Authored by Mike Shedlock via MishTalk.com,

Small business bankruptcies are at a much higher pace than any year since the Covid pandemic…

Small business bankruptcies from the American Bankruptcy Institute via the Wall Street Journal

The Wall Street Journal reports There’s No Soft Landing for These Businesses

Nearly 1,500 small businesses filed for Subchapter V bankruptcy this year through Sept. 28, nearly as many as in all of 2022, according to the American Bankruptcy Institute.

Bankruptcy petitions are just one sign of financial stress. Small-business loan delinquencies and defaults have edged upward since June 2022 and are now above prepandemic averages, according to Equifax.

An index tracking small-business owners’ confidence ticked down slightly in September, driven by heightened concerns about the economy, according to a survey of more than 750 small businesses. Fifty-two percent of respondents believed that the country is approaching or in a recession, said the survey by Vistage Worldwide, a business-coaching and peer-advisory firm.

Robert Gonzales, a bankruptcy attorney in Nashville, said he’s now getting four times as many calls as he did a year ago from small businesses considering a bankruptcy filing.

“We are just at the front end of the impact of these dramatically higher interest rates,” Gonzales said. “There are going to be plenty of small businesses that are overleveraged.”

Five Reasons for Surge in Bankruptcies

Rising Interest Rates

Surging Wages

Tighter Bank Credit

Overleverage

Work-at-Home Curtailing Demand

Fed Rate Interest Rate Hike Expectations Are Still Higher for Even Longer

The Fed has hiked interest rates to 5.25% to 5.50%. It’s the highest in 22 years.

And Fed Rate Interest Rate Hike Expectations Are Still Higher for Even Longer

Surge in Wages

Minimum wages have surged. Unions are piling on. Small businesses have to offer prevailing wages or they cannot get workers.

In California, Minimum Wage for Fast Food Workers Jumps 30% to $20 Per Hour. Governor Gavib Newsom called it a “big deal”, I responded:

A Big Deal Indeed, Expect More Inflation

Yes, governor, this is very big deal. It will increase the cost of eating out everywhere.

The bill Newsom signed only applies to restaurants that have at least 60 locations nationwide — with an exception for restaurants that make and sell their own bread, like Panera Bread (what’s that exception all about?)

Nonetheless, the bill will force many small restaurants out of business or they will pony up too.

30 Percent Raise Coming Up!

If McDonalds pays $20, why take $15.50 elsewhere?

The $4.50 hike from $15.50 to $20 is a massive 30 percent jump.

Expect prices at all restaurant to rise. Then think ahead. This extra money is certain to increase demands for all goods and services, so guess what.

Other states will follow California.

Biden Newsome Tag Team

Biden’s energy policies have made the US less secure on oil, more dependent on China for materials needed to make batteries, fueled a surge in inflation, and ironically did not do a damn thing for the environment, arguably making matters worse.

See  The Shocking Truth About Biden’s Proposed Energy Fuel Standards for discussion of the administration’s admitted impacts of Biden’s mileage mandates.

Newsom is doing everything he can to make things even worse.

The tag team of Biden and Newsom is an inflationary sight to behold.

Bank Credit and Over-Leverage

In the wake of the failure of Silicon Valley Bank, across the board small regional banks are curtailing credit.

The regional banks over-leveraged on interest rate bets. And businesses overleveraged too, getting caught up in work-from-home environments that curtailed demand for some goods and services.

The bankruptcies will fall hard on the regional banks.

Add it all up and things rate to get worse.

The root narrative around the next government funding bill is slowly taking shape and it is uglier than many people suspected – Neo-cons within the GOP are determined to oppose the majority of Americans and will continue funding the war in Ukraine, and they are planning on using the border security issue as leverage. 

In a recent interview with CBS Face The Nation, Lindsay Graham suggested that any new government funding bill would require many billions more in Ukraine military aid well beyond the $24 billion already slated, and that if conservatives want funding for border security, they will have to submit to an ongoing proxy war in Ukraine.  In other words, the plan is to hold conservatives and America hostage using the immigration crisis.

Let’s not forget that Graham has had a longstanding interest in using Ukraine as a powerkeg to start a war with Russia.  Listen to his rhetoric in a speech given to Ukrainian soldiers in 2016, and it’s easy to understand why Russia would attack to secure the Donbas:

Peddling propaganda that would have worked during the Iraq War but not so much today, Graham asserts a number of falsehoods.  First, border security does not have to be tied to Ukraine funding, that is a construct created by House speaker Kevin McCarthy and his backroom negotiations with Democrats.  He is the primary agent involved in keeping Ukraine military funding alive because he continues to give Democrats the impression that he will back down.  His removal as speaker would all but end that dynamic, which is why Graham is aggressively defending him.

Second, Graham uses the old claim that “50% of Russia’s military” has been defeated without America losing a single soldier.  This is, for one, an open admission that the US and NATO are in fact engaging in a proxy war with Russia, which is something warhawks denied for a year.  It is also a claim with no concrete evidence to back it.  Finally, his position rings of sociopathy:  Graham is saying that throwing Ukrainians into an endless meat grinder is a good and cost effective investment.  

Third, Graham claims while discussing military aid that NATO allies have sent “a lot more funding than we have and when you hear otherwise it’s just not true.”  This is either a misleading out-of-context claim, or an outright lie.  If we are talking about military aid rather than pure financial aid, then the US has spent more money than all other allies combined.  The US has also spent almost as much capital as allies when combining military, humanitarian and financial funds.  If Graham is asserting that Americans have not given enough in comparison to Europe, then he’s out of his mind.

Fourth, Graham uses the old “domino effect” argument to assert that Putin and Russia will continue on to threaten NATO member countries if Ukraine is allowed to fall.  By all accounts so far, Ukraine has already lost the war with its counter-offensive in complete failure.  But beyond that, Graham and Democrats can’t have it both ways – Either Russia’s military is thwarted and 50% of their forces are destroyed, or, they are strong enough to roll into Poland after overtaking Kiev.  Which one is it?  

Fifth, the next narrative is bizarre, in that warhawks are trying to connect failure in Ukraine to giving a green light to China to attack Taiwan.  Ukraine has nothing to do with China or Taiwan, and if anything the CCP has already been emboldened by NATO’s disastrous efforts in the region.  China is well aware that if they were to blockade or invade Taiwan there is nothing NATO could do about it.  In fact, the proxy war and sanctions against Russia have only increased trade and military relations between Russia, China and the BRICS.  

Lindsay Graham is an archaic Neo-con artifact from the Bush era, but he does showcase the need for reform within the Republican Party.  He is a symbol of the dwindling false left/right paradigm; a dichotomy that is now failing to lure in conservatives the way it used to.  The bottom line is, the vast majority of conservatives have no interest in Ukraine or a catastrophic war with Russia.  The majority of Americans according to polls no longer support funding for Ukraine.  And, the majority of Americans are concerned about the tide of illegal immigrants at the US border. 

Graham does not represent the interests of the American people, let alone the interests of conservatives. He only represents the special interests of the establishment and a handful of far leftists.      

Authored by Jonathan Turley,

With the commencement of the impeachment inquiry into the conduct of President Joe Biden, three House committees will now pursue key linkages between the president and the massive influence peddling operation run by his son Hunter and brother James.

The impeachment inquiry should allow the House to finally acquire long-sought records of Hunter, James, and Joe Biden, as well as to pursue witnesses involved in their dealings.

I testified this week at the first hearing of the impeachment inquiry on the constitutional standards and practices in moving forward in the investigation. In my view, there is ample justification for an impeachment inquiry. If these allegations are established, they would clearly constitute impeachable offenses. I listed ten of those facts in my testimony that alone were sufficient to move forward with this inquiry.

I was criticized by both the left and the right for the testimony. 

Steven Bannon and others were upset that I did not believe that the basis for impeachment had already been established in the first hearing of the inquiry.

Others were angry that I supported the House efforts to resolve these questions of public corruption.

Without prejudging that evidence, there are four obvious potential articles of impeachment that have been raised in recent disclosures and sworn statements:

bribery,

conspiracy,

obstruction, and

abuse of power.

Bribery is the second impeachable act listed under Article II. The allegation that the President received a bribe worth millions was documented on a FD-1023 form by a trusted FBI source who was paid a significant amount of money by the government. There remain many details that would have to be confirmed in order to turn such an allegation into an article of impeachment.

Yet three facts are now unassailable.

First, Biden has lied about key facts related to these foreign dealings, including false statements flagged by the Washington Post.

Second, the president was indeed the focus of a corrupt multimillion-dollar influence peddling scheme.

Third, Biden may have benefitted from this corruption through millions of dollars sent to his family as well as more direct benefit to Joe and Jill Biden.

What must be established is the President’s knowledge of or participation in this corrupt scheme. The House now has confirmed over 20 calls made to meetings and dinners with these foreign clients. It has confirmation of visits to the White House and dinners and events attended by Joe Biden. It also has confirmation of trips on Air Force II by Hunter to facilitate these deals, as well as payments where the President’s Delaware home address was used as late as 2019 for transfers from China.

The most serious allegations concern reported Washington calls or meetings by Hunter at the behest of these foreign figures. At least one of those calls concerned the removal or isolation of a Ukrainian prosecutor investigating Burisma, an energy company paying Hunter as a board member. A few days later, Biden withheld a billion dollars in an approved loan to Ukrainian in order to force the firing of the prosecutor.

The House will need to strengthen the nexus with the president in seeking firsthand accounts of these meetings, calls, and transfers.

However, there is one thing that the House does not have to do. While there are references to Joe Biden receiving money from Hunter and other benefits (including a proposed ten percent from one of these foreign deals), he has already been shown to have benefited from these transfers.

There is a false narrative being pushed by both politicians and pundits that there is no basis for an inquiry, let alone an impeachment, unless a direct payment or gift can be shown to Joe Biden. That would certainly strengthen the case politically, but it is not essential legally. Even in criminal cases subject to the highest standard, payments to family members can be treated as benefits to a principal actor. Direct benefits can further strengthen articles of impeachment, but they would not be a prerequisite for such an action.

For example, in Ryan v. United States, the Seventh Circuit U.S. Court of Appeals upheld the conviction of George Ryan, formerly Secretary of State and then governor of Illinois, partly on account of benefits paid to his family, including the hiring of a band at his daughter’s wedding and other “undisclosed financial benefits to him and his family and to his friends.” Criminal cases can indeed be built on a “stream of benefits” running to the politician in question, his family, or his friends.

That is also true of past impeachments. I served as lead counsel in the last judicial impeachment tried before the Senate. My client, Judge G. Thomas Porteous, had been impeached by the House for, among other things, benefits received by his children, including gifts related to a wedding.

One of the jurors in the trial was Sen. Robert Menendez (D-N.J.), who voted to convict and remove Porteous. Menendez is now charged with accepting gifts of vastly greater value in the recent corruption indictment.

The similarities between the Menendez and Biden controversies are noteworthy, in everything from the types of gifts to the counsel representing the accused.  The Menendez indictment includes conspiracy charges for honest services fraud, the use of office to serve personal rather the public interests. It also includes extortion under color of official right under 18 U.S.C. 1951. (The Hobbs Act allows for a charge of extortion without a threat of violence but rather the use of official authority.)

Courts have held that conspiracy charges do not require the defendant to be involved in all (or even most) aspects of the planning for a bribe or denial of honest services. Thus, a conspirator does not have to participate “in every overt act or know all the details to be charged as a member of the conspiracy.”

Menendez’s case shows that the Biden Administration is prosecuting individuals under the same type of public corruption that this impeachment inquiry is supposed to prove. The U.S. has long declared influence peddling to be a form of public corruption and signed international conventions to combat precisely this type of corruption around the world.

This impeachment inquiry is going forward. The House just issued subpoenas on Friday for the financial records of both Hunter and James Biden. The public could soon have answers to some of these questions. Madison called impeachment “indispensable…for defending the community” against such corruption. The inquiry itself is an assurance that, wherever this evidence may lead, the House can now follow.

In a recent interview with ProPublica, Joe Biden engaged in a short but revealing interview that covered the spectrum of establishment media and far-left talking points concerning the durability of conservative movements (including MAGA) and their supposed threat to “democracy.”  

ProPublica, a “non-profit” organization that claims to be an independent news organization, has been at the center of a number of stories attacking conservative leaning officials and groups, including conservative Supreme Court members like Clarence Thomas.  They have also been criticized for taking millions in donations from leftist elites including Charles Rockefeller and George Soros; throwing lavish parties for oligarchs in New York while at the same time asserting that they are “shining a light on abuses of power and betrayals of public trust.”

The group offers a series of leading (or well rehearsed) questions to Biden, who mumbles through the interview with his typical brand of intermittent incoherence.  However, there are a few major points to be taken from this interaction.

The discussion itself comes off as rather desperate – The level of focus on Trump, MAGA and January 6th reflects panic in the wake of a recent ABC poll, which shows Trump ahead of Biden by 10 points in a hypothetical election battle in 2024.  With Trump far ahead of any other candidate in the GOP primaries, the rematch may already be set in stone.  What is Biden’s response to this development?

Democracy Is “Under Threat?”

ProPublica launches into the interview with the admission that when they talked to Biden during the last election, they did not expect things to go well for him.  This was a sentiment held by millions of Americans including many Democrats leading up to November 2020, which is why the debate over election manipulation is so believable.  It is difficult to comprehend how a candidate that drew weak crowds and little enthusiasm during his campaign somehow garnered over 81 million votes – With a huge spike in votes counted overnight after most Americans went to bed.  

Both political parties have in the past questioned the validity of vote counts and election integrity, but rarely has the demand for a recount or the protests that followed been demonized so completely.  That said, the repetitive claims on J6 as an “insurrection” have not had the affect on public sentiment that Democrats intended.  The fear mongering over the protest (an unarmed conservative march which was far less violent than many major BLM marches) has been the only play at the disposal of Democrats seeking to paint conservatives as the biggest threat to American stability since the Civil War.

Because, when your candidate has been at the helm of the country during the worst stagflationary crisis in 40 years and people’s savings accounts are quickly drying up, the only thing that might save him is the idea that the other guy will make things even worse if he’s allowed into office.

Rule By The Majority?

The far-left does not represent the majority of Americans, but this notion is consistently implanted in the establishment media just as it is implanted in the above interview.  And it bears repeating – The US is not a democracy, and it is not rooted in rule by the majority.  The US is a Constitutional Republic ruled by checks and balances and inalienable rights.  The political left believes that if they repeat the same falsehood over and over again that eventually the public will believe it.

Rule Of Law?  

Americans got a serious taste of what Democrats perceive to be the “rule of law” during the BLM riots and the covid lockdowns.  They have seen double standards put in place, for example, to protect the image of leftist BLM rioters while maliciously slandering conservatives.  They witnessed BLM being given free rein to amass in the streets during lockdowns while conservative anti-mandate protesters were compared to terrorists.  

They also witnessed numerous BLM related violent crimes and attacks be ignored by the media while they attempted to destroy a young man’s life (Kyle Rittenhouse) for defending himself against that same violence.

Then there were the numerous attempts in 2021-2022 by Democrats to enforce medical authoritarianism, including attempted vaccine passport programs and an array of punishments for the unvaccinated.  Keep in mind that this was all done in the name of a virus with a tiny 0.23% Infection Fatality Rate (officially).  Mandates are not laws, they are unconstitutional dictates from on high.

“Christian Nationalists” And Hateful Revolution?

Such double standards lead to rebellion, and Biden knows this. Which is why the interviewer dares to address it in the first place.  ProPublica, like all leftist platforms, seeks to marginalize the feelings of rebellion across the country as a product of “Christian nationalism” (which means different things to different people).  For progressives, the terminology is supposed to conjure images of neo-nazis and evil rednecks.  The wording was carefully chosen to associate all patriots with racism.

Biden immediately latches onto the propaganda by talking about Strom Thurmon and “hate” hiding just under the surface of America.  But Strom Thurmon was originally a Democrat and didn’t switch to Republican until he started changing his image.  And didn’t Biden give a eulogy at Strom Thurmon’s funeral?  Hasn’t Biden made numerous comments in the past that would be construed as racist by today’s progressive standards?

The reality is that Democrats have long been a party associated with hate and nothing has changed.  Except now they view minorities as property on the voting plantation instead of the traditional slave plantation.  Numerous minorities are also conservative and libertarian patriots that do not like the current path of the country; are these people also inspired by hate?  

Elon Musk Ruining “Journalistic Integrity” With Free Speech?

Yes, it’s true, not long ago information was bottlenecked by a handful of corporate media entities which engaged in editorial spin to omit facts and misinform the public, and there was nothing anyone could do about it.  Now, because of digital media they are dying and this can only be a good thing.  Biden thinks otherwise, with yet another dig at Elon Musk’s takeover of Twitter/X.

It is perhaps hard to grasp how important Twitter was to the establishment as a filter to remove undesirable truths from public discussion.  The level of salt on display among leftists and globalists when it comes to Twitter introducing even a modicum of free speech makes it clear that the platform was a key asset.  

The issue is really one of saturation – In order to control the public narrative the establishment must control all major media and social media structures.  If even one large platform slips through the cracks then people will have alternative access to information and that platform will rise in popularity, just as Twitter/X user numbers are now hitting record highs. 

With the covid lockdowns, as long as some places in the US and in the world remained free from the mandates then people would be able to see that there was a better way to handle the pandemic that did not require oppressive restrictions.  When people can see an alternative that works better, they will naturally gravitate to it.  The same goes for information, media and political leadership.

As long as alternatives outside the bottleneck exist, people like Biden and his ilk cannot dictate popular discourse.  The goal of such people will forever be to eliminate alternatives; leaving only the choices they allow.  

Authored by Charles Hugh Smith via OfTwoMinds blog,

Something has been going very wrong in the US economy for a very long time, and whatever is going wrong accelerated from 2009 to the present.

Longtime readers know I’ve covered America’s soaring wealth and income inequality for many years, and so I read economist Noah Smith’s recent post entitled Working-class wealth is improving with keen interest. I respect Noah’s work, which is why I follow his Substack posts.

Here are some excerpts from his commentary:

“One of the truisms many Americans learned during the 2010s that turned out not to be so true is the idea that the wealth of the working class is relentlessly falling behind. The likely reason that people “learned” this “fact” is that it was true up until the financial crisis of 2008, and people didn’t recognize it and get mad about until the crash.

For that we have to turn to the (Federal Reserve’s) FRED website. But when we do, we can see that the bottom 50% of households have seen strong wealth growth in real terms since 2012.

Now, 50% of the country’s households holding only 2.5% of the wealth is still very dramatic inequality. We should remember that some piece of this is just the life-cycle of wealth — young people who haven’t had time to build wealth and old people who have spent down most of their retirement account will look poor even if they will be comfortable or were comfortable in middle age. But even after accounting for that life-cycle effect, America is going to have very steep wealth inequality.

Trends are important, though. And this trend is a positive one. The fact that working-class wealth has been recovering as a share of America’s total wealth for a decade, even as every group has increased its wealth, says that something is going right in the U.S. economy. A rising tide is lifting all boats, and it’s lifting the boats at the bottom more than the others.”

Data hound that I am, I decided to explore the FRED database for charts that would confirm his no-doubt sincerely issued claim that “The fact that working-class wealth has been recovering as a share of America’s total wealth for a decade, even as every group has increased its wealth, says that something is going right in the U.S. economy.”

What I found is the exact opposite of his claim: the bottom 50%’s share of total assets and financial assets have fallen sharply since 2009. In the greatest expansion of net worth / assets / wealth in US history, the bottom 50%’s share of this massive expansion of wealth has declined by 25%.

Rather than increase as Noah claimed, the working class’s share of America’s total wealth has plummeted. Let’s look at the data, as depicted on the FRED charts. Let’s start with the chart Noah referenced, which does indeed show the wealth (net worth) of the bottom 50% rising smartly over the past decade, from a nadir of less than $1 trillion to $3.6 trillion in 2023:

For context, let’s look at household net worth, which rose an astounding $90 trillion from $56 trillion in 2009 to $146 trillion in 2023. As the chart above shows, the bottom 50% garnered $3 trillion of this $90 trillion in gains, or 3%. This modest percentage is not supportive of Noah’s claim that “A rising tide is lifting all boats, and it’s lifting the boats at the bottom more than the others.”

Here we see the 167 million Americans in the bottom 50% own $3.6 trillion, the top 1% –3.3 million Americans–own $45 trillion, a staggering 12.5X the net worth of the bottom 50%.

The top 0.1%–330,000 Americans–own $18.5 trillion, an astonishing 5X the net worth of the 167 million Americans in the bottom 50%.

Next, let’s look at each segment’s share of total assets. The bottom 50%’s share of assets plummeted 25% since 2009, from 8% to 6%.

The share of the top 1% soared 26% since 2009:

The share of the top 0.1% skyrocketed 34% since 2009:

These charts show the bottom 50%’s share of America’s assets hasn’t risen, it’s cratered. The rising tide of $90 trillion in additional wealth since 2009 has raised the yachts of the top 1% and the top 0.1% such that the bottom 50% share of assets declined. The bottom 50%’s leaky boat–as measured by their share of assets–actually took on water.

Financial assets are important because financial assets generate income and economic security. let’s look at each segment’s share of the nation’s vast financial assets.

The bottom 50%’s meager share–167 million American’s share of the nation’s stupendous financial assets–fell 26% from 3.1% to 2.3%–a sliver so thin that it’s essentially signal noise.

Meanwhile, the top 1%’s share of financial assets rose 24% since 2009, more than 15X the bottom 50%’s share of financial assets.

The top 0.1%’s share of financial assets soared 34%% since 2009, 6.5X the bottom 50%’s share of financial assets.

Noah’s claim of “A rising tide is lifting all boats, and it’s lifting the boats at the bottom more than the others.” is akin to being behind 49-0 in the waning minutes of the fourth quarter and cheerleading the team’s increase in total yardage gained from 11 yards in the 2nd quarter to 33 yards in the 3rd quarter–a positive trend.

Noah claimed the financial metrics of the bottom 50% are a positive trend. If we consider the bottom 50%’s share of total assets and financial assets, this claim is not supported by the FRED data.

Noah then extended this claim to an even larger claim that “something is going right in the U.S. economy.”

The message of the Federal Reserve’s data depicted in the charts is the exact opposite: something has been going very wrong in the US economy for a very long time, and whatever is going wrong accelerated from 2009 to the present.

Those actually living in the bottom 50% (as opposed to jetting around to conferences) might find Noah’s ponderings that the bottom 50%’s impoverishment is a statistical anomaly generated by temporarily impecunious youth climbing their way to wealth, and retirees who spent their wealth and are now comfortably impoverished somewhat risible. The reality is more likely mac and cheese from the dollar store prepared in an overcrowded flat or a trailer park and rapacious credit card interest rates and exploitive late fees.

By all means, let’s look at the data before making expansive claims.

*  *  *

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Both September and Q3 saw poor performance for markets across the board: as DB’s Henry Allen writes in the bank’s quarterly performance review, over Q3, or just 11 of the 38 non-currency assets the German bank tracks, were in positive territory, and in September, only 7 were positive making it the worst month of 2023 so far.

broad The declines had several causes, but the most important one was the sense that central banks were likely to keep interest rates higher for longer – until something breaks –  alongside a $20/bbl rise in oil prices over the quarter. The losses also added to September’s reputation as the worst month for financial markets over recent years. Indeed, it was the 4th year in a row that the S&P 500 and the STOXX 600 were down for September, as well as the 7th year in a row that Bloomberg’s global bond aggregate was down for the month.

Here are some of the key highlights from the report, with full details below.

September was the 4th year in a row that the S&P 500 (-4.8%) and the STOXX 600 (-2.0%) were down for September, as well as the 7th year in a row that Bloomberg’s global bond aggregate was down for the month.
US 30yr Treasury yields saw their biggest quarterly climb (+83.9bps) since Q1 2009.
10yr JGBs nearly doubled (+36.5bps) to 0.76% in Q3, to the highest level since 2013.
Brent Crude oil prices were up +27.2% in Q3 to $95.31/bbl, which is their biggest quarterly rise since Q1 2022 when Russia’s invasion of Ukraine began.
The dollar index strengthened by +3.2% in Q3, aided by a sharp rise in US real yields. Conversely, other major currencies weakened against the dollar, including the Euro (-3.1%), the Japanese Yen (-3.4%) and the British Pound (-4.0%).
On a YTD basis, the NASDAQ still leads the way (+27.1%) with the S&P (+13.1%) strong even with the September/Q3 sell-off. However, the equal-weight S&P 500 is “only” +1.8% in 2023, which highlights the narrowness of the rally.
On a YTD basis, the Nikkei (+9.1%) and Stoxx 600 (+7.9%) remain buoyant even with a -6.6% and -5.0% correction in Q3 respectively. However the Hang Seng is -7.2% YTD following a -4.1% decline in Q3.
Even with a bad year for fixed income, US HY (+5.3%), EU HY (+5.0%) and EM bonds (+4.1%) has shown that carry has ultimately won out in 2023, even if their returns are broadly in line with short-end cash rates.

Quarter in Review – The high-level macro overview

When it came to financial assets, the biggest story of Q3 was the massive bond sell-off, which sent yields up to multi-year highs around the world. For instance, the 10yr Treasury yield ended the quarter up +73.5bps at 4.57%, and at the intraday peak on September 28 it was as high as 4.686%, which we haven’t seen since 2007. Yields moved higher across the curve but there was also a clear steepening. That left yields on 2yr Treasuries up +14.8bps to 5.04%, whilst those on 30yr Treasuries saw their biggest quarterly increase since Q1 2009, with a rise of +83.9bps to 4.70%. It was much the same story elsewhere too, with the 10yr German bund yield up +44.8bps to 2.84%, which hasn’t been seen since 2011.  Meanwhile in Japan, the  10yr yield was up +36.5bps to 0.76%, which is the highest since 2013.

Central banks played a role in that sell-off, as investors moved to push out the likely timing of any rate cuts. For  instance, at the Fed’s September meeting, the FOMC raised their median dot for the fed funds rate in 2024 by 50bps, suggesting that there would be fewer cuts next year than previously thought. That’s been reflected in market pricing too, with the timing of a first 25bp rate cut from the Fed pushed out from Q2 2024 to Q3 2024. Meanwhile, the ECB hiked their deposit rate to an all-time high of 4% in September.

Concerns about inflation remained in the background as well, partly thanks to a fresh surge in oil prices over Q3. In fact, Brent Crude oil prices were up +27.2% to $95.31/bbl, which is their biggest quarterly rise since Q1 2022 when Russia’s invasion of Ukraine began. In part, that followed the news that Saudi Arabia and Russia were extending their production cuts to the end of the year. In the meantime, there was also a growing focus on persistent budget deficits and the impact that would have on rates, not least after Fitch Ratings downgraded the US credit rating in August from AAA to AA+.

Another theme of the quarter has been growing indications that global economic data is softening. In the US, the 3-month average growth of nonfarm payrolls now stands at just +150k, which is the weakest that’s been since the initial wave of the pandemic in 2020. And in the Euro Area, the composite PMI has been in contractionary territory throughout Q3, with readings below 50 in July, August and September.

This backdrop meant that equities had a weak performance, with the S&P 500 down -4.8% in total return terms over September. That’s the worst month of the year so far for the index, and leaves it down -3.3% over Q3 as a whole. It is still positive on a YTD basis, however, with a +13.1% gain, although those gains have been driven by a relatively narrow group of stocks, with the equal-weighted S&P 500 only up +1.8% YTD. It’s also been a weak quarter for equities elsewhere, with the STOXX 600 (-2.0%) and the Nikkei (-3.4%) also losing ground.

Which assets saw the biggest gains in Q3?

Energy commodities: Oil prices saw a strong rebound in Q3, which followed a run of 4 consecutive quarterly declines. Brent crude was up +27.2% to $95.31/bbl, and WTI rose +28.5% to $90.79/bbl. Natural gas prices also moved higher, with those in Europe up +12.8% to €41.86/MWh, after a run of 3 consecutive quarterly declines.
US Dollar: The dollar index strengthened by +3.2% in Q3, aided by a sharp rise in US real yields. Conversely, other major currencies weakened against the dollar, including the Euro (-3.1%), the Japanese Yen (-3.4%) and the British Pound (-4.0%).

Which assets saw the biggest losses in Q3?

Sovereign bonds: It was the worst quarterly performance for sovereign bonds in a year, with losses for US Treasuries (-3.4%) and Euro sovereigns (-2.5%). The moves mean that both are negative on a YTD basis again.
Equities: Equities were down across the board in Q3, with declines for the S&P 500 (-3.3%), the STOXX 600 (-2.0%) and the Nikkei (-3.4%). The main exception to this pattern were energy stocks, with those in the S&P 500 up +12.2% over the quarter.

Finally, here is a summary of performance by assets class denominated in local FX as well as USD, for the month of September…

…. for Q3…

… and for 2023 YTD.

More in the full note available to pro subs.

Authored by Matthew Vadum via The Epoch Times,

Some in the financial services industry are nervous about how the Supreme Court will rule in a payday lending industry challenge to the constitutionality of the Consumer Financial Protection Bureau (CFPB) that is being heard this week.

A ruling against the powerful regulator in CFPB v. Community Financial Services Association of America (CSFA) (court file 22-448), which will be heard Oct. 3, could cause vast economic upheaval, an attorney representing big players in the financial sector said.

At the same time, another attorney rejected these apocalyptic warnings, saying that even if the court rules against the agency it probably wouldn’t prevent the CFPB from operating and would give Congress an opportunity to pass new legislation to fix any constitutional infirmities it may find.

The federal agency, which regulates consumer financial products such as credit cards, mortgages, and car loans, was the brainchild of Sen. Elizabeth Warren (D-Mass.). Democrats fiercely defend the CFPB, formed in the wake of the 2008 financial crash, saying it serves a useful function as a check on corporate power. Legislation creating it was enacted in 2011.

Republicans accuse the agency of overreach. The CFPB was targeted by the Trump administration, which disputed its constitutionality.

The CFSA, which represents payday lenders, sued over the CFPB’s rule that prevented lenders from trying to withdraw payments from borrowers’ bank accounts after two consecutive attempts failed because of insufficient funds.

A payday loan is a short-term loan, typically for a small amount such as $500 or less that is expected to be repaid with the borrower’s upcoming paycheck. The high-interest loans, which generally require proof of identity, income, and a bank account, appeal to borrowers with bad credit. The lender usually requires a signed check or permission to electronically withdraw money from the borrower’s bank account.

Unconstitutional

The U.S. Court of Appeals for the 5th Circuit ruled in favor of the CFSA, finding that the CFPB’s unusual funding mechanism was unconstitutional so it couldn’t make the rule.

That mechanism was created to keep the agency independent. Although it may seek funding from Congress, the agency is excluded from the normal congressional appropriations process, and instead receives most of the money it needs to operate from the Federal Reserve System, which collects fees from member banks.

But that independence is precisely what makes the funding system unconstitutional, the 5th Circuit determined. The mechanism violates the U.S. Constitution’s appropriations clause, which states, “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.”

The clause “ensures Congress’s exclusive power over the federal purse,” which is needed to make sure that other branches of government don’t exceed their authority, the appeals court stated.

“Wherever the line between a constitutionally and unconstitutionally funded agency may be, this unprecedented arrangement crosses it,” the 5th Circuit stated.

Christian Adams, a former attorney at the Department of Justice, seemed surprised the Supreme Court was hearing the “super complicated” case at all.

“The Supreme Court seems to have settled this. It’s sort of peculiar why it is that the United States has dug in,” he said in an interview.

“I mean, the Supreme Court already has ruled that the whole agency is outside the checks and balances of the Constitution. So it’s hard to understand why we have to keep going back to the Supreme Court on that.”

Mr. Adams is also a sitting member of the U.S. Commission on Civil Rights and president of the Public Interest Legal Foundation.

The U.S. Supreme Court in Washington on Sept. 18, 2023. (Madalina Vasiliu/The Epoch Times)

Second Challenge in 3 Years

As he noted, this is the second challenge in three years to the constitutionality of the CFPB to reach the Supreme Court.

This appeal gives the court’s 6–3 conservative majority an opportunity to continue its campaign to restrain the so-called administrative state by curtailing the authority of regulators.

The Supreme Court issued a ruling in June 2020 altering the bureau’s structure but upholding its constitutionality.

In Seila Law LLC v. CFPB, the court held 5–4 that the structure of the CFPB was unconstitutional, because its director, who must be confirmed by the U.S. Senate, couldn’t be fired by the president at will and that the agency was therefore insulated from political accountability. The court held that the agency could continue to exist under new rules that allowed the president to fire the director at will.

In the Seila Law ruling, the court noted the existence of the controversial funding system but didn’t topple it, as some critics of the agency had hoped.

But the new case could have catastrophic consequences if the Supreme Court doesn’t tread carefully, an attorney representing powerful industry lobbies told The Epoch Times.

‘Walking in a Minefield’

Robert Loeb, a partner in the Washington office of Orrick, Herrington, and Sutcliffe, filed a friend-of-the-court brief (pdf) on behalf of the Mortgage Bankers Association, the National Association of Home Builders, and the National Association of Realtors.

The brief did not recommend a specific course of action to the court, but instead focused on making the justices “aware that how they rule in the case matters,” Mr. Loeb said in an interview.

“When you’re walking in a minefield, you should be cautious of where you’re stepping.

“And if you’re going to go big, you need to be careful on how you constrain the decision so it doesn’t have unintended effects.”

“A good chunk of our economy is based on the real estate business, mortgage business,” so any Supreme Court ruling in this case “could have severe repercussions for pretty much all of the American economy as a whole,” he said.

“Do they rule in a way that draws into question every CFPB regulation and suggests its invalidity is limited to this one regulation? Are they delaying their ruling in a way that gives Congress a chance to fix the funding while the current regulations are allowed to persist?”

If the court were to rule “in a very broad way which suggests the invalidity of everything the CFPB has done and all its regulations, it could have some very dramatic effects and the Supreme Court could accidentally walk into that.”

If the CFPB “goes down because its funding is bad, then that is going to put a cloud over everything, including mortgage regulations, which the whole industry and the mortgage economy relies upon,” Mr. Loeb said.

‘Tell Them Not to Worry’

Attorney Curt Levey, president of the Committee for Justice, a conservative legal advocacy nonprofit, had a different perspective.

“In general, corporate America doesn’t like a lot of regulation, but then they become used to and dependent on the regulation, and they’re, ‘oh, my God! If you took away the CFPB we’d have chaos,’ forgetting that, how long have we had a CFPB? Ten years or something?”

The world went on before the CFPB was created “and I’m sure would do fine without the CFPB now, but we’re not really talking about the CFPB going away, so tell them not to worry,” he said.

The worst the court “can do is basically say that it has to be funded by Congress instead of by the Federal Reserve, and I’m sure that would give Congress some time to make a statutory change.”

“Sometimes the court just declares, basically rewrites the statute.”

“So if I had to guess, I would guess that even if they were to say it was unconstitutional, they will just give Congress time to rewrite the statute, and I’m sure Congress would.”

“We will see what happens, but one way or another, the CFPB will survive,” Mr. Levey said.