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The optimists were right and they could be right again

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Is our world getting better, and is it likely to continue to do so, or is it on the brink of disaster? People contemplating these questions tend to divide sharply between cheerful optimists who believe in the former and pessimists who insist on the latter. I’m in the former camp. But I also want to offer an important caveat. Continuous progress depends on risk management that we have created ourselves. Among them are the destruction of the planetary environment and thermonuclear war. To succeed, we must overcome the forces of division, within and between countries, that threaten social stability, global cooperation and peace. In short, the world could be a better place. But we cannot take it for granted.

Graph of the number of poor globally showing that efforts to reduce poverty have stalled since the pandemic

An optimistic view of the past is featured in Human Development Report 2002/2021 of the United Nations Development Program and Poverty and Shared Prosperity 2022 from the World Bank. The latter shows, for example, that the share of the world’s population living in extreme poverty (now measured by incomes of less than $2.15 per day) has fallen from nearly 60 percent in 1950 to 8.4 percent in 2019. That’s staggering. Likewise, the United Nations Human Development Index—the amalgamation of per capita national income, years of schooling and life expectancy at birth—shows a significant and steady rise from 1990 to 2019. And again, World Happiness Report The year 2022 shows that the happiest countries are thriving – interestingly enough, small – with Finland and Denmark at the top of its list. Average prosperity may not be a sufficient condition for greater happiness. But prosperity helps.

Not surprisingly, the epidemic reversed progress. The number of people living in extreme poverty jumped from 648 million in 2019 to 719 million in 2020. Even worse, it could mean that the numbers of people living in extreme poverty will be permanently higher than they would otherwise be. Again, the Human Development Index is estimated to have declined in both 2020 and 2021, erasing the gains of the previous five years. The energy and food crises caused by the Russian war in Ukraine will certainly prolong the losses. The human consequences of these twin shocks are therefore undoubtedly enormous.

One might assume that normal economic service will eventually resume. However, the HDR indicates that this hope may not come true. It refers to today’s “uncertainty knot”, in which crises are piling up one after another. Covid-19 is not, he suggests, “a long detour from the usual; it is a window into a new reality.”

Line plot of the proportion of the adult population that experienced stress in the past day, by education level (%) showing stress being high and rising

However, it is also true, as the report makes clear, that the response to Covid has included the rapid discovery and development of effective vaccines. Thus, “in 2021 alone, Covid-19 vaccination programs averted nearly 20 million deaths.” The distribution of these vaccines has been appallingly unequal, and the response has often been clueless hostility. But they worked. So why be so pessimistic?

The “uncertainty complex,” the report suggests, consists of three components: planetary changes in the “Anthropocene”—the period of human-caused changes in the biosphere; profound social and technological changes; and political polarization within and between societies. The first is actually a novel. Both the second and the third are characteristic of our world since the nineteenth century. What is new today is how planetary forces interact with local forces. We cannot now solve our internal problems without solving our global problems. But we may also find it impossible to solve our global problems without first solving our local problems.

The report provides fascinating evidence on three aspects of those domestic difficulties, which it asserts are rooted in uncertainty. First, there are increasing levels of mental distress. Remarkably, the data “paints a bewildering picture in which people’s perceptions of their lives and communities stand in stark contrast to historically high measures of overall well-being.” Second, insecure people can be drawn to “social identities that become an ‘antidote’ to uncertainty, social identities that are partly emphasized as different—in total contrast—from others”. Finally, this process can lead to political polarization and, to take a disturbing example, to a rejection of democratic norms.

These local phenomena, exacerbated by inequality, interact with changes in global power and influence to destabilize international relations. Thus, the interaction of local conflicts with global ones makes it difficult to maintain global peace and stability of the planet.

This focus on the interaction between social, technological, economic and political developments may add dimension to the discussions “multiple crises”. But it does not make facing the same challenges any easier.

The same report proposes “three pillars” – investment, insurance and innovation. All three make sense. If we are to improve the performance of our economies and meet the challenges of the planet, we need to increase investment around the world, not just in historically successful economies. Second, social insurance against uninsurable risks, such as job loss, industry decline, or health deterioration, will help reduce insecurity. Third, we need to innovate. But the most important of them now may be social and political. The last period of this renewal was in the middle of the twentieth century. We can’t wait for a second of debacle before we try to renovate again.

We have made real progress, although it is spread unevenly within and across countries. But, as always, progress creates new problems. We also stumbled, often badly, on our way to answers. If the optimistic point of view I still hold is to prove correct, we have to stumble faster.

martin.wolf@ft.com

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Economic

We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

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International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

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The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

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However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Economic

Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

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Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

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David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

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BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

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Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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