Markets/Econ
So much negativity—it’s not hard to see why assets have recovered since DJT stopped calling for Powell’s head.
Are U.S. assets losing their luster?
Are Foreigners Selling US Assets?
We are not talking about a TACTICAL shift lasting a few days or a few weeks. We are talking about a unique STRATEGIC shift, caused by an accumulation of policy shocks emanating from US policy makers.
Investors around the world are now searching for alternative reserve currencies.
This does not mean that the US Dollar will lose its reserve currency in a binary way. There is no candidate to replace the dollar. But it does mean that a long list of different types of investors will be looking to reduce USD exposure if they can find a way to do so. And this is a very new situation compared to the trend since 2014, when the Dollar was generally appreciating, and investors were mostly content with assuming more and more USD exposure.
over the next two years, I would judge the risks on the downside to outweigh those on the upside by a factor of at least three to one.
My bottom line on downside risk assessment to 2025-26 comes from my own experience as a macro forecaster. First impressions are always hard to decipher. What seems initially like slow motion can change quite rapidly; the crisis-denial syndrome is a very human reaction to the unpredictable dynamics of dramatic shifts in business cycles. I saw this firsthand from my Morgan Stanely perch during the Asian Financial Crisis of 1997-98 and the Global Financial Crisis of 2008-09, and again from the Yale vantage point during the COVID shock of 2020. I could always be wrong, but I have a strong feeling that the same crisis-denial syndrome is in play today. The risks of a full-blown global recession are high and rising.
Tariffs, saving, and investment
Now comes the Greek trouble, the hubris, the pride before the fall. The US reacted to the offer by other countries to borrow from them (sell them assets) at very low interest rates, not by building factories, but going on a consumption binge. Just as Greece had done. Most of that is due to the actions of the federal government. The total trade deficit is about $1 trillion. The US budget deficit is about $1.3 trillion. All of that extra saving is going to the federal government. And the federal government is not building a trillion dollars a year of productive investment with the money. The federal government is, by and large, sending checks to its citizens to support current consumption.
it makes no sense to say “the administration has taken a big risk” in the hope of getting some return, because there is no way in which the Trump administration can be, even metaphorically, accurately described as an animal with a mind. Chaos-monkey did chaos. There was no thought about whether the risk was worth running. There is only chaos, and then a few people scrambling around hoping that they can convince John Authers and his ilk that it is all part of a plan, even if they admit it is not a particularly clever or good plan.
What’s Driving the Surge in U.S. Corporate Profits?
But not just any monetary policy rule will do. The benchmark range needs to be made of rules that are capable of handling negative supply shocks in a way that avoids overreacting to inflation while still preserving a credible nominal anchor. There is a framework that does exactly that: nominal GDP (NGDP) targeting.
NGDP targeting offers two key advantages over flexible inflation targeting. First, it makes it easier for the Fed to “look through” supply-driven price spikes, since this approach focuses the Fed’s attention on total dollar spending in the economy. This makes it particularly well-suited for navigating periods where inflation is rising and output is falling—the very dilemma the Fed is now beginning to face. Second, it anchors expectations around a stable nominal income growth path, giving households and firms a clear sense of the future economic environment without requiring the Fed to commit to unstable inflation-versus-employment tradeoffs in real time. Put differently, this approach allows the Fed to ignore short-term movements in inflation while still anchoring medium-run inflation. NGDP targeting, in short, would makes the Fed’s job a whole easier in this current environment. More details on NGDP targeting can be found here and here.
ETFs are turning credit into a monthly market
The Lender of Last Resort, 21st Century Edition
You can see the various different case studies organized by intervention tool (e.g., account guarantees, capital injections, swap lines, etc.) on the New Bagehot platform, here, where we’ve compiled hundreds of case studies and thousands of pages of documentation on financial crisis interventions, from capital injections in Napoleonic France to COVID-era currency swap lines in Mongolia.
Judge clears the way for a titanic trial pitting old-school traders against CME Group
But the plaintiff traders, many of whom formerly worked in the pits and are retired now, allege that CME reneged on a deal preserving members’ rights — including preferred trading floor access and pricing and information advantages — when it closed the physical floors and confined transactions to the Aurora operation. As a result, they say, the value of those memberships (reflected in B shares of CME) has fallen by two-thirds in the past decade even as CME’s A shares (the stock held by ordinary investors) have soared in that period.
Paul Blustein on the Rise, Dominance, and Current Challenges to King Dollar
Of all the substitutes that I looked at as possible rivals for the dollar, I’m pretty contemptuous about crypto. I hope readers will share my fiendish delight in my dedication, which is to my grandchildren, whom I always love unconditionally, even if they grow up to like crypto.
OpenAI Is A Systemic Risk To The Tech Industry
OpenAI has become a load-bearing company for the tech industry, both as a narrative — as previously discussed, ChatGPT is the only Large Language Model company with any meaningful userbase — and as a financial entity.
It's also important to note that absolutely nobody other than NVIDIA is making any money from generative AI. CoreWeave loses billions of dollars, OpenAI loses billions of dollars, Anthropic loses billions of dollars, and I can't find a single company providing generative AI-powered software that's making a profit. The only companies even close to doing so are consultancies providing services to train and create data for models like Turing and Scale AI — and Scale isn't even profitable.
The knock-on effects of OpenAI's collapse will be wide-ranging. Neither CoreWeave nor Crusoe will have tenants for their massive, unsustainable operations, and Oracle will have nobody to sell the compute it’s leased from Crusoe for the next 15 years. CoreWeave will likely collapse under the weight of its abominable debt, which will lead to a 7%+ revenue drop for NVIDIA at a time when revenue growth has already begun to slow.
The Correlation Trade: Hidden Incentives in Multi-Manager Hedge Funds? Do GPs secretly want their PMs to be correlated?
I first came across the trend-following hedge fund space in 2003. I was an equity analyst covering Man Group. More on this later.
In this piece, I look at the history of the trend-following industry:
—what are trend-following hedge funds,
—the early pioneers like John Henry,
—how it’s AHL’s world,
—industry growth, lower returns, and diversification
College
I took my oldest to visit some colleges last week, and while the tours and receptions were packed, I imagine US higher education’s best days are behind it.
Top Colleges Are Too Costly Even for Parents Making $300,000
Yale’s Potential PE Sale Won’t Solve Liquidity Challenges
With the exception of Cornell and Columbia, unfunded private equity commitments significantly exceeded government funding for most Ivies in fiscal year 2024. Yale’s unfunded PE commitments as of FY23 were at $6.51 billion, versus $900 million in government funding in FY24.
The troubles that continue to plague private capital created a windfall for one market
It appears that they will continue to pay for the privilege. Through secondaries, investors will typically have to accept a discount to the fund’s net asset value when they sell their interests. Critics have pointed out that while investors sell these assets at a discount the new investors can write them up immediately, thanks to a 2015 Federal Accounting Standards Board rule [seriously?].
The biggest discounts are found in the venture and growth market, which make up only about 5 percent of the secondaries markets, according to Jaskel. These assets are trading at massive discounts to net asset value. He said New Vintage typically buys venture and growth stakes at discounts of 60 to 70 percent of NAV.
On average, however, LP-led transactions were priced at 89 percent of NAV in 2024, less than the 85 percent discount in 2023, according to Jefferies’ 2024 global secondary market view. The investment bank said that secondary trading volume hit $162 billion in 2024, a 45 percent increase from 2023.
Harvard Will Survive. But many will not.
Here’s how it would work. Because Cal‑GETC has already fixed the learning outcomes, those outcomes can be embedded as system prompts in the AI/LLM. The “class” becomes a structured dialogue: each week students receive a scenario prompt – a statistics table on wildfire frequency, a paragraph from John Steinbeck, a primary‑source budget graph – together with a guide to the intellectual understanding expected. Students refine the prompt, interrogate the model’s answer, and produce a brief artifact demonstrating competence. Every exchange is logged, every artifact appended, forming a transparent portfolio of learning.
California once transformed world higher education by adopting the 1960 Master Plan, which opened new campuses instead of rationing seats. Today’s crisis is fiscal, not physical, yet the principle is the same: expand learning opportunity by redesigning delivery. Let Cal‑GETC supply the outcomes, let OpenAI o3 supply the dialogue, and redirect the hundreds of millions now locked in interchangeable survey courses toward the laboratories, studios, and clinical rotations where human mentors still matter. If Sacramento seizes that alignment of policy, budget, and technology, general education will again be California’s flagship innovation rather than its most vulnerable cost center.
i’m watching my friends’ kids apply to colleges. for those who are not top athletes, the process has become horrific to the point where i cannot even imagine participating in it. i wrote my college essays in single drafts (sometimes in ink, brown required it then) and went back to my life. these kids are already waging admissions campaigns as freshman. they have consultants, advisors, planners.
the whole “elite” admissions process has become insane, counter-productive, and increasingly looks like baroque kabuki dance signifying nothing so much as ability to comply with the overtly absurd. there’s no way i could have managed it even if i could have tolerated it and there’s zero percent chance of that. i’d have thrown my hands up in disgust and gone to state.
and i suspect many of them should as well.
the whole thing looks like hazing for sad circus bears selected for their uncomplaining endurance at riding in pointless circles.
When College Might Not Be Worth It
Foreign
Weapons of Cold War 2.0 + 'People's War' Invasion Fleet
Next-generation batteries — like lithium-metal or solid-state — could vastly improve drone range and payload, potentially shifting the military balance of power. Shifting from existing lithium-ion-based battery chemistries to next-generation batteries could improve energy density, enabling drones to fly or swim farther, as well as carry greater payloads. As Brian Kerg notes, it may become increasingly difficult to distinguish drones from a precision-strike munition regime, and the PLA’s “close-in, low-cost, attritable precision strikes at scale” could support a Chinese amphibious landing force.
Not only will better batteries further blur the lines between drones and precision strikes, they will also present significant implications for electronic warfare: advanced batteries can allow drones (and manned systems) to “out stick” — that is, out range — opposition force systems, or enable a “targeting mesh.” As a RAND analysis notes, a targeting mesh’s redundant sensors offers superior performance over a kill chain: “unlike a [kill] chain — which can be rendered useless by the failure of one link — a mesh can retain structural integrity even when multiple elements fail.” A drone network of sensors and electronic warfare systems, powered by advanced batteries, could enable such a PLA targeting mesh.
Related: Railgun Installed On Japanese Warship Testbed
Are US and China really in a Thucydides Trap?
In that sense, the “Thucydides Trap” has been misused by commentators and policymakers alike. Some treat it as confirmation that war is baked into the structure of power transitions — an excuse to raise defense budgets or to talk tough with Beijing — when in fact it ought to provoke reflection and restraint.
To read Thucydides carefully is to see that the Peloponnesian War was not solely about a shifting balance of power. It was also about pride, misjudgment and the failure to lead wisely.
China’s new hydrogen bomb aims to shock and awe Taiwan
The characteristics of China’s magnesium hydride bomb appear functionally similar to those of a thermobaric weapon. These weapons disperse a massive cloud of fuel that ignites upon contact with air, producing a high-temperature fireball and a deadly shockwave that can penetrate bunkers and buildings. These weapons are particularly effective in urban warfare.
Morocco Builds an Empire in West Africa
Morocco hopes to establish itself as a regional hegemon that can outmanoeuvre its historical rival, Algeria, and replace waning French influence in West Africa. But Morocco faces stiff competition. As France’s influence wanes amid diplomatic setbacks, and Russia’s engagements in Mali and elsewhere face growing scrutiny over war crimes and other abuses, a power vacuum has emerged across West Africa.
New actors, including Turkiye, Iran, China, and the Gulf Arab States, are vying to fill the void. Even so, Morocco stands out as the most geographically proximate, politically stable, and economically coherent contender, with a thousand-year history of cultural and imperial dominance covering much of the region.
StormBreaker Advanced Glide Bomb Lands In Yemen Largely Intact. oops.
Returning to the StormBreaker wreckage, the fact that this is now very likely in Houthi hands, as well as being notably intact, means that it could present a fairly significant intelligence windfall. Bearing in mind the Houthis’ sponsorship by Iran and that country’s military and broader strategic connections to both China and Russia, it’s very conceivable that technologies from the weapon could now be exploited by some of America’s key adversaries.
In particular, the tri-mode guidance system would be of great interest, as is its datalink and navigation suite. Access to this kind of technology could help any of these countries in the development of their own weapons and, just as critically, reveal weaknesses in the U.S.-made system that could be exploited in terms of countermeasures.
USA Politics/Culture
How to Prepare for the Coming Supply Chain Shock
I am writing this piece because we’re going to hit some rocky shoals in the next few months, when the ships from China stop coming and the inventories of key materials draw down. It’s not clear how bad the damage will be. It could be gradual enshittification, like worse selections of consumer goods, no more spare parts for air conditioning units and industrial systems, and higher prices for everything from baby gear to packaging materials. Or it could be much worse, like rolling black-outs as vital utility systems break down. We just don’t know. As Mike Beckham, the CEO of Simple Modern, an Oklahoma-based consumer products company said, “The trade war is setting up a supply chain disaster that could dwarf the chaos during COVID.”
American strategy for 50 years has been designed to create financial assets, which we then traded to China and foreign countries for physical goods. Laws that strengthen the control of a financier over an industry, through stronger patent rules, monopolization, whatever, are good in this context, because they make it easier to create more financial assets.
So Qualcomm’s choice to leverage its intellectual property for financial asset appreciation instead of allowing more production and innovation was legalized. For 50 years, such court decisions and legislation have been the norm, promoting everything from semiconductor blueprint designs to patenting of bacteria, all so that we wouldn’t have to make things here but could skim on licensing fees. America has structured our laws to facilitate more and more financial asset creation over actual production. And it seemed to deliver something. Foreigners would hoover up our dollar assets, like the stock of companies like Qualcomm, pay our licensing fees, and give us physical goods in return.
Tax Tracker | Direct File, Sports Teams, SALT, Credit Unions, Energy Subsidies
Total Boomer Death. Generation based analysis is kinda dumb, but this is fun.
The Boomer propaganda one-shot that allowed this to happen was the television and the University system. To those in an internet age, it would be mind-boggling to comprehend the level of information control that existed from the 60’s to the early 90’s. While the silents had the radio, a very useful tool of control in its own right, the television with its audio and visual cues and the rise of supposedly “objective” news sources such as Walter Cronkite allowed a mass psychosis to form, with the majority of young people believing in a world model exactly opposite of reality.
It looks like there will be a final “fuck you” from this generation at the ballot box. We’ve all seen the geriatric and pathetic protests from the elderly, who should be playing with their grandkids instead of making fools of themselves. The once Republican, conservative bastion will become the progressive’s most damaging force as they’re stricken with terror that the necessary short-term instability that we need to bring back long-term sustainability will make them poorer in retirement. It’s also the final revenge of television, their main medium of information, that will die with them.
Trump Takes His Biggest Step Yet Toward Restoring Meritocracy
Most momentously for law enforcement, the executive order initiates the review of federal consent decrees that rely on disparate-impact analysis (i.e., almost all of them), with the implied goal of dissolving those decrees. (A consent decree is a negotiated settlement, overseen by a judge and his representative, binding a government entity to an elaborate set of reforms.) Dissolving such decrees will not only liberate police departments from a costly yoke of superfluous red tape but will also defund the federal monitor racket, whereby monitors earn millions of dollars declaring for years on end that the overseen police department has yet to comply punctiliously with an average of 200 or so mandated reforms, often regarding paperwork.
At this point, it should be clear that a tariff-first strategy for reindustrialization is not going to succeed. Purely “protectionist” measures like tariffs work best when there is a domestic industry to protect. But many critical manufacturing sectors—such as cell phones, ships, consumer drones, processed critical minerals, various electronics components, and many others—are essentially nonexistent in the United States. In addition, certain critical manufacturing machinery and equipment are no longer produced here, so a reindustrializing America would, initially, have to increase imports of such equipment.
The Great Depression Was Largely FDR's Fault
The trouble started with France, as many things do. They had spent most of their gold reserves to finance the First World War, and now they wanted them back. The French government directed the Treasury to seek to buy gold reserves; and not only that, but to not issue francs unless fully backed one-to-one with gold reserves. The rest of the world heard a great sucking sound as gold went over the border, and what would lead to the Great Depression started.
This made the price level plummet. If the nominal value of wages or borrowing terms stays the same, then the real value has steeply increased. Companies ran out of money, couldn’t pay their creditors, and folded. Meanwhile, the banks — which were already too small and fragile, as we covered recently — folded, which still further reduced the availability of money. It was a classic demand-driven recession due to sticky wages and prices.
FDR’s primary positive action during the Great Depression was devaluing the dollar. The price per ounce was moved up to 35 dollars, with an immediate and massive increase in industrial production. This was also true internationally, with countries recovering from the Great Depression more or less when they moved away from the gold standard.
This recovery was nipped in the bud by the unsound microeconomic policies of the Roosevelt administration. Yet again, they mistook high prices as a cause.
The consequence of this is that we have a badly distorted view of what is needed to prevent recessions. FDR is regarded reverentially nowadays, in part for winning the Second World War, and this gives all of his policies, even the terrible ones, an angelic glow. What we need to understand is that the solution to shortfalls in aggregate demand is not massive fiscal interventions, but good monetary policy.
Defending democracy is easier when you listen to voters
However, the idea that we must take action now, or else things will get worse, is a notoriously hard sell to the public, whether it comes in the context of climate change or the national debt or the erosion of the rule of law. Usually, something has to break before a mass bipartisan consensus forms to fix it. The difference with Trump is that, for better or worse, we may not have to wait very much longer: many Americans think he’s already broken the economy.
But I don’t think you can circumvent this problem with the right speeches or photo-ops. Instead, Democrats suffer from a fallacy that I’ve called The Big Cope, which is their belief that if only the public knew all the facts, it would become incredibly hostile toward Trump. There are two big problems with this. First, however informed or misinformed the public is, that isn’t going to change much until and unless they believe their material interests are threatened, as they are by tariffs, but, with some exceptions4, not by Abrego Garcia’s case.
The Promise of Abundance and the Overlooked Obstacle of Fiscal Policy
We can’t achieve an “economy of plenty” merely by removing half of the obstacles. Yes, streamlining regulations and improving permitting are all vital steps, and those efforts should continue with urgency. But without fixing the tax code and addressing the pressure mounting deficits place on future tax increases, we’re leaving the job half-done. To truly unleash production and innovation, we need to lower the hurdles for new investment by reforming how we tax income and savings.
What would a tax code aligned with the abundance agenda look like?
In broad strokes, it would reward investment, entrepreneurship, and work instead of punishing them. This could be achieved in a number of ways, and economists have proposed various alternatives, but the themes are consistent: lower marginal tax rates on productive activities and a tax base that taxes consumption and investment equally instead of double- or triple-taxing savers.
Why Are Free Traders So Emotional About Trade?
If you are a dinner guest and one host responds to a spouse’s request for the salt shaker by slamming it down on the table and shouting, “Here! Here’s the salt shaker! Are you satisfied?”, you may infer tensions that have nothing to do with the ostensible subject of the exchange. Similarly, if, in what should be a dispassionate debate about a dull and technical subject, the free traders get angry and agitated, it is clear that something else must explain their surplus of emotion.
Those who passionately support free trade everywhere and all the time, without qualification, tend to belong to three groups: neoclassical academic economists, libertarian ideologues, and utopian Cobdenite and Wilsonian believers in world peace through economic interdependence.
Science/Tech/Health
The Mind in the Wheel Part X: Dynamic Methods
First, we should try to discover all the basic drives of human psychology. We should learn about their error signals, which we identify as emotions.
Second, we should try to discover the parameters that tune the governors. It’s clear that some governors can be “stronger” than others, and that these patterns of strength and weakness differ between different people. People are more or less brave, more or less neat and clean, etc. We’d like to find out what it means, in a precise sense, for one governor to be stronger than another.
Third, we will want to discover the laws of what’s known as selection, the detailed parliamentary procedure and rules that control how the governors vote on actions.
Fourth, as we develop a better understanding of the drives, the governors, and the laws that dictate their behavior, we can start working to characterize well-known behaviors in terms of these governors and their parameters.
Here are some things we might be able to understand in terms of this new paradigm: personality, anxiety, depression, personality disorders, possibly other psychiatric disorders, self-harm, high-risk behavior, drugs, and addiction.
Why Do We Lose Weight on GLP-1 Drugs?
This is a fuel-partitioning hypothesis of obesity: the dysregulation is not with appetite and how much we eat, but with this partitioning of fat between fuel use (oxidation, in the lingo) and storage. And because that partitioning is determined primarily by hormonal responses to the food we eat, and by the central nervous system, this hypothesis is a neuroendocrine hypothesis. (And because the dominant hormone promoting fat storage is insulin, the dietary implication of this thinking is the carbohydrate-insulin model, or CIM.)
If this hypothesis is The simplest way to think about it: People (and mice) on these drugs don’t act metabolically like they’re starving, because they’re not. Their tissues are being fueled by their own fat reserves. It’s the drug that allows this to happen. As those reserves diminish and weight plateaus, hunger returns, and energy expenditure once again aligns with actual food intake rather than with the availability of that excess energy from the fat tissue.right, then obesity researchers have been misinterpreting their evidence and data for going on 80 years. That’s a hard one to accept, but the evidence itself supports it.
The simplest way to think about it: People (and mice) on these drugs don’t act metabolically like they’re starving, because they’re not. Their tissues are being fueled by their own fat reserves. It’s the drug that allows this to happen. As those reserves diminish and weight plateaus, hunger returns, and energy expenditure once again aligns with actual food intake rather than with the availability of that excess energy from the fat tissue.
AI #113: The o3 Era Begins. Zvi Mowshowitz. His stuff is really long, and kind of inside baseball, but if you want to know what the AI-iest people are talking about, it’s in here.
If that happens, though, the way we interpret data will surely look different than it does today. Rather than going to a BI tool and looking at a wall of charts—onto which we have to project our own conclusions—people might ask an agent for an answer. That agent will consult with things like dbt’s MCP server and decide which tables and charts are most appropriate, from what could be an enormous library of possible choices.7 It will probably annotate its answer with an explanation. And, if business reporting becomes more centralized around this sort of interaction instead of the traditional point-and-click approach, we will increasingly consume data through conversation and commentary.
As it is with both announcers and human analysts, it’s not that LLMs will lie about the numbers; it’s that they’ll tell you what they see, before you have a chance to see it for yourself. If data is a company’s senses, then whatever sits between a quantitative question and its annotated answer is the creative director of a company’s reality. That thing used to be analysts. Soon, it might be something else.
AI-Enabled Coups: How a Small Group Could Use AI to Seize Power.
On Ketamine: A Ketamine Addict's Perspective On What Elon Musk Might Be Experiencing
This is a dangerous drug physically, emotionally, mentally, and spiritually. Its users are inherently unreliable narrators and assessors of their use and its impact. I have huge compassion for people who suffer from mental illness, however, I do not believe that ketamine is a good general solution when usage is uncontrolled and certainly not for people with responsibility.
A Conversation with Robin Dunbar
Okay we’ve managed to hold off until now but we have to now ask – what is Dunbar’s number and why is it so important?
“Dunbar’s Number is the limit on the number of meaningful relationships you can have at any one time. I originally predicted this off the back of a statistical relationship between social group size and neocortex volume in primates – the social brain theory. The equation for this relationship predicts a value of about 150 for humans, given the size of our neocortex. The average size of personal social networks and/or natural human community sizes (for example, in hunter-gatherer societies) from 25 different samples (many based on more than 10,000 individuals) is 154
This is a new web portal by the team at Convergent Research that we built out with the help of scientists and researchers in our ecosystem to explore the landscape of R&D gaps holding back science and the bridge-scale fundamental development efforts that might allow humanity to solve them.