Dear Prudence
Plastic Stress
“It is the part of prudence not to place absolute confidence in that by which we have even once been deceived.”
René Descartes, Meditations
Warsh is hawkish in theory but not in practice.
Warsh has been an incisive critic of Fed policy since I first noticed him about 10 years ago. He seems to understand the tremendous damage the Fed has done to most Americans via inflation, he seems to understand how QE exacerbates wealth inequality, he seems to have no use for stupid “dot plots” and other forward guidance. I’ve posted a number of his quotes over the years where he cogently echoes many of my unfavorable opinions on the Fed.
That said, Warsh - who is worth a couple hundred million dollars - refused to answer questions about whether he had any financial dealings with Donald Trump or Jeffrey Epstein. His father-in-law, Ronald Lauder, is a multi-billionaire whose name happens to appear 900 times in the released, non-redacted “Epstein Files.” (Warsh himself is briefly mentioned in the Epstein files, seemingly innocuously).
In his remarks today, Warsh repeatedly said he pays attention to the “left side” of the decimal point on CPI, which one could take to mean 2.99% is fine with him. He also spent extensive time talking about various “task forces” he plans to set up, which could end up being another Fed dog and pony show to distract us until the next hedge-fund crisis requires them to again cut rates and massively hike asset purchases.
While paying lip service to inflation fighting, Warsh did not suggest hiking rates at this time, even though their own core CPI model has run well over 2% for over five years. He made no mention of the fact that the Fed’s legal mandate is “stable prices,” which would suggest a goal of 0%, not 2% or 4%. Warsh has also discussed changing the inflation model the Fed focuses on to a methodology that coincidentally would come up with a lower model.
Warsh has to be careful, because it seems most of the Fed staff and other FOMC members don’t like him, since he has harshly criticized their stupid policies. There were no dissents on Wednesday though.
So, while I am hopeful he means what he says, I expect to be disappointed.
401(k) Hardship
Americans are increasingly turning to their retirement savings as an emergency fund, with a record number of individuals making hardship withdrawals from their 401(k) accounts. Data from Vanguard Group reveals that 6% of participants in plans it administers took hardship withdrawals in 2025, a sharp increase from 4.8% in 2024 and more than triple the pre-pandemic average of roughly 2%. This trend isn’t just a blip; it marks the sixth consecutive year of rising hardship withdrawals, painting a clear picture of escalating financial strain across the country.
The reasons behind this surge are stark and reflect fundamental challenges in household finances. The primary drivers for these withdrawals are often critical, life-altering events. Avoiding foreclosure or eviction accounts for a substantial 36% of withdrawals, while medical expenses represent another 31%. Other significant factors include tuition costs at 13%, primary residence repairs at 11%, and even primary residence purchases at 5%. The median withdrawal amount, according to Vanguard, was a modest $1,900, indicating these aren’t large-scale raids but rather desperate measures to cover immediate, unavoidable costs…
The rising tide of 401(k) hardship withdrawals isn't happening in a vacuum; it's a direct symptom of broader economic pressures squeezing American households. Persistent inflation, which has eroded purchasing power over the past few years means that everyday expenses like groceries, utilities, and housing consume a larger portion of household budgets.
“Sixty-seven percent of Americans say they’re actively stressed about money, according to a CBS News poll released this month. Most Americans, at 55 percent, say their finances are worsening—the highest percentage since Gallup started asking the question in 2001, and meaning that more people feel financially pessimistic today than did during the pandemic or the Great Recession of 2008...”
This situation is dangerous for everyone, rich and poor:
“America has seen increasing income inequality since the 1970s, and today has the highest wealth inequality among G7 nations, while having some of the worst economic mobility in the developed world. The top 10 percent of the country owns almost 95 percent of all stocks, nearly half of Americans have $0 in retirement savings, and the amount of wealth held by the top .1 percent of the country is roughly equivalent to that held by the bottom 90 percent.”
Here’s is the most sanguine podcast I’ve heard on oil prices: Why Is Oil So Cheap? With David Wech, and, so far, more correct than the despondent takes.
Ships divert in hunt for fuel after Gulf conflict hits supplies
Ted Oakley
“If you have two people, and they make, let’s say, 100, 120 grand, and they’ve got a couple of kids and couple of cars, a house - they’re not really making much. In fact, they’re probably not saving anything…I think 58% of the people in the country can’t raise 1,000 bucks. That’s not good. You know, in the long run, it’s not good. But nobody really cares.”
“A business owner that’s had a business for 20 or 25 years, more than likely he and his spouse have worked hard at that business. They’ve been in debt. they’ve had to work and slave to get it where it is, then sell it for a lot of money. So, they have a different kind of respect for the money. A lot of the people there in SpaceX, in my opinion, just happen to be at the right place, right time. So, all of a sudden, I got a hundred million bucks. I say, “Okay, and they’ll probably believe the hype that I got to stay in this because it’s going to make me a billion.” But I heard this same thing go on in 1998, 1999, where we had people that would get $30 or $40 million as a piece of a public company. We would say to them, young people, just take enough of that to to make your life the rest of your life great. If you want to ride with the rest of it that’s okay. We saw so much of that go to zero, and go so far down. And I think they need to think about this.”
Mike Green
“Honestly, every professional investor I know is suffering through a period of deep depression because there is just nothing you can actually say about what is happening other than here we go again…”
“I do think that the earnings growth that people are pointing to is becoming increasingly circular. When Nvidia uses its stock to create an investment in Coreweave, Coreweave then has to use that investment to purchase Nvidia GPUs. That creates a circular financing component to it that is unfortunately identical to what we saw with the vendor financing that existed in the dotcom and the fiber optic buildout, and candidly has been a feature of every capital-spending bubble in recorded history.”
“My analysis ought to suggest that Nvidia’s profits are radically overstated on this. Over 50% of Google’s profits in this last quarter alone were tied directly to the price appreciation of its investment in Anthropic. People are putting a multiple on those gains. I mean, these are one-time gains. Maybe they will continue forever, because it certainly does feel like this is never going to stop, but to put a multiple on one-time gains and call that quote unquote earnings is a very surprising outcome to me for most market participants.”
“The ex-MAG 7 or ex-A.I. earnings growth in the S&P is basically non-existent.”
“This was to me just an astonishing statement that came out of the New York Fed, that they were surprised that people who are forced to work harder and work more jobs in order to maintain their purchasing power are more depressed than people who have found new jobs that allow them to do the same with less effort. It’s shocking the insights that we develop at the highest levels of economic research.”
Flotsam and Jetsam
While Wall Street Sells Euphoria, Chris Bloomstran Brings the Math
“San Antonio is one of the saddest markets I’ve ever seen. Between San Antonio and Austin is just one big new build site. This is why I always say I’m bullish bulldozers, because that’s the only thing coming for that.” - Melody Wright
“Basically you could take your income times three and that’s the amount of house you can afford. That’s the only data you need.” - Melody Wright
“This whole war feels like one big insider trading exercise." - Jesse B. Day
Investors pile into bullish dollar bets as ‘US exceptionalism’ trade returns
Multifamily Starts Plunge 42%
Multifamily developers slammed the brakes in May. The US Census Bureau reported apartment starts fell 41.6% from April. GlobeSt said higher borrowing costs, pricey materials, and weak renter affordability drove the decline. Multifamily starts dropped to 284,000 units. Total housing starts fell 15.4% to 1.18M units. Single-family starts slipped just 1.9%, showing multifamily projects face greater pressure.
There’s been so much new multifamily supply in recent years that this isn’t surprising. In many areas rents are dropping (gasp!).
BlackRock’s HLEND Caps Redemptions After Investors Seek 13%
BlackRock Inc. capped redemptions from its flagship private credit fund for the second straight quarter after investors sought to pull about 13%, a sign that shareholders remain nervous about the health of the $1.8 trillion market.
The roughly $25 billion HPS Corporate Lending Fund, known as HLEND, said it would allow only 5% redemptions, according to a filing Friday. The request for 13.3% was higher than the prior quarter when shareholders asked to redeem 9.3% of their shares.
The biggest Private Equity loss since 2008
“Thoma Bravo will lose all of the $5bn it invested in Medallia as it hands the software group to lenders”
Medallia’s collapse ‘turns private credit into a private equity problem’
Blackstone boss Steve Schwarzman, talking about private credit in 2023, made the burgeoning non-bank lending craze sound like something of a cake walk. If someone will give you a 12 per cent return with no prospect of loss, he told an industry conference, “that’s about the best thing you can do.” Alas, things turn out to be more complicated.
Earlier this week, a Blackstone-led group of lenders took ownership of Medallia, a software company that had been acquired by the private equity firm Thoma Bravo in 2021 for $6.4bn. The company’s debt load had become unsustainable, so Thoma Bravo simply handed the company to its creditors, in the process writing off a staggering $5bn equity contribution.
What was once private credit is, therefore, now private equity…Medallia’s debts looked conservative when Thoma Bravo bought it at what turned out to be the top of the market. Yet lenders have now had to mark down what looked like safe loans at 60 to 70 cents on the dollar. With Fitch estimating that private credit default rates have reached 6 per cent, the highest reading ever, it seems certain that more Medallias will emerge.
David Dredge
US CPI Index (white) 1997 – May 2026.
FAIT (flexible average inflation targeting) Aug 2020 (purple).
Pre-FAIT Trend 2% (red dash).
Post-FAIT Trend 4.5% (green dash).
These simple pictures can easily make one suspicious that all the grandstanding about protecting central bank independence, smells a bit more like avoidance of accountability. As we have highlighted over the past two months, we have once again been serenaded with the choruses of looking through, appropriate tools, watching for second order effects, from the master planners at the controls. They are in full control of the future, but all current failings are the result of unforeseeable past events. They want to be central planners when they really should be risk managers…
The masses are not as easily duped the second time around. After getting rugged by the “transitory” crowd and having to wear the consequences of three years of significantly above target inflation, they have watched as central banks commenced to easing policy before ever getting back to their reported targets, 175bp of cuts from the Fed without ever getting back to 2% (much less, per their previous misspent philosophy of FAIT, of getting the average back to 2%, if only!). Now, they are greeted once again with a (supposed) supply shock that they are told isn’t for the central bankers, tasked with maintaining price stability, to do anything about.
Will the Fed, and their brand-new incoming Chairman Warsh, recognize as President Lagarde appears to have done, that you can only ride this bull for so long? By most traditional metrics, you could make a pretty obvious argument that Chairman Warsh ought to be hiking at his very first meeting, maybe even justified to jump ahead, after the last couple of meetings of looking through, and doing a 50bp hike. What is Mr. Warsh going to do about building trust as he steps into a role where it has certainly seen some erosion over his (not totally outgoing) predecessor’s term?
Baron Asset Fund
Ignore this. This is for future historians.
“Not long after the full Epstein files got released, I said, “Well, we now know that the world is is run by demon-worshiping pederasts.” Sort of like it has been since the Roman Empire.”
Ben Swann
“How about 911 times Jeffrey Epstein is writing to people about pizza, and not one time do any of those emails have to do with an actual name of a pizza restaurant, or a pizza receipt, or a specific order for pizza. Never. It’s conversations with people that clearly when you read them it’s coded language. It’s very clear that it’s coded language.”
“Israel has now flattened all these religious Christian religious sites in southern Lebanon. They’re not there anymore. They completely did away with them, and that’s not by by accident. That’s all by design. But what’s so sickening about that is you have all these evangelical pastors in the United States who are just cheering it on.”
“If you look at the Epstein files, half the files are out. 3 million of six million, but only 2% of the data is out. So the amount of data in those files, 98% is unreleased. Well, how can you release half of it and only do 2%? That means the half that’s not released is video.”
“I believe Israel pushed us into the war with Iran. I think that’s pretty clear if you listen to Rubio and you listen to people within the administration, but I don’t believe they did it because they wanted to take out Iran. I believe they did it because they wanted southern Lebanon.
And so they got the U.S. to go fight a war over there in Iran because it didn’t matter if they could win it or not win it. Didn’t matter if the mullahs are out. It doesn’t matter if you get rid of the ayatollah or you replace a Khameini with a Khameini. Doesn’t matter to them because that wasn’t their actual objective. The actual objective was distract over here while this thing’s going on, and it absorbs all the headlines, because within a week of that war starting, they move into southern Lebanon and just lay waste, flatten the whole thing.
You blow up all the bridges in the Litani River, which connects northern and southern Lebanon. They’ve already started construction in Lebanon, rebuilding it into now an Israeli settlement as part of greater Israel. Meanwhile, while the war in Iran’s going on, Netanyahu has said multiple times, if there are ground troops, we are not supplying any of them. And they’re not going to be ground troops, because Trump’s not going to get stuck in that because, as much as he’s gone along with this stuff, he’s not going to do that. It’s too stupid and it’s it’s it doesn’t work. And it’s not going to happen.
"You don’t have to knock down an apartment house every time you’re looking for somebody. Because there are a lot of people in those apartment houses. And they’re not all Hezbollah — that I can tell you...I’m not happy with the way Israel has handled themselves with Lebanon and with Hezbollah."
“The Ukraine thing is fascinating, because it was one of the few wars that I saw had leftist support. It was very interesting. Right after they put the masks and the syringes down from their profiles, it was Ukraine flags, right?”
Bill Hicks
Q: “If you toned it down a bit, don’t you think you’d get a few more people in? You’d go more mainstream. You’d be more acceptable perhaps.”
Bill Hicks: “Less funny, more fame. I don’t want all these people. Who wants all these people?”
“What I do is play Devil’s Advocate to accepted beliefs...I am questioning these beliefs that have been told to me are true, and see how they are enacted in our lives. And when they’re not, herein is the satire.”
“I was doing that jokes about a TV evangelist here in the States, and they said you can’t do any jokes about them, and then a year later that big scandal broke, and every comedian, every host was doing jokes about them. So that was kind of neat. I was kind of punished for being ahead of my time.”
“What offends me is banality and triteness and things that are obvious, things that don’t require thinking. I don’t get that. People say after the shows, they say we come to comedy clubs, we don’t come to to think.”
Stupid British Lady: “A lot of people don’t read the papers that you read, and so they’re not going to find it funny.”
Hicks: “I’ve noticed that. God forbid I should leave them with a joyous life of not knowing anything”
“I'm not angry. I think there's a difference between being angry and being passionate.”
“Look what Jesus did. If people had said, “Oh, oh, look at what an attitude he’s got. Leave the money changers alone!” You have to tell the truth.”
Stupid British Guy: “There are lines there.”
Hicks: “There are no lines. Where are the lines?”
Stupid British Guy: “It seems as though there are. As much as you like to think there aren’t, it seems as though there are, doesn’t it?
A couple years ago I sent Jay Powell a jar of Maille cornichon gherkins https://www.maille.com/us/en/p/maille-original-cornichons-gherkins-13-5fl-oz.html/00043646210389. The occasion was the price inflation on the gherkins at my grocery store then exceeded over 80% in the space of a couple years.
I also asked if he ever had chipped beef on toast, a/k/a sh!t on a shingle. They served it in the school cafeteria for lunch in my day. The price of dried (or cured) beef had reached $21.99 per pound. It remains there today. I doubt the public schools are serving it today.
No response from Jay.
You cannot hate the Federal Reserve enough. [For more reasons than inflation.]
I remember when Powell was going to be the sound money guy, lol. They always make serious mutterings about concern over inflation, then inflate all the problems down the road. Only Bernanke and Yellen admitted their intentions to increase inflation. End the Fed.