Is Deflation Around the Corner?

Welcome to This Week’s Leyendecker View

The solution to energy and environmental sustainability is the eradication of absolute poverty.
–Jordan Peterson

A BIG THINK

Is Deflation Around the Corner?

What? Deflation? How can anyone be talking about deflation when not too many months ago inflation hit 9.1%?

For the last two or so years, inflation has dominated the headlines. The Federal Reserve jacked up interest rates to slow down the economy, which really didn’t slow much at all, putting “soft landing” at the forefront of recent economic news.

Instead of higher interest rates curbing consumption to prevent a demand-pull inflationary environment, inflation naturally subsided as pandemic-era global supply chain disruptions returned to normal—sort of.

Although better today, global supply chain disruptions motivated countries to reshore, friendshore and nearshore. To this end, developed-market countries began adding back production capacity that had been lost to developing markets over the past 40+ years. Yet the fact remains that producing in certain countries like China and emerging markets is cheaper than producing in developed markets.

EVs are much cheaper to produce in China than in the US and Europe.

Western economies also can’t compete with solar panels made in China. And now that China has built its first airliner, we should expect them to go after that global market too.

China’s overcapacity is here to stay, suggests the US Chamber of Commerce.

Current talk in the US and EU about levying tariffs on Chinese cars is evidence that we’re moving toward too much global production capacity.

India’s ambitions of being the next China could add to global production capacity. Reshoring, friendshoring and nearshoring will also add to global production capacity.

Can global demand keep up with all this supply growth underway?

The economic standing of emerging-market consumers should naturally rise as their countries invest in domestic production. At the same time, too much debt may hamper developed-economy consumers. If supply expands while a big share of global consumers go into some sort of consumption hibernation, then deflation in at least goods production may become our next economic challenge.

What’s the natural reaction to global suppliers importing deflation? Tariffs and sanctions. Rather than risk the ire of autoworkers and other such laborers, politicians will use tariffs to make foreign products more expensive in order to save voters’ jobs.

Maybe we should all familiarize ourselves with the last period of globalization, which was from the mid-1800s to early-1900s. During that great globalization period, the steam engine, railroads, telecommunication, distributed energy and other innovations and industries boomed and spread across the globe. It led to the Roaring Twenties in the US. But it also led to excess global production capacity and American industries becoming less cost competitive.

The end result of that globalization boom was the Smoot-Hawley Tariff Act of 1930. To some economic historians, these tariffs were a big driver of the Great Depression.

If tariffs to “save domestic jobs” follow falling goods prices, then watch out. As Mark Twain said, “History may not repeat itself, but it often rhymes.”

THE ECONOMIC VIEW

January retail sales decline
Did we break the piggy bank for Christmas?

Small business optimism declines
While consumer confidence grows
And corporate IT spending slows

Super Bowl gambling sets record
What does an increase in gambling tell us?

THE INFLATION BOGEYMAN

Inflation cooled in January
But slowed less than expected
Time to postpone rate hikes?

Biden blames inflation on corporate greed
It’s all the private sector’s fault!

The cost of auto ownership gets painful
Insurance and maintenance inflation skyrocket.

THE LABOR VIEW

Unemployment is low, yet workers feel insecure.
What’s behind the disconnect?

Returning to work is expensive.
And employees are not happy about it

The mythos of leadership
Can we learn from history?

MEANWHILE IN EUROPE

Climate change threatens European rail system
What doesn’t climate change threaten?

UK slips into a recession
New UK nuclear plant has problems
Costs expected to soar.

Farmers are back to protesting.
Disrupting trade at the Port of Antwerp

THE LONE STAR

Texas top state for corporate relocations
Thank goodness for air conditioning!

Japanese companies skip California.
And look at San Antonio for investment

The top sustainable architects
Are in San Antonio, TX.

THE GLOBAL GAME

Hungary’s president resigns over sex scandal
Pakistan is now in political crisis
Is Venezuela about to invade Guyana?
Venezuela expels UN human rights agency
Chaos is the new norm.

Japan’s 2023 government debt set a record
While their economy contracts
Japan’s Nikkei hits 34-year high
Japan is the new hot stock market
Really?

THE UKRAINE FIRE

Russia hides its war toll
They don’t want anyone to know.
As they recruit Cubans to join their ranks

Ukraine promotes “Snow Leopard” to lead fight
General will use drones and electronic weapons.
Worried about US funding, Zelensky courts Europe

Russia puts Estonia’s PM on wanted list
She’s removing Soviet-era monuments.

THE GAZA FIRE

Israel pulls out of peace talks
Hamas is “delusional.”

UN Gaza office says it fought Hamas
Yet Hamas compound found under UN office
I mean, really…

Israel launches retaliatory strikes in Lebanon
Is Iran interested in escalation?

TALK OF WIDER WAR

Has Russia got a space nuclear advantage?
US intelligence seems to think so.

Honor your NATO commitments
Demands the orange dude!

NATO members sound the Russian alarm
Will Putin ever stop his aggression?

Drones are the war game-changer
Which conventional weapons are obsolete?
US defense needs to focus on new tech

THE NEXT CHINA?

Mexico replaces China
As largest exporter to the US

Chinese companies flock to Mexico
Is this called Chinese nearshoring?

Tesla guides Chinese suppliers to Mexico
A way to avoid US sanctions.
BYD considers a factory in Mexico

THE NEW COLD WAR

If the US pushes China too hard
Their hackers are prepared to strike

RIP, Alexei Navalny.
Putin’s harshest critic dies in prison

Putin prefers Biden over Trump
I thought Trump was Putin’s lackey.
China tries to disrupt US election

China has a shipbuilding empire
The US is far behind.

FINANCE

PE needs to share the wealth with workers
Suggests pension giant Calstrs.

Big PE funds are making big bucks
Off their private credit funds
While PE equity returns plunge
Private credit cuts pricing
Too much money chasing this market.

2023 saw M&A market woes.
Second worst year in a decade

REAL ESTATE

Apartment lender has a delinquency problem
Is multi-family headed for a bust?
After massive post-pandemic boom?

The $929B elephant in the room
Office building loans coming due this year.
Lower office values hurt property tax collections
This is a global market problem

Warehouse demand starts to shrink
Do we have an industrial real estate glut, too?

TECHNOLOGY

People are returning their Vision Pros
Did this happen with the iPod or iPhone?

Sony cuts PlayStation sales forecast
Have we reached peak video game?

Crowd destroys an autonomous car in SF
People may never use autonomous cars
Not all “innovation” is useful.

THE CHAT ON AI

Is the AI boom just a bubble?
Remember the dot.com era?

OpenAI gives ChatGPT a memory.
It will remember your interactions

AI starts to threaten white-collar jobs
AI beats human test for creativity
And it’s barely a year old.

THE NEXT NORMAL

The sun’s magnetic poles about to flip
Uh…and what are the consequences?

Gen Z has a big relationship challenge
Will cupid’s aim improve?

Musk is going to ditch his phone number.
And use X for texts and calls

THE WAR ON CARBON

Big banks back away from Climate Action 100+
Eliminating hydrocarbons won’t be easy.

Critical 1.5-degree Celsius threshold is breached
The world should end soon, right?

LNG demand set to increase 50%
US bureaucrats want to stop investment
Iran seeks to fill the LNG need
Western bureaucracy has no common sense.

THE NEW ENERGY TRANSITION

US power use to set records in 2024 and 2025
Technology is an enormous energy hog

Outdoor LED lights can save energy.
But they make light pollution worse

New device makes at-home renewable energy easier
Company just got a $27MM investment.

A NUCLEAR FUTURE

Russia dominates nuclear fuel creation.
The US has a plan to counter
US Russian uranium purchases hit record
Washington sells US nuclear energy prowess
Even though our new technologies aren’t proven.

Innovation is happening in nuclear power
Nuclear power soon to reach record high
Will people start paying more attention?

THE EV DREAM

The EV pipe dream
They can’t compete with ICE vehicles.

BYD, the world’s largest EV maker
Is getting into the shipping business

VW to invest $1.8B in Brazil
With a focus on hybrids.

THE CHINA SYNDROME

To fix China’s real estate crisis
Xi embraces more state control

China prepares to sensor online comments
1984 is right around the corner.
Dismayed investors vent via a post about giraffes

Wages are deflating in China
Not good for loan collateral or consumption.
Companies have become penny pinchers
Is China “uninvestable”?

THE WASHING-TONE

Did the CBO justify illegal immigration?
Is all immigration of equal value?

Biden’s green tax credits are exploding
And you’re paying for them…sort of…
As US federal debt soars

Europe auto imports to US are held up
Because they involve slave labor.

MAKING A BETTER YOU

How to rewild yourself
Are we really destined to the metaverse?

What’s really missing in our lives
Is play

7 keys to longevity
Make your AI self and live forever.

HOW ABOUT A BREAK

The NFL’s drunkest fans
We knew you’d be interested.

The world’s most stunning hot springs
Time for a winter break?

Hurricanes that hit US land 1851-2022
Only one hurricane hit land in 2023

SONG OF THE WEEK

Kacey Musgraves’ “Deeper Well.”
Lyrics can be poetry, too.

CASTING AROUND THE PODS

A realistic view of energy and the planet
Jordan Peterson interviews UT’s Scott Tinker.

Bonus…

Bloomberg’s Odd Lots.
More on why EU farmers are furious

VIDEOS OF THE WEEK

American Dreamer trailer.
Another Peter Dinklage classic?

The Peasants trailer.
This is a hand-painted movie.

Ripley is coming to Netflix.
Remember Ripley?

FROM THE HEADHUNTER’S KITCHEN

Soufflés are an act of love
Here’s a video on how to make one

British foods can be yummy!
Really, they can be!
I’m all in on a proper British breakfast!

Where gummy bears come from
An amazing human innovation.

THE RANDOMS

Inflation is cooling, but remember this just means the pace of price increases is cooling, not the overall level of prices. The overall level of prices remains high. It would take deflation to bring them down.

These days, the stock market goes up when poor economic data shows up, and then goes down when good economic data shows up. On the surface, this seems rather counterintuitive, but what the stock market really wants is lower interest rates. Investors recently bought stocks on the rumor that interest rates were going to decline soon. Economic resilience generally doesn’t require dropping rates.

Super Bowl gambling just hit a record. Overall, online gambling is booming, with a projected growth rate of almost 10X from 2018 to 2028. Has America become a country of gamblers? Is the stock market just another place Americans go to gamble?

Watermarking AI images, videos and music is Big Tech’s step toward self-regulation. This effort is considered similar to the nutrition labels on food. But those nutrition labels have not stopped the US from becoming ever more obese, so why should we believe these AI watermarks are going to protect our minds?

Deepfakes have already made their way into politics in Indonesia and India. Soon we could all be voting for a dead politician. But if my essay from last week is correct, we may be able to “resuscitate”  dead politicians in the metaverse. Is it time to create a metaverse Ronald Reagan? There’s already a chatbot that lets you have a conversation with the dead.

We were thinking, should we change the name of our search business to Leyendecker AI Search? Oh, to be a unicorn!

Most countries in the EU have never met their NATO commitments. But with Trump looming and Ukraine in the EU’s backyard, more European countries are hitting their 2% defense spending target.

Why does it take threats to make Europeans honor their NATO commitments?

Exactly why is the American taxpayer subsidizing Europe’s defense budget? Is Europe sending us money to help resolve our border crisis?

Weeks ago, I pondered whether the slowdown in investment banking activity might cause big banks to consider breaking apart their lending and investment arms. Well, it now looks like UK bank Standard Charter is pondering this exact strategy.

After interviewing Putin, Tucker Carlson gave some of his perspectives. Does Putin just want the Western world to invite him to dinner and a movie?

IN CASE YOU MISSED IT

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February 9, 2024

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February 2, 2024