Laws are like sausages, it’s better to let the machines make them. From the Financial Times:

The United Arab Emirates aims to use AI to help write new legislation and review and amend existing laws, in the Gulf state’s most radical attempt to harness a technology into which it has poured billions.

The plan for what state media called “AI-driven regulation” goes further than anything seen elsewhere, AI researchers said, while noting that details were scant. Other governments are trying to use AI to become more efficient, from summarizing bills to improving public service delivery, but not to actively suggest changes to current laws by crunching government and legal data. . .

Rony Medaglia, a professor at Copenhagen Business School, said the UAE appeared to have an “underlying ambition to basically turn AI into some sort of co-legislator,” and described the plan as “very bold.”

Retail doubles down: The spring selloff has done little to mute animal spirits, with leveraged long exchange-traded funds gathering a net $6.6 billion during the five days through April 11, per a Thursday Bloomberg bulletin. That’s more than double any prior weekly haul over the past two years and roughly ten times the sum flowing to bearish-biased products. Thanks to an influx of fresh cash, shares outstanding across the 50 most popular leveraged ETFs jumped 20% from the April 2 “Liberation Day” through the end of last week, Citigroup-compiled data show.

“Amongst our most active traders, we see a willingness, if not eagerness, to embrace the volatility in hopes of maximizing their profit potential,” Interactive Brokers’ chief strategist Steve Sosnick told Bloomberg, noting that six such leveraged vehicles ranked among the platform’s top 25 most actively traded assets last week. “There’s a generation of investors who have become quite willing to accept risk.” 

Indeed, another type of pitfall appears front of mind for that bulled-up cohort: the fear of missing out. “These ETFs are very popular because they help investors get back into the market quickly and aggressively,” observed Matt Maley, chief market strategist at Miller Tabak + Co. “A lot of them are worried that we’ll get another big V-shaped recovery.”

After both the March 2020 Covid swoon and 2022 “transitory” selloff promptly gave way to roaring bull markets, the dip-buying impulse is hard-wired into market psychology.  Witness the $4.7 billion in net stock purchases by individuals on April 3 – when the S&P 500 responded to President Trump’s aggressive tariff proposals with a 4.8% drop – the largest single session shopping spree on record by JPMorgan’s lights.  

Of course, that strategy works until it doesn’t. BNY Mellon head of markets macro strategy Bob Savage drew the analogy last week of a repeatedly-stretched rubber band which snaps back time and again before, finally, breaking apart. “Outsized moves down [can] have a tipping point linked to volatility and the state of the economy,” Savage wrote.  In the meantime, old habits die hard.

Better late than never: Reserve Bank credit stands at $6.681 trillion after ticking higher by $3.1 billion over the week ended April 16.  The Fed’s portfolio of interest-bearing assets is down $31 billion since the middle of March and remains roughly 25% below its early 2022 peak.

Stocks were clubbed by 2.4% on the S&P 500 to extend the blue-chip gauge’s two-plus-month drawdown to 16%, though a late rally shaved about a percentage point from the day’s losses. Treasurys fared little better as curve steepening continues apace; the long bond settled at 4.91% after changing hands near 4.5% to start the month. WTI crude retreated below $63 a barrel, gold leapt higher by 3% and change to $3,425 per ounce, bitcoin rose above $87,000 and the VIX settled near 34 after a four point advance.

- Philip Grant

Crypto trading concern Galaxy Digital is set to add some serious heft to the Nasdaq when it completes its IPO as soon as next month, on a pro-forma basis, at least. Thus, revenues registered at $42.6 billion in calendar 2024 per a recent SEC filing, more than double BlackRock’s $20.4 billion last year.  Founded in 2018, Galaxy employed 520 individuals as of Dec. 31, compared to 37-year-old BlackRock’s near 20,000 corporate headcount.

But as DL News pointed out Monday, there may be less than meets the eye at Michael Novogratz’s outfit. “Firms in the trading space have different ways of presenting their volumes and the commissions that they earn on those volumes,” Benchmark fintech and digital assets analyst Mark Palmer (who covers Galaxy), told the crypto publication. “In Galaxy’s case, it presents its trading volumes as total revenue.”

Everything must go! U.S. shoppers showed up in force last month, as March retail sales vaulted 1.4% from the prior month according to the Commerce Department, topping the 1.2% Dow Jones-compiled consensus and marking the strongest sequential showing since January 2023.

“Consumers [are] continuing to spend, and that is ultimately the basis of the U.S. economy,” Bank of America CFO Alastair Borthwick commented Tuesday. “The signals at this point from the consumer are that the economy remains in good shape.”

Yet the April 2 “liberation day” tariffs loom uncomfortably large over that key cohort, potentially driving the recent burst of activity while serving as a headwind against continued strength.  There “would appear to be a little bit of front loading of spending, specifically in items that might have prices go up as a function of tariffs,” commented JPMorgan CFO Jeremy Barnum.

To that end, respondents to The Conference Board’s consumer confidence survey for March evinced a less-than cheery disposition towards the commercial backdrop. The Expectations Index – which tracks the short-term outlook for income, business, and labor market conditions – sank 9.6 points from February to 65.2, the lowest in 12 years. Readings south of 80 typically signal recession ahead, The Conference Board relays.

Then, too, the national average credit score tabulated by FICO fell to 715 in February from 717 a month earlier, data released today show, marking only the second sequential decline in over a decade following a near uninterrupted march higher from the fall 2009 lows.

Meanwhile, high-stakes tariff squabbles could serve to keep both enterprises and individuals closer to home. A freshly released poll from the Global Business Travel Association finds that “a significant portion” of the 900 plus industry respondents anticipate warming activity, with only 31% of surveyed travel managers expressing optimism over the industry’s outlook for 2025. That figure stood at 67% in November.

Oversees tourists are increasingly taking a pass on the 50 states, with arrivals to the U.S. by plane declining nearly 10% year-on-year in March per the International Trade Administration. Citing data from IAG Aviation Worldwide, Bloomberg relays that Canadian flight reservations to its southerly neighbor from now through September are off 70% from last year’s pace, while European tourists have throttled back their summer bookings at Accor SA-branded hotels (which include Adagio, Sofitel, Fairmont and Swissotel) by 25% from this time in 2024.

Will spendthrift American leisure enthusiasts manage to pick up the slack?  Delta CEO Ed Bastian isn’t counting on it, commenting on CNBC last week that “I think everybody is going into a defensive posture” and that activity “really started to slow” around Valentine’s Day. Late last year, Bastian ventured to predict that 2025 would the “best financial year” in the 100-year-old airline’s history.

Might such malaise extend to other pillars of the consumer economy? See the March 28 edition of Grant’s Interest Rate Observer for a bearish look at one U.S.-listed vacation mainstay which is ramping up capacity into today’s forbidding backdrop, potentially imperiling a premium valuation relative to its industry peers.  

Stocks were clubbed by 2.2% on the S&P 500, though the broad average managed to finish about half a percent above its worst levels of the afternoon, while Treasurys enjoyed broad-based strength with 2- and 30-year yields sinking seven and five basis points, respectively, to 3.77% and 4.74%. WTI crude pushed towards $63 a barrel, gold continued its frenzied rally with a near 4% advance to $3,337 per ounce, bitcoin remained just above $84,000 yet again and the VIX rose just under three points to settle near 33.

- Philip Grant

After all, laws don’t write themselves. From CoinDesk:

Crypto's moment has seemingly arrived in Washington, D.C., and the industry is trying to make the most of it. But as new organizations hatch and leadership shifts at the top advocacy operations, the field of pro-crypto groups trying to carry the torch is more crowded than ever.

No fewer than a dozen groups — including the Digital Chamber, Blockchain Association and Crypto Council for Innovation — are seeking to steer digital assets policies in the U.S., some of them substantially overlapping in their membership bases, funding sources and in the goals they're seeking to accomplish.. .

Congress is chasing several crypto bills, including legislation to set boundaries for crypto markets, oversee stablecoin issuers, curtail digital assets in illicit financing, call for proof of reserves at crypto firms and set up government digital reserves. 

A “trade war and tariff war will produce no winner,” China’s president-for-life Xi Jinping declared in Vietnam over the weekend.  While Xi’s point may survive the exaggeration, gold appears a prominent exception to that dour forecast: spot prices vaulted above $3,200 per ounce for the first time Friday, wrapping up its best week since March 2020 and leaving year-to-date gains at 22% following today’s moderate pullback.

Investors in the Middle Kingdom have certainly taken a shine to the yellow metal, with intense buying interest serving to push local prices to a $20 per ounce premium per Bloomberg. Onshore ETF inflows have likewise set repeated weekly records this year, with the most recent, five-day influx of RMB 12.4 billion ($1.7 billion) nearly doubling the prior such high-water mark.  More broadly, physical gold ETFs around the globe logged a net $21.1 billion inflow over the three months through March according to the World Gold Council, the strongest such figure since Russia commenced its Ukraine invasion in early 2022.

Such broad-based interest “helps support and stabilize gold prices even amid external volatility,” State Street Global Advisors gold strategist Aron Chan told Bloomberg. “This demand is less speculative and more strategic or culturally embedded, which means it is stickier and more resilient.”

Wall Street is hopping aboard the bandwagon, with analysts at UBS bumping their 2026 average gold price guesstimate to $3,500 per ounce from $2,900, writing that the bull case “has become more compelling than ever in this environment of escalating tariff uncertainty, weaker growth, higher inflation and lingering geopolitical risks.”  Peers at Goldman Sachs call for a $4,000 per ounce bullion price next year, predicting that world governments will accelerate their average monthly purchases to 80 tons from the current 70-ton baseline. “Recent flows have surprised to the upside, likely reflecting renewed investor demand in hedging against recession risk and declines in risk asset prices,” Goldman added.

Though gold’s adversity-hedging bona fides are long established, firms charged with extracting the precious metal have earned a spottier reputation. Thus, the NYSE Arca Gold Miners Index sank by more than 70% on a peak-to-trough basis during the 2008 crucible and more than 50% during the dot.com bubble unwind, materially lagging the S&P 500 during both of those bear markets.   

Contrarily, several fundamental factors serve to burnish the present-day bull case, including inviting valuations – both relative to the underlying gold price and projected earnings – alongside improving profit margins and relatively tidy balance sheets. Meanwhile, the seemingly ever-present specter of monetary intervention by Jerome Powell and friends looms as a potent potential tailwind for the group.  See the current, April 11 edition of Grant’s Interest Rate Observer for a history-informed look at the risks and opportunities at hand for gold mining investors, alongside a captain of industry’s thoughts on today’s backdrop with a trio of his favorite names.

Stocks posted a 0.8% gain on the S&P 500, as the broad average settled near the middle of its range following an opening jaunt higher and pullback to unchanged in the middle of the session, while Treasurys managed to bounce with 2- and 30-year yields dropping to 3.84% and 4.8%, respectively, down 12 and 5 basis points on the day. WTI crude consolidated near $62 a barrel, gold ticked lower at $3,211 per ounce, bitcoin finished little changed at $84,800 and the VIX dropped 6.5 points to 31.

- Philip Grant

From the Financial Times:

The chair of UBS has criticized proposed reforms to bank capital rules in Switzerland, calling the measures “extreme” and saying they would force the lender to hold 50% more capital.

Colm Kelleher said on Thursday that new rules being proposed by the Swiss government and financial regulators would significantly push up the lender’s capital requirements and could damage its ability to compete internationally. . .

 “We strongly oppose these extreme additional capital requirements. UBS is already subject to some of the most stringent capital requirements in the world.”

Triple-levered ETFs are for pikers.  Stateside cryptocurrency punters are set to add a potent weapon to their speculative arsenal, as Bloomberg reports that regulators may approve perpetual futures contracts in short order.  “I think we are definitely moving in a direction of crypto-based derivatives being available in the U.S.,” advises Gabe Rosenberg, partner at law firm Davis, Polk and Wardwell. “To me, it is really just a matter of time.”   

The contraptions, which track spot prices and offer exposure to the category without needing to hodl the underlying assets, can be geared up to 100 times the original cash outlay. Perpetual futures often account for up to $70 billion of daily volume on the Binance exchange, relays Kaiko research analyst Adam McCarthy, dwarfing the $20 billion or less in spot market turnover typically seen during a given 24-hour stretch. “Perps have really been the heart and soul of the crypto market over the past decade,” he added.

A broader regulatory reshuffle accompanies that prospective arrival, as the Department of Justice will curtail its efforts to crack down on crypto-related malfeasance per The Washington Post.  Deputy Attorney General Todd Blanche detailed the policy pivot in a Monday staff memo, writing that agencies including the Securities and Exchange Commission and Commodity Futures Trading Commission are better equipped to handle such cases. As part of that shift, the DoJ will dissolve the National Cryptocurrency Enforcement Team, a Biden-era initiative designed to “address the challenge posed by the criminal misuse” of the digital ducats.  

Those developments are par for the course under the auspices of President Trump, America’s first self-styled crypto commander-in-chief and progenitor of the Strategic Bitcoin Reserve and U.S. Digital Asset Stockpile.  

The opposition party takes a dim view of the president’s industry bona fides, which includes a moonlighting gig as “Chief Crypto Advocate” of the Trump family-controlled decentralized finance (DeFi) platform World Liberty Financial.  

Last week, Sen. Elizabeth Warren (D-MA) and Rep. Maxine Waters (D-CA) penned a missive asking the SEC to preserve records and communications relating to that side-hustle, writing that “the Trump family’s financial stake in World Liberty Financial represents an unprecedented conflict of interest with the potential to influence the Trump Administration’s oversight—or lack thereof—of the cryptocurrency industry.”

Recent developments suggest that those concerns may fall on deaf ears. Yesterday, the Senate confirmed Paul Atkins as new SEC chair in a 52 to 44 vote, elevating the George W. Bush-era SEC commissioner to the big seat. Atkins has long staked out an antagonistic stance towards the Public Company Accounting Oversight Board and is also a noted crypto enthusiast, with Forbes pointing out late last month that he owns up to $6 million in digital assets.

What surprises might an unfettered crypto market spring upon a financial edifice which seems to be hardly in need of more? See “The two lives of Donald J. Trump” in the March 28 edition of Grant’s Interest Rate Observer for a closer look at that key topic.

Reserve Bank credit stands at $6.679 trillion following an $8.5 billion decline over the past seven days.  The Fed’s portfolio of interest-bearing assets is down $33 billion from four weeks ago, and 25.1% from its early 2022 peak.

Yesterday’s reprieve proved short-lived as stocks rolled lower again by 3.5% on the S&P 500, alongside a noteworthy dislocation as the SPDR S&P 500 ETF Trust declined by 4.4%. Long-dated Treasurys also remained under pressure with 30-year yields jumping 14 basis points to 4.86% despite a relatively well-received auction this afternoon, while the two-year ebbed to 3.84% from 3.91% Wednesday. WTI crude fell 3.5% to $60 a barrel, gold jumped 3% to a fresh high of $3,172 per ounce, bitcoin slipped below $80,000 and the VIX settled just above 40 after briefly approaching 55 in late morning.

- Philip Grant

Friend request, or friend demand? From Politico:

Mark Zuckerberg is the latest billionaire to shell out tens of millions of dollars for a pricey outpost in Donald Trump’s gilded capital.

For a month, neighbors in Washington’s upscale Woodland Normanstone neighborhood have speculated about the unidentified buyer who paid $23 million in cash for a 15,000-square-foot mansion. The sale was the third-most expensive in city history and was shrouded in secrecy, with real estate agents muzzled by non-disclosure agreements. . .

Real estate pros who have followed the sudden surge in upper-bracket D.C. real estate transactions say a newfound interest in Washington reflects the culture of the second Trump administration — where private-sector CEOs have gotten the message that the way to the administration’s heart is by showing up in person.

“I think it’s [a matter of] proximity and being here,” said Tom Daley, a longtime veteran of Washington’s high-end real-estate game. “It’s the ultimate bow to the man in the White House.”

A sea change in stock market ownership accompanied the violent downdraft seen late last week: hedge funds staged their largest single-day net sales of global equities on Thursday since at least 2010 per Goldman Sach’s prime brokerage desk, with upwards of 75% of that record net selling taking place in North America. Those fiduciaries collectively bumped short positions across U.S. indices and exchange traded funds by 22% over the five days through Friday, the biggest weekly uptick in over a decade.

“I worry that, [following the] April 2 tariff announcement, it will be very difficult to ‘put the toothpaste back in the tube,’ even if or when we see positive developments on the negotiation front,” Goldman’s John Flood wrote, by way of articulating the bear case.

Another constituency proves less inclined to change tack.  Retail investors undertook a net $4.7 billion in U.S. stock purchases during Thursday’s downdraft according to JPMorgan, the largest single-session shopping spree in at least 10 years. 

Such a dip-buying impulse was notably absent during the Covid-induced meltdown in March 2020, JPMorgan’s Emma Wu relays, but the now-bygone bull market helped bring such tactics to the fore. Thus, retail investors responded to the 4% decline in the S&P 500 over the four weeks through March 27 with a net $32.9 billion of domestic stock purchases according to Vanda Research, equivalent to the 97^th percentile of such inflows since 2014.

The steep subsequent selloff shines the spotlight on individuals’ pain threshold, with a Goldman Sachs-constructed basket of retail favorites off by 35% from its mid-February highs. With institutions acting as “heavy sellers” late last week, Goldman’s focus shifts to “the biggest holders of [stocks] – U.S. households – who have not yet shed risk.”   

There is plenty of risk to shed, with American households allocating a record 43.5% of assets to the stock market as of year-end per the Federal Reserve Bank of St. Louis, exceeding the 38.4% share seen during the dot.com bubble peak in 2000 (the first quarter figures are set to be released in mid-June). “It’s these crowds who will likely be the arbiter of price action over the next several weeks, as the [corporate] buyback cavalry doesn’t arrive until the end of the month,” Goldman adds.

Stocks settled lower by 0.2% on the S&P 500 after more early convulsions featuring a mammoth 8.5% peak-to-trough trading range, leaving the broad index lower by about 14% in the year-to-date.  Treasurys took their turn in the pain chamber, with 2- and 30-year yields jumping 5 and 17 basis points, respectively, to 3.73% and 4.58%, with the long bond settling at an April high. WTI crude retreated below $61 a barrel, gold remained under pressure at $2,975 per ounce, bitcoin settled at $78,400 and the VIX reached 48, up 26 points over the past five trading days.

- Philip Grant

Plainspoken RH (née Restoration Hardware) CEO Gary Friedman didn’t disappoint during yesterday’s earnings call – which took place during President Trump’s market-roiling tariff announcement – remarking thus after checking the high-end home furnishings outfit’s share price reaction:

Oh, shit. OK. ... I just looked at the screen. I hadn’t looked at it. It got hit when I think the tariffs came out.

And everybody can see in our 10-K where we’re sourcing from, so it’s not a secret, and we’re not trying to disguise it by putting everything in an Asia bucket.

Honesty is the best policy, but Mr. Market is suddenly in no mood to credit managerial forthrightness.  RH stock settled lower by 40% and is off 62% in this still-young (believe it or not) 2025.

It’s the trade dispute everyone is talking about, Japan versus China. This morning, Beijing’s Ministry of Commerce issued a statement protesting its easterly neighbor’s plans to apply export controls on upwards of a dozen items across the semiconductor supply chain beginning May 28.

“We urge Japan to exercise rational decision making [and] promptly correct its misguided practices,” the MoC said, adding that “China will take necessary measures to resolutely safeguard its legitimate rights and interests.”  Back in December, the Middle Kingdom tightened export rules on a quartet of semiconductor raw materials, spurring a Japanese government official to characterize that move to the Financial Times as “some sort of declaration of economic war against the world.”

As protectionism-induced turmoil cascades across the semiconductor industry, news from the White House that the sector will remain exempt from U.S. reciprocal tariffs represents no small silver lining. Major players such as Taiwan Semiconductor enjoy a highly integrated supply chain and assemble most of their products outside the 50 states, Thornburg Investment Management portfolio manager Sean Sun notes to Bloomberg, which could cushion the blow against second-order cost pressures.

Even so, geopolitical strife has already forced one such entrant to adapt on the fly. The Financial Times relays today that Samsung’s chips division has pivoted towards China to the tune of a 54% uptick in exports last year, capitalizing on local stockpiling of artificial intelligence-related equipment in response to U.S. export controls.

By contrast, Samsung’s U.S. business is enduring notable pain, “bleeding” market share to rival Taiwan Semi, which plans to pour more than $100 billion into an Arizona fabrication facility.   “Samsung and China need each other,” CW Chung, joint head of APAC equity research at Nomura, told the FT. “Chinese customers have become more important for Samsung, but it won’t be easy to do business together.”  

Instructively, business conditions across a trio of prominent Western players left something to be desired prior to the recent escalation of economic hostilities.

Thus, average inventories at Texas Instruments, ON Semiconductor and Infineon Technologies reached 208 days’ worth of stock on hand as of Dec. 31, up a hefty 68% from the average reading over the 10 years through 2023. See the current edition of Grant’s Interest Rate Observer dated March 28 for an informed speculation on the consequences of that buildup, for both economic health at large and the AI revolution in particular.  

No relief was forthcoming following the outsized overnight gap lower in stocks, with the S&P 500 finishing at session lows with a near 5% decline, extending year-to-date losses to more than 8%.  Treasurys saw frantic bull steepening with two-year yields collapsing by 20 basis points to 3.71% while the long bond ticked to 4.49%, down a routine five basis points on the day.  WTI crude tumbled 7% to less than $67 a barrel, gold logged a modest pullback at $3,108 per ounce, bitcoin fell below $82,000 and the VIX rampaged to near 30, up just over eight points.

- Philip Grant

In one respect at least, leverage is in short supply at CoreWeave. From CNBC:

Wall Street banks waited a long time for a billion-dollar IPO from a U.S. tech company. They’re not making much money from the one they got.

The underwriting discount and commissions paid by artificial intelligence infrastructure provider CoreWeave, which hit the Nasdaq on Friday, amounted to just 2.8% of the total proceeds, according to a Monday filing with the Securities and Exchange Commission. That means that of the $1.5 billion raised in the offering, $42 million went to underwriters.

That’s on the low side historically. Since Facebook’s record-setting IPO in 2012, there have been 25 venture-backed offerings for tech-related U.S. companies that have raised at least $1 billion, with an average underwriting fee of 4%, according to data from FactSet analyzed by CNBC.

Behold the delicate balance between freedom and security:  Conventionally-safe assets remain de rigueur ahead of tomorrow’s “tariff liberation day,” as evidenced by gold’s latest leg higher above $3,100 per ounce, along with the iShares 20+ Year Treasury Bond ETF’s ascent towards year-to-date highs with a near 5% advance for 2025.

Without substantial clarity from the Trump administration regarding its tariff-related gameplan, “we expect investors to lose increasing amounts of confidence in the global economic outlook,” Morgan Stanley strategists wrote Monday. “We think that both [investors and business leaders will] continue to lose confidence, even after April 2 passes.”

Heightened risk aversion redounds to the benefit of one stock market cohort, with the S&P Insurance Select Industry Index logging an 8% year-to-date advance, comfortably outpacing the broad index’s minus 4% showing (both figures are inclusive of reinvested dividends).  

For its part, industry mainstay American International Group marked an evocative milestone Monday, with shares reaching their highest levels since September 2008, shortly before its infamous collapse and de facto takeover by the U.S. government under the weight of a sprawling, misvalued derivatives portfolio.

After failing to turn a profit from its core underwriting business in all but one year from 2008 to 2020, AIG has successfully course-corrected under CEO Peter Zaffino, who took the reins in March 2021. Thus, debt as a share of total capital ebbed to 17% on Dec. 31 from 31.1% in 2022, while the combined ratio – operating expenses plus claims costs divided by net premiums earned – registered below 92% during each of the past three years. That compares to an average of 105.7% over the half decade through 2021.  

Not taking those achievements lying down, Zaffino laid out ambitious operating targets at Monday’s investor day including a 13% return on equity by 2027 versus the 9.1% seen last year, while authorizing a $7.5 billion share repurchase (which includes $3.4 billion remaining under a prior plan), equivalent to about 15% of its market cap.

“Over the past five years, AIG has undergone a dramatic shift, evolving from a complex conglomerate into a streamlined property and casualty insurer,” analysts at Deutsche Bank wrote March 6. “Many investors, particularly those who do not closely follow the insurance sector on a day-to-day basis, may not fully appreciate the extent of this restructuring, which has included significant de-risking of its balance sheet and a strengthening of its underwriting practices.”

Featured as a pick-to-click in the Nov. 22 edition of Grant’s Interest Rate Observer, AIG has since generated a 15% return, compared to a 5% loss for the S&P 500.  The stock now changes hands at just over 14 times consensus 2025 earnings forecasts, up from about 11.5 times on publication date.

Notably, AIG’s latest profitability-boosting efforts include the wholesale embrace of a foremost Wall Street fad. The firm detailed plans Monday to allocate between 12% and 15% of its general insurance portfolio to private credit, up from the current 8%, to help offset declining investment income following the Federal Reserve’s recent rate cuts. Private equity holdings will likewise rise to between 6% and 8% of portfolio assets from today’s 5% share.

Stocks notched their second straight hard-earned green finish, advancing by 0.4% on the S&P 500 after toggling across the unchanged line several times during the session.  Treasurys rallied in bull-flattening fashion with 2- and 30-year yields dipping two and seven basis points, respectively, to 3.87% and 4.52%.  WTI crude held above $71 a barrel, gold consolidated recent gains at $3,119 per ounce, bitcoin ticked above $84,000 and the VIX edged below 22.

- Philip Grant

Your Bloomberg headline of the day:

*COREWEAVE CEO: WITHOUT NVIDIA ANCHOR, IPO WOULDN'T HAVE CLOSED

Alongside supplier-cum-customer-cum-investor Nvidia, a pair of other backers performed some heavy lifting on the deal. Three firms collectively snapped up half of the $1.5 billion in stock which came for sale in today’s Nasdaq debut, Bloomberg reports.

Number go up, Washington, D.C. edition:  The Trump administration’s Wednesday announcement of a flat 25% tariff on imported vehicles and parts beginning next week “represents a profound disruption to the global automotive model,” analysts at Bernstein warned yesterday.   

The proposed levies represent an aggregate $110 billion impact, Bernstein’s Daniel Roeska et al. estimate, equivalent to 14% of industry revenues. Ford and General Motors could each see their earnings before interest and taxes squeezed by 30% in 2025, the sell-siders reckon, “even with some price pass-through and sourcing adjustments.”

Such mitigatory steps invite their own costs.  The Wall Street Journal reports that Trump personally warned auto executives earlier this month that “they would face punishment if they increased prices,” adding “they should be grateful” he junked Biden-era electric vehicle mandates and emission rules. “It is difficult to see how imposed tariffs over time would not have some impact on prices,” rejoined Matt Blunt, president of the American Automotive Policy Council.

Needless to say, such a drastic shift would loudly reverberate across relevant asset prices. The private credit realm is not exempt from potential pain, as LCD relays that the automotive sector accounts for 3% of loan holdings among business development companies (which represent an industry proxy), with $5.4 billion in outstanding paper on a cost basis as of Sept. 30.  “To the extent that tariffs result in a renewed cycle of margin compression among middle-market borrowers, we would expect the divergence between weak and strong [credits] to expand further,” Morningstar DBRS analysts wrote Wednesday.

Other Trump administration initiatives pose a greater threat to the heretofore-fat-and-happy direct lenders. Elon Musk’s newly-minted Department of Government Efficiency has enterprise software and business services firms “in its crosshairs,” PitchBook LCD relayed Wednesday, “gutting” contracts across the cybersecurity, research, HR and legal software and managed IT services categories in recent weeks.

That cost-cutting drive hits the private credit sector where it hurts, with 14.5% of BDC portfolios allocated to the technology sector, more than any other.   Enterprise software and business services outfits are particular favorites, offering lenders “reliable revenue streams and higher level of renewal rates” due to high switching cost and “are often less cyclical and operate with low overhead and capex,” PitchBook notes.

While DOGE’s ultimate impact on Uncle Sam’s ledger remains anyone's guess, private credit’s response to sustained portfolio company pressure may be easier to suss out. Thus, the share of payment-in-kind (i.e., servicing existing debt with more debt rather than cash) reached 9% of interest and dividend income across the 10 largest BDCs in December, LCD finds, up from 8% at the end of 2023 and 6% two years before that. Twenty-five loan facilities converted some or all of their cash interest to PIK during the fourth quarter, nearly matching the 29 such transitions logged over the prior six months combined.  

PIK features are now virtually “ubiquitous” in private credit loan documents, ratings agency KBRA relayed earlier this month. “It’s become a bit institutionalized,” commented KBRA global head of corporate, financial and government ratings William Cox. “I think lenders would generally like for it to be more optional and more negotiated, as opposed to ‘take it or leave it.’ But that is the state of the market right now, given that there’s so much more of a supply of capital than there are loans.”

Stocks were clubbed by 2% on the S&P 500 and 2.6% on the Nasdaq 100, leaving those gauges lower by 5% and 8%, respectively, in the year-to-date with one session remaining in the first quarter. Treasurys rallied sharply with the policy-sensitive two-year yield dropping eight basis points to 3.89%, matching its 2025 nadir, while WTI crude fell to $69 a barrel and gold vaulted another 1% and change to $3,082 per ounce. Bitcoin sank below $84,000 and the VIX settled close to 22, up just under three points on the week.

- Philip Grant

Don’t leave home without it. From CNN:

A United Airlines Boeing 787 jetliner flying from Los Angeles to Shanghai had to turn around last weekend after it was discovered one of the pilots had taken off without a passport, the airline told CNN in a statement.

Flight UA 198 departed LAX at around 2 p.m. Saturday, March 22, with 257 passengers and 13 crew onboard and headed northwest over the Pacific Ocean, bound for China’s largest city.

About two hours later, the plane turned around and was redirected to San Francisco, where it landed around 5 p.m. local time, according to the website FlightAware. . . The flight with the new crew took off around 9 p.m. and landed in Shanghai about six hours behind schedule.

It’s an event-driven market: StubHub is preparing to join the publicly-traded ranks, filing IPO paperwork Friday for a New York Stock Exchange listing.  The live entertainment reseller, which rode its baseline 15% fee structure to $138 million in operating income and $1.77 billion in revenues last year, seeks to raise upwards of $1 billion at a $16.5 billion capitalization, the Financial Times relays.

StubHub joins the likes of AI infrastructure play CoreWeave and buy now, pay-later concern Klarna among entrants hoping to thaw the lengthy post-2021 IPO deep freeze. The high-profile trio remains the exception to the rule.

As Bloomberg documented yesterday, torrents of capital flowing to closely-held firms have helped the group stave off their day of public market reckoning, with so-called unicorns (private companies valued at $1 billion and above) collectively commanding a record $5.1 trillion valuation last year according to PitchBook, up 8.5% from 2023.

Cash-generating moves such as secondary share offerings have underpinned the “structural shift” towards “perennially private” firms, Barclays head of Americas equity capital markets Rob Stowe tells Bloomberg, but those machinations have their limits. “A lot of these companies have investors who took early positions [and] maybe are having partial access to liquidity for now,” added Matthew Witheiler, who heads Wellington Management’s late-stage growth equity division. “But, at some point, you need the real abilities to sell all [your] shares.”

In the meantime, private firms can tap an increasingly prominent cohort in their hunt for liquidity. The Wall Street Journal reports today that pre-IPO trading venues EquityZen and Forge Global will slash the minimum investment to $5,000 from $20,000 and up in hopes of enticing retail investors. Buyers will generally be subject to a minimum six-month holding period, with per-transaction commission costs ranging from 2% to 5%.

Though the $5,000 lot size represents a fraction of the prior threshold, EquityZen CEO Atish Davda told the WSJ that there is room for further downside. Naturally, such bottom-fishing has its limits:

Just because you can, doesn’t mean you should. If I only have $50 to invest, am I better off taking my $50 and going on FanDuel or something?

Or perhaps, buying tickets on StubHub – don’t forget the house’s cut.

Stocks managed a modest 0.2% gain on the S&P 500, as a late uptick allowed the blue-chip gauge to build on Monday’s rally, while Treasurys enjoyed a bull-steepening move with 2- and 30-year yields dropping to 3.96% and 4.65%, respectively, from 4.04% and 4.66%. WTI crude consolidated recent gains at $69 a barrel, gold edged higher at $3,020 per ounce, bitcoin remained north of $88,000 and the VIX ebbed toward 17.

- Philip Grant