Most significant market correction since April - is it over?

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Today’s Links

Michael Every posted the front page of his daily today on X, pointing out Trump’s leftward turn as discussed on the podcast among other things. The back archive of his dailies and other publications is available here.

An FT Op-ed runs through the reasons to be bearish on China’s economy, including its inability to transfer economic power to households with a rebalancing and its lack of soft power as autocracy doesn’t sell well, particularly in Europe when it has clearly allied itself with Russia.

Could there be a class-action moment for social media companies on the harm they cause to vulnerable young people’s mental health, perhaps even akin to the tobacco settlements of yore? On can only hope so, but there is a case currently making its way through California’s court system that is now going to trial after the social media companies lost their bids to have the case thrown out. Their defense that they are not responsible for the content on their platform is ridiculous when the algorithms they all employ seek to maximize attention and keep users stuck in doomscrolling mode, knowing that content that generates the most emotional intensity keeps people engaged. Thanks very much to a Saxo Market Call listener “The Wager” who kindly sent the link in a reply to yesterday’s substack.

A WSJ article reminds us how much of the economy is the stock market - with AI driving perhaps even a dominant portion of overall GDP growth of late, and certainly AI-related stocks driving the bulk of market gains, while some estimate, according to the article, that up to three-fourths of US consumer spending is from the wage effect of rising stock prices. It’s all dangerously reflexive at some unknown inflection point, one would think.

Here’s another op-ed on Bloomberg talking about the economic time bomb from pay-as-you go social transfer payments to older citizens in Europe when demographics are going upside down, placing an impossible burden on the UK’s/Europe’s younger generations. There is an enormous coming-to-terms ahead on this within a decade.

Doomberg the green chicken (still don’t understand why, but it certainly is memorable branding) on Thoughtful Money. He is far too optimistic, in my view, on the supply potential from natural gas, but makes compelling points on the potential for gas demand. The discussion of natural gas in this podcast inspired today’s chart-of-the-day below.

Chart of the Day - A random Natural Gas ETF

The below is a chart of the randomly selected First Trust Natural Gas ETF (market cap near USD 380 million, the largest one I could find on a brief search). The ETF has a broad holding of mostly US-based natural gas production and “midstream” (pipeline) companies. You really have to zoom out to see where the ETF traded when natural gas prices were far more expensive and far more inline with the price of oil in the pre-shale gas production era. From here, if demand for natural gas finally begins to catch up with production rates in the US — possibly from a combination of further buildout of natural gas-driven power generation for hungry AI data centers and EV charging, as well as from LNG export facilities — a “normalized” US natural gas price relative to oil and relative to the price of gas elsewhere could be significantly higher, resetting the valuation of companies that can deliver gas to market. Currently, this ETF price is down over two-thirds from its trading range from 2010-14, and has done little over the last three years after surging from the depths of the pandemic-inspired bust. What if gas prices rose to prices of the current and rather cheap 60 dollar per barrel equivalent? That would be 10-dollar gas, versus the current price of 4.50 and an average price over the last year of about 3.50 (and 2.50 in 2024)? Shortly put, gas is a critical commodity and it is dirt cheap.

This is not a recommendation.