Eric Basmajian

Founder, EPB Research. Business cycle research that helps investors separate economic noise from changes that materially alter recession and market risk.

[Eric Basmajian @EPBResearch]

EPB Research tells you when changing economic conditions actually matter for your capital, and what would change the view.

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[Eric Basmajian @EPBResearch]

France has the highest government spending to GDP of the major developed countries.

But total spending to GDP is just one measure of government's impact on the economy, which at increasingly high levels is negative.

It's important to look at all three: government spending to GDP, the deficit to GDP, and total debt to GDP.

Spending tells you the raw size of government outlays. The deficit tells you whether that spending is funded by taxes or borrowed. Total debt tells you the accumulated deficits.

All three follow the same general finding in economics. A little is necessary. A little more is generally good. But there's a point where the benefits level off. Eventually, the improvement in the standard of living flatlines and then turns negative.

Measured on all three together, France is the worst of the developed countries, but the United States is not far behind. The US actually runs a bigger deficit. Of course, one important difference is the reserve currency, but this speaks more to capacity vs negative impact of increasing government size.

Looking at all three also exposes the inflation fallacy. Inflation can reduce debt to GDP, but with most government spending indexed to inflation, the deficit and spending to GDP don't improve, and those carry consequences too.

As the deficit gets bigger, government borrowing crowds out other borrowers. Many point to AI funding getting crowded out, but I think the impact is downstream. If AI is productive and generates returns, it will keep getting funded, and other sectors get crowded out instead.

Housing is the most obvious example. Housing investment has been weak for 4 years, and the recent rise in interest rates will likely make that worse.

France is currently the most extreme case, but many developed nations are in a similar position, with a level of government size and command and control effects on the economy that negatively impact the standard of living.

[John Arnold @johnarnold]

French protestors want higher public spending, wages, subsidies and pensions. Meanwhile France has gov’t spending of 57% of GDP (among highest of Western countries), deficits of 5% of GDP, 10 year bond rate >5%, and a currency they don’t control. I don’t understand how this ends.

[Eric Basmajian @EPBResearch]

AI productivity gains are showing up, but only in ~15% of jobs.

The three heaviest AI adopters (information, professional services, finance) went from a 2.2% productivity trend to 5.0% since 2022.

The rest of the economy: 0.9% to 1.4%.

[Eric Basmajian @EPBResearch]

I go through the full picture, including builder margins and why construction jobs have held up, in this week's free EPB newsletter.

Sign up here: https://t.co/MJjGdBnPyb

[Eric Basmajian @EPBResearch]

New home supply looks like 2008, but it isn't.

In 2009, 48% of new homes for sale were completed.

Today, only 23% are completed, and 24% haven't been started.

Margins are under pressure, but builders are absorbing it slowly rather than sitting on finished homes.

[Greg Merrill @merrillmatter]

The current economic situation has been confounding to me. Eric has been illuminating.

[Eric Basmajian @EPBResearch]

https://t.co/cMPp2j6NZW

[Eric Basmajian @EPBResearch]

Jobless claims are running below 2023, 2024, and 2025 for the same week.

172K last week vs. 206K a year ago.

Layoffs remain extremely low.

Hiring is soft, creating some labor market tension, particularly for youth, but the labor market remains low-fire.

[Eric Basmajian @EPBResearch]

https://t.co/S6YJTw6cOk

[Eric Basmajian @EPBResearch]

Builders have 279,000 homes approved to build but haven't started.

That's 2.37 months of permits, near the highest in 25+ years.

Builders don't sit on approvals when demand is strong.

Housing is the weakest part of the economy and the path to a downturn, not AI.

[Eric Basmajian @EPBResearch]

https://t.co/gJenYggduz

[zerohedge @zerohedge]

Initial Claims 194K, Exp. 200K
Continuing Claims 1728K, Exp. 1710K

[Eric Basmajian @EPBResearch]

@zerohedge https://t.co/gJenYggduz

[Eric Basmajian @EPBResearch]

Layoffs Are Near Record Lows.

So Why Is It So Hard to Find a Job?

https://t.co/TKjzL2B3PR

[Eric Basmajian @EPBResearch]

@gsignoret @Tleblebijian @SoberLook

[(((The Daily Shot))) @SoberLook]

Since late 2022, output per worker in the three most AI-intensive industries has grown 5% annually, more than double its historical pace and well above the 1.3% growth recorded across the rest of the private sector.

Source: @EPBResearch

[Eric Basmajian @EPBResearch]

The number of apartment units under construction still outpaces single-family units under construction.

[Eric Basmajian @EPBResearch]

Layoffs Are Near Record Lows.

So Why Is It So Hard to Find a Job?

https://t.co/TKjzL2B3PR

[Eric Basmajian @EPBResearch]

Residential construction remains depressed.

But housing starts normally decline more sharply ahead of recessionary periods than they have today.

[Eric Basmajian @EPBResearch]

The stock market is valued at 34.2x corporate profits.

That’s a record, higher than the 33.4x peak in early 2000.

But valuations tell you very little about whether a recession is coming.

What they do tell you is how much damage a recession does...

1/

[Eric Basmajian @EPBResearch]

Job losses are the key, and they begin in a narrow group of highly cyclical sectors.

Every month at EPB, we outline the forward 6-12 month recession risk based on a combination of leading and cyclical indicators, corporate profits, and early-stage job losses.

If you're interested, you can sample the research and get in touch with us during a 7-day free trial.

https://t.co/XAcvSm5lnO

10/10

[Eric Basmajian @EPBResearch]

The stock market is valued at 34.2x corporate profits.

That’s a record, higher than the 33.4x peak in early 2000.

But valuations tell you very little about whether a recession is coming.

What they do tell you is how much damage a recession does...

1/

[Eric Basmajian @EPBResearch]

And recessions don't spontaneously occur, and they are not caused by high valuations alone.

Recessions are a process that spread from changes in money & credit that ripple through a group of select cyclical sectors like construction and manufacturing.

Unemployment in those early cyclical sectors creates downstream economic and credit stress.

9/