question is not, is it transitory. The question is, for how long will it last, and how much pressure can it put on other aspects of the economy in that time.

In fact, this is the question for all economic phenomena, good and bad, from inflation to recession to expansion—how long will they last, and what will be their impacts throughout? What side effects will they have? What pressure valves will they release or intensify, and then what will be the next slew of side effects that change our economic situation yet again?

The economic seasons are always turning, each influenced by the last. And each influenced by various circumstances surrounding them, including innovation and geopolitics.

Like the four seasons of a year, ultimately the economic seasons inevitably always return with a similar intelligence, seeking a similar balance, a kind of ultimate homeostasis across all economic seasons.

In winter, invisible rejuvenation happens below the surface. Eventually, it gives way to the rebirth of spring, which we see above the surface. Summer is a period of sustenance and sunshine. Fall signals it’s time to prepare for another period of restoration and repair. Economic influences are similar—when one influence creates an imbalance, another appears to function as a counterbalance to ensure a kind of ultimate balance and constant, if even fitful, forward movement.

Consider the globalization boom from 1981 to 2021.

In 1981, US companies were struggling with a multi-year period of ever higher energy cost, ever higher labor costs and ever higher interest rates. These input influences were squeezing profits.

Then, due to despair from decades of communist policy, China realized it had no choice but to enter the Western world of trade in order to avoid a mass starvation crisis. “CHEAP LABOR!” screamed struggling Western companies. Just in time, tech companies like Apple, Microsoft and Dell emerged with products that allowed Western companies to outsource entire categories of work to cheaper markets. And 40 or so years of globalization followed.

Eventually, globalization began showing signs of diminishing returns. It created too many imbalances, demanding a transition to the next economic season to help alleviate pressures and regain a kind of balance. New economic influences are emerging to counterbalance those of globalization.

A good part of China’s “success” seems to have come from their theft of Western intellectual property. While they took our IP, they didn’t take our values and style of government. Now China is a global economy, threatening the hegemony of Western countries. Consequently, we’ve begun a new season of reshoring, nearshoring and friendshoring.

Another new influence today is the rising cost of energy—a near direct result of efforts to combat climate change. And since there is no more ever cheaper global labor, Western labor is now clamoring for higher wages and better working conditions.

And then another major influence is declining populations, which will put new pressure on economies. Over the next few decades, many countries may not have enough workers to keep their economies growing. Should it surprise us, then, that AI may allow us to significantly increase the productivity of all processes and labor?

To everything, there is a season. This includes the economy. Perhaps it’s useful to remember that no season lasts forever. This means that periods of abundance will inevitably come to an end, but so too will periods of scarcity. Any given winter may be longer, colder and darker than we’d like, but it will always give way to spring. And throughout each season, various influences and counterbalancing influences, seen and unseen, are always emerging to achieve a kind of ultimate homeostasis across the seasons of economy.

No one is taking the word “cycle” out of the dictionary any time soon.

THE ECONOMIC VIEW

Producer prices are rising
Inflation is rising again
Retail sales keep rising
Tough time to reduce interest rates?

Americans’ financial insecurity at record high
According to Northwestern Mutual survey.
Medical debt at unprecedented levels
CPI for medical costs

US manufacturing index keeps declining
They call this a soft landing?

THE INFLATION BOGEYMAN

Home insurance rates may skyrocket.
44%+ of US homes at risk due to climate change

Goldman thinks oil is going to $90 soon
And how will this affect inflation?

What’s driving up car insurance?
It could be the data your smart car collects
Over $1,000 a month
That’s the cost of car ownership.

THE LABOR VIEW

Why more CFOs are becoming CEOs
Managing finances becomes a higher priority.

Toyota hikes wages
Global wages are on the rise.

Who still works from home?
44% of those with undergraduate degrees
Gen Z will return to the office.
If you pay them more

MEANWHILE IN EUROPE

Italy’s economy outshines Germany’s
WTF?

Terrorist threats rising in Europe
Does war create more war?

Is Europe at risk from climate change?
Could it destroy their financial system?
Europe’s climate policy is severely flawed.
It relies on untested carbon-capture tech

THE GLOBAL GAME

Conservative coalition might form in Holland
They’ve run out of other people’s money

Which countries trust their news?
Finland does, the US doesn’t.

Technology’s explosive growth.
Will it drown developing economies?

THE UKRAINE FIRE

Is Russia starting to crack?
Two years and no victory in sight.
Ukraine to deploy F-16s soon
Russian Avdiivka advance stalls out
Ukraine targets Russian oil assets

Ukraine has sunk 15 Russian ships.
So Putin fires his navy commander

Wary of Russia’s future intentions
Poland wants more NATO spending.

THE GAZA FIRE

Biden keeps scolding Netanyahu
US Senate leader calls for new Israeli government
What hubris we have in this country.

Israel facilitates more Gaza aid
But will it fall in Hamas’ hands?
Dropped Gaza packages kill people
Is it ever possible to avoid collateral damage?.

Hamas leaders not interested in ceasefire
How much uglier will this war get?

THE NEW COLD WAR

Putin eyes a new world order
A legend in his own mind?

The threat to American hegemony
Is a new global order coming?
Is America headed for an existential crisis?

China seeks to reshape global trade.
On their terms

WAR WIND IN THE SAILS

AI warfare is already here
Drones and AI, do we still need people?
Drone making is big in Iran

Prepare for “maritime military struggles”
Says China’s Xi at legislative session.

The future US fighter jet
May not have a pilot

FINANCE

Corporate bond defaults are surging.
At highest rate since 2008 global financial crisis

Private equity wants more private credit
Equity, credit, what is it they do?

The PE world is constipated.
They’re struggling to find liquidity events
Depending on continuation funds for exits

Did crypto create a sovereign currency crisis?
Can it create more?

REAL ESTATE

As commercial real estate values tumble
Lower tax collections follow.

Blackstone wants you to buy real estate
Is this because they’re a seller?

Shrinkflation is coming to homes
Is the McMansion era over?

TECHNOLOGY

Remember that amazing movie Inception?
VR goggles can be hacked just like it

Google built a building with crappy WiFi
Is Google the next Boeing?

The new US microchip boom map
India commits $15B for chip plant
Will Malaysia become a chip titan?
Italy to get in on the chips, too
Samsung to cash in on US subsidies
Ya think we’re gonna overbuild chip capacity?

THE CHAT ON AI

AI is scamming investors.
By impersonating successful investors

As generative AI takes off
Will it produce more data poisoning?

Software engineer jobs at risk.
New company introduces first AI software coder
Invented by a child prodigy
It can create and train its own AI

OUR GOOD FRIEND, FAILURE

Here come the campus anti-semitism lawsuits
With big money behind them.

Neil Young returns to Spotify
Money is more important than principles.

I guess we need the SAT again
Doesn’t the SAT help poor students the most?
Dropping the test was a bad idea.

THE NEXT NORMAL

Michigan shooter’s dad gets convicted
You are legally responsible for your children.

Cash-register charity on the rise.
Donations are up 100% in a decade
Yet donations to charities are down big

The nation’s fastest-growing high school sport?
Women’s wrestling

THE WAR ON CARBON

US currently produces more oil
Than any country, at any time
It’s all about productivity growth
AI is going to help increase production

Brazil wants to pump a lot more oil
Can bureaucrats kill the hydrocarbon economy?

US electricity demand was flat.
Now it’s set to surge

THE ENERGY TRANSITION

The world’s biggest sand battery
Is about to be built and tested

Clean energy production keeps rising.
But is demand for energy rising faster?

Solar farms can use spent EV batteries
Suggests this SoCal company.

THE EV DREAM

Not all rosy for EV juggernaut BYD
A victim of their own success?
China wants their own chips in EVs

Honda and Nissan team up.
A joint venture to make EVs

Germans protest Tesla plant.
By living in the trees

THE CHINA SYNDROME

Western car companies invaded China.
Now more factories sit empty
Don’t bring O&G outsiders to South China Sea

China wants to control all it can.
China seeks to eliminate Western tech

And they want us to be their friend.
China cancels more US wheat purchases

THE WASHING-TONE

The House passes a TikTok ban
China doesn’t support a sale
Banning may be easier said than done

Native Americans challenge 1794 treaty
They want 2.5 million acres back.

Biden says potential US Steel deal is bad
Nippon Steel says it’s good

MAKING A BETTER YOU

Ultra-processed foods don’t just affect our bodies.
They make us sad and stupid, too

Feel like your world is in turmoil?
Then maybe it’s time for a reset day

You can improve your sense of direction.
Just roam around for a while

HOW ABOUT A BREAK

The coolest streets in the world
A new bucket list?

Have you read this new monolith story?
2001 Space Odyssey or what?

Ice cream under a microscope
This is what we’re eating?!?!

SONG OF THE WEEK

“Goddess”
Sublime new jazz from Icelandic Laufey.
Has she made jazz cool with the kids?
Lyrics can be poetry, ya know.

CASTING AROUND THE PODS

Chris Davis: Three Generations of Wealth
What does a Berkshire board member think?

VIDEOS OF THE WEEK

Another Round trailer.
How did I miss this crazy film?

2024 Iditarod ceremonial start
Go, doggies, go!

The flower farmer’s year
Take a little mindcation with this video.

FROM THE HEADHUNTER’S KITCHEN

St. Patrick’s Day recipes…

Full Irish breakfast
Classic shepherd’s pie
Corned beef
Sautéed cabbage
Colcannon
Irish stew
Potato cakes
Beef pot pies with cheddar-stout crust
Irish bangers and mash
Guinness brownies

Don’t forget…

Green beer
Irish half and half

THE RANDOMS

Howard Hughes once built the world’s biggest plane. It turned out to be impractical. Now some folks are trying to do it again, but this time it will theoretically help climate change. Whatcha think?

China seems to think that greater government oversight and control is the solution to their stock market problem. Isn’t this strategy the complete opposite of what makes markets robust?

Maybe the “best” thing about AI is that it will get rid of superfluous workers. And then what will they do?

Isn’t it odd that only AFTER Boeing planes experienced issues their regulators found problems with their processes? Why didn’t they find all these problems before? Were regulators not auditing Boeing before?

How convenient that a Boeing whistleblower was found dead before getting a chance to finish his testimony.

Let’s remember that just because inflation is coming down, it doesn’t mean prices are coming down.

I just used an online inflation calculator. General prices are up 20% from 2020.

The average price of a home from 2020 to today has risen 29%.

The average car insurance cost has risen 36% since 2020. Yikes!

What does it feel like to be a billionaire? Do billionaires care about the people who work for them? Do they care about people whom they don’t know? Or do they only care about the people whom they know with more billions than they have?

In what other country in the world do immigrants and former slaves have more rights and more economic opportunity than in the United States of America?

IN CASE YOU MISSED IT

The Conundrum of Government
March 8, 2024

Picking Teams in the School Yard
March 1, 2024