Authored by Simon White, Bloomberg macro strategist,

It’s time once more to increase vigilance for a US recession.

Soft, survey data is starting to deteriorate, while hard data is already fragile. Expectations of a downturn are currently low, but they could quickly swing higher.

Stocks – which experience their worst drawdowns in recessions – are not priced for such an outcome, while yields are biased lower in the coming months.

S curves are nature’s approximation of a binary on-off switch. They pop up in all sorts of places, from neurons in the brain to the progression of diseases, and from population growth to the adoption of new technologies. They also describe how recessions evolve.

Economies are typically believed to develop in a linear fashion, from a non-recessionary to a recessionary state. But instead they do so in a highly non-linear way, with recessions often happening abruptly. Downturns have either a low risk of occurring in the next 3-4 months, or a high risk, but rarely anything in between – much like the shape of an S as depicted below.

That is why most standard recession models don’t make a lot of sense, as they assume recession risk can evolve smoothly. But it is essentially meaningless to talk of the likelihood of a recession rising from, say, 45% to 50%, when we acknowledge their regime-shift nature.

Just now we are at the bottom-left hand side of the S, with a low risk of an imminent recession. But the data has evolved in the last few weeks to suggest we could soon move to the right and on to the steep upward section of the curve – meaning the probability could quickly climb much higher. If so that would make a recession more likely than not over the next 3-4 months.

Stocks are expecting a soft or no landing. They are currently behaving in a way consistent with the Fed’s first rate cut — the most likely move if it changes rates this year — occurring in the absence of a recession. However, rate cuts that happen when there is a slump have historically led to a much worse outcome for equities — both before and after the recession — than currently priced (white line in chart below).

Six months ago I wrote that a US recession was unlikely through most of 2024. That could still end up being the case, but if we are shifting along the S curve, then investors should be prepared for an environment that could quickly look more recessionary, even if an actual downturn doesn’t arrive for another six months. Remember: stocks sell off before the onset of a recession, and even longer before the NBER finally announces the economy is in one.

The upgrading of recession risk has been prompted by the weakening in soft data in recent weeks, coinciding with hard data that remains fragile.

The manufacturing ISM is one of the single-most important data points for the economic and stock outlook.

The headline survey dropped below 50 in April. It is led by the new orders-to-inventory ratio, which is turning lower and slipped below the important level of one, where orders are expected to be just enough to match inventory.

It was the rise in this ratio, along with other indicators, that fed the view last year that the US was likely to avoid a recession for a while yet.

Yet as much as it’s unhelpful to be a perma-bear and constantly expect a recession, it also doesn’t make sense to assume there will be no recession at all. As I have described, one can only have a reasonably accurate view on a downturn occurring over the next 3-4 months, and that view by its nature is likely to change abruptly, not smoothly.

Adding to the difficulty in forecasting recessions, the goods and services economies have fallen out of sync in this cycle. Normally the goods sector leads the rest of the economy into a downturn, which is why so many traditional recession indicators over-emphasized the risk of one last year. But at some point, the economy is likely to resynchronize.

Why it’s particularly important to be more vigilant now is that services might also be notably slowing, as flagged by the services ISM also slipping below 50 in April; it has only done so twice before outside of a recession.

The usual caveats apply. The ISM is quite volatile, and the PMI services survey is still above 50, even though it is also turning lower. But this drop in important soft-data points comes at a time when hard data is showing signs of fragility too.

Recessions occur when both hard and soft data are contracting at the same time. Using the inputs to the Conference Board’s Leading Index, growth in leading hard-data has been turning higher, but is still contracting, while leading soft-data is close to slipping into the contraction zone. That would be ominous for recession risk.

Revisions will also be key to monitor. Typically data sees its biggest revisions before and after the occurrence of a recession. Data can be revised lower very quickly which is why recessions can happen faster in revised time than in real time.

What does all this mean practically for investors?

It leaves stocks more vulnerable. As the chart below shows, even though equities see a sharp drawdown after a recession begins (which, remember, we don’t know when that is until after the fact when the NBER announces it), they begin selling off beforehand. Moving to the right of the S curve means more volatile stock prices with a bias lower, even if it does not ultimately mean a full recession-like decline and an end to the bull market.

It also means bond yields are more likely to see some retrenchment in the coming months. But with elevated inflation in the background, bonds are primed to not rally as much as in non-inflationary recessions (see chart below). Moreover, yields are still structurally biased higher due to waning interest in owning USTs at current prices, and an inundation of supply.

Investing is about gauging forward probabilities. The probability of a near-term recession is currently low, but in a month’s time it could be much higher. That would be a lot of new information asset prices would have to quickly digest. A more nimble investment stance is advised at this trickier part of the cycle.

Billionaire Barry Sternlicht, Founder, Chairman and CEO of Starwood Capital Group has issued an ominous warning about America’s regional banks, which he says will fail at a rate of ‘one or two’ per week.

Speaking with CNBC on Tuesday, Sternlicht says he thinks that primary real estate lenders – community and regional banks – are about to get whacked.

“You’re going to see a regional bank fail every day, or not — every week, maybe two a week,” he said, adding that Fed Chair Jerome Powell’s ongoing rate hikes will continue to have consequences for the real estate sector.

“He’s got a hard task with a blunt tool, and the consequence is the real estate markets are taking it on the chin because rates rose so fast. We could have handled this, but we couldn’t handle it this fast,” he said. “The 1.9 trillion of real estate loans, that’s a fragile animal right now.”

Watch:

As Schiff Gold notes, the fed must cut to avoid a banking crisis.

Most at-risk firms are smaller banks representing assets under $10 billion, with a handful of larger regional ones. Some might be able to avoid closing by halting expansion plans or offering fewer services. Others might save themselves by merging with larger banks. But with inflation too high for the Fed to cut now, “higher for longer” interest rate policy is looking increasingly likely, and banks with high exposure to troubled commercial real estate are at particular risk of starting a domino effect of small collapses that lead to bigger ones and bleed into becoming a real estate crisis.

…

In all its hubris, the Fed is stuck between preventing a banking crisis and preventing inflation from getting even more out of control. It needs higher rates to reduce inflation, but crucial sectors of the economy that are heavily dependent on lending can’t survive in a higher-rate environment, even if they don’t appear insolvent at first glance.

There are more than 4,000 regional and community banks throughout the United States, however just one – Republic First Bank – has shuttered since the start of 2024, after the FDIC seized $4 billion in deposits and $6 billion in assets last month.

Read more here, here, here, and most detailed here.

Meanwhile, UK fund manager, former MEP, and previously Nigel Farage’s economic spokesman Godfrey Bloom has issued a similar warning to Stenlicht, telling former UK parliamentary candidate Jim Ferguson on his podcast that the banks are insolvent.

“We are entering a new dark age,” says Bloom, who recommends that people “take your money out of the banks.”

Watch:

Exclusive Alert Breaking: “British Banks are all on the brink of collapse” Godfrey Bloom.

Banks in America are collapsing at the rate of one a month.

“we are entering a new dark age”

Godfrey Bloom ,Author, Fund manager, Former MEP and former British Army Major with the 4th… pic.twitter.com/KEk6nmGYtp

— Jim Ferguson (@JimFergusonUK) May 9, 2024

Authored by Katabella Roberts via The Epoch Times,

The House of Representatives voted on Wednesday to pass a measure that would add a citizenship question to the next U.S. census, as part of the latest efforts by conservatives to “protect America’s democracy and electoral integrity.”

The legislation, known as the “Equal Representation Act,” was led by Rep. Chuck Edwards, (R-N.C.), who spoke on the floor Wednesday regarding the need to ensure only American citizens are counted when apportioning congressional seats and Electoral College votes.

It passed in a vote of 206-202 along party lines.

The measure would direct the Census Bureau to add a question to the once-a-decade census asking whether or not the respondent is a citizen of the United States. It asks that only citizens be considered when determining how many lawmakers each state gets in the House of Representatives, as well as how many Electoral College votes each of the 50 states receives.

The measure creates new reporting requirements for data gathered from the citizenship question, noting that “the citizenship makeup of the population in the United States is a basic data point that should be available to U.S. policymakers, and the decennial census questionnaire is the best way to obtain such detailed information on citizenship status.”

The next decennial census is set to take place in 2030.

“Though commonsense dictates that only citizens should be counted for apportionment purposes, illegal aliens have nonetheless recently been counted toward the final tallies that determine how many House seats each state is allocated and the number of electoral votes it will wield in presidential elections,” Mr. Edwards said in remarks on the floor on Wednesday.

“And since the illegal alien population is not evenly distributed throughout the nation, American citizens in some states are losing representation in Congress to illegal aliens in other states, ” he added.

‘Alarming Undermining of American Democracy’

Mr. Edwards cited a 2019 study by the Center for Immigration Studies, which estimated that illegal immigrants and non-citizens, who have not naturalized and do not have the right to vote, impact the distribution of 26 seats in the House.

The lawmaker said his bill would “finally address this alarming undermining of American democracy” while helping to ensure electoral integrity.

“Enacting this legislation into law is vitally important to ensuring that the American people receive fair representation in Congress and that they, and only they, determine the outcomes of presidential elections,” Mr. Edwards said.

Conservatives welcomed the measure on Wednesday. House Speaker Mike Johnson (R-La.) said in a statement after the vote, “We should not reward states and cities that violate federal immigration laws and maintain sanctuary policies with increased Congressional representation.”

House Committee on Oversight and Accountability Chairman James Comer (R-Ky.) applauded Wednesday’s passage of the Equal Representation Act while criticizing the Biden administration’s “open border policies” which he said have “created the worst border crisis in American history, impacting every American.”

“In the midst of a crisis that is setting records for illegal border crossings, Congress is today taking steps to proactively protect a fair electoral process,” Mr. Comer said in a statement.

Mr. Comer said the new bill “adds a simple citizenship question to the decennial census questionnaire to ensure accurate information, and provides that only citizens are counted for apportionment of seats in the House of Representatives and Electoral College votes.”

“American citizens’ federal representation should be determined by American citizens only,” the Republican added.

President Joe Biden speaks to guests during an event at Gateway Technical College’s iMet Center in Sturtevant, Wis., on May 8, 2024. (Scott Olson/Getty Images)

White House ‘Strongly Opposes’ Bill

However, civil rights groups, Democrats, and the White House quickly criticized the bill–which is unlikely to pass the Democratic-controlled Senate–with many questioning its legality under U.S. law.

The Constitution states that representatives will “be apportioned among the several States according to their respective numbers, counting the whole number of persons in each state.”

In a statement of administration policy published on Monday, the Biden administration said it “strongly opposes H.R. 7109 [the Equal Representation Act]” which would “preclude the Department of Commerce’s Census Bureau from performing its constitutionally mandated responsibility to count the number of persons in the United States in the decennial census.”

The measure would also increase the cost of conducting the census and make it more difficult to obtain accurate data, the administration said.

“It would also violate the Fourteenth Amendment of the Constitution, which requires that the number of seats in the House of Representatives ‘be apportioned among the several States according to their respective numbers, counting the whole number of persons in each State,’” the administration added.

This is not the first time Republicans have attempted to add the citizenship question to the census. Commerce Secretary Wilbur Ross tried to do so during the 2020 Census under President Donald Trump.

That attempt was subsequently blocked by the Supreme Court.

Israeli leaders are furious after the evening prior CNN published an interview with President Biden wherein he laid out that the US will withhold all offensive weapons from Israel if it moves forward with a full-scale invasion of Rafah.

In a message to both Israel’s “enemies and best friends” – clearly a reference to Washington – Defense Minister Yoav Gallant on Thursday vowed that Israel “will achieve [its] goals in the north and south.”

“I say from here to Israel’s enemies and its best friends: The State of Israel cannot be subdued — not the IDF, not the Defense Ministry, not the defense establishment, not the State of Israel. We will stand, we will achieve our goals, we will hit Hamas, we will destroy Hezbollah, and we will bring security,” Gallant said.

“Whatever the cost, we will ensure the existence of the State of Israel and remember well the directive we signed just a week ago during the Holocaust Remembrance Day ceremony, the words ‘Never Again.’ For me, it’s not just a directive, it’s a work plan. This is how the defense establishment will work and this is how the IDF will work,” he added.

“We have no choice, we have no other country. We will do whatever is necessary, and I repeat – whatever is necessary, in order to defend the citizens of Israel, to remove the evil threats against us, and to stand up to those who attempt to destroy us.”

Prime Minister Benjamin Netanyahu also responded, but just as with Gallant he has not named Biden or the United States directly…

In what looks like a response to Biden’s remarks about halting military aid if Israel goes into Rafah Netanyahu shares this video of his speech from several days ago in which he says Israel will stand alone if it needs to https://t.co/ZwHj2bNi3M

— Barak Ravid (@BarakRavid) May 9, 2024

But others were more blunt and direct, claiming that Biden with this move is ‘helping Hamas’:

Finance Minister Bezalel Smotrich stated bluntly that the strong American opposition would only reinvigorate Israel’s drive to eliminate Hamas.

“We must continue this war until victory, despite, and to a certain extent precisely because of, the opposition of the administration Biden and the stopping of arms shipments,” he said in a statement. “We simply have no other choice that does not endanger our existence and security.”

National Security Minister Itamar Ben Gvir, a firebrand who leads the far-right Otzma Yehudit party, tweeted simply that “Hamas [loves] Biden.”

Here’s what the hardline and hawkish national security minister tweeted out:

Hamas ❤️Biden

— איתמר בן גביר (@itamarbengvir) May 9, 2024

Former President Donald Trump agreed, writing in a statement that Biden withholding defense deliveries is tantamount to siding with the terrorists.

Part of his message also included the words “Biden is weak, corrupt, and leading the world straight into World War III. Remember – this war in Israel, just like the war in Ukraine, would have NEVER started if I was in the White House. But very soon, we will be back, and once again demanding PEACE THROUGH STRENGTH!”

The Rafah mission appears to still be on, and Israel’s message of defiance in response to Biden let that be known. Meanwhile Israel’s Walla News is reporting that the Hamas delegation has now left Cairo and that there has been no ceasefire breakthrough, with both sides once again blaming the other for rejecting a deal.

Israel has previously warned that Israel would give Hamas one week to accept the latest deal on the table (and that warning was issued last week), or else the military would go into Rafah. The refugee-packed southern city of the Gaza Strip has in the last hours been getting hammered by airstrikes, as tens of thousands of civilians scramble to get out.

Biden had said controversially in the CNN interview which angered the Israelis, “I’ve made it clear to Bibi (Prime Minister Benjamin Netanyahu) and the war cabinet: They’re not going to get our support if they go [into] these population centers.”

“Civilians have been killed in Gaza as a consequence of those bombs and other ways in which they go after population centers,” Biden said. “I made it clear that if they go into Rafah — they haven’t gone in Rafah yet — if they go into Rafah, I’m not supplying the weapons that have been used historically to deal with Rafah, to deal with the cities — that deal with that problem.”

“We’re going to continue to make sure Israel is secure in terms of Iron Dome and their ability to respond to attacks that came out of the Middle East recently,” Biden continued before spelling out: “But it’s, it’s just wrong. We’re not going to — we’re not going to supply the weapons and artillery shells.”

Biden is now getting pushback at home too, with Congressional leaders demanding answers as to why Washington’s close Mideast ally is being threatened with the withholding of vital US defense aid…

BREAKING: Speaker Johnson and Senate minority leader McConnell send a letter to President Biden expressing alarm about the decision to pause a weapons shipment to Israel and ask for clarification by the end of the week pic.twitter.com/OLd7agcEf1

— Barak Ravid (@BarakRavid) May 8, 2024

“This news flies in the face of assurances provided regarding the timely delivery of security assistance to Israel,” House Speaker Mike Johnson (R-La.) and Senate Minority Leader Mitch McConnell (R-Ky.) wrote Biden in a letter issued Wednesday.

“The American public deserves to understand the nature, timing, and scope of these reviews,” they wrote, and added that “daylight between the United States and Israel at this dangerous time risks emboldening Israel’s enemies and undermining the trust that other allies and partners have in the United States.”

Via SchiffGold.com,

In 2009, 140 banks failed, and a recent report from financial consulting firm Klaros Group says that hundreds of banks are at risk of going under this year. It’s being billed mostly as a danger for individuals and communities than for the broader economy, but for stressed lenders across America, a string of small bank failures could quite quickly spread into a larger bloodbath — especially in an economy with hot inflation and a feverish addiction to ultra-low interest rates.

Data Source: FDIC.gov

Most at-risk firms are smaller banks representing assets under $10 billion, with a handful of larger regional ones. Some might be able to avoid closing by halting expansion plans or offering fewer services. Others might save themselves by merging with larger banks. But with inflation too high for the Fed to cut now, “higher for longer” interest rate policy is looking increasingly likely, and banks with high exposure to troubled commercial real estate are at particular risk of starting a domino effect of small collapses that lead to bigger ones and bleed into becoming a real estate crisis.

The Klaros report looked at troubled community banks with a large proportion of troubled commercial real estate loans, uninsured deposits, and massive losses on other loans and bonds. These banks are held hostage by higher interest rate policy, and Jerome Powell has already acknowledged that not all of the Fed’s hostages will make it. Fear not, however — as he said at a recent hearing on monetary policy in the Senate Banking, Housing, and Urban Affairs Committee, a few failures won’t turn into an uncontrolled downward spiral:

“There will be bank failures…I think it’s manageable, is the word I would use.”

In other words, banks will fail, but it won’t be enough to trigger a large banking crisis or blow up the broader commercial real estate sector. Powell says the Fed is “working” with these troubled smaller banks that are sitting on loans for empty office and retail buildings, but it’s up to you whether you find his words reassuring:

“There are empty buildings in many major and minor cities…thousands and thousands of people who worked in those buildings are under pressure too…we’re just trying to stay ahead of it on a bank-by-bank basis.”

But interpreting Fed doublespeak is always a delicate endeavor. After all, if he did think 2024-2025 bank failures would be enough to start a domino effect, he wouldn’t say so, or it would cause markets to panic, and the collapse could quickly become a self-fulfilling prophecy.

But don’t worry — Powell promises that in any event, the Fed will use taxpayer money to protect the megabanks deemed “systemically important” if its economic meddling leads to a banking crisis. The first bank failure of 2024, First Republic Bank, doesn’t fall into this “too big to fail” category and was absorbed by the larger Fulton Financial. Almost 50% of First Republic’s loans were in commercial real estate.

In all its hubris, the Fed is stuck between preventing a banking crisis and preventing inflation from getting even more out of control. It needs higher rates to reduce inflation, but crucial sectors of the economy that are heavily dependent on lending can’t survive in a higher-rate environment, even if they don’t appear insolvent at first glance.

In a free market, interest rates would be much higher — and “too-big-to-fail” banks wouldn’t exist. Parts of the economy that couldn’t handle higher rates would be cleaned out of the system. Without the free market’s unforgiving but self-regulating mechanisms, where losers are allowed to lose no matter their size, Federal Reserve wizardry locks America into a seemingly endless cycle of death and reincarnation. Recession and bubble, boom and bust. But every cycle coils the spring more tightly as the Fed kicks the can down the road to prevent an all-out failure of the system, and the dollar itself, in the longer term.

Illegal immigrants at a Denver, Colorado encampment that is set to be removed are refusing to leave until the city meets a list of 13 demands, which include access to “fresh, culturally appropriate ingredients” for food, unlimited showers, “the same housing support that has been offered to others,” legal services, and fair warning before kicking them out.

The majority of the migrants at the Colorado encampment eventually accepted Denver’s offer to stay at a shelter on Wednesday. 3
The majority of the migrants at the Colorado encampment eventually accepted Denver’s offer to stay at a shelter on Wednesday. FOX31 Denver

The group, which had been staying at an encampment under busy Central Park Boulevard in northeast Denver, before relocating under a bridge near the Denver Airport, sent their demands to Mayor Mike Johnson (D) on Wednesday, according to the nonprofit Housekeys Action Network Denver, which posted them to Facebook and said the demands were “incredibly reasonable and doable” and would ensure “long-term stability and opportunities for all.”

The nonprofit also criticized the city for “poor conditions and lack of accountability that resulted in many of these same individuals finding themselves on the streets after having gone thru [sic] the system.”

The full list of demands is as follows;

Migrants will cook their own food with fresh, culturally appropriate ingredients provided by the City instead of premade meals – rice, chicken, flour, oil, butter, tomatoes, onions, etc… Also people will not be punished for bringing in & eating outside food.
Shower access will be available without time limits & can be accessed whenever – we are not in the military, we’re civilians.
Medical professional visits will happen regularly & referrals/connections for specialty care will be made as needed.
All will receive the same housing support that has been offered to others. They cannot kick people out in 30 days without something stable established.
There needs to be a clear, just process before exiting someone for any reason – including verbal, written, & final warnings.
All shelter residents will receive connection to employment support, including work permit applications for those who qualify.
Consultations for each person/family with a free immigration lawyer must be arranged to discuss/progress their cases, & then the City will provide on-going legal support in the form of immigration document clinics, & including transportation to relevant court dates.
The City will provide privacy for families/individuals within the shelter.
No more verbal or physical or mental abuse will be permitted from the staff, including no sheriff sleeping inside & monitoring 24/7 – we are not criminals & won’t be treated as such.
Transportation for all children to & from their schools will be provided until they finish in 3 weeks.
No separating families, regardless of if family members have children or not. The camp will stay together.
The City must schedule a meeting with the Mayor & those directly involved in running the Newcomer program ASAP to discuss further improvements & ways to support migrants.
The City must provide all residents with a document signed by a City official in English & Spanish with all of these demands that includes a number to call to report mistreatment of if they aren’t

In response, Johnson’s office offered the migrants the ability to stay in a city shelter for seven days instead of the initial three.

“We’ve been offering time and shelter, basically just trying to get families to leave that camp and come inside,” Denver Human Services spokesperson Jon Ewing told 9News.

As the Epoch Times notes further, the migrant crisis is costing Denver bigly, as the group’s refusal to leave the encampment comes as Denver is battling with a $180 million budget gap as the illegal immigrant crisis continues to weigh heavily on the city.

In February, Mr. Johnston told reporters the city needs to slash roughly $18 million per month from public services throughout 2024 in order to fund the costs of providing services to illegal immigrants arriving in the city.

Denver Mayor Mike Johnston speaks during a news conference at the U.S. Capitol in Washington, Jan. 18, 2024. (Drew Angerer/Getty Images)

At the time, the Democrat called the cuts a “plan for shared sacrifice” that would help both “newcomers” illegally crossing the border and taxpayers who expected certain services in the city.

“This is what good people do in hard situations as you try to manage your way to serve all of your values. Our values are: we want to continue to be a city that does not have women and children out on the street in intense and 20-degree weather,” he said.

In its post on Facebook, Housekeys Action Network Denver said it was not up to Mr. Johnston to “accept and support the very migrants he says he appreciates and defends in his speeches.”

“Now is the time to support these individuals with sustainable, stable plans that also provide them with the autonomy and self-determination they want!!!” the organization said.

The Epoch Times reached out to Denver Human Services for further comment but did not receive a response by press time.

Authored by Simon White, Bloomberg macro strategist,

Stocks and bonds have been rising together again, with investors getting longer of both assets. Inflation fears are taking a backseat for now, allowing lower yields to boost stock prices.

Positioning data for equities shows that investors have been getting longer US stocks all year and are now net long as they have been since late 2021.

This was not long before the market peaked at the start of 2022, but the backdrop was worse then than it is now. CPI was 7% and still rising and excess liquidity was falling quite sharply.

Equities had a good week last week, retracing three-quarters of their recent down move. As discussed last week, they have seen a change of leadership, which has recently been consistent with a bottom in prices being near.

Stocks have rallied as yields have fallen from their recent high of ~4.70%. Bonds had become somewhat oversold, and we also saw some weaker than expected economic prints, e.g. payrolls, that pushed inflation concerns into the backseat and allowed USTs to bounce. Investors appear to have been dipping their toe back in, as positioning data shows an uptick in net long bond positioning.

Yet the longer-term outlook for bonds is still poor. Inflation will linger and leading indicators point to higher price growth to come. Stocks and bonds are rising together at the moment, but the flipside of that positive correlation is that they can fall together too, negating one of the main reasons multi-asset managers own them.

Banks have also been on net divesting themselves of Treasuries and agency securities over the last two years from 33% of assets to 30%. There was little to suggest that is about to start rising again from the latest Senior Loan Officer Survey, released on Monday for the three months to the end of April. The net percent of banks tightening standards for C&I loans remained steady, after rising in the quarters since SVB’s bankruptcy. That leads C&I loan growth by about six-to-nine months.

As the chart below shows, banks tend to reduce their holdings of less profitable Treasuries when they make more commercial loans.

That continues to make it more likely the household sector will be the buyer of last resort for Treasuries, and if inflation continues to be a problem, demand a higher yield premium to do so.

Shares of Airbnb stumbled in premarket trading in New York on Thursday after the home rental company beat earnings expectations for the first quarter but provided weaker-than-expected guidance. This comes after Bank of America analysts identified other travel companies missing earnings, leaving them with new fears that a consumer travel spending downturn nears. 

Here’s how the company reported in the first quarter, compared with consensus expectations from Bloomberg: 

Revenue $2.14 billion, +18% y/y, estimate $2.06 billion

Gross booking value $22.9 billion, +12% y/y, estimate $22.32 billion

 Adjusted Ebitda $424 million, +62% y/y, estimate $326.3 million

Adjusted Ebitda margin 20% vs. 33% q/q, estimate 15.9%

EPS 41c vs. 18c y/y, estimate 30c

Nights and experiences booked 132.6 million, +9.5% y/y, estimate 131.81 million

Gross booking value per nights and experiences booked $172.88, +2.6% y/y, estimate $169.38

Free cash flow $1.91 billion, +21% y/y, estimate $1.07 billion

Despite the revenue beat in the quarter, nights and experiences booked, a key metric in the industry, posted 9.5%, falling short of expectations of a 12% increase. “It also represents the slowest rate of growth since 2020, suggesting that overall demand has normalized after an initial post-pandemic travel boom,” Bloomberg said. 

Wall Street analysts were more focused on Airbnb’s second-quarter guidance. The company now expects revenue for the quarter ending in June to be between $2.68 billion and $2.74 billion, down from $2.74 billion. 

Sees revenue $2.68 billion to $2.74 billion, estimate $2.74 billion (Bloomberg Consensus)

In a statement, Airbnb noted that the Easter holiday and currency headwinds were some factors in the travel spending slowdown – ahead of the peak travel season in July. 

Wall Street analysts were focused on the “underwhelming” room nights metric and weak quarter-two guidance that overshadowed better-than-expected first-quarter earnings (list courtesy of Bloomberg):

Bloomberg Intelligence analyst Mandeep Singh

“Airbnb’s expectations of 8-10% top-line growth for 2Q suggests a further deceleration in room-night growth, with average daily rates likely to remain a slight tailwind”

RBC Capital Markets analyst Brad Erickson (sector perform, PT $150)

“The Q2 revenue guide was slightly below consensus, and importantly, the shareholder letter called for Nights & Experiences y/y growth similar to Q1’s 9% vs. consensus looking for 12%”

Morgan Stanley analyst Brian Nowak (underweight, PT $120)

While Airbnb is a unique travel platform, room nights continue to underwhelm
Expect “stable-to-slowing room night growth” and more use of marketing to drive growth “weighing on the multiple investors are willing to pay”

JPMorgan analyst Doug Anmuth (neutral, PT $145 from $140)

Airbnb reported a solid 1Q, expect 2Q to be stable and acceleration in 3Q
“ABNB’s work on making hosting mainstream & perfecting the core service continued in 1Q”

Citi analyst Ronald Josey (buy, PT to $167 from $170)

The results are better than expected, but the outlook is below the consensus

Evercore ISI analyst Mark Mahaney (in line, PT $140)

Revenue and adjusted Ebitda are highlights of the report, but the revenue forecast “bracketed the Street”

Airbnb shares are puking in premarket trading, down 9.3% to $143 handle. 

The slowdown in travel spending has hit other companies in the industry. 

Last week, Booking Holdings posted worse-than-expected guidance, and Expedia Group reported disappointing results.

On Wednesday, this led Bank of America’s trading desk to ask: “Theme Alert? Consumer Travel Spending easing?” 

They pointed out a list of disappointing earnings across the travel industry: 

$EXPE miss/guide

$TRIP miss

$CMCSA parks commentary

$DIS parks’ moderation’ or normalization

$UBER slight bookings miss

Taking a deeper dive into markets, the Dow Jones US Travel & Leisure Index peaked in late March and fell 7.5%. The index is up against heavy resistance. 

Also, during earnings calls, McDonald’s, Starbucks, and Tyson Foods have recently warned about mounting headwinds hitting low-income consumers amid the failure of Bidenomics, which has left the economy plagued with elevated inflation. 

To sum up, revenge travel originating from the end of the pandemic could fade here. 

Authored by Andrew Korybko via Substack,

Many observers from the Mainstream Media and the Alt-Media Community alike were shocked when Defense Secretary Austin confirmed on Wednesday during a congressional testimony that the US had withheld “one shipment of high payload munitions” on the pretext that they could be used in Rafah. Biden then expanded on this newfound policy later in the day when declaring that “We’re not going to supply the weapons and artillery shells” if the IDF goes into Rafah’s population centers.

Nobody should have been surprised, however, since this piece here from mid-March about why Biden endorsed Schumer’s call for regime change in Israel explained the double game that his administration is playing. In brief, domestic electoral considerations influenced his team into ramping up last spring’s pressure campaign against Bibi, which was initially meant to punish him for ideological reasons but is now also aimed at pressuring Israel into the regional peace deal that it’s reportedly trying to broker.

Interested readers can learn more about it here, with the pertinence being that the US envisages Saudi Arabia recognizing Israel in exchange for Israel agreeing to Palestinian statehood. In furtherance of that grand strategic goal, which would reshape West Asian geopolitics, the US is dangling privileged nuclear energy and military partnerships in front of Saudi Arabia while gradually increasing its pressure on Israel. It also reportedly told Qatar to expel Hamas’ political wing if it doesn’t agree to a ceasefire.

There’ll be those activist-minded members of the Mainstream Media and the Alt-Media Community who’ll pick and choose which element of this policy to focus on in advance of their ideological agenda but the fact of the matter is that the entire whole represents a comprehensive diplomatic push. The US sees an opportunity to restore some of its lost regional influence through these means, which its policymakers believe will decelerate the recent expansion of Sino-Russo influence in West Asia.

Withholding a single arms shipment from Israel is a purely symbolic gesture that comes way too late to prevent the humanitarian catastrophe that unfolded in Gaza over the past eight months of total war, but it still signals that more forthcoming shipments might be withheld if Israel continues its Rafah operation. In that event, bilateral relations would worsen if Bibi doesn’t accept a compromise solution, which he’d be reluctant to do since that would discredit him after he promised to completely destroy Hamas.

Therein lies the problem, however, since that objective can only be achieved through military means that would perpetuate the Palestinians’ suffering and thus delay the deal that the US hopes to broker with the Saudis. The Kingdom won’t recognize Israel so long as the conflict continues, and a greater civilian death toll than the already presently high one could make it even more difficult to do so once the war finally ends. That deal is integral to Israel’s interests, but so too is Hamas’ destruction, ergo the dilemma.

Nevertheless, provided that Israel has adequate stockpiles to continue its campaign, then Bibi might gamble that he can destroy Hamas’ military wing at least and then play on the Saudis’ equal interest in the previously mentioned deal to eventually make it happen sometime after the war ends. That can’t be taken for granted though since the US wouldn’t have symbolically withheld is recent shipment nor would Biden have threatened to withhold all offensive arms if it thought this was truly the case.

It therefore remains to be seen what’ll happen, but the US expects that Bibi will indeed be pressured by this newfound policy into compromising on Gaza, which could discredit his leadership among the ultra-nationalist members of his coalition on whom his government depends. Basically, the US wants to kill three birds with one stone by bringing an end to this war for domestic electoral reasons, facilitating Bibi’s departure from office, and brokering an Israeli-Saudi peace deal for restoring its lost regional influence.

The sudden surge in initial jobless claims this morning was met with a significant across-the-market reaction (amid low levels of liquidity – Goldman noted yesterday was the quietest market day this year).

Rate-cut hopes jumped…

Which sent bond yields lower…

…and stocks higher…

The dollar dropped…

…sending gold higher…

This level of ‘data dependence’ in an illiquid market will not end well.