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It looks like the art of the deal is becoming challenging these days. After a victory lap last week where President Trump announced a set of agreements on the White House website regarding a potential sealed agreement between him and President Xi, information is coming out that challenges if in fact the deal is seen the same way by both parties and, more importantly, if they’re going to honor it. China is imposing conditions to a president that doesn’t want to be told what to

As of today, the government shutdown we are currently suffering has been the longest in modern history. 37 days and counting, where thousands of government employees are furloughed, until Congress authorize the treasury to fund it and reopen it. As you can see in the last column on the right, in the table below, the market seems to be numb to the fact that we don’t have a functioning government, which begs the question of the need to have a big government. Perhaps also the ma

The Supreme Court is holding oral arguments today in cases like Learning Resources, Inc. v. Trump , challenging whether the president can use IEEPA to impose broad tariffs by declaring a national emergency. Although no final decision is expected today, the importance of today’s hearing is clear, since the president is using tariffs as the core of its negotiating tactics with China, one of our biggest trade counterparts, and the major contender for establishing the word order.

AI is starting to disrupt the economy. You would hope that it would do it by increasing productivity first, which in the end, it’s what is intended for. But it looks like first is going to dislocate the job market, and the efficiency, at least initially, will be achieved at the expense of human labor. The chart below shows corporate layoffs announced by year, and 2025 is already showing more layoffs than any other year since 2010, with the exception of 2020, due to COVID. The

The month of November has started, and the U.S. equity market continues to show incredible resilience. 16.6% YTD return, after correcting 20% on liberation day due to tariffs. Corporate earnings are coming out solid, albeit with plenty of help from buybacks, on the back of substantial debt issuance. Warren Buffett, however, doesn’t seem to like this market. The chart below shows his massive cash position, which is $384Bn, a signal that he doesn’t find companies with attractiv

Big tech firms are going all in when it comes to funding data centers destined to train AI models. It is expected that just the big hyperscalers (Meta, Amazon, Google and Microsoft) will invest $400Bn in infrastructure. Where will that money come from? It does come primarily from earnings, of course, but earnings are already being used to fund dividends, buybacks and other projects. At this scale and with rates still relatively low, and with IG spreads at historical minimums,

The financial pipes got a tempeorary fix yesterday. Banks used $50Bn in REPO to get the liquidity they needed to close the books for October, decreasing the need to tap other Banks through SOFR, pushing the rate down from 4.3% to 4%. As you can see on the chart below, is not common for banks to take that amount of money in the REPO market. In fact, it’s unusual, and typical of crisis, like COVID. Perhaps banks have dodged this bullet, but the problem is still there, whether i

The silent tension in the financial system continues, even after the rate cut from the Fed on Wednesday. In the chart below, you can see the time evolution of the difference between SOFR, the rate at which banks lend to each other, and IORB, the rate at which the Fed pays bala on reserves. With the cut, IORB went down, and in a normal market, that should pull from SOFR down too, but not in today’s environment. SOFR remains elevated and if this tension continues, th Fed might

The Fed concluded its two-day meeting on October yesterday, with the expected 25 basis point cut to the federal funds rate, bringing the target range to 3.75%–4.00%. the highlights of Powell comments were: (1) Job gains have slowed, with unemployment holding steady but risks to employment increasing. (2) Inflation has eased but remains somewhat elevated, with recent CPI data showing a rise to 3% year-over-year in September (up from 2.9% in August). (3) Balance Sheet Policy:

Today the Fed is expected to lower rates 25 bps. The chairman would probably feel more comfortable keeping rates intact, due to potential inflation pickup as a consequence of tariffs and government spending. But his world is not that simple (neither is ours). US labor market is deteriorating, and several big corporations are already announcing big layoffs. The real employers of the majority of the labor force, the small businesses are suffering and lower rates will help a lot

China just unveiled the 15th 5 year plan which will govern the country’s future froln2026-2030. The plan outlines seven core targets, which are: (1) High-Quality Development : Shift from scale to productivity, with domestic demand driving ~86% of GDP growth (up from prior periods). Boost consumption (targeting 56% contribution to growth) through expanded social security, rural revitalization, and regional coordination. (2) Scientific and Technological Self-Reliance : Achieve

Inflation is a global problem and it is slowly picking up again, not only in the U.S., but across the globe. In the chart below, you can see the latest CPI reports for different economies, and in most instances, prices are higher than they were in August. That should trigger a more restrictive monetary policy response. But central banks seem to be in a difficult spot, as unemployment is also going up, and economies are slowing down, conditioned by debt. What we are likely to

Central banks all over the world are cutting rates. According to the chart below, over the last 24 months, central banks have cut 312 times, one cut shy of the absolute maximum that occurred as a response to the 2008 Great Financial Crisis. If the Fed cuts next Wednesday, we will march the prior historical stretch. The major difference is that at the time, the financial world was on the brink of a depression; now, we don’t even have an officially confirmed recession. The Fed,

The expected US inflation report for the month of September was published yesterday by a short headed BLS. The report came slightly better than expected at 3.019% vs 3.1% for consensus. As you can see in the lower part of the chart below, the trend for CPI is upward sloping, not down, and if we take the 3 month average and annualize the result, we get 4.75%. So we do have an inflation problem, and it’s getting clearer that tariffs are pushing goods prices up. At the beggining

The IMF has released its world economic outlook report where among many things, they project growth for the global economy. For advanced ones, as you can see in the chart below, the expected growth for this year and the next, is an anemic 1.6%. It’s interesting that China is not included in the group of advanced economies, being the second largest and the one with the fastest growth. But what it’s also interesting is that the IMF does not foresee any major impact from AI in g

The U.S. total debt has reached $38Tn. The current pace of increase is roughly $25 billion per day. This rate accounts for the accelerated borrowing in recent months, which has averaged around $400-500 billion per month. And if this pace is maintained, we will reach $40 trillion by January 11, 2026, in just 80 days. In contrast, annualized projections for full-year 2025 nominal GDP point to $31 trillion, extrapolating recent quarterly trends. That implies a 122% debt to GDP

Despite tariffs and geopolitical events, corporate earnings continue to show incredible resilience. With the first 20% of companies results already out, 87% of them have beaten expectations, revenue is up 6.3% and earnings are up 9.2% YoY. Technology continues to lead the S&P500 in growth, but also in concentration, being responsible of 34% of the index behavior, followed by financials either 13%. Energy continues to be a laggard and a detractor from earnings growth, being al

The credit market is trying to remain calm after the bankruptcy of Tricolor Auto and First Brands. Banks, particularly the regionals, which are part of the chain in the loan market, financing the financiers of some of these loans, had been quietly taking money form the Fed to adjust their liquidity requirements, and have, for the moment, dodged the bullet. The leverage loan market (please see chart below), the floating rate brother of the High Yield market, is showing some si

On a Monday like today, 38 years ago, the S&P500 experienced the biggest single day percentage drop in history, 22.6%. It’s interesting to understand the context surrounding the fall of that day: the market rose 40% in ‘87 up to that point, and there were concerns of being in a bubble. There were also geopolitical tensions between thr US and Iran in the Persian gulf, which paired with low liquidity and program trading. Despite the fact that almost 40 years have passed, we’re

This Friday, the 24th, the BLS will bring back some furloughed government workers to calculate the CPI for the month of September. If they were understaffed before the government shutdown, one can only imagine the percentage of goods prices that will be “guessed”. Even if they follow a formal process, which they sure do, when decisions are being made based on decimal points, the margin of error should be contained, and it looks like it won’t be. The good news is, that in prac