Macro · 11
The Free Ride on the Dollar is Over with Kevin Muir, The Macro Tourist.
Jeremy McKeown from Hypernormal Times
- The US ran an 8% deficit-to-GDP in the last year, more than triple peers like Canada, Europe, and Japan, despite decades of lecturing others on fiscal responsibility.
- US market dominance over the past 20 years stemmed from willingness to run large deficits that attracted global talent, entrepreneurs, and capital to a narrow slice of the market.
- US stock market concentration and exceptionalism pricing may be ending as tariff policies and fiscal dynamics shift, suggesting potential mean reversion in market concentration.
The ECB Can Hike... But....
Global Macro Method
- Markets are pricing 99.6% probability of a 25-basis-point ECB hike in September, but the real opportunity lies in longer-dated rate expectations.
- By December, markets have priced 46 basis points of cumulative tightening, rising to 67 basis points by late April, implying sustained rate hiking through 2027.
- The key question is whether Europe faces a durable domestic inflation cycle or a front-loaded shock that ultimately weakens demand, with the author favoring the latter view.
The Uninsured Dollar
Jeremy McKeown from Hypernormal Times
- Foreign holders of US assets have hedged only 41% of currency exposure, the lowest since 2015, as rising hedging costs led investors to cancel dollar insurance.
- August payrolls came in at 162k versus a 56k forecast, reviving hawkish rate-hike bets and firming the dollar, but the structural driver of dollar strength may be changing.
- The carry trade dynamics that previously supported dollar strength are shifting, creating a potential currency vulnerability for those who dropped hedges.
The Great Monetary Escalation
Capital Flows
- Global monetary system faces a public sector crisis as policymakers must choose between fiscal spending for defense against China and managing inflation.
- Equity names with high fiscal sensitivity have rallied significantly from 2022 lows due to increased government spending requirements.
- Germany's short-sighted reliance on Chinese trade carved out its industrial base, reducing tax revenue and forcing consumer tax increases to fund deficits.
Passivity
Macro Musings by Danny D
- Passive Easing—continued financial easing from monthly Fed inaction—is accelerating economic data and pressure to tighten rates despite political resistance.
- FOMC member Waller has reversed his position three times in recent speeches, undermining credibility and leaving rate decisions dependent on narrow CPI margins.
- Political pressure against rate hikes and weakness in UST appeal to foreign investors suggest the Fed faces significant constraints on monetary tightening.
The right answer to the wrong question?
Rishi Mishra from On Another Note
- August NFP beat was likely statistical noise given low labor force growth environment, where monthly payroll swings are expected to be volatile.
- The unemployment rate at 4.1% is the true health indicator and shows labor market is fine, slightly below Fed's 4.2% longer-run projection.
- Disappointed with Fed's framing that hike contingency on 3-month annualized inflation reaching 2%, given persistent inflation overshoot and low September hike odds.
Weekend thoughts
Gold and geopolitics
- Gold miners' all-in sustaining costs (AISC) up 16% year-over-year for 28th consecutive annual increase, signaling rising production challenges.
- Global bond yields at highest levels since 2008, with Japan's 10-year hitting 3% for first time in 30 years and 15-year Treasuries showing worst rolling 10-year returns since 1985.
- Data centers now consuming 7% of total US power demand; US diesel hit record $5.85/gallon (+57% in a year); global onshore oil inventories at all-time lows.
Six-Chart Sunday – Summer Lessons & Fall Questions
Bruce Mehlman - Age of Disruption
- Data centers have become critical infrastructure comparable to railroads and power lines, with questions about backlash and regulatory hurdles.
- Advanced AI systems can escape containment and attack other systems, raising urgent questions about liability and AI safety oversight.
- Labor unions are experiencing a resurgence with 47% of Americans supporting greater union influence, potentially affecting infrastructure opposition.
- Key economic challenges include record $40T debt levels, military rearmament needs, and midterm election implications for GOP control.
The Week That Was and the Week That Is: Inflation Will Decide FOMCs Fate
Global Macro Method
- August employment rebounded strongly with 162,000 payrolls and upward revisions, removing the labor market weakness argument against Fed rate hikes.
- Inflation data, particularly the Friday CPI report, now becomes the decisive factor for whether the Fed delivers a September rate increase.
- Stronger labor force participation and fewer part-time workers indicate a resilient labor market that can support the Fed's inflation-fighting mandate.
- Oil delivered another inflation impulse in August, adding pressure to the Fed's decision-making calculus.
China Weekly Wrap: The Bull Market Checklist Edition
Panda Perspectives
- China sold SMIC (most profitable semiconductor company globally) while buying insurers, signaling perverse market rotations this week.
- Beijing imposed its first foreign dividend tax in 32 years and signed 28 agreements in Bishkek, marking significant policy shifts.
- Readers question whether China is in a bull market; author argues not yet and outlines a checklist of conditions needed to confirm one.
- Pre-sales process in Chinese real estate has functionally died, reflecting deeper structural changes in the property market.
AiQ Shifts Focus to South Asia
Nico from AiQ
- El Niño SSTs expected to peak in October with potential to surpass current forecasts, possibly reversing rapidly to La Niña with significant soybean crop implications.
- Employment landscape is bifurcated into winners and losers with no middle ground, causing middle-class erosion despite strong headline job numbers and inflation concerns.
- Monsoon season impacts on Pakistan and India critical to monitor; accurate data collection essential for understanding regional agricultural and economic outcomes.
Politics · 10
US ambassador Huckabee accuses UK government of ‘Jew hate’ over Mililband’s claim Israel blocks medicine from Gaza
Jonathan Sacerdoti
- UK Foreign Secretary Miliband released a video claiming Israel blocks medicine from Gaza, prompting accusations of antisemitism from US Ambassador Huckabee.
- Israeli Foreign Minister Saar warned of punitive action against Britain if it moves against Israel in response to the medicine-blocking allegations.
- The incident heightens tensions for British Jews amid anniversary of the Yom Kippur terror attack that killed two worshippers at a Manchester synagogue.
BBC Radio 4 invited me on… to accuse me of ‘rage baiting’
Jonathan Sacerdoti
- BBC Radio 4 invited Jonathan Sacerdoti on-air to discuss multi-faith prayer rooms, then used the segment to accuse him of 'rage-baiting' using pre-prepared MCB statements.
- The Muslim Council of Britain provided the accusation despite UK governments refusing to engage with the MCB over concerns about Islamist links and past statements on violence.
- Sacerdoti had published a long-form article and podcast with Dr. Andrew Crompton discussing multi-faith facilities before the BBC segment.
#4 A Note From Ayaan: 9/11 — Refusing to Forget
Restoring the West by Ayaan Hirsi Ali
- Ayaan Hirsi Ali reflects on 9/11 25 years later, emphasizing responsibility to remember and pass on what the attacks revealed to a generation with no direct memory.
- Western institutions struggle to plainly acknowledge that 9/11 was carried out by Islamist terrorists driven by ideology to destroy the West.
- Those who lived through 9/11 bear duty to ensure historical truth is preserved and taught as entire new generation knows the day only through images and secondhand accounts.
The Chicago Teachers Union is suing me
Austin Berg | The Last Ward
- Chicago Teachers Union filed defamation lawsuit against Austin Berg naming him and two co-defendants on August 17.
- Berg stands by his reporting 100% and views lawsuit as attempt to silence valid criticism of the union's political machine and leadership.
- Author calls for donations to Illinois Policy Institute to cover legal costs and support Chicago Policy Center's work on effective city governance.
Hope Florida Scandal Bad for Business
David R. Kotok from The Kotok Report
- The Hope Florida scandal has driven financial services firms to relocate their state registration out of Florida due to legal jurisdiction concerns.
- The scandal serves as a national warning about Florida's legal system and political risk, potentially deterring business relocations to the state.
- Political extortion risk from scandals like Hope Florida can never be fully quantified as it prevents enterprises from choosing the state in the first place.
To Save Gaza, Resist Hamas?
John Aziz
- Palestinian peace advocate Ahmed Fouad al-Khatib argues Hamas should have no role in Gaza's future, criticizing the organization for brutality against Palestinians and weakening Palestinian political prospects.
- Al-Khatib details Hamas's history of torturing opponents, enforcing extreme moral codes on women, and conducting suicide attacks that empowered Israeli extremists.
- The article challenges Western supporters who claim to back Palestinians while defending Hamas, arguing the group represents a 'death cult' exploiting the Palestinian people rather than representing them.
Academia's Failure To Learn From The Jason Arday Debacle Is A Disgrace
Kaizen Asiedu
- Jason Arday, a prominent academic, fabricated credentials including visiting professorships, published books, and charitable donations without institutional oversight.
- Cambridge University declined to investigate red flags raised in May 2023, and peers had doubts but stayed silent despite his rise to prestigious positions.
- Nature's editorial on Arday's death fails to address systemic failures in academia's credentialing and accountability mechanisms.
The Anti-American Divide in the Democratic Party
Restoring the West by Ayaan Hirsi Ali
- Democratic Party faces a fundamental split between progressivism and anti-Americanism, with radical left figures openly rejecting constitutional and institutional foundations.
- High-profile DSA-aligned activists express anti-American sentiment including opposition to U.S. institutions, alliances, and support for hostile regimes.
- Electoral victories like Jared Moskowitz's demonstrate Democrats can defeat anti-American faction politics by drawing clear ideological lines.
America’s Universities Are for Sale
Restoring the West by Ayaan Hirsi Ali
- Qatar has directed over $6.6 billion to U.S. higher education, making it the largest foreign funding source and creating significant institutional leverage.
- Financial dependence on authoritarian regimes creates code of silence preventing universities from questioning funding sources or foreign government influence.
- Foreign governments strategically fund American universities to gain influence over research, curricula, and institutional independence without traditional espionage methods.
Live Briefing: PUTIN’S BLUNDER — WHY HIS COLD REALISM FAILED IN UKRAINE
PAIDProf Robert Pape
- Putin's military superiority has failed to achieve expected political outcomes in Ukraine due to unforeseen factors including Ukrainian resolve and technological shifts.
- Drone revolution and Europe's coordinated counter-balancing have fundamentally altered the military and geopolitical balance against Russia's initial assumptions.
- U.S. negotiators carrying new peace proposals; current negotiations signal potential inflection point determining future direction of Ukraine conflict.