Thursday Night Links

• Mr. Powell repeatedly says he worries more about the risks of not doing enough to fight inflation than of doing too much, but also that the Fed is trying to strike a balance that avoids unnecessary economic pain. “We’ve been pretty aggressive,” he said at an event last month in Washington. “We wouldn’t... try to crash the economy and then clean up afterwards. I wouldn’t take that approach at all.” [WSJ]
• S&P Global, the financial and analytical firm of which I am vice chairman, has sought to build upon those studies and quantify what that “supercharged demand” for minerals might be. S&P Global’s study “The Future of Copper: Will the Looming Supply Gap Short-Circuit the Energy Transition?” (2022) focused on that metal because the thrust of the energy transition is toward electrification, and copper is “the metal of electrification.” The study took the types of year 2050 targets advanced by the US administration and the EU and assessed what realizing those targets would require for specific applications—for instance, the different components of an offshore wind system or electric vehicles. An electric car, for example will require at least two-and-a-half times more copper than a vehicle with a conventional internal combustion engine. The conclusion of this analysis is that copper demand would have to double by the mid-2030s to achieve the 2050 goals. The choke point is supply. At the current rate of supply growth—which encompasses new mines, mine expansion and greater efficiency, and recycling, as well as substitution—the amount of copper available will be significantly smaller than the copper supply requirements. For instance, the IEA estimates that it takes 16 years from discovery to first production for a new mine. Some mining companies say more than 20 years. Permitting and environmental issues are major constraints around the world. Also, copper production is more concentrated than, say, oil. Three countries produced 40 percent of world oil in 2021—the United States, Saudi Arabia, and Russia. Just two countries produced 38 percent of copper—Chile and Peru. [Dan Yergin]
• But if Europe manages to avoid a severe energy crisis this winter, it is also because of China’s weak energy demand and sluggish economy this year due to the country’s zero-COVID policy. China’s commitment to eradicating COVID has been a safety net in 2022 for European governments, but as the country eyes a wider reopening in 2023, that safety net may be gone soon enough. China’s total energy demand is forecasted to increase by the equivalent of 3.3 million barrels of oil a day next year, up from basically no growth in 2022, according to S&P Global’s latest energy outlook report out on Monday. This would represent 47% of all global energy demand growth next year. [Fortune]
  
• I think there’s going to be trouble in the US Treasury market. The Fed is raising interest rates, and also gradually letting their portfolio run off. But I don’t think they’re going to be able to exit. Banks need the liquidity that their reserve accounts provide to support the Treasury market. Similarly, non-banks like money market funds will continue to need access to the Fed’s reverse repo facility. The other problem with this is that the Fed is raising interest rates by basically paying financial institutions not to lend and it’s starting to cost a lot of money. Total reserve and reverse repo balances are well north of $5tn, and I question how much that can shrink without impacting liquidity in the Treasury market. Paying 5 per cent or more on those balances is hundreds of billions of dollars a year, potentially, to these large financial institutions, basically for doing nothing. The optics of taking us into a recession to fight inflation, while they are paying banks not to lend, I just think that’s politically unsustainable. [Sheila Bair]
• We find that short sale costs eliminate the abnormal profits generated by asset pricing anomalies. While many anomalies persist out-of-sample, they cannot be profitably exploited due to stock borrow fees. Using a comprehensive sample of 162 anomalies, we show that the average of these long-short anomalies earns a significant 0.15% per month before costs. However, this average is -0.02% once portfolio returns are adjusted for stock borrow fees. Moreover, the anomalies are not profitable before accounting for borrow fees if the stocks with high borrow fees, 12% of all stocks, are excluded from the analysis. Thus, short sale costs explain why these anomalies exist despite arbitrageurs’ best efforts to exploit them. [SSRN]
• Stephen Covey wrote a once-famous book, The 7 Habits of Highly Effective People. Six of the habits are forgettable, and should be forgotten. But the seventh — that is everything! “Begin with the end in mind.” What is our end? That is easy — winning. What is the winning condition? It is the total, permanent defeat of the Left, of the ideology at the heart of the Enlightenment, with its two core principles of total emancipation from all bonds not continuously chosen, and of total forced equality of all people. When this defeat is accomplished, Right principles, those based in reality and recognizing the nature of man, his limitations, and his capabilities, can again become ascendant. Winning does not mean electoral victory such that Right principles may be voted into law, and then nullified or voted out again. It means the total, permanent elimination of all Left power, and, even more importantly, the total discrediting, both on a moral and practical basis, of all Left ideology. What is Left should be seen for what it is, evil, and it should be seen as not only destructive in practice, but laughable, the ideology of losers and idiots, or at most something from the discredited past, viewed with vague curiosity, as the cult of Mithras is today. [Charles Haywood]
• Smartwool is an American company founded by New England ski instructors Peter and Patty Duke in Steamboat Springs, Colorado in 1994. In 2005 The Timberland Company acquired Smartwool and in 2011 Smartwool became a subsidiary of VF Corporation upon VF Corporation's acquisition of The Timberland Company. [Wiki]
• My father-in-law, the tuba player and union leader for the Lyric Opera of Chicago, always liked the salaried musicians’ favorite cartoon about the senile conductor whose score contains only the words: “Wave your stick until the music stops, then turn around and bow.” [Steve Sailer]
• Our own walk begins across the street from our apartment, where, following the recent demolition of a perfectly serviceable hundred-year-old building, a monument to ugliness has recently besieged the block. Our new neighbor is a classic 5-over-1: retail on the ground floor, topped with several stories of apartments one wouldn’t want to be able to afford. The words THE JOSH have been appended to the canopy above the main entrance in a passionless font. We spent the summer certain that the caution tape–yellow panels on The Josh’s south side were insulation, to be eventually supplanted by an actual facade. Alas, in its finished form The Josh really is yellow, and also burgundy, gray, and brown. [n+1]