Author: Scott Buchanan

Mutiny in Silicon Valley:  OpenAI Workforce May Quit and Join Microsoft If Board Does Not Resign and Bring Back Former CEO Sam Altman

Scott Buchanan1 Comment

The bombshell news in the tech world as of late Friday was that, in a sudden coup, the board of OpenAI fired CEO and tech entrepreneur Sam Altman, and demoted company cofounder and former president Greg Brockman. The exact grounds for their decision remain somewhat murky, but apparently Altman wanted to move faster with AI deployment and monetization than some board members were comfortable with.

The OpenAI organization burst on the scene in the past year with the release of advanced versions of ChatGPT. This “generative” AI technology can crank out computer code and human-like text articles and reports and images. Naturally, students have taken to employing ChatGPT to write their essays for them. And so, professors now use AI to detect whether their students’ essays were machine written or not.

Fellow blogger Joy Buchanan has addressed the rising problem of erroneous information (“hallucinations”) that can appear in AI generated material. There is a movement to slow down the development of AI, for fear it will lead to The End Of The World As We Know It (TEOTWAWKI).  (Interestingly, all of the business commentators I listened to today dismissed the alleged world-ending dangers of generative AI as largely deliberate hype on the part of AI developers, to create a buzz – which it has.)

Having hitched itself technically to OpenAI technology, and having poured something like $13 billion into funding OpenAI, giving it a 49% ownership stake in part of the business, Microsoft was obviously concerned about the effect of Altman’s dismissal on its own AI plans.  As it became clear that the board action would lead to substantial dysfunction at OpenAI, Microsoft carried out its own coup, by hiring Altman and Brockman to run a big in-house AI research initiative, and making it clear that anyone else who wanted to resign from open AI could have their old jobs back, under their old leaders, in Seattle.  And indeed, as of late Monday, nearly all of OpenAI’s employees had signed an open letter stating that unless the OpenAI board quits, they “may choose to resign from OpenAI and join the newly announced Microsoft subsidiary.”

Investors are still trying to figure out what all this means for Microsoft. A pessimistic take is that the corporation has to take a big write down on a $13 billion investment, if the OpenAI organization  (valued a month ago at $90 billion) loses its momentum. An optimistic take is that Microsoft may get the human capital crown jewels of this leading tech outfit for simply the cost of salaries (and signing bonuses), instead of shelling out to buy the enterprise as such. Also, having the technology all in-house would remove the vulnerability of Microsoft currently faces with having a key piece of its future in the hands of a separate organization. There is debate on how much the intellectual property held by OpenAI would inhibit Microsoft from forging ahead with its own version of ChatGPT.

According to Wikipedia:

Shares in Microsoft fell nearly three percent following the announcement.   According to CoinDesk, the value of Worldcoin, an iris biometric cryptocurrency co-founded by Altman, decreased twelve percent.   After hiring Altman, Microsoft’s stock price rose over two percent to an all-time high.  

According to The Information, Altman’s removal risks a share sale led by Thrive Capital valuing the company at US$86 billion.   A potential second tender offer for early-stage investors is also at risk.   Altman’s removal could benefit OpenAI’s competitors, such as Anthropic, Quora, Hugging Face, Meta Platforms, and Google.  The Economist wrote that the removal could slow down the artificial intelligence industry as a whole.  Google DeepMind received an increase in applicants, according to The Information. Several investors considered writing down their OpenAI investments to zero, impacting the company’s ability to raise capital. Over one hundred companies using OpenAI contacted competing startup Anthropic according to The Information; others reached out to Google Cloud, Cohere, and Microsoft Azure.

There is a slight possibility that the open AI board could take a big hit for the team, and bring back Altman and Brockman and then resign in order to keep the organization intact. If that happens, the deployment of generative AI would accelerate – – which might destroy the world.

THIS JUST IN: ALTMAN BACK IN CHARGE AT OPENAI

If there was a prize for “worst board decision of the year” it would have to go to the move late last week to fire Sam Altman. But just when you thought there was no more drama to be milked out of this scene, the news Wednesday is that the OpenAI board is out, and Altman is back in as CEO at OpenAI. Microsoft is presumably happy to have the organization intact, and it seems that those pesky timid souls who were trying to go slow on AI proliferation have been swept aside. TEOTWAWKI here we come…

“The Biggest Blunder in The History of The Treasury”: Yellen’s Failure to Issue Longer-Term Treasury Debt When Rates Were Low

Scott Buchanan3 Comments

That extra $4 trillion or so that the feds dumped into our collective checking accounts in 2020-2021 – -where did it come from? Certainly not from taxes. It was created out of thin air, via a multi-step alchemy. The government does not have the authority to simply run the printing presses and crank out benjamins. The  U.S. Treasury sells bonds to Somebody(ies), and that Somebody in turn gives the Treasury cash, which the Treasury then uses to fund government operations and giveaways. In 2020-2021, the Somebody who bought all those bonds was mainly the Federal Reserve, which does have the power to create unlimited amounts of cash, in exchange for government bonds or certain other investment-grade fixed income securities.

What is causing a bit of a kerfuffle recently is public assessment of what sorts of bonds that Janet Yellen’s Treasury issued back then. Interest rates were driven down to historic lows in that period, thanks to the Fed’s monster “quantitative easing” (QE) operations. The Fed was buying up fixed income hand over fist: government bonds, mortgage securities, even corporate junk bonds (which was probably illegal under the Fed’s charter, but desperate times…). This buying frenzy drove bond prices up and rates down.

All corporate CFOs with functioning neurons and with BB+ credit ratings refinanced their company debt in that timeframe: they called in as much of their old bonds as they could, and re-issued long-term debt at near-zero interest rates. Or they just issued 5, 10, 20 year low-interest bonds for the heck of it, raising big war-chests of essentially free cash to tide them through any potential hard times ahead. And of course, millions of American homeowners likewise refinanced their mortgages to take advantage of low rates.

What about the federal government? Was the Treasury, under Secretary  Yellen, similarly clever? No, not really. Because there is little serious doubt that the U.S. government will be able to pay its debts (grandstanding government shutdowns aside), the government can always find takers for 20- and 30-year bonds, as well as shorter maturity securities. A mainstay of government financing is the 10-year bond. And in 2020-2021, the Fed would have consumed whatever kinds of bonds the Treasury wanted to sell, so the Treasury could have issued a boatload of long-term bonds.

It seems that the Treasury issued a lot of 2-year bonds, rather than longer-term bonds. If they had issued say ten-year bonds, the government would have had a decade of enjoying very low interest payments on that huge slug of pandemic-related debt. But now, all those 2-year bonds are being rolled over at much higher rates and thus much greater expense to the government. (Since the federal debt only grows, almost never shrinks, maturing earlier bonds are not simply paid down, but are paid by issuing yet more bonds).

Veteran hedge fund manager Stanley Druckenmiller (reported net worth: $6 billion) commented in an interview:

When rates were practically zero, every Tom, Dick and Harry in the U.S. refinanced their mortgage… corporations extended [their debt],” he said. “Unfortunately, we had one entity that did not: the U.S. Treasury….

Janet Yellen, I guess because political myopia or whatever, was issuing 2-years at 15 basis points[0.15%]   when she could have issued 10-years at 70 basis points [0.70 %] or 30-years at 180 basis points [1.80%],” he said. “I literally think if you go back to Alexander Hamilton, it is the biggest blunder in the history of the Treasury. I have no idea why she has not been called out on this. She has no right to still be in that job.

Ouch.

Druckenmiller went on:

When the debt rolls over by 2033, interest expense is going to be 4.5% of GDP if rates are where they are now,” he warned. “By 2043—it sounds like a long time, but it is really not—interest expense as a percentage of GDP will be 7%. That is 144% of all current discretionary spending.

Unsurprisingly, Yellen demurs:

 “Well, I disagree with that assessment,” Yellen said when asked to respond to the accusation during an interview on CNN Thursday night. She said the agency has been lengthening the average maturity of its bond portfolio and “in fact, at present, the duration of the portfolio is about the longest it has been in decades.”

According to Druckenmiller, this is not quite true. It does seem that of the federal bonds held by the public (including banks), the average maturity (recently as long as 74 months) has indeed been a bit longer than usual in the past several years. However, this ignores the huge amount of government bonds held at the Fed:

“The only debt that is relevant to the US taxpayer is consolidated US government debt,” Druckenmiller said. “I am surprised that the Treasury secretary has chosen to exclude $8 trillion on the Fed balance sheet that is paying overnight rates in the repo market. In determining policy, it makes no sense for Treasury to exclude it from their calculations.”

Druckenmiller makes an important point. However, how this plays out depends on how the Fed treats these bonds going forward. If the Fed keeps these bonds on its balance sheet, and buys the replacement bonds, there will be actually very little interest expense to the government going forward. The reason is that the Fed is required to remit 90% of its profits back to the Treasury, so the gazillions of interest payments on those bonds and their replacements will largely flow right back to Treasury. However, if the Fed continues with reducing its balance sheet, forcing the Treasury to go the open market to roll these bonds over, Druckenmiller’s dire warnings will prove correct.

Because of this enormous debt overhang and the ongoing need for the government to sell bonds, I do not expect interest rates to go down as low as 2021 or even 2019 levels, unless there is a financial catastrophe requiring the Fed to become a gigantic net buyer of bonds once again.

Bored?  You Can Join in a Giant Tomato Fight in Spain!!

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The other day I was chatting on Zoom with a friend. She noted that she and a couple of girl friends go on an interesting vacation each year. They start off by each of them writing down their top three destinations, and then comparing notes. This year, it is a tour of the Danube region.

Thinking of a similar “Where do we go next year for kicks, guys?” scenario in the movie City Slickers, I jokingly suggested running with the bulls in Pamplona. That is kind of a guy thing (50-100 injuries each year, occasional fatal goring), but it triggered a comeback from her: “Well, maybe the tomato festival instead.”

So of course I started poking around the internet to see what was up with tomato festivals. They sounded less than exhilarating, on a par with a midwestern pumpkin growing contest.
Now, in Lancaster County, PA (Amish country), some of the tomato festivals feature..wait for it….a bounce house! That’s nice, but maybe not worth a plane flight to get there.

Nashville goes all out with their Tomato Art Fest, with food vendors, live performances and people walking around costumed as giant tomatoes. This year’s theme was, ““THE TOMATO: A Uniter, NOT A Divider! – Bringing Together Fruits & Vegetables.” In Leamington, Ontario they get really physical by putting a layer of tomatoes in kiddie pools on the ground, so you can take off your shoes and socks and step in and squoosh those tomatoes under your bare feet. Woo hoo!

But it turns out the real action is La Tomatina in Bunol, near Valencia (Spain). Excitement builds as truckloads of ripe tomatoes are brought into town:

Source https://allthatsinteresting.com/wordpress/wp-content/uploads/2016/08/tomato-stockpile.jpg

Then there is the greasing of a tall pole with lard; a ham is perched at the top of the pole. And then (since the pole is unclimbable), enthusiastic people pile their bodies up around the pole till someone can reach the top of the pole and cast down the ham, whereupon a signal cannon fires.

That is the signal for total mayhem to erupt – 20,000 people (you have to buy a ticket beforehand) hurling tomatoes at each other, until the whole town square is deep in squishy red pulp. Participants are asked to hand-squash each tomato before throwing it.

PHOTO  https://www.centives.net/S/wp-content/uploads/2015/08/082715_1146_TheEconomic1.jpg

After an hour, a second cannon fires to signal cease firing. Local residents may hose you off, or you can go wash off in the river. (Tips include bringing a change of clothes, because you aren’t allowed on the train or bus with your gooey clothes). Afterward, the firetrucks come and hose down the town square. Reportedly, due to the annual rinsing with acidic tomato juices, the town streets appear remarkably clean. During the days leading up to the main event, there are local parades and tours and a paella cooking contest. (Paella is an amazing local rice-based dish, worth of a blog article of its own)

So if you want to do something memorable in Spain but you are too lazy to walk 500 miles on the  Camino de Santiago pilgrimage, or you are too chicken to run in front of a crowd of angry bulls, put La Tomatina on your bucket list.

Great Presents: Fiskars Scissors That Will Cut Nearly Anything and Leatherman Micra Tool

Scott Buchanan1 Comment

My rave product for this year is “Fiskars 9 Inch Serrated Titanium Nitride Shop Shears”, available from Amazon here. I randomly bought these scissors a few years ago for a relative, and then realized how useful they were. So, I got a pair for our household, and it became our go-to scissors. When we lost that pair a few months ago, we felt the loss keenly enough to go and buy a replacement.

What is so great about them? Unlike some thick, heavy, or stubby heavy-duty shears, these have the feel of regular scissors, with fairly long, narrow blades. The handles are fairly substantial, and very comfortably contoured to the hand/thumb. The real magic is in the blades. They are sharp, with a very hard titanium nitride coating. Also, they have fine serrations in the cutting edge, that tend to grip the material in place as you are cutting. They will set you back about $24. Made in China, of course.

Two images from the Amazon site are:

With 935 ratings, the average rating on Amazon is a stratospheric 4.9/5.  Reviewers find themselves reaching for superlatives:

We have an embroidery shop and find regular scissors dull quickly. These do not. They cut through everything!

The best heavy duty scissors. Period… These pups will handle any cutting job even remotely appropriate for this tool.

My wife has multiple pair of shears that she uses on her sewing table. She would not miss one pair if I were to borrow them for the shop, right? Well, that did not work. I’m in purgatory for that, for sure. So… I bought these. These shears are MY shears. I get to use them for all of those things in the shop that need to be cut. No, I don’t cut asphalt roofing shingles and corrugated steel roofing with them, but I cut rough and heavy and coarse and dirty stuff that needs cut with the accuracy of using shears. Stuff where a razor knife is not quite adequate. You know the stuff I mean. Ladies, do the old man a favor… and do yourself a really good deed… and buy a pair of these for him. He’ll hopefully not be using yours any more.

The best pair of shears I’ve ever used… I swear, you could split the atom with these things. Matter simply parts at their touch. I’ve been using them daily for all my shearing needs for the last six months, and they’re as sharp and perfect as the day I received them.

Well, you get the picture. We use them for food cutting in the kitchen, cutting cloth, cardboard, thin sheet metal, wire, etc. They can also handle ordinary cutting of paper, although they do leave fine teeth marks.

Honorable Mention: Leatherman Micra Tool

Another cutting implement I find very useful is the Leatherman Micra Tool. At about 2 inches long all folded up, it is small enough to easily fit in a pocket or purse, though just a bit heavy to hang on a keychain. It has small but very capable scissors (can cut fingernails well) ; a very sharp little knife ; a diamond-grit file for nails, etc.; some light-duty screwdrivers; tweezers (not the best); and an old-fashioned bottle-cap opener. Also, it has ruler markings, which I have used on occasion. So many items now come packaged in very tough, clear plastic covering that you can’t peel or rip with your fingers. It is great to be able to whip out this Micra and quickly slice through that plastic. The quality of the workmanship is so good that anyone who appreciates tools will feel good about it.

This is an easy win as a present. If someone has no use for it, they can easily regift it. Once upon a time when I was a project leader, I bought one for everyone as a celebration for reaching milestone. I got them from Leatherman, engraved with the project name. They were a hit.

The only downside is the price. I am used to getting these for like $25 or so. But when I just looked on Amazon, I see the new price has jumped to $57 (though you can get them cheaper at the Leatherman.com site). That seems kind of steep. These are made in the U.S.A.  You can purchase Chinese knock-offs for much less, though the quality may vary.

There is, however, a lively market for used Micra tools. Below are two images for one for sale on eBay, for $13.00 plus $4.75 shipping. If you are getting one for yourself or say a son/father/brother or buddy, getting a high quality tool with a few scratches and no packaging may be fine. Other recipients may not appreciate a used item.

Analysts See Sweeping Financial Impact of New Weight Loss Drugs; Reality May Fall Short

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Wall Street analysts love to get out ahead and tout The Next Big Thing. Earlier this year it was Generative AI that was going to Change Everything. I am old enough to remember a surge of enthusiasm when fractal number sets were going to Change Everything  (“How did we manage to get along without fractals?” was a question that was really asked), so I tend to underreact to these breathless hot takes.

Well, The Next Big Thing as of last week seemed to be the new generation of weight loss drugs. With names like Ozemic and Wegovy and Mounjaro (who thinks up these names, anyway?), these are mainly GLP-1 blockers which up till now have been mainly used in treating Type 2 diabetes.

From the august Mayo Clinic:

These drugs mimic the action of a hormone called glucagon-like peptide 1. When blood sugar levels start to rise after someone eats, these drugs stimulate the body to produce more insulin. The extra insulin helps lower blood sugar levels.

Lower blood sugar levels are helpful for controlling type 2 diabetes. But it’s not clear how the GLP-1 drugs lead to weight loss. Doctors do know that GLP-1s appear to help curb hunger. These drugs also slow the movement of food from the stomach into the small intestine. As a result, you may feel full faster and longer, so you eat less.

I’ll append a table at the end with a bunch of these drug names, for reference. At this point, most of them are only FDA approved for diabetes treatment, but are being prescribed off-label for weight control. It is no secret that obesity is rampant in America, and is spreading in other regions. The knock-on health problems of obesity are also well-known. So, these treatments might be very helpful, if they pan out.

What does Wall Street think of all this? Well, there is first the potential profit to accrue to the makers of these wonder drugs. You typically take them via daily or weekly skin injections, similar to insulin shots. A month’s worth of these meds may cost a cool $1000. Cha-ching right there, for makers like Novo Nordisk and Eli Lilly.

But wait, there’s more – Jonathan Block at Seeking Alpha calls out a number of possible financial angles for these drugs:

While at first glance the impact of these medications — known as GLP-1 agonists — might just impact food and beverages, the reality is that they could influence many other consumer industries.

Apparel retailers, casino/gaming names, and even airlines are just some of the industries that could see an impact from the growing popularity of weight loss drugs.

The thinking is that folks who lose 15 pounds will go out and buy a whole new wardrobe, which is good for clothing makers and retailers. On the other hand, gambling is highly correlated with obesity, so maybe casino business will fall off.  There are claims that kidney health is so improved with these drugs that purveyors of dialysis equipment may be under threat.

Fuel represents some 25% of airlines’ expenses, so somebody with a sharp pencil at Jefferies sat down and calculated that for one airline (United) the cost savings would be $80 million per year if the average passenger shed 10 pounds.  And who know, if people get really thinner, maybe the airlines can pack in an extra row of seats…

A concern over declining food sales has cut into the prices of companies like Walmart:

Analysts estimate that nearly 7% of the U.S. population could be on weight loss drugs by 2035, which could lead to a 30% cut in daily calorie intake due to the consumption changes for the targeted group. There is also some conjecture that the increased attention to dieting and weight loss in general could have a downstream impact on the consumption of snacks and sweets.

Real World Efficacy of Weight Loss Drugs May Fall Short of Clinical Trials

Throwing buckets of cold water on these scenarios of slenderized Americans is a study by RBC Capital Markets suggesting that the actual impact of these meds may be much less than indicated by clinical trials:

“Unlike clinical studies, insights from real-world use of these drugs imply weight loss can be limited or short-lived as a result, making it difficult for some users to justify the treatment’s lofty price tag,” RBC analyst Nik Modi said. “Recent insurance claims data on 4k+ patients who started taking GLP-1s in 2021 indicate only 32% remained on therapy and just 27% adhered to treatment after 1 year, citing an increase in healthcare costs.” He mentioned one study on 3.3k subjects that found after a year on the drugs, patients saw an average of just 4.4% weight loss. That is significantly less than declines cited by Novo Nordisk (NVO) and Eli Lilly (LLY) in their studies.

Also, he said IQVIA data found that the growth in GLP-1s is due mostly to new prescriptions, not refills, “making us question its sustainability.” Given this information, “we believe GLP-1s have genuine hurdles to prolonged use that have the potential to limit their long-term societal/economic impact.” To back up his argument, Modi provided several real-life examples of drugs or products where hype that it would shake up a consumer segment ended up falling flat.

The clinical trials for the GLP-1 blockers were paid for by the manufacturers, so they tend to be skewed to the positive. It is not clear whether these flattish real-world results are due to the drugs themselves not being so effective, or to other factors. These factors include side effects, unpleasantness of self-injection, and the  huge out-of-pocket cost (~ $12,000/year).  Weight loss drugs are often not covered by insurance, since obesity is considered a behavioral outcome, not a disease.

My guess is the final outcome will fall somewhere between mass weight loss and nothing. We hope that progress continues to be made in this area, since so many other health conditions are worsened by being overweight. For instance, fellow blogger Joy Buchanan recently  linked to an article by Matt Iglesia in which he described significant and long-lasting weight loss from bariatric surgery.

And as promised, that list of diabetes/weight-loss meds:

Why Is Stock Market Volatility ( VIX ) So Low?

Scott Buchanan1 Comment

What is the VIX and why should you care? The CBOE Volatility Index (VIX) is a measure of the expected near-term price swings in the S&P 500 stock index (SPX). The VIX value is derived from the prices that market participants are willing to pay for options that expire roughly 30 days in the future. Typically, movements upward in VIX correspond to movements downward in broad market averages, since price volatility is usually associated with some “problem” cropping up. During market turbulence, the VIX can shoot up very high, very fast, with a percentage of change far higher than for stock prices.

The VIX is know as the “fear gauge,” since it provides a standardized measure of market volatility expectations. It is thus a number that conveys significant information about the attitudes of market participants. Also, it provides opportunities for investors to make (or lose) a lot of money quickly. You cannot invest directly in the VIX (it is just a calculated number), but you can buy/sell VIX futures and options on those futures. Also, there are convenient funds that buy (e.g., VXX) or short (e.g., SVIX) the VIX futures. Because the VIX makes much bigger percentage moves than stock themselves, you can make a killing with a modest investment, providing you get the timing right.

For instance, over the past twelve months, the SPY S&P 500 fund has gone up by about 18%, so $10,000 would have gone to $11,800. That’s pretty nice. But in that same period, SVIX went up by 143%, which would take $10,000 to $24,300 (see below).  (Nerdy notes: (a) SVIX shorts the VIX, so it generally goes up when VIX goes down, i.e., when stocks go up. (b) There is another factor with SVIX called the monthly roll, when tends to make it rise something like 2-4% a month on average. This monthly roll factor is layered on top of the rise and fall in SVIX value based on VIX level. So even if VIX is flat, SVIX may go up something like 30% in a year. )

SVIX and SPY share prices for the past year. Source: Seeking Alpha

Of course, the price swings on SVIX cut both ways. It is down hugely from its highs a month ago, as VIX has increased from roughly 14 to 20. You can go even more crazy by purchasing/shorting VIX-related funds like UVXY that are leveraged at more than 1.0X.

Even you were even more clever, you could have made even more, much more, by working VIX options. Also, if you just want to hedge your stock portfolio against sudden drops, it is often more economical to do that by buying (call) options on the VIX, than by buying (put) options on the stocks (e.g., SPX, SPY) themselves.

During long periods of market stability, the VIX tends to slowly drift downward, to an asymptote  somewhere in the 12-13 range. For example, in the five-year plot below, VIX spend much of 2019 around 13, then shot up over 80 within a month when the scope of the COVID pandemic became apparent. It then drifted downwards (with many spikes along the way, especially during the big bear market of 2022), getting down to around 14 for much of June-September of this year.

VIX Level for past five years. Source: Seeking Alpha.

It is notable for VIX to be this low, considering a number of serious current market concerns (the relatively high valuation of the stock market, stubborn inflation, hawkish fed, gridlock in Washington, etc.). And now with serious conflict in the Middle East resulting from the massive attacks on Israeli civilians, the VIX has so far only risen to 20.

A number of market commentators have noted the seemingly anomalously low level of the VIX, and have proffered various explanations. They observe that macroeconomic outlook continues to look probably OK. They also point to some fundamental changes in the stock market operations. One factor is the rise of zero-day options, very short-term stock options that expire within one day. More of the speculative action has gone to those options, with proportionately less in the month-out options that drive the VIX.

Also, the stock exchanges have implemented various “circuit-breakers,” which halt trading for specified time periods, if swings in stock prices get out of hand. This gives participants a chance to cool off and recalibrate, and not have to make frantic, quick (possibly losing) trades in order to protect themselves. Here is a diagram illustrating these circuit breakers, which are triggered by big moves in the broad S&P 500 stock average:

 Source: Seeking Alpha, article by Christopher Robb

There are also Limit Up/Limit Down (LULD) rules in place that temporarily halt trading in an individual stock if its price swings exceed some designated band.  is designed to stop excess volatility in a single stock.  With these protective circuit-breakers in place, market participants seem less worried about huge price swings coming at them, and hence may feel less of a need to “buy insurance” by purchasing options. This suppression of stock option prices in turn leads to a lower calculated VIX.

As usual, this blog post is not meant to be advice to buy or sell any security. (And seriously, the “never bet more than you can afford to lose” rule applies doubly with the high-volatility products discussed here).

Pandemic Excess Savings Still Powering the Hot Economy

Scott Buchanan2 Comments

Well, the great “Recession Starting Next Quarter” that has been predicted for nearly two years is nowhere in sight. In fact, the Bureau of Labor Statistics just last week posted an absolute blowout jobs number:

The U.S. economy churned out a blockbuster 336,000 jobs in September, smashing economists’ expectations and heightening the risk that policymakers will have to push even harder to slow down the economy. The data released Friday by the Bureau of Labor Statistics offered yet another snapshot of the job market’s remarkable strength, with the unemployment rate holding at 3.8 percent and wage growth outpacing inflation in a boost to workers. But it was also the latest example of an economy that simply refuses to slow down, despite the Federal Reserve’s aggressive attempts to get prices and hiring closer to normal levels…The September report, which showed the largest number of gains since January, had been expected to indicate continued moderation in the labor market, with forecasts of around 170,000 jobs created. Instead, it came in at nearly twice that amount. (Lauren Kaori Gurley and Rachel Siegel , Washington Post)

Before we get too excited, let’s note that the BLS numbers have a strong component of BS: nearly every jobs number they put out is quickly, quietly revised downward by 20% or so. Also, much of the jobs creation this year has been in the part-time category (so employers don’t have to pay health benefits). That said, it is indisputable that despite ferocious interest rate hikes, the economy continues to hum along, much more robustly that nearly anyone predicted six or twelve months ago. Why?

I suggest that we follow the time-tested approach of investigative reporters, which is to follow the money. We have noted earlier that since 2020 a key factor in consumer spending, which constitutes about 70% of the economy, has been the ginormous windfall of free money, over $4 trillion, that was put into the economy via various pandemic-related programs (enhanced unemployment benefits, direct stimmie payments, etc.). The story of the recent strong jobs market is largely the story of spending down that windfall.

When we were locked down in late 2020-early 2021, we consoled ourselves with ordering tons of goods on Amazon. While this generated some jobs for longshoremen and UPS and Amazon drivers, it was mainly Chinese workers who benefited from this phase. But for the past year and a half, we are out there in planes, trains, automobiles, and cruise ships, spending for services and restaurant food at a brisk pace. This has buoyed up the domestic economy, which in turn is keeping inflation far above the Fed’s 2% target.

Part of the incoming-recession story has been that the COVID windfall money is about to run out. For instance, here is a June, 2023 chart from Fed authors de Soyres, et al.  showing that in the U.S. (black curve below) this money has already been exhausted:

A different set of Fed authors (Abdelrahman and Oliveira of the San Francisco Fed) wrote, also in June, that there remained a smidge of excess savings, but that “would likely be depleted in the third quarter of 2023.”

However,  the Bureau of Economic Analysis (BEA) recently completed an update of national economic data that lowered the savings rate prior to the pandemic and increased it in 2020 and 2021. This basically reflected a change in the way the BEA accounts for income from mutual funds and REITS. The bottom line is that it has forced Wall Street economists to increase their excess savings projections to date by as much as $600 billion to $1 trillion, depending on the economics team. This in turn leads them to delay forecasts of recession by yet another 6-12 months.

For instance, James Knightley of ING Global Markets Research writes that there are still plenty of excess savings around; recent revisions in their numbers show the remaining hoard is even larger than they originally thought:

They did not break down this excess saving by income group, so it is possible that much of it remains with the upper 10-20% who may hoard/invest it, versus the bottom quartiles who have been spending it all into economy and now may be tapped out. We shall see how this continues to play out.

The Internet Knows EVERYTHING: Stopping My Car Alarm from Randomly Triggering

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I have an oldish Honda that still runs smoothly. It is true that the cruise control does not work, and the left front fender is held on by a large binder clip, and I had to patch over a big rust hole in a rear wheel well, but as I said, it runs.

I sometimes park it down at the end of the street, under some shade trees, to get it out of the hot summer sun. A couple of times, for no reason, the antitheft system kicked on, so the car was honking and honking for hours on end because we didn’t hear it down there. Some neighbors down there finally figured out who it was and came and told us. They were nice about it, but I heard some other folks down there were pretty irritated.

That happened again two weeks ago, so I decided to keep it in front of our house all the time where we could keep an ear on it. Supposedly the alarm is triggered when the car thinks that a door or the trunk or the front hood has been opened without a legitimate unlocking by a key or a fob. Therefore, I opened and closed all four doors, and the trunk and the hood, and locked the car and hoped all will go well. But a few hours later there it was: honk, honk, honk….

As a temporary measure, I simply left it unlocked, so the system would not arm. But that’s not a long-term fix. So, I rolled up my sleeves and went to the internet to see what help I could find there. One common suggestion was to find the fuse that controls the alarm system and just pull it out of the fuse box. That would be great, but I checked multiple fuse diagrams for my model, and it does not seem to be a fuse that controls just the alarm system.

Other web sites mentioned that day sensor on the front hood latch is a common failure point. The sensor there can start giving spurious signals when it gets old. If you are sure that’s the problem, you can have a garage replace it for labor plus maybe 100 bucks for the replacement latch.

Alternatively, you can just pull apart the connector that connects the hood latch sensor to the alarm system. That connection is in plain sight near the latch. If the latch is the problem, disconnecting that sensor should make the alarm system think the latch is always firmly closed, so it will not trigger an armed system.

But what if the hood latch is not a problem? What if the problem is the common but elusive damage to wiring caused by rodents gnawing on the insulation which contains soybean derivatives??  After sifting through about 10 links that were thrown up by my DuckDuckGo search on the subject, I finally found a useful discussion on the “civicsforum.com”.

A certain “andrickjm” wrote that he had disconnected that wire junction, and his car alarm was still randomly going off. Some savant going by the moniker “ezone” wrote that what you needed to do then is to insert a little wire jumper between the two sockets of the connector that go to the alarm system. That will make the alarm system think the hood is always raised, never closed, and this will keep a system from ever arming.

So I cut a 1-inch piece of wire, stripped the insulation from the two ends, bent it into a U-shape, jammed the two bare wire ends into the two holes in the connector socket, and sealed it all up with duct tape.


The alarm has not sounded since. Victory at last, thanks to the distributed intelligence of the internet, resting on the efforts of millions of good-hearted souls who share their problems and solutions in all areas of life.

Wastewater Testing: COVID Surge Maybe Delayed for Now

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We reported last month on yet another COVID surge beginning, driven by yet another new, highly transmissible  variant. When I checked in on the state of affairs this week, I found two different narratives.

With the demise of widespread public testing, it has become more difficult to track the progress of the disease. One means to do so now is to monitor hospital admissions for COVID. The New York Times provides this service, and it shows a continued uptrend in cases, at least through September 8:

Source: The New York Times

The chart above is for the whole country. It turns out that these cases are highly localized in certain hot spots, especially along the Atlantic seaboard (Delaware through  South Carolina), plus the region of St. Joseph, Missouri:

Source: The New York Times

Wastewater Analysis Suggests a Plateau

An alternate means of monitoring the progress of COVID is to do ongoing testing of municipal wastewater. The virus is “shed” (to put it delicately) in sewage, and can be detected there some days before a person reports any symptoms. Most recent wastewater analyses indicate that incidence of the disease is plateauing for now, according to an NBC News article by Erika Edwards:

Biobot Analytics, a company that tracks wastewater samples at 257 sites nationwide, said that the current average Covid levels across the United States are approximately 5% lower than they were last week.

“All fingers crossed,” Cristin Young, a Biobot epidemiologist said, “this wave is plateauing and may be declining.”

While data from the Centers for Disease Control and Prevention show a rise in Covid-related hospitalizations and deaths, wastewater may indicate what’s to come.

After a mid- to late-summer rise, the CDC’s Covid wastewater surveillance now shows declines in mid-Atlantic states, such as Virginia and Maryland.

The findings are backed up from surveillance in North Carolina, said Jessica Schlueter, an associate professor in the department of bioinformatics and genomics at the University of North Carolina Charlotte. Her lab is responsible for testing 12 sites across the state.

The increase in Covid wastewater samples during the last six months “seems to be peaking and starting to taper off,” she said. …Wastewater collection sites in the Midwest and the Northeast, however, show a steady uptick in Covid spread.

Hospitalizations and deaths are lagging indicators, whereas wastewater analysis provides something of a leading indicator. Putting it all together, it may be that what we are seeing now is the usual late summer COVID increase, which may come down in the next two months, to be followed by another winter surge. Do get your latest booster shots.

The Fermi Paradox: Where Are All Those Aliens?

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Last week NASA’s independent study team released its highly anticipated report on UFOs.  A couple of takeaways: First, the term “UFO” has been replaced  in fed-speak by “UAP” (unidentified anomalous phenomena). Second, no hard evidence has emerged demonstrating an extra-terrestrial origin for UAPs, but, third, there is much that remains unexplained.

Believers in aliens are undeterred. Earlier this summer, former military intelligence officer David Grusch had made sensational claims in a congressional hearing that the U.S. government is concealing the fact that they are in possession of a “non-human spacecraft.”  The NASA director himself, Bill Nelson, holds that it is likely that intelligent life exists in other corners of the universe, given the staggering number of all the stars which likely have planets with water and moderate temperatures.

A famous conversation took place in 1950 amongst a group of top scientists at Los Alamos (think: Manhattan Project) over lunch. They had been chatting about the recent UFO reports and the possibility of faster-than-light travel. Suddenly Enrico Fermi blurted out something like, “But where is everybody?”

His point was that if (as many scientists believe) there is a reasonable chance that technically-advanced life-forms can evolve on other planets, then given the number of stars (~ 300 million) in our Milky Way galaxy and the time it has existed, it should have been all colonized many times over by now. Interstellar distances are large, but 13 billion years is a long time.  Earth should have received multiple visits from aliens. Yet, there is no evidence that this has occurred, not even one old alien probe circling the Sun. This apparent discrepancy is known as the Fermi paradox.

A variety of explanations have been advanced to explain it. To keep this post short, I will just list a few of these factors, pulled from a Wikipedia article:

Extraterrestrial life is rare or non-existent

Those who think that intelligent extraterrestrial life is (nearly) impossible argue that the conditions needed for the evolution of life—or at least the evolution of biological complexity—are rare or even unique to Earth.

It is possible that even if complex life is common, intelligence (and consequently civilizations) is not.

Periodic extinction by natural events [e.g., asteroid impacts or gamma ray bursts]

 Intelligent alien species have not developed advanced technologies [ e.g., if most planets which contain water are totally covered by water, many planets may harbor intelligent aquatic creatures like our dolphins and whales, but they would be unlikely to develop starship technology].

It is the nature of intelligent life to destroy itself [Sigh]

It is the nature of intelligent life to destroy other technically-advanced species [A prudent strategy to minimize threats; the result being a reduction in the number of starship civilizations].

And there are many other explanations proposed, including the “zoo hypothesis,” i.e., alien life intentionally avoids communication with Earth to allow for natural evolution and sociocultural development, and avoiding interplanetary contamination, similar to people observing animals at a zoo.

As a chemical engineer and amateur reader of the literature on the origins of life, I’d put my money on the first factor. We have reasonable evidence for tracing the evolution of today’s complex life-forms back to the original cells, but I think the odds for spontaneous generation of those RNA/DNA-replicating cells are infinitesimally  low.  Hopeful biochemists wave their hands like windmills proposing pathways for life to arise from non-living chemicals, but I have not seen anything that seems to pass the sniff test. It is a long way from a chemical soup to a self-replicating complex system. I would be surprised to find bacteria, much less star-travelling aliens, on many other planets in the galaxy.

Maybe that’s just me. But Joy Buchanan’s recent poll of authors on this blog suggest that we are collectively a skeptical lot.