Wait for it...
Speaker notes for my 2023 Dirtnap Conference Speech (warning: lateral content)
Four big themes we are waiting on.
Seemingly independent, but all very important for inflation (and hence bonds, and hence the financial system).
When will we get:
a US Recession?
a Chinese Credit Reckoning?
a move on Taiwan?
the Rise of the Machines?
Well, we’ve gotten the tightening.
Plus confirmation that Powell is Volcker 2.0.
The pain is right in front of us.
But nobody is used to caring about bonds. Let alone marking them down 20%+
Thus far only the small banks have gone under.
Now we’re sorting through who’s sitting on the loss, and what happens next.
How far the duration pain goes.
“There are bonds in the stocks ol’ boy”
As they used to say in London.
How much do we trust the surveys?
The ones that say we should already price in recession?
Employment conditions (and resulting incomes) holding the whole thing together. Inflation helps when it comes in the form of higher nominal incomes.
So we look at the soft data (surveys like PMI, Consumer Confidence etc) vs the hard data (industrial production, capacity utilization, employment stats).
Is trading bonds based on this difference even profitable anymore?
0.25 ratio is worse than stocks, but not nothing.
So far global credit conditions looks…meh, but not (yet) a crisis.
Reminder, the US government doesn’t have that much more borrowing capacity.
Now we’re playing with default fire (debt ceiling).
Almost 200bps of credit in the 1yr US CDS!
If you are China, why buy ANYMORE Treasuries?
And what happens if (and when) they sell?
Reminder: holy moly this is what what printing looks like…
If the US money printer went Brrr, the Chinese one goes Trrr (for trillions).
Though it goes through the private banks first.
Where has that that investment gone?
Have fun tracking it down…
Property companies are still on the run.
How long till the sector has to raise capital?
And what happens when the banks who are on the hook for debt from the bad ones?
Will they ever have to take write-downs?
(aka) What’s the catalyst Campbell!
Let’s talk about empathy for Chinese nationalists for a moment.
Imagine this was how YOU were portrayed, 100 years ago.
Foreigners, carving up your empire.
Very serious gentleman, wearing suits and mustaches.
Each taking a slice.
Now it’s your turn to set the terms.
Because a coast guard is also a navy.
Especially when you claim 90% of one of the world’s most highly congested waterways in the world as your ‘territorial waters.’
Not to mention airspace.
Did you hear they are expediting conscription?
Reminder, if financial crises are deflationary.
It’s conflict you have to watch out for.
Especially if you are short inflation (aka long bonds).
Meanwhile, the machine is getting smarter everyday.
Approaching human level, depending on your metric.
We’ll see if it’s really all exponential. And how much is deflationary. Methinks a lot.
Or when the S curve sets in.
Here’s memory use in models. Scaling exponentially.
Compute looks similar. Moore’s law basically intact.
While the calculations are getting ever more efficient.
The capacity of intelligent machines growing exponentially across domains.
Though most noticeably recently in language.
Computers are now at par with humans on many tests.
Which people fear will lead to too much automation.
How much will be more supply, vs using less labor to make the same amount of stuff, is still tbd.
Meanwhile AI forecasters say 3 years till AGI.
Woah
Then 6m to 4 years from there till the robots are obviously smarter than us.
Going to be an interesting decade.
Anyway, that’s what’s been on my mind.
If you want to see me debate the end of the world against Roko (of the famous Basilisk AI Safety thought experiment), then this is your lucky day.
Meanwhile, Rose has 30k new users this month.
And our robot just keeps getting smarter.
Almost time to turn on our AI.
Though it might get kinda pricey.
Meaning, maybe it’s time to start monetizing.
Wait for it…
Disclaimers