Like I pre-warned you in the Weekly Forecasts 28/2026, I will now pause the service offering of GnS Economics in its totality for three months. This is for the simple reason that we currently lack the manpower to run our services with sufficiently high quality.

When we started in 2012, as a side-project, there were four people (associates) behind our analyses. We agreed from the get-go that I would be the public face of GnS Economics, but the work behind my writing was always a group effort, with two exceptions. Between November 2022 and June 2023, and since late February 2026, when Mate announced his sudden departure, I have been the sole contributor to our outlet.

Our service offering is simply not meant to be run by one man (or a woman), albeit briefly. I did all the work for the second time, during the spring, and almost burnt out (again) as a result. I also noticed that the quality of our analyses and forecasts started to dwindle simply because I was over-extended. So, pausing our billing until another team is gathered is also just for you. I don’t want anyone paying for our analysis if I consider it sub-par with no clear improvement in insight.

This team-gathering is what I have been engaged in since the start of the year. It has run into some unexpected issues and hence delays, but it is still ongoing. So, GnS Economics will return. There’s no question about that. The only uncertainty concerns the exact timing of our return.

I hope that a new team will be assembled within the next three months, allowing us to resume normal operations. I will keep you posted on all developments.

Like I also noted on Friday, I will transfer all our annual subscribers to my newsletter. You should have started to receive welcome emails. If you do not receive one shortly, reply/write to me here and I will add you.

During the break, in addition to writing my newsletter (which will center on the needs of our investment company), I will concentrate on finalizing my book, on some academic projects, and on deepening my statistical understanding of our forecasting models. I will especially look deeper into our failed U.S. GDP forecasting model but will probably also start to build a recession-likelihood model. I will write about these in my newsletter.

I wish you an excellent fall. Remember to be on the lookout for a re-escalation in the Middle East, an onset of a US recession, and a market crash.

Best,

Tuomas

P.s. In the case of something truly drastic occurring, we will return to comment with limited service offerings also during this pause.

Links corrected post-publication on 8/17/2026.

Disclaimer:

The information contained herein is current as of the date of this entry. The information presented here is considered reliable, but its accuracy is not guaranteed. Changes may occur in the circumstances after the date of this entry, and the information contained in this post may not hold true in the future.

No information contained in this entry should be construed as investment advice nor advice on the safety of banks. Neither GnS Economics nor Tuomas Malinen can be held responsible for errors or omissions in the data presented. Readers should always consult their own personal financial or investment advisor before making any investment decision or decision about the banks in which they hold their money. Readers are solely responsible for the risks associated with using this post.

Readers must assess the risks and legal, tax, business, financial, or other consequences of their actions. GnS Economics and Tuomas Malinen cannot be held i) responsible for any decision taken, act, or omission or ii) liable for damages caused by such measures.

The views of Tuomas are his own. They may or may not be endorsed and supported by the partners and staff of GnS Economics.

It turns out that the financial structure surrounding credit funds is even more opaque and alarming than what I had previously noted in “A Financial Monster in Creation” in early May.

I started the sketch the structure while in Budapest in October and published my first sketch in mid-April but quickly noticed it was lacking repo. When I added the repo, the structure became as shown in the figure above.

In the Weekly Forecasts 17/2026, where the figure was first published, we concluded that

What the figure above adds to the previous analysis by Tuomas is the linkage of the credit fund to the repo through a Special Purpose Vehicle (SPV) and through the bank (note that the entity conducting the actual borrowing from the repo needs to be a bank, but any other financial entity that has access to repo).1 As you may remember, SPVs and SIVs (Special Investment Vehicles) were the two main entities that created the shadow banking sector, whose collapse almost crashed the global financial system in 2008.

[…]

The above figure and analysis imply two things:

1. Despite the claims to the contrary, the financial structure around credit funds (Private Credit) is likely to be highly leveraged.

2. There, most likely, is another bailout of the private credit sector ongoing through repo markets, in addition to the ones ongoing through the Fed and large U.S. banks.

The structure I envisioned, based on hard data, implied that I had been right about the stress in the repo-markets arising from Private Credit. My research naturally did not end there, and during my summer vacay, I came across information which implied that the funds are engaged in shadow banking operations.

This is how this piece of information changes the structure:

Read more

1. There has been a development in the U.S. bank lending.

2. We look for the (statistical) breakpoints in the U.S. bank lending series.

3. Forecasts indicate a slowing down of U.S. business lending, indicating an approaching downturn.

This week, we will begin a more in-depth analysis of U.S. bank lending data. We introduce you to the concept of breakpoint analysis and how it can affect the long-run dependency and cointegration relationship(s) between variables. Therefore, the will be a rather technical report, which is required for more robust future forecasts.

Before this primer on breakpoint analysis, we update the U.S. bank lending data. They indicate that the bailout of the private credit sector would be ending. Our forecasts add to the analysis by indicating a downturn in business lending and hence the U.S. business cycle ahead.

I also need to give you a heads-up about an announcement I am planning to give at the start of next week. Most likely, I will announce a pause in our services due to the inner upheaval our company is experiencing. I will provide our yearly subscribers with paid access to my newsletter for the duration of the pause. But let’s return to this at the start of the week.

Tuomas

A development

It now starts to look like our hypothesis on the bailout of the private credit sector was correct, based on recent updates to the U.S. bank lending data. On April 10, we noted that:

The private credit sector has been in the grips of a crisis, with, for example, massive withdrawal requests hitting the sector. Thus, we may have been witnessing a de facto bailout of private credit sector through bank lending. What we mean by this is that it is possible that major U.S. banks have been increasing lending to companies to pay off the loans acquired through credit funds (etc.) back to them. This is speculative, but the fact is that especially major banks are in the hook with the credit funds and other entities in the Private Credit space.

We speculated that this should lead the smaller U.S. banks to shy off from Private Credit, while major U.S. banks, who were deeply involved in the sector through the credit funds they created, would need to grow their lending to “bail out” the funds in trouble. With the latest patch of data, reaching the end of July, the trend is exactly what we have been seeing.

That is, the growth of lending by small banks to non-depository institutions (NDFIs) stalled in early March and has turned slightly negative during the past four weeks. Interestingly, also the lending by large banks to NDFIs has started to ebb, while it is also too early to say whether this is a hiccup or a clear break in the trend. However, on Monday, Tuomas noted that the bailout seems to have succeeded, at least as far as the stress in the repo markets is concerned. This is indicative that what we are seeing in the lending data reflects the end of the bailout, but does the observed change in the lending activity reflect something more?

When we observe the monthly business lending and lending to NDFIs, the (likely) changes in trends become more visible.

Based on Figure 2, both business lending and lending to NDFIs are slowing down, with business lending possibly peaking and turning down (our forecasts indicate that this would come; see below). These trends are indicative of a downturn approaching the U.S. economy. However, examining the annual growth rates of business loans issued by U.S. commercial banks reveals a different perspective.

Annualized, the business lending by U.S. banks have seen a very strong increase during the past five months, while monthly growth rates have been falling heavily into the summer. Moreover, business lending of small banks is growing steadily, which is indicative of a robust growth in the SME (small and medium-sized enterprises) sector.

That said, we need to acknowledge that commercial and industrial loans issued by small U.S. banks have had the tendency to rise into a recession and even increase within a financial crisis before ebbing (this trend also applies to large banks). Figure 5 emphasizes the point.

So, what can we make of the above, in addition to the bailout of the private credit sector by U.S. commercial banks, possibly closing its end?

Not much, really. The developments we list above may indicate a continued expansion of the U.S. economy or a recession approaching. To gain some more insights, we need to turn into forecasting.

Break points in the U.S. bank lending series

We now take up breakpoint analysis of the time series of U.S. bank lending (a feature available in EViews 14). The aim of this exercise is to improve the forecasts of US bank lending, which have suffered from forecasting model instability and exploding confidence intervals.

How the breakpoint analysis can help us in forecasting is by identifying the possible (likely) breaking points in the long-term (cointegration) relationship between our variables of interest. As you probably remember, cointegration analysis is about finding a stationary relationship between two or more I(1) nonstationary variables. Essentially, we are seeking linear combinations between two (or more) stochastic trends.

As you probably remember, shocks are naturally a defining feature of unit root processes, but what we are interested in are shocks that may alter the cointegration relationship(s) or “shake” it. This is because if there are breaks in the stationary (equilibrium) relationship between I(1) nonstationary variables, it affects forecasts and their confidence intervals (the error structure). It may bias the forecasts, but the shock, almost certainly, increases the mean squared errors, widening the confidence intervals, thus increasing the uncertainty of the forecasts. Moreover, if the shock breaks the stationary equilibrium relationship, the confidence intervals can start to exhibit “unit root behaviour,” i.e., explode. If we can identify and remove such one-time shocks, we will be able to produce more accurate forecasts (presumably).

That is why we turn to breakpoint testing with regard to the U.S. bank lending series. Bank lending is the driving force of the economy, as it fuelled the growth of small and medium-sized enterprises up until at least Private Credit started its phenomenal rise. This is actually one break point in the analysis that follows.

We explained the basics of breakpoint unit root analysis in Weekly Forecasts 26/2026. Essentially, we can have the test run statistics for two different assumptions about the break or an “outlier”. The first is called an additive outlier, while the second is called an innovative outlier. Simplified: the former tests for a break in the trend or slope of the series, while the latter tests for a break in the autoregressive dynamics of the series. The actual testing procedure is naturally (much) more nuanced, statistically.

Summarization by Grok:

Additive Outlier (AO):

• The break or outlier has an immediate, one-time (or pure additive) effect.

• It affects only the observation(s) at the break date (or causes an instantaneous permanent level/trend shift) and does not enter through the innovation (error) process or propagate via the autoregressive dynamics of the series.

• In the data-generating process, the full impact of the break dummies occurs right away.

Innovative/Innovational Outlier (IO):

• The break or outlier enters as a shock to the innovation (residual) term at the break date.

• Its effect therefore propagates dynamically through the AR (or ARMA) structure of the process—following the same path as ordinary innovations.

• Under the null of a unit root, an IO produces a permanent level shift whose impact evolves according to the dynamics of the series (gradual adjustment if there is autocorrelation).

In other words, what we are testing is whether there’s a break affecting the long-term dynamics of the series or something that simply breaks the trend the variable is exhibiting (possibly) for a limited period of time. Their implications for cointegration analysis and testing are naturally rather different, because the former alters the cointegration relationship, while the former just alters the path of the variable(s) around the long-term equilibrium relationship.

Let’s start our analysis by looking at the time series of variables under interest, as customary. Figure 6 presents the time series of natural logarithmic commercial and natural logarithmic industrial (business) loans and loans to non-depository financial institutions by U.S. commercial banks.

Read more

This is encouraging after last month’s (general) forecasting failure, but our model still needs work.

The Consumer Price Index, or CPI, rose by 0.1% , core inflation by 0.2%, and super-core inflation by 0.2% month-over-month in July. The year-over-year inflation war is 3.4% (3.5% in June). Here are some specific numbers from the July report:

These are worrying figures, because, like I have explained previously, when the first four keep on racking up with such a speed, the commodity price universe will eventually and unapologetically follow.

I also do not fully understand how gasoline prices are down 2.9% in July, according to the Bureau of Labor Statistics, while the national gas average price has risen from $3.8761 a month ago to $4.0360 now. Well, in any case, we can expect gas prices to rise further, as the 3-2-1 Crack Spread hovers near ATHs.

In other words, the conflict in the Middle East continues to dictate the path of inflation, and like I noted yesterday, it is not looking good. Therefore, we need to be prepared for a worsening inflation picture and slowing economic momentum, which can become recessionary in the coming months.

Stagflation is approaching.

Tuomas

Subscribe now

Disclaimer:

The information contained herein is current as of the date of this entry. The information presented here is considered reliable, but its accuracy is not guaranteed. Changes may occur in the circumstances after the date of this entry, and the information contained in this post may not hold true in the future.

No information contained in this entry should be construed as investment advice nor advice on the safety of banks. Neither GnS Economics nor Tuomas Malinen can be held responsible for errors or omissions in the data presented. Readers should always consult their own personal financial or investment advisor before making any investment decision or decision about the banks in which they hold their money. Readers are solely responsible for the risks associated with using this post.

Readers must assess the risks and legal, tax, business, financial, or other consequences of their actions. GnS Economics and Tuomas Malinen cannot be held i) responsible for any decision taken, act, or omission or ii) liable for damages caused by such measures.

Remember what Tracy Shuchart noted in her excellent piece, which I summarized on Wednesday:

The reserve can lose functional capability at 350 million barrels of headline inventory if the wrong caverns are cycled the wrong way, and it can hold together well below 200 million if the remaining draws are distributed according to Sandia’s per cavern budget.

In other words, we are now in the zone, where the crude supply from the SPR can suddenly collapse. While we can consider the likelihood of such a scenario being low, it is definitely greater than zero. Moreover, if (when) we move below the 200 million barrel mark, the technical hard floor will start to approach rapidly, and no one knows exactly where it is.

Yesterday, Iran announced that it will not negotiate with President Trump’s administration anymore but will wait until the end of his term. Brett Erickson pointed out in X that Iran cannot endure the blockade for 2.5 years, but that is also not the main issue.

The point, like Brett notes, is that Iran most likely can outlast the U.S. in any economic game scenario. As the figure above showed, the SPR concurs with this assessment.

At this rate, the SPR will reach the critical 200 million barrels threshold sometime in early November and the absolute technical hard floor of about 70 million barrels in early April.1 However, the hard floor is actually likely to be much closer to 100 million barrels, which the U.S. would reach in February (at this rate). The White House is running out of time, fast.

The math simply does not concur with the “economic pressure” campaign announced by President Trump yesterday. Or, to put it another way, Iran is the one asserting economic pressure on the U.S. (and the rest of the world) through the White House.

President Trump’s announcement on “winning Iran” through economic coercion is nothing more but a desperate act. All viable military options have been used and after each escalation cycle, the U.S. military assets in the Middle East are in a worst shape than they were prior the cycle. The only military option remaining is a ground invasion which would very likely end to a catastrophic defeat and the loss of Americans lives in the thousands. The economic coercion is touted by the President, because he cannot admit defeat publicly. Not at this point, at least.

The anticipated drawdown from the SPR indicates that something needs to give in the U.S. energy system soon (unless President Trump fully capitulates.) The 3-2-1 Crack Spread agrees.

Read more

So, I decided to check what has happened in the repo-markets, and indeed they show a notable improvement. It looks that they have managed to calm the stress in the U.S. financial plumbing. I warned about in Is Private Credit the source of the stress in repo? There I noted that

Read more

Such developments make it likely that the U.S. economy will not see the plunge our forecasting model has been anticipating since mid-June. Naturally, it would have been impossible for the model to see a major data center boom to manifest during the past few months.

The model simply could not have seen a data center boom manifesting during H1, which is one possible reason why it failed on its mission, i.e., on the anticipation of medium-term turning points of the U.S. economy. I have some ideas on how such “shocks” could be incorporated into the model, but there’s currently no time to do the modeling they would require. But we will return to the modeling of the turning points of the U.S. economy in due course.

Relating to this, in yesterday’s Weekly Forecasts 27/2026 we looked into the U.S. yield curves. They carried something of a warning for the short- to medium-term outlook of the U.S. economy. We concluded: The three yield curves are thus sending a unisonous message: the onset of U.S. recession is either close or very close.

We studied the 10-year/3-month, 10-year/2-year, and private sector yield curves. Their unison message was something of a surprise considering, e.g., that the Fed is manipulating, especially the yield of 3-month Treasuries and hence the 10-y/3-mo spread through its repo market bailout.

If people only understood why the Fed is doing this, they would panic. But they don’t, as authorities do now want them to. The re-emerged currency crisis of Japan can (will) add to the plumbing issues through the reversal of the carry trade. I’ll write more of it next week.

We can safely assert that the U.S. financial system is in another 2007. There is a major underlying weakness, most likely in Private Credit, which is why the Fed was forced to launch a covert bailout of the repo markets, i.e., the financial plumbing of the U.S. During the summer break, I learned even more worrying things about the private credit sector, which I will detail probably next week.

In November, GnS Economics issued a warning of a ‘Black Swan’ lurking in Private Credit. We noted:

Now, combining the above leads us to three highly detrimental outcomes of Private Credit, which can manifest in a recession:

1. Withdrawal of the only credit line of a company in a recession will almost certainly lead to a liquidation of the company (bankruptcy).

2. Private-credit-funded companies able to survive a recession are likely to be considerably fewer than bank-funded companies, because private credit has fostered unprofitable and zombie lending.

3. As large investment funds hold a large share of credit lines of companies, #1 and #2 imply that a recession can lead to a deluge of private-credit-funded corporate bankruptcies.

And continued:

Alas, in the worst case, what we will face in the next recession is not fire sales of corporate debt but fire liquidations of corporations. Private credit firms will liquidate firms en masse, leading to a collapse of the corporate sector and the GDP, and to skyrocketing unemployment.

Yesterday’s Weekly Forecasts warned that the onset of U.S. recession can be just a couple of months away, which is likely to start the collapse of Private Credit, leading into another financial crash. The most prominent factor behind our warning was the signal from the private sector yield curve (YC).

Read more

1. Global downturn looks to be here.

2. Forecasting OECD’s leading indicators is complicated by common factors.

3. Three yield curves indicate that the U.S. is very close to a recession.

This week we first update OECD’s leading indicators. They indicate that the downturn in the global business is likely to be upon us.

Then we provide you with something of an introduction to common factors in the analysis of cross-section (e.g., countries) of time series. Their analysis is something that was just emerging when I was in academia (I left late 2017). They are crucial, because left unchecked, they can bias forecasts in a very detrimental way.

Common factors can be analyzed with EViews 14, but the problem we encountered was that not all programs used to analyze them, written by EViews users, work in its latest version (14). Thus, we need to work our way around this issue by using two- or three-step estimation methods. This takes time, which is why we cannot present these Factor-Augmented Vector Autoregression forecasts here.

We end with an update to the yield curves of the U.S. They convey a unified message that the U.S. economy has entered a phase with a high risk of recession.

Tuomas

Has the global downturn arrived?

We can now confirm a few trends that we speculated about in May. Figure 1 presents OECD’s leading indicators for China, the G-20, Japan, four major European countries, and the U.S.1

First, Figure 1 confirms that the downturn of the four major European countries (France, Germany, Italy, and the U.K.) has commenced. Secondly, it shows that the Chinese economy’s downturn has continued, but the decline has slowed in the past two to three months. This is indicative of an approaching increase in stimulus by Beijing and hence another upturn in the Chinese economy. We currently consider that this cyclicality of the Chinese economy reflects Beijing’s efforts to controllably cool and de-lever the economy. Because debt is still growing much faster than GDP, this strategy is not working (see, e.g., the 2024 analysis by Tuomas).

Moreover, the U.S. economy continues on an upward trajectory, while the pace of acceleration is slowing, which is indicative of a downturn ahead. The global business cycle (G-20) has moderated, which indicates an imminent downturn (which can be gradual). Figure 2 puts the recent developments in historical perspective.

The only recent development that “registers” in the historical data is the downturn of China. It is very close to reaching the Ukrainian War bottom (in the spring of 2022), which is (also) indicative that Beijing will shortly ramp up the credit machines once again.

Historically, the global business cycle has followed that of China since the late 1990s. For this relationship to hold, the G-20 economies would need to see a notable slowing down, or, conversely, China would need to see a major economic boom. As the latter is relatively unlikely, we consider that all major economies and hence the world economy are on the brink of a major downturn, which is likely to turn into a recession and even to a global economic depression.

Let’s now turn into forecasting. Like Tuomas noted in the introduction, EViews provides us with an important observation, which is likely to determine how we need to approach the forecasting of the leading indicators in the future.

Common factors in leading indicators

The latest patch of updates from the OECD included major revisions to the data. Figure 3 presents the revised data with our May forecast.2

Read more

Iran and Oman are reportedly closing in on the signing of (yet another) deal concerning the reopening of the Strait of Hormuz, or SoH. We have been here before in June, when the (Istanbul) memorandum of understanding, or MoU, was signed only to be rolled back by the end of the month. We can expect the same process now for reasons I outline below.

Before we enter there, let’s consider the U.S. motivation behind the current (likely) de-escalation.

Tracy Shuchart has published a must-read analysis on the state of the U.S. Strategic Petroleum Reserve. I will provide two quotes to my paid subscribers below, but what Tracy shows is that:

A) No one actually knows what is the functional delivery capability of the SPR because each of the reserve’s 60 caverns are individualistic in their withdrawal capacity.

B) The only currently functional complex is the one, which crude quality has received all the complaints from the SPR.

Hence, the question I am asking is: How worried is the White House on the possibility that U.S. crude supplies can suddenly collapse?

I am confident that this factor is weighing heavily behind the Trump administration’s apparent panic to get the SoH opened. That said, remember that ending the conflict is unlikely to be in the interest of the IRGC (or Israel).

Let’s now look at the findings of Tracy in a bit more detail:

Read more

I naturally had my doubts, mostly because of the slump it foresaw manifesting in the second quarter of this year. When the model correctly anticipated the acceleration of the U.S. economy during Q3 and continued to forecast a slump for the past quarter, I started to pay more attention to it. However, at the end of last year, the model began to miss its predictions, and my doubts towards it started to grow.

In January, I had speculated on the stochastic trend we assumed to drive the U.S. GDP series. The idea was that this hidden trend was seeing something in the future of the U.S. economy that we could not. As the year progressed, this theory started to look less and less likely. From Weekly Forecasts 22/2026:

However, while the U.S. consumer is hurting, for example, the Aruoba-Diebold-Scotti Business Conditions Index, which we have been using as a basis for our nowcasts of U.S. GDP growth, does not show such a collapse. It is thus likely that our model is exaggerating the magnitude of the downturn.

The first estimate of the second quarter (real) GDP published on 30 July essentially confirmed our suspicion. Figure 2 explains.

There was no slump or collapse. The U.S. real GDP blowed through the past quarter without a hitch. And so, this model goes to trash.

I have to admit that I am somewhat disappointed. I spent a big part of my academic career looking into stochastic trends, or unit root processes and hoped they would provide straightforward means for predicting the turning points of the U.S. economy. That wish is now in the gutters, and it is back to the drawing board for us.

Tuomas

Subscribe now

Disclaimer:

The information contained herein is current as of the date of this entry. The information presented here is considered reliable, but its accuracy is not guaranteed. Changes may occur in the circumstances after the date of this entry, and the information contained in this post may not hold true in the future.

No information contained in this entry should be construed as investment advice nor advice on the safety of banks. Neither GnS Economics nor Tuomas Malinen can be held responsible for errors or omissions in the data presented. Readers should always consult their own personal financial or investment advisor before making any investment decision or decision about the banks in which they hold their money. Readers are solely responsible for the risks associated with using this post.

Readers must assess the risks and legal, tax, business, financial, or other consequences of their actions. GnS Economics and Tuomas Malinen cannot be held i) responsible for any decision taken, act, or omission or ii) liable for damages caused by such measures.

The views of Tuomas are his own. They may or may not be endorsed and supported by the partners and staff of GnS Economics.

My Saturday’s piece stoked a slew of comments. Few replies.

Firstly, some of my new followers do know about my stance considering the “Greater Israel,” which I raised as the main motivation of the war with Iran in Double Standards.

Secondly, we must confront the numerous misconceptions propagated by the Zionist-controlled Western media.

As I have told you numerous times, having correct information is essential for accurate forecasting. If you mix politics or your personal feelings in forecasting, you will fail with almost 100% certainty. This is what many analysts seem to do nowadays. They don’t analyze. This feeling, combined with the psychological operations conducted by our western intelligence agencies, is leading people seriously astray on nearly all matters of significant importance to humankind, but particularly regarding the wars in Ukraine and Iran.

I started to study about Iran during the 12-Day War. Within a matter of weeks, with the help of the Finnish-Iranian contacts, I understood that almost everything that has been told to us about the country has been a lie. The country is not even so religious as some (Zionists and their minions) claim. I also fell for this, as I was a “sturdy” supporter of the White Scarf movement, aiming to “liberate” Iranian women in the mid-2010s. During the past year, I’ve understood that, while there are religious fanatics in Iran (just visit Jerusalem for a view on the other side) and some women use the Abaya or Chador, the vast majority in places, e.g., Tehran women use a simple scarf in public places, while use some use nothing.

Iran is also a highly educated country. Summarization from Grok:

The gender parity is also very high in tertiary education (female-to-male ratio near 1).

What is also striking is that Iran has a critical media, which we in the West currently almost totally lack. The very recent information suggests that Iran has undergone some “tightening” in the media sphere, which a common occurrence during wartime.

What the above means is that we all need to stop looking at Iran as a “religious relic” and start to view it how the country actually is: a well-functioning society with a highly educated populace and with a powerful military.

That said, Iran does not have the standard Western democratic model. This is the main reason why the assassination of her older political leadership has also led President Trump to a state where he does not know with whom to negotiate.

Read more

The motivation for these warnings, naturally, arose from the renewed escalation cycle between the U.S. and Iran. The most important of them was this (from July 12):

We consider a general misunderstanding to be that the U.S. would have been the aggressor and Iran the victim. Based on the information we have received since the 12-Day War, we assert that Iran, especially the IRGC and Iranian army, sought this war. This hypothesis leads to an entirely different path for the war, indicating a prolonged conflict possibly decimating the world economy.

Let’s now elaborate on this a bit further.

Read more

1. U.S. inflation collapses, temporarily.

2. More clarity for time series properties of U.S. inflation measures.

3. U.S. inflation looks to re-accelerate unless peace is found quickly in the Middle East.

Weekly Forecasts returns from a summer break with some notable improvements. We acquired the latest version of EViews, a statistical analysis and forecasting program.

The program is an old companion of mine, as I used it for almost a decade while in academia. It is widely used in the economist community because of its relatively simple user interface and programmability. The former means that you can do preliminary data analysis fast, and the latter that you can use it also for in-depth analyses and forecasts.

Essentially, Eviews 14 allows us to incorporate some of the very latest developments in statistical analysis and forecasting into our service offering. It has several features that will not just help us to deepen our understanding about the drivers of the economy and markets but also enable us to produce a whole new array of forecasts. I will return to these in due course.

In this report, Eviews shed some clarity to the question should we model the U.S. inflation series as unit roots or not. “Not”, looks to be the answer.

In June, we saw a collapse in the U.S. inflation rates. Many credible arguments can be presented for this to be temporary, a ‘hiccup’. Our forecasts concur with this, somewhat. Unsurprisingly, the path of U.S. inflation looks to depend on the path of the conflict in the Middle East, like before.

Tuomas

Huge miss in inflation forecasts (of “everyone”)

The U.S. June inflation came in strongly negative. The month-over-month change in headline inflation, i.e., the Consumer Price Index, or CPI, came in at -0.4%. This was the largest month-over-month decline in the index since April 2020, when the US economy was in the midst of its first Corona lockdown. The drop broke through the lower 95% confidence interval of our June forecasts.

The MoM core inflation also came in clearly below expectations, at 0%. It too breached the 95% confidence intervals of our June forecasts, albeit less dramatically.

To our defense, practically no one we know of foresaw such a drastic drop in the U.S. headline (nor a zeroing out of core and supercore for that matter). What drove this unexpected decline was gasoline, which fell by 9.7% in June.

There are many reasons to expect the decline to be temporary, which we detail below in our scenario forecasts. For example, the nowcasting model of the Federal Reserve Bank of Cleveland agrees. Their nowcast actually sees the headline picking up notably by the end of the month already.

Essentially, what we saw in June regarding U.S. inflation was, most likely, a hiccup to the downside. A brief relief in an otherwise complicating inflation picture driven by a (temporary) falls in gasoline (-9.7%), energy commodities (-9.5%), and fuel oil (-9.2%). President Trump also pushed these prices down by threatening oil executives. Considering the environment we are heading towards, these tricks and hence low energy prices are unlikely to last.

Like noted above by Tuomas, we now have some new analysis and forecasting tools at our disposal. Let’s thus now turn our heads towards a deeper analysis of U.S. inflation.

Is (monthly) U.S. inflation a unit root process?

The question we have been pondering, and going back and forth, is whether the process driving U.S. inflation measures is a random walk or not. The new program provides us with some important insights and looks to solve our conundrum.

Read more

It now looks that the Red Sea route, used to bypass the blockade of the Strait of Hormuz, will shut down.2 In the worst case, Saudi Arabia’s oil-producing facilities there will take years to repair. Combining this with the destruction of Russia’s oil refining capacity by Ukraine, we are approaching a critical point in the global production of petroleum products, on which we have been warning since mid-March.

We urge you to familiarize yourself with the preparation recommendations we presented in our second warning. In this fourth warning, we speculate on the timeline and provide some details on how the investment company we are now in cooperation with plans to trade it.

Read more

President Trump has threatened to launch a major (“bigger than ever”) campaign against Iran, which may start even this weekend. If it comes, its tail risk is a nuclear confrontation.

For this reason, we update our warning on the risk of a nuclear or a nuclear-related strike in the Middle East. We warned of the risk of a nuclear weapon usage for the first time during the 12-Day War on 17 June 2025 and the second time on 7 March.

Our first warning was based on the damage Iran was inflicting to Israel and the speculated Samson Option. The second warning was based on the comments made by the U.S. Secretary of War, Pete Hegseth, and the warning issued by Israel concerning Iranians living in the vicinity of the Fordow nuclear facility near the city of Qom.

Now, the U.S. and Israel seem to have a new target, Pickaxe Mountain. The mountain is speculated to hold one of Iran’s largest, if not the largest, nuclear research facility, which is not fully operational yet. The facility lies so deep that conventional weapons cannot reach it.

Read more

Please note that the suspension of our billing will not resume after this, like we mentioned in our last warning.

In Scenarios for the conclusion of the war with Iran, Tuomas noted that in the most likely scenario, Iranian hegemony, Iran will establish a control zone following the western coastline of the Persian Gulf:

Read more

Read more

Before continuing with my vacay, I want to note that it appears the pieces for the final play in the war with Iran are being positioned. This includes the latest Israeli “intel” claiming that Iran would be planning to assassinate President Trump.

This claim is almost certainly not true, while there are factions (groups) in Iran wishing for such an outcome (naturally). However, the fact is that an assassination attempt on POTUS would bring zero benefits for Iran, as it would only commit the U.S. back into the war with full force. This is not something the IRGC wishes to see, as Israel is their true target. Therefore, any such “information” or attempts are, most likely, an Israeli false-flag operation.

Like I’ve been noting since the 12-Day War, Israel (probably) cannot survive without war anymore. They are desperate for the war to continue, even if it leads to their ruin. This is something everyone should keep clearly in mind.

It will be interesting to see whether President Trump really allows himself to be pulled into a war that would, most likely, decimate the U.S. and world economies and put an end to the myth of U.S. military might. I consider the GoG not to be seeking this either, but their plans are opaque (as always). The next few weeks will show the direction of travel.

I would like to ask you to prepare for shortages of gasoline and oil in the case “lunacy” wins in the White House. We were a bit too hasty with our original warnings, but I think with such key products, it is better to be safe than sorry.

Tuomas

Disclaimer:

The information contained herein is current as of the date of this entry. The information presented here is considered reliable, but its accuracy is not guaranteed. Changes may occur in the circumstances after the date of this entry, and the information contained in this post may not hold true in the future.

No information contained in this entry should be construed as investment advice nor advice on the safety of banks. Neither GnS Economics nor Tuomas Malinen can be held responsible for errors or omissions in the data presented. Readers should always consult their own personal financial or investment advisor before making any investment decision or decision on banks they hold their money in. Readers using this post do so solely at their own risk.

Readers must assess the risks and legal, tax, business, financial, or other consequences of their actions. GnS Economics and Tuomas Malinen cannot be held i) responsible for any decision taken, act, or omission or ii) liable for damages caused by such measures.

The views of Tuomas are his own. They may or may not be endorsed and supported by the partners and staff of GnS Economics.

I will now expand the reasoning behind yesterday’s warning a bit and continue my summer vacay then. I want to add something because things have now moved in the direction we warned about in our recent Black Swan Outlook:

Subscribe now

What this all boils down to is that if the Strait of Hormuz remains in a state of de facto closure, most of these “bypass measures” may fail simultaneously. That is, reserves hit tank bottoms, leading to fuel (gasoline and diesel) shortages, which would lead to violent short-covering in the oil markets. The combination of shortages and the exploding price of oil would be catastrophic for the world economy.

Before going into that, let me note that I just returned from a road trip to northern Norway (through Finland and Sweden), which presented the dire reality of Finland. Our economic decline is starting to show in the most depressing way. Our roads, which were in pristine condition just 10 years ago, are starting to break, trash on the roadside is appearing like we would be a third-world country, and the apathy of the Finnish populace is palpable, except in the very north. The global elite, with the help of Washington, are truly trying to crush us, and a vast majority of Finns have not realized this yet, which is most unfortunate.

Returning to the issue at hand. I think that the ego of President Trump, in his likely cognitive decay, has started to crumble under the pressure, again. What I am referring to here is the “battle” between the factions behind Secretary Marco Rubio vs. the faction emerging behind Vice President James Vance. In other words, like we predicted in the Outlook, the faction behind Secretary Rubio is taking the upper hand:

The Secretary of State, Marco Rubio, on the other hand, has taken a relatively visible anti-Iran stance. He has spoken against the Iran-controlled Strait of Hormuz, even though it has been acknowledged in the MoU. He has argued that Iran would use the money they get (from sanction relief or from the “de-freezing” of their assets) only to make/buy more weapons. Reportedly, he also brokered the deal between Israeli and Lebanese governments. He also needs to balance between the MAGA and pro-Israel factions of the U.S., while he most definitely is leaning towards the latter.

Larry Johnson (a former CIA analyst) argues that Iran was well within its rights to target the ship using the U.S.-established Oman corridor to pass the Strait of Hormuz in accordance with the memorandum of understanding (MoU):

Trump continues to insist that Iran has no right to interfere with any ship trying to transit the Strait of Hormuz, but the fact is that Iran is acting within its rights under the terms spelled out in paragraph five of the MoU (which I discussed in my previous post). The US attack on Iranian outposts along the shore of the Persian Gulf on Tuesday was a set up — i.e., the US coordinated with Qatar and Saudi Arabia to have their ships defy the Iranian protocol to register the voyage with the IRGC, which precipitated the Iranian attack on those vessels. While falsely claiming this was a violation of the MoU, Donald Trump hit Iran with bombs starting late Tuesday night/early Wednesday morning Iranian time.

Another speculated timeline considers the Epstein files.

This is a bit colored (Breck Worsham is a former Trump supporter), as there was no judge ruling at 2pm (to my knowledge), but President Trump and Bam Bondi averted all questions concerning the Epstein list in a public cabinet meeting at around 5pm yesterday. Overnight, reports emerged of explosions around Iran.

Remember what I noted in the Satanic Elite (on February 18)?

At the end of the first phase, a shock is needed to divert interest away from the revelations as media pressure for indictments and public crucifixions begins to build, which is essential for maintaining some credibility. This is the second phase.

We simply cannot rule out this line of reasoning behind the renewed U.S. aggression either.

What the above boils down to is pressure. Massive pressure has been building on President Trump, including the strong criticism he received after submitting to Iranian demands. From Back to the Pressure:

In my thinking, this change of heart is from the ego of the U.S. president turning from fearing the economic collapse into fearing a defeat. Well, technically, the U.S. has already lost, but this is all about how it makes President Trump look at home. The de facto capitulation of the U.S. president has raised some critical voices even within the president’s base, who have gone to great lengths to swing a surrender to resemble a victory. Iran using the “defrozen” assets to buy U.S. goods was one selling point of the president to his base, which Iran just effectively annihilated in the mouth of the Speaker of the Parliament.

Most importantly, the economic pressure has not emerged yet, while we assert that it is close. This gives President Trump, and his ego, some wiggle room for a little while at least.

There’s a plausible hypothesis that President Trump is planning to take over Qeshm Island. This strategy would make some sense because through it Iran asserts control over the SoH, but that is where the “sense” ends.

Iran has heavily fortified the island. It is likely that it would turn into another Battle of Okinawa, but with heavier casualties falling to the U.S. side. Any U.S. invasion would be likely to end in a forced retreat in the wake of catastrophic casualties. We also have to acknowledge the possibility that drawing the U.S. into a ground battle may have been the plan of Iran since the start of the “ceasefire.” It looks like President Trump is about to spring that trap.

In any case, it looks now that we are about to enter the Iranian dominance in the three scenarios I envisioned to conclude the war at the end of March. This will be very bad not just for the U.S. but also for the world economy. I urge you to keep preparing accordingly.

Tuomas

Share

Subscribe now

P.s. The pause of billing of GnS Economics will resume on Sunday (barring any major developments).

Disclaimer:

The information contained herein is current as of the date of this entry. The information presented here is considered reliable, but its accuracy is not guaranteed. Changes may occur in the circumstances after the date of this entry, and the information contained in this post may not hold true in the future.

No information contained in this entry should be construed as investment advice nor advice on the safety of banks. Neither GnS Economics nor Tuomas Malinen can be held responsible for errors or omissions in the data presented. Readers should always consult their own personal financial or investment advisor before making any investment decision or decision on banks they hold their money in. Readers using this post do so solely at their own risk.

Readers must assess the risks and legal, tax, business, financial, or other consequences of their actions. GnS Economics and Tuomas Malinen cannot be held i) responsible for any decision taken, act, or omission or ii) liable for damages caused by such measures.

The views of Tuomas are his own. They may or may not be endorsed and supported by the partners and staff of GnS Economics.

Now, we are entering a third phase of the conflict, which may go beyond the tit-for-tat or escalate-to-de-escalate policy we have seen before (like between 28 and 31 May). Therefore, we issue our second warning of the resumption of war between the U.S. and Iran.

Please note that to send you this warning, we needed to un-pause our billing. The pause will resume in the coming days (until the 28th, unless something emerges).

Read more