Markets / Econ
Market Discipline Will Prevail in the US
Ultimately, either Trump will back down from his stagflationary policies to concentrate on pro-growth measures, or financial stress and a recession will cause the Republican Party to lose the midterm elections in 2026. One hopes that Trump does heed the market and stops acting on his worst instincts. He should recognize that homegrown technological innovations promise to increase America’s potential growth substantially. He just needs to get out of his own way.
The Billionaire Odd Couple Whose Hedge Fund Is Killing It
“I don’t think I have really ever agreed with anything that Paul has ever said,” Wace said in a rare interview at the firm’s headquarters in London’s posh Chelsea neighborhood. He contends he has never been to dinner with his business partner of nearly 30 years and has been to his house just once—to drop him off.
FDIC: Commercial Real-Estate Past-Due and Nonaccrual Highest Since 2014. These are the same banks that are supposed to buy all the Treasuries once they fix the SLR.
Redundant, Costly and Inaccurate: The U.S. Bank Liquidity Regime Needs a Rethink
The inaccuracies and inconsistencies in the framework reduce bank safety and soundness and increase financial stability risks. As noted, SVB had an LCR of about 100 percent but could not utilize the Fed’s standing repo facility or discount window to convert its HQLA into cash because they were not prepared to use those facilities, at least partly because the framework did not recognize the SRF or discount window as a legitimate source of liquidity. Moreover, the Treasury Secretary, after receiving recommendations from the Boards of the FDIC and the Federal Reserve and consulting with the President, invoked the systemic risk exception and bailed out wealthy uninsured depositors partly because the banking system was insufficiently prepared to borrow from the window.
Housing Shortage Has Been Cancelled
Balshazzar’s Feast, the US Dollar and the “Invisible Hand”. I don’t agree with most of this, but love the painting.
That belief leads governments and financiers to act as if markets – globalised markets in mobile money – can be trusted to uphold the values that underpin our money – trust, honesty, accountability, integrity and responsibility – the values that make our promises to pay meaningful.
Today we live in a world in which thanks to the marketisation of all aspects of life there is distrust, dishonesty, corruption, outright theft, insecurity, instability and irresponsibility.
Survey of Key Market Fundamentals
The $1tn shadow bank lending boom (archive.ph link)
According to a new report published by Barclays’ macro, credit and bank research analysts, US bank lending to these NBFIs has quintupled over the past decade to well over $1tn, and now accounts for more than 10 per cent of all US banking loans (and nearly 5 per cent of all assets)
The corporate lending shift from banks to shadow banks might even be understated by the public data, as “synthetic risk transfers” — when a bank buys protection against credit losses from investment funds — are not included in the NBFI lending disclosures, even though they are functionally the same,
Why Are Bond Investors Contrarian While Equity Investors Extrapolate?
While expectations of mean reversion dominate bond market participants’ headspace, equity market participants think differently. They learn from history, emulate it and extrapolate it, instead of bucking it.
Resurrecting the Lucas Phillips Curve
There is a chasm between the near uniform beliefs of central bankers, policy analysts, and economists vs. the actual operation of standard economic models in use for 35 years—the new-Keynesian DSGE consensus—on how monetary policy affects inflation. In the standard beliefs, higher interest rates depress aggregate demand, that depresses output and employment, and via the Phillips curve, that depresses inflation, and all of this happens slowly over time, with “long and variable lags.” In the models, higher interest rates raise both inflation and output going forward, allowing only a one-time downward jump at the instant of a shock caused by “equilibrium-selection policy,” and no lag at all.
The Gross Fiscal Negligence of the GOP
The question arises, of course, as to where all the increased corporate cash flow from the sharp reduction in businesses taxes actually ended up. But, alas, the latter is no mystery. The money-printing policies of the Fed over the nearly four decades since Alan Greenspan took the helm at the Fed have turned Wall Street into a veritable casino, where gamblers reward the C-suites of America for financial engineering maneuvers like stock buybacks, leveraged recaps, and outright LBOs rather than productive investment in plant, equipment, and technology on Main Street.
Consequently, operating cash flows of the S&P 500, for instance, rose from $6.972 trillion during the six-year period before the 2017 tax cut (2012-2017) to $8.929 trillion during the six-year afterwards (2018-2023) or by +28%. At the same time, dividends rose by +49% and stock buybacks by +42% as between the two periods.
Does the Federal Reserve Deserve Deference as a Bank Regulator? Kevin Warsh Says “No”.
We forget sometimes that central banking is not just about interest rates or inflation targets. It is about authority: who gets to act in the name of economic stability when time is short and confidence is crumbling. In 1907, that authority belonged to J.P. Morgan. After 1913, it belonged—however awkwardly—to the Federal Reserve. And that, in the end, is the story: how the modern American state acquired its lender of last resort. Not because it wanted one. But because it could no longer afford not to have one.
The Math Tutor and the Missing $533 Million. If only everyone were as trusting as VC.
The U.S. lenders made a shocking allegation that Byju’s had transferred about $533 million to a hedge fund called Camshaft Capital Fund. When the lenders investigated Camshaft’s background, they found it was run by William Morton, a man in his mid-20s with very little financial investment experience. Camshaft’s business address had once been listed as being inside an IHOP in Miami.
Loo: MOF Able to Solve Japan's Bond Maturity Mismatch, Ease Market Strains
Masa, a seasoned global bond market expert and Senior Fixed Income Strategist at SSGA (State Street Global Advisors) in Tokyo is adamant that none of this is warranted by what’s happening in Japan now. First because Japan remains basically “self funded” with household financial assets nearly doube the national debt and 90% of JGB’s held domestically. Also because the gyrations in Japan’s bond market are driven by technical factors in Japan’s insurance industry that are being corrected now, not fiscal deterioration.
And, importantly, if push comes to shove, Japan’s powerful MOF - Ministry of Finance - can tweak their issuance of JGBs, and the Bank of Japan can recalibrate the release of the long-term JGB’s they hold on their balance sheet to stabilize yields along the yield curve and influence global rate dynamics.
or, Japan’s Day of Economic Reckoning
All of this likely means that in the period immediately, we will likely see a further rise in Japanese long term government bond yields. That could have serious spillover effects on the rest of the world’s bond markets. It could do so by inducing Japanese capital repatriation in search of higher yields at home.
Foreign
Farage Won’t Break Britain’s Doom Loop
So no one should be surprised to see Reform sailing urbanely into the socially conservative, economically Left political territory that sat there, empty and unloved, the whole time Boris was supposed to be claiming it for the Tories. Promising to protect social welfare while radically slowing immigration is consistently popular. And yet neither the Tories nor Labour have claimed this open political goal for their teams.
The last time we were shaken by political questions as profound as today’s, the turmoil produced civil war, then Tories and Whigs, and, eventually, parliamentary democracy to mediate between public desires and political power. Now, a long way down that arc, that public wants two irreconcilable things — and keeps destroying parties that fail to deliver one or the other.
People, Ideas, Machines XII: Theories of Regime Change & Civil War
Aspects of the situation are tragi-comic. E.g if you talk to senior people in places like UAE, they tell you that bigshots in that region now tell each other — don’t send your kids to be educated in Britain, they’ll come back radical Islamist nutjobs!
The voters assumed summer 2020 that the government would embark on radical change, as promised in the 2019 election. We started (or rather continued what we started in 2019). But then the Trolley took fateful decisions. Governments keep prioritising keeping Whitehall and the NPC network happy and this is not consistent with reducing voters’ hate and contempt.
The way to keep the SW1 NPC network happy is to continue the immigration Ponzi, continue the financial Ponzi, raise taxes, hate and mock entrepreneurs, demand more and more money tipped into the failing things, prioritise the ECHR (and international law generally) over the safety of British families, vandalise the few great things left, give some pathetic speeches about ‘sensible gradual consensual grownup reform’ that officials laugh at and ignore/subvert, declare all this ‘inevitable’ and ‘sensible' government’ from ‘serious grownups’ and declare all opponents extremist, populist, far right etc.
Will Russia Limit Itself to Oreshnik Strikes on Ukraine if the West Escalates Attacks on Russia?
In other words, the West is pushing Russia to respond by striking Western cities, or alternatively, Western military assets, such as bases in Poland. From RT in Russia could target Berlin if German missiles hit Moscow – RT editor-in-chief:
Russia would not rule out a direct strike on Berlin if German personnel help Ukraine target Moscow with German-supplied Taurus missiles, RT Editor-in-Chief Margarita Simonyan, has warned…
Xi Jinping’s Paranoid Approach to AGI, Debt Crisis & Politburo Politics
So the debt level keeps going higher and higher. The one thing that has alleviated the cash flow pressure, late last year, was that the central government authorized again the issuance of close to 10 trillion renminbi in special local debt to repay some of the higher interest-bearing debt of local governments. But that’s an accounting exercise. It doesn’t literally decrease local debt. It just changes it from higher-yielding to lower-yielding. Meanwhile, the overall size of local government debt in China, I would estimate to be 120-140% of GDP.
Dwarkesh Patel
Woah, that’s on top of the 60% that’s owed by the central government?Victor Shih
Yeah, so total government debt is pushing 200%.
Sir Humphrey Is Blocking Ukraine’s Victory
Well Sir Humphrey, and his French, German, Italian and particularly his Belgian counterparts, in Western bureaucracies now face a dilemma. Alarm bells are ringing as at the end of July EU sanctions which ensure the immobilisation of Russian assets fall due for renewal. And it is entirely possible that Hungary blocks their renewal - a unanimous decision is required, not majority qualified voting. If Hungary succeeds in blocking the renewal of sanctions with respect to immobilised RU assets the consequences will be that Russia will receive back the $330 billion in CBR assets which will no doubt be used to further regenerate its military machine to be used against Europe. It will also leave the G7 countries on the hook for the $50 billion ERA facility agreed to front load the future interest stream on mobilised RU assets. Under the terms of the ERA, the loss of the underlying capital would mean G7 countries would have to repay the facility. So not only will $330 billion in CBR assets flow out of G7 jurisdictions - itself a risk event for reserve G7 currencies but G7 countries will have to write another cheque for $50bn. And if they fail to do this, Ukraine will face a $50 billion hole in its financing equation for 2025-26.
Mexico’s First-Ever Judicial Elections: What U.S. Observers Should Know
On Sunday, June 1, Mexicans will take to the polls to vote in the country’s first-ever judicial elections. 881 federal positions are up for a vote, with nearly 3,400 candidates participating in the election. There will also be state-level judicial elections across 17 states.
The judicial elections are problematic, to say the least. Not only does the popular election of judges politicize the courts, but it also threatens the rule of law and raises serious concerns about democratic backsliding. For the US, these changes pose significant risks to trade relations under USMCA, investor confidence in Mexico’s nearshoring potential, and bilateral cooperation on security and migration.
Politics / Culture
Trump and Harvard: Pour Encourager Les Autres
Trump’s ongoing war against Harvard is fascinating. As is typical, I largely agree with his choice of target (the “objective” in military parlance), and find his tactics over the top. But these tactics are typical of him. As with tariffs, immigration, and pretty much everything else, he is making maximalist demands, for a variety of reasons.
One reason is that the process is the punishment. Forcing Harvard to fight on many fronts is draining, financially and psychologically, and inevitably creates intense tensions within the university. This sets up a battle of wills that Harvard is not well positioned to win.
Another is that like almost all legal confrontations, this one is a framework for negotiations. And Trump’s negotiation style is to make myriad maximalist demands not in the expectation that all will be met, but that enough concessions will be extracted that he will be satisfied, even though his apparent concessions will lead to idiotic TACO taunts.
For more than four months now Trump and his team have regularly threatened Russia with sanctions—and that has deliberately helped Russia. It has made too many people, especially Europeans and US-supporters of Ukraine, believe that Trump really might do this. They therefore invested time and effort trying to sweet-talk the administration while feeding their own hopes and dreams.
What it has meant is that people have delayed taking the actions needed to help Ukraine—hoping that the Trump administration might in the end do the right thing. I cannot think of a more successful example of international gaslighting in decades.
The Gentrification of the Left
Charting a New Course: Steering U.S. Maritime Policy Toward Security & Prosperity
This Is the Greatest Existential Threat to the Republic
I’ve been thinking about it for years, and with each passing year, it more seems the only viable option to stop the expanding rot. I believe that now there is only one solution: the States must save the Union from its federal government’s dysfunction.
Article V Convention of the States. We are just six states away from having one.
The psychological crisis of our veterans has far more to do with the emptiness and shallow nature of modern life than it does with the effects of combat (which, in most cases, happened more than a decade ago now). Male veterans and males in general are struggling in a world without masculine hierarchies to join. The answer isn’t to abolish the masculine hierarchy, which will be the unavoidable effect of allowing women into many of them, unfortunately. The answer is to re-establish them and strengthen them and allow them to flourish. It won’t be necessary that women be restricted from all of these jobs, but they will have to be from the most difficult and dangerous ones. Exclusivity is a trait of all excellent and fearsome teams. Somehow, I don’t think that inclusivity and exclusivity can be reconciled, even linguistically. Exclusivity is kind of the point. There’s an entire legion of boys out there waiting for a challenge, and a large cohort of men who are willing to work their fingers to the bone and risk their lives for their families. There’s a smaller group of aggressive, risk-taking men who can be trained to lay down their lives, along with their friends, for some greater purpose. Is this dark? Yes, but it’s necessary. It’s the basis for our entire conception of glory and it cannot be erased. The trick is to give these men teams of men who are like them, and to give them a cause worth dying for. The modern progressive vision simply is not a cause that anyone is willing or could ever be willing to die for.
The American position is delicate, because the United States still bears a double responsibility: it is not just a republic but also an empire of sorts, one that sets the rules for the global economy. Political polarization complicates both responsibilities. Republicans are the party of the republic, Democrats of the empire, and the election of Trump is a sign that a lot of Americans believe our “rules-based international order” to be a high-class scam. To people who believe this, the most commonly advanced criticism of Trump’s trade policy—that he risks wrecking the architecture of the global economy—is hardly a criticism at all. Wrecking that architecture is not a blunder. It is a campaign promise.
Marijuana Legalization Could Worsen Mental Illness
This assumption presumes that mentally ill drug users, like other sick people, want treatment but face tragic obstacles and therefore rely on intoxicants as jerry-rigged antipsychotics. In reality, many people with mental illness don’t accept their diagnosis and aren’t pursuing treatment. The mentally ill often take cannabis, and other drugs, for the same reasons that people without mental illness take them: the social appeal, the pleasure of getting high, and to enhance a life otherwise deficient in meaningful engagement. As Leo Tolstoy argued in an 1890 essay, men “stupefy themselves” with intoxicants so as to “stifle the voice of conscience.”
But running is probably the least impressive thing he does in these movies. For “Mission: Impossible—Rogue Nation,” the fifth movie, he hung off the side of an Airbus A400M plane during takeoff. During filming for “Mission: Impossible—Fallout,” he became the first actor to perform a HALO jump, or a high-altitude skydive, usually reserved for military special forces. (He performed the dive more than a hundred times, and ultimately did it with a broken ankle.) The seventh film, “Mission: Impossible—Dead Reckoning Part One,” featured what Paramount has called “the biggest stunt in cinema history”: Cruise rides a motorcycle off a four-thousand-foot cliff, lets go of the bike, and parachutes into a valley below. (He did that one six times.)
By constantly putting his life at risk, Cruise has saved his career.
Christian Bale used one of Cruise’s Letterman appearances as a model for Patrick Bateman, his serial-killer character in “American Psycho,” according to that film’s director. Cruise “just had this very intense friendliness with nothing behind the eyes.”
Science / Health/Tech
“If Anyone Builds It, Everyone Dies”
Even today, I’m not nearly as confident about the doom scenario as Eliezer and Nate are. I don’t know whether an AI’s goals are really “orthogonal” to its abilities, in the sense that will matter in practice. And when I reach the part where the AI, having copied itself all over the Internet and built robot factories, then invents and releases self-replicating nanotechnology that gobbles the surface of the earth in hours or days, a large part of me still screams out that there must be practical bottlenecks that haven’t been entirely accounted for here.
And yet, even if you agree with only a quarter of what Eliezer and Nate write, you’re likely to close this book fully convinced—as I am—that governments need to shift to a more cautious approach to AI, an approach more respectful of the civilization-changing enormity of what’s being created. And that, if they won’t, their citizens need to pressure them to do so.
Overlooked Cells Might Explain the Human Brain’s Huge Storage Capacity
The extensive biological connections between neurons and astrocytes offer support for the idea that this type of model might explain how the brain’s memory storage systems work, the researchers say. They hypothesize that within astrocytes, memories are encoded by gradual changes in the patterns of calcium flow. This information is conveyed to neurons by gliotransmitters released at synapses that astrocyte processes connect to.
Infrared Contact Lenses Let People See in the Dark
"We also found that when the subject closes their eyes, they're even better able to receive this flickering information, because near-infrared light penetrates the eyelid more effectively than visible light, so there is less interference from visible light."
Therapeutic Plasma Exchange Reduces Biological Age (Human Trial). Good news for Vampires.
Why We Stopped Building Subways Cheaply
While tunnel-boring technology has gotten better and better, cut and cover has steadily gotten more difficult. The chief issue is the fact that cut and cover creates an enormous amount of disruption on the surface while excavation is taking place. The construction creates dirt, noise, and flooding, and can damage nearby properties as the ground is dug up; this has resulted in numerous lawsuits against transit authorities (tunnel builders will generally include a contingency to pay for buildings damaged as a result of construction for this reason).
Cory Doctorow on How We Lost the Internet. This is worth a full read.
He began by noting that he is known for coining the term "enshittification" about the decay of tech platforms, so attendees were probably expecting to hear about that; instead, he wanted to start by talking about nursing. A recent study described how nurses are increasingly getting work through one of three main apps that "bill themselves out as 'Uber for nursing'". The nurses never know what they will be paid per hour prior to accepting a shift and the three companies act as a cartel in order to "play all kinds of games with the way that labor is priced".
In particular, the companies purchase financial information from a data broker before offering a nurse a shift; if the nurse is carrying a lot of credit-card debt, especially if some of that is delinquent, the amount offered is reduced. "Because, the more desperate you are, the less you'll accept to come into work and do that grunt work of caring for the sick, the elderly, and the dying." That is horrific on many levels, he said, but "it is emblematic of 'enshittification'", which is one of the reasons he highlighted it.
No Oxygen, Coated in Ice: Chinese Paraglider Survives 8,600-Meter Flight
Roughly 20 minutes after takeoff, Peng was caught in what experts call “cloud suck” — a rare and dangerous phenomenon in paragliding where strong updrafts inside a cumulonimbus cloud pull pilots rapidly upward. These towering storm clouds are notorious for generating violent vertical currents that can overpower gliders in seconds.
Data from his flight tracker shows he was lifted to a peak altitude of 8,598 meters, with his ascent rate peaking at 9.7 meters per second (about 35 kilometers per hour).
