A Million Things To Parse

By Peter Tchir of Academy Securities

A Million Things to Parse?

Given the nonstop barrage of headlines, it might seem like there are a million things to parse? But maybe there is a subset of things that we can focus on to try to determine the direction of the market? It won’t make the task of coming up with answers easier, but it might make it manageable. Messy, but manageable remains a theme.

Academy was on Bloomberg TV on Friday, and I don’t think we could have scripted a set of issues this important to markets that are in Academy’s wheelhouse any better. The Full Clip starts at the 1:39:45 mark, but they also produced this smaller segment Tchir is Bullish on China, U.S. Chipmakers, and European Stocks.

Getting out of DOGE

Not a day goes by without a slew of DOGE-related headlines. I’m not sure if this is true, but it was so interesting that I figured I’d pass it along. Apparently, internet searches for “criminal lawyers” is “off the charts” in the D.C. area and a massive inventory of homes for sale has come on the market in recent weeks. Honestly, I’m not sure if those rumors are true, but the fact that the stories are circulating so widely is telling. I did find one “source” but the “source” for that “source” was GROK, which somehow seems fitting with everything going on.

On DOGE:

• Headline after headline of waste that is being reduced. Even if a fraction of the headlines are accurate, the ability to cut spending seems high. That is without focusing their attention, yet, on some of the big-ticket items in the budget. DOGE alone seems able to help with the goal of reducing the deficit.

• Accountability and Transparency. Or, simply, audits. There seems to be overwhelming support for accountability and transparency. As deficits have skyrocketed, in good and bad economic times, more people are left wondering where their tax dollars are going. Initial indications are that they are not being treated as carefully as we, the taxpayer, might like.

• Mistakes as well. The “other side” of the story is also emerging. What if certain things being cut as “fat and waste” are actually useful and important? What happened to the cryptic tweet about “discrepancies in Treasuries?” That one seemed unlikely to be true and has quickly disappeared from the ether. Chatter about paying lots of people who are 150 years old seems to be getting debunked as it may be an issue with COBOL dates. Not sure whether the root of the issue has been figured out, but it seems insane to me that systems run on COBOL, which was already falling out of favor when I was programming, last century.

So far, I think DOGE has been helping support Treasuries. DOGE provides some element of hope that bigger chunks of the deficit can be trimmed, without major repercussions to the economy or markets, than previously thought. The excitement about what DOGE can do to the bigger line items is real. The risk that the approach is too simplistic (with too many mistakes) is there as well, but so far, there seems to be enough low hanging fruit to feed an army.

The fact that Secretary Bessent and others seem focused on longer term yields (and not just the front end of the yield curve) is also encouraging. Their task of slowing the steepening may be Herculean, but it is helping, and something, as a Treasury bear, that I’m watching closely.

Enemies Close, Friends Less So

The adage of “keep your friends close and your enemies closer” seems to be getting turned upside down.

• China got hit with “only” a 10% “fentanyl” round of tariffs. TikTok remains under Chinese ownership. The administration seems to be reaching out to Xi, as much, or more, than Xi seems to be reaching out to us.

  • Tossing out the idea of China, the U.S., and Russia cutting their defense spending in half seems a bit dubious. We mentioned transparency earlier, and that is never a word I would use to describe China’s official data. Of all the things that have been “tossed out there” as ideas, this one seems, uhm, not so great? If I’m China, I sign on the dotted line instantly and then spend more than ever. Probably the same for Russia, though not sure what they have to spend, though that could change on the back of any agreement to end the fighting in Ukraine.

• Russia back in the G-7? Not sure Europe wants that at all (see the title of this section). Not sure if calling it the G-7 was a slip, as it should be the G-8 if Russia is back, or it is a veiled threat that one member might get kicked out? This could be like quantum physics – with both answers being true at the same time!

• “Friends” sometimes need to be reminded that they too need to act in certain ways to remain friends. From trade practices to defense issues, relationships need to benefit both sides. Friends that are only “take, take, take” don’t make for good friends for the longer term. Having said that, most relationships are rarely that one sided.

  • Canada and Mexico are dealing with the “third round” of tariffs. See Reciprocal Tariffs from Thursday for more thoughts on the subject as a whole. Two countries, which could be a big part of shifting supply chains back to one heavily dominated by the U.S., seem to be absorbing the brunt of the president’s ire so far. Not sure if that is the best strategy. So far, so good, but it does seem to go against the adage of what to do with friends.

  • Hegseth and Europe. The Munich speech was aggressive and presumably designed to motivate Europe to do more, so the U.S. can step its spending and efforts back. Reasonable, to some degree, but not without longer term risks.

My simplistic world view, which has served us well, has been:

• On one side you have China. China is “circled” by their “bad actor” relations – Russia, Iran, and North Korea. Beyond that, China has wrapped their tentacles around many autocratic, resource-rich nations. China is a large importer of raw resources from certain nations, and in many cases, their Belt and Road Initiative is very involved in the infrastructure of those nations. I’m less worried about the BRICS as any sort of organization, than I am about their ability to act as an effective barter system for Chinese brands. There are openings into parts of Europe where current weak economic conditions, coupled with more reliance on China, make them susceptible to growing trade with China, potentially at the expense of the U.S.

• On the other side you have Europe, Canada, Mexico, Central America, and South America as opportunities. Africa could be a bonanza for the U.S., as China’s behavior has not endeared it to some of the countries that they are involved with. Plenty of opportunities, but an interesting start on this front.

An interesting start to relationship building. So far, it seems to be working, but these things take time to play out. There may yet come a time when the U.S., in its efforts to “nudge” countries to do more, pushes too far. Not even close to being there yet, but I expect some pushback rather than “ring kissing” in the coming weeks, which should upset markets.

What Did You Think the End of Russian Hostilities Would Look Like?

The level of global confusion, if not outrage, about a possible deal to stop the fighting between Russia and Ukraine is surprising. It is, for better or worse, following the path that Academy has been laying out. Our assessment wasn’t based on what people would “like” to happen, but what their experiences with the individuals involved and the current state of the battlefield led them to conclude would happen.

Two things that finally seem to be getting the attention they deserve with respect to the talks:

1. Russia’s frozen dollar reserves are a big bargaining chip. The U.S. is trying to determine how much can be legally kept. The more the better. But the reality is that any agreement will likely include Russia getting some back, with some being used to pay off Ukraine’s debts and to fund the rebuilding.

2. Zelensky isn’t that popular within Ukraine any longer. Now, it appears, out of nowhere, we are seeing articles about his inability to win an election and that is why he is choosing not to hold one. That has been part of our take on the situation for months, which is why he is likely going to take a deal that goes against a lot of what he publicly claimed he needed to do a deal.

There is one twist, which I’m still trying to make sense of:

• Getting access to Ukraine’s resources as payment for services already rendered. While fully on board with the idea that the U.S. will benefit from supporting the rebuilding efforts, “re-trading” something always rubs me the wrong way. The U.S. and U.S. companies should do well in the rebuilding. But do we change the terms of what was already done? Maybe, I guess, framing it as the way we want them to repay their debt makes it ok, but I cannot help but wonder if other nations will view it quite that cleanly? If they don’t, probably not a big deal in the here and now, but in the future?

Simple and Transactional

When asked about the president’s two greatest strengths, I pounce on the phrase:

• Simple and Transactional. He is quick to cut to the chase. To see through a lot of the messiness and get to the point. Deals are good. They don’t need to be all-encompassing deals. Each deal can be struck on its own merit, and we can move along by keeping things simple and transactional.

Wow, I feel like we are back to quantum physics, but when thinking about the president’s two greatest weaknesses, I get right back to:

• Simple and Transactional. As great as KISS is, there are things that are complex. The devil can be in the details. While everyone likes a good deal, there is a tendency to do more deals with those you trust over time (where you build a rapport). The need to “win” every deal may not lead to optimal outcomes down the road.

As we examine everything this administration is trying to accomplish, and think about how it will affect businesses, the economy, and markets, it is the balance of the simple and transactional that we will be forced to weigh. What are we getting today? What are we getting set up for down the road?

Mar-a-Lago Accord

Is all of this setting up for some push towards a “Mar-a-Lago Accord?” There has been an increasing amount of chatter about a so-called Mar-a-Lago Accord.

Most of what we’ve written about today, and in the past, fits well.

Talk of an External Revenue Service, which would focus on generating income from “foreign” sources, primarily trade. We haven’t discussed this specifically, but it fits well within our view (and concern) that the administration could decide that they like the revenue from tariffs so much that it becomes an increasingly important part of our budget process. My concern is that the benefits are felt immediately (more income), but the shifts in supply chains and relationships might be damaging longer term.

Discussions about moving more assets to the Sovereign Wealth Fund and valuing them at market prices. Our expectation is that we would look to move gold, some land, and other assets into a sovereign wealth fund.

• For gold and some other assets, it might be a way to mark them to market. We’ve always tried to point out that for every corporation, people discuss the asset and liability side of the balance sheet, but for the government, we are only fixated on the liability side. I’m not a proponent for selling off national parks to the highest bidder, but trying to better account for U.S. assets would be good.

• It may open the way for the government to strike deals with the private sector that ensure that the rights and privileges granted are not overturned by the next administration, or the one after that. My biggest concern about “refine baby refine” or now “National Security = National Production” has been whether corporations will be convinced that a favorable regulatory environment will remain in place for the duration of their project. I could see the sovereign wealth fund being a vehicle that could be used to structure deals with more regulatory certainty which would be good for my National Security = National Production view.

Paying for U.S. “trade protection” (the Navy in particular, but all branches of the armed forces) by “forcing” countries to buy Treasuries at off-market prices. Chatter of paying par for 100-year bonds with a 0% coupon. Lots of chatter on this, but this seems like it could hit a number of roadblocks, especially as it seems like the view is that countries may have to pay for protection that was already afforded to them. I assume this would have the “benefit” of reducing our spending (others now are paying for it) and lowering the cost of funding the debt (off-market prices would do that). Both might backfire, especially on the off-market pricing. We already “broke” one “covenant” when we froze Russia’s dollar reserves. It sent a clear signal that if you are a bad actor, your dollars are not necessarily yours. This would breach another covenant along the same lines. The debt we owe you is subject to our needs at some point in time. It won’t overwhelm markets on day one if something like this is implemented, but I’d bet against it helping yields in the longer run and it would likely hasten deglobalization.

Things do seem to be funneling in this direction, but I don’t think we’ve missed much by addressing the various topics individually rather than under the banner of the Mar-a-Lago Accord.

How Much More Good News Can Bitcoin Handle?

I’m not sure I’ve ever been this confused about Bitcoin. I’ve lost count of how many states, countries, and companies are “discussing” Bitcoin or crypto reserves (I really wanted to write “spouting off” but restrained myself). Yet, here we are still below $100k on Bitcoin.

Maybe the average investor has figured out that crypto enthusiasts can pay people to pump crypto and some of the most vocal pundits are paid and heavily conflicted (I really wanted to use “shills,” but restrained myself, again). Maybe it was that in Argentina, which has been in the headlines, in a good way, of late, there was a “rug pull” of a meme coin that seemed to have President Milei’s endorsement. At least during the few moments when the meme coin (LIBRA) did well, though social media seems to have been scrubbed of those endorsements. Or maybe, and this seems weird, so many big institutions are showing up with Bitcoin ETFs rather than “physical” (an oxymoron for a bunch of 1s and 0s), then having to explain how it is easier to own in ETF form rather than in their own wallets. That does seem a bit strange.

With all the headlines, I’d expect crypto to be soaring. It isn’t.

Crypto seems much more correlated with the market of late. Partly because of real world links (the ETFs and crypto-focused firms in major indices) and partly because it’s all part of the same sentiment/trade. I’m keeping an eye on this closely, as crypto can lead the way, particularly to the downside, for U.S. risk assets.

The Gold Arbitrage

Arbitrage is a term thrown around loosely. It should only be used when you can buy and/or sell things where the up-front cost/fee of putting the trades on converges to a point where you are guaranteed a profit. I warn you not to Google “Bitcoin arbitrage” / ”Bitcoin yield” as they are currently being used because it might make your head explode.

There is a “real” arbitrage between the price of gold in New York and London. Gold is fungible. There are storage and delivery costs that need to be accounted for, but the potential for arbitrage exists.

The relationship between New York and London gold prices has generally been stable. Of late, the price of gold in the U.S. is now significantly more than the price in London, relative to history.

Presumably, it is largely because of concerns about tariffs. When going through my notes on tariffs, thoughts and concerns on gold were, ummm, nowhere on my list. Or at least far enough down, that I hadn’t thought about it.
Yet, here it is, being influenced by tariffs.

There is only one reason why I bring this up – it is the first sign of tariffs affecting liquidity.

When we gets shifts in relationships (arbitrage conditions, volatility, cross-asset correlation) there is increased risk that one or more dealers get caught “offsides.”

That can tend to reduce the liquidity, obviously in the market in question, but it can also reduce liquidity more broadly.
If liquidity in precious metals breaks down, could it hit other commodities? As it hits other commodities, it leaks into the stocks (and bonds) of those companies that are related.

So on and so forth.

At the moment, what is going on in gold is registering as “mildly intriguing,” but given my view of market structure (the faux liquidity of algo-driven market making), it is yet another thing to keep an eye on.

National Security = National Production

I’ve given up on getting “Refine Baby Refine” to resonate. But, I have not given up on my belief that everything that is considered necessary for national security will generate a lot of attention from this administration. With the goal of being as independent as possible (and certainly independent of China, Russia, etc.) for those items.

Those items include commodities, the processed (or refined) versions of the commodities, chips, and some medical/pharma/biopharma items as well. Energy production certainly falls into this camp as well, since if we want to dominate AI and chips, we will need energy and power to do that.

If you position your portfolio around National Security = National Production, you should fare well under this administration. Maybe that will resonate better than “Refine Baby Refine.” In any case, “Drill Baby Drill” barely scratches the surface of what national security is pushing for and what seems to be getting a very positive reception from this administration.

Over time, this will keep a lid on inflation, but I don’t see how we get to extracting, processing, or producing anything in scale, without first experiencing some inflation.

Bottom Line

Millions of things are going on, but using terms like “simple” and “transactional” can help us focus on what is most important. However, we need to be aware of the failings of simple and transactional, at the same time, to avoid getting blindsided.

Credit still seems boring.

Yields are lower than my targets, but I do understand why. I’m not buying into the bullish arguments as much as the market is, but I am considering them, and wondering if I’ve underestimated the positives for bond yields? I don’t think so, but I have to keep it in mind.

Equities have plenty of opportunities, but I’m focused on the most shorted, least loved assets right now. We haven’t had a really good (meaning vicious) rotation lately, and I’m betting that we see that coming soon. Look for foreign markets to outperform. Look to own companies that will benefit from the National Security = National Production view of this administration.

Bitcoin has so many positives, but it keeps muddling along, so I’d be very tempted to dump it or short it here. This probably means that by Tuesday morning we will be at new all-time highs, but something is rotten in the state of Denmark (separate from Greenland – yeah, I had to go there!).

Good luck, and I am hoping for a Canada/U.S. rematch in the 4 nations series, as Saturday night’s game embodied the old joke, “I went to a fight and a hockey game broke out” with 3 fights in the first 9 seconds! Old school hockey! Both sides will be putting on the foil if we get to that rematch!

This is the same kind of preparation we need for dealing with these markets and the slew of headlines (for those who think we have a few weeks of no tariff-related headlines after last week’s vague announcements, I wouldn’t bet on that!).

Tyler Durden Tue, 02/18/2025 - 13:45

Orban Issues 'WARNING!' Over 'Soros NGO Network Fleeing To Brussels' After USAID Funding Freeze

With the Trump administration cutting off billions of US taxpayer funding for the USAID international slush fund, formerly flush NGOs are now begging woke EU nations for money to continue operations, according to Hungarian Prime Minister Viktor Orbán.

Hungarian PM Viktor Orbán, George Soros

"WARNING! Our fears have come true: the globalist-liberal-Soros NGO network is fleeing to Brussels, after President Trump dealt a huge blow to their activities in the US," Orbán wrote in a Tuesday post to X. "Now 63 of them are asking Brussels for money, under the guise of various human rights projects. Not going to happen! We will not let them find safe haven in Europe!"

"The USAID-files exposed the dark practices of the globalist network. We will not take the bait again!"

WARNING! Our fears have come true: the globalist-liberal-Soros NGO network is fleeing to Brussels, after President Trump dealt a huge blow to their activities in the US. Now 63 of them are asking Brussels for money, under the guise of various human rights projects. Not going to…

— Orbán Viktor (@PM_ViktorOrban) February 18, 2025

Orbán then linked to a plea from the International Commission of Jurists begging the EU for money.

The International Commission of Jurists (ICJ), together with over 60 civil society organizations, has joined an urgent appeal calling on EU leaders to take immediate action to address the global development aid crisis triggered by recent decisions by the U.S. administration.

On 20 January 2025, U.S. President Donald Trump signed an Executive Order imposing a 90-day freeze on all U.S. foreign aid. This decision has already led to immediate and devastating consequences, including the closure of clinics, the suspension of life-saving disease treatment programmes, the disruption of human rights and rule of law initiatives, and a funding crisis for NGOs worldwide. -ICJ

And what are their priorities that demand this urgent intervention?

• Provide emergency funding to mitigate the financial shortfalls created by the U.S. aid freeze and Global Gag Rule;
• Prioritize funding for sectors most affected, including reproductive rights, gender equality, and LGBTIQ rights;
• Reduce administrative barriers to ensure accessibility of funding for civil society organizations;
• Take diplomatic action to urge the U.S. administration to reverse course.

Good luck getting the EU to pay for it. Surely such wealthy and virtuous nations can foot the bill?

Expel them from every corner of your nation.

We are doing the same.

Save your country!

— Gunther Eagleman™ (@GuntherEagleman) February 18, 2025

The corrupt NGO's that were refunded by DOGE are going to the WEF and UN for money. Who would've guessed.

— individual1st (@individual1st) February 18, 2025

In January, Orbán predicted a "new golden age" for Hungary after Donald Trump's November win, six years after kicking Soros' network out of Hungary.

“Everything will change, a different day will dawn over the Western world on Tuesday morning. The failed democratic governance in America will come to an end,” Magyar Nemzet reported Viktor Orbán as saying in his first interview this year with Kossuth Radio’s Good Morning Hungary! program.

Calling the Democratic Party and George Soros “a bunch of idiots,” Orbán claimed the Democrats want to force what they think is right on the world, including regarding migration and gender.

He further added that his top priority for 2025 is to send George Soros back to the United States, with the “expulsion of the Soros network from Hungary” starting this spring. Orbán also expressed his hope that “patriots elsewhere” will also do the same.

“It must be shown that the Soros network’s presence in Europe is contrary to the interests of the people,” he stated.

Stating that Brussels is in the pocket of George Soros, he said, “If there is corruption, this is it.”

Noting the start of a “new era in Brussels,” the prime minister said Brussels needs to “sober up” and “adapt.”

*  *  *

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Tyler Durden Tue, 02/18/2025 - 13:25

Gen Z Faces A Difficult Labor Market Due To AI And Their Own Bad Habits

Can incoming youth prospects handle the workaday world?  It's a question that is plaguing economists and researchers, and for good reason.  No generation in recent memory has had quite as much trouble integrating into work environments compared to Gen Z.

US employers report that they are increasingly reluctant to hire Gen Z labor, and this includes Gen Z -age hiring representatives who don't want to hire their own.  Despite this trend the latest generation to enter the work force says they feel greater optimism for their job prospects going into 2025 according to surveys, but are they living in la la land? 

The recruitment process has apparently been grueling for many companies that are relying increasingly on AI to process resumes.  What they did not expect was for Gen Z workers to also use AI as a tool for supercharging the amount of applications they send out.  Employers now say AI might be complicating the hiring process, with savvy Gen Z exploiting the tech to better misrepresent their qualifications and apply to jobs randomly through automation. 

This dynamic has created an environment of "ghost applicants" and also "job ghosting".  Companies offer positions to Gen Z applicants which are automatically accepted, only to discover that the person is no longer looking.  Sometimes the position is filled and the employee is processed, only for the worker to never show up.  

AI and online hiring has allowed Gen Z to send out resumes by the thousands and gather as many potential offers as possible; then sift through those offers and accept the one they prefer while never following up on the flurry of AI generated applications they fired into the ether.  Companies say the time they have to spend on sorting job applicants has skyrocketed in the past few years.  Over 80% of hiring managers say they will be rejecting AI generated applications outright.  

The days of a prospective employees physically walking in the door, turning in a resume or filling out an application, then talking to a manager and shaking their hand are nearly gone.  This has caused a lack of tangibility in the labor market that is in large part a problem caused by the corporate world's obsession with efficiency.  Some will argue that Gen Z is merely adapting to the technology and the circumstances, however, the situation is beginning to backfire on everyone.

When Gen Z prospects are required to engage an employer during in-person interviews, many struggle with social interaction and around 20% have even reverted to bringing their parents to interviews as a security blanket.  Employers list unrealistic salary expectations for entry level positions as a problem for younger applicants, along with a tendency to be offended without cause.

Companies say bad habits of younger workers are creating a quiet but discernible shift away from Gen Z in the labor market.  They argue that trends like "career catfishing", job ghosting, quiet quitting and concepts like "bare minimum Mondays" are turning Gen Z employees radioactive.  

As Fortune recently noted, Gen Z college grads in particular are notorious among corporate recruiters for their lack of basic work skills and professionalism.  Over the course of the pandemic labor rush and the beginning of the inflation crisis labor was in short supply, meaning younger applicants just entering the workforce have enjoyed a demand bonanza.  Many of them have never faced a market environment in which job options are in short supply.  This is changing.  

Employers are firing Gen Z employees in large numbers.  At least 60% say they are getting rid of many younger employees that were hired in the past year.  Employers’ gripe with young people today is their lack of motivation or initiative - 50% of the leaders surveyed cited that as the reason why things didn’t work out with their new hire. 

Bosses also pointed to Gen Z being unprofessional, unorganized, and having poor communication skills as their top reasons for having to sack grads.  Leaders say they have struggled with the latest generation’s tangible challenges, including being late to work and meetings often, not wearing office-appropriate clothing, and using language appropriate for the workspace.

The reasons for this behavior and inability to adapt to work environments are up for debate.  Some argue that the public education system has failed to prepare children for the expectations of the private sector, which is a fair point.  Others argue that parents and previous generations have made soft kids with no understanding of discipline and dedication. 

Socialists claim that Gen Z is in the midst of a "worker revolution" and that they are "rebelling against capitalist exploitation".  This may be true for a contingent of young people (especially college grads) brainwashed by the political left into thinking they shouldn't have to work or have merit to get the things they desire.  But an empty stomach is an empty stomach and it can't be filled with socialist righteousness - people will work because they need to.  

So, maybe they haven't needed to?

Another more grounded explanation is that around 50% of Gen Z adults (18-28) are still living at home with their parents - A record high not seen in 80 years.  This safety net has allowed young workers the option to leave a job or turn down a position at will without facing financial insecurity.  Unfortunately, this has also ingrained attitudes which could make many in Gen Z unemployable in the future.  Not to mention, staying at home won't necessarily be an option for most of their lives.  

The greater reality is that Gen Z will be overtaking Millennials as the primary labor pool in ten years.  Though some companies are launching pre-employment programs designed to teach Gen Z hires better work habits, there will need to be a sea change in how American youth are prepared for the adult world.  AI and automation isn't going to save them from the struggle; if anything, it's going to make their lives much harder. 

Tyler Durden Tue, 02/18/2025 - 12:45

Major Drop In Daily Encounters With Illegal Immigrants, Border Czar Says

Authored by Rachel Acenas via The Epoch Times,

Daily encounters at the southern border have significantly plummeted, according to President Donald Trump’s border czar Tom Homan.

“In the last 24 hours the US Border Patrol has encountered a total of 229 aliens across the entire southwest border. That is down from a high of over 11,000 a day under Biden,” Homan said in a statement on X. 

“I started as a Border Patrol Agent in 1984 and I don’t remember the numbers ever being that low.”

Homan said that Trump pledged a secure border, and he is delivering on that promise.

Trump during the 2024 presidential election vowed to launch mass deportations in his second White House term and signed an executive order on illegal immigration on his first day in office.

The president chose Homan to oversee his illegal immigration crackdown, including nationwide deportations and the suspension of illegal entries into the United States.

Homan’s latest update on daily border encounters comes as U.S. Customs and Immigration Enforcement (ICE) and other federal agencies continue to arrest thousands of illegal immigrants across the country, including transnational gang members, terrorists, and convicted criminals.

Just last week in Texas, a Venezuelan national who is also a suspected member of the Tren de Aragua prison gang was arrested. Federal agents later discovered that he was previously convicted and sentenced for attempting to smuggle firearms out of the United States.

“The arrest of a suspected TdA gang member, previously convicted of firearms smuggling, marks a significant victory in our ongoing efforts to enhance public safety,” ICE Homeland Security Investigations San Antonio Special Agent in Charge Craig Larrabee said in a statement.

“This apprehension is a testament to the diligent work of our law enforcement agencies in rooting out criminal activity and safeguarding our communities.”

Meanwhile, Democrats, including Rep. Alexandria Ocasio-Cortez (D-N.Y.), have pushed back on Trump’s immigration policies. Ocasio-Cortez’s office recently hosted a “Know Your Rights with ICE” webinar.

Homan suggested that Ocasio-Cortez may have broken the law by advising her followers on how to evade the law.

Tom Homan on AOC: “She's the dumbest congresswoman ever elected to Congress and she proves that every day." pic.twitter.com/gknT2ihOpq

— Libs of TikTok (@libsoftiktok) February 18, 2025

Tyler Durden Tue, 02/18/2025 - 12:25

What To Know About The White House's Dispute With AP

Authored by Savannah Hulsey Pointer via The Epoch Times,

The Trump administration has announced that it was restricting Associated Press journalists’ access to certain areas frequented by the president, including the Oval Office and Air Force One, part of a continuing demonstration of President Donald Trump’s frustration with his treatment by the media.

AP News sent an email to subscriber organizations on Jan. 23 with a notification that it would continue to use “Gulf of Mexico” rather than “Gulf of America,” the Trump administration’s new name for the body of water.

The White House restriction was announced on Feb. 14, with the administration citing the dispute.

“The Associated Press continues to ignore the lawful geographic name change of the Gulf of America,” White House Deputy Chief of Staff Taylor Budowich said in a statement on social media.

The president has been vocal about his frustration with many in the media since the start of his political career in 2015, when he announced his candidacy for the 2016 presidential election. Trump has frequently gone so far as to call out those in the media specifically, as well as taking on companies at large.

The AP’s decision has a particularly wide-reaching impact because its newswriting standards are frequently used as a default style. Many news agencies use AP Style with specific modifications where the organization has a different preferred term.

Because of the wire service’s influence, its decision not to switch to “Gulf of America” will likely hinder the the term’s normalization.

Following the White House decision, AP journalists and photographers will retain their credentials for the White House complex but will be restricted from some areas.

Budowich also said that “the many thousands of reporters who have been barred from covering these intimate areas of the administration” could now have the opportunity to gain access.

Yes to Mount McKinley

When AP originally announced its decision, the notification cited the fact that Trump’s order “only carries authority within the United States” and said that other countries and international groups “do not have to recognize the name change.”

AP noted that it is a global news agency and “must ensure that place names and geography” are easy to understand for all audiences.

“The Gulf of Mexico has carried that name for more than 400 years. The Associated Press will refer to it by its original name while acknowledging the new name Trump has chosen,” AP said in its statement.

Budowich responded by saying, “This decision is not just divisive, but it also exposes the Associated Press’s commitment to misinformation. While their right to irresponsible and dishonest reporting is protected by the First Amendment, it does not ensure their privilege of unfettered access to limited spaces, like the Oval Office and Air Force One.”

The AP statement pointed out that the news agency reviews its standards regularly and that its guidance often reflects “common usage.” AP pointed to its own use of two names for the Gulf of California, which is sometimes referred to as the Sea of Cortez.

The AP has, however, announced that it will follow the administration’s order to revert the name of North America’s tallest peak back to Mount McKinley. The name was changed to Denali in 2015 under the Obama administration, something AP followed in its style.

The wire service explained that “the peak is solely within the U.S., and Trump has the authority to change federal geographical names.”

Clashing With the Press

The White House made headlines for the 2018 decision to revoke the press credentials of CNN’s Jim Acosta during the previous Trump administration. The reporter engaged in a tense exchange with the president at a press conference, and the White House revoked his privileges shortly thereafter.

However, a federal judge ordered the White House to reinstate the correspondent’s access, siding with CNN, which Trump has repeatedly called “fake news.”

Other reporters have also lost access, including Playboy’s Brian Karem, who lost and regained his White House credentials in 2019 under the former Trump administration.

Karem lost his press pass in August 2019 after he yelled at and heckled guests at a White House event. A district judge ruled the next month that the White House acted improperly because it can’t deprive reporters of their First Amendment rights without due process.

In 2023  journalist Simon Ateba sued the Biden administration on First Amendment grounds, alleging discrimination on the part of the press team. According to the suit, despite being allowed to attend White House briefings, Ateba was denied access because the administration leaves “biased journalists in charge of who gets to ask the tough questions.”

It Started With Wilson

Press access to the White House was limited before the 20th century, and presidents such as Andrew Jackson and Abraham Lincoln had contentious relationships with the press but didn’t actively restrict access.

Woodrow Wilson held the first presidential press conference in March 1913, and that tradition continues to this day. In the 1920s, press conferences became the primary way for the executive branch to communicate with the American people. In 1929, President Herbert Hoover formally established the position of press secretary, with George Akerson serving as the first in that position.

President Calvin Coolidge spoke to reporters about why he held press conferences in September 1926, saying, “I regard it as rather necessary to the carrying on of our republican institution that the people should have a fairly accurate report of what the president is trying to do, and it is for that purpose, of course, that those intimate conferences are held.”

The role of journalists at the White House grew tremendously under the administrations of Theodore Roosevelt and Woodrow Wilson. However, in the 1930s, Franklin Roosevelt’s administration created regular press conferences as we know them today, where journalists were allowed to ask questions. Consequently, in 1933, First Lady Eleanor Roosevelt became the first first lady to hold an official press conference.

Press access became a  more formal process during the 1940s and 1950s under the Truman and Eisenhower administrations. It was Eisenhower’s press sectary, James Hagerty, who first permitted radio, television, and newspaper equipment to record news conferences in 1955.

Tyler Durden Tue, 02/18/2025 - 11:45

Broadcom, TSMC Weigh Deals To Split Intel; Activist Hedge Funds Ready To Pounce?

Intel shares climbed 5% in premarket trading (extending gains from last week's pump) following a report from The Wall Street Journal indicating that Broadcom and Taiwan Semiconductor Manufacturing are considering potential deals that could result in a breakup of the struggling US chipmaker. 

WSJ noted:

Broadcom has been closely examining Intel's chip-design and marketing business, according to people familiar with the matter. It has informally discussed with its advisers making a bid but would likely only do so if it finds a partner for Intel's manufacturing business, the people said.

Last week, Intel shares recorded the largest weekly gain in the company's four-decade trading history after Bloomberg reported that TSMC was in early discussions to acquire a controlling stake in Intel's factories at the request of Trump administration officials.

"But the potential deals would have been unthinkable until Intel's recent struggles made it an acquisition target," WSJ's Asa Fitch, Lauren Thomas, and Yang Jie pointed out, adding, "The end result could be a breakup of Intel after the American icon spent many decades dominating the business of making central processors for both personal computers and data centers." 

Given our understanding last August, it was not unthinkable that Intel holds excess value within its enterprise, particularly in its fabs...

Intel has 15 fabs; the fabs alone are worth $10bn/each in liquidation value.

The value created by management is negative $50 billion. https://t.co/HkqUQJ4A6J

— zerohedge (@zerohedge) August 2, 2024

WSJ sources said that Frank Yeary, Intel's interim executive chairman, has been spearheading discussions with potential buyers as well as officials from the former Trump administration, who view the company's chip production as critical to national security. Yeary has privately told folks behind the scenes that his goal is maximizing value for Intel shareholders. 

This could be an excellent time for an activist hedge fund—such as Elliott Management—to step in and stir the pot, as valuation discussions behind those fabs and the company are likely worth in the $35-$40 range, if not higher.

Now would be a great time for an activist hedge fund to come in with a stalking horse bid (cc: Elliott) https://t.co/5wIgZ9y1AJ

— zerohedge (@zerohedge) February 18, 2025

Generational low... 

WSJ noted that Broadcom and TSMC aren't working together and that all discussions have been preliminary and largely informal. 

Tyler Durden Tue, 02/18/2025 - 10:45

Empire State Manufacturing Survey Surges Higher On Heels Of Soaring Inflation Fears

Business activity in NY State has been volatile (according to the Empire State Manufacturing Survey) in the last few months. After spiking on Trump's election victory, the survey slumped back into contraction in December and January. But February saw activity re-ignite with a better than expected +5.7 print (0.0 exp)...

“Manufacturing activity edged higher in New York State in February. Input price increases picked up to the fastest pace in nearly two years, and optimism about the outlook dropped noticeably.” 

~Richard Deitz, Economic Research Advisor at the New York Fed

There is a little here for everyone under the hood - New orders spiked in February BUT expectations for New Orders going forward plunged....

Source: Bloomberg

...and perhaps worse, inflation fears are accelerating...

Source: Bloomberg

Employment levels also moved lower.

So take your pick - sentiment higher, soaring inflation expectations, and lagging growth. Smells very stagflationary to us...

Tyler Durden Tue, 02/18/2025 - 08:53

US Futures, Global Markets Rise As Russia-US Talks Seek End To Ukraine War

US equity futures and global markets are higher as Russian and US officials met to negotiate an end to the three-year war in Ukraine. As of 8:00am ET, both S&P and Nasdaq futures are 0.4% higher, with Mag7 names all higher ex META (GOOGL +0.5%, AMZN +0.4%, AAPL +0.1%, MSFT +0.3%, META -0.2%, NVDA +1.2% and TSLA +0.8%) and Semis bid up, led by Intel. In Europe, the Stoxx 600 index held near record highs, with defense stocks such as Rheinmetall and Dassault Aviation rallying further on expectations that governments will have to ratchet up military spending. A gauge of emerging-market equities hit a three-month high, while stocks in Asia were mixed, but still closed in the green for a fifth day after President Xi Jinping met with prominent entrepreneurs Monday. Tariff headlines were quiet over the weekend as the market focused on a RU/UKR solution. Bond yields are higher by 1-3 bps and USD looks to break a 5-day losing streak. Commodities are stronger with all 3 complexes bid up and WTI finding support above $70/bbl. Today’s macro releases lack market-moving data as part of a relatively quiet macro week; we have two Fed speakers on deck.

In premarket trading, Nvidia is leading gains among the Magnificent Seven stocks (GOOGL +0.5%, AMZN +0.4%, AAPL +0.1%, MSFT +0.3%, META -0.2%, NVDA +1.2% and TSLA +0.8%). Intel shares extended their recent surge after the Wall Street Journal reported that Taiwan Semiconductor and Broadcom are mulling deals that would break up the US chip giant. Delta Air Lines fell after one of its jets flipped out of control upon landing in Toronto. In Europe, InterContinental Hotels Group Plc dropped after results. Here are some other notable premarket movers:

• Constellation Brands (STZ) rises 8% after Berkshire Hathaway reported a new position in the Corona and Modelo maker.
• Delta Air Lines (DAL) slips about 1% after one of the company’s regional jets flipped out of control after landing in windy, freezing conditions in Toronto on Monday.
• Fluor (FLR) drops 6% after the infrastructure construction company’s annual profit forecast fell short of Wall Street expectations. The company also said Chief Operating Officer Jim Breuer will take over as CEO on May 1.
• GeneDX Holdings (WGS) rises 22% after the genomics testing company issued guidance for 2025.
• H&E Equipment Services (HEES) jumps 16% after announcing that the company received a superior proposal from Herc Holdings. Shares of Herc (HRI) fall 4%.
• Hims & Hers Health (HIMS) declines 1% after Morgan Stanley downgraded the telehealth company, saying it is “time for a breather after a torrid run.”
• Intel (INTC) rises 5% as the Wall Street Journal reports that Taiwan Semiconductor Manufacturing Co. and Broadcom are mulling potential deals that would break the US chipmaking giant in two.
• Solid Biosciences Inc. (SLDB) gains 94% after reporting initial clinical data from next-generation Duchenne Gene Therapy candidate SGT-003.
• Southwest Airlines (LUV) rises 2% after the carrier said it will cut about 1,750 jobs in its leadership ranks to reduce expenses.

As discussed last night, the "romantic phase" of the European defense stock surge is coming to an end, as attention turns to who gets to pay for all those trillions in required defense expenditures. The spending concerns weighed on European bonds, with German 10-year bund yields — the benchmark borrowing rate for the euro area — touching the highest in more than two weeks. As US Treasuries trading resumed, 10-year yields rose about three basis points. The moves came as Saudi Arabia hosted talks between Russia and the US, which could pave the way for President Donald Trump and Russia’s Vladimir Putin to meet. Meanwhile, European governments are mulling new defense funding measures ahead of a March 20-21 summit.

“The prospect of the war in Ukraine coming to an end is very positive,” said Tim Graf, head of EMEA macro strategy at State Street Bank and Trust Co. “Underneath it all is defense spending, which will be good for US defense contractors, but also European industrials and defense contractors.”

Indeed, the mood on equities remains bullish overall, with a Bank of America survey showing global stocks are the most popular asset class with investors. Fund managers’ cash levels have dropped to the lowest since 2010, indicating greater willingness to take on risk.

Attention is now set to refocus on the Federal Reserve’s interest-rate path, with Governor Christopher Waller saying recent economic data supports keeping rates on hold until more progress is seen on inflation. His comments helped the dollar advance against Group-of-10 peers. Fed officials Mary Daly and Michael Barr are due to speak Tuesday, while minutes from the central bank’s latest policy meeting will be released on Wednesday.

European stocks were little changed after reaching a fresh record high on Monday, as investors assessed the outlook for defense spending and the likelihood of ceasefire in Ukraine. Investors will turn their focus to Saudi Arabia, where Russian and US representatives are meeting to negotiate an end to the war in Ukraine. Stoxx 600 was little changed at 555.49 with 366 members down, 209 up, and 25 unchanged. Here are some of the biggest movers on Tuesday:

• Glencore shares rise as much as 1.9% after the stock was upgraded to overweight from equal-weight at Morgan Stanley. Analyst says that concerns over the impact of a potential end to the war in Ukraine on the miner and commodities trader’s earnings power are “exaggerated.”
• Hollywood Bowl shares rise as much as 5.3%, the most in more than a year, after the bowling center operator launched a £10m share buyback, in line with previous years.
• Formycon shares advance as much as 5.7%, paring some of Monday’s record 35% decline, after Hauck & Aufhaeuser analysts say the selloff seems “overdone” and expectations have been reset.
• Valneva shares rise as much as 6.8%, before paring the gain to 2%, after the French vaccines maker forecast substantially lower operating cash burn in 2025.
• BT shares fall as much as 5.7% and are headed for their worst day in six months after Citi cut its rating to sell from buy, saying the telecom operator’s key Openreach arm may face a revenue decline from 2025-2026.
• Capgemini shares decline 8.7% after the French company gave a lower-than-expected revenue growth target for this year, signaling continued tepid IT demand.
• IHG shares slide as much as 4.6% after analysts flagged higher interest expense and capital expenditure guidance could weigh on the hotelier’s earnings expectations.
• Edenred shares fall 7.9%, the most since October, after fourth-quarter results. Analysts point to slowing like-for-like operating growth in the second half of 2024 and a regulatory overhang in multiple markets.
• Serica Energy shares drop 13% as the oil and gas company grapples with new issues impacting the Triton FPSO (floating production storage and offloading unit), which has been taken offline once again and thrown fresh doubt over the firm’s annual production guidance.

Earlier in the session, Asian stocks were mixed, but are still headed for a fifth day of gains after President Xi Jinping met with prominent entrepreneurs Monday. The MSCI Asia Pacific Index advanced 0.1%, with Hong-Kong listed technology stocks Alibaba, Tencent and Xiaomi among the biggest boosts. Australian shares fell amid the central bank’s decision to cut interest rates by a quarter point, and those in mainland China declined. The meeting with Xi, attended by the likes of Alibaba’s Jack Ma, inspired hopes that the world’s second-largest economy may do more to support its private sector. The Hang Seng Index advanced 1.3%. 

“I think it’s more symbolic rather than a structural shift for China tech,” said Billy Leung, an investment strategist at Global X ETFs. The key question is whether this translates into real support measures at the Two Sessions event in March, he added, stating that investors “will need to see follow-through.” Shares traded higher in Korea, Japan and Taiwan.

In FX, the Bloomberg Dollar Spot Index rose as much as 0.3%, arresting a three-day slide that had been gradually losing pace. Waller characterized the economy as solid, with a labor market that is in a “sweet spot.” The Aussie dollar outperforms after the RBA cut interest rates but stressed it won’t ease as aggressively as markets anticipate; the British pound was down 0.2%.

In rates, treasury yields rose across the curve on return from a long holiday weekend. Yields on 10-year Treasuries rose 3bps to 4.51%. Markets are pricing the possibility that the Fed will deliver one 25bps cut by year-end, with a roughly 50-50 chance or another easing. Treasuries also track selling in European government bonds, which take a hit on the growing view that Europe will need to raise defense spending to help Ukraine, likely requiring more bond issuance. German 10-year yields rise 1 bps to 2.50%. Gilts underperform after UK pay growth picked up to its highest level in eight months and employment unexpectedly rose. UK 10-year yields rise 2 bps to 4.55%.

In commodities,  oil prices advance, with WTI rising 1.5% to $71.80 a barrel. European natural gas prices fall for a sixth consecutive session to near €47 a megawatt-hour. Spot gold climbs $14 to $2,910/oz after Goldman Sachs Group Inc. analysts raised their year-end gold target to $3,100. Prices for the precious metal are up almost 11% so far this year.

Looking to the day ahead, and US data releases include the Empire State manufacturing survey for February, and the NAHB’s housing market index for February. Eslewhere, there’s UK unemployment for December, the German ZEW survey for February, and Canada’s CPI for January. From central banks, we’ll hear from BoE Governor Bailey, the ECB’s Holzmann and Cipollone, and the Fed’s Daly and Barr. US and Russian delegates meet in Saudi Arabia for talks aimed at ending the war in Ukraine.

Market Snapshot

• S&P 500 futures up 0.3% to 6,149.75
• STOXX Europe 600 little changed at 554.90
• MXAP up 0.3% to 189.81
• MXAPJ up 0.5% to 598.74
• Nikkei up 0.2% to 39,270.40
• Topix up 0.3% to 2,775.51
• Hang Seng Index up 1.6% to 22,976.81
• Shanghai Composite down 0.9% to 3,324.49
• Sensex little changed at 76,020.69
• Australia S&P/ASX 200 down 0.7% to 8,481.01
• Kospi up 0.6% to 2,626.81
• German 10Y yield up 1.7 bps at 2.50%
• Euro down 0.3% to $1.0457
• Brent Futures up 0.7% to $75.77/bbl
• Gold spot up 0.6% to $2,913.32
• US Dollar Index up 0.35% to 106.95

Top Overnight news

• Fed Governor Christopher Waller said recent economic data support keeping rates on hold, but cuts may resume later this year if inflation behaves as it did in 2024. Waller (voter) said tariffs are expected to have a modest and non-persistent impact on prices that the Fed should try to look through when setting policy, while he added the recent CPI reading was disappointing but may be the result of seasonal adjustment issues. Waller also commented that the Fed cannot let uncertainty about policy paralyse action and decisions must be guided by data but added that it is appropriate to keep rates on hold for now and seasonal effects may be distorting data, as well as noted that he sees inflation progress in the past year as excruciatingly slow. BBG
• Top US and Russian officials started meeting in Saudi Arabia to discuss how to end the war in Ukraine, without anyone from Kyiv taking part. France’s Emmanuel Macron spoke separately with Donald Trump and Volodymyr Zelenskiy on aligning with the US on peace talks. BBG
• Bearishness among individual investors—measured by the percentage who expect stock prices to fall over the next six months—reached 47.3% for the week ended Feb. 12, according to the latest survey from the American Association of Individual Investors. That is the highest level since November 2023. WSJ
• Crews responded to a plane crash at the Toronto Pearson airport, while the incident occurred upon landing involving a Delta Airlines plane arriving from Minneapolis although all passengers and crew are accounted for.
• China’s Xi made a strong show of support for the China’s private sector and its tech entrepreneurs at an event Monday as the government marshals all components of the economy to bolster growth and counter rising trade tensions with the US. WSJ
• Singapore will boost payments and tax rebates to households to help with living costs, PM Lawrence Wong said in his first budget — one that comes ahead of elections in November. BBG
• Australia’s RBA cut interest rates by 25bp, as expected, but expressed caution on the potential for additional easing given that the war on inflation hasn’t been completely won. RTRS
• UK pay growth picked up to 5.9% last quarter, its highest level in eight months, and employment unexpectedly rose, indicating a more resilient jobs market than expected. Traders trimmed expectations for BOE cuts to 54 bps from 57 bps yesterday. BBG
• France proposed a “reassurance force” of European troops to be stationed behind a potential armistice line should Russia and Ukraine reach a settlement in their war, although there was pushback to the idea from Germany, Italy, Poland, and Spain. FT
• Four of the EU’s top central bankers urged the bloc’s regulatory arm to simplify the mass of rules that commercial lenders blame for increasingly putting them at an international disadvantage. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded somewhat mixed in the absence of a lead from Wall St owing to the Presidents' Day holiday, while participants in the region braced for central bank updates beginning with the RBA rate decision. ASX 200 traded negative amid underperformance in energy and the top-weighted financials sector, while sentiment failed to benefit from the RBA's widely expected 25bps rate cut as it also signalled caution on further cuts. Nikkei 225 gained but with upside capped after swinging between gains and losses amid firmer yields and a quiet calendar. Hang Seng and Shanghai Comp were varied as the Hong Kong benchmark resumed its recent outperformance with the help of strength in tech and auto names, while the mainland was lacklustre as US-China frictions lingered and after reports noted that the PBoC may further limit its MLF rollover to prevent idle funds.

Top Asian News

• RBA cut the Cash Rate by 25bps to 4.10%, as expected, and said underlying inflation is moderating and the outlook remains uncertain, while it added that sustainably returning inflation to the target is the priority and the board will continue to rely on data and evolving risk assessments to guide decisions. RBA stated the board is more confident that inflation is moving toward the midpoint of the 2–3% target range but noted that upside risks remain and the board remains cautious on prospects for further policy easing. Furthermore, it stated that forecasts suggest that easing monetary policy too soon could stall disinflation and cause inflation to settle above the target midpoint.
• RBA Statement on Monetary Policy stated inflation and GDP have been softer than expected, while the labour market remains strong and domestic financial conditions are restrictive, with rates above neutral. RBA also noted a wide range of estimates for the neutral rate, with some estimates declining and it forecast GDP to grow by 2.0% in June 2025, 2.3% in June 2026, and 2.2% in June 2027, while CPI is forecast at 2.4% in June 2025, 3.2% in June 2026, and 2.7% in June 2027 with the trimmed mean inflation forecast at 2.7% for June 2025, 2026, and 2027. Furthermore, its forecasts assumed a cash rate of 4.0% in June 2025, 3.6% in December 2025, and 3.4% in June 2026.
• RBA Governor Bullock said in the post-meeting press conference that it is clear high rates have worked and cannot declare victory on inflation yet, while the strength of the jobs market has been surprising and further rate cuts implied by the market are not guaranteed. Bullock said cannot get too ahead of ourselves on rates and the rate cut was a difficult decision, as well as stated that they have to be patient and it is really important to get inflation down.
• China's state planner said 'precise' policies are to be implemented to help ease difficulties faced by private companies and the current political, economic, and social environment is conducive to the development of the private economy. NDRC stated that China will further break down barriers to market access and revise the negative list for market access as soon as possible, while it will continue efforts to solve financing difficulties and high costs for private enterprises, as well as plans to speed up preparations for the implementation of the private economy promotion law.
• BoJ Governor Ueda says last summer's volatility was mainly caused by market concern over weak US jobs data, US economic slowdown; says BoJ aware of views that guidance was not clear enough.

European bourses (STOXX 600 U/C) began the session with a modest upward bias, but price action has been choppy since; indices currently display a mixed picture. European sectors are mixed after initially opening with a slight positive bias; the breadth of the market is fairly narrow. Banks take the top spot, mainly driven by UK banks after the region’s latest jobs data saw a slight paring of BoE rate cut bets; Dec'25 -58bps (prev. -62.8bps). US equity futures are modestly firmer, with slight outperformance in the NQ (+0.4%), as the region returns from holiday on account of Presidents’ Day. BofA Fund Manager Survey highlights that investors are bullish and are long stocks, and short "everything else"; cash levels have hit their lowest in 15 years. 89% of respondents said US stocks are overvalued. On positioning: Euro-area longs rose to an eight-month high, UK shorts to a 11-month high. Interestingly, the survey suggests that the trade war is seen as no more than a "tail risk". EU antitrust chief said she is ready to issue decisions on Apple (AAPL) and Meta (META) next month; says EU will not engage in transactions with the US over democracy and Europe's values.

Top European News

• ECB's Holzmann said there's some probability of a March rate cut and decisions in favour of more cuts are getting harder, according to Bloomberg.
• UK Chancellor Reeves will have to raise taxes by an extra GBP 12bln if she wants to boost defence spending to 2.5% of GDP and avoid a fresh round of austerity, according to The Telegraph.
• BoE Governor Bailey says "we are in a period of heightened uncertainty"; disinflation is continuing. Facing weak growth environment in the UK. Hump in inflation due to administered prices. Risks are on two sides, could go either way. "Careful" language was chosen to reflect more uncertainty. Latest UK labour data looks on the quantity not far out of line with what was expected. Latest UK pay growth has risen less than we expected. Yet to see anything in the data that fundamentally changes the view of the BoE's outlook. Bond term premia are being moved by US comments on tariffs. Agree with US Treasury Sec's comments on whishing to see smaller moves in term premia. Yet to see anything in the data (referencing this morning's jobs data) that fundamentally changes the view of the BoE's outlook.

FX

• USD is a little firmer vs peers. Focus for today is on US officials who are currently meeting with Russian counterparts to discuss a path towards ending the Russia-Ukraine conflict. Given the absence of Ukraine and Europe in the discussions, it remains to be seen how much progress can be made. There are few Tier 2 data releases today, with attention also on Fed speak from Daly and Barr. DXY has ventured as high as 107.05 but failed to hold a move above the 107 mark.
• EUR is weaker vs. the USD and to a lesser-extent GBP. Focus in Europe remains on discussions between European leaders over the Russia-Ukraine conflict. The likely need for greater bond issuance to fund additional defence spending commitments has placed upside pressure on yields, however, this has failed to provide support for the EUR since the beginning of the week. ZEW data (which were a little better than expected) had little impact on the Single-Currency; currently within a 1.0453-86 range.
• USD/JPY has regained some composure after the recent declines and but has failed to hold above the 152.00 level with gains potentially capped by the recent stronger-than-expected Japanese economic growth. Comments from BoJ Governor Ueda proved to be non-incremental this morning, noting that the Bank is aware of views that guidance was not clear enough. If USD/JPY is able to reclaim 152, yesterday's peak kicks in at 152.39.
• GBP is softer vs. the USD but to a lesser-degree than peers on account of the latest UK jobs data. The release saw the unemployment rate unexpectedly hold steady at 4.4% (vs. 4.5%), whilst employment change was higher-than-expected and headline earnings growth a touch above expectations. Elsewhere, focus is on the fiscal front with The Telegraph writing that Chancellor Reeves will have to raise taxes by an extra GBP 12bln if she wants to boost defence spending to 2.5% of GDP. Cable ventured as high as 1.2625 post-data before fading gains; currently sits within yesterday's 1.2579-1.2635 range.
• Diverging fortunes for the antipodeans with AUD resilient vs. the broadly firmer USD following a cautious cut from the RBA overnight. RBA Governor Bullock also suggested that further rate cuts implied by market are not guaranteed.
• PBoC set USD/CNY mid-point at 7.1697 vs exp. 7.2538 (prev. 7.1702).

Fixed Income

• USTs are slightly softer. Action which comes as cash plays catch up to yesterday’s action and as such yields are firmer across the curve, steepening and outperforming European peers. Thus far, USTs down to a 109-01 trough which is comfortably clear of Monday’s 108-26 base. Ahead, Fed speak from Barr and Daly; attention also on the Russia-US meeting in Saudi.
• Bunds are on the backfoot, but off worst levels following a pair of well-received outings from Germany and the UK. Downside not to quite the same extent as USTs given the marked European pressure on Monday as leaders met to discuss how to fund additional defence spending. Reports suggest that an emergency meeting will be held on/around 24 February, where markets will be attentive to details on the size of the defence spending. No sustained move to the German ZEW figures which came in firmer than expected across the board, ZEW puts this down to expectations of policy progress after this weekend’s election and assistance from recent ECB easing. Bunds have made their way off the above low and have climbed above 132.00 and look to retest the overnight peak at 132.16.
• Gilts are in the red, in tandem with peers but with specific pressure from a hawkish set of employment/wage data. In the wake of this, market pricing continues to point to the next 25bps move occurring in June but thereafter the timing for a second move has just about been pushed from September to November. BoE's Bailey spoke on the latest jobs data, saying that there is nothing in the latest jobs data which fundamentally changes their view, a remark which came alongside a robust UK auction and has lifted Gilts to retest their 92.78 peak.
• Orders for new 8yr "BTP Plus" bond reach EUR 6bln since start of offer, via Reuters citing bourse data.
• UK sells GBP 1.75bln 4.0% 2063 Gilt: b/c 2.8x (prev. 3.10x), average yield 5.076% (prev. 4.557%), tail 0.3bps (prev. 1.3bps)
• Germany sells EUR 3.54bln vs exp. EUR 4.5bln 2.20% 2027 Schatz: b/c 2.7x (prev. 2.8x), average yield 2.14% (prev. 2.26%), retention 21.33% (prev. 23.68%)

Commodities

• A firm session across crude prices this morning with WTI not experiencing a settlement on Monday amid the US Presidents' Day holiday, whilst Brent Apr settled with gains of 0.48/bbl. Geopolitical updates have been plentiful as US-Russia high-level delegations met in Riyadh to discuss a peace path for Russia-Ukraine. Elsewhere, Lebanon said any remaining Israeli presence on Lebanese soil would be considered an occupation. Brent Apr sits in a USD 75.05-75.89/bbl parameter.
• Softer price action across nat gas with European prices well under EUR 50/MWh from levels above EUR 58/MWh last week. US-Russia talks on a Ukrainian peace deal is likely one of the main sources of this recent pressure.
• Mixed trade across precious metals with mild gains seen in gold despite the firmer Dollar (to which silver is succumbing to), with the yellow metal propped up by uncertainty and geopolitics. Spot gold resides in a current USD 2,892.07-2,915.76/oz range.
• Base metals are mostly lower amid the firmer Dollar and cautious risk tone. Copper futures prodded Monday's lows overnight with demand hampered amid the mixed risk appetite in Asia, coupled with a mostly lower picture in Europe.
• Goldman Sachs has raised its gold price target to USD 3,100/ troy ounce by the end of 2025, driven by central-bank buying and increased ETF inflows.
• "The presence of Kirill Dmitriev among the Russia delegation in Riyadh for the Washington-Moscow talks suggest that oil is going to be on the table.", according to Bloomberg's Blas. "Perhaps in the form of US oil sanction relief, or as a quid pro quo opening Russian oil again for American companies"
• CPC says it continues oil transit via Tengiz-Novorossiysk route.
• Russia's Transneft says reduction of oil pumping volumes from Kazakhstan via CPC are estimated at around 30%. Consequences of the drone strike will take 1.5-2 months to eliminate.

Geopolitics: Middle East

• Israeli Foreign Minister Saar says "we will begin negotiations on the second phase of the hostage deal; we demand a complete demilitarisation of Gaza". Will visit Brussels next week, and Washington "soon"
• Lebanon says any remaining Israeli presence on Lebanese soil would be considered an occupation; Lebanon says it has the right to use all means to ensure Israeli withdrawal from Lebanese land.
• "Iranian government spokesperson: It makes no sense to negotiate when the other side imposes a policy of maximum pressure", according to Al Jazeera
• Israeli security official said they are preparing to receive the bodies of four hostages on Thursday and are working to secure the release of six living hostages on Saturday.
• Sources noted that the Egyptian plan on Gaza includes reconstruction within a period ranging from 3 to 5 years without displacing the population, according to Asharq News.
• US President Trump posted on Truth that US forces conducted a precision airstrike against a member of al-Qaeda in Syria this weekend.
• Iran’s Foreign Minister said they will never negotiate under pressure or threat but if the US negotiates with respect and dignity, the Iranian response will be with the same language.
• Russia is ready to help Tehran in solving problems related to Iran's nuclear program and the start of Russia-US talks will have no impact on Russia-Iran cooperation, according to TASS citing the Kremlin.

Geopolitics: Ukraine

• Russia's Kremlin says cannot give an evaluation of the negotiation with US officials yet as they have only just started. No understanding of a Russian President Putin-US President Trump meeting, today's talks may bring more clarity. Putin has repeatedly said he is ready to speak about peace. "Main thing is to achieve our aims, Of course, we would prefer to achieve our aims peacefully." Asked if Ukraine could join the EU: This is the sovereign right of any country, we are not going to dictate.
• Russia's sovereign wealth fund chief Dmitriev said "we are still at the beginning of the dialogue with America on sanctions", according to Al Arabiya." It must be realized that sanctions have affected Washington more than Moscow." US companies will return to Russia at some point." Projects with America must move forward, including in the Arctic." Trump administration is now ready to understand Russia's concerns". Progress of negotiations with Washington is possible in the next two months", according to Al Arabiya
• Journalist Rahman says "Few concrete results were expected from Paris, it was organised so quickly. Expectations now running high for an additional high-level emergency meeting on/around 24 Feb in Kyiv, hosted by the Ukrainian Govt."
• Russia's sovereign wealth fund chief Dmitriev said in Riyadh that US-Russia talks on ending the Ukraine war are important and US businesses have lost millions due to leaving Russia, while he added that US businesses have lost USD 300bln after leaving Russia and believes US oil majors will at some point return to Russia.
• Russia’s sovereign wealth fund chief Kirill Dmitriev said he has already met with several members of the Trump team in Riyadh on Monday, via CNN; “All I can say is they’re great problem-solvers. And I think President Trump is a great problem-solver,” he said. “I think the promise is: let’s have dialogue, let’s figure out the best solution for our countries, for other countries, for the global community,” he said. “I think it’s very important to build bridges. I think US-Russia relations are very important for the world,” he said.
• Ukrainian President Zelensky said he had a "long" call with French President Macron on security guarantees and achieving peace in Ukraine.
• US President Trump spoke with French President Macron about Ukraine, the European meeting, and Saudi talks between US and Russian officials.
• French President Macron said he spoke with US President Trump and then with Ukrainian President Zelensky, while he added that they will continue discussions about Ukraine in the coming days and work will continue based on the European Commission’s proposals, supporting Ukraine and investing in defence.
• UK PM Starmer said part of his message to European allies is that they’ve all got to step up on capability and on spending and funding, while he added that includes the UK which is why he has made a commitment to spend more, according to FT.
• German Chancellor Scholz rejected UK PM Starmer's call for Europe to step up and deploy troops to Ukraine as part of any peace deal, according to The Telegraph.
• Polish PM Tusk said all participants in the meeting on Ukraine had similar opinions to Poland on key issues and all agreed close cooperation within NATO is needed. Tusk added they realise that transatlantic relations are in a new stage and European partners realise that the time has come for greater European defence capabilities and spending.
• Danish PM said they must ramp up military preparedness and see no signs that the Russians want peace.
• European leaders at the Paris meeting agreed it would be dangerous to conclude a Ukraine ceasefire without a peace agreement at the same time, while they are ready to provide Ukraine with security guarantees depending on the level of US support.

Geopolitics: Other

• Taiwan is considering a multi-billion-dollar weapons purchase from the US which could be between USD 7-10bln and could include coastal defence missiles and HIMARS rockets, while the package would send a message that Taiwan is committed to its defence, according to Reuters sources.
• North Korea’s Foreign Ministry said the US is pursuing an outdated and absurd plan of denuclearisation of the Korean Peninsula, while North Korea will adhere to bolstering its nuclear force, according to KCNA.

US Event Calendar

• 08:30: Feb. Empire Manufacturing, est. -2.0, prior -12.6
• 10:00: Feb. NAHB Housing Market Index, est. 46, prior 47
• 10:20: Fed’s Daly Speaks to American Bankers Association
• 13:00: Fed’s Barr Discusses AI, Financial Stability
• 16:00: Dec. Net Foreign Security Purchases, prior $79b
• 16:00: Dec. Total Net TIC Flows, prior $159.9b

DB's Jim Reid concludes the overnight wrap

I have a certain “circle of life” feeling this morning as for the first time I went to bed before my 9-year daughter Maisie last night. It’s half term and she had friends over for a sleepover. By the time I headed up to bed at 9:30pm they were still awake. Let’s hope it’s a few more years before she comes home from a nightclub around 430am just as I’m getting up to write the EMR.

By the time that inevitable day arrives, the defence architecture of Europe could look a lot different. As I said in my chart of the day yesterday, to paraphrase Lenin (not something I do often), there are days when decades happen. While that might be a slight exaggeration, the potential implications are huge after the events of the last five days where first the US froze out Europe in announcing the start of talks with Russia, and second with the broadside against Europe from US Vice President JD Vance. That all this is occurring within a week of the German general election (this Sunday) means that Europe might start to move down a very different path within weeks to the pre-existing one.

The initial reaction yesterday was to price in more European defence spending with bonds selling off and equities rising, especially in the defense sector. This lifted the STOXX 600 (+0.54%) and the DAX (+1.26%) to fresh all-time highs. Indeed, for the DAX, that now leaves it up +14.5% YTD, marking its strongest start to a year since 2012. At the sectoral level, cyclicals generally did better, whilst the strength among defence companies meant Rheinmetall (+14.03%) was the strongest performer in the DAX, and the second-best performer in the STOXX 600. US markets were closed for the holiday, but by the European close, futures pointed to gains that would’ve been enough to take the S&P 500 to a fresh all-time high. They remain around the same levels in Asia with S&P 500 (+0.21%) and NASDAQ 100 (+0.30%) contracts up.
This discussion of more spending and new issuance helped to drive a fresh bond selloff across Europe. For instance, yields on 10yr bunds (+5.7bps) rose to 2.49%, their highest in over two weeks, whilst yields on 10yr OATs (+3.8bps), BTPs (+2.6bps) and gilts (+2.7bps) all moved higher as well. US markets were closed yesterday, but 10yr treasury futures also lost ground during the European session, with cash bonds reopening +3.2bps this morning so the pattern has been clear across the world. That said, the broader risk-on tone did lead to a fresh tightening in sovereign bond spreads, and the Italian 10yr spread over bunds hit a 3-year low of 106bps.

Earlier in the day, there had been divisions among European countries at the emergency summit in Paris over whether to send troops to Ukraine. For instance, UK PM Keir Starmer said that the UK was "ready and willing to contribute to security guarantees to Ukraine by putting our own troops on the ground if necessary". But Spain’s foreign minister separately said that “Nobody is currently considering sending troops to Ukraine”. In the meantime, Bloomberg reported that the US had asked European countries about what security guarantees they’d be willing to provide to Ukraine, and there’s been extensive talk of something much more substantial. For instance, France’s minister for European affairs said that joint Eurobonds were something that should be considered, whilst Germany’s foreign minister has said on defence that “We will launch a large package that has never been seen in this dimension before”. Peace talks are set to start in Saudi Arabia today between US and Russian representatives. So we'll see if any headlines emerge from that.

All this is coming during a pivotal week for Europe, as the German election is taking place this Sunday. Depending on the results, that could pave the way for some reform of the debt brake that permits for more borrowing. As a reminder, our Germany team’s base case is now that a coalition agreement will include a meaningful increase in defence spending from the 2026 budget onwards, potentially with some glide path toward at least 2.5% by the end of the term. They now expect a new defence fund would be set up with greater urgency and spent more rapidly, implying a positive fiscal impulse.

Asian equity markets are mostly trading higher this morning amid a rally in Chinese technology stocks. Across the region, the Hang Seng (+1.28%) is leading gains and resuming its tech-led rally but with the Shanghai Composite (-0.19%) dipping after a stronger open. Today has seen a meeting between President Xi Jinping and China’s top business leaders in what is seen as a possible end to the years-long crackdown on the private sector with the government working to revive an economy disrupted by a pandemic, regulatory crackdowns, and a real estate crisis.

Elsewhere, the Nikkei (+0.53%) and the KOSPI (+0.57%) are higher but the S&P/ASX 200 (-0.66%) is extending its previous session losses following a hawkish RBA statement and press conference after their 25bps cut this morning.
This was the RBA's first rate cut since 2020, with the bank citing some progress towards bringing down inflation, but warning that further monetary easing still hinged on more downside in inflation. The central bank flagged that it would retain a restrictive policy due to the strength of the jobs market and an uncertain global economic outlook. Following the decision, the Aussie (-0.04%) briefly climbed before paring gains, trading fairly flat at 0.6352 against the dollar while yields on the policy sensitive three-year government bond have increased +5.5bps to trade at 3.93% as we go to print.

To the day ahead now, and US data releases include the Empire State manufacturing survey for February, and the NAHB’s housing market index for February. Otherwise, there’s UK unemployment for December, the German ZEW survey for February, and Canada’s CPI for January. From central banks, we’ll hear from BoE Governor Bailey, the ECB’s Holzmann and Cipollone, and the Fed’s Daly and Barr. US and Russian delegates meet in Saudi Arabia for talks aimed at ending the war in Ukraine.

 

Tyler Durden Tue, 02/18/2025 - 08:29

Macron's Emergency Ukraine Summit A Gathering Of 'Warmongers': Hungary

French President Emmanuel Macron's informal emergency meeting Monday in Paris with the leaders of Germany, Britain, Italy, Poland, Spain, the Netherlands and Denmark, and NATO’s secretary general and EU figures - is a scramble prompted by Europe and Ukraine being cut out of Saudi-hosted negotiations between the US and Russia to end the three-year long Ukraine war.

President Zelensky in desperation is meanwhile urging for Europe to swiftly nominate a representative for the negotiations, one of his top advisers was cite in a fresh Bloomberg report as saying.

"It should be a quickly made decision," Ihor Zhovkva, the deputy head of Zelenskiy’s office, said. "I hope right after the Paris meeting. We should act, not reflect."

The US-Russia talks are expected to begin Tuesday, likely making any effort to insert a top European official into the mix to represent Kiev's perspective too-little, too late.

Hungary has of course been a rare European voice of dissent this whole time, firmly standing in Trump's corner in efforts to achieve a rapid peace.

Hungarian Minister of Foreign Affairs and Foreign Economic Relations Peter Szijjarto, via TASS

Hungarian Foreign Minister Peter Szijjarto is Kazakhstan Monday, where he suggested the emergency Paris summit is really about thwarting peace and prolonging the war by a bunch of 'warmongers'. 

Szijjarto's comments were picked up and translated by Russia's RT. He said of the conference called by Macron as Europe scrambles to get a voice...

"We trust that the American-Russian negotiations will be successful, and we hope that this will lead to peace in Ukraine as soon as possible… However, we must also see that in Europe, those who do not want peace are organizing," he said.

"Those who have been constantly adding fuel to the fire for the past three years are gathering in Paris today," Szijjarto added, characterizing the participants as "war-mongering countries that have followed a misguided strategy."

Indeed, speaking of which, tiny NATO country Denmark has really been hyping the possibilities of late:

If Moscow perceives NATO as weak, Russia could be ready to wage a "large-scale war" in Europe within five years, the Danish Defense Intelligence Service (DDIS) has said.

"Russia is likely to be more willing to use military force in a regional war against one or more European NATO countries if it perceives NATO as militarily weakened or politically divided," states the report, which was released Tuesday.

"This is particularly true if Russia assesses that the U.S. cannot or will not support the European NATO countries in a war with Russia," it continues, emphasizing that Russia is ramping up its military capabilities to prepare for a possible war against NATO.

And on Monday Danish Prime Minister Mette Frederiksen followed this by saying Denmark and European allies must ramp up military preparedness, and claimed there are no signs that Moscow actually wants peace.

Von der Leyen on Monday: "We need a surge in defense in Europe."

Today in Paris we reaffirmed that Ukraine deserves peace through strength.

Peace respectful of its independance, sovereignty, territorial integrity, with strong security guarantees.

Europe carries its full share of the military assistance to Ukraine.

At the same time we need… pic.twitter.com/xdAnkeWr4v

— Ursula von der Leyen (@vonderleyen) February 17, 2025

All of this is also happening under lingering Trump threats, past and present, that if NATO allies don't pay there way they'll be left on their own. Trump even said in 2024 that he might "encourage" Russia to attack any NATO member country which fails to meet its defense spending obligations.

Tyler Durden Tue, 02/18/2025 - 08:15

The Fed Has Stopped Pretending That Price Inflation Is Going Away

Authored by Ryan McMaken via The Mises Institute,

At its September 2024 meeting, the Fed’s FOMC cut the target federal funds rate by a historically large 50 basis points and then justified this cut on the grounds that “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.”

The FOMC again cut the target rate in November and then again in December. 

Each time, the FOMC’s official statement said something to the effect of “[price] inflation is headed to two percent. 

Specifically, the November statement said “[Price inflation] has made progress toward the Committee’s 2 percent objective.” 

The December statement said exactly the same thing.

It remains unclear what motivated the FOMC to slice the target rate so drastically in September. Was it a cynical political ploy to stimulate the economy right before an election? Or was the Fed spooked by weak economic data? We don’t know, and the Fed is a secretive organization.

But whatever the Fed actually believes, the committee’s claims about “greater confidence” in falling price inflation is now gone. 

The FOMC announced in January that it would not lower the target rate, and the FOMC also removed from its official statement the line about making progress “toward the Committee’s 2 percent objective.” That sentence disappeared from the written statement, although Powell, in the press conference, apparently felt the need to remind the audience that “Inflation has moved much closer to our 2 percent longer-run goal…” He nonetheless failed to mention anything about continued progress.

It looks increasingly like all that confidence about “sustainable progress” on price inflation back in September—in the heat of election season, of course—was just one of the Fed’s many bogus, politically motivated forecasts.

Even if the Fed truly is motivated by the official data, though, it’s clear that the Fed now has good reason to downplay talk of declaring victory on the Fed’s two-percent inflation goal.

Recent official data—which generally reflects the best scenario that government bean counters can muster—shows plenty of bad news in this area. According to the Fed’s preferred inflation measure—PCE inflation—year-over-year price inflation reached an eight-month high in December, at 2.6 percent. (December is the most recent available number on PCE.) If we look at January’s headline CPI inflation, released on Wednesday, the picture is even worse. Year-over-year CPI inflation hit a nine-month high in January, at 3.0 percent, and month-to-month growth was at an eighteen-month high of 0.5 percent.

Thanks to the Fed’s unrestrained embrace of monetary inflation from 2020 to 2022, American consumers are still facing the grim reality of rising prices on basic necessities. In January’s CPI report, some of the largest jumps in prices were in food (2.5 percent), energy services (2.5 percent), other services (4.3 percent) and shelter (4.4 percent).

Wholesale prices also suggested that we won’t be seeing much relief from price inflation. According to new producer price index numbers, released on Thursday, year-over-year growth in the PPI reached a 24-month high of 3.5 percent. This is bad news for those hoping that the Fed’s predictions of falling prices might somehow come true. CNN delivered the bad news on Thursday: “The stronger numbers seen in Thursday’s PPI will tend to translate into continued consumer price inflation through the middle of the year.”

So much for the Fed’s dog-and-pony show of late summer 2024 when Jerome Powell repeatedly assured the public that the economy was in great shape and that price inflation was rapidly disappearing.

What the Fed Should Do

So, what should the Fed’s FOMC do now? The answer: “nothing.” Observers of Fed policy often speak in terms of the Fed “setting” interest rates or “raising” the target rate. In truth, the Fed doesn’t set rates, and it doesn’t raise interest rates, either. The Fed can allow interest rates to rise by intervening less in debt markets.  If the Fed just backs off from its endless manipulations through its open market operations, the Fed won’t be buying assets with newly created money and directly driving more price inflation. 

After so many years of forcing down interest rates, if the Fed just took a break from its constant meddling, interest rates would naturally rise. That would lead to bankruptcies among zombie companies and other enterprises that can’t survive without a constant infusion of new, cheap money. On the other hand, the bubble economy would start to heal, prices would fall, and prospective first-time home buyers might have a chance of actually buying a home. Ordinary people who can’t afford hedge fund managers might be able to actually make some money on investments again as interest rates on ordinary investments rise to more normal levels.

This is what the Fed should have been doing in September instead of manufacturing new excuses as to why it needed to cut rates again. Of course, the Fed never just sits back and lets the market function freely, because it is a political institution. It does what the regime asks of it, whether it’s for short-term stimulus, or when the federal government asks the Fed to push down interest rates to keep interest payments on the huge federal debt manageable. 

With Trump in office, it looks like there’s no break in the usual politicians’ calls for easy money. Indeed, it only took six weeks in office, and Donald Trump is back to demanding that the central bank force down interest rates. According to Bloomberg on Wednesday:

“President Donald Trump called for lower interest rates, seeking to raise pressure on the Federal Reserve as he moves to implement a second-term economic agenda high on tariffs and expanding tax breaks. ‘Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs,’ Trump said Wednesday in a post on social media.”

Is this a tacit admission that tariffs are a tax and will therefore slow the economy? Is Trump admitting he needs more easy money to keep up the appearance of a growing economy? 

Whatever the thinking is, forcing down interest rates even further will not benefit ordinary people.

They’ll just bring price inflation, malinvestment, and more of the same stagnation that that only looks like growth thanks to runaway government spending and record-breaking deficits. 

Tyler Durden Tue, 02/18/2025 - 07:45

The European Welfare State Is Collapsing

Authored by Daniel Lacalle,

Politicians in Europe are using the JD Vance and Trump external enemy excuse to disguise the existential problem of a system that is crumbling. The statist nightmare built around what politicians call “welfare state” has proven to be a subterfuge to multiply bureaucracy and create a dependent subclass.

The welfare state was never sustainable but was created as an affordable luxury that rich economies could finance with strong economic growth and a solid productive sector. However, European governments overlooked the necessity of fostering economic growth and productivity to finance the welfare state.

Furthermore, as left-wing populism permeated all segments of the European political landscape, politicians started to include more and more so-called “rights,” which became entitlement costs and subsidies, in a trend that led Europe to forget to create wealth and focus entirely on extractive and confiscatory policies.

We have seen a gradual destruction of the productive sector, asphyxiated by constantly raising taxes and bureaucratic and regulatory limitations, while government budgets expanded without control.

The economy of the European Union operates on an inverted economic model. It puts entitlement spending as its pillar, instead of seeing that the welfare state is, at best, a consequence of wealth creation, not a cause. Without a thriving private sector, there is no welfare. Politicians should understand that you cannot provide citizens with social programs if the productive economy is weakened by political design.

In the latest Eurostat estimates, the ratio of social insurance pension entitlements to GDP was between 200% and 400% in European economies. Unfunded financial commitments are so large they will only be paid in a massively weakened currency if the current economic policies continue.

France is the prime example of this “upside down” approach to the economy. Putting entitlement spending at the forefront of economic policies has led to decades of stagnation, high debt and deficit, and social discontent. Taxpayers are tired, and recipients of entitlements are relegated to a dependent subclass.

The trick is the following: Government spending soars, and everything spent is justified under the banner of “social spending”. 

Deficit and debt rise, so the government increases taxes to balance the budget.

If the economy grows, spending grows faster, and if the economy enters recession, the government spends even more to “protect” citizens. Thus, taxes rise even faster.

The constant process of expropriation of productive wealth becomes a burden on growth, investment, and productivity. Furthermore, more taxes generate lower incremental revenues and a demotivated business and workforce community that finds it impossible to thrive alongside the burden of bureaucracy and taxation.

Macron says that Europe is “underleveraged.”. The statement is incorrect, of course, but it is even less believable when we look at all the unfunded commitments.

Europe needs to abandon the current high taxes and bureaucracy and cut unnecessary spending so the pension and healthcare systems remain viable. This means slashing budgets and eliminating political spending. However, no political party wants to do it because thousands of their members depend on government jobs. The situation is so desperate that European nations cannot even increase the much-needed defense budget despite acknowledging the urgency of improving investment in security.

Europe’s welfare state became the welfare of the state at the expense of its businesses and taxpayers. The European Union has human capital, great businesspeople, and entrepreneurs. However, it is being destroyed from the inside by a political class that would rather see high inflation and a weaker currency than reduce its grip on the economy.

Tyler Durden Tue, 02/18/2025 - 02:00