"Time and Stuff"
Limiting factors to the promised cornucopia.
By Bill Bonner and Joel Bowman
"Had we but world enough and time,
This coyness, lady, were no crime."
~ Andrew Marvell
Normandy, France - "An epiphany! We are in a farmhouse…looking out at the ‘cour,’ which is an area in grass and apple trees, boxed in by barns and other farm buildings. The buildings are not in bad shape. None are falling down. But all need work. Physical work. Work done by people in work clothes.
One has a roof in need of repair. Another needs a new roof altogether. New doors for one of the storage sheds are on order. And there is a little abandoned cottage, which has been recycled from a bakery…with its classic dome-shaped oven…into a pigsty…and then into living quarters. Today, it is a wreck…in need of total renovation.
All of these things require materials…skills…and time – the kind of things you find in the ‘old economy.’ They are things that produce more GDP…and make us wealthier. When the work is done, we will have better facilities…a better view from the farmhouse…and maybe even get more production (GDP) from a more efficient farm.
Had we world enough and time, we could spend all day on the internet…and squander as much wealth as we want – in ‘wars of choice,’ in bailouts of bankers, investors or students…invested in companies that can never earn enough to justify the capital…or given away, either to the rich (contracts, jobs, grants, boosting stock prices, low interest rates ) or to the poor (food stamps, unemployment comp, ‘disability,’ rent support). But in the world we live in, time and stuff are limited. And when they are wasted…they are gone forever.
Choke Chains: By contrast, we open up our laptop. We are immediately in a different world, without apparent limits. We can go as deep as we want. We can find out about the entertainer “Boo” and how she died last week. Or, we can learn how to decline a Latin noun. Or, we can dig into the debate over selling scrap iron to Japan before WWII (it was used to make ships, planes and bullets).
And yet…even on the internet, the dogs race out with loud barks and growls. But they eventually reach the end of the chain. Earlier this week, Dan told us about five companies that got choked: "…eight stocks that lost a combined $5 trillion in market value – Tesla (down 65%), Meta (down 64%), Netflix (down 51%), Nvidia (down 50%), Amazon (down 49%), Google (down 38%), Microsoft (down 28.9%), and Apple (down 27%)."
And let’s not forget Salesforce. The stock was at $300 in November 2021. Now, it’s $130. Salesforce is located in a sleek San Francisco business tower. It provides software to other tech companies to help them handle customers. But when the customers went away, so did Salesforce’s sales…net income fell from over $4 billion in 2021 to less than $1.5 billion in the most recent 12 months.
Salesforce is a special case – combining the illusions of the dot.com era with the conceits of Jack Welch-style roll-up madness. CEO and founder, Marc Benioff, followed much the same playbook as Welch at GE…buying companies left and right in order to increase his own sales.
Fantasy Worlds: It’s hard enough to figure out one business. Trying to understand and digest dozens of other businesses is hopeless. And last year, all of these ‘tech’ companies ran into the brick wall that separates the real world of time and stuff…from the fantasy world of Zuckerberg, crypto and federal finances.
Meta, and Google, for example, are advertising-driven media. Their revenues grew as they took ad spending away from traditional media. But ad budgets are always limited by sales…and sales are always limited by incomes…and incomes are always limited by time. Shoppers earn their money by selling their time, by the hour. They can’t get more hours. So, their incomes are limited by the amount of stuff they produce/hour. And that, too – productivity – is going down at the fastest rate in 40 years. CNBC:
Salesforce CEO Marc Benioff recently made waves when he told employees in a Slack message that the company’s newest hires aren’t being productive enough, and he wanted help figuring out why. The tech giant’s employee productivity issue is not an isolated one.
The most powerful organization on the planet, the US government, ‘prints’ our money. But even it is on a chain. It can print all it wants, but ultimately, all wealth comes from taxpayers…and taxpayers live in the real world of time and stuff. The feds can try to by-pass the taxpayers; they can just ‘print’ money to pay their bills. But then, people just get less stuff for their money.
Coy Mistresses: We were suspicious of the ‘information revolution’ right from the beginning. It was said, in the 1990s, that ‘information will replace capital.’ Investors thought they had discovered a new source of wealth. They could buy a dogecoin…an NFT…or something ‘on the blockchain.’ And somehow this new, unchained economy would make them rich. That is, people thought time and stuff no longer mattered; our mistress could be coy as long as she wanted. The infinite-ness of the electronic media would make it vastly easier and faster for us to get what we wanted.
Theoretically, the peasant in Borneo, laboring with a steel-tipped hoe, was more or less confined to his lot. But now, with the worldwide web at his fingertips, he would see that he could till the land better with a four-wheel-drive John Deere tractor. He would then greatly improve his productivity…food prices would fall…and we’d all be better off.
But wait. Where was the tractor? Didn’t it still have to be made – with capital, steel, skill and time? And didn’t the manufacturers still have to wonder how much purchasing power the Borneo peasant actually had? And wasn’t it just as likely that the Borneo peasant – knowing he couldn’t afford a John Deere tractor – spent his time on the internet gambling on meme stocks, reading dumb opinions, or looking at dirty pictures of white women in Dusseldorf?
On the evidence, America’s new technology – led by Amazon, Facebook, Google and countless others – has actually slowed the output of stuff. GDP growth rates were in the 3% range in the 1990s. Now, they’re close to zero, after falling gradually and suddenly for the whole 21st century.
What to make of this? We don’t know yet. Stay tuned…"
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Joel’s Note: "Back in the real world, meanwhile, more signs of the times. Our friend Chris Mayer sent over this chart, from Bloomberg, this morning…
"As of this morning (5 January '23),” reads the accompanying article, “Bloomberg data now shows no negative yielding debt globally for the first time since 2014. 2 years ago we had $18.4tn globally and over 4000 bonds with a negative yield."
What does that mean, exactly? Up, up… and away? “Central banks are not letting interest rates rise because they want to,” as Bill pointed out earlier this week, “but because they have to.”
In other words, the market is forcing the Fed’s hand. As you’ve no doubt seen for yourself, inflation remains stubbornly “non-transitory” across much of the developed world. Central banks have to be seen to be “doing something” to ease the pain for consumers, workers and voters. Ergo, rising rates…which may remain “higher for longer” than people expect.
The Fed reiterated its own position during its meeting in December. A couple of key quotes from the minutes, brought to our attention by BPR macro analyst and the man who assiduously combs through such docs, Dan Denning...
“No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023. In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy.”
~ From FOMC’s December meeting, 2022.
Reckoned Dan in Friday’s research note to BPR members…"Inflation would have to come down a lot—and stay down–for the Fed to cut rates or print money again in 2023. Unless there’s a major ‘credit event’ (a sovereign default, a major and unexpected corporate bankruptcy, or a crisis at a systematically important bank), the Fed’s target rate may go even higher (closer to 5.5%). Which means stocks not yet priced for higher rates (and with lower earnings on the horizon from a 2023 recession) have further to fall.
To recap…Rates: higher for longer. Stocks: further to fall."
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