Zuckerberg doesn't care

1—Zuckerberg doesn't care

Wednesday's issue was certainly prescient because less than 24 hours later came Meta's quarterly results, which revealed that Meta CEO Mark Zuckerberg "has a message to all his metaverse critics out there: He doesn't care what you think".

Martin Peers from The Information continues:

"Not only is he not cutting back on augmented and virtual reality investments to take account of the economic slump, he plans to spend even more money! In reporting third-quarter earnings Wednesday, Facebook owner Meta Platforms—showing a stunning 4% drop in revenue—revealed that losses at the Reality Labs division developing AR and VR gear for the futuristic metaverse jumped 31% from the second quarter.

That puts the annualized metaverse investment at nearly $15 billion, well above the $10 billion annual figure the company had previously given. Moreover, the losses will 'grow significantly' next year, Meta said. And that's just part of a continued ramp-up in investment spending at Meta. Executives projected that overall operating expenses will grow next year by around 14%. Capital expenditure meanwhile will also rise. That's partly due to the metaverse investments but it's also due to spending on artificial intelligence, which fuels all sorts of services, including the company's TikTok rival Reels, as well as spending on advertising and business messaging tech. Meta executives say they're becoming more careful about their expenditures, but you can't really see it in the numbers."

This is a HUGE gamble by Mark Zuckerberg. While his tech rivals have been "getting fit" as interest rates rise – Google parent Alphabet has prepped its books for a downturn – "Meta still managed to add 3,761 employees in the third quarter".

It could pay off – "Wall Street focuses too much on the short term, which causes most companies to pass up much-needed long-term investments" – but a more likely outcome is that Meta has been "caught flat-footed when it comes to cutting back in adverse economic times".

Markets clearly think it's the latter: Meta's share price plunged nearly 25% following yesterday's results, bringing the company's valuation down to where it was in early 2016.

You can read the full story by Martin Peers here (~2 minute read).

2—Europe's energy over-supply

Yep, you read that correctly. Europe's gas shortage has quickly become a glut:

"Fill levels in European gas storages are above 90% and in the major re-gasificaiton hubs of France, Italy and Spain, storages are even closer to 100%.

European countries "mail-ordered" massive amounts of Liquid Natural Gas after the European Comission asked countries to move ahead of the curve in June.

But suddenly there is no where to place the gas arriving via the sea in France, Italy and Spain."

That's from Andreas Larsen, who notes that demand has plunged because Autumn has been kind to Europe:

"The weather forecast for 1 Nov still points to >15 degrees celsius across the European continent way above usual averages, which hints that the over-supply will continue another week or two at least."

If the warm weather continues, the price of storing gas on ships could skyrocket to the point where Europe could see gas "prices close to 0 soon".

Be sure to check out Larsen's full twitter thread, complete with several helpful charts, here (~4 minute read).

3—Infrastructure, San Fran style

4—The new world system

Xi Jinping, by removing any and all officials with a pro-business or pro-reform background from the Politburo, has made it clear that "the opening up of the Chinese economy is not going to continue".

But if China is souring on the old "Chimerica" model and the US is also prioritising "the zero-sum military and geopolitical competition to which economics are a key input", what might the 'new world system' look like? Noah Smith speculates:

"One reasonable prediction is that the era of global value chains will not come to an end. Offshoring and supply chaining are just how companies know how to produce stuff now, meaning that — barring a very catastrophic war — we will not go back to an era of largely self-contained national manufacturing economies. Instead, supply chains will shift into blocs. China is obviously one bloc; Xi and his followers want China to make and own everything valuable in-house and rely on other countries only for raw materials and other low-value goods. In the absence of the U.S.-led liberal world order to enforce free trade, securing those resources will require geopolitical and even military action — a return, in some form or another, to the pre-WW2 era that will doubtless draw at least scattered protests of neo-imperialism. There will be struggles over the resources of some neutral countries, including poor countries, and this could turn into some ugly Cold-War style proxy struggles.

The second bloc is less certain. I expect the Biden administration and/or its successor to get tripped up for a while by the mirage of a self-sufficient U.S., and to implement 'Buy American' policies that hurt our allies and trading partners and slow the formation of a bloc that can match China. But if Americans can finally pull their heads out of their rear ends and recognize that their country doesn't dominate the world the way it used to, there's a chance to create a non-China economic bloc that preserves lots of the efficiencies of the old Chimerica system while also serving U.S. national security needs."

You can read Smith's full post here (~14 minute read), in which he lists India, Vietnam, Indonesia, Bangladesh, the Philippines, Mexico, and Turkey as part of a possible new 'bloc', along with "some swing states like Malaysia that could go either way and might try to play both sides".

5—Further reading...

☢️ Australia's Energy Minister Chris Bowen "rejects" nuclear energy. But other countries are embracing it: "Canada will provide C$970 million in financing to develop a grid-scale small modular reactor (SMR), a new nuclear technology touted as a key part of the country's plans to reduce emissions."

💸 Central bankers speculating on bonds (and losing): "Falling bond prices... mean paper losses on the massive holdings that the Fed and others accumulated during their rescue efforts in recent years. The US Treasury will see a 'stunning swing', going from receiving about $100 billion last year from the Fed to a potential annual loss rate of $80 billion by year-end."

🙊 Elon Musk completed his (massively overpriced) Twitter takeover, a day after a leaked internal report revealed that Twitter's English-speaking base is declining by a 'devastating' percentage, abandoning the app for competitors such as Instagram and TikTok.

📈 "Australia's ex-food & energy [inflation] measure is at the upper end of the global experience, but as yet we have been behind in the food & energy space. But as the budget noted more material food & energy price rises are coming here as well."

🌞 The International Energy Agency's latest outlook predicts "a high point for global emissions is reached in 2025... as renewables, supported by nuclear power, see sustained gains".