UMich Survey Sees 'Current Conditions' In America As The Worst In 47 Years

Justin

Economic

Summary:

...k-shaped reality or rampant propaganda?

The final print for UMich's sentiment survey for December was a doozy...

While the headline sentiment gauge and Expectations ticked up, Current Conditions slipped further...

...to an all-time record low... yes... worse than during Oct 1987's crash, 9/11, the GFC, and COVID...

This - as you might guess - is very unusual with stocks at record highs and as we have labored extensively this year, UMich's survey seems rife with bias

UMich claims that post-pandemic frustration with high prices persists...

Which is incredible since inflation expectations are plunging...

As Democrats realize their TDS-driven hyperinflation fears were utter bullshit after all (shame on all those MSM pundits)...

Buying conditions for durable goods fell for the fifth straight month, whereas expectations for personal finances and business conditions rose.

"Despite some signs of improvement to close out the year, sentiment remains nearly 30% below December 2024, as pocketbook issues continue to dominate consumer views of the economy," Joanne Hsu, director of the survey, said in a statement.

Labor market expectations lifted a bit this month, though a solid majority of 63% of consumers still expects unemployment to continue rising during the next year.

Hsu concludes: "This year, we saw a spike in inflation expectations that softened very quickly, while high-price mentions have remained consistently high. It appears that consumers have yet to internalize the post-pandemic level of prices as a new normal, which influences how they view the economy."

Source: Zero Hedge

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Winkelmann

Political

Economic

European Union (EU) countries on Thursday approved a deal to delay the anti-deforestation law by a year following pushback from industry and concerns the digital system to enforce it was not ready, the Council of the EU said, clearing the final legal hurdle for the delay to pass into law.

The world-first policy would ban imports into the EU of cocoa, palm oil and other commodities linked to forest destruction, requiring foreign exporters of these commodities to provide due diligence statements proving their products did not contribute to forest destruction.

Originally due to apply from December 2024, the law was designed as a key plank of the EU's green agenda. Brussels had already delayed it by a year, but that did not quell opposition from industry and trade partners including Brazil, Indonesia and the US, which said complying with the rules would be costly and hurt their exports to Europe.

Under the amended EU law, large companies will now have to comply from December 30, 2026, followed by smaller firms with a turnover of less than €10 million (RM47.88 million) in the products affected, from June 30, 2027.

The EU proposed delaying the law for a second time in September, citing concerns about the readiness of information-technology systems needed to support it.

Food majors such as Nestle, Ferrero and Olam Agri had warned that further delays to the law endangered forests worldwide. The policy aims to end the 10% of global deforestation fuelled by EU consumption of imported goods.

Source: Theedgemarkets

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Adam

Economic

President Trump's team quickly went all out to highlight Thursday's better-than-expected inflation print, while economists were just as quick to warn not to read too much into the numbers.

One White House social media account posted about inflation and prices 14 times in the first two hours after the news was released at 8:30 am ET that the Consumer Price Index (CPI) rose 2.7% over the previous year in November.

The reading was well below expectations of a 3.1% increase.

"Americans can expect this trend of lower prices and bigger paychecks to continue into the New Year," White House press secretary Karoline Leavitt even went so far as to promise.

The news helped stocks to jump on Thursday, and the relief rally looked set to continue on Friday.

Economists, meanwhile, were far more restrained, repeatedly cautioning that the data — which was disrupted and delayed by the government shutdown and offered no month-on-month reading from September — may be unreliable.

Olu Sonola, head of US economic research at Fitch Ratings, called the report "positive news overall," but quickly added that the data was less detailed than normal because of the shutdown. "We'll need to wait until next month for a clearer read on inflation."

As RSM's Joe Brusuelas added in his own note: "One should proceed with caution around making policy and investment judgements around the November inflation data."

The day before the inflation report hit, Trump addressed the nation Wednesday night and claimed "inflation has stopped" as he repeatedly tried to blame Joe Biden for price increases that have stoked American anxieties this year.

By Thursday morning, many Trump officials were working to highlight how real wages — the measure of inflation against wage increases — have shown steady improvement throughout 2025.

Data from the Federal Reserve Bank of St. Louis show that median weekly real earnings dropped during the inflation spike early in Biden's term and have been steadily rising ever since 2022.

Less in focus from Trump and his team this week are new Labor Department numbers released Tuesday that found the nation's unemployment rate has crept up to 4.6%, the highest level in four years.

During Wednesday night's speech to the nation, the president continued trying to address Americans' worries around affordability, announcing new checks to military members, dubbed a "warrior dividend."

Less in focus from Trump and his team this week are new Labor Department numbers released Tuesday that found the nation's unemployment rate has crept up to 4.6%, the highest level in four years.

Source: finance.yahoo

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Daniel Carter

Political

Russia-Ukraine Conflict

President Vladimir Putin offered no compromise on Friday on his terms for ending the war in Ukraine and accused the European Union of attempting "daylight robbery" of Russian assets.

As U.S. President Donald Trump seeks an end to Europe's deadliest conflict since World War Two, Putin said the onus was on Ukraine and Europe to make the next move towards peace.

"President Trump is making serious efforts to end this conflict. He is doing so with complete sincerity," Putin said.

"The ball is entirely in the court of our Western opponents, primarily the leaders of the Kyiv regime, and in this case, first and foremost, their European sponsors. We are ready for both negotiations and a peaceful resolution to the conflict."

Trump is pushing for a peace deal on terms that Ukraine and its European allies fear will be slanted towards Russia. Kyiv has long called for a ceasefire and said it does not believe that Putin, who sent tens of thousands of troops into Ukraine in February 2022, is serious about seeking peace.

PUTIN HOLDS MARATHON PRESS CONFERENCE

Putin was addressing an annual press conference and "Direct Line" phone-in that ran for almost 4-1/2 hours. While Ukraine was the dominant topic, the event was punctuated by bizarre moments and occasional barbed comments from ordinary Russians whose text messages were flashed up on a big screen in the hall.

"Not a direct line but a circus," one message read. Others complained about internet outages, dirty tap water and the cost of living.

Putin said Russia's terms for ending the war in Ukraine were those he set out in a speech in June 2024, when he demanded Ukraine abandon its ambition of joining NATO and withdraw entirely from four regions Russia claims as its own territory.

Kyiv says it will not cede land that Moscow's forces have failed to capture in nearly four years of war.

A Ukrainian official said on Friday Ukraine had struck a Russian "shadow fleet" oil tanker in the Mediterranean Sea with aerial drones for the first time, reflecting the growing intensity of Kyiv's attacks on Russian oil shipping.

Putin says Ukrainian President Volodymyr Zelenskiy is an illegitimate leader. Zelenskiy's mandate expired last year but Ukraine, under martial law as it fights Russian forces, is constitutionally prevented from holding new elections.

If an election were held, Putin said, Russia would be ready to consider a halt to strikes deep inside Ukraine while people voted. He said 5-10 million Ukrainians living in Russia should be allowed to take part.

EU LOAN TO UKRAINE

Putin was speaking hours after European Union leaders set aside a plan to use frozen Russian assets as backing for a loan to Ukraine, deciding instead to borrow cash to help fund Kyiv's defence against Russia for the next two years.

The EU leaders said they reserved the right to use Russian assets to repay the loan if Moscow fails to pay war reparations to Ukraine.

Putin said the bloc had backed away from the original scheme because it would have faced serious repercussions, and it had damaged its status as a safe place to store assets.

"Theft is not the appropriate term... It's daylight robbery. Why can't this robbery be carried out? Because the consequences could be grave for the robbers," he said.

ON-SCREEN GLITCHES

The Kremlin said it had received over 2.6 million questions in advance for Putin's press conference. It styles the event as a demonstration of his openness to respond to questions on any topic.

The 73-year-old president, who is divorced, replied to one questioner in the affirmative when asked if he was in love, but did not elaborate. He told a boy he sometimes drives round Moscow incognito to understand what is happening in Russia.

Putin at one point gave the floor to Naran Ochir-Goryaev, a decorated Hero of Russia who described his part in Russia's storming of the Ukrainian town of Siversk.

Putin apologised to the widow of a soldier killed in action after she said her family had not yet received the compensation due to them. State media later reported she had been paid.

Ukraine says Russian gains are incremental and have come at the cost of huge casualties. It says it is fighting back in locations such as Kupiansk in the northeast, which Russia said it had captured last month.

Putin said a sharp slowing in the Russian economy - to 1% growth this year from 4.3% in 2024 - was the result of conscious actions by the central bank to bring down the rate of inflation.

While his press conference was under way, the bank announced it was cutting its key interest rate by half a percentage point to 16%.

Source: Reuters

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Adam

Economic

Drug pricing has emerged as one of the biggest issues for pharmaceutical companies this year, as the U.S. looks to dramatically reduce the costs paid by consumers.

As the largest single market for most pharma and biotech firms, higher drug prices in the U.S. — often nearly three times as costly as in other countries — are a key factor in the industry’s reliance on American sales, with branded drugs commanding even steeper premiums.

President Donald Trump has pushed for lower drug prices for Americans through so-called Most Favored Nations drug pricing, whereby the prices in the U.S. are set at the lowest price paid by other wealthy countries. That could have a tremendous impact on companies’ balance sheets.

But exactly how exposed are Europe’s biggest pharma companies to the U.S. market?

Majority U.S. sales

Among the 10 largest biopharmaceutical companies in the Stoxx 600 health index, five have a majority of their total sales from the U.S.: Roche , Novo Nordisk, GSK, Argenx, and UCB.

Europe's largest pharma companies are heavily exposed to the U.S. market

Argenx is the most exposed, with 85% of total sales originating in the U.S. in its last reported period.

The least exposed are Germany’s Merck KGaA and Bayer , with about 30% of sales coming from the U.S. Both Merck and Bayer have diversified businesses that go beyond pharmaceuticals while Roche also has a sizeable diagnostics division.

Meanwhile, AstraZeneca , the FTSE 100′s largest company, generates 42% of its sales from the U.S., and is aiming to boost this share as it targets $80 billion in revenue by 2030. In its third-quarter earnings report, the company, which has a broad portfolio of blockbuster drugs comprising cancer, respiratory, and diabetes medicines, said it is delivering on its strategy to strengthen operations in the U.S. to “power growth.”

The Cambridge, U.K.-based company has also pledged significant investments in the U.S., just like peers Novartis , Roche, and GSK, since Trump took up his second presidential term.

Making deals

Trump’s push for slashing drug prices has led many firms on both sides of the Atlantic to make deals with the administration.

In May this year, the president signed an executive order establishing MFN drug pricing. He has also sent letters to 17 major drugmakers, calling for them to slash U.S. prescription prices to levels paid overseas.

At the same time, Trump has made a push for onshoring production of various goods, including pharmaceuticals, and threatened triple-digit tariffs for drugmakers that fail to invest in U.S. manufacturing — further ramping up the pressure on companies to make deals with his administration.

AstraZeneca, Novo Nordisk, and other U.S. pharma giants have already made deals with Trump to lower prices of their medicines in the country, although analysts say it may not have a significant impact on their bottom lines due to the way the deals were structured.

″[AstraZeneca’s] MFN deal is more benign than appreciated, but EU countries may see access to drugs reduced,” said Jefferies analysts in November.

Late Wednesday, Bloomberg reported that heavyweights Roche and Novartis – the two biggest European pharma companies by market value – were closing in on drug pricing deals with the Trump administration, which may be announced as soon as Friday.

Both companies told CNBC they supported the administration’s goal of lowering drug costs for Americans but declined to confirm an imminent deal. Novartis said it was “in discussion with the Administration.”

Source:cnbc

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Adam

Economic

Over the last couple of years, inflation alarmists such as Paul Tudor Jones, James Grant, and Jeff Gundlach have all said that inflation is returning with force. In different ways, they each stated that they would not own Treasury bonds due to the expectation that inflation would rise as the dollar declined due to the ongoing deficits.

They have all argued, in some form or another, that ballooning deficits, tariffs, and the “dollar debasement” would drive inflation much higher, with yields of 6% or more on the 10-year Treasury as inevitable.

As Jeff Gundlach noted in June of this year, a “reckoning is coming” for U.S. debt, and yields on long-term bonds could continue to rise as the economy weakens. Paul Tudor Jones said in October 2024 that “all roads lead to inflation.” Lastly, in June 2024, James Grant stated that “persistent inflation” is the new norm.

However, while these are brilliant, well-regarded gentlemen, the forecasts have not panned out, at least so far, as they believed, because they ignored the structural weight of the “3-Ds” (Debt, Deficits, and Demographics) on economic growth, which drives inflation.

Of course, it hasn’t been just these three gentlemen discussing higher inflation and higher interest rates. Inflation alarmists have filled media headlines over the last few years, making a myriad of claims, but they have misunderstood what drives inflation in a consumer-driven economy. Furthermore, they misjudged the nature of money creation in a debt-saturated system.

Veil Of Money

Let’s start by understanding the basics of money supply. The media often states that the Government is “printing money,” which will lead to inflation. The reasoning is sound on the surface; if a government prints more dollars, each of those dollars has less value, in theory. However, that view misses two crucial points. First, as discussed in “Money Printing,” the government does not “print money.”

“Modern economies operate under an endogenous money system, meaning banks create money in response to economic activity. As the Bank of England explained in its 2014 paper “Money creation in the modern economy,” it is not central banks that directly dictate broad money growth, but rather commercial banks extending credit when they see viable opportunities. Put simply: loans create deposits.“

Re-read that last bolded sentence, which is the most critical point. The U.S. does not “print” money. All money is lent into existence, as we continued explaining in that post.

“This means that the growth of the money supply closely follows the economy’s growth. When businesses expand, hire, and invest, banks extend more credit, and the money supply grows. Conversely, when the economy slows and loan demand weakens, money supply growth contracts, regardless of how much the Federal Reserve expands its balance sheet. We saw this after 2008: despite unprecedented quantitative easing, money growth and inflation remained subdued because banks hoarded reserves instead of lending.

It’s easy to point to M2 charts and scream “debasement. “ However, the money supply must grow as the economy grows. If it doesn’t, deflationary risks emerge. Therefore, the key is whether money creation exceeds economic growth in a sustained way. Since 1959, the money supply has grown in alignment with economic growth.”

A better way to assess this is by comparing M2 to GDP. Historically, the two have tracked closely. Even during the COVID-19 shock, M2 as a percentage of GDP remained below 100%, indicating that money supply growth was broadly aligned with economic output. Today, that ratio is falling, not rising.

What Inflation Alarmists Missed in Their Warnings_2

The reality is that the growth rates of M2 highly correlate with the state of the economy.

What Inflation Alarmists Missed in Their Warnings_3

This brings us to the “Veil of Money” theory, which posits that money serves as a neutral medium of exchange, affecting only the nominal price level, but not the underlying fundamental economic factors, such as output, employment, and the allocation of resources. In this view, money overlays the real economy like a veil, and to understand economic activity, one must “pierce the monetary veil.”

During the pandemic, the money supply spiked. But that’s not the whole story. Bank reserves ballooned, yet lending barely moved. Consumer demand rose temporarily due to direct payments, rather than a structural shift in consumption. Once those payments stopped and the economy reopened, that demand faded, supply increased, and inflation started to recede. In other words, the increase in the money supply did not alter the real economy; in fact, it may have worsened it.

What Inflation Alarmists Missed in Their Warnings_4

As such, the problem for the inflation alarmists is that inflation occurs only when demand exceeds supply. In a service-based, aging economy that’s already over-leveraged, such a demand surge rarely occurs sustainably.

While the inflation surge of 2021 and 2022 was real, it wasn’t systemic. It was the result of excessive government interventions in concert with global supply shocks. That combination created a short-term explosion in prices. But it was never sustainable.

The 3 D’s: Debt, Deficits, Demographics

To understand why inflation alarmists have been incorrect, at least so far, you have to understand the “3Ds”: Debt, Deficits, and Demographics.

Let’s return to the basics of “inflation,” which is simply the function of “supply and demand.” Nothing more. Nothing less. As we noted previously:

“Inflation is the rise in prices due to supply and demand imbalances. Rising wages and consumer demand for products and services that grow faster than the available supply create higher prices (aka inflation). The following economic illustration is taught in every ‘Econ 101’ class. Unsurprisingly, inflation is the consequence if supply is restricted and demand increases via monetary interventions.”

What Inflation Alarmists Missed in Their Warnings_5

With this concept in mind, let’s start with the debt. Currently, total U.S. debt, comprising government, corporate, and household debt, stands at record levels. As shown below, when that debt, as a percentage of GDP, grows, it slows economic activity as increased interest payments consume income, thereby limiting consumption and investment.

What Inflation Alarmists Missed in Their Warnings_6

What the inflation alarmists miss is that every dollar borrowed must be repaid with future income. As more income is allocated to servicing debt, less is available for spending, which reduces demand in the economy and, as shown, leads to lower inflation. That’s why high debt is deflationary, not inflationary. Such is also why expectations of yields hitting 6% or more remain unfounded, as an economy that is dependent on debt to function can’t support higher rates.

The second “D”, deficits, are also problematic to the inflation alarmists’ view. Annual deficits are now routine. The government borrows to fund everything from defense to entitlements to foreign aid, with the Congressional Budget Office projecting trillion-dollar deficits for the next decade.

As the deficit grows, more money is diverted from productive investments into debt service, which again negatively impacts economic activity. As shown, when the deficit is reduced, it is because economic activity has increased, resulting in higher revenue for the government and potentially leading to inflationary pressures.

What Inflation Alarmists Missed in Their Warnings_7

The long-term consequence of persistent deficits is low growth as more debt is needed to generate less output. That dynamic has played out in Japan, Europe, and now the U.S. However, ironically, while everyone hopes for lower inflation, which is economically repressive, we should be discussing how to increase inflation through stronger economic growth.

Lastly, the most overlooked driver of disinflation is the decline of demographics in the U.S. The population is aging, and the U.S. workforce growth rate is falling. Immigration has slowed. Birth rates are down. Fewer workers and more retirees result in lower production and consumption. Older people spend less. They don’t buy homes, take out loans, and live on fixed incomes, which translates to lower economic velocity.

What Inflation Alarmists Missed in Their Warnings_8

At the same time, entitlements such as Social Security and Medicare are proliferating, absorbing an increasing share of the federal budget. That adds to debt, increasing deficits, which feeds into economic retardation.

Put all three together, high debt, chronic deficits, and an aging population, and you get structural stagnation, keeping inflation low, capping long-term rates, and reducing economic prosperity.

What the Market Is Telling You

The bond market isn’t stupid. When inflation spiked, yields rose, briefly. But as soon as growth slowed and fiscal drag returned, yields fell. Long-term expectations remain subdued, with the 10-year breakeven inflation rate still near 2.3 percent. The Fed’s own projections indicate that inflation will return to target over time.

As shown, the spike in the Fed’s preferred measure of inflation, the trimmed mean PCE inflation rate, has returned to the bond market’s view of inflation. While the Fed took a lot of heat for saying inflation would be “transient,” ultimately, they were correct.

What Inflation Alarmists Missed in Their Warnings_9

If inflation were going to stay hot, you’d see it in long-dated yields and in the breakeven rates. However, for now, at least, you don’t. That’s because markets understand what Wall Street celebrities don’t: structural forces matter more than temporary shocks.

If you’re expecting another surge in inflation, you’re betting against demographics, debt dynamics, and deficit math. That’s probably going to be a bad bet.

Here’s what you should prepare for instead:

Inflation will remain volatile but is expected to trend lower.

Long-term yields will stay capped by debt service constraints.

Growth will slow as the stimulus fade continues.

The Fed will pivot again — not toward more hikes, but to rate cuts and balance sheet expansion.

Does this mean we won’t ever see another rise in inflationary pressures? No. In fact, we should be hopeful for such due to economic growth that leads to broader economic prosperity.

However, the calls for runaway inflation and 6 percent interest rates are primarily a misunderstanding of the world in which we live. We are not in a 1970s cycle, but rather in a debt cycle where every dollar of growth incurs more debt, and every attempt to tighten policy leads to deflationary pressures.

That’s not a theory. It’s what the data shows. And until something changes in the structure of our economy, it’s what you should expect.

Source: investing

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Justin

Russia-Ukraine Conflict

Europe has folded rather quickly on EU leaders' controversial plan to confiscate Russian assets held in Belgium's depository Euroclear to use as a reparations loan for Ukraine.

On Friday it became clear in the two day Brussels summit the EU was unable to agree on the plan, but instead has opted to raise €90 billion ($105 billion) in joint borrowing, with Hungary, the Czech Republic and Slovakia choosing not to take part.

via Associated Press

Not only had objecting member states like Hungary sent EU leaders scrambling to circumvent a normal vote, but Belgium has remained unwavering in insisting on unlimited guarantees tied to assets held on its territory.

Fearing immediate Russian retaliation, Belgium wanted assurance that the rest of the EU would step in and absorb whatever retaliatory measures, including lawsuits, would result from the asset seizure.

Belgian Prime Minister Bart De Wever recently summed up the dilemma best: "We do not wish to be at war with Russia. We must negotiate based on reality, not fantasy. In reality, you don't steal money from a foreign central bank. Stealing from a central bank is like robbing an embassy."

So it appears EU leadership has backed down, perhaps having learned their lesson from Biden weaponizing the dollar early in the Ukraine war. As a reminder, here's what President Vladimir Putin had to say by way of warning back in spring of 2024:

"The dollar is the cornerstone of the United States' power... it is the main weapon used by the U.S. to preserve its power across the world," the Russian leader said. "As soon as the political leadership decided to use the dollar as a tool of political struggle, a blow was dealt to this American power."

As for the failed effort to permanently seize the some 210 billion euros ($247bn) in Russian assets held in Europe, EU officials had played down the possibility of an alternative plan right up to the eve of the summit.

And just like that, France's Macron calls for renewed push for diplomacy with Moscow...

German Chancellor Friedrich Merz spearheaded the efforts, but now the setback marks a blow for he and European Commission President Ursula von der Leyen, who had pitched the reparations loan hard while not presenting another alternative.

Still, Danish Prime Minister Mette Frederiksen proclaimed that the immediate objective had been met. "The bottom line is that our support for Ukraine is secured," Frederiksen told reporters. But Russia won't be the one being forced to pay for wartime destruction.

As it stands now, EU member states will borrow from financial markets and cover the interest costs themselves. The loan is intended to be interest-free for now, with no clear future plan on just how it will be recouped. European Council President Antonio Costa said that "technical aspects of the reparations loan" must still be "worked out."

In the end this marks another behind the scenes victory for Russia after ramping up the pressure on Belgium. RT underscores in its story headlined EU's plan to steal Russian assets for Ukraine fails that "Without the EU war chest, Zelensky faces a short-term economic crisis. Ukraine needs some €72 billion to repay a G7 loan and stay afloat fiscally."