Hope & Change at the Fed
Inflation is a tax. You can never regain the purchasing power you lose to inflation. Despite what you hear from politicians and the media, rising prices are bad for your personal balance sheet.
Prices never fall–they’re always rising because the government and the banks are constantly increasing the money supply through financial operations and fractional reserve banking. Investors who own stocks and real estate prefer low interest rates because borrowing money is cheaper and lower debt costs boosts spending, investment and growth.
The cost is inflation–a devaluing of the dollar and a tax on savers. On June 10th, the Bureau of Labor Statistics reported that the consumer inflation rate (CPI) rose to 4.2% over the last 12 months. CPI has been running above the Fed’s supposed 2% target for over five years. And now, at 4.2% the trend doesn’t look good. On Thursday, another report showed that wholesale prices, measured by the producer price index (PPI), rose 6.5% over the last 12 months, the highest since November 2022. Because PPI measures costs before they reach consumers, the higher costs will soon be passed to consumers.
In January, after President Trump announced his pick to replace Fed Chairman Jerome Powell, I published an article titled, “Will the Fed Finally Be Reformed?” After Wednesday’s press conference, there’s hope that years of bad policy may finally be coming to an end.
New Federal Reserve Chairman Kevin Warsh’s tough talk on inflation focused on the battle against inflation, “Persistently high prices are a burden for the American people,” Warsh said, “but the recent past need not be prologue. I am pleased to report that members of the [Federal Open Market Committee] are unambiguous and unanimous. This committee will deliver price stability.”
Warsh’s tone stands in stark contrast to the policies and the words of former Fed Chairs, including Jerome Powell who said last year, “We don't comment on the dollar. Really, the Administration and especially the Treasury Department has the job of oversight over the currency... It's not our role. So, I have nothing for you.”
Many on Wall Street were expecting Warsh to be another dove–with a bias toward keeping interest rates low, but they weren’t paying close attention to Warsh’s comments leading up to his appointment.
In May of last year, Warsh sat down with Peter Robinson of Uncommon Knowledge, and described the post-2008 era as "the complacency era," where the Fed became addicted to crisis tools like Quantitative Easing (QE). He called the 2021 transitory narrative, “the greatest mistake in macroeconomic policy in 45 years.”
He said the elevated inflation we’re seeing now is an echo of the “Great Inflation” of the 1970s. Pandemic stimulus, QE-to-infinity and institutional "drift" led the Fed to ignore the money supply, which is the true driver of inflation that has widened the wealth gap and driven the affordability crisis.
Thankfully, it looks like the new Chairman is going to work to reduce inflation, shrink the Fed’s balance sheet and restore public trust in the institution and the dollar.
In the words of the Wall Street Journal Editorial Board: “Mr. Warsh has an extraordinary opportunity to reform the Fed so it resumes its role as a steward of price stability to underpin stable growth and rising incomes.”
U.S. declares victory and looks to escape another failed war Middle East
On Wednesday, the official text of a memorandum of understanding reached with Iran was released and most U.S. media outlets chose to report on what the administration was saying about the deal rather than what it actually says. The interim deal reads like a surrender document because Iran has the upper hand and it was the only way the U.S. could get Iran to the negotiating table.
The good news is that violence will likely decrease and maritime traffic will likely increase—at least temporarily—and it buys time to allow the two countries to attempt to hammer out the details. It does not resolve the core issues surrounding the ongoing mechanics of the Strait of Hormuz or any Iranian nuclear concessions beyond what was already in place before the war. Those issues will be addressed, but not likely resolved, in a second phase.
There are structural incentives in the United States, Iran, and Israel that will make a second phase difficult to achieve. To date, the United States hasn’t shown the patience necessary to complete a complicated nuclear deal that requires new monitoring and verification measures.
Likewise, Iranian Supreme Leader Mojtaba Khamenei may not want to do anything beyond a small, transactional deal with the United States, given Trump’s withdrawal from the JCPOA and the Obama administration’s 2018 deal and the fact that the United States and Israel killed his father, mother, wife, and son.
It’s possible Iran agrees to terms that are wildly in Iran’s favor, but those are likely to be so unpalatable in the United States and Israel that a long-term deal seems unlikely. Meanwhile, Israel appears opposed to any deal and will use its influence to block or undermine one.
As details about the parameters for future negotiation emerge, they will be spun by Washington and the media. I expect the final negotiations to be settled largely in favor of Iran with U.S. officials claiming overwhelming success as Americans grow tired of the story and shift their focus to the next shiny object.
KPMG published an AI report full of AI hallucinations
Consulting firms like KPMG publish industry reports as a strategic marketing tool, positioning them as a thought leader to gain media exposure, build trust and gain new clients. The stakes are high among the “Big Four” accounting firms to win high-paying advisory clients.
KPMG is smaller than its competitors, Deloitte, PricewaterhouseCoopers and Ernst & Young, but it’s still a massive multinational company employing over 275,000 people across 143 countries and territories and generates over $14 billion in annual revenue.
Last fall they published a whitepaper called, Total Experience: Redefining Excellence in the Age of Agentic AI, which explained how companies are using AI to cater to customers' needs. Apparently, though, that report was full of AI hallucinations and included examples of agentic AIs that either did not exist or did not have the capabilities KPMG stated in the paper. Investigators for GPTZero, the maker of an AI content detection tool, found inaccuracies and fake footnotes all over the report, which were also verified by the Financial Times.
In its report of the investigation, GPTZero said that only five citations out of 45 in the paper accurately pointed to real sources and about half of the claims in the paper were fake or misattributed.
KPMG claimed that Emirates Airlines has an AI agent that can change passenger bookings, but they actually don’t. KPMG claimed UBS integrated agentic AI across its "investment advisory, risk management and compliance monitoring," but the bank told the Financial Times that’s "factually incorrect." There were several other equally egregious lies published in the report.
Papers by companies like KPMG are heavily relied on by other publishers because they’re highly trusted sources and so error-riddled papers like this effectively poisons the well of information and since AI is being trained on information like KPMG reports this kind of lazy work can lead to unreliable reporting from other publishers and second-order AI hallucinations. What a mess. KPMG pulled the report and said they’re "reviewing the circumstances surrounding its publication."
Capital-lite tech giants are transforming into capital-intensive hardware companies
Google announced that it will be raising $85 billion in new capital through an equity sale. Historically software has not been a capital intensive business. The last time Google raised capital by selling equity was when it went public in 2004. So why is it doing so now?
Because they’re a committed AI hyperscaler and stakes are going up–they can’t turn back now. In 2025, Google spent $80 billion on AI capex which was funded from its enormous cash flows. This year, Google will spend over $180 billion and they just don’t have that kind of cash.
Meta and Microsoft are expected to raise more capital too for their capex spend. These traditionally capital-lite software companies are transforming into capital-intensive hardware companies and, in my view, investors are growing skeptical.
The insatiable need for capital to fuel the AI race is starting to become a burden and recent volatility and relative underperformance of the Mag 7 stocks may be evidence that investors are starting to realize it.
The Biggest IPO in History is Trading Like a Meme Stock (Scott Melker)
Microsoft Copilot May Replace OpenAI and Anthropic with Deepseek (Seeking Alpha)
Leaked Financials Show OpenAI Lost $38.5 Billion in 2025 (Ed Zitron)
The stock market is revealing structural instability (Doug Kass)
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