All year asteroids have been bouncing off this economy.

• Tariffs that Paul Krugman promised would crush the economy

• The biggest shooting war in 20 years

• Hundred dollar oil

• And an AI jobs apocalypse that’s supposed to turn our labor market into a Doordash circle jerk.

Yet growth and jobs just keep going.

The Atlanta Fed’s GDPNow says we’re at a robust 3% growth. Jobs are coming in double expectations, with job openings soaring the second-biggest on record.

But there’s a very dark cloud: The Federal Reserve.

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Why The Fed Fears a Strong Economy

Last week the Wall Street Journal ran some Fed doom-porn warning of a “collision” between the Fed, the bond market, and Donald Trump, driven by oil prices, booming jobs, and the inflation they bring.

We’ve already got rebellion brewing, with Fed members calling for pre-emptive hikes, while markets went from expecting three cuts this year to expecting rate hikes as early as 6 months.

Now this matters because every point of Fed hikes are worth about one million jobs.

Which matters if you’re one of those million and happen to vote.

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So the background is the Fed is a licensed counterfeiter bribed into existence by Wall Street in 1913. The counterfeiting proceeds go mainly to borrowers who get cheap loans from artifically low interest rates -- in case you wonder why Americans don’t save money.

With a fat cut for Wall Street.

So it’s a permanent siphon from savers to Wall Street and deadbeats.

But the key is the swindle’s gotta be subtle. When you’re stealing gas from the neighbors, you gotta take a gallon here, a gallon there. Start draining tanks and the gig’s up.

For the Fed that means keep price inflation to around 2%. Not because of science, but because experience says at 2% voters don’t grab pitchforks and tell Congress to fix the Fed.

They definitly grab pitchforks at 10%.

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The problem at the moment is since the Iran war oil prices have driven inflation to 9.3% annualized -- right on the edge of pitchforkery.

And jobs are booming on top of that it’s great for 340 million Americans but terrible for the Fed jobs implies loans, Wall Street prints those loans out of thin air -- thanks to the Fed -- and inflation goes up even more.

In short, oil and jobs turn the Fed’s 2% siphon into a double-digit flood.

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What’s Next

I warned about the Fed when the war started, saying oil won’t crash the economy, but a Fed panic will.

Because historically, oil shocks only deliver recession when the economy’s already limping -- like in the 70’s, when the oil embargo came right after the Nixon Shock.

But before this crisis we were at 4% growth and -- 3 months in -- we’re still at a perky 3%.

If the war ends tomorrow, inflation drops, and Kevin Warsh gets back to finding excuses for rate cuts to goose jobs -- he’s already said he thinks AI will be epic deflation.

But if the war keeps going, Warsh has two options: purge the Fed’s balance sheet, selling the $7 trillion of bonds they bought with past money-printing.

That cancels the dollars and lowers inflation. But it’s also not happening, with prediction market kalshi predicting an increase of Fed holdings.

Leaving the path of least resistance if the war keeps going: Hike rates til you gobble enough jobs that prices crash and Americans are back to cat food.

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Latin America is going based as Colombia’s populist Abelardo de la Espriella -- nicknamed El Tigre, The Tiger -- won the first round of the presidential election.

Putting him at 80% odds of winning the presidency in 3 weeks according to prediction market kalshi.

This is interesting because Tiger’s an open admirer of Najib Bukele, El Salvador’s populist leader -- and Trump ally -- who famously cut the murder rate by 98%.

Taking Salvador from literally the most violent country in the world -- worse than Haiti -- to safer than New Hampshire.

This earning Bukele approval ratings in the 90’s according to independent polling.

Salvadoran children can now play in the streets -- unlike, say, Chicago. Grandmas can nap at the park. Young women can go out at night.

I was actually in El Salvador 2 years ago for Bukele’s inauguration and every working-class Salvadoreno I talked to beamed with pride. In the night-club district middle-class women in miniskirts were getting pupusas at 2am with no care in the world.

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The Spread of Latin American Populism

Salvador-style safety would be a welcome change for Colombia, which has a left-wing government friendly to cartels and street crime alike. The murder rate hovers around Baltimore levels -- 15 times Salvador.

More important for Latin America, it’s not just Colombia. Bukelismo is spreading across the continent, scoring 70 to 80% support region-wide.

Bukele is by far the most popular leader among across all Latin American countries, scoring a 6.8/10 according to regional poller Latinobarometro versus an average of 3.7 for the rest of the leaders.

Where the parade goes, the leaders are close behind. Chile’s new president is an open admirer of Bukele, as is Ecuador’s. Argentina’s Javier Milei is close to Bukele and they’ve been trading ideas.

Honduras already implemented Bukele reforms, and Costa Rica just jumped on the bandwagon. There’s even pressure on Mexico’s left-wing government after 20 years of carnage that’s finally turning the corner thanks to Trump’s border.

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Why the Left Fights Populism

The danger to populism is that lower crime’s just one part of populism, whether Bukele or Trump. It’s also smaller government, less corruption, cutting red tape to boost job creation. Handing economic power to small business instead of back-room cronies.

And that’s where the trouble starts. Because even if you convince the voters, you hit the wall of ideological judges and legislatures who are tools of the incumbent power structure.

Bukele himself was blocked by judges -- which may sound familiar to Americans. And by a hostile Congress -- which may also sound familiar.

He solved it by winning a landslide in Congress and using it to replace left-wing judges.

A solution that, alas, would require Trump getting two thirds of Congress.

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It was similar for Milei in Argentina, who still doesn’t have enough of Congress to over-ride left-wing judges who’ve blocked some of his major reforms.

And Brazil, where left-wing judges effectively mounted a coup, stealing the election then sentencing populist Bolsonaro to 27 years in prison for saying nice things about Jan 6 style stop the steal protests.

Put it together and Latin America is turning populist, led by crime and corruption. But even where the populists do win -- like in the United States -- they’re up against a gauntlet of left-wing judges.

Meaning Latin populists -- like American populists -- need to win bigly to fix it.

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What’s Next

The genius of democracy is it’s a pressure value. But when it’s blocked by censorship or ideological judges the pressure builds. The people get angrier.

Best case elections are fair enough that populists win supermajorities to remove the judges -- like El Salvador.

Worst case the judges keep blocking until Presidents just start ignoring them.

At which point the people will welcome Caesar.

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Last month was on fire – despite the war in Iran.

On the month, the benchmark S&P 500 gained an impressive 5.0%, while my two portfolios gained 10.1% in the “Adrenaline” growth portfolio, and 5.8% in the “Market Neutral” portfolio.

This brings year to date returns to 10.1% on the S&P 500, 22.7% on the “Adrenaline” growth portfolio, and 19.4% on “Market Neutral.”

In dollars, $100,000 invested in the S&P 500 at the start of the year would now be worth $110,112. That same money would be $122,745 in the Adrenaline portfolio and $119,428 in the Neutral portfolio.

So the alpha — additional gains vs the market — is about $2,000 per month.

Economy Update

The biggest surprise this month is oil prices bouncing off the economy, with the Atlanta Fed’s GDPNow currently running 3.8%. That’s about twice the 21^st century level.

This is very impressive given a near-doubling of oil prices. And I talked about it in this week’s free article.

Jobs are sitting pretty with unemployment at 4.3% and quit rates tame – meaning people feel like jobs are available.

Mass layoffs are at historic lows – so much for the AI jobs Armageddon.

Payrolls rose 115,000 in April, almost double expectations. March was revised up to 185,000. Private payrolls added 124,000.

Finally, inflation. It’s rising now as energy bleeds into food and services. But outside energy inflation’s tame thanks to solid fundamentals of slower growth federal spending and faster private-sector GDP growth.

For perspective, on the eve of Iran, real-time price aggregator Truflation had us at 0.7% inflation -- about as low as inflation gets with a central bank. Once the war ends, I suspect we’ll get back to that.

What’s Driving Growth

The growth story, as always, is an investment story. Gross private domestic investment rose a blistering 8.7% annualized in Q1. Some of that’s factory onshoring, with tariffs so far inducing nearly $3 trillion of investment according to Kearney.

Reshoring hasn’t shown up in manufacturing output or jobs yet because it takes time to build a factory – Taiwan Semiconductor’s Arizona factory is on a 6-year timeline. But they’re on the way.

Another hunk of growth is deregulation and tax changes — namely bonus depreciation in the Big, Beautiful bill, where you can write off 100% of your investment. This is cocaine for investment.

The AI Explosion

And the other driver is, of course, AI. Information-processing equipment alone added 0.83 percentage points to GDP last quarter. Equipment spending jumped 17.2%. Software and computing investment rose 24% year-over-year.

Data centers are the new interstate highway system. Steel, concrete, electricians, HVAC, transformers, turbines, substations, fiber, chips, cooling towers, backup generators, and enough copper to buy every Chilean miner a mistress.

That matters because the AI boom is not just teenagers asking a chatbot to write their sociology paper. AI already solved one Holy Grail, the protein-folding problem – winning the 2024 Nobel in chemistry for what’s basically a Google maps for drug development.

AI is accelerating drug development by years, compressing target discovery from years to months and potentially shaving 5 to 7 years off new drug development.

Like the reshoring boom, we haven’t seen the benefits of drug development in lives saved since regulatory approvals take years even if development goes fast. But they’re coming for every major disease, potentially for aging itself.

AI has discovered new antibiotics, including halicin, which MIT found could kill drug-resistant bacteria. Later MIT researchers used deep learning to find compounds against MRSA, a bacteria that kills more than 10,000 Americans a year.

AI weather models are now beating traditional systems on huge chunks of medium-range forecasting. Google’s GraphCast could produce global forecasts in under a minute and beat ECMWF’s gold-standard system on most tested variables. Microsoft’s Aurora later beat traditional models on more than 90% of tested variables and produced 10-day forecasts in less than a minute. That is hurricanes, crops, energy grids, insurance, shipping, and whether your flight gets turned into an overnight at the airport.

Google is using AI to design chip floorplans in under six hours, with results comparable or superior to human designs on power, performance, and area. AI is already doing industrial-grade coding, customer service, translation, fraud detection, logistics routing, medical imaging, legal search, drug discovery. AI already outperforms doctors on diagnosis and therapists on treatment, meaning Americans now have a free doctor and qualified therapist in their pocket.

In sum, the joke version is “ChatGPT writes your kid’s essay.” The real version is AI is already delivering more value than the internet did in its first decade. The early internet gave us dancing baby memes and shopping carts while early AI is delivering Nobel prizes and drug-resistant antibiotics.

AI and Jobs

And then there’s the jobs. AI doomers in media are panicking at useless sociology majors getting automated but ignoring tens of thousands of electricians getting hired.

Yes, AI will hammer entry-level white-collar make-work. It will absolutely eat the bottom tier of admin work, Indian call centers, compliance slop, HR boilerplate, junior copy, and people who write emails that “circle back.” As well as the journalists who write AI doom porn.

But they are ignoring the other side: the buildout. PwC estimates U.S. data-centers are already supporting 5 million overwhelmingly blue-collar jobs, of which roughly a million remain permanent for maintenance. Men in trucks, crews in hard hats. Welders, linemen, pipefitters, engineers to build it then keep it all running.

Summing it Up

Put it together and the economy is rotating from federal to private and from pretend cubicle jobs to roll-up-your-sleeves jobs, this time the jobs going to Americans instad of illegals.

The war is the final overhang. Once it ends — which Kalshi says is a coin-flip by September — oil comes down, inflation cools, rates can fall, and the investment boom goes into turbo.

With all that, on to the portfolios performance and picks!

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The Iran war broke the century long rule that war is bad for stocks, good for bonds, and rocket fuel for gold.

Instead, since America started rocking the casbah stocks rule, bonds drool, and gold got thrown off a roof.

So what changed. And should we be worried.

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The Oil Shock that Cried Wolf

When the Iran war kicked off, Wall Street predicted disaster, that we would repeat the 1970’s, when stocks dropped by half, inflation took off into the double-digits, and GDP plunged -- the dreaded stagflation that turned gold into the go-to late night infomercial.

Analysts called Iran “the worst nightmare we thought could ever happen, incomparably worse than any oil shock in history. Reuters’ poll of analysts predicted a hundred fifty dollar oil. An unnamed Saudi official said 180. Options markets said 200 or 240 oil.

Long-time markets guru Ed Yardeni warned of a stockmarket meltdown. Bond guru Mohamed El-Erian warned of “stagflation gripping the entire world economy.”

Moody’s Analytics pegged 50% odds of a recession.

Their script was the 70’s oil crisis, when stocks did plunge by half, bonds held up with 3% gains, and gold positively sang, up 70%.

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What Actually Happened

It turns out every bit of that was wrong. 3 months into the war the S&P 500 isn’t down half, it’s up 8 and a half percent -- 40% annualized.

The long bond is actually down annualized 20%. Gold is down 12% -- annualized 50%.

The Wall Street Journal was mystified, writing “It’s hard to overstate just how unusual this is.”

So what changed?

The first difference is oil didn’t get hit nearly as hard as expected -- we’re at 100, not 240. This is because new drilling -- above all in America. And a collapse in Asian demand -- above all from China -- means fully three quarters of the interrupted supply was cancelled.

But the other reason is the stockmarket in 2026 is not the stockmarket in the 1970’s.

Namely, AI and tech took over the stockmarket, and frankly they don’t give a damn about Iran.

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Not your Grandfather’s Stockmarket

To illustrate the change, in the 1970’s tech was 5% of the market but almost half was oil sensitive sectors -- industrials, utilities, materials, manufacturing. Today, tech is half the S&P and 70% of the Nasdaq, while oil-sensitive is less than a fifth -- healthcare and financials make up the rest.

So in the 70’s we were deeply dependent on oil we didn’t have. Today we don’t need oil yet we’re swimming in it -- exporting millions of barrels.

Put it together and recession risk is actually lower than when the war started: The volatility index -- Wall Street’s fear gauge -- is lower than when the war started even though oil futures say oil stays high into 2027. While prediction market kalshi is at just 15% odds of a recession — down from 22% when the war started and 40% during last year’s tariffs.

This final piece of the puzzle is why bonds and gold are sucking. And the most likely reason is fears the Fed will panic-hike on oil prices have overwhelmed the traditional safe-haven demand since higher rates directly lower bond prices while they gut gold prices since gold doesn’t pay interest.

When bonds are paying 5% risk-free it tempts even rock-ribbed gold-bugs into paper.

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What’s Next

For better or worse, the Iran war showed our economy is no longer made of stuff you can drop on your foot. It’s made of tech, healthcare, and Wall Street.

More important, it reinforced the pattern since Covid — really since Alan Greenspan — that reality no longer matters, the Fed matters. As in if things go bad the Fed will shoot money til everything goes up -- Covid. And in wartime, markets don’t care about the bombs or oil, they care about the Fed.

That may not be healthy.

But it’s reality.

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Why is Congress so useless? And how to fix it?

With Voter ID crashing and burning under the neglectful eye of the RINO establishment, it’s worth asking why Congress fails to deliver what voters want in our supposed democracy.

By margins of almost 2 to 1 -- cross party -- voters want a secure border and foreign aid slashed to basically zero.

By 3 to 1 they want less federal spending.

4 to 1 want less federal federal debt, lower taxes, lower immigration and tougher crackdown on violent crime.

Voter ID is 5 to 1 -- including a strong majority of Democrats.

Smaller deficit is 9 to 1.

Yet none of this happens.

Instead, voters are the tax donkey, inflation sponge, and designated villain who gets hit in the head with a brick by a homeless crackhead while both parties fight over who gets to apologize.

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Why Congress Doesn’t Care About Voters

Now, the Filibuster gets blame -- the Senate rule that laws needs 60% of votes. Meaning only uniparty laws get through.

But we’re talking stuff with 3 to 1, 5 to 1, 9 to 1 support cross-party.

These should blow through Congress like 97 to 3.

The answer’s simple: the voters get outbid by special interests in both parties.

A widely cited paper by political scientists at Princeton and Northwestern analyzed 1700 policy issues over a 20 year period and found popularity among voters had zero influence whether something becomes a law.

So a policy with 80% support stands no better odds of becoming law than a policy with just 30%.

So what did matter? Preferences of donors, special interests like unions and NGO’s, and the richest voters.

In other words, this is not a Democracy. It is an oligarchy.

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How to Fix Congress?

Term limits are popular, although the data’s very mixed -- newbie’s in congress become more dependent on lobbyists and permanent staffers eyeing future lobbyist job offers.

Campaign finance reform is also popular, but the trick is the left is very good at playing the system so the lost influence of oil companies and manufacturers is captured by in-kind left-wing donors like NGO’s and unions.

So what would fix it?

60 years ago economist Mancur Olson summed up the problem: Concentrated benefits, diffuse costs.

In other words, a given policy is a small impact for the typical voter -- pay 3 bucks a year for the sugar cartel. But it’s a very big deal for the sugar cartel.

Multiply across every industry, every NGO issue, every teacher’s union and it becomes a straitjacket.

So you’ve got to change that ratio.

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The easiest way to change the ratio is move stuff from federal to state or local, where voter benefits are 50 to 500 times more concentrated by population alone. And where special interests can’t benefit from national scale — they work in millions in local contests, not billions like federal contests.

Even today, normies can defeat special interests on a homeless encampment down the street or getting porn out of their local school in a way they have trouble organizing against the sugar lobby or bank bailouts.

Even better is get government out altogether -- end the honeypots so there’s nothing for special interests and crony companies to bid on.

End the Fed. End the Administrative State. Let Wall Street fund its own bailouts and let the Learing Centers raise donations or shut down.

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What’s Next

If you break the special interest oligarchy you get a Democrat party that doesn’t lock it’s most faithful voters in Detroit hellscapes. A Republican party that does fewer bailouts for Wall Street and fewer wars — and Patriot Acts — for Lockheed.

And voters who no longer see government as a predator.

Of course, Congress will fight tooth and nail to give nothing to states or -- God forbid -- taxpayers. But if voters can break through one time, it resets the game.

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The United Nations wants trillions in reparations for colonialism and “systemic racism” in its latest kleptocratic grift.

The resolution passed 123 to 3 -- the rich countries abstained. And the price tag to dismantle racism, according to the UN-linked Brattle group, is a bracing $131 trillion.

That’s less than a gazillion, but it is more than all the money in the world — not a joke.

It includes $26 trillion owed by the US -- close to half a million per household.

$24 trillion from Britain who -- fun fact -- abolished slavery in a series of wars against Arabs and Africans.

Portugal gets off easy, owing just $20 trillion to Brazil -- roughly $5 million per household in Portugal.

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The United Kleptocracies

Trillion dollar grabs are par for the course for the UN’s bevy of kleptos picking your pocket while dreaming up new and interesting ways to take your constitutional rights, from the World Health Organizaiton’s Covid tyranny to global warming to treaties to ban guns, population control, and mass surveillance.

But more important is the premise is backwards: In fact colonialism is the best thing that ever happened to the third world.

We know this because a pair of MIT economists including Nobel Laureate Deron Acemoglu crunched the numbers in a 2001 paper that found every prosperous third-world country is prosperous because Europeans showed up. And every collapsed one is collapsed because Europeans either left too early or never colonized.

The insight was quantified in a separate 2006 paper, and the results are striking — and obvious.

When Britain left Hong Kong in 1997 it was 40 times richer than China. Guam -- still a US colony -- is 10 times richer than independent Philippines.

Puerto Rico is by far the richest country in Latin America -- and 20 times Haiti, which won its independence before the United States.

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French Caledonia is 12 times richer than nearby Solomon Islands. France’s caribbean colonies -- Guadeloupe and Martinique -- are also 12 times richer than Haiti

Britain’s Bermuda is 40 times richer than Haiti.

India’s 10 times richer than never-colonized Afghanistan. Demographically similar Pakistan is 5 times richer than Afghanistan.

Even within Africa, the last decolonization -- 1990 Namibia -- is 5 times richer than never-colonized Ethiopia.

When Apartheid fell -- call it internal colonization -- South Africa was 20 times richer than next-door Mozambique.

Spot the pattern.

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Why Colonies Work

So what accounts for it? Easy: rule of law and culture. Which interact to deliver courts that aren’t corrupt, and the bourgeois values of honesty, thrift, industry. All of which foster social trust that helps natives stop genociding each other and encourage locals to save, invest, and build.

The rule of law and culture is why the West was rich enough to colonize the third world as a side gig. And the colonizers imposed law and culture so colonies would prosper enough to generate the taxes it took to run them.

In long-occupied colonies it stuck -- Singapore or Hong Kong. In early independents like Haiti -- or never-colonized like Ethiopia -- rule of law and culture remained stunted.

Incidentally, it’s not a white thing -- it’s universal that when rich countries colonize poor countries the “victims” are the biggest beneficiary.

Rome civilized Britain. Sumeria civilized Persia. Japan civilized Okinawa. China civilized the Turks of the Gobi and subsistence tribes in the Taiwan highlands.

The difference is today we can measure it. And today we have UN bureaucrats trying to turn it into a trillion-dollar hustle running backwards.

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What’s Next

Colonialism had its brutality, but these pale by orders of magnitude to native brutality.

Toss in the tech -- penicillin, electricity, water filtration and crops that withstand drought -- and the West has nothing to apologize for.

In fact, reparations should go the other direction — to the colonizers.

Still, so long as Western education systems continue pushing Marxism -- and the UN continues trying to monetize it -- hold on to your wallet. And your rights.

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New York’s Zohan Mamdani and fellow “Democratic Socialists” are racking up the wins on house prices, one of the most painful parts of the affordability crisis.

Of course, they’re peddling ideas that will make it worse -- rent control, eviction bans, landlord jihads that cut off new construction and existing properties, strangling supply and hiking price.

But there is a country that slashed housing costs by 70%: Argentina.

Where right-populist Javier Milei cleared a decades-long housing shortage while cutting costs by two-thirds in just 2 years.

Buenos Aires’ Housing Crisis

When Milei came to office in 2024, monthly rent as a percent of income was 90% in Buenos Aires. Just 2 years later, that’s under 30%.

Shockingly, he did the exact opposite of the Democratic Socialists: He eliminated rent control, simplified contracts and protected landlords from tenant abuse. Something that’s alien to Democrat cities who pile on tenant “rights” that enable scammers and chase landlords out.

Milei slashed housing regulations including mandatory 3-year leases with capped rents and landlords were free to offer apartments on any terms, at any price, in whatever currency they like: dollars, gold coins, Bitcoin.

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Milei’s deregulation sent rental supply up 170%.

Rental listings tripled.

200,000 vacant units came on market.

Buenos Aires housing went from Hunger Games to It’s a Wonderful Life.

Now compare this to New York, which has 50,000 vacant apartments — as in landlords don’t want to rent them out despite 165,000 families waiting for housing, and a vacancy rate of 1.4%.

It’s not just New York: One recent San Francisco open house had 50 applicants for a rental, with agents collecting applications like college admissions.

In LA it’s normal to apply for 10 rentals -- with application fees -- before somebody accepts you, with workers commuting up to 70 miles since they can’t find a room.

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Help From Washington

Now, Mamdani’s not going to crack an economics textbook anytime soon, but there is hope for America’s blue cities from Washington.

In an executive order last month Trump cut permit delays, environmental reviews, and streamllined construction rules to get more housing built nationwide.

Congress is currently working on a housing bill that would further cut red tape for building, encourage cities to repeal rent control and reward them for building more housing.

Alas, there’s only so much Washington can do; most of housing is local, and blue cities are making it worse.

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There are moves on the edge: New York could legalize more basement apartments, streamline office conversions since actual jobs are leaving the city, and build on small vacant lots. San Fran is allowing taller buildings.

But these are wiped out by new mandates -- New York wants to triple rent control to one third of all housing, along with a bizarre mandate that all property sales have to be offered to a non-profit with 6-month right of first refusal.

LA rent control now hits 3 quarters of apartments.

Left-wing St Paul Minnesota recently imposed new rent control which crashed building permits by 80%.

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What’s Next

Democrats are using housing affordability to win elections with policies that make it worse. To, ironically, win more elections.

They could copy Milei and fix it within a year. Unfortunately, their voters don’t understand this. And their donors and NGOs don’t want to understand it.

So expect more pain — and more Socialist wins — in blue cities and states.

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Portfolio Returns

April was a massive rebound from war-ravaged March.

On the month, the benchmark S&P 500 gained an epic 9.9%, while my two portfolios gained 17.7% in the “Adrenaline” growth portfolio, and 9.0% in the “Market Neutral” portfolio.

This brought year to date returns to 4.9% on the S&P, 11.3% on the “Adrenaline” growth portfolio, and 13.2% on “Market Neutral.”

Annualized, that’s 16% on the S&P, 38% on “Adrenaline” and 45% on “Market Neutral.”

Economy

Economically, aside from oil prices from the war we saw previous trends continue.

GDP rebounded to 2.0% annualized, which is decent.

Jobs continue the low-hire, low-fire trend of the past year — which is mainly deportations and federal layoffs.

AI is still barely showing up, with around 10,000 AI-related layoffs per month according to jobloss.ai. But nearly all of those are unwinding excess hires during Covid, when tech doubled head-count both to horde scarce workers and because everybody was online.

Inflation is probably the most exciting for the month, with annualized inflation crossing double-digits driven by oil prices. While the rest of inflation is tame a hair above 2% annualized.

That’s a big change from pre-war, when Truflation pegged annual inflation around 0.7%. But it’ll obviously reverse when the war ends, and the Fed’s new Chair Kevin Warsh knows that so it’s unlikely to drive Fed rates.

Investment Impact

Pretty much everything went up this month as war jitters calmed.

Interestingly, oil markets think oil will stay expensive potentially deep into 2027. Maybe that supply will be disrupted long past the war.

But stock markets have apparently decided it can live with expensive oil — a 10% rebound in a month is normally what you’d see when the war’s over.

Hedges have also had a weird war, with gold down 12% and silver down 19% since the war started on February 28. Bitcoin is up 20%.

This is weird because normally gold especially does great in wars. My best guess is it’s more to do with pre-war moves, with gold and silver leaping this last year on deficit fears. While Bitcoin had a boring 2025, so it did respond to the war like a safe haven hedge is supposed to.

What’s Next

2026 remains a strong year for the economy — and therefore stocks. Driven by strong investment and rate cuts.

Compared to January that growth story is weaker because of the war, which makes investors reluctant to go all-on on factories, and which has already shifted the Fed from 2 cuts this year to zero.

It’s also weaker from the Supremes striking down most of Trump’s tariffs, which were forcing Asians and Europeans to build factories in the US and much is now on hold until there’s tariff clarity.

On the other hand, AI investment is actually accelerating, as we move from AI companies buying chips for giant data centers — so-called “hyperscalars” like Google or OpenAI. To the next phase of thousands of non-AI companies building in-house AI infrastructure, from banks to healthcare and pharma to Walmart.

That mirrors dot-com, where the early investment was Yahoo and Amazon, but then literally every company built out tech to integrate the internet. That’s going even faster with AI, and it’s something I don’t think the market has fully digested yet.

Bottom line, no changes in the portfolios — everything’s hitting on all cylinders, and 2026 remains a likely bull market.

Portfolio Holdings

If you’re new to the party, I describe the hows and whys of the portfolio in the January newsletter. And the most recent edition is the March newsletter.

In short, there’s two portfolios.

The “Adrenaline” portfolio is 70% “growth” stocks I think will go up the most. The other 30% is hedges, split evenly between gold (GLD), silver (SLV) and Bitcoin (FBTC).

The “Market Neutral” portfolio cuts “growth” stocks to just 35%, with the other 35% shorting stocks I think will go down the most. And keeping 30% in hedges.

Here’s the specific holdings, percent allocations, and ticker symbols ready-to-use.

Read more

Europe and Asia are facing “the largest energy crisis in history” according to the International Energy Agency, with over 50 countries now implementing emergency measures for oil shortages.

But not in America. Where we drilled baby drilled in the face of environmentalists who failed to force us to eat the Pixie farts.

50 Shades of Desperation

Two months into the Iran war, the Wall Street Journal reports that over 50 countries have now implemented emergency measures.

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Some are rationing fuel. Some are giving cash handouts so the poor don’t riot. Some are closing universities, closing factories, or mandating work from home just like Covid.

Europe lost 75% of its jet fuel -- cancelling flights in the all-important tourism season. Australia’s down to 30 days of jet fuel before it cuts off like a giant Robinson Crusoe with kangaroos.

Ireland’s government barely survived nationwide gas protests.Pakistan mandated a 4-day workweek -- and closed all universities to avoid riots.Sri Lanka declared every Wednesday is now a national holiday.

In India you can’t cremate with gas -- you gotta use firewood or break up the furniture to see dear uncle Sanjeet to the next world.

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Egypt ordered an effective nationwide curfew at 9pm -- shops and restaurants have to close and they’ll turn out the streetlights, leaving you to packs of stray dogs that are Egypt’s national animal.

In Bangladesh there have been multiple cases of gas station workers beaten to death over fuel.

Note this is all with a global release of 400 million barrels of strategic reserve -- replacing about half of lost supply from Iran.

In other words, whatever we’re seeing now, it goes Mad Max when the reserves run out.

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It’s not the War, it’s the Strait

Now, the key for oil isn’t the war, it’s the Strait of Hormuz -- Bill Clinton recreationally bombed Iraq through the 90’s and oil didn’t care.

The Hormuz headlines flip by the hour but oil futures are projecting disrupted supply into 2027.

Meaning it’ll keep getting worse in Europe and Asia as they run out.

Meanwhile in America we’ve actually got more oil than we need between what we drill and what we import from neighbors like Canada, Mexico, Colombia and now Venezuela.

In fact, we’ve got so much armadas of European and Asian tankers are coming to America to sip at our plenty. Turning America into what one analyst called “the emergency gas station of the world.”

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What’s Next

Even without shortages gas prices are still high in America -- because of that armada of foreign buyers. But the silver lining is America’s got thousands of oil wells sitting idle waiting for higher prices. Plus 12 million acres of inactive oil leases that are also waiting for higher prices.

These could crank out another 1 to 2 milion barrels a day. Making America’s inactive wells the 7th biggest oil exporter in the world.

It’ll take time -- and it would require Trump slash environmental red tape. But if oil does stay over 100, America goes from the world’s emergency gas station to the world’s everyday gas station.

Meaning hundreds of thousands of oil jobs. Billions in exports -- there goes our deficit with Europe and Japan. And an extra million or two barrels to reduce oil prices long after the war’s over.

Every week I write a newsletter to over 23,000 subscribers on the top stories in economics with regular deep dives into history like the Fall of Rome, the Weimar hyperinflation, or FDR’s Great Depression.

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In case you’re stuck in a blue state dutifully handing half your money to Somali Learing Centers, brace yourself: They’re coming for the other half.

That oceanfront condo in Florida’s starting to look mighty good.

Ten Blue-States Locking the Gates

At least ten states are now exploring an exit or wealth tax to squeeze the last drop from fleeing residents.

That includes California and New York -- of course. Michigan, Colorado, and Washington state — until recently a zero income tax state. Massachusetts and Connecticut are trying to pass one, and Minnesota, who pioneered the modern Learing Center.

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In dollars, California’s wealth tax is the crown jewel. It would impose a one-time (allegedly) 5% tax on the entire net worth of the roughly 200 billionaires who live in California, where the top 1% already pays half of state income tax.

A companion bill would add a 1.5% annual wealth tax.

More Tax, Less Revenue

Like all wealth taxes, California’s hits unrealized gains. Meaning company owners will have to sell 5% of the company given almost all the wealth of California billionaires is in the company they founded.

Selling 5% means the stock price crashes and they potentially lose control.

Then they’ll have to keep liquidating a percent and a half every year until they either lose the company or... move to Miami.

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As billionaires flee, this takes out the the roughly $3 billion in California taxes those 200 people currently pay -- as in the wealth tax would reduce revenue.

Worse, some will take their companies with them, which employ between one and two million Californians -- pretty much the entire upper middle class outside city workers paid half a million to ensure fire hydrants have no water.

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So it could sum to $10 billion of lost revenue. Soaking the rich don’t come cheap.

In fact, one study by five Stanford economists found a wealth tax modeled to raise $100 billion could actually reduce revenue by $25 billion — on top of the exodus of jobs.

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Eat the Rich. Then Eat Everybody Else.

The problem is new revenue spawns new parasites, who need feeding. So when the billionaires leave they’ll turn to millionaires. Which is pretty much any Californian who owns a house.

At which point it’s the Detroit doom-loop: Eat the rich til you run out of rich, move on to the kinda rich, the not really rich. When the smoke clears you got welfare and people who don’t have any other option. Well, and the city workers with the fire hydrants.

Happily for California’s Learing Centers and fake hospices, California Democrats are trying to push retroactive exit taxes that would continue taxing you after you leave.

You can check out any time you like but you still gotta pay.

This has already kicked off an exodus, with an estimated $700 billion of assets fleeing the state -- roughly the GDP of Switzerland.

And it’s a warning shot to any livestock still hanging out at the slaughterhouse.

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What’s Next

The California blend of wealth tax and exit tax is spreading across blue states, stuck between a massive fraud and welfare class and taxpayers who know how to move to another state.

New York’s pushing a 9% exit tax. Along with a 4% annual wealth tax -- so far only hitting second homes -- Mamdani’s so-called pied-a-terre tax.

These will spread as income taxes rise; Washington and Michigan just hiked their top rate to nearly 10%.

New York City’s already 11%, with plans for 17%.

If you’re in the crosshairs and mobile, it’s probably time to talk to an accountant about changing residency, selling before the taxes — with enough lead time to escape the exit tax. And structuring your business and trusts so you’ve got something left after the Learing Centers are done with you.

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AI can now hack everything as Anthropic’s new model finds more exploits in a couple weeks than the entire global security community discovered in the past decade.

Will we go back to pen and paper, fedexing silver coins to pay the Netflix bill, and burying gold in the backyard.

Mythos can Hack “Everything”

Last week AI company Anthropic -- of Claude fame -- announced its internal Mythos AI model can hack “everything.”

As in every operating system -- Windows, Mac, Unix. Every database. Every web browser -- therefore every website.

So hospitals, power grids, military, the stock market. Your bank.

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Just days later Treasury Secretary Bessent called in top banks to coordinate emergency countermeasures.

The reason is just weeks after release, Anthropic’s Mythos AI found 4,000 so-called zero-day vulnerabilities -- meaning nobody knows about them so there’s no defense.

Which is more than the entire global security industry found in the past decade.

Anthropic immediately set up Project Glasswing to bring in 40 partners to design defenses before Mythos goes public.

These include Microsoft, Apple, and Linux. Browser companies. Security companies like Crowdstrike.

Cloud infrastructure like Amazon and Google -- who run pretty much every website.

Chipmakers, banks. And, of course, the Department of War.

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The problem is over the past 30 years everything has moved online. Paychecks, medical records, retirement savings. Supply chains for food, for gasline. The electricity. The databases that know who you are and what you own.

We did this because it’s cheap and convenient -- imagine trying to run an economy without computers.

But it came with major hacks -- in 2017 Wannacry and NotPetya wiped out hundreds of thousands of PC’s and servers at major companies including hospitals.

In 2020 Russia sat inside Tresaury and Justice for 9 months undetected. A 2024 attack cost $22 billion and froze prescriptions for millions while hospitals couldn’t get paid. China stole 21 million US security clearance files -- which looks an awful lot like an act of war. Equifax leaked 147 million Americans social security numbers.

So 4,000 of those. In a couple weeks.

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Government to the Rescue?

It’s tempting to say enough is enough, it’s time to throttle AI. The problem is whatever Mythos can do today, Chinese opensource can do in 6 to 12 months.

Meaning we’re on the AI rollercoaster, like it or not, climbing higher every day. And the only solution is good guys go faster than the bad guys.

Just like gun control cripples the good guys and bounces off the bad guys, AI regulation cripples Anthropic and Glasswing but the bad guys get it next year.

So the focus is defense and making sure government’s not interfering with the goods guys.

Top companies will deploy defenses in time. The half-assed will not. Including the poster child of half-assed, government databases and systems, from voting to tax refunds to social security

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How to Play It

If you think markets are under-estimating hacking risk, the most obvious play is buy security companies like Crowdstrike (CRWD), Palo Alto Networks (PANW), or the Global Cybersecurity ETF (BUG). Note they’ve been on a recent downturn because, ironically enough, markets think AI’s better at defense.

Which raises the question you could just buy the AI’s on the assumption AI defensive spend grows.

Alas, you can’t buy ChatGPT or Anthropic unless you’ve got a hookup since they’re not publicly traded. For most investors the closest is Google, which owns Gemini. With the caveat that Google’s huge, so mostly you’re buying online ads.

Or go upstream and buy AI picks and shovels (TSM, AMD, AVGO).

As for your assets, on the off-chance bank accounts get nuked it sets off a rush into things AI cannot hack. Meaning physical gold, physical silver and, of course, Bitcoin.

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A new study predicts 86% of AI unemployment will be women.

And not just any women: rich Democrat women.

Tragically, AI is coming for the notorious Karen who’s overpaid for what she produces but still needs to see the manager.

The reason is the industrial revolution took jobs from people who work with their hands — routine physical work. But AI is taking routine paperwork — people who forward emails, schedule meetings, and sit on diversity committees.

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AI is Coming for the Karens

Last week, think tank Brookings issued a new study estimating 37 million American workers are “highly exposed” to AI replacement.

Brookings thinks most of those will easily transition into a different role because they have broad skill sets or they’re smart.

For example, software or finance are on the firing line for AI replacement. But they’ll adapt as automation creates new jobs since it raises incomes and deepens production — products get better.

But Brookings estimate there’s about 6 million of those who will not adapt, primarily in clerical and administrative roles.

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What’s interesting is the distribution: Brookings estimates 86% are women. And they work at big organizations with lots of routine paperwork -- colleges, hospitals, big companies, government.

In healthcare, for example, hundreds of thousands of workers never see a patient -- they see paperwork.

It’s worse with federal workers, who are also mostly women.

Going by the fact nothing got worse when DOGE fired 300,000 of them, many are useless. Just imagine how useless they’ll be when AI can do their job for free.

A lot of these women may be low skill, but they’re high education -- and high income. Which they’re about to lose. Which won’t make them happy.

In a recent CNBC interview, Palantir CEO Alex Karp laid it out: “If you’re going to disrupt the economic and political power of highly-educated female voters who vote Democrat while increasing the power of vocationally trained working class males ... and you think that’s going to work out politically, you’re in an insane asylum”

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Who Goes First?

So who are these soon to be jobless Karens?

A study by AI company Anthropic -- of Claude fame -- thinks AI could ultimately replace over 90% of tasks in administrative, clerical, and middle management. And over 80% in arts and media and law firms -- don’t let your kids go to Hollywood. Or becomes lawyers.

This sounds dire, but remember the adaption. Software, for example, has been automating for 50 years -- punch-card feeders are long gone. During dot-com, website developers were supposed to be obsolete any day now, and 50 years later they’re still here. Because the work got more complicated even as the basic stuff automated.

So the vast majority of that 80 to 90% will reskill, including software, finance, marketing and managers.

The problems are those clerks and admins, secretaries, sales assistants, customer service, payroll... HR. Heaven help you if you’re a diversity consultant who doesn’t know how to flip a burger.

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What’s Next

I’ve argued AI will be the opposite of the industrial revolution: Instead of replacing routine physical jobs it replaces routine white collar jobs. With robots coming decades later since you need one AI for 8 billion people but you need 5 robots per McDonalds.

This creates a generation-long blue collar boom as automation itself makes us rich, which raises demand — and pay — for blue-collar jobs. But it will absolutely redistribute income -- and power -- from high-income, high-education, largely female white collar workers to the plebs.

This is terrifying for Karen -- she already make less than the plumber, she would make less than the Uber guy.

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Portfolio Returns

March was brutal for markets as Iran blindsided stocks, gold and silver, and bonds. Pretty much everything but Bitcoin.

On the month, the benchmark S&P 500 lost 4.4%, while my two portfolios lost 3% in the “Market Neutral” portfolio and 7% in the “Adrenaline” long-only portfolio.

This brought year to date returns to minus 4.5% on the S&P, plus 4.6% on the “Market Neutral” portfolio, and minus 5.5% on the “Adrenaline” portfolio.

Annualized, that’s minus 17% on the S&P, plus 20% on Market Neutral, and minus 20% on Adrenaline,.

Breaking it down, on the month growth picks lost 5.5% — growth typically goes down harder when markets fall.

In the market neutral portfolio this was cancelled by shorts, which lost a pleasing 5.9% — so you made money.

But the hedges — gold, silver, Bitcoin — lost a sobering 10.6% on the month. Driven by gold’s 11% loss on the month, silver’s 23% loss, all while Bitcoin rose a modest 2%.

In short, broad stocks, growth stocks, and Bitcoin did what you expect in a sudden war, while gold and silver — which usually rise during war — tanked. Probably because both were in meme-stock territory the previous six months and the paper-hand tourists bailed.

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Economy

A lot has changed since the March newsletter, written the day before the war started.

Oil added $50 a barrel, which nearly doubled inflation expectations — they went from 3% to 5%.

On GDP, the Fed’s GDPnow indicator dropped from 3.5% pre-war to just 1.6%. So growth got cut in half economywide.

Rule of thumb is a percent of GDP is worth a million jobs. So if the war keeps going this will increasingly show up as lost jobs which will, of course, hand the midterm elections to Democrats.

Now, I normally focus on the economy, but at the moment all eyes are on Iran.

Namely, how long will Iran disrupt oil. Because it’s not the war itself that’s crushing markets — Clinton bombed Iraq periodically throughout the 1990’s and markets didn’t care.

So it’s really about how long oil will be disrupted.

For that, there’s 2 indicators you can watch in real-time: Oil futures, and prediction market odds of a ceasefire.

Between the two, oil futures are more optimistic, estimating 60% odds of a ceasefire by September, 70% by October, and 80% by the end of the year.

While prediction markets say we’re 45% odds of a ceasefire by July and just 71% by the end of the year.

Either way, they expect the war to continue past Trump’s original 2 month promise, which would wrap things up by end-April.

This is partly because the hoped-for uprising by the Iranian people hasn’t occurred. And it’s partly because the regime itself seems to be more secure than ever. Polymarket odds of Iranian regime change are actually lower than they were the day Trump started bombing.

So even if Trump decides to stop bombing, both oil markets and prediction markets think it may keep going.

Investment Impact

Pretty much everything that did really well just before the war did terrible since the war. This is because wars set off a flight to safety, and investors start by selling their winners.

To illustrate, in January and February the benchmark S&P 500 (SPY) rose just 0.6% -- annualized 3.6%. Which is historically very low -- it’s averaged 11% per year since 2000. But it’s still growth.

But since the war, SPY is down 4.4% in a month. Which is annualized 58% -- full-blown recession moves.

Gold and silver have been the same pattern on steroids: In January and February gold (GLD) rose 22% and silver (SLV) 32%.

Which translate to goofy annualized rates -- 231% for gold and 427% for silver.

And then... similarly goofy drops in the war: In a single month GLD lost 11% while SLV lost 23%.

Which translate to annualized losses of 76% in gold and 95% (!) in silver.

What’s Next

Everything depends how long the war goes. If it keeps going through 2027 inflation soars from oil and government spending, while oil crushes GDP, jobs -- and apparently any investment outside energy and defense stocks.

But if it ends fast, the fundamentals are unchanged and we return to the pre-war economy of fast growth, peak productivity, falling inflation and rising jobs.

The problem for investing the war is Trump is almost uniquely chaotic — at 2pm the war’s wrapping up, by 4pm we’ll bomb Teheran into dust.

So unless you saw the war coming your assets already took the hit but if you now flip into a war portfolio of energy and defense you risk getting double-slammed if there’s a surprise ceasefire. Cry twice.

So investing the war is collecting dimes in front of steamrollers. I’d sleep better investing the pre-war economy and waiting out the storm.

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Portfolios

So with that, an update on the portfolio compositions and tweaks-- both the “Adrenaline” growth portfolio and the “Market Neutral” portfolio.

Read more

It’s official: the federal government is bankrupt.

You probably knew this. But Treasury admitting it is comforting. Or perhaps terrifying.

Last week the Department of Treasury released it consolidated financial statements for fiscal 2025, reporting that the federal government has just over $6 trillion in assets -- land, buildings, student loans. But, according to Treasury, it has nearly $48 trillion of debt.

That comes to negative $42 trillion. Which is roughly half a million dollars for a family of 4.

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Worse, it’s deteriorating at $2.5 trillion per year — about $3,000 per month for that family of 4.

You’ll notice $48 trillion of debt is more than the official national debt, which just crossed $39 trillion 2 weeks ago.

That’s because of trillions of so-called non-debt liabilities like federal employee pensions and loan guarantees where government guarantees crony loans since it looks better than writing checks.

And keep in mind this is just the debt they know about. For the 29th year in a row the federal government auditor -- the GAO — stuck a big disclaimer saying this is only what they could find.

So there could be a lot more -- nobody knows. Certainly not the department that’s supposed to know.

Off-Balance Sheet Debt

It gets much worse. Because Treasury’s tally excludes $88 trillion in so-called off-balance sheet debt.

This is made up of even more pensions the government has guaranteed — like railroad workers. Along with Social Security and Medicare the government has promised to pay -- and will pay, given these are politically untouchable.

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This $88 trillion of off-balance sheet debt rose by nearly $10 trillion last year with ongoing Social Security and Medicare shortfalls.

$10 trillion comes to an almost comical $12,000 per month for that beat-down family of 4.

Put it together and it’s at least $136 trillion dollars of debt, rising$ 12.5 trillion last year.

Put differently, one third of everything you made last year went to taxes.

Another third was earmarked for future government spending.

You live on the crumbs.

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Converting all this into a typical American family, they make 80,000 a year — about $7,000 per month.

They carry between $150,000 and $200,000 of regular debt -- mortgage, cars, credit card.

And they owe $1.5 million of government debt -- rising at $12,000 per month. And that’s just the debt Treasury knows about.

Spot the problem.

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What’s Next

The war’s hogging the headlines at the moment. But behind the scenes we are headed off a fiscal cliff.

They’ll borrow as much as they can -- apparently $48 trillion so far -- to postpone the crash. To postpone that day when lenders stop, market interest rates spike, and we get a financial crisis that makes 2008 look like a picnic.

The solution’s easy: Slash federal spending by a couple trillion. Maybe hold off on new land wars for a couple decades. Close some Somali Leering Centers.

Even — dare we dream — a balanced budget amendment. Or my personal favorite, Warren Buffet’s proposal that if Congress can’t pass a balanced budget they have to resign and are banned from politics for life.

None of those will happen.

Because for both parties kicking the can is a lot more fun than slashing Washington.

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Cracks are spreading in the $1.8 trillion dollar private credit industry. Echoing the 2008 financial crisis but this time gutting the load-bearing walls.

On Tuesday the Financial Times reported Ares Management, which runs $623 billion, limited redemptions in one of their flagship funds.

That’s the asset management equivalent of a bank run -- investors can’t pull their money because it could spark a fire sale that could collapse the whole fund.

For scale, $623 billion would make Ares the 9th largest bank in America -- just ahead of Capital One.

Spreading Cracks

Ares joins a rogues' gallery of funds that have locked redemptions, starting with Blue Owl which was managing just over $300 billion -- more than American Express -- before it did start fire sales.

During the Blue Owl drama, JPMorgan CEO Jamie Dimon warned when you see one cockroach there’s more. And they’re now coming every couple days: We’ve seen locks in Blackstone, Apollo, Cliffwater. Just last week Morgan Stanley capped redemptions at a major private income fund.

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What’s driving it is what drives every bank panic: bailouts encouraged risk. Namely, since the 1990’s finance assumes it’ll a bail out from the Fed if things go bad.

The iron law of finance says more risk more profit -- you can charge more on a risky loan. So bankers do what bailouts pay them to do: Get rich or die trying.

On the ground, that meant hundreds of billions in loans to dodgy borrowers with sweetheart terms that let the borrower roll over the loan if they can’t pay -- so-called covenant-lite deals.

So borrow $100 million at 10%, and when you can’t pay the $10 million interest they just call it a $110 million loan and pretend everything’s fine. Known in the game as “extend and pretend.”

That hides the fact borrowers are in default. Because a loan in default might be worth 30 cents on the dollar. Or 5 cents. Like Enron but an assembly line.

The Fed’s Bait-and-Switch Hikes

Meanwhile, the Fed -- as always -- fed the fire with interest rates.

You’ll recall back in 2023 a clutch of banks went bust because their bonds were worth less after the Fed hiked rates for Bidenflation. Rate hikes lower bond prices, which left trillion dollar holes in bank balance sheets.

That happened on steroids to private credit, much of which went to commercial real estate that got double-hit with work from home and blue-city mismanagement that crushed office prices with vacancy rates hitting 40 year highs -- one in five offices is now empty.

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Even more money went to dodgy corporate borrowers to fund leveraged buyouts that are now swimming in debt, like First Brands that went out last month with $12 billion in default. Sera Simmons, Citrix, and Envision may have doubled that.

With potentially a lot more: Barclays estimates half of private credit loans are to software and business services that are getting gutted as AI gives it away for free.

The problem is when the loans go bad, investors get haircuts -- some get wiped out. That matters because nearly half of private credit money came from pensions and insurance companies.

If they can’t pay pensions or insurance claims that has bailout stamped on its head.

What’s Next

The Fed’s permanent bailout and interest rate adventures created a monster in private credit. Nobody knows how many cockroaches there are -- not surprising considering they’re hiding it.

And if the Ponzi does collapses, you will pay it off -- as always, bankers eat their wins, you eat their losses. While GDP could take up to a half-point hit — representing about half a million jobs.

It’s not 2008 scale — yet.

But given the near-weekly blow-ups it could get big fast.

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Last week Facebook announced they’re laying off 20,000 -- one fifth of the company -- blaming AI.

In a cruel irony, they’ll be plowing those 20,000 salaries -- and the free backrubs -- into building more AI data centers.

With AI job replacement finally putting some numbers on the board, it’s a useful time to ask what happened last time we wiped out two-third of jobs: The Industrial Revolution.

Interestingly, AI is almost the opposite of the industrial revolution: It doesn’t replace physical jobs, it replaces mental jobs.

In fact, it makes physical jobs pay more because automation makes us rich — that’s the whole point, automation replaces expensive production.

Of course, this shift from white-collar to blue is deeply disturbing for the over-educated white-collars who spent their life looking down on working men. And who write the AI doom porn.

The Industrial Revolution and Jobs

When the industrial revolution hit in the early 1800’s, roughly 70% of Americans worked on a farm. The other 30% were domestic servants, traders -- wholesale and retail -- and skilled crafts: weaving, cobblers, blacksmiths, tailors.

Fast forward 200 years later and the farm workers went from 70% to 2%, replaced by tractors, combines, and refrigeration.

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The servants, traders, and skilled trades got converted into mass services. So you don’t have a maid and butler, instead you have a poke bowl delivered while the dog’s at the groomer.

In fact, we almost doubled services because the industrial revolution made us rich -- consider in 1950 almost nobody got their dog groomed, their nails done at a salon, or had a personal trainer.

So these went from 30% to 50% of jobs.

What happened to the other 50?

A big chunk sadly, went to government, which grew from 2% of jobs in 1800 to more than 20% today. Because good times make big parasites.

Another chunk was healthcare, which went from almost nothing in 1800 -- you basically went to the hospital to die — to around one in eight today.

The final 20% got replaced 1 to 1 by what we now call white collar work -- cubicle jobs, accounting and finance, tech, analysts, administrative jobs.

These are in the firing line of AI.

Now they won’t all go — customers still want to talk to a human financial advisor, and somebody’s gotta check what the AI’s doing.

But if we lose, say, 15 of those 20, how will be replace them?

Easy: the same way we did last time. Services, trades, healthcare.

After all, we’re not trying to replace 70% of farm jobs like the industrial revolution, we’re talking one fifth that. And if AI automation makes us rich like industrial automation did, services and trades alone cover it.

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Jobs after AI

On the ground, a boom in services would mean regular people consuming personal services like rich people do today — almost nobody would mow their own lawn just like almost nobody cuts their own hair or raises their own chickens.

On trades, more factories, bigger houses, second houses, swimming pools. More stuff means more trades all require more skilled trades. This will continue at least through the robots, which will comes decades after AI since you need one AI for 8 billion people but you need 5 robots per McDonald’s. Meaning robots are your grandkids’ problem, not your kids.

For perspective, the first factory was electrified in 1880. Then it took 30 years for half of American factories to be electrified — many in India still aren’t.

Of course, the problem with all this is that driving an uber pays a lot less than being an accountant. But before the industrial revolution clerks lived in poverty: The automation and attendant wealth is what made accounting valuable.

If AI delivers the productivity revolution it promises, Starbucks will pay six figures. And if it doesn’t, false alarm: AI was a bust.

What’s Next

Even if we eventually replace lost jobs at twice the pay -- or five times -- AI job replacement will hurt the young and unskilled. And it will gut high-income, over-educated white-collars including the journalists, professors, and analysts who write AI doom porn.

Meaning there may be light at the end of the tunnel, but there’s a lot of disurption — and a lot of AI doom porn — between here and there.

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This could double gas prices in Europe. Which could spark a recession, chase the rest of Europe’s heavy industry to America, and leave European households facing thousands in electric bills.

Perhaps Europe shouldn’t have closed their coal plants to entertain climate activists.

Putin Tightens the Screws

Last week Vladimir Putin took advantage of the Iran war to tighten the screws on Europe, musing that “perhaps it would be more profitable for us to stop supplying the European market” in favor of other “interesting markets” -- presumably China and Asia.

The context here is natural gas is a much smaller market than oil -- about $150 billion a year exported, compared to $1.3 trillion in oil.

But it’s also an essential market, with about half of natural gas going to electricity generation since gas is much cheaper than oil. The rest goes to heavy industry -- steel, chemicals, fertilizers -- and household heating.

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The problem is natural gas is much more rigid than oil, which you can put it on a boat and aim anywhere.

In the case of gas, it’s limited by specialized infrastructure since it requires cooling to negative 260 degrees Fahrenheit to make it liquid. Unlike oil that’s liquid at room temperature.

This means there isn’t a global price for natural gas, it’s different prices everywhere. "Henry Hub” in the US. Japan-Korea Marker -- JKM -- in Asia. And TTF in Europe.

Henry Hub has barely moved on the Iran war, since the US is a net exporter of LNG. So while oil moved 50% -- depending on the hour -- Henry Hub’s only up 10%.

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It’s a very different story in Asia and Europe -- TTF was $32 on the eve of the war, spiked to 54, and are now around 49 dollars -- up over 50%.

The problem is Middle East gas was just 8% of Europe’s supply. But Russian gas is almost twice that — about 15%.

In other words, 8% of supply spiked prices by half.

And now Putin’s threatening to triple that hit.

This would gut what’s left of European manufacturing, especially energy-intensive industries like steel, cars, and building materials. As well as chemical-intensive industries including fertilizer for farmers.

That could spike European food prices — which could lead to social unrest that we already saw when the Ukraine war cut strangled Europe’s fertilizer supply.

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Trump’s 2018 Warning

It didn’t have to be like this. Back in 2018 Donald Trump warned Germany it would become “totally dependent” on Russian energy if it didn’t start building infrastructure for US gas imports.

Germany’s diplomats smirked at the dumb American.

And they kept smirking when Trump warned Germany to stop demolishing their coal and nuclear plants for the global warming pixie farts.

Of course it played out exactly as he warned: Germany demolished 15 coal plants and all of their nuclear generators, knocking out nearly a quarter of their energy and spiking household electric rates to 3 to 4 times US rates.

And 8 years later Putin’s still blackmailing Europe with gas.

What’s Next

It took the Ukraine war for the EU to finally build terminals to buy American gas. But they were still using cheap Russian gas even though in theory they were at war.

They’ll now scramble to buy American to avoid an industrial wipeout and voters waving electric bills with their pitchforks.

This will take months since LNG supply is generally locked up in long-term contracts.

In the meantime, Europe is left praying for a short war with no backup plan

.

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Turning Donald Trump’s totally awesome 1980’s boom into a 1970’s quagmire?

As soon as the bombs started falling over Teheran, American markets crashed. Bonds fell. Silver plunged. Even gold is down.

Oil, of course, jumped from $67 to $75 per barrel.

Oil Disruption

Markets always react fast to war – and they can over-react. The question for the real economy is how long does this war last.

This is because the main impact is oil prices. And these are driven by supply disruptions from the Middle East.

About one-fifth of oil exports pass Iran’s Strait of Hormuz. Another third are in range of Iranian missiles.

The US actually imports almost none of this Middle Eastern oil – it’s just 2% of our consumption. But oil prices are global so what happens in Iran does not stay in Iran

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On the day bombs started, ship traffic in the Strait of Hormuz fell 70%. Within 3 days it ground to a “total halt.”

Trump responded with government guarantees on ship insurance, which helps. But traffic won’t recover until the bombs stop. So it’s a question of how long the bombs continue.

Trump is currently promising the war will last just 4 weeks. But the administration is also messaging it will go “as long as it takes.”

You do that to demoralize the other guy. But it means this is not a one night stand like Venezuela or last time Trump bombed Iran.

Iran’s Impact on the Economy

There’s 3 key baskets of economic fallout: Growth. Jobs. And inflation.

Historically every $10 rise in oil knocks about two-tenths of a percent off economic growth. That’s small in an economy that’s growing over 3% -- it lowers wage growth by about $200 per year.

But it goes on top of expensive oil to heat your home or gas your car. A $10 jump translates into 25 cents a gallon of gas. Together with heating and trucking raises household costs another $300 a year.

And it bumps inflation by up to a third of a percent.

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Next, expensive oil and growth both hit job creation -- $10 might drop job creation by 10 to 15 thousand per month.

All this is painful. But it’s not recession. What would put us in recession is a long war.

A recent study by Deutsche bank looked at historic oil shocks, concluding you need a 50 to 100% ongoing jump in oil to set off a recession.

This would imply oil prices of $100 to $150 — on a sustained basis, not just a spike.

The good news is, according to Deutsche, even at $100 — or $150 — oil only causes recession when you’re already limping.

The 1970’s is the poster-child for an oil crash. But we were already in bad shape thanks to Washington’s so-called guns and butter policy of dumping trillions into the welfare state while ramping up the Vietnam War.

It’s important to note the Nixon Shock and lost decade kicked off long before the oil embargo.

In contrast, today we’re growing at 3 percent according to FedNow. Productivity is soaring 4.9% -- one of the highest since the Reagan boom.

So oil could knock us into the 1% to 1.5% on growth. But it won’t set off a recession unless the Fed panics on oil prices and hikes rates. Which could mow down millions of jobs.

What’s Next

For now the war’s biggest impact is oil prices.

But if it keeps going those cascade into growth, jobs, and inflation.

At which point Donald Trump could throw away his hard-earned boom just in time for Midterm elections.

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Year to date, the aggressive “Adrenaline” portfolio is up annualized 10.3%.

The safer “Market-Neutral” portfolio soared an annualized 57.3%.

Both blew out the benchmark S&P 500, which is actually slightly down for the year.

As background, I used to teach MBA investment analysis and corporate strategy, and worked real-world corporate strategy at a pair of multinationals in the US and Japan. I’ve managed assets using classical and Austrian economics business cycle analysis since the early 1990’s.

Macro Thesis as of March, 2026

The economy is humming along with GDP growth of 3.5% (if you strip out last year’s federal shutdown). Productivity growth is singing at 4.9% -- one of the highest since the 1980’s.

Jobs are finally turning up, with official numbers showing about twice as much job creation as the economy needs. Inflation continues falling, now at 2.4% if you believe government numbers and under 1% if you prefer private aggregator Truflation.

Credit metrics are benign -- financial conditions, commercial loans, and credit spreads are quiet. The closest to a rumble is reckless loans in private equity, which are still in the tens of billions -- not structural.

Stocks, on the other hand, are having a sluggish 2026, with the S&P 500 (SPY) slightly negative year-to-date. But this could be digesting the late 2025 jump, when the S&P did annualized 20%.

More important, both model portfolios turned in very solid returns — 10.3% and 57.3% annualized.

With that, specific picks and portfolio changes for this month:

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Will AI make everything so cheap — including wages — it sets off an economic doom-loop?

Is there such a thing as too much efficiency.

Last week the Dow dropped 800 points -- worth a trillion dollars -- on a piece of speculative fiction from a small stock analyst called Citrini Research.

The report predicted AI would set off a doom-loop of what they call “ghost GDP” where we make stuff but nobody gets paid for it.

Economically, this is incoherent: When you make stuff either workers get paid, shareholders get paid, or it’s consumer surplus — better known as rising living standards.

The industrial revolution, for example, was a mix of all three.

Still, the Citrini report touched a nerve on Wall Street after weeks of the so-called AI disruption trade. Which I predicted would be the investment theme of 2026 on this very newsletter, turning tidy profits so far.

The question is what gets disrupted. And what gets boosted.

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How AI Affects Stocks

The key to AI and the economy is AI will do interesting things to non-AI business.

For most businesses it helps because AI makes stuff cheap. Potentially 20 times cheaper, going by a recent Goldman Sachs case replacing entry-level bankers.

That reduces costs, which boosts profit margins. Which makes stocks go up.

But there’s also a bunch of companies where AI destroys profits by commoditizing the product. For example, licensed images when anybody can prompt an image. Or management consultants, advertising agencies, and low-end Indian IT shops that can be replaced with AI.

This displacement is already becoming a major market theme. A few weeks ago a tiny Florida company that made karaoke machines switched to an AI trucking router it said could cut trips by 3 to 4 times. That set off a 25% drop in shipping company stocks.

AI disruption is coming weekly in software: Last week a random blog post showing AI can handle Cobol programming knocked 12% off IBM — $30 billion down the drain.

These isolated executions will continue even if the vast majority of companies get improvements in margins — and stock prices.

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How AI Affects Jobs

But what about the jobs -- for most people that’s most important.

The key is every automation creates more jobs than it destroys -- and those jobs pay a lot more. Like 20 times more.

This is true since fire, agriculture, writing. Ox-plows, waterwheels, windmills. The industrial revolution and the internet.

In terms of jobs, automation is an escalator where you take a step down every so often — your job pitching hay was replaced by a tractor.

But the tractors themselves raise incomes. So jobs that used to pay crap now pay a lot.

Consider 100 years ago major league baseball players worked day jobs at the deli. Today, construction laborers take cruises to the Bahamas. A new report says babysitters make 25 bucks an hour.

The claim is this time is different because AI replaces intelligence. But this is fighting the last revolution: Intelligence only emerged after the industrial revolution stole the more valuable physical jobs.

Displaced workers stepped down to service jobs. Which are now more than 75% of all jobs. And pay much better than pitching hay in 1820.

AI will do the same with services, the trades, and personal creation. All of which soar with rising incomes from automation itself.

Consider there are 300,000 pet groomers, 330,000 personal financial advisors, and 370,00 personal trainers in the US — industries that basically didn’t exist in the 1950’s since people weren’t rich enough.

For the trades the key is robots come much slower than AI — one AI covers 8 billion people, but you need 5 robots per mcDonalds.

Finally, original creation, from hand-made chairs to... writing substacks on the economy.

Consider that hand-made things are worth more than machine-made despite having more flaws. Or that vending machines were supposed to replace bartenders a hundred years ago. Or the strong preference people already have for human-created content over AI slop.

This is human value in dollars and cents. And it dramatically increases post-AI because of the wealth automation creates.

AI will cause real disruption between workers switching careers — which we already do every decade — and individual companies becoming commodities.

But when the smoke clears the money comes from the automation, the jobs come from being human.

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