Written by our Director of Equity Advisory, Jeremy McKeown, the HyperNormalTimes provides in-depth and considered long-term commentary on major macroeconomic and market-shaping themes.

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November 20, 2023

Governance & Chainsaws


Turning Japanese The future course of interest rates is a battle between investors’ recency-biased belief in the “Fed put” versus the cautionary warnings from monetarists and governments’ looming fiscal dominance. The decision a month ago to pause policy rates on both sides of the Atlantic unleashed risk assets via investor muscle memory of benign inflation. Meanwhile, a rump of hardline monetarists focused on our declining monetary aggregates warn of an impending deflationary recession to the theme of I’m Turning Japanese by the Vapours. (This 1980 one-hit wonder coincided with the last time anyone took monetarists seriously). At the same time, our governments’ insatiable bond appetites show no sign of diminishing, crowding out private investment demand. We will learn more about the UK Exchequer’s specific bond appetite with Wednesday’s Budget.

Magic Money Tree – MMT Last week’s lower-than-expected CPI data signalled that real rates can be positive, at least for now. Furthermore, the yield curve is flattening and could revert to its more usual upward slope. This intertemporal shift is bringing matters of capital misallocation and malinvestment from our recent past to our current attention. We have dealt with HS2 already, but the UK’s quixotic ambition to become the Saudi Arabia of wind and its unfunded public pension liabilities remain outstanding. We have not felled the magic money tree; rather, we are allowing it to wither.

Indulgent One activity that intertemporal normalisation has impacted is the widely accepted practice of voluntary carbon credits. Western businesses and consumers use these modern-day indulgences to “offset” their carbon-intensive lives. Usually, this takes the form of tree planting or investment into schemes that spare existing woodlands from deforestation. The typical deal is that we pay poorer nations to plant trees in exchange for our carbon addiction. However, there has been little consistency or transparency regarding how intermediaries value these credits.

Carbon Fix Last week, The New Yorker magazine highlighted the Swiss “profit with a purpose” consulting business, South Pole, regarding credits generated from preventing tree clearing in a large land scheme in Zimbabwe. The article highlighted how “time repricing” has materially altered the project’s value. However, satellite images showing the land almost devoid of vegetation were more value-destructive. The marked-to-model accounting involved is as dubious as any reported in the subprime mortgage fraud of the Global Financial Crisis and with a commission structure that would make the most egregious hedge fund manager blush.

Governance 101 South Pole’s “profit for the public good” model reoccurred last week with the sudden departure of Open AI’s Sam Altman. This CEO defenestration is the biggest kerfuffle in the Valley since John Scully sacked Steve Jobs in 1985. Open AI (OAI) is an unusual organisation, starting life as a non-profit with the self-proclaimed goal of building safe and beneficial artificial general intelligence for the benefit of humanity. It later became a “capped for profit” company valued at $85bn when it partnered with Microsoft, which invested $13bn, providing nearly all of its funding without assuming control.

I can’t do that, Dave We don’t know if this dispute is an old-fashioned power struggle or a more nuanced culture war between the AI accelerationists (the accels or techno-utopians) and the decelerationists (the decels). But we gather that OAI’s new interim CEO is a fan of 2001: A Space Odyssey, which may indicate where the Board’s fears lie regarding their former CEO.

Shape Shifting Unusually, Altman has no equity in Open AI and has been working on other projects, including plans for an AI hardware start-up where Softbank (or should we call it Soft Touch) is in early funding talks. The Board said that Altman was “not consistently candid,” suggesting he had been hiding things from them sufficient to fire him on the spot. As Altman noted a few years ago, “You can bend the world to your will a surprising percentage of the time — most people don’t even try.” It would appear that he bent the OAI Board members out of shape in his haste to launch new AI products without adequately considering the effect on the rest of us humans.

Lemonade Stand Friday’s abrupt announcement of Altman’s departure, which one analyst brilliantly titled “Control Altman Delete,” wiped $50bn off Microsoft’s market value. The episode questioned the tech giant’s undue haste in funding Open AI, revealing inadequate governance. However, after what was undoubtedly a busy weekend, CEO Satya Nadella eventually announced he had made lemonade from his helping of lemons by hiring Altman and his cofounder Brockman and team directly to Microsoft – a checkmate move on the most adopted consumer AI product and its development team all under the radar of anti-trust scrutiny.

ESG Fundamentalism This episode highlights what a class act Satya is, a task made easier by a balance sheet larger than most countries and access to almost unlimited computing power. However, it also highlights the misalignment of purpose between OAI and the world’s largest enterprise technology company. Another Sam, Bankman Fried, illustrated that devotion to Effective Altruism, a fundamentalist ESG cult to which Open AI had links, can often lead to radical mission creep in what Matthew Syed called institutional narcissism when noble ends justify dubious means by well-intentioned people. Or, as Oscar Wilde warned, “Charity creates a multitude of sins.”

Argentinian Chainsaw Massacre As we await the UK Autumn Statement, it is worth reflecting that our political machinations pale compared to what is happening in Argentina. Sunak’s pledge, albeit with limited means to affect it, to halve the UK’s headline inflation rate was a low hurdle to jump and is already in the bag. Economist Simon Kuznets claimed there are four types of economies in the world: developed, undeveloped, Japan and Argentina. And Argentina’s newly elected, chainsaw-wielding president Milei has to tackle domestic inflation, running at 143% pa. His platform is to close (he said blow up) the Argentine central bank and adopt the Dollar as legal tender, thus putting a brake on Argentina’s predilection for monetary excess. He also plans to apply his chainsaw to the government’s magic money tree. Milei has said, “The central bank is a scam, a mechanism by which politicians cheat the good people with inflationary tax.” After that, he commented on Bitcoin, saying it “represents the return of money to its original creator, the private sector” and that “it prevents politicians from robbing you through inflation.” Bitcoin rallied further on Milei’s election. Meanwhile, the wider liberal world, including the IMF and World Bank, shuddered.


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