Stagflation Odds Jump In Latest NY Fed Survey As Inflation Expectations Rise, Delinquency Fears Hit 4 Year High

In recent weeks, we have discussed on multiple occasions (here, here and here) how in his desire to get Kamala Harris re-elected by rushing out a jumbo cut before November 5, Fed president Jerome Powell may have triggered the second coming of the Arthur Burns "galloping inflation" Fed, and sure enough recent inflationary prints have certainly raised the threat that the Fed is now aggressively easing even as inflation has not only not been defeated, but is once again rising.

Then overnight, it was Deutsche Bank's chief credit strategist Jim Reid who observed that US 5yr inflation swaps have seen their "largest 5-week climb since just before SVB's collapse in March 2023, an event that shifted the narrative away from around 4 more hikes to imminent cuts for a period of time."

To be fair, it's not just the 50bps Fed easing in itself that has changed the inflation and rates outlook over the last few weeks. We’ve also seen 1) expectations that the ECB will move more aggressively; 2) renewed geopolitical risk and a potentially large China stimulus turn the Oil price (and other commodities) higher after a late summer slump; 3) a bumper payrolls report; and 4) still generally firm US data, including an upside surprise in the CPI last week.

Then again, these are all dynamics that the Fed should have considered before it launched an aggressive easing cycle at a time when stock prices are at all time highs, when wage inflation ~5%...

... and when home prices are still rising at a mindblowing 6%!

It is therefore not surprising that the latest monthly survey of consumer expectations from the NY Fed found that inflation expectations rose at both the three-year horizon (from 2.5% to 2.7%) and the five-year horizon (from 2.8% to 2.9%), and remained unchanged at the one-year horizon (where they are driven primarily by recent moves in gas prices).

And the reason why the short-term inflation expectations were unchanged - if at the Fed's raised inflation target of 3% - is because the median respondent saw gasoline up "only" 3.4% over the next 12 months, the least in two years. Expected food inflation ticked higher after falling in August to the lowest level since pre-pandemic, while expectations for rental inflation moderated to 6.3%. Median home price growth expectations decreased by 0.1 percentage point to 3.0%. Some other year-ahead commodity price expectations: an increase of 0.1% for food to 4.5%, college prices remained unchanged at 5.9%; medical care cost expectations dropped by 1.4% to 6.6% (the lowest reading since February 2020).

And while inflation expectations rose, sentiment about the broader economy deteriorated as perceptions among households that they might become delinquent on debts increased last month to the highest levels since April 2020.  The anticipated probability of missing a minimum debt payment over the next three months rose to 14.2% in September, marking the fourth straight month of increases; the increase was most pronounced for respondents between ages 40 and 60 and those with annual household incomes above $100k.

The latest data confirms the view that the US economy is becoming increasingly split as some households do well while others are getting crushed by rising prices, slower growth and higher unemployment. In other words, stagflation. 

While the orchestrated surge in the stock market - and one has the Fed's recent rate cut to thank for that - has helped propel overall household net worth to a record over the past few months, tens of millions of Americans do not own any equities and have instead been accumulating debt in recent years amid elevated interest rates.

The increased odds of delinquency were mirrored in a broader deterioration of perceptions about households’ current financial situations, with fewer consumers reporting being better off and more reporting being worse off than a year ago, according to the survey.

Sticking with the stagflation theme, year-ahead household income and spending growth expectations declined by 0.1 percentage point to 3.0 percent and 4.9 percent, respectively.

There was slightly more cheer in consumers' labor market expectations, where the probability of leaving one’s job voluntarily in the next twelve months increased to 20.4% from 19.1%, and the mean perceived probability of finding a job in the event of job loss increased to 52.7% from 52.3% in August.

Hilariously, median year-ahead expected growth in government debt declined by 1.1 percentage points to 8.0%, reaching the measure’s lowest level since February 2020. Spoiler alert: it will be much, much higher.

And confirming that many of the respondents are absolutely clueless, the mean perceived probability that the average interest rate on saving accounts will be higher 12 months from now decreased by 1.5 percentage points to 25.1%. Yes, about 25% of households have no idea that the Fed is now cutting rates and rates on savings accounts will be much lower in 12 months... unless of course we get hyperinflation in the next 3-9 months and the Fed panics into a hiking frenzy

Last but not least, the mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 1.0 percentage point to 40.3%. It was unclear how many bulls also expected lower rates in the coming year.

Overall, an ugly, stagflationary survey, and hardly what the Fed may have expected to see several weeks into the first easing cycle since the global economy was shut down by a genetically engineered flu virus in 2020.

Tyler Durden Tue, 10/15/2024 - 15:00
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Stagflation Odds Jump In Latest NY Fed Survey As Inflation Expectations Rise, Delinquency Fears Hit 4 Year High

Google Agrees To Buy Nuclear Power From Small Modular Reactors To Be Built By Kairos Power

First it was Amazon, then Microsoft, now Google telegraphs why the "next AI trade" will generate obnoxious amounts of alpha in the coming years by sending the same message: i) it's all about how all those data centers will be powered, and ii) in the future a growing number of data centers will be powered by small modular nuclear reactors.

On Monday, Google - picking up on what we discussed last week in "Google Turns To Nuclear To Power Its Data Centers" - announced plans to buy power from Kairos Power’s small modular reactors (SMRs) as part of a growing industry shift toward nuclear energy to meet rising data center demands. By purchasing energy from multiple SMRs, Google aims to send a strong market signal while supporting long-term commercialization.

According to CNBC, senior director for energy and climate at Google, Michael Terrell, said on a call with reporters that "we believe that nuclear energy has a critical role to play in supporting our clean growth and helping to deliver on the progress of AI."

"The grid needs these kinds of clean, reliable sources of energy that can support the build out of these technologies. … We feel like nuclear can play an important role in helping to meet our demand, and helping meet our demand cleanly, in a way that's more around the clock."

Only three SMRs are operational worldwide currently, none in the U.S.... but that's going to change.

SMRs offer a cheaper, faster alternative to traditional reactors. Kairos Power, backed by the Department of Energy, is building a demonstration reactor in Tennessee. Google expects the first reactor online by 2030, adding 500 megawatts by 2035.

"It is an incredibly promising bet, and one that, you know, if we can get these projects to scale and then scale globally, will deliver enormous benefits to communities and power grids around the world," Terrell said of backing nuclear power companies. 

The news came just hours after we pointed out the short interest in one of our favorite SMR names, Sam Altman-backed Oklo, on the rise. Oklo has targeted its first SMRs to be online by 2027, three years ahead of Kairos' proposed timeline.  

OKLO shorts decided to double down and push short interest to new all time high https://t.co/NkPjAtCrVj pic.twitter.com/1uJpbhfHjI

— zerohedge (@zerohedge) October 14, 2024

Today's news should not come as a surprise: less than a week ago we quoted Amanda Peterson Corio, global head of data center energy at Google, who said that “in the US, in highly regulated markets where we don’t have the opportunity to directly purchase power, we are working with our utility partners and the generators to come together to figure out how we can bring these new technologies — nuclear may be one of them — to the grid."

Separately, we ALSO wrote at the beginning of this month that the U.S. had closed on a $1.5 billion loan to resurrect Holtec's Palisades Nuclear Plant. The report at the time said that the Biden administration aims to triple U.S. nuclear power capacity as demand rises and climate concerns grow.

Meanwhile, we recently wrote that Oklo announced it had finalized an agreement with the Department of Energy to advance the next phase of sitting at the Idaho National Lab. 

Pennsylvania Governor Josh Shapiro has also been urging for Three Mile Island to reopen as quickly as possible. Following Microsoft's agreement to purchase power from the dormant nuclear plant, Shapiro urged regulators to prioritize the reactor's connection to the electrical grid, according to Barron’s.

The latest news out of Google provides substantial tail wind for our "Next AI Trade" which we laid out in April as our favorite long-term trade, and where we outlined various investment opportunities for powering up America, playing out.

The stellar returns of the trade in 2024 so far are just the start: as more capital is allocated to "those who provide the electricity to those who sell the picks and shovels for the next gold rush", the basket will blow away every other segment of the market, and the biggest winners will be not those who bet on the revolutionary technology that is AI, but those who backed something much more primitive: the electricity needed to power it.

Tyler Durden Mon, 10/14/2024 - 15:40
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Google Agrees To Buy Nuclear Power From Small Modular Reactors To Be Built By Kairos Power

Donald Trump Says He's Doing The Joe Rogan Podcast

During an interview on the Nelk Boys' Full Send Podcast, Donald Trump said he plans to appear on the Joe Rogan Experience, according to the Washington Examiner. 

When asked by host Kyle Forgeard if he would consider going on Rogan’s podcast, Trump responded last week: “Oh sure, I think I’m doing it actually." He later confirmed, "Yeah, I am."

Rogan has yet to confirm the booking, the Examiner noted. The discussion seemed to start last week after this article noting Rogan was running out of time to interview Trump. Elon Musk sent the discussion to the stratosphere when he said last week: "It will happen". 

Musk made the post responding to our article, "Joe Rogan Has 25 Days To Interview Donald Trump", submitted by Zero Hedge contributor Quoth the Raven, who wrote on Tuesday: "I can't listen to another 4 years of Rogan bitch about how bad things have gotten if he won't talk to Trump."

Rogan has been notoriously uninterested in the interview, which he has been asked about multiple times over the last half decade. Back in June 2023, when asked about the idea, Rogan said to Lex Fridman:

"I have had the opportunity to have him on my show, more than once, and I have said no every time. I don't want to help him, I'm not interested in helping him."

By August 2023, it looked like Rogan might be changing his tune, as he told Valuetainment's Patrick Bet-David:

"I don't know. Maybe. At a certain point in time. Just like, it would be interesting to hear his perspective on a lot of things.”

Since then, Rogan has stated his admiration for RFK, Jr., who is now supporting Trump. He has also given a platform to Tulsi Gabbard, who is campaigning with, and for, Trump. The idea that Rogan wouldn't interview Trump, who has recently done podcasts with Theo Von and Andrew Schultz, to name a few, seems bizarre. 

QTR wrote on his blog last Tuesday night that "If anything, an interview would give Rogan an opportunity to push Trump on the things that he disagrees with him on. Bring him on and give him hell if you want, Joe. Rogan could even extend an invitation to the Harris campaign and invite her on for a separate appearance if she wants."

"I don’t want to pretend to understand what the problem is that Rogan has with Trump, but all I know is that it’s not bigger than the potential consequences of this election," he wrote.

"After listening to Rogan’s podcast for nearly 2,000 episodes, I’m confident in my assessment that he’s a person of integrity and a man of character. The truth is, whether he likes it or not, putting his personal animus aside and getting Trump on the largest media platform in the world can only make an impact for the next month or so."

He concluded: "After the November election, especially if Trump loses, there will be no point — and it’ll be impossible to listen to Rogan crow about the lunatics on the left any further, knowing he didn’t talk to Trump when he had the chance. So let’s get real, Joe: what the hell are you waiting for?"

We may have our answer soon...

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Donald Trump Says He's Doing The Joe Rogan Podcast

A Hard Rain Is Going To Fall

Authored by Charles Hugh Smith via OfTwoMinds blog,

The core skill going forward - frugality - is largely a forgotten skillset. Time to get busy while we still have time.

There are core systemic dynamics that are impervious to technological or financial gimmicks, and as they play out, a hard rain is going to fall:

1) The credit-business cycle. The credit-business cycle has been pushed forward for the past 15 years, and arguably for the past 24 years. The last "real recession"--the organic contraction of credit and risk-taking that drains the excesses from the economy and financial system over the course of several years--occurred 43 years ago in 1981-82.

The mechanism for pushing this essential cleansing is moral hazard, the disconnection of risk from consequence by unprecedented central bank monetary stimulus and central state fiscal stimulus. The net result of moral hazard is the excesses of risk and debt are rewarded and expand to even more precarious heights, ensuring the eventual downturn will be far more destructive than had the system been allowed to fully re-set in 2000-02 and again in 2008-09.

2) The reversal of financialization and the collapse of the Everything Bubble and the wealth effect. The commoditization of credit, leverage and speculation is a boon when first introduced to a credit-starved economy, but once the productive investments have been made, financialization continues expanding into extremes of debt, leverage and speculation.

Central banks have used one trick to keep the expansion going: they dropped interest rates to zero, enabling borrowers and speculators to borrow / leverage more with the same income. This expansion of credit boosted assets to extreme valuations as all this new "money" chased a limited quantity of assets. The credit-asset bubble increases the value of the collateral--the house, the stock portfolio, etc.--which then supports additional borrowing / leverage.

The payoff was not just putting off the credit cycle--the credit-asset bubble generated a massive wealth effect for those who owned the assets before the bubble multiplied their value. The top 10% who own 93% of all stocks have seen their net worth expand by tens of trillions of dollars, enabling their spending to account for roughly half of all consumption.

The resulting extreme of wealth-income inequality has social repercussions that are not yet fully realized, but the pressure on those left behind is mounting.

Interest rate cycles are multi-year affairs, generally running between 15 and 40 years. The current cycle--from 1981 to the present--is extremely long in tooth, reflecting the financial repression of interest rates over the past 15 years.

Nothing lasts forever, regardless of what policy is applied. Interest rates are rising and will continue to rise.

This means that central banks' favorite trick to put off the credit cycle--lowering interest rates to zero--is slipping out of reach. This means that central banks will no longer be able to keep the credit-asset bubble inflated. It will deflate as interest rates rise, unpayable debt is defaulted and risk emerges in force.

Once the credit-asset bubble deflates, the wealth effect reverses, and consumption plummets as all those who rode the bubble higher are now poorer. The net result is the economy slides into recession.

Central states have piled up such a mountain of obligations and debt that their ability to stimulate the economy out of a much-needed cleansing of bad debt and speculative excess is limited.

So neither central banks and central states have the capacity to push the credit cycle forward any longer. The games have all been played and now the bill is due and payable.

3) The reversal of globalization. central banks were given the one-time luxury of lowering interest rates to zero by one dynamic: the emergence of China as the global exporter of deflation and a new "credit impulse." As the developed economies shifted production to China, costs declined and profits soared, fueling the stock market bubble and offsetting the inflationary pressures generated by expanding credit and fiscal stimulus.

China has now matured to the point that it no longer exports either deflation or the credit impulse. Now the inflationary pressures of expanding credit and fiscal stimulus are not being offset, so they're finally manifesting globally. There is no replacement of China's one-time gift of deflation and credit expansion, and so inflation and interest rates will rise.

Throwing more money into the system will only accelerate inflation and interest rates. That game is over: checkmate.

4) The limits of scale. The latest technological advance on the lab bench rarely scales up: vaporizing plastic waste is nice, but the cost and inherent limitations of this "advance" mean it will remain a curiosity, not a global solution that magically eliminates the 400+ million tons of plastic waste that isn't recycled, out of the 450 million tons of plastic produced annually.

Even when a new technology may make financial and practical sense, the time and money required to scale it up t useful levels are significant. Consider the "next big thing" in nuclear power, Small Modular Reactors. The first one is slated to come online in 2030, but such projects are typically plagued by cost and time over-runs in the early stages of development.

If the goal is to build 100 such reactors, how log will that take, and how much capital will it consume?

Will it take a decade? or two decades?

The point here is we're entering a credit cycle recession with the infrastructure we have, and improvements will be incremental, time-consuming and expensive, draining capital from consumption, in effect deepening the recession. This is the dynamic I endeavor to illuminate in the 1970s, when vast sums of capital were invested in pollution mitigation and the upgrading of the nation's industrial base, with only modest payback in the near-term. The real benefits only accrued decades later.

A similar upgrading of the nation's industrial base is starting, but it will be a drain on consumption for decades to come.

5) The downsides of centralization. Optimizing profits has relentlessly driven centralization on every scale: a handful of corporations dominate every sector, and facilities--from slaughterhouses to chemical storage--are geographically centralized, inherently increasing the risk of "normal accidents" triggering catastrophic losses. This reality was explained by Charles Perrow in his book The Next Catastrophe: Reducing Our Vulnerabilities to Natural, Industrial, and Terrorist Disasters.

Decentralizing the economy increases costs, reducing profitability and pushing prices higher. This is the cost of resilience and redundancy. The cost of centralization is invisible until it's too late.

6) Climate extremes. Setting aside the debate about causal factors, that extremes of weather are increasing in number and intensity globally is placing agriculture and infrastructure at greater risk of cascading, non-linear avalanches of consequences. Centralization adds to these risks.

Add all this up and we have a recipe for global recession in which inflation and interest rates rise, The Everything Bubble pops, possibly violently, the wealth effect vanishes into thin air, consumption plummets and job losses soar. Central banks and central states will not be able to push the credit cycle (i.e. recession) forward any longer, and if they try to do so, they will only make the decline more severe and painful.

I often post this chart of the S-Curve to emphasize that cycles are organic and cannot be reversed or pushed forward forever. Pushing them forward has only increased the bill that must now be paid.

Our hubristic faith in the god-like powers of technology and central banks / states creates an illusion that the credit cycle turning is the result of a "policy error," when in fact it's just the way systems function. We've created extremely fragile, centralized systems optimized for profit, and operated on the false premise that all systems are infinitely controllable given the right technology or policy.

The result of our hubris is that the turning of systemic cycles will be more disruptive and painful than was necessary, as a direct result of our attempt to manipulate / rig the system to suit our expedient, short-term desires.

A hard rain is going to fall, and we serve our best interests by preparing for the coming storm.

The core skill going forward--frugality--is largely a forgotten skillset. Time to get busy while we still have time.

*  *  *

Become a $3/month patron of my work via patreon.com.

Subscribe to my Substack for free

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A Hard Rain Is Going To Fall

The US Government Is Dramatically Expanding The Use Of Facial Recognition Technology

Authored by Michael Snyder via The Economic Collapse blog,

Do you want to live in a society where you are required to have your face scanned wherever you go?  If not, you may want to speak up now while you still can.  As you will see below, the U.S. government is aggressively expanding the use of facial recognition technology for identification verification purposes.  For now, the use of facial recognition technology will be optional.  But as we have seen before, once a voluntary option is adopted by enough people our leaders have a way of making it mandatory.  Of course it isn’t just our government that is pushing facial recognition technology.  It is popping up throughout our society, and given enough time it would literally be everywhere.

Login.gov is billed as “a single sign-on solution for US government websites”, and now users of Login.gov will be given the option to use facial recognition technology to verify their identities…

An online hub for Americans to access benefits and services across the federal government is giving its users a new option to sign on.

The General Services Administration will begin offering facial recognition technology as an option for users of Login.gov, a one-stop for government-provided public services, to verify their identities.

GSA’s Technology Transformation Services announced Wednesday it will allow Login.gov users to verify their identity online through facial technology that meets standards set by the National Institute of Standards and Technology’s 800-63-3 Identity Assurance Level 2 (IAL2) guidelines.

We are being told that this will help reduce identity theft and fraud, and I don’t know anyone that likes identity theft and fraud.

But do we really want to live in a dystopian world where our faces are constantly being scanned all the time?

I certainly don’t.

We are being told that this new facial recognition system will rely on “best-in-class facial matching algorithms”…

After months of testing and a delay in 2023, users will now be able to verify their identity using a ‘proven facial matching technology’ approved by the General Services Administration, which will follow the National Institute of Standards and Technology (NIST) and will rely on ‘best-in-class facial matching algorithms’

All of this sounds really creepy to me.

And this is certainly a way for the government to start getting all of our faces into a giant database.

Login.gov already has more than 100 million users, and lots of them will inevitably choose the “convenience” and “security” of facial recognition…

Federal agencies use Login.gov for people to verify their identities when logging in to access government benefits and services. The offering has over 100 million users already across over 50 federal and state agencies, and this news could affect how future users have to verify their identity to access information and benefits.

“Proving your identity is a critical step in receiving many government benefits and services, and we want to ensure we are making that as easy and secure as possible for members of the public, while protecting against identity theft and fraud,” said GSA Administrator Robin Carnahan in a statement.

For now, you will still be able to use other identification verification options.

But once most people start using facial recognition, those other options could easily be taken away.

Sadly, it isn’t just the government that we need to be concerned about.

AI programs such as ChatGPT have turned out to be quite adept at identifying faces…

Using “a crafted prompt designed to bypass the safeguard mechanisms of ChatGPT,” the researchers were able to test the program’s biometric capabilities – which they found to be significant.

“Our study reveals that ChatGPT recognizes facial identities and differentiates between two facial images with considerable accuracy,” says their summary. “Additionally, experimental results demonstrate remarkable performance in gender detection and reasonable accuracy for the age estimation tasks.”

Even more alarming is what a couple of Harvard students have been able to accomplish.

They integrated PimEyes facial recognition software into a pair of Meta’s smart glasses, and they were able to instantly pull up the personal information of strangers by scanning their faces…

Meta’s Ray-Ban glasses offer an iconic wearable packed with some smart features that allow users to engage in a hands-free experience. Two Harvard students have integrated smart glasses with a facial recognition system that helps automatically dox strangers and access their information in public.

According to 404media, the facial recognition system called I-XRAY can be used to retrieve information such as phone numbers, addresses, or even social security numbers of strangers. All the user needs to do is look at the person. While software capabilities have been making the rounds, it is the hardware running the software that has been the talk of the town, which is Ray-Ban Meta Smart Glasses.

Nguyen and Ardayfio created I-XRAY using Meta’s smart glasses along with PimEyes facial recognition software, which is currently the largest search engine. The entire system of fetching information on the individual is automatic, and the smart glasses start digging the data as soon as the face is in the frame.

If we stay on the current trajectory that we are on, it would likely only be a matter of time before this sort of technology is everywhere.

Can you imagine what criminals could do with this?

A predator would not even need to follow you home.  He could just scan your face without you even realizing it, and by scanning your face he could get your address, your phone number, and a whole host of other private details about your life.

A lot of people out there just don’t get it.

In a society without any privacy, the bad guys can always find you.

Of course in a society without any privacy, there would be no hiding from tyranny either.

When facial recognition technology is literally everywhere, there will be nowhere to run and nowhere to hide.

Every time your face is scanned, your location will be known.

Needless to say, most people already carry around phones that constantly monitor where they are anyway.

But as the Big Brother surveillance grid that is being constructed all around us becomes even more pervasive, it won’t be too long before there is literally no opting out.

I have been a very vocal advocate for privacy for over a decade, but during that time our privacy rights have been greatly eroded.

Now is the time to take a stand, because once our privacy rights are completely gone it will be nearly impossible to get them back.

*  *  *

Michael’s new book entitled “Why” is available in paperback and for the Kindle on Amazon.com, and you can subscribe to his Substack newsletter at michaeltsnyder.substack.com.

Tyler Durden Sat, 10/12/2024 - 17:30
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The US Government Is Dramatically Expanding The Use Of Facial Recognition Technology