President Trump is warning that the US could restart strikes on Iran, a stance that reads less like a negotiating tactic and more like the opening move in a drawn‑out standoff. A few days ago, he described the fragile cease-fire as being on “massive life support.” In other words, a long, grinding stalemate appears to be taking shape. That’s a threat to the global economy because as the impasse drags on and energy exports from the Gulf remain blocked, the world’s oil supply shrinks and scarcity risks rise.

“From the point of view of energy, this is a snowball — and every week that passes, you have tighter markets,” says Jaime Brito, executive director of refining and oil products at Dow Jones Energy.

Oil prices reflect that uncertainty. The US benchmark, West Texas Intermediate, traded near $107 a barrel yesterday — a middling range following the surge since the war began.

Brent crude, the global benchmark, is trading closer to its upper range, reflecting the higher level of vulnerability for Europe and Asia related to oil imports relative to America’s domestic oil supplies. A break higher from the current $107 level for Brent would signal that the market is starting to price in a higher risk that the conflict’s stalemate will have deeper and longer‑lasting effects on the global economy, including inflation.

Recent developments behind the scenes aren’t encouraging. A troubling report suggests Iran has tightened its control over the Strait of Hormuz after establishing a new Persian Gulf Strait Authority and positioning itself as the sole gatekeeper for this strategic energy corridor.

According to Lloyd’s List Intelligence, the agency is now demanding that vessels submit application forms for passage — an effort to control transit approvals and collect tolls. Iran’s Islamic Revolutionary Guard Corps (IRGC) “has imposed a de facto ‘toll booth’ regime in the Strait of Hormuz, requiring vessels to submit full documentation, obtain clearance codes and accept IRGC‑escorted passage through a single controlled corridor.”

The immediate economic threat is inflation, which continues to rise. Headline consumer inflation increased 3.8% in April from a year earlier — a three‑year high, the Bureau of Labor Statistics reported on Tuesday. The main driver: higher energy costs.

“Inflation is the key drag on the U.S. economy now,” said Heather Long, chief economist at Navy Federal Credit Union. “This is hurting Americans. There is a real financial squeeze underway. For the first time in three years, inflation is eating up all wage gains. This is a setback for middle‑class and lower‑income households, and they know it.”

Inflation will ease once the Middle East crisis is resolved. Unfortunately, the path out of the stalemate isn’t clear, and the US — and the West — increasingly looks boxed in. A resumption of military strikes might break the gridlock, but Iran’s regime has already shown it can take a beating and still maintain its stranglehold over Gulf exports.

Meanwhile, President Trump’s summit with China’s President Xi Jinping may yield a breakthrough, according to some analysts. But before departing Washington for Beijing, Trump downplayed the potential for engaging China to persuade Iran to open the Strait.

“I don’t think we need any help with Iran,” Trump said. “We’ll win it one way or the other, peacefully or otherwise.”

Exactly what that means — and on what timeline — is unclear. In the meantime, the clock is ticking, and the risk of a deeper, longer energy shock continues to rise.

President Trump said the ceasefire with Iran is on “massive life support,” which suggests that inflation risk will remain elevated.

Oil prices continue to trade above $100 a barrel for the US crude benchmark as Trump has become increasingly frustrated with Iran’s negotiating positions to formally end the conflict that is keeping Gulf energy exports blocked. This disruption is keeping prices high and driving up headline measures of inflation. With no clear exit strategy on the horizon, markets are pricing in higher odds of persistent inflation.

One metric to watch is the ratio of the iShares TIPS Bond ETF (TIP), a portfolio of inflation‑indexed Treasuries, to a similar fund that holds conventional government bonds (IEF). As this ratio rises, it implies that the market is demanding a higher inflation premium. Notably, the ratio is trading near the peaks of recent years. A decisive break above this level (red line in the chart below) would signal stronger concern that inflation risk could run longer and higher than recently expected.

Today’s April report on consumer prices is expected to highlight another month of hotter inflation. The Cleveland Fed’s current inflation nowcast indicates that the rise in headline CPI will continue through May.

Betting markets are pricing in higher odds that inflation will top 4% this year, substantially higher than the 3.3% year‑over‑year trend reported for headline CPI through March.

The Treasury market’s implied inflation forecast is also near multi‑year highs, based on the spread between inflation‑indexed yields and their nominal counterparts. The 5‑year forecast is 2.67% as of May 11, just below last week’s 2.72% peak. A sustained push above that peak would highlight the market’s growing confidence that inflation risk will persist.

Perhaps the final straw in the repricing of inflation risk will be rising expectations that the Federal Reserve will increase interest rates to combat the shift. For now, that remains a low‑probability scenario based on Fed funds futures, which continue to price in high odds that the central bank will leave its target rate unchanged for the next several policy meetings.

That view may persist if core readings of inflation remain relatively stable, as they have recently. These measures of pricing pressure tend to hold more sway at the Fed. But the longer the Middle East conflict continues and energy exports remain blocked, the higher the odds that the status quo for Fed expectations will give way to a hawkish pivot. A sign that this shift is gaining momentum: core inflation continues to edge higher.

US economic growth is expected to hold steady at a 2%-plus pace in the second quarter, according to the median nowcast from several estimates compiled by CapitalSpectator.com. This early estimate for the current quarter suggests that the economy may be more resilient to the effects of the Middle East conflict than previously assumed.

The main threat is inflation, which jumped sharply in March and is expected to rise further in tomorrow’s April report from the government, based on the outlook for the year-over-year trend. The concern is that as the energy supply shock continues to reverberate, growth will suffer.

The current median nowcast for Q2, however, suggests that real (inflation-adjusted) output will be largely unchanged relative to Q1. Today’s estimate indicates a 2.2% annualized increase for Q2, modestly above the 2.0% rise reported for Q1, which marked a solid recovery from Q4’s weak 0.5% gain.

Uncertainty surrounding the Iran war—currently in a precarious state of peace—still leaves plenty of room for debate about how the remainder of the quarter will unfold, and whether the current nowcast will hold. A bright spot is the labor market. US hiring rose more than expected in April, suggesting that the economy may be more resilient to the conflict than previously estimated.

The gain in employment is “evidence of the underlying resilience of this economy and of this labor market, despite all of the slings and arrows of outrageous concerns about the Middle East and unemployment and inflation and the Fed,” said Scott Clemons, chief investment strategist at Brown Brothers Harriman. But “one month does not a new trend establish. There’s been a lot of month‑to‑month volatility in the jobs market over the past year. I’m not sure that’s completely gone away. We get another two or three months of solid job gains, then I feel a little bit more comfortable.”

Comfort will likely be in short supply as long as the threat of war hangs over the Middle East and energy exports from the Gulf remain blocked.

President Trump on Sunday rejected Iran’s latest proposal to end the war, writing on social media that it was “TOTALLY UNACCEPTABLE!”

The data may be steady, but the backdrop is anything but. The coming months will reveal whether the economy can outrun the shadows gathering overseas.

Is Recession Risk Rising? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report

● House of Fidelity: The Rise of the Johnson Dynasty and the Company That Changed American Investing
Justin Baer
Review via Financial Times
Few companies touch the lives of as many people as Fidelity. The Boston-based financial group directly manages $7tn and administers a total of $18tn, serving an estimated 57mn people, or one in five American adults through retirement plans, investment funds and brokerage accounts.
But the private group is owned and run by a publicity-shy New England dynasty that largely shuns the limelight. That has left customers and rivals to guess exactly what chief executive Abigail Johnson and her team have been up to as Fidelity embarked on a massive growth spurt and pushed well past its money management rivals in terms of employees, revenue and, crucially, profits.
In House of Fidelity, veteran journalist Justin Baer seeks to lift the lid on this enormous company, which employs more than 80,000 people and reported $12.7bn in operating income last year, dwarfing BlackRock, the world’s largest public asset manager.

● If You Can Just Print Money, Why Do I Pay Taxes?: Modern Monetary Theory Distilled and Debunked in Plain English
Emmanuel Maggiori
Summary via publisher (Wiley)
What if the government could fund anything it wanted by simply creating money out of thin air? That’s the promise of Modern Monetary Theory (MMT), a radical economic proposal gaining traction among politicians, activists, and academics. Advocates say that, with the right precautions, governments can create money to end unemployment, fight climate change, and much more – all without raising taxes. In If You Can Just Print Money, Why Do I Pay Taxes?, author Emmanuel Maggiori walks you through MMT in plain language and shows you why its arguments don’t hold water. Maggiori debunks MMT step by step, offering compelling, informed, and rigorous counterarguments against all of its foundational claims. The author explains why MMT-inspired “money printing,” far from guaranteeing prosperity, could be a recipe for inflation, instability, and stagnation.

● Against Money
J. W. Mason and Arjun Jayadev
Summary via publisher (Chicago U. Press)
Money is everywhere in our daily lives. It lurks in the swipe of a card at the grocery store, in looming student-loan debts, in the prices of things we want, and in our subconscious navigation of the modern world. Money is an invisible convenience that saves us, as a society, the hassle of bartering for goods and services—a reflection, in our pockets and on our phones, of the hard facts of scarcity and desire. Or is it something more? In this revelatory book, economists J. W. Mason and Arjun Jayadev explain how and why money is so deeply misunderstood by the world it dominates—as well as the dangerous social implications of this misunderstanding.

● The Secret History of Gold: Myth, Money, Politics, and Power
Dominic Frisby
Review via The Telegraph
It’s true that the gold standard stops governments from recklessly printing money and inflating the economy. And this, Frisby argues, is exactly what has happened, pretty much everywhere, again and again. Crippled by the costs of the First World War and the Great Depression, Britain was the first to abandon the gold standard in 1931. But 1971 was when the rot really set in. Saddled with rising inflation, increasing trade deficits and the cost of the Vietnam War, Richard Nixon’s America abandoned the standard and took the rest of the world with it down the path of perdition; government after government has since then repeatedly devalued their currency on the world’s markets. Why else would houses cost 70 times more now than when I was born in 1965?
Frisby’s proposed cure is for the world to adopt cryptocurrency. Despite not being a material entity, like gold, a bitcoin is pure money – a bearer asset.

● Trading Global Macro Market
Dirk Willer and Alex Saunders
Summary via publisher (Wiley)
In Trading Global Macro Markets, accomplished global macro veterans Dirk Willer and Alex Saunders deliver a complete and incisive guide to navigating global macroeconomic trends as the low volatility world of quantitative easing gives way to the post-pandemic world of increased interest rates and macro volatility. The authors offer coverage of every major asset class, from government debt and credit to equity, commodity, and foreign exchange markets, along with back-tested frameworks going back over two decades and more that illustrate how to trade each class and how to make cross-asset trading decisions.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. By purchasing books through this site, you provide support for The Capital Spectator’s free content. Thank you!

Diversifying into foreign bonds hasn’t provided much benefit to U.S. investors since the Middle East conflict began, with one exception: high‑yield corporate bonds issued by firms in emerging markets.

Bucking the trend since the conflict started on Feb. 28, the VanEck Emerging Markets High Yield Bond ETF (HYEM) is a rare bright spot in international fixed income from a US-dollar-based investment perspective. The fund is up 0.9% over this period, making it an outlier in a market otherwise marked by red ink.

HYEM’s performance stands out, though it generally mirrors the gains in U.S. junk bonds (JNK). By comparison, investment‑grade bonds—both corporate and government, in the US and abroad—are underwater since Feb. 28.

Why the disconnect? High‑yield bonds carry more risk than investment‑grade debt. One might have expected investors to flock to higher‑quality bonds as a safe haven and avoid junk bonds. Instead, the opposite has occurred.

One explanation: junk bonds have rallied as investors chase higher yields while war‑driven uncertainty eases, whereas investment‑grade bonds have lost ground amid rising interest‑rate expectations and inflation concerns.

Markets broadly began to rebound in late March. Initially, most bond sectors participated, but by mid‑April high‑yield and investment‑grade debt diverged sharply.

For example, HYEM has recovered all of its war‑related losses and even reached a new high earlier this week. A broad measure of U.S. investment‑grade bonds (BND)—including Treasuries and corporates—stalled in mid‑April and remains below its pre‑war close.

Analysts say high‑yield bonds have regained appeal thanks to their sizable coupons, which provide a meaningful yield cushion against market volatility. With fears of a worst‑case geopolitical escalation easing, investors have shown a renewed appetite for risk and rotated back into these higher‑return assets.

The divergence shows how quickly fixed‑income dynamics can shift when geopolitics and inflation collide. It also underscores why diversification across bond sectors matters—because in uncertain times, markets have a way of defying even the most confident forecasts.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

A few days before the war with Iran began on Feb. 28, The Capital Spectator reported that “Bullish Momentum Holds Firm in Global Asset Allocation,” based on a set of ETFs targeting multi-asset strategies. The risk‑on profile quickly evaporated as investors ran for cover in the wake of hostilities. But more than two months later, risk appetite is looking resilient once more.

A big‑picture measure of the trend in global asset allocation has rebounded to a positive bias, based on the ratio of two global asset‑allocation ETFs: an aggressive strategy (AOA) versus its conservative counterpart (AOK). After taking a hit in April, the ratio has recovered and climbed to a new high in yesterday’s trading (May 6).

The recovery in risk‑on signaling is even stronger for US equities, based on the ratio of a conventional measure of the U.S. stock market (SPY) to a low‑volatility counterpart (USMV), which serves as a relatively conservative proxy for holding American shares. This ratio has surged in recent weeks, reaching a new high yesterday.

A possible warning sign that the rebound in animal spirits is driven more by speculation than by confidence in the business cycle: the ratio of US cyclical stocks (XLY) to defensive shares (XLP) remains stuck in a middling range, closing yesterday’s session well below where it began the year.

Another area not participating in the risk‑on revival, at least in relative terms, is small‑cap stocks. The ratio of small caps (IJR) to large caps (SPY) is near its lowest level of the year following the runup late last year.

Meanwhile, the late‑2025 revival of value stocks (IWD) relative to growth shares (IWF) has faltered since the war began and has yet to recover.

From a top‑down perspective, the case for risk‑on once again looks solid. Beneath the surface, however, the outlook is mixed. That’s hardly surprising, given the uncertainty hanging over the global economy due to the ongoing Middle East turmoil. But from a global asset‑allocation perspective, the crowd is betting that any turbulence will be short‑lived.

War? What war?

The effects of the Middle East conflict continue to reverberate through the global economy, but for the strongest performers among US equity factors, the war has been little more than an afterthought.

Momentum and high‑beta have rallied sharply since the war started and are outperforming the broad market by a wide margin, based on a set of ETFs through yesterday’s close (May 5). The iShares MSCI USA Momentum Factor ETF (MTUM) is the top performer, rallying more than 14% since the war began on Feb. 28 — far above the broad equity market’s 5.3% increase over that span, based on the SPDR S&P 500 ETF (SPY).

If anything, the war seems to have accelerated the risk‑on effect for MTUM, which closed at a record high yesterday. The momentum factor, in short, is running hot with bullish momentum.

In second place: high‑beta shares (SPHB), followed by micro‑cap stocks (IWC). Several factor ETFs are trailing the broad market since the war’s start but continue to post gains. The lone downside outlier is low volatility (USMV), which has shed 3.0% since the start of hostilities more than two months ago.

Analysts cite several reasons for the tailwind in US equities generally. One is America’s near self‑sufficiency in energy. Although the US isn’t immune to the energy shock from the war (as a trip to the gas station these days will remind), the blowback has been muted relative to much of Europe and Asia, where dependence on imported oil and gas is high.

Strong earnings reports are another bullish driver. FactSet reports that for the first quarter so far, with 63% of S&P 500 companies reporting, 84% “have reported a positive [earnings per share] surprise and 81% of S&P 500 companies have reported a positive revenue surprise.”

The year‑over‑year results are strong, too: “For Q1 2026, the blended (year‑over‑year) earnings growth rate for the S&P 500 is 27.1%. If 27.1% is the actual growth rate for the quarter, it will mark the highest earnings growth rate reported by the index since Q4 2021 (32.0%).”

Spending on artificial intelligence (AI) is said to be another bullish driver. Wall Street analysts project that AI‑related capital spending will top $1 trillion by 2027.

“Cap‑ex continues to soar as demand outpaces supply and pricing increases,” analysts for Jefferies wrote in a note to investors last week.

Some skeptics are wondering if the huge bets will pay off. “The moment one of those hyperscalers doesn’t succeed … you break a link in the chain,” says PitchBook’s Harrison Rolfes.

Meantime, in a market that keeps shrugging off headlines related to the war, the real story isn’t about the Middle East — it’s how unstoppable risk appetite has become.

The US–Iran conflict has entered its third month, and the prospects for a quick solution remain low after a fragile ceasefire briefly broke down in the Gulf on Monday. Oil and gas prices remain elevated, all but ensuring that inflation will continue to rise, or at least remain elevated, in the near term.

An already-precarious US–Iran ceasefire looked close to collapsing after Iranian drones and missiles struck targets in the United Arab Emirates, and Washington said its forces had destroyed Iranian vessels in the Strait of Hormuz. The exchange underscored how quickly tensions were sliding back toward open confrontation.

Tehran avoided directly claiming responsibility, but Iran’s foreign minister warned on X that both Washington and Abu Dhabi “should be wary of being dragged back into quagmire.”

With energy infrastructure under threat and shipping lanes unsettled, the risk of prolonged disruption to oil supplies loomed large — setting the stage for higher prices that could feed into headline inflation the longer the turmoil persists.

Energy costs seep into everything — transportation, manufacturing, even the price of getting food onto store shelves. When crude stays elevated, it acts like a slow‑burn fuse running straight into the broader consumer price index. The longer oil holds at the current higher levels, the more those cost increases stop looking temporary and start embedding themselves into the prices households face every day.

Comparing the year‑over‑year percentage changes for headline consumer inflation and oil illustrates the point. Although many factors influence the Consumer Price Index (CPI), oil remains a key driver, as the chart below highlights.

Analysis by RBC Wealth Management’s head of investment strategy estimates that a persistent rise in inflation triggered by an oil shock must last at least three months. “We’re not quite there in that window,” but “we [will be] soon,” predicts Frederique Carrier.

The price of oil for the US benchmark (West Texas Intermediate) has been holding above $100 a barrel in recent days, near the upper end of its range since the war began on Feb. 28.

Some central banks are raising interest rates and citing Middle East–related inflation as a risk factor. Australia’s central bank lifted its policy rate today to 4.35%, noting: “As expected, developments in the Middle East are having an impact on inflation. Higher fuel prices are adding to inflation and there are indications that this is likely to have second‑round effects on prices for goods and services more broadly.”

The US economy isn’t immune to a global oil shock, but the country’s near-self sufficiency on energy production helps. That’s a factor for why the Federal Reserve left its policy rate unchanged last week at a 3.50%–3.75% range. Fed funds futures are pricing in high odds of keeping rates steady at the next several FOMC meetings.

The Treasury market, however, is starting to price in higher odds of rate hikes. The policy‑sensitive 2‑year yield closed at 3.96% on Monday, close to its highest level since the war began. Notably, the 2‑year yield is consistently trading above the upper end of the Fed funds target range, suggesting that the bond market expects a rate increase in the near term.

A key test awaits in next week’s April report on consumer prices (May 12). Another 3%-plus annual change looks likely, which is to say that the Fed’s 2% inflation target will look like ancient history for a second straight month.

The path ahead largely depends on whether the recent flare‑up in the Gulf fades or settles in as a lasting strain. If tensions ease, markets may find some room to breathe; if not, the global economy could face continued pressure from higher energy costs. For now, the best anyone can do is keep an eye on the oil markets—and hope that inflationary pressures don’t intensify further.

Is Recession Risk Rising? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report

The long-term performance outlook for the Global Market Index (GMI) edged higher in April. The current 7%-plus estimate for the benchmark’s annualized return is at the top end of recent forecasts. Relative to the trailing 10-year result, however, GMI is still on track to post substantially softer results in the years ahead.

GMI is a market-value-weighted mix of the major asset classes (excluding cash) via ETF proxies. Today’s forecast is calculated as the average of three models (defined below). The current 7.4% annualized estimate for GMI ticked up from last month’s estimate, but remains well below the trailing 9.7% annualized return that GMI has generated over the past decade.

The conflict with Iran has roiled markets over the past two months, but the effects on our ex ante estimates has been slight, which isn’t surprising, given the model design, as explained below. The goal for these projections is to develop a set of first approximations of future long-run returns for the major asset classes and a passive benchmark for a global portfolio.

Roughly a third of GMI’s components are projected to generate softer returns relative to their respective results over the past ten years (indicated by the red boxes in the far-right column below). The same subpar performance applies to GMI, which is currently projected to earn a materially weaker return compared with its realized performance for the trailing ten-year window through April.

GMI represents a theoretical benchmark for the “optimal” portfolio that’s suited for the average investor with an infinite time horizon. Accordingly, GMI is useful as a starting point for customizing asset allocation and portfolio design to match a particular investor’s expectations, objectives, risk tolerance, etc. GMI’s history suggests that this passive benchmark’s performance will be competitive with most active asset-allocation strategies, especially after adjusting for risk, trading costs and taxes.

It’s likely that some, most or possibly all of the forecasts above will be wide of the mark in some degree. GMI’s projections, however, are expected to be somewhat more reliable vs. the estimates for its  components. Predictions for the specific markets (US stocks, commodities, etc.) are subject to greater variability compared with aggregating the forecasts into the GMI estimate, a process that may reduce some of the errors through time.

Another way to view the projections above is to use the estimates as a baseline for refining expectations. For instance, the point forecasts above can be adjusted with additional modeling that accounts for other factors and assumptions not used here. Customizing portfolios for a specfic investor, to reflect risk tolerance, time horizon, and so on, is also recommended.

For perspective on how GMI’s realized total return has evolved through time, consider the benchmark’s track record on a rolling 10-year annualized basis. The chart below compares GMI’s performance vs. ETFs tracking US stocks and US bonds through last month. GMI’s current return for the past ten years is a robust annualized 9.7%.

Here’s a brief summary of how the forecasts are generated and definitions of the other metrics in the table above:

BB: The Building Block model uses historical returns as a proxy for estimating the future. The sample period used starts in January 1998 (the earliest available date for all the asset classes listed above). The procedure is to calculate the risk premium for each asset class, compute the annualized return and then add an expected risk-free rate to generate a total return forecast. For the expected risk-free rate, we’re using the latest yield on the 10-year Treasury Inflation Protected Security (TIPS). This yield is considered a market estimate of a risk-free, real (inflation-adjusted) return for a “safe” asset — this “risk-free” rate is also used for all the models outlined below. Note that the BB model used here is (loosely) based on a methodology originally outlined by Ibbotson Associates (a division of Morningstar).

EQ: The Equilibrium model reverse engineers expected return by way of risk. Rather than trying to predict return directly, this model relies on the somewhat more reliable framework of using risk metrics to estimate future performance. The process is relatively robust in the sense that forecasting risk is slightly easier than projecting return. The three inputs:

* An estimate of the overall portfolio’s expected market price of risk, defined as the Sharpe ratio, which is the ratio of risk premia to volatility (standard deviation). Note: the “portfolio” here and throughout is defined as GMI

* The expected volatility (standard deviation) of each asset (GMI’s market components)

* The expected correlation for each asset relative to the portfolio (GMI)

This model for estimating equilibrium returns was initially outlined in a 1974 paper by Professor Bill Sharpe. For a summary, see Gary Brinson’s explanation in Chapter 3 of The Portable MBA in Investment. I also review the model in my book Dynamic Asset Allocation. Note that this methodology initially estimates a risk premium and then adds an expected risk-free rate to arrive at total return forecasts. The expected risk-free rate is outlined in BB above.

ADJ: This methodology is identical to the Equilibrium model (EQ) outlined above with one exception: the forecasts are adjusted based on short-term momentum and longer-term mean reversion factors. Momentum is defined as the current price relative to the trailing 12-month moving average. The mean reversion factor is estimated as the current price relative to the trailing 60-month (5-year) moving average. The equilibrium forecasts are adjusted based on current prices relative to the 12-month and 60-month moving averages. If current prices are above (below) the moving averages, the unadjusted risk premia estimates are decreased (increased). The formula for adjustment is simply taking the inverse of the average of the current price to the two moving averages. For example: if an asset class’s current price is 10% above its 12-month moving average and 20% over its 60-month moving average, the unadjusted forecast is reduced by 15% (the average of 10% and 20%). The logic here is that when prices are relatively high vs. recent history, the equilibrium forecasts are reduced. On the flip side, when prices are relatively low vs. recent history, the equilibrium forecasts are increased.

Avg: This column is a simple average of the three forecasts for each row (asset class)

10yr Ret: For perspective on actual returns, this column shows the trailing 10-year annualized total return for the asset classes through the current target month.

Spread: Average-model forecast less trailing 10-year return.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

● Finishing the Inflation Job and New Challenges for Monetary Policy
Michael D. Bordo (editor), et al.
Summary via publisher (Hoover Institution Press)
How should the Fed finish the inflation-reduction job and prepare for the changing world ahead? And exactly how did one of Hoover’s most influential living economists assist scholars in thinking about where we go from here? Finishing the Inflation Job and New Challenges for Monetary Policy collects essays and discussions from the annual Hoover Institution Monetary Policy Conference, held on May 9, 2025, exploring these themes and considering other big-picture issues that affect monetary policy in this volatile international environment. Each year, the conference brings together academics, policymakers, media members, and others to consider the issues affecting monetary policy, both in the United States and worldwide. In the chapter sharing her welcoming remarks to the conference, Hoover Director Condoleezza Rice sets the tone, stating that the United States is “experiencing an avalanche of uncertainty,” with everything about the international order in question, including the United States’ role in it.

● How to Get Rich in American History: 300 Years of Financial Advice That Worked (& Didn’t)
Joseph S. Moore
Review via Publishers Weekly
“Getting ahead has never been easier than it is today,” contends historian and investor Moore (Founding Sins) in this sweeping history of financial advice in the U.S. Moore takes readers through case studies of financial success and failure, debunking commonly held beliefs and extrapolating lessons that can be applied now. Demonstrating that “the story of a cash-only, debt free, rugged-individualist America is entirely fictional,” he describes how Benjamin Franklin got his start in the printing business by going thoroughly into debt. Elsewhere, he demonstrates that supposedly new phenomena have historical precedents. Women, for example, have always been active investors; Abigail Adams, wife of the second U.S. president, began buying government bonds after the American Revolution and ultimately achieved a lifetime annualized return of 18%, almost equaling that of billionaire Warren Buffett.

● Profit vs. Progress: Why Socially Responsible Investment Doesn’t Work and How to Fix It
Brad Swanson
Summary via publisher (MIT Press)
Wall Street thrives by telling investors that clever financial strategies can reverse the trade-off between corporate profits and social progress. But the link between greater corporate social responsibility and improved financial performance is an illusion. Profit vs. Progress dissects the massive $30 trillion “socially responsible” or “sustainable” finance industry—and finds the emperor has no clothes. At best, sustainable investing typically delivers average rates of financial and social returns. But it makes social and environmental crises harder to overcome, by using financial gimmickry to distract our attention from real solutions. Author Brad Swanson argues that corporations in competitive markets act without moral values, and ethical investment can’t prod them to take greater social responsibility. The only way to change the outcome of the game is to change the rules. The solutions will have to come from legislatures, not corporate boardrooms.

● How Currency Markets Work: An Insider’s Guide to a System Driven by Geopolitics and Trader Psychology
Andrew Nissenbaum and Patrick Cullen
Summary via publisher (Wiley)
In How Currency Markets Work, a veteran currency trader and a geopolitical risk analyst deliver a comprehensive and street-smart guide for understanding currency markets. The authors combine insights from the worlds of trading, economics, and geopolitics to create an eye-opening and original new take on how currency prices are determined. This book bridges the gap between how currency markets are taught and how they actually trade, using character-driven narratives built on real-world market events and data to explain currency trading successes and failures in intuitive and practical ways.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. By purchasing books through this site, you provide support for The Capital Spectator’s free content. Thank you!

Markets rebounded in April following the selloff in March. In some cases, you have to squint to see a recovery, but April’s gains were broad, lifting all the major asset classes to some degree, based on results for a set of ETFs.

US stocks led the way. The Vanguard Total US Stock Market ETF (VTI) surged 10.4% last month. The rally left US equities comfortably in the black year to date, with a 6.0% advance.

Stocks in emerging markets (VWO) and US real estate investment trusts (VNQ) were the second- and third-best performers last month. The weakest increase in April came from US bonds (BND), which edged up a thin 0.1%.

Commodities (GSG) extended their rally, rising for a fourth straight month, propelled by turmoil in the Middle East that has raised energy costs. Gold (GLD), however, didn’t participate, and edged down 1.5%.

Year to date, nearly every slice of global markets is posting an advance through April’s close. The downside exceptions: foreign corporate bonds (PICB), government bonds in developed markets ex-US (BWX), and bitcoin (GBTC).

The Global Market Index (GMI) recovered its losses from the previous month, jumping to a new record high in April. GMI is an unmanaged benchmark (maintained by The Capital Spectator) that holds all the major asset classes (except cash) in market-value weights via ETFs and serves as a competitive benchmark for globally diversified, multi-asset-class portfolio strategies.

GMI rallied 8.1% last month and is now up 6.0% for the year to date. It has enjoyed a strong winning streak over the past year, advancing in 12 of the past 13 months—its strongest bull run in a decade.

The bond market is losing faith that inflation risk from the Middle East conflict will be contained and fade quickly. The Federal Reserve’s monetary policy is still in wait‑and‑see mode, but several key Treasury yields aren’t waiting to see what happens.

Jerome Powell, in his appearance yesterday as Fed chair, presided over the central bank’s widely expected announcement that it would leave its target rate unchanged at a 3.50%–3.75% range. The Fed, in its policy statement, noted that “inflation is elevated, in part reflecting the recent increase in global energy prices.”

Powell, responding to a question about war‑driven price surges at Wednesday’s press conference, said “it hasn’t even peaked yet.” He added: “I think we’d want to see the backside of that and progress on tariffs before we even thought about reducing rates. If we need to hike, we will; we will certainly signal that,” but not now.

The Treasury market is starting to move on from waiting. The 2‑year yield, which is widely monitored as a market‑based outlook on policy, shot up to just under 3.97%, close to the wartime peak set early in the conflict.

The benchmark 10‑year yield also rose, jumping to 4.34%, which is likewise close to its wartime peak.

The Treasury market’s implied inflation forecasts are also rising again, based on the spread between nominal rates and their inflation‑indexed counterparts. Notably, the forecast via the 5‑year maturity increased to 2.67% yesterday, setting a new peak since the war began and widening the gap further relative to the Fed’s 2% inflation target.

Despite the mounting inflation worries in the Treasury market, the Fed is expected to keep rates steady through the end of the year, based on Fed funds futures.

Meanwhile, oil prices remain elevated. The U.S. benchmark (West Texas Intermediate) traded well above the $100‑a‑barrel mark for a second day and remains close to its wartime peak. Energy costs have already lifted consumer inflation in March due to surging energy prices, and a repeat performance is expected for the April data.

The growing mismatch between a Fed sitting on its hands and a worried bond market won’t last. The question is which side will blink first. Only one side gets to be right about inflation. The key variable, of course, is how the Iran conflict plays out, and for the moment a stalemate endures as the US and Iran hold fast to their respective views that they can wait each other out. Meantime, the inflation clock is ticking.

Is Recession Risk Rising? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report

The Federal Reserve is expected to keep its target interest rate unchanged in today’s policy announcement, but the stable outlook belies the unsettled inflation picture that’s keeping the bond market on edge.

Visibility for the rate outlook at today’s Fed meeting, by contrast, is clear as a bell. Fed funds futures are pricing in a 100% probability that the target rate will remain at its current 3.50%–3.75% range. After that, the clarity fades.

The bond market is struggling to price in the twin threats of higher inflation and slower economic growth—the dual effects of the Middle East turmoil that has elevated energy costs. The odds of a quick resolution remain low, a calculus reaffirmed after President Trump on Tuesday told aides “to prepare for an extended blockade of Iran, U.S. officials said,” according to The Wall Street Journal.

U.S. Treasury yields have increased recently but have pulled back from the peak that followed the start of the war on Feb. 28. The market is still flirting with the possibility of rate hikes, based on the policy‑sensitive 2‑year yield, which continues to trade above the effective Fed funds rate. That’s an indication that investor sentiment is pricing in modest odds that the central bank will be forced to raise interest rates at some point in the near term.

But not yet—and perhaps not for the next several FOMC meetings, or so Fed funds futures suggest.

The inflation bump has already begun and will likely persist in the near term. The Consumer Price Index (CPI) surged in March to a 3.3% year‑over‑year pace, up sharply from February’s 2.4%, driven by spiking energy costs. It’s unclear whether inflation will continue rising, but a safer bet is that it holds steady above 3% for now.

The Fed still still has some leftover ammunition in its policy toolkit in the form of a mildly hawkish bias, based on a simple model that compares the target rate to unemployment and inflation—the two components of the central bank’s dual mandate. On that basis, policy is slightly tight. The question is whether that will suffice in the months ahead, as the inflationary effects of the war—and now stalemate—in the US–Iran conflict endure.

A complicating factor is that the blowback from Middle East turmoil will weigh on global economic activity, which will spill over into the U.S. to some degree. If output slows enough, that could offset the need to hike rates.

Exactly how the twin shocks of higher inflation and slower growth will play out remains uncertain, thanks to the fog of war (stalemate), which is why the bond market—and the Fed—are playing a wait‑and‑see game.

“On the dual mandate, they’d say we’re roughly at a stable labor market,” Roger Ferguson, an economist and former Fed vice chair, told CNBC. “On the inflation side of the mandate, [there’s] a lot more work to be done with a sticky 3% [inflation rate], and I hope they argue, ‘we’re going to sit tight for a little while to see how this all plays out.’”

Two real‑time proxies on my short list for monitoring these risks are the 10‑year Treasury yield and the price of crude oil. The 10‑year yield closed yesterday at 4.35%, still comfortably below the intraday peak of nearly 4.50% since the war’s start, but the benchmark rate is drifting higher again. As it moves closer to the previous peak—and certainly if it breaks above it—that will signal that the market is demanding a higher inflation premium, which in turn will put more pressure on the Fed to hike.

A similar calculus applies to crude oil, based on the US benchmark (West Texas Intermediate). The price closed yesterday above $103 a barrel. That’s still below the $120 peak set in the early days of the war, but prices are trending up again. If the market begins to test the upper range set during the war, that should be viewed as a sign that inflation pressures will persist, if not intensify, for longer than expected.

In the end, the Fed may be standing still, but the markets certainly aren’t. With inflation simmering and geopolitical tensions refusing to fade, investors are left navigating a landscape where every data point feels like a potential turning point. The calm of today’s decision may not last long.

Winning Senate approval may be the easy part.

The path has been cleared for Kevin Warsh to become the next chairman of the Federal Reserve in mid-May, when Jerome Powell’s term ends. Sen. Thom Tillis cancelled his obstruction to Warsh after the Department of Justice closed its criminal investigation of Powell, clearing the way for approval. The Senate Banking Committee has scheduled a vote on Warsh for tomorrow, and a greenlight is likely, which would allow the nomination to proceed to the full Senate. At that point, the real challenge begins.

Warsh arrives at the Fed during what looks like a perfect storm of challenges for monetary policy. The macro threats include turmoil from the Middle Eastern conflict, energy shocks, rising inflation pressures, and tariff‑strained effects on global trade. He will also oversee policy at a time of massive and growing federal debt. And then there’s President Trump’s demand for rate cuts. All of these factors will test Warsh’s resolve far more than anything he’ll face during the upcoming confirmation hearing.

For now, markets expect the Fed to keep rates steady. At tomorrow’s policy meeting, Fed funds futures are pricing in a virtual certainty of no change. In fact, futures anticipate that the current Fed funds target rate will remain at the 3.50%–3.75% range through the end of the year.

Defending a steady policy stance if inflation heats up will be difficult in the current environment. Making the case for rate cuts will be even harder at a time when energy costs have surged, pushing up headline inflation measures. An early sign of what’s coming appeared in the March consumer price report, which showed a 3.3% annual increase—a two‑year high and a sharp jump from February’s 2.4% pace. Spiking energy prices are the culprit.

The optimistic view is that the energy shock will be temporary and that, while prices have risen, the pace of increase will soon moderate. Perhaps—but with the Middle East crisis settling into a stalemate and energy exports still blocked, a quick resolution seems unlikely. There’s also the institutional memory lurking that the Fed predicted that the inflation shock of 2021-2022 would be temporary and modest, which turned out to be one of the biggest policy errors in decades. Arguing that it’s different this time will be a rough position to defend.

What is clear is that the longer energy prices remain elevated, the greater the risk that higher inflation becomes embedded in the economy.

For context on what may be developing, The Capital Spectator generated a forecast using a basic ensemble model to project the near‑term outlook. Unsurprisingly, the modeling indicates that headline CPI inflation is likely to edge higher and hold above 4% for the foreseeable future.

Core CPI is expected to follow a similar path, though at a lower level of roughly 3%‑plus.

In other words, the inflation shock moving through the global economy is being driven by energy, food, and commodities more broadly. Central banks often struggle with inflation rooted in these factors, which is why the Fed prioritizes core inflation as its target.

Given the war‑driven shifts in the inflation backdrop, cutting rates will be a difficult case for Warsh to make to his fellow policymakers on the Fed board. That may set up a new conflict with Trump, who has been publicly pushing for rate cuts.

One scenario in which rate cuts could become pragmatic is if the energy shock weakens growth more than it raises inflation. In that case, the Fed may lean on its mandate to maximize employment as justification for easing policy.

The only certainty at the moment is that a resolution to the Fed’s dilemma appears unlikely anytime soon. The Strait of Hormuz remains closed, blocking roughly 20% of global oil supply flows.

In short, the real test for the Fed isn’t the upcoming vote—it’s the storm waiting for Kevin Warsh on the other side of it, when he steps into a Fed facing the fiercest crosswinds in a generation.

Economic activity appears set to recover in this week’s initial estimate of first‑quarter GDP, based on the median nowcast from several estimates compiled by CapitalSpectator.com. But any celebration will be muted as the stalemate in the war between the US and Iran lingers, casting a shadow over the inflation and growth outlook for Q2 and beyond.

Focusing on Thursday’s GDP release from the Bureau of Economic Analysis points to a pickup in output following Q4’s tepid 0.5% rise. This week’s Q1 data, by contrast, is projected to increase to an annuallized 2.3% rate via the median estimate.

The path ahead is fraught due to the slow‑moving but ongoing blowback from the Middle East turmoil, which has blocked energy exports from the Gulf. The conflict’s continuing reverberations are expected to lift inflation and slow economic growth. The US is better positioned than Europe and much of Asia, but America isn’t immune.

Survey data for April highlight US resilience, at least in relative terms. “US business activity growth recovered slightly in April, having slowed to near‑stagnation in March following the outbreak of war in the Middle East,” reports S&P Global via the US Composite PMI Output Index, a GDP proxy. “However, the overall pace of expansion remained subdued, most notably in the services economy, where demand faltered.”

The stalemate in the war suggests that a resolution could be brewing. But until energy exports from the Gulf resume, the headwinds for growth—and the tailwinds for inflation—will persist and strengthen.

“A diplomatic settlement to the Iran war at some point would bring some immediate relief,” forecasts the Washington Center for Equitable Growth, a think tank. “But extensive physical destruction to critical infrastructure in Iran and around the Persian Gulf means US economic growth will likely continue to suffer over the medium term to long term.”

Is Recession Risk Rising? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report

● Prophecy: Prediction, Power, and the Fight for the Future, from Ancient Oracles to AI
Carissa Véliz
Review via The Wall Street Journal
Oil and gas prices have been so erratic lately that the time-honored roller-coaster metaphor now looks sedate. Yet none of the price shifts have been in response to actual supply. Instead, the market has been making bets on what it thinks the consequences of the Middle East war will be.
Traders rely on prediction in the most unpredictable of circumstances. Energy markets are far from unique, as Carissa Véliz, a professor at Oxford University’s Institute for Ethics in AI, shows in “Prophecy.” Her sweeping account of prediction across history demonstrates why we would do well to approach most forecasts with the skepticism we now show to prophets.

● Muskism: A Guide for the Perplexed
Quinn Slobodian and Ben Tarnoff
Review via The New York Times
“Muskism: A Guide for the Perplexed” begins with a simple proposition. We live in a bewildering moment defined by a bewildering man: Elon Musk.
Not that the book’s authors, Quinn Slobodian and Ben Tarnoff, believe there’s much to be gained by peering into Musk’s soul. Muskism, like Fordism, is not an individual but a system. Henry Ford was the industrialist who pioneered the use of the assembly line and the $5-a-day wage. Fordism characterized the form of 20th-century capitalism that paired “mass production with mass consumption.” Musk is the entrepreneur who sells electric cars and satellite service (among other things). Muskism characterizes a new, technologically driven political economy that dismantles state institutions with one hand while promoting self-reliance, or the fantasy of it, with the other.

● Capitalism For All: Inclusive Economics and the Future-Proofing of America
John Hope Bryant
Summary via publisher (Wiley)
Capitalism For All: Inclusive Economics and the Future-Proofing of America by John Hope Bryant presents a revolutionary framework for rebuilding American prosperity through economic inclusion rather than division. As the founder and CEO of Operation HOPE, America’s first non-profit social investment banking organization, and a former vice-chairman of the President’s Advisory Council on Financial Literacy, Bryant brings decades of frontline experience empowering underserved communities. This book addresses America’s growing economic inequality and social fragmentation by demonstrating how inclusive capitalism – not exclusionary policies – can restore the middle class, revitalize the American Dream, and maintain our position as the world’s leading economy.

● How to Get a Return on Failure: Fail Smarter―Return Stronger
John C. Maxwell
Summary via publisher (Forbes Books)
How to Get a Return on Failure by John C. Maxwell is a transformative guide for leaders, professionals, and personal growth seekers ready to change their relationship with failure. Drawing from decades of leadership experience, Maxwell reframes failure not as a dead end but as a critical investment in future success. The book addresses the emotional weight of failure and replaces fear with strategy, helping readers overcome self-doubt, regret, and perfectionism. Instead of being defined by what went wrong, Maxwell invites readers to lead with purpose shaped by what they’ve learned.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. By purchasing books through this site, you provide support for The Capital Spectator’s free content. Thank you!

Who Wins and Who Loses In Prediction Markets? Evidence from Polymarket
Pat Akey (ESSEC Business School), et al.
April 2026
We study pricing efficiency in decentralized prediction markets by comparing marketimplied probabilities from Polymarket with benchmarks derived from option-implied riskneutral distributions extracted from the derivatives market. We study Bitcoin and Ethereum prediction bets and find that, although Polymarket prices broadly track option-implied benchmarks, they show systematic price differences driven by behavioral factors and market frictions. Price differences are most pronounced in tail events, during periods of high volatility, and in response to major macroeconomic shocks, and they reflect the influence of sentiment, attention, and blockchain-specific risks. These results reveal both efficiency and behavioral distortions in prediction markets.

How Wise is the Crowd? Bias and Edge in Prediction Markets
Avaneesh Deleep (University of California, Berkeley), et al.
March 2026
Prediction markets are increasingly relied upon as real-time probability oracles, yet their predictive signals remain polluted by structural inefficiencies. While prior literature documents anomalies like the favorite-longshot bias at an aggregate level, the microstructural origins of these distortions—specifically, who generates and exploits them—remain unstudied in modern ecosystems. To investigate this, we engineer a scalable, multi-threaded data architecture capable of synchronously ingesting and persisting tick-level order flow, decentralized wallet histories, and user commentary across Polymarket and Kalshi… Our findings challenge the idea that favorite-longshot bias is present in every prediction market. In the markets we find it to be present, such as Mention Markets, the classic favorite-longshot bias may in fact be a statistical artifact masking a pervasive “Yes Bias”, driven by extreme temporal volatility and not controlling for the time to market completion in previous methodologies. Furthermore, we find that “Whales”, or the most capitalized players, are not the most sophisticated. By dynamically reconstructing participant positions, we demonstrate that Whales, on average, systematically bleed expected value to small-order traders. Rather than acting as sharp informed players, these large actors likely trade on ideological conviction, structurally overpaying for specific narratives and suffering from adverse selection against smaller participants.

Kalshi and the Rise of Macro Markets
Anthony M. Diercks (Board of Governors of the Federal Reserve System), et al.
February 2026
Prediction markets offer a new market-based approach to measuring macroeconomic expectations in real-time. We evaluate the accuracy of prediction market-implied forecasts from Kalshi, the largest federally regulated prediction market overseen by the CFTC. We compare Kalshi with more traditional survey and market-implied forecasts, examine how expectations respond to macroeconomic and financial news, and how policy signals are interpreted by market participants. Our results suggest that Kalshi markets provide a high-frequency, continuously updated, distributionally rich benchmark that is valuable to both researchers and policymakers.

Market Efficiency in Prediction Markets – A Comparison with Derivatives
Michele Fabi (CREST-ENSAE), et al.
April 2026
We study pricing efficiency in decentralized prediction markets by comparing marketimplied probabilities from Polymarket with benchmarks derived from option-implied riskneutral distributions extracted from the derivatives market. We study Bitcoin and Ethereum prediction bets and find that, although Polymarket prices broadly track option-implied benchmarks, they show systematic price differences driven by behavioral factors and market frictions. Price differences are most pronounced in tail events, during periods of high volatility, and in response to major macroeconomic shocks, and they reflect the influence of sentiment, attention, and blockchain-specific risks. These results reveal both efficiency and behavioral distortions in prediction markets.

Minority Report: Contrarian Traders, Prediction Markets, and the Return of Post-Earnings Drift
Chloe Feng (Stanford U., Graduate School of Business, Students)
March 2026
Prediction markets on the Polymarket platform allow traders to bet on whether a company will beat or miss an earnings-per-share consensus target. Using 338 resolved markets matched to IBES analyst consensus forecasts, I document four findings… Taken together, the results suggest that a small contrarian minority drives prediction market accuracy, and that their signal is most valuable as a short-side veto: when the crowd assigns a low beat probability, shorting into earnings produces significant risk-adjusted returns over a 10-day horizon.

Skilled Liquidity Provision in Prediction Markets: Evidence from 150 Million Trades
Hsiang-Chieh (Alex) Yang (Augusta University)
March 2026
Do skilled traders provide liquidity, and when? I study this question using 150 million trades across more than 200,000 markets on Polymarket, a zero-fee prediction market with observable outcomes and wallet-level identification. The zero-fee setting isolates the information channel from fee confounds present in prior work on Kalshi. The central finding is dual-role profitability: skilled traders (top 5% by rolling historical accuracy) earn $121 as makers and $63 as takers per market entered, extracting $228 million over three years, while ordinary traders lose on both sides. Aggregate spread transfer is economically negligible, but this null masks the skilled-ordinary asymmetry. Skilled traders strategically choose their role, providing liquidity more often in highervolume and shorter-duration markets. Within-trader variation confirms this reflects strategy, not selection. Placebo tests, wash-trading exclusions, out-of-sample persistence, and domain-specific skill classifications that measure accuracy within rather than across market categories validate the skill classification and confirm that the findings are not artifacts of cross-domain luck. Trader skill, not the maker-taker distinction, determines who profits in prediction markets.

From Iran to Taylor Swift: Informed Trading in Prediction Markets
Joshua Mitts (Columbia Law School) and Moran Ofi (U. of Haifa)
March 2026
This Article presents a systematic empirical and legal study of informed trading on prediction markets. We document a series of case studies in which traders appear to have exploited material nonpublic information on Polymarket and Kalshi, spanning events from the joint U.S.-Israel February 2026 strike on Iran to pre-announcement trading in Taylor Swift’s engagement. Building on these cases, we develop a statistical screening of all Polymarket markets from February 2024 through February 2026, analyzing over 210,000 suspicious wallet-market pairs using a composite score that combines bet size anomalies, profitability, pre-event timing, and directional concentration. Flagged traders achieve a 69.9% win rate well in excess of chance, and we estimate approximately $143 million in aggregate anomalous profit. We then analyze the legal framework governing this conduct, finding that neither the classical nor misappropriation theories of securities fraud map cleanly onto geopolitical or macroeconomic event contracts, and that the CFTC’s principal anti-fraud vehicle, Rule 180.1, is narrower in critical respects than SEC Rule 10b-5 and has rarely been applied to prediction markets. We argue that a comprehensive regulatory response requires mandatory registration and surveillance obligations for any platform serving U.S. persons, contract-level rules targeting high-risk information channels, and an extended misappropriation theory directed at informed traders on decentralized platforms that resist operator-level regulation.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

The Iran conflict has triggered “the biggest energy security threat in history,” according to Fatih Birol, head of the International Energy Agency (IEA), speaking on CNBC yesterday. Yet the impact will not be felt uniformly, a disparity that likely plays a role in the varied responses in global stock markets to date.

Using a set of ETFs (and one closed-end fund for Central and Eastern Europe) to track investor sentiment on a regional basis highlights a wide mix of performances since the war started on Feb. 28 through yesterday’s close (Apr. 22). Initially, stocks fell just about everywhere, but in late-March a rebound kicked in, although the recovery has been conspicuously uneven, driven in part by differences in energy vulnerability related to the sharp drop in oil exports from the Gulf region.

Leading the winners: stocks in Central and Eastern Europe (CEE) are up 5%. That contrasts with a 7.8% loss for equities in Africa (AFK).

US shares (SPY) are in the winner’s circle via a 4% gain since hostilities started.

Notably, a globally diversified portfolio of stocks (VT) has recovered, and is currently up 1.8%. A key driver of that gain comes from US shares: a global equities fund ex-US (VXUS) is still down 1.4% since Feb. 28.

The question is how markets will price in the energy risk that Fatih Birol outlined. The pain will vary dramatically, depending on the level of reliance on energy imports. Asia is especially vulnerable.

“The war in the Middle East and the ensuing energy supply shock are raising inflation, weakening external balances, and narrowing policy options, underscoring the region’s dependence on imported oil and gas,” the IMF advised. “Even so, we project Asia to remain the main driver of global growth. The 5 percent expansion last year will moderate to 4.4% and 4.2% this year and next, according to the reference forecast in the latest World Economic Outlook that assumes the energy shock proves transient. We expect China and India to contribute 70% of the region’s growth.

Nonetheless, “The headwinds will test Asia’s resilience,” the IMF continued.

The same will be true for the rest of the world, although as varying results in stock markets suggest, the effects will be distributed asymmetrically.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

US retail sales rose in March, beating expectations and posting the strongest increase in more than three years, but a significant portion of the spending was driven by gasoline sales—an effect of the spike in energy costs due to the Iran war. The results raise a warning flag for the consumer sector at a time when a return to pre‑war energy costs appears unlikely in the near term.

On its face, the 1.7% increase in retail spending last month looks encouraging, marking a sharp acceleration from February’s 0.7% gain. Soaring gas prices were part of the mix, although the gains were broad‑based.

“It’s a blowout retail sales figure for March,” wrote Heather Long, chief economist at Navy Federal Credit Union, in a report. “Stripping out the big surge in spending on gas due to the Middle East conflict, it’s a solid but more modest 0.6% increase.”

Monthly comparisons can be misleading due to short‑term noise, so it’s useful to monitor the year‑over‑year trend. On that basis, spending was stable, rising 4.0% last month compared with the year‑ago level.

An alternative measure of retail spending highlights a relatively robust trend. The Visa Spending Momentum Index rose to its highest level in four years in March. The benchmark, which measures the health of consumer spending, suggests that demand has been strengthening compared with recent history.

One‑time effects from tax refunds may be a factor, notes Gary Schlossberg, global strategist at Wells Fargo Investment Institute. “Pressure on household budgets is being cushioned, for now, by sizable increases in tax refunds tied to last year’s legislation,” he wrote in a research note yesterday.

James McCann, senior economist for investment strategy at Edward Jones, agrees. “Households remain resilient for now, potentially leaning on tax refunds and broader savings to keep spending in the face of the latest price squeeze,” he said.

The caveat is that inflation is also a factor. March spending was clearly affected by higher gas prices and broader price pressures that boosted nominal sales but strained household budgets.

A clearer picture may emerge in April, when the temporary effects of tax refunds begin to fade.

“Overall, the American consumer is still healthy,” Navy Federal Credit Union’s Heather Long opined. “Extra income from tax refunds is helping many households weather this oil shock, but that extra money won’t last forever.”

The war with Iran appears headed for some form of negotiated settlement. The main uncertainties are timing and details. But the longer the conflict lasts—and the longer the Iranian regime survives—the outlook, as interpreted by The Capital Spectator, is that a decisive US victory, defined as capitulation by Tehran, becomes less likely. The implication of this forecast: a messy, uneven, and protracted period of de‑escalation on the road to a settlement may continue to disrupt the global economy for the foreseeable future.

My reasoning starts with the near certainty that Iran will not prevail, at least not militarily. The US, by contrast, has the capacity for a decisive win, but forcing Iran to surrender unconditionally would almost certainly require a land invasion with a significant number of US troops—a decision that seems unlikely. The experience of the wars in Afghanistan, Iraq, and Vietnam suggests that the political price would be too high.

The US can still inflict more damage on Iran from the air, using missiles and air power. But after more than seven weeks of bombing by the US and Israel, the shock value is fading. A deeper and broader array of attacks on Iran’s infrastructure would surely be painful and push the economy to the brink of collapse. But Iran’s leaders view the conflict as an existential battle, and it is unclear whether extending the air campaign would change minds at this late date within the regime—at least not to the point of full and complete capitulation.

As a result, the path of least resistance suggests that facts on the ground will favor a negotiated settlement, eventually. A mix of factors will influence the timing and shape of an agreement, but the key pressure points are internal constraints related to resources and public sentiment, which are creating very different breaking points for each side.

For the US, the prestige and perception of America’s ability to project power and shape geopolitical outcomes in the Middle East are hanging in the balance. Another pressure point is the global economy. The closure of the Strait of Hormuz has driven energy prices sharply higher. Iran has demonstrated that it can restrict exports through this chokepoint and that the US has limited means of preventing that constraint.

A major pressure point on Iran is economic exhaustion. The regime may be able to shut down energy exports from the Gulf, but the US can extend that chokehold to Iranian oil exports, the country’s main source of revenue.

The calculus comes down to: who will blink first.

A potentially influential factor is China, the largest buyer of Iranian oil—more than 80% of Iran’s exports in 2025, amounting to roughly 13–14% of China’s total seaborne crude imports, according to Kpler. China also remains a major trading partner of the US, despite tariffs, leaving both countries with significant shared economic interests. In other words, China has substantial ties to both sides and could play a role in negotiations, albeit behind the scenes. A key issue to watch: Beijing may have enough leverage to keep Tehran at the table, even as it continues to support Iran’s ability to resist US demands.

For the US, the question is when political and economic pressures will persuade President Trump that a negotiated settlement is the only realistic path. A related uncertainty: How far the US is willing to go in inflicting additional damage on Iran’s economy? The administration may be inclined to escalate, but doing so is not cost‑free. If an overt military campaign resumes, energy exports will remain restricted, which threatens to keep inflation higher and economic growth lower for longer, in the US and around the world.

In the end, neither side may get the victory it wants, only the compromise it can live with.

Is Recession Risk Rising? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report