Granny and grandad rock!

April 12-18, 2025

Big news. Of course, these are the speeches of Janet Yellen (the previous head of the Fed and the Secretary of the Treasury under President Biden) and Jerome Powell (the current head of the Fed). The details are in the last section of the Review, but for now we will just note that Yellen said that it is pointless to restore US industry (the main vector of Trump’s policy), and Powell said that the Fed will not support the US stock market, but will support the global dollar system through loans to central banks. We must assume that this primarily refers to the ECB and the Bank of England.

This is a direct declaration of war, it is not for nothing that Trump immediately demanded Powell’s dismissal. And members of his team have already explained that these are not empty words and work on changing the leadership of the Fed is already underway in earnest. Another thing is how it will end.

What is important is that, in fact, such statements mean not only a sharp tightening of relations between that part of the American elites who support Trump and the Euro-Atlanticists. But also that the political elites on both sides see the beginning of a collapse of financial markets as extremely likely this year. Most likely, by autumn, but options are possible.

Macroeconomics. Chinese data continues to please amid government stimulus:

GDP slowed (+1.2% quarterly and +5.4% y/y), but overall did not yield to forecasts –

Investments in fixed capital accelerated to +4.2% per year, and excluding housing – to +8.3%; all sectors are growing:

Industrial production (+7.5% per year) is growing at its fastest rate in 4 years, and excluding the Covid surges, at its fastest rate in 6 years:

Retail sales are set to peak growth from the end of 2023 (+5.9% per year):

The decline in prices of new buildings (-4.5% per year) is the lowest in 10 months:

There are two options. Either everything is very good, or… Either inflation has increased, and this is not shown in the statistics. The choice between these options will become clear in about a month.

The economic sentiment index in Germany (ZEW review) is the worst in almost 2 years:

And in the eurozone – from the end of 2022:

Philadelphia Fed Index Worst in 2 Years:

And its new orders component has been since 2009 (excluding Covid), and even then a weaker number was only seen once, and before that a similar dip had only happened in 1980:

Japan’s CPI (consumer inflation index) excluding food prices hits 2-year high:

Gold price exceeded $3350 per ounce:

The number of permanently employed Britons is 78 thousand per month, the only time it was worse was in April-May 2020:

Unemployment in the Netherlands at its highest in 7 years (not counting the Covid surge):

The ECB cut the rate by 0.25% to 2.40%. The Central Bank of Turkey raised the base rate by 3.5% to 46.0%.

The Bank of Canada left rates unchanged, has 2 different scenarios depending on US tariffs. The monetary policy of the Central Bank of South Korea is also unchanged.

Main conclusions. There is a lot of additional information this week. Let’s start with Pavel Ryabov’s analysis that the US economy’s dependence on foreign capital has reached record levels:

“In 2024, the US net liabilities for the international investment position were 26.2 trillion (90% of GDP) vs. 19.8 trillion (72% of GDP) in 2023 and 11.7 trillion (54% of GDP) in 2019, only 7 trillion (40% of GDP) in 2014 and 1.3 trillion (less than 9% of GDP) in 2007.

Since 2007, liabilities have grown almost 20 times in monetary terms and an order of magnitude (10 times) relative to the size of the economy.

What is net liabilities for the international investment position? It is the difference between the assets that US residents have in the outside world and all the liabilities that US residents have to non-residents.

These calculations take into account the currency and exchange rate revaluation of assets.

At the end of 2024, US residents had assets in the external world worth 35.9 trillion, of which direct investment is 11.3 trillion, portfolio investment is 15.9 trillion, derivatives are 2.3 trillion, and other assets are 5.5 trillion.

The active foreign economic expansion of the United States ended in 2007, when the volume of external assets relative to GDP reached 143% versus 79% in 1999 and about 40% in the early 90s.

From 2008 to 2024, the average volume of external assets was 135% (maximum in 2020 is 150%, and minimum in 2022 is 121%), in 2024 – 123%, which is near the minimums over the past 15 years.

At the same time, the trend in liabilities is different – a smooth increase. In 2007, the external liabilities of US residents to non-residents amounted to 152%, compared to 89% in 1999 and about 45% in the early 1990s.

From 2008 to 2024, average liabilities amounted to 181% of GDP, the maximum in 2021 was 227%, the minimum in 2009 was 152%, and in 2024 – 213%.

At the end of 2024, non-residents owned US assets worth 62.1 trillion in the following structure: direct investment – 17.8 trillion, portfolio investment – 33.1 trillion, derivatives – 2.3 trillion, other assets – 8.9 trillion.

It should be noted separately the rapid growth of direct investment by 7.4 trillion or 71% over 5 years.

The main point of concentration of non-resident assets is shares of public and non-public companies, the share of investments in which reached 118% in 2024 (close to the historical maximum in 2021 – 120%) compared to 84% in 2019, 66% in 2014 and 44% in 2007. This is largely due to exchange rate revaluation due to the growth of assets on the stock market.

In bonds (portfolio and direct investments), the situation is different – 57% in 2024 vs. a maximum of 70% in 2020, 66% in 2019, 67% in 2014 and 56.2% in 2007, i.e. the current level corresponds to 2007.

In other investments, non-residents hold 30.5% of GDP, down from a peak of 34.8% in 2007. This group includes dollar cash and non-resident deposits in US banks at 15.2% of GDP (lowest since 2007), non-resident bank loans to US companies at 13.8% of GDP, insurance reserves at 1.1% of GDP, and trade loans at about 0.5%.

Dollar loans from US banks to non-residents account for only 8.2%, a 25-year low, down from 19% in 2008.

Dollar loans and cash are becoming less and less popular in the outside world, demand for bonds has shown a clear downward trend since 2018, and the main concentration of assets is in shares of US companies or joint ventures with non-residents.

The historical gap in net IIP is mainly due to the bubbling of US assets against the backdrop of stagnation in global company stocks, with a general trend of dollar strengthening until 2024.

Since 2025, the US has been doing everything to prove that it is no longer a reliable partner or a stable and predictable ally, which naturally raises questions about the quality of governance in the US and the reliability of dollar-denominated assets.

The table clearly shows the structure and volumes of IIP in the US. The main blow will be to the bond market and, in the future, to the stock market. A collapse in US stocks in the near future may be triggered by the exit of non-residents.”

Foreign investors are actively selling US stocks:

• Over the past week, foreigners pulled about $6.5 billion out of U.S. equity funds, the second-largest outflow ever.
• Outflows were only lower than the $7.5 billion during the March 2023 banking crisis.
• $18.5 trillion in U.S. equities (20% of the market) are owned by foreign investors.
• Foreigners hold $7.2 trillion in U.S. government bonds (30% of the market).
• Foreigners also own 30% of the entire corporate credit market, worth $4.6 trillion.

Foreign investors seek a way out amid volatility, analysts write.

Record number of investors around the world are going to cut their holdings in US stocks – BofA

The share of investments in US stocks has fallen sharply to a record low – the largest decline in history in two months, they are now undervalued by 36% in investor portfolios.

The forecast for US corporate profits has become the worst since November 2007 – investors are looking at the near future with pessimism.

Housing prices in the US continue to break records:

• The median asking price has increased by 6.3% in a year to reach $424,985 – a record high.
• Since the beginning of the year, houses have increased in price by an average of $50,000.
• The asking price has risen by 3%, to $383,750 – the highest since November 2024.
• Mortgage rates have reached 6.67%, twice as high as during the pandemic.
• Monthly mortgage payment rose 5.3% to $2,807 — an all-time high.

BofA fund manager survey shows maximum pessimism for the US:

• 82% of investors expect the global economy to weaken — a 30-year high
• 42% believe a recession is likely
• A record number of participants want to reduce their share of investments in US stocks
• Cash in portfolios rose to 4.8% — the strongest growth in 2 months since April 2020
• Allocation to US stocks fell to a minimum since May 2023

73% believe that “US exceptionalism” is already behind us.

Bankruptcy statistics for Germany, Austria and Switzerland:

• Almost 1,500 companies went bankrupt in Germany in March. This is 12% more than a year ago. In total, 4,237 companies filed for bankruptcy in the first three months of 2025. This has not happened in Germany since the 2008-2009 crisis;
• In neighboring Austria, almost 2,000 companies declared insolvency in the first quarter of 2025. If the pace continues, the country could set a new record for the number of companies for the third year in a row;
• The Swiss. In 2024 – 17,000 companies, which is 10.3% more than a year earlier. This is the fourth record year in a row. The financial damage amounted to 1.5 billion Swiss francs.

And finally, some quotes.

Yellen says US reindustrialization is a “pipe dream” and doubts it is even a “desirable goal” for Americans: “It may be [the trade war] is being done to revive American manufacturing, but I think it is a pipe dream and unlikely to be achieved. It is worth asking whether it is a desirable goal in the broad sense.” Powell. “We may well be in a situation where we have to make a difficult decision to raise rates…

The Fed is prepared to provide dollars to global central banks if they run short. U.S. debt growth is on an unsustainable trajectory. But overall, U.S. federal debt has not yet reached an unsustainable level.”

“Despite increased uncertainty and downside risks, the U.S. economy is still holding up well.”

“The impact of tariffs could be more inflationary than expected. The inflationary impact of tariffs could be more persistent than expected. Tariffs are higher than expected, which likely means higher inflation and slower growth. We should not rush to cut rates until we have more certainty. The U.S. economy is stable, despite increased uncertainty and downside risks…

The policy implications are likely to move the Fed further away from its goals. Perhaps before the end of the year. We may be able to resume easing next year. Tariffs are higher than even the highest Fed forecasts assumed.”

And Powell’s answer to the question:

• Some people think that the Fed will intervene if the market collapses. Is that true?
• Powell: I’ll say “NO” – and now I’ll explain why… I think the market is functioning as it should, despite many uncertainties.

The review turned out to be very long. Well, the events went in a very dense stream. I think that there will be no excesses on the weekend, so we can wish our readers to relax these days. But next week the pace of unpleasant news may increase again …