The post Fighting Big Money in Politics: California’s Community News Act appeared first on CEPR.

My Two-for-Tuesday morning reads:

• The Mighty American Consumer Is Crashing Through Inflation and Driving Growth: Spending is rising because prices are climbing and Americans are buying more stuff, despite long-running frustrations over inflation. (Wall Street Journal)

• New Innovation Is Required to Fund AI’s $6 Trillion Buildout: To justify the investment, AI must do more than boost productivity; it will need to unlock new sources of growth and value. (Bain) see also The AI Buildout and the Economy: Publicly Available Data to Assess AI’s Impact: Publicly available indicators that can help researchers and policymakers track the evolution of the generative AI buildout and its potential impact on the economy on a timely basis. We organize the indicators into three categories: capabilities and costs; firm investment and adoption; and productivity and labor. (Board of Governors of the Federal Reserve System)

• Why So Many Wealthy Retirees Hoard Their Nest Eggs. Many American retirees underspend and hoard their wealth due to fears of market downturns, healthcare costs and lifelong saving habits. A Vanguard study found that four in 10 retirees with $1 million or less don’t touch their retirement accounts until required minimum distributions. (Barron’s)

​• LeBron’s Polymarket deal may not break NBA rules, but it raises uncomfortable questions: James reportedly gets $15 million a year to endorse Polymarket — nearly four times his $3.9 million playing salary. The league just hammered the Clippers over side deals; it has no answer for the money swirling outside the cap. (The Athletic)

• AI-conscious asset allocation: Portfolio construction in a capital investment boom: The artificial intelligence (AI) boom is moving more rapidly than any previous technology-focused capital investment surge. Asset allocators face an old challenge with a new twist: Harnessing AI’s extraordinary investment potential while maintaining appropriate levels of portfolio risk diversification. Michael Cembalest and J.P. Morgan’s Strategic Investment Advisory Group draw on past capital-spending booms to rethink what diversification means when everything correlates. (J.P. Morgan Asset Management)

​• Who Owns London? The Offshore Map: The offshore map — every overseas company on the register, by borough. Thousands of London property titles are held in open breach of the law, the largest block by a convicted scam, and nearly 5,000 belong to dissolved ghost companies, British Rail among them. Thousands of London titles are held in open breach of the law — topped by a convicted scam. Nearly 5,000 belong to dissolved ghost companies, British Rail among them. (GaffOn)

• Michael Lewis Is Back to Take On Elon Musk. It’s a Roller Coaster. In his latest book, The Big Short and Moneyball author Michael Lewis details the catastrophe that was DOGE. (Slate)

​• How a Research Blog Took on Big Surveillance in China—and Won: Amos Zeeberg on John Honovich’s IPVM, a small trade publication that found Hikvision cameras tagging tourists by “minority” status and helped expose the Chinese camera giants’ role in Xinjiang. Digging through manuals for security cameras, a group of gearheads found sinister details and ignited a new battle in the US-China tech war. (Wired)

​• How Ukraine’s Naval Drones Are Remaking War at Sea: Nicholas Kulish: Ukrainian sea drones now carry surface-to-air missiles to shoot down warplanes and ferry attack drones closer to their targets.  Ukrainian sea drones act as miniature aircraft carriers, and other countries want in. (New York Times) see also Ukraine Fires Hard-to-Stop Ballistic Missile for First Time: ​Kyiv has used its homegrown ballistic missile for the first time, and Zelensky says the priority now is scaling up production. Zelensky says the focus now is to increase production of the Ukrainian-made weapon (Wall Street Journal)

• Patrick Mahomes Is Still the Best Quarterback in the World: Four games into his comeback, Mahomes has reasserted his superiority, a columnist for The Athletic writes. (The Athletic)

Video of the day: The Swiss Are Panicking About “Superclone” Fake Watches

Be sure to check out our latest Masters in Business interview with Omar Aguilar, President, Chief Executive Officer, and Chief Investment Officer of Schwab Asset Management, which runs more than $1 trillion across over 100 ETFs, mutual funds, and separately managed account strategies. He has held both the CEO and CIO titles since 2022

Trump’s EV Boost

Source: Bloomberg

 

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UK Council's "Anti-Islamophobia" Training Tells Staff The Virgin Mary Wore A Hijab

Authored by Steve Watson via Modernity.news,

North Yorkshire staff who handle anti-terror work were shown a slide stating that "Mother Mary wore a hijab." The line was used to argue that Islam's attitude to women does not conflict with Western values. The same presentation told them "Jesus grew a beard," as Muslim men are instructed to, and that "the hijab was prevalent in the UK only 100 years ago," illustrated with pictures of British shawls that have nothing to do with Islam.

Mary was a Jewish woman in first-century Judea. She lived about six centuries before Islam, and centuries before the hijab as it is understood today. No image of her, or of Jesus, was made for centuries after their lifetimes. Early Christian art first showed Jesus as a beardless youth.

None of that stopped a publicly funded programme from feeding the claim to council staff, and from putting related material in front of police officers, students and civil servants who run the Prevent counter terror program.

?"I am sick to the back teeth of this two tier approach to faith in this country!"

Bishop @BishopDewar rages after a council in North Yorkshire has been told that Mary wore a Hijab@petercardwell pic.twitter.com/iwyvm95JMZ

— Talk (@TalkTV) September 30, 2026

The session was delivered by Abbas Najib, a former police officer and chief executive of Better Communities Bradford, the charity behind Project Unity. The Telegraph reported that the charity has received £490,000 from the National Lottery Community Fund since 2019, including a £35,000 grant to roll the programme out. Najib has said Project Unity has been delivered to more than 2,500 people across West and North Yorkshire.

Najib confirmed the slide to LBC and said the programme stands by it. "Hijab is an Arabic word meaning a covering, and in everyday use it simply means a woman's head covering," he claimed.

He further suggested "Mary is depicted wearing one in Christian art across the centuries, and headscarves were common among women in Britain within living memory. The point of the slide is that covering the head is a shared tradition across faiths and cultures, not something foreign or unique to Islam."

That is a semantic trick dressed up as history. A veil in later Christian art is not a hijab. A headscarf worn by a British woman in 1920 is not Islamic dress. Calling either one a hijab writes a seventh-century religion backwards onto a first-century Jewish woman, then presents the rewrite as proof that criticism of modern Islamic practice is a myth.

The Mary slide was not an isolated flourish. Project Unity material, which has also reportedly been presented to students, police officers and civil servants responsible for Prevent, includes a defence of Sharia.

One slide states: "Sharia is not a foreign threat. It is a moral tradition - like any other - shaped by faith, reason and a commitment to human dignity."

Another says one element of Islamic jurisprudence requires that "children cannot be struck on the face, cannot be marked, and must freely consent to marriage." Pro-Palestinian marches are described in the talks as "protesting genocide."

Written material accompanying the sessions claims women are not oppressed by the stipulations of Islam, and that "Muslims, the immigrant, the brown person" were scapegoated for a flatlining economy, with the blame laid on "the rich."

North Yorkshire Council has tried to put distance between itself and the content. Odette Robson, the council's head of community safety and CCTV, said the session was a guest presentation at the York and North Yorkshire Hate Crime Conference in 2025, a joint event with City of York Council and North Yorkshire Police, and that Najib was not paid.

"Attendees were free to question evidence, test assertions and explore alternative viewpoints," she said, adding "The purpose was to encourage discussion and reflection rather than to promote any particular standpoint."

The councillors who have seen the material are not buying the distinction. Reform group leader Tom Seston said: "A Reform council would scrap all DEI initiatives such as this and put council staff back to work delivering for residents, instead of receiving political lectures from anti-British activists. North Yorkshire Council should ban this activist and his charity from all work with the council."

Independent councillor Michelle Donohue-Moncrieff, a Roman Catholic, said she was "deeply disturbed that taxpayers' money was used to fund political propaganda being fed to council staff members. In particular, the reference to Mary, the Mother of God, wearing a hijab is both inaccurate and unacceptable."

She added: "Mary is not just some random historical figure to be used to justify Islam. These types of references are not intended to explain Islam. They are a Trojan horse designed to diminish Roman Catholicism and Christianity as a whole. North Yorkshire Council should apologise and ensure that training of this nature never happens again."

The same Project Unity material was used at that 2025 hate crime conference in front of North Yorkshire Police officers. Najib played a 2024 clip of Nigel Farage warning that "we have a growing number of young people in this country who do not subscribe to British values, in fact loathe much of what we stand for," and clarifying that he meant Muslims, citing marches over Israel's actions in Palestine. Officers were then shown footage of a man racially abusing a Muslim bus driver and asked to weigh the two.

Najib's question to the room: "Ask yourself, who is going to get into trouble between those two gentlemen? And who did the most harm?" He added the comparison he wanted them to sit with: "Sitting in a national news studio and saying 'Jews hate Britain', he'd be locked up before he left the studio, and too right, too."

The police force has said the talk was not part of its training programme and was not delivered by a police employee. That does not change who was in the room, or what they were asked to conclude: that a politician's words about integration may have done more harm than a racial assault.

Najib's defence of that exercise is the same line he uses for the Mary slide. "Project Unity exists to reduce anti-Muslim hostility and strengthen trust between communities," he said. Participants, he argued, were being asked to apply one standard, and to consider how the same words would land if said about Jewish people or black people.

The standard on offer is not equal treatment under the law. It is a demand that doubts about integration, grooming, Sharia, or the compatibility of political Islam with British institutions be treated as a species of hate.

This is not a rogue workshop in Yorkshire. In March 2026 the government published a non-statutory definition of "anti-Muslim hostility," the rebrand it adopted after dropping "Islamophobia" under free-speech pressure, and promised a special representative to push it into schools, universities and public services.

The working group that shaped the definition was chaired by former attorney general Dominic Grieve. Every member of that panel has links to organisations successive governments have kept at arm's length, including the Muslim Council of Britain and Muslim Engagement and Development.

The definition is not a criminal offence. Ministers have been careful to say so. What it is, in practice, is a script. Project Unity is what that script looks like when it reaches a conference room: Christian history renamed, Sharia redescribed as a moral tradition "like any other," and an elected politician measured against a hate crime. The audience included people whose job is counter-terror work.

The other half of the machine is record-keeping. Officials at the Standards and Compliance Unit, the body set up to handle complaints about Prevent, have been logging social media posts that criticise the programme, including posts that accuse it of fixating on the "far Right" while soft-pedalling Islamist extremism. The database was withheld for more than a year and released only after an appeal to the Information Commissioner. Between March 2024 and February 2025 the unit made 77 such observations, mostly from X.

Jacob Smith of Rights & Security International, whose team forced the release, said: "It is shocking that the government has been trawling X and Reddit to find out who has been critiquing Prevent - and then storing that information. You should be allowed to criticise government policy without being put on a list."

Put the pieces together. A lottery-funded charity tells anti-terror staff that the mother of Christ wore a hijab and that Sharia is not a foreign threat. The same charity asks police to decide whether Nigel Farage's words did more harm than a man abusing a bus driver. A government panel with Islamist-linked members writes the definition those sessions are built to serve. A Home Office-linked unit keeps a list of people who say the counter-extremism programme has its priorities backwards.

None of this required a new blasphemy statute. All it required was grants, a conference slot, a working definition, and a database. The people supposedly paid to protect the public were the ones sat in the room being indoctrinated.

Tyler Durden Tue, 10/06/2026 - 02:00

The Five-Year Fuel Crisis: Why The World Economy Is Paying For A War It Thinks Is Ending

Authored by Larry C. Johnson via SonarIntelligence (Sonar21),

Once again Karl W. Miller has put numbers to a problem that most of the commentariat still treats as a temporary price spike. His latest forward outlook, "The Five-Year Global Energy Crisis," dated October 3, makes an argument that should alarm every finance ministry from Berlin to Jakarta. The war's damage to Gulf energy infrastructure is not a disruption that ends when the shooting stops. It is a reconstruction problem measured in years and trillions of dollars, and while it is solved, the world will be short of the fuels that run its economy.

A ceasefire is not a repair crew

Miller's central insight is simple. A ceasefire can reopen a shipping lane overnight. It cannot manufacture a compressor, mobilize commissioning engineers, or pay a contractor. The next phase of this crisis, he writes, is a competition for cash, equipment, qualified contractors and finished fuel.

His cost model is sobering. In his aggressive case, rebuilding the damaged Gulf energy system requires $1.16 trillion in total program funding. Under prolonged stress, with scarce equipment, rising prices and delays, the bill reaches $2.53 trillion. Even his faster case runs to nearly half a trillion dollars. He is careful to say these are model outputs, not contractor quotes, and that the true extent of the damage is the largest unknown. An April assessment put energy-related repair costs at only $34-58 billion. But the direction of his argument doesn't depend on the exact figure. Every month of delay makes the same repair more expensive, because the global market for specialized equipment and crews is already stretched by LNG expansions, refinery maintenance and power projects elsewhere.

The timeline is just as stark. Weighted by cost, the rebuild averages almost five years from today. Only 60% of the work finishes by 2031, and the longest-lead packages run to seven years.

The money problem comes first

The most original part of Miller's analysis is about cash. A damaged refinery may be worth rebuilding and technically repairable, and still sit idle because the government that owns it has to pay for food imports, salaries, electricity and water first. Lost export revenue doesn't stop those bills. When a state borrows to keep paying them, that money can't also pay an engineering contractor.

Iraq shows the problem in practice. In July, it faced a monthly public salary obligation of about $5.96 billion with a funding shortfall of $2.52 billion. A government in that position rebuilds nothing. It pays its people, and the export capacity that would restore its revenue waits. Miller's warning is that this trap can stop reconstruction before it starts: without engineering funds and vendor deposits, factory slots go to other customers and delivery dates slip.

The fuel gap is the global transmission belt

For the rest of the world, the damage arrives through diesel and jet fuel. The figures Miller cites are already severe. Gulf diesel net exports in August were just over a quarter of prewar levels. Combined Gulf and Russian diesel exports were 1.6 million barrels a day below February. Global oil stocks had fallen 507 million barrels since February, and global refinery throughput in August was 4.2 million barrels a day below a year earlier.

Looking forward, Miller's severe case assumes a shortfall of at least 3 million barrels a day of diesel and jet fuel, every year for five years. That's about 1.1 billion barrels a year and 5.5 billion barrels over the period. He is explicit that this is a deliberate stress test, not a forecast, and that a faster-recovery path closes the gap by the fourth year. But the stress case is a plausible one. Restored capacity can be absorbed by refinery outages, deferred maintenance, recovering demand and delivery bottlenecks. Damaged refineries don't come back at full capacity on the first day.

Inventories cannot fill a gap of that size for that long. Five and a half billion barrels is far beyond any country's emergency stocks, which is why drawing down Europe's reserves now, under pressure from Washington, only buys weeks. Without enough new supply, the balance can close in only one way: by using less fuel.

How the shortage reprices everything

The economic damage extends well beyond the missing barrels. When supply falls short, buyers bid for the marginal cargo, and that bid sets the price for all the fuel still being bought. Miller's illustration: a $40-a-barrel premium across 10 million barrels a day of purchases adds $146 billion a year to fuel bills. Applied only to the 3 million missing barrels, it would add $43.8 billion and badly understate the real cost.

Scarcity also reprices credit. At $150 a barrel, a buyer purchasing 1 million barrels a day needs $2.25 billion to hold 15 extra days of inventory, and $3 billion at $200. Longer voyages tie up more fuel and more money in transit. A supplier can have the barrels while its customer can't get a letter of credit. And a cargo that wins a bidding war for one country leaves another short. Competition redistributes the shortage before it eliminates it.

Who absorbs the shock

Diesel carries the crisis into the real economy. It runs road freight, farm machinery, mines, construction fleets and backup generators, none of which can switch fuels quickly. Higher diesel costs pass straight into freight rates and food prices, and when diesel isn't available at any price, activity simply stops. Jet fuel carries the shock into aviation: higher fares, fewer routes and higher air cargo surcharges. Kerosene hits the households with the least room to adjust, in countries where it is still used for heating, cooking and lighting.

Miller's regional assessment follows the money:

• Europe competes for replacement diesel and jet cargoes while running its refineries close to their limits.
• South and Southeast Asia face higher import bills, currency pressure and greater need for trade credit.
• Africa and smaller importers are the most vulnerable. Tenders fail, credit lines run out, and small cargoes become uneconomic long before global stocks are exhausted.
• The United States and other Atlantic suppliers face export demand competing with their own diesel needs, with refineries running so hard they have little tolerance for outages.

The ultimate balancing mechanism is demand destruction: freight deferred, low-margin factories idled, flights cancelled, and poorer importers losing every bidding contest. Miller warns against mistaking that for recovery. Lower consumption caused by rationing through price or credit is not a repaired energy system.

Case study: Europe

Europe shows what Miller's framework looks like in practice. The continent burns about 5 million barrels of diesel a day, fuel for the trucks that move its goods, the tractors that plant its crops and, as winter approaches, the boilers that heat millions of homes.

How much does Europe produce, and how much does it import? Running flat out, EU refineries can produce roughly 4.5 to 5 million barrels a day of diesel and gasoil, and they are already operating close to their maximum. That leaves Europe roughly 85-90% self-sufficient at best. The remaining 10-15% comes from imports, and that margin sets the price for the entire market. Kepler puts the EU's diesel imports from outside the bloc at about 580,000 barrels a day this year. Britain, which lost much of its refining capacity over the past two decades, is far more exposed: it imports more than half the diesel it uses.

The origin of those imports has changed dramatically. Russia was long Europe's largest outside supplier until the EU embargoed Russian diesel in 2023. The Gulf filled much of the gap, until the war cut it off. Since March, the United States has supplied more than half of Europe's diesel imports, and more than two-thirds in August and September. Europe has traded dependence on Moscow for dependence on Washington, and Washington has just shown it is willing to use that leverage, threatening an export ban unless Europe released its emergency stocks.

Europe's diesel depends on imported crude as well. Its refineries run almost entirely on foreign oil: the EU imports about 97% of the crude it consumes. But the Gulf was never Europe's main crude supplier. In 2025, Gulf Cooperation Council states supplied only about 7% of EU crude imports, Iraq another 5.8%. Europe's crude now comes chiefly from the United States, Norway and Kazakhstan, which together supplied nearly half of EU petroleum imports in the second quarter of 2026. The volume has held steady; the bill rose 56%. But the crude isn't the crude Europe's refineries were built for. Much of Europe's refining capacity was designed around medium sour crudes such as Russia's Urals, with conversion units that turn the heavier part of the barrel into diesel. American shale crude is light and sweet. It refines readily into gasoline and naphtha, but it yields proportionally less diesel and jet fuel, the very products Europe is short of. As Miller notes, sour crude isn't uniquely required to make diesel; the replacement barrels work, but not at the same yield or cost. The Gulf supply Europe really lost was finished diesel from Gulf refineries, and that is what the United States has replaced. The result is a double dependence: Washington is now Europe's largest supplier of both the crude its refineries run and the diesel they can't make. Even the non-American barrels carry risk. Most Kazakh crude reaches Europe through a Black Sea terminal at Novorossiysk, on Russian soil, a route that has already been hit by Ukrainian drones.

How long can Europe store diesel? This is where Europe's apparent cushion turns out to be thinner than it looks. Unlike crude oil, which can sit in salt caverns for decades, diesel degrades. Under ideal conditions, conventional ultra-low-sulfur diesel can typically be stored for six to twelve months. With stabilizers, biocides and well-managed tanks, that can be extended to 18 to 24 months. Oxidation forms gums and sediment, water collects, and microbes grow in the fuel.

European diesel has an added problem. The EU standard, EN 590, allows up to 7% biodiesel in road diesel, and biodiesel oxidizes faster than petroleum diesel. Concawe, the European refiners' research association, recommends a maximum storage time of six months for biodiesel and current blends containing it. Strategic stockholders can extend that by holding biodiesel-free product, but even then the reserve has to be rotated, sold into the market and replaced with fresh fuel on a cycle of a year or two.

That changes what Europe's reserve really is. EU countries and Britain held about 52 million tonnes of gasoil and diesel in June, including nearly 38 million tonnes of emergency reserves, roughly two months of consumption. But a diesel reserve is not a stockpile Europe can fill once and forget. It is a stock that must be continually turned over, which means continually bought, and bought in the same tight market Miller describes. Every barrel released now to satisfy Washington has to be replaced later, at a higher price, from suppliers who are already short. And because diesel degrades, Europe can't solve the problem by buying extra while it's cheap and holding it for years. A reserve with a shelf life of a year or two cannot cover a structural deficit that Miller's severe case puts at five years.

The conclusion for Europe is stark. It produces most of its own diesel but has no spare refining capacity. It depends on imports for the margin that sets prices, and those imports now come mostly from a single supplier that has shown it will use them as leverage. And its emergency reserve is both perishable and finite. In Miller's terms, Europe is one of the buyers most exposed to the marginal cargo, and the least able to wait out a five-year shortage.

The implications for the global economy

Put together, Miller's analysis describes a world economy facing a prolonged supply shock, not a temporary one. Fuel costs feed into nearly everything, so central banks fighting the inflation this crisis has already produced will face pressure for longer than they expect. Emerging-market importers face a combination of high fuel bills, weak currencies and tighter credit that has historically produced debt crises and unrest. And the reconstruction itself will absorb capital, equipment and specialist labor that would otherwise build new energy supply elsewhere, so the shortage may delay the investment needed to end it.

Miller's strategic conclusion is the one policymakers least want to hear. Ending the conflict removes one source of disruption. It does not repair the energy system, which requires a separate sequence of financing, engineering, manufacturing, construction and commissioning that will take years. Until that is done, reliable fuel and the cash to buy it will determine which economies absorb the burden. Neither will be distributed evenly.

Tyler Durden Mon, 10/05/2026 - 23:25

An Uncomfortable Reality: China's Rare Earth Chokehold May Outlast This Decade

An inconvenient reality for the Trump administration's race to rebuild Western conflict-free critical materials supply chains outside China, whether domestically or through friendshoring, is that it won't break China's chokehold this decade.

The main problem for the US lies well beyond the mine, ING analysts Ewa Manthey and Coco Zhang wrote in a note on Monday titled "The US rare earth push: what comes next?" Extracting more ore does very little for US companies that depend on Chinese processing plants to turn ore into usable metals, alloys, and finished magnets.

"The US has significant rare earth resources, but its supply chain remains heavily reliant on China. The biggest gaps do not sit in the mine, but rather in processing, heavy rare earth separation and magnet manufacturing," Manthey said.

China accounts for about 60% of mined magnet rare earths, 91% of refined output and 94% of permanent magnet production, Manthey said, citing the International Energy Agency.

Manthey added, "The US rare earth challenge is industrial rather than geological. Its vulnerability lies in the difficult stages between the mine and the finished component."

MP Materials represents both America's progress in rebuilding domestic rare earth supply chains and its continuing constraints. The miner produced a record 50,692 tons of rare-earth oxide in concentrate in 2025 and began manufacturing neodymium-iron-boron magnets in Texas that December.

The biggest gap is heavy rare earths, particularly dysprosium and terbium, which help magnets retain performance at high temperatures. These materials are critical across automotive, aerospace, and defense applications.

MP Materials is developing a separation line designed to produce about 200 tons of dysprosium and terbium annually. Even with that capacity, securing feedstock remains a challenge because production is concentrated in conflict areas such as China and Myanmar.

Manthey cited a June agreement with USA Rare Earth involving $277 million in grants, a $1.3 billion senior secured loan and a 16% government equity stake. She also highlighted the federal government's investment in MP Materials, alongside decade-long magnet purchase commitments and an NdPr oxide price floor.

The number of announced projects is growing: MP Materials, Vulcan Elements and USA Rare Earth have each outlined plans for facilities capable of producing 10,000 tons of magnets annually. Those targets, however, represent planned capacity rather than current output - and that is a major problem. 

The US is also pursuing supplies from Australia and Brazil while funding recycling technologies. Yet alternative supplies are unlikely to eliminate the China dependency this decade: The IEA estimates that announced magnet projects outside China would meet well below 20% of demand outside China in 2035. 

Last week, Bloomberg Intelligence analysts questioned whether more than $40 billion in announced federal support to rebuild conflict-free critical materials supply chains outside China would translate into reliable near-term supplies and improve defense readiness.

Christian Keller, Barclays' global head of economics research, recently warned that "China's quasi-monopolistic position" in the critical materials space would persist through at least the end of the decade.

Not just in mining...

...but also refining.

Stifel aerospace and defense analyst Jonathan Siegmann wrote last month that "owning the bottlenecks," or investing in producers within conflict-free supply chains, was the best way to gain exposure as China chokes off the West's access to critical materials such as tungsten, magnets, rare earths, and other materials.

News last Friday of the US Commerce Department's move to squeeze jet parts supplies to China in response to Beijing's weaponization of critical material exports indicates that an uncomfortable reality is setting in across the West: Mining and processing supply chains might not be rebuilt in time to meet demand from the massive rearmament supercycle.

Professional subscribers can read the full note here at our Marketdesk.ai portal. 

Tyler Durden Mon, 10/05/2026 - 23:00

Trump's $90 Medicare Checks Raise A Question Nobody Seems To Be Asking

Authored by David Manney via PJ Media,

President Donald Trump is sending well over 20 million Medicare enrollees $90 apiece, and plenty of recipients will understandably welcome the money. With the standard Medicare Part B premium at $202.90 a month this year, $90 isn't pocket change for someone living on Social Security.

AP Photo/Heather Khalifa

From the White House:

• Payments will be made from the Medicare Improvement Fund, which has been given $2 billion by Congress for the purposes of making improvements to the Medicare fee-for-service program, but has never before been utilized.
• Most eligible seniors will receive the payment in the form a direct deposit of $90 in early October. Those without direct deposit will receive a check, also sent in early October, to the mailing address they have registered with Medicare.

The interesting question comes before the checks arrive. Congress created something called the Medicare Improvement Fund, and the law describing what the money can be used for doesn't specifically say anything about mailing cash directly to beneficiaries.

The statute gives the secretary of Health and Human Services authority to use the fund to make "improvements" to original Medicare Parts A and B. It then specifically mentions adjustments to payments for medical items and services that doctors, hospitals, and other suppliers provide.

The language is broad enough to give HHS room to argue that helping beneficiaries pay Part B premiums qualifies as an improvement, but direct cash payments aren't specifically identified.

Congress currently has $2.062 billion sitting in the fund. Sending $90 to slightly more than 20 million people will consume roughly $1.8 billion of it. The money ultimately comes from the Federal Hospital Insurance and Federal Supplementary Medical Insurance trust funds in proportions determined by the HHS secretary, so this isn't an unused pile of general Treasury cash somebody discovered behind a filing cabinet.

The statute also contains a safeguard worth noticing. HHS may obligate the use of the money only after the secretary determines that sufficient funds exist, and the CMS chief actuary and appropriate budget officer certify that enough money is available to cover the obligations.

Maybe all of that paperwork has been completed. The White House announcement doesn't provide the certifications, an HHS legal analysis, or an explanation of how a direct beneficiary payment fits within the statutory purpose. With nearly $2 billion moving from Medicare trust funds into bank accounts and mailboxes, publishing those documents would answer a reasonable question.

The White House calls the $90 payment a Medicare premium rebate, and says this is the first time any administration has used the Medicare Improvement Fund to directly lower beneficiaries' costs. Most eligible recipients will receive direct deposits in early October, while others will receive checks. People whose premiums are already paid by Medicaid and those paying income-related premium surcharges aren't eligible.

None of this proves the payments are unlawful. Congress wrote an unusually broad phrase when it authorized HHS to "make improvements" to Medicare, and an administration lawyer can make a serious argument that reducing a beneficiary's effective premium cost qualifies.

Still, a novel reading involving almost $2 billion deserves more than a celebratory fact sheet. Show the legal interpretation. Show the actuarial certification. Show Congress and taxpayers exactly how HHS concluded that a fund historically discussed in terms of Medicare services and provider payments can now finance direct checks.

Trump may have found a perfectly lawful use for a fund Washington spent years moving money into and out of without ever spending it. If so, releasing the documents should make the case stronger.

For $90, beneficiaries get a check. For $1.8 billion, taxpayers deserve the paperwork.

Tyler Durden Mon, 10/05/2026 - 22:35

Former World Chess Champion Kasparov Says US Warned Him About Kremlin Kill Plot

Authored by Chris Summers via The Epoch Times,

Former world chess champion Garry Kasparov has said the security services from both the United States and Lithuania have warned him that his life was in danger, after a Russian plot was discovered which allegedly targeted Kremlin critics living abroad.

Last month the U.S. Department of Justice (DOJ) said five people had been charged with plotting, on behalf of Russian intelligence, to assassinate two opposition figures.

One of the targets was in the United States, and the other in Lithuania.

DOJ did not identify Kasparov - who moved to the United States from Russia in 2013 and lives in New York - but in a Substack post the 63-year-old former chess grandmaster said he had been warned his life was in danger.

He identified the other person as Ivan Tyutrin, the co-founder of the Free Russia Forum, who is based in Lithuania.

"Neither I nor Ivan have been told explicitly that we were the targets whose names are redacted in the indictment of the assassins," Kasparov said.

"We were, however, warned by security services in Lithuania and the United States that our lives were in danger and that we should take precautions, which I did and will continue to do."

The Epoch Times reached out to the Free Russia Forum for comment, but did not receive a response by publication time.

Kasparov - who was born in Baku in what is now Azerbaijan, when it was part of the Soviet Union - became famous when, at the age of 22, he beat Anatoly Karpov to become world chess champion, a title he held until 2000.

Kasparov, an increasingly outspoken critic of Russian President Vladimir Putin, chairs the Renew Democracy Initiative, a nonprofit that describes itself as an "intellectual home for the pro-democracy movement" globally.

In his The Next Move Substack, Kasparov said his friend and fellow opposition figure, Boris Nemtsov, was "murdered in cold blood in front of the Kremlin" in February 2015.

'I Will Not Hide': Kasparov

"But I will not stop, and I will not hide, even if I thought it was possible to do so. I believe that the best defense is a good offense," Kasparov said.

"My family and I will not truly be safe as long as Putin is in power in Russia - a circumstance shared by millions."

The DOJ only referred to the targets of the alleged Russian intelligence plot as Victim-1, who lived in the United States, and Victim-2, who lived in Lithuania.

They said a U.S. national had been offered $40,000 to "eliminate" or "disappear" Victim-1.

A U.S. citizen was also contacted about surveilling and murdering Victim-2, who was allegedly described by the plotters as a "bad guy" who was "telling lies about Russia."

The Kremlin said last month it saw no reason to comment on the U.S. allegations, saying there was an absence of credible evidence and facts.

Russia has previously denied conducting such plots on foreign soil.

Tyler Durden Mon, 10/05/2026 - 21:45

West Virginia Wants Nuclear's Benefits, Somebody Else Can Handle The Waste

When West Virginia first announced that they had joined the race to host Nuclear Lifecycle Innovation Campuses (NLICs), the central bargain was already clear: nuclear investment comes with responsibility for used fuel. 

We’ve covered this concept a couple times now, highlighting states like Texas and New Mexico that back nuclear investment while fighting storage of out-of-state spent fuel.

Now, West Virginia has joined the club of pro-nuclear pretenders.

Governor Patrick Morrisey signed an exploratory agreement with DOE and announced West Virginia's entry as the sixth contender in the first week of September. The governor claimed he and his staff went above and beyond to be considered for an NLIC.

It's not surprising, considering over half the states in the country applied for the program with the knowledge that the campuses could attract up to $50 billion in investment and create nearly 25,000 jobs, each.

The frustrating part is that the expectation to take in used nuclear fuel wasn't some secret buried in the fine print. West Virginia's submitted NLIC proposal made temporary used fuel storage a top priority, alongside research into longer-term disposal. Its September agreement explicitly anticipated addressing out-of-state spent fuel and other radioactive waste.

This all only came to light on September 25th when the Charleston Gazette-Mail reported what the administration had actually proposed, using documents obtained through a public-records request. The sales pitch suddenly had an inconveniently readable paper trail.

Multiple lawmakers, even pro-nuclear Republicans, raised concerns about constituents being blindsided. Delegate Josh Holstein said Boone County's elected representatives had not been informed that the former Hobet mine was among the proposed sites.

By September 27th, Morrisey put out a formal statement declaring a hard flip from his previous posturing: "West Virginia will not be a dumping ground for nuclear waste. Period."

The Gazette got it wrong. This Friday’s story intentionally misrepresented my administration’s energy plans without giving me a chance to address their claims and slanted coverage. Here's the truth: We are pursuing nuclear generation and manufacturing to bring high-paying jobs to West Virginia. Our recent application to the U.S. Department of Energy was part of that effort. We want to build on our existing strengths in coal and natural gas to create more jobs and opportunity, stronger communities, and a higher standard of living. But West Virginia will not be a dumping ground for nuclear waste. Period. I have directed my Office of Energy to ensure that every site identified in our final Nuclear Campus application is considered only for nuclear generation or manufacturing - not as a dump. I will keep fighting for investments that can bring thousands of high-paying jobs to our state. I will also protect West Virginia’s beauty and heritage. We can pursue new opportunities without becoming a dumping ground. More energy jobs and manufacturing jobs are on the table. Nuclear waste dumps are not. We've had enough fake news.

— Governor Patrick Morrisey (@wvgovernor) September 27, 2026

By September 30th, the NLIC hosting deadline, state energy director Nicholas Preservati told DOE West Virginia was "unable to execute the Hosting Agreement and commit fully to its requirements." The letter still surprisingly proclaimed support for a national nuclear renaissance.

It’s just somebody else's responsibility, apparently. As with Texas and New Mexico, the enthusiasm looks considerably thinner once nuclear's less glamorous obligations enter the conversation.

West Virginia has not banned nuclear development, but it has walked away from this attempt to connect the industry's benefits with its lifecycle responsibilities.

Tyler Durden Mon, 10/05/2026 - 21:20

Pentagon Raises Combat Pay For First Time Since 2002 As Iran War Persists

Authored by Dave DeCamp via AntiWar.com,

The Pentagon has raised combat pay for US troops for the first time since 2002, Task & Purpose has reported, as the Iran war continues and another round of escalation between the US and Iran appears to be coming.

Pentagon spokesman Sean Parnell announced the pay increase last week. "Our troops in harm’s way deserve compensation that reflects their risk. For the first time in over two decades, the Department of War is increasing Hostile Fire Pay and Imminent Danger Pay," he wrote on X.

Marine Corps file image

Parnell said that Hostile Fire Pay, which troops can receive if their base or unit comes under enemy fire, has been increased to $450 per month, double the previous amount.

Imminent Danger Pay, provided to troops "subject to the threat of physical harm or imminent danger," has increased to a maximum of $275 per month, up $50 from the previous rate. US troops can receive either Hostile Fire Pay or Imminent Danger Pay, but cannot receive both simultaneously.

While increasing combat pay, the Pentagon is also reducing the maximum amount troops can receive in Hardship Duty Pay-Location from $150 to $100 per month. The benefit compensates troops stationed in areas with particularly difficult living conditions, rather than for exposure to combat.

After the Iran war started, the Pentagon expanded the locations that are eligible for Imminent Danger Pay to include Arab states that host US bases, Turkey, Cyprus, the Greek island of Crete, the US base at Diego Garcia, and the waters of the Arabian Gulf, Arabian Sea, and Gulf of Oman.

Throughout the war in Iran, US bases across the Middle East have been pounded by Iranian missiles and drones, resulting in a significant number of US casualties, which have been downplayed by the Pentagon.

According to the Pentagon’s official numbers, since the US and Israel started the war with a sneak attack on Iran on February 28, at least 19 US troops have been killed, and 861 have been wounded.

——> Pentagon doubles combat pay for troops under fire • Hostile-fire pay jumps from $225 to $450 a month starting today • Imminent-danger pay rises to $275 as U.S. forces stay in Iran-related danger zones https://t.co/RxEXmaq53p

— Odisus (@Odisus) October 1, 2026

According to a recent report from The Washington Post, the Pentagon has not reported all of the US military deaths in the region since the conflict began. The report put the number of deaths of US service members at up to 23, though it said not all undisclosed deaths were directly tied to the conflict, and it also said that three civilian contractors have died.

Tyler Durden Mon, 10/05/2026 - 20:55

DOJ Sues University Of Delaware: Illegal Aliens Get In-State Tuition, Out-Of-State Americans Pay 2.7x More

The Justice Department has sued the University of Delaware, alleging the school "grants in-state tuition for illegal aliens while denying reduced tuition to U.S. citizens."

The math comes straight from UD's own 2026-27 cost-of-attendance page. Undergraduate tuition for Delaware residents is $15,740. For non-residents it is $42,470.

A qualifying illegal alien who went to high school in Delaware pays the first number. A US citizen from Pennsylvania or Maryland pays the second. That is a $26,730-a-year premium for the crime of being an American from the wrong state, or roughly $107,000 over four years at current rates, before fees.

To qualify, according to NBC Philadelphia, a non-citizen must have attended a Delaware high school for at least three years, graduated there or earned a GED, lived with a legal guardian while in school, enrolled at UD within 18 months of graduating, and provided evidence of permanent residency or an application for U.S. citizenship.

Associate Attorney General Stanley Woodward Jr. said:

"This Department of Justice's efforts will not cease until we have challenged every state law or university policy that gives preferential treatment to illegal aliens over our Nation's own citizens. Congress long ago made clear that states cannot give reduced tuition to illegal aliens not available to all Americans."

Assistant Attorney General Brett Shumate added that "colleges cannot provide benefits to illegal aliens that they do not provide to U.S. citizens," and that the department "will not tolerate American students being treated like second-class citizens in their own country."

Delaware is the 26th such lawsuit from the Trump DOJ. The department says it has already secured favorable court orders against six states: Texas, Kentucky, Oklahoma, Nebraska, Illinois and Kansas.

UD, for its part, said it is "aware of the complaint" and "reviewing it carefully," and declined further comment on a pending legal matter.

Not every challenge has gone DOJ's way: in March, a federal judge dismissed the department's suit against Minnesota's tuition policy with prejudice.

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Backlash Rolls In After Rutgers Womxns Rugby Name Change Welcomes Men Who Identify As Female

Authored by Jennifer Kabbany via The College Fix,

A female recreational rugby team at Rutgers University is facing backlash for changing its name to "Rutgers Womxn's Rugby" to signify inclusion and the intent to allow biological males who identity as female to play on the team.

The criticism was swift and severe, prompting the student-run team to turn off the comment section of its announcement on Instagram before deleting the post completely.

However, while the announcement was deleted, the team's account name remains "Rutgers Womxn's Rugby." Its original Sept. 24 post had stated:

We're excited to announce that Rutgers Women's Rugby will be making the change to Rutgers Womxn's Rugby! This change reflects our team's commitment to creating a welcoming, inclusive and supportive environment for our players. Inclusivity is an important part of who we are, and we want every member of our team to feel valued and represented through our organization. We are continuously evolving and want to properly reflect the standards of inclusion. We're proud to continue building a rugby community where everyone belongs."

But Fox News reported that World Rugby "bans biological males from women's divisions, pointing to clear science showing extreme injury risks during hard tackles. Rebranding a student club is easy, but letting biological males into female sports divisions lands universities in hot legal water."

Fair For All, a group fighting to protect women's sports, pointed out that "Depending on what 'Womxn' includes, the substantive change could also be a violation of Title IX."

Rutgers Women's Rugby Team is renaming themselves as "Womxn's Rugby Team" to be inclusive.

Is @RutgersRugby Men's Team also changing its name to Mxn's Rugby Team?

Why is female sports the only battleground for ideological push to include those outside of the female sex... pic.twitter.com/j4WMRrQybF

— Fair For All (@fairforall_org) September 25, 2026

"Inclusion of athletes who are not women is not fair to women and will not make female athletes feel valued. Female athletes will opportunities and will be excluded. When that happens, they will not feel welcomed or represented," the group added.

The Post Millennial reported that several club women's rugby teams across the country have "ditched the women's category in favor of a newly created 'open' category so men can play on their women's teams."

Tyler Durden Mon, 10/05/2026 - 19:15

Guinness Pulls Plug On Baltimore Brewery As Costs Soar In Democrat-Run State Amid Consumer Beer Retreat

The first Guinness brewery to open in the US in more than 60 years, located in the Baltimore metro area, will shutter operations next month as shifting consumer demand and the challenges of operating in the Democrat-run state have made the operation increasingly difficult to sustain.

Diageo, the British alcoholic-beverages company that owns Guinness, operated the brewery for eight years, during which the site attracted more than 2 million visitors.

Local outlet WMAR-TV reported that the shutdown is due to soaring operating costs, shifting consumer tastes and broader economic pressures that made the brewing location unsustainable.

The decision followed a "careful review of our operations and long-term business priorities," a Diageo spokesperson said.

The shutdown comes three years after Diageo slashed the workforce at the Halethorpe site by 100 jobs and ended most commercial brewing at the plant. Its taproom, restaurant, beer garden and experimental brewery remained open.

This closure leaves Chicago as the brand's only US brewery and raises a difficult question about whether shifts in consumer demand for beer are only one part of the story.

The other part of the story is easy to understand: Maryland faces competitive pressure from neighboring states. Its negative net migration only suggests that the Democratic kings and queens who control the state under one-party rule are running its economy into the ground.

Neighboring states are cutting taxes or adopting flat-tax systems, while lefty Annapolis lawmakers are hell-bent on a parasitic mission to extract as much tax money as possible from mom-and-pop businesses, medium-sized and large companies, and taxpayers to pay for their progressive experiments. 

The result of lefty activists running the state is negative net migration, and the latest example of these state-killing economic policies is a major brewer shuttering operations.

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America's Wile E. Coyote Moment

Authored by Matthew Piepenburg via VonGreyerz.gold,

When it comes to contextualizing the tech, bond, gold and policy headlines of Q4 2026, it's easier to foresee their pathway ahead by first looking backwards. Once understood, we mathematically realize that our problems are not in the future, they are right now.

The 1970s

Ah, the 1970s. It was an era of bellbottom jeans, checkered suits, wide ties, the music of ABBA and Saturday morning cartoons.

It was also the decade in which Nixon decoupled the dollar and ended the sound money hopes of America's founding fathers.

Backed by nothing but "full faith and credit," the USD began its slow but steady death by a thousand cuts of borrow and spend without limit or concern.

Free a golden chaperone, politicians and Fed Chairs of every political stripe could expand balance sheets and the M2 money supply with almost zero concern for the longer-term financial karma that always follows a bacchanalian debt spree paid for with dollars literally created out of thin air.

Government debt, at $238B in 1971, was no big deal to our so-called "experts."

Besides, any future debts could be easily paid at this dawn of generational fantasy, which Hemingway described as the "temporary prosperity" of excess money printing masquerading as careful policy.

A Time Without Foresight (or Restraint)

In short, no one in the 1970's was thinking of what it might be like by 2026 when that same government debt had skyrocketed from a couple hundred billion to over $40T.

Instead, post-1971 leadership, red or blue, focused on the next election cycle rather than the next generation's purchasing power.

As holder of the world reserve currency, DC enjoyed what the French Finance Minister of 1965 described as the "exorbitant privilege" of simply exporting its reserve currency and inflation to the rest of the world.

This may have been inherently unfair to the rest of that world, but as our then Treasury Secretary, John Connally, famously quipped: "It's our currency but your problem."

Buying Time with Funky Policies

To insure that "problem," we effectively forced OPEC to sell its oil in USD, and even made the producers of this oil spend large chunks of their revenues on our USTs. This made oil a critical sponge to absorb our reckless and inflationary spending.

As Mel Brooks would say, it sure was "good to be the king" - or at least King Dollar.

And just in case a rising gold price might otherwise embarrass our nothing-backed dollar, we also made sure in the mid-70s to create a price-fixing mechanism at the COMEX to legally manipulate the paper price of this far more precious and honest metal.

Yep. That was the 1970's.

What could possibly go wrong?

Well... just about everything.

Some fifty years later, we now see a world de-dollarizing, a petrodollar fracturing, missiles flying and the dollar emerging no longer as just the world's problem, but America's as well.

Back to the Future

Fast-forward to 2026 and the foregoing "exorbitant privilege" and "temporary prosperity" has devolved into what Hemingway also foresaw as this debt-n-spend fantasy's final endgame, namely the "permanent ruin of currency debasement and war."

Of course, there are defenders of American Exceptionalism who would take offence to words like "permanent ruin" from gold bugs just "selling their book."

After all, there's so much to save us. Just look at the record-high S&P. Look at technology. Look at AI. Look at the milkshake theory's immortal dollar. Look at all the Fed's brilliant PhDs and magical task forces. Look at stablecoins.

Ok. Let's look.

The Great AI Gambit

As for the S&P 500, it's nearing all-time highs, but 440 of its 500 companies are down more than 20% from their 52-week highs.

Rather than a stock market, we have a concentrated minority of tech monopoly powers holding the rest of the broken pack together with techy duct tape and memes of "this time is different with AI."

The core and leading big names in tech, namely Google, Amazon, Facebook and Microsoft, are part of the biggest AI circular financing and concentration risk gambit in the history of U.S. equity markets.

These hyper-scalers get 70% of their AI revenues from just two players, Anthropic and OpenAI, two profitless companies whose costs are billions greater than their revenues.

These two screaming examples of concentration risk are bleeding money at an historical scale. Even AI's own search results confirm the same:

From Concentration Risk to Circular Financing

And if you are wondering how Anthropic and OpenAI are funded, it's not from big VC names.

Actually, the bulk of their equity (over 700B in 2026 AI capex alone) is coming from the very same companies (Microsoft, Amazon, Google, SoftBank and Nvidia) they sell their un-moted software to...

Even more alarming, these same tech hyper-scalers which keep the two AI ships afloat are themselves burning cash at a record pace on data centers whose costs (and power problems) are killing their cash flows.

Given this circular, financed, uber-concentrated and just massive capex profile and daisy chain, AI is literally becoming too big to fail.

The very survival of our economy and stock market is now being gambled on a single AI play whose profitable future is anything but certain unless the government regulates a duopoly protective measure to keep China out of OpenAI and Anthropic's backyard, at which point the U.S. won't be getting rare earths from Asia any more...

NVDA to the Rescue?

But surely Nvidia's GPU sales will save the day, right? Its earnings are indeed impressive, and it just posted 110% revenue growth. Wow.

But if you look more carefully at Nvidia's 10Q form (and the notes behind it), you'll also see that 70% of its accounts receivables come from just five companies (listed above).

Do you see the circular concentration risk? Do you see the massive gambit the S&P is playing on the entire economy if this AI dice-roll (priced for perfection) doesn't go as planned?

For now, the great AI gambit has yet to play out. But the memory of tech bubbles transitioning from over-bought to over-sold is still very fresh in my dot.com-trading mind...

The Bond Market's Verdict

But if we move from a profitless AI, circular-financed, and grotesquely concentrated and uncertain U.S. tech bubble to a shattered U.S. sovereign bond market, the suspense is less severe in a nation running $2T in annual deficits.

In fact, when it comes to bonds, the verdict is already obvious.

As the great American bond king, Jeffrey Gundlach, so aptly described it: "We've hit peak lunacy" in our sovereign bond market.

With the 10Y UST yield crossing the 5% "uh-oh" Rubicon in a public debt backdrop of $40T, I see a death penalty for the dollar's purchasing power and a Treasury Secretary with zero parole options.

With Scott Bessent having recently added David Zervos and Judy Shelton to his "dream team," the set-up is now clear for some major changes - and desperation - ahead.

Meanwhile, DC mouthpieces like Kevin Warsh avoid direct answers as to how Uncle Sam can afford his interest expense or how we got to 5.25% yields by October when they were at 4.4% when he took office in June.

Yields rise as inflation rises, so the war in Iran, which has sent Brent crude to painful highs, is the most common explanation for how our pre-war yields of 3.9% have now crossed above the fatal 5%-handle.

But the real issue (i.e., criminal evidence) behind the rising shark fins of these rising yields lies in U.S. bond issuance at extreme levels at the same time demand for the same has hit extreme lows.

As more deleverage-focused nations dump our debt to support their currencies or buy spiking oil, those Treasury yields just keep rising - and will rise even higher once the USA confesses it's already in a recession.

The world's trust in an over-issued, distrusted, debt-soaked, and weaponized UST has fallen from incremental to exponential levels. The premium (i.e., rate) for U.S. IOUs will only continue to climb higher as our deficits do the same.

Signals: This Ain't Our Father's Bond Market

The post-2020 Treasury market is not what it used to be since 1980, and it won't be coming back. The once sacred Treasury market is mathematically broken, which means DC is objectively unhinged.

Between September of 2024 and January of 2026, the Fed, having failed to beat inflation via hawkish rate hikes in 2022 and 2023, then dovishly cut rates by 175 basis points.

In normal bond markets, such cuts are supposed to send yields down. Instead, yields went up across the entire duration range of the yield curve.

Such yield indicators may seem boring to those unfamiliar with bond market lingo while doom-scrolling their iPhones, but it confirms that the Fed has lost control of rates, and hence the cost of his unpayable sovereign bar tab.

And it gets worse.

Since 2000, we've seen 13 market corrections. And in the first 12 of those 13 corrections, the dollar always went up (on a DXY basis) by at least 8%. But on the 13th correction last April, when stocks lost 18%, the dollar, rather than go up, went down even as yields spiked.

That's not normal...

In this new abnormal, USTs sell off as stocks sell off, and the grossly over-produced (i.e., debased) USD, even in a rising yield setting, can't strengthen.

There is no safe-haven in the so-called "risk-free return" of a U.S. IOU which, when measured against honest rather the Fed-measured inflation, is nothing more than "return-free-risk."

In short, we are in a different bond regime. The old rules, correlations and tricks no longer apply.

Our bond market is openly broken.

The only way to bring these yields down to a survivable/payable level is either: 1) money printing to the moon; or 2) a massive debt restructuring, either of which option means further dollar destruction and hence screaming tailwinds for gold.

Credit Default Masquerading as a "Re-Structuring"?

As for "restructuring," the recent addition of Shelton and Dervos is telling.

Shelton, of course, understands the fall from grace of USTs. She knows that a gold-backed long bond has more credibility than a dollar-backed IOU for the simple reason that our debased dollar is now obvious (and embarrassing) to everyone, including those nations not showing up at our Treasury auctions.

But even a gold-backed 50Y UST is not gonna save the Treasury market. Too little, too late.

Like Gundlach, I feel the Fed and Treasury Dept will buy time with some serious YCC by issuing more debt from the short end in a desperate Operation Twist 2.0 attempt to compress yields on the long end.

But that's not working so well, is it?

And also like Gundlach, I believe the next desperate act could very likely involve a clever "restructuring" of our sovereign IOUs which boils down to little more than a constructive default on our debt.

That is, at some point down the road, and in the oh-so convenient name of "national security" (blamed, of course, on some foreign bad guy or black swan event), DC will simply announce an extension of bond maturities and a capping of bond coupons at 1%.

This, of course, will crush bondholders, foreign and domestic, as well as pension funds, insurance companies, money markets and the man on the street. It will also mean a massive price fall (and riot) in bonds and no global love for Uncle Sam's IOUs.

But hey, desperate times require desperate actions.

Under such "restructuring," DC would be forced to stop issuing debt and rebalance its budget. It would also mean a tanking USD, which is precisely what DC needs to inflate away its debt and gain some yardage in its trade deficit.

All Roads (Still) Lead to Gold

Thus, whether we mouse-click more trillions to save (self-fund) the bond market or restructure USTs with capped coupons, the net result either way is a neutered USD and hence a ripping gold price in the years to come, at least for those who can think that far ahead.

This further explains why central banks, which have been stacking the metal at an historical pace in 2026, now hold more gold than USTs.

They see the direction (and desperation) of the USD, and hence the direction of gold.

The Wile E. Coyote Moment is Now

Thus, as we watch the bond market die on a DC respirator while AI stocks gyrate in a profitless circle of over-investment and narrative changes which will most likely require government regulation to mote/protect the hyper-scalers and over-hyped AI providers from another 08-like catastrophe, I'm done warning of a broken U.S. credit and equity disaster on the horizon.

This is because the "Uh-Oh" moment is not coming; it's already here.

Based on the dispositive yet largely ignored signals from our anemic, concentrated and over-levered stock market; and based on our openly broken, unpayable bond market (not to mention the private credit time bomb) in search of a liquidity miracle or default policy that further debases our Greenback, the picture is clear.

Warsh, Bessent and Shelton are not going to save this credit market. Nor will Santa Claus or any other miracle trick. It's too late, folks.

In fact, the picture or image I have in mind takes me/us right back to the 1970's and those Saturday morning cartoons I alluded to above - and watched as a kid while Nixon and his successors set the current disaster in motion decades before I traded my first dot.com stock...

American credits, equities, monetary fantasies and ignored Main Street realities have already passed beyond the cliff. We now stare suspended above a fall that is no longer theoretical, but right below us.

Of course, in such moments, it's scary to look down, and thus almost no one does.

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Trump Plans To Ease Off-Road Diesel Restrictions Ahead Of Midterms

Bloomberg reported late Monday afternoon that the Trump administration is preparing to loosen restrictions on tax-exempt dyed diesel, seeking to ease costs for the industrial fuel that powers the economy amid a global refining crisis.

The report cites people familiar with the matter, and the new policy could be announced as soon as today.

The plan would allow broader use of dyed diesel, better known as off-road diesel, which is mostly used in farm machinery, construction equipment and other off-road applications. This move would allow for savings of 24 cents per gallon because the fuel is exempt from federal excise tax.

"While the move wouldn't directly lower operational costs for harvesters, tractors, excavators and other off-road equipment that already runs on tax-exempt red diesel, it is seen as potentially cutting the expense to run pickup trucks and other on-road vehicles," the outlet said.

As of Monday, US retail diesel prices averaged around $6.32 a gallon at the pump, down from September's record $6.53 but roughly 68% above the $3.76 recorded before the US-Iran conflict began in late February.

Ukraine's bombardment of Russian refineries and the Gulf crisis have disrupted refining and petroleum-product shipments worldwide.

Last week, President Trump's threat to ban diesel exports to Europe spurred G7 member nations to begin releasing 120 million barrels of diesel over the next six months.

Tyler Durden Mon, 10/05/2026 - 15:00

Over 250,000 Visas Revoked During Trump's Second Term

Authored by Aldgra Fredly via The Epoch Times,

The State Department said on Oct. 1 that it has revoked more than 250,000 visas since President Donald Trump returned to office in January 2025.

State Department spokesman Tommy Pigott announced in a post on X that the administration has been working to identify and revoke visas held by noncitizens who were found to "commit crimes, support terrorism, or defraud Americans."

On Sept. 28, Pigott said the department imposed visa restrictions on 27 officials from Bolivia, Colombia, Ecuador, and Peru over allegations of corruption and ties to drug-trafficking activities.

The officials included Bolivia's Attorney General Roger Mariaca, whom the department accused of soliciting and accepting bribes to enable drug-trafficking and helping violent criminals evade punishment.

The restrictions also applied to those people's family members.

Pigott said the visa limits were imposed under Section 212(a)(3)(C) of the Immigration and Nationality Act, which allows the government to bar a person's entry into the country if the Secretary of State determines the person's presence would have potentially serious negative consequences.

"This is a durable mechanism that allows the United States to act quickly, in coordination with our partners, as evidence develops," the spokesperson said in a statement.

The Trump administration has intensified enforcement against illegal immigration and tightened the country's vetting procedures for foreign nationals seeking to enter the United States.

Secretary of State Marco Rubio said on Sept. 28 that the United States will restrict visas for people who obstruct the return of children abducted abroad by a parent, as well as those people's immediate family members.

Rubio said the new policy was intended to streamline cases that have dragged on in foreign courts and government offices and "gives the department a new accountability tool to press non-compliant countries to meet their obligations."

In June, Assistant Attorney General Colin McDonald of the Justice Department's National Fraud Enforcement Division issued a memo directing federal prosecutors to prioritize investigations into birth tourism schemes.

The move came after the Supreme Court struck down Trump's executive order ending birthright citizenship for children born to illegal immigrants.

Trump's order on birthright citizenship, issued on Jan. 20, 2025, said the 14th Amendment's citizenship clause does not extend citizenship universally to everyone born within the United States.

The Supreme Court ruled on June 30 that the order ran counter to the U.S. Constitution.

Tyler Durden Mon, 10/05/2026 - 14:40

Pentagon Backs Ambitious Plan To Beam Solar Power From Space

By Haley Zaremba of OilPrice.com

Space-based solar power just got another powerful vote of confidence. The United States Department of Defense just inked a contract with solar energy company Overview Energy to “design, build, and test a homing beacon that will enable its space-based solar energy system to accurately beam power from orbit to receiving solar arrays on Earth,” according to a brand new report from Interesting Engineering.

The idea is that solar panels would orbit the Earth, collecting sunlight straight from the source and then beaming it back down to Earth either through powerful lasers or microwave beams, depending on the technology being applied.

Putting solar panels into outer space would yield a litany of benefits. Critically, unlike terrestrial models, the sun would never set on these solar panels, allowing them to generate clean energy 24 hours a day, seven days a week. This would solve an enormous issue in the clean energy sector, which is seeing increasing instances of wasted energy and even negative energy prices as peak production hours and peak demand hours are inevitably misaligned, and energy storage capacities have lagged far behind productive capacity.

And intermittency is not the only major challenge to the traditional solar power sector that space-based solar would be able to sidestep completely. Industrial-scale solar farms take up enormous tracts of land, and are therefore facing increasing legal challenges to secure appropriate plots for development. A single large-scale solar farm can take up thousands of acres. According to a 2022 insight report from strategy & management consulting firm McKinsey & Company, utility-scale solar farms require ten times as much space per unit of power as coal- or natural gas–fired power plants, at minimum. And that’s counting the land used to produce and transport the fossil fuels. Jettisoning those solar panels into space is one way of solving that problem.

Plus, the power from space-based solar panels would be dispatchable. Since solar satellites can view entire quadrants of the globe, they can beam energy when and where it is needed most with an enormous degree of accuracy. All of these factors serve to make the technology highly attractive to the Department of Defense, which wants to use space-based solar power for remote military bases. The first demonstration of the technology is planned for 2028, with deployment of the planned geosynchronous Earth orbit (GEO) satellite constellation slated to begin in 2030.

“The connection between space and the ground is the most critical element of space solar energy, especially for warfighters who depend on power at precise locations,” Darko Filipi, Overview Energy co-CEO, was quoted by Interesting Engineering.

The United States military is not the only major investor to sign a massive contract with Overview Energy. The four-year-old startup inked a deal with Meta – the megacompany behind Facebook, Instagram, and more – earlier this year, agreeing to provide up to 1 gigawatt of space-based solar energy to the tech giant – equivalent to the output of a nuclear reactor.

However, both of these contracts are based on a nascent technology and the complete space-to-ground system has yet to be demonstrated from orbit. But the leaders of Overview are confident that their big gamble will pay off in spades. “We really believe that we are able to provide utility-scale power with this technology,” Filipi recently told the Washington Post.

However, not everyone is so optimistic. “The technology may work,” Amory Lovins, a Stanford physicist and co-founder of the energy think tank RMI, told the Washington Post. “But I have serious doubts the economics do.” He pointed to the many other forms of clean, abundant, proven, and round-the-clock power alternatives, such as nuclear and geothermal, that can produce electricity much more cheaply and with more proven and established technologies.

Tyler Durden Mon, 10/05/2026 - 14:00

Key Events This Week: FOMC Minutes, Umich, And FOMC Speakers Galore

Given the high stress and high alert in bond markets, which has pushed global 10Y yields to the highest level since 2022 and with Europe finding itself on the verge of another sovereign debt crisis...

... the main focus in the week ahead will be on central banks, with the minutes from the September FOMC meeting on Wednesday and the ECB’s account of its latest meeting on Thursday.

There is also a busy run of central-bank speakers, while the data calendar includes US ISM services today and the University of Michigan survey on Friday, a run of German activity data through the week, and Japanese wages on Wednesday.  

In the US, the week begins in the shadow of Friday’s important September employment report. Headline payrolls rose just +29k, compared with +133k expected, while private payrolls increased +46k versus +127k expected. There were also 60k of downward revisions to headline payrolls over the previous two months, and average hourly earnings rose only +0.1% against +0.3% expected. Nevertheless, DB's US economists think the details still point to a broadly stable labor market. The unemployment rate edged up only slightly to 4.175% from 4.141%, the broader U-6 rate fell a tenth to 7.6%, and participation rose two-tenths to 61.8%, its highest since May last year. Prime-age participation and the employment-to-population ratio also recovered further after their unusually large June declines. So although the headline payroll number was disappointing, the wider labor-market picture remains relatively resilient, particularly alongside recent ADP and jobless-claims readings, and DB's economists continue to expect two further 25bp Fed hikes over the next couple of quarters. The market is pricing in another 86bps over the next 12 months, down from 100bps early last week but up from 70bps just after the payroll release. So lots of vol on Friday in rates and fixed income as we'll see in the review of the week at the end.  

The highly unsettled bond market makes the incoming US data and Fed communication particularly relevant. The first key release is the September ISM services index today, where DB economists expect the headline gauge to rise to 55.9 from 55.4 in August (it rose 55.8). Tomorrow brings the August trade balance, while Wednesday’s September FOMC minutes should provide more color on the near-term policy outlook.

Since the meeting, Fed communication has broadly reinforced the quarterly pace of rate hikes implied by the September SEP. Vice Chair Jefferson and New York Fed President Williams have both indicated a preference to take some time to assess incoming data before deciding on the next move, but several officials have continued to argue for additional tightening. So the minutes will be worth watching for how the broader Committee is framing the current tightening cycle and for its discussion of the neutral rate, where estimates shifted higher in the September SEP.

The rest of the US calendar is lighter. Thursday brings initial jobless claims and August wholesale trade sales, before attention turns to the preliminary October University of Michigan survey on Friday. Economists expect consumer sentiment to dip to 47.7, versus 48.1 in September. The survey may attract some extra attention with the November 3 midterm elections approaching. More broadly, DB's US economists currently estimate Q3 real GDP growth at 3.3% annualized, and this week’s activity data will help refine that estimate.

Moving to Europe, the ECB publishes the minutes of its September meeting on Thursday, alongside a packed speaker calendar. It'll be interesting to see whether the French situation gets prominent mentions. Germany has a particularly busy run of activity data, with August factory orders tomorrow, industrial production on Wednesday and the trade balance on Thursday. France releases August industrial production tomorrow, while Italy follows on Friday. Sweden publishes September CPI on Wednesday and Norway on Friday.

In the UK, the BoE releases its Bank Liabilities and Credit Conditions surveys on Thursday, when Governor Bailey is also due to speak.
In Asia, Japan is the main focus. August labour cash earnings are released on Wednesday, with markets expecting same-sample total cash earnings growth to accelerate to 3.6% year-on-year from 2.9% in July. The September Economy Watchers survey follows on Thursday and August household spending on Friday. China’s September foreign-exchange reserves are also due on Wednesday.

Courtesy of DB, here is a day-by-day calendar of events

Monday October 5

• Data: US September ISM services, UK September new car registrations, official reserves changes, Japan September consumer confidence index, Italy September services PMI, Q2 deficit to GDP, Eurozone August PPI, Canada September services PMI
• Central banks: ECB's Nagel, Lane, Schnabel, Escriva, Kocher and Buch speak

Tuesday October 6

• Data: US August trade balance, UK September construction PMI, Germany August factory orders, September construction PMI, France August industrial production, budget balance, Eurozone August retail sales, Canada August international merchandise trade
• Central banks: Fed's Williams speaks, ECB's Zigman and Cipollone speak, BoJ's Ueda speaks, BoE’s Mann speaks
• Auctions: US 3-yr Notes ($58bn)

Wednesday October 7

• Data: US September NY Fed 1-yr inflation expectations, August consumer credit, China September foreign reserves, Japan August laborcash earnings, leading index, coincident index, Germany August industrial production, France August current account balance, trade balance, Sweden September CPI
• Central banks: FOMC minutes, Fed's Logan speaks, ECB's Cipollone and Vujcic speak
• Earnings: Applied Digital
• Auctions: US 10-yr Notes (reopening, $39bn)

Thursday October 8

• Data: US August wholesale trade sales, initial jobless claims, UK September RICS house price balance, Japan September Economy Watchers survey, August BoP current account balance, BoP trade balance, Germany August trade balance
• Central banks: ECB’s account of September meeting, Fed's Musalem speaks, ECB's Zigman and Lane speak, BoE's Bailey, Greene and Lombardelli speak, BoE’s bank liabilities and credit conditions surveys
• Earnings: PepsiCo, Fast Retailing, Tesco
• Auctions: US 30-yr Bond (reopening, $22bn)

Friday October 9

• Data: US October University of Michigan survey, Japan August household spending, September machine tool orders, Italy August industrial production, Canada September labour force survey, Sweden August GDP indicator, Norway September CPI
• Central banks: ECB's Wunsch, Cipollone and Schnabel speak
• Earnings: Delta Air Lines

Looking at just the US, Goldman writes that the key economic data release this week is the trade balance report on Tuesday. The minutes to the September FOMC meeting will be released on Wednesday. There are several speaking engagements with Fed officials scheduled this week. 

Monday, October 5 

• 09:45 AM S&P Global US services PMI, September final (consensus 58.7, last 58.7)
• 10:00 AM ISM services index, September (GS 55.4, consensus 55.0, last 55.4): We estimate that the ISM services index was unchanged at 55.4 in September, reflecting sequential improvement in our non-manufacturing survey tracker (+1.0pt to 54.1), offset by downward pressure from convergence toward the level implied by other services surveys (which the ISM index is above).

Tuesday, October 6 

• 08:30 AM Trade balance, August (GS -$100.0bn, consensus -$102.0bn, last -$88.6bn)
• 09:05 AM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will moderate a discussion with Caryn Seidman Becker, Chair and CEO of CLEAR. On September 29, Williams said, "with the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information."
• 10:45 AM Fed Vice Chair for Supervision Bowman speaks: Fed Vice Chair for Supervision Michelle Bowman will speak on modernizing regulation and supervision at the Community Banking Research Conference at the Federal Reserve Bank of St. Louis. Speech text and Q&A are expected. On October 1, Bowman said, "After the Committee's action in September, what we need to have is a better understanding about the underlying trends in the economy and how financial conditions are evolving going forward. So, I don't currently see an urgent need for further action."
• 01:15 PM Kansas City Fed President Schmid (FOMC non-voter) speaks: Kansas City Fed President Jeffrey Schmid will participate in a fireside chat on monetary policy and rural development at the Enid Regional Development Alliance luncheon. On October 1, Schmid said, "We have a very simple and crisp mandate, and that's stable prices and full employment, and we just haven't fulfilled our promise on the inflation side."
• 07:00 PM Dallas Fed President Logan (FOMC voter) speaks: Dallas Fed President Lorie Logan will moderate a Q&A with former Bank of Mexico Governor Agustin Carstens. On October 1, Logan characterized the hike at the September meeting as "an important first step" in tightening policy but added, "Still, I currently estimate the target range needs to rise an additional 50 basis points or more to appropriately balance the outlook and risks for our dual mandate goals."

Wednesday, October 7 

• 02:00 PM FOMC meeting minutes, September 15-16 meeting: The September FOMC meeting was more hawkish than we expected. The dots showed a 16-2 majority projected at least one more hike this year, the median funds rate projection remained quite elevated through 2029, and the median neutral rate dot rose from 3.06% to 3.25%. The median SEP forecast showed substantially higher core PCE inflation in 2026 at 3.4% Q4/Q4 (vs. our current forecast of 3.0%) than now looks likely after last week's methodological revisions. We will look for details in the minutes on the assumptions underlying participants’ economic forecasts and views of the balance of risks at the time. 

Thursday, October 8 

• 04:30 AM Fed Governor Waller speaks; Fed Governor Christopher Waller will speak at the Central Bank of the Republic of Turkiye's İstanbul Economic Forum on the economic outlook. Speech text and Q&A are expected. 
• 08:30 AM Initial jobless claims, week ended October 3 (GS 200k, consensus 200k, last 197k); Continuing jobless claims, week ended September 26 (consensus 1,695k, last 1,701k)
• 10:00 AM Wholesale inventories, August final (consensus +0.7%, last +0.7%) 
• 01:40 PM St. Louis Fed President Musalem (FOMC non-voter) speaks; St. Louis Fed President Alberto Musalem will speak on the US economy and monetary policy at a Bloomberg event. Q&A is expected. On September 21, Musalem said, "I think it's crucial that policy puts a meaningful restraint on inflation," but added that "earlier and incremental policy firming is better and less disruptive than later and larger and potentially more abrupt policy action."

Friday, October 9 

• 10:00 AM University of Michigan consumer sentiment, October preliminary (GS 47.0, consensus 47.7, last 48.1); University of Michigan 5-10-year inflation expectations, October preliminary (GS 3.4%, last 3.4%)
• 04:00 PM Boston Fed President Collins (FOMC non-voter) speaks; Boston Fed President Susan Collins will give brief remarks at a conference at the University of Michigan's Ford School of Public Policy. Speech text is expected. On September 22, President Collins said that she supported the decision to raise the fed funds rate at the September FOMC meeting, adding that “a somewhat more restrictive fed funds rate will help ensure that inflation durably returns to target.”

Source: DB, Goldman

Tyler Durden Mon, 10/05/2026 - 12:49

Education Department Calls For Transparency And Tolerance... Teacher Unions Cry Foul

Authored by Jonathan Turley via JonathanTurley.org,

The decline of higher education into an ideological echo chamber has been widely discussed on this and other sites. Polls show record lows in the public trust in our universities and colleges as revenues decline and closures increase. Secretary of Education Linda McMahon responded to this meltdown with a common-sense call for greater transparency and tolerance.

The response from teacher unions has been nothing short of hysteria, led by Randi Weingarten at the American Federation of Teachers (AFT) and Todd Wolfson at the American Association of University Professors (AAUP) - two of the most polarizing and political figures in teaching.

Secretary McMahon released a policy statement titled "National Call to Action to University Presidents and Governing Boards." I encourage you to read it. Few Americans would disagree with the call for universities to post policies on how they can achieve greater intellectual diversity and openness in both admissions and hiring.

Not surprisingly, the AFT and AAUP went into a full cardiac arrest at the notion that universities would adopt such policies, let alone work to restore integrity and balance to higher education.

In a public letter, they denounced the policy as "galling." The letter was a telling moment from the two organizations most responsible for the politicization of education.

The AFT and AAUP merged not long ago, destroying the AAUP's traditional role as a neutral advocate for academic freedom. Under Wolfson, the organization has become blatantly political, even abandoning its long apolitical stance and issuing its first political endorsement this year. It was for radical Abdul El-Sayed in Michigan.

I recently debated Todd Wolfson, President of the American Association of University Professors (AAUP), over the loss of institutional neutrality in higher education. In the debate, I raised AAUP's own abandonment of neutrality principles, which Wolfson acknowledged. While the viewers overwhelmingly supported a return to neutrality principles, Wolfson was undeterred.

The alliance with AFT and Weingarten is crushingly predictable. Weingarten personifies what I have called the "education cartel," where teacher unions receive massive contracts and pension agreements from Democratic allies and then turn around and send massive political contributions to those same allies. The losers in this symbiotic relationship are of course the students and their families.

Weingarten is "credited" with turning the teachers' union into an extension of the Democratic Party, often appearing at political rallies with her signature high-volume screeds:

As public support and revenue for both public education and higher education plummet, these figures are doubling down. The last thing that they want to see is the restoration of neutrality or balance. That is why a policy calling for such reforms is so anathema to them. These organizations are now political organizations that use their dues to pursue radical agendas.

I previously criticized the selection of Wolfson, who promised to make the AAUP more of a "fighting organization" for liberal causes. A Rutgers University anthropologist and former union leader, Wolfson is a political activist who doubled down on the ideological intolerance that now defines higher education.

As promised, the AAUP quickly became a more radical and activist organization. It adopted an anti-Israel boycott policy and unleashed attacks on Trump supporters as "fascists." It has targeted civics centers as conservative breeding grounds. Trinity College Professor Isaac Kamola, the director of the AAUP's Center for the Defense of Academic Freedom (CDAF), explains that they want to unleash "naming and shaming and discrediting and undermining the legitimacy" of such programs.

So, as trust in higher education hits new lows, the AAUP is accelerating that decline by doubling down on ideological bias and political activism. In reality, the AAUP represents only a small fraction of university professors but is often viewed as speaking for the teaching academy as a whole.

I have previously written about the similar liberal agenda of the American Bar Association despite plunging membership among lawyers. The ABA now represents just 17 percent of the bar.

The AAUP currently has roughly 50,000 members. There are an estimated 1.5 million university and college professors in the United States. Both the ABA and AAUP have become captive to the most ideological elements of their membership. That agenda has overwhelmed the original apolitical mission of these groups.

The loss of the AAUP as a neutral arbiter for academic freedom is tremendous. As Wolfson acknowledged in our debate, it was once a voice for neutrality, avoiding ideological and political causes. It was central to the articulation of neutrality principles and core academic freedom values. We need such an organization now more than ever.

Jonathan Turley is a law professor and the New York Times best-selling author of "Rage and the Republic: The Unfinished Story of the American Revolution."

Tyler Durden Mon, 10/05/2026 - 12:40

 

 

The transcript from this week’s MiB: Omar Aguilar, CEO and CIO of Schwab Asset Management, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

 

~~~

Transcript: Omar Aguilar

President, CEO and Chief Investment Officer, Schwab Asset Management

Masters in Business with Barry Ritholtz · Bloomberg Radio

[00:00:00]  BARRY RITHOLTZ: I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Omar Aguilar. He is President, CEO, and Chief Investment Officer of Schwab Asset Management.

They run over a trillion dollars across a hundred different ETFs, mutual funds, and separately managed account strategies. He also runs the Schwab Center for Financial Research and sits on the firm’s executive council. He joined Schwab in 2011, specializing in equities and multi-asset strategy. Schwab’s total assets are over $13 trillion, and its asset-weighted expense ratio of eight basis points is amongst the lowest in the fund industry.

I thought this conversation was fascinating, and I think you will also. With no further ado, Schwab’s Omar Aguilar.

Omar Aguilar, welcome to Bloomberg.

[00:01:08]  OMAR AGUILAR: It’s a pleasure to be here with you, Barry.

[00:01:10]  BARRY RITHOLTZ: It’s a pleasure to have you. So I want to get into your career and some of your conversations about what’s going on in the market today and what’s happening at Schwab, but you have such a fascinating background, I have to start there. Bachelor’s in actuarial science, then a master’s in applied statistics from the Institute of Technology in Mexico City.

Then you come to the US, and at Duke you’re a Fulbright Scholar, where you get both a master’s in statistics and a PhD in decision sciences. Am I getting that right? It sounds like you were planning for a career in academia.

[00:01:51]  OMAR AGUILAR: It is true. And actually, in my last year in my PhD program, I did apply for a couple of academic jobs before I was lucky enough to basically get to Wall Street as an analyst.

[00:02:03]  BARRY RITHOLTZ: Yeah. So your first gig was — was it at Merrill Lynch? Was it Bankers Trust?

[00:02:07]  OMAR AGUILAR: Bankers Trust, and then Merrill Lynch.

[00:02:08]  BARRY RITHOLTZ: You have this deep quant research background. What did you do when you were first starting at Bankers Trust and then Merrill Lynch?

[00:02:18]  OMAR AGUILAR: Well, if you recall the degree that you mentioned, my dissertation and the work that I did was in how to use statistical models. Now they’re called data science. Back then it was statistics — how to use those models for making decisions. The whole process of decision under uncertainty was the whole research that I did.

And we applied that in particular to areas like currencies, equity, asset allocation, and I was hired at Bankers Trust to develop those models. So I call that — before any AI or anything else, they were just quantitative models that were able to help people be faster to understand how people make decisions.

[00:03:08]  BARRY RITHOLTZ: Hmm. And I don’t remember if it was the PhD paper or the 2001 paper that is still one of the most cited papers in quantitative research. How did you jump from Bankers Trust to Merrill Lynch? When did that transition happen?

[00:03:23]  OMAR AGUILAR: Well, if you follow the path of my background, a lot of that is related to the activities on Wall Street, because there were a series of mergers and events that happened that took me to where I am today. Bankers Trust was bought by Deutsche Bank, and at that point the group that I was part of was lifted out to join Merrill Lynch. Merrill Lynch Investment Management was starting to build their institutional business, and that’s where we became a really nice fit. Unfortunately, September 11 happened, 25 years ago.

And then that basically took us to create the private bank asset management services for Lehman Brothers, which wanted to branch out into the asset management business for their wealthy clients. And then from there, it started to get a little bit sensitive in terms of the Lehman business. So I had the opportunity to work with a former colleague from Bankers Trust at ING to basically rebuild their quantitative and systematic investment processes. So that was all related to activities that happened through the Wall Street acquisitions, events, and so forth.

[00:04:33]  BARRY RITHOLTZ: And ING, now better known as Voya — that was $20 billion across 15 strategies, including active, index, enhanced index, pensions, variable annuities, and mutual funds. Once you stood that up and got that to a reasonable size — was Lehman before that or after that?

[00:04:55]  OMAR AGUILAR: That was before. That was before. We were able to build a lot of these things at Lehman Brothers. It goes back to a lot of what my philosophy is: you have to be in a place where you can marry distribution with manufacturing.

That’s what we believe asset management success relies on. ING had very good distribution, and our idea was to build these more institutional-type, scalable businesses using quantitative tools and technology to be able to deliver that to different folks. And again, unfortunately, we were in the middle of the global financial crisis in 2008, which basically put a stop to every activity across New York and Wall Street and everything else. Right.

And that gave me the opportunity to go back to my academic roots and start working at Financial Engines with a lot of Stanford academics, headed by Bill Sharpe —

[00:05:48]  BARRY RITHOLTZ: To say nothing of the Nobel laureate, Bill Sharpe. I just want to clarify one thing.

At Lehman Brothers, the quant research you were doing, was that for alternative investment management or for public equities?

[00:05:59]  OMAR AGUILAR: For both. It was dedicated to building asset allocation models for the private bank. And it was the first time that we were able to build a set of strategies that included alternative investments. So we had private equity, private real estate, fund of hedge funds, and that was the whole concept of what we wanted to do for wealthy clients back then.

[00:06:20]  BARRY RITHOLTZ: Hmm. And then at Financial Engines, it’s $40 billion in defined contribution plan sponsors. I’m fascinated by Bill Sharpe’s work. I was fortunate enough to interview him about 10 years ago. How did his thinking influence your approach to portfolio management and retirement planning?

[00:06:41]  OMAR AGUILAR: Well, going back to this concept of behavioral economics, Bill and the economists at Stanford have been at the forefront of merging these concepts of how do we create markets and invest in markets that are not necessarily efficient in the short run, but in the long run they sort of are. Bill has always been in this idea of capital efficiency: in the long run, it’s better to do the buy and hold and stay put at a low cost, as opposed to trying to go in and out of the market. The whole concept of market timing, and avoiding market timing, was sort of the premise of everything. And that fits very well for 401(k)s, for retirement assets, for pensions, where strategic asset allocation is what really drives your long-term results.

So that was at the core of what we did at Financial Engines, and it’s still at the core of the philosophy that we have at Schwab.

[00:07:31]  BARRY RITHOLTZ: So I recall one of the most fascinating things, of many really interesting things Sharpe had said, was the question of the annual 4% drawdown in retirement as the thorniest problem in all of finance. I’ve read that you’ve said 4% for many people doesn’t make any sense. Do you want to address that?

[00:07:53]  OMAR AGUILAR: Yeah, well, we did a lot of research, and the need for income is not a static number, and it’s not necessarily something where you can rely specifically on one thing. And what we have found is the 4% rule became just like a number that somebody picked out of a hat and said, 4% works as long as you can generate those. And a lot of that had to do with — if you think about it, depending on the level of interest rates, 4% may be — it is right now probably less than the risk-free rate. So there’s no reason why you have to stay with 4%.

So it is really a dynamic process that depends on the needs of the moment, inflation numbers, real growth, and the level of rates that may affect what is the drawdown that you need to survive.

[00:08:43]  BARRY RITHOLTZ: To say nothing of — when 4% was picked, the longevity projections were so much less than they are today. If you are 68 and relatively healthy, you’ve got a good shot at another 15, 20, 25 years of living on that pile of capital. That wasn’t true 30-plus years ago.

[00:09:04]  OMAR AGUILAR: Absolutely, Barry. And a lot of the challenges that we face — and this is something that we worked on at Financial Engines — is getting into the habit of early saving, because in the generation of Gen X and any of these generations, there are no pensions like back in the day, right? So people rely on 401(k)s. So the ability for people to use that savings and the matching of the companies is critical for them to get to a point where they can retire.

Unfortunately, during all the research we realized that the majority of Americans don’t have enough to retire, for precisely what you said: it’s more than 25 years of liabilities that they will have ahead, and with 4% drawdowns they will run out of money very quickly before they can actually get there, especially when you have inflation impacting.

[00:09:57]  BARRY RITHOLTZ: So what’s really so fascinating about your background: you’re not only a quant, but, unusually, you are a big follower of behavioral finance and thinking about decision making. You lead Schwab’s BeFi program for advisors, including diagnostic coaching tools, and you run the BeFi Barometer study. How does someone who’s that mathy, and a longstanding statistics, probability, and quant student, fall into behavioral finance?

[00:10:30]  OMAR AGUILAR: Well, it is a great story, because the area of statistics that was part of my dissertation is an area of statistics that is called Bayesian statistics, and Bayesian statistics is based on a theorem by Reverend Thomas Bayes, way back when. What it does, it basically combines information that you have today, that is called a prior — that could be your experience — and then uses all available data to update your experience, which is really our life. If you just think about it without necessarily creating a model, just think about it: you have an experience, you know what you need to do.

I always give the example of trying to get to the airport. So you have your prior knowledge about how — your own utility function — how early you want to get to the airport, how difficult that may be, the potential problems, the probability you miss the plane, and everybody has a different way to approach it. Two people with the same background, everything else: one may actually want to get there three hours ahead, the other person may want to get there just five minutes before they start boarding. They both take different types of risks, updating that information over time.

That’s basically how the decision process is, and that’s probability at its core. And that’s pretty much what Bayes does.

[00:11:46]  BARRY RITHOLTZ: I wonder how Bayes would’ve thought about this if he was married to my wife, who doesn’t wanna miss a plane. We’ll get to the airport two hours early, bring a book. That’s just how it is. But it’s interesting that people have very different approaches to that — how much time do they wanna waste versus the headache of missing a plane. So I’m curious, how does your education in decision science shape the way you think about the big issues like markets, risk, and investor behavior?

[00:12:18]  OMAR AGUILAR: Yeah, well, I have always been passionate about providing tools and services to investors to help them enhance their financial lives. That’s at the core of Schwab’s values. That’s at the core of what we do in asset management. And a big part of that, Barry, includes the fact that we want to provide information to clients so that they can make better decisions in their process.

So again, the whole idea of try not to time the market, try to look at your long-term investments, try to stay calm when things are — all that goes back to the core of behavior, because we’re all humans. All of us have evolved over time with two parts of our brains. One is the amygdala, which is the more primitive version of us that allows us to react and fly to safety whenever we see a problem, and allows us to be emotional about things. And then there’s the other part, the front of the brain, that allows us to be rational and allows us to use data to make decisions. That combination sounds very familiar to the Bayes theorem — one that is more gut feeling, the other one that is more analytical and more brain-oriented — and they get combined, and every day they’re battling with each other.

So for us, being able to provide the context for clients that are more emotional, with the information they need to adapt to their investment strategy so that they don’t panic when the market goes down, and give them a process that is quantitative in nature so that they can stay the course, is very important. On the other hand, we have other clients that are more analytical in nature. They think they can outsmart the market, they think they know the answers, and we give them information and data so that they can inform and update their own beliefs so that they can make better decisions. So arming clients with the tools and products and solutions to help them make better decisions is the core of what we do.

[00:14:13]  BARRY RITHOLTZ: A little bit of Thinking, Fast and Slow. Bill Bernstein, the neurologist, had said — you mentioned the amygdala — our whole limbic system is what underlies fight or flight. If we don’t get that under control, we will die poor.

And it really is quite fascinating in actual usage. When you’re in the real world, when you’re advising clients and investors about their various behavioral foibles and errors, how do you get them to stay on the straight and narrow? What tools does Schwab use to prevent investors from shooting themselves in the foot?

[00:14:56]  OMAR AGUILAR: Well, two things we do: first, we do a lot of education through our Center for Financial Research. We also provide a lot of training to our wealth advisors and our financial consultants on precisely the tools that you mentioned at the beginning. We call it this very cute name, Biagnostics, which is supposed to diagnose your biases — our marketing team was smart enough to put it together. So it is a diagnosis tool for your biases.

And the reality is that all of us have biases one way or another. So the tools allow financial consultants to get to know their clients better. We have data that basically says that the more information we get from the client on their biases allows us to build longer relationships with them. And at the core of what we do, we simplify it by saying, well, we have to balance their needs and what they want. There’s a lot of clients — they tell you what they want, and you as a financial professional know what they need, and we need to put them together.

If you think about it in the world of AI, the need is basically what the computer is gonna tell you. The computer is gonna tell you this is the right allocation, this is what you need to do. But the want is what the client wants to have. And merging those two is the critical part to maintain and have a sustainable long-term investment strategy.

[00:16:15]  BARRY RITHOLTZ: Huh, really, really interesting. Coming up, we continue our conversation with Omar Aguilar, President, CEO, and CIO of Schwab Asset Management, talking about how he helped build the asset management group to over a trillion dollars in client assets. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My extra special guest today is Omar Aguilar. He is CEO, CIO, and President of Schwab Asset Management, helping to run over a trillion dollars of Schwab’s 13 trillion in client assets. So let’s talk a little bit about your time at Schwab. You joined Schwab — gee, it’s 15 years already — to run equities and multi-asset strategies.

Back in 2011, after the financial crisis, the fund business was a fraction of its current size. What was the mandate when you first joined? Was it simply, hey, build this up? Or was it a little more comprehensive than that?

[00:17:21]  OMAR AGUILAR: It was more comprehensive. The belief, and the reason why I joined Schwab, was that we had a project that was to use technology, use systematic strategies to create and use scale. The business of this was to try to provide a different set of tools for clients to be able to grow their wealth. That was at the time right after the financial crisis; there was a significant amount of apprehension in the market of what was gonna happen, because the experience that people had was bad.

So there were a lot of behavioral aspects and biases of risk aversion that happened during that time. So what we ended up doing philosophically was saying, all right, we’ll start with the foundations of how the asset management business is gonna grow and run for the future. It has to be transparent. Clients define transparency as being a key part. A big value of ours is making it accessible.

So all the solutions and all the products and services had to be something that was available for retail clients, and it had to be also low cost. Those three components were key components of what we have. We said we don’t wanna have a superstore where every single product is gonna be available on our shelves. What we’re gonna manufacture is something that we call core, for every client.

So we built a set of ETFs, a set of beta exposures, and a set of smart beta exposures that allow clients to define their core portfolio, and said the core of your strategy should have the most transparency, the most liquidity, the lowest possible cost, and an accessible route for you. So we built a franchise of Schwab ETFs, and today they’re still the fifth-largest ETF manufacturer in the world, which is sort of a big part of the trademark of the wave of asset management that I was part of at the beginning. At the same time, we said, what are the other components that will be important for clients going forward? Income will be a critical part. We know baby boomers are in the process of retiring; Gen X will come right behind them.

And in that sense, our clients — particularly the clients that you have — will require income solutions. So we built dividend strategies. We built liquidity-based money market funds that were targeted. At the time, interest rates were zero or negative, so there was really nothing there.

But we knew at some point, like it is now, the yields were gonna go up and income was gonna be able to generate. It took us probably 10 years before we were comfortable issuing more bonds. But that was part of the plan. And at the same time we said, okay, well, we also need to start building technology to offer these not just in ETFs and mutual funds, but also in managed accounts, so that then we use technology to start bringing these customizations as part of that future generation.

So that vision is what got us to what it is today. Now $1.9 trillion in assets.

[00:20:22]  BARRY RITHOLTZ: $1.9 trillion. I’ve been saying over a trillion. It’s really almost 2 trillion. That’s interesting.

So you’re there for a full decade before you take on the CEO job in 2022, but unusually, you kept the CIO title. They’re such different jobs. How do you split your time? How do you wear both hats?

Does that help, being able to see it from both an investment perspective and a business perspective?

[00:20:51]  OMAR AGUILAR: It has been the best job I’ve ever had, Barry. And a lot of that is because the experience I have as an investor and as a researcher, which is the core of my skills and the core of my experiences on research, allows me to understand the investment and allows me to understand the risk we’re taking anytime that we create a new product or a new solution, and at the same time allows me to learn a lot about our clients and our business. I’ve been fortunate enough to have good mentors like Rick Wurster, who is our current CEO, who can combine the ability to run investment management companies with a business setting that allows us to run it efficiently. And that to me has been a great learning, and it’s been a great thing for me.

[00:21:38]  BARRY RITHOLTZ: So you mentioned the word efficiency, and as I discussed earlier, you have one of the lowest fee rates for mutual funds and ETFs, at eight basis points. How does that efficiency and scale operate? How do you take advantage of the fact that Schwab is $13, $14 trillion? It’s a behemoth; it’s one of the biggest asset managers and custodians in the world. How do you take advantage of that economy of scale?

[00:22:14]  OMAR AGUILAR: Well, I’ll tell you the core of this, and then I’ll give you one specific anecdote of one of our products we’re very proud of. At the core of what we offer at Schwab, it’s always been that we want clients to have alternatives, to have options to pick. So we never go to any of our clients to try to tell them that they have to buy the proprietary products that are run by my group. We basically give them third-party options. And not too far in the past, we basically removed all commissions across all products altogether.

[00:22:47]  BARRY RITHOLTZ: Yeah, that was less than 10 years ago.

[00:22:49]  OMAR AGUILAR: That was less than 10 years ago. So clients can actually go and buy and sell products from our competitors in asset management as long as they want. And we have the mandate to basically offer everything that we have, because our philosophy, Barry, is that if we create high-quality products at a lower cost, with high transparency, with accessibility, our clients will stay with us and will build trust, because we’re offering options for people to take on some other things. And that has given us the opportunity to grow the business and grow the market share on our own platform, but also off platform.

Not only do we serve clients of Schwab, but clients outside of Schwab also get access to our products. An example is our ETFs. We roughly get 35% of net new assets in our ETFs from outside of Schwab, which is just the core of the quality of the products that have the accessibility, that have the efficiency and the scale that allow us to create that product.

The product that I set aside as an anecdote is our dividend product. Our dividend product basically started back when I joined in 2011, and 15 years later it became the largest dividend ETF in the world.

[00:23:47]  BARRY RITHOLTZ: Wow.

[00:23:47]  OMAR AGUILAR: And that’s over a hundred —

[00:24:03]  BARRY RITHOLTZ: What’s the assets?

[00:24:03]  OMAR AGUILAR: That’s over a hundred billion dollars now.

[00:24:03]  BARRY RITHOLTZ: Wow.

[00:24:03]  OMAR AGUILAR: And at the end, it’s among the lowest cost, but it’s not the lowest cost, and it’s also not the one with the highest yield, which is the reason why we created this: to have a high-quality set of dividend payers that basically build that structure, a hundred names.

And that alone, because of the high-quality investments and the results that it has created — the consistency basically attracted more clients to it.

[00:24:31]  BARRY RITHOLTZ: Yeah. The very high yield amongst dividends typically means the price has recently come way down, which is why the yield is high, and typically that means that dividend is about to get cut. I didn’t realize that product was over a hundred billion dollars, but it raises a really interesting point.

You sit at a fairly unique perch. You’re at the crossroads of three major shifts in asset management over the past few decades: the rise of quantitative investing, the move, at least in part, from active to indexing, and the role of behavioral science to improve investor decision making and outcomes. And you are right in the middle of all three of those.

Tell us a little bit about how those major vectors have changed how all of us invest.

[00:25:27]  OMAR AGUILAR: Yeah. Well, I think a lot of things have continued to evolve in a certain way because of capital market efficiency. It goes back to Bill Sharpe’s world and theories, and then also the availability of information that clients have today that they didn’t have when I started my days at Bankers Trust. The availability of information that you get today is instant, and the response they have, and the different anomalies that exist. So what we have observed — and a lot of the core pieces of what you mentioned — because of the rise of technology, the use of technology, you can actually create more efficient processes. Now we’re in the next wave, because AI is gonna improve that even further.

And what we’re doing — we have seen the trend that goes from active into passive. We have seen the trend where people prefer lower-cost beta solutions. And then we also see the rise of alternative investments, and we also see the rise of AI as part of the process. So one of the initiatives that we have now is how do we incorporate AI to help clients use that information and those tools to make better decisions.

So go back to decision processes, go back to Bayes theorem: how do we blend the information that the client is gonna put into AI? It’s almost like the prompt that you put into all these agents. And then how do you blend that so that the answer that you get is the mixture of what we believe is the right answer for the client, based on our research, and what the client is looking for.

[00:26:59]  BARRY RITHOLTZ: Huh. Really, really interesting. You mentioned alternatives. I’m curious, given your background when you were at Lehman Brothers doing the quant work with alts, I’m curious about your view generally of alts. Obviously there’s been a lot of news this past year, especially in private debt, private credit, and then there’s been this sort of nascent push to move alternatives into 401(k)s.

Give us your perspective from Schwab about alternatives.

[00:27:30]  OMAR AGUILAR: Yes. Well, we’re pretty constructive on alternatives. We just completed the acquisition of Forge Global a few months back. Our belief is that for certain clients — mostly mass affluent, wealthy clients — there is this need that requires additional levels of diversification and potentially opportunities. I think the biggest misconception, even with the work that we have seen and all the headlines we have seen on private credit, is that it has not ever been a credit issue.

It has always been a misconception of liquidity. And I think that liquidity education is critical, especially as the market goes down towards the mass affluent and potentially even lower, to retail, which is a question mark. But that is the big component of how do you establish — if you think about the high-yield market, the public market, you can actually see it’s transparent, you can see what it is. There are more delinquencies and more credit events there than there are in the private market. So in private credit, when you actually look at what the size of that market is and what the size of the potential credit issues is, it’s very minimal, or lower than, in some cases, the high-yield market at the worst possible time.

So the problem is the understanding that when you go into private assets and alternatives, there is a liquidity premium that you’re taking advantage of. That means that your money’s not gonna be available the next day. That conversation is what really brings the headlines, because a lot of the challenges that we have seen in some of the funds that are available is because people are requesting their money and they’re not getting the full money back.

[00:29:10]  BARRY RITHOLTZ: I’m always fascinated when I watch that happen, and I always want to grab people and say, which part of a seven-year lockup was confusing? You’re theoretically, potentially getting higher returns because you’re not asking for that liquidity. It seems that there’s a little bit of an education problem, with people thinking that they’re gonna get the best of both worlds: high returns, yet still be liquid. How do you read that?

[00:29:41]  OMAR AGUILAR: Absolutely. And I think the biggest confusion, Barry, is people are trying to compare investing in public securities or public markets and private as if they were exactly the same. And even when you have quants like my team trying to look at backtests or trying to compare them, trying to put together efficient frontiers, they’re not comparable because of precisely the liquidity component that is in it. If you look at, say, private equity returns or private credit returns, they tend to be smoother over time, and they tend to have a lag when the markets go down. Usually the marks on private equity take two or three quarters before they go down.

And a lot of that mistiming is precisely liquidity. It’s precisely how these things operate on valuation. So that component is something that needs to be clearly explained so that people understand this. Now, the big part of what we’re doing at Schwab, going back to part of your question, is we also believe that especially now there is an opportunity for people to have access to those markets that didn’t have access before.

And the reason why we have the Forge marketplace is there are a lot of companies that are pre-IPO, that are in the process — they’re probably gonna stay private for longer — but whose liquidity needs of those employees or founders are high, because they may be in a great company that at some point will IPO, but right now they’re sitting on shares that they cannot use. Right? On the other hand, there’s clients that would love to have access to that, but they don’t have access because in the past they were never available. So the Forge marketplace allows us to create that supply and demand, so that employees and founders can actually tender their shares in a vehicle, so that then all clients can get access to those. So you give access to private investments, and at the same time you provide liquidity for those that desire it.

[00:31:35]  BARRY RITHOLTZ: So not public and not liquid, but semi-private and semi-liquid. Is that a good way to describe it?

[00:31:40]  OMAR AGUILAR: That is a good way to describe it. But it’s sort of interesting, because if you think about the amount of wealth that has been created in these private markets over the last decade, it has been fairly concentrated in maybe 1% of the population or less. On the other hand, you actually see the amount of money that is in public equities that could access that. The view of Schwab over time is: can we give access, can we close that gap for the right client?

It’s not for everybody. So that actually they can have that a little bit better.

[00:32:08]  BARRY RITHOLTZ: Will these end up in a 401(k) eventually? Because as much as some people have complained — they’ve run out of institutions to sell it to, let’s fob it off on retail — it seems that for people who have a 10-, 20-, 30-year investment horizon, that is a fairly rational place for an illiquid investment. What are your thoughts?

[00:32:32]  OMAR AGUILAR: Yeah, our view is, for retirement assets — and this is new — most 401(k) platforms will have access to what is called a brokerage window. And in that brokerage window there is a significant amount of options that you can use, including some of these semi-liquid vehicles that people can use in their 401(k). The biggest challenge here is, for those clients that understand the liquidity that goes with it and the duration that goes into that, it is clearly a good fit. For the majority of clients in a 401(k), they only want to grow.

And if you actually think about it, the biggest challenge with alternative investments still today is that the cost is much higher. As we said, part of our philosophy — if you add those fees over 20 years, you’re already behind the market just by paying those fixed fees. And those you gotta pay. So in our view, if you stay in these public markets when you grow your portfolio — there is this opportunity of using the brokerage window for the right client, where it actually fits better.

But overall, just because of the cost of entry, in a 401(k) over that long duration it seems to be still not the right fit for the average 401(k).

[00:33:44]  BARRY RITHOLTZ: I couldn’t agree more. Coming up, we continue our conversation with Omar Aguilar, CEO and CIO of Schwab Asset Management, talking about the current state of markets today. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. My extra special guest today is Omar Aguilar. He’s CEO and CIO at Schwab Asset Management, running nearly 2 trillion of Schwab’s over 13 trillion in client assets. So let’s talk a little bit about the state of the world and what’s going on in the markets. Let’s jump right into artificial intelligence. From Schwab’s perspective, how do you see AI changing things within the wealth management business, be it portfolio construction, financial planning, communication, education, even the economics of individualized advice?

[00:34:50]  OMAR AGUILAR: Well, it’s making its way very quickly, and the adoption is something where we all in this business started to get on it. The way that we describe it is, this is like the third wave of AI in our society. It started with the hyperscalers — it started with that piece of big investments, capital expenditures going into hyperscalers. It moved to infrastructure, with data centers and semiconductors in there. And now we’re going to that adoption phase that includes a lot of sectors, including financials, including healthcare.

In our case at Schwab, we’re doing this in many ways. One is efficiency: making AI tools efficient for all our employees so that they can actually use their time to do something else for client service. We continue to support our clients. We have been, over time at Schwab, always committed to pick up the phone as fast as we can and give them the service that we provide.

And many of these things will basically get the benefit of AI. We continue to work on analytics — AI analytics that will allow our clients to be able to access their accounts and look at the reports and look at the impact of the markets on their accounts using some of these tools. And for research, we are now in the process where all the research that comes from our Center for Financial Research is now being packaged. So we have what we call the research assistant, which allows clients and financial consultants to get access to: okay, what happened in 2022, what happened in 2023, what did we think when the Fed first made decisions, what was the situation we had?

And then being able to have that information available very quickly to understand what it is. So AI in the adoption phase is clearly something that we’re embracing and we’re investing in, and I know all our peers are doing that too.

[00:36:38]  BARRY RITHOLTZ: So about a decade ago, maybe a little longer, when the robo-advisors, the digital platforms, first rose up, there was sort of a concern: oh, this is gonna replace individual advisors. That turned out not to happen. People, especially wealthy people, wanna be able to pick up the phone and talk to another human being. And yet we’ve seen the same sort of thing play out with AI again: hey, what is this gonna replace?

Is this gonna replace analysts and strategists? Is it gonna replace portfolio managers? And what about advisors? Do you see a similar thing playing out, where middle class and high-net-worth investors want a person on the other end of the phone? Or if it could be faster, cheaper, better, will people embrace AI for advice?

[00:37:34]  OMAR AGUILAR: Well, it varies by generation, and it varies by many parts of the segments of the market. Our philosophy is, and it’s still today, that the world of personalized relationships will be the key to success in the future. And that cannot be replaced by AI. When you get to see somebody, when you get to talk to somebody, no matter what it is, that component of establishing the relationship — because we’re humans — we’ll never be able to replace with AI.

What AI will do is basically create more efficiencies on tasks and things that financial advisors normally use their time on today, to build better relationships. So if they were using time for creating reports, for doing analytics, for doing other things, and that took 50% of the time, and you can reduce that to say 10%, then now you save 40% of the time for building more relationships, getting to know the client better, getting to understand their biases to see how they can help them better. So that is what we see as the trend going forward, where the combination of AI tools — and I’ll mention specifically AI tools — with the human expertise and relationship building is basically the formula for the future. And to your point, yes, people thought the robo-advisor was gonna take over, and indeed it worked very well for many clients, but it didn’t replace the relationship building for financial consultants.

[00:39:02]  BARRY RITHOLTZ: Yeah, some of those AI tools — just something as simple as note taking during a Zoom call. I used to watch people not be able to pay attention ’cause they’re jotting stuff down, or there’s a third person on the call, a whole nother human taking notes. And it just has made things so much easier and more efficient. But again, not replacing individuals.

Let’s turn our attention to the markets. Your mid-year outlook said that earnings are driving the bull market, but the leadership is a little narrow. It’s mostly been AI and energy. First, is that still the case today?

And second, when does that concentration become a risk factor?

[00:39:46]  OMAR AGUILAR: Well, the concentration of the Mag Seven has been an issue for the last two years. We started to see rotation out of the large-cap, mega-cap names in tech at the end of last year going into this year. And it comes and goes. We still believe there’s significant concentration, particularly in technology, but we started to see that rotation going into other parts of the market, which is very healthy.

And we’ve seen, even on days where the NASDAQ is down, the S&P maintains and stays in the right place. A lot of that has to do with the fact that some other sectors are starting to carry the weight — things that were a little better value than tech. And I think that started to — so the breadth became better in the first part of the year. I’m a little more worried, from what I’ve seen after that, that the breadth is starting to get narrow again, and we’re starting to see that momentum trade taking on a little bit of a second life, and I think that’s —

[00:40:47]  BARRY RITHOLTZ: It stumbled a bit in the middle of the year, the momentum.

[00:40:49]  OMAR AGUILAR: It stumbled a little bit, and that was, in our mind, there because we’ve been working with clients to try to diversify their concentrations, try to move assets to other parts of the market. And then it happened: momentum actually took a little bit of a hit. And then when you look at the last few weeks, you actually see that it is starting to recover. A lot of that is clearly because these companies have done really well earnings-wise.

They’re generating a significant amount of business, and they’re spending more capital on AI. But we believe that it’s healthy for people to continue to do the rotation and have opportunities to go outside of those.

[00:41:27]  BARRY RITHOLTZ: I’m glad you mentioned the CapEx cycle from AI. That’s been a really significant engine of growth for the past, I don’t know, five years. How much risk is embedded in that, and how can investors position around something — if you’ve underweighted the technology sector or the AI CapEx cycle, you’ve underperformed. How should investors think about this?

[00:41:55]  OMAR AGUILAR: Well, we have seen that continue, and we still believe that we’re not completely done. We believe that the CapEx cycle has extended, but what is good is it has extended beyond technology. When you look at the capital expenditures now going into other parts of the market, starting to grow — maybe not as big as what we had with tech, but it’s clearly over there. Now, what —

[00:42:17]  BARRY RITHOLTZ: What other sectors are you seeing?

[00:42:18]  OMAR AGUILAR: We’ve seen healthcare, we’ve seen financials, we’ve seen some of the industrials doing well on this and spending money on CapEx, which makes sense, right? They can make their products more efficient, they can make other things faster. And I think in a certain way that adoption has increased that capital expenditure setting. I think the question you have — what is gonna be interesting going into next year is that investors are gonna start trying to evaluate how much of that capital expenditure and that investment ended up being profitable.

And I think profitability going into next year will be a key metric to watch, because that’s gonna be where people will say, well, you’re spending all that money, you borrowed money to increase your CapEx for AI, but yet your return on investment is not working. So that is gonna be a really good test going into next year.

[00:43:07]  BARRY RITHOLTZ: So in 2024, there was a quote of yours: investors can expect 15 to 20% asset growth annually for seven years. That turned out to be true: in ’24 we were about 25%, and in ’25 we were about 25%. It’s early September, and we’re not that far away from 15%. So it looks like, barring any problems this year, you’re gonna go three for seven.

What was that number based on? That’s a pretty healthy return above what we’ve seen over the past 15 years, which has been a great bull market. What do you base this on?

[00:43:47]  OMAR AGUILAR: Well, our research always starts with the macro picture, where we see the economic cycle. And at the time we knew that we were in that sort of early-to-mid cycle that usually goes into an expansion. We were surprised, obviously, that the expansion continued. I think we never expected that it was gonna continue as far as it has so far.

And a lot of that is — and I would probably say I was the first one — if you look at any report that we produced, and most people produced, back in ’23, nobody mentioned AI. That came afterwards, and it moved very quickly. Had we known that, then instead of seven years, we would’ve said 10 years. Right? But that’s a big part of this.

But if you look at the macro picture, even going into that expansion, where you have a healthy economy growing — the nominal growth expectation for this year is still close to 6%, which is impressive. When you look at a labor market that is stable, when you look at the monetary policy and the fiscal stimulus going into the economy that allows us to extend that, and business investment, the credit market is healthy — everything that allows you to create that tailwind was working in the right place. Especially because, relative to the rest of the world, the US was looking incredibly attractive, and it was leading the charge, and it was clearly moving in the right direction, because we didn’t have the same issues that some other regions in the world had.

Obviously now we’re on that path where we’re basically getting close to the peak of the cycle, and from here it’s difficult to sustain, especially because the risk premium associated with higher rates is starting to take a little bit of the oxygen away from those risky assets. So our expectation is that we’re probably at the end of that seven-year run, and we think that at some point in the next year we’ll start to balance it out with both asset classes.

[00:45:43]  BARRY RITHOLTZ: Hmm. So you mentioned trade policy tends to hit the economy on a 12- to 18-month lag. The full impact won’t show up until sometime in 2026. Eighteen months ago was Liberation Day. So we are right in the heart of that. What are we seeing from trade policy?

How is it impacting the economy and inflation?

[00:46:07]  OMAR AGUILAR: It has had probably less impact than we all thought. It has an impact, and it has had an impact, but —

[00:46:15]  BARRY RITHOLTZ: A lot of exceptions and exemptions.

[00:46:17]  OMAR AGUILAR: A lot of exceptions, a lot of negotiations, and a lot of practical implementation, ’cause it’s one thing to set up a tariff, it’s one thing to set up certain components, but for that to be fully implemented and checked is more difficult to do — like the compliance associated with figuring out how the tariffs get paid and who does what. And especially because there have obviously been a lot of discussions, even with the Supreme Court, on how this gets reversed and how it gets implemented. That obviously lags the effect, but it’s very clear to us that any kind of tariff has an inflationary aspect. The biggest difference in what we have observed, at least so far, is companies have had very clean and very robust balance sheets.

So for many companies that were involved in that, even though their prices have increased — their inputs have been more expensive — they have been able to weather the storm without necessarily passing it all through to the consumers. That has started to change this year. And if you look at some of the cost of goods starting to get slowly, slowly higher, even though the inflation rate seems to be stable, the prices have gone up. And I think that’s basically part of the inflationary component that people actually feel.

[00:47:29]  BARRY RITHOLTZ: Stable at 3.5%. It’s not getting worse, it’s not going to 4 or 5%, but that still means prices are ticking up. Which — let’s talk a little bit about yield, which is directly related to inflation and the Fed rate. Earlier this year, the house view was that now was not the moment to reach for duration. Since you mentioned that, we’ve seen the 10-year move up substantially.

At what point do you lock in that longer duration and higher yield? Is it 6%? Is it 7%? When does it become too attractive to not lock it in?

[00:48:09]  OMAR AGUILAR: Right, yes, it’s true. Well, it turned out that our team that does a lot of the work on fixed income was very clear that there were two things that we didn’t want to pursue further. One is credit spreads were too tight; there was no reason for us to go too deep into credit. And the second is duration was too volatile and too risky.

And that has worked well so far this year. Now, when you start to get to the 10-year being at 4.8, close to 5%, that to us is starting to become a little bit more attractive than what it was before. Mostly because now you see the balancing of upside and downside, and actually you see — well, where do yields go from here when you actually have a good economy? Again, go back to the economy. Granted that we have this term premium affecting the long part of the curve, and we see the deficits obviously affecting that component, inflation expectations and the market itself will probably still keep a little lid on that 10-year. So we believe that staying in that sort of average duration, maybe below what typical benchmarks have, is still a pretty healthy component, and you can enjoy very nice yields with high quality.

Again, we still don’t think it’s time to take credit risk. So that is a big part of what we look through. We stay in the middle of the curve. Intermediate bonds with higher quality is the place where people can lock in very nice yields.

[00:49:32]  BARRY RITHOLTZ: Intermediate, seven to 10 years. Is that about right?

[00:49:32]  OMAR AGUILAR: Yes.

[00:49:32]  BARRY RITHOLTZ: So let’s talk a little bit about biases.

Since you spent so much of your career on behavioral finance and better decision making — last year, you said there are four dominant biases that seem to really be affecting investors today. I’m paraphrasing: herding around the Magnificent Seven, home country bias, recency bias, especially amongst young people, and confirmation bias. Tell us about those four. Why did you name those?

[00:50:08]  OMAR AGUILAR: Yeah, well, those four — and they continue into this year — it’s been fascinating to see. So herding is very clear: people follow the momentum trade; they love the momentum trade. And a big part of the help that we have is to make clients and investors understand that staying too concentrated — because the momentum trade works until it doesn’t, and then when it doesn’t, it basically could be very painful. So a very natural cognitive bias that people have is they don’t know how to sell their winners.

It’s impossible for them; when they see them on a run, they think that it’s never gonna end. And I think that’s a big part of our education, to try to help them take profits when you can, rebalance when you can. Rebalance is like a word they hear me say all the time. The second one is recency bias.

Recency bias is basically putting more weight on the recent events than on the entire history. That’s a very typical emotional bias. On days when there’s lots of volatility, people tend to say, oh my god, this is the end of the bull market, we gotta get out. And they forget about their fundamentals. Or on days when they see, oh, there’s another great earnings report by semiconductors — well, let’s go into that and put more money into it.

That recency bias, when you only look at the most recent information as your basis to do that, is something we try to understand, and that tends to work out when you actually look at longer horizons, when you look at more information and more data. Confirmation bias is my favorite. And this is the typical example: when you buy a new car, and then you start driving your car, and you start to see cars like yours everywhere, because your brain is basically trained to look for things that convince you that you’re making the right choice. And so confirmation bias — we have that especially in a bull market, when you have clients that call us and say, hey, I told you that stock was gonna go up.

It’s like, well, yeah, it was going up, but not for the reason you said; it went up for other reasons. Even though it didn’t have any fundamental reasons to it. Or, I wanna go into these particular asset classes. The typical example is Bitcoin. Bitcoin is one of those that was clearly in confirmation bias. When it was down at $16,000, people had doubts about how Bitcoin was gonna work; when it went up to 30,000,

people were like, oh yeah, this is the right thing. And they did the same thing again, with no basis other than the confirmation of themselves; they created their own theories on why that was happening. So that is another part that drives a lot of the market. And the fourth one — I forgot what the one was — home country bias. Home country bias is more like the safety component, where you prefer to stay in the US.

One of the challenges we have as a country is that we don’t have enough exposure to international markets. And there are great companies internationally; there are great opportunities to invest and diversify. But most investors tend to feel comfortable buying their stuff — what they’re good at, what they’re familiar with. And a lot of that is being tested a lot in the market, saying, well, if you think about the brands that you’re loyal to, right? You go to the supermarket and you buy the shampoo that you like, and you don’t want to change it, you don’t wanna do anything else, unless you wanna actually try something else.

So it’s this idea of diversification, and trying to understand that it’s not gonna always be the same. It’s actually something we try to teach our clients.

[00:53:31]  BARRY RITHOLTZ: And up to two or three years ago, the US was outperforming developed ex-US and emerging markets. The past few years we’ve seen international really come on strong.

[00:53:31]  OMAR AGUILAR: Correct.

[00:53:31]  BARRY RITHOLTZ: So if you were stuck with — I’m reluctant to say the recency effect — of seeing US outperformance, you might not even think to look overseas.

[00:53:52]  OMAR AGUILAR: Well, that was the combination, Barry, because the recency bias that says, well, the US has outperformed the international markets, combined with the home bias, basically will prevent any client from diversifying away from the US.

[00:54:04]  BARRY RITHOLTZ: Hmm. So I wanna stay with the biases. If you could persuade investors to think about adopting one rule to thwart their own biases before whenever the next bear market comes along, what might that rule be?

[00:54:24]  OMAR AGUILAR: Well, we don’t have one rule. We have three rules — three components.

[00:54:24]  BARRY RITHOLTZ: Okay.

[00:54:29]  OMAR AGUILAR: So we call it — and a lot of that has come from me, but it is clearly a big part of what our philosophy is — for clients to mitigate those biases. And it works for all kinds of clients. Stay invested. That’s number one.

It’s very important for people to try not to time the market. Stay invested is the first component. And we have lots of data over long periods, lots of cycles, that shows that staying invested is much better than trying to get in and out of the market at different times. Stay diversified.

That’s number two, diversification. Even though it’s like the old trick, it still works. And as I said before, the challenge with clients today, and the challenge for investors today, is they don’t realize the level of concentration until it’s too late. So having the rebalance, having a strategic asset allocation, trying to make sure that they follow that path, is very important.

If you think about it, if you put your portfolio together three years ago and you invested there and you kept it there and you didn’t touch it for three years, today you would be highly exposed to technology, just from the way the market dynamics are. So it is important to take a look and have an approach to rebalancing that allows you to get that diversification. And the third one is stay disciplined. Discipline basically creates a mechanism to have a systematic approach for those pieces.

So things that we discuss with our clients, especially with those that tend to be more emotionally biased, is to say, let’s set up the rules now, before we get into the action in the market. So if you see the market is down 5% one day, we already have the playbook. We already know what we need to do. We don’t have to panic; we don’t have to do a lot of things at that moment.

We already know exactly what we have to do and follow that discipline, whether it is rebalancing the portfolio, whether it is taking profits, whether it is buying some of the companies that may not be natural. And this is very typical — the example that I always provide is, if you had an equal-weighted strategy, well, if things started to get out of whack, you wanna get them back to equal weighted. And that’s sort of a natural thing; people like it because it’s like, yeah, I know that company went down, so I need to buy more. And that’s a little better approach. So stay invested, stay diversified, and stay disciplined.

[00:56:45]  BARRY RITHOLTZ: Last question before we get to our speed round, our favorite questions. What do you think investors are not thinking about or talking about today, but perhaps they should be? What topics — could be assets, geography, policy, data — what’s getting overlooked but really shouldn’t be?

[00:57:04]  OMAR AGUILAR: I think the main area where clients get distracted the most is they get concerned about geopolitical risks, they get concerned about inflationary pictures, and they have the right to do that. But a lot of the benefit of long-term investing is something that gets overlooked all the time. And again, a lot of that is because of the recency bias that exists today and the availability of information.

So this concept of setting up your goals, setting up your investment strategy, setting up your strategic asset allocation, and following that path is something that, believe it or not, gets overlooked all the time. And it works no matter what part of the cycle it is, as long as you feel comfortable understanding risk — at the same time, the risk budget. And we always talk about this: it is so critical for people to understand how to allocate risk — not to allocate assets, but how to allocate risk. And I think that component gets overlooked all the time. And the way I think about it is that when you go to a dinner, you basically have your main entrée, you also have your salad, you also have your side, and you don’t necessarily give the same level of weight to each one of those.

That’s a risk budget allocation. So you need to understand how much is gonna be in your core portfolio — it’s gonna be long term — and how much is gonna be in other parts of the market. And specifically nowadays, there is a temptation to go into these prediction markets. And I think we try to avoid markets that way, because the difference between gambling and investing is huge. Right?

[00:58:44]  BARRY RITHOLTZ: That’s just pure speculation.

[00:58:45]  OMAR AGUILAR: And the way that our team has explained it is, when you’re investing, you become an owner. When you are gambling, you don’t have anything. You’re just basically putting money in, the odds are against you, and you don’t have any ownership.

[00:59:00]  BARRY RITHOLTZ: The house usually wins.

[00:59:00]  OMAR AGUILAR: Correct.

[00:59:00]  BARRY RITHOLTZ: All right, so let’s jump to our favorite questions that we ask all our guests, starting with: tell us about your mentors.

You mentioned one earlier who helped shape your career.

[00:59:14]  OMAR AGUILAR: Well, the person that brought me to Bankers Trust was a real innovator who actually took a lot of faith, and he was able to see in a PhD student that was doing basic statistics and modeling the ability for that. And I learned a lot from him.

[00:59:33]  BARRY RITHOLTZ: And that was who?

[00:59:34]  OMAR AGUILAR: That was at Bankers Trust, and his name is Phil Green. And Phil basically put together this vision where he wanted to create this concept. He bought into the idea of the vision.

And that helps me in understanding how these things evolve over time. I also have my advisor from Duke; his name is Mike West. He obviously has a deep academic background, clearly a lot of technical, but he’s also a business owner. He also understands the practical application of all these techniques, which I believe, Barry — that combination of deep quantitative tools with reality, and making that merge, is something that we need more of. There’s a lot of great technicians, there’s a lot of great people, a lot of really smart people.

But having that idea to be able to solve is actually critical. And I would probably say the model that we get from Chuck — the values that he has put together, Chuck Schwab at Schwab — of getting access to clients, providing clients with the right solutions, being transparent, being accessible, and thinking through clients’ eyes. That has been a big mantra for me. Schwab has been the longest job I ever had, and it’s been great.

[01:00:49]  BARRY RITHOLTZ: Let’s talk about books. What are you reading currently? What are some of your favorites?

[01:00:54]  OMAR AGUILAR: Well, I love the books of — Sapiens was one of my favorites. Just to reread it again. Thinking, Fast and Slow was another one of my favorites. I like to read a lot about these components. I read the Hail Mary book that was actually produced —

Project Hail Mary. So those are great, and those are great components that I like to always think about — the concept of how do you apply those things to what I can do for my work.

[01:01:24]  BARRY RITHOLTZ: What about streaming? What are you watching or listening to? Anything interesting these days?

[01:01:28]  OMAR AGUILAR: I started watching this show called Silo, and it’s on Apple TV. And that’s another —

[01:01:36]  BARRY RITHOLTZ: You’re a sci-fi fan.

[01:01:37]  OMAR AGUILAR: Well, it has a lot of pieces that I think were great. I did watch Ted Lasso for a while, and that was also good. Especially the first season was particularly good.

[01:01:37]  BARRY RITHOLTZ: Fabulous.

[01:01:37]  OMAR AGUILAR: Yeah. It’s quite — and then there was this other show called The 100, which actually was very good because, again, it was sci-fi.

[01:01:51]  BARRY RITHOLTZ: Yes.

[01:01:51]  OMAR AGUILAR: And it had many, many episodes and seasons. But it was great because, again, it was sci-fi, very similar to Silo, but the whole plot was about humankind being in this nuclear war.

And therefore they selected a hundred people to put them in space, and they had to survive there until the Earth was safe again to come back. Once that happens, then there were a lot of changes. There were a lot of things for survival. There’s a lot of leadership lessons on how to deal with that and how to deal with adversity.

That I thought was fascinating.

[01:02:39]  BARRY RITHOLTZ: I know you mentioned reading Project Hail Mary. Have you seen the movie yet?

[01:02:44]  OMAR AGUILAR: Yes, we did.

[01:02:45]  BARRY RITHOLTZ: Yes. It’s really quite amazing. Our final two questions. What sort of advice would you give to a recent college grad interested in a career in either quantitative analytics or wealth management?

[01:03:00]  OMAR AGUILAR: Yeah. Number one is getting your expertise and trying to get up to speed on all the methods that we can use. And in this day and age, understanding — getting a CFA, getting some program where basic theory about investing comes into play. Second, which is very important: soft skills. That’s something you don’t get taught in school, but the ability to have the soft skills to be able to talk and explain, to be able to say, all right, these are the things that you can do and this is how you can structure it.

That, to me, becomes a big part of the asset. So that combination of being good technically, but being able to explain things, becomes incredibly valuable.

[01:03:47]  BARRY RITHOLTZ: And our final question: what do you know about the world of investing and behavioral decision making and quantitative research today that might have been useful 30 or so years ago when you were first getting started?

[01:04:02]  OMAR AGUILAR: What do I think today?

[01:04:04]  BARRY RITHOLTZ: What do you know today that would’ve been useful?

[01:04:04]  OMAR AGUILAR: Oh, 30 years ago. I would probably say underestimating the effect of how fast the market was gonna move. I think there was a wrong idea that you can be faster than the market and that people can really get ahead of many things by just trying to capture information faster. I think that information advantage that people claim to have — after all these years in investment, it’s very hard to actually capitalize on.

[01:04:41]  BARRY RITHOLTZ: Hmm. Really, really fascinating. Omar, thank you for being so generous with your time. We have been speaking with Omar Aguilar. He’s CEO and CIO at Schwab Asset Management.

If you enjoy this conversation, well, check out any of the 662 we’ve done over the past 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you get your favorite podcasts. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Anna Luke and Elizabeth Srin are my producers.

~~~

 

 

 

The post Transcript: Omar Aguilar, CEO and CIO of Schwab Asset Management appeared first on The Big Picture.

Cambridge University Declares Free Speech Should Be 'Restricted'

Authored by Steve Watson via Modernity.news,

Gonville and Caius College, one of Cambridge's oldest foundations, is compelling its undergraduates to attend mandatory "inclusivity training" from the start of term.

The 90-minute sessions are being delivered by Stop Hate UK, a 'charity' activist organisation whose own materials tell students their free speech rights may be restricted, that "Islamophobia is a crime", and that a facial expression can count as harm.

The order lands in the same university that spent the better part of two years investigating a philosopher for lawful speech, and in the same education system that has spent 2026 drilling children in white privilege, "racism requires power", and compulsory hijabs.

Students in at least one college of Cambridge University will be forced to take mandatory 'inclusivity training' from the start of the new term next week, The Spectator has learned.

The 90-minute sessions are being delivered by Stop Hate UK. This group has published a video... pic.twitter.com/0zBC85IMFX

— The Spectator (@spectator) September 30, 2026

According to an email from the college's education and tutorial office, seen by The Spectator, "attendance by undergraduate students is mandatory. It is important for the community as a whole to ensure a collective and unified response." The course, due to run from the week commencing 5 October, will cover "demonstrating inclusive behaviours" and "recognition of a hate incident and its impact."

A Caius spokesman told The Spectator the college had, "in consultation with student representatives," committed to "hosting facilitated discussions around inclusivity to support the whole community at Caius."

That is a softer description than the email students actually received. Mandatory attendance and a demand for a "collective and unified response" is not a discussion. It is an instruction.

BREAKING: Gonville & Caius, Cambridge has sent all undergraduates a notice, making 90-minute inclusivity sessions by 'Stop Hate UK' mandatory. The charity's materials are woke, defective and misstate the law on protected characteristics and Islamophobia. https://t.co/3ihJt4HxOG https://t.co/brE8VGChs4 pic.twitter.com/FruP9TpvBm

— Joe Rich (@Joe_Rich) September 30, 2026

Stop Hate UK has published a video telling university students they must always display "positive attitudes" and "use respectful and kind language that will not cause harm or offence."

Its syllabus for educational settings tells students that free speech should be "restricted by other duties, responsibilities, and legislative and contractual obligations," and teaches them how "opinions, attitudes and prejudice are influenced and shaped by unconscious bias, media bias, fake news, etc."

Andrew Gilligan, writing in The Spectator, put the obvious question: "How will students be required to 'demonstrate' that their behaviour is 'inclusive?'" The charity's own glossary supplies an answer of sorts. It speaks of "microaggressions" and "micro-inequities," including "unintentional comments" and "unconscious messages" that "devalue and discourage people... conveyed through facial expressions, gestures, tone of voice, choice of words."

Hate incidents, it says, can include "abusive gestures" or "malicious complaints about parking."

The Free Speech Union called the scheme another mark of Cambridge's intellectual decline, and of the way activist groups have been emboldened by the government's non-statutory "anti-Muslim hostility" definition.

Cambridge students are being forced to undergo "inclusivity training".

At least one Cambridge college is requiring students to attend training delivered by Stop Hate UK. The group has posted a video on social media saying students should always display "positive attitudes" and... pic.twitter.com/Mq6ZVgwrMm

— The Free Speech Union (@SpeechUnion) October 1, 2026

The use of "hate incident" rather than "hate crime" is the tell. Behaviour well below the legal threshold is being placed inside a disciplinary frame. That sits awkwardly beside the Home Office's own retreat. In March, Home Secretary Shabana Mahmood announced that non-crime hate incidents would be scrapped, saying: "Under these reforms, forces will no longer be policing perfectly legal tweets."

Caius is importing the logic the Home Secretary has just disowned, and making attendance compulsory.

If the syllabus is followed, one of the first things Cambridge students will be taught is "unconscious bias," a concept a UK government report has already found wanting. That review concluded that "evidence that [unconscious bias] training content and techniques 'works' is lacking," that such sessions "do not seem to be effective at improving diversity outcomes within workplaces," and that there was "potential for back-firing effects."

Most of the studies used to justify the training "did not use valid measures of behaviour change."

The Committee for Academic Freedom has gone further, and found legal errors in the provider's published materials. Age, a protected characteristic under section 4 of the Equality Act 2010, disappears from Stop Hate UK's list. The statutory category of "gender reassignment" is replaced with "gender identity," which, as CAF noted, "is not one of the nine protected characteristics named in the Act."

The Supreme Court held in 2025, in For Women Scotland, that "man," "woman" and "sex" in the Act carry biological meanings. Gender-critical belief is capable of protection under the Act, as Forstater established. Presenting a contested theory as settled law, then requiring students to attend, is not neutral instruction.

The Office for Students' Regulatory Advice 24 allows universities to require training that advances positions a person may disagree with. It does not allow them to "require training or induction that imposes a requirement on the person completing the training actively to endorse any viewpoint or value-judgement."

CAF has asked the obvious follow-up: whether Caius students will be expected to produce the promised "collective and unified response" by accepting the premises, for instance by labelling prescribed scenarios as microaggressions. The committee has invited students who are required to assent to anything to get in touch.

Stop Hate UK has claimed that "Islamophobia is a crime." It is not. Britain has no blasphemy law. The same organisation has treated truthful reporting on the Muslim grooming gangs scandal as a source of hatred, writing that "this leads to the formation of Anti-Muslim attitudes, subconscious biases and hate."

Its work on the subject cites the Centre for Media Monitoring, then part of the Muslim Council of Britain, an organisation successive governments have refused to engage with since 2009.

That is the same territory covered by Labour's non-statutory definition of "anti-Muslim hostility," which Communities Secretary Steve Reed sold as a tool "so we can take action to stop it," and which the Free Speech Union's Richard Holmes warned "risks hindering free speech under the law and legitimate criticism of Islamism." Schools were urged to monitor and report it.

Cambridge has form on this. Philosopher Nathan Cofnas was hired under Cambridge's 2020 free speech statement, then investigated for the better part of two years after publishing on hereditarianism and affirmative action.

The university eventually concluded that his views, "while seen by many as offensive, did not breach the law and did not contravene University regulations designed to uphold free speech." By then the contract had run out.

Cofnas's account of it was blunt: "I was betrayed the moment the administration determined that free speech was inconvenient for it."

Caius has form of its own. In 2022 the master and a senior tutor wrote to students about a Helen Joyce event on gender-identity ideology, saying they did not "condone or endorse" views they considered "offensive, insulting and hateful," and that the college would "continue to strive to make Caius an inclusive, diverse and welcoming home." The new sessions are that email turned into a timetable.

The pattern below the university line is the same. In Sheffield, school materials have told children that "black people can be racially prejudiced towards a white person which is wrong and totally unacceptable. However, this is not racism. Racism is racial prejudice plus power. In the UK, white people hold the cultural power."

In Barnet, a Labour council approved taxpayer funding for an Islamic primary that requires girls as young as seven to wear a hijab from Year 3. Stephen Evans of the National Secular Society called it "appalling that taxpayers are being asked to fund a school that forces girls as young as seven to wear the hijab."

Back at the University level, in Northampton, freshers were pointed at an Advance HE module on "Whiteness, Privilege and Belonging." The university said "inclusivity is one of our core values, and we make no apologies for that." Philip Kiszely, on TalkTV, answered that "there is NO WHITE PRIVILEGE in higher education. The anti-racism system is the problem, which is overtly racist."

A university that cannot tell the difference between a crime and a parking complaint, or between the Equality Act and a leftist activist group's preferred version of it, is not protecting its students. It is training them to treat argument as harm and dissent as a hate incident.

The Office for Students now has a complaints scheme under the Higher Education (Freedom of Speech) Act. Caius has just given its undergraduates a reason to use it.

Tyler Durden Mon, 10/05/2026 - 12:00