● The Almighty Dollar: 500 Years of the World’s Most Powerful Money
Brendan Greeley
Interview with author via Marketplace.org
When it comes to the global financial system, you can’t really beat the dollar. It’s the dominant global reserve currency, making up over half of the foreign reserves held by central banks around the world. But how did the dollar become so important?
While you could say it goes back to the 1944 Bretton Woods Conference, the answer might predate that. In his new book, “The Almighty Dollar: 500 Years of the World’s Most Powerful Money,” journalist and financial history academic Brendan Greely suggests the dollar’s rise is partially due to the philosophy of money and also the history of the American banking system.
“To understand why American bank dollars had value, we have to go back a little farther [than Bretton Woods],” said Greeley. “We had banking panics every 15 years or so in the 19th century. After each one of these banking panics, we end up with regulation.”

● How to Rule the World: An Education in Power at Stanford University
Theo Baker
Summary via publisher (Penguin Press)
From Theo Baker, winner of the George Polk Award for his investigation that brought down Stanford’s president, comes a revelatory and gripping account of Silicon Valley hubris. Slush funds. Shell companies. Yacht parties. This is life for Silicon Valley’s favored teenagers. Seventeen-year-old Theo Baker showed up for freshman year at Stanford University as a tech-obsessed coder. It seemed like paradise. There were Rodin sculptures next to nuclear laboratories and inventors lounging with Olympians. But Baker soon discovered a culture that embraced corner-cutting, that vested infinite excess and access in the hands of kids with few safeguards to catch bad behavior. Stanford, he realized, was less a school than a business.

● Steve Jobs in Exile: The Untold Story of NeXT and the Remaking of an American Visionary
Geoffrey Cain
Excerpt via Vanity Fair
“I’m asking Steve to step down,” Apple CEO John Sculley told the company’s board of directors, “and you can back me on it . . . or you’re going to have to find yourselves a new CEO.”
It was April 11, 1985, and long-simmering tensions between John Sculley and Steve Jobs had finally erupted. It marked a stunning reversal. Just two years earlier, Steve had handpicked and personally recruited John from PepsiCo. Apple had grown into a billion-dollar company, and Steve, along with the board, felt that John would be the right person to provide the company with “adult supervision” as its CEO. After John joined, Steve remained chairman of the board and head of the Macintosh unit, where he led the development of the company’s flag- ship personal computer.

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One reason the Fed prefers to wait before tightening policy is the relatively stable pace of inflation in the so‑called core measures of pricing pressure. Although headline inflation—which includes food and energy—has turned sharply higher since the war began, core measures have remained comparatively steady.

The case for central banks focusing on core inflation is that these measures provide a more reliable read on underlying trends, offering a more practical benchmark for setting monetary policy. Not everyone agrees with this approach, but as long as core inflation remains stable, the Fed can argue that additional rate hikes aren’t yet warranted.

The Fed reportedly emphasizes the core Personal Consumption Expenditures (PCE) Price Index, which tracks changes in the price of goods and services purchased by households, excluding the more volatile categories of food and energy. But several variations of core inflation exist, and monitoring a range of alternatives can provide a clearer sense of how conditions are evolving—and how those changes may influence the timing of future rate increases.

For context, the chart below highlights the median year‑over‑year change for six core inflation indexes. Each index has its own strengths and weaknesses—see the links at the end of this article for details. It’s debatable whether any single measure is superior, so tracking the median is a useful starting point. In April, the median rose to 2.82% from a year earlier, still close to the softest pace in recent history.

The main takeaway is that while core inflation edged higher in April, the broader trend has yet to flash a warning—unlike the sharper increases seen in headline inflation.

It remains unclear when, or if, the Fed will begin raising interest rates in response to the ongoing energy shock from the Middle East. But if the core measures shown above continue to drift higher, pressure for tighter policy will almost certainly grow.

Sticky Price Consumer Price Index less Food and Energy

Median Consumer Price Index 

Trimmed Mean PCE Inflation Rate

16% Trimmed-Mean Consumer Price Index

Consumer Price Index less Food and Energy

PCE less Food and Energy

Today’s update of the median Q2 nowcast indicates real (inflation-adjusted) growth of 2.4%, moderately above Q1’s 2.0% advance. If accurate, the Q2 report (scheduled for July) will reflect a continued, albeit modest, recovery following the weak gain in Q4.

Today’s estimate is slightly above the previous median nowast: 2.2%, published on May 11.

Economists at the Royal Bank of Canada write: “The energy shock isn’t likely to trigger a US recession in 2026,” noting that “the set of indicators used by the National Bureau of Economic Research to identify recessions is not flashing red. Yes, some segments suggest caution, but more recent data—including payroll growth, industrial production, and retail sales—are accelerating, while the unemployment rate is holding steady.”

The main caveat is that it is still early to fully assess the inflation risk from the supply‑side energy shock, which continues to reverberate across the global and US economies.

Minutes from the most recent Federal Reserve policy meeting reveal that a majority of Fed officials discussed the possibility of interest rate hikes if the Iran war continued to raise inflation. Although members of the Federal Open Market Committee differed on how long the conflict might last and how much inflation risk it could pose, “a majority of participants highlighted, however, that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2 percent.”

Last week’s consumer inflation report for April showed a second consecutive month of hotter pricing pressure. Headline CPI’s year‑over‑year increase accelerated to 3.8%, a three‑year high and further above the Fed’s 2% inflation target.

Inflation is expected to rise further, according to a survey of economists published by the Philadelphia Fed last week. Headline CPI is projected to briefly spike to 6.0% in the second quarter before easing later in the year.

If the Fed raises interest rates to combat inflation, the policy shift could create a new headwind for the economy. So far, those headwinds appear mild, based on cuerrent headline GDP estimates for Q2. But with Gulf energy exports still blocked, and no resolution expected in the immediate future, the extent of inflation risk—and how the economic effects will unfold in the months ahead—remains uncertain.

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The recent surge in Treasury yields has strengthened the case for holding bonds, and real yields are no exception. After years of volatility—including a plunge into negative territory during the pandemic followed by a sharp rebound driven by the Federal Reserve’s rate hikes—real yields are now back in ranges last seen two decades ago. The 10‑year TIPS yield stands at 2.18%, offering a guaranteed real return if held to maturity.

That’s an appealing level by historical standards. For comparison, the nominal 10‑year yield (without inflation protection) reached 4.67% on May 19, implying a market‑based inflation expectation of 2.49%—near a three‑year high, though below the brief 3.0% peak in 2022.

Whether it makes sense to lock in today’s real yields depends on where rates go next, and that path is unusually uncertain. The dominant near‑term driver remains the Middle East crisis.

A rapid resolution that reopens the Strait of Hormuz and restores energy flows would likely ease inflation fears and push yields lower. But that outcome still appears unlikely. Fatih Birol, head of the International Energy Agency, warned Monday that commercial oil inventories are falling quickly, with only weeks of supply left as the Iran war and the Strait’s closure choke shipments. Strategic reserves have helped offset lost exports, but, as he noted, they “are not endless.”

Global inventory data suggests the supply‑demand squeeze will worsen if the stalemate persists, according to a chart from the Financial Times.

Meanwhile, geopolitical tensions remain high. President Trump said Monday he was “an hour away” from ordering new strikes on Iran before Gulf allies urged restraint. Iran’s Revolutionary Guard responded that any renewed attacks by the US or Israel would expand the conflict “beyond the region,” with retaliation in “places you cannot imagine,” according to Mehr News.

In a worst‑case scenario—renewed war, higher energy prices, and rising inflation—the bond market would likely demand an even higher risk premium, pushing yields up further. In a best‑case scenario—de‑escalation and resumed exports—yields could fall.

Given the uncertainty in the current climate, it’s difficult to predict the path ahead with confidence. That argues for a balanced approach: allocating part of a bond portfolio to TIPS to capture elevated real yields while keeping some cash available to respond to further market stress.

Unless one is unusually confident about both the outcome and timing of events in the Middle East, hedging across multiple scenarios has rarely looked more sensible.

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A useful proxy for estimating the potential for economic fallout is the so‑called Misery Index, which combines the inflation rate with the unemployment rate—a measure of the economic well‑being of the average consumer. By this benchmark, the war’s blowback is rising. April’s sum of the one‑year change in the consumer price index and the jobless rate rose to 8.1%, the highest in three years.

All of the recent upturn is due to hotter inflation over the past two months. The unemployment rate, by contrast, has remained steady at a modest 4.4%. Inflation appears likely to trend higher as the supply‑side energy shock continues, and so even a modest increase in the jobless rate could intensify the Misery Index’s increase this summer.

For now, another bullet has been dodged this week. President Trump said Monday that he had canceled what he described as a planned US strike on Iran scheduled for Tuesday. He explained that he halted the operation because “serious negotiations” were underway toward a peace agreement that he claimed would satisfy the United States and its Middle Eastern partners. Yet the very fact that a military attack was being prepared—and called off only at the last moment—underscores how far the two countries remain from any durable resolution.

Unsurprisingly, inflation is expected to trend higher in the upcoming report for May. The Cleveland Fed’s nowcast indicates that headline CPI will top 4% for the annual change for this month. Assuming the jobless rate holds steady, the CPI nowcast points to another rise in the Misery Index for May.

Optimists can point to core CPI, which has increased at a much softer pace, ticking up to 2.7% for the year through last month. The Federal Reserve pays more attention to core inflation metrics, which tend to provide a more robust measure of inflation’s trend compared to noisy headline indexes.

The problem is that while core CPI gives the Fed space to maintain a wait‑and‑see position on whether to tighten monetary policy, consumers are already feeling the pain of the war’s effects. In today’s hyper‑charged political climate, it’s an open question whether central bankers will remain immune to events on Main Street.

The recent history of the Misery Index suggests there are limits to that immunity. In 2021 and 2022, the index was soaring, peaking at 12.6% in May 2022, two months after the Fed started hiking interest rates.

The current Misery Index is still well below the previous peak, but the gap is narrowing, and the geopolitical news from the Gulf suggests more of the same is coming in the near term. History doesn’t repeat, but it’s getting easier to argue that it’s starting to rhyme… again.

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The Treasury market has already decided that tighter monetary policy is necessary. The policy‑sensitive 2‑year yield soared last week, rising above 4.0% for the first time in nearly a year. The jump is a sign that the bond market expects a hawkish pivot from the Fed.

For a clearer view of how market conditions have changed, the chart below shows the spread between the 2‑year yield and the effective Fed funds rate (the volume‑weighted median of overnight Federal funds transactions). This gap has increased to a three‑year high—nearly half a percentage point.

The Capital Spectator’s rough estimate of current Fed policy suggests a neutral stance, based on a simple model that compares the target rate to unemployment and inflation—the two components of the central bank’s dual mandate. A month ago, the estimate indicated that policy was slightly tight. The key takeaway: ongoing inflation risk appears set to shift policy into a dovish stance, assuming the Fed continues to leave rates unchanged.

Fed funds futures are still pricing in high odds of no change for the next several policy meetings. The highest confidence for standing pat applies to the upcoming June 17 FOMC meeting—futures are estimating a 99% probability of keeping rates steady. A 90‑plus percent probability of no change is currently assigned to the July meeting.

The tension between the 2‑year yield and expectations for Fed funds will be closely monitored in the days and weeks ahead. A capitulation on one side or the other would be notable, although analysts seem to be leaning toward the view that expectations for a Fed rate hike are building.

“I do think there is a real fear that inflation is kind of embedded in the economy going forward,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“A new inflation regime awaits [Kevin] Warsh,” the new Fed chief, writes Joseph Brusuelas, chief economist at RSM US.

“The fact that we are now seeing data backing up inflationary fears that have been in the market since the Middle East conflict started is key,” said Nick Twidale, chief markets analyst at ATFX Global.

A repricing of Fed funds futures to reflect the shift in sentiment may prove to be the decisive factor prompting a capitulation by the doves.

● Moral Economics: From Prostitution to Organ Sales, What Controversial Transactions Reveal About How Markets Work
Alvin E. Roth
Interview with author via Critical Mass podcast
Alvin Roth is a Nobel Prizewinning Economist whose work on designing markets has had real world impacts that may have saved thousands of lives around the world, while arousing strong emotions both for and against the programs he has helped put in place. Clearly not one to shy away from controversy, he represents the best of what The Origins Project is trying to promote: applying science and reason to public policy. In short, connecting science and culture! Roth’s new book, which is fantastic, and comes out the same day this podcast is released deals with issues that often raise the public’s ire, from legalizing prostitution, to assisted suicide, and finally to a rational market for kidney transplants.

● Founder’s Fire: From 1776 to the Age of Trump
Arthur Herman
Review via The Wall Street Journal
This year is dedicated to the 250th anniversary of the birth of the United States. Most historians are concentrating on the birth itself, when 13 disparate colonies along the east coast of North America declared their intention to separate from Great Britain. That, to be sure, is quite a story, one without previous precedent. So is the story of the Constitutional Convention a few years later, which produced what is now the world’s oldest constitution of a complex sovereign state, amended only 27 times.
In “Founder’s Fire” Arthur Herman—whose books of popular history include “How the Scots Invented the Modern World” (2001)—gives these stories their due. But Mr. Herman sees a bigger picture here. He argues, in this entertaining and enlightening book, that the spirit—the fire—that drove the Founding Fathers to risk everything to establish something very new has animated this country ever since.

● The Art and Business of Professional Trading
Ryan Wright
Summary via publisher (Wiley)
The library of trading literature falls into three largely useless categories. Pop-psychology books focus on mindset and discipline, but psychology is downstream of process. If you lack edge, no amount of mental work saves you. Paint-by-numbers manuals promise certainty through precise setups and mechanical rules, but in an adversarial, reflexive market, widely-known patterns become traps, and the playbook becomes a liability. Academic tomes provide mathematical rigor disconnected from the reality of execution under uncertainty. The Art and Business of Professional Trading occupies the void between them. It is what has been missing for the ambitious trader ready to move beyond hobbyist speculation and think with the rigor of an institutional desk.

● Legacy on the Line: Overcome Blind Spots to Grow and Transfer Your Wealth
Andrea Baumann Lustig
Summary via publisher (Wiley)
In Legacy on the Line: Overcome Blind Spots to Grow and Transfer Your Wealth, sixth-generation wealth adviser and Managing Partner of Fischer Stralem Advisors, Andrea Baumann Lustig shares 30 years of insights working with families to help build and transfer wealth. With the largest wealth transfer in history—$124 trillion—underway, many families risk losing their legacy not through lack of resources, but through unexamined beliefs that quietly undermine their financial future. This book reveals 10 common blind spots that sabotage legacy planning—convictions so deeply held they go unchallenged, often leading to missed opportunities, increased risk, and unnecessary costs.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. By purchasing books through this site, you provide support for The Capital Spectator’s free content. Thank you!

The results suggest that much of the difference between equity-portfolio strategies during the war-regime period can be traced to factor allocations. For example, among the winning strategies of late there’s a good chance that the portfolios have relatively high allocations to the momentum factor, intentionally or otherwise.

The momentum factor is the clear leader, outperforming the rest of the field by a wide margin. The iShares MSCI USA Momentum Factor ETF (MTUM) has surged 21.6% since the attack started nearly three months ago. The next-strongest performer is large-cap growth (IWV) with a 16.3% rally. Both funds are posting sharply higher gains vs. the market benchmark via SPDR S&P 500 ETF (SPY), which is up 9.4% since Feb. 28.

Most equity factors are trailing the broad market (SPY), including one downside outlier. The low-volatility factor has delivered especially poor results since the start of the conflict, which has shifted to a precarious stalemate that continues to block energy exports from the Gulf. The iShares MSCI Minimum Volatility ETF (USMV) has lost 2.3% since Feb. 28.

Despite the headline strength in equities, the widening gap between factor winners and laggards underscores how uneven the market’s internal dynamics have become. Momentum’s dominance and low volatility’s slump suggest investors are rewarding exposure to persistent trends while shunning defensive positioning, even as geopolitical risk remains elevated. That divergence is a reminder that record highs can mask shifting fault lines beneath the surface—fault lines that may matter far more if the current geopolitical stalemate breaks in either direction.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

The gradual shift may begin to accelerate in the months ahead as inflation risk moves to center stage in the bond market. The 10‑year yield rose to 4.47% yesterday (May 13), the highest close since last August. The recent upside bias suggests that the pickup in inflation triggered by the Middle East turmoil is starting to alter sentiment for fixed‑income securities.

The Labor Department reported this week that consumer and wholesale inflation continued to post sharp increases in April.

“Inflation is sticky and accelerating. The core reading confirms a deeper structural trend, especially in services,” said David Russell, global head of market strategy at TradeStation. “The Hormuz crisis is aggravating the problem, but this goes way beyond oil.”

The market premium relative to The Capital Spectator’s fair‑value estimate of the 10‑year yield ticked up to 35 basis points last month. That remains modest by historical standards, but if inflation stays elevated—or shows signs of rising further—the premium will likely increase in the months ahead.

“

What we’ve seen is investors pricing in higher long‑term inflation into what they want to receive from lending to the government,” said Luke Tilley, chief economist at Wilmington Trust.

By late 2025, the surge in the 10‑year premium associated with the 2021–2022 inflation spike had faded to nearly zero. But the calculus is changing as the conflict with Iran continues and threatens to become a protracted affair that keeps Gulf energy exports blocked and inflation elevated.

A quick resolution that allows exports to resume would likely keep the yield premium modest. But with diplomatic efforts at a standstill and US threats to resume military operations if Iran doesn’t compromise, the timeline for an end to the conflict remains unclear. As a result, the yield premium—and interest rates more broadly—appear poised to rise in the near term.

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