At a pride event held this month at the Pentagon, Space Force Chief Operating Officer Lt. Gen. DeAnna Burt attacked the proliferation of over 400 state regulations which she described as “anti-LGBTQ+” and suggested that such laws were a danger to military readiness and to individual soldiers.  The how and why of her claims are not as clear, though Burt appeared to insinuate that these laws would “distract” service members from their duties by preventing them from being their “true selves.”

The supposed threat of anti-LGBT laws apparently extends to the children of service members, as Burt asserted in an indirect manner that soldiers who are parents might feel unsafe if their trans kids do not have access to gender affirming healthcare.

To date, the overwhelming majority of state restrictions that have passed pertain only to the protection of minors.  Also, no scientific proof of “trans children” or gender fluidity as a biological or psychological reality has ever been produced.  The concept is being adopted within numerous government institutions from public schools to the Department of Defense, yet it remains baseless and subjective in its origins.

There has been a pervasive social trend in the US which seeks to indoctrinate children into the LGBT fold.  This is why, as Burt notes, some surveys show nearly 20% of Gen Z identifying as LGBT affiliated in the past year.  While the parameters of these surveys are highly questionable, it is statistically impossible for the gay community to grow from only 2%-3% of the population to nearly 20% in the span of just a decade. 

With alternative sexuality widely accepted in the west for well over 30 years if not longer and most population surveys being anonymous, the only explanation for the spike is social pressure, media saturation and propaganda.  In other words, the trans movement is a fabrication built on activism rather than science.  It is a purely political ideology. 

This is why numerous conservative states have passed laws specifically preventing LGBT and gender identity politics from being taught in public schools; there is no room for ideological zealotry in academics.  It is also the reason why gender bending surgeries and hormone treatments for children with long term effects including sterilization are being banned.  These laws hold that minors are not mature enough to consent to these procedures.  They also take into account the manipulations of narcissistic parents seeking to exploit their children as virtue signal props.     

Immediately after DeAnna Burt’s speech to the Pentagon the Space Force posted a Twitter proclamation in tandem with the Air Force to show their support for Pride month. 

June is #PrideMonth! The Department of the Air Force proudly recognizes and celebrates generations of LGBTQI+ service members and their contributions to our #AirForce & #SpaceForce. pic.twitter.com/lQi9lH5sdr

— U.S. Air Force (@usairforce) June 7, 2023

The Space Force is the smallest branch of the military with only 8600 personnel, and as such it is not hurting in the area of recruitment.  However, US military leadership has become increasingly obsessed with woke cultism in the past few years, which may be a key reason why recruitment numbers are in steep decline in all other branches.  

The fact of the matter is that the DoD is catering to a slim minority of activists, most of whom will never join the military anyway and have very little to offer in combat roles even if they did.  Studies show that 77% of all Gen Z candidates are unfit for military duty because of mental instability and physical limitations. 

In the meantime, they are alienating the primary candidates for combat; namely fighting age conservatives and independents, most of them males. This has been the historical standard without fail.  Regardless of how one feels about the overall purpose of the military in American foreign policy, it would appear that the services are being dismantled from within.  At the same time, US forces are being made into a laughing stock in the eyes of the world.

Beyond this, though, is the startling trend of government officials and military representatives openly defending the woke conditioning and surgical mutilation of very young children.  Burt’s argument boils down to this – “If you don’t let us brainwash your kids and give them sex change surgeries, you are putting our national security at risk.”  Not long ago, the political left claimed that this conditioning was a “conspiracy theory” and that gender based hormones and surgeries were “never” targeted to minors.  Now, they vehemently promote the effort without shame.  

By Russell Clark, author of the Capital Flows and Asset Markets substack

NIIP (net international investment position) is a relative new macro data point. While the US and Japan have data going back over decades, for many other nations we have relatively short period of data. The IMF now does quarterly updates for most countries, so we will use that to show the change in the behaviour of the NIIP. To simplify, I am going to look at countries with and absolute NIIP over USD 1 trillion and Europe – which give us a big 6. US is the only NIIP deficit nation, while Japan, Europe, China, HK and Norway are in surplus.

As suggested previously, I wonder if there are “offshore” corporate holdings, but when we look at Ireland NIIP – it is also negative. Saudi NIIP has flatlined over the last decade. The only country that probably should be included in the above it Taiwan, but the last NIIP data point is from 2016 at US 1 trillion surplus. So the data does have some problems. But it we take this big 6, and sum them, we can see in 2018, they were close to balanced. But by 2021, we had a USD9 trillion hole that had opened up.

The US provides the most complete and long dated numbers of NIIP.

And as pointed out, it has been the phenomenal growth in US liabilities than has driven the deterioration of its NIIP.

But we can also breakdown NIIP into its various components. Direct refers to FDI (factories etc), Portfolio (debt and equities), Reserves (gold in the case of the US) and Other. We can see that portfolio component of NIIP has been the real outlier.

The simple answer would be that US assets have performed so well, that the US NIIP is just a side effect of that. What we should see is surging NIIP for portfolio NIIP in large US investors like Japan. Weirdly, we do not see that all in Japanese NIIP data. If anything we are seeing Japanese portfolio NIIP fall. Even more weirdly is that the direct investment NIIP for Japan DOES match up with US NIIP. So something weird is happening in “portfolio” NIIP.

So why is NIIP breaking down? My best guess is that capital flows BETWEEN countries WERE the dominant driver of asset prices. Now the dominant driver of asset prices is share buybacks. From an accounting perspective I guess it makes sense – you are basically taking the balance sheet and paying it out to shareholders. If the value of the company rises when you do that, your investment position must move negative. It would imply that negative equity would correlate with negative NIIP. Australia has a long NIIP history, although it presents the data slightly differently. Australia is a capital starved nation (25 million people in a single continent will always be reliant on foreign capital) and will always have a negative NIIP. What is interesting is that in recent years, its Equity position (which I am going to use as a proxy for portfolio NIIP) has improved (that is the value of foreign equities has risen more than Australian equities). So we see in Australian portfolio NIIP there is a lack of share buy backs potentially?

So my quick and ready method of looking for share buy backs is to look at the market cap of an index divided by share price to generate a “shares outstanding”. Both the Nikkei and the S&P 500 have seen share count fall, at least before Covid.

In contrast, Australia has seen its share count rise continuously. Australia employs dividend imputation, which makes dividends as tax efficient as share buy backs for redistributing cash.

So if share buy backs (or the “private equitisation” ) of the S&P 500 is causing the growth in NIIP, is there a way we can measure that? Share buy backs and acquisitions tend to grow the gap between book value and tangible book value. Bloomberg provides a book value and tangible book value per share measure for the S&P 500. The Gap between the two has grown particularly wide in recent years.

My calculations give a share count of 8700 for the S&P. With a book value of 983 – that implies a book value for the S&P 500 of USD 8.5 trillion. Tangible book value would be USD 2.6 trillion, so a USD 6 trillion gap. Of course the current market value of S&P 500 is USD 35 trillion. For my mind, the growing gap between tangible and real book value seems to match up with changing portfolio NIIP. Share buybacks were illegal in the US until 1982 (legalised as part of pro-capital move), and even more interestingly, Japan after the bubble economy blew up blamed much of the problems on intercompany share purchases. Japan has recently changed policy, to encourage companies to buy their own shares at least (for many years policy was to unwind corporate share ownership). The implication is that if conditions don’t change, then we could also see Japanese portfolio NIIP move negative. Perhaps that is the true legacy of QE – that foreign capital flows are no longer the driver of markets, but share buy backs

* * *

Incidentally, ZH said this all the way back in 2015…

Only buyer of stocks: corporations through buybacks.
Only source of funding: cheap debt http://t.co/imfwGeldJW pic.twitter.com/wT62ARQuy8

— zerohedge (@zerohedge) June 24, 2015

Following reports attributing the September destruction of Russia’s Nord Stream gas pipelines to the Ukrainian or US government, the deputy chairman of the Russian Security Council has declared that President Vladimir Putin should feel free to sever undersea communication cables of the country’s “enemies.” 

“If we proceed from the proven complicity of Western countries in blowing up the Nord Streams, then we have no constraints – even moral – left to prevent us from destroying the ocean floor cable communications of our enemies,” said Dmitry Medvedev on Telegram. Medvedev was Russia’s president from 2008 to 2012 and is a close ally of Putin. 

Last month, NATO intelligence chief David Cattler warned of a rising risk of just such a move. “There are heightened concerns that Russia may target undersea cables and other critical infrastructure in an effort to disrupt Western life, to gain leverage against those nations that are providing security to Ukraine,” he told reporters. Naturally, the NATO intel officer’s list of potential motivations omitted retaliation-in-kind in the wake of the severing of the Nord Stream pipelines. 

“The Russians are more active than we have seen them in years in this domain,” Cattler told reporters, noting a higher pace of Russian patrols all across the Atlantic and in the Baltic and North seas. “Russia is actively mapping allied critical infrastructure both on land and on the seabed.”

The oceans are a target-rich environment. More than 400 undersea cables carry more than 95% of international internet traffic. “Altogether, they carry an estimated 10 trillion U.S. dollars worth of financial transactions every day, so these cables really are an economic linchpin,” said Cattler. 

Contradicting Western propaganda narratives that Russia destroyed its own source of economic leverage over Europe, recent months have seen reports that either the US or Ukrainian governments blew up the pipelines. 

• In February, citing “a source with direct knowledge of the operational planning,” legendary journalist Seymour Hersh published a bombshell report that US Navy divers executed the operation under the cover of a NATO exercise. 
• Last month, a consortium of European investigative journalists reported that the investigative trail led to Ukraine and centered on a 15-meter yacht that was hired from a Polish company and docked at a tiny Danish island near the explosion site. 

In what sounded like it could be an orchestrated propaganda ploy to bolster US government denials of any role in an act of economic warfare that’s taken a high toll on European civilians, this week various outlets reported that, after receiving a report that Ukraine was plotting such move, the CIA warned Ukraine against executing it.   

The prospect of a Russian attack on Western communications infrastructure — in retaliation for what was likely a Western-conducted or Western-encouraged attack on a Russian gas pipeline — is the latest reminder that all of us are constantly at risk of being victimized by wars our government provokes with utter disregard for the consequences.  

Authored by Simon White, Bloomberg macro strategist,

The trends in retail sales, Fed regional surveys and claims are recessionary, adding to the case that after a pause the next move from the Fed will be a cut, rather than another hike.

Monthly or weekly data are fine if you want some trading volatility, but not helpful when trying to discern the path of the economy.

In this week’s data we saw another rise in unemployment claims to almost two-year highs. But it’s the underlying picture that’s sending the ever-stronger recessionary signal. The number of states with deteriorating claims continues to rise and is consistent with a near-term downturn.

We also saw May’s retail sales data. The month-on-month figures beat or met expectations, but that should not distract from their clear downward trend. Moreover, trying to figure out what is going to happen has more utility than focusing on a short-term volatile figure. Tighter credit conditions posit that retail sales will continue to weaken through the rest of the year.

The Empire manufacturing survey was also released and beat expectations. This number on its own is less than useless if you’re trying to build a picture of where the economy is headed. A better signal can be gleaned from combining all the Fed regional manufacturing surveys into one signal.

As the chart below shows, all of them are contracting on a three-month smoothed basis. Bar two false positives, this has always coincided with a recession.

The signal from this week’s data is enough to deter the Fed from further hikes, especially as slowing inflation in the coming months will take real rates considerably tighter even if the bank holds rates steady.

Not all of Richard Branson’s space ventures are bankrupt. The billionaire’s Virgin Galactic Holdings Inc. said the “start of commercial spaceline operations” would begin as soon as June 27. 

The first commercial spaceflight, “Galactic 01,” has a launch window between June 27-30. The VSS Unity spacecraft will carry three crew members from the Italian Air Force and the National Research Council of Italy to conduct microgravity research. 

Prior flights have shown VSS Unity is attached to a carrier aircraft called VMS Eve. Once the carrier aircraft reaches 44,000 feet, the spacecraft will detach, fire its rockets and accelerate more than three times the speed of sound to the edge of space, where it conducts a slow backflip in microgravity. 

Here’s a launch from May 2022. 

60 seconds of rocket burn, straight into space. #UNITY21 #VirginGalactic pic.twitter.com/yc87hWRLxc

— Virgin Galactic (@virgingalactic) May 22, 2021

Virgin Galactic Holdings has sold hundreds of reservations for tickets on future flights. The prices range around a quarter million dollars per seat. 

The company has said the second commercial spaceflight, “Galactic 02,” will follow in early August, with monthly spaceflights after that. 

Virgin Galactic shares jumped as much as 42% in premarket trading in New York. 

Meanwhile, Virgin Orbit, a satellite launch startup founded by Branson, filed for bankruptcy protection in the US earlier this year. This proves not all space ventures will be successful. 

Authored by Steve Watson via Summit News,

During a discussion with Joe Rogan, Presidential candidate Robert F. Kennedy junior admitted that he is putting his life in danger by speaking out about the assassinations of his uncle and his father, and that he “takes precautions” to ensure the CIA doesn’t kill him.

Rogan asked RFK Jr. what he thought would happen if he managed to get into office, to which Kennedy replied “I gotta be careful.” 

“I’m aware of that, you know, I’m aware of that danger. I don’t live in fear of it — at all. But I’m not stupid about it, and I take precautions,” he added.

Kennedy spoke about his Uncle JFK being “at war” with the military industrial complex, and asserted that the intelligence agencies were “trying to trick him” into launching military excursions into Cuba and Vietnam.

RFK Jr. again spoke about JFK eventually concluding that he must “shatter” the CIA “into a thousands pieces” and “scatter it to the winds.” 

“[JFK] learned very early on that the purpose of the CIA and the intelligence apparatus was to create a constant pipeline of new wars for them, for the military industrial complex,” Kennedy noted, adding that JFK was adamant that “it’s not the United States’ jobs to dictate what kind of governments other countries have.”

RFK Jr. continued, “in October of 1963 he heard that some of his Green Berets had been killed… and he said I want a total casualty list from Vietnam. His aide came to him and said 75 Americans have died, he said that’s too many and he signed that day a national security directive ordering all troops out of Vietnam… the first thousand over the next month and then the rest by the beginning of 1965, and um and then a month later he was killed.”

Watch:

Kennedy has previously laid out how he firmly believes that the CIA killed his father and his uncle.

Video: RFK Jr. Repeats Assertion That CIA Killed JFK

*  *  *

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Following the largest ever S&P call-buying day in history…

… which sparked a marketwide gamma-squeeze that pushed the market higher for the 6th consecutive day to the highest level since April 2022, US equity futures and global stocks were headed for the best week in more than two months, buoyed by bets on Chinese stimulus and exuberance surrounding artificial intelligence firms. After closing above 4,400 on Thursday, S&P futures were up 0.1% at 7:40m ET, recovering from an earlier dip and trading near session highs. The MSCI World Index has climbed 3% this week, the most since the end of March. Asian stocks staged a broad rally on Friday and European equities climbed. Treasury yields climbed across the curve, most steeply at the shorter end on recession fears. The Bloomberg dollar index reversed earlier gains while gold prices rose. Oil prices were flat, while iron ore is also edging lower today despite being poised to climb this week.

Whether the US rally extends to a 7th day will depend on how the market reacts to today’s sizable $4.2 trillion triple-witching opex. According to Asym 500 founder and former Goldman derivatives strategist Rocky Fishman, today’s OpEx, which is broken down into $2.5 trillion in options expiring in the morning and another $1.7 trillion at the close, is 20% more than a year ago.

The opex will lead to a sharp drop in the “call wall”, resulting in a so-called unclenched market,which could lead to a spike in volatility as gamma gravity is reduced and the market is free to move more aggressively. To Matthew Tym, the head of equity derivatives trading at Cantor Fitzgerald LP, traders are likely to roll out their call positions, particularly those that are still out of the money. But the overall event’s impact on the broader market is hard to predict. Speaking to Bloomberg, he said that “people are under-invested and need to get exposure,” adding that “there is a tremendous amount of options coming off tomorrow. However, I don’t have a good feel for what that does to the market.” We’ll just have to wait and see.

In premarket trading, Adobe shares rose as much as 3.9% in premarket trading after the software company reported second-quarter results that beat expectations and raised its full-year forecast. Analysts are positive on the report, seeing strong net-new digital media annualized recurring revenue as a highlight. There is also optimism about the company’s potential with artificial intelligence. Apple neared a record $3 trillion market capitalization. Here are some other notable premarket movers:

• Virgin Galactic shares jump 38% in premarket trading after the company announced it’s planning for its first commercial passenger space flight between June 27-30
• Cava was 3.2% stronger in US premarket trading after the shares of the fast-casual restaurant chain almost doubled on Thursday in their debut.
• Nikola shares jump in US premarket trading on Friday, setting them up to more than double in value this week. The latest rally comes as its ousted founder Trevor Milton called for leadership change at the electric-truck maker.
• SoFi Technologies drops 4.3% in premarket trading after Piper Sandler downgrades the online personal finance company to neutral from overweight. The broker says some outperformance is warranted, though the rise in interest rates over the last two months will be an incremental near-term headwind.
• Lexicon shares jump as much as 18% in US premarket trading before paring some gains, after the drug developer said late Thursday that the US FDA has approved its oral tablet Inpefa to reduce the risk of heart failure.
• Millicom dropped 6% in postmarket trading after it says it terminated discussions with Apollo Global Management and Claure Group regarding a potential acquisition.
• Squarespace gained 7% in extended trading after it confirmed an agreement to buy Google Domains assets, according to a press release.

The week’s powerful rally was sparked by rising bets that the Fed will end its tightening cycle sooner rather than later after this week’s pause in interest-rate hikes, while expectations are also growing that China’s government will boost spending. That helped lift mining, energy and some luxury stocks in Europe trade Friday.

“Theres a lot of cash on sidelines and we should not underestimate investors’ willingness to step in,” said Georgios Leontaris, chief investment officer for Switzerland and EMEA at HSBC Global Private Banking and Wealth.

The tech-led rally has upended countless bearish analyst calls. Bank of America’s Michael Hartnett said he was wrong in the first half because the US economy has avoided a recession and a credit crunch, and called the AI-driven tech rally an “unanticipated event.” Still, he drew parallels to 2000 or 2008, warning of a “big rally before big collapse.” 

In Europe, the Stoxx 600 rose 0.4% with utilities and consumer outperforming. Construction and mining names fall. LVMH contributed the most to the advance in the Stoxx 600 Index. Asos Plc rose as much as 7.8% after the fashion retailer’s sales update showed turnaround progress. Here are the biggest European movers:

• Asos shares rise as much as 7.8% in their biggest two-day gain since January after the online fast fashion retailer’s sales update on Thursday showed turnaround progress
• Swedish lenders lead gains on Stockholm’s large-cap OMXS30 benchmark after Barclays issued a review on the sector, upgrading Handelsbanken to overweight and SEB to equal weight
• MorphoSys gains as much as 14%, the most since April, after JPMorgan double-upgraded the German biotech to overweight from underweight, seeing at least about 40% upside to the shares
• Marlowe rises as much as 14%, with the company reportedly exploring a sale of its testing, inspection and certification division, the largest by revenue
• Mears Group gains as much as 7.2% after saying it experienced “strong trading” in the first five months of its financial year, with FY profits expected to be “materially ahead” of market expectations
• Applus Services rises as much as 11%, hitting the highest since March 2020, after Sky reported that Isquared Capital is preparing to launch a bid for the Spanish company as soon as next week
• Maersk falls as much as 4% after Handelsbanken initiated coverage of the shipping firm with a sell recommendation, predicting lower freight rates and lackluster volume growth
• Millicom declines as much as 8.5% after the telecommunications firm said it terminated discussions with Apollo Global Management and Claure Group regarding a potential acquisition
• Travis Perkins drops as much as 8.3% after the builders’ merchant warned that its full-year profit will be hurt by lower volumes. Other UK homebuilders and building-product suppliers also fall
• Interroll slumps as much as 12% after issuing a profit warning, predicting 1H23 revenue and Ebit below the previous year. ZKB downgraded the stock to market perform from outperform after the news
• Tesco slips as much as 1.3% after the grocer reported 1Q sales and kept its guidance. The unchanged operating profit outlook suggests a slightly lower margin, according to Bloomberg Intelligence

Asian stocks also rose as markets in China, Hong Kong Australia and South Korea climbed. Japanese shares rose while the yen fell, after the Bank of Japan kept is negative rate and yield curve control program unchanged. “The decision should not have been a surprise,” said John Vail, chief global strategist at Nikko Asset Management. “Anyone who shorts the yen versus the dollar must realize that the authorities will likely intervene with little warning if it gets much weaker.”

• Hang Seng and Shanghai Comp. were underpinned amid anticipation of further support measures from China but with gains capped in the mainland amid lingering frictions with the EU to ban Huawei and ZTE equipment from internal Commission networks and after the US tempered expectations of a breakthrough in relations ahead of US Secretary of State Blinken’s visit to China.
• Nikkei 225 initially declined amid cautiousness heading into the BoJ policy decision but then recovered after the BoJ refrained from any hawkish surprises and maintained its ultra-easy policy settings.
• ASX 200 was positive with the gains led by early strength in energy and utilities after AGL Energy flagged a jump in FY24 underlying profit and with some households facing electricity tariff increases of up to 51% for the winter season.

In FX, the Bloomberg dollar index faded earlier gains following a 0.7% drop on Thursday after ECB President Christine Lagarde said a further hike in July is “very likely.” The euro was little changed after rallying the most since April on Thursday following the European Central Bank’s decision to lift interest rates by another quarter-point. The yen declined as much as 0.8%, paring its rebound from a seven-month low against the dollar touched in the previous session; the BOJ left its negative interest rate and yield curve control program unchanged at the end of a two-day gathering. The central bank expects inflation will slow in the middle of the financial year and won’t hesitate to ease further if needed.

“There’s no option but to see the yen weakening,” said Kengo Suzuki, senior market strategist at Mizuho Bank Ltd. “Divergence is quite big with the BOJ saying it will add easing if necessary” compared with the Fed and ECB which are more hawkish, he said.

“The euro area has more of an inflation problem than the US and therefore the ECB will continue to hike, at least to 4%,” Christian Kopf, head of fixed income and FX for Union Investment Privatfonds GmbH said in an interview with Bloomberg Television.

In rates, treasury yields rose across the curve as the front-end underperformed with 2-year yields cheaper by about 4bp on the day, pushing 2s10s spread through Thursday’s low. There was some outperformance by longer-dated US yields flattens 2s10s by ~3bp, 5s30s spreads by ~2bp on the day. 10-year at 3.73% is higher by ~1bp, trailing bunds and gilts in the sector by 4bp and 3bp. According to Bloomberg, there was no apparent catalyst for bear-flattening beyond rate-hike premium creeping back into swaps for July Fed policy meeting. Core European rates outperform following Thursday’s ECB rate decision.

Looking at today’s calendar, we have a few Fed speakers to listean to: Waller at 7:45 a.m., then Barkin at 9:00 a.m. That’s followed with US June University of Michigan Consumer Sentiment at 10:00 a.m. and the Baker Hughes US rig count at 1:00 p.m.

Market Snapshot

• S&P 500 futures little changed at 4,430.25
• MXAP up 0.8% to 169.72
• MXAPJ up 0.8% to 536.48
• Nikkei up 0.7% to 33,706.08
• Topix up 0.3% to 2,300.36
• Hang Seng Index up 1.1% to 20,040.37
• Shanghai Composite up 0.6% to 3,273.33
• Sensex up 0.4% to 63,184.70
• Australia S&P/ASX 200 up 1.1% to 7,251.25
• Kospi up 0.7% to 2,625.79
• STOXX Europe 600 up 0.5% to 466.49
• German 10Y yield little changed at 2.51%
• Euro little changed at $1.0952
• Brent Futures up 0.1% to $75.78/bbl
• Gold spot up 0.2% to $1,962.31
• U.S. Dollar Index little changed at 102.20

Top Overnight News

• 1) BOJ Governor Kazuo Ueda continued to defy global central bank trends by sticking with stimulus as he waits for signs of more sustainable inflation while his peers signal the need to raise interest rates further to rein in prices. Ueda and his fellow board members left their negative rate and yield curve control program unchanged at the end of a two-day gathering and maintained their view that inflation will slow over the coming months. BBG
• 2) China will roll out more stimulus to support a slowing economy this year, but concerns over debt and capital flight will keep measures targeted at shoring up weak demand in the consumer and private sectors, sources involved in policy discussions said. RTRS
• 3) Blue Owl is eyeing up the European direct lending market. Among the options under consideration: building a team, buying an existing fund manager or raising a fund to be overseen by a portfolio manager based there. BBG
• 4) Chipmakers are betting big on new plants in Europe and Asia. Intel is bolstering its presence in Poland with a $4.9 billion factory, the country’s leader tweeted. Micron is close to a $1 billion deal for a plant in India, people familiar said, and pledged another $600 million for a site in China — just weeks after Beijing imposed curbs on its chips. BBG
• 5) Gas prices appear likely to be lower this summer driving season after last year’s oil spike caused widespread pain at the pump. A gallon of regular averaged about $3.59 on Thursday, according to AAA, down from a record high of $5 a year ago when the war in Ukraine sent energy markets into a tailspin and fanned the flames of inflation globally. WSJ
• 6) Moody’s expects speculative-grade corporate defaults to climb to 4.6% by the end of the year — higher than the 4.1% long-term average — and peak at 5% by the end of April 2024, before easing to 4.9% in May. The forecast assumes US high-yield spreads will widen to 532 basis points over the next four quarters, from about 460 basis points at the end of May, with US unemployment rising to 4.8% from 3.7% in the same period. BBG
• 7) Lawrence Summers is confused by what the Fed did this week. While there were arguments for a hold, he said those wouldn’t be consistent with adding two rate hikes to the outlook this year and boosting the forecast for growth. The inconsistency may be a “disturbing” sign of internal politics driving the Fed. BBG
• 8) $4.2 trillion OpEx today may rattle the gravity-defying bull market as investors roll over positions or start new ones. The maturation of a massive pile of options coincides with the quarterly expiration of index futures and the rebalancing of indexes including the S&P. Traders will probably roll out call positions but the overall impact is hard to predict. BBG
• 9) A $1.7 billion opioid settlement is on the verge of unraveling. Mallinckrodt, the drugmaker that began producing morphine and codeine in 1898, owes states, hospitals, tribes and others $200 million by the end of today. But the firm’s business is sputtering, and some of its lenders are urging management to renege. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded higher following the gains on Wall St where the major indices were lifted alongside a weaker dollar and softer yields as participants digested a hawkish ECB and the rise in US jobless claims.  ASX 200 was positive with the gains led by early strength in energy and utilities after AGL Energy flagged a jump in FY24 underlying profit and with some households facing electricity tariff increases of up to 51% for the winter season. Nikkei 225 initially declined amid cautiousness heading into the BoJ policy decision but then recovered after the BoJ refrained from any hawkish surprises and maintained its ultra-easy policy settings. Hang Seng and Shanghai Comp. were underpinned amid anticipation of further support measures from China but with gains capped in the mainland amid lingering frictions with the EU to ban Huawei and ZTE equipment from internal Commission networks and after the US tempered expectations of a breakthrough in relations ahead of US Secretary of State Blinken’s visit to China.

Top Asian News

• NDRC said China will accelerate the implementation of policies to increase consumption and that temporary fluctuations in some sectors are normal with China’s economic operations maintaining a recovery trend overall. NDRC also stated that China will speed up the process to allow private firms to access the infrastructure of major national scientific research projects, while they will encourage and attract more private firms to participate in national major projects and key industrial supply chain projects.
• White House National Security Adviser Sullivan said they do not expect a breakthrough in US-China relations from Secretary of State Blinken’s upcoming trip to China.
• BoJ kept its policy settings unchanged, as expected, with rates at -0.10% and the parameters of QQE with YCC maintained in which the decision on YCC was made through a unanimous vote. BoJ said Japan’s economy is picking up and is likely to continue recovering moderately but also noted that uncertainty regarding the economy is very high. Furthermore, it reiterated that core consumer inflation is likely to slow the pace of increase towards the middle of the current fiscal year and that inflation expectations are moving sideways after heightening.
• BoJ Governor Ueda says more time is needed to meet BoJ’s 2% inflation target; do need to pay attention to financial and FX markets. Responding to inflation undershoot after a premature rate hike is more difficult than responding to overshoot. Risk of excessive inflation overshoot with cautious policy response is “not zero” but there’s also risk of inflation undershoot with hasty monetary normalisation. Possible a large shift in the price view could result in a policy change.

European bourses are firmer across the board, Euro Stoxx 50 +0.4%, though action has at times been somewhat choppy in the likes of the FTSE 100 +0.3% despite a lack of fresh specific drivers since the Cash Open. Note, Goldman Sachs lifted its end-2023 year-end target for the Stoxx 600 to 500 from 475. Sectors are primarily in the green with some of the more defensively biased names leading such as Utilities and Healthcare while Basic Resources lags slightly after recent upside. Stateside, futures are firmer though only modestly so with newsflow limited thus far as we await a number of Fed speakers lter in the session.

Top European News

• ECB’s Holzmann says has no view on what should happen with rates beyond July.
• ECB’s Nagel said the ECB may need to keep raising rates after the summer break.
• ECB’s Simkus says he does not see rate cuts at the start of next year.
• ECB’s Rehn says rate decisions will continue to follow a data-dependent approach; key rates will be brought to levels sufficiently restrictive to achieve a timely return to inflation’s medium-term target.
• ECB’s Muller says rates are yet to peak.

FX

• Dollar off post-IJC lows with help from the Yen, DXY holds 102.000 handle as USD/JPY bounces from sub-140.00 towards 141.50 YTD peak in response to unchanged BoJ and dovish Governor Ueda press conference.
• Euro pivots 1.0950 vs Buck after hawkish ECB hike and flanked by hefty option expiries.
• Pound extends gains against Greenback to 1.2800+ awaiting BoE next week and unfazed by a decline in UK inflation expectations.
• Yuan continues recovery in hope of even more Chinese stimulus, with USD/CNY and USD/CNH both eyeing 7.1000 from peaks nearer 7.2000.
• PBoC set USD/CNY mid-point at 7.1289 vs exp. 7.1282 (prev. 7.1489)

Commodities

• Crude benchmarks are under modest pressure this morning with fresh drivers limited and the action perhaps a break in the least few sessions consolidation and a return to the last few weeks general direction.
• WTI and Brent are towards the lower-end of circa. USD 1.00/bbl parameters and erring towards the USD 70.00/bbl and USD 75.00/bbl marks respectively.
• Spot gold is firmer as the tone remains tentative pre-FOMC speak while base metals are mixed given further Chinese support though a sizeable LME warehouse print seemingly weighs on Copper.

Fixed Income

• More sustainable debt revival appears technical and positional following the extent of the recent decline.
• Bunds bounce from 132.18 to 132.96 and Gilts to 95.36 from 94.41.
• T-note lags within 113-16+/05 range awaiting prelim Michigan sentiment and commentary from the Fed post-hawkish FOMC hold.
• ECB TLTRO.III June window early repayment figure (EUR): 29.5bln (prev. 87.7bln).

Geopolitics  

• US State Department said it wants Iran to take steps to cease its actions that destabilise the region including steps to curb its nuclear programme. It was separately reported that the US and Iran are in talks aimed at limiting Iran’s nuclear programme, releasing some US citizens and unfreezing Iranian assets, while steps would be cast as an understanding and not an agreement subject to Congressional review, according to officials cited by Reuters.
• Russian Kremlin says President Putin remains open to any contacts to discuss the Ukraine conflict resolution, via Ria.
• Explosions heard in central Kyiv, according to Reuters witnesses. Note, an African leader delegation, led by South African president Ramaphosa, is currently in Kyiv.

US Event Calendar

• 08:30: June New York Fed Services Business, prior -16.8
  • 10:00: June U. of Mich. Sentiment, est. 60.0, prior 59.2
  • June U. of Mich. Expectations, est. 55.2, prior 55.4
  • June U. of Mich. Current Conditions, est. 65.1, prior 64.9
  • June U. of Mich. 1 Yr Inflation, est. 4.1%, prior 4.2%
  • June U. of Mich. 5-10 Yr Inflation, est. 3.0%, prior 3.1%

DB’s Jim Reid concludes the overnight wrap

Today is the day that a passionate group within 1% of the world’s population get extraordinarily excited about something that the other 99% of the globe ranges from being completely unaware of, to being completely apathetic towards. Yes, one of the oldest international sporting rivalries in the world kicks off here in England as we take on Australia at cricket for The Ashes. The home series are every 4 years, and I can soundtrack my life to these battles. Hopefully 2023 will go down as one of the best. So if you’re one of the 99% spare a thought for the small number of obsessed nervous wrecks within the 1% of us today.

Risk assets are exhibiting few nerves at the moment and have continued their relentless advance over the last 24 hours, with the S&P 500 (+1.22%) rising for a 6th consecutive session for the first time since November 2021. It marked a big turnaround from earlier in the day, when there’d been a significant rates selloff, particularly after the ECB hiked rates and raised their inflation forecasts once again. But just 15 minutes later, the mood completely turned after the US weekly jobless claims unexpectedly remained at last week’s level of 262k, which is the highest they’ve been since October 2021. And in turn, that meant investors grew more doubtful about whether the Fed would end up delivering the two further hikes they indicated for this year, which supported a multi-asset rally across equities, bonds and commodities.

Ironically, the rest of the US data from yesterday had been perfectly respectable, with the retail sales numbers even posting a mild beat. But markets are overweighting the weekly claims data at the moment, since they’re one of the most timely indicators we get, and would therefore be one of the first to show if the labour market is beginning to crack. So when the 262k reading came in well above the 245k consensus expectation, that prompted a sizeable reaction, particularly given the negative surprise from last week as well. For instance, yields on 10yr US Treasuries had stood at 3.83% just after the ECB delivered their hike, before tumbling down to 3.716% by the end of the session.

The elevated claims number was a little more broad based than the surprise last week when two states made up the overwhelming bulk of the increase. So last week there was slightly more reason to be suspicious of the increase than this week. Ironically the first reaction to the perception of a weaker labour market was positive through the Fed effect. However be careful what you wish for. Even more attention will be on next week’s numbers now.

This release distracted markets from what was an eventful ECB meeting in its own right. The main headline was another 25bp hike as expected, which took the deposit rate up to 3.5% and its highest level since 2001. But what caused a big reaction was the upgrade to their inflation forecasts, which signalled that more action was needed to get inflation back to their 2% target. For example, headline inflation was revised up by a tenth across each of 2023-25, and they’re now expecting it to only come down to 3.0% in 2024 and 2.2% in 2025. In addition, the core inflation forecast that excludes food and energy saw even bigger upgrades, with both 2023 and 2024 revised up half a point to 5.1% and 3.0% respectively. And even in 2025, core inflation was still seen at 2.3%, so the ECB are signalling they still expect headline and core inflation to be above their target in two years’ time.

President Lagarde then offered some further hawkish comments in her press conference, saying that “barring a material change to our baseline, it is very likely the case that we will continue to increase rates in July.” That helped remove any doubt about whether the ECB were finished hiking yet, and investors moved to fully price in a further 25bp move to 3.75% at the next meeting. Looking further out, investors also began to consider it more-likely-than-not that the ECB would deliver yet another hike beyond that in September, which if realised would take the deposit rate all the way up to 4%. Following the meeting, our European economists have maintained their view of a 3.75% terminal rate but continue to see upside risks. However they did note some dovish counterbalancing comments from the ECB. See their reaction note here for more.

All this meant European rates were torn between the generally hawkish ECB and the weak claims data, but ultimately the ECB won out. By the close, yields on 10yr bunds (+5.2bps), OATs (+4.5bps) and BTPs (+4.2bps) had all risen, and the 2yr German yield (+11.0bps) hit a post-SVB high. It was a similar story for equities, with the STOXX 600 (-0.13%) underperforming its US counterparts, despite paring back its losses later in the session.

In the US it was a very different story however, since the claims data took centre stage. That meant Treasuries rallied across the curve, with yields on 10yr Treasuries closing -7.0bps lower at 3.716%. Furthermore, the 2s10s curve inverted further to -93.4bps, which is the most inverted its been since SVB, and just demonstrates how recessionary indicators are continuing to flash with growing alarm. This morning 2yr and 10yr yields are are back up +3bps and +1.7bps respectively with the curve thus inverting a touch more.

For equities, there was a similarly buoyant tone, and the S&P 500 (+1.22%) closed above the 4400 mark for the first time since April 2022. 88% of index constituents were higher on the day with all but two industry groups gaining. For once, tech stocks slightly underperformed the broader S&P, but there was still a decent advance as software companies rose +2.7% to pace the S&P 500 industry groups. Elsewhere the FANG+ index (+1.09%) rose for the 10th time in the last 11 sessions, bringing its YTD gains beyond +76%.

Asian equity markets are also mostly trading higher tracking overnight gains on Wall Street alongside hopes of fresh stimulus from China. As I check my screens, the Hang Seng (+0.68%), the CSI (+0.44%), the Shanghai Composite (+0.37%) and the KOSPI (+0.69%) are all moving higher. Elsewhere, the Nikkei (-0.10%) is trimming its losses but continues to remain in the red after the Bank of Japan (BOJ) maintained its ultra-easy monetary policy despite stronger-than-expected inflation (more below). Outside of Asia, US equity futures are indicating a slight pull back with those on the S&P 500 (-0.18%) and NASDAQ 100 (-0.22%) printing mild losses on what is triple witching day, with huge option expiries going through later.

Overnight, the run of central bank meetings has continued, with the BoJ maintaining its current pace of yield curve control in line with market expectations as the central bank waits to ensure Japan sustainably achieves 2% inflation. While warning about risks to the global outlook, the central bank’s policy statement indicated that it won’t hesitate to ease further if necessary. Following the substantially dovish decision, the Japanese yen declined -0.35% against the US dollar to around 140.775.

Finally, yesterday brought several other data releases from the US aside from jobless claims. Retail sales surprised on the upside with +0.3% growth (vs. -0.2% expected) even if retail control (that goes directly into GDP) was inline at 0.2%. Furthermore, the Empire State manufacturing survey for June rebounded to 6.6 (vs. -15.1 expected). That said, industrial production unexpectedly fell by -0.2% in May (vs. +0.1% expected).

To the day ahead now, and data releases include the University of Michigan’s (UoM) preliminary consumer sentiment index for June, along with the final Euro Area CPI reading for May. Watch out for the inflation expectations in the UoM report as the long-term ones have been edging up of late. Otherwise, central bank speakers include the Fed’s Bullard, Waller and Barkin, along with the ECB’s Holzmann, Rehn, Villeroy and Centeno.

Russian tycoon Alexey Mordashov’s half-billion-dollar superyacht began transmitting its location last weekend after going dark for eight months to escape capture by Western authorities. 

Mordashov is one of Russia’s wealthiest men and the largest shareholder of Severstal PAO, one of the world’s biggest steelmakers. He was put under US and European Union sanctions after Russia invaded Ukraine. 

The billionaire’s 465-foot (142-meter) “Nord” vessel began transmitting its location on Sunday (June 11) in the Indian Ocean and is currently passing Singapore. Bloomberg said the yacht is headed to Busan, South Korea. 

Nord, which features two helicopter pads, a swimming pool, and a cinema, stopped broadcasting its location late last year while en route to Cape Town in South Africa.

It appears Mordashov has been seeking safe harbor for his assets while Western authorities have been on a seizing spree of assets belonging to Russian oligarchs. The yacht’s movements and even going dark for eight months shows that the sanctioned owner faces a dilemma that only a limited number of ports worldwide will harbor his yacht. 

And prepare for a flurry of comments from Western countries demanding to block the Nord from docking in Busan. 

Authored by Michael Snyder via End of the American Dream,

A lot of the experts didn’t think that this would happen. 

Once the pandemic subsided, global supply chains were supposed to return to normal.  But now “hundreds of drugs” are in short supply in the United States, and even CNN is admitting that we are in the midst of “the worst food crisis in modern history”.  As I did research for this article, I was stunned by what I discovered.  Things are worse than I realized.  I knew that a lot of drugs were in short supply, but it turns out that there have been shortages of many of our most basic antibiotics since last October, and now Pfizer is telling us that several types of penicillin will completely run out later this year…

Pfizer will run out of several doses of penicillin, which treat syphilis, strep throat, and other infections, later this year as shortages ripple across the US supply chain.

The company anticipates running out of the children’s dose of the syphilis drug Bicillin L-A by the end of June, according to a letter Pfizer posted Tuesday on the Food and Drug Administration’s website. The company says it’s prioritizing production of larger doses of Bicillin L-A, which is recommended for pregnant people with syphilis because it is the only drug that can pass through the placenta and also treat the fetus.

A different Pfizer penicillin, Bicillin C-R that treats other bacterial infections but not syphilis, is expected to run out in the third quarter, which ends Sept. 30. Pfizer’s penicillin has been in shortage since April.

Of course there are growing shortages of many other commonly used drugs.

For example, one recent survey discovered that most cancer centers in the U.S. “are reporting shortages of commonly used chemotherapy drugs”…

A recent survey found that a majority of cancer centers are reporting shortages of commonly used chemotherapy drugs used to treat a wide variety of cancers.

Much of the current shortage stems from the temporary closure of a drug manufacturing facility in India that happened after the Food and Drug Administration (FDA) found issues in the plant’s quality control.

After I first read that, I immediately had one burning question come to mind.

Why in the world are we having our chemotherapy drugs manufactured in India?

Once the war between the U.S. and China starts, it is going to be exceedingly difficult to get things shipped across the Pacific.

So what are we going to do then?

Already, certain chemotherapy drugs are in such short supply that some doctors are being forced to ration care…

Cancer drugs, including widely used cisplatin and carboplatin, are in such short supply that doctors are rationing care, asking patients to drive long distances for treatment, or turning to alternative treatments with riskier side effects.

This wasn’t supposed to happen.

But it is happening.

In fact, the New York Times is telling us that there are shortages of “hundreds of drugs” in the United States right now…

Hundreds of drugs are on the list of medications in short supply in the United States, as officials grapple with an opaque and sometimes interrupted supply chain, quality and financial issues that are leading to manufacturing shutdowns.

The shortages are so acute that they are commanding the attention of the White House and Congress, which are examining the underlying causes of the faltering generic drug market, which accounts for about 90 percent of domestic prescriptions.

Meanwhile, global supplies of food just continue to get even tighter, and this is going to greatly affect consumers here in this country.

According to Zero Hedge, global cocoa supplies are becoming extremely tight and this could push chocolate prices to dizzying heights…

Cocoa prices have soared 44% over the last nine months to seven-year highs as the global cocoa bean deficit worsens for the second consecutive year.

“The cocoa market has experienced a remarkable surge in prices … This season marks the second consecutive deficit, with cocoa ending stocks expected to dwindle to unusually low levels,” S&P Global Commodity Insights’ Principal Research Analyst Sergey Chetvertakov told CNBC via email.

If you love chocolate, I would stock up now while you still can.

In addition, Zero Hedge is also reporting that there are very serious concerns about global supply levels of sugar and coffee…

With cocoa consumption at record highs in some Western countries, a worsening global bean deficit will only support higher prices.

Meanwhile, sugar prices hit decade highs on global shortage fears in April. And robusta coffee prices hit a record high days ago on supply fears.

There are just some grocery store aisles where inflation looks exceptionally sticky.

Most of us could live without chocolate, sugar and coffee.

But what about the basics?

One food bank in southern Georgia is warning that they are facing a severe shortage of food and they are desperate for help…

“We’re just, we’re experiencing the biggest food shortage we have in the 40 years of food banking,” CEO of Feeding the Valley Food Bank Frank Sheppard said. “And it’s pandemic related. It’s really a number of causes our federal government and state governments provided a plentiful amount of food during the pandemic to help so many more people in need. And those supply lines are just a little slow to replenish. Then you have the whole supply chain issue. Things are just taking 3, 4, 5, 10 times as long to get to us as they used to and rapid inflation is affecting a lot of people, a lot of our donors as well. So it’s really just a perfect storm, unfortunately of circumstances that has got our inventories at record low levels.”

Hopefully some people will step up and help them out.

But the truth is that supplies of food are only going to get tighter and tighter in the months ahead.

In a previous article, I discussed the following facts…

-The winter wheat harvest in Kansas this year is going to be the smallest since 1957.

-U.S. corn prices are expected to soar because the Corn Belt is being hit by the worst drought in 30 years.

-The size of the U.S. beef cow herd has fallen to the lowest level since 1962.

-The orange harvest in Florida in 2023 will be approximately 56 percent smaller than it was in 2022.

-Thanks to absolutely crazy weather patterns, approximately 90 percent of Georgia’s peach crop for this year has been wiped out.

On top of everything else, now millions of Mormon crickets have invaded Nevada, and they are eating everything in sight…

According to the University of Nevada in Reno, Mormon crickets eat native, herbaceous perennials (forbs), grasses, shrubs, and cultivated forage crops, reducing feed for grazing wildlife and livestock. In large numbers, their feeding can contribute to soil erosion, poor water quality, nutrient-depleted soils, and potentially cause damage to range and cropland ecosystems.

Drought encourages Mormon cricket outbreaks, which may last several years (historically 5 to 21 years) and cause substantial economic losses to rangeland, cropland, and home gardens. This is particularly true as adults and nymphs of Mormon crickets migrate in a band, eating plants along their path.

And of course all of this is happening in the context of a horrific global food crisis.

According to one recent report, the number of people around the globe that are facing “acute food insecurity” increased by a whopping 34 percent last year…

The report concluded that the number of people facing acute food insecurity in 58 countries and territories in 2022 was 258 million, and this was the highest in the seven-year history of the report, signifying a deteriorating trend in global acute food insecurity. In 2021, 193 million people in 53 countries and territories faced acute hunger, so the figure for 2022 reflected a 34 percent jump within just one year.

A global famine has begun.

And it will eventually get a whole lot worse.

If you have not been preparing for such a scenario, I would strongly encourage you to get started.

As I have detailed in this article, drug and food shortages are already here, and what we have been through so far is just the tip of the iceberg.

Two weeks ago, in “The Great Student Loan Nonpayment Boondoggle Is Over And Household Spending Is About To Collapse“, we showed how the three year-long payment forbearance had artificially boosted disposable incomes by tens of billions. And, more importantly, with repayment on said loans set to resume in a few months, personal spending was set to collapse.

Today, in a note from Barclays economist Adirenne Yih (available to pro subscribers in the usual place), the bank has published a detailed calculation of just how much disposable spending would shrink by as a result of the student loan payment restart. In a nutshell, the bank estimates a potential aggregate $15.8bn monthly headwind – or $190 billion per year – to US spending as the average student debt holder sees an incremental monthly payment of ~$390 beginning this fall. This represents an ~8% headwind to monthly personal income, affecting 16% of the US population, and adding pressure to not just consumer discretionary and apparel, but all retail spending.

For those who missed it the first time, here is the background:

Student loan payments are set to resume in the coming months. For more than 40 million Americans carrying student loan debt, the timeline to resume making payments is now on the horizon. The debt ceiling deal passed earlier this month paves the way for student loan payments to resume as early as August 29, 2023, per the latest update from the U.S. Department f Education: Federal Student Aid. For most, this will be the first time making payments since the early days of the pandemic in March 2020

Logically, Barclays regards the “essential” nature of the debt payments as reducing discretionary spending by an equal amount. As such, the bank estimates a potential aggregate $15.8bn monthly headwind to U.S. spending, as the average student debt holder sees an incremental monthly payment of ~$390 (more details below).

The analysis is based on federal student loan data for the aggregate $1.4 trillion balance across the 40.5mn borrowers by age cohort. Utilizing a 10-year payment period and a 5.8% interest rate, the bank calculates an approximate $390/month payment across cohorts.

Compared to a median pre-tax personal annual income of ~$57k, this payment represents an approximate 8% headwind to monthly income. In aggregate, this amounts to an “additional” (or rather, original, as the payments were there and then three years ago, they just stopped) $15.8bn in monthly payment for federal student loans affecting approximately 15.5% of the U.S. adult population (and 32% of the 25- to 34-year-old cohort).

As an aside, Barclays’ monthly estimate of $15.8bn in incremental payments is conservative as the analysis only takes into account federal student debt (Direct Loans), which is 87.2% of total student debt.

Some more details on who owes what:

• As of March 31, 2020, there were 38.4mn recipients of Federal Student Aid (Direct Loans) equaling $1,315bn outstanding.
• As of March 31, 2023 these numbers have increased and there are now 40.5mn recipients and $1,430bn  outstanding.
• Additionally, the 25-34 age group has the largest amount of borrowers at 14.7mn recipients (36%), while the 35-49 age group has the largest amount of Federal Student loans outstanding at $533bn (37%)

Average monthly repayment amount by age group:

• Federal Student Loans have 10 types of repayment plans that vary based on time frame and income

• Barclays is basing its analysis on a 10-year fixed monthly payment as it is the highest % of repayment plans by recipients (33%), and utilizing a flat assumed interest rate of 5.8%.
• From this, the bank calculates the approximate $390/month payment across age group

Cost impact of student loan repayment by age cohort

• Comparing the calculated monthly cost of student loan payments above to the median annual pre-tax personal income reveals an aggregate 8% monthly headwind to income across age group

Estimated spending impact to consumer discretionary

• Based on our analysis, the Barclays economists estimate the total impact from the resumption of federal student loans to consumer discretionary spend to be ~$15.8bn (monthly), derived by aggregating the total cost among all Federal loan holders and the Federal loan repayments.

Next, the economists calculated the total percentage of the adult U.S. population that will be impacted by the resuming of Student Loan Repayment (using U.S. Census estimates as of 2022 to calculate the total population size vs. the total amount of recipients of Federal Student Loans, and then further disaggregated that by age group). Based on calculations, 15.5% of the adult (18+) US population will be effected and will need to resume paying their student loans, with an outsized impact among the 25-34 year old cohort (32%)

Education Level by Income Bracket

• Higher household incomes are more likely to have attended college and carry higher student debt. An analysis of the Bureau of Labor Statistics’s 2021 Consumer Expenditure Survey indicatess that higher incomes are more likely to have attended college.
• While this relationship is known intuitively, it implies higher HH incomes are thus more likely to carry higher student debt compared to, say, the ‘Less than $15,000’ cohort, in which the majority of constituents did not attend college.
• In this context, and rather counterintuitively, the bank has a favorable view of companies exposed to lower HH income cohorts. For these companies, the relative insulation from the resumption of student debt payments will serve as a welcome offset to the inflation-driven spending pressure which has previously had an outsized impact on lower income HHs.

More details in the full note available to pro subscribers in the usual place.