Markets/Econ
How China got Trump to fold on tariffs
The lesson from this episode - and the one in 2018 - is that China has huge leverage over the US. That leverage isn’t conventional retaliation in the form of its own tariffs or export controls, but currency devaluation. That devaluation destabilizes financial markets globally and in the US, ultimately helping to bring the US around on tariffs.
Related: Moody’s Downgrade Highlights Seriousness of Fiscal Situation
Stablecoins and monetary policy
Stablecoins do not present any problem for monetary policy. The Fed will still control the monetary base, and they have almost unlimited ability to adjust both the supply and the demand for base money. This means they will be able to react to the creation of money substitutes as required to prevent any impact on macroeconomic objectives such as employment and the price level.
Expectations Recession, Pretty Good Reality
A few weeks ago there was significant risk that a large tariff-driven tightening would occur (plus maybe DOGE / legislative budget cuts). That created a significant downshift in growth expectations. But that wasn't driven by hard data - it was an "expectations recession."
With policy drags clearing, expectations will reset. The underlying economy remains pretty good and the tariff fever dream is behind us (most likely). And yet consensus remains pegged to weakness. The momentum in expectations shift back toward reality favors stocks & cash over bonds, even at these equity valuations.
The Fed Communications Conundrum
In 1987, speaking before a Senate Committee, Greenspan quiped: “If I seem unduly clear to you, you must have misunderstood what I said.”
Equivalently, he also said on another occasion: “I know you think you understand what you thought I said, but I’m not sure you realize that what you heard is not what I meant.”
Bernanke was the exact opposite of Greenspan. Bernanke wanted clarity and openness, viewing communication as a critical policy tool.
Bernanke, an academic with a background in studying the Great Depression, believed transparency enhanced monetary policy effectiveness by anchoring expectations and improving accountability. His empirical research showed that clear communication could align market behavior with Fed goals, reducing uncertainty. He aimed to demystify the Fed, making it more accessible to Congress, markets, and the public.
By trying to “pamper” the markets with an “infinite amount of communication”, what analysts will do (and have done), is change their focus from analyzing the markets to “analyzing the Fed´s words and meanings”. The Fed, on its turn, will be unduly concentrated in “informing the markets” running the risk of missing the forest for the trees! That is, I think, a recipe for disaster.
Just another banger slideshow from SoftBank
The US Consumer Goes to Fiscal Reality Mart: Tariffs or VAT?
Humans and Machines Join Forces in Morgan Stanley’s Credit-Trading Revolution
Credit is now leading the way in the equitisation of fixed income. We’re seeing multi-asset portfolio trades with rates, securitised products, munis, and we’re starting to connect our capabilities across fixed income,” said Massingham. “The traditional silos are crumbling down. We’re now thinking about how we transform the structure of the fixed-income business and whether there should be a central risk book across all of fixed income.
Troubling Signals for Private-Equity Exits
From 2022 through Q3 2024, exited assets were sold at lower median multiples than those of the remaining portfolio by 0.5x to 1.1x. This reversal has raised questions about the resilience of the held assets’ valuations, especially in the face of ongoing macro headwinds. Recent years have also brought a significantly wider spread in multiples, underscoring the heightened uncertainty in the market.
Banks Continue to Lend to the Financial Economy, Not the Real One
The trend is even more acute when looking at just loans to nondepository financial institutions (NDFIs), which account for just over 50% of the “all other” category: loans to NDFIs are growing by 22%, whereas all other bank loans are up just 2%.
What’s going on? The financialization of the U.S. economy; banks are lending ever more money to broker-dealers, hedge funds, private equity/credit firms, securitization vehicles, etc., all part of the levered investment industry.
Collateralized lending in private credit
More generally, our stylized facts suggest that private credit may be moving in the direction of syndicated and leveraged lending. For one, loan amounts have grown while spreads have fallen, and now are relatively close to those in the leveraged loan market. Moreover, the growing prevalence of club deals featuring two or more lenders implies that many private credit deals are already akin to a syndicate. There is also a growing prevalence of revolvers as part of club deals, likely driven by rising bank participation. These developments suggest that banks and private credit funds increasingly form syndicates to originate larger loans that bundle term loans and credit lines. Finally, reports suggest that marketplaces might be in the horizon for private credit, pointing to the establishment of secondary markets for loan trading. Bringing these elements together supports the notion that ”private credit is the new public credit”
Covenant Lite #19: Private Credit Goes Hollywood
Today, modern Hollywood film financing is a carefully layered arrangement. Private credit firms typically anchor financing packages by offering secured senior loans, mezzanine financing, or specialized IP-backed loans. These loans are frequently collateralized by distribution contracts, presales to international distributors, tax incentive rebates (from jurisdictions like Georgia, Canada, or the UK), and even guaranteed streaming payments from platforms like Netflix and Amazon.
Each film project now features a clear and transparent repayment waterfall, explicitly detailing who gets repaid first and in what order—ensuring private credit lenders, as senior secured investors, receive priority treatment and predictable returns. This disciplined structure has reshaped Hollywood financing, offering producers the clarity and stability they lacked in earlier eras.
The Growing Role of Private Credit — May 2025
Who Finances Real-Sector Lenders?
Chris Hohn already had a cult following in his Perry Capital days and this got bigger when he launched TCI (The Children’s Investment Fund) in 2003 in London. He was regularly clocking up +40% investment returns in the years before the Global Financial Crisis. I had a front-row seat to this as I was a sell-side research analyst covering exchange stocks. He didn’t see the Global Financial Crisis coming and that was probably his main mistake in 20 years plus of running TCI. It took years to gradually recover.
Foreign
The Risk of War in the Taiwan Strait Is High—and Getting Higher
These conflicting assessments leave Beijing less certain that the United States will defend Taiwan from large-scale attacks or lower-intensity scenarios. But Chinese officials believe that, if left unchecked, the United States is likely to move even closer to Taiwan. That creates a dynamic ripe for miscalculation. China could determine that it needs to treat Taiwan more aggressively to make it clear to Trump’s national security team that it will tolerate neither growing U.S.-Taiwan ties nor moves by Taiwan that it sees as provocative. Meanwhile, China’s perception that Trump is not altogether willing to defend Taiwan may lead Beijing to consider still more escalatory actions against the island.
Spy agency report on the alleged “extremism” of Alternative für Deutschland
Since Tuesday evening, a great many people have been reading this document, and they have been realising various things.
The first thing they’ve realised, is that it contains hardly anything derived from supersecret spy sources at all. It is little more than a collection of public statements by AfD politicians. Faeser’s sources-and-methods justification for keeping the report hidden was a total lie.
The second thing they’ve realised, is that it is an abomination. The vast majority of material that the BfV have collected is not even suspect. It is a lot of off-colour jokes, memes, but also just banal nothing statements – thousands and thousands and thousands of them, arranged under various hysterical subject headings.
I thought I hated traveling, but actually I just hate Europe. Specifically, I hate Europeans — lazy, entitled, and immoral people. China is a more American country than most of Europe. Chinese restaurants are open late, competent, basically American. Despite the censorship, militarism, and political control, I’d be much happier with more of the world becoming like China than more of the world becoming like Europe. Being in Europe is bad for the soul. When it comes to urgency, aspiration, attention to detail, and will to do a good job, it’s China, India, and America on one side and Europe on the other. To be clear, I don’t dislike ethnic Europeans, but it feels like every ethnic European with any vigor is either already in America or applying for an American visa. Caesar would be an American. Napoleon would be an American. Adam Smith would be an American. Even Karl Marx would be a Berkeley student. America is the real life Galt’s Gulch, where all the talented people in Atlas Shrugged have fled, while Europe is the real life crumbling ruins. Whether because of anti-American attitudes, language barrier, or sheer size, China and India seem to have avoided that fate so far.
Why Keynes Opposed Free Capital Flows—and Why We Should Too
One promising avenue is the introduction of a “Tobin tax”—a small levy on capital inflows into the economy that would penalize short-term, speculative flows while leaving long-term productive investment mostly unaffected. This kind of tax—much like the “market access charge” proposed by Senators Tammy Baldwin and Josh Hawley in 2019—would make it more expensive for countries that want to externalize the cost of weak domestic demand by running trade surpluses to acquire U.S. assets. It would throw the cost of managing imbalances in the global system squarely onto those who most benefit from capital mobility.
Politics/Culture
The Solicitor General Embraces Judicial Supremacy
Many people have worried that the Trump administration might refuse to respect a Supreme Court decision. In yesterday’s oral argument in the birthright citizenship emergency order case, Solicitor General John Sauer said several times that the Trump administration views itself to be bound not just by a Supreme Court judgment, but, much more broadly, by the precedent those judgments create. This is a major concession to judicial supremacy, and a major stand-down on departmentalism, by the Trump administration.
Big Trump Action Goes Mostly Unnoticed
Moving to address the overcriminalization of federal regulations, the order flatly declares, “It is the policy of the United States that…criminal enforcement of criminal regulatory offenses is disfavored,” while adding, “Agencies promulgating regulations potentially subject to criminal enforcement should explicitly describe the conduct subject to criminal enforcement, the authorizing statutes, and the mens rea standard applicable to those offenses.”
The federal government doesn’t have common law jurisdiction, and so has spent 250 years building a growing list of statutory crimes that focus on the interstate nature of the offense, as in mail fraud. “They define the means,” Silverglate says, “but not the crime.” Here’s a good historical summary of the growth of federal criminal offenses, if you’re interested.
Why has Trump tackled a well-known problem that no one else has lifted a finger to address?
"Because he's been a victim of this,” Silverglate says. “He's the first president who's been indicted." I would like to thank Norm Eisen for being dumb enough to trigger this important shift in our political culture.
ICE agents seizing people now routinely wear masks—that’s wrong
So can ICE agents—or at least whoever is conducting these raids and stops in ICE’s name. Aside from the masking, agents in videos are often seen wearing outfits so random and ill-assorted that they have sparked speculation that they are persons borrowed from local or state law enforcement work or even private security. It’s hard to know when dodging identification is part of the plan.
Defenders of the practice say if the identities of arrest teams were known, they or their families might become targets for public shaming, harassment, or even violence. Similar concerns haven’t deterred judges, who in the past year have come under a wave of threats, often serious. Despite the real fear, jurists haven’t resorted—and in a free society, mustn’t resort—to concealing their role in administering the law.
Western civilization today is hypnotized by pallid conformity and low expectations. Nowhere is this clearer than in the fact that heroic male archetypes today tend to be sports stars or fictional characters. Young men aren’t informed about the charismatic real-life heroes they could take inspiration from, and become transfixed by stunted and cliched social media images.
Wendell Phillips is a much better model. Although archaeological projects are seldom associated today with material success, Phillips’ daring expeditions into southern Yemen saw him build a fortune in the nascent oil industry of the region. But in order to get there, he had to keep taking risks and putting it all on the line.
Retired U.S. Navy Admiral William McRaven let it slip during a recent CNN interview that generals and admirals, and those still hoping to attain those ranks, cannot be trusted to be truthful. If previous actions are indicators of future behavior, we should assume any records that might cast a shadow on Capt. Lobach’s capability and her command’s decision to put her in the air that night no longer exist. Even with new leadership at the top of the DoD, the entrenched bureaucracy continues to focus on preserving itself above all else.
The tragedy over the Potomac may be an innocent accident. Or it may be tragic proof that DEI initiatives literally kill. But because of the Army’s tendency to obfuscate, it will likely be years before we know the truth.
New York’s euthanasia bill targets me
The problem is that no safeguards could possibly be adequate. Even with the most tightly drafted laws, patients and people with disabilities are likely to face subtle forms of coercion (“The treatment would be difficult and costly for your family; there is, of course, another option…”). Equally troubling is the way in which legalised euthanasia and assisted suicide twist and distort the medical profession’s oldest commitment, turning physicians into angels of death.
My situation as someone with serious physical disabilities may be unusual. But most everyone has dealt with the byzantine bureaucracy of insurance companies and medical billing. Do we really want to make physician-assisted suicide a legitimate form of “treatment” in end-of-life cases? We bemoan the fact that people nowadays have fewer friends, or even close family members. Do we really want to make it so that there’s an “out” to the natural burdens of familial love? Or to mere loneliness?
Why Building Transit Costs So Much (Part 1): We Overbuild
No single issue threatens the proliferation of public transit in the U.S. and Canada more than the time and cost it takes to build it.
Projects like California High-Speed Rail or New York’s Congestion Pricing face fierce backlash not just because of what they are, but because people no longer trust our ability to execute them. Our institutions have lost credibility.The truth is, we haven’t been able to build transit efficiently at scale since the 1970s.
But on a more fundamental level, it will allow something new to emerge, which, paradoxically, will be more like what once was. Disencumbered of the yoke of neoliberalism, of being the plowhorse of careerism, colleges will be far more free than they have been in ages. But far from being put out to pasture, there will be great spaces to roam. I’ve written about the future of education many times, but I think it’s useful to reflect on its past as well.
There’s a truth they don’t tell young men, something that we all come to realize at some point, sometimes long after our youth has departed. The great run of us are superfluous. The world will turn whether we’re on it or not, and we can and generally will be tossed aside regardless of what we can offer. Indeed, it’s those who want the most who most trouble the system. In the face of mechanized indifference to excellence a man must make a choice whether to accept mediocrity or walk a lonely path. College, that true, deep, transcendent collegium, taught me that I wasn’t alone, that there were thousands of years of people like me. I don’t have to be what the world wants me to be, so long as I’m prepared to struggle and suffer. That’s the real tuition, and the only true test.
How Do You Fight Through the Pacific Dead Zone?
How do we fight through the thousands of conventional short, medium, and intermediate ballistic missiles the People’s Liberation Army Rocket Forces (PLARF) have covering the approaches to her shores and still have enough defensive weapons to close the enemy.
Where does that Dead Zone start? Can we fight our way inside 1,500km to at least get a foothold in the Philippine Sea? Maybe 1,000km?
Once we empty most of our VLS cells on the way to the shelter of Luzon, how will we reload, repair, and replenish for the final push up to Taiwan and the approaches to Japan?
Related: Elephant Walk of 53 Aircraft at Kadena Air Base
Science/Tech/Health
AI #116: If Anyone Builds It, Everyone Dies
If Anyone Builds It, Everyone Dies is the title of the new book coming September 16 from Eliezer Yudkowsky and Nate Sores. The ‘it’ in question is superintelligence built on anything like the current AI paradigm, and they very much mean this literally. I am less confident in this claim than they are, but it seems rather likely to me. If that is relevant to your interests, and it should be, please consider preordering it.
NIH Nutrition Research Takes it on the Chin
At the heart of the problem is a point Francis Bacon made 400 years ago when he more or less inaugurated the scientific method: We all tend to believe the evidence that agrees with our preconceptions and ignore or reject the evidence that doesn’t. “The human understanding,” Bacon observed, “still has this peculiar and perpetual fault of being more moved and excited by affirmatives than by negatives, whereas rightly and properly it ought to give equal weight to both.”
The major finding was that people who played tennis or badminton as their primary exercise had life expectancies on average 5 years longer than those who jogged and 7.5 years longer than those who worked out at a health club. Those who worked out at a health club lived, on average, only 1.5 years longer than those who by self-reports engaged in no regular exercise.
And yet, research suggests that CRP-aided methods can teach users the skills to communicate without assistance; indeed, some individuals who previously required support now type independently. And a recent study by coauthor Jaswal showed that, contrary to critics’ assumptions, most of the nonspeaking autistic individuals in his study (which did not involve a CRP) knew how to spell. For example, in a string of text without any spaces, they knew where one word ended and the next word began. Using eye tracking, Jaswal’s team also showed that nonspeaking autistic people who use a letterboard look at and point to letters too quickly and accurately to be responding to subtle cues from a human assistant.
Shell Game: Inside The Worldwide TNT Shortage
Q: How concerning is it that China has this large supply that they rely on themselves and the U.S. has to rely on a very much more convoluted supply chain?
A: It really looks back at NATO. We work with our NATO partners to meet each other’s needs and whatever works out best from a business case in a peacetime environment, because none of the NATO countries by themselves can be completely self-sufficient. So you’re buying from this country. You’re selling this to that country to meet the needs for defense. China has always seemed to focus on being self-reliant when it came to its military needs, and that’s something you just have to prepare for and analyze, what the real risk is in that environment.
If we can restore the vibrant, complex ecosystems that existed before industrial whaling destroyed them, shouldn’t we? If we can revitalize fisheries and coastal livelihoods, whale habitats and biodiversity hotspots in waters that otherwise just sit idle, shouldn’t we explore that? And if, on top of all that, we end up also creating a massive new carbon sink, how exactly is that bad?
The North Atlantic gyre is just lucky to sit next to a Sahara willing to feed it nutrients all day and all night. The four other gyres could be the same way. Transforming them will require creating a much more fine-grained understanding of the detail of ecosystem restoration. Time’s a’wastin’...
Nitrous oxide abuse and associated neurological diseases
Nitrous oxide abuse is becoming an epidemic worldwide. The neurological manifestation ranges from acute encephalopathy and chronic myeloneuropathy which leads to long term disability. Its wide range of clinical manifestation may mimic other diseases. A high index of suspicion, early diagnosis, and long-term follow-up with B12 supplementation are crucial for managing this treatable condition. This study underscores the need for increased awareness, education, and preventive measures to address the growing public health challenge posed by nitrous oxide misuse.