By Eric Peters, CIO of One River Asset Management

“I tried to jump into the Potomac when I was young and my mother nearly killed me,” said the CIO.

“Now you could drink from our rivers if you had to, which is great, but the cleanup has meant everything is more expensive.”

The Environmental Protection Agency was founded in 1970 by Nixon to protect human health and the environment. We’re all better for it.

“Across an economy, we make both public and private investments. In the 1970s, we made big public investments.”

The returns accrue to society, but rarely to capital owners, and often at the expense of them.

“I would argue that the investments we made back then were good, but the tradeoffs we made included upward inflationary pressure and lower real rates of returns on private investments.”

The S&P 500 peaked in Nov 1968 and swung in a wild range through the 1970s, ending the decade unchanged in nominal terms.

In real terms, it lost roughly 50% of its value during that period.

From 1980 to present, the S&P 500 is roughly 42x higher in nominal terms and 10x higher in real terms (none of these returns include dividends). It’s been a great run for capital owners since 1980.

“The government will most likely continue to borrow and print to subsidize societal preferences for renewable energy and reliable supply chains,” he said.

“It is near-term uneconomic in that windmills and solar plants don’t cover their costs to private investors without federal subsidies. But they satisfy our collective preferences. They help insure us against risks we see geopolitically and environmentally,” he said.

“That’s why I see us headed into a 1970s-style inflation. Three, four, five percent inflation is probably where we’ll settle in.”

Anything above five percent tends to see equity multiple compression.

“It’s probably good for investors who measure their returns in nominal terms, but real returns will be lower looking forward, and inflation will continue to be tough for everyday people.”

Hot on the heels of last week’s tech and momentum rout, shaken traders will have to wait until Friday for the main macro event namely the US core PCE print within the income and spending report. Economists expect the core PCE deflator to come in at +0.30% vs. +0.26% last month. This would drop the YoY rate to 2.7%, down from 2.8%, and a level that both Chair Powell and Vice Chair Jefferson suggested that the Fed staff’s estimate had pencilled in.

But while there is nothing big in macro until the end of the week, the same can not be said for corporate earnings, as all eyes will be on earnings with a whopping 178 of the S&P 500 reporting including four of the Magnificent Seven namely Tesla (after Tuesday’s close), Microsoft, Alphabet (Thursday) and Meta (Wednesday). The final three are the 1st, 4th and 6th largest S&P 500 firms by market cap and make up nearly 14% of its market cap. Tesla is down -41% YTD and under a lot of pressure so it’s an important release for them. This all comes off the back of the worst week for the S&P 500 (-3.05%) since the US regional banking stress last March, and the worst week for the Nasdaq 100 (-5.36%) and the Magnificent Seven (-7.73%) since November 2022. A -3.47% decline on Friday marked a sixth day of consecutive losses for the Mag-7.

With three consecutive weeks of losses, the longest such streak since last September, the S&P 500 is now -5.5% from its recent peak. The VIX volatility index rose +1.4 points (and +0.7 points on Friday) to 18.71, to its highest weekly close since last October.

Nvidia (which doesn’t report for another month) fell exactly -10% on Friday (-13.59% on the week), contributing around half of the -0.88% loss in the S&P 500 on Friday, and is now down -25% from its highs on 25 March. One catalyst appeared to be their hardware partner Super Micro Computer announcing its earnings date (April 30th) but without preliminary guidance as they have previously tended to do. They fell -23.1%. Everything else related to chips and AI also got stung with Advanced Micro Devices dropping -5.4%, and Arm Holdings -16.9% to 87.19 as examples.

By contrast, the Dow Jones index was largely resilient last week, up +0.56% on Friday and flat (+0.01%) over the week. The Europe STOXX 600 also suffered in the risk-off environment but outperformed the tech heavy US market, falling -1.18% (and -0.08% on Friday).

Coming back to this week, the other main highlights by day are the global flash PMIs and US new home sales tomorrow, US durable goods and the German IFO (Wednesday), and US GDP and pending home sales (Thursday).

Alongside the core US PCE print, Friday also sees the latest BoJ meeting and Tokyo CPI. DB’s Japan economist expects no change in their monetary policy stance. However, he forecasts that the BoJ will remove its JGB purchasing guidelines from its statement or revise them to make its purchasing operations more flexible. He also sees the central bank raising its inflation forecast for FY24 amid the strong wage growth data already available as of the March meeting.

Elsewhere, the Fed is now on its pre-FOMC media blackout but the ECB speakers will be in full force as you’ll see in the week ahead calendar at the end, alongside all the main earnings and macro highlights. 112 Stoxx 600 companies will report this week alongside the 178 for the S&P 500 we mentioned above.

Courtesy of DB, here is a day-by-day calendar of events

Monday April 22

• Data : US March Chicago Fed national activity index, China 1-yr and 5-yr loan prime rates, France March retail sales, Eurozone April consumer confidence, 2023 government debt/GDP ratio, Canada March raw materials price index, industrial product price index
• Central banks : ECB’s Villeroy speaks, BoE’s Benjamin speaks
• Earnings : SAP, Verizon, Cadence Design Systems, Albertsons

Tuesday April 23

• Data : US, UK, Japan, Germany, France and Eurozone April PMIs, US March new home sales, April Richmond Fed manufacturing index, business conditions, Philadelphia Fed non-manufacturing activity, UK March public finances
• Central banks : ECB’s Nagel speaks, BoE’s Haskel and Pill speak
• Earnings : Visa, Tesla, PepsiCo, Novartis, Danaher, General Electric, Philip Morris, RTX, NextEra Energy, UPS, Lockheed Martin, Fiserv, Spotify, General Motors, MSCI, Halliburton, First Quantum Minerals
• Auctions : US 2-yr Notes ($69bn)

Wednesday April 24

• Data : US March durable goods orders, Japan March PPI services, Italy April manufacturing and consumer confidence, economic sentiment, Germany April ifo survey, Canada February retail sales, Australia March CPI
• Central banks : ECB’s Nagel, Cipollone and Schnabel speak , BoC’s summary of deliberations
• Earnings : Meta, Thermo Fisher Scientific, IBM, ServiceNow, Lam Research, AT&T, Boeing, Chipotle, Iberdrola, Heineken, Hilton, Ford, Humana, Orange, Biogen, Evolution, Norsk Hydro, Volvo
• Auctions : US 2-yr FRN ($30bn), 5-yr Notes ($70bn)

Thursday April 25

• Data : US Q1 GDP, core PCE, March wholesale inventories, retail inventories, pending home sales, advance goods trade balance, April Kansas City Fed manufacturing activity, initial jobless claims, Germany May GfK consumer confidence, France Q1 total jobseekers, April manufacturing confidence
• Central banks : ECB’s Nagel, Schnabel, Vujcic and Panetta speak, ECB’s economic bulletin
• Earnings : Microsoft, Alphabet, Merck & Co, AstraZeneca, Caterpillar, Comcast, Intel, Union Pacific, Airbus, Honeywell, Sanofi, Keyence, Bristol-Myers Squibb, Gilead Sciences, Equinor, Northrop Grumman, Valero Energy, Dassault Systemes, BASF, Hess, Newmont, Keurig Dr Pepper, Hyundai, Roku
• Auctions : US 7-yr Notes ($44bn)

Friday April 26

• Data : US March personal income and spending, PCE, April Kansas City Fed services activity, UK April GfK consumer confidence, Japan April Tokyo CPI, France April consumer confidence, Eurozone March M3
• Central banks : BoJ decision, ECB’s consumer expectations survey, Centeno speaks
• Earnings : Exxon Mobil, Chevron, AbbVie, TotalEnergies, Porsche

* * *

Finally, looking at just the US, Goldman writes that the key economic data releases this week are the durable goods report on Wednesday, the Q1 GDP advance release on Thursday, and the core PCE inflation report on Friday. Fed officials are not expected to comment on monetary policy this week, reflecting the blackout period in advance of the FOMC meeting on April 30-May 1.

Monday, April 22

• No major data releases.

Tuesday, April 23

• 09:45 AM S&P Global US manufacturing PMI, April preliminary (consensus 52.0, last 51.9); S&P Global US services PMI, April preliminary (consensus 52.0, last 51.7)
• 10:00 AM New home sales, March (GS -3.0%, consensus +1.2%, last -0.3%); We estimate that new homes sales declined by 3.0% in March, reflecting decreases in housing starts and mortgage applications.
• 10:00 AM Richmond Fed manufacturing index, April (consensus -8, last -11)

Wednesday, April 24

• 08:30 AM Durable goods orders, March preliminary (GS +1.5%, consensus +2.5%, last +1.3%); Durable goods orders ex-transportation, March preliminary (GS +0.5%, consensus +0.2%, last +0.3%) ;Core capital goods orders, March preliminary (GS +0.3%, consensus +0.2%, last +0.7%); Core capital goods shipments, March preliminary (GS +0.3%, consensus +0.2%, last -0.6%): We estimate that durable goods orders rose 1.5% in the preliminary March report (mom sa), reflecting a partial rebound in commercial aircraft orders and higher defense orders. We forecast moderate increases in core measures, including 0.3% increases in both core capital goods shipments and core capital goods orders.

Thursday, April 25

• 08:30 AM GDP, Q1 advance (GS +3.1%, consensus +2.5%, last +3.4%); Personal consumption, Q1 advance (GS +3.3%, consensus +2.8%, last +3.3%): We estimate that GDP rose 3.1% annualized in the advance reading for Q1, following +3.4% annualized in Q4. Our forecast reflects strength in consumption (+3.3% qoq ar) and residential investment (+12.3%), as well as a 0.2pp boost from inventory investment (qoq ar).
• 08:30 AM Advance goods trade balance, March (GS -$89.0bn, consensus -$91.1bn, last -$90.3bn)
• 08:30 AM Wholesale inventories, March preliminary (consensus +0.3%, last +0.5%)
• 08:30 AM Initial jobless claims, week ended April 20 (GS 215k, consensus 215k, last 212k): Continuing jobless claims, week ended April 13 (consensus 1,810k, last 1,812k)
• 10:00 AM Pending home sales, March (GS +2.6%, consensus -0.3%, last +1.6%)
• 11:00 AM Kansas City Fed manufacturing index, April (last -7)

Friday, April 26

• 08:30 AM Personal income, March (GS +0.50%, consensus +0.5%, last +0.3%); Personal spending, March (GS +0.65%, consensus +0.6%, last +0.8%); PCE price index, March (GS +0.31%, consensus +0.3%, last +0.3%); PCE price index (yoy), March (GS +2.65%, consensus +2.6%, last +2.5%); Core PCE price index, March (GS +0.30%, consensus +0.3%, last +0.3%); Core PCE price index (yoy), March (GS +2.76%, consensus +2.7%, last +2.8%): We estimate personal income increased 0.50% and personal spending increased 0.65% in March. We estimate that the core PCE price index rose +0.30%, corresponding to a year-over-year rate of 2.76%. Additionally, we expect that the headline PCE price index increased by 0.31% from the prior month, corresponding to a year-over-year rate of 2.65%. Our forecast is consistent with a 0.24% increase in our trimmed core PCE measure (vs. 0.24% in February and 0.41% in January).
• 10:00 AM University of Michigan consumer sentiment, April final (GS 76.7, consensus 77.9, last 77.9): University of Michigan 5-10-year inflation expectations, April final (GS 3.0%, consensus 3.0%, last 3.0%)

Source DB, Goldman, BofA

X has depended on Community Notes, a crowdsourced fact-checking feature, to address the rampant spread of misinformation. It’s a much better alternative than leftist fact-checking websites that push routine misinformation and disinformation for their corporate sponsors. 

Elon Musk has called Community Notes “the best source of truth on the internet” and “is by far the best fact-checking system on the internet.” 

Elon Musk:

“Our goal for 𝕏 is to be the best source of truth on the internet. Community Notes is by far the best fact checking system on the internet.” pic.twitter.com/x7pUkmvaoI

— Citizen Free Press (@CitizenFreePres) April 8, 2024

Community Notes has smoothed out the playing field, as most fact-checking websites have a leftist lean. So when radicals in the White House, such as space cadet Vice President Kamala Harris and or her social media team, post on X, they will be met with the same rigorous fact-checking as conservatives. 

On Saturday, VP Harris wrote, “Nobody should have to go to jail for smoking weed.” 

X user End Wokeness showed that Community Notes debunked VP Harris’ post, saying, “As district attorney, Kamala Harris oversaw 1,900 convictions for marijuana offenses, some of which resulted in jail time.” 

😂

— Elon Musk (@elonmusk) April 21, 2024

As of Monday morning, the Community Notes blurb on the post appears to have been deleted. 

Why did they remove the community note about VP Harris locking up hundreds of people for marijuana???? 🤔 pic.twitter.com/CwYdf3zAqS

— Tulsi Stan🌺 (@antiwarmisfit) April 22, 2024

“If you didn’t already know, the community notes tell you just how much of a gaslighting witch Kamala Harris is,” one X user said. 

If you didn’t already know, the community notes tell you just how much of a gaslighting witch Kamala Harris is. https://t.co/MS79mfHGm7

— Christopher 🐾⚡️ (@a1chargersfan) April 21, 2024

Another X user said, “This never would have happened prior to @elonmusk buying Twitter.” 

Community notes served Kamala Harris with some epic “context.”

This never would have happened prior to @elonmusk buying Twitter pic.twitter.com/XpuuH7JlM1

— The American Tribune (@TAmTrib) April 22, 2024

Others said…

Kamala posting this like she didn’t build her entire career off of jailing people for this very thing LOL

— Savanah Hernandez (@sav_says_) April 20, 2024

When Kamala Harris was District Attorney in San Francisco from 2004 to 2010, she won more than 1,900 marijuana convictions.

Her time in office is represented in red.

She also fought against a ballot measure for recreational pot in 2010.

The more you know. pic.twitter.com/ahH9sStzyS

— Amiri King (@AmiriKing) April 20, 2024

https://t.co/NiBp2V3Mt7

— Mostly Peaceful Memes (@MostlyPeacefull) April 22, 2024

A majority of other X users called the VP a “Hypocrite.” 

Via SchiffGold.com,

With the AI boom and green energy push fueling fresh copper demand, and with copper mines aging and not enough projects to match demand with supply, the forecasted copper shortage has finally arrived in earnest.

Coupled with persistently high inflation in the US, EU, and elsewhere, I predict the industrial metal will surpass its 2022 top to reach a new all-time high this year:

Copper (in USD), 5-Year Graph:

Source: Bloomberg

The AI boom is stoking the need for more data centers, which will require around a million metric tons of copper by 2030. Meanwhile, this year’s deficit of 35,000 tons is expected to rocket up to a staggering 100,000 tons in 2025.

Electric car batteries and EV charging stations also depend on copper, adding to the problem of there not being enough activity at existing mines, or the development of new ones, to satisfy the industrial need. Says Bank of America analyst Michael Widmer:

“The much-discussed lack of mine projects is becoming an increasing issue for copper.”

While many mainstream forecasts depend on a solid economic rebound to keep demand for copper up, inflation is here to stay, especially as the Fed is likely going to be forced to cut interest rates at some point this year. Even with just one 2024 rate cut instead of the three that markets originally expected, higher USD prices for copper and other commodities like gold are on the way. Out-of-control inflation will drive prices higher even if the oomph gets sucked out of the AI bubble, or we see other signs of an economic “hard landing.” As Peter Schiff said last month,

“I think we’re on the verge of the biggest bull market in commodities since the 1970s…They’re cutting rates because they have to avoid a financial crisis — a banking crisis.”

Chile, which has the most copper reserves, is struggling with rising costs and aging mines. China is the world’s largest consumer and producer, so an economic crisis hampering production there would push prices higher as well. Meanwhile, China’s already-planned production cuts provide further upward pressure. Combined with their dominance in rare earth production and processing, green tech devotees are panicking that the regime could put a dent in the meteoric rise of AI as well as the West’s “green energy revolution.” But whether due to a continued AI boom or production cuts, copper’s price will rise.

Meanwhile, to avoid tariffs and sanctions imposed after Russia’s invasion of Ukraine, China is importing Russian copper disguised as scrap, muddying the waters on global supply and cutting out Western and US dollar influence. This particular revelation arose as a result of discrepancies between Chinese and Russian customs data, with China reporting a hockey-stick-shaped increase in scrap trading between the two countries that isn’t corroborated by Russian reporting:

Russia and China trade new copper disguised as scrap to skirt taxes, sanctions

Russian Copper Company (RCC) and Chinese firms have avoided taxes and skirted the impact of Western sanctions by trading in new copper wire rod disguised as scrap, three sources familiar with the… pic.twitter.com/6EthZadEpS

— Tracy (𝒞𝒽𝒾 ) (@chigrl) April 15, 2024

As copper rises, so will copper theft, adding a further destabilizing element to the functioning of essential infrastructure and the broader economy. With supply already pushed thin, the increased attractiveness of this low-hanging fruit for petty thieves (and unscrupulous insiders at copper producers) will only make the problem worse.

While some still believe the current rise in copper is mostly due to pure speculation, the majority of analysts now see the writing on the wall with copper supply and demand. As Goldman Sachs said at the recent Cesco Week symposium, an annual meeting of minds in the copper industry, the price of copper is currently: “(in the) foothills of what will be its Everest over the next three to five years.”

A new Census Bureau survey highlights the 15 largest US metro areas where residents face the most financial difficulties, almost all of which are under Democratic leadership. This comes as no surprise as issues of elevated inflation, high taxes, soaring violent crime, and a migrant crisis are spiraling out of control across many blue cities.

The survey asked 70,000 respondents between March 5 and April 1 in major metro areas these three questions:

1. Difficulty paying for usual household expenses,

2. food scarcity, 

3. and unable to pay energy bill. 

The survey’s findings are stark: Riverside, California; Houston, Texas; and Chicago, Illinois, are the top three metro areas with the most financial hardships. All three cities are under Democratic leadership. With the exception of Dallas (#4 on the list) and Miami (#6), the rest of the metro areas are under liberal control. 

In addition to the Census Bureau, the latest Beige book from the Federal Reserve found that consumer spending “barely increased” amid weakness in discretionary spending. The consumer is a lot weaker than the White House makes everyone believe with needless propaganda pushed on social media and at press conferences. 

Consumers are bearing the brunt of failed Bidenomics: reckless federal spending, disastrous green initiatives, and horrible foreign policy have created a toxic environment for consumers. And now inflation is on the rise.

The takeaway here is to leave blue cities.

This is Philadelphia. A city that’s been run by democrat’s for ages.

People there are using drugs that are turning them into zombies.

This is what is coming to your city if you keep voting for democrats pic.twitter.com/Xdjrb9U7TG

— Bostonians Against Mayor Wu (@AntiWuCoalition) April 16, 2024

How did they allow Philadelphia to get this bad? pic.twitter.com/9FkNsxkfMJ

— Ian Miles Cheong (@stillgray) April 4, 2024

These Democrats refuse to look at the consequences of their actions.

This is what happens when one party rule takes over, and their job becomes how to keep their job

No longer by the people, for the people, and of the people

pic.twitter.com/XRP5CwmhkA

— 🪶Native Patriot 🇺🇸 (@LaNativePatriot) February 23, 2024

The implosion is only going to get worse.  

By Alex Kimani of OilPrice

Following a strong rally amid escalating tensions in the Middle East, oil prices have pulled back sharply in the current week as demand worries outweigh geopolitical concerns. WTI crude for May delivery has declined 5.1% from the Friday close to trade at $83.15 per barrel while Brent crude June contract has retreated 4.9% to change hands at $87.50, marking the first time it has slipped under $90 in more than a week.

However, several commodity analysts believe the markets are unduly discounting the risk of a full-blown war between Iran and Israel. According to Standard Chartered, Iran’s revised position is that any future attacks on Iranian interests anywhere will draw significant retaliation, with the IRGC seizure of a cargo ship on 13 April intended as a related signal of Iran’s ability to influence regional shipping flows. StanChart has warned that the market is understating the risk of further escalation due to miscalculation, miscommunication or other human error. Meanwhile, oil prices have declined after U.S. House of Representatives Speaker Mike Johnson lined up four bills providing assistance to Ukraine, Israel and the Indo-Pacific. Bank of America estimates that an all-out war between the two countries could lead to a $30-$40 spike in the price of crude.

“The market was waiting to sell off on indications of calming of tensions in the Middle East … progress on these bills and a three-day delay in Israel’s response to Iran is helping today,” John Kilduff, partner at Again Capital LLC, told CNBC.

“We’re leaving our price forecasts unchanged for now and still expect ICE Brent to average US$96 over the second half of this year. The macro outlook continues to be a more important driver for prices than fundamentals at the moment,” analysts at ING have said.

Bank of America has analyzed stocks in the MSCI AC World Index (ACWI) Energy, Materials and Industrials sectors for oil price sensitivity. BofA defines Oil Price Sensitivity for each stock as the regression coefficient from regressing 60 months of monthly price returns against the 3-month change in the Oil Price – Brent Crude. Here are 3 of the most sensitive oil and gas stocks to oil price changes.

APA Corp.

Market Cap: $12.1B

12-Month Returns: -17.9%

APA Corp. (NASDAQ:APA) is an independent energy company. It explores, develops and produces natural gas, crude oil and natural gas liquids. At a time when the oil sector has been rallying, APA stock has managed to decline nearly 20% over the past 12 months, and was the most shorted energy name in March.

That said, back in January, Fitch affirmed its ‘BBB- credit rating for APA Corp, saying, “The $4.5 billion acquisition of Permian pure play Callon Petroleum should improve APA Corp’s business profile by adding scale to the company’s Permian operations. Callon will contribute 145k net acres in the Permian, split between the Delaware (82%) and Midland basins (18%), with Delaware acreage primarily in Ward, Reeves, and Winkler counties. The acquisition also adds 102kboepd of Permian production, boosting APA’s pro forma size by around one-quarter to over 500kboepd, and increasing its portfolio tilt towards the U.S.’’

Further, APA holds a 50% stake in Suriname’s Block 58 alongside operator TotalEnergies (NYSE:TTE). Block 58. The block has been compared to the Guyana-Suriname basin, with analysts comparing it to Exxon Mobil”s (NYSE:XOM) Liza find in the Stabroek Block. 

Marathon Oil Corp.

Market Cap: $15.8B

12-Month Returns: 11.2%

Marathon Oil Corp. operates the United State’s largest refining system, with 3 million barrels per calendar day of crude oil refining capacity across 13 refineries. Recently, equity analysts at Goldman Sachs, headed by Jenny Ma, picked MRO amongst a basket of stocks expected to benefit from high operating leverage, adding that companies with a high degree of operating leverage can generate more sales without increasing their costs. MRO has an operating leverage of 6.9.

However, JPMorgan has picked MRO stock thanks to an attractive call overwriting opportunity,

“The call overwriting signal will be triggered if the sell signals are greater than the buy signal, and if the volume richness signals are greater than the cheapness signals,” they said.

Targa Resources Corp.

Market Cap: $25.0B

12-Month Returns: 45.6%

Texas-based Targa Resources Corp. (NYSE:TRGP) owns general and limited partner interests in a limited partnership that provides midstream natural gas and natural gas liquid services. The company gathers, compresses, treats, processes, and sells natural gas. On Tuesday, TRGP was one of the stocks that earned a Buy recommendation from Goldman Sachs thanks to a strong return on equity (or ROE).

“Stronger-than-expected economic growth represents the clearest upside risk to ROE. [It] would create upside to asset turnover through faster sales growth and to profit margins through operating leverage. Stronger growth has recently coincided with hotter-than-expected inflation, however,” wrote GS analyst David J. Kostin. “

GS estimates that Targa Resources will be able to grow its ROE by 17% in the current year.

Larger cracks are appearing in the US commercial real estate market at a time when uncertainty around the regional bank industry flashes red. 

The latest report from real estate data provider ATTOM shows CRE foreclosures topped 625 in March, up 6% from February and 117% from the same period last year.

ATTOM has been tracking commercial foreclosures since 2014. The number of foreclosures is approaching the peak of 889 in October 2014. 

“California began experiencing a notable rise in commercial foreclosures in November 2023, surpassing 100 cases and continuing to escalate thereafter,” the report said. 

New York, Florida, Texas, and New Jersey also showed increases in CRE foreclosures last month. 

Regional banks provide a bulk of the financing for the space. The ongoing mess in the lending space due to tighter conditions adds pressure to the CRE downturn. Banks are expected to set aside more money to cover potential CRE losses. 

Last month, Federal Reserve Chair Jerome Powell testified on Capitol Hill, “We have identified the banks that have high commercial real estate concentrations, particularly office and retail and other ones that have been affected a lot,” adding, “This is a problem that we’ll be working on for years more, I’m sure. There will be bank failures, but not the big banks.” 

Data from a recent Treasury Department’s Financial Stability Oversight Council warned office vacancy rates have climbed sharply in recent years, reaching a record of 13.1% at the end of 2023. 

CoStar analyst Phil Mobley recently noted the “reset in office demand has rocked US markets.” 

Morgan Stanley warned earlier this year that office prices could plunge 30% due to sliding demand. 

With sliding demand comes a massive amount of supply. Morgan Stanley pointed out that most of the oversupply is in offices and apartments. 

For those wondering why the excess supply of office towers can’t be converted into affordable housing, Goldman also noted that prices must drop 50% for housing conversions to make sense. 

Powell has a rolling crisis on his hands. And the goal is to save the fireworks for after the election. 

Via SchiffGold.com,

America’s trust in its institutions has rapidly eroded over the past 20 years.

We have a lower level of trust in our judicial system and elections than most European countries. Some of this is natural, as Americans are uniquely individualistic, but much of it arises from repeated government failures.

Americans generally believe that public trust can be brought back to full vigor, but the current trend of decline has not slowed. While governmental distrust is often well-grounded, a concerning increase in distrust has been seen among citizens. America’s ever-dwindling amount of freedom originally thrust great responsibility onto the citizens. With less institutional control, citizens had to both act with goodwill and hold the expectation that their countrymen were beneficent. More free-market solutions meant that citizens had to trust word of mouth and relationships rather than institutional certification. The most basic building blocks of industry would have ceased to function if Americans had refused to trust one another. The shared pursuit of individual aims under an institutional framework that explicitly limited itself arguably created more willing cooperation than any other civilization. Some have credited this high level of trust to America’s relative cultural homogeneity at the time of its founding. While a more similar cultural and religious background certainly aided the budding country, ingenuity and prosperity arose from the diversity that freedom created. Americans were able to trust one another and their institutions even as they thought and worshiped differently. America’s rejection of its trust-filled past can both reform our institutions and destroy our strength of commerce.

Trust’s ability to allow trade between strangers has been slowly encroached upon by government licensing agencies. In the past, individuals could simply ask a friend whether a cosmetologist or barber was competent. The reputational costs of being a poor barber would not allow horrid haircuts to continue. Individuals would simply stop paying, and the “barber” would have to seek a more fitting profession. The great increase in professional licenses has replaced personal trust with governmental approval. In a self-reinforcing cycle, licenses keep being created and untrusting consumers are glad to see more professions licensed. Licensing processes often give valuable skills, but those same skills would have been sought out regardless if they were truly valuable. While the recent increase in licensing and certification is partially due to the recent population growth of bureaucrats, it also reflects the attitude of the American public. Moral degradation has made many citizens unworthy of trust, and they see the same worrisome tendencies in citizens around them. Certifications and licenses act as a bandage to the severely injured state of national trust. The reason such measures are only a bandage rather than a treatment is that trust will never be fully replaceable. Its versatility allows it to smooth interactions between industries and people far more delicately than regulation could ever hope to. Nonetheless, trust continues to be replaced as many individuals find more security in the choices of bureaucrats they will never even hear the names of.

An immobile and ancient boundary post stands in the way of governmental encroachment. Individual distrust of government urged Americans to revolt from Britain, and it remains a challenge to the desires of bureaucrats and the fears of those who would be regulated. Just as distrust of other citizens damages free commerce, so also distrust of government damages its ability to control. This distrust manifests itself in the ballot box, civic monitoring of governmental activity, and the accrual of assets not tied to governmental control. Distrusters can look above the pandering of bread and circuses to investigate what self-serving inefficiency is masked behind. While its coercive power remains regardless of the actions of individual citizens, distrust cripples one of the government’s strongest means of control: information. When government-given information is put under scrutiny truth can be cherished more strongly and falsehood can be promptly discarded. The opinion of whichever government employee wrote a specific piece of “objective information” can be drawn out of it through careful analysis. Those who have complete trust in the government enter a self-reinforcing cycle which makes it ever harder for their minds to break the grasp of state control.

Trust in other citizens and trust in the state may appear similar at first glance, but they lead to vastly different national outcomes. Rejecting goodwill and cooperation directly before our eyes in favor of faceless security will lead to economic and national ruin. No amount of regulation can ever replace the goodwill and trust that is at the core of American identity and success.

Government debt levels have grown in most parts of the world since the 2008 financial crisis, and even more so after the COVID-19 pandemic.

To gain perspective on this long-term trend, Visual Capitalist’s Marcu Lu visualized the debt-to-GDP ratios of advanced economies, as of 2000 and 2024 (estimated). All figures were sourced from the IMF’s World Economic Outlook.

Data and Highlights

The data we used to create this graphic is listed in the table below. “Government gross debt” consists of all liabilities that require payment(s) of interest and/or principal in the future.

The debt-to-GDP ratio indicates how much a country owes compared to the size of its economy, reflecting its ability to manage and repay debts. Percentage point (pp) changes shown above indicate the increase or decrease of these ratios.

Countries with the Biggest Increases

Japan (+116 pp), Singapore (+86 pp), and the U.S. (+71 pp) have grown their debt as a percentage of GDP the most since the year 2000.

All three of these countries have stable, well-developed economies, so it’s unlikely that any of them will default on their growing debts. With that said, higher government debt leads to increased interest payments, which in turn can diminish available funds for future government budgets.

This is a rising issue in the U.S., where annual interest payments on the national debt have surpassed $1 trillion for the first time ever.

Only 3 Countries Saw Declines

Among this list of advanced economies, Belgium (-2.8 pp), Iceland (-21.2 pp), and Israel (-20.6 pp) were the only countries that decreased their debt-to-GDP ratio since the year 2000.

According to Fitch Ratings, Iceland’s debt ratio has decreased due to strong GDP growth and the use of its cash deposits to pay down upcoming maturities.

Curious to see which countries have the most government debt in dollars? Check out this graphic that breaks down $97 trillion in debt as of 2023.

By Eric Peters, CIO of One River Asset Management

“We’ve made very clear to China — and many other countries have as well — that they should not be supplying Russia with weapons for use in its aggression against Ukraine,” said Secretary of State Blinken after a meeting of G-7 foreign ministers.

“It’s allowing Russia to continue the aggression against Ukraine and it’s also helping Russia overall rebuild its defense forces and defense capacity,” he said, as America works to hold the West together, while it manages its slow inward turn, and each major economic block scrambles to secure itself, as the geopolitical gears grind onward, on a little planet that is tearing itself apart.

* * *

“In a benign international environment, we trusted the global level playing field and the rules-based international order, expecting that others would do the same. But now the world is changing rapidly, and it has caught us by surprise,” said Mario Draghi, former European Central Bank Chief, speaking at the High-level Conference on the European Pillar of Social Rights.

“Most importantly, other regions are no longer playing by the rules and are actively devising policies to enhance their competitive position. At best, these policies are designed to re-direct investment towards their own economies at the expense of ours; and at worst, they are designed to make us permanently dependent on them,” said Draghi, sounding an existential alarm on Europe.

“China, for example, is aiming to capture and internalize all parts of the supply chain in green and advanced technologies and is securing the access to the required resources. This rapid supply expansion is leading to significant overcapacity in multiple sectors and threatening to undercut our industries,” he said.

“The US, for its part, is using large-scale industrial policy to attract high-value domestic manufacturing capacity within its borders – including that of European firms – while using protectionism to shut out competitors and deploying its geopolitical power to re-orient and secure supply chains,” he said.

“We have never had an equivalent “Industrial Deal” at the EU level, even though the Commission has been doing everything in its power to fill this gap. As such, despite a number of positive initiatives that are underway, we are still lacking an overall strategy for how to respond in multiple areas,” said Mario.

“We are lacking a strategy for how to keep pace in an increasing cutthroat race for leadership in new technologies. Today we invest less in digital and advanced technologies than the US and China, including for defense, and we only have four global European tech players among the top 50 worldwide,” he warned, articulating the reasons why Europe is becoming even less relevant.

“We are lacking a strategy for how to shield our traditional industries from an unlevel global playing field caused by asymmetries in regulations, subsidies and trade policies,” said Draghi, desperate to do whatever it takes, unlikely to make a difference.

To appreciate the profound challenges facing Europe, read the full Mario Draghi speech [here].