First Came the TACO Trade. Now It’s the NACHO.

Key takeaways

Political instability in the UK and redistricting battles in the US reflect ongoing challenges to democratic processes and influence upcoming elections.
Investment in AI remains highly competitive, with major players like OpenAI and Musk’s ventures adapting to market and regulatory challenges.
Market psychology around geopolitical tensions, such as the Strait of Hormuz, significantly impacts commodities and financial markets, with a new 'nacho' trade hypothesis predicting prolonged disruption.
US states and cities are experimenting with taxes on second and vacant homes to boost revenue and alleviate housing shortages, with mixed results and concerns about potential economic impacts.

Summary

Global Political and Economic Developments

This section covers recent political and economic upheavals around the world. It discusses the UK crisis where Prime Minister Keir Starmer faces intense pressure to resign amid poor electoral performance and rising economic uncertainty. The US Supreme Court's decision to permit Alabama’s redistricting efforts, likely eliminating a majority-black district, sparks concern about racial representation and voting rights, coupled with the recent restriction on race-based district drawing. Meanwhile, US House redistricting could shift 2 to 12 seats in favor of Republicans, impacting upcoming elections.

AI Industry and Market Dynamics

This part highlights ongoing developments in artificial intelligence and technology investments. OpenAI’s CEO, Sam Altman, faces an investigation into his personal investments amid potential conflicts of interest as the company prepares for an IPO. Elon Musk’s AI venture, Grok, shows declining user engagement, indicating increased competition in the AI chatbot arena, while Musk’s XAI is described as small and still developing. The discussion underscores the competitive intensity and investment risks within the AI sector.

The Nacho Trade and Geopolitical Tensions in the Middle East

A new Wall Street acronym, 'nacho,' symbolizes the expectation that the Strait of Hormuz probably won't reopen soon, reflecting market speculation that significant economic pain must occur before resolution in the Iran conflict. This expectation influences oil prices and interest rates, with traders hedging against prolonged disruption of this critical waterway, thereby affecting commodities markets and inflation expectations.

US State and Local Tax Policies on Second Homes

This section reviews efforts across US states and cities to tax second homes and properties left vacant, aimed at increasing revenues and addressing housing shortages. Examples include New York City’s luxury property tax and proposals in Rhode Island and California that target unoccupied homes. Evidence from other countries like Vancouver and France demonstrates that such taxes can reduce vacancies and shift housing stock to renters. However, critics warn these taxes might discourage investment in luxury and second homes, potentially reducing local tax revenues and affecting wealthier residents.

Show notes

A.M. Edition for May 12. With the U.S. and Iran still far apart on a peace deal, WSJ reporter Caitlin McCabe says investors are embracing a new Tex-Mex-inspired trade based on the assumption the Strait of Hormuz won’t be opening anytime soon. Plus, British Prime Minister Keir Starmer fights for his job as a rebellion against him spills into markets. And Democrats face another setback in the midterm redistricting fight. Luke Vargas hosts.

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