Weekend reading links

1. Ruchir Sharma goes behind the record corporate profits share of GDP in the US (11% of GDP, up from 7% in the 1990s) and finds two problems. One, the share is boosted by the lower corporate tax rates which translate into higher fiscal deficits.

Lately the US deficit has risen to more than 6 per cent of GDP and a deficit that high reflects a large transfer of income to households and corporations. Under a well-established accounting formula, the Kalecki-Levy Equation, corporate profits are in part a mirror image of the government’s deficit. Based on this framework, deficits were the single largest contributor to the increase in earnings as a share of GDP since the late 1990s. And in this decade, deficits have accounted for more than half of corporate profits, twice the level of the dotcom era. Strip away government support, and US profits look less extraordinary.

Second, the share falls sharply when we include the universe of private companies.

Since the dotcom bust in 2000, the number of publicly listed businesses has fallen by half, with many new companies remaining private for longer, funded by private equity and venture capital. This is the new home of excess and weak earnings. As a result, the profit growth of the average business listed in standard indices provides a misleading picture of the overall economy. Profit growth has been less impressive once the private companies are included in the data. Further, private firms planning to go public are much larger and less profitable today than in the 1990s. The biggest names in the IPO pipeline, including SpaceX, Anthropic and OpenAI, have little to no profits.

2. Britain's much-delayed HS2 railway project's cost has increased by another £20bn to £102.7bn (a range of estimates ( £87.7bn to £102.7bn in 2025 prices) and will be completed only by the 2040s, with the first trains not expected till 2036. 

3. Why has oil not hit $150 or $200 despite about 12-15 mbpd being taken out?

One of the biggest surprises for the oil market has been China, the world’s largest importer. It slashed inbound shipments by almost 40 per cent in May compared to last year’s average, according to Vortexa Ltd. The reduction is enough to offset anywhere between a third and a fifth of the barrels lost to the war, depending on the estimates used. At the same time, the US has emerged as the world’s most important swing supplier since launching strikes on Iran in late February. American crude and fuel exports in May were more than 2 million barrels a day higher than the average for all of last year. Other emergency measures have also eased the strain. Governments around the globe coordinated a historic release of strategic reserves, while Gulf producers rerouted shipments through alternative export routes. Some tankers continued moving cargoes via the strait despite the risks, using increasingly opaque methods to avoid military threats... Saudi Arabia’s East-West pipeline shipped millions of barrels a day to the Red Sea, while the United Arab Emirates has been piping barrels to the port of Fujairah outside the gulf.

And this is important. 

Another factor keeping a lid on prices has been Trump’s relentless jawboning, making it hard for even the most bullish traders to hold long positions for prolonged periods of time. Open interest in Brent crude futures is the lowest since August as elevated market volatility forces traders to roll back risk exposure. Steep price drops on the prospect of peace have pushed many oil bulls to the sidelines, leaving them to hold small positions for very limited periods of time, several traders said. The lack of risk-taking has helped keep a lid on financial flows, while supply levers have averted the worst hit to the market. The question now, is whether that can last without a peace deal.

4. The evidence to date points to widespread AI use not translating into anything proportionate in terms of business value creation. Sample this from the software industry pointed out by John Burn-Murdoch. 

5. EU energy subsidies during the Ukraine invasion and spike in gas prices. 

Between late 2021 and mid 2023, EU countries spent about €540bn on subsidising energy prices to protect consumers from price shocks in the aftermath of Russia’s full-scale invasion of Ukraine and to cushion energy-intensive industries from soaring costs. Of that total, €158bn was accounted for by Germany, whose industry heavily depended on Russian gas supplies. In the wake of the Ukraine energy shock, Brussels also relaxed state aid rules for the rest of the decade to allow governments to subsidise clean technologies and industrial decarbonisation.

6. Emerging AI-related roles in the software industry.

Agent engineers who build and fine-tune agents; architects who determine how humans and agents divide tasks; AI governance specialists who keep agents compliant and accountable; AI transformation advisors who help enterprises navigate workflow reimagination; solution designers who translate business problems into agentic solution architectures; and AI assurance partners who help clients govern their own AI deployments.

7. Rana Faroohar makes the point that we may be at the cusp of a new investment super-cycle driven by the combination of AI, clean energy, defence, and manufacturing.

In a recent issue of his TPW Advisory Monthly report, investor Jay Pelosky did just that, collating data on AI, clean energy and defence spending around the world from sources including Gartner, BloombergNEF (on energy), the Stockholm International Peace Research Institute and the International Institute for Strategic Studies (on defence) and others. So far, $6.9tn was spent globally in 2025 in the three areas, and the number will probably reach $10tn by the end of this year and $16tn by 2030. 

What’s more, says Pelosky, these three areas reinforce one another, amplifying potential investment. AI requires more energy. The move towards tech sovereignty in the US, China and even Europe (in a nascent way) adds to the need for investment in AI and energy, while the move towards a more 19th-century “spheres of influence” geopolitics calls for greater defence spending globally. Add to this the desire of policymakers in all three regions to increase resilience in critical sectors affected by concentration or globally dispersed supply chains: products such as advanced semiconductors, active pharmaceuticals and lithium batteries, for example.

8. Rupee trajectory over the last two years

The rupee depreciating by nearly 6 per cent against the dollar in the first five months of 2026 alone, exceeding the combined full-year declines recorded in 2025 (5 per cent) and 2024 (2.8 per cent). The rupee touched a record intraday low of 96.57 per dollar on May 19 and has lost roughly 14 per cent of its value against the greenback over the past two years. Against the euro, the erosion has been equally stark, with the Indian currency declining by more than 7 per cent over the past 12 months and nearly 16 per cent in the past two years, he added.

The problem with a depreciating rupee is that foreign investors now must earn an extra 14% over the last two years to offset the depreciation.

9. India's FTAs may be creating a perverse incentive for even domestic manufacturers due to the inversion of duty structures.

Many finished goods now enter India at low or zero duty from partners such as ASEAN, Japan, South Korea, the UAE and Australia. As a result, Indian manufacturers often pay high duties on imported inputs, especially those sourced from non-FTA countries, while competing against finished products imported duty-free under FTAs. For example, steel and aluminium attract MFN duties of 7.5-10 per cent, but machinery, industrial equipment and engineering products made from these materials can enter India duty-free under several FTAs. Indian manufacturers, therefore, face higher input costs when competing with tariff-free imported machinery produced with globally priced inputs.

Similar distortions exist in chemicals, plastics, rubber and textiles. Duties on inputs such as caustic soda, soda ash, polypropylene, PVC and SBR raise production costs. At the same time, many finished products in these sectors can be imported at low or zero duty... the growing incentive for firms to manufacture outside India rather than within it. When raw materials and components attract duties in India, but finished products can be imported duty-free from FTA partners, companies may find it more profitable to locate production abroad and export back to the Indian market. In such cases, FTAs effectively encourage offshore manufacturing at the expense of domestic value addition. ASEAN countries are increasingly becoming manufacturing hubs for supplying the Indian market.

10. The Gulf War has resulted in a surge in Chinese exports of solar panels, especially to South East Asian and African countries. This came at a time when many Chinese firms laden with excess capacity, low margins, and large indebtedness were facing an existential crisis. 

11. The revival of manufacturing in the US hits the wall of labour scarcity.

Perhaps the largest problem for would-be reshorers is a lack of labour. Despite widespread nostalgia for manufacturing jobs, new US factories often struggle to find reliable workers. When Japanese group Panasonic started producing electric vehicle batteries near Reno, Nevada in 2017, the company suffered more than 100 per cent annual turnover in its early years. Not only were employees reluctant to take jobs in an access-controlled, sterile environment, but every November, the group would lose workers to seasonal logistics jobs at nearby Amazon facilities that paid a similar wage... Despite political enthusiasm for reviving manufacturing, jobs posted on LinkedIn receive fewer applications than other sectors it competes with, such as technology.

12. More on the SpaceX bubble.

Goldman Sachs, the investment bank leading the IPO, projects that SpaceX’s AI revenues need to increase 100-fold by 2030, reaching $322bn from $3.2bn today. But its AI lab remains far behind Anthropic, Google and OpenAI at the frontier, and shows little sign of catching up. Morgan Stanley also estimates that overall revenue needs to increase 180-fold to $3.4tn by 2040, up from $18.7bn last year. Earnings must flip from a $4.9bn loss in 2025 to $2.7tn.

SpaceX ends the first day of trading at 20% premium on its $135 listing price, which raised $75 bn and left it with a valuation of $2.1 trillion. The listing prospectus claimed at $28.5 trillion addressable market.

SpaceX plans to use the IPO proceeds for a range of ambitious projects, from its skyscraper-sized reusable Starship rocket, founding a 1mn-strong colony on Mars, starting a lunar economy to building a network of orbital AI data centres capable of delivering vast amounts of computing capacity... A portion must also go towards repaying a $20bn bridge loan the group took out in March to back its merger with Musk’s lossmaking AI start-up, xAI, and social media platform X.

This is staggering. 

It also hands Musk a vast financial windfall, with his 42 per cent stake in SpaceX valued at more than $800bn. Combined with his $280bn holding in electric vehicle maker Tesla, his wealth has now surpassed $1tn, equivalent to about a third of the market value of the UK’s FTSE 100 index.

Richard Waters explains the rationale driving the astronomical valuation.

It is hard to find changes in SpaceX’s business prospects that account for a fourfold valuation jump within the space of a year. Rather, it is testament to Musk’s unrivalled grip on the public imagination, transmuted into Wall Street gold. When the history of SpaceX’s record-breaking IPO is written, it will go down as a textbook case of Musk’s ability to conjure a compelling vision of the tech future for both Silicon Valley and Wall Street, ably backed by an army of promoters in the financial world. (With fees estimated at about $500mn, it’s probably not surprising that there were few warnings from the Wall Street establishment that the shares might be overvalued.)... 

Musk has been busy in recent months spinning up new visions capable of embellishing his company’s prospects... What starts out sounding like science fiction fantasy doesn’t take long to seem not only plausible but even downright likely. Wall Street has been more than willing to translate Musk’s tech dreams into financial projections capable of supporting the sky-high valuation, implausible as those numbers may seem. Goldman Sachs, the lead bank on the IPO, predicted that revenue would soar to $474bn by 2030, most of it from AI...

The IPO involved only about 4 per cent of SpaceX’s shares, but a high level of demand was built in, partly because some index investors will soon be required to add the company to their portfolios. Even without the index funds, SpaceX’s sheer size — at about 2.5 per cent of US stock market capitalisation — has made it too big for many investment managers to avoid.

13. South Korean capitalism is spreading wealth around

Samsung Electronics... agreed last month for employees to share the chipmaker’s blockbuster profits from an AI-led boom... SK Hynix... handed employees a similar profit-sharing deal last year... Samsung is also going to give Won500mn loans at low rates to employees... Samsung and SK Hynix together control much of the market for the advanced memory chips used in AI servers. Employees at both companies are in line for average annual bonus payouts of Won600mn, which compares with a national average salary of about Won50mn... district of Hwaseong... expected to gain corporate income tax receipts of Won1tn to Won1.3tn from Samsung alone this year, an extraordinary sum for a city authority whose annual budget is about Won3.5tn.

14. Germany amps up spending on its ailing railways sector, where on-time arrivals of long-distance trains have fallen from 84% two decades back to 60%. 

By the end of 2026, Deutsche Bahn will have rebuilt 900 kilometres of train lines since 2024, close to a quarter of its 2036 target. That is equivalent to half of the roughly 1,900 kilometres of new lines built after 1945. Flix, which started as a coach operator but also runs long-distance trains, has earmarked €2.4bn for up to 65 new high-speed trains that it plans to roll out from 2028. Italian high-speed train operator Italo also has ambitions for Germany, promising up to €3.6bn of investment in new trains if it gets multiyear access to the network.