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Friday, May 29, 2026

2026-05-30

***** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic Fare:


.... The more I thought about it, the more I realized that the modern macro world is becoming less about access to information and more about the ability to interpret complexity, connect systems together, and identify structural shifts before they become visible in traditional data.

......... That observation matters because it reveals something important about the phase we are entering globally: the problem facing investors, policymakers, and even societies is no longer the lack of information, but rather the inability to distinguish signal from noise in a world saturated with endless data, headlines, commentary, opinions, and short-term reactions.

........ The rapid evolution of AI and public-data infrastructure is also progressively democratizing access to macroeconomic information. Large institutions, banks, hedge funds, sovereign investors, and increasingly even smaller independent research platforms now possess the technological ability to recreate significant portions of traditional macroeconomic databases internally through public APIs, automated pipelines, AI-assisted systems, and open-source data infrastructure. In such an environment, the future value of macro research will increasingly depend not on access to raw information itself, but on the ability to interpret structural change, connect systems together, identify second-order effects, and recognize regime shifts before they become consensus. ...........






 



Real Household Disposable Income (2017 $bn):




  • Global oil inventories and floating storage have acted as temporary shock absorbers against the Hormuz disruption.
  • OPEC spare capacity has stabilized markets, but it cannot fully replace lost Persian Gulf exports indefinitely.
  • Prolonged disruption could eventually exhaust market buffers and trigger a much sharper oil price surge.
I think most energy analysts would have been shocked to learn that roughly three months into a total closure of the Strait of Hormuz, oil would be trading at just over $100 a barrel. I certainly expected prices to be significantly higher by now. The physical math seems indisputable: take that much supply off the market, and prices should respond quickly and decisively. .........



........ Building on UBS analyst Arend Kapteyn's note from Friday titled "When The Oil Buffers Run Out," Brookings' Robin Brooks and Ben Harris outline in a note that oil markets could face a massive price shock by mid-July as temporary supply buffers run dry.

There appears to be consensus building among Wall Street analysts at Goldman, JPMorgan, UBS, and many other desks that if the Hormuz chokepoint is not reopened in the near term, an energy cliff may materialize in early summer. .........



......................... But if Chevron was pessimistic, the company's biggest domestic competitor, Exxon, was downright apocalyptic. Speaking at the same Bernstein conference, Exxon SVP Neil Chapman had some truly horrifying remarks, certainly not something that Donald Trump would like to hear. We present them below.
Commercial inventories of crude oil, of liquids, think petroleum, gasoline, diesel, jet fuel, they've all run down. And running down those inventories has mitigated or offset, supplemented by the release of strategic petroleum reserves, which most of the Western countries have done. All of that has mitigated the impact. You can model this. We've modeled it. I think a lot of people in the industry have modeled it.
Nothing new here: we've discussed all this in the previous three months. But it is what he said next that was a moment of shocking insight into just how bad things are about to get: 
We're approaching unheard of inventory levels. I mean, really, really low levels. You can debate whether that's going to hit those really low levels in two weeks or three weeks. Once you get to that point, then you'll see price shoot up. A model would say dated Brent will shoot up. Once you get to that really low inventory level, up to $150, $160.

The models would tell you that. And then what happens is when the price gets to a certain level, demand destruction brings it back into balance. Prices go so high, it becomes unaffordable. And that's what happens. And so we're at that level right now.



Market Fare:





(Or: The Risks in Your Private Equity Portfolio)

.......... It is not good news, then, that over the past 10 years, private equity has focused on taking companies private that are both more levered and less profitable than similarly-sized businesses (which we have already established are junky to begin with), all while paying a higher price for them than their size-peers. These companies bank on the same set of factors—that interest rates will remain sufficiently low and the economy sufficiently robust—for them to be able to generate enough cash flow to pay down their debts. Different types of shocks—an economic slowdown, a further pickup in real interest rates if inflation proves sticky, a widening of credit spreads if private credit continues to sour—can all be enough to meaningfully hamper the profitability of these businesses, and to do so in a correlated manner.



Head of Multi-Asset Macro Investing Michael Contopoulos explains why, with credit spreads at historic tights and rates moving higher, investors should focus on resilient yield, as there is limited room for price appreciation.
Key takeaways:
  • Liquidity, not credit quality, is likely to be the primary risk in corporate markets, particularly as stress emerges in private credit and investors are forced to sell what they can, not what the want.
  • Spikes in rate and equity volatility should further erode carry, creating asymmetric downside risk.
  • In our view, the current environment argues for patience, flexibility, and an emphasis on resilient yield over stretched credit.

One sector is flashing the most extreme oversold reading in its history. We're paying attention

Summary: The Nasdaq has posted eight consecutive weekly gains — a historically rare signal that has preceded positive three-month returns in the large majority of prior instances. Defensive sub-industry relative performance has reinforced that reading. Both data points argue for remaining long the trend.

Against that, three developments warrant attention: our Trifecta Lens Score deteriorated last week; fund manager sentiment surveys show signs of euphoria; and BofA’s Bull-Bear Indicator triggered a sell signal. We are not calling a top. But the distribution of outcomes has widened. The appropriate response is to trail stops, size down on risk and tactically ride the momentum.



The Core Observations
  1. Roughly one-fifth of the S&P 500 today sits directly in semiconductor names, and by our classification around 60% of the index is invested in companies whose valuation is primarily driven by the AI narrative. Diversification has quietly left the broadest US benchmark.
  2. At the same time, the relative performance of Quality stocks versus the S&P 500 stands at its lowest level since 1999, and the Momentum factor trades five standard deviations above its long-term trend. Quality has never been offered more cheaply against the broad market.
  3. Our view: Quality today is primarily an allocation question, not a crash hedge — the missing diversification pillar against a concentrated index, at historically most attractive relative valuation.



Bubble Fare:


................................... The report compared the current environment to previous periods of speculative excess, but stopped short of calling for an immediate market collapse. Instead, Hartnett suggested investors remain “long and paranoid,” balancing strong momentum against growing risks from inflation, interest rates and crowded positioning.



A.I. Fare:


......... The second sentence— “Tokens got burned for millions of dollars without any real significant ROI to show for it” – might well turn out to be the epitaph for an era.


Customers are waking up to the recognition that tokens are getting “burned for millions of dollars without any real significant ROI to show for it”




.............. The West is building vast numbers of data centers, far more than the Chinese, because nothing is optimized for efficiency. Our models use far more electricity, far more GPUs, and far more water. Additionally the Chinese are working hard on real-world AI uses: robotic AI, in other words, so that their AI can be used for actual production, and pushing on humanoid robots so they can take care of their old people, do household work and so on: Chinese AI is optimized to do shit work so you can read and write and paint, while Western AI is optimized to do creative work so you can shovel manure, do your own laundry and clean toilets. 

............. I’m shaking my head as I write this. This is the greatest mis-allocation of resources I’ve seen in my entire life. It makes the housing bubble (out of which we at least got some homes) look brilliant and wise. ........




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Quotes of the Week:

Wintersberger: But if one looks at the price action, one can clearly see that markets reacted positively to the news again. At this point, it seems that financial markets have moved on and assume that the Iran war is basically over. Everyone seems to expect a deal is in the pipeline, and setbacks are treated simply as a delay to a deal. Whether that turns out to be right needs to be seen.




Charts:
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(not just) for the ESG crowd:


Sci Fare:




U.S. B.S.:



War Fare:




Since February 28, we have experienced the geopolitical equivalent of a roller-coaster ride on magic mushrooms. We hurtled from Operation Epic Fury to Operation Economic Fury to Project Freedom to no fury at all, and not much freedom of navigation either. We sped from the impending obliteration of Iranian civilization to “a Memorandum of Understanding pertaining to PEACE . . . largely negotiated, subject to finalization.” If you have not experienced the psychological equivalent of whiplash in the last 12 weeks, you have not been paying attention. How many nearly-peace nearly-deals have we nearly had? Four? Five?


.................. Iran won the war. They want a peace deal that reflects that. They aren’t willing to give in peace what the US can’t win by arms.



My best guess is that the Trump administration has successfully fooled markets once again into thinking that there is to be an imminent agreement between Iran and the US. Trump will do and say anything that tempers oil markets (and make him, his family and co-conspirators even richer). The probability of a real peace settlement is remote. Why? Iran has the advantage right now and would be foolish to give it up in negotiation with a demonstrably undependable, bad-faith and fanatically Zionist interlocutor.....................

Iran is rightly insisting on retention of its recently-established control over the Strait of Hormuz because this is a major source of leverage over the political West, and a source of revenue which, for the immediate future, can help compensate it for the massive damage that the West inflicted upon it, while it waits upon a time when the West will be forced to lift all sanctions on Iran, release $26 billion dollars of frozen Iranian assets, and pay reparations, and this time is not as far away as many people suppose. ................


Israel imported military-related goods from six European countries despite arms restrictions.




Geopolitical Fare:



Other Fare:


It's Not Okay To Join The Military

Polly on Twitter asks, “Is there a pejorative term for military like what pig is for cops?”

Dear Polly,

No, but there should be. We need to start stigmatizing that shit.

It is not okay to be a stormtrooper for the western empire. It is not honorable. It is not worthy of respect. If you are a westerner who is considering joining the military, you should choose a different career path instead.

Don’t thank soldiers for their “service”. Don’t play along with the lie that your nation’s soldiers fight for your rights or your freedom. It only encourages more people to join the military when you do that. It’s irresponsible and unethical.

If you live in the west and you join the military, at no point will you ever be acting in defense of your country; you will be murdering people who are trying to defend their country.  ............

......... The crimes of the empire will continue until people stop facilitating those crimes. Anyone who volunteers to help the empire inflict murder and devastation on targeted populations should be regarded as the lowest of the low.



Pics of the Week:



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