● Streetwise: Getting to and Through Goldman Sachs
Lloyd Blankfein
Review via Reuters
Unlike many rivals, Goldman decided to hedge its exposure to U.S. subprime housing debt, in part by buying protection from American International Group (AIG.N), opens new tab against defaults in mortgage-backed securities. When the U.S. government – with Paulson as Treasury Secretary – bailed out the insurance giant in September 2008, many on Wall Street suspected the rescue had indirectly saved Goldman. Blankfein insists that the firm, which had also taken the precaution of buying insurance against an AIG default, would have survived its counterparty’s collapse. Still, whether the banks that sold that protection could have honoured their obligations in such a meltdown remains an open question.
Yet if Blankfein nimbly guided Goldman through the storm, he stumbled in the aftermath. Intense public scrutiny and criticism from politicians came ​as a shock for a firm unused to being a household ​name. Blankfein offers a spirited defence against Goldman’s many critics. ⁠Yet he acknowledges that bailouts helped polarise public opinion, clearing the way for Trump.

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 main risks: slower economic growth and higher inflation, driven largely by higher energy prices. It’s too early to confidently estimate how the war will influence those factors, but as the war – one week old tomorrow – persists, the macro price tag will surely rise.

Because economic data is reported with a lag, the blowback will take time to show up in official releases. For next month’s first-quarter GDP release, for instance, even if the war continues through the end of March, the effects may be hard to spot.

The Atlanta Fed’s Mar. 2 nowcast of Q1 GDP: +3.0%, marking a solid rebound from the sluggish 1.4% increase in Q4. Revisions are likely before the official April 30 release, but the war-related impact may be modest, given that the attack began late in the quarter.

February data published earlier in the week underscores ongoing strength in private‑sector hiring and services activity. ADP on Wednesday said that companies added 63,000 jobs last month, the strongest monthly gain since July. Meanwhile, the ISM Services Index rose to its highest growth reading in February in nearly four years.    

The outlook for Q2 is more vulnerable. US and Israeli officials have said the war could continue for several weeks, which would give the inflationary and slower-growth effects more oxygen. The degree and extent of pain these effects could bring is unclear for now, but markets are already reflecting greater caution relative to the pre-war outlook.

One of the clearest signs of shifting sentiment relates to monetary policy. The rate cuts that were priced in via Fed funds futures for June are now seen as unlikely. September is currently the earliest month in which odds favor an initial cut.

Earlier this week, Cleveland Fed President Beth Hammack called for an extended pause on rate cuts. Part of the calculus is that economic activity appears to be firming in Q1. Add in the inflation-related uncertainty from the war and she sees a stronger case for holding rates steady. “I want to see evidence that we are making progress on the inflation side of our mandate to have more confidence in my forecast,” she said.

Treasury yields have remained relatively steady since the war started, trading within the range that’s prevailed in recent months. But the market is starting to pick up on the potential for higher inflation. The policy-sensitive 2-year yield has increased every day this week, rising to 3.59% on Thursday.

Higher yields are likely until there are signs that the war, if not ending, is winding down. For now, the opposite seems to be the likely path ahead for the immediate future.

The FT this morning is reporting: Qatar, the world’s second-largest producer of liquified natural gas, says the war will force Persian Gulf energy exports to end “within days.”

“This will bring down the economies of the world,” predicts Saad al-Kaabi, Qatar’s energy minister. “If this war continues for a few weeks, GDP growth around the world will be impacted. Everybody’s energy price is going to go higher. There will be shortages of some products and there will be a chain reaction of factories that cannot supply.”

Hyperbole? Maybe, but making that case that the fallout will be limited is becoming tougher every day the war continues and energy infrastructure in the Gulf comes under additional strain.

Is Recession Risk Rising? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report

Driven by rising oil and gas prices, energy shares are the leading sector performer by far, based on a set of ETFs through yesterday’s close (Mar. 4). The State Street Energy Select Sector SPDR ETF (XLE), a Big Oil proxy, has surged more than 25% year to date. That compares with a near‑flat performance for the broad stock market via the SPDR S&P 500 ETF (SPY), which is holding on to a fractional 0.5% gain so far in 2026.

Materials (XLB) and industrials (XLI) are distant second‑ and third‑place sector performers this year, followed by consumer staples (XLP), utilities (XLU), and real estate (XLRE). The remaining sectors are close to flat or underwater. The biggest loser: financials (XLF), down 6.0% year to date.

The attitude shift could be short‑lived, depending on how the war unfolds from here. Many analysts assume the conflict will end soon, in which case the current sector leaders could lose their performance crowns and a return to AI and digital‑economy themes would ensue.

Perhaps—but it’s already clear that the US and Israeli strike on Iran is no quick surgical attack. The conflict is now five days in and the odds appear low for a resolution in the immediate future.

Both the US and Israel have publicly said that a weeks‑long war is possible, perhaps even likely. Top Pentagon officials on Wednesday warned that the war could become a longer conflict and that the fighting is “far from over.” Defense Secretary Pete Hegseth said the conflict could last as long as eight weeks.

“We’re preparing for several long weeks,” acknowledged a senior Israeli military officer.

The duration of the war is the key variable for risk appetite and how markets evolve from here.

“If disruption is relatively short‑lived, history suggests that price spikes driven by geopolitical tension can fade once uncertainty begins to ease,” said Rick de los Reyes, a sector portfolio manager at T. Rowe Price. “But if production or exports face sustained disruption, that would amount to a genuine supply shock, with implications for inflation, interest rate expectations, and global growth.”

Hanging in the balance is the outlook for inflation, economic growth, interest rates, and the near‑term leaders and laggards in the stock market and other asset classes.

The only certainty now is that no one knows where this is going or how it will unfold. Several reasonable scenarios are plausible on paper. but when the fighting ends, the outcomes will almost certainly overturn many of today’s forecasts.

Is Recession Risk Rising? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report

The US crude oil benchmark (West Texas Intermediate) has increased sharply in trading so far this week, jumping nearly $75 a barrel by the close of trading yesterday (Mar. 3). Year to date, WTI is up 30%, and spot gasoline in the US is trading 44% above its 2025 close.

Crude Risk

The optimistic spin is that once the war is over, energy prices will quickly return to the subdued levels that prevailed before the Iran war dominated trading.

“The primary near-term driver for oil prices remains the US-Iran conflict,” said OANDA senior market analyst Kelvin Wong. “At this stage, only clear signs of de-escalation could mitigate or reverse the current bullish ‌trend for WTI, and such signals are currently lacking.”

The key choke point is the Strait of Hormuz, which is a crucial trade route for energy. A fifth or more of the seaborne oil exports flow through  this narrow channel, whose shores include Iran and Saudi Arabia.

The war has dramatically reduced shipping through the strait. “It’s a de facto closure,” said Dan Pickering, chief investment officer of Pickering Energy Partners, a Houston financial services firm. “You’ve got a significant number of vessels on either side of the strait, but no one is willing to go through.”

Shipping Flow

Attacks on shipping have become “a huge deterrent for all but a few shipping companies and charterers,” said Martin Kelly, head of advisory at maritime intelligence group EOS Risk.

The White House is trying to counter the risk, announcing on Tuesday that the US will “immediately” offer “political risk insurance and guarantees.” President Trump also wrote on social media that “If necessary, the United States Navy will begin escorting tankers through the Strait of Hormuz, as soon as possible.”

The conflict rages on, with few signs of an end game in the immediate future. When it does end, oil shipments could quickly rebound, acting as a downward force on prices as supply rebounds. But that scenario will be threatened if Iran extends and expands attacks on energy infrastructure in the Gulf region. In that case, the squeeze on exports could linger for months.

A key oil refinery in Saudi Arabia and two facilities in Qatar were attacked earlier in the week.

“Gulf energy infrastructure [is] now squarely in Iran’s sights,” said Torbjorn Soltvedt, an analyst at the risk intelligence company Verisk Maplecroft. “An extended period of uncertainty lies ahead as Iran seeks to impose a heavy economic cost by putting tankers, regional energy infrastructure, trade routes and US security partners in the crosshairs.”

Repairing damaged pipelines and refining operations won’t happen overnight. An additional risk: attacks on Saudi Arabia oil infrastructure could trigger retaliatory attacks, which would threaten an escalation in the war.

Asia is especially vulnerable to reduced exports, advises S&P Global: “This is because the majority of exports from the region through the strait are to Asia, namely China and India.”

US Production Will Help Soften The Blow

The US, by comparison, is less vulnerable, thanks to a dramatic increase in domestic oil production in recent years, driven development of shale sources. America energy output has soared, according to US government data. But the odds are reportedly low that American producers will quickly act to increase supply to offset effects of the war in an effort to keep energy prices low.      

The path ahead is as uncertain as it is risky for the global economy. The potential for higher inflation, slower growth, and higher energy prices for an extended period will complicate decisions about monetary policy for central banks and increase the possibility of policy errors.

The path to greater pain, however, is clear. “If this war does continue as long as US President Donald Trump suggests – three or four weeks – there will definitely be a situation where the price of oil will skyrocket which will have adverse impacts on the global economy and more locally for the US,” predicts Arang Keshavarzian, professor of Middle Eastern and Islamic Studies at New York University.

As a general rule, expected returns rise (fall) as markets decline (rally), all else equal. Higher market volatility equates with bigger changes for projected returns, of course, but it would take a significant shock to move the needle in a meaningful degree. It’s possible that the war could take a bite out of the risk appetite, and so some degree of improvement in long‑term performance estimates may start to become visible in the months ahead, depending on how far markets slide.

For today’s update, using pre-war monthly numbers through February, the revised long‑term forecast for the Global Market Index (GMI) continued to hold steady at a 7%-plus annualized total return. In line with recent estimates, GMI’s projected long‑run outlook continues to run well below its trailing ten‑year performance, which suggests managing expectations down for performance relative to recent history.

GMI is a market‑value‑weighted mix of the major asset classes (excluding cash) via ETF proxies. Today’s forecast is calculated as the average of three models (defined below). The current 7.3% annualized estimate for GMI is unchanged from the previous update, and remains well below the trailing 10.2% annualized return that GMI has generated over the past decade.

Following a run of strong gains in several asset classes recently, roughly a third of GMI’s components are projected to generate returns that trail results posted over the past ten years (indicated by the red boxes in far-right column below). That gap also applies to GMI, which is currently projected to earn a substantially softer return compared with its performance over the trailing ten‑year window through February.

GMI represents a theoretical benchmark for the “optimal” portfolio that’s suited for the average investor with an infinite time horizon. Accordingly, GMI is useful as a starting point for customizing asset allocation and portfolio design to match a particular investor’s expectations, objectives, risk tolerance, etc. GMI’s history suggests that this passive benchmark’s performance will be competitive with most active asset-allocation strategies, especially after adjusting for risk, trading costs and taxes.

It’s likely that some, most or possibly all of the forecasts above will be wide of the mark in some degree. GMI’s projections, however, are expected to be somewhat more reliable vs. the estimates for its  components. Predictions for the specific markets (US stocks, commodities, etc.) are subject to greater variability compared with aggregating the forecasts into the GMI estimate, a process that may reduce some of the errors through time.

Another way to view the projections above is to use the estimates as a baseline for refining expectations. For instance, the point forecasts above can be adjusted with additional modeling that accounts for other factors and assumptions not used here. Customizing portfolios for a specfic investor, to reflect risk tolerance, time horizon, and so on, is also recommended.

For perspective on how GMI’s realized total return has evolved through time, consider the benchmark’s track record on a rolling 10-year annualized basis. The chart below compares GMI’s performance vs. ETFs tracking US stocks and US bonds through last month. GMI’s current return for the past ten years is a strong annualized 10.2%, a performance that marks the strongest pace for the historical record shown.

Here’s a brief summary of how the forecasts are generated and definitions of the other metrics in the table above:

BB: The Building Block model uses historical returns as a proxy for estimating the future. The sample period used starts in January 1998 (the earliest available date for all the asset classes listed above). The procedure is to calculate the risk premium for each asset class, compute the annualized return and then add an expected risk-free rate to generate a total return forecast. For the expected risk-free rate, we’re using the latest yield on the 10-year Treasury Inflation Protected Security (TIPS). This yield is considered a market estimate of a risk-free, real (inflation-adjusted) return for a “safe” asset — this “risk-free” rate is also used for all the models outlined below. Note that the BB model used here is (loosely) based on a methodology originally outlined by Ibbotson Associates (a division of Morningstar).

EQ: The Equilibrium model reverse engineers expected return by way of risk. Rather than trying to predict return directly, this model relies on the somewhat more reliable framework of using risk metrics to estimate future performance. The process is relatively robust in the sense that forecasting risk is slightly easier than projecting return. The three inputs:

* An estimate of the overall portfolio’s expected market price of risk, defined as the Sharpe ratio, which is the ratio of risk premia to volatility (standard deviation). Note: the “portfolio” here and throughout is defined as GMI

* The expected volatility (standard deviation) of each asset (GMI’s market components)

* The expected correlation for each asset relative to the portfolio (GMI)

This model for estimating equilibrium returns was initially outlined in a 1974 paper by Professor Bill Sharpe. For a summary, see Gary Brinson’s explanation in Chapter 3 of The Portable MBA in Investment. I also review the model in my book Dynamic Asset Allocation. Note that this methodology initially estimates a risk premium and then adds an expected risk-free rate to arrive at total return forecasts. The expected risk-free rate is outlined in BB above.

ADJ: This methodology is identical to the Equilibrium model (EQ) outlined above with one exception: the forecasts are adjusted based on short-term momentum and longer-term mean reversion factors. Momentum is defined as the current price relative to the trailing 12-month moving average. The mean reversion factor is estimated as the current price relative to the trailing 60-month (5-year) moving average. The equilibrium forecasts are adjusted based on current prices relative to the 12-month and 60-month moving averages. If current prices are above (below) the moving averages, the unadjusted risk premia estimates are decreased (increased). The formula for adjustment is simply taking the inverse of the average of the current price to the two moving averages. For example: if an asset class’s current price is 10% above its 12-month moving average and 20% over its 60-month moving average, the unadjusted forecast is reduced by 15% (the average of 10% and 20%). The logic here is that when prices are relatively high vs. recent history, the equilibrium forecasts are reduced. On the flip side, when prices are relatively low vs. recent history, the equilibrium forecasts are increased.

Avg: This column is a simple average of the three forecasts for each row (asset class)

10yr Ret: For perspective on actual returns, this column shows the trailing 10-year annualized total return for the asset classes through the current target month.

Spread: Average-model forecast less trailing 10-year return.

Foreign developed shares ex-US (VEA) led the field, posting a strong 6.1% gain in February–the ETF’s best monthly advance in more than two years. Year to date, this slice of global equities is up 12.4%, just behind the 2026 performance leader: a 12.6% rise for commodities (GSG).

US stocks (VTI) were the lone loser last month, edging down 0.5%. So far this year, US shares are up just 1.0%, which is close to the weakest performance for the major asset classes.

Notably, gains still prevail across the board for the trailing 1- and 3-year windows. But the outlook has suddenly turned cloudy in the wake of the US-Israel military strike on Iran, introducing a new phased of uncertainty for March and beyond.

Meanwhile, the Global Market Index (GMI) extended its bull run in February, rising 1.3%, marking the 11^th straight monthly gain – the longest rally in nine years.

GMI is an unmanaged benchmark (maintained by CapitalSpectator.com) that holds all the major asset classes (except cash) in market-value weights via ETFs and represents a competitive benchmark for globally diversified, multi-asset-class portfolio strategies.

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 US-Israel military strike on Iran is ongoing and appears set to continue for days, possibly weeks. No one knows how this will play out in markets beyond the immediate future, but it’s reasonable to assume that the bullish sentiment, which was already showing signs of fatigue in some corners, could become collateral damage the Middle East conflict.

Foreign stocks and commodities are the performance leaders in 2026 through Friday’s close (Feb. 27), based on a set of ETFs. But last week’s assumptions about the future suddenly look like ancient history.

The crucial question: How vulnerable is the world economy? The short answer: blowback risk will increase the longer the war lasts. At the moment, the odds appear low for a quick cessation of hostilities as the war widens across the Middle East, which include Iran’s attack on oil infrastructure in Saudi Arabia.

“The attack on Saudi Arabia’s Ras Tanura refinery marks a significant escalation, with Gulf energy infrastructure now squarely in Iran’s sights,” said Torbjorn Soltvedt, an analyst at the risk intelligence company Verisk Maplecroft. “An extended period of uncertainty lies ahead as Iran seeks to impose a heavy economic cost by putting tankers, regional energy infrastructure, trade routes and U.S. security partners in the crosshairs.”

The economic costs for the global economy could be significant if the conflict lingers and oil prices stay elevated. Roughly 31% of all seaborne oil flowed through the Strait of Hormuz in 2025, according to analysis by Kpler, a data analytics firm. Those flows are vulnerable due to Iran’s strategic location, which allows it to disrupt if not halt shipping through the waterway.

“The implications of this conflict for the world economy depend on the flow of oil and gas through the Strait of Hormuz,” said Norbert Rücker, head of economics at Julius Baer. “The most feared scenario is not its closure, but serious damage to the region’s key oil and gas infrastructure.”

Kpler advises: “Any meaningful closure – or even a sustained de facto closure driven by insurance withdrawal – would trigger supply shocks across multiple commodity classes simultaneously.”

How long will the conflict last? No one knows, but on Sunday President Trump said the military operation could “take four weeks or less.”

Unsurprisingly, oil is rising today. The international Brent benchmark is near $78 a barrel this morning, the highest in over a year.

The Trump administration’s goal of regime change for Iran suggests a prolonged war. “I call upon all Iranian patriots who yearn for freedom to seize this moment … and take back your country,” Trump said on Sunday.

Regime change won’t be easy. Although Iran’s supreme leader, Ayatollah Ali Khamenei, was killed by airstrikes on Saturday, the country’s paramilitary Revolutionary Guard remains a powerful force and has likely prepared for a long struggle following a series of previous attacks on the country by the US and Israel. Airstrikes alone are unlikely to topple the regime’s praetorian guard that’s oversees Iran’s leading military force with sprawling economic interests to finance its operations.

“At the end of the day, once US and Israeli strikes stop, if the Iranian people come out, their success in promoting the end of the regime will depend on the rank and file standing aside or aligning with them,” said Jonathan Panikoff, a former US intelligence official who is now at the Atlantic Council think tank in Washington. “Otherwise, the remnants of the regime, those with the weapons, are likely to use them to keep power.”

Regime change in Iran is currently estimated as moderately unlikely, with a 42% chance, according to the latest betting data at Polymarket. The implication, the prospects appear weak for a quick end to the conflict until one side blinks first.

Looking beyond the next several weeks changes the calculus, according to Sanam Vakil, director of the Middle East and North Africa Program at Chatham House, a London-based research group. “The Islamic Republic as we know it will not survive this,” he predicts.

If so, the main issue is what replaces the current regime and does the change promote stability or chaos in Iran and across the Middle East?

Is Recession Risk Rising? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report

● Wired on Wall Street: The Rise and Fall of Tipper X, One of the FBI’s Most Prolific Informants
Tom Hardin
Summary via publisher (Wiley)
Part financial crime thriller, part personal transformation story, and part redemption memoir, Wired on Wall Street: The Rise and Fall of Tipper X, One of the FBI’s Most Prolific Informants tells the riveting true story of Tom Hardin, a young hedge fund analyst turned FBI informant. Known as “Tipper X,” Tom wore a covert wire over 40 times, helping the FBI build more than 20 of the 80+ cases in Operation Perfect Hedge, the largest insider trading investigation in a generation. As the youngest professional caught in the sting, Tom navigated the psychological toll of betrayal, secrecy, and public disgrace. What followed was a powerful journey through shame, fatherhood, and ultimately, personal transformation.

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 Conference Board reports that confidence among CEOs “surged” to the highest level in a year. “CEO Confidence improved significantly in the first quarter of 2026, reflecting restored optimism among leaders of large firms,” said Dana Peterson, chief economist at the consultancy.

The rebound in CEO optimism implies that the case for more Fed rate cuts has weakened. The Treasury market, however, has yet to be persuaded. The policy-sensitive 2‑year yield traded down yesterday to 3.44% (Feb. 26), holding near the lowest level in nearly four years and slightly below the current 3.50%–3.75% Fed funds target range.

Fed funds futures are still pricing in a pause in rate cuts for the next two policy meetings, but anticipate another rate cut in June. Sticky inflation data and a steady, low jobless rate may complicate that forecast for a near-term cut. Markets will pay close attention to next week’s payrolls report for February, looking for new clues on where monetary policy is headed.

Another key variable is Kevin Warsh, the incoming Fed chair, who will take over the central bank’s leadership in May. Analysts are debating whether Warsh will tilt dovish to support President Trump’s demands for lower interest rates.

A complicating factor is the current nowcast for a rebound in economic growth for the first quarter. The Atlanta Fed’s GDPNow model, for example, is currently estimating that GDP will rise 3.1% in the first three months of this year, up sharply from Q4’s sluggish 1.4% increase.

The rise of artificial intelligence as an economic input is another variable that’s muddling the outlook. “The question is how is AI going to be inflationary and maybe the long end of the curve is sniffing all of this out,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “The only inflationary aspect of AI is the building out of data centers and the associated energy needs, and that is known.”

If CEOs are right and growth is re-accelerating, the Treasury market is mispriced. If the bond market is right, CEO optimism is a head fake. With Warsh stepping in and AI reshaping the inflation debate, investors won’t have to wait long to find out who blinked first.

Is Recession Risk Rising? Monitor the outlook with a subscription to:
The US Business Cycle Risk Report

Although the risk appetite from a global perspective has periodically wavered in recent history, betting against the trend has been a losing proposition. Echoing previous updates (see here and here, for example), an ETF-based proxy for monitoring the directional bias of multi‑asset‑class strategies continues to skew positive, based on the ratio of two funds: an aggressive asset allocation strategy (AOA) vs. its conservative counterpart (AOK).

Looking below the surface, however, reveals substantial changes in leadership as bullish momentum accelerates in foreign stocks relative to US shares. The previous relative strength in American equities (VTI) has fully reversed against stocks in developed markets ex‑US (VEA).

A similarly sharp U‑turn is in progress for US equities (VTI) vs. stocks in emerging markets (VWO).

Another notable change: Within the US stock market, sentiment has recently shifted in favor of large‑cap value (IWD) over large‑cap growth (IWF). Although this turn is significant in that it breaks the long‑running dominance of large‑cap growth, it’s not yet clear if this is yet another short‑term change or the start of a secular trend.

As the chart above shows, there have been several periods since 2010 of short-lived relative strength for large‑cap value that quickly faded. The current pivot into value looks solid so far, but it’s still an open question if this trend signals a durable change in market sentiment.

If the value leadership persists, some analysts say it could have implications for the broader stock‑market outlook.

Stifel’s chief equity strategist, Barry Bannister, warns in a research note this week that some investors view the recent value rebound and growth‑stock weakness “as a sign of cyclical economic recovery, and it may be. But if this fade for growth relative to value accelerates and deepens, the history of ‘secular’ value‑led markets is one of a sharply declining price‑to‑earnings ratio over time, weaker S&P 500 returns and ever greater shocks, often lasting for many years.”

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