Trump yesterday: “I love the inflation.”
Markets May Be a Bit Too Relaxed About Inflation
John Authers:
(…) Market-based inflation predictions, whether measured by swaps or bond breakevens, continued to fall and clearly suggest that this shock from Iran, just like last year’s from tariffs before it, will prove transitory:
While all are valid reasons, the market might be taking these numbers a tad too calmly. To start, this is the breakdown of inflation into its four main components, as produced by Bloomberg’s trusty ICAN function:
The rise in the energy component is obviously important, but services remain obdurately high, while food inflation — politically salient these days — hasn’t gone away. These numbers rule out a rate cut.
More to the point, alternative measures of core inflation signal that pressure is rising.
The Fed’s favored “supercore” of services excluding housing is rising sharply, while the Atlanta Fed’s gauge of sticky price inflation, covering products whose prices take time to change and are difficult to cut, has risen above 3%.
Both the trimmed mean, excluding outliers in either direction such as oil and averaging the rest, and the median also rose and are higher than CPI excluding food and fuel. There’s firm upward pressure to prices:
Look deeper and some interesting trends emerge. This is about the point when last year’s tariffs should begin to drop out of year-on-year comparisons, and that does indeed seem to be happening.
Core goods are most directly affected by protectionist levies, and have seen outright deflation for most of this century thanks to globalization. Standing at zero ahead of the Liberation Day levies, core goods inflation never reached 2% and is now declining. This certainly looks like a victory for those who said the fuss over tariffs was always overdone:
A more worrying point, which also shows up in the rise of “supercore,” is that it’s growing hard to attribute the inflation issue to shelter. Changes in housing costs tend to arrive in the index with a lag, as they include all leases in effect rather than just those signed over the preceding month. That meant a predictable bump and then decline in the headline numbers — but at this point CPI excluding shelter is above 4%.
Even though Zillows’s measure of rental inflation continues to decline, it’s hard to see any improvement coming from this direction: (…)
An Inflation Silver Lining The energy shock is hitting consumers, but not yet overall prices.
The WSJ Editorial Board:
Inflation was too high again in May, with the consumer-price index coming in at 0.5% for the month and 4.2% for the last 12 months. The silver lining is that this was better than markets expected given the oil price shock, and core inflation (sans food and energy) slowed in the month. (…)
Yet without food and energy, prices were up only 0.2% in May, which is 2.9% at an annual rate. Prices fell for medical-care commodities, new vehicles, utility gas service, household furnishings and transportation services, among other things.
The core rate is still too high, but its decline to 0.2% from 0.4% in April suggests the oil shock isn’t spreading into the broader economy, at least so far. This is ammunition for those who think the Federal Reserve should look through the oil price shock when its Open Market Committee (FOMC) meets next week.
That’s the tough call for new Fed Chair Kevin Warsh as he faces FOMC members who may want to raise interest rates based on the move in overall consumer prices. Count us in the hold rates steady camp. (…)
The oil shock is a blow to economic growth, and it doesn’t need the Fed raising the price of borrowing to compound the blow. (…)
Ed Yardeni:
The latest batch of inflation and employment indicators suggests that the FOMC might adopt a neutral policy stance at next week’s meeting rather than a tightening one as we have been expecting. That seemed to be the initial reaction in the US Treasury market, as 2- and 10-year yields edged lower on today’s cooler-than-expected core CPI inflation news.
We are sticking with our prediction that the FOMC will pivot toward a tightening stance rather than a neutral one next week, followed by a rate hike at the July FOMC meeting. We are also sticking with our June Swoon scenario as investors fret about the Fed, mega IPOs, AI uncertainties, and the war in the Middle East. (…)
There are two significant issues on the inflation front that should concern the FOMC. First, the energy shock isn’t over, and higher energy costs are likely to push up other prices in the coming months. Second, the CPI services inflation rate has stalled above 3.0% y/y in recent months, well above pre-pandemic readings of around 2.0%. That’s even excluding rent of shelter!
AI Boom Stokes Inflation With Memory Chips at ‘Insane’ Prices
(…) AI, driver of growth in America’s economy and creator of record wealth in its stock markets, has also become part of the country’s latest inflation problem. (…)
Software and computer accessories, which usually trend cheaper as technology improves, were up a record 14.5% in May from a year earlier. The memory squeeze will add 0.4 percentage point to headline inflation before it eases, Bloomberg Economics calculates. There are other knock-on effects too, like higher electricity prices due to demand from data centers. (…)
“Initially the AI boom will certainly be inflationary,” Slok told Bloomberg Television’s Surveillance. The risk is “very clear when you look at semiconductor prices, when you look at energy prices, when you look at labor.” (…)
Bloomberg Economics, which studied thousands of memory kits and found an average year-on-year price increase of 237%, estimates that the impact will peak in February next year.
“We think it will be a meaningful factor keeping core inflation elevated this year,” says Michael Pearce at Oxford Economics. In the longer run, it’s unclear “whether this is another transitory effect or a new supercycle for memory prices,” he says. (…)
Iran war tightens ‘super-squeeze’ in metals markets
(…) The fallout from the Iran war, which has sent Brent crude oil from $72 to more than $90 currently, has reached a wide range of commodity markets. Prices have surged recently for agricultural products such as wheat and corn, for which fertiliser is more expensive, and also for industrial products such as plastics and asphalt, which are both made from refined oil products.
For metals, the war has increased the costs of operating a mine because of the higher price of the diesel used to run trucks and other mining equipment, and due to a jump in the price of sulphuric acid, a crucial ingredient used in some copper and nickel mines.
James Hayter, chief investment officer at Orion Resource Equities, said that, given conditions in these markets, he was surprised prices across the board had not risen more. (…)
“There is a structural problem with many of these commodities markets. And we’re going to have to see prices rise substantially,” he added. (…)
Disruptions in sulphur availability could remove as much as 125,000 tonnes of copper production in the Democratic Republic of Congo, according to consultancy Wood Mackenzie. A further 200,000 tonnes of production in Chile could be at risk because of sulphur disruptions, including China’s ban on exports of sulphuric acid, according to Amy Gower, analyst at Morgan Stanley. (…)
Goldman Sachs, which initially forecast a 60,000-tonne deficit this year outside the US market, recently revised that up to a 640,000-tonne deficit, partly because of mine supply issues at Grasberg in Indonesia and at Kamoa-Kakula in the DR Congo. The US bank also increased its copper price forecast 10 per cent to $13,735 per tonne by the end of the year. (…)
In aluminium, the war has had a direct impact, with the Middle East accounting for almost 10 per cent of global refined production. Major producers including Alba and EGA curbed output following Iran’s strikes, which damaged their infrastructure, and because of the challenge of getting the raw alumina they need to their smelters amid the strait’s closure.
Meanwhile, high fuel prices triggered by the war have caused some countries to accelerate investments related to energy security, for instance in renewables, a move that is expected to boost demand for copper and aluminium over the medium term, according to analysts. (…)
One key metric economists are watching is whether demand for metals is being dented by high prices or concerns over economic growth. So far, there is little sign of that happening.
“I haven’t seen much demand destruction,” said Jean-Sébastien Pelland, executive director at Eland Cables, which makes copper cables used in offshore wind farms and oil rigs. High costs are passed on to end users, who are willing to pay for them, he said.
“People are not going to stop buying cables for renewables energy any time soon.”
As I mentioned before, the AI buildout, increased spending on military and renewables, “just-in-case” inventory management and sovereign hoarding of critical commodities are all price insensitive strategies applied world-wide now.
(…) The decrease brings commercial stockpiles to 426.5 million barrels, according to government data, which is now 5% below the five-year average for this time of year.
The EIA’s data release follows API’s figures that were released a day earlier, which reported that crude oil inventories saw a draw of 9.119 million barrels in the period. (…)
Total products supplied—a proxy for U.S. oil demand—averaged 20.6 million barrels per day over the last four weeks, up 3.5% compared to the same period last year. Gasoline demand averaged 8.8 million barrels per day over the last four weeks, while the distillate four-week average supplied averaged 3.7 million barrels—up 7.2% percent year over year.
While most people focus on inflation trends, the American consumer is dealing with sharply slowing spending power.
The first chart plots the last 4 years, showing that real labor income growth has disappeared in the last 2 months:
This other chart plots the years 2007 to 2019 to show the importance real labor income normally has on real spending. Some Americans don’t love inflation.
BTW, my CPI-Essentials (Food, Energy and Shelter) is up 5.2% YoY in May. It was 2.7% last February.
Gas Prices Wipe Out More Than a Year of Wage Gains
(…) May marked the second month in a row that inflation topped year-over-year growth in earnings, hurt mainly by a surge in prices at fuel pumps after the U.S. and Israel launched attacks on Iran at the end of February. Another factor: Wage growth has been trending lower, making it harder for workers to keep up with higher prices. (…)
Bank of Canada Holds at 2.25% and Warns of Policy ‘Dilemma’
(…) “Economic weakness combined with rising inflation is a dilemma for monetary policy. Raising rates to dampen inflation could further slow the economy. Easing rates to support growth increases the risk that higher inflation becomes persistent,” Governor Tiff Macklem said in an opening statement.
“For now, holding the policy rate unchanged balances those risks.”
However, Macklem said monetary policy needs to be “nimble” as uncertainty remains elevated. He repeated language from the April decision on the potential need to cut the policy rate to support growth if the US imposes “significant new trade restrictions.”
“Alternatively, if the conflict in the Middle East continues and higher energy prices start leading to ongoing generalized inflation, monetary policy will have more work to do — there may be a need for consecutive increases in the policy rate,” Macklem said. (…)
The central bank noted there has been limited evidence of broad-based pass-through of higher energy prices to other prices. However, the governor said oil prices have remained elevated as the Iran war persists, and the price of a barrel is roughly $10 higher than the central bank assumed in its April monetary policy report.
“Based on this, we expect CPI inflation to hover close to 3% in coming months before easing gradually toward 2%,” Macklem said. (…)
The longer the Iran war persists, the bigger the risk to overall inflation, Macklem said. (…)
Despite two consecutive quarterly contractions, Macklem said the economy is weak but “it’s not clearly in recession.” (…)
- Donald Trump suggests he may not renew trade deal with Mexico and Canada ‘We don’t need anything that they have,’ US president says
(…) “We don’t need anything that Canada has, we don’t need anything that Mexico has, but they need everything that we have, and they have to treat us better,” said Trump.
“With Mexico or Canada, we have trade deficits. We should have surpluses with them. We don’t need their cars, we don’t need their lumber, we don’t need their energy, we don’t need anything that they have.”
He added: “I don’t know that I’m going to renew it, because to be honest with you, the United States is much better.”
Major US carmakers are invested in the deal continuing, because their manufacturing supply chains are spread across the continent. The US also imports fertiliser and energy, including oil and electricity, from Canada. (…)
Trump Needs a New Iran Strategy The regime has taken advantage of weakness amid the cease-fire.
The WSJ Editorial Board:
After weeks of insisting a deal with Iran is around the corner, President Trump may be admitting the reality. The regime is “tapping the U.S. along” in negotiations, he said Wednesday. The President has given diplomacy a chance, but “they keep playing us for suckers,” he added. Is Mr. Trump ready at last for a new approach? (…)
Mr. Trump won’t want to hear it, but he has been dancing to Iran’s tune. He will have to break from it or go down as losing the war politically despite the early military gains.
It’s not too much to say the President faces a similar choice to the one George W. Bush faced in Iraq in 2006-07. The insurgency was winning, and Mr. Bush needed to shift his strategy or accept defeat. He chose the surge and broke the insurgency, and the U.S. was able to maintain influence in Iraq and the region. (…)
The way for Mr. Trump to right the ship is to go on offense. But that means more than pounding Iran. The task at hand is to open the Strait to allied ships. If the U.S. blockade endures while Iran’s breaks, the war is won. Mr. Trump could also join Israel in an operation to seize or destroy Iran’s enriched uranium. That’s high-risk, but it is the surest way of removing the fuel for a nuclear weapon.
Another idea is to use U.S. air power to create a safe zone inside Iran for regime opponents. The U.S. belatedly created such a zone for the Kurds in Iraq’s north in 1991. This would give Iran’s regime something to worry about besides shooting beyond its borders. A safe zone would increase U.S. leverage and further endanger the regime’s control.
Mr. Trump still hopes for a diplomatic breakthrough, but even the press’s favorite unnamed Pakistani officials are now downbeat. As long as Iran believes Mr. Trump is stuck with no alternative, it will squeeze him in the talks and in Hormuz.
The President’s choice now is to alter the facts on the ground or leave the conflict in a worse position than Mr. Bush did in Iraq.
Just a few humble thoughts:
- “A new Iran strategy” implies there was one to start with. There was an Israel plan A but no plan B or C after A quickly failed.
- What do we really know of the diplomatic efforts other than Trump’s numerous “a deal is very close” and other erratic tweets?
- Who are the real diplomats in the Trump administration? Vance, Rubio, Kushner, Witkoff? Give peace a chance!
Karen DeYoung in today’s WaPo: (my emphasis)
(…) there have been no known direct talks since April 11, when Vance, along with White House negotiators Steve Witkoff and Trump son-in-law Jared Kushner, sat down in the Pakistani capital with senior Iranian officials.
After more than 20 hours of talks, Vance said, “We made some progress” but “just could not get to a situation where the Iranians were willing to accept our terms.” (…)
In Islamabad in April, Vance alluded to what appears to be Trump’s bottom line. What the U.S. had laid on the table, the vice president told reporters, were the “things we absolutely needed to see in order for the president of the United States to feel like he was getting a good deal.”
In terms Trump has spelled out numerous times, a good deal is one that he believes is better than the 2015 agreement signed by President Barack Obama. That accord sharply restricted Iran’s ability to enrich uranium, imposed other limits on its nuclear program and mandated rigorous international verification, in exchange for easing U.S. sanctions.
Trump withdrew from the agreement in 2018, during his first term, calling it the “worst deal ever” and saying it put Iran on the path to developing a nuclear weapon. He reimposed strict sanctions and added some new ones. (…)
Many nuclear experts believe a similar deal is the only viable option to avoid a continuation of the war. The 2015 JCPOA, or Joint Comprehensive Plan of Action, allowed minimal enrichment at 3.67 percent for 15 years; mandated the removal of existing enriched uranium stockpiles, which were transferred to Russia; and capped for a decade the number and type of centrifuges Iran could have, as well as their locations.
In Islamabad, Vance offered a moratorium on enrichment with a sunset provision of 20 years. Tehran countered with an offer of 10 years or less. There has been some optimism in Washington that they could settle on 15 years.
The U.S. contribution to the agreement was the unfreezing of some Iranian assets — money owed from long-ago oil sales to American allies or purchased weapons that were never delivered under U.S. sanctions. Trump, who has harshly criticized Obama for delivering “pallets of cash” that he describes as a payoff, has indicated that some money could be unfrozen down the line if Iran complies with all his demands.
But unlike with the JCPOA — which was negotiated for two painstaking years by senior officials from the U.S., five other countries, the European Union and teams of nuclear experts — neither side this time around seems amenable to the intricate give and take of diplomacy or lengthy technical talks amid mutual distrust and the pressures of domestic politics.
“We — experts and journalists — should say that whatever Trump and his negotiators can get Iran to agree to will be better than the JCPOA,” said George Perkovich, senior fellow in the nuclear policy program at the Carnegie Endowment for International Peace. “Because otherwise Trump will not end this disastrous war.” (…)
Inside Iran, the successive elimination of government leaders during 40 days of nonstop U.S. and Israeli bombing left the hard-line Islamic Revolutionary Guard Corps in a stronger political position, with little willingness to yield.
While Tehran’s previous leaders were “more restrained and conservative, the new leadership … is much more of the belief that restraint is the reason Iran ended up in war,” said Vali Nasr, an Iranian historian and professor of international affairs and Middle East studies at Johns Hopkins University. (…)
The president has said repeatedly that he has secured a pledge from Tehran that it will never build a nuclear weapon. But that vow was already enshrined in the JCPOA more than a decade ago and has been voiced many times since by Iran. Verifying that promise, however, will take negotiations over what nuclear activities are allowed and a mechanism to monitor compliance.
Trump has also said that Tehran has agreed to allow the U.S. to enter the country and unearth and remove about 470 pounds of highly enriched, near weapons-grade uranium, buried beneath tons of rubble from last year’s U.S. bombing of Iranian nuclear sites. (…)
Iran says it has never agreed to turn over the uranium and will deal with the material under a separate, eventual nuclear agreement.
Iran has also said that it will never give up the ability to enrich low levels of uranium for its civil-use reactors. Secretary of State Marco Rubio, in a Senate hearing last week, said Tehran must make “significant concessions on what they intend to enrich.” Minutes later, he said Iran would be allowed no enrichment at all. (…)
Last week, Iran’s deputy foreign minister for legal and international affairs, Kazem Gharibabadi, gave a detailed rundown on Tehran’s positions. While Iran recognizes that “straits considered international waterways” are subject to international law, “the reality is that the Strait of Hormuz lies entirely within the territorial waters of Iran and Oman,” he said, according to Iran’s Nour News.
Iran has no intention of restricting traffic once an agreement is reached, Gharibabadi said, but is entirely within its rights to recoup expenses for ensuring “safe and secure passage.”
Trump and Rubio have repeatedly said that no tolls, fees or other conditions on free traffic through the strait will be tolerated.
“Another issue tied to our interests is the release of Iran’s frozen funds,” Gharibabadi said. “At a minimum,” he added, Iran “insists that 50 percent of its frozen assets,” a total of about $24 billion held by the U.S. and its allies, “be made available immediately upon the signing of the memorandum of understanding, with the remainder released after a reasonable period.”
Trump has said he will not consider releasing any money until all U.S. demands are met and a final nuclear deal is signed.
“We insist that any text must address war damages and provide compensation to Iran,” Gharibabadi said. “This must be included in the text. The format, amount and financial mechanisms for payment will be determined through negotiations, including the 60-day negotiation period following the signing of the memorandum.”
While both sides are examining the draft, he said, “the U.S. may send messages requesting revisions, which can lengthen the review process. We have also requested revisions to certain parts of the text.”
And who’s surprised by that? “Iranian diplomats are highly skeptical of President Trump’s reliability in honoring agreements.”
OpenAI Considers Drastic Price Cuts, Anticipating War for Users With Anthropic
The company is weighing significant cuts to what it charges for tokens, the unit of measurement artificial-intelligence firms use to bill for their products, according to people familiar with the matter. The move would be in anticipation of similar cuts the company expects at Anthropic, the people said.
Business executives have begun to balk at the high prices for AI usage. OpenAI Chief Executive Sam Altman said at a recent event that costs had become “a huge issue.” (…)
OpenAI is trying to catch up with its younger rival in the race to win enterprise customers that are paying large amounts of money for AI tools that can improve workplace productivity. (…)
OpenAI and Anthropic have captured the majority of revenue from new AI products, powering their rise. But an underlying risk that investors have long identified is the interchangeability of their products, and the ease with which customers can abandon one for the other. (…)
Hmmm…
Oracle Shares Tumble Amid Pricey Data-Center Build-Out
(…) The company reported $55.7 billion in capital expenditures for its latest fiscal year, about $5 billion more than analysts expected, while Chief Financial Officer Hilary Maxson said a net cash outlay for capital expenditures of around $70 billion is expected in fiscal 2027. (…)
The company expects the huge amount of financing needed for its data-center build-out to weigh on its margins.
On Wednesday, it reported a 47% increase in cloud revenue to $9.9 billion, reflecting strong demand for AI computing workloads, co-Chief Executive Officer Clay Magouyrk said on an analyst call. (…)
The company reported a fourth-quarter profit of $4.3 billion, compared with $3.4 billion a year earlier. Revenue rose 21% to $19.2 billion, beating analyst projections of $19.1 billion. (…)
AI inflation is clearly biting. The reported capex figure “will be $20 billion to $25 billion higher due to prepayment for some components”. Prepayments (with borrowed money) to secure on-time delivery and some inflation protection.
Tesla cofounder: ‘We should be really worried’ about the U.S. grid as China speeds ahead in the power race
China is building new power generation at an unprecedented pace to power the AI boom as the U.S. grid struggles to keep pace with the development of data centers, triggering more delays and project cancellations.
“I think we should be really worried,” said Tesla cofounder JB Straubel at Fortune’s Brainstorm Tech conference in Aspen on Monday.
“I think the grid can’t handle it,” said Straubel, who left Tesla in 2019 to build the Redwood Materials battery recycling firm as its founder and CEO. “The pace of growth and demand of energy is unprecedented.” (…)
Grid failure doesn’t just mean the lights turning off, Straubel said. It means projects delayed and data centers that get built overseas. More than half of all data center projects are behind schedule.
“That’s a lack of competitiveness. If it’s not the U.S., that to me is a failure. We’ve lost our competitive edge,” he said.
Battery storage is rapidly growing, Straubel said, enabling all of the power sources to work together, from fossil fuels to nuclear to renewables. But about 100 times more energy storage is needed on the grid than today, he said.
The industry also needs to win over the hearts and minds, they said, as public opposition to data centers grows and more people blame them for rising electricity prices.
Straubel said the industry needs to explain what the energy and data centers are accomplishing with AI—and how the consumers are benefiting—so that data centers are seen less as the “boogeyman” and the “death star that’s just sucking this energy.”
And hyperscalers need to do more to ensure they are covering the costs, Guernsey said.
“We’re in a huge affordability crisis. As electricity has become more scarce, the laws of economics kick in,” she said.
Micky Maini: The Entropy Trap and Growing Market Stress
Mickey M. Maini, founder of Solstice Laboratory and author of The Entropy Trap: What Physics Knows That Markets Don’t.
Maini spent decades operating across global markets — first as a senior investment banker, then as the CEO of an emerging-market business that scaled from roughly $100 million to over $5 billion in value, and later as a family-office investor and founder of Solstice Laboratory.
His framework, developed first as a private instrument to manage capital and now published as The Entropy Trap with a forward by Jim Rickards, treats markets the way physicists treat complex systems under stress.
It does not begin with a forecast. It begins with measurement: level, velocity, acceleration, correlation, feedback loops, and whether stress is rising or falling.
The central claim is simple: we are not in another normal cycle. We are in a structural reorganisation in which the old equilibrium is no longer recovering.
Every system drifts toward disorder unless something is actively working to keep it together. In a financial system, that energy is credit, trust, policy support, liquidity, regulation, institutional credibility and political cooperation.
Early in a cycle, adding complexity helps. More credit, more institutions, more globalisation, more policy tools — they all make the system look stronger. But every layer becomes something you have to maintain. More debt needs refinancing. More regulation creates workarounds. More monetary intervention creates asset inflation and moral hazard. Each intervention solves one problem and creates the next one.
Eventually the cost of maintaining the old equilibrium rises faster than the system’s ability to pay it. That is the trap.
A normal cycle bends and mean-reverts. Stress rises, policy responds, the old structure survives. Most of the time, that is what happens. Conventional macro is built for that world, and it works most of the time.
A transition is different. The equilibrium itself changes. The old relationships stop holding. Bonds stop hedging equities. Liquidity disappears when it is needed. Policy works for shorter periods. Geopolitics starts driving supply chains. Technology starts changing the physical economy. The distinction matters because the playbook inverts.
The big challenge for investors and policy makers is to understand that we are not in a normal situation comparable to say 20 or 30 years ago.
We are in a major transition.
In a normal cycle, you buy the dip. In a transition, the rally may be a false equilibrium. The asset that protects you in one environment can damage you in the other. Getting the regime wrong is more dangerous than getting the timing wrong.
What tells me we are in the second phase? Policy effectiveness has been decaying on a measurable curve. Each intervention costs more and buys less benefit and time. Cross-asset correlations are elevated. Stress velocity has not produced a sustained healing phase since 2008. None of those readings is consistent with a clean normal cycle. The old equilibrium is no longer recovering. It is being reorganised.
Conventional macro measures depend upon debt-to-GDP, inflation, employment, growth, credit spreads. Those classical macro measurements work in normal conditions because the relationships between the levels are stable.
They stop working when the relationships themselves are changing. That is what happens in a transition.
Motion is harder to smooth, to fit into a given narrative of the political economy. As a result, focusing on the Entropy Trap measures the volatility of policy and public sentiment. The Solstice framework measures motion rather than only levels of indicators. It measures the level of stress, the velocity at which stress is rising, the acceleration of that velocity, and the change in acceleration itself.
It also measures whether risks that used to be separate are now moving together.
Three examples make the point. Japan can carry very high debt because the system still has internal stability. Greece collapsed at a lower debt level because stress velocity was accelerating. The United States in 1929 had low federal debt, but private leverage was building underneath. The level alone was the wrong question. Motion told the truth. The level tells you where the car is. The derivatives tell you whether the driver still has control. That is what the framework adds.
The migration [of credit] itself from banks to nonbanks is the signal. Healthy financial systems do not usually produce this kind of channel migration. Stressed ones do. Risk migrates toward weaker supervision, lighter capital treatment, slower marks and more opaque structures when the system is under stress.
That is true in private credit, nonbank mortgage origination, structured credit, BDCs, insurance company alternatives and parts of commercial real estate finance. The framework currently reads private credit as one of the key propagation channels for the next phase of stress.
The exact trigger is unknowable. It could be a fund, a financing vehicle, a borrower cluster, a liquidity event, a bank line, or a valuation mark. But once the trigger fires, the risk does not stay private. It returns to the regulated system through committed credit lines, counterparty exposure, repo relationships, prime brokerage, warehouse lending, and confidence effects.
That is the important part. The framework can tell you the system is brittle enough for cascade. It cannot tell you which institution or transaction starts it. The system-level reading and the institution-level reading need each other for full understanding. But again, the migration itself is the signal.
Gold is the structural core. It is the major asset with no counterparty. It is no one else’s liability. That is why it returns to the centre of the system when trust in paper promises weakens.
Central banks have been buying gold at historically elevated levels for several consecutive years. That is not retail behaviour. It is sovereign behaviour. The framework reads that as confirmation that trust in the existing reserve architecture is leaking.
Silver is the kinetic version of the same trade. It has monetary properties like gold, but it also has growing industrial demand. Solar. Electrification. Electronics. AI infrastructure. Defence systems. All require silver. It is both a trust asset and a physical input. That makes silver more volatile, but potentially more asymmetric.
In inflationary transitions, the gold-silver ratio has historically compressed. The timing is uncertain. The volatility is high. But the conditions for compression are present. The framework agrees with the broad preference: gold for the core, silver for the higher-beta expression. Gold comes first because the trust function comes first. Silver follows when the monetary trade and the industrial constraint trade converge. Gold is the anchor. Silver is the torque.
New OMB rule could break science in the United States
The drug that saved your mother. The treatment your doctor recommended. The clinical trial that bought someone you love more time. None of it was inevitable. It required a system built to operate outside politics and sustained over decades, because science doesn’t operate on the timeline of a politician.
That system is now under direct threat.
The Office of Management and Budget (OMB) has proposed a new rule to regulate all federal grants, not just science, but housing, education, defense, NASA and everything in between, that would fundamentally change how research is conducted in the United States. (…)
But this is a very big deal. These rules would strip away the independence that has kept science from becoming a political tool. (…)
Through this OMB proposal, the system that helps decide what gets funded is being dismantled.
There are many troubling elements buried in this proposal, but three provisions stand out in particular. Each would be damaging alone. Together, they would change what kind of science gets done in America, and who it serves.
1. Political appointees would decide which science gets funded, and peer review would be explicitly sidelined or ignored.
2. Grants could be canceled at any point, without warning, in the middle of ongoing work.
3. Researchers would have a harder time communicating their findings without pre-approval from the federal government.
(…) Once projects are halted or denied funding by political appointees, people leave their science careers for other paths or even leave the country to do their amazing science elsewhere.
You cannot pause a scientific study the way you pause a subscription you decided isn’t useful anymore. You cannot freeze a research team that depends on salaries to feed their families, causing a scramble for replacement funding that, in most cases, simply does not exist. When the money stops, everything stops, and all the work in progress and its potential are lost. (…)
We are quickly losing ground in scientific research in the U.S. More changes, like the proposed rule by OMB, would decimate our ability to conduct research here, leaving us all worse off: fewer treatments for pancreatic cancer, less research on pollution impacts, fewer answers for patients with rare disease, and more unaddressed health needs. The impact will be very real for all of us, regardless of where we stand politically.
Using our voices for science is more important than ever.
