Over the weekend, the world was mostly surprised by Hamas forces launching a large-scale attack from Gaza, and the West Bank with support from Hezbollah in Lebanon into Israel. Sources seem to estimate initial fatalities at over 1,000 people, with roughly 800 Israelis dead so far. We’re going to dive into this event and what it potentially means to global financial markets.
Table of Contents
What Happened
Strategic Failure from the West
Are Our Enemies Cooperating
Who’s the Bad Guy Here?
Broken US Legislature
Central Bank Macro
Housing Market Updates
A World War?
Internal References
1. What Happened
We live in a world where AI can be used to manipulate images, and where dishonest actors both in the media and independent old, or doctored footage alongside a headline. Take everything with a grain of salt. Do you see an image or a video? Well guess what, you’ weren’t there, and neither was I. We can moderately speculate on them, but you need a certain level of dispassion, especially where distressing videos or depictions of violence are concerned.
For starters, the map above is roughly how Israel and Palestine are currently delineated. Hamas is a Sunni Muslim Palestinian militant group residing in the Gaza Strip. They launched their attack beginning with a series of drone bombings targeting observation towers on the border of Israel and the Gaza Strip.
This was followed quickly by a massive rocket barrage of 3,000-5,000 rockets launched while Hamas militants used explosives to blow holes in the border wall and then infiltrated Israel on motorcycles, and trucks. Once inside Israel, they used a combination of drones, small arms, rockets, and explosives to wreak havoc. These attacks were targeted at both military and civilian targets. Videos have been released by Hamas of them blowing up Israeli tanks, and also of them attacking civilians and parading the bodies of civilians back into Gaza. You can find the videos and images if you want, but some of them are gruesome and it’s unnecessary to spend too much time looking at these images.
Israel’s rocket defense system called “The Iron Dome” was not able to handle the volume of rockets launched by Hamas in a short time period, and so several of the thousands of rockets launched by Hamas were able to find their targets in Tel Aviv and other Israeli cities. In general, this is how all missile defense systems are overwhelmed.
Since then, the IDF (Israeli Defense Force) has cut off the Gaza Strip from food, water, and electricity and launched a massive bombing campaign on the Gaza Strip that was first reported ~27 hours ago. Depending on who you listen to, anywhere from 100-500 targets have been bombed so far within Gaza. Hamas has an extensive tunnel network underground in the Gaza Strip, there’s no doubt that the IDF bombing campaign has had some success, but rooting out Hamas would likely take an extensive invasion and occupation.
Civilians on both sides are likely taking/going to take the brunt of the negative consequences of this conflict. So far (to my knowledge) Israel has not launched a ground invasion into the Gaza Strip, but they have declared a state of war. I would not want to be in the Gaza Strip in the days to come, especially not as a regular person just trying to get by working as a chef, grocery store clerk, or accountant. It’s possible any number of bombs or rockets may inadvertently have their name on it despite having done nothing wrong.
Israel presents a difficult diplomatic issue for many Western countries as up until ~10 years ago it was fairly easy for Jews living abroad to acquire dual citizenship through their ancestry. Many countries offer this in some form or another; for example, my parents are from Jamaica, and I can apply for Citizenship through descent, despite being born in and living in the US. Israel offered this for those who were as far related as having a single Jewish grandparent. Now they are a bit tighter on the requirements for citizenship, however, there are still many dual citizens across the entire Western world. Because of this, there are always a significant number of people residing in Israel who are both Israeli, and US citizens, or German citizens, Argentinian citizens, French citizens, etc.
Think of the Diplomatic strain dual citizens can cause. Especially since there are reports of Foreigners being among the fatalities and several hundreds of civilian hostages being held by Hamas. Hamas doesn’t want to let them go, as they’re Israeli, but whenever one of them dies they further push Western nations towards intervening. Currently, Hamas is threatening to execute over 100 hostages if the bombings on Gaza continue. These hostages appear to be primarily Israeli, however, there are reports of a Mexican couple among the hostages and three missing Brazilian citizens who may be among the hostages as well.
Regarding fatalities of foreign nationals in the conflict, the Washington Post has reported the following at this time.
9 US Citizens dead, several unaccounted for
1 Canadian citizen dead, 2 missing
2 Mexican Citizens being held hostage
2 Thai Citizens dead, 8 wounded, 11 being held hostage
1 Argentinian Citizen dead, several unaccounted for
1 French Citizen Dead
2 Belarussian Citizens severely wounded
Several British Citizens missing
1 Irish Citizen missing
Beyond the Washington Post’s reports, there have also been reports of a German Woman who was at a music festival on the Israeli-Gaza border whose body may have been in a video posted on Twitter.
To make matters even more complicated, the IDF allows foreign nationals who are Jewish to serve in the military as “lone soldiers.” Roughly 45% of the 7,000 lone soldiers in the IDF are recent recipients of citizenship. This means that another ~3,150 soldiers currently serving in the IDF may have dual citizenship and cause further diplomatic headaches to the countries involved.
At the moment, nearly a dozen countries are attempting to negotiate for either the safety of their own citizens or for an end to the conflict.
These are the facts so far, now let’s get into a little bit of speculation.
2. Strategic Failure From the West
Many are speculating that Iran was involved in this attack. That’s a fairly significant change in the Middle East, as you may remember from this post earlier in the year that Shia and Sunni Muslims are at odds with each other more often than they collaborate.
China managed to broker renewed diplomatic relations between Saudi Arabia and Iran. This is significant as there has been a rift in the Muslim world for the last several decades. There are 2 major sects in the Muslim world. Sunni and Shia. The Shias believe in the divinity of the bloodline of the prophet Mohammed, while the Sunni Muslims tend to oppose this train of thought. But just like everything else in life, it’s fractal all the way down. Within these two major branches, there are multiple sects all fighting with each other.
In general, this has meant that Iran has been primarily supporting Shia militant groups, while Turkey and Saudi Arabia support the Sunni militants. The conflict in Yemen is an example of this with the US and Saudi Arabia supporting the Sunni side, while Iran supports the Houthis in Yemen.
In the recent invasion of Israel, we are seeing Hamas (Sunni) invading while Hezbollah (Shia) fires artillery into Israel in support. A spokesman for Hamas spoke to the BBC at the start of the invasion and stated that Iran offered direct support in the video below.
You can take his word for it, but I think there is a much bigger piece of evidence that supports this theory.
Israel has probably the 2nd most extensive intelligence agency in the world (Number 1 - China, Number 3 - the US) in terms of capability and active agents/assets operating in the world. If there is any country that is least likely to be the victim of a surprise attack, it’s Israel due to the combined interest of Israel and US intelligence operations. So far, this appears to have been a successful surprise attack with Israel seeming to have been caught by surprise.
So, just how did this happen? We’re going to look at a piece of investigative journalism that resulted in a Yahoo news article posted in 2018 for our answer.
In 2009, the Obama administration publicly announced the discovery of a secret enrichment facility in Iran. This announcement started a search for a mole by the Iranian government since the announcement alerted Iran that the US had effective spying operations in Iran. Unlike other countries, the US does not have a diplomatic mission in Iran, so operatives can’t just show up and pretend to work for the State Department as a diplomat. Instead, covert agents have to either have a business cover to perform espionage or use Iranian citizens (assets) who have been compromised by CIA handlers.
The Journalists who wrote the story above recently answered questions about the story in a 30-minute interview starting at 3:30 in the video below.
As you may have guessed, there was a whistleblower. In 2008, a CIA contractor named John Reidy started sounding the alarm through internal channels that these grave flaws in the system were a ticking time bomb. Reidy was fired in retaliation, and his complaint to the Inspector General went uninvestigated until well after dozens of informants had already been jailed or killed. As Reidy tried to fight the retaliation, the government even prohibited him from telling his own attorney anything about the nature of his disclosures.
At the time, this was how the CIA communicated with its Iranian assets. The CIA spoofed a number of fake websites for hobby activities. There might be a fake site about fly fishing, another about Yoga, Mountain climbing, making lasagna, etc. These sites are completely normal and functional, but if you happen to log on to the site at a specific time and open a chat window you will instead be speaking to a CIA handler rather than your online Chess coach. If someone walked in, everything on the screen would look totally innocuous. The messages wouldn’t be stored on the website and everything looked fine.
This sort of system was never meant to be used long-term, and these sites all had some unique search engine data that made them easy to identify once you knew what you were looking for.
Essentially, each of the websites had common elements between them that were found using Google searches. Identify one common element; identify all the sites using that material to link them up.
Unfortunately, the CIA used this same system for years, and once the Obama Administration inadvertently helped the Iranians figure there was a mole in their nuclear program (there were only a handful of possibilities) it only took a little bit of pressure for them to ID the mole and compromise his comms. Once they discovered the means of communication, they were then able to discover many other websites and assets operating in their country. Worse, they then shared this information with Russia, China, and many of their other allies. That mole was imprisoned and eventually executed this January.
John Reidy’s internal report is still available online (although redacted) and you can see some of the concerns he raised indicating that their methods had in fact been compromised.
In response to learning about this vulnerability, the CIA fired John Reidy and revoked his ability to work as a government contractor. He lost his business and his source of income. His wife divorced him and he lost his home as well. He is still trying to fight the government in court, but that is a losing battle. Sadly this fits the pattern of how American entities typically treat competent employees who identify meaningful work that needs to be done. Many Americans see things like this happen and learn a lesson from it. Maybe soon I’ll speak about what happened to me in the court system. I’ve now officially lost. Not only did I lose my case, but I have lost what little bit of remaining faith I may have had in American public institutions.
After they buried Reidy and his reports, we began to see dozens of intelligence agents, and assets killed and imprisoned across China and Iran. There will never be accurate assessments for how many were killed, but you can certainly find stories about 30 spies killed in Iran, or about over a dozen spies killed in China.
Essentially the American spying apparatus abroad utterly collapsed. Not only did our means of communicating with our assets get burned, but every single agent, asset, and operative that was active during this period could no longer be used ever again, because even if they didn’t get killed, they may have been identified… or burned, so to speak.
It’s maybe not so much of a coincidence that US spying agencies have all turned their focus inwards on domestic threats. Perhaps we’re the only targets that the three letter agencies feel safe spying on at all. What other job is left for them? Besides spying on our allies’ citizens through the FVEY in exchange for information on US citizens there isn’t much other easy work they can do.
I say all of this to support my personal theory that yes, Iran was involved in this push and likely offered material support to Hamas. The evidence is that we were caught by surprise. Iranian operations are mostly going to be beyond our ability to intercept through covert means due to how much our spy network was dismantled over the last decade through our own incompetence. You can compare this to the Ukraine invasion of Russia which we knew about well before it occurred.
However, the next question of how long this will go on and whether it’s part of a broader operation is still unknown.
3. Are Our enemies Cooperating
This is the big question. Are our enemies cooperating, or is this just a coincidental event that is unrelated to other geopolitical events? To make this more specific, I mean is this part of a bigger plan; and not just the obvious tactic of opportunists taking advantage of the administrative weakness that Joe Biden represents compared to Trump.
Well, are they? Are China, Russia, and Iran trying to stretch US support thin by targeting strategic US allies to force us to deplete our arms, and ammunition in support of them all? Maybe. While at this point it’s fair to say that Shia and Sunni Muslims in the Middle East are beginning to work in tandem against Western interests (unprecedented), it may as yet be a stretch to say that this is a part of a larger world war.
In the past, on this substack, I have alluded to separate western and eastern economic trade spheres slowly forming. So far Russia and Iran are the two countries that we have cut off from SWIFT and blocked their access to international banking. Russia and China were some of the first countries to flout this and trade with Iran despite the ban, and to this day they represent a primary lifeline for Iran when it comes to certain humanitarian goods like insulin.
But take a step back and think about how you felt when you read the title for this section. I framed China, Russia, and Iran as our “enemies.” How did you feel about that framing? Try to think about your own emotions and thoughts when you read the title of this section. Did you find yourself wanting to disagree with me? Or did you breeze right through it and start reading the section?
I framed it this way on purpose to make you stop and think about the concept. How do you feel about these 3 countries? They aren’t my personal enemies. I don’t like any of the governments in power. I have my own personal problems with the business ethos of Chinese (I hate working with Chinese companies). However, I have trouble viewing any potential conflict with them as aligned with my own interests or opinions. I’m in a country whose population has blithely voted in the majority to consistently dismantle societies, people, and governments across the Middle East, and Africa in my lifetime. We bully anyone who won’t bribe our government officials with our control of the global reserve currency. I understand why we might be viewed as an enemy by people living in those countries.
But I am not an island. Whether I like it or not, I am along for the ride of being an American citizen. I can impart what little influence I have to change things, but ultimately, I will live in a world that is determined by the victors of domestic US politics. I suggest you consider that as well. Many people do not participate in US politics and don’t vote while claiming that they are not responsible for what happens because they do not legitimize the system with their vote. I understand why you would think that, but simply by living here, you are responsible. Imagine you had a bad childhood (some of you do not have to imagine this, I am sorry), and it has had some long-term impacts on you as an adult. The symptoms, depression, or relationship issues, etc. are not your fault; you were a child. But you are an adult now, and whether they were your fault or not, they are now your responsibility.
I am an adult in America. Most policies, both foreign and domestic are not my fault and have nothing to do with me. But they are my responsibility now. Succeed or fail, we must try to impart positive influence where and when we can. Whether this means voting locally, calling your local representative incessantly, educating others on local elections, or participating in primary elections, I don’t know. But it should mean something to you.
Our foreign policy will determine who are and are not our enemies and we will get dragged into whatever conflict ensues. Were you willing to go along with my framing of a section in an essay? If you weren’t, consider how you may be going along with this framing as a citizen of your country.
4 Who’s the Bad Guy Here?
If you’re on social media you’ve probably seen people taking both sides in terms of who is wrong.
Some may make the argument about Israel stealing land from Palestine and occupying it. Even talk of kicking Palestinians out of their homes. Others may make the argument that the land was originally owned by Israel. There are some choosing sides based on their perception of who is killing civilians and who isn’t.
I don’t know.
But before you choose a side, it’s best to consider the distance of violence and your perception of it. There is a book called “On Killing” by Lieutenant Colonel Dave Grossman. The book is mainly focused on the psychological barriers you have to break through before you can overcome the inherent aversion we have to committing violence. Most people have a misperception about what/how the average human being behaves when given a gun and told to kill people without first being psychologically trained.
9/10 people if put in a group and told to shoot at another group will not shoot to kill. Most won’t fire their weapons or will intentionally fire over the other group rather than aiming at the group or at an individual.
The more personal the means of lethal force, the less people will do it when given the chance. In history, this meant that most battlefield deaths occurred when the enemy was retreating, because it was easier to stab a man in the back when he can’t look you in the eye than to stab him in the chest. This is why when people are being executed by firing squad they are first blindfolded or have a bag put over their head. It’s not to help the target, it’s to help the shooters.
This also means that the psychological toll of stabbing someone in the chest is higher than firing a machine gun into a squadron of infantrymen 150 yards away. And the toll of that is higher than firing a rocket at a helicopter or dropping a bomb on a tank. And the toll of that is higher than firing a mortar/artillery shell at coordinates you’ve been given. Almost anybody will yank a det cord on a howitzer aimed at unseen targets while in defillade, but far fewer men will aim their rifle at center mass (without psychological priming) and pull the trigger.
I won’t get further into the details of it, you can read the book if you want to do so (its fascinating), but I’ll get right to the point. The more personal the violence is, the more the average person recoils from it. To the victim, it makes little difference, dead is dead. But far more people will react to Palestinian combatants shooting old people at a bus stop or beating a woman to death at a music festival and then raping her than they will react to an entire city block in Gaza being turned to ash as frantic civilians try to dig their dead out from the rubble of what used to be an apartment block.
It’s easier to call the Palestinian a monster because the violence is far more personal and up-close than it is to react to aerial footage of an apartment blowing up and collapsing.
This is merely an issue of funding than it is of anything else. If Hamas had bombed the rave instead of shooting the civilians up close, might our reaction to it have been different? Bullets and insurgents are cheaper than planes and bombs. Yet we’re willing to pay for the bombs, clearly, there is another reason beyond the financial value. How many drone strikes of weddings have been shoved in our faces over the last 2 decades? We’ve grown cold to such forms of death. Shooting is far more personal and visceral, a stabbing even more so. Rape is probably the most visceral form of violence in this sense, and for good reason.
I’m not interested in picking sides here, only in making sure that we think about this issue from as rounded a perspective as we can achieve. This ultimately is not my war. My only hope is that it ends soon and with as little loss of life as possible so that people can rebuild and get back to living as best they can.
My enemies are not foreign, they are domestic, as are most of my concerns.
5. Broken US Legislature
Speaking of our enemies. The US legislature that is responsible for authorizing spending and setting a budget was very recently broken by Congressman Matt Gaetz. He’s one of a handful of US legislators who seems to have any concern for the interests of American citizens, and you may recall that we discussed the possibility of McCarthy being removed over his repeated failures as Speaker of the House. That has now happened.
McCarthy’s position will probably be threatened, as one of the new rules adopted when he was made Speaker of the House is that anyone at any time can call a resolution to remove him. Some in the Freedom Caucus are already threatening to do exactly this after the vote tonight.
Regardless of how the vote turns out, he should lose his job over this.
We’ll see.
The interim Speaker of the House is Patrick McHenry (R- NC). Without the Freedom Caucus, the uniparty would have continued to rule the Republican Party unopposed. We would no doubt have unlimited spending on war, and Continuing Resolutions ensuring that 8,000-page spending bills would appear every 4 months and our representatives would be given 92 seconds to read them before voting and the debt would continue to pile up.
To be clear, the debt is still continuing to pile up, but now that there are finally consequences for these useless breathers we may start to see more positive change from within the Republican Party. It would be nice if the Democrat Party had something similar within it pushing for sane legislature from a left-leaning perspective, but no such people have yet arisen on the Democrat side.
As such there is still a strong majority of legislators willing to spend an unlimited amount of money they don’t have to support the Military Industrial Complex and other interested donor parties. But, the House can’t introduce new legislation until a new Speaker of the House is chosen. In this, we can see just how dysfunctional our representatives are. They are ~40 days out from a government shutdown and need to elect a new speaker of the house before legislation can be introduced or read. Considering how slow they already work, they have no time at all to accomplish this. Considering the urgency of the current situation, they decided to recess (take a break) until today. Unbelievable.
At this point, I think the chances of a government shutdown in November are very high. Many government officials are concerned that we can’t send more money to Israel until the House elects a speaker, but Israel isn’t exactly helpless and can likely handle this without any additional aid from us at all.
Israel is the 15th country in terms of military expenditure. Spending $23.4 billion a year on defense, which is 4.5% of their GDP. Israel is also a nuclear country with anywhere from 80-400 nuclear warheads. Israel in fact is an arms and weapons exporter. They have sold/given weapons to Russia, China, Greece, Turkey, Azerbaijan, and about 2 dozen other countries. It’s only been 3 days and most of the narrative now is on whether or not Israel will invade, and how long/intense their retaliation will be. It’s fairly clear to everyone at this point that Israel is not in need of financial assistance and is not outmatched in any way shape or form.
I’m not entirely versed on the current supply of the Israeli armed forces. Perhaps they are low on certain types of bombs, explosives, or munitions. Maybe that’s where the urgency comes from. But from where I sit, I just don’t see why there is any urgency to help them here at all. They are a nuclear nation with extensive military resources fighting an insurgency dependent on tunnel networks and armed insurgents. We didn’t lose in Afghanistan. We just got tired and realized there was no point. Israel won’t lose here either.
Regardless, the US legislature will be unable to approve spending until they can agree on a new speaker of the house unless the current administration finds an unconstitutional method to approve funding. With the entirety of the media and political class on their side, no one will likely call them out for violating the highest law in the US to authorize spending in this manner, but it is still something to consider.
Currently, the two expected candidates for the US speaker of the House are Jim Jordan (R-OH) and Steve Scalise (R-LA). The only way anyone can be elected is with a majority of the votes of other house members. There are 435 seats in the House, so if all are there and all vote, then 218 votes are needed. However if a member is not present, or if a member votes “Present” instead of for a candidate, this lowers the amount of votes needed to win. So if only 400 votes are cast, then only 201 votes are needed to win.
Currently, there are 221 Republicans, 212 Democrats, and 2 vacant seats. The Republicans have a slim majority and if all of them can agree on one candidate then they can select a speaker. However, the Freedom Caucus has 45 members in the House, so unless Democrats vote for the Republican candidate, the Freedom Caucus can hold significant sway over who wins. Jim Jordan is the Deputy Chair of the Freedom Caucus, and if the Republicans were to elect him it would show a significant surrender to Freedom Caucus priorities. These priorities primarily center around a decrease in spending and a balanced budget, along with decreasing the scope of federal agencies like the IRS, ATF, SEC, etc. Obviously, they are my preference when it comes to who should be in control of the Republican Party.
We’ll see.
For now, the legislature is unable to authorize any additional spending until they can decide on a new leader. As far as I’m concerned, they can debate for as long as they want. I’d rather see the government shut down than to continue to cause inflation and ruin economic opportunities for those willing to work.
5. Central Bank Macro
Where we’ve left off the US Federal Reserve had 2 remaining rate hikes on the table for the rest of the year.
One of those rate hikes occurred in July, as expected. September was a dead meeting and nothing happened, as expected. And the Fed’s last hike of the year was forecast to occur at the November 1st meeting. I personally think that is still on the table, but since then we’ve seen some more large entities operating in the US treasury bond markets.
2 weeks ago the USD/JPY hit 150 and the Japanese government sold more US treasuries to bid the Yen and bring the exchange rate back down briefly. Then when Israel was invaded Israel also sold off some of their own US treasuries to bolster the shekel.
However, most treasury yields went down once the markets opened today (Monday 10/9) as a significant number of speculators believe that the Fed will not finish its hiking cycle and may cut rates soon.
I tend to disagree with the speculators here. Quite a few are antsy and looking for the next cycle to begin. You may remember this pattern having emerged last year as well when the Uptober narrative began to emerge. The Uptober narrative died soon after it began since it was predicated mainly on hopium. I was told an entire year ago that I was going to be too late in the group chat. It’s been a year, and the fed hasn’t pivoted yet.
The entirety of this cycle we have watched Jerome Powell keep his word at every step of the way regarding what the Fed will do, and yet we have watched speculators bet against him at every step. At some point, you have to sit on your hands and be patient. Being a couple of weeks or a month late to the next cycle isn’t going to break you. But being a few weeks or months early on a trade like this most certainly can. As stated at the beginning of the year, the secular market bottom has already occurred, but the next bull cycle still hasn’t begun.
Are we in a recession? Absolutely. But how soon will the Fed act? Slower than you think, and then all at once. In my opinion, we’re still going to get one more rate hike on November 1st, and it will be the last one in this cycle. I also think the Fed will try its best to hold rates high for as long as it can.
Housing Market Updates
Of course, this means that the housing market, but in particular the AirBnB market, as well as commercial real estate, will continue to hover precariously in the position it’s in.
Quite a lot of people piled into the AirBnB market in the late oughts all the way to 2022. AirBnB can be a better business model than long-term rentals, which is why many piled into it, but it is a limited market, and the Pareto principle applies here. The top 5% of AirBnB’s in any given area are likely commanding over 40% of the listings in that same area. Many people put homes on AirBnB with the hope that it would cashflow without doing the work to form a proper business model. In truth, the only homes that really work on AirBnB are those that were purpose-designed to excel on the website and have independent listings outside of AirBnB; or those that were meaningfully converted and focused on the service experience.
Unfortunately, quite a lot of people piled into this market with unrealistic business models for the property. A good Airbnb can provide a Cash on Cash return of 20-50%. But a bad AirBnB falls even below what a traditional Long Term Rental can provide (8-12%). Even deep into 2022, people were levering up to buy AirBnB’s. In a normal market, this would be fine, since a failing AirBnb can always be sold for close to what’s owed. However, interest rates have risen considerably over the past year. For shits and giggles, I pulled up a Pro-Forma business model I had built for an Airbnb to be financed back in January 2022. 30-year mortgages were going for 2.72% back then, and the CoC return was anywhere from 26%-34%.
Even if you raise mortgage rates from 2.72% to 7.8%, the CoC return is still 15-23%. It’s still doable. However this property was going to be custom built from the ground up specifically for AirBnB. Converting a regular home results in far less cash flow and return. If you bought in 2022, like this modeled purchase, and there wasn’t continued property appreciation in the area, you would have no exit strategy if the business model wasn’t working. Property in the area for this modeled property has doubled since then (yes, even with rates doing what they did) so it wouldn’t have had this risk, but a lot of people purchased AirBnB’s recently who are in a very precarious position. They can’t sell, and the business model isn’t working.
Owner data on AirBnB’s has shown a significant drop in revenue per owner this year across multiple areas. This is due to listings on Airbnb increasing by ~50% over the last 5 years, and also consumers are just fed up with it. Hotel revenues have increased this year, with travelers shifting away from Airbnb because the service experience on AirBnB is really hit or miss, with a lot more miss than hit.
How much is your peace of mind worth on check-out day? It has a price, and many hosts abuse the service experience without realizing that it’s integral they gain and retain customers. I expect that over the next year, we’ll see many AirBnB foreclosures as the next group of prominent casualties from US interest rate policy.
We’re going to get one last hike. And Powell is going to hold rates up for as long as he can. The BTFP is still open and will remain open until March 2024, so banks are not bearing the burden of the duration risk that is otherwise hitting the treasury holders right now. There is nothing stopping the Fed from opening more temporary swap desks as contagion events emerge in order to avoid having to cut rates. It’s also quite possible that the Fed will begin intervening in the yield curve Japanese style while holding the overnight rate up. There is quite a lot that the Federal Reserve can do in the future while holding rates high. Speculators are eager for the next cycle to begin, but we’re still not there yet.
6. A World War?
So the question or thought that is on the mind of many people is; “is this conflict going to extend itself and continue alongside the Ukraine conflict?”
I don’t know, but that is certainly a possibility if Hamas and Hezbollah receive even more help while the West mostly stays out of it.
Will another conflict pop off that further draws lines between nation-states? In February we covered 7 active conflicts ongoing that could potentially force nations to choose sides as part of the narrative of a larger conflict.
Since then the conflicts of post-colonial France in Africa have escalated, while Turkey and Greece have temporarily shelved their dispute.
It’s far too early in my mind to be speaking about a potential world war, but it is important to be cognizant that almost every single conflict that is occurring pits the West against the East in some form or fashion with the exception of Azerbaijan-Armenia since no one seems interested in taking the Armenian’s side as they are being invaded and are losing their land. Armenia doesn’t have any oil or claims to meaningful mineral deposits, while Azerbaijan has significant oil deposits. Russia attempted to temper Azerbaijan’s aggression, but even they are primarily allied with Azerbaijan first, so Armenia is the forgotten one in this game unfortunately. Other than that, there are clear sides in most every conflict, and because of that, a potential US response is on the table for all of them as well.
And maybe a US response is the goal? Who knows, but it’s too soon to really speculate beyond just the question of whether Iran is involved in this current invasion or not.
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HELL YEAH
I genuinely missed reading your substack man. I am very grateful to be reading this. Enjoyed it immensely, despite the horrible nature of the context. Thanks for providing an important and feasible background into the possible intelligence failure that made this whole invasion possible. I never knew about any of that.
Again, glad you’re back. I wondered if you were done for good, but never entertained that thought for long (I didn’t want you to be done).
Hotels on aggregate are growing but overall luxury resorts are flat to down, still crazy high vs 2019. Also for upper-priced ABB they may have felt the US to Europe rebound over the summer, since as late as June 2022 there were still some covid testing requirements.
Thank you as always for a thorough and unique viewpoint, and encouraging us to take some accountability.