Zerohedge

By Michael Every of Rabobank

There are days and weeks where it’s all about the data. Not this week.

Reuters reports the US has sent the following questions for Europe to answer:

1. What do you view as a Europe-backed security guarantee or assurance that would serve as a sufficient deterrent to Russia while also ensuring this conflict ends with an enduring peace settlement?

2. Which European and/or third countries do you believe could or would participate in such an arrangement? Are there any countries you believe would be indispensable? Would your country be willing to deploy its troops to Ukraine as part of a peace settlement?

3. If third country military forces were to be deployed to Ukraine as part of a peace arrangement, what would you consider to be the necessary size of such a European-led force? How and where would these forces be deployed and for how long?

4. What actions do US allies and partners need to be prepared to take if Russia attacks these forces?

5. What, if any, US support requirements would your government consider necessary for its participation in these security arrangements Specifically, which short-term and long-term resources do you think will be required from the US?

6. What additional capabilities, equipment and maintenance sustainment options is your government prepared to provide to Ukraine to improve its negotiating hand and increase pressure on Russia? What more is your government prepared to do to increase its sanctions on Russia, including more strictly enforcing sanctions and better targeting third countries enabling Russia globally?

Whatever market you cover, take a moment to consider the fiscal, financial, and real economy impact involved from the above, especially point 6 given Europe still transships its goods to Russia via central Asia and refuses to use secondary sanctions against third parties “enabling Russia globally”. Then consider the additional costs of Europe and the UK backing Ukraine retaking its pre-war territory, which means hot war with Russia without the US.  

To say this would be a structural break for Europe is an understatement. How might this be done, physically, politically, and financially? As throughout history, national security may drive rapid, dramatic changes in political economy and market structures.

If not, urgent, permanent, expensive change will be imposed on Europe anyway: as President Zelenskyy just put it, “If not Brussels, then Moscow. It’s your decision. That’s geopolitics. That’s history. Moscow will pull Europe apart if we, as Europeans, don’t trust each other.”

The UK now says it will send troops to Ukraine. That’s a political Rubicon crossed. Next is a vast increase in defence spending, if that is what its GDP is now for: a promised 2.5% of GDP spend years from now was already decried as “not touching the sides” even before this news.

To put this in context, the Financial Times’s Gillian Tett argues smaller economies must “become a vassal of America’s imperial power”, oppose it by siding with Russia and China – with no imperial pretensions, honest, or hedge their bets – and good luck to them. Relatedly, she predicts the BOJ to eventually allow JPY to appreciate vs. USD and, running the other way, Japan to buy long-term zero-coupon US debt, or perpetuals, to pay for its US military protection –NB ideas already floated by the Chair of the US Council of Economic Advisors— but is that offer even on the table for Europe at this stage, or is it only for Asia?

President Trump controversially just tweeted, “He who saves his Country does not violate any Law,” quoting Napoleon, despite US intellectual Bill Kristol retorting, “This reads better in the original German,” saying a lot about US intellectuals to Europeans lacking Bonaparte’s power. Perhaps we will soon hear, “He who saves his Country does not violate any Fiscal Law.”

So, yes, expect a busy, and expensive, week in related geopolitics.

Tuesday, Saudi Arabia hosts US-Russia talks over Ukraine, with Europe and Ukraine maybe getting a look-in later, underlining why Europe needs hard power. As @BrankoMilan notes, neither Vienna 1815, Berlin 1875, Versailles 1919, Tehran 1943, Yalta 1945, Potsdam 1945, Washington 1962, Reykjavik 1986, nor Malta 1989 included the countries discussed there. Regular readers will also know I have been flagging potential Tehran/Yalta/Potsdam repeats for years.

The Saudis are also proposing to mediate between Trump and Iran, which some see as a diplomatic way of pretending they wouldn’t be as happy about an Israeli strike on Iran’s nuclear sites as any deal That’s as Israel and the US agree Tehran must never have a nuke, and the Israeli defence minister underlines it remains their #1 strategic priority, whatever the economic cost.

US envoy Russia and Ukraine Kellogg ‘revealed’ the States will attempt to pressure Putin into breaking alliances with North Korea, China, and Iran as part of a Ukraine deal. That would also reshape the world economy. However, an inverse-Nixon strategy is very unlikely to succeed. The Russia-China compact is not for moving, even if some in Europe think the riposte to the US telling it to pay its own defence bill is to move closer to Beijing – risking further US action.

As it’s reported that Beijing isn’t just limiting goods and technology exports, but key firms’ foreign investments and travel of highly skilled individuals, Xi Jinping will hold a public meeting with top tech firms to show support for the recent successes of DeepSeek and Apple’s collaboration with Alibaba. And the West will likely continue to mirror those actions.

That’s as the US removed opposition to Taiwanese independence from its official website in tweaked language, as it pivots to Asia and Taiwan to raising its defence budget to 3% of GDP.

Meanwhile, more directly in markets:

President Trump’s top economic adviser Kevin Hassett will now meet regularly with the Fed’s Powell to ‘exchange views on the economy’. Although this also happened in the first Trump term, this is a different world, and the Fed and Trump have different views on the economy and rates.

The Financial Times says gold is the top ‘Trump Trade’, as the next DOGE trial-by-X target is floated as Fort Knox, the Bank of England flaps, and bullion continues to flow into the US.

And Bloomberg says, “Trump’s Tariffs Are a Mystery, So Investors Keep Buying Stocks.” Which sums up that market’s ‘thinking’ about geopolitics well. As one experienced hand told me, people are already too tired to keep chasing headlines, so are just waiting to see. As another trader put it, a generation of market people who ‘don’t do geopolitics’ was always going to react like that rather than seeing the worrying bigger picture – but that just means that the reaction will be even larger when the penny finally drops for them.

Authored by Aldgra Fredly via The Epoch Times,

The Department of Government Efficiency, or DOGE, led by SpaceX CEO Elon Musk, said its cost-cutting efforts across several federal agencies have saved an estimated $55 billion as of Feb. 17.

The savings came from a combination of fraud deletion, contract and lease cancellations and renegotiations, asset sales, grant cancellations, workforce reductions, programmatic changes, and regulatory savings implemented across federal agencies, according to DOGE’s website.

DOGE stated that contract cancellations alone accounted for approximately 20 percent of the overall savings accumulated since the advisory body was established.

The top 10 agencies with the highest total contract savings include the U.S. Agency for International Development (USAID), the Department of Education, the Office of Personnel Management, the Department of Health and Human Services, and the Department of Agriculture.

DOGE has canceled more than 200 contracts issued by USAID, the agency responsible for administering U.S. foreign aid and development assistance, according to the data.

The list includes cancellations of contracts related to diversity, equity, and inclusion (DEI) initiatives across several agencies.

Among the contracts canceled was a $45 million DEI scholarship program issued by USAID in Myanmar, formerly Burma, and a $36 million DEI training contract for leadership and supervisors in the Department of Homeland Security, and $130,000 for DEI training at the Department of Defense.

Subscriptions to Politico Pro, The Washington Post, Bloomberg Government, and The Wall Street Journal, were also canceled.

“We are working to upload all of this data in a digestible and fully transparent manner with clear assumptions, consistent with applicable rules and regulations,” DOGE stated on its website.

DOGE stated that the data will be updated twice per week while the website is being improved. The advisory group aims to provide real-time updates in the future.

DOGE announced on Feb. 17 that it found $4.7 trillion worth of payments from the Treasury Department that were missing account identification codes, making the payments difficult to trace.

It stated that the Treasury Department has assigned identification codes called Treasury Access Symbols (TASs), designed to note which account a Treasury payment is linked to. DOGE said it was a “standard financial process” for bookkeeping. However, the codes were not assigned for trillions of dollars worth of payments as the classification field was set up as optional, according to DOGE.

DOGE said the identification codes have now been made compulsory to ensure that all payments can be tracked.

“In the Federal Government, the TAS field was optional for ~$4.7 trillion in payments and was often left blank, making traceability almost impossible,” DOGE stated in a social media post. “As of Saturday, this is now a required field, increasing insight into where money is actually going.”

Musk has said that USAID has been placed under review for potential dismantling. USAID’s website has been taken offline, and thousands of its employees have been placed on administrative leave.

After taking office on Jan. 20, President Donald Trump signed an executive order renaming the existing U.S. Digital Service as DOGE and tasked it with reviewing federal agencies for potential downsizing and cost reductions. The order states that DOGE’s work is expected to be completed by July 4, 2026.

To conduct audits, DOGE has been granted access to federal systems, sparking legal challenges from some Democratic lawmakers and labor unions who argued the access is unconstitutional.

Attorneys general from 14 states filed a lawsuit on Feb. 13 challenging the Trump administration’s delegation of government access to Musk. The lawsuit alleged that Musk’s access to federal systems is unconstitutional because he has not been confirmed by the Senate. On Feb. 13, USAID employees filed a lawsuit against Musk and DOGE, urging the court to prevent Musk and his team from carrying out any actions.

The White House has previously said that Musk is a special government employee under the Trump administration. The position means that Musk’s service will only be temporary.

Trump told reporters at the White House earlier in February that Musk “can’t do and won’t do anything without our approval, and we’ll give him the approval where appropriate; where not appropriate, we won’t.”

“He reports in,” the president said.

Musk told reporters on Feb. 11 that Trump and the Republican Party’s ability to win a government trifecta in the 2024 election was a broader mandate for DOGE’s efforts.

“The people voted for major government reform, and that’s what people are going to get,” the tech billionaire said. “That’s what democracy is all about.”

The Government Accountability Office, a congressional watchdog agency, estimates that the U.S. government loses between $233 billion and $521 billion each year due to fraud and improper payments.

By Michael Every of Rabobank

Summit… and nothin’?

Monday’s US Presidents Day was also European Presidents and Prime Ministers Day, the latter at an emergency summit to discuss defence. Absent were Ukraine — ironic as Europe complains of being left out by the US — and Turkey, with the second-largest army in NATO.

EU Commission President von der Leyen was rhetorical: “Today in Paris we reaffirmed that Ukraine deserves peace through strength. Peace respectful of its independence, sovereignty, territorial integrity, with strong security guarantees. Europe carries its full share of the military assistance to Ukraine. At the same time, we need a surge in defence in Europe.” The EU Council president said Europe should negotiate with Russia and design new European security architecture.

Then, as the FT put it, ‘European leaders clash over sending troops to Ukraine’: sadly, this is the only kind of clash EU leaders excel at. Almost everyone rejected sending their own troops to support Ukraine, except the UK, who can’t do much physically or financially. Even Poland won’t, as it looks to spend 6% of GDP on defence, because it might need them at home – or in the Baltics, if EU officials fearing President Trump might pull back US troops stationed there are right.

This might seem “a quarrel in a faraway land between people of which we know nothing” to Western Europeans in markets thinking they *are* Europe, but the topic is a potential existential threat to fellow EU and Eurozone members. That used to require ‘Whatever It Takes’: but because that doesn’t now (directly) involve rate cuts and QE, it’s not as interesting(?)   

The lack of action at Monday’s summit means markets may think Europe won’t change. However, the idea of Eurobonds has been floated again; let’s see what happens after the German election; and what Europe doing nothing as the US makes clear it won’t do anything, and Russia makes clear it will do something, does for the European economy and markets over time. In short, things are going to change. It’s just when and how.

To put things in perspective, the Telegraph reports Weimar-esque terms being set for Ukraine by the US, with a huge claim on its economy as quid pro quo for aid. There is also more musing if President Trump is serious about annexing Canada, with comments from his chief economic advisor suggest he may be. Moreover, Trump just reiterated:

“On Trade, I have decided, for purposes of Fairness, that I will charge a RECIPROCAL Tariff meaning, whatever Countries charge the USA, we will charge them – No more, no less!

For purposes of this US Policy, we will consider Countries that use the VAT System, which is far more punitive than a Tariff, to be similar to that of a Tariff. Sending merchandise, product, or anything by any other name through another Country, for purposes of unfairly harming America, will not be accepted. In addition, we will make provision for subsidies provided by Countries in order to take Economic advantage of the US. Likewise, provisions will be made for Nonmonetary Tariffs and Trade Barriers that some Countries charge in order to keep our product out of their domain or, if they do not even let US businesses operate. We are able to accurately determine the cost of these Nonmonetary Trade Barriers. It is fair to all, no other Country can complain and, in some cases, if a Country feels that the US would be getting too high a Tariff, all they have to do is reduce or terminate their Tariff against us. There are no Tariffs if you manufacture or build your product in the US.”

What is described above is complex in application but simple in conception: “A LEVEL PLAYING FIELD FOR AMERICAN WORKERS,” and “RECIPROCITY.” Of course, a level tariff playing field won’t remove the structural US trade deficit given it’s caused by broader deliberate economic statecraft choices by others which force up their net savings and net exports vs the US: that structural conclusion is likely to be drawn on 1 April by other Trump trade investigations.

‘Just’ reciprocal tariffs will be hugely disruptive to the global trading system and financial flows. Not seeing that risk shows as little understanding of how that system works as of its history and how it was only built by force of arms in the first place. And, yes, there is an obvious link back to events in Europe and Ukraine there.

Which are about to be discussed, absent European and Ukrainian representation, in Saudi Arabia by the US and Russia. What else will be on the table at these talks? Who else might be on the menu?

Some note that the US, Russia, and Saudi are also the world’s three largest energy producers – and that Europe lacks domestic energy sources; and that gold continues to flow to the US and from other Western economies. That’s as market discussions continue about what a new, ideal US-dictated global trading and financial structure would look like; and some talk of ‘debt for defence’; even Fed governors like Waller underline they favour the creation of new crypto assets to cement the dollar’s global role; I’ve pointed out the strategic logic of financialized ‘Fartcraft’ to help shift the US towards a ‘Warcraft’ economy; and some reports suggest Russia is trying to create a centralised trading platform for Global South commodity trade. Simply, we are talking about historic, paradigm-shifting events that directly impact the shape, currency, and geography in which markets operate.

This is not like the post-9/11 Afghanistan and Iraq Wars and the War on Terror, which, after initial geopolitical shock, wreaked havoc on the Middle East but were hardly felt by everyone in Western economies and trading floors beyond changes in airport security. I can recall when Saddam’s statue fell in Baghdad and the TV news was immediately changed back to Bloomberg on the trading floor I was on. I was flabbergasted, “What about the effects on Iraq and the region? Doesn’t that matter?!” There was a collective shrug, and everyone went back to looking at tiny movements in lines on screens. And they were ‘right’.

This time, however, what is happening involves the West – and certainly Eastern Europe, which will matter for Western European trading floors if they don’t want to see things around them topple. Ironically, however, that may still involve a lot of market conventions, and even markets’ present key role, being toppled.

Going back to my concept of US ‘Grand Macro Strategy’, the framework of Trump’s second-term economic statecraft is emerging: at best, it is the toughest of tough love to force the West to change vs. what the US sees as its rivals; at worst, it is an echo of early-20th, 19th, and 18th century US history in its neo-Hamiltonian, mercantilist, and even neo-imperialist “manifest destiny” approach.

Lines on maps are moving; lines on screens certainly will.

At a tense diplomatic moment where Russia is trying to negotiate with Syria’s new rulers in order to keep a military presence at Moscow’s two longtime Russian bases on Syria’s coast, Hmeimim airbase reportedly came under drone attack overnight.

“Unidentified drones attacked a Russian-controlled air base in Syria overnight, Iran-linked media reported early Tuesday, as Moscow seeks to maintain its military presence following the ouster of its closest ally in the region,” The Moscow Times writes.

The publication cites regional publication Sabereen News: “Anti-aircraft guns inside the Russian-controlled Hmeimim air base in Syria are intercepting unidentified drones flying over the Russian base,” details the report.

The drone attack reportedly lasted for up to an hour. It was unlikely to have been the ruling Hayat Tahrir al-Sham (HTS) militants under Jolani behind the attack, but could have been any of the hundreds of jihadist groups still running around Syria.

This has included thousands of foreign fighters, such as Chechens, which would have clear motives to continue attacking the Russian presence.

There have been no reports of damage or casualties from the Russian side, or much in the way of details given.

Russian forces throughout the country had rapidly pulled back to the two bases in the wake of Bashar al-Assad’s December 8 ouster. Since then the naval base at Tartus and the Khmeimim Air Base near Latakia have seen a scramble of personnel packing up equipment, with the fate of the bases uncertain.

Below is unverified video purporting to show the attack as it was in progress:

A circulating video of the attack on the Hmeimim base in Latakia with drones at dawn today

Reports of a drone attack to be taking place on the Russian Khmeimim Airbase, near Jableh, northwestern Syria. Air defense systems are active and are trying to intercept incoming drones… pic.twitter.com/wG1AMkATj2

— Report Syrian (@reportsyrian) February 18, 2025

The Washington Post reported last week, “Syria is open to letting Russia keep its air and naval bases along the Mediterranean coast as long as any agreement with the Kremlin serves the country’s interests, Syrian Defense Minister Murhaf Abu Qasra said in an interview this week, underscoring the pragmatic approach taken by his government as it charts new alliances and reassesses old ones forged under the previous regime.”

By Peter Tchir of Academy Securities

A Million Things to Parse?

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

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

Getting out of DOGE

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

On DOGE:

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

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

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

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

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

Enemies Close, Friends Less So

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Simple and Transactional

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

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

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

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

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

Mar-a-Lago Accord

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

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

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

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

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

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

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

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

How Much More Good News Can Bitcoin Handle?

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

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

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

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

The Gold Arbitrage

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

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

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

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

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

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

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

So on and so forth.

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

National Security = National Production

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

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

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

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

Bottom Line

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

Credit still seems boring.

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

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

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

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

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

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

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

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

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

— Orbán Viktor (@PM_ViktorOrban) February 18, 2025

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

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

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

And what are their priorities that demand this urgent intervention?

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

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

Expel them from every corner of your nation.

We are doing the same.

Save your country!

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

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

— individual1st (@individual1st) February 18, 2025

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

So, maybe they haven’t needed to?

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

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

Authored by Rachel Acenas via The Epoch Times,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Authored by Savannah Hulsey Pointer via The Epoch Times,

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

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

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

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

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

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

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

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

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

Yes to Mount McKinley

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

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

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

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

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

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

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

Clashing With the Press

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

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

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

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

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

It Started With Wilson

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

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

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

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

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

Acting commissioner of the Social Security Administration, Michelle King, resigned on Sunday after a standoff with Elon Musk’s Department of Government Efficiency (DOGE) over access to sensitive government records.

The same day, Musk posted what he says could be the ‘biggest fraud in US history‘ in which millions of ‘people’ over the age of 100 are collecting payments.

According to the Social Security database, these are the numbers of people in each age bucket with the death field set to FALSE!

Maybe Twilight is real and there are a lot of vampires collecting Social Security 🤣🤣 pic.twitter.com/ltb06VX98Z

— Elon Musk (@elonmusk) February 17, 2025

King – who worked at the agency for over 30 years, left her position this weekend after refusing to give DOGE staffers access to sensitive information, such as the fraudulent payments to ‘vampires’ – with at least one recipient being older than the United States itself.

Which of course is the exact reason career employees shouldn’t be holding the keys to the castle with the new sheriff in town.

According to the Washington Post, “Administration officials have also been skeptical of career employees’ efforts to guard federal data, maintaining that political appointees should also be able to access it, particularly if necessary to root out wasteful or erroneous spending.”

In the wake of King’s departure, President Donald Trump appointed Leland Dudek – a manager in charge of Social Security’s anti-fraud office, as acting commissioner, while the Senate vets Trump nominee Frank Bisignano. Dudek had previously posted positive remarks on social media over DOGE’s efforts to cut  waste, fraud and abuse throughout the US government.

Yes, there are FAR more “eligible” social security numbers than there are citizens in the USA.

This might be the biggest fraud in history.

— Elon Musk (@elonmusk) February 17, 2025

Trump picking Dudek to take over for King bypassed ‘dozens of other senior executives who sat higher in the agency’s leadership heirarchy, touching off alarm in and around the agency,’ according to WaPo.

“At this rate, they will break it. And they will break it fast, and there will be an interruption of benefits,” said former Social Security commissioner under Biden, Martin O’Malley – a former Maryland governor.

“It’s a shame the chilling effect it has to disregard 120 senior executive service people,” O’Malley continued. “To pick an acting commissioner that is not in the senior executive service sends a message that professional people should leave that beleaguered public agency.”

Yes jackass, that’s the point.

On Monday evening, White House press secretary Karoline Leavitt said she had been fighting “fake news reporters” trying to “fearmonger” about Social Security payments.

DOGE’s access to records across the federal government have prompted disputes with senior officials at various agencies. Perhaps most prominently, the highest-ranking civil servant at the US Treasury Department quit after similarly refusing to grant Musk’s team access to the Bureau of Fiscal Service, which manages over $5 trillion in annual payments.

On Sunday, the Post reported that DOGE is looking to access a heavily guarded IRS system that contains detailed information about every taxpayer, business and nonprofit in the country. For some reason, Democrats seem to be the only ones freaking out about this.

And again, that’s the point.