Economics

Markets Need More Than Rate-Cuts To Recover

Authored by Daniel Lacalle,

The consensus narrative tells you that markets are weak because of Trump’s tariffs. However, that is a typical excuse that makes no sense. If tariffs were the cause of concern, markets would have tanked in 2016 and in 2021. Remember that Biden maintained and increased all of Trump’s tariffs. Between 2016 and 2024, the tariffs imposed by the European Union and China on the United States were much larger than levies against them. However, you never read or heard that the EU and China tariffs were going to destroy the economy or lead to massive inflation.

The mainstream consensus narrative always wants you to believe that tariffs are fine if imposed by socialist countries and evil if imposed by the United States. However, if the market was alarmed by tariffs and the disastrous impact they may have on the economy, German and Japanese bond yields would not have soared. Instead, they would have plummeted as investors sought refuge. Furthermore, if the world feared a US economic disaster, Treasury bond yields would not have declined.

German and Japanese bond yields would be declining and US yields rising if that were the case. What is happening is the opposite. The German 10-year bond yield has risen 21% in 2025, and the Japanese equivalent has soared 34%. The US 10-year Treasury yield has declined 5.6%.

What is really going on? Many market participants are addicted to money printing and dovish central banks. In fact, two generations of traders have only seen rising debt, liquidity injections, and negative real rates, which helped justify increasingly demanding equity and risk asset price valuations. Thus, the market greeted bad economic data with optimism, anticipating another round of monetary laughing gas.

The reason why markets are so volatile is because few know what to do when inflation remains persistent. The Fed panicked twice in 2024 and conducted a misguided dovish policy. It delayed the reduction of the balance sheet in June despite rising inflation expectations and loose financial conditions. In September, the Fed decided to implement an unjustified large rate cut despite concerning core inflation figures and exceedingly loose financial conditions, the loosest in five years. The Fed’s excessive optimism about the disinflation path led to a significant increase in margin debt and exposure to equity markets.

Consensus estimates assumed three or four rate cuts in 2025. However, in November the Fed went hawkish and started to worry about a persistent inflation that was already evident in its previous two dovish moves. Markets did not care and continued to believe that inflation would drop magically despite soaring deficit spending and record debt as well as the highest money supply growth in twenty months. By January, market participants started to worry about persistent inflation. The Fed decided to be serious about inflation and provide hawkish messages coinciding with the end of elections.

Were you not surprised to see how the Fed was unusually dovish and optimistic throughout the campaign and elections and suddenly went hawkish and tightened monetary policy…

Predicting The Shape Of Future Military Conflicts

Authored by Christian Milord via The Epoch Times,

It’s difficult to forecast how military conflicts will unfold once they are initiated, but military realists can identify likely scenarios based upon precedent as well as current ongoing conflicts. What might future conflicts look like and what types of platforms would be utilized in these kinetic and non-kinetic environments?

In a highly informative and thought-provoking book, “Unit X—How the Pentagon and Silicon Valley are Transforming the Future of War, 2024,” authors Christopher Kirchhoff and Raj Shah attempt to map out what might occur in both defensive and offensive scenarios. Unit X refers to the Defense Innovation Unit (DIU), which was the brainchild of Raj Shah, a former F-16 pilot with the Air National Guard.

Shah came up with the idea of an experimental innovation unit after experiencing as a pilot the almost obsolete mapping and navigation capabilities of his fighter aircraft. He had a difficult time knowing for sure whether or not he had crossed a particular prohibited Middle East national border.

Moreover, there were outmoded methods of aircraft scheduling during Operation Enduring Freedom in Afghanistan and Operation Iraqi Freedom. The Middle East aviation command center that scheduled air operations was still using markers and whiteboards instead of computers for data analysis and the scheduling of hundreds of inbound and outbound aerial missions.

After Shah left the Guard, he had a desire to find solutions to these problems by seeking answers from the Pentagon and venture capital innovators who were forward thinkers. This is where Christopher Kirchhoff entered the picture as a specialist in disruptive and emerging technologies.

Kirchhoff had advised a number of tech companies and the government on national security matters. In the beginning of the DIU venture in 2016, it was tough sledding to create an innovation unit at the Pentagon for two reasons.

First, the Pentagon already had the entrenched Defense Advanced Research Projects Agency (DARPA), which was formed in 1958 as a response to the Soviet Union’s Sputnik moment. DARPA had developed the ARPANET, a predecessor of the internet, as well as aerial drones, GPS, night vision goggles, and more. However, DARPA’s failure rate from design to prototype, to testing to production was more than 80 percent.

Next, according to the authors, tense relations existed between the Dept. of Defense (DOD) and California’s Silicon Valley incubator startups. Private sector innovators were impatient with the bureaucratic obstacles encountered when interacting with the Pentagon, while the Pentagon was dissatisfied with some of the innovative technologies coming out of Silicon Valley.

In the first year of the DIU, there were intense discussions, and funding was difficult to garner. However, with some assistance from former Defense Secretaries Ash Carter, Mark Esper and James Mattis, some of the bureaucratic hurdles were overcome and the DIU got off the ground. Relations with Silicon Valley gradually improved in the second and third year. Retired Lt. Gen. H.R. McMaster, who is a Middle East combat veteran currently at the Hoover Institution, also played a role as an adviser…