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WHAT YOU NEED TO KNOW!

AI WILL BE BIG, BUT HUMANOIDS MAY BE BIGGER?

Morgan Stanley Humanoids Research sees a $5 Trillion global market by 2050 and has announced the best business models/ investment opportunities along the value chain. (CLICK HERE) Initial business adoption is expected to start gradually, reaching 13mn/130mn in 2035/40 globally, with household adoption starting later. 

Among the various players, the team believes integrated humanoid OEMs that own robot brains, bodies, branding and ecosystems offer the highest value.  Along the value chain, the robot model is the most valuable and consolidated over the long term, while component players vary on tech barriers.  The team highlights 20 names to play the humanoid theme globally: 4 robot integrators, 7 robot brain and 9 body supply chain players. (CLICK HERE)

$5T in revenues by 2050, which would make it materially larger than the global auto industry. This expands upon previously published US and China TAM models, introducing assumptions for rest-of-world and household humanoids, and leveraging the updated cost and technological analysis led by our China Industrials Team. Among the various players, integrated humanoid OEMs that own robot brains, bodies, branding and ecosystems appear to offer the highest value.

RESEARCH - MARKET DRIVERS

1- CHINA TRADES IN, THEN OUT OF GOLD??

• There is something strange going on in the Gold market?
• Recent gold price moves are taking place exclusively around the time China markets open for trading.
• China as a result is having a disproportionate impact on the price of gold, because they execute during an illiquid part of the day (Asia morning), which is likely triggering ex China CTA trading signals.
• There are many possibilities of what is going on here. But it requires careful observation which we explore in our weekly Market Lab report.

2- THE MESSAGE FROM OIL IS CLEAR

• When energy and oil specifically fall significantly, it usually indicates slowing demand from a slowing global economy.
• A drop of over 50% in oil over the last two years, in concert with our observations on global activities we have been reporting on in this weekly report, suggests that it is a logical conclusion of what is occurring.
• The world economy is at a major turning point, which is why we should brace for rapid changes in the economy. The world is moving from having enough goods and services to go around, to not having enough to go around.  The dynamics of the economy are very different with not enough to go around.  The hoped-for solution of higher prices doesn’t fix the situation; after a point, adding more buying-power mostly produces inflation. Other solutions are needed. The world economy is reaching what has been called “Limits to Growth.”
• We have entered the Beta Drought Decade and are in the early stages of a major unfolding Bear Market.

DEVELOPMENTS TO WATCH - POLICY DRIVERS

1- THE QUARTERLY TREASURY REFUNDING REPORT

• The US Treasury published its debt borrowing estimates for calendar Q2 and Q3 and it was just as expected.
• During the April – June 2025 quarter, Treasury expects to borrow $514 billion in privately-held net marketable debt, assuming an end-of-June cash balance of $850 billion.
• The borrowing estimate is $391 billion higher than announced in February 2025, primarily due to the lower beginning-of-quarter cash balance and projected lower net cash flows, partially offset by lower QT (i.e. debt redemptions) to the tune of $60 billion. 
• This was completely expected, which means it is completely distorted due to the ongoing debt ceiling standoff.

"The current quarter borrowing estimate is $53 billion lower than announced in February",

which indicates that DOGE is indeed working and the US funding needs are actually declining. 

2- TRUMP POLICY DEVELOPMENTS

1- NEW $150B MILITARY CONTINUING RESOLUTION (CR): While DOGE may have saved $160 billion so far, the Pentagon now 'needs' $150 billion of new funding under the guise of supporting various Trump priorities. The House Armed Services Committee advanced the supplemental spending plan in a 35-21 vote during a markup hearing. The plan was unveiled on April 27 by House Armed Services Committee Chairman Mike Rogers (R-AL) and Senate Armed Services Committee Chairman Roger Wicker (R-MS), with Congressional Republicans preparing it for reconciliation - a process which allows Congress to pass legislation concerning taxation and government spending without requiring the 60 Senate votes typically needed to invoke cloture and avoid a filibuster. Republicans have several such reconciliation bills in the pipeline.

2- ENVIRONMENTAL PROTECTION AGENCY (EPA) ANNOUNCES 100 ACTIONS TAKEN: Environmental Protection Agency (EPA) administrator Lee Zeldin unveiled 100 actions the agency has undertaken since Trump's inauguration to "power the American comeback."

• "We are delivering on this mandate. Promises made, promises kept. At EPA, we are doing our part to Power the Great American Comeback. To mark this momentous day, we are proudly highlighting 100 environmental actions we have taken since January 20th to protect human health and the environment."

3- TRUMP REVAMPS BUREAUCRATS' PERFORMANCE STANDARDS: Performance reviews are about to become much more difficult for the upper echelon of federal government employees. The Trump administration will soon introduce rules to end what the Office of Personnel Management describes as an “everyone gets a trophy” culture permeating the federal workforce.

• The new OPM rule limits the number of bureaucrats who can earn top ratings, a metric tied to promotions and end-of-the-year bonuses.
• It also eliminates Biden-era requirements that evaluated executives based on their promotion of diversity, equity and inclusion.
• The stated goal is instead an evaluation of job performance, not political ideology. Now only top performers, acting OPM director Chuck Ezell told RCP, will earn top performance rankings. 

GLOBAL ECONOMIC REPORTING - ECONOMIC DRIVERS

GROWING RECESSION ODDS

• Even a mild 5% contraction in earnings from 2024 would leave the aggregate earnings per share of the S&P 500 basket at $225, which would be roughly commensurate with a value of 3,874 on the index. The S&P 500 is almost 2,000 points higher than that level. 
• The markets may well live in denial for a little while, but the longer they do so, the more pain is storing up for the future.
• President Donald Trump may have put many tariffs on hold, but with no signs of a trade deal with China, the prospect of empty shelves in the US, higher prices and an inevitable slowdown in the US economy is real. 
• Former Treasury Secretary Janet Yellen is out warned that the chances of a recession are “way up” in the wake of tariffs. In turn, that points to shrinking earnings at Corporate America. 

RESEARCH - MARKET DRIVERS

1- CHINA TRADES IN, THEN OUT OF GOLD??

There is something strange going on in the Gold market?

We have been witnessing for a few years now that the Chinese Central Bank along with other central banks seemingly can't buy enough gold bullion. (chart right)

As a result of central bank buying of gold bullion and the public now also buying gold the the price of spot gold briefly touched a record $3500/oz.

Among other things we recently saw staggering inflows into Chinese gold ETFs such as the Huaan Yifu, Bosera and Guotai gold ETFs.

STRANGE BEHAVIOR?

On April 22nd gold made an all time high as China added 1.2mn oz of positioning across the Shanghai Gold Exchange (SGE) and Shanghai Futures Exchange (SHFE) on record volume. (chart right)

On Wednesday of last week, (April 30th), China liquidated a near-record 1mn oz across SHFE and SGE, reversing the entire April 22 blow-off top?

Meanwhile Chinese ETF holdings were largely unchanged. (chart right)

This resulted in TOTAL Chinese positioning being ~5% off the all time high.

So not to be confused, remember that there are big differences between:

1. Physical Gold Bullion holdings,
2. ETFs (Exchange Traded Funds) holdings and
3. Shanghai Gold Exchange (SGE) and Shanghai Futures Exchange (SHFE) contracts

Paper holdings and contracts are not the same as Physical Holdings!

As our long time readers are well aware the price of gold is a manipulated price through "paper" instruments. The value of paper claims change quickly and are traders' "bread and butter", while central banks hold physical gold which is typically held for the long term.

What the above resulted in is the perception that Gold may have peaked. This does not mean the central banks have or will stop buying Physical Gold. It actually potentially means they can accumulate at lower prices. To central banks the more Gold pulls back the more it is "On Sale"!

HAS A NEW GAME OF GOLD MANIPULATION BEGUN?

What is particularly interesting is when these trades occurred. ALL recent price moves took place exclusively around the time China markets open for trading. (chart right)

Therefore China as a result is having a disproportionate impact on price, because they execute during an illiquid part of the day (Asia morning, which likely triggers ex China CTA trading signals.

MORE EVIDENCE

Sure enough, gold is dumping in early Asian trading to the lowest level in 2 weeks.

(Chart Below - Thursday 05-01-25)

We explore this further in the upcoming weekly Market Lab Report.

2- THE MESSAGE FROM OIL IS CLEAR

When energy and oil specifically falls significantly it usually indicates slowing demand from a slowing global economy.

A drop of over 50% in oil over the last two years in concert with our observations on global activities we have been reporting on in this weekly report suggests that is a logical conclusion of what is occurring.

FOURTH TURNING

We have also been talking about the Fourth Turning for a long time in our newsletters and videos. Our long time subscribers should need no introduction to the chart below.

In 1957, US Navy Rear Admiral Hyman Rickover gave a speech explaining the importance of fossil fuels to the economy and to the military. He then explained that we could not expect fossil fuel extraction to last very long:

"It is an unpleasant fact that according to our best estimates, total fossil fuel reserves recoverable at not over twice today’s unit cost are likely to run out at some time between the years 2000 and 2050, if present standards of living and population growth rates are taken into account."

Much modeling has been done since that time. Researchers at Massachusetts Institute of Technology did a series of analyses which they published in 1972 in the book, The Limits to Growth. The most recent update to this analysis shows the following summary exhibit.

Output of the recalibrated Limits to Growth model by Arjuna Nebel and others, published in 2023, with Gail Tverberg’s labels showing which lines are “Industrial Output” and which are “Population.” Source

The 1972 model and its update both look at the world economy from an engineering point of view. The analysts ignore the roles of governments, debt, and many other things important to the economy. The original authors of the 1972 Limits to Growth analysis said that they didn’t have much confidence in the accuracy of their forecasts after the decline had begun because of the many omitted factors.



The disturbing thing from the 2023 analysis is that it shows industrial output dropping about now. This is what I would expect to happen if there is a big drop in world trade.

The world economy is at a major turning point, which is why we should brace for rapid changes in the economy. The world is moving from having enough goods and services to go around, to not having enough to go around.  The dynamics of the economy are very different with not enough to go around.  The hoped-for solution of higher prices doesn’t fix the situation; after a point, adding more buying-power mostly produces inflation. Other solutions are needed. The world economy is reaching what has been called “Limits to Growth.”

Figure 1. Chart made by Gail Tverberg showing the general pattern of secular cycles based on information given in the book Secular Cycles.



Economies throughout the ages have grown until their populations grew too large for resource availability. Researcher Peter Turchin has studied the general pattern of overshoot and collapse scenarios. The chart shown in Figure 1 is based on analyzing eight such cycles in the book Secular Cycles. The fossil fuel age began over 200 years ago, and it now seems to be reaching its end.

CONCLUSION

We have entered the Beta Drought Decade and are in the early stages of a major unfolding Bear Market.

DEVELOPMENTS TO WATCH - POLICY DRIVERS

1- THE QUARTERLY TREASURY REFUNDING REPORT

The US Treasury published its debt borrowing estimates for calendar Q2 and Q3 and it was just as expected:

• During the April – June 2025 quarter, Treasury expects to borrow $514 billion in privately-held net marketable debt, assuming an end-of-June cash balance of $850 billion.
• The borrowing estimate is $391 billion higher than announced in February 2025, primarily due to the lower beginning-of-quarter cash balance and projected lower net cash flows, partially offset by lower QT (i.e. debt redemptions) to the tune of $60 billion. 
• This was completely expected, which means it is completely distorted due to the ongoing debt ceiling standoff.

"The current quarter borrowing estimate is $53 billion lower than announced in February" which indicates that DOGE is indeed working and the US funding needs are actually declining. 

To be sure, this also should not be a huge surprise, because "fiscal flows year-to-date are coming in better than expected (thank you DOGE).  Gross receipts are tracking slightly above prior-year levels (adjusted for CBO forecasts for 2025), while outlays are closer to the bottom of the historical range, although sadly nowhere near enough to make a notable impression over the long-term."

And while fiscal flows could deteriorate in the coming quarters - especially if there is a sharp recession - that risk is largely viewed as relatively low, for now. Meanwhile, DB economists estimate the deficit impact from TCJA extension and other Trump proposals could be largely offset by higher tariff revenues this year, before the deficit widens out more substantially relative to the CBO baseline next year and onward.

Looking ahead to calendar Q3, or the July – September 2025 quarter, the Treasury now expects to borrow $554 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $850 billion. It remains unclear if the Treasury will be able to restore cash to its "run rate" balance of $850BN, as that will depend entirely on when the debt ceiling deal will be concluded. As a reminder, earlier we highlighted the thoughts of DB's Steven Zeng who moved

his x-date estimate from late July to mid-August, indicating that there is a modest buffer, but not enough to push the debt ceiling date into Q4 without major damage.

Finally, looking at the historical data, during calendar Q1 which ended March 31, 2025 quarter, the treasury borrowed $369 billion in privately-held net marketable debt and ended the quarter with a cash balance of $406 billion.  In February 2025, Treasury estimated borrowing of $815 billion and assumed an end-of-March cash balance of $850 billion. The $446 billion difference in privately-held net market borrowing resulted primarily from the lower end-of-quarter cash balance. However, excluding the lower than assumed end-of-quarter cash balance, actual borrowing was $2 billion lower than announced in February.

In other words, DOGE is working: in Q1, US debt funding needs were $2BN less than the Treasury forecast in February, and in Q2 the Treasury is expected to need $53 billion less than it forecast 3 months ago.

This unexpected drop in pro forma debt issuance, (because one way or another, the debt ceiling constraint will go away), may be the reason why yields have been sliding all day, and at 4.21% are at session lows.

2- TRUMP POLICY DEVELOPMENTS

1- NEW $150B MILITARY CONTINUING RESOLUTION (CR)



While DOGE may have saved $160 billion so far, the Pentagon now 'needs' $150 billion of new funding under the guise of supporting various Trump priorities. The House Armed Services Committee advanced the supplemental spending plan in a 35-21 vote during a markup hearing. The plan was unveiled on April 27 by House Armed Services Committee Chairman Mike Rogers (R-AL) and Senate Armed Services Committee Chairman Roger Wicker (R-MS), with Congressional Republicans preparing it for reconciliation - a process which allows Congress to pass legislation concerning taxation and government spending without requiring the 60 Senate votes typically needed to invoke cloture and avoid a filibuster.

Republicans have several such reconciliation bills in the pipeline.

The military spending bill will now be added to a broader continuing resolution to fund the federal government through the remainder of FY2025.  It provides:

• $25 billion this year for Trump's plan to overhaul the US missile defense network, as laid out in Trump's January executive order calling for an "Iron Dome for America."
• $34 billion to boost shipbuilding.
• $21 billion to replenish depleted munitions stockpiles. Earlier this month, Trump signed executive orders aiming to boost U.S. shipbuilding and arms procurement capabilities.
• $14 billion for various innovation projects, including low-cost attritable weapons systems. 
• $13 billion for efforts to modernize the U.S. nuclear arsenal. 
• $12 billion for general readiness projects like base infrastructure projects and efforts to boost stocks of spare parts.
• $11 billion would go toward the U.S. military’s Pacific components to conduct training exercises and bolster regional defenses.
• $7 billion would support various projects to enhance existing aircraft and develop new ones. This would include $400 million to boost the development of the recently announced F-47 stealth fighter jet.
• Border security would also get a spending boost.
• $5 billion for Department of Defense and Department of Homeland Security efforts to prevent illegal border crossings, and to conduct immigration and counter-drug enforcement operations.
• $9 billion more for quality of life improvements for military personnel and their families. The additional funding would increase allowances for housing, health care and family assistance programs.

Chairman Rogers said: “The time for this level of investment is long overdue.”

DEMOCRAT RESPONSE:

• Rep. Pat Ryan (D-N.Y.) also offered an amendment to reduce Hegseth’s salary to $1.
• Ryan submitted yet another amendment to block any of the funds described in the military spending reconciliation bill from being made available to business entities operated by special government employees. Billionaire entrepreneur and SpaceX CEO Elon Musk has been advising the Trump administration and has been designated as a special government employee.
• Committee Democrats offered other amendments to block the Department of Defense from relieving senior officers of their commands or terminating different groups of civilian employees.
• Other amendments would have made much of the proposed funds contingent on the completion of a successful department financial audit, a task the department has failed to achieve in the past seven consecutive years it has tried.

2- ENVIRONMENTAL PROTECTION AGENCY (EPA) ANNOUNCES 100 ACTIONS TAKEN

Environmental Protection Agency (EPA) administrator Lee Zeldin unveiled 100 actions the agency has undertaken since Trump's inauguration to "power the American comeback."

"We are delivering on this mandate. Promises made, promises kept. At EPA, we are doing our part to Power the Great American Comeback. To mark this momentous day, we are proudly highlighting 100 environmental actions we have taken since January 20th to protect human health and the environment."

The EPA was established by President Richard Nixon in 1970, tasking the agency with two missions: promoting clear air and water, and reducing pollution from waste disposal and other hazards. According to Zeldin, the agency has refocused on its primary mission of ensuring clean air and water instead of pushing "climate change religion."

"Here are a few top highlights: 

• To protect our nation’s waters, we updated water quality standards for 38 miles of the Delaware River to protect critical fish species and keep the river clean. 
• We approved a plan to further restore and protect the Long Island Sound over the next decade. 
• We also developed a method to detect 40 different PFAS in surface water, ground water and wastewater."
• Our team completed one of three in-water cleanups at the Lower Duwamish Waterway Superfund Site and revised the 2025 Idaho Water Quality Performance Partnership with the Idaho Department of Environmental Quality.
• To ensure clean air for all Americans, we demanded answers from an unregulated geoengineering start-up, Make Sunsets, that has been launching sulfur dioxide into the air to receive ‘cooling credits.'"

According to Taylor Rogers, an assistant White House press secretary, the Trump administration and Zeldin have "taken monumental steps to quickly remove toxins from our water and environment, provide clean land for Americans, and use common-sense policies to Power the Great American Comeback."

DOWNLOAD FULL LIST

(Our List - You Will Find It Nowhere Else)

3- TRUMP REVAMPS BUREAUCRATS' PERFORMANCE STANDARDS

Performance reviews are about to become much more difficult for the upper echelon of federal government employees.

The Trump administration will soon introduce rules to end what the Office of Personnel Management describes as an “everyone gets a trophy” culture permeating the federal workforce.

The ranks of the Senior Executive Service, top bureaucrats serving throughout the government and across administrations, swelled to around 8,000 under President Biden. Most live in Washington, D.C. They typically earn an annual salary between $183,000 and $250,000. An overwhelming majority, 96%, according to an OPM memo, receive above-average performance ratings even as public trust in government continues to crater.

But standards will soon tighten. It is called “forced distribution.”

• The new OPM rule limits the number of bureaucrats who can earn top ratings, a metric tied to promotions and end-of-the-year bonuses.
• It also eliminates Biden-era requirements that evaluated executives based on their promotion of diversity, equity and inclusion.
• The stated goal is instead an evaluation of job performance, not political ideology. Now only top performers, acting OPM director Chuck Ezell told RCP, will earn top performance rankings. 
• “The American people deserve a federal government led by executives who are held to the highest standards,” Ezell said. “This proposed rule restores accountability, rewards true excellence, and ensures senior leaders deliver real results. OPM is proud to take this important step to strengthen performance among the highest levels of the federal workforce.”
• The elite of career civil servants, these senior employees are normally little noticed and non-controversial. Permanent bureaucracy has come under attack during the Trump administration, however, and the White House sees the top ranks of federal employees as the face of the so-called “deep state.”
• “There are no participation trophies,” a White House official said of the new standards, telling RCP that from now on, trophies, in this case top-tier performance rankings, “are for winners.”
• The new standards come as Trump continues his long march through the administrative state.  His administration has already implemented rules to gut civil service protections for government employees perceived as undermining the White House agenda. Thousands of federal workers have been fired. Entire government agencies, in some cases, shuttered.
• Critics accuse the White House of trying to politicize the federal workforce and of trying to remake the executive agencies in Trump’s image. The Senior Executives Association, a trade group for federal employees with an office in downtown D.C., previously balked at proposed reforms. The head of that organization, Marcus Hill, insisted that top bureaucrats had earned their jobs through merit “based on demonstrated competence, character and capability in their fields of expertise.”
• But the administration argues that change is needed because a sclerotic establishment is undermining self-government.

This is the mission of Elon Musk and his team at the Department of Government Efficiency. “If the bureaucracy is in charge, then what meaning does democracy actually have?” Musk asked earlier this year while fielding questions from reporters in the Oval Office. “If the people cannot vote and have their will be decided by their elected representatives,” he said while standing behind the Resolute Desk next to the seated president, “then we don’t live in a democracy.”

GLOBAL ECONOMIC REPORTING - ECONOMIC DRIVERS

US

GROWING RECESSION ODDS

Risk sentiment appears to be holding firm, even though news over the period suggests traders should position themselves for another drawdown.

The US economy shrank for the first time in three years during Q1. That is for a period before before the White House unveiled its so-called reciprocal tariffs, which will surely have a further damaging impact. 

Hours after the GDP print, the Bank of Japan slashed its growth forecast for the current fiscal year by half. 

Add that to news out of China earlier last week, where purchasing managers reported a dour set of numbers for economic activity in April.

OIL

Meanwhile, oil prices keep sliding lower and lower. 

Traders can point to abundant supply, but a 20% slump in crude since the start of the year is equally a sign that demand isn’t keeping up. The upshot is loud and unequivocal: the global economy is weakening.

A HISTORIC MARKET BOUNCE



Yet, look at how equities have bounced back.  The S&P 500 Index fell less than 1% in April — an incredible rebound after having slumped more than 20% from February’s market peak at the start of the month.

And for all the tariff upheaval, the Nasdaq 100 is close to re-taking 20,000, a level that would have seemed dizzyingly high just a couple of years ago.

April witnessed one of the best rebounds since the 50s, (from a 14% drop to down just 1.5% month-to-date as of Friday's close). A foursome of positive 'tariff' news and stocks lifted for the sixth straight day - the best stretch of gains since March 2022.

RECESSION IS IN THE WIND

President Donald Trump may have put many tariffs on hold, but with no signs of a trade deal with China, the prospect of empty shelves in the US, higher prices and an inevitable slowdown in the US economy is real.  Former Treasury Secretary Janet Yellen is out warning that the chances of a recession are “way up” in the wake of tariffs. In turn, that points to shrinking earnings at Corporate America. 

While the Fed focuses on the deeply flawed and highly gimmicked “official” economic data in the U.S., REAL WORLD signals are telling us the economy is rolling over in a big way. Some items of note:

• Discount airline Southwest’s CEO Bob Jordan recently noted that air travel is declining in a way not seen since the pandemic.  Jordan commented “I don’t care if you call it a recession or not, in this industry that’s a recession." Southwest is not the only company noting a sharp decline in consumer spending and economic activity.
• PepsiCo cut its earnings per share forecast for the entire year amidst heightened “economic uncertainty.” The company’s CFO stated that, “we are probably not feeling as good about the consumer as we were a few months ago” and noted consumers were even pulling back on buying snacks!
• Chipotle, which is usually one of the strongest fast casual restaurant chains in the U.S., just reported its first decline in same-store sales since 2020.  Management noted that consumers are cutting spending amidst economic "uncertainty"  (Read: a recession is coming if not already here).
• Walmart’s CEO has noted that “budget-pressured” consumers were exhibiting “stressed behaviors” due to money running out “before the month is done.” This is WALMART we’re talking about even noting consumers are tapped out.

If airlines, snacks, restaurants and even discount retailers are all noting a sharp pullback in consumer spending, what do you think this means for the economy. The answer is simple: the economy is rolling over into a recession, if it’s not already in one. (See Economics section in this report.) This is going to panic the Fed into a truly insane amount of money printing. And the markets know it. A Tsunami of liquidity/ money printing may be about to hit the financial system by Q3. 

As I wrote in last week's newsletter:

• Bernanke printed $2–3 trillion in three or four years.
• Powell? $5 trillion in 18 months.
• This time — it’s going to be $7 to $10 trillion.

Even a mild 5% contraction in earnings from 2024 would leave the aggregate earnings per share of the S&P 500 basket at $225, which would be roughly commensurate with a value of 3,874 on the index. The S&P 500 is almost 2,000 points higher than that level. 

The markets may well live in denial for a little while, but the longer they do so, the more pain is storing up for the future.



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