Hezbollah Launches Deepest Attack Into Israel Since War's Start, On Passover

Hezbollah on Tuesday conducted its deepest strikes into Israeli territory since the start of the war, launching drones at Israeli military bases on the outskirts of the Israeli city of Acre.

Israel's military said none of its facilities were hit, and videos circulating online appear to show Israeli anti-air systems intercepting at least one drone which was flying low over the Mediterranean, just off the coast where Acre is located.

The IDF subsequently confirmed it intercepted two "areal targets" off Israel's northern coast. Thus far in the conflict, Hezbollah's daily rocket and drone attacks have tended to stay within within a few kilometers inside Israel. 

However, Tuesday's attack seems to be sending a message that escalation could be imminent: 

A security source told Arab News that the attack was "a sensitive targeting." The area struck is more than 15 km from the border with Lebanon.

"This targeting took place in broad daylight while the Israelis were celebrating the Jewish Passover," the source said.

Hezbollah said it launched the drones "in response to Israeli aggression against the Lebanese town of Aadloun and the assassination of a (Hezbollah) cadre there."

While the IDF denied that there were any direct hits on military bases, Lebanese source Al-Mayadeen reported that the headquarters of the army's Golani Brigade was struck with drones.

The below video shows an IDF intercept of a Hezbollah drone...

Another angle shows Israeli air defenses downing Hezbollah explosive-laden drones off the coast of Acre this morning. https://t.co/Km1MZNKQE6 pic.twitter.com/fbLfKo8QoZ

— Emanuel (Mannie) Fabian (@manniefabian) April 23, 2024

This was based on a Hezbollah statement claiming that the air attack "targeted the headquarters of the Golani Brigade and the headquarters of Egoz Unit 621 in the Sharaga barracks, north of the occupied city of Akka (Acre), and the drones hit their targets accurately."

Last week a major war between Iran and Israel was narrowly avoided after each side launched 'limited' strikes against the other. But tensions remain high and it could be that Iran's proxies, such as Hezbollah and Yemen's Houthis, could be set to escalate, especially as the IDF has Rafah set in its sites.

Interestingly, a fresh report in The New York Times says that Israeli leaders had actually planned a much bigger attack on Iran, but ditched the larger strike option at the last minute due to White House diplomatic intervention:

Israel reportedly abandoned plans for a much more extensive counterstrike on the Islamic Republic after concerted diplomatic pressure from the United States and other foreign allies and because the brunt of an Iranian assault on Israel soil had been thwarted, according to three senior Israeli officials:

Israeli leaders originally discussed bombarding several military targets across Iran last week, including near Tehran, the Iranian capital, in retaliation for the Iranian strike on April 13, said the officials, who spoke on the condition of anonymity to describe the sensitive discussions.

Such a broad and damaging attack would have been far harder for Iran to overlook, increasing the chances of a forceful Iranian counterattack that could have brought the Middle East to the brink of a major regional conflict.

In the end — after President Biden, along with the British and German foreign ministers, urged Prime Minister Benjamin Netanyahu to prevent a wider war — Israel opted for a more limited strike on Friday that avoided significant damage, diminishing the likelihood of an escalation, at least for now.

Another angle showing a drone intercepted near Acre:

Footage purportedly shows two suspected drones being downed by air defenses off the coast of Acre a short while ago. pic.twitter.com/10iIjCn9wZ

— Emanuel (Mannie) Fabian (@manniefabian) April 23, 2024

According to a note via Rabobank, Mohamed El-Erian underlines a markets/NatSec disconnect over Mid-East events. Markets say “de-escalation”, because the oil price has gone down. National security figures worry; and those saying recent attacks were telegraphed might note reports of White House panic when Iran launched missiles, and Israel planning a larger military strike at first. We have calm now, but neither side will pass on the opportunity to weaken the other; the enmity is not over.

Tyler Durden Tue, 04/23/2024 - 18:45

COVID-19 Vaccine Emails: Here’s What The CDC Hid Behind Redactions

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The U.S. Centers for Disease Control and Prevention (CDC) hid how a woman who suffered chest pain and other symptoms following COVID-19 vaccination received a shot because of a mandate at work, newly obtained documents show.

The Centers for Disease Control and Prevention (CDC) headquarters in Atlanta, Ga., on Aug. 25, 2023. (Madalina Vasiliu/The Epoch Times)

The agency also redacted how multiple children were diagnosed with Kawasaki Disease after receiving a COVID-19 vaccine, according to the documents.

The Epoch Times obtained more than 1,400 pages of emails from the CDC concerning its Clinical Immunization Safety Assessment (CISA) project, which analyzes post-vaccination problems reported by health care providers. The tranche included numerous redactions.

While redactions are allowed under the Freedom of Information Act, there were signs that too much information was being hidden.

The Epoch Times appealed some of the redactions.

The CDC agreed to remove some of them, revealing what the agency initially shielded.

In one email, a provider reports a 30-year-old woman who suffered chest pain and leg twitching following COVID-19 vaccination. The original copy of the email stated in part that she “got vaccine due to [redacted].”

In the updated copy, the CDC removed the redaction, showing that the woman received a vaccine because of a mandate at work.

Several other portions of the emails that are now unredacted show the CDC hid how multiple children, including a 2-year-old, were said to have suffered from a serious inflammatory illness called Kawasaki Disease shortly after receiving a shot.

One girl suffered inflammation around the eyes, swollen lips, high fever, and a rash, and “was admitted last week with Kawasaki,” one of the girl’s parents wrote on Dec. 5, 2021, the new documents show. She received a dose of the Pfizer-BioNTech vaccine two weeks prior.

Dr. Matthew Oster is a cardiologist who works for the CDC.

“The biggest question, of course, here, is whether this was truly [redacted] or whether this was [redacted] related to the vaccine,” Dr. Oster wrote after hearing about the case.

The cleaner copy of the email showed that the redactions covered “KD,” or Kawasaki Disease, and “MIS-C,” or multisystem inflammatory syndrome in children.

“We do now have a small number of cases like this one,” Dr. Oster said.

An email obtained by The Epoch Times shows a health care provider reporting symptoms in a woman after COVID-19 vaccination. The reason she received a vaccine was hidden by the CDC. (The Epoch Times)A cleaner copy of the same email, obtained after a successful appeal of the redactions, showed that the woman received a vaccine because of a mandate at work. (The Epoch Times)

The CDC has portrayed MIS-C as only being caused by COVID-19, but studies have found that there were MIS-C cases before the COVID-19 pandemic and that some people suffered the syndrome after vaccination without evidence of COVID-19. The CDC says on its website that the agency is “investigating reports of multisystem inflammatory syndrome in children (MIS-C) associated with coronavirus disease 2019 (COVID-19), which may present with Kawasaki disease-like features.”

Another email originally hid the age of a male child and what his doctor suspected he suffered after receipt of a second dose of Moderna’s vaccine.

The boy was 2 years old, the newly obtained documents show, when he was admitted with what a pediatric infectious disease doctor suspected was “atypical Kawasaki Disease.” The documents show that the doctor also considered MIS-C as a diagnosis in light of how the boy’s sister tested positive for COVID-19 on the same day the boy started showing symptoms of fever, although multiple COVID-19 tests on the boy returned negative.

The doctor said he had a “low suspicion” for a COVID-19 vaccine reaction but still submitted a report to the Vaccine Adverse Event Reporting System (VAERS), which the CDC helps run.

Kawasaki Disease was detected as a safety signal for the Pfizer and Moderna vaccines among children aged 5 to 11 when the CDC first ran an analysis on VAERS data in 2022, according to files previously obtained by The Epoch Times. The analysis did not include children younger than 5. Kawasaki disease after COVID-19 vaccination has been reported in the literature, although a study on patients with a history of the disease who contracted COVID-19 or were vaccinated uncovered no signs of problems.

An internal CDC message, now fully unredacted, showed that an official described there being “another CISA ‘inquiry’ about a child with atypical Kawasaki Disease.” Another official said the reports were “very rare” while a third said the normal CDC processes were sufficient to monitor for the disease post-vaccination “unless there’s a specific ask or data need.”

An email obtained by The Epoch Times shows a healthcare provider reporting symptoms in a child following receipt of a Moderna COVID-19 vaccine. The original copy included redactions. (The Epoch Times)A cleaner copy of the same email, with some redactions removed, shows the child in question was just 2 years old. (The Epoch Times)

Other removed redactions show that:

• A person reporting symptoms after COVID-19 vaccination was reporting that the symptoms included Coxsackievirus and that he himself was the patient. The provider wrote, “I ... don’t know whether to fear another vax more or less than the risk of infection.”
• A patient who was reported as suffering heart inflammation after a third Pfizer dose, and came back with the inflammation one year later, was 17 and a male.
• The CISA expert who said the woman who suffered chest pain could get additional vaccine doses was Dr. Oster. Previously disclosed emails showed the program repeatedly said people with post-vaccination symptoms should receive more doses.
• A patient with “intense malaise” and other symptoms about six months after a Pfizer shot had an elevated heart rate, per a portable electrocardiogram, and sinus tachycardia per a cardiology consultation.

Words and phrases that were redacted originally, but not any longer, include “your daughter”, “hospitalist”, “the parents”, “cardiac workup”, “a physician”, “I believe”, “patient was started on a course of Prednisone”, and “does not drink, smoke, or use any drugs.”

Every single email chain for which redactions were protested was returned with at least some redactions cleared.

The original version claimed that the redactions were appropriate under exceptions outlined in the Freedom of Information Act, including an exception that protects “personnel and medical files and similar files” if their disclosure “would constitute a clearly unwarranted invasion of personal privacy.”

A CDC official told The Epoch Times in an email that the agency, after receiving the appeal, conducted a “careful review” and removed some of the redactions. The official did not explain why the CDC wrongly redacted so much information.

The CDC “has provided modified records for the pages listed in your appeal,” an official with the U.S. Department of Health and Human Services, the CDC’s parent agency, told The Epoch Times in an email. Appeals of CDC Freedom of Information Act requests are lodged with the department.

Fits Pattern

Any person can request information through the Freedom of Infection Act (FOIA), and agencies across the government typically redact portions of responsive documents or withhold them entirely. Agencies “often use FOIA exemptions improperly, withholding records simply because they may reveal problems at the agency or just ‘paint the agency in a bad light,’” Melissa Wasser, a lawyer at the Project On Government Oversight, told senators in 2022. People “consistently receive large swaths of arbitrarily redacted information,” she added.

When presented with signs that information was improperly redacted or withheld, people primarily have two options: lodge an appeal or sue.

Both methods have worked to extract information from the CDC during the pandemic.

An Epoch Times appeal in another case, for example, returned a copy that removed significant redactions that were applied to an internal email describing what Pfizer and Moderna told them about studies that were being done regarding heart inflammation and COVID-19 vaccines.

The unredacted information showed that Moderna had not tested samples from vaccine recipients for subclinical myocarditis because it was waiting for a “specific cardiac biomarker [to] be identified.” An outside study from Switzerland later found signs of subclinical heart inflammation in about one out of 35 people.

The CDC acknowledged that the information had been wrongly redacted. It reasoned that the information “cannot be considered confidential” because it was shared before and “is readily available to the public,” although some of the details had never been made public previously.

Among other lawsuits, meanwhile, one led to the release by the CDC of answers from its V-safe surveillance survey while a second prompted the disclosure of what participants wrote in free-text fields after the CDC left off adverse events of special interest from the survey. Some of the data had never before been described publicly, while other information from the system had only been outlined in CDC-authored studies and presentations.

Tyler Durden Tue, 04/23/2024 - 18:25

There Is So Much For The Market To "Pass"/"Over" Right Now

By Michael Every of Rabobank

"Pass"/"Over"

There is so much for markets to try to pass over right over: and they are certainly doing so.

Niall Ferguson warns us again about an escalating global Cold War 2 using Tolkien as an analogy – real Tolkien, not the insult that was The Rings of Power season 1. Markets gave that talk of a bifurcating, antagonistic, inflationary world a pass - like everyone did with The Rings of Power.

The Financial Times admits a new CRINK (China - Russia - Iran - North Korea) “axis” at war with the West and its allies on two fronts already; markets are apparently over that revelation, and its implications, despite continuous ‘surprises’ like the TikTok divestment/ban law now likely to pass in the US appearing one after the other.

SIPRI says defence spending is $2.4 trillion globally, a new nominal high. Yet that buys far less than a few years ago and is set to soar further if we are to get back to the percentage of GDP that defence took up during the Cold War, which many agree we have to: where will those trillions come from? But markets pass over that question, it seems; SIPRI is an acronym too far for those interested in monetary wonkery.

The Polish president says he’s happy to host US nuclear weapons, if needed; Russia says it will respond in kind, if necessary. Nothing to see here and ‘get over it’ for markets, apparently.

Mohamed El-Erian underlines a markets/NatSec disconnect over Mid-East events. Markets say “de-escalation”, because the oil price has gone down. National security figures worry; and those saying recent attacks were telegraphed might note reports of White House panic when Iran launched missiles, and Israel planning a larger military strike at first. We have calm now, but neither side will pass on the opportunity to weaken the other; the enmity is not over.

Ukraine keeps attacking Russian refineries; and Russia is attacking Ukraine’s grains. As Carlos Mera points out, wheat was just up 4% as the market suddenly noticed the war isn’t over. Indeed, the looming $61bn US military aid package will see fighting escalate.

There are proposals for the EU to finally sanction Russian LNG, which it is still apparently OK to buy vs. piped gas: but let’s see how that moral stance holds up against the need to fight a war as painlessly as possible for the EU economy.

Copper needed for both green *and khaki* transitions is just shy of $10,000 (+14.8% year-to-date); aluminium, also need for both, is +12.8% y-t-d; cocoa, needed to not think about expensive transitions, is around the same price (+183.4% y-t-d); coffee, for those who don’t drink cocoa, is +35.5% y-t-d. And yet markets are focused on the over / under of when we get rate cuts.

Three Germans were just arrested for allegedly working for China (not the last three Chancellors!); markets pass that news off as BAU now.

The EU needs to forge strategic autonomy partly via remilitarisation says Mario Draghi (something we flagged in December): that could impact every aspect of the EU economy and markets. “Hard pass,” say markets who are only interested in when we get that first rate cut.

Yanis Varoufakis (‘A European War Union?’) also screams ‘PASS!’ in arguing “the main difference of opinion between pro-EU political forces concerned whether Europe’s continental consolidation ought to proceed by Hamiltonian means (debt mutualization precipitating the emergence of a proper federation) or in the original intergovernmental way (gradual market integration)” - but now it’s to be “unproductive” war. Yet Hamilton’s economic strategy was to build a US navy, and: “So vital were supplies to national security that Hamilton did not rule out government-owned arms factories. The godfather of American industrial policy realized that market forces, while they could bring many benefits, could not be relied upon for all of the country’s needs. Knowing that international trade was vital to the early republic, Hamilton advocated for a strong navy to protect American shipping when writing: “The want of a Navy to protect our external commerce, as long as it shall Continue, must render it a peculiarly precarious reliance, for the supply of essential articles, and must serve to strengthen prodigiously the arguments in favour of manufactures.””

Relatedly, the shortlist for Trump’s National Security Advisor is down to Grenell and Colby. In either case, that’s ‘Si Vis Pacem, Para Bellum’ on steroids; and an immediate shift in US arms away from Europe towards Asia. That smells like over a trillion in new annual western defence spending could come to pass, even if markets don’t have the nose for it.

Meanwhile, Columbia University sees either 1938 or 1968 style scenes, showing political polarization and volatility are domestic as well as international, and the two are linked.

All of this would have been enough for one Global Daily, but I was inspired by John Authors’ Passover-themed article yesterday to ask just one, not four questions: why is this global market cycle unlike all other global market cycles?

Let’s answer Seder style, to four different children: the wise, the wicked, the simple, and the one who doesn’t know how to ask:

• The wise child asks: "What are the testimonies, statues, and laws of global market cycles laid down by history and different disciplinary approaches?” You can talk to them about long-run cycles, peace and war phases, and huge fiscal deficits centrality in all of this.
• The wicked child asks: "What does this all mean to you?" Because they are too busy shilling ridiculously large Fed cut forecasts, and/or low bond yields, and/or high equities.
• The simple child asks: "What does this mean?” To which a simple summary is: “Free markets brought us out from the bondage of authoritarianism and war; and then led us back there."
• The child who does not know how to ask is to be told adults need to ask difficult questions about this cycle "because of what markets did for us in the West when they were free to be efficient *and* boost Western national security".

You can opt to let all this pass over you if you want. But don’t be surprised if you then look rather ‘unleavened’ compared to others who are prepared to ask, and honestly answer, difficult questions about our very troubling, far-from-BAU backdrop.

Tyler Durden Tue, 04/23/2024 - 17:45

Jan 6 Committee Chair Offers Bill To End Secret Service Protection For Convicted Felons

In a move aimed at Donald Trump, House Democrats have introduced a bill that would remove Secret Service protection for any former executive sentenced to prison for a federal or state felony.   

The bill comes from Democratic Mississippi Rep. Bennie Thompson, who, in a fitting Deep State overlap, is not only the former Jan. 6 committee chairman but also the ranking member of the Homeland Security committee. Introduced Friday, HR 8081 has 8 cosponsors so far -- all Democrats. 

These days, nearly every bill comes with a goofy, forced acronym, and this one's no exception. Thompson has titled it the “Denying Infinite Security and Government Resources Allocated toward Convicted and Extremely Dishonorable (DISGRACED) Former Protectees Act.”

Rep. Bennie Thompson is working to pave the path for Trump prison time (Getty Images via The Hill)

The measure seeks to address an admittedly huge conundrum that would arise in the event Trump gets jail time for any of the various politically-motivated prosecutions he's facing around the country: How would Secret Service agents operate inside a prison?  

If Thompson's bill became law, they simply wouldn't. That would make possible Democrats' fever dreams of Prisoner Trump getting shivved in a prison shower, and negate their dread that a judge might choose to sentence Trump to house arrest out of mere practicality.

As Homeland Security committee Democrats wrote in a fact sheet describing the bill: 

“This bill would remove the potential for conflicting lines of authority within prisons and allow judges to weigh the sentencing of individuals without having to factor in the logistical concerns of convicts with Secret Service protection." 

Trump is currently facing four prosecutions: 

• The scandal-plagued Georgia election interference case led by DA Fanni Willis, who was having an affair with one of her prosecutors
• A federal election interference case 
• Federal charges of mishandling classified documents
• The underway New York hush money trial, which centers on alleged falsification of business records regarding payments to compensate porn actress Stormy Daniels for keeping quiet about her alleged affair with Trump  

“It is regrettable that it has come to this, but this previously unthought-of scenario could become our reality,” said Thompson -- as if he and his comrades don't want that reality more than anything on Earth. 

Tyler Durden Tue, 04/23/2024 - 17:25

Global Military Spending Hits All-Time High Of $2.4 Trillion

By Tim Martin at BreakingDefense

Global military expenditure surged to a record $2.44 trillion in 2023, the largest year-on-year rise on weapons spending since 2009, according to a new Stockholm International Peace Research Institute (SIPRI) report.

The report, published today, said that the new figure is an “all time high,” equivalent to a 6.8 percent increase on spending in 2022 and marking the ninth consecutive year in which global military expenditure rose.

The report also shows that for the first time in 15 years, global defense spending increased across all five major geographical regions: Africa, Europe, the Middle East, Asia and Oceania, and the Americas.

“The unprecedented rise in military spending is a direct response to the global deterioration in peace and security,” said Nan Tian, senior researcher at SIPRI’s Military Expenditure and Arms Production Programme. “States are prioritizing military strength but they risk an action–reaction spiral in the increasingly volatile geopolitical and security landscape.”

The US remains the world’s largest defense spender, outlaying $916 billion last year, a 2.3 percent annual increase, ahead of China in second place, which spent an estimated $296 billion, a 6 percent increase over the same period. SIPRI added that Beijing’s total spending stands as the 29th consecutive spike in national military spending, year-on-year, and represents “half” of all military spending across Asia and Oceania. (China’s annual military budget is publicly recorded at $222 billion, though recently a US senator said US intelligence believes the actual budget is more than three times that much.)

Amid its invasion of Ukraine, Russia moved the needle on national military expenditure considerably too, increasing spending by 24 percent for an estimated total of $109 billion last year. The figure also accounts for 16 percent of all government money spent by the Kremlin over 2023.

Ukraine spending reached $64.8 billion, an annual leap of 51 percent. Overall, Kyiv sits as the eighth highest global military spender.

When combined, Ukraine’s spending and miliary aid of “at least” $35 billion, mainly from the US and other international partners, amounted to around 91 percent of Russian spending. Not included in SIPRI’s figures is the new $60 billion in new US assistance, including $13.8 to replenish US stockpiles, after the House passed a $95 billion supplemental on Saturday.

I am grateful to the United States House of Representatives, both parties, and personally Speaker Mike Johnson for the decision that keeps history on the right track.

Democracy and freedom will always have global significance and will never fail as long as America helps to…

— Volodymyr Zelenskyy / Володимир Зеленський (@ZelenskyyUa) April 20, 2024

At a NATO level, the 31 member states from 2023 spent $1.34 trillion, equivalent to 55 percent of global military expenditure, with the US accounting for more than two thirds of the total.

Elsewhere, as tension with China heightens, both Japan and Taiwan increased their respective military spending by 11 percent, with Tokyo outlaying $50.2 billion and Taipei pitching in $16.6 billion.

SIPRI also said that “war and tensions” in the Middle East led to the largest spending increase across the region in the “past decade”: a 9 percent jump in expenditure, working out to $200 billion for the region last year.

The change was largely a result of increased spending by Israel, the second largest spender in the region behind Saudi Arabia, and which drew on $27.5 billion in 2023 — a 24 percent increase. The push for new funding from Tel Aviv was “mainly driven by Israel’s large-scale offensive in Gaza in response to the attack on southern Israel by Hamas in October 2023,” noted SIPRI.

“The large increase in military spending in the Middle East in 2023 reflected the rapidly shifting situation in the region — from the warming of diplomatic relations between Israel and several Arab countries in recent years to the outbreak of a major war in Gaza and fears of a region-wide conflict,” said Diego Lopes da Silva, senior researcher at SIPRI’s Military Expenditure and Arms Production Programme.

Full report below (pdf link)

Tyler Durden Tue, 04/23/2024 - 17:05

WTI Holds Gains After API Reports Unexpected Crude Inventory Draw

Oil priced ended notably higher today after recovering strongly from overnight weakness (driven by a Bloomberg report that said fresh U.S. sanctions targeting vessels and refineries handling Iranian oil shipments were having a muted impact on crude supply).

If implemented and enforced, the new sanctions could add as much as $8.40 to global prices, according to ClearView Energy Partners, a Washington-based consulting firm.

But...

“Oil traders are nonchalant because they know Biden will certainly sign whatever waivers are necessary to keep Iranian oil flowing into the market just as he is keeping Russian barrels flowing into the market,” said Jim Lucier, managing director at Capital Alpha Partners, a Washington-based research group.

And here's why!

Source: Bloomberg

The rebound in prices came as WTI tested to a $80 handle, finding support at its 50DMA ($81.25), and after dismal PMI data prompted a 'bad news is good news' bid in stocks and bonds as rate-cut hopes were revived (modestly).

Analysts expect a fifth straight week of crude inventory builds and another drawdown in product stocks at tomorrow's DOE data dump. Tonight's API preview will confirm or deny hopes...

API

• Crude -3.23mm (+500k exp)

• Cushing -898k

• Gasoline -595k (-1.5mm exp)

• Distillates +724k (-1.0mm exp)

Crude stockpiles unexpectedly drew down last week (after four straight weekly builds), but distillates stocks unexpectedly built...

Source: Bloomberg

WTI was trading around $83.30 ahead of the API data (after a roller-coaster day)...

The conflict in the Middle East has "undoubtedly exacerbated tensions in an already volatile region," Stephen Innes, managing partner at SPI Asset Management, told MarketWatch.

"While the recent attacks have been downplayed, the potential for further escalation cannot be entirely dismissed."

However, "there's a lesson to be gleaned from this situation, particularly in how swiftly demand responded to higher oil and gasoline prices, as evidenced by the increase in U.S. oil stockpiles," he said.

Tyler Durden Tue, 04/23/2024 - 16:55

Last week, in the CalculatedRisk Real Estate Newsletter on March existing home sales, NAR: Existing-Home Sales Decreased to 4.19 million SAAR in March; Median House Prices Increased 4.8% Year-over-Year, I noted that median prices were up year-over-year (median prices are distorted by the mix).

Seasonally prices typically peak in June (closed sales are mostly for contracts signed in April and May).

And seasonally prices usually bottom the following January (contracts signed in November and December). 
The recent surge in prices started mid-year 2020 and ran through Q1 2022 when mortgage rates started increasing significantly.

Here is a table of the seasonal percentage increases from January to March, and from March to June (the usual seasonal peak) over the last several years. The third row is the total percentage increase from January to June.
The last row shows the seasonal decline from June to December.  Note: In 2019, prices only declined 3.8% in the 2nd half of the year as mortgage rates declined into the mid-3s (pre-pandemic low was 3.5% on a 30-year mortgage according to Freddie MAC PMMS).  
In 2020, prices continued to increase in the 2nd half of the year and didn't peak seasonally until October.  And prices only declined slightly in the 2nd half of 2021.
2018201920202021202220232024 Jan to Mar3.7%4.1%5.4%7.5%7.1%4.0%3.9% Mar to Jun9.6%9.9%4.9%12.4%9.1%9.3%NA Total
Jan to Jun13.7%14.4%10.6%20.8%16.8%13.7%NA Jun to Dec-7.0%-3.8%5.0%-2.2%-11.4%-7.0%NA
The 2024 increase in median prices from January to March was about the same as in 2018 and 2019.
Normally we'd expect median prices to increase 9% to 10% over the next three months, before declining in the 2nd half of the year.  With more inventory, the seasonal pattern will be interesting this year.

2nd Democrat Congressman Sued For Defamation By Ex-Biden Associate Tony Bobulinski

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

A U.S. congressman is being sued for allegedly defaming a former associate of the Bidens who claims to have personally met with President Joe Biden. The lawsuit was filed on April 22.

Ranking member of the House Oversight Committee Rep. Jamie Raskin (D-Md.)

Tony Bobulinski is suing Rep. Jamie Raskin (D-Md.) over his claims that Mr. Bobulinski, a military veteran, is a Russian or Chinese spy, after Mr. Raskin ignored demands to retract these claims.

Mr. Bobulinski worked for years with President Biden’s son, Hunter Biden, and the president’s brother, James Biden. He has told the FBI and, more recently, members of Congress that he met with President Biden, that Hunter Biden would seek his father’s approval and advice on business deals, and that messages between himself and others indicate that President Biden, when vice president, was involved in the family’s business dealings.

“Joe Biden was more than a participant in and beneficiary of his family’s business; he was an active, aware enabler who met with business associates such as myself to further the business, despite being buffered by a complex scheme to maintain plausible deniability,” Mr. Bobulinski testified in March.

Mr. Raskin soon after appeared on MSNBC and said that Mr. Bobulinski and other witnesses that have come forward during the U.S. House of Representatives impeachment inquiry against President Biden are either a Chinese spy or Russian spy.

“And none of them has laid a glove on Joe Biden because he hasn’t done anything wrong,” Mr. Raskin said, adding later that “the only crimes we’ve identified are by their own witnesses.”

Mr. Raskin also posted a statement on social media platform X in which he called Mr. Bobulinski a “political pawn” of former President Donald Trump and said Mr. Bobulinski had been “unable to support his claims against President Biden with any evidence.”

Mr. Raskin has also accused Mr. Bobulinski of collaborating with President Trump’s campaign.

“Each of the statements is unequivocally false,” the new suit, filed in Maryland, states.

Mr. Bobulinski has paid for his own legal fees and is not affiliated with President Trump’s campaign, according to the filing. It also says he has never lied about his experience with the Biden family and has provided evidence, including emails and other messages, backing his statements.

Mr. Raskin “deliberately and maliciously made these statements, outside the scope of his employment, in an attempt to discredit Mr. Bobulinski’s testimony and to besmirch Mr. Bobulinski’s character,” the suit states. “It was a mistake for defendant to believe he was cloaked with immunity for his defamatory statements.”

A demand to retract the statements was ignored, according to the filing.

A spokesman for Mr. Raskin, the top Democrat on the House Oversight Committee, did not respond to a request for comment.

The suit seeks $20 million in damages.

Mr. Bobulinski has also recently sued Jessica Tarlov, a Fox News host, and Rep. Daniel Goldman (D-N.Y.) for defamation.

Fox has said that Ms. Tarlov appropriately issued an update in which she said she had no evidence that payments from a super political action committee for President Trump to a law firm representing Mr. Bobulinski were connected with Mr. Bobulinski’s legal fees; however, the lawsuit claims that this update was insufficient.

Ms. Tarlov “failed to retract and apologize,” it states, noting that she described the update as a clarification and not a retraction.

Mr. Goldman, meanwhile, was sued after claiming that Mr. Bobulinski’s testimony was “Russian disinformation” and that Mr. Bobulinski was a “Trump campaign plant.” Mr. Goldman does not appear to have responded to the filing.

An earlier lawsuit says that Cassidy Hutchinson, who worked for White House’s chief of staff, Mark Meadows, during the Trump administration, lied about Mr. Bobulinski in her book when she alleges he wore a ski mask while meeting with Mr. Meadows.

Ms. Hutchinson, according to the court docket, has not yet responded to the suit.

Tyler Durden Tue, 04/23/2024 - 16:40

Tesla Soars: Misses Across The Board, But Is "Accelerating" Rollout Of "More Affordable Models"

As previewed earlier, today's TSLA print is likely to be ugly: the company is the only Mag7 member expected to reported negative earnings growth...

... as a result of anemic Q1 sales, where the (growing) delta between production and deliveries was 46,000+ cars. Since then, CEO Elon Musk has doubled down on his robotaxi vision and vowed to unveil said robotaxi on August 8th. He also laid off more than 10% of the workforce and lost two key executives, while over the weekend, Tesla slashed prices across its lineup yet again and also reduced the cost of Full Self-Driving, or FSD -- which despite the name requires attentive drivers to keep their hands on the wheel.

For those who missed it, this is what Wall Street is looking for, starting with the first quarter:

• Q1 Revenue estimate $22.3 billion
• Q1 Adjusted EPS estimate 52c
• Automotive gross margin estimate 17.6%
• Free cash flow estimate $651.7 million
• Gross margin estimate 16.5%
• Capital expenditure estimate $2.4 billion
• Cash and cash equivalents estimate $23.24 billion

Turning to the next quarter:

• Q2 Automotive gross margin estimate 17.9%

And the full year

• Deliveries estimate 1.94 million
• Automotive gross margin estimate 17.9%
• Capital expenditure estimate $9.91 billion

Goldman cautions that while there is clearly skepticism on both TSLA and the EV market as a whole, with deliveries already announced for 1Q (stock was down 5% on this and another -14% additionally since), much of this has been priced in with short interest is at 3-year highs. Goldman thinks the key focus for investors will be

1. Can they grow volumes in 2024? Goldman thinks investors were at +10-15% y/y to start the year and are now in the 1-2% range, and
2. What are gross margins and how low do they need to go? Consensus looks to be 15.8% (ex-credits) and bogey seems to be below 15% for the quarter.

The one thing that everyone -- from the Wall Street giant to the retail investor -- wants from this earnings print and call, is simple: Clarity. Each group historically assigns different importance to different things and never before has the dichotomy of a robotaxi thesis vs. the pursuit of an affordable EV been so important. So Elon better give the people (investors) what they want, unless he wants to see what is already a record-matching stretch of stock price declines extend further.

Musk has also given us plenty of hints on his focus (spoiler: it’s Robotaxi). And sure enough, the call with Musk will be more important than the print itself. As Bloomberg notes, do we get an expansive, optimistic Musk who sells investors on the robotaxi? Or is he testy and curt with Wall Street analysts?

While Tesla shares closed up 1.8% ahead of the results, snapping a seven day losing streak, and joining the other mega-cap names that also rose, Tesla earnings haven’t been a happy event for investors for a long time now: shares of the company have dropped at least 9% the day after its results in each of the past four quarters. Tuesday’s announcement can also lead to a volatile reaction, with options trading implying that investors are pricing in an 8.3% move in either direction.

Meanwhile, technical strategists, who analyze moves in share prices to predict their future path, are also warning that the stock currently has little support and there’s risk that any disappointment in Tuesday’s report or Musk’s conference call could snowball into a much larger decline.

* * *

With all that in mind, here is what the company reported for the first quarter:

• Q1 Revenue $21.3BN, down 9% YoY, and missing estimates of $22.3BN
• Q1 Adj EPS 45c, down 47% YoY, and missing estimates of 52x
• Q1 Operating income $1.17BN, down 56% YoY and missing estimates of $1.53BN
• Q1 Automotive Gross Margin Ex-Regulatory Credits 16.4%, missing estimates of 17.6%
• Q1 Free Cash Flow -$2.53BN, vs +$441MM YoY and missing estimates of +653.6MM

In short: a hot mess as summarized below:

Some more details on the results, starting with revenue which declined 9% YoY in Q1 to $21.3B. YoY. revenue was impacted by the following items:

• - reduced vehicle average selling price (ASP) YoY (excl. FX impact), including unfavorable impact of mix
• - decline in vehicle deliveries, partially due to the Model 3 update in the Fremont factory and Giga Berlin production disruptions
• - negative FX impact of $0.2B1
• + growth in other parts of the business
• + higher FSD revenue recognition YoY due to release of Autopark feature in North America

Turning to operating income, that decreased YoY to $1.2B in Q1, resulting in a 5.5% operating margin. YoY, operating income was primarily impacted by the following items:

• - reduced vehicle ASP due to pricing and mix- increase in operating expenses partly driven by AI, cell advancements and other R&D projects
• - cost of Cybertruck production ramp
• - decline in vehicle deliveries, partially due to the Model 3 update in the Fremont factory and Giga Berlin production disruptions
• + lower cost per vehicle, including lower raw material costs, freight and duties
• + gross profit growth in Energy Generation and Storage including IRA credit benefit
• + higher FSD revenue recognition YoY due to release of Autopark feature in North America

The company's cash at quarter-end was $26.9B, a sequential decrease of $2.2B which was the result of negative free cash flow of $2.5B, driven by an inventory increase of $2.7B and AI infrastructure capex of $1.0B in Q1.

While we already knew the operating summary, here it is again:

Charted, the results are anything but pretty:

And while the disappointing results would likely have been enough to hammer the stock even more after hours, TSLA is soaring due to these four paragraphs in the company's "product outlook" section, which promise what everyone has been hoping for: cheaper cars are coming and sooner than expected, meaning Reuters indeed lied (it also mentions the robotaxi whose August 8 unveil Musk hinted at recently):

We have updated our future vehicle line-up to accelerate the launch of new models ahead of our previously communicated start of production in the second half of 2025.

These new vehicles, including more affordable models, will utilize aspects of the next generation platform as well as aspects of our current platforms, and will be able to be produced on the same manufacturing lines as our current vehicle line-up.

This update may result in achieving less cost reduction than previously expected but enables us to prudently grow our vehicle volumes in a more capex efficient manner during uncertain times. This would help us fully utilize our current expected maximum capacity of close to three million vehicles, enabling more than 50% growth over 2023 production before investing in new manufacturing lines.

Our purpose-built robotaxi product will continue to pursue a revolutionary “unboxed” manufacturing strategy.

An earlier launch of cheaper EVs would be a reversal of the Reuters news around a cheaper Tesla model being pushed back, which musk already pushed back on. Arguably Tesla does not need to just release a model to compete with a Toyota Camry to see further growth. BYD, for example, has dozens of models out there for consumers to choose from. Tesla, meanwhile, has opted for less model variety and that has contributed to some of the challenges they’ve faced.

Reuters is lying (again)

— Elon Musk (@elonmusk) April 5, 2024

Here are some other highlights from the company's Outlook section:

• Volume: Our company is currently between two major growth waves: the first one began with the global expansion of the Model 3/Y platform and we believe the next one will be initiated by advances in autonomy and introduction of new products, including those built on our next generation vehicle platform. In 2024, our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023, as our teams work on the launch of the next generation vehicle and other products. In 2024, the growth rates of energy storage deployments and revenue in our Energy Generation and Storage business should outpace the Automotive business.
• Cash: We have sufficient liquidity to fund our product roadmap, long-term capacity expansion plans and other expenses. Furthermore, we will manage the business such that we maintain a strong balance sheet during this uncertain period.
• Profit: While we continue to execute on innovations to reduce the cost of manufacturing and operations, over time, we expect our hardware-related profits to be accompanied by an acceleration of AI, software and fleet-based profits.

Some more details from the presentation:

• Tesla notes (on page 7) that it produced 1,000 Cybertrucks in a single week in April. Positive ramping signs, although the Cybertrucks were recently recalled due to issues with its pedal.
• Working capital remains a big issue: global vehicle inventory rose to 28 days, a huge jump from the 15 days at the end of the last quarter.
• Tesla said that production at Gigafactory Shanghai was down sequentially due to seasonality and planned shutdowns around Chinese New Year in Q1. It also notes that demand typically improves throughout the year, and as it enters new markets, "such as Chile, many of them will be supplied from Gigafactory Shanghai.”
• There was the following interesting acknowledgmenet: “Global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs. While positive for our regulatory credits business, we prefer the industry to continue pushing EV adoption, which is in-line with our mission.”

Turning to the company's battery division, Tesla deployed a record amount of energy storage for the quarter – 4,053 megawatt-hours – topping its prior record by 2%. Tesla has become a dominant force in the storage business, vying with competitors such as Fluence Energy and Sungrow Power Supply to deploy big batteries that can back up solar plants or prevent blackouts on the electric grid. That market is growing at breakneck speed, with US deployments in the fourth quarter jumping 358% compared to the same period of 2022, according to Wood Mackenzie.

Still, as Bloomberg notes, probably for the first time since it bought SolarCity, Tesla didn’t disclose its quarterly deployments of solar, instead noting the following: "In its Energy Generation and Storage business: “Revenues were up 7% YoY and gross profit was up 140% YoY, driven by increased Megapack deployments, partially offset by a decrease in solar deployments." In Q4, the company deployed 41 megawatts.

Another notable highlight: the company has previewed what ride-hailing will look like using the TSLA app. Watch out Waymo and Uber, TSLA is coming for you:

And so, with the stock having cratered in the past week, sliding for a record-matching 7 consecutive days, the market is finally happy with what Musk revealed and the stock is sharply higher after hours, surging some 6% and erasing the 4 most recent days of losses...

... although much will depend on Musk's tone during the earnings call, where TSLA's overtime fate will be decided.

Tyler Durden Tue, 04/23/2024 - 16:25

Israel Prepares Rafah Evacuation With Help From US, Egypt - New Tent City Erected

Via The Cradle

The Israeli army is closing in on completing its plans for an assault on the Gaza Strip’s southern city of Rafah, the Wall Street Journal (WSJ) reported on Tuesday. 

WSJ cites Egyptian officials as saying that Israel’s plan to evacuate civilians from the city will take two to three weeks and will be carried out in cooperation with Washington, Cairo, and other Arab states, including the UAE. 

Image: AFP

The officials say Israel is planning on gradual deployments of troops to Rafah. The troops will concentrate on specific areas where Tel Aviv believes Hamas leaders are holed up.

The entire operation – including the evacuations – is expected to take at least six weeks, according to WSJ. The attack on Rafah will have a "very tight operational plan because it’s very complex there," an Israeli security official told the outlet. "There’s a humanitarian response that’s happening at the same time."

Israel’s evacuation plan involves moving Rafah’s civilian population upwards towards the southern city of Khan Yunis, as well as other areas of the strip, the report states, adding that shelters with tents, food supplies, and medical facilities will be set up. 

Egypt has been briefed on the details of the plan. Al-Araby Al-Jadeed reported last week, citing Egyptian sources, that Egyptian forces and agencies are "at full readiness" in northern Sinai and along the Egyptian border with Gaza. The increased readiness came after "contacts from the Israeli side" relating to preparations for the operation in the southern city.

The Al-Araby Al-Jadeed report adds that the Egyptian Red Crescent has been readying camps in Khan Yunis over the past few months in preparation for the displacement of Palestinians from Rafah. Satellite images obtained by AP this week reportedly show a new tent compound near Khan Yunis.

In February, it was reported that Egypt built a security zone in the Sinai near the border with Rafah. Many speculated at the time that the security zone would aid Israeli plans to push Rafah’s population into the Sinai desert. Egypt's State Information Service said on February 17 that the zone is a logistics hub on the Egyptian side of the Rafah border, which will be used to deliver aid into Gaza.

Israeli army radio reported on Monday that Tel Aviv is now expanding a designated "humanitarian zone" that will "accommodate around one million people." It said field hospitals have also been set up in the area. Army radio added that the zone will extend from Al-Mawasi on Gaza’s southern coast towards Deir al-Balah in the central Gaza Strip. 

Satellite photos analyzed by The Associated Press appear to show a new compound of tents being built near Khan Younis in the southern Gaza Strip as the Israeli military continues to signal it plans an offensive on the city of Rafah.https://t.co/5bkOW5ShyF

— Toronto Star (@TorontoStar) April 23, 2024

Israel believes Rafah is Hamas’ final stronghold and is dead set on attacking the city. Washington has repeatedly said it would not accept an operation there without a plan to properly and safely evacuate civilians and move them out of harm's way.  

The UN and several countries have warned that attacking Rafah would have catastrophic consequences and that there is no safe way to evacuate the desperately overcrowded city. 

Tyler Durden Tue, 04/23/2024 - 11:50

"Let Me Go Home, Okay?": Mistrial Declared For Arizona Rancher Accused Of Killing Illegal Immigrant On His Property

A mistrial was declared in the case of an Arizona rancher accused of fatally shooting an illegal immigrant on his property near the US-Mexico border, after the jury failed to reach a unanimous decision following two full days of deliberation.

George Alan Kelly, 75, was charged with second-degree murder in the Jan. 30, 2023 shooting of 48-year-old Gabriel Cuen-Buitimea, who was in the United States illegally.

"Based upon the jury's inability to reach a verdict on any count," said Arizona Superior Court Judge Thomas Fink, adding "This case is in mistrial."

According to one of Kelly's defense attorneys, Kathy Lowthorp, just one juror was voting 'guilty,' which is why their legal team pushed for deliberations to continue.

"There was one hold out for guilt, the rest were not guilty. So seven not guilty, one guilty," said Lowthorp. "We believe in our gut that there was no way the state proved beyond a reasonable doubt."

George Alan Kelly’s defense attorney Kathy Lowthorp says the mistrial was caused by one holdout juror who believed Kelly to be guilty. She says the other 7 wanted to vote for acquittal. pic.twitter.com/BvS88AupcX

— Adam Klepp (@AdamKleppAZ) April 23, 2024

The Santa Cruz County Attorney's office can still retry Kelly for any charge, or drop the case. 

Prosecutors accused Kelly of recklessly firing nine shots from an AK-47 rifle toward a group of men who were trespassing on his cattle ranch after running from Border Patrol agents, roughly 115 yeards away. He was also accused of providing inconsistent statements throughout the investigation - initially failing to tell officials that he had fired his weapon, and then allegedly claiming that the illegal immigrants were part of a group of 10-15 people armed with AR-style rifles - and that he'd heard gunshots.

Kelly's attorney said that he had fired "warning shots."

"He does not believe that any of his warning shots could have possibly hit the person or caused the death," she said at the time. "All the shooting that Mr. Kelly did on the date of the incident was in self-defense and justified.

After Monday's ruling, Consul General Marcos Moreno Baez of the Mexican consulate in Nogales, Arizona, said he would wait with Cuen-Buitimea's two adult daughters on Monday evening to meet with prosecutors from Santa Cruz County Attorney's Office to learn about the implications of a mistrial.

"Mexico will continue to follow the case and continue to accompany the family, which wants justice." said Moreno. "We hope for a very fair outcome."

Kelly's defense attorney Brenna Larkin did not immediately respond to an emailed request for comment after the ruling was issued. Larkin had asked Fink to have jurors keep deliberating another day. -CBS News

Following the mistrial, Kelly said: "Let me go home, okay? That alright with y’all? It is what it is and it will be what it will be. I will keep fighting forever. I won’t stop."

“Let me go home,” George Alan Kelly speaks after the mistrial was declared. The Mexican Consulate said they hope the state will re-try the case and justice will be served. pic.twitter.com/IDYpaM806C

— Adam Klepp (@AdamKleppAZ) April 23, 2024

 

Tyler Durden Tue, 04/23/2024 - 11:30

Today, in the Calculated Risk Real Estate Newsletter: New Home Sales Increase to 693,000 Annual Rate in March

Brief excerpt:

The Census Bureau reports New Home Sales in March were at a seasonally adjusted annual rate (SAAR) of 693 thousand. The previous three months were revised down combined.
...
The next graph shows new home sales for 2023 and 2024 by month (Seasonally Adjusted Annual Rate). Sales in March 2024 were up 8.3% from March 2023.
...
Note that the median and average price are down due to the mix of homes sold, not because of large price declines. Homebuilders are building less expensive homes to keep up volumes.

There is much more in the article.

US PMIs Scream Stagflation As Manufacturing 'Contracts', Prices Rise, Heaviest Job Cuts Since GFC

After a mixed bag from preliminary April European PMIs (Services strong-er, Manufacturing weaker-er, surging prices)...

“Accelerated increases in input costs, likely driven not only by higher oil prices but also, more concerningly, by higher wages, are a cause for scrutiny Concurrently service-sector companies have raised their prices at a faster rate than in March, fueling expectations that services inflation will persist. ”

and after March US PMIs exposed the end of the disinflation narrative...

"Most notable was an especially steep rise in prices charged for consumer goods, which rose at a pace not seen for 16 months, underscoring the likely bumpy path in bringing inflation down to the Fed's 2% target. ”

...S&P Global's preliminary US f°r April just dropped and they were ugly with both Manufacturing and Services disappointingly dropping further as the former    dropped back into contraction:

• •    Flash US Services Business Activity Index at 50.9 (Exp: 52.0; March: 51.7) - 5-month low.

• •    Flash US Manufacturing PMI at 49.9 (Exp 52.0; March: 51.9) - 4-month low.

Source: Bloomberg

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

“The US economic upturn lost momentum at the start of the second quarter, with the flash PMI survey respondents reporting below-trend business activity growth in April. Further pace may be lost in the coming months, as April saw inflows of new business fall for the first time in six months and firms’ future output expectations slipped to a five-month low amid heightened concern about the outlook.

“The more challenging business environment prompted companies to cut payroll numbers at a rate not seen since the global financial crisis if the early pandemic lockdown months are excluded.

After March showed accelerating prices, flash April data confirmed the trend

“Notably, the drivers of inflation have changed.

"Manufacturing has now registered the steeper rate of price increases in three of the past four months, with factory cost pressures intensifying in April amid higher raw material and fuel prices, contrasting with the wagerelated services-led price pressures seen throughout much of 2023.”

So slower growth and much faster inflation - that does not sound like a recipe for rate-cuts... in fact quite the opposite.

Tyler Durden Tue, 04/23/2024 - 10:08

The Census Bureau reports New Home Sales in March were at a seasonally adjusted annual rate (SAAR) of 693 thousand.

The previous three months were revised down combined.

Sales of new single‐family houses in March 2024 were at a seasonally adjusted annual rate of 693,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.8 percent above the revised February rate of 637,000 and is 8.3 percent above the March 2023 estimate of 640,000.
emphasis added

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

New home sales were close to pre-pandemic levels.

The second graph shows New Home Months of Supply.

The months of supply decreased in March to 8.3 months from 8.8 months in February.

The all-time record high was 12.2 months of supply in January 2009. The all-time record low was 3.3 months in August 2020.

This is well above the top of the normal range (about 4 to 6 months of supply is normal).

"The seasonally‐adjusted estimate of new houses for sale at the end of March was 477,000. This represents a supply of 8.3 months at the current sales rate."

Sales were above expectations of 670 thousand SAAR, however, sales for the three previous months were revised down, combined. I'll have more later today.

Biden's America: 40% Of Renters Think They'll Never Own A Home, Up From 27% Last Year

Bidenomics 101: the American dream of owning a home has become the American nightmare for almost half the US population.

As housing specialist Redfin reports, rising home prices and mortgage rates "are making it harder to believe in the American dream of homeownership. Lack of affordability is the most commonly cited reason renters don’t believe they’ll ever own a home."

The details are dire: Nearly two in five (38%) U.S. renters don’t believe they’ll ever own a home, up from roughly one-quarter (27%) less than a year ago. 

This is according to a Redfin-commissioned survey of roughly 3,000 U.S. residents conducted by Qualtrics in February 2024. This report focuses on the 1,000 respondents who indicated they are renters. The relevant questions were: “Do you believe that you will ever own your own home in the future?” and “Which of the following are reasons you aren’t likely to purchase a home in the near future?” The 27% comparison is from a Redfin survey conducted in May and June 2023. 

Lack of affordability is the prevailing reason renters believe they’re unlikely to become homeowners. Nearly half (44%) of renters who don’t believe they’ll buy a home in the near future said it’s because available homes are too expensive. The next most common obstacles: Ability to save for a down payment (35%), ability to afford mortgage payments (33%) and high mortgage rates (32%). Roughly one in eight (14%) simply aren’t interested in owning a home. 

Buying a home has become increasingly out of reach for many Americans due to the one-two punch of high home prices and high mortgage rates. First-time homebuyers must earn roughly $76,000 to afford the typical U.S. starter home, up 8% from a year ago and up nearly 100% from before the pandemic, according to a recent Redfin analysis. Home prices have skyrocketed more than 40% since 2019, due to the pandemic homebuying frenzy and a shortage of homes for sale. And the current average 30-year fixed mortgage rate is 6.82%. While that’s below the 23-year-high of nearly 8% hit in October, it’s still more than double the record low rates dropped to in 2020. 

Home prices have risen 7% in the last year alone, and monthly mortgage payments have risen more than 10%, which helps explain why renters today are more likely than they were last year to say they don’t see themselves owning a home anytime soon. 

Many renters can’t fathom homeownership because they’re already struggling to afford their monthly housing costs. Nearly one-quarter (24%) of renters say they regularly struggle to afford their housing payments, and an additional 45% say they sometimes struggle to do so.

Rents have soared over the last few years because so many people moved during the pandemic, upping demand for rentals. The median U.S. asking rent is roughly $2,000, near the record high hit in 2022–but the good news for renters is that prices aren’t growing nearly as fast as they were during the pandemic, partly because an influx of apartment supply is taking some of the heat off prices. 

“Housing costs are high across the board, but renting is a more affordable and realistic option for many Americans right now–especially those who have never owned a home and aren’t able to tap into equity from a previous sale,” said Redfin Chief Economist Daryl Fairweather. “While owning a home is usually a sound longterm investment, the barriers to entry and upfront costs of buying are higher than renting. Buying typically requires a sizable down payment and approval for a mortgage–things that are difficult for many people today, when the typical down payment is near $60,000 and mortgage payments are sky-high. The sheer expense of purchasing a home is causing the American Dream of homeownership to lose some of its shine.” 

Gen Z renters are most likely to believe they’ll own a home

Broken down by generation, Gen Z renters are by far the most likely to believe they will become homeowners (maybe it's because they are also the dumbest). Just 8% of Gen Z renters believe they’ll never own a home, compared to 22% of millennials, 40% of Gen Xers and 81% of baby boomers.

Tyler Durden Tue, 04/23/2024 - 09:40

Euro Area PMI Activity Hits 11 Month High On Service Expansion As Manufacturing Recession Gets Worse

Europe's study in paradoxical contrasts continues. On the same day, ECB's de Guindos said a June rate cut looks like a set deal (unless there are surprises) with the end of inflation fight is in sight, the Euro-area's private-sector activity advanced to the highest level since May 2023, driven by a buoyant services sector and Germany's return to growth; UK firms also reported the strongest growth in almost a year

Here are the details: 

France

• Services Flash PMI (Apr) 50.5 vs. Exp. 49.0 (Prev. 48.3);
• Manufacturing Flash PMI (Apr) 44.9 vs. Exp. 47.0 (Prev. 46.2);
• Composite Flash PMI (Apr) 49.9 vs. Exp. 48.8 (Prev. 48.3);
  • "Overall, our HCOB nowcast model for the second quarter points to a recovery of the French economy, driven by the services sector".

Germany

• Manufacturing Flash PMI (Apr) 42.2 vs. Exp. 42.9 (Prev. 41.9);
• Services Flash PMI (Apr) 53.3 vs. Exp. 50.5 (Prev. 50.1);
• Composite Flash PMI (Apr) 50.5 vs. Exp. 48.6 (Prev. 47.7);
  • "Factoring in the PMI numbers into our GDP Nowcast, we estimate that GDP may expand by 0.2%".

UK

• Services PMI (Apr) 54.9 vs. Exp. 53.0 (Prev. 53.1);
• Manufacturing PMI (Apr) 48.7 vs. Exp. 50.4 (Prev. 50.3);
• Flash Composite PMI (Apr) 54.0 vs. Exp. 52.7 (Prev. 52.8)

Euro-Area

• Services Flash PMI (Apr) 52.9 vs. Exp. 51.8 (Prev. 51.5);
• Manufacturing Flash PMI (Apr) 45.6 vs. Exp. 46.6 (Prev. 46.1);
• Composite Flash PMI (Apr) 51.4 vs. Exp. 50.8 (Prev. 50.3);
  • "Considering various factors including the HCOB PMIs, our GDP forecast suggests a 0.3% expansion in the second quarter".

Putting it all together, the Euro area composite flash PMI increased by 1pt to 51.4 in April, above the 50.7 consensus estimate, in expansion (>50) for the second straight month and the highest since May 2023. As shown in the chart below, the improvement in the composite index was skewed heavily towards the services sector, where the index rose (by 1.4pt) to 52.9, while the manufacturing PMI continued to sink.

Across countries, the improvement in the area-wide index was driven by Germany - which was above that key 50 expansion mark for the first time in 10 months driven by services (even as manufacturing continued to shrink, though at a slower pace than the month before) defying analysts who had expected another sub-par reading - and France, partially offset by a slight deceleration in the periphery.

In the UK, the composite flash PMI improved notably to 54.0, above consensus expectations of a decline, on the back of a pick-up in services activity, where the index grew by 1.8pt to 54.9, which was partly offset by a slowdown in manufacturing activity.

Commenting on the results, Goldman saw three main takeaways from today's data.

• First, there are continued improvement in the Euro area headline numbers, coupled with continued, but moderating, optimism for the upcoming year.
• Second, the PMI price components ticked up in April, driven by both sectors, with the risks to cost inflation coming from higher wages and oil prices.
• Lastly, the UK saw another month of expanding activity, also driven by the services sector, which should support growth momentum going forward.

While output prices ticked up only marginally in both the Euro area and the UK, it is important that firms' pricing behavior remains supportive for the disinflationary process, Goldman's economists noted.

The positive figures suggest that the euro area will probably expand by 0.3% in the second quarter, matching the rate of growth in the January-March period, said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. That’s a more upbeat prediction than the Bloomberg consensus, which sees just 0.1% growth at the start of the year, with data due on April 30.

“It appears that the recession was predominantly concentrated within the manufacturing sector, while the broader economy may have narrowly skirted such a downturn,” de la Rubia said. “The service sector may serve as a catalyst for the overall economy.”

After contracting in the final quarter of last year, Germany was long expected to have had a shallow recession over the winter. But the Bundesbank last week said output may have grown slightly in the first three months of the year because of a pickup in industrial production, exports and construction — meaning the country would avoid such a scenario.

De la Rubia agreed, saying a Nowcast model points to economic expansion of 0.1% in the first quarter followed by 0.2% in the second. German bonds fell across the curve and money markets reduced wagers on the scope for interest-rate cuts after data for the country were published. The two-year maturity, which is sensitive to changes in monetary policy, rose as much as three basis points to 2.99%.

The overall performance was also better in France, where activity remained broadly stable after contracting for 10 months. That development was also driven by services, where rising demand resulted in the first expansion in almost a year. New orders placed with factories fell at the steepest pace since January, increasing the wedge between manufacturers and services firms.

“The French services sector is the workhorse of the economy,” said Norman Liebke, an economist at Hamburg Commercial Bank. “French manufacturing output stays subdued, but we expect it will soon follow the path of the services sector. The manufacturing sector delays the overall economy’s recovery for now, though.”

But the better momentum in both countries was flanked by stronger price pressures, which as Bloomberg notes is a potential source of concern for European Central Bank officials who are gearing up for a first interest-rate cut in June. That development was also centered on the services sector, where rising wages are playing a bigger role.  Diverging fortunes were equally visible in the labor market. While German and French services firms added workers at a quicker pace, factories shed jobs.

Overall though, the currency bloc’s top two economies couldn’t keep pace with the rest of the region, which appears to be recovering after the energy crisis that stifled its post-Covid rebound.

The rise in power costs — triggered by Russia’s war in Ukraine — also fanned inflation, though consumer-price growth has since slowed markedly. The purchasing-manager data showed that price pressures “intensified slightly” this month.

“The PMI figures are poised to test the ECB’s willingness to cut interest rates in June,” de la Rubia said. “Accelerated increases in input costs, likely driven not only by higher oil prices but also, more concerningly, by higher wages, are a cause for scrutiny. Concurrently, service-sector companies have raised their prices at a faster rate than in March, fueling expectations that services inflation will persist.”

Still, he doesn’t expect that to derail a well-telegraphed easing at the ECB’s next monetary-policy meeting. “However, we doubt that the central bank will adopt a ‘pragmatic speed,’ as suggested by Francois Villeroy de Galhau” de la Rubia said. “Instead, we expect a more cautious approach.”

As noted above, comments by ECB Vice President Luis de Guindos earlier on Tuesday reinforce that approach. “The level of uncertainty makes it very difficult to say,” he told Le Monde, according to a transcript on the ECB website. “I already mentioned June. As for what happens afterwards, I’m inclined to be very cautious.”

A separate set of data for the UK showed the economy’s recovery from recession unexpectedly gathered pace at the start of the second quarter as private-sector firms reported the strongest growth in almost a year. PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.

US figures later are set to show continued growth. Earlier numbers from Australia, India and Japan pointed to faster expansion.

Tyler Durden Tue, 04/23/2024 - 09:30

Large Structural Short Will Drive Yen Much Higher

Authored by Simon White, Bloomberg macro strategist,

Focus has been on the growing short position in the yen. But the total size is likely to be small in the scheme of things. The real story is the lack of domestic hedging leading to a large structural short in the yen which will drive the currency much higher when it is covered.

There has been some back and forward internally about the extent of the yen short position. FX positioning is hard to get good visibility on unless you are in the flow. The go-to for most people that aren’t is the CFTC data. This certainly shows that yen short-positioning versus the dollar has risen in recent months.

The chart measures the net short versus open interest. Although the short is high, we can see it has been higher, especially in the late 1990s when USD/JPY rose to ~150.

But COT data is based on flows of FX futures, which are low compared to spot and other flows. The net short for the speculator category - which aims to catch hot flows that are more likely to be price moving on a shorter-term basis, and will mainly be CTA flows – is only about $13.4 billion, not earth shattering.

More important for the longer-term outlook is how the yen’s steadily weakening path is leading to domestic investors to allow their foreign asset positions to become underhedged. As a proxy, we can look at the behavior of life insurers, who are among the largest hedgers of their overseas positions. Their hedging ratios have slipped to under 50%.

Japan is the world’s largest net creditor, with over $3 trillion of assets held abroad. Domestic investors’ flows dominate flows of foreigners buying Japanese assets.

Thus, the large and building structural yen short of Japanese investors will be what ultimately sets the path for the currency.

When the wind changes, the yen is primed to change direction with vigor.

Tyler Durden Tue, 04/23/2024 - 09:15

Gaza War At 200 Days: IDF Pivots From Iran Threat Back To Hamas Operations

Monday into Tuesday saw the Israel Defense Forces (IDF) intensify its operations in central and northern Gaza, following a cooling of tensions with Iran after the two almost went to war. Tuesday marks the 200th day of Israel's war in Gaza, in response to the Oct.7 Hamas terror attacks.

"Israel bombarded northern Gaza overnight in some of the heaviest shelling in weeks, panicking residents and flattening neighborhoods in an area where the Israeli army had previously drawn down its troops, residents said on Tuesday," Reuters reports.

Image via United Nations

This strongly suggests that even once the IDF has cleared an area, Hamas has the capability of moving back in - also given its capabilities utilizing Gaza's vast tunnel network.

"Tanks made a new incursion east of Beit Hanoun on the northern edge of the Gaza Strip, though they did not penetrate far into the city, residents and Hamas media said. Gunfire reached some schools where displaced residents were sheltering," Reuters continues.

Starting Sunday night, the IDF launched a 'surprise operation' in the central Gaza corridor, the military confirmed, happening over the Passover holiday: 

The IDF says the “surprise operation” that began Sunday night is aimed at “deepening the achievements” in the Netzarim corridor.

The corridor, built around a road south of Gaza City, enables the IDF to carry out raids in northern and central Gaza while allowing Israel to control access to the north for Palestinians seeking to return after fleeing south.

"The forces are carrying out targeted raids and are thwarting terror in the area," the IDF says in a statement.

The IDF confirmed the return of Hamas militants to areas which had previously been clear enough to halt operations. 

⚡️The moment of the bombing of Al-Sahaba Tower on Al-Wahda Street in the center of Gaza City. pic.twitter.com/p0UcrJNS2Z

— War Monitor (@WarMonitors) April 22, 2024

"Nahal troops spotted several gunmen amid the raid, and called in airstrikes by fighter jets against them and the buildings they were spotted operating at," an IDF statement continued.

As for Rafah in the south, so far it seems the IDF's planned offensive appears to be on pause. An estimated 1.5 million civilians are sheltering in the city, and the White House has urged the Netanyahu government not to attack it. Humanitarian aid groups currently say they don't know what to expect.

The US has urged that Israel evacuate civilians first, but these plans are anything but clear at this point. "I have no idea what the plan with the procurement of tents by the Israelis is," the head of the UN humanitarian office in Gaza, Andrea de Domenico, told Al Jazeera. Recent days have seen dozens of casualties due to shelling of some areas, but a full assault is expected to be a humanitarian nightmare for the refugees there.

Tyler Durden Tue, 04/23/2024 - 08:55

'Its The Economy, Stupid!' Black And Hispanic Voters Embrace Trump On Economics And Well-Being

Authored by J.G. Collins via The Epoch Times (emphasis ours),

Epoch Times reporter Tom Ozimek recently wrote in these pages of former President Donald Trump’s encounter with Kayla Montgomery, a young Republican political consultant whose business is to “engage young, black professionals, students, and community members” in the Atlanta area. The ex-president and Ms. Montgomery met at a Chick-fil-A restaurant during an impromptu campaign stop in Atlanta. Ms. Montgomery was effusive in her praise of President Trump, saying, “I don’t care what the media tells you, President Trump—we support you!” A video of Ms. Montgomery and the former president hugging soon went viral, even as the media and Democrats quickly dismissed the interaction as “staged.”

Supporters of former President Donald Trump walk near his residence at Mar-A-Lago in Palm Beach, Fla., on Aug. 9, 2022. (Giorgio Viera/AFP via Getty Images)

Then, last week, President Trump left his trial in Manhattan to visit a bodega in Washington Heights, a mostly black and immigrant community on the Upper West Side of Manhattan and received a hero’s welcome from the working people there.

Whether the Chick-fil-A event was staged or not is open to debate. What is undeniable, though, is that polling shows Donald Trump has upended much of the black and Hispanic voting support Democrats have enjoyed since at least Lyndon Johnson’s “Great Society” and, at least in some instances, back to FDR’s New Deal.

A Wall Street Journal poll showed that President Trump’s support among black men in swing states had moved to 30 percent earlier this month compared to just 11 percent of black men nationally in 2020. Among black women, those same percentages went from 6 percent in 2020 to 11 percent in April.

‘It’s the Economy, Stupid!’

Political pundits and editorial pages all seem flummoxed by President Joe Biden’s erosion of support among the traditional Democrat coalition.

But no one seems more upset by the erosion of black support than Democrat political strategist James Carville, “the Ragin’ Cajun,” who engineered Bill Clinton’s 1988 victory over incumbent George H.W. Bush. That’s ironic, because it was Mr. Carville who added the memorable phrase “It’s the economy, stupid!” to the American political lexicon when he pinpointed President Bush’s greatest vulnerability 36 years ago.

Between January 2021, when President Biden took his oath of office, up to March of this year, average rents have increased by 20 percent. By comparison, residential rents increased just 12 percent during President Trump’s entire term. The increased costs hit blacks and Hispanics disproportionately because of the vast disparity in home ownership, as illustrated below.

Blacks and Hispanic workers also disproportionately occupy positions in production and transportation/material moving jobs at higher rates (17.8 percent and 16.7 percent, respectively) than whites (12.1 percent). But those are the jobs most vulnerable to being taken by the influx of the purported asylum seekers who typically work for less and are less likely to join unions or file complaints with the authorities against their employer. The asylum seekers have exploded since President Biden lifted U.S. border restrictions.

As Well as Crime ...

Blacks and Hispanics tend to be disproportionately affected as victims of recidivist criminals let go by criminal justice initiatives championed by leftist Democrat “progressives” in so-called “blue” states. As shown in the chart above, black victims of crime actually decreased during the Trump presidency. (The chart is from a study that has not been updated for later years.)

By the same token, black-owned businesses were among the many businesses looted and destroyed by “progressive” George Floyd rioters in 2020.

… and Education

President Trump made permanent a commitment of $255 million in annual funding for historically black colleges and universities, and he increased funding for the Federal Pell Grant program by signing the FUTURE Act.

Within the states, Republican legislators and governors have championed school choice and a “back-to-basics” approach to K-12 that even Democrats acknowledge. Jorge Elorza, the CEO of Democrats for Education Reform and its affiliate Education Reform Now, a think tank, said: ”We’ve lost our advantage on education because I think that we’ve failed to fully acknowledge that choice resonates deeply with families and with voters.”

Meanwhile, Education Week, the Left-leaning magazine for K-12 teachers, summarized President Biden’s policies as follows:

“[He] passed stricter rules for charter schools seeking federal grant funding; awarded $1 billion to boost school safety and students’ mental health; and proposed an overhaul of Title IX that would give LGBTQ+ students explicit protection under the landmark sex discrimination law and bar outright bans on transgender youth who want to join athletic teams that align with their gender identity.”

Summary

Black and Hispanic voters are moving toward President Trump for a simple reason: their pocketbook and their well-being. The viewpoints of mainstream media pundits—college educated, overwhelmingly white, and mostly liberal—have long maintained a soft bigotry of racial expectations without understanding much of the economy of people who work in blue-, pink-, and green-collar jobs. The pundits don’t understand that blacks and Hispanics, like the rest of the country, have experienced a near 20 percent cumulative erosion in the purchasing power of their dollar and rising crime. They see K-12 education policies that deny school choice and that serve teachers’ unions, special interests, and Democrat party gender identity dogma far more than children and parents.

Black and Hispanic voters have every reason to depart from their traditional voting patterns.

It’s common sense.

Tyler Durden Tue, 04/23/2024 - 08:35



 

 

The transcript from this week’s, MiB: Ashish Shah, CIO, Public Investing, Goldman Sachs Asset Management, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

 

 

~~~

 

00:00:02 [Speaker Changed] This is Masters in business with Barry Ri Holtz on Bloomberg Radio.
00:00:08 [Speaker Changed] This week on the podcast, I have another extra special guest. Asis sha is co-head and CIO of public investing at Goldman Sachs Asset Management, he helps to oversee $2.3 trillion of assets at GSAM. He has a fascinating background, both in technology and innovation in equity, and perhaps most importantly in credit and fixed income. He just has a unique set of experiences that have placed him in the right place at the right time, doing the exact right job. There aren’t a lot of people in the world of asset management who have such a broad and round set of skills and experiences that have led him to this position. Fascinating background, Alliance Bernstein and Lehman Brothers, as well as a couple of Silicon Valley tech startups. I found his discussion about what went on during the financial crisis at Lehman Brothers and the sort of leadership that you didn’t really hear about at the time. You, you only saw the criticism of the c-suite executives who at, at various companies had had kind of run into problems. But underneath that is just a whole layer of people doing their jobs for themselves, their clients, their staff, and, and I just found that conversation to be fascinating and I think you will also. So with no further ado, my discussion with Goldman Sachs asset managers, CIO Asis Sha.
00:01:49 [Speaker Changed] Thanks so much for having me.
00:01:51 [Speaker Changed] So, let’s talk a little bit about your background. You come out of the Wharton School at University of Pennsylvania with a BS in Economics. What was the career plan?
00:02:00 [Speaker Changed] Look, I, I had no plan. I, this whole world was completely new to me, but I knew two things. First, I knew I loved markets. You know, I’d worked for Jeremy Siegel as a research assistant when I was at Wharton, and that really kind of embedded in me this l love of macro and love of markets. And the second thing was, I knew I didn’t want to go into an investment banking track. I wanted something where I could work on interesting problems that would allow me to cast the career that I wanted without being kind of shooed into like this, you know, analyst, associate kind of fixed career track.
00:02:44 [Speaker Changed] And you have some really interesting and unusual experience, both, both as a trader and, and working as an entrepreneur, innovator, and, and startup. Let, let’s talk about some of that. First, you were a, a trader at a hedge fund that was, was funded by Soros, is it Blue Border? What’s the name of the fund? Blue Border
00:03:03 [Speaker Changed] Partners.
00:03:04 [Speaker Changed] And, and what was it like being a, a trader in that space? Yeah, so,
00:03:08 [Speaker Changed] So I, I had joined that organization right after nine 11 and right after I had come back to New York City. And, you know, it was a fantastic experience. The markets were all over the place, but it was a very small organization. There were, you know, five or six of us and we were spread all across the world. It was nice because I got to work with Greg Coffee, who was Oh, really? One of, one of the partners there. And obviously has gone on to fantastic things. But I, I basically sat in a cubicle by myself trying to come up with investment ideas and realized that that is not my best, best place. My performance wasn’t the best. And, but, but I learned a lot from that experience and knowing that I’m very much a team player and I work well in kind of mid to larger size organizations.
00:03:59 [Speaker Changed] And, and you said you came back to New York. I know you were on the West Coast working in a few startups. Tell us a little bit about level three and some of the other work you did out west. Yeah, so,
00:04:10 [Speaker Changed] You know, go back to the late nineties and the internet was all a rage. I had a brother-in-Law that had joined a company called Level Three Communications that was literally building out the internet. Calls me one day, he’s like, Hey, we’re looking for people. They have the following profile. I think you meet it, come visit and meet with our folks. And I was like, this is my opportunity to really build out my skill sets. Right? I, I was a head of a prop trading desk at Bankers Trust. I had a series of skill sets, but I was really interesting in kind of going to business school, but without going to business school. And I saw this was a fantastic opportunity to do that. So I would go out, I learned the telecom industry. I work 120 hour weeks helping level three raise money, build out its business plan. And I learned a tremendous amount of time about business, about startups, about innovation in that period of time.
00:05:07 [Speaker Changed] And, and what was the other startup that you helped to co-found? Yeah,
00:05:11 [Speaker Changed] So, so once I left there, you know, I left there because I saw that the industry needed greater level of transparency and financial discipline. So I went on to found Sage Logics, which was really meant to be, it was a software a SP in the telecom space focused on telecom providers. And my thesis was, hey, if these organizations don’t get their head around their cost structure that they’re all gonna go bankrupt. Reality is, I should have come back to Wall Street and expressed that view in, in 2001, because that’s essentially what ended up happening,
00:05:47 [Speaker Changed] Right. Bidding against stocks instead of trying to advise people, Hey, you better get your act together or else there’s gonna be trouble. Exactly. So you come back to, to New York, eventually you get into credit and asset management at Alliance Bernstein. I’m gonna hold off your Lehman experience for a few moments. Sure. ’cause I know we can spend a lot of time talking about that. So eventually you go to Lehman, then to Alliance Bernstein. Tell us what you did at Alliance where you were CFO and portfolio Manager.
00:06:17 [Speaker Changed] Yeah, so, so I, I was brought in by Doug Peoples and Peter Kraus to lead the credit organization. And I think that, you know, when I think back to that period of time, what they were trying to accomplish is that they had really strong credit capabilities, but they needed to unify a team and they needed to build an investment process that was gonna be scalable. They had some of the most talented portfolio managers and kind of investors in the world. They really understood how to construct portfolios, which were things that I learned from those portfolio managers. Portfolio managers like Shan Distenfeld that leads income at AB today. What I brought to the table was an ability to kind of bring the team together to operate to singular set of incentives IE delivering performance, right? Not being distracted by things. And to be able to do that at scale, I brought the hedge fund skills, the derivative skills that you kind of learn in operating in hedge fund and prop desks to that traditional asset management. And what I learned was how do you construct portfolios in a way where you can stick with your bets over long haul, but at size, right? Where you are the market. And so you don’t have the ability to kind of increase risk, decrease risk, but rather that you are building your portfolio so you can stick with the risks that you think makes sense over time.
00:07:40 [Speaker Changed] What you’re describing sounds like a set of challenges that faces any large asset manager, the ability to scale, the ability to make sure all members of the team are pulling in the same direction to make sure the incentives are aligned properly. How universal are the things that you did at Alliance Bernstein credit to any large asset manager?
00:08:04 [Speaker Changed] Look, the, those are absolutely critical elements, and it’s amazing how as the asset management industry has consolidated and these investment organizations have grown, how difficult it is for those organizations to pivot into those things. Why, why
00:08:21 [Speaker Changed] Is that? Is it just legacy systems that people can’t get past the sunk costs? Or is it something
00:08:28 [Speaker Changed] More, I I I think it ends up being cultural. I think that investing requires focus. And very similar to a lot of organizations, you are built around these teams that are small and agile, right? Because you have to adapt to the market. Sure. But how do you pull those teams together into larger organizations to be able to do bigger things? And I think, you know, that’s where the innovation experience that I had within technology and within software, it really came in handy because I not only understood markets and investment process, but I was able to take kind of how do you invest at scale? How do you bring technology as a force multiplier for your investors so that your investors can focus, they can be in and operate in smaller org teams, make decisions quickly, but at the same time that you can build large scale customization on behalf of your clients.
00:09:25 [Speaker Changed] So let’s talk about a little innovation. You found AB Labs in 2015. Tell us a little bit about what AB Labs did and and what it allowed you to express within that project.
00:09:40 [Speaker Changed] Yeah, so I I, I, when I go back to that period of time, I think there were four of us at Alliance Bernstein that realized there was something materially changing in the market, which was FinTech was really changing and accelerate the changes within the broader asset management ecosystem. And so myself and you know, Vicki Walia, Matt Bass, Carl Sproles, CTO decided that in order to get our organization ready, that we needed to build that muscle, not just at the top down as an initiative, but actually at a, as a bottom up engagement tool for the organization. And so we tackled topics like roboadvisors, crypto, blockchain within that construct as a way to educate the organization much more rapidly and get people leaning forward into innovation.
00:10:36 [Speaker Changed] So was this a pure research group or was this a bit of a venture fund that focused on FinTech? So
00:10:42 [Speaker Changed] It ended up leading to both, right? It ended up leading to venture investments, but in large part, most of that effort was really around building organizational readiness to innovate. And, you know, a lot of the things that spun out of that effort really kind of continue to impact that organization to, in terms of the forward lean when it comes to innovation and the overall operating stack that allows them to, to be able to again, allow the portfolio managers to focus on markets and yet to be able to deliver scalable solutions.
00:11:21 [Speaker Changed] You mentioned culture earlier. How important is it for an organization to have the right mindset to lean into technology, to be aware of the fact that, hey, if you’re not cannibalizing yourself, someone else will?
00:11:37 [Speaker Changed] Okay. I, I think that culture defines success in investing and particularly in investing organizations, that you have to set an investment culture where your investors, first of all are very aligned to delivering performance and the type of performance that’s gonna end up making your clients happy. I think that you need to have a culture where people collaborate. If you don’t, it’s gonna be really tough to have scaled performance, right? You can succeed in one area, but you’re only gonna be as good and have as much insight as that any one, you know, small group, which is gonna limit your success if you try to do other things. And, and the final point, you know, exactly the one you brought up, which, which is around innovation. The world is moving really rapidly. The way you do research, the way you put together portfolios, the way you execute in the market is changing.
00:12:33 And frankly, what end advisors want right? For their clients. And what we as an asset manager have to deliver is changing very rapidly. Everyone wants mass customization, but delivered with the quality of institutional asset management. And I think it’s really requires innovation and technology in order to do that well. And, and frankly, that’s why I joined Goldman Sachs because I felt that you needed the scale resources of that come with a firm like Goldman Sachs in the analytics and the ability to really invest in technology and in data if we were gonna succeed in going to market in the RIA and wirehouse community and delivering to, you know, institutional quality portfolios that really meet the individual needs of every individual at, you know, minimum sizes of a hundred thousand dollars.
00:13:37 [Speaker Changed] Hmm. It’s interesting because in the past what you’re describing has been somewhat mutually exclusive. It’s very hard to deliver institutional size asset management and mass customization together. I’m gonna assume innovation and technology is what bridges that gap.
00:13:59 [Speaker Changed] Absolutely.
00:14:00 [Speaker Changed] So, so let’s talk about a couple of related quotes that you have that caught my, my ear because it relates to where we are in this market adoption cycle of technology and, and how the world is changing. Quote, as a long-term investor, all you do is worry, but it’s not about what you’re thinking, it’s about how you react. Explain,
00:14:29 [Speaker Changed] Yeah. So, so I think that the most successful investors, the way they invest is they decide what works, what they believe works over time, and they’re simply trying to stick with it. And so what is the worry about? The worry is about, first of all, is that thing that I believe works over the long haul. To what extent is it wrong? Because where I’m really going to underperform is if I get a long-term trend wrong. And so you should be constantly challenging your core thesis, but inside of that, you know, I think it’s really critical to be humble and to understand that that core thesis, you have to stick with it over time. And so the other aspect of this is, okay, what can you do to make it so that you stick with your course core thesis? Because if you have an environment where your core thesis, whatever it is you do, whether it’s investing in growth, investing in, in companies that are lined up with a tr long-term trend like technology, you know, you’re gonna be challenged, right? And so the question is how do you construct portfolios? How do you look out for the challenges that are going to cause your clients to fire you? Right? And if you can tilt out of whatever it is that works over the long haul in those periods of time when maybe it’s gotten crowded over, over extended, you’re gonna be much more successful in capturing those periods of when the opportunity is the best. IE buying low and selling high rather than, you know, having to sell low because your investors essentially have lost patients.
00:16:20 [Speaker Changed] So, so you raise a really interesting point about constantly having to reevaluate your underlying thesis, but it, it makes me think of one of the biggest challenges there, which is how can you tell whether or not an underlying thesis is no longer true? Or if you’re just in a period of, hey, this style is out of favor and it this is what happens on a regular basis, value underperforms growth for a while, or international underperforms domestic, how can you identify when you have a giant secular shift versus simply, hey, this has fallen out of favor these days.
00:17:02 [Speaker Changed] Yeah. So, so that, that’s where doing research and developing an investment process are absolutely critical, right? Your investment process makes it so that when you know, there might be a challenge that use other tools like momentum, like, you know, risk analytics to be able to like, not question whether your thesis are out there, but actually reduce your risk before the market has questioned your thesis, right? So nothing may have changed, but if the market is changing the pricing of that risk, right? It matters to your portfolio. So I think that first point is really critical, which is you need to have things that actually diversify you out of that long term, right? And they have to kind of take place before you’ve already lost money. I think the the second thing is that you want to be doing the research and developing your process so that when your style has gone out of favor, that you know when to double down, right? That you know when to lean in and you have confidence to do it. And so that’s a lot of what investment process design is, is how do you stick with the long-term bets? How do you tilt out and tilt in rather than, you know, being kind of and reacting, being back footed or reacting that you’re actually front footed and you’re able to kind of, you know, shallow out the drawdowns and lean into the opportunities.
00:18:31 [Speaker Changed] So we’ve mostly been talking about things that apply to equities, things like momentum and value and growth. Let’s talk about the other side of a balanced portfolio, which is fixed income. How you thinking about fixed income, be it corporates, treasury, or even tips in what’s been a pretty wild environment where the central bank has raised rates 525 basis points in about 18 months. How do you, how do you process that?
00:19:00 [Speaker Changed] Yeah, so from a long-term perspective, the trite to say, but fixed income is about income, right? And so the starting point is evaluating income, evaluating the likelihood that you actually can capture and hang on to the income. Because a lot of the credit instruments, if you have losses in your portfolio, that gives up the income, right? Right. So starting point is income shape of curves matter. So spread curves historically most of the time are steep interest rate curves most of the time are steep. That happens not to be the case today, right? What
00:19:36 [Speaker Changed] Have we been inverted for two years? Just about
00:19:39 [Speaker Changed] Almost
00:19:40 [Speaker Changed] Right? That that’s a pretty unusual set of circumstances, at least in the modern era. Well,
00:19:44 [Speaker Changed] It’s also very, very unusual to see an inversion like this and not see a material slow down in growth, right? Part of the reason why 12 months ago, people were forecasting with high probability that we’d be in a recession is because historically yield curve inversions really kind of announce that we’re slowing down
00:20:05 [Speaker Changed] Pretty good track record historically too.
00:20:07 [Speaker Changed] Yeah. I, I think that what’s changed this time around is that, you know, real rates and nominal rates are high enough that they are slowing the economy down, but there’s enough offsetting fiscal impulse within the US economy at least that, you know, you have growth continuing on. And so you have this interesting situation where inflation has been coming down, right? It may be not in a straight line, and certainly the la last couple of data points that we’ve had haven’t, haven’t really pleased the market in terms of the Fed being able to ease aggressively. But inflation has come down from its peak, but growth continues. And I think that, you know, for, for fixed income and, and the income piece, you’re better off in the front end. Now if you look at value in the curve and from a longer term perspective, look at what are the real rates relative to the real ability for the economy to grow, we’re pretty attractive here. Right? And the one thing we do know is that if growth does slow down in a way that like cascades into inflation, that bonds are gonna do their job on the price side, which is they’re gonna diversify the equities that you hope.
00:21:26 [Speaker Changed] So falling inflation, still robust growth and a decent yield on fixed income, dare I use the word Goldilocks, is this a pretty decent investing environment for relative to what we’ve seen over the past few years?
00:21:42 [Speaker Changed] Look, certainly on a year to date basis, if you look at your full portfolio, you’ve done pretty well, right? And that, that really comes from the starting point, which is, you know, you have high nominal yields and you have economic growth and earnings growth on the equity side, those two things are working together to generate a pretty good return in absolute terms.
00:22:06 [Speaker Changed] Hmm. Really quite, quite intriguing. So let’s talk a little bit about your experience in the two thousands. You came back to New York from the west coast and you ended up at Lehman Brothers working on the credit strategy side. Tell us a little bit about what brought you to Lehman and what were your experiences like?
00:22:26 [Speaker Changed] Yeah, so I was a client of Lehman’s back in the early nineties, mid nineties. And so I had a lot of relationships there and you know, I had always loved fixed income as an investor. Unfortunately, fixed income became a lot less interesting in the later nineties. And so my team had really pivoted towards more equity strategies. And so when I, I was coming back looking to get back into Wall Street from the technology and, and telecom space, Lehman was one of the phone calls I made. Tom Corcoran and Rick Reeder were people that knew me, that had done business with me. And they said, Hey, you know, what would you think about trading prop within Lehman Brothers? And, and I said, look, I haven’t traded fixed income markets for, you know, coming up on five or six years. I don’t think I should be managing capital right away.
00:23:25 But there was a real change going on within fixed income markets and specifically within credit markets, which is derivatives were coming into this space, hedge funds were coming into this space. And so when you looked inside of the credit business at Lehman, the people that understood derivatives didn’t understand credit. The people that understood credit didn’t understand derivatives. And I happened to be one of the rare individuals that had grown up understanding credit, understanding derivatives and understanding what a hedge fund fund, what types of trades a hedge fund would be interested in doing. And so I came into the role, you know, with ostensibly the, the title of hedge fund strategist. And my, my job, my day job was really to work with the traders and the salespeople to come up with trade ideas for hedge funds. And so all I was doing was looking for ideas for myself, right. That I found was interesting. And so that cascaded into people realize that, wait, this, this person understands credit, they understand derivatives, they understand these alternative strategies. And so I was, you know, able to cascade that into running all of credit strategy, including kind of some of the prop prop research analysts that work within the organization. So,
00:24:47 [Speaker Changed] So let’s set the stage a little bit. What, what year do you come back to Lehman Brothers?
00:24:51 [Speaker Changed] 2003.
00:24:52 [Speaker Changed] So it’s post.com implosion. Yep. Technology had fallen about 80%. If you look at the Nasdaq peak to trough suddenly had become very attractive as the Gulf War was beginning. What was that era like at Lehman Brothers in the early to mid two thousands? What, what were you seeing and, and what was the general energy like at that shop? Because I remember that trading floor as being just a monster sort of noise machine.
00:25:23 [Speaker Changed] Yeah. It was super high energy. This was the world of fixed income, right? Fixed income was booming. The growth of structured credit of, you know, mortgage credit, you know, was really kind of expanding the opportunity set and every, there was a lot of credit being borrowed, right? You know, to, to fund companies in the aftermath of 2000, 2002, that credit cycle, there were secondary opportunities from a distressed debt perspective. It it was just a high energy, rapid growth area. And so it was exciting to be there watching what was going on, helping to influence what was going on in terms of product creation and, and client education.
00:26:12 [Speaker Changed] I don’t know if people realize oh three was still fairly early days of the ramp up of mortgage backed securitization. It had already been underway, but nowhere near the numbers we saw a few years later. What was that experience like watching this machine start to develop some momentum?
00:26:31 [Speaker Changed] Yeah, so, so I, I didn’t directly watch the mortgage side of the business. I was on the corporate credit side of the business. But you know, without question, the overall fixed income franchise was growing. And so we were able to cascade that into, you know, growth in our franchise and product innovation that really was serving our clients, which were largely both hedge funds and asset managers.
00:26:57 [Speaker Changed] So you were at Lehman during what probably was the five most exciting years in the company’s 180 year history. Any stories stand out from that period? I would imagine you saw a lot of things happen there.
00:27:13 [Speaker Changed] Yeah, so I I I tell you that, you know, the number of stories I have around the fall of Lehman in 2008, you know, that was a period of time that, you know, o obviously a very difficult time for the economy for everyone involved at the human level. But, you know, it was a tremendous leadership kind of experience because you really got to understand what you were made of, who you were about, and you got to develop a reputation, you know, from my standpoint, you know, the story that stands out to me. So, you know, I had taken over from Rick Reeder doing the weekly credit call. So on a weekly basis myself, you know, or Eric Felder would do a call really surveilling from a macro perspective what was going on in markets and specifically credit markets. And so Lehman had failed on Sunday, right? Gone bankrupt, had gone in, taken my box in and cleaned up my desk, literally
00:28:15 [Speaker Changed] Like walking out with the banker box full of personal items
00:28:18 [Speaker Changed] And, and being interviewed on, you know, on the outside by the media. But Monday morning I walk in, I’m wearing a suit ready to go and saying, and we’re all standing around not knowing what to do.
00:28:31 [Speaker Changed] Post bankruptcy, file
00:28:32 [Speaker Changed] Post bankruptcy. We don’t know if we have salaries or hedge or, or healthcare for that matter. And my team and I are sitting down, everyone’s kind of, you know, at different stages of what do we do? And we have this call that we do every week that is the following mor morning. And so my son,
00:28:56 [Speaker Changed] Wait, just let me make sure I understand this. So Sunday Lehman files, yeah. Monday it’s front page news all over the world. And what time is your call? 8:00 AM It’s,
00:29:07 [Speaker Changed] It was at 7:45 AM
00:29:10 [Speaker Changed] Or so you have to get on the horn and speak to the entire sales team and, and Bond
00:29:17 [Speaker Changed] And all of our clients, right? And I, I sat with my team and I said, look, I want to do this because it’s the right thing to do and I don’t know what our outcome is here, but you know, I don’t want to go out this way. I want to go out with everyone knowing that the last thing we did in our jobs was we tried to serve them. Right? And, and so, you know, one of my team members, a guy by the name of Krishna Hag Day, and I worked till probably 1130 or midnight that night, put together the presentation the next morning. That’s
00:29:56 [Speaker Changed] Till Sunday night midnight. Yeah,
00:29:57 [Speaker Changed] Sorry, that’s Monday night. Midnight call goes on on Tuesday, we show up on Tuesday morning and we’re going over the internal hoot and there’s, you know, probably 300, 400 clients dialed in however many more, right? And everyone looks up and they’re like, we can’t believe these guys are still going. Right? And, and in fact, I think it was about an hour later that over the hoot, the CEO of of Barclays comes over and, you know, announces that Barclays is buying Lehman Brothers, right? Right. The US operations and someone in equities has the, you know, hilarity of playing God’s save the Queen over the hood. But the number of emails that I got around from clients saying, wow, you know, we’ve always respected your work, but to go on and to do your job in servicing your clients on this day of all days is like hats off to you. And so I I think that, like, that was one of the things that I think it’s lost in all the stories and the, the media is that you had a group of people here that really did care about clients and went out of their way even when the chips were down to keep doing their jobs.
00:31:23 [Speaker Changed] So Barclays takes over Lehman us with, I I think there was a fed backing of that, if I remember correctly, or there was some no backing. Was there a guarantee or did they,
00:31:33 [Speaker Changed] There was no backing.
00:31:35 [Speaker Changed] So, but it was post-bankruptcy, so it was post-bankruptcy, all the prior liabilities would go away without a a, a fed banking without a fed backing. And you end up in, I guess it’s a fairly similar role at Barclays, right? Yep. How similar was the transition? How smooth was that?
00:31:54 [Speaker Changed] It was quite a bumpy transition. It’s a pretty awkward position to be interviewing for your own job. We had a fantastic franchise, right? You know, the Lehman franchise was really known for research and for was very, very strong in credit and in the derivative space. And we were known for serving clients right within that space. And so that transition happened. It was messy as you can imagine. But, but also we, we kind of very quickly got back to work ’cause there were opportunities in markets, clients needed advice in markets and we needed to figure out what was gonna happen to the financial system.
00:32:40 [Speaker Changed] So Barclays had, if I, I’m sure I’m getting this wrong, they had a small US presence before the purchase,
00:32:46 [Speaker Changed] Pretty limited US
00:32:48 [Speaker Changed] Purchase. And this gave them a fairly substantial footprint in the United States. Were there a lot of redundancies or did you pretty much just pick up your whole corporate fixed income team and slot ’em into Barclays? Yeah,
00:32:59 [Speaker Changed] So, so there was a, a good amount of redundancy that
00:33:03 [Speaker Changed] Had to be
00:33:03 [Speaker Changed] Painful, which was pr painful. But it was literally the fifth round of layoffs that we went through at the time. And again, it, we said goodbye to a lot of really good people who, you know, thankfully most of the people ended up landing well over time, but it really told you a lot about the people that you worked with and how they, you know, operated. And, you know, for, for me it was definitely formative as a leader to be able to go through that difficult period of time to try to do my best to support my team and to serve my clients.
00:33:39 [Speaker Changed] It, it really looks like Barclays stole, you guys stole the, the crown jewels of Lehman Brothers post bankruptcy when everybody was terrified like, Hey, we can’t figure out what’s going on there Post-bankruptcy, the assumption is all the risk has attenuated and you’re just left with search through the rubble of, of the collapse. And here’s some really spectacular assets, great teams, and a long history of making money. What was the experience like? What was the transition like to Barclays?
00:34:16 [Speaker Changed] Look, you know, I think that it was surreal to go from one firm to another. And it, it’s an experience that most people won’t have, right?
00:34:26 [Speaker Changed] It literally in the same building, right? You just change the sign on the front door
00:34:30 [Speaker Changed] In, in the same building, although we moved around. But, you know, it was surreal. But you know, I think when you work in financial services, you’re used to change. You’re used to disruption, probably not at that scale and at that speed. But, you know, the the other thing I would tell you is that, you know, what the organization was able to accomplish and what we as individuals learn from that experience was just like priceless. I mean, once you’ve been through an environment like that, everything else kind of pales by comparison, right? You kind of wake up and you know, you know, you’re able to deal with any sort of crisis, right? Like I, I’ll contrast that with the, the pandemic where, which was equally kind of a, it was a much more massive crisis at both the personal level, you know, operational level. But, you know, we’d been through crisis and I think for managers that have been through crisis, have had to manage risk through crisis that you, you get used to it. You learn the lessons, you’re able to roll them forward and it, and frankly, it’s one of the things that I think I do really well is in these periods of difficulty and crisis that, you know, I’m able to zoom out and understand how to deal with a crisis, kind of slow things down, get people to pull people together to communicate and to solve things as if there are problems.
00:36:04 [Speaker Changed] That baptism of fire is unique to our generation. I’m going to imagine the previous generation went through the 87 crash and the two thousand.com implosion sort of was the bridge between the two. I’m curious, how long did it take before you were standing up that weekly credit call at Barclays that used to do at Lehman Brothers?
00:36:29 [Speaker Changed] I, I think it was as soon as we were allowed to
00:36:33 [Speaker Changed] Like, like a couple of months.
00:36:36 [Speaker Changed] It was more weeks.
00:36:37 [Speaker Changed] Oh really? Yeah. And, and you continued doing that at Barclays for, for how long?
00:36:43 [Speaker Changed] It was about 18 months until Alliance Bernstein gave me a call and said, Hey, we’re looking for ahead of credit, any interest in talking to us? Huh?
00:36:53 [Speaker Changed] Really, really quite fascinating. So, so what’s the big takeaway from, from that experience? We, we’ve talked about innovation and culture. Now you bring up the issue of leadership. What did that entire experience leave you with?
00:37:09 [Speaker Changed] Yeah, so, so look, I I think there are a couple of different things that I took away. The, the first and foremost is you take care of your people and you talk, take care of your clients and everything else is gonna take care of itself, right? I, I think that that period of time for me, because I was very involved in working with the New York Fed around what do we do to stabilize things and provided, despite having gone bankrupt, provided a lot of insight and ideas around actions that could be taken to really stabilize the US financial system. And for me it was a calling around, you know, making sure that I didn’t just operate within an organization and with narrow goals, but rather that the importance that the financial system plays when it comes to the, the US economy and the strength of the nation is absolutely critical.
00:38:10 And that we can’t take that for granted. And, you know, there’s a higher calling for anyone that works in a seat like I do today, which is you have a responsibility to make sure that the country benefits from the work that you’re doing. And so I’ve always, through that period of time, one of my biggest takeaways was any policy maker calls, I’m gonna provide them the best advice I can, the best insights I can so that they can do the best job they can for the US economy. And it’s that economy that impacts so many people in the country, both their wealth, their wellbeing, as well as the country’s national security. And I think that, you know, a lot of folks look at our industry and they question, you know, whether, whether you know why we exist, whether we need to exist. You know, I I think that, you know, history has shown that the, you know, the, the ability to grow the country and invest in innovation and infrastructure is really subject to the ability to finance that infrastructure. And so one of the things I find amazing about working at Goldman Sachs is that that is very much our purpose, right? We are here to help fund, you know, the, the growth in the economy. You know, yes, we do that to, to make money as an organization, but ultimately that benefits so many people from their, you know, longer term kind of growth.
00:39:50 [Speaker Changed] So you mentioned you frequently were responding to various policymakers. I’m trying to remember was was Tim Geithner New York Fed Chief when you were at Yes. Lehman or did he come in afterwards? No,
00:40:03 [Speaker Changed] Geithner was, was head of the New York Fed.
00:40:06 [Speaker Changed] So you must have had a lot of back and forth with him over that time. There were some people working both in the, the Treasury Department and in the New York Fed and the Federal Reserve clearly paying very close attention at that point to what was going on. Yeah,
00:40:23 [Speaker Changed] I I I spent more of my time with the New York markets team. So Haley Bosky and, and her team because I was a technical individual, right? Like I’m a market expert, I’m not a policy expert, right? But, but I, I would say that some of the work that I did ended up turning into some of the programs that the Fed actually launched, including the talf where, you know, I can trace back through some of the books that have been written, including the one where I’m a small character that, you know, some of the work I did turned into policy, which was, you know, reassuring to know that I did work that helped students get student loans through that period of time when banks weren’t able to finance those loans.
00:41:11 [Speaker Changed] Huh. Really, really fascinating when everything was, was frozen. Hey, the policymakers go to the experts ’cause they don’t have that expertise. So let’s talk a little bit about your role as a CIO first. What is public investing? Are we referring to public stocks and bonds or what, what does this include? Yeah,
00:41:33 [Speaker Changed] It includes public stocks and bonds managed both fundamentally and through our quant business and in individual sleeves as well as multi-asset portfolios.
00:41:43 [Speaker Changed] So multi-asset could be a hedge fund or is that internal? Is that outside it?
00:41:49 [Speaker Changed] It’s all internally managed, but it, it could include a hedge fund, it could include a more traditional mutual fund or an ETF.
00:41:58 [Speaker Changed] So prior to this role, you were co CIO of fixed income at Goldman for a couple of years. First question, co CIO always seems like that’s challenging when there’s multiple heads. How do you run as co CIOs?
00:42:13 [Speaker Changed] Yeah, I, I I would say rather than challenging, it’s actually fantastic because really you have a partner, obviously it takes effort when you have a partner, you have to invest in a relationship, you have to communicate and over communicate, but it’s fantastic what you can accomplish where you have different perspectives, different points of view, and the geographic and kind of resource span of two individuals. So my co-head and co CIO, when I, I was leading fixed income sat in London, and because of that we were able to cover more of our investment leaders, gather more perspectives, wider set of perspectives on investing markets. He came from more of an emerging markets background. I’ve, from more of a, a dev developed market credit background, we mixed kind of macro and bottoms up and were able to do, I felt a really good job. But it requires investing in the relationship. You have to make sure you’re communicating all the time, you’re doing a lot of kind of weekend calls to make sure you’re caught up. But it can be quite powerful and, you know, it prevents you from missing things,
00:43:22 [Speaker Changed] Especially they’re starting out six or eight hours ahead of us, you’re ending a couple hours after them. It, it, it allows pretty much almost a full day of coverage that you wouldn’t necessarily get if both of you’re in New York or both of you in London. Absolutely. So let’s talk about your, your current role, CIO of public investing. That’s kind of an unusual title. I don’t know a lot of firms that break the world down that way. Tell us a little bit about the thinking behind public investing. Why did Goldman structure it that way? Yeah,
00:43:57 [Speaker Changed] So, so we have a very large effort to invest in private assets across credit and equity in order to make sure that we were also investing in our public investment strategies. We felt it was important to kind of unify those strategies under public investing, you know, structure. I think that when, when you think about, and look at the evolution of public markets, there’s a lot of change going on. And both from a trading perspective, a market structure perspective, you know, hedge funds, non hedge funds, ETFs, passive active. And in order to really leverage the capabilities we have from a data analytics perspective across all these strategies, we felt bringing these historically kind of completely independent strategies together to deliver better performance for clients made a lot of sense. Huh?
00:44:57 [Speaker Changed] That, that’s really kind of intriguing as opposed to saying fixed income, public and private equity, public and private, you guys are, are, are using the divin line as public versus private, obviously very different asset classes and different structures. So I i, I kind of get a better sense of, of that structure. Tell us a little bit about what is the day in the life of Goldman Sachs, chief investment officer of public investing for the asset management group. What does that look like?
00:45:27 [Speaker Changed] Yeah, so I, I think like a lot of investors, like frankly a lot of advisors, you know, I wake up every day get in and the first thing I’m looking at is markets and the prior days worth of performance, right? Performance is job one for any investor. And so that’s exactly what I’m, I’m kind of focusing my time. And then from there, it’s really gonna go around three things that deliver performance over the long haul, which is people, process and platform, right?
00:45:56 [Speaker Changed] Say that again. People process, platform. Yeah. Okay, got
00:45:59 [Speaker Changed] It. And people is obvious, you’re investors, making sure you’re checking in on them, investing in them, catching up with them on, you know, what they’re focused on, what needs they have, what resources they need, process. We’re constantly doing performance and process reviews across our different strategies. And really the goal there is to make sure that our team members are learning from best practices across the entire platform. And that we’re bringing the insights across not just public, but public and private into our portfolios and our portfolio decision making. The final thing really goes back to that story around in innovation, which is, I don’t think it, you know, a lot of asset managers out there are like, oh, we have systems, we’ve outsourced our systems. That’s a good way to fall behind the evolution in the marketplace. If you look at thing innovations like what, what’s happening in ai?
00:46:58 The only way to keep up and deliver strong performance going forward is gonna be to be investing in your data and analytics. And that requires a scale and a focus that very few CIOs actually put in. And so for, from my perspective, you know, all those things come together in delivering strong performance. But it, but you know, I think the other dimension of this is that clients are looking for more than just a return number, right? They’re increasing looking for customization so that the returns match up with their needs and that they’re delivered in a tax efficient manner and delivered customized specifically for them. And so when it comes to direct indexing, you know, when it comes to a SMA of munis and taxable fixed income, those are things that we’re able to deliver with the, the quality of institutional quality portfolio construction and insight, but all the way down, as I mentioned before, to a hundred thousand dollars minimum size. And we’re able to kind of take all this knowledge, all this investment expertise and really use it to solve client problems, which is the solutions dimension of our business.
00:48:17 [Speaker Changed] Hmm, really interesting. Your recent background was more credit and fixed income earlier in your career. A little more on the equity side. What’s it like being responsible for the whole public investing side, especially given how much things have changed on the equity side,
00:48:37 [Speaker Changed] I gotta say I have the best job in the world, right? I get to see every investment process, every investment decision I get to interact with the smartest people that genuinely care about delivering performance to their clients and solving, helping their clients solve their problems. Like every day I wake up and I can’t believe how lucky I am to be able to walk in and learn something new from my investors every single day. And, and that, that frankly is one of the things I think differentiates our organization. Every organization has smart people, but the density of smart people and their, their humility and willingness to learn from each other and willingness to teach other people, and particularly newcomers, but even for me as a CIO, you know, one of the most senior people within the investment org every day I’m learning from my team
00:49:30 [Speaker Changed] And we keep coming back to culture, which you talked about earlier. How important is culture towards those sort of values?
00:49:38 [Speaker Changed] Look, culture is foundational. You can’t succeed without it. And every day we wake up, we ask ourselves what we can be doing to improve our culture, to continue to invest in our culture and our people because that’s the only way we keep up. This is a competitive environment, right? It’s one of the most competitive games in the world is markets. And so if you’re not always training to get better, you’re gonna fall behind. And we’ve seen plenty of players do that. Their performance wanes and you know, suddenly you wake up, they’ve been gobbled up by someone else or you know, they’re outta business.
00:50:16 [Speaker Changed] So you, we mentioned that your focus is on public investing, but Goldman has a very substantial private investing side where it’s either private credit or private equity or a lot of different things that on the equity side as well on that are privates. How, how do you interact with your peers on the private side and how does that integrate into Goldman Sachs asset management in total? Yeah, so
00:50:44 [Speaker Changed] One, one of the cores to our culture, core values of our culture is around collaboration. And so on a regular basis, IE you know, weekly and monthly we have collaboration across public and private investing where we share again with, you know, with appropriate governance around it so that we’re not sharing things we’re not supposed to, but we share insights around what’s going on in, in markets for the benefit and broader benefit of our investment teams and ultimately, or our clients that we’re investing on behalf of.
00:51:19 [Speaker Changed] So, so i I I would not be doing my job if I didn’t ask you a few questions about stocks and bonds and especially some quotes of yours. One thing that leapt out, you had said late last year, I think 2024 is gonna be the year of the bonds explained. Sure.
00:51:39 [Speaker Changed] So we had seen late, late last year really started, I think I, that quote was from either late October or early November, we had seen kind of a steady pace of inflation coming down. So the fed’s hikes were working, the economy was normalizing, and we felt that rates were too high relative to what was necessary to continue to see inflation come down. I think in six weeks of 2023, we ended up seeing the rally that we were hoping to see in 2024,
00:52:11 [Speaker Changed] That that was huge. And it was like the last couple of months of the year, just a giant a hundred basis point move in, in yields, which is kind of unusual, isn’t it?
00:52:21 [Speaker Changed] I it’s a reminder of when the coast is clear, everyone’s gonna go for yield and it’s gonna be too late, right? And so, you know, since then we’ve seen kind of the data revert a bit, growth has been strong, which is good, right? We want growth to be strong, you know, for our overall portfolio. But inflation has ticked up a little bit. So it broke its, its near term path. Every, every data point that we end up seeing kind of confirms that the long term trend is to still towards inflation normalizing. And so, you know, our, our ethos, our focus has been, look, you’re gonna get these periods of time of retracement, you wanna make sure you have room to add into those because you don’t wanna miss it because you know, when inflation turns it’s gonna turn quickly and everyone is gonna jump in.
00:53:16 [Speaker Changed] That kind of reminds me of another quote of yours. The market still has runway. Explain what you mean by that. How much runway is left?
00:53:25 [Speaker Changed] We have been watching growth very carefully. As I mentioned, central banks outside the US are actually becoming more accommodative with the exception of Japan. And underlying growth is actually looking pretty good and diverse, right? Economies are growing and companies are being very disciplined on the cost side, which is leading to earnings growth. That’s out outpacing kind of nominal growth. And so for those reasons we do think that, you know, equity markets have continued runway. Having said that, you know, the other thing we have realized is that parts of the market, and you know, particularly around technology and AI have run up so fast, right? That the risk return is setting up for potential for, for corrections. And so you,
00:54:11 [Speaker Changed] They’re, they’re definitely ahead of themselves.
00:54:14 [Speaker Changed] And so there are these long-term trends in places like Japan and India and you know, a lot of value even in other parts of the market that we think represent, you know, near and longer term opportunities to diversify your portfolio. And, and so we, one of the things we think a lot about is when something’s gotten overdone, when it’s crowded, right? How do you tilt out of that area and into places that are good gonna work for you either in the short term in the long term. And we see that as material opportunities, particularly in India and Japan that are gonna be long term and even more broadly in the industrial space when it comes to global equities.
00:55:01 [Speaker Changed] And let’s talk about an area that’s had some challenges. Some of the treasury auctions have been pretty mediocre over the past couple of sessions. You mentioned, hey, at a certain point, auction buyers just, you know, shrugged their shoulders at the whole process. Tell us your thinking about what’s going on with treasury auctions.
00:55:22 [Speaker Changed] Yeah, so, so I, I think the comment was more around, and it probably came from the fall around we will get these times, the treasury has to auction off a lot, right? The deficit is quite large and structural. And so to the extent the curve doesn’t represent value, it is going to cause auctions to tail, right? The, this is not gonna be the first time that we’ve seen it and it’s really critical for both the US government, right, US treasury to focus on kind of managing its its liability side as well as investors to be thinking about whether there’s good value or not. I think that, you know, a lot of investors are very concerned about the long-term stability of running deficits at the pace that we are and that’s gonna require political solutions and choices over the coming years. A lot of this is tied to demographics, social security, you know, Medicare, you know, and, and frankly these were things that we were looking at 30, 40 years ago when I was in school and are finally taking place, which is we’re having the baby boomers retire and the fiscal, you know, costs of that are now have to get charged the economy.
00:56:47 And so I think in the near term, you know, we’re in pretty good shape because duration does represent value on a real basis, right? And we are growing, which is a big, big deal to grow. Nominally actually is a fantastic thing for debt load, but it’s something that we’re gonna have to be very focused on as debt investors. We talk a lot about within our fixed income org debt sustainability and the, the types of things that would worry us.
00:57:16 [Speaker Changed] So when rates were zero, nobody really seemed to be worrying too much about debt. You had the usual suspects come out and say, oh, debt’s unsustainable, but they’ve been saying that for, for forever 525 basis points higher suddenly, hey, the interest income on this is substantial. Is there any pressure on the Fed despite a slight uptick in inflation to say, Hey, we gotta bring rates down a little bit just to make the fiscal side more sustainable. Or is that just not part of their charge?
00:57:51 [Speaker Changed] I don’t think that’s part of their charge. They do look to liquidity in treasury markets, which is absolutely critical. But I, I think with this level of debt and this cost of debt, if we don’t grow, if growth slows down, it can slow down really hard and that can cascade into a real problem for the Fed, which is employment. Hmm. Right. And so, you know, I think the Fed is watching very carefully the evolution of some of the, the debt stacks where, you know, in commercial real estate, let’s say, where rates are very high and it’s impacting the value of that commercial real estate as it sits in the banking system in other financial institutions. And we’re that to become even more problematic and spill into growth and, you know, cause deflation then I think you would see, or disinflation, I think you would see the, the fed move pretty rapidly.
00:58:47 [Speaker Changed] Let me ask you one curve ball question before we get to our favorite questions, which is you’re on the board of Directors for Minds Matter, a nonprofit that focuses on helping to prepare young people from low income families to, to become ready for college. Tell us a little bit about the organization and, and how you got involved with them.
00:59:09 [Speaker Changed] I got involved with Minds Matter because I followed a girl that I really liked. She was volunteering every Saturday and this May is gonna be the 30th anniversary of me being married to that young woman. So, you know, my wife introduced me to Minds Matter. I’ve always cared about education as a path for people to be able to better themselves and, you know, minds Matter, you know, serves over a thousand students in 14 cities across the country. It helps those students get into college, it helps ’em believe that they belong in college and succeed in college and then it helps them post-College build the network that they need to, to succeed in life. Huh,
00:59:56 [Speaker Changed] Really, really interesting. Alright, let’s jump to our favorite questions that we ask all of our guests. Starting with, who are some of your mentors who helped shape your career?
01:00:07 [Speaker Changed] Yeah, so th three that stand out to me early in my career, Dr. Jeremy Siegel at, at the Wharton School, who I worked for three years was just fantastic in terms of educating me in terms of frankly feeding me with the, the pay he gave me. And you couldn’t find a better person to learn about markets and, and macro than, than Dr. Siegel.
01:00:36 [Speaker Changed] And, and, and he’s probably the person that got this inflation cycle more right than anybody else out there when, when the first Cares Act passed, he was the first person saying, you realize how inflationary this fiscal stimulus is gonna be. And everybody looked at him like he had two heads turned out to be dead, right?
01:00:56 [Speaker Changed] He, he’s, he’s such a fantastic individual. I I own a lot of my career success. So others, the two others I would call out Eddie Raja, who is my first trading boss, ex Solemn Brothers Trader is out there in Duncan Heni, who ran markets at, at Bankers Trust, ended up being one of the CIOs at Soros group. You know, three kind of really early mentors and then more, more recently, you know, at, and my former employer was Peter Kraus for giving me the opportunity. Learned a lot about leadership from, from Peter as well as Doug. Peoples learned a lot about investing and, and asset management from Doug. So really, really appreciative of, of there. There’s a long, much longer list of people that I would love to shout out because I’ve, I’ve learned from pretty much everyone I’ve ever worked for.
01:01:53 [Speaker Changed] So let’s talk about books. What are some of your favorites? What are you reading right now?
01:01:57 [Speaker Changed] I, I would say I read a lot outside of industry, but things that are going on and then I love me a good like, you know, Navy Seal that is going and taking down the terrorists and defending a country kind of book. So in that genre I read a lot of Brad Taylor, Brad Thor, Vince Flynn, you know, gimme anything that’s like a techno thriller and I’m there when it comes to reading for, for content. One of my favorite books I’ve read kind of more recently in the last 12 months has been Chip war. Like the history of the chip is amazing. The gene was like eye-opening around, you know how genetics really works and there are a lot of, there are a lot of implications to investing and the way you design investing systems, particularly with ai. The hard thing about hard things by Horowitz is a great kind of leadership and startup book and how to think about kind of running an organization. And I’d also throw in that the latest Elon Musk book is, is fantastic. It’s a really interesting read, kind of an interesting personal dissection, but a great read around how to think about value engineering in a physical sense, not in a computer sense. So, so those are, those are a couple that
01:03:21 [Speaker Changed] Stand out. That’s a good list. And our, our final two questions. What sort of advice would you give to a recent college grad interested in a career in either investing or asset management?
01:03:32 [Speaker Changed] Yeah, so, so the first thing I’d tell you is read voraciously about markets and then build yourself a model portfolio. Because the best way to learn is to actually be doing things. To use that, to figure out your style and from a style investing style perspective, read about other investors. You know, every investor has a tale of how they’ve lost money and the lessons they’ve learned through that. It’s a lot easier to learn from someone else’s mistakes than from your own. You’ll make plenty of your own, but like, make sure you’re reading about how others failed and, and really try to get to the core of it, not the, the kind of polished version. And, and then the third thing I would recommend them do is be process oriented. Right? Build a process, say, you know, be really conscious about how you’re making decisions and why you’re making decisions and what is going into each of those decisions. Hmm.
01:04:32 [Speaker Changed] And our final question, what do you know about the world of investing in asset management today? You wish you knew 30 or so years ago when you were first getting started.
01:04:42 [Speaker Changed] I leave you with kind of three observations that strike me or, you know, that, that have really kind of accumulated over the last 30 years. So, three things. You know, the first is discipline works over smarts. So the smartest people lose the most money. You know, the most discipline people actually generate strong returns over time. The second thing is, when in doubt, do what works over time. Don’t try to time the market, just, you know, be humble in what you understand about what’s going on, and then do what works over time, because that’s the highest likelihood you are to deliver returns. And then the final thing, you know, I wish I had learned this one earlier in life, is that particularly as an an individual investor, that if you don’t think about after tax returns when you’re making investment decisions, you’re missing the whole game is the highest hit ratio, the lowest cost that you will ever face is to really align your investing approach to be low, to be tax efficient. And I think your taxes change over time, particularly given the fiscal situation. If you’re earning good money, your taxes rates are likely to rise, right? And you should be happy to pay them that you’re, you’re successful enough to pay them. But, you know, make sure you’re investing your money through a tax efficient lens. Huh,
01:06:18 [Speaker Changed] Really, really quite fascinating. Asis, thank you for being so generous with your time. We have been speaking with Asis Shah co-head, and CIO of public investing at Goldman Sachs Asset Management. If you enjoy this conversation, well check out any of the previous 500 or so we’ve done over the past nine and a half years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcasts. Check out my new podcast at the Money Short conversations with experts about your money, earning it, spending it, and most importantly, investing it. Find that in your Masters in Business Feed or wherever you get your favorite podcast. I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Sarah Livesey is my audio engineer. Atika is our project manager. Sean Russo is my researcher. Anna Luke is my producer. I’m Barry Riol. You’ve been listening to Masters in Business on Bloomberg Radio.

 

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