Stock markets worldwide are in a fear-driven, bumpy ride. This has brought bond yields down in a flight to quality. Markets are always watching what is coming next. The fear is that companies are experiencing “peak earnings” and that tariffs and other factors are taking their toll (nascent inflation, labor shortages, etc). Caterpillar’s earnings spurred a major selloff this week as they indicated margins are being cut due to increasing costs partially related to tariffs. Also, new home sales dropped, has housing peaked also? This seems not to be supply/demand driven but buyers are reeling from peak sales prices and higher interest rates. This begs the question in the post crisis economic world: can the economy thrive as ultra low interest rates go away? Geopolitical concerns: (1) Saudi Arabia and Turkey: tensions are rising between two major global economic powers; (2) Italy: populist government submitted a budget rejected by the EU, setting up a showdown. The EU is very concerned about Italy’s debt load becoming unsustainable. Note that an economic collapse/default in Italy would have serious worldwide repercussions. Italy’s economy is the 4th largest in Europe and 10 times the size of Greece’s economy (and the possibility of a Greek default caused major consternation a couple of years ago). Interesting that the Italian 10 year bond is trading at 3.61%, only a 0.50% premium to “ultra safe” US Treasuries; (3) China: remember that China’s growth was the only bright spot in the years after the financial crisis, now, the economy is sputtering despite regulators moving to increase liquidity. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners