Russia on Sunday is reporting a mass casualty event in the Crimean port city of Sevastopol, and is saying that a US long-range missile was behind it.

The Russian Ministry of Health in a recent update said that five people were killed in a series of strikes from Ukraine, which injured 124 people including 27 children. Among the deceased, two were children, the ministry said. The casualty toll is likely to climb over the next hours amid the emergency response and as hospital data is reported.

Moscow is calling it a ‘terrorist missile strike’ on Sevastopol with five US-supplied ATACMS tactical missiles, carried out just after noon local time. What’s more is that Russia says they were equipped with cluster warheads, making for a bigger casualty strike zone.

Crimean officials said that in once instance a missile exploded above a crowded beach, unleashing shrapnel on people who had been relaxing there.

A separate Russian Defense Ministry (MoD) statement directly accused Washington. “Flight missions for ATACMS missiles are programmed by American specialists based on US satellite reconnaissance, making Washington primarily responsible for the deliberate missile strike on Sevastopol’s civilians,” the Russian Ministry of Defense (MoD) stated.

Widely circulating brief video showing the moment a projectile exploded over beachgoers in Sevastopol…

🇺🇦🇷🇺 The NATO-backed Kiev regime attacked Sevastopol with U.S.-supplied ATACMS missiles using cluster munitions.

So far, three people, including two children, have been reported killed.

The number of injured civilians has almost reached 100. pic.twitter.com/zI2h15IIGX

— DD Geopolitics (@DD_Geopolitics) June 23, 2024

“Therefore, the responsibility for the deliberate missile strike on Sevastopol’s civilians lies primarily with Washington, which supplied this weapon to Ukraine, as well as the Kiev regime, from whose territory the strike was launched,” the MoD statement added.

The statement explained that while anti-air defenses were able to down four of the five inbound rockets, the fight changed trajectory due to the intercept attempts resulting in “its warhead exploding in the air over the city.”

It emphasized this was “terrorist attack on the civilian infrastructure of Sevastopol with U.S.-supplied ATACMS tactical missiles loaded with cluster warheads.”

Local video of the aftermath showing a largely deserted beach…

🇷🇺 The beach in Sevastopol, struck by a U.S.-supplied [cluster] ATACMS, is being inspected by sappers and divers.

Bloodstains and scattered belongings of tourists are visible at the scene of the tragedy. pic.twitter.com/3Tg1eSRxaC

— DD Geopolitics (@DD_Geopolitics) June 23, 2024

AFP writes of emerging unverified footage that “Videos posted on social media showed people running from the beach as explosions went off and people in swimming outfits carrying a stretcher.”

Russia’s military warned that “Such actions will not be left without a response.” The Biden administration has regularly sought to claim that US-supplied weapons transferred to Ukraine can only be used to attack military targets and are “defensive” – even in the instance of cross-border attacks.

Likely Russia is gearing up to pummel multiple sites across Ukraine, and will try to go after bases hosting foreign military equipment and arms storehouses. This event is a major escalation, and likely President Putin himself will address it in a statement at some point in the next 24 hours.

Already Ukraine has been struggling through nationwide rolling blackouts due to stepped-up airstrikes and drone attacks primarily targeting the nation’s energy infrastructure, as its population braces for more.

By Peter Tchir of Academy Securities

Ok, calling this a “one stock” stock “market” seems a bit extreme, but is it? On Thursday when stocks rolled over (the Nasdaq 100 started higher at the open and then dropped almost 300 points from there), virtually everyone I spoke to pointed to NVDA shares reversing as the main weight on the overall indices. Throughout much of Thursday and Friday, I was receiving many more notes on support/resistance related to NVDA than the indices, Treasuries, or anything else that could be whipping markets around. Yes, Friday was “triple witching,” which likely added to the volatility, but there was one stock that dominated all market conversation.

I’m wondering if that is why it is so difficult to make sense of markets on many fronts? Why we seem to be getting a variety of indicators, all pointing in different directions?

Breadth, one of the topics in last week’s Same But Different, is clearly front and center in this report.

Breadth, along with the role that options are playing in the market, and a whirlwind of Geopolitical Risks, were discussed on Bloomberg TV on Tuesday (Academy’s segment starts at the 50-minute mark).

Before Jumping into the “Macro”

In case you missed it, Academy published our mid-month assessment of Geopolitical Risk – Perception vs Reality.

• Wildcard Risk, a catch-all, rose the most. Partly because North Korea ratcheted up a notch or two on Putin’s visit (SITREP) and shots were fired along the DMZ. The escalation between China and the Philippines near the Second Thomas Shoal is also attracting our attention, as we have a Defense Treaty in place with the Philippines. This could get tricky and be very disruptive.

• We also provided our updated views on what we see the market pricing in, versus what we think should be getting priced in for Russia, Trade Wars, the Middle East, Commodity Prices, and CYBER.

The “One Stock” Stock Market at a Glance

ETF Flows

We start with 3 ETFs.

• TQQQ, a 3x leveraged ETF on the Nasdaq 100 (with a $24 billion market cap), has been experiencing outflows for several weeks. While we didn’t include it here, SQQQ, a 3x inverse ETF on the Nasdaq 100, has been garnering some serious inflows (though only $3 billion). One way to interpret this data, is that “faster” money has been taking profits in the Nasdaq 100 and while still outright bullish (based on relative market caps), it shows signs that the market is tired.

• QQQ is a Nasdaq 100 ETF. It is a whopping $284 billion, and I view it as a bellwether of flows from buy and hold “mom and pop” accounts, to hedge funds, to large asset managers adjusting their asset allocations. It has trickled higher in terms of flows since the start of the 2nd quarter, but had some meaningful outflows in the past few days. Again, more “trimming” than exiting risk, but an interesting development.

• Which brings us to NVDL, an ETF that provides a 2x leveraged return on NVDA. It is $4.3 billion in size, so not big, but big enough for us to pay attention to. While investors were shedding risk in the Nasdaq 100, this ETF was getting large inflows! I still cannot understand why the regulators approve single stock ETFs of any sort (especially leveraged). There seem to be enough ways to invest in single stocks without needing an ETF. Let alone an ETF that is path dependent. The leveraged ETFs (unless a stock moves in one direction day after day) will always underperform the leveraged return of the stock from the initial investment date (it is a function of the rebalancing mechanism). Why this ETF exists, I don’t know, but it seems to give us a glimpse into the “one stock” nature of this market.

We didn’t dare include XLK (a $71 billion ETF focused on the Tech Sector) in the chart, because it would have broken the chart. Since the start of the 2nd quarter, it has experienced mild outflows (consistent with profit taking), but it had a very large inflow on Tuesday and outflow on Friday, presumably associated with the rebalancing (MarketWatch Report). Our understanding is that the rules that this ETF follows only allow for 2 stocks to be weighted above 5% (at the time of the reweighting). Currently those two stocks are MSFT and AAPL (both a little over 20%). NVDA (at 5.8%) is expected to “flip flop” with AAPL as one of the two most weighted stocks. That seems to be setting up traders. As a quick test for Bloomberg users, pull up your “favorite” ETF and go to the Current News page (CN ). See how many stories are listed under the ETF of choice. My experience is that right now, XLK is attracting a lot of attention. Because of its size and the rebalancing, it is likely influencing individual stock prices in ways that are not intuitive for fans of passive investing. Needing to buy/sell $10 billion of some single stocks hardly seems “dignified” for a “passive” strategy, but it is what it is. Presumably, the rules were designed when megacaps didn’t grow by leaps and bounds on an almost daily basis.

While we are not here to hammer on “passive,” it seems important to remember that every $100 that currently flows in or out of QQQ (for example) creates $45 of buying or selling for 7 companies (8 stocks but 7 companies as both GOOG and GOOGL are in the top 8).

The trading related to ETF inflows and outflows is robotic. There are rules that are followed (daily and on rebalancing), but in an era where so many investors prefer index-based ETFs to individual stocks or managed mutual funds, I sometimes wonder if we truly “understand” what we are getting, and the ramifications of those investments, when the indices are so heavily skewed to a few stocks (this isn’t a new issue, but has risen to the top of conversations once again).

Before finishing this section on some of the mixed signals in ETF flows and the “passivity” of these strategies, we’d be remiss not to include QQQE (a Nasdaq 100 equal weighted ETF). If you thought that investors would flock to an ETF where any “catch-up” rally will do well, you are wrong. Shares outstanding are still lower than they were last summer (when it seemed much easier to get on the “laggard” train) and the ETF is “only” $1.25 billion, a fraction of the size of NVDL despite, at least to me, being a product that gives access to something that would be difficult to replicate on your own. RSP, an S&P 500 equal weighted ETF, does have $54 billion in AUM, but has been experiencing outflows.

I’m stuck seeing too much focus on a single stock and am concerned by the nature of passive funds impacting a variety of stocks. I cannot get behind the “catch up” rally, because unlike last fall, where you could bet that the data was improving and the average stock had not responded, we’ve had the “good” data and haven’t been able to get a strong response from much of the market.

Riddle Me This – Investor Sentiment

The first two things I look to when thinking about investor sentiment are:

• The CNN Fear & Greed Index. It currently registers as “fear.” With the VIX at 13, that didn’t jump out as being an obvious place for this index to register. A month ago, the index was in “greed” mode, and I’m not really sure how it is coming up with “fear,” but I have to respect it (maybe it is picking up on some of the fund flows we’ve been seeing, which have shown reductions in risk taking). So, we have one measure saying “fear.”
• The next stop is the AAII Investor Sentiment Survey. Lo and behold, 44.4% are bullish. Higher than a month ago. Only 22.5% are bearish, far lower than a month ago. This measure is telling me “greed.”

While these two measures don’t always agree (and are generally good contrarian signals at the extremes), one is saying fear (though not at a “signal” strength), and the other is saying greed (at close to “signal” strength).

“Clear as mud” is one possible explanation. One picks up surveys where investors can’t help thinking about the broad market and the economy overall, and the other picks up “hard data” where much of that hard data is influenced by all the changes in the options markets. We didn’t even talk about the option selling based ETFs or even the heavily skewed weightings in indices. Something to explore at the very least.

Given those mixed signals, we can go back to my favorite fallback indicator – RSI. RSI (or Relative Strength Indicator) for the Nasdaq 100 is in overbought territory but has been coming down. At least this indicator makes some sense to me. Greedy, but less greedy than a few weeks ago.

Rates

The 10-year is still sitting below 4.3% (I continue to believe that 4.3% to 4.5% is the “right” range for now).

• Inflation data is likely to continue softening, supporting Fed cut projections and helping yields across the curve.

• European politics will add volatility. Last week, political news out of Europe seemed to help the bond market, but I’m not expecting that to be the norm.

• Our Deficits. The CBO raised their estimates for this year’s deficit to just under $2 trillion (more than a 25% increase from earlier projections). They see no end in sight, and I believe that the debate will put the deficit in the headlights (and not in a good way) as the reality of most policies seems to be destined to increase the deficit (just doing it in different ways).

The short end of the curve should benefit from data, while the longer end of the yield curve is likely to be impacted by re-focusing on the deficit, and the debate seems like an ideal catalyst for that.

Credit

Corporate issuers had to take advantage of the drop in yields and the window to issue ahead of the potentially slow July/August period, and that pushed spreads slightly higher.

I’m still all-in on adding to credit risk, across the board, from structured, to high yield, to IG, to munis. There are some interesting charts showing that for investment grade companies, net interest expense is actually a positive. So many companies are locking in low yields and many companies are sitting on huge cash piles earning more than their cost of debt, that interest is coming into corporate America, rather than being paid out. Not sure how long that lasts, and it mostly impacts a handful of companies, but interesting, nonetheless. That is the only new thing that I would add to Credit Spreads Can Go Much Tighter.

Bottom Line

Greedy, but less greedy. It seems like not only is the “catch up” trade not gaining traction, but even the best performing areas are seeing some profit taking.

Is this a possible inflection point in the direction of flows? Have we set ourselves up to the point that momentum might waver, triggering selling in the momentum arena, which has been a great factor to chase this year? If so, does the weighting of a handful of stocks in the indices (and ETFs) force too much liquidity into too few stocks? We’ve been arguing that the depth of liquidity has been low – both on the way up and the way down, and too much is being channeled into too few names. This is no fault of any of the individual names (other than they have had incredible success growing into great businesses), but the “passive” investing makes it difficult sometimes to see the forest for the trees, and I suspect this might be one of those times.

It is unclear and we need to see where we head in the coming days and weeks, but the stock market once again feels ripe for a sharp, fast pullback. If I’m right on yields, this could certainly help push us in that direction.

Fire alarm specialist Rep. Jamaal Bowman of New York delivered a an unhinged rant at a rally on Saturday, criticizing U.S. involvement in Israel and AIPAC and flailing his arms wildly while starting to chant his own name at one point.

“We are gonna show f—ing AIPAC the power of the motherf—ing South Bronx,” he screamed at the crowd. 

Bowman is up for re-election this Tuesday and is currently getting absolutely smoked in the polls, down 48% to 31% to George Latimer, according to Fox News. 

He targeted the American Israel Public Affairs Committee for its recent $14 million campaign against his reelection due to his stance on Israel.

Bowman has been a longtime critic of the Israeli government and its war against Hamas in Gaza and described the conflict as a genocide against Palestinians. At the rally, he reiterated that U.S. dollars are funding the killing of innocent civilians.

“Cease fire now!” he had the crowd chanting while taking a wooden stool and slamming it onto the stage repeatedly. 

Rep. Jamaal Bowman just went on an unhinged profanity-laced tirade and said, “We gonna show them who the f*ck we are! We gonna show them who the f*ck we are!”

He then said, “We’re not going to stand silent while US tax dollars k*lls babies!”

Is Bowman now pro-life? pic.twitter.com/ZzDAOux3di

— Paul A. Szypula 🇺🇸 (@Bubblebathgirl) June 22, 2024

“People ask me why I got a foul mouth. What am I supposed to do? You coming after me. You coming after my family. You coming after my children. I’m not supposed to fight back? I’m not supposed to fight back? We’re gonna show them who the f— we are,” Bowman shrieked on stage. 

“We are not gonna stay silent while the U.S. tax dollar kills babies and women and children. My opponent supports genocide. My opponent and AIPAC are the ones destroying our democracy,” he added, stating: “And it is on us, it is on all of us to save our democracy and save our collective humanity. Because this race is about our collective humanity.”

And of course AOC was there to help “turn up a vote”. Bowman added: “Cease fire now, let’s get it poppin'”

🔥🚨DEVELOPING: Democrat Rep. AOC posted beside Rep. Jamaal Bowman in a ‘cringe’ video to appeal to younger voters.

It is worth noting that former fire alarm specialist Rep. Bowman is 48-years-old while trying to act young.

Rep AOC proves time and time again that she wants… pic.twitter.com/X08tigh9cl

— Dom Lucre | Breaker of Narratives (@dom_lucre) June 22, 2024

AOC went on her own unhinged rant later in the rally, even forcing out a ‘y’all’ to try and blend in and act as though she doesn’t spend a majority of her waking hours far outside of the Bronx:

“Are you ready to win this country back?” – Rep. Alexandria Ocasio-Cortez AOC, Sen. Bernie Sanders, and Rep. Jamaal Bowman are holding a rally in the Bronx as Pro-palestine protesters chant in attempt to disrupt it.

Video by Ed Quinn Desk@freedomnews.tv to license pic.twitter.com/KZdB36XngV

— Oliya Scootercaster 🛴 (@ScooterCasterNY) June 22, 2024

Submitted by QTR’s Fringe Finance

James Lavish, CFA, is a seasoned professional in institutional investing and risk management with over two decades of experience. He is currently the Managing Partner of the Bitcoin Opportunity Fund, which focuses on public and private investments in the Bitcoin ecosystem. Lavish is recognized for his work in educating others about financial fundamentals through his newsletter, The Informationist, which simplifies complex financial concepts for a broad audience.

On my talk with him last week, I asked him to lay out, in simple terms, exactly just how screwed the U.S. economy is.

James opened by talking about the fact that the numbers and what consumers are feeling are like having two different economies: “You’re seeing two economies out there. And that’s causing a lot of confusion out there. You hear the Fed talking about inflation. You hear the White House saying they’ve got inflation tackled. You hear businesses saying that they’re struggling. You hear consumers saying that they’re struggling. They can’t stand the inflation, the prices. They can’t keep up. But yet you see these numbers that are coming out that seem to be okay. They’re conflicting.”

🔉 Listen to the audio of this full hourlong interview here.

He added: “You’re getting unemployment numbers that are conflicting with the actual job numbers. You’re getting pricing that is conflicting. If you go to the grocery store, you’re looking at the prices, you’re saying there’s no way this is up 3.2 percent from last year. This is up 10, 12, 15 percent. So there’s confusion out there.”

He then went on to try and explain why this is: “The confusion, Chris, is that you’ve got pockets of recession, which are natural when you have the Fed raise rates so quickly and hold them there for so long. And look, 5.5% is not an incredibly high rate on interest rates on the Fed funds rate historically. But when you raise rates from just over 0%, where they were holding for a decade, to 5%, it’s massive because we’ve become incredibly indebted in this nation, which we’re going to touch on quite a bit here. But the most important thing to understand is why people are asking, ‘If the Fed has raised rates so steeply, why is the inflation rate not come down? Why is it not back to the two percent or under two percent target?'”

“And the answer is that it’s because the government is spending wildly, like so incredibly irresponsibly, that it’s causing what we’re calling fiscal dominance, meaning fiscal spending is dominating the Fed’s attempt to tackle inflation by raising rates. And so you’re seeing pockets of recession and people are feeling it. People are feeling it in their pocketbooks and their wallets,” he continued.

James went on to describe the era of fiscal dominance we are entering: “So what’s happening is it’s the federal spending. It’s the government spending so much money that you’re seeing areas of deep recession. There’s just no question about it. Commercial real estate has a problem, and that means regional banks have a problem. The Fed is all over this. The regional Federal Reserve banks are all over this. They are working with these community banks to make sure that they don’t go under. And we’ve already seen them go under. We saw Silicon Valley go under. That’s a little bit of a different situation that didn’t have to do with commercial real estate, but that had to do with exactly what you talked about. So you have rates that rise catastrophically on a meteoric pace.”

He also talked about how the rise in rates has effected treasuries on corporate balance sheets: “Treasuries were considered riskless because in the last 15 years, they were riskless. If you owned a treasury, there was pretty much a certainty that the price of that treasury would just gravitate to par, and you would mature and get your maturity payment and all the coupons along the way. However, when you raise interest rates from 0.025% to 5.5% on a bond with a 30-year duration, you’re basically saying that if you went to try to sell that treasury that you own, let’s say a 1.5% treasury with a 30-year yield, and it’s yielding 1.5%, and you try to sell that in the market, that’s a difference of four percent annually for that bond. So if this thing still has 7, 8, 10, or 15 years of duration on it, that means you’re marking this bond down significantly. It’s not just a few percent.”

James pointed out that protecting the market is crucial at this stage: “The economy is driven by this, and it’s been shown for the last decade that the stock market really is a large part of the economy. It’s not just because of tax receipts off of capital gains, but because people look at their net worth and see their net worth go up in their stocks. They’re willing to spend more of their discretionary income rather than saving it because they think, ‘Oh, well, look, my net worth is up 20%, 30%, 40% in the last couple of years. I’m fine. I’m going to go ahead and spend my paycheck. I’m not going to put any more money into the market. I’m good.’ And so it just drives the economy.”

🔥 80% OFF: Since it’s officially summer, I’m going to offer up my largest discount of the year for Fringe Finance: Get 80% off forever

Lavish explains that any crisis now will be kicked up to the sovereign level for the first time in recent history: “We have the tech bubble, and that’s kind of kicked up to the banks. Then we continue on, and we’ve got this risk, this debt indebtedness, that’s now kicked up to the banks. And now we’re coming on the great financial crisis with the housing market. The housing bubble and all of these banks holding this mortgage paper, which is just garbage, end up going under. Where does it get kicked? It gets kicked up to the federal level. And now it’s sitting on the Federal Reserve’s balance sheet. Flash forward to 2020, and you’ve got the lockdowns that caused the entire economy to grind to a halt. The government, in a panic, went and monetized $6 trillion of debt. So now you’ve got a Fed balance sheet that’s holding more treasuries than anybody else in the world.”

“What’s going on today is that the problem is we have a fiscal policy that is absolutely unimaginably irresponsible,” he says. “We’re running $2 trillion deficits at a time that we’re not even in a recession. All this matters because the indebtedness and the risk have been kicked all the way up to the sovereign level. The punchline is that if you have a collapse of the economy, it’s the sovereign level that must stomach it completely now.”

And then he lays out the case bare: “We can walk through the numbers, but the bottom line is that the US government and the Treasury have entered a debt spiral. We now have $34.7 trillion of debt, which is over 120% of GDP. If you’re a country with debt over 120% of GDP, your fiat currency fails. This is where we’re at, and we’re just spending and spending and spending.”

“What happens if you get into a recession? Your tax revenues drop precipitously, and your spending rises at a similar rate because of all your social programs like unemployment and wage security. You could wind up having a deficit that’s not $2 trillion but could be $3, $4, $5, or even $6 trillion if it gets bad enough. Just imagine that. Suddenly, we are adding over 10% to our debt in a year, maybe 20% in a year. That is the debt spiral.”

He continues: “We can’t do that because the rest of the world will turn around and look at our bonds and say, ‘Why would I buy those bonds if they have to keep issuing new bonds to pay me for my bond?’ We are in a situation where we have to continually issue more and more debt. This is rising exponentially, and there really is no way out. That’s the problem.”

“Modern monetary theory proponents think it’s just driving the economy; there’s no big deal. However, when the music stops and people stop having confidence in the U.S. Treasury, that feeds into the US dollar. That’s when you get into a problem. Why does that happen? It happens because of inflation. It all goes back to this central problem: this constant and relentless manipulation of the monetary system through central banks that create inflation.”

“That is a soft default on that debt every single day because the dollars you’re getting paid back in the future are worth less than when you lent them out to the government initially. So, who wants to lend the U.S. Treasury dollars for 30 years when they know that inflation only has to go up to continue the charade?”

“They get into what’s called a debt spiral. They can’t get out of it. And this is where we are. So what is the option for the U.S. government if they continue to borrow? What does that mean? Well, that means that they must have inflation. There absolutely is no way around it. That inflation allows GDP to grow nominally. Remember that $28.5 trillion number? That has to go up. Nominally meaning just in terms of dollars, not inflation-adjusted.”

“When you have more dollars in the system, it creates more GDP because there’s more dollars. And so that GDP number goes up. The productivity number goes up. But it’s fake. It’s not more stuff. It’s just stuff that’s more expensive. So there are more dollars in the system. And when you go to pay down that debt in the future, you’re paying it down with dollars that are cheaper, that are worth less. This is called the debasement of the U.S. dollar. The U.S. dollar gets worth less and less and less every single year.”

He concludes: “And so this is the challenge. The U.S. government absolutely must have negative real rates. What do I mean by that? That means they must have coupons on their treasuries that are lower than the inflation rate, and they have to have this in perpetuity. That’s the only way they can keep this charade going. It won’t go on forever. Make no mistake, this cannot go on forever.”

You can listen to the full hour long interview, including insights on when the market cracks, ugly looking treasury auctions and more, at this link.

QTR’s Disclaimer: Please read my full legal disclaimer on my About page here. This post represents my opinions only. In addition, please understand I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. Contributor posts and aggregated posts have been hand selected by me, have not been fact checked and are the opinions of their authors. They are either submitted to QTR by their author, reprinted under a Creative Commons license with my best effort to uphold what the license asks, or with the permission of the author. This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. I edit after my posts are published because I’m impatient and lazy, so if you see a typo, check back in a half hour. Also, I just straight up get shit wrong a lot. I mention it twice because it’s that important.

As of early last week, Elon Musk’s SpaceX had completed 356 launches, 319 landings, and 290 relights, according to flight data from Fox News. This is a monumental achievement for the world’s first private space company to pioneer and deploy reusable rockets. 

Falcon 9 lands for the 300th time pic.twitter.com/syimP1jcxl

— SpaceX (@SpaceX) June 8, 2024

The reusable Falcon 9 rocket has dominated the launch industry and propelled America into the number one spot in the global space race. 

Falcon 9’s first stage lands on Just Read the Instructions, completing our 250th droneship landing pic.twitter.com/TOeTB1RGDr

— SpaceX (@SpaceX) June 20, 2024

Data from BryceTech shows SpaceX launched 525 spacecraft into orbit in the first quarter. This is more than any other space program worldwide, surpassing China and Russia by a considerable margin. 

SpaceX launched about 429,125 kg of spacecraft upmass in the quarter, significantly outpacing China’s rocket program (China Aerospace Science and Technology Corporation), which launched a measly 29,426 kg. 

SpaceX’s next-generation Starship rocket, which successfully completed a test flight earlier this month, could indicate that America’s rocket program will lead through 2030.

Super Heavy landing burn and soft splashdown in the Gulf of Mexico pic.twitter.com/lnjCSk2Cz6

— SpaceX (@SpaceX) June 8, 2024

Pivoting to China, where reusable rockets have yet to be deployed, a Long March 2C rocket launched days ago shows the rocket booster falling back to Earth, landing in a populated area with people running for cover. 

The booster fell to Earth near Guiding County, Qiandongnan Prefecture in Guizhou province, according to another post. An airspace closure notice for the mission established a temporary danger area containing Guiding County, Guizhou. –SpaceNews

🙀 Behind the scenes of SVOM launch https://t.co/Fcc0OAY3ac pic.twitter.com/5fiM4oz2GY

— China ‘N Asia Spaceflight 🚀𝕏 🛰️ (@CNSpaceflight) June 22, 2024

What’s evident is that China has yet to master reusable rockets, while SpaceX successfully landed its first reusable Falcon 9 rocket in 2015.

What @elonmusk and @SpaceX have done with reusable rockets – Falcon 9 & Starship – is crazy. We are already taking this tech for granted. Landing boosters on a barge floating in the ocean – NUTS.

Meanwhile the Chinese can’t or won’t even try.

I guess technically it’s standing. pic.twitter.com/8phUImXzzW

— Jeff Cloud (@jCloudyPants) June 23, 2024

Earlier this year, there were reports that Beijing-based Orienspace was working on reusable rockets, but the first test flight might not occur until late 2025 or even 2026.

Via The Cradle

Hezbollah released a video titled “To whom it may concern” on Saturday, featuring coordinates of sensitive and vital Israeli targets that would be struck in the event of a war against Lebanon, marking the second such warning within less than a week. 

The video begins with a clip from the latest speech by Hezbollah leader Hassan Nasrallah, where he warns that the Lebanese resistance will fight “without limits, rules, or restraints” if Israel wages a war against Lebanon. It then proceeds to show numerous targets across Israel. 

BREAKING | Hezbollah publishes ‘TO WHOM IT MAY CONCERN’ – a video revealing the coordinates of extremely sensitive Israeli targets that would be targeted in the event of all-out war with Lebanon. pic.twitter.com/ABoXFGRmuZ

— The Cradle (@TheCradleMedia) June 22, 2024

The targets include several sensitive targets in Haifa, the port of Ashdod, the Hadera power station, the Ramat David Military Airport in Afula, Pengrion Airport, Nevatim air base, oil refineries on the coast, and the Research Center at the Dimona Nuclear Reactor. 

The clip also showed the HaKirya Complex, which includes the headquarters of the Israeli Ministry of Security and the General Staff. Fears are growing in Israel as Tel Aviv has threatened that it is preparing an expanded attack on Lebanon.

Also on Saturday, retired Israeli general Yitzhak Brik said that declaring war on Lebanon would mean “mass suicide for Israel.”

The new clip came just a few days after Hezbollah released a nine-minute video of footage filmed by its drones, “…what the hoopoe came back with,” which show several sensitive sites in Israel’s north, namely the port of Haifa and the warships and military sites in its vicinity. 

The video also showed buildings belonging to the Israeli Rafael defense technology firm north of Haifa, where air defense missiles for the Iron Dome and David’s Sling systems are manufactured, assembled, and stored.

Below: Hezbollah releases close-up surveillance footage captured recently by its reconnaissance drones, showing sensitive Israeli targets in the north – including Haifa Port, a number of Iron Dome Platforms, and military complexes.

WATCH | Hezbollah releases close-up surveillance footage captured recently by its reconnaissance drones, showing sensitive Israeli targets in the north – including Haifa Port, a number of Iron Dome Platforms, and military complexes. pic.twitter.com/R7uSdxQwc1

— The Cradle (@TheCradleMedia) June 18, 2024

“The Hezbollah video conveys an unequivocal message to Israel, that the party is present inside Israel by the air, land, and sea, and is planning what comes next, and that is capable of carrying out severe strikes,” Israel’s Channel 14 news outlet said last week, adding that the filming of this footage is “an Israeli security failure of the first degree … The situation in the north is much worse than we imagine.”

Authored by Mark Jeftovic via BombThrower.com,

Hint: When the Venezuelans are fleeing, it means we’re in trouble.

A few nights ago, I received a long email from an acquaintance I’ve known for a very long time – twenty years or more. We’ve never hung out in person – all our interactions were online. Hadn’t heard from them in years.

As I was about to turn in for the night, I noticed an email from him, the subject line was simply, “Life”.

Over the years I have read a great deal of what you have written, but that became less of a habit in recent years.

Trying to locate your email address, I ended up today on your X account. After all those early years of reading you as a positive writer about technology I was completely taken back by what you endorsed on X.

It was so full of hate and anger. Against the WEF, against scientists working for government, about people who worry about global warming, regardless of who caused it, against Liberals and leftists and a whole bunch of name calling.

By this point, I honestly thought this might be sarcasm, but as I kept reading, it became clearer that this was not the case:

I do not for the life of me understand how a person in your position, intelligent, informed, successful, money in the bank, living in the best country in the world is so full of vitriol.  The anger leaps off the page.

You are not alone.  In my working circle I have a lawyer colleague who writes exactly like you.  My cousin who runs a successful insurance company uses exactly the same language.

Let’s ponder this for a moment. What he’s saying is that many high-functioning, thoughtful people, who hold professional positions or run successful businesses are all seemingly sounding the same and they’re all pissed.

Has it occurred to this person to wonder why this is the case?

After ranting about the #FreedomConvoy and the “J6 Insurrection” and extolling the benefits of the vaccine that saved his life (I’m genuinely happy for him, at least it worked for somebody), he poses the question:

“What could be wrong with the people we elect to set the rules for our social contract reacting as quickly as they can with whatever measures experts advise.  It may be too much, it may turn out to be wrong, it may have forced all of us to behave in a certain way to control the harm.  Why does that produce such anger?  What are you really mad about?”

Before putting forth a carefully crafted hypothetical:

The dam upstream from your town has just shown a crack and the engineers say it is under serious risk of failure. The army will move your village to high ground. If it turns out that the crack was repairable and the dam did not break, and your town was not wiped out with flooding water, should that become a heavy duty political ideological issue?

Screw your hypothetical construct, how about this:

(Stop me if you’ve heard this one before).

A bunch of unaccountable technocrats were carrying out gain-of-function experiments on bat viruses and were barred from continuing this line of research by the Obama administration. Even the Department of Defense, whom they later pitched the project to, rejected the program as too dangerous.

So instead of ceasing their work, they farmed out the research that Congress has forbidden and the military rejected, to a  Chinese lab in Wuhan via private contractors, and then they deleted emails and paper trails to cover their tracks.

After a pathogen related to that work (a highly contagious one, because they made it that way) leaked from said lab, setting off a global pandemic that kills (by official tallies) over four million people, they manufactured a peer reviewed paper that dismissed any idea of a lab leak as “conspiracy theory”.

For the next two years anybody who publicly observes that circumstantial evidence and detailed analysis of the virus itself are highly indicative of a lab leak have their careers destroyed. People are kicked off social media for even talking about it.

In fact, people are deplatformed and canceled for questioning anything about this pandemic:

• That the lockdowns were pointless and destructive – causing untold harm to children, who were low-risk, that it led to an increase in depression, suicide, domestic violence and bankrupted innumerable small businesses while accomplishing nothing.

• That alternative pharmaceutical mitigation techniques like exercise, sunlight, vitamin D were dismissed as New Age Woo Woo – while any discourse or content relating to them were deplatformed by Big Tech

• That effective pharmaceutical interventions like Ivermectin already existed but were subjected to government sponsored gaslighting campaigns

That’s just the warm up – then the MRNA vaccines come out and the narrative goes into overdrive:

• The story starts as “100% safe and effective: 96% immunity” – these things are a magic bullet.

• Except after a few months, it looks like they don’t confer immunity after all (it was time for the CDC to change the definition of the word “vaccine”).

• Not only that – turns out they didn’t prevent transmission anyway – vaccine mandates were pointless. It turned out later they weren’t even tested for that.

And if that wasn’t enough, after the smoke cleared (and the pandemic was largely over anyway), excess mortality rates accelerated globally, including instances of myocardis and strokes in young children and middle aged people who were in the prime of their lives.

For the next year, athletes and on-air personalities were dropping like flies on live TV – nothing to see here…

It definitely seemed more like a joke to me. However, what’s genuinely no laughing matter is journalists, like this reporter, collapsing live on air. Curiously, many of these segments often have sponsorship from big pharma

“Brought To You By Pfizer!”pic.twitter.com/bQ3TJHHj3r

— 🇦🇺🇱🇧OurVoicesMatter (@OV_Matter) December 17, 2023

Further, this new plateau of “suddenly and unexpected” didn’t coincide with the pandemic, – perhaps it was climate change? Video games? Nobody could know for sure (but it did match bang-on with the deployment of the vaccines).

Via Edward Dowd’s “Cause Unknown”

Odd that.

In the meantime here in Canada anybody who was asking questions about all this, or objected to their civil rights being violated, who were being compelled to take these shots, were demonized by our own Prime Minister as “misogynists”, “racists” and “fringe”.

(Then he, and many others – when the extent of their wrongness became undeniable, tried claiming “nobody forced you” or they called for “amnesty” for their behaviour).

When a popular revolt in the #FreedomConvoy erupted, whose sole stated purpose was to end the vaccine mandates (despite the MSM agitprop to the contrary)  the Canadian government enacted martial law, seized bank accounts of participants and contributors and violently suppressed the demonstrators.

Later inquiries showed that practically no aspect of the Freedom Convoy reporting by the MSM were neither accurate nor truthful.

Everything I’ve outlined above is now established as either circumstantially or documented fact.

Remembering everything we witnessed from the government, from the bureaucrats and especially the corporate media during the pandemic, we are now seeing the same playbooks of ineptitude, deceit and authoritarianism being run on the citizenry worldwide in the form of a so-called “climate crisis”.

So…

What exactly are people angry about?

If the pandemic taught us anything, it was that:

• If you can’t question The Science, it isn’t science.

• The mainstream media is your enemy.

• Our leaders are corrupt, self-serving, hypocritical and incompetent.

• Our institutions have been captured by ideologues who are Marxist, misanthropic Malthusians.

And now the same playbook is about to be run in the name of “climate”, “inclusion”, “fairness” and any other benevolent sounding rubric these authoritarians can dream up to brainwash the public that it’s in their best interests to submit to technocratic serfdom.

There is this one-sidedness to the entire ideology:

What you believe – especially if it doesn’t conform with The Current Thing, is just a belief – landing somewhere on the spectrum between infantile superstition and far-right conspiracy theory.

What they believe is the truth (more accurately – what they espouse is the truth, their actions often belie something different).

While the crux of my grievances center around just wanting to be left alone, leftists demand that you conform to their worldview, and then without a hint of irony or self-awareness proclaim:

Sometimes I think that the world is divided in to two camps: Those who believe that we are on this tiny speck of dust in an amazing universe together, and those who believe its all about them.

Yes – the universe is an amazing marvel. And Canada is a wonderful country – for whom immigrants like my parents, my wife and my child have found safe haven and opportunity to prosper and thrive.

And the reason the successful productive citizens – immigrants and native born alike – that make this country great are so angry is because the place is being turned into a socialist shithole by far-left lunatics who want to impose their own ideations of Neo-Marxist collectivism on everybody else.

The Punch Line…

The reality is that it is exclusively the left who believes they are immune or exempt from moral questions – that everything is fair game so long as it serves “the greater good” as they define it.

It is only the left who will demonize you, cancel you, and deplatform you for disagreeing with them.

It is primarily the left who will deny you services and abrogate civility on the basis of your divergent beliefs.

It is exclusively the left who will try to ruin your life for something as innocuous as a tweet – and then with a straight face explain why some crime they’ve just been caught red-handed at committing, is irrelevant, or lacks the proper context to have any consequences for themselves.

Even the rule of law must be set aside for them, if they’re embroiled in a situation that they feel is unjust.

And for some inexplicable reason – people who aren’t far-left, woketard, cultural Marxists are palpably angry.

The Left can’t understand why normal people are angry… pic.twitter.com/v6S0WPFK98

— Mark Jeftovic, The ₿itcoin Capitalist (@StuntPope) June 22, 2024

Wonder why.

After attacking my worldview, equating it with racism and basically calling me a far-right lunatic (not to mention asking me to participate in his planned act of criminality), the email concluded by imploring me to use my voice to further his cause and his belief system:

I had to write this email because you are a leading voice and you will move minds. I hope that I might be able to encourage you to moderate the anger, to reduce the dealing with people by categories, to promote what is so great about where you and I live and to realize that as citizens of Canada, we are a very small minority in the world because we are citizens of a country where balance and fairness has a chance of surviving but only if we work on keeping it.

Yes, he’s right  – except it is beyond his ability to grasp that people could be in complete agreement with this exact sentence, yet hold values that are diametrically opposed to his.

I wrestled with whether to write this piece at all – I’ve been trying to make it a point to be more positive in my articles. But the one thing I regret about the pandemic was that I don’t think I was as vocal as I should have been. 

While true that I did speak up, against the lockdowns, against compulsory vaccinations – I pulled my punches and it’s not my proudest moment.

If I do have a voice that can move minds, then I also have to bear the responsibility for using it:

In July 2021 I wrote about my own vaccine hesitancy over on AxisOfEasy and that after looking into it a bit decided it would probably be ok (while still being on record as being against the way we were all more or less being forced to take it).

I have also since come to regret it and it pains me that perhaps my voice did sway people to take the jab. My only consolation is that, I too, took two doses of the Pfizer shot: whatever the long-term fate awaits those who took this experimental vaccine, I face it with you (to that end, I have been taking Peter McCullough’s Spike Support supplement over a year now).

So if possessing a voice that moves people comes with both responsibility and the obligation to use it – here’s what I have to say now:

• It is OK to oppose the collectivist, radical-left agenda – in your workplace, in your school, among your neighbours and in your politics.
• My suspicion is that, ironically, there are far more people opposed to this drift toward collectivism than than in favour of it. Those who were on the fence are coming down on the oppositional side.
• Collectivism in all its forms – has never worked, it is a fraud, perpetuated by oligarchs on the many that will always bring about misery and poverty, and Canada is headed there.

When the Venezuelan Refugees are Pulling Up Stakes, We’re In Trouble

It is with great reluctance that I publish this, I actually had to pull it out of the trash folder.

What changed my mind was a recent meeting I had with a Venezuelan who fled to Canada in order to escape communism in his home country.

As I noted over on The Daily Bell (which we just acquired), this Venezuelan told me:

In a progressive, collectivist society, “What gets incentivized is mediocrity”.

He is now in the process of leaving Canada by June 24th – the day the new capital gains and exit tax regime kicks in, to the delight of the pundits who see this as “the rich getting their due”.

He’s moving his family to the Cayman Islands.

“I’ve seen this movie before”.

While Canada is still a long way off from being Venezuela – (the proles aren’t eating the zoo animals, yet) – he told me “all the pieces are in place”. 

We have federal ministers declaring themselves to be “proud socialists” on the floor of the House of Commons, while federal departments publish official reports equating capitalism with white supremacy and explicitly calling for collectivism.

My friend, Dr. Kristian Niemtiez once wrote a book “Socialism: The Failed Idea Never Dies”, unfortunately it seems the fate of civilizations to not learn that lesson without trying it for themselves.

I would advise reading Eugen Richter’s “Pictures of a Socialistic Future”, from 1883, which posited a fictional slide of Germany into communism: from the initial euphoric, highs to the inevitable despair and poverty socialism brings. If you sign up for the Bombthrower mailing list, I’ll send you a free ebook copy of it.

So despite my misgivings about writing negative or angry pieces – sometimes anger is necessary and the time to get angry about this is now – before Canada descends into full-on collectivism.

The choice is basically: get angry now and put a stop to this, or get out of dodge later.

*  *  *

My next e-book The CBDC Survival Guide: Navigating Monetary Apartheid will be out soon (honest), sign up for The Bombthrower mailing list and I’ll let you know when it drops – and get a copy of the venerable classic Pictures Of The Socialistic Future in the meantime. Follow me on Twitter or Nostr. npub1elwpzsul8d9k4tgxqdjuzxp0wa94ysr4zu9xeudrcxe2h3sazqkq5mehan

Update (1125ET):

The United Kingdom Maritime Trade Operations (UKMTO) reported two maritime incidents involving merchant vessels on Sunday. The first occurred in the Red Sea, where a suicide drone struck a vessel. The second incident took place in the Gulf of Aden.

A new update from UKMTO said a merchant ship 96 nautical miles southeast of Nishtun, Yemen, “reported severe flooding that cannot be contained, forcing the master and crew to abandon the ship.”

UKMTO said the crew had been rescued by an “assisting ship,” and the abandoned ship “remains adrift at position 14°31’N 053°08’E.” 

“Relevant authorities have been informed, confirming this as a SOLAS incident,” UKMTO noted. 

The term “SOLAS incident” typically refers to an event or situation that falls under the regulations and guidelines set forth by the SOLAS, which stands for the International Convention for the Safety of Life at Sea.

SOLAS is a maritime treaty established by the International Maritime Organization. Its main purpose is to specify minimum safety standards for the construction, equipment, and operation of ships to ensure the safety of the crew and passengers.

*   *   * 

Iranian-backed Houthi attacks in the Red Sea and Gulf of Aden continue ramping up, with two more incident reports in under 12 hours (as of 0800 ET) on Sunday morning. In oil markets, traders ignore broader conflict risks in the Middle East as the Gaza war may soon spill over into Lebanon. If further escalation is realized, then expect increased drone and missile attacks on commercial vessels sailing through critical maritime chokepoints in the Middle East, where trillions of dollars in global trade flows each year.  

Let’s begin with the first incident reported by the United Kingdom Maritime Trade Operations (UKMTO) on X. Just after midnight, they detailed in a report that an “uncrewed aerial system” hit a commercial vessel about 65 nautical miles west of Yemen’s Hodeidah in the southern Red Sea, resulting in “damage.” 

“All crew members are reported safe, and the vessel is proceeding to its next port of call,” UKMTO said. 

Separately, Reuters quoted British security firm Ambrey as saying the damaged vessel is a “Liberia-flagged fully cellular container ship.” The firm did not provide the vessel’s name.  

According to UKMTO, the second incident occurred just hours ago with a “distress call from a vessel” located 96 nautical miles southeast of Nishtun, Yemen, in the Gulf of Aden. 

UKMTO is currently investigating, and details are limited. 

The suspected Houthi attacks come after the sinking of the commodity-hauling bulk carrier “Tutor” last week. The use of a kamikaze drone boat marked what appeared to be a new escalation in attacks on the critical shipping lane. 

The rebel group has been launching drone and missile strikes on Western-linked commercial vessels sailing through or near the Bab-el-Mandeb Strait since November. Rebels say it’s in solidarity with Palestinians in Israel’s war with Hamas militants in Gaza. 

On Sunday, Israeli Defence Minister Yoav Gallant said in a statement ahead of his Washington trip that the next phase of the Gaza conflict could broaden into Lebanon. 

“We are prepared for any action that may be required in Gaza, Lebanon, and in more areas,” Gallant said in a statement, who was quoted by Reuters. 

Meanwhile, AP News said that thousands of fighters from Iran-backed groups in the Middle East are preparing to flood Lebanon to join Hezbollah if further conflict breaks out. 

An expanding conflict in the Gaza war will almost guarantee Houthis or other Iran-backed groups will ramp up attacks on commercial vessels across critical maritime chokepoints, including Bab-El Mandeb Strait and the Strait of Hormuz. Analysts from MUFG Bank pointed out these risks earlier this year.

MUFG analysts showed that 25% of global trade flows through three chokepoints: the Suez Canal, the Bab-El Mandeb Strait, and the Strait of Hormuz. This means the global economy is at serious risk of a supply shock if wider conflict breaks out. 

Already, global shipping companies have rerouted vessels around the Cape of Good Hope, straining containerized shipping capacity, which has, in turn, catapulted shipping costs higher. 

One fear that David Asher, a senior fellow at Hudson Institute, has is Iran weaponizing crude against the US economy if conflict broadens in the Middle East. He recently wrote in a note, “Iran is Preparing For Oil War: Markets Ignore Growing Risk,” and a “Global oil shock could trigger a crisis ala 2007-2008.” 

Asher’s note was prepared earlier this year. 

Asher pointed out in this slide that Tehran could use oil as an economic weapon against the West.

Consider the economic impacts of previous oil shocks…

If Houthi rebels start targeting key oil facilities in Saudi Arabia, then expect Brent crude to be well over $100/bbl. 

All eyes are on the Middle East. 

In perhaps another sign that the US-led ‘Operation Prosperity Guardian’ is not going well (as it has not actually put a stop to the constant Houthi attacks on international vessels), Pentagon leaders have ordered the USS Dwight D. Eisenhower to return home. 

The carrier which has led America’s response to the Houthis was already on a twice-extended tour. “Time to bring them home,” an American defense official was quoted in military news outlets as saying. But even with the nuclear-powered carrier’s lengthy Red Sea presence, Houthi attacks have only stepped up.

“Flying over 30,000 hours and sailing over 55,000 miles the IKE CSG demonstrated our commitment to regional stability and protected freedom of navigation throughout the Red Sea and Gulf of Aden,” Central Command wrote on X, of the Eisenhower’s deployment.

“The IKE CSG also upheld their commitment to safety of all seafarers, rescuing mariners in distress on several occasions following unprovoked attacks on innocent mariners by Iranian-backed Houthis,” CENTCOM added.

Another nuclear-powered carrier, the Theodore Roosevelt, is expected to soon be en route to the Middle East from its current position in the Pacific in order continue a US presence mission in the region.

As of Saturday the Roosevelt was anchored in Busan, South Korea, amid the ratcheting rhetoric and threats between Seoul and Pyongyang.

The last several days has seen a series of Houthi strikes on regional shipping off Yemen. For example on Saturday regional outlets reported “The Houthis in Yemen say they launched attacks on a commercial vessel after it used an Israeli port, and on a US aircraft carrier ordered home after months of responding to sea attacks launched because of the war on Gaza.”

That ship was identified as the Liberia-flagged bulk carrier Transworld Navigator, allegedly hit by ballistic missiles in the Arabian Sea.

On several occasions over the last months the Houthis even claimed direct attacks on the USS Dwight D. Eisenhower. However, the has never been a successful strike reported on the carrier.

Fair winds and following seas to the Dwight D. Eisenhower Carrier Strike Group (IKE CSG) as they return home to their families.

Flying over 30,000 hours and sailing over 55,000 miles the IKE CSG demonstrated our commitment to regional stability and protected freedom of… pic.twitter.com/CA9W3l7g2R

— U.S. Central Command (@CENTCOM) June 22, 2024

Instead, US coalition warships have on multiple occasions shot drones and inbound Houthi missiles out of the sky. There remains some degree of speculation that if a US warship did suffer damage, it might be kept under wraps. It’s entirely possible that the Pentagon would not publicize such an event in order to prevent the Houthis from declaring a ‘win’ and using it in their subsequent propaganda.

By Philip Marey of Rabobank

Summary

• With the elections approaching, Trump and Biden are outbidding each other to show who is the toughest on trade. Trump has proposed a universal tariff and even higher tariffs on China, while Biden has kept the Trump tariffs of 2018 and added specific tariffs on “strategic” imports from China.
• Since Trump is ahead in the polls and we expect the economic data to deteriorate, we made a Trump victory our baseline in February. A universal tariff would lead to a rebound of inflation in 2025. Recent simulations, which include retaliation by the EU and China, suggest a more prolonged inflationary effect extending into 2026 and an adverse effect on US GDP growth in 2026.
• If the Republicans also get control of the Senate and the House of Representatives, reduced immigration and tax cuts could reinforce the inflationary impact from the universal tariff.
• Meanwhile, it remains to be seen whether the Trump legal cases will lead to a sustained rebound for Biden in the polls. However, they are highlighting that “lawfare” has become a feature of the US elections, which are likely to be contested again. This leads to a further erosion of US institutions and undermines the long-run strength of the economy.

Introduction

In February, based on the opinion polls and our expectation of a deterioration of economic data in 2024, we decided to assume a Trump victory in our Q1 forecasting round for the global economy. While there are many uncertainties about the impact of a second Trump presidency on economic policy, a raise in import tariffs is highly likely. Trump showed a preference for tariffs in his first term in office and more recently he has been talking about a universal tariff on goods imports if he gets a second term. Also note that the US president can raise tariffs without support from Congress due to several laws that have been adopted over the years that have delegated trade policy powers from Congress to the White House.

Therefore, we think that a universal tariff is a robust assumption, that remains valid under different scenarios. For example, it does not depend on the outcome of the elections for the Senate and the House of Representatives that also take place on November 5. Since our assumption of a universal tariff depends only on Trump’s chances, the probability of our baseline is not diluted. After all, with each additional assumption, the joint probability of all assumptions turning out valid declines rapidly.

Institutions like the Congressional Budget Office usually assume no change in policy when making forecasts, unless they analyze alternative scenarios. However, if we follow this practice, this would essentially mean that we make the implicit assumption that a Biden victory is more likely than a Trump victory. Given the available polling data, and our expectation that the economy is slowing down, this does not seem plausible. Therefore, we have taken the step to assume a Trump victory in our baseline forecasts, expressed through its most robust policy implication: a universal tariff.

Trump’s universal tariff: what if the world retaliates?

The empirical evidence on the Trump tariffs of 2018 showed that the tariffs were mostly paid by US importers and US consumers, rather than foreign exporters. Going from specific tariffs to a universal tariff in 2025 would broaden the impact and likely have a substantial upward impact on consumer price inflation. This would also reduce the scope for policy rate cuts by the Fed. We already incorporated this in our previous (Q1) forecasting round with a rebound in US inflation in 2025, complicating the Fed’s mission to get inflation back to its 2% target in a sustainable manner. Ceteris paribus, this should reduce the amount of rate cuts that the Fed has in mind for 2025.

Our forecasts in Q1 reflected the imposition of a universal tariff by the US, without retaliation from trading partners. In our current forecasting round (Q2), we have made additional assumptions on retaliation by China and the EU. Moreover, our scenarios and projections team used the NiGEM global macroeconomic model to simulate the impact of a universal tariff and retaliation on the economies of the US, the EU, China and the rest of the world. Based on the simulation outcomes with retaliation, we have adapted our US forecasts to reflect a more prolonged inflationary effect extending into 2026 and an adverse effect on US GDP growth in 2026 (Note that CPI inflation falls to 2.5% in the first half of 2025, before rebounding to 4.0% by the end of the year). For more details, we refer to our most recent Monthly Outlook.

Timing, size and scope of the universal tariff

Trump’s team has two bills in mind to kick off his second term: a border security and immigration package and an extension of his 2017 tax cuts. It is unclear how much time this would take, and it also depends on the election outcomes in the Senate and the House of Representatives.  Therefore, it is also unclear how much time it will take Trump to impose a universal tariff and additional tariffs on Chinese imports. However, he would not need support from Congress. Once the universal tariff has been imposed, we expect that its size and scope will be large and wide enough to have a noticeable upward impact on consumer price inflation. Note that both reduced immigration and tax cuts could be inflationary as well. While we expect Trump to start his second term in a stagflationary environment, if we get at most a mild recession in the second half of this year, it would not take long before the economy runs into constraints again, especially if labor supply is slowed down at the same time that aggregate demand gets a (sustained) boost from tax cuts.

While the timing of the universal tariff will be dependent on Trump’s policy progress, the size and scope of the tariffs could depend on Trump’s trade policy objectives. It could be that Trump starts his second term with an immediate implementation of a 10% universal tariff. However, if he wants to get concessions from trading partners, it could be worthwhile to start later and not apply the entire 10% immediately. For example, he may want to use the implementation of a universal tariff as a threat to get the EU aligned in a trade war against China. Note that current Treasury Secretary Janet Yellen, travelling to Europe in May, urged the EU to restrict Chinese imports of green technology, such as solar panels and wind turbines. Or Trump could aim for lower EU trade barriers against US imports, or both. To allow for these considerations, in our Q2 forecasting round we have made the assumption that the Trump administration implements a 5% universal tariff on goods (but not on services), starting in 2025Q3.

An upside risk to our baseline is that Trump will implement the full 10% universal tariff immediately after inauguration on January 20, 2025. The tariffs on imports on China may also turn out much higher than that. In fact, Trump has talked about 60% tariffs on Chinese imports and a 100% tariff on Chinese EVs from Mexico. This would also likely lead to stronger retaliation. However, this would only reinforce the mechanisms that are already at work in our baseline, i.e. higher inflation and more damage to international trade and economic growth.

What if Biden makes a comeback?

The downside risk to our baseline is that Biden still manages to win the presidential election. Although Biden is trailing in the polls, both at the national level and in most swing states, a lot can happen in five months and he is not that far behind. One reason for a Biden rebound could be that the economy reaccelerates after the slowdown in the first quarter of 2024. However, we think that inflation then remains a problem for Biden’s approval. Another reason could be noneconomic, such as the fallout from the Trump legal cases. Of course, if it becomes clear before the elections that Biden’s chances have rebounded to such an extent that a Biden victory is the most likely outcome, we will change our baseline accordingly. How would that change our forecasts? Since we have expressed the assumption of a Trump win through the implementation of a universal tariff, a Biden win would show up in our forecasts as more targeted tariffs (mostly aimed at China) rather than a universal tariff. This also means that Europe would face lower tariffs under Biden. Without a universal tariff, the inflation trajectory will be lower and the damage to international trade and economic growth will be more modest. This would reduce the inflationary impact and allow for more Fed rate cuts in 2025 than we are assuming in our current baseline with a Trump victory.

However, US trade policy will remain protectionist and therefore inflationary. Keep in mind that the EV subsidies and battery requirements in the Inflation Reduction Act show that protectionism may take different forms. In May, after a review, Biden decided to leave the Trump tariffs on China intact and raise tariffs on Chinese EVs, advanced batteries, solar cells, steel, aluminum and medical equipment. These strategic hikes are meant to bolster the CHIPS and Science Act and the clean energy measures in the Inflation Reduction Act. Both were protectionist to begin with. When it comes to trade, both Republicans and Democrats have moved in the same direction, only the approach and the pace are different.

Stormy weather: lawfare and contested elections

Although we have assumed a Trump victory based on recent polls and a deterioration of the economy, there is a possibility that Trump’s legal cases raise the chances of Biden in the presidential election. On May 30, a New York jury found Trump guilty of 34 felonies for falsifying records to cover up hush money paid to Stormy Daniels. The judge scheduled Trump’s sentencing for July 11, only days before the start of the Republican convention. Whether the sentence will be prison, probation or a fine remains unclear. Anyway, Trump is likely to appeal after sentencing, which could drag out the case for months or years. Meanwhile, even a prison sentence does not disqualify Trump for the presidential election in November. Three other criminal cases against him – two federal and one in Georgia – are not likely to go to trial before Election Day.

This means that the main impact of the Manhattan case will be electoral. For some voters, the guilty verdict may be a reason not to vote for Trump. However, this does not necessarily mean that they will vote for Biden. It is also not unthinkable that some voters who were sitting on the fence perceive the Manhattan trial as politically biased and decide to go for Trump. What’s more, a conviction is sure to energize the base, which means that this will push up the turnout of Republican voters. Keep in mind that Trump has put the prosecutions at the center of his campaign, claiming they are political rather than criminal. From his perspective, the guilty verdict in New York just proved his point. Therefore, the conviction does not change our assumption of a Trump victory in November.

However, it does underscore the continued polarization of US politics and society, and the increasing role of (perceived) lawfare in politics. Unfortunately, this also means that contested elections may become the rule rather than the exception. While strong institutions have been crucial to the economic success of the US, they are increasingly under siege, as we noted in Civil unrest and Insurrection. If institutions start to crumble, then so will the economy.

Conclusion

Biden’s recent decision to keep the Trump tariffs on China and add “strategic” tariffs are clearly part of the election campaign where Biden and Trump are outbidding each other to show that they want to bring jobs back to America. Although a Biden baseline would show lower inflation than a Trump baseline, and more Fed rate cuts, it is important to stress that both presidents will continue to follow a protectionist course, which means that inflation in both scenarios is higher than under a hypothetical free trade president. The same is true for Fed policy rates. When it comes to trade policy, both Republicans and Democrats have become protectionist, especially regarding China. This will lead to higher inflation and could slow down economic growth, especially if other countries retaliate against the US.

almost there pic.twitter.com/60MyeSUeVA

— zerohedge (@zerohedge) June 21, 2024

Meanwhile, the reactions to Trump’s New York legal case underline the degree of polarization in the United States. More importantly, the case shows that “lawfare” – perceived or real – has become part of US politics. Contested elections may become the rule rather than an exception for the United States. This could undermine the long-run strength of the economy.