@Clio thanks Clio, macro, geo politics are always very hard to extrapolate to a market call. one thing i would point to, even though i think Trump is a knucklehead as much as anyone else, he is pro-markets and markets are one of the few outside measures he pays attention to. the US needs politicians with the wherewithal for details and hard work, which I think is beyond Trump and most of his people. A switch to the left, non-market-friendly people, AOC, Sanders, Warren et al, would be quite bad for the markets, and probably the US as well. there are no quick fixes for the masses over there. So I watch for a move to the non-market-friendly left, democrats in the style of the Clintons and even Harris would be ok.

Thank you for all of that @Clio - very interesting indeed to get a view from the ground inside the USA from both yourself and your friends who live there. Much appreciated.

Do you have a view on the small number of Dems who agreed to vote with the GOP to end the record-long government shutdown? From the outside it was clear that the majority of Americans blamed the GOP for the shutdown because they control all levels of government and even the Supreme Court, but the shutdown seemed to suit the GOP and perhaps even made it even easier for them to continue to implement their agenda, including further government workers being sacked or quitting.

I can understand why there were some Dems who couldn't bear to see their constituents suffer further under the shutdown, however, as you have pointed out with the Federal food assistance programs possibly being permanently scrapped by the GOP, ending the shutdown might not have changed very much for many Americans, and the Dems appear to have got nothing at all out of it for the people except for a worthless promise that the GOP will "look at" their healthcare demands at some point in December. Zero assurances that anything gets done, just that they will look at it. So the Dems got nothing. So what was the point? All along the Dems were saying that their stance was about standing up for the American people's right to affordable healthcare, and that they weren't for turning, and then a small bunch of them turned, with many of those who did turn indicating that they don't intend to run for re-election after their current term expires.

The US late night TV hosts (Kimmel, Colbert, Josh Johnson guest hosting The Daily Show, Jon Stewart was especially scathing) couldn't believe it - and for better or worse I tend to get most of my US news from those shows (via youtube) because I don't trust social media, I barely watch traditional media (Australian TV), and I need some comedy with my tragedy.

I remember watching a guest on the Money of Mine podcast recently talk about somebody with serious influence going to Washington to talk to both sides of the aisle about the debt situation (America continuing to borrow money and print money because it's spending more than it's earning) being unsustainable and leading them towards a very dark place, and apparently the majority of them said, We know! We can't do anything because to do what needs to be done would mean political suicide; the people won't accept it, so we need a crisis. The only way we can make significant inroads into fixing the situation would be in response to a very serious crisis, that's the only way the people could possibly accept those sort of changes, so we're going to have to continue down the road we're on until we get such a crisis.

I'm paraphrasing, but that was the gist of it. So that makes me wonder if there are some in the Trump regime that are trying to bring on such a crisis, a situation where even more radical steps need to be taken to fix it. Trump and Hegseth keep talking about using their military against their own people and they've had a few trial runs in a few Democrat cities already. Not sure if Trump is even in on that side of things - he is primarily all about feathering his own nest, using the power he has to make himself and his own family rediculously wealthy, including via their crypto scams where billionaires buy the Trump family's worthless crypto currency and in return receive massive political favours, and all of the other stuff he has done which no other US President has ever gotten away with - because it not only looks like corruption, it is clearly corruption. Weaponising the Justice Department which is supposed to be an indepent body that is non-political. There is just so much that Trump has done purely out of retribution for perceived past wrongs against him, and to set his family up for generations, and also his friends, and the living conditions of the American people in terms of food and healthcare is not a primary concern of Trumps at all.

Going after Colbert and Kimmel because they are critical of him is just so petty and ignores the American People's right to Freedom of Speech that is entrenched in their own Constitution. Banning certain media outlets who don't pump him up enough from the Whitehouse and Air Force One are further examples of that.

Anyway, the recent election results were what I'd expect from the American people and I can only hope that more Republicans begin to distance themselves from Trump and the regime like Marjorie Taylor Greene recently has, being very critical and clearly setting herself up to try to become a viable alternative in the next election, either as a Republican or as an Independent or perhaps even heading up a third party, perhaps one financed by Trump's ex-buddy Elon.

The Republican Senators and Members of Congress must see that they will NOT win re-election under Trump now, particularly as Trump can never admit he's wrong even when he changes course. My hope for the American people is that there are eventually enough Republicans within the GOP to finally move on from Trump. Perhaps they could even use the Epstein Files to speed that process up.

In terms of the damage that he's done to the country, it's possibly unfixable, but what can be fixed will likely take decades rather than years. It can take decades to build institutions that people trust and far less time to destroy that trust and to dismantle many of those institutions or gut them from the inside.

I'll stop now. I'm probably ranting rather than sharing anything of value, but, yeah, it's a very sad situation and it amazes me that so many Americans are prepared to let it continue and obviously get worse. I wonder just how bad it has to get before people have truly had enough and act to stop it.

@Clio this piece from mbi probably is more reflective my view, still issues through a different lense and outcomes. The potential political outcomes of this is uncertain

A couple of weeks ago, I wrote about the great decoupling of labor and capital in which I pointed out that today’s megacap tech companies achieved staggering revenue growth with progressively fewer incremental employees, a phenomenon well underway even before the advent of Gen AI. However, that was bit of a micro view; a recent piece published on the Chicago Fed Letter provided a more profound, macro context.

It turns out this decoupling of revenue from labor is a symptom of a much larger, economy-wide phenomenon: the Great Concentration of productivity.

The Chicago Fed paper analyzed US Total Factor Productivity (TFP), and found that it has been “highly concentrated” for the past four decades. The data is astonishing.

Since the late 1980s, the Information Technology (IT) sector has been responsible for ~45% of all TFP growth in the U.S. economy. It has done this while accounting for only 8% of the private business sector’s total value added. Over the 1988-2023 period, annual TFP growth in the IT sector averaged 2.9%. In all non-IT sectors combined, it averaged a mere 0.31%

From the paper:

“As the figure shows, aggregate TFP has increased by a factor of 1.4, or 40%, in the 36 years since the start of 1988, while the IT sector’s TFP has increased by a factor of about 2.78, or 178%. In contrast, TFP in all the non-IT sectors combined has increased by a factor of only about 1.12, or 12%. In panel B of figure 3, we similarly plot the cumulative contributions of TFP growth in the IT and non-IT sectors to aggregate TFP growth. The IT sector has contributed approximately 17 percentage points to cumulative TFP growth since 1988, and the non-IT sectors about 20 percentage points. Thus, in cumulative terms, the IT sector again accounts for roughly 45% of aggregate productivity growth”

Image Source: click here

Of course, you may be wondering if the IT sector is so hyper-productive, why hasn’t it taken over much more of the entire economy? Why is it still just 8% of value added?

Because prices have collapsed. While the real value added has exploded by over 2,300% since 1988, the price of that output has declined by 70%. Again, from the paper:

“Figure 6 shows why this approximate constancy over the longer run holds. In panel A, we plot the cumulative growth in real value added for the IT sector: In real terms, value added of the IT sector increased by over 2,300% between 1988 and 2023. In panel B, we plot the cumulative growth rate of the price of a unit of value added of the IT sector: This price declined by almost 70% over the 1988–2023 period. Putting these results together, along with the fact that aggregate nominal value added of the entire private business sector grew about 500% over the same period, leaves the share of the IT sector only slightly higher in 2023 than in the late 1980s.”

Image Source: Click here

The above graph is perhaps good indication of massive consumer surplus we get to enjoy because of the tech companies! The scalability of software and networks is the same force that drops prices so dramatically, delivering immense value to consumers and keeping the sector’s share of the economy in check. The precipitous drop in price IS the diffusion fuel as it turns hospitals, farms, and factories into downstream beneficiaries of IT’s TFP without making them IT companies which likely helps maintain this paradox: IT drives growth everywhere while its measured share of the economy hardly rises.

Nonetheless, this extreme concentration of productivity does have potentially uncomfortable implications, especially now that AI is into the scene. The reliance of US economy on a single engine of productivity can make aggregate growth “more fragile”. From the paper:

“if similar trends continue, e.g., because of the introduction and rollout of AI (artificial intelligence) technologies, the medium-term outlook for U.S. economic growth may well hinge on developments in the IT sector. And third, given the concentration of growth in a single sector, maintaining a steady pace of aggregate economic growth may be more fragile than at times when the sources of growth were more widespread. Will the rapid TFP growth in the IT sector stall out, or will it accelerate based on new innovations in AI and other cutting-edge computing technologies? Given the key role of IT in driving aggregate TFP growth over the past few decades, the answer may have profound implications for future advances in economic conditions.”

After looking at how almost half of the last few decades of productivity growth came from just one sector, it may help contextualize the level of concentration we are seeing in equity markets these days. While everyone in the economy eventually becomes the beneficiary of such diffusion of technology largely via consumer surplus, the shareholder value may accrue to increasingly fewer and fewer companies.

A lot of these ideas aren’t new, it was what Thomas Picketty was arguing quite a few years ago ie returns on capital being higher than labour - https://www.amazon.com.au/Capital-Twenty-First-Century-Thomas-Piketty/dp/067443000X

It has been that way for the better part of a century- AI is probably just going to make the situation worse.

Im surprised all these blogs and the finance world have just started to focus on it over the last month or two.

I've heard similar things from a friend in the US @Clio.

It's a strange contrast with the headline numbers eh? (At least the latest official ones we have) US GDP is running above trend at roughly 3.8%, unemployment is a very respectable 4.3%, and inflation is sitting near 3%. Above target but hardly alarming by conventional measures.

I'm not implying there's anything dodgy with the data, just that these metrics are narrow and mask a lot of underlying variation. The real tragedy is how much policy is anchored to such blunt indicators..

To me, it all points to deeper structural issues with no easy fix. And given the political incentives, it feels almost inevitable they'll try to print their way out of it, which only compounds the problem.. *sigh*

It certainly reiterates my preference towards hard assets and genuinely productive assets.

I think part of the difference now @Mujo is that capital has also managed to capture government to bail them out. That seems to have been the case since the GFC. In hindsight the moral hazard discussed at the time became a real thing.

That being said, I am not so pessimistic as some, because I think generally democracies do what they say on the tin and when a minority of people accumulate while everyone else slides down the pole at some point the majority elect a government that re-distributes that wealth. I guess the "invisible hand" of democracy is self interest. A lot of what I see on the left and the right, at the moment, is the embryonic stage of that occurring. I do agree that a shortcoming of democracies is they tend to only act once a crisis happens.

As someone who has been visiting the US twice a year since ~2012, at someone who has an odd obsession with walking through supermarkets in foreign countries, I have noticed how expensive meat has become in the US. This graph from Landline (everyone should watch Landline, it's a terrific show) from a few months ago shows how detached US beef has become...

@Bear77 - regarding the Dems that caved, you mentioned the reasons - many are retiring but much more importantly, all came from districts with populations that were especially vulnerable to the impacts of the shutdown combined with the suspension of SNAP benefits.

If - as many do in the US - you take the stance that the most important thing a Rep should fight for is their constituents wellbeing, then those Democrat representatives made the right decision. Adherence to party lines is NOT anywhere as rigid as it is here or in Westminster - in both US houses, members are expected to negotiate “across the aisle.” That’s a long-running feature of Congress.

Also, there was no sign whatsoever that the GOP cared enough to alter their position on the Affordable Care Act. They were willing to sit it out no matter the damage.

So what did the Dems get out of the shutdown?

1) It raised the issue of the Affordable Care subsidies being taken away by the GOP and how that would play out for people IRL. Until the shutdown, the American public really wasn’t paying all that much attention to the topic (Trump = massive distraction) and the notices of new premiums didn’t start arriving until after Nov 1. So the Dems did achieve that focusing of people on what they are about to lose at the GOP’s hands.

2) for most government departments, the funding bill only runs until January. It’s an interim. SNAP and the military are funded for a year, not much else. So the Dems get to push hard again for the Affordable Care subsidies to be renewed - a month after people have started to pay full price for their insurance. Average increase 127%, ranging from 100 - 300+%. And I was staggered by how much people are paying already - made my Medibank Private insurance which I constantly grumble about seem entirely reasonable!

3) Courtesy of the Nov 4 elections, the GOP discovered that they were being blamed for the shutdown, for not negotiating, not the Dems. That’s not the way it usually goes - it’s the non-governing party who usually gets blamed. That hopefully will change the GOP approach to the next round of negotiating.

4) Thanksgiving and Christmas are shaping up as not being as celebratory and uplifting as usual - and the GOP will be blamed for that.

5) the Epstein files will now be front and center, and that’s shaping up to be kryptonite for Trump’s regime and the GOP.

6) Yes, there are signs that more and more Republicans are starting to realize where the present path is leading them and they seem to be looking for off-ramps. Marjorie Taylor Greene has already jumped ship. The Epstein files vote in the House will show you how many more are looking for an exit (60 - 100 are the numbers I've heard mentioned).

One more point: Black Friday sales. The single most important spending period (Friday to Monday) for the entire American retail year. Last year, the average increase was ~10% yoy. Ranging from 7 to 12% for major reporting outlets. It will be interesting to see what they get this year. If it gets reported, that is.