"The Ever-Expanding Matrix Of NGOs Created An Army Of Useful Idiots..."

Authored by James Howard Kunstler,

Funny Money

“The revelations that are coming for America possess the potential to reshape our entire notion of the relationship between citizen and state.” 

- El Gato Malo on Substack

You’ve got to wonder how the Party of Chaos thought they would get away with the Stacey Abrams grift-of-grifts. 

In case you forgot, Stacey Abrams ran for governor of Georgia twice, lost, and claimed she was “real governor” for years after.

In the meantime, she parlayed her celebrity persona to a $3.17-million net worth by 2022, doing nothing but running for office. 

She claimed it derived from giving speeches, publishing romance novels, and “wise investments.”

That was then, and this is now.

Stacey popped up again this week in what looks like a textbook case of political scamming, uncovered by The DOGE team of forensic financial investigators. 

As “Joe Biden” racked up Democratic presidential primary wins in 2024, the shadowy claque behind him allocated $27-billion to the Environmental Protection Agency (EPA) from the huge Inflation Reduction Act, ostensibly for “climate change action.” 

The money was stashed at Citibank, where it became a hidden slush-fund to keep payoffs flowing to party favorites no matter who won the 2024 election. An EPA “special advisor on climate action,” one Brent Efron, told a Project Veritas investigative reporter that “President Biden” was “throwing gold bars off the Titanic”.

The key to understanding how the Democratic Party works is how it uses federal grants to redistribute taxpayer money into jobs programs for its rank-and-file. As seen in the recent USAID scandal, the action revolves around the creation of countless NGOs (non-governmental orgs). They are easily created, poorly supervised, and assembled into large networks of self-serving, inter-dependent organisms whose main mission is paying staffers — and secondarily pretending to do good works, as suggested by a given group’s name is. These staffers make up the matrix of Democratic Party activists, well-paid foot-soldiers in do-nothing jobs who can be called upon to cheer-lead for the party, organize street protests and, most critically, harvest ballots when the time comes.

Stacey Abrams became a kind of field marshal for setting up NGOs around her campaigns for office and then later turned them into money laundromats for the trillions of dollars fire-hosed out of the US Treasury during the Covid-19-darkened “Biden” years. Here are some of Stacy’s NGOs:

• The New Georgia Project and its affiliated NGP Action Fund — set up for her 2018 run for governor. It was eventually fined $300,000 for failing to disclose millions in contributions, failing to register properly, and sixteen violations of campaign laws. Its main purpose was providing jobs for an army of activists. One question that might have been asked: how many of Stacey Abrams’ books were purchased by The New Georgia Project, juicing her royalties?

• The Southern Economic Advancement Project, founded in 2019 to “promote equity” in twelve southern states, paid Stacey a $700,000 annual salary.

• The Fair Fight Action group raised nearly $62 million in dark pool donations by 2022, with 96-percent from 252 large, unidentified donors.

• The Fair Count Project was created to lobby for counting illegal aliens in the 2020 US Census, in order to pad state congressional districts.

• The Third Sector Development group, created as an “incubator” for other groups (including the New Georgia Project).

• The Fair Fight 2020 group, created to “train voter protection teams” in twenty “battleground states.” That is, ballot harvesting.

Out of the $27-billion from “Joe Biden’s” Inflation Reduction Act sent to EPA in 2024, $2-billion from the Greenhouse Gas Reduction Fund (GGRF) ended up in the Stacey-associated Rewiring America org and its offshoot the Power Forward Communities org. Stacey was listed as “senior counsel” to Rewiring America, which also happened to “partner” with her prior NGOs Fair Count and Southern Economic Advancement Project.

What you might surmise from all this is that “Joe Biden’s” green energy agenda was used as a green smokescreen for a giant patronage racketeering operation. The billions allocated would go ostensibly to innumerable corporations set up to carry-out “green” good deeds, most of which would never actually happen, but would, along the way, pad thousands upon thousands of bank accounts for favored contractors.

Stacey’s Power Forward Communities NGO was incorporated in the state of Delaware where loose corporate governance requires such orgs to pay out only five percent of the org’s funds to its stated mission recipients each year. The rest of the $2-billion not allocated to staff salaries can be socked away in safe investments garnering, say, $50-million-a-year in returns, which can be rolled back into the org and used for spinning out new NGOs with more paid staff positions. . .grift upon grift. . . .

That is what patronage is, and that, by the way, is how it became such an urgent national issue over a hundred years ago when it was openly known as the “spoils system” in electoral politics — to the victor go the spoils— which was resolved by the 1883 Pendleton Civil Service Reform Act. Alas, in our time patronage (that is, corruption) has reinvented itself as the blob, the runaway system that almost sank the country.

Do you see how all this works now? 

The ever-expanding matrix of NGOs creates an army of useful idiots working hand-in-hand with an ever-expanding rogue bureaucracy that has become effectively a fourth branch of government accountable to nobody. This is how your tax dollars disappear down a rat-hole and why the US government is insolvent.

The difference now is that the Democratic Party no longer has its hands on the levers of power. 

Different managers are in place at the critical agencies, most particularly Pam Bondi at DOJ, Kash Patel at the FBI, Russell Vought at OMB, Lee Zeldin at EPA, and Elon Musk in the DOGE.

In the past, nothing was done about these shenanigans. This time is different. 

The Democratic Party will lose its principal means for staying alive.

That’s why senators like Chuck Schumer, Chris Coons, and Adam Schiff are out mewling and hollering in the streets. 

Meanwhile, the blob is getting methodically disassembled, one bureaucratic office at a time. 

Before much longer we are going to be a different country, and most probably a better one.

 

Tyler Durden Fri, 02/21/2025 - 16:20

Far-Left Judge Who Fought Trump At Supreme Court Refuses To Dismiss DOJ Case Against NY Mayor Eric Adams

In echoes of the case against Michael Flynn, a federal judge on Friday refused to dismiss the DOJ's case against New York Mayor Eric Adams, and has instead appointed an outside lawyer to argue against dropping the charges - a motion which was otherwise unopposed.

The Biden DOJ notably began pursuing Adams after the NY Mayor spoke out about unchecked crime and illegal immigration into the Big Apple.

Biden-appointed Judge Dale E. Ho - a former director of the ACLU's Voting Rights Project, and who argued twice against the Trump administration in front of the Supreme Court on behalf of immigrant advocacy groups, appointed former George W. Bush US Solicitor General, Paul Clement (extra deep state) to analyze the Trump DOJ's decision to drop the case.

The order came after federal prosecutors argued that the ongoing case "improperly interfered" with Adams' 2024 reelection campaign and "unduly restricted" his ability to help the Trump administration fight illegal immigration.

"Here, the recent conference helped clarify the parties’ respective positions, but there has been no adversarial testing of the Government’s position generally or the form of its requested relief specifically," wrote Ho, the former attorney for illegal immigrant advocates.

Ho also called for additional briefs from the parties, and scheduled a tentative oral argument for March 14 if he felt it was necessary.

"The Court reiterates that it understands the importance of prompt resolution of the pending motion and will endeavor to rule expeditiously after briefing (and, if necessary, oral argument) is complete. The adjournment of trial and all related deadlines alleviates any prejudice resulting from a short delay," Ho wrote.

Ho's decision, made in a five-page ruling, will now prolong New York's largest political upheaval in a long time - and comes amid mass resignations and firings of federal prosecutors in New York and Washington DC, and several of Adams' opponents calling on him to step down.

Tyler Durden Fri, 02/21/2025 - 13:40

US CEO Confidence Increases Sharply From Cautious Optimism To Confident Optimism

Authored by Naveen Athrappullly via The Epoch Times,

Optimism among American CEOs surged in the first quarter of this year from the previous quarter, with concerns about various business risks easing down, according to a new survey from the think tank The Conference Board.

The “Measure of CEO Confidence,” an assessment of the U.S. economy from the perspective of U.S. chief executives, rose by nine points in the first quarter of 2025 to 60—the highest level in three years—the think tank said in a Feb. 20 statement. This is the first time since early 2022 that the index scored a value “well above 50,” suggesting that CEOs were moving away from the cautious optimism from last year to a more “confident optimism.” The survey was conducted among 134 CEOs.

The improvement in CEO confidence in the first quarter was “significant and broad-based,” said Stephanie Guichard, senior economist of global indicators at The Conference Board.

“All components of the Measure improved, as CEOs were substantially more optimistic about current economic conditions as well as about future economic conditions—both overall and in their own industries.

“There was a notable increase in the share of CEOs expecting to increase investment plans and a decline in the share expecting to downsize investment plans. Still, a majority of CEOs indicated no revisions to their capital spending plans over the next 12 months.”

Roger W. Ferguson Jr., chair emeritus of The Conference Board, said CEOs reported that concerns regarding a wide range of business risks had eased.

He said fewer chief executives ranked regulatory uncertainty, supply chain disruptions, financial and economic risks, and cyber threats as “high-impact” risks in the first quarter of 2025 compared to the fourth quarter of 2024.

While executives expressed optimism, many businesses reported challenges. A recent poll by the National Federation of Independent Business (NFIB) found that even though owners were optimistic about future business conditions, uncertainty was rising.

“Hiring challenges continue to frustrate Main Street owners as they struggle to find qualified workers to fill their many open positions. Meanwhile, fewer plan capital investments as they prepare for the months ahead,” said NFIB Chief Economist Bill Dunkelberg.

Impact of Tariffs

The optimism among businesses comes amid concerns that President Donald Trump’s various tariffs could negatively affect the country’s trade and economy.

Earlier this month, the Trump administration imposed an additional 10 percent tariff on imports from China. A proposed 25 percent tariff on Mexican and Canadian imports was paused for a 30-day period. Steel and Aluminum imports now face 25 percent tariffs.

Trump signed a plan to institute reciprocal tariffs on America’s trading partners.

“For many years, the U.S. has been treated unfairly by other countries, both friend and foe. This system will immediately bring fairness and prosperity back into the previously complex and unfair system of trade,” he said.

This week, Trump announced plans for new tariffs on lumber and other forest products. He also revealed plans for 25 percent tariffs on imported cars and similar duties on chips and drugs.

According to the Tax Foundation, the tariffs imposed on China are estimated to reduce long-run U.S. GDP by 0.1 percent, and the tariffs proposed on Mexico and Canada by 0.3 percent. These estimates do not take into account “foreign retaliation.”

The 2018–2019 tariffs implemented by the Trump administration and carried forward by the subsequent Biden administration “raised prices and reduced output and employment, producing a net negative impact on the U.S. economy,” the foundation said.

U.S. Chamber of Commerce Senior Vice President John Murphy called the imposition of tariffs “unprecedented,” warning that such a move “will only raise prices for American families and upend supply chains.”

However, Federal Reserve Governor Christopher J. Waller does not expect Trump’s tariff push to significantly impact inflation.

“My baseline view is that any imposition of tariffs will only modestly increase prices and in a non-persistent manner,” he said in a recent speech.

“I concede that the effects of tariffs could be larger than I anticipate, depending on how large they are and how they are implemented. But we also need to remember that it is possible that other policies under discussion could have positive supply effects and put downward pressure on inflation.”

Tyler Durden Fri, 02/21/2025 - 13:25

The Tariff Risk Isn't In Inflation

Authored by Lance Roberts via RealInvestmentAdvice.com,

For Part 1 on “Tariff Risk” read: Tariff Impact Not As Bearish As Predicted.

In “Trumpflation” we discussed why the tariff risk was not inflation. To wit:

“Today, globalization and technology give consumers vast choices in the products they buy. While instituting a tariff on a set of products from China may indeed raise the prices of those specific products, consumers have easy choices for substitution. A recent survey by Civic Science showed an excellent example of why tariffs won’t increase prices (always a function of supply and demand).”

Of course, if demand drops for products with tariffs, prices will fall, reducing inflationary pressures. Furthermore, the tariff risk is not a one-sided event. If Trump tariffs Chinese, European, or Canadian products, those countries tend to enact counter-balancing tariffs on U.S. products. Such slows demand for goods and services between all parties, again a deflationary process.

But therein lies the real tariff risk investors should focus on- the corporate profitability risk.

How We Got Here

Corporate profit margins in the U.S. are at historic highs, with S&P 500 companies enjoying levels well above their long-term exponential growth trends.

Post-pandemic demand surges, supply chain disruptions, and massive fiscal and monetary interventions supported those elevated margins. As evidenced by the chart below, the correlation between economic growth rates and corporate profits is high. Note that outliers of the correlation are historically related to events such as the “Financial Crisis” and post-recession economic recoveries.

However, as the economic landscape shifts, several factors threaten to erode these profit margins, which should raise concerns for investors.

Pandemic-era stimulus measures played a critical role in boosting corporate profits. Trillions in fiscal and monetary support created robust demand, while low interest rates reduced borrowing costs. Businesses capitalized on supply chain disruptions, passing increased costs to consumers with little resistance. At the same time, industries like technology and healthcare benefited from market consolidation, strengthening their pricing power. Labor costs also lagged behind inflation during this period, helping businesses maintain wide margins.

However, these conditions are now waning. As economic growth slows, supply chains normalize, and inflation moderates, sustaining high profit margins will become more challenging.

Such is particularly the case when it comes to tariffs.

Tariff Risk On Corporate Profits

Corporations react to cost increases in their business (i.e., wages, benefits, commodities, utilities, etc.), which must be factored into the selling price to maintain profitability. Crucially, corporations can only pass on higher input costs to consumers if demand remains higher than the available supply of those goods or services.

In 2020 and 2021, corporations could pass on most of the inflationary increase to consumers as they were willing to spend the Government’s money. However, as excess savings run out, inflation declines as consumers decrease spending; corporate profits weaken as the ability to pass on higher input costs to customers fades. As shown, as inflation declines, the rate of change in corporate profits also weakens.

We see the same if you use a two-year average of corporate profits minus inflation. Again, when inflation surged in 2020, corporations could pass on the bulk of the cost increases to consumers. Today, as inflation slows due to declining demand, corporations must absorb the inflation to sell products or services.

Another way to view this issue is by comparing the spread between the consumer price index (what consumers pay for goods and services) and the producer price index (what corporations pay). When inflation rises and consumer demand exceeds supply, corporations can pass higher input costs to consumers. However, when inflation declines, corporations must absorb higher input costs due to slower demand to sell products or services.

Here is the crucial point:

“Corporations don’t create inflation. They merely react to changes in demand and adjust pricing and supply to maintain profitability. When the consumer slows down, corporations cut prices to reduce supply.”

While many risks, such as high labor costs, increased borrowing costs, slowing economic growth, and tax policy risks, threaten corporate profitability over the next few years, tariff risk is often overlooked.

“The narrative in markets is that the outlook for the US is great, and the outlook for Europe, UK, and China is not good. For markets, the problem with this narrative is that 41% of revenues in the S&P 500 come from abroad. If we have a recession in Europe and a continued slowdown in China, it will have a significant negative impact on earnings for S&P 500 companies.” – Torsten Slok, Apollo Academy

One of the risks the Trump administration faces by imposing tariffs is the negative impact of tariffs on exports. Tariffs are an additional tax on imported goods, increasing the costs of those products. However, as noted above, tariffs are never in isolation, as the countries we impose tariffs on will likely impose tariffs back on the U.S. This “tit-for-tat” process threatens to raise costs on exports to countries already impacted by the purchasing power differential caused by a strong dollar. The chart below shows net corporate profit margins during the previous Trump-era tariff policy. Logically, given the high corporate revenue derived from international sales, investors should expect that any cost increase will immediately impact profitability.

With this potential tariff risk in mind, what are the implications for investors in 2025?

Implications for Investors

As always, the problem facing investors is the timing of when the impacts of economic, political, or regulatory changes occur. Sometimes, those impacts can be immediate, such as a reduction in corporate tax rates; other times, the effect of a political or regulatory change can take much longer to manifest.

However, given the exceptionally high profit margin levels in an environment where employment growth is declining, tariff risks are increasing, and economic growth is slowing, being somewhat cautious about specific market exposures may make sense. The chart below shows the long-term relationship between employment growth (where wages and economic demand come from) and corporate profitability as a percentage of the economy.

So, what should investors do? One step would be to monitor portfolio holdings with an exceptionally large foreign revenue exposure. Below is a table of notable S&P 500 companies with substantial international revenue exposure. (Note: The percentages of revenue from international sales are approximate and based on available data as of 2023. Current P/S and P/E ratios are subject to change based on market conditions and company performance.)

Furthermore, investors should adopt a proactive and diversified strategy. The following steps can help mitigate these risks:

1. Focus on Resilient Sectors: Certain industries, such as utilities, consumer staples, and healthcare, are less sensitive to tariff risks due to consistent demand. Allocating a portion of the portfolio to these sectors can help offset volatility in other areas.

2. Evaluate Profit Margin Trends: Rising costs, slowing demand, and tariff risks pressure high corporate profit margins. Investors should analyze companies’ ability to maintain profitability amid these challenges. Companies with efficient cost structures and strong pricing power are better positioned to weather such conditions.

3. Hedge Against Currency Risks: A strong dollar can compound the negative effects of tariffs by making U.S. goods more expensive abroad. Investors can consider hedging strategies or exposure to companies that benefit from a strong dollar.

4. Adopt a Long-Term View: While tariff policies may create near-term uncertainty, investors should focus on long-term fundamentals. Maintaining a disciplined investment strategy and avoiding reactive decisions based on short-term market volatility can lead to better outcomes.

While I have no idea whether tariff risk will threaten corporate profit margins with certainty, the data suggest that risks exist. As we proceed into 2025, the risk of markets reversing to realign prices with valuations seems increasingly likely.

We suggest that becoming more cautious may pay more significant dividends later this year.

*  *  *

For deeper insights into managing your investments in today’s volatile market, visit RealInvestmentAdvice.com for expert guidance and actionable strategies.

Tyler Durden Fri, 02/21/2025 - 12:45

Delta Offers $30,000 To Each Passenger Aboard Plane That Crashed, Flipped In Toronto

Authored by Kimberly Hayek via The Epoch Times (emphasis ours),

Delta Air Lines is offering US$30,000 to each of the 76 passengers aboard the plane that flipped upside down while landing at the Toronto Pearson International Airport on Feb. 17.

Those hurt in the crash sustained non-critical injuries, according to the airport’s chief executive.

A Delta spokesperson said the payment offer is a good-faith gesture with no strings attached, according to a statement sent to media outlets on Feb. 19. They will be offered to all passengers, not just the injured.

There were 76 passengers and four crew members aboard Flight 4819 when it crashed during landing and overturned at a snowy Toronto-Pearson International Airport just after 2 p.m. EST on Feb. 17.

Communications between the tower and pilot were normal on approach, and the cause of the crash is still under investigation. The airport’s fire chief has said that the runway “was dry and there was no crosswind conditions.”

The flight originated from Minneapolis. There were no fatalities, though 21 people were injured. As of the morning of Feb. 19, one person remained in the hospital, according to an update by the airline.

The crash left passengers, who were buckled into their seats, dangling upside down, before being helped by the crew to get off the plane.

If all passengers aboard the jet, a Mitsubishi CRJ-900LR, take the offer, the total payout amounts to more than $2.2 million. Some passengers have already retained legal representation to pursue further action.

The airport authority has credited the actions of the flight crew and first responders in saving the passengers.

“The crew of Delta flight 4819 heroically led passengers to safety evacuating a jet that had overturned on the runway, on landing amidst smoke and fire,” Greater Toronto Airports Authority CEO Deborah Flint said on Feb. 18.

The plane’s cockpit voice recorder and flight data recorder have been recovered and sent to a lab for further analysis, according to the Transportation Safety Board of Canada, which is leading the investigation into the incident.

“Following this initial impact, parts of the aircraft separated and a fire ensued,” Transportation Safety Board of Canada senior investigator Ken Webster said in a Feb. 18 update. “The fuselage came to rest slightly off the right side of the runway, upside down, facing the other direction.”

The agency has said it’s still unclear what led to the crash.

“At this point, it’s far too early to say what the cause of this accident might be,” Webster said.

The U.S. Federal Aviation Administration, U.S. National Transportation Safety Board, Delta’s incident response team, and Mitsubishi, the maker of the CRJ900 aircraft (originally made by Bombardier), are also taking part in the investigation.

As of Feb. 19, two of the airport’s five runways remained closed. Crew began removing parts of the wreckage on Feb. 19. The airport authority says once the wreckage is removed, it is expected that delays will persist as authorities inspect the runway to ensure everything is in proper condition.

Jennifer Cowan and The Canadian Press contributed to this report. 

*  *  *

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Tyler Durden Fri, 02/21/2025 - 11:30

"Fake News Strikes Again": Musk Dismisses Financial Times Report On Tesla & Nissan

Update:

A Financial Times report claimed earlier that a "high-level Japanese group that includes a former prime minister has drawn up plans for Elon Musk's Tesla to invest in the struggling carmaker Nissan." The report was dismissed as fake news, not only by Elon Musk but also by one of the former Tesla board members mentioned in the story.

"I have absolutely no involvement in what is reported in this article and am unaware of any such moves by the Japanese government. I am no longer with Tesla but personally doubt if Tesla has any interest at all in Nissan factories as Tesla's factory design is so unique," former Tesla border member Hiro Mizuno wrote on X, tagging Elon Musk in the post. 

The fake news strikes again

— Elon Musk (@elonmusk) February 21, 2025

Musk responded: "The fake news strikes again." 

*   *   * 

Shares of Nissan Motor in Tokyo jumped on Friday after the Financial Times reported that a "high-level Japanese group that includes a former prime minister has drawn up plans for Elon Musk's Tesla to invest in the struggling carmaker Nissan." This follows the collapse of merger talks between Nissan and rival Honda earlier this month

Sources told the FT that former Tesla board member Hiro Mizuno is leading the initiative, with support from former Prime Minister Yoshihide Suga and his former aide Hiroto Izumi. Those familiar with the matter said several Nissan board members know about the new proposal, which could involve the world's largest electric vehicle maker acquiring Nissan's US plants.

News about a consortium of investors seeking to "court Tesla on Nissan investment" comes just weeks after Honda's proposed $58 billion merger with Nissan to create the world's fourth-largest carmaker collapsed. 

FT noted that the failed Honda-Nissan deal has "spurred fears that Japan's third-largest carmaker could fall into potentially hostile foreign hands, with Taiwanese iPhone assembler Foxconn, activists, and private equity groups circling." 

The report was not clear about which Nissan assets were part of the deal.

Nissan shares in Tokyo closed up 9.5% on Friday. Shares are trading at Covid lows...

On X, Tesla's Elon Musk told investor Sawyer Merritt: "The Tesla factory IS the product. The Cybercab production line is like nothing else in the automotive industry." Musk was responding to Merritt's post, citing the FT report. 

The Tesla factory IS the product.

The Cybercab production line is like nothing else in the automotive industry.

— Elon Musk (@elonmusk) February 21, 2025

"For Tesla, it's difficult to think there are any merits in buying Nissan," Yasuhiko Hirakawa, head of investment at Rakuten Investment Management, who Bloomberg quoted. 

Hirakawa noted, "It obviously has no need for legacy assets like engines and assembly lines. It's difficult to imagine something Tesla needs that Nissan can offer."

Right, especially since Tesla has its own struggles, including the first annual sales drop in a decade. 

Tesla Spikes Despite Soft Q4 Results After Forecasting Vehicle Business Returning To Growth https://t.co/8OY0913I36

— zerohedge (@zerohedge) January 29, 2025

Rieko Otsuka, an MCP Asset Management strategist, explained, "Whoever the buyer is, Nissan's restructuring is unavoidable." 

Tyler Durden Fri, 02/21/2025 - 11:17

"From Disney World To The Real World": Europe's Leadership Continues To Fail Its Citizens

By Teeuwe Mevissen, senior macro strategist at Rabobank

While Europe is still reeling from the Munich security conference last weekend, Putin probably couldn’t believe his luck when he saw Trump’s message accusing Ukraine of starting the war and calling president Zelensky a dictator. For the past four years, Europe knew very well that there was a chance that Trump could be re-elected. And during all these years, From a military perspective, European leaders did close to nothing to prepare themselves for a possible second Trump administration. Most notably German Chancellor Scholtz, who spoke of a zeitenwende just days after Russia’s invasion, failed to deliver any meaningful progress in rebuilding Germany’s army and its defence industry. And now the chickens have come home to roost.

While it is the new US administration that seems to shock the European elites the most right now, they should actually fear their own inaction, lack of urgency, can’t do mentality and in some cases the inability to overcome national interests. On top of that we see a lack of strategic thinking, apathy, panic and victimhood. All of this points towards a theme that we have often discussed. Europe continues to be plagued by a leadership crisis and does not do what is considered to be the core tasks of any government: protecting its citizens and their belongings. All this leads to one conclusion. Europe needs to grow up, leave Disney world and come to terms with this new world.

Illustrative of this new world is the inability of G7 countries to agree on a common statement. The US has opposed the phrases that mention “Russian aggression,” which were included previously in statements of support released on 24 February. All this would have been unthinkable until recently.

But there is more for Europe to worry about. This weekend, Germany will hold elections and the far right AfD is polling to win about 20% of the votes, doing especially well in the Eastern part of the country. A complex formation of a new government could further delay much needed decision making within Europe on crucial areas like defense cooperation and complying to more ambitious and realistic NATO spending targets. Read more in our special covering the German elections.

And Europe faces more than security challenges alone. It’s manufacturing sector is still struggling with high energy prices and lots of red tape. This has led to a prolonged period were sentiment in the European manufacturing sector can only be described as pessimistic. That pessimism may now be bottoming out, but we don’t expect a rapid rebound. Today’s first estimate of the manufacturing PMI for Germany came in at 46.1. That’s slightly better than the 45.5 that was expected, some improvement from the 45.0 reading for January.

France also saw a some improvement of sentiment within the manufacturing sector with a figure of 45.5 compared to 45.3 expected and 45 for January.  While sentiment in the manufacturing sector slightly improved, the French services sector came in at a very disappointing 44.5. The S&P report noted: “The services sector is a cause for concern, with a significant downturn in activity compared to the previous month.” The data present a weak picture of the sector at the start of 2025. Order intakes are shrinking at a rapid pace and future activity expectations remain well below the historical average. That’s weighing on French hiring, and we saw substantial layoffs in February.

Earlier this morning there was more positive news coming in from the UK which showed that British consumers spent considerably more than was expected. However this was after very disappointing retail sales during the all-important holiday month of December. Furthermore consumer sentiment continues to remain weak.

Tyler Durden Fri, 02/21/2025 - 10:50

US Existing Home Sales Plunged In January As Mortgage Rates Rose

The lagged impact of a resurgence in mortgage rates can back to bite existing home sales in January, as they fell 4.9% MoM (worse than the 2.6% decline expected). That is the biggest MoM drop since Nov 2022...

Source: Bloomberg

Sales declined the most in the West and South, which were afflicted by destructive wildfires in Los Angeles and severe winter weather, respectively. 

To the extent weather played a role, those sales are just a matter of timing and will probably take place in subsequent months instead, NAR Chief Economist Lawrence Yun said on a call with reporters.

Optimism about the US housing market should remain muted though as rates are flat since this data hit...

Source: Bloomberg

“Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve,” Yun said in a statement. 

“When combined with elevated home prices, housing affordability remains a major challenge.”

Even so, prices are still climbing. 

The median sale price climbed 4.8% from a year ago to $396,900, reflecting more activity at the higher end - especially homes priced above $1 million. 

Source: Bloomberg

Yun said that partially reflects strong performance in the stock market for higher-income buyers as well as more homes shifting into higher price brackets.

Properties stayed on the market for 41 days on average in January, the highest in five years.

Finally, Yun said NAR is concerned about the Trump administration’s interest in privatizing mortgage giants Fannie Mae and Freddie Mac, which have been in government conservatorship since their bailouts in 2008. Releasing them from the government could lead to even higher mortgage rates, he said.

Tyler Durden Fri, 02/21/2025 - 10:28

Hooters Goes Tits-Up As Bankruptcy May Come Within Months

Hooters of America is reportedly gearing up for a bankruptcy filing in the coming months as the iconic restaurant chain struggles with declining foot traffic and mounting debt, sources familiar with the matter told Bloomberg.

The Atlanta-based casual dining chain has enlisted the legal muscle of Ropes & Gray to handle its restructuring, while turnaround specialists at boutique advisory firm Accordion Partners are helping sort out the financial mess, according to sources who requested anonymity while discussing private dealings. The bankruptcy process is expected to kick off within the next two months.

Soon to be unemployed? Hooters waitress from Savannah, Georgia

Hooters’ creditors aren’t sitting idly by either. Some debtholders have tapped investment banking powerhouse Houlihan Lokey Inc. for advice, underscoring the severity of the chain’s financial troubles.

Declining Sales and Mounting Debt

The company has been struggling with cash flow issues as customers increasingly flock to other casual dining and fast-casual options. In recent years, several Hooters locations have closed their doors, a clear sign that the once-popular brand known for its wings and waitstaff is facing an existential crisis.

Adding to the financial woes, Hooters took on significant debt in 2021, issuing about $300 million in asset-backed bonds. These bonds, structured as whole-business securitizations, used the company’s franchise fees and other assets as collateral—a move common among restaurant chains looking to leverage their brand value for quick cash.

Executives Stay Silent

Despite the growing speculation, representatives for Hooters, Accordion Partners, and Ropes & Gray did not respond to requests for comment. A spokesperson for Houlihan Lokey also declined to weigh in on the situation.

The looming bankruptcy marks a dramatic downturn for a brand that once dominated the sports bar scene with its signature wings and controversial-but-effective marketing. With an increasingly competitive restaurant landscape and shifting consumer preferences, Hooters now faces the challenge of reinventing itself—or risk being left in the dust.

For now, it looks like the chain’s famous orange shorts and tight cash flow may both be on the chopping block.

How could this have possibly happened?

Go woke, go broke pic.twitter.com/oypxd5PB4w

— SpiritOfSanJacinto1836 (@JonFMJ) February 21, 2025

I wonder why? pic.twitter.com/obAtoxC1Uk

— LogicalQueries (@JoshuaCalledMe) February 21, 2025

sagging sales?

— Matthew Murrie (@MattMurrie) February 21, 2025

*  *  *

You can support ZeroHedge by snagging one of these high-quality, sharp, kickass ZeroHedge Multitools. On sale until Monday!

Satisfaction guaranteed or your money back.

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Tyler Durden Fri, 02/21/2025 - 10:20

UMich Inflation Expectations Explode To 30 Year High

After exploding higher (to 4.3%) in the preliminary February data, UMich's final print for inflation expectations (1Y) was the same but the medium-term (5-10Y) expectation shot up to 3.5% - its highest since April 1995

Source: Bloomberg

In the flash data, UMich noted that the partisan divide over inflation expectations (1Y) was an extreme record (Democrats +5.1%, but Republicans 0.0%) and the final data confirmed that...

Source: Bloomberg

But for the 5-10Y inflation expectation, the partisan divide grew even more with Democrats convinced long-term inflation will be at 4.2% while Republicans see it closer to 1.5%...

Source: Bloomberg

UMich' Director Joanne Hsu notes that Consumer sentiment extended its early month decline, sliding nearly 10% from January. 

.

The decrease was unanimous across groups by age, income, and wealth. All five index components deteriorated this month, led by a 19% plunge in buying conditions for durables, in large part due to fears that tariff-induced price increases are imminent. Expectations for personal finances and the short-run economic outlook both declined almost 10% in February, while the long-run economic outlook fell back about 6% to its lowest reading since November 2023.

We remain unclear just how UMich is weighting their survey (or who they are asking) because their results are a considerable outlier...

spot the odd inflation expectation out: is UMich has become the center of the new anti-Trump "inflationary resistance" pic.twitter.com/Gke4X6Pfni

— zerohedge (@zerohedge) February 21, 2025

While sentiment fell for both Democrats and Independents, it was unchanged for Republicans, reflecting continued disagreements on the consequences of new economic policies. Confidence for Democrats is at its lowest since June 2008...

From what we can tell, all this data shows is that leftists media fearmongering propaganda works... on Democrats.

Tyler Durden Fri, 02/21/2025 - 10:08

US Services Sector PMI Plunges Into Contraction For First Time In 2 Years

After plunging in January, analysts expected US Services PMI survey to stabilize in February (and Manufacturing to continue modestly improving).

The analysts were half right and very wrong... While February's preliminary Manufacturing print was 51.6 (highest since June 2024, up from 51.2 in Jan and better than the 51.4 exp), US Services PMI crashed to 49.7 (into contraction for the first time since Jan 2023), well below its 53.0 expectation...

Source: Bloomberg

This 'Services down, Manufacturing up' trend was also evident in European data this morning...

Cost pressures meanwhile intensified to the highest since last September. Service sector input cost inflation edged up to a four-month high, with companies citing tariff related price hikes from suppliers alongside rising food prices and upward wage pressures. But it was manufacturing which saw the steepest increase in costs, with raw material prices showing the largest monthly gain since October 2022, with the increase overwhelmingly blamed by purchasing managers on tariffs and related supplier-driven price hikes.

US Composite PMI plunged from 'first' in the world to almost 'worst'...

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

“The upbeat mood seen among US businesses at the start of the year has evaporated, replaced with a darkening picture of heightened uncertainty, stalling business activity and rising prices. 

"Optimism about the year ahead has slumped from the near-three-year highs seen at the turn of the year to one of the gloomiest since the pandemic. Companies report widespread concerns about the impact of federal government policies, ranging from spending cuts to tariffs and geopolitical developments. Sales are reportedly being hit by the uncertainty caused by the changing political landscape, and prices are rising amid tariff-related price hikes from suppliers. 

"Whereas the survey was indicating robust economic growth in excess of 2% late last year, the February survey signals a faltering of annualised GDP growth to just 0.6%.

"While overall inflationary pressures remained muted, this reflected a squeezing of margins in the services sector as companies sought to absorb cost increases in order to offer competitive prices amid weakened demand. A concern is the sharp, tariff-related, jump in manufacturing input prices, which will likely either put further upward pressure on inflation in the coming months or further squeeze profit margins among US companies."

So it's tariff fears - not actual tariff pressure - that is prompting panic?

Tyler Durden Fri, 02/21/2025 - 09:55

UnitedHealth Rebounds After Calling WSJ's Report On Medicare Billing Practice "Misinformation"

Update (0953ET):

UnitedHealth Group shares clawed back some losses after the company told Bloomberg that a Wall Street Journal report on its medical billing practices was "misinformation." 

*UNITEDHEALTH CALLS WALL STREET JOURNAL REPORT 'MISINFORMATION'

— zerohedge (@zerohedge) February 21, 2025

The company stated that it was unaware of any "launch" of "new" activity involving federal investigators.

*   *   * 

Shares of UnitedHealth Group plunged in premarket trading after a Wall Street Journal report revealed that the Justice Department had launched a civil fraud investigation into the healthcare group's billing practices, specifically examining how it records diagnoses that increase government payments to its Medicare Advantage plans.

The probe follows a series of WSJ reports last year that showed Medicare paid UnitedHealth billions for questionable diagnoses. DoJ attorneys recently interviewed medical providers cited in those articles. 

This investigation adds to mounting scrutiny of the $460 billion healthcare giant, which is also facing an antitrust probe and a DoJ lawsuit to block its $3.3 billion acquisition of home-health company Amedisys. 

UnitedHealth shares tumbled nearly 10% in premarket trading in response to WSJ's report. Shares are down nearly 25% since Luigi Mangione, the 26-year-old accused of killing UnitedHealthcare CEO Brian Thompson in early December in Manhattan. 

Here's more from WSJ's report:

In December, the Journal reported that its analysis of billions of Medicare records showed that patients examined by UnitedHealth-employed doctors had huge increases in lucrative diagnoses after joining the company's Medicare Advantage plans.

Doctors said UnitedHealth, based in the Minneapolis area, trained them to document revenue-generating diagnoses, including some they felt were obscure or irrelevant. The company also used software to suggest conditions and paid bonuses for considering the suggestions, among other tactics, according to the doctors.

Last summer, the Journal also reported that UnitedHealth added diagnoses to patients' records for conditions that no doctor treated, which triggered an extra $8.7 billion in federal payments in 2021... 

Dow futures also tumbled on the news, as UnitedHealth is the second-largest contributor to the main equity index.

"When you find two cockroaches, it is almost a certainty that there are many more. And a half a trillion market cap for a health insurer makes no sense. I expect that there are many whistleblowers who have shared their work with the government and that more will be inspired to do so," Bill Ackman wrote on X. 

When a company, in this case United Healthcare, attacks its critics, the probability that it has committed fraud or is guilty of a crime increases substantially. This morning the DOJ announced an investigation into UNH’s Medicare billing practices. The DOJ did not do this… https://t.co/BX3WtYzRJi

— Bill Ackman (@BillAckman) February 21, 2025

*Developing... 

Tyler Durden Fri, 02/21/2025 - 09:53

Futures Flat As Markets Brace For $2.7 Trillion Option Expiration

US equity futures are flat, as European and Asian markets rise, as sentiment improves on the last day of the week. As of 8:10am ET, S&P futures were unchanged at 6,138 after Walmart’s forecast and concerns about consumer behavior led to a decline in stocks Thursday; Nasdaq futures gained 0.3% with the Mag 7 names are mostly higher led by META +0.6%. US-listed Chinese stocks rose in premarket trading on Alibaba's post-earnings euphoria and after Treasury Secretary Scott Bessent said he would hold an introductory phone call with his Chinese counterpart, though he didn’t specify who on the Chinese side he’d speak to. Bond yields are 1-2bps lower and the USD is higher. Commodities are mixed: oil fell -0.8% this morning, while base metals are higher. From the macro perspective, overnight headlines were largely quiet; earnings results since market-close were mixed; BKNG announced 10% dividend increase and additional buybacks. Today, key macro focus will be global PMIs: the Mfg PMI is expected to print 51.4 vs. 51.2 prior; the Services PMI should print 53.0 vs. 52.9 prior.

In premarket trading, the Mag7 was little changed (GOOGL +0.2%, AMZN +0.2%, AAPL -0.07%, MSFT +0.3%, META +0.6%, NVDA +0.06% and TSLA -0.3%). US-listed Chinese stocks rise after Alibaba’s earnings offered a fresh boost to the China tech sector.Baidu (BIDU) +3%, JD.com (JD) +1.6%). Data center providers gained as Alibaba pledged to increase capital spending to support its AI ambitions. Dow Jones heavyweight UnitedHealth plunged more than 10%  after the WSJ reported that the DOJ has launched an investigation into the company’s Medicare billing practices in recent months. The report cited people familiar with the matter. The Financial Times reported a high-level Japanese group had drawn up plans for Tesla to invest in carmaker Nissan. Here are some more premarket movers:

• Akamai Technologies (AKAM) drops 9% after the infrastructure software company gave an outlook that is weaker than expected.
• Block (XYZ) falls 8% after the digital payments company gave a 2025 gross profit outlook slightly below what Wall Street expected, with Mizuho noting “no new upside.”
• Celsius Holdings (CELH) jumps 31% after the company said it would buy rival Alani Nutrition for $1.8 billion in cash and stock, including $150 million in tax assets.
• Dropbox (DBX) drops 9% after the document management software company reported fourth-quarter results. Analysts noted concerns over user trends and growth.
• Five9 (FIVN) rises 15% after the software company’s earnings beat estimates thanks to strong growth in subscription revenue.
• Floor & Decor Holdings Inc. (FND) climbs 9% after the retailer posted 4Q profit that beat estimates and same-store sales were better than expected.
• Grid Dynamics Holdings (GDYN) soars 22% after the information technology services company provided revenue forecasts for the 1Q and year that topped expectations.
• Innodata (INOD) jumps 11% after the data engineering company reported fourth-quarter revenue and earnings per share that beat the average analyst estimate.
• MercadoLibre (MELI) climbs 12% as Latin America’s most valuable company far surpassed net income estimates in the final quarter of 2024 while growing revenue at its commerce and fintech units at a faster pace than expected.
• Nubank (NU) falls 8% after the digital bank reported fourth-quarter net income that missed consensus estimates.
• RingCentral (RNG) declines 3% after the communications software company gave an outlook that is weaker than expected for EPS and revenues.
• Rivian (RIVN) slips 3% after the electric-vehicle maker issued a downbeat first-quarter vehicle delivery forecast that overshadowed its first-ever quarterly gross profit.
• Weave Communications (WEAV) slumps 15% after the infrastructure software company reported its fourth-quarter results and gave a forecast that is seen as conservative.

US equities have been lagging their European and Asian counterparts so far this year, and BofA CIO Michael Hartnett reiterated a preference for global stocks to US peers, seeing markets such as Germany, China, Japan and South Korea as more attractive at a time when business activity is improving. US companies’ profit outlooks for 2025 have also been relatively subdued, strategists at JPMorgan noted.

It is a quiet end to a turbulent week but we still have a huge, $2.7 trillion opex to go through. Goldman estimates that over $2.7 Trillion of notional options exposure will expire including $1.2 Trillion of SPX options and $615 Billion notional of single stock options, 9:30 AM Settlement: $1.3 Trillion ($1.2 Trillion is SPX AM), and $1.4 Trillion ($615 Billion single stocks). 

Dealers are long +$9.787 Billion of S&P 500 gamma at current spot, acting as a market buffer, supporting weakness and muting rallies. The Goldman index trading team estimates that 50% of this long gamma position rolls off tomorrow, and the market will have the ability to move more freely next week (read our full preview here).

Traders are now looking ahead to Germany’s weekend election and hoping the results will allow the Conservative front-runner to forge a coalition that can push through economic reforms and loosen borrowing rules. If Europe’s biggest economy can spend more on defense, it may help calm a market rattled by Washington’s efforts to boost ties with Russia, they said.

In Europe, the Stoxx 600 Index added 0.6%, heading for its ninth consecutive weekly gain on the back of resilient profits and optimism over peace talks in Ukraine; chemical names as Air Liquide shares surged with analysts enthusiastic about their higher margin guidance. Standard Chartered leads outperformance in banks after confirming plans to hand back $1.5 billion more to shareholders. The German DAX index rises 0.2% ahead of Sunday’s election. European stocks enjoyed about $4 billion in inflows in the week through Feb. 19, the most since February 2022, according to a Bank of America Corp. note that cited EPFR Global data. Here are some of the biggest movers on Friday:

• StanChart shares jump as much as 5.8% to hit a new 2014-high Friday after the bank’s fourth-quarter results, posting the best performance in the European banking sub-index.
• Kingspan shares gain as much as 12%, the most since July 2023, after the building materials company beat revenue and Ebitda estimates in its full-year results.
• UK retailers and grocery stocks are outperforming on Friday after sales grew more strongly than expected at the start of the year, as robust demand for food offsets weaker consumer confidence (JD Sports (+2.4%), Pets at Home (+1.5%), Frasers Group (+1,1%), Dunelm (+0.6%), B&M (+1.2%) and Currys (+1.2%); Primark-owner AB Foods, which is not in the sub-index, is up 1.5%)
• Ferrexpo shares rebound as much as 12% after saying it hasn’t been formally been notified by Ukraine about a possible seizure of a stake in its iron ore mine.
• Air Liquide shares rise as much as 3.8%, heading for a record close, with analysts enthusiastic about the French chemicals company’s higher margin guidance after full-year results were described as in line.
• Sika climbs as much as 4.1%, the most since September, after the Swiss construction and materials company reported full-year results that met market expectations and is set for continuing growth this year, according to Baader.
• ProSieben shares rise as much as 12% in Frankfurt after La Stampa said MFE-MediaForEurope — the broadcaster owned by Italy’s Berlusconi family — may consider making a takeover bid.
• Alten shares jump as much as 16%, their biggest one-day gain in nearly 17 years, after the French IT services firm released results and said that its business is stabilizing, even as there is no sign yet of a recovery.
• Diageo shares rise as much as 2.1%, extending a rebound into a second session, with analysts bullish on recovery prospects after management gave a presentation at the Consumer Analyst Group of New York (CAGNY).
• Elekta shares tumble as much as 11%, the most in more than 8 months, after the Swedish medical technology firm reported sales and earnings for the third quarter that missed estimates, while cutting its FY guidance for sales growth and Ebit margin.

Earlier in the session, stocks in Asia rose, buoyed by a rally in technology shares as Chinese e-commerce giant Alibaba’s stellar results boosted investor sentiment. The MSCI Asia Pacific Index climbed 0.7%, supported by Alibaba along with Tencent, TSMC and Xiaomi. The regional gauge marked a sixth-straight weekly advance, rising 1.2% for the period, the longest winning streak in almost a year. Equities in Hong Kong and mainland China led gains around the region Friday. Alibaba shares jumped the most in nearly three years after it reported sales that beat estimates. The results were seen as a good sign for a continuation of the DeepSeek-driven rally in everything related to China’s AI sector, which helped push the Hang Seng Tech Index into a bull market earlier this month. Chinese technology stocks surged to their highest level since 2022, lifted by a 14% jump in Alibaba. Elsewhere in the region, Japanese stocks closed 0.3% higher after Bank of Japan Governor Kazuo Ueda said he expects easy financial conditions to support the economy. Shares saw notable gains in Taiwan and the Philippines.

In rates, treasury futures drifted higher with the curve flatter, supported by a drop in oil and wider gains seen across bunds which jumped on a notably weak French service PMI print for February although gains were tempered by more encouraging readings from Germany. German 10-year yields fall 4 bps to 2.49%. Gilts were largely unmoved by a UK PMI which came in close to expectations. UK 10-year borrowing costs are flat at 4.61%. Treasuries edge higher.

In FX, the Bloomberg Dollar Spot Index rose 0.2%, rebounding from 2025 lows with economists expecting the composite reading at 53.2, slightly below the January reading; the yen weakened 0.5% against the US dollar after BOJ Governor Ueda signaled a readiness to quell a surge in bond yields. The Japanese currency earlier touched a fresh 2025 high after inflation accelerated more than forecast. The euro falls 0.3% after purchasing manager data showed business activity in the region hardly grew in February, reinforcing fears that the bloc remains mired in stagnation.

In commodities, oil prices decline, with WTI falling 1% to $71.80 a barrel. Spot gold drops $8 to around $2,931/oz, but still headed for an eighth consecutive weekly advance as the geopolitical and trade tensions fueled demand for the precious metal.

The US economic data calendar includes February manufacturing PMI (9:45am), University of Michigan sentiment and January existing home sales (10am). Fed speaker slate includes Jefferson at 11:30am on central bank communication

Market Snapshot

• S&P 500 futures little changed at 6,136.25
• STOXX Europe 600 up 0.3% to 552.66
• MXAP up 0.8% to 190.21
• MXAPJ up 1.3% to 601.61
• Nikkei up 0.3% to 38,776.94
• Topix little changed at 2,736.53
• Hang Seng Index up 4.0% to 23,477.92
• Shanghai Composite up 0.8% to 3,379.11
• Sensex down 0.5% to 75,328.71
• Australia S&P/ASX 200 down 0.3% to 8,296.21
• Kospi little changed at 2,654.58
• German 10Y yield little changed at 2.50%
• Euro down 0.2% to $1.0475
• Brent Futures down 0.6% to $76.00/bbl
• Gold spot down 0.4% to $2,927.26
• US Dollar Index up 0.23% to 106.62

Top Overnight News

• Russia used the first round of talks with the US over ending the war in Ukraine to demand the withdrawal of Nato forces from the alliance’s eastern flank, triggering concern in Europe that the Trump administration could acquiesce to seal a peace deal. FT
• Wall Street is strategizing for more radical moves from Donald Trump amid talk he may force some of the US’s foreign creditors to swap their Treasuries into ultra long-term bonds to ease America’s debt burden. BBG
• The US and EU have discussed a potential deal to cut and ultimately scrap tariffs on car imports.   EU officials insisted there was “positive momentum: towards a compromise between the two sides following talks in Washington this week. FT
• China Foreign Ministry says Vice Premier He Lifeng will speak with US Treasury Secretary Bessent, "will communicate important issues in the economic field between China and US over video call".
• Nissan shares jumped on an FT report that a high-level Japanese group may seek investment from Tesla to aid the carmaker. The proposal envisions a consortium of investors, with the EV maker as the largest backer, acquiring Nissan’s plants in the US. FT
• Fed's Kugler (voter) said she believes the Fed should hold the policy rate in place for some time and noted there is currently a lot of uncertainty about the potential effect of President Trump's tariffs, as well as noted they are looking at potential scenarios on tariff impacts and tariffs could put up price pressures, but the extent is less known: BBG
• Senate continues vote-a-rama through the night to develop budget framework for Trump agenda: Fox's Pergram.
• Senate GOP budget resolution passes with Rand Paul voting no: Punchbowl
• Japan’s national CPI for Dec was mostly inline, including on headline (+4% vs. the Street +4% and vs. +3.6% in Dec) and core (+2.5% vs. the Street +2.5% and vs. +2.4% in Dec). BBG
• BOJ Governor Kazuo Ueda issued a mild warning on Friday that it could increase bond buying if "abnormal" market moves trigger a sharp rise in yields, but he was reiterating the bank's pledge made when it began tapering bond purchases in July last year. RTRS
•  
• The PBOC added a net $11.6 billion into the financial system, it’s largest single-day infusion this month, to try to ease a cash crunch. BBG
• UK retail sales come in solidly ahead of expectations at +2.1% M/M (vs. the Street +0.9%). RTRS… Eurozone flash PMIs are mixed for Feb, with manufacturing ticking up to 47.3 (vs. 46.6 in Jan and slightly above the Street’s 47 forecast) while services fell to 50.7 (down from 51.3 in Jan and below the Street’s 51.5 consensus), and underlying inflation trends worsened (input and output costs both jumped in Feb). S&P
• European stocks attracted the most inflows since war broke out Ukraine three years ago, according to BofA, citing EPFR Global data. About $4 billion flowed into European funds, underpinned by optimism on peace negotiations. BBG

A more detailed look at overnight markets courtesy of Newsquawk

APAC stocks traded mostly higher albeit with mixed price action seen following the subdued handover from Wall St where stocks declined amid geopolitical uncertainty, disappointing data and weak Walmart guidance, while participants in the region digested earnings releases and central bank commentary. ASX 200 marginally declined amid a deluge of earnings releases and after Australia's flash manufacturing PMI improved but remained in contraction territory, while RBA Governor Bullock reiterated a cautious approach to further rate cuts. Nikkei 225 swung between gains and losses with initial pressure owing to recent currency strength and after mostly firmer-than-expected CPI data, although the index then rebounded and the yen weakened amid comments from BoJ Governor Ueda who said if markets make abnormal moves, they stand ready to respond nimbly, such as through market operations. Hang Seng and Shanghai Comp are positive with notable outperformance in the Hong Kong benchmark which was led by a tech surge as Alibaba shares climbed by a double-digit percentage post-earnings, while the PBoC and Chinese Premier Li recently pledged efforts to smooth financing and stimulate consumption, respectively.

Top Asian News

• BoJ Governor Ueda said BoJ's massive monetary easing including YCC was a necessary process towards achieving the price target and they acknowledged the BoJ's massive stimulus caused various side effects, Ueda said they expect long-term interest rates to fluctuate to some extent depending on the market's view on the economic outlook and if markets make abnormal moves, they stand ready to respond nimbly, such as through market operations, to smooth market moves. Ueda said he won't comment on where long-term interest rates could eventually converge and cannot say specifically when exactly the BoJ could conduct emergency market operations to soothe yield moves. Furthermore, he said there could be more side effects from monetary easing and that more interest rate hikes could come into sight if the price outlook continues to improve, and there might be some unpredictable impact on the economy, while he reiterated the accommodative environment continues and BoJ will adjust monetary policy if underlying prices rise.
• RBA Governor Bullock said the board is committed to being guided by incoming data and evolving risk assessments, while she added there is no pre-commitment to any specific course of action on interest rates and the board remains cautious about further policy easing.

European bourses (STOXX 600 +0.3%) opened with a modest positive bias, but sentiment slipped a touch, to display a more mixed picture. Thereafter, sentiment in Europe was hit following the release of the French PMI metrics, but the downside largely stabilised after the German and EZ figures. European sectors hold a positive bias, but with the breadth of the market fairly narrow aside from the day’s leader. Chemicals tops the pile, lifted by post-earning strength in Air Liquide (+2.9%). Energy resides at the foot of the pile, given the weakness in oil prices in today’s session.

Top European News

• UK reportedly lines up a new ambassador to help rebuild China ties, according to Reuters.

FX

• DXY is attempting to recoup some lost ground after printing a YTD trough overnight at 106.35. Downside in the prior session stems from the opening up the prospect of a US-China trade deal, softer-than-expected US data and the US curve flattening on the back of Treasury Secretary Bessent's recent comments. If upside for the DXY extends, the next target comes via the 107 mark with yesterday's peak just above at 107.15.
• EUR was knocked lower in early trade following a dismal outturn for French flash PMI data which saw the services metric print below the lower end of expectations, dragging the composite metrics further into negative territory and to its lowest reading since 2023. EUR/USD printed a session low at 1.0469 before recouping some ground after a beat on German manufacturing PMI was able to move the composite metric further into expansionary territory. Attention now turns to Sunday's German election with focus on what the outcome will mean for the nation's fiscal agenda. ECB's Lane due to speak at 14:30GMT.
• JPY is the clear laggard across the majors with a firmer-than-expected outturn for Japanese national CPI overshadowed by comments from BoJ Governor Ueda. Ueda declared that the Bank will respond to any abnormal upside in long-term interest rates with purchases of government bonds. As such, after initially printing a fresh YTD trough overnight at 149.29, the pair has returned to a 150 handle.
• Cable printed a fresh YTD peak in early European trade following a solid retail sales report for January with the headline print coming in above the top end of estimates. On the data slate, flash PMIs for January were a mixed bag with a beat on services offset by a miss in manufacturing, leaving the composite in-line with estimates at 50.5.
• Antipodeans are both marginally softer vs. the stronger USD. AUD/USD was able to print another fresh YTD peak and breach the 0.64 threshold (0.6408 peak) before succumbing to the strength in the greenback.

Fixed Income

• USTs are marginally firmer but only posting gains of a handful of ticks in rangebound/choppy trade with US-specifics so far somewhat lighter than has been the case in recent sessions. Overnight, USTs caught a bid alongside the discussed move in JGBs. Specifically, at the upper-end of a 109-03+ to 109-11+ band, eyeing the 109-15 peak from Monday. Ahead, while we await updates to the tariff and geopolitical narratives we get data via US Flash PMIs and then an appearance from Fed’s Jefferson (Voter) on Fed Communication, from this we expect both a text release and a Q&A.
• Bunds are firmer, leading the EGB space. At the upper-end of a 131.56 to 132.20 band which has eclipsed Tuesday’s best but yet to approach Monday’s 132.58 WTD peak. Into the morning’s data Bunds were around 15 ticks off the above base and in the red. The French numbers hit first and came in softer than expected with the Composite at its lowest since 2023 and particular concern around the Services figures. A release which lifted Bunds to the session high, but soon faded into the German figures which were mixed but far better than the French metrics earlier. The pan-EZ figure came in mixed vs consensus and spurred no real reaction.
• Gilts are moving with the above but with magnitudes more contained into its own data. A release which didn’t really spark much of a reaction given it was quite mixed. Services came in marginally better than expected while Manufacturing missed and printed outside the forecast range leaving Composite in-line with consensus and only incrementally down from the prior. Prior to the Flash PMIs, UK Retail metrics came in stronger than expected though the PNSB figures, while at a record surplus, actually posted a smaller surplus than the OBR forecast at the time of the October Budget; a ‘surplus’ which, given the OBR compare, isn’t as much of a welcome indicator for the Chancellor as it may appear on face value.
• JGBs were supported overnight by BoJ Governor Ueda, remarks which more than offset any pressure from hotter-than-expected Japanese CPI. Ueda said that the BoJ stands ready to respond nimbly such as through market operations if markets make abnormal moves.
• Orders for the 8yr BTP Plus have hit EUR 14bln across the offer period

Commodities

• Subdued price action across the crude complex, with prices weakening as the European session went underway and the dollar trending higher. Sentiment for the complex could also be subdued by the downbeat commentary from the EZ flash PMIs, which suggested "Economic output in the eurozone is barely moving at all." Brent sits in a USD 75.89-76.75/bbl.
• Lower trade across precious metals as the Dollar attempts a recovery from its recent tumble and in turn prompting downside across metals. It was also reported that record gold prices have dampened demand at top Asian hubs, with buyers in India and China reportedly "sitting back" and waiting for a drop in prices. Spot gold resides in a USD 2,916.82-2,949.93/oz range.
• Base metals are lower across the board amid the aforementioned recovery in the Dollar coupled with flimsy risk sentiment, albeit in the absence of macro newsflow. 3M LME copper trades with mild losses between a USD 9,455.95-9,570.80/t range.
• EU's Energy Commissioner said the EU is looking for more gas, including from the likes of the US, to replace Russian supplies, via Reuters; the draft shows that the EU is aiming for long-term LNG contracts to stabilise prices. The EU is also looking for renewable energy to cut its overall reliance on fuel.
• Oil flows from Tengiz field via Caspian Pipeline Consortium are uninterrupted, according to Ifax citing Tengizchevroil.

Geopolitics: Middle East

• Israeli police received reports of two explosions in Bat Yam and one in Holon on Thursday night, while four explosive devices were found in buses in Bat Yam and Holon. Israeli PM's office said there was an attempt to carry out a series of attacks on buses and Israeli PM Netanyahu has instructed the military to carry out an intense operation in the West Bank against "terror" hubs.
• Israel military said two bodies released by Hamas on Thursday were identified as Israeli hostages Kfir and Ariel Bibas, while it demanded for Hamas to return Shiri Bilbas along with all hostages. It was separately reported that the IDF said the exchange with Hamas on Saturday will continue as planned, according to Asharq News.

Geopolitics: Ukraine

• "AFP quoting Ukrainian source: Kiev and Washington continue negotiations on strategic minerals", according to Sky News Arabia.
• Russia Security Council says threats to Russian port infrastructure from NATO have intensified, according to RIA. Adds, NATO considers maritime transport and major oil terminals as targets for attacks.
• US Secretary of State Rubio said the meeting between US President Trump and Russian President Putin will largely depend on whether progress can be made on ending the war in Ukraine.
• US opposes language on 'Russian aggression' in G7 statement on Ukraine, according to FT
• Polish PM Tusk called for financing aid for Ukraine from frozen Russian assets and urged stronger defences along EU borders with Russia.
• China's Foreign Minister Wang Yi said China supports all efforts conducive to peace in Ukraine including the recent consensus reached by the US and Russia, while he added that China is willing to continue playing a constructive role in political resolution of the crisis.
• "German Chancellor: Ceasefire in Ukraine is still elusive", according to Sky News Arabia.
• Russian Kremlin says there is an understanding for a Trump-Putin meeting; no concrete details yet. Special military operation is continuing and goals will be achieved. Have goals related to security and ready to achieve this via negotiations.

Geopolitics: Other

• China’s military warned and drove away three Philippine aircraft that ‘illegally intruded’ into the airspace near the Spratly Islands and reefs on Thursday.
• There has been a new cable break in the Baltic Sea, according to information to TV4 News, The Armed Forces confirm that they are aware of the information.
• Sweden's PM says they are looking into a breach of an undersea cable within the Baltic Sea; Coast Guard adds that the suspected breach occurred in Sweden's EEZ.
• European Commission is to propose a new surveillance mechanism for submarine cables, according to a document cited by Reuters.

US Event Calendar

• 09:45: Feb. S&P Global US Manufacturing PM, est. 51.4, prior 51.2
  • Feb. S&P Global US Services PMI, est. 53.0, prior 52.9
  • Feb. S&P Global US Composite PMI, est. 53.2, prior 52.7
• 10:00: Feb. U. of Mich. Sentiment, est. 67.8, prior 67.8
  • Feb. U. of Mich. Current Conditions, est. 68.5, prior 68.7
  • Feb. U. of Mich. Expectations, est. 67.4, prior 67.3
  • Feb. U. of Mich. 1 Yr Inflation, est. 4.3%, prior 4.3%
  • Feb. U. of Mich. 5-10 Yr Inflation, est. 3.3%, prior 3.3%
• 10:00: Jan. Existing Home Sales MoM, est. -2.6%, prior 2.2%

Central Bank Speakers

• 11:30: Fed’s Jefferson Speaks on Central Bank Communication

DB's Jim Reid concludes the overnight wrap

Five years ago today we all went home on the Friday night blissfully unaware of the way our lives would change by Monday, and then subsequently over the next couple of years. This weekend coming was when Covid cases started to rise exponentially in Italy and by Sunday night 11 Italian towns were in lockdown. The rest as they say is history. I'll do a CoTD today on global asset price performance since this point. So watch out for that. I wonder if in five years time we'll look back on this coming weekend as a pivotal moment in Europe (good or bad) given the German election.

We'll have a full preview of that below but a brief review of the last 24 hours first. We saw a moderate risk-off move yesterday, with the S&P 500 (-0.43%) falling back from its all-time high, whilst gold prices closed at a record $2,939/oz. This morning Chinese risk is doing well on the back of Alibaba'a earnings. The main story in the US was a weaker-than-expected forecast from Walmart, which added to nerves about the health of the consumer right now, especially after a soft retail sales print last week. So that dented confidence, but some nervousness is also setting in ahead of a pivotal German election this Sunday, which could have significant implications for European markets and geopolitics for years to come.

The election comes against a difficult backdrop for Germany right now, as their economy has just experienced two consecutive annual contractions over 2023 and 2024. Indeed its economy hasn't grown over the last 5 years which for one of the strongest nations in the world, is a major disappointment and big cause for concern.

Moreover, the vote itself is taking place several months earlier than planned, as it was called after the three-way coalition of the SPD, Greens and FDP collapsed late last year. There’s a big debate about what Germany needs to do to boost growth, and a large part of that has centred around whether the new government should pursue a more expansionary fiscal policy, and even reform the constitutional debt brake to allow for more spending.

As it stands, Politico’s polling average has the conservative CDU/CSU bloc in the lead on 30%, who are currently led by Friedrich Merz. They’re followed by the far-right AfD on 21%, Chancellor Scholz’s centre-left SPD on 16%, and the Greens on 13%. Then you’ve got several parties on the cusp of the 5% threshold to enter Parliament, including the Left who’ve seen a late surge up to 7%, with the far-left BSW and the free-market FDP both on 5% (other polling aggregates suggest a rounding down to slightly below 5% for BSW and FDP). It’s important to keep an eye on those parties around the 5% threshold, as small changes in vote share could have a big impact on coalition formation and how fragmented the new Bundestag will be. So here the outcomes become non-linear between 4.9% of the vote and 5.1%. Put simply if one of the fringe parties enters parliament it‘s likely that the centrist parties will still have a two-thirds majority that could allow them to change the debt break if they agree to. If two enter they are unlikely to have a two-thirds majority and the subsequent horse trading could prevent meaningful reform. See my CoTD from Wednesday here for more on this and page 14 of our German economics primer on the election here.

In terms of when we’ll get the result, the first exit polls will be at 6pm CET, but those still come with some margin of error (0.5pts in 2021). But projections based on actual votes will be released from 6:30pm and updated throughout the evening. So by 8pm, it’s likely that the projections will be firm enough to have a clear view on coalition options and whether the two-third centrist parliamentary majority is achieved.

After the vote, the question will then turn to coalition negotiations, but these can take anything from a few weeks to several months based on prior experience. Indeed, after the 2017 election, it took almost 6 months before a new government was formed, as the initial three-way talks between the CDU/CSU, the Greens and the FDP broke down, so another grand coalition was eventually agreed between the CDU/CSU and the SPD. But last time, it was a shorter 8 weeks between the election day and reaching an agreement.

In terms of what it means for policy, clearly that will depend on the sort of government that’s formed. But our economists think it’s plausible to assume a net fiscal easing of around 0.5% of GDP by 2026. Much of that’s likely to be from higher defence spending. And beyond that, they see an easing of the debt brake at the state level as likely, which could unlock substantial public investment and consumption with high multipliers.

Away from the German election, the main story of the last 24 hours, as discussed at the top, was a pullback in US equities, though this decline did ease somewhat as the session went on. By the close, the S&P 500 was down -0.43%, having been -0.97% lower early on. The decline followed a weaker-than-expected profit forecast from Walmart (-6.53%), who were the worst performer in the Dow Jones (-1.01%) as a result. Moreover, that followed a worse-than-expected US retail sales number last week, which showed the biggest monthly contraction (-0.9%) since March 2023. So putting all that together, it added to fears that growth might be losing momentum into the new year. With this backdrop, bank stocks were the biggest decliners within the S&P 500 (-2.97%), giving up some of the outperformance that had propelled the sector to a +11.7% YTD gain prior to yesterday’s decline. Elsewhere in Europe, the STOXX 600 (-0.20%) also lost further ground, leaving the index on course to post its first weekly decline of 2025 so far.

On the rates side, the risk-off tone pushed yields lower on both sides of the Atlantic. But the main headlines came from US Treasury Secretary Scott Bessent, who said that moves to increase longer-term debt sales were “a long way off”. So that helped to push down longer-dated Treasury yields, with the 10yr Treasury yield down -2.8bps on the day to 4.51% and overnight trading at 4.49% (-1.95bps) . By contrast, the 2yr yield was little changed (+0.1bps to 4.27%), in part amid hawkish-leaning Fedspeak, as St Louis President Musalem said that policy should stay “modestly restrictive until inflation convergence is assured” He further added that “Around this baseline scenario, the risks of inflation stalling above 2% or moving higher seem skewed to the upside”.

Over in Europe bond yields saw similar declines, with yields on 10yr bunds (-2.4bps), OATs (-2.3bps) and BTPs (-2.5bps) all falling back. And with the risk-off mood driven more by the US economic outlook than policy headlines, the euro closed above 1.05 against the dollar for the first time since mid-December as the broad dollar index (-0.75%) lost substantial ground.

Asian equity markets are mostly rising this morning with the Hang Seng (+3.21%) seeing a renewed rally after Alibaba has jumped +13.2% on the back of strong earnings, thus helping the index notch its longest winning run since January 2023. On the mainland, the Shanghai Composite (+0.77%) is also trading noticeably higher as Alibaba’s stellar earnings renewed confidence in China’s major tech stocks. Elsewhere, the Nikkei (+0.18%) is also trading slightly higher while the KOSPI is flat. S&P 500 (-0.08%) and NASDAQ 100 (-0.09%) futures are a little softer.

Early morning data showed that Japan’s inflation accelerated to hit a 2yr high, rising +4.0% y/y in January from +3.6% in the prior month. Core CPI also rose more than expected, reaching 3.2% y/y, a one-and-a-half-year high and a tenth above consensus but with core-core in-line. The latest readings ties further into the BOJ’s projections of higher inflation, which is expected to elicit more rate hikes from the central bank this year.

Earlier today, the BOJ Governor Kazuo Ueda signalled that the central bank stands ready to increase government bond buying if long-term interest rates rise sharply, reiterating the BOJ’s long-standing commitment to supporting stable markets. Following the statement, yields on the 10yr JGBs fell -2.0bps to settle at 1.42% after briefly touching a fresh 15-year high of 1.459% while the Japanese yen (-0.33%) fell below the 150 level against the US per dollar, retreating from 11-weeks high. Meanwhile, markets are pricing in a roughly 84% chance of a 25bps hike at the July meeting, up from a 70% chance at the start of the month.

Looking at yesterday’s other data, the US weekly initial jobless claims ticked up to 219k (vs. 215k expected) in the week ending February 15. In addition, the continuing claims for the previous week moved up to 1.869m (vs. 1.868m expected). Meanwhile in the Euro Area, the European Commission’s consumer confidence indicator moved up to -13.6 in February (vs. -14.0 expected), which is its highest level since October.

To the day ahead now, and data releases include the flash PMIs for February, UK retail sales for January, and in the US there’s existing home sales for January, along with the University of Michigan’s final consumer sentiment index for February. From central banks, we’ll hear from Fed Vice Chair Jefferson, the ECB’s Lane, and Bank of Canada Governor Macklem.

 

Tyler Durden Fri, 02/21/2025 - 08:30

Another Undersea Fiber Optic Cable Damaged In Baltic Sea As Incidents Pile Up

A new subsea data cable incident occurred in the Baltic Sea on Thursday, raising concerns about the vulnerability of underwater infrastructure in the heavily trafficked shipping lane. The incident adds to increasing fears of potential sabotage in the region. 

Mattias Lindholm, a spokesman for the Swedish Coast Guard, told The New York Times that the C-Lion1 Finland-Germany fiber line was damaged off the Swedish island of Gotland in the Baltic Sea. He provided no details on when the damage occurred or what caused it.

Prime Minister Ulf Kristersson of Sweden said that his government took "all reports of possible damage to infrastructure in the Baltic Sea very seriously." 

Finnish networking company Cinia, which operates the high-speed fiber line, told Bloomberg that the connection between Finland and Germany remains uninterrupted. However, they noted there appears to be a "scratch" on the line but provided no further details. 

What is clear is that the cable was not completely severed, unlike previous incidents in recent years.

Between November and January, there were three incidents of damaged undersea cables in the Baltic Sea - from data cables to power cables... 

"It's a great concern to see the number of incidents over recent months in our critical undersea infrastructure," Henna Virkkunen, executive vice president of the European Commission for tech sovereignty and security, told reporters in Helsinki, adding, "These incidents have the potential to disrupt vital services to our society, such as connectivity and electricity transmission, and also carry a significant security risk."

However, a Washington Post article last month citing anonymous officials said these cable incidents were likely caused by negligence rather than sabotage. Sure. 

Tyler Durden Fri, 02/21/2025 - 07:45

Subprime Redux: Commercial Real Estate Bond Distress Hits Another Record High

Authored by Artis Shepherd via The Mises Institute,

At the end of Q4 2024, commercial real estate continued to exhibit severe weakness, with commercial real estate bonds hitting record distress levels, surpassing the previous records reached in Q3 2024. Commercial real estate bonds are just commercial real estate loans packaged into securities and sold to investors. One category of bonds, commercial mortgage-backed securities (“CMBS”), saw their distress rate increase to 10.6 percent, a fourth consecutive monthly record.

Most notably, in the CMBS category—which comprises approximately $625 billion in outstanding commercial real estate debt—loans on office properties now exhibit a distress rate above 17 percent while apartment loan distress accelerated to 12.5 percent. While loans underlying CMBS bonds—which are generally longer-term and fixed-rate—appear woefully insolvent, another group of bonds comprising short-term floating-rate commercial real estate loans are even worse.

These bridge loans—which are packaged up into CRE-CLO (commercial real estate-collateralized loan obligation) bonds—represent roughly $75 billion of outstanding commercial real estate debt today. At year-end, they were sporting a 13.8 percent distress rate, eclipsing the prior record of 13.1 percent set at the end of Q3 2024.

Worse than It Looks

As bad as the above stats may seem, they do not convey the true extent of malinvestment in commercial real estate, and the consequences thereof. For starters, the analysis leaves out the market for bank lending in commercial real estate—the largest source and the hardest for which to find data—comprising roughly $3 trillion in outstanding loans.

Simple distress rates also fail to recognize the potential for distress in nominally healthy loans, only identifying those that have explicitly been deemed distressed. In this case, distressed means 30 days or more delinquent on a payment, past the maturity date, currently in special servicing (a condition where property performance puts the health of a loan in jeopardy or specific loan agreement clauses have been violated), or a combination thereof.

A loan that is not currently distressed can nonetheless be potentially distressed and susceptible to losses once that distress is formally recognized. A recent analysis, published in a Wall Street Journal article, of distress in CRE-CLO bonds for apartments noted that 81 percent of such loans showed this potential distress.

Lastly, the distress rate is simply a measure of the loan balances considered distressed divided by all outstanding loan balances. As a metric, it does not convey the magnitude of losses in the event of default. This is critical, as it pertains to specific values by which these loans—and their corresponding bonds—must eventually be marked down. Once “marked to market,” these losses can have a significant impact on the financial statements of bond holders, comprising vast swaths of institutional investors—including banks—that must ultimately account for the true value of this $4 trillion asset class.

And therein lies the rub. Bondholders have not marked these investments down to their true value. Realizing losses on bonds reduces net income and balance sheet values for those bondholders. This, in turn, can affect perceived financial health, ability to raise capital, and—especially for banks—threaten compliance with regulatory requirements.

By avoiding marking down their bonds, they’ve been able to escape the ramifications for the time being. These bondholders can ignore reality, but they can’t ignore the consequences of ignoring reality. Ultimately, the truth will out. Bonds and loans require a certain amount of cash to support their contractual debt service requirements and, at some point, the fact that the loans do not generate enough cash will become unavoidably apparent. To see the matter clearly, a close look at the bond data—at the level of the underlying loans and properties—is required.

Anatomy of a CRE-CLO Bond

A randomly selected bond I reviewed comprises loans from 63 apartment properties with a total loan balance of approximately $1.7 billion. Upon review, it is immediately clear that this bond is insolvent. 15 of the 63 loans are currently delinquent to some degree and an additional 4 loans are not currently delinquent but have been delinquent at some point in the last 12 months.

The weighted average Debt Service Coverage Ratio (“DSCR”)—the ratio of net cash flow to debt service—for the entire bond is a lousy 0.54x. This means that the properties comprising the bond’s collateral produce only $54 in net cash flow for every $100 of debt service due. Remarkably, only one of the 63 loans has a DSCR above 1.0x. Recall that these are bridge loans, where debt service is interest-only. Unlike a residential mortgage, no principal is due with debt service payments.

Generally, as properties fail to produce the cash required to meet debt service payments, appraisals are performed to adjust values so that the reappraisal conforms to operational reality. Within this bond, however, only eight of the 63 properties have been reappraised. And of those eight re-appraisals, the average reduction in appraised value has been only 4 percent.

As an example, the property underlying the largest loan within this bond—a 500-unit apartment complex in a large western metro—was reappraised slightly downward in late 2024, from $105 million to $98 million, despite producing less than $3MM in net cash flow and carrying a DSCR of 0.36x. A proper market valuation on this property would likely land in the $50-60MM range, resulting in a $40-50MM loss on this single loan. A similar analysis of all loans within the bond would lead an analyst to suggest a significant impairment to its value.

Lipstick on a Pig

A review of various CRE-CLO and CMBS bonds, particularly those originating in the 2020-2022 period, paints a similar picture to what I’ve just described while offering additional insights.

Line items within the bond data often show loan-level DSCR markedly lower than that indicated by comparing the property’s net cash flow to the current debt service on the loan. This suggests an additional source of debt financing—aside from the loan in question—that is required to be included in the DSCR calculation but is not subject to detailed reporting within the bond data. This additional, mezzanine financing is provided to distressed borrowers by the bond managers and loan originators in order to temporarily cover current debt shortfalls on the main loan. This has the effect of keeping the loans out of formal delinquency but puts the borrower deeper in debt, exacerbating the existing problem.

Lenders and bond servicers have also offered many borrowers forbearance—including temporarily lowering interest rates or allowing cash interest to accrue—making loan and bond performance appear better than it would otherwise. Again, a temporary tactic that kicks the can down the road, doing nothing to address the fundamental problem of poor underlying property performance.

Appraisals and revaluations of the properties underlying the bond’s loans are also not being carried out honestly. This is because the admission of large reductions in property values would lead to the same for loan values, impacting bondholders directly, but also indirectly hurting adjacent entities and industries in a cascading effect. As losses on specific bonds are reported, those bondholders book losses on their own income statement. Equity is reduced on the balance sheet. For banks that hold such bonds, these movements imperil their compliance with regulatory standards. As these pieces of information become public, that cascading effect ripples out from a particular bond to other, similar bonds. Bondholders of all types are then viewed with scrutiny, raising questions about the health of the entire commercial real estate industry and every institution that has exposure to it.

Surprisingly, most or all of these types of bonds—including the specific bond described above—are rated investment-grade and “stable” by rating agencies. 

If this sounds a lot like the subprime crisis of 2006-2008, that’s because there are many similarities. 

At approximately $4 trillion, the commercial real estate loan market is the same size as the subprime mortgage market at its peak. Also like subprime loans, commercial real estate loans made over the last few years were issued in the midst of a raging bubble that saw prices reach unprecedented levels. To facilitate this bubble, loans were issued repeatedly to those who had no real experience in commercial real estate or investment management.

All of this was underpinned by the hysterical Federal Reserve and US government interventions during the covid panic, pushing monetary and fiscal madness upon the capital markets in the form of near-zero interest rates and trillions of newly-created dollars. The result is a burgeoning crisis in commercial real estate—which the data unmistakably confirms—despite attempts by bondholders to postpone reality.

Tyler Durden Fri, 02/21/2025 - 07:20

British Couple Traveling Round The World Charged With Espionage In Iran

Authored by Chris Summers via The Epoch Times (emphasis ours),

A British husband couple who were on a motorcycle journey around the world while arrested last month have been charged with espionage in Iran.

Undated image of Craig and Lindsay Foreman, who were detained in Iran in Feb. 2025. Family Handout/PA Wire

An Iranian judiciary spokesman, Asghar Jahangir, told the Mizan news agency in Tehran on Tuesday the couple had “collected information” in several parts of the country while posing as tourists.

Lindsay Foreman, a motivational speaker, and her husband Craig Foreman were heading for Australia and crossed into Iran from Armenia on Dec. 30, according to their social media posts.

They were detained by Revolutionary Guards in the city of Kerman, 300 miles southeast of Tehran, late last month.

Jahangir said the Foremans were detained, “during a series of coordinated intelligence operations and while collecting information in Kerman city.”

The couple, who are believed to be in their 50s, are accused of having links to intelligence agencies of “hostile countries.”

A British Foreign Office spokesman said: “We are deeply concerned by reports that two British nationals have been charged with espionage in Iran. We continue to raise this case directly with the Iranian authorities.”

“We are providing them with consular assistance and remain in close contact with their family members,” he added.

The Foreign Office (FCDO), on its website, advises against all travel to Iran.

The guidance warns travel insurance will probably be invalidated in Iran and says, “Having a British passport or connections to the UK can be reason enough for the Iranian authorities to detain you.”

In a post on her Facebook page on Dec. 30, Lindsay Foreman said, “Despite the advice of friends, family, and the FCDO (which strongly advises against travel to Iran for British nationals), we’ve chosen to keep moving forward.”

‘Aware of the Risks’

“Yes, we’re aware of the risks,” she wrote. “But we also know the rewards of meeting incredible people, hearing their stories, and seeing the breathtaking landscapes of these regions could far outweigh the fear.”

On Jan. 3, she posted another message on Facebook, which said: “Travel continues to teach me that humanity’s core is shared: kindness, humility, and respect for one another. Sometimes, it’s the quietest moments that leave the loudest impressions.”

After that the Facebook page activity stopped, although it is not clear when the couple were detained.

The Foremans, who described their journey as “PP (positive people) K2K (knee-to-knee) motorbiking around the world” had also posted regularly on YouTube about their travels.

Last month they posted a video from the city of Tabriz in north-west Iran, in which Lindsay Foreman said: “I feel content. I’m in Iran, having an amazing time.”

An Iranian tourist guide who appeared to be hosting the couple, said on the video, “Please don’t listen to media, come and discover Iran.”

Lindsay Foreman was carrying out a research project, asking people what constitutes a “good life,” and was due to present her findings at a conference on positive psychology in Brisbane in July.

Iran has a track record of detaining foreign nationals and accusing them of espionage, often releasing them in exchange for Iranians captured abroad, or other diplomatic rewards.

Nazanin Zaghari-Ratcliffe (L) with her husband Richard Ratcliffe and daughter Gabriella as they leave 10 Downing Street, central London, after a meeting with UK Prime Minister Boris Johnson on May 13, 2022. Victoria Jones/PA

In March 2022, Nazanin Zaghari-Ratcliffe and Anoosheh Ashoori, dual British-Iranian citizens, were released after being detained for several years in Iran.

In exchange for their release, Britain paid Iran a £40 million ($50.3 million) debt dating from the rule of the Shah of Iran in the 1970s.

The UK government accepted it should pay the “legitimate debt” for an order of 1,500 Chieftain tanks, which was not fulfilled after the shah was deposed and replaced by the Islamic regime.

Last month Iran released an Italian journalist, Cecilia Sala, who had been detained for a month, in exchange for Iranian businessman Mohammad Abedini, 38, was arrested at Milan Malpensa Airport on a U.S. warrant for allegedly supplying drone parts that Washington said were used in a 2024 attack that killed three U.S. soldiers in Jordan.

The Associated Press and PA Media contributed to this report. 

Tyler Durden Fri, 02/21/2025 - 05:00

Liz Truss Calls For 'Elon & His Nerd Army' To Investigate 'British Deep State'

Former British Prime Minister Liz Truss told the audience at this year's Conservative Political Action Conference (CPAC) that her country is "failing," and needs a MAGA-type movement to save it.

"We now have a major problem in Britain that judges are making decisions that should be made by politicians," said Truss, speaking from National Harbor, Maryland, and adding that the British judiciary is "no longer accountable" due to reforms by her predecessor, Tony Blair, who handed power over to an "unelected bureaucracy."

"There’s no doubt in my mind that until those changes are reversed, we do not have a functioning country. The British state is now failing, is not working. The decisions are not being made by politicians," Truss continued.

Truss also said that UK voters have grown increasingly angry because they keep voting for change - only to be let down over and over, including by current PM Keir Starmer.

"The same people are still making the decisions. It’s the deep state, it’s the unelected bureaucrats, it’s the judiciary," Truss said. "And I think what ultimately will happen, what I hope to see, is a movement like you have in the US with Maga [‘Make America great again’], with CPAC, with all these organisations, that ultimately pushes change we all want. We want to have a British CPAC."

Truss then said "We want Elon and his nerd army of muskrats examining the British Deep State!"

FMR. UK PM LIZ TRUSS: "We look across the Atlantic with envy."

"We want illegal immigrants deported!"

"We want taxes to be cut!"

"We want a Trump revolution in Britain!"

"We want Elon & his nerd army of muskrats examining the British deep state!" pic.twitter.com/BkK7Mwut4O

— Breaking911 (@Breaking911) February 20, 2025

Truss's comments are emblematic of a growing right-wing movement across Europe - as voters in Germany, Austria, France and the Netherlands have been gravitating towards populism amid failed 'green' policies, unchecked immigration, and censorship policies that violate basic human rights.

According to the NY Times, which spoke with Europeans who voted for right-wing candidates, people cast their ballots "in fury, in frustration, in protest and perhaps most of all in a bid to bring change to a system they believe has failed to fulfill the contract between their democratically elected governments and the people."

They talked openly about nationalism, immigration, stagnant economies, the cost of living, housing shortages, anger at the elite and their countries’ perceived buckling to what many consider politically correct views.

Their voices offer a window into the choices Europeans may make in the year ahead. The main event will be a Feb. 23 snap federal election after the collapse of the governing coalition in Germany, where the far-right Alternative for Germany, or AfD, has made tremendous gains. Voters in Italy, Poland, Norway, Ireland, Romania and the Czech Republic — all countries where populist movements are either well established or on the rise — are also expected to choose leaders on the local or national level.

Meanwhile, Nigel Farage's Reform Party is on track to win the next election.

Farage has notably slammed the impact of Net Zero on the British Economy, and says he's on a mission to "reindustrialize" Britain and achieve a "180 shift" in the country's policies.

There’s reason for cheer at Reform HQ this morning: Nigel Farage’s party is leading Labour in a YouGov voting intention poll for the first time. According to the poll, Reform UK leads on 25 points with Labour in second place on 24 per cent and the Conservatives in third on 21 per cent. Meanwhile, the Liberal Democrats are on 14 per cent and the Greens on 9 per cent. While there have been a handful of polls to date putting Reform in the lead, they have so far been regarded as outliers. In response to the poll, Richard Tice, the deputy leader of Reform, said: ‘Much more to come as common sense policies welcomed to save Britain and make us better off’. -Spectator.co.uk

h/t Watts Up With That

Tyler Durden Fri, 02/21/2025 - 04:15

Italy Hands Out 110% Free Home Renovations, Guess What Happened

Authored by Mike Shedlock via MishTalk.com,

A Modern Monetary Theory “Superbonus” trial is underway in Italy. The state pays 110 percent of home renovations...

In an effort to stimulate the economy during Covid, MMT proponent and then Prime Minister Giuseppe Conte came up with a not so brilliant idea that is now so popular no politician has been able to completely turn it off.

Contractors are going door-to-door offering to renovate homes for free.

The cost of scaffolding is up 400 percent, And the cost of the program, estimated at 35 billion Euros is now 220 billion euros and rising.

How to Torch 220 Billion Euros

Please consider How to Torch 220 Billion Euros

In the depths of the COVID pandemic, with the ECB committed to keeping sovereign spreads low and the EU fiscal rules suspended, Italy launched what would become one of the costliest fiscal experiments in history. Prime Minister Conte announced that the government would subsidize 110% of the cost of housing renovations. The “SuperBonus,” as the policy was called, would improve energy efficiency and stimulate an economy that had barely grown in over two decades. Consumers would face neither economic nor liquidity constraints:

Rather than direct cash grants, the government issued tax credits that could be transferred. A homeowner could claim these credits directly against their taxes, have contractors claim them against invoices, or sell them to banks. These credits became a kind of fiscal currency – a parallel financial instrument that functioned as off-the-books debt. The setup purposefully created the illusion of a free lunch: it hid the cost to the government, as for European accounting purposes the credits would show up only as lost tax revenue rather than new spending.

Contractors often inflated renovation costs; for instance, a €50,000 project might be reported as €100,000. The bank would purchase the €110,000 tax credit at near face value, enabling the contractor to pocket the difference, sometimes sharing it with the homeowner. At times, no work at all was carried out, in which case, invoices for non-existent work on fake buildings were a perfect tool for organized financial crime.

Builders were going around offering to pay people money to renovate their houses. A scheme initially budgeted at €35 billion will end up costing Italian taxpayers €220 billion — about 12% of GDP. Annual costs ballooned from 1% of GDP in 2021, to 3% in 2022, and 4% in 2023. Only 495,717 dwellings would end up being renovated – meaning the average cost of the program was around €320,000 per home.

Riccardo Fraccaro – a lawyer, Five Star Movement politician, Modern Monetary Theory adherent and architect of the SuperBonus – saw the program as a way to push a fiscal expansion while complying with EU rules. By designing the Superbonus as a system of transferable tax credits, Fraccaro and his advisors sought to create a parallel financial instrument that did not immediately register as public debt.

The [European] Commission approved the inclusion of the Superbonus in Italy’s NRRP after its design, with full knowledge of the fact this program included a 110% subsidy.

When Italy’s deficit shot up in 2023 due to the Superbonus, rising from a projected 5.5% to 8% of GDP, there was no market panic. Italian bond spreads remained contained, thanks to the ECB’s Transmission Protection Instrument (TPI), which reassured investors without the ECB even needing to intervene. By removing the constraint of market discipline, the ECB allowed the Superbonus to persist far longer than it otherwise would have.

The very mechanisms designed to protect the euro may now be undermining it. When the ECB steps in to prevent market pressure on sovereign bonds, it removes a crucial disciplining force on national fiscal policies, creating perverse incentives for politicians to expand spending without regard for long-term sustainability.

New Rules Scale Back Program

The above article, written February 14 2025, is amusing but dated. The program is still in place, but at a reduced rate.

In 2023, Italy Scaled Back the Program to 90 Percent Free rather than 110 percent free.

With state expenses rising, the new government has announced — through the “Decreto Aiuti Quater” (Amendment to the Subsidies Decree) and the Budget Law 2023 — that it’s immediately scaling back the subsidy to 90%, and then will be gradually reducing it over the next few years (to 70% in 2024 and 65% in 2025). In a nutshell, the main changes to the 2023 Superbonus are:

• The Superbonus deduction has been lowered from 110% to 90% as of January 1, 2023.
• Credit transfers no longer apply, except for work already in progress and with applications submitted by February 16, 2023.

Only 65 Percent Free

This year, renovations are only 65 percent free.

But making repairs free is easy enough via a scheme of fraudulent kickbacks stating with 35 percent fictional markups.

Italy’s Public Debt Tops 3 trillion Euros

Reuters reports Italy’s Public Debt Tops 3 trillion Euros, Highest on Record

Italy’s public debt rose further in November, exceeding 3 trillion euros ($3.1 trillion) and hitting a record high, the central bank of the euro zone’s third-largest economy said on Wednesday.

The sustainability of Rome’s huge public debt has long been seen as a crucial factor for the survival of the euro zone, and Italy has been the most sluggish economy in the bloc since the launch of the single currency around 25 years ago.

The country’s public debt – already the euro zone’s second-largest after Greece in relation to gross domestic product (GDP) – is forecast by the government to rise to around 138% of GDP in 2026, from 135% in 2023.

If economic growth in 2025 comes in significantly below the government’s 1.2% target, as most forecasters expect, the debt-to-GDP ratio is due to increase further.

Rome, which was put under the European Union’s excessive deficit procedure last year, hopes to bring its deficit below the EU’s 3% of GDP ceiling in 2026, from 3.8% targeted last year and 7.2% in 2023.

European Union’s Excessive Deficit Procedure

France and Italy are both under excessive deficit procedures.

France is ungovernable as a result. Germany is up next.

Not to worry, MMT assures us that government debt does not matter.

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Tyler Durden Fri, 02/21/2025 - 03:30

Australia Alarmed Over 'Unusual' Movement Of 3 Chinese Warships Off Its Coast

This month has seen a series of provocative incidents between the Australian and Chinese militaries. Last week a Chinese fighter jet and an Australian military plane had a close encounter, with each side condemning the other.

Canberra rebuked Beijing for "unsafe" military conduct after the Chinese jet released flares near an Australian air force plane patrolling the South China Sea. However, the Chinese government accused the Australian plane of "violating Chinese sovereignty and endangering Chinese national security."

Australian Defense Force, via Associated Press

Following this, China sent warships down the eastern Australian coast, sailing just 150 nautical miles east of Sydney in a recent first.

The Australian navy has responded by sending its own warships to shadow and monitor the Chinese PLA Navy ships. They include three ships total: a Chinese frigate, a cruiser and a supply tanker.

"We are keeping a close watch on them, and we will make sure we are watching every move," Australia’s Defense Minister Richard Marles said.

"It’s not unprecedented. But it is an unusual event," Marles said, but still stipulated that the vessels are "not a threat" at this point as they are "engaging in accordance with international law."

"And just as they have a right to be in international waters, which is what they are doing, we have a right to be prudent and to make sure that we are surveilling them, which is what we are doing," he added.

Additionally, New Zealand’s Defense Minister Judith Collins confirmed that NZ's military is closely monitoring the ships' progress.

She told a national broadcaster, "We have not been informed by the Chinese government why this task group has been deployed into our region, and we have not been informed what its future plans are," and that "We will continue to monitor these vessels."

Australia is shadowing three Chinese warships north east of Queensland just days after an “unsafe” encounter in the South China Sea. In the “unsafe” encounter, a Beijing fighter jet dropped flares on an Australian military plane, a P-8A Poseidon. SEE MORE: https://t.co/XZyUWcN0Cm… pic.twitter.com/JedKBupujH

— The Daily Telegraph (@dailytelegraph) February 14, 2025

Maritime analyst Bec Strating La Trobe University has questioned, "What is the Chinese navy doing this far south?"

She was quoted in the NY Times as describing, "That would be the thing that is causing anxiety. Is this intelligence gathering, is this really just signaling to Australia that the Chinese are also able to have naval presence in these areas?"

Tyler Durden Fri, 02/21/2025 - 02:45

Poland Is Once Again Poised To Become Washington's Top Partner In Europe

Authored by Andrew Korybko via substack,

Its self-exclusion from the proposed “army of Europe” coupled with creeping informal concerns about Germany and Ukraine’s territorial intentions make Poland the perfect US partner for dividing-and-ruling Europe after NATO’s proxy war with Russia finally ends.

Polish Foreign Minister Radek Sikorski came out against Zelensky’s proposal for an “army of Europe” by flatly declaring that “it will not happen” despite many of his peers wanting to prioritize such plans in light of the US’ impending disengagement from the continent that JD Vance hinted at in his historic speech. Casual observers assumed that this lifelong Europhile would have jumped at the opportunity, as would former President of the European Council-turned-Prime Minister Donald Tusk, but that didn’t happen.

Even though they’re more of an Anglophile and Germanophile respectively than they are Europhiles, and their corresponding foreign patrons support Zelensky’s proposal, Sikorski and Tusk’s half of Poland’s ruling duopoly must most immediately appeal to public opinion ahead of May’s presidential election. They need to replace outgoing President Andrzej Duda with their fellow “Civic Platform” (PO) member Rafal Trzaskowski instead of allowing his fellow “Law & Justice” (PiS) member Karol Nawrocki to do so.

Tusk’s PO-led liberal-globalist coalition came to power in fall 2023 but have been unable to implement their radical socio-cultural agenda at home due to the (very imperfect) conservative president’s veto rights. Replacing him with Trzaskowski would enable PO to fulfill their plans while his replacement by Nawrocki would lead to a continued impasse until fall 2027’s next parliamentary elections. On the foreign policy front, both PO and PiS are pro-American, albeit to different degrees.

PO can’t be described as anti-American by any stretch, but it’s traditionally been considered more pro-German than pro-American, while PiS has evolved into an openly anti-German party that’s rabidly pro-American. Accordingly, PO might hypothetically want to participate in an “army of Europe”, but they have to play it cool for now ahead of May’s presidential elections. At the same time, however, they’ve also evolved since fall 2023 and have begun to promote some policies in support of the national interest.

These have taken the form of fortifying PiS’ border wall with Belarus that was built to stop illegal immigrant invasions, which that neighboring country’s leader at the very least turns a blind eye to as an asymmetrical response to Poland’s regime change campaign against him, and standing up to Ukraine. The latter has seen Poland revive the Volhynia Genocide dispute in recent months and declare that it’ll only provide arms to Ukraine on credit instead of continuing to give them everything for free like before.

With these policies in mind, which might be sincere and not just a charade to win over some so-called “moderate nationalists” from PiS, PO might also be serious about its opposition to the “army of Europe”. In that case, it actually wouldn’t matter whether Trzaskowski or Nawrocki replaces Duda in several months’ time since Poland might still exclude itself from this regional process in pursuit of what its ruling duopoly would have apparently agreed to be the national interest.

To elaborate, Poland has consistently sought to carve out a “sphere of influence” for itself in Central & Eastern Europe, whether overlapping with parts of its former Commonwealth or expanding beyond those borders into new domains like the Balkans. These ambitions have taken the form of the 2009 “Eastern Partnership” that it co-founded with Sweden, the 2016 “Three Seas Initiative” that it co-founded with Croatia, and the 2020 “Lublin Triangle” that it co-founded with Lithuania and Ukraine.

Prior to PO’s pivot back to the gist of these plans late last year, the early months of its most recent rule essentially saw it subordinating Poland to Germany’s “Fortress Europe” concept, which refers to the Biden Administration’s plans to have the EU’s de facto leader take control of the continent as its proxy. Germany’s incomparable economic strength and ruling coalition’s liberal-globalist ideology paired with Olaf Scholz’s December 2022 hegemonic manifesto to make this a very attractive scenario for the US.

Everything changed since then after Trump’s unprecedented political comeback over the past year, which is revolutionizing the US’ foreign policy and led to Vance’s historic speech last week where he hinted at his country’s impending disengagement from Europe. Vance’s speech also importantly coincided with new Secretary of Defense Pete Hegseth’s praise of Poland as “the model ally on the continent”, however, thus suggesting that the US will once again favor Poland over Germany.

That wouldn’t be surprising since it’s the same policy that Trump applied during his first term, but it would be greatly helped along if PiS remained in the presidency and Poland didn’t descend into the sort of liberal-globalist dystopia that Vance just railed against should Trzaskowski win. Even if he does, however, PO might exercise self-restraint and control some of its most extreme liberal-globalist impulses so as to not get on Trump’s bad side and risk being made an example out of like others already have.

The strengthening of Polish-US military ties throughout the US’ impending disengagement from Europe as it “Pivots (back) to Asia” to more muscularly contain China would advance both of their interests. From the American side, Poland can once again be wielded as a wedge for keeping German-Russia ties in check if they improve after the Ukrainian Conflict ends and the AfD plays a role in the next ruling coalition to help bring that about, which segues directly into what Poland stands to gain from this.

Simply put, its ruling duopoly’s dreams of restoring their country’s lost geopolitical glory could once again be entertained if the US returns to openly favoring Poland as its top European ally, which can lead to American backing for the Polish-led “Three Seas Initiative” and “Lublin Triangle” in pursuit of this. Poland would become the natural magnet for regionally disaffected states like the Baltics, Romania, and even Ukraine if the NATO-Russian proxy war ends in a compromise as expected so this is very plausible.

Depending on the outcome of the US’ reportedly planned rapprochement with Belarus, Poland might be encouraged to step up and repair relations with Russia’s top ally too, all in an attempt to lure Lukashenko away from Moscow and back towards his pre-summer 2020 “balancing act” to keep Putin on edge. None of this would be possible if Poland ceded even more of its sovereignty to the German-led EU by joining the “army of Europe” that Zelensky just proposed and thus weakened its military alliance with the US.

Some Poles also fear that the AfD’s possible role in Germany’s next ruling coalition could lead to the revival of at least informal claims to what Warsaw calls the “Recovered Territories” that were obtained after World War II. These were Polish for centuries before becoming German but it’s beyond the scope of this analysis to detail. Likewise, there’s also a risk that post-conflict Ukraine redirects some of its hyper-nationalism away from Russia to Poland, whose southeastern regions are claimed by some radicals.

Consequently, the US’ impending disengagement from Europe could embolden a partially AfD-ruled Germany and an irredeemably hyper-nationalist Ukraine to one day advance their claims to Poland (perhaps even jointly), which could only possibly be deterred by Poland’s close military ties with the US. Of relevance, Ukraine claims to already have almost 1 million troops while Poland and Germany are actively competing to build the EU’s largest army, with Poland already having the third-largest in NATO.

The preceding two paragraphs weren’t written to imply a prediction about Germany and/or Ukraine invading Poland, but simply to describe how Poland’s ruling duopoly might perceive the fast-moving processes in Europe right now and what they think they could possibly lead to. This interpretation would account for why the pro-German half of this duopoly that’s currently in power broke with Berlin over this issue and shows how easily the US can exploit this perception to continue dividing-and-ruling Europe.

Neither half of Poland’s ruling duopoly is expected to replace their fearmongering about a Russian invasion with fearmongering about a German and/or Ukrainian one, but they’re evidently concerned about the last two scenarios as proven by PO’s new approach towards the EU and the US. Refusing to cede more military sovereignty to the German-led EU while strengthening military ties with the US shows that even the most Europhilic half of this duopoly is hedging against the aforesaid threats.

Looking forward, PO will either expose the abovementioned approach as an electioneering charade after May’s presidential vote or it’ll continue along this trajectory by having Poland once again serve as the US’ top ally on the continent, following which its ruling duopoly would seek to derive some benefits. These could take the form of the US helping Poland restore its lost geopolitical glory in contemporary conditions via the “Three Seas Initiative” while deterring perceived German and/or Ukrainian threats.

The US’ impending disengagement from Europe would remain incomplete in that case since its continental focus would shift to Poland and its envisaged “sphere of influence”. The total amount of troops there would be less than what it now has in Europe, but it would still suffice for supervising them all after the Ukrainian Conflict ends. Everything depends on PO, however, and they might ultimately prefer keeping Poland subordinated to Germany instead of once again trying to rise as a regional power.

Tyler Durden Fri, 02/21/2025 - 02:00