Weekend reading links

1. US equity markets fact of the week.

In the year to March 2026, the US received well over $600bn in net equity inflows. Not only was this a record sum, it was also double the flow into government and agency bonds. Net equity flows exceeded debt flows by the largest margin in history.

2. US utilities are shifting from net metering to net billing on rooftop and home solar installations.

Many utilities pay homeowners the same rate they charge for electricity, meaning the energy sent to the grid when the sun is out offsets the cost of the energy pulled from the grid at night. That’s called net metering, a system where the energy you send is worth typical U.S. prices of 10 to 30-plus cents per kilowatt-hour. Under newer policies, often called net billing, utilities buy the extra energy back at a lower rate, often 2 to 10 cents.

3. In a country ravaged by deflation (pork prices have hit a 16-year low), egg prices are rising in China.

Egg prices are up by more than 40 percent from a year ago, according to an index that tracks the top producing provinces. They recently hit a 10-year high by another benchmark that tracks prices at a wholesale market in Guantao, in northern China... Two years ago, farmers started expanding after several bumper years, adding more egg-laying hens from 2024 to 2025 than ever before, according to Aspen Li, an analyst who studies the egg market. Suddenly, there were too many eggs and the price plunged. Farmers then found themselves short of money to feed all their chickens. So they culled them, at a rate that experts considered excessive. Eventually, there were not enough egg-laying hens to meet demand, sending prices to levels that Mr. Li said were “even higher than my expectations.”

4. Japan's return to normalcy.

5. President Xi's flagship Belt and Road Initiative (BRI) projects hit a record $20.1 bn in green energy financing in the first half of 2026, topping its total value for the whole of 2025, 

Total BRI deals rose to a record high of $126.3bn in the first half of 2026, up from $123.3bn in the same period in 2025. The 2026 figure was composed of $49.8bn in investment and $76.5bn in construction projects.

A distinguishing feature of BRI projects is the increased share of the private sector.

The latest data highlighted how the BRI had become primarily driven by private companies rather than China’s state-owned enterprises. According to the University of Queensland data, the share of engagement from the private sector, as opposed to SOEs, reached 48 per cent in the first half, compared with 13 per cent in 2022.

6. The Great Divergence between labour productivity and wages. 

Labour's share of income has fallen sharply.

7. Tata Zudio is following in the footsteps of Zara.

Despite its bargain offerings, Tata said gross margins at Trent, which includes the more upmarket Westside clothing stores, stood at 44 to 45 per cent. “The playbook is you go end-to-end — you go from the source of the product to the customer and you do everything yourself in between,” he said. “That’s why we do our own transporting. We do our own warehousing. We have our own shops. The manufacturing units we use are more or less dedicated to us.”... Zudio eschews online retailing, believing that high return rates clog up the operation and generate too much extra cost.Rapid turnover is key to Zudio’s appeal. New lines are launched every Thursday and a team of social media watchers monitors fashion trends and feeds them to a design team.

8. The IPOs of SpaceX, OpenAI, and Anthropic could generate a massive flush of philanthropic capital.

Nan Ransohoff, the head of public goods at the payment processor Stripe, estimated in a Substack post, between $37 billion and $100 billion could become available to charities annually... And that doesn’t even include OpenAI’s employees. Or the newly rich created by SpaceX, whose I.P.O. spawned an estimated 4,400 millionaires (and some 400 employees now worth more than $100 million). Or the many other IP.O.s on the docket... Giving money away is a common maneuver to avoid taxes: Up to 74 cents of every dollar donated to charity would have been paid as taxes, according to the Institute for Policy Studies. It reported that charitable giving in 2022 alone had resulted in $73 billion in lost tax revenue.

9.  Debt service and defence make up two-thirds of Pakistan's budget expenditure.

10. On Europe's pensions problem.

Across the EU, 47 per cent of the bloc’s social protection expenditure is spent on old age and survivors’ benefits, ahead of 36.7 per cent spent on sickness and disability and 8.7 per cent on families and children. Even in the UK, where private provision plays a greater role, the country’s fiscal watchdog has forecast that spending on the state pension — the second-largest item in the government budget after health — will rise from almost 5 per cent of GDP to 7.7 per cent by the early 2070s. Italy has the EU’s highest pension costs at just over 15 per cent of GDP, according to statistics from the European Commission. France and Greece each spend over 14 per cent. In Germany, a third of all federal tax revenue will be spent plugging holes in the state pension system this year, according to an estimate by Munich economic think-tank Ifo... 

In France, the audit office estimated last year that the country’s pension deficit, currently around €1.7bn, could grow to €15bn by 2035 and balloon out to €30bn by 2045 if further reforms are not made. European countries have tried to tackle their surging pension costs since the 1990s, and have had some successes, with many lifting the state pension age from 65 to 67 or more. Italy has tied its pension age to life expectancy, while France has pegged annual pension increases to consumer price inflation rather than earnings. In some countries, spending on pensions as a percentage of GDP is set to fall in the long term as a result of such moves...

In most big European countries including Germany, France, Italy and Spain, the state provides the main earnings-related pension, paid for by contributions from current workers, which aims to replace a proportion of pre-retirement income. Such systems were modelled after the one created by Otto von Bismarck, who introduced national state pensions in 1889 to ward off surging socialism and strengthen loyalty to the authoritarian German monarchy... It paid up to 20 per cent of average salary to industrial workers when it became payable. It was designed to prevent destitution rather than facilitate a comfortable retirement. Other countries soon followed. In the UK, Prime Minister David Lloyd George ushered in old age pensions in 1909... A full UK state pension is currently close to a third of median earnings; private provision, usually through workplace schemes, is meant to provide additional security in retirement... Italy has one of Europe’s highest replacement rates, with pensions paying out close to 80 per cent of average earnings... Contribution rates, from workers and their employers, are correspondingly high at 33 per cent of earnings in Italy, 28 per cent in France and 19 per cent in Germany... That compares with an average of over 20 per cent in the UK — paid via national insurance — and just 11 per cent in the US.

11. Ramesh Chand argues for rationalising the PDS and moving to a nutrition security programme.

Between 2013-14 and 2025-26, India’s real per capita income (net national income at 2011-12 prices) increased by 78 per cent, from ₹68,572 to about ₹1.22 lakh... At the time of the NFSA’s enactment, around 22 per cent of the population lived below the poverty line. Both official estimates and independent studies now suggest that poverty had declined to around 5 per cent by 2022-23... In the early years of the NFSA, roughly one-third of the beneficiaries were poor and two-thirds were above the poverty line. By 2025-26, only about 10 per cent of those receiving free food grains were estimated to be below the poverty line while the remaining 90 per cent were non-poor... The latest UN report... estimates that the proportion of Indians unable to afford a healthy diet declined sharply from 59.8 per cent in 2017 to 35.5 per cent in 2025. In absolute terms, the number of such people fell from 759 million to 589 million. This indicates that about 170 million people crossed the affordability threshold for a healthy diet during this period as their purchasing power improved... The prevalence of undernourishment in India declined from 13 per cent in 2013-14 to 9.8 per cent during 2023-25, indicating progress but at a relatively slow pace.

12. The Fed under Kevin Warsh appears to be facing a credibility crisis as it grapples with rising inflation.

As Mr. Warsh spoke, longer dated Treasury yields rose sharply, with the 30-year bond closing in on its May peak of 5.2 percent. That was the highest level since 2007. The rise in the 30-year Treasury yield suggests some worry about Mr. Warsh’s ability to tackle inflation in the long run.

And this.

Long-term government borrowing costs shot higher as Mr. Warsh spoke, with the 30-year bond notching its largest one-day increase in more than a year. Trading around 5.22 percent, it is at the highest level since 2007. The 10-year Treasury yield, which serves as the benchmark for borrowing costs around the world, also rose alongside expectations about inflation over a longer time horizon.

13. FT has a long read describing the story of Situational Awareness, the $20 bn hedge fund of 24-year-old Leopold Aschenbrenner, which had racked up gains over 400 per cent on the back of massive leverage, and has now run into the wrong side of the AI sell-off. The fund sold its portfolio to Ken Griffin's Citadel in an almost distressed sale. Apart from being an alumnus of OpenAI, Aschenbrenner is also the husband of Avital Balwit, who now works as chief of staff to the CEO of Anthropic. 

What stands out in the entire article is the reluctance to call out the obvious contributor to Aschenbrenner's success: the strong likelihood of insider trading at a massive scale. It is hard to believe that the smart investors who were betting on Situational Awareness were betting on the expertise or competence of Leopold Aschenbrenner, and not on the insider information he possessed.  

14. Fascinating snippet on wealth creation in the equity markets.

Economic analyst Hendrik Bessembinder has shown that half of the net wealth creation in US stock markets over the last century flowed from just 46 public companies, out of a total of almost 30,000. Looking at his list of the greatest wealth creators, the knowledge companies dominate the top spots, and all the winners have high walls around them.

Forward guidance and Kevin Warsh

The market reaction to Kevin Warsh’s second FOMC meeting decision to stay the course on interest rates despite rising inflation has triggered a debate on the Fed’s credibility in fighting inflation. 

This is how the $31 trillion US Treasury market reacted.

Long-term government borrowing costs shot higher as Mr. Warsh spoke, with the 30-year bond notching its largest one-day increase in more than a year. Trading around 5.22 percent, it is at the highest level since 2007. The 10-year Treasury yield, which serves as the benchmark for borrowing costs around the world, also rose alongside expectations about inflation over a longer time horizon.

Warsh has made it clear that he does not agree with the policy of forward guidance, and intends to discontinue it. He has argued that forward guidance distorts market incentives and comes in the way of market discipline. This blog is in agreement with it. 

The reversal of forward guidance comes abruptly, at a time when market expectations of the Kevin Warsh era are vitiated by the circumstances surrounding his appointment. Markets clearly think that Warsh may buckle down to pressure from the White House or prefer to please it and delay raising interest rates. 

In this context, I created the table below that evaluates forward guidance and central bank credibility. 

The high credibility and low forward guidance Volcker era is the golden quadrant. The central bank has earned trust through demonstrated willingness to act decisively, but it doesn’t tell you what it’s going to do next. Participants must do their own work to assess fundamentals, price risk properly, and build in uncertainty premia. Volcker’s Fed famously targeted money supply, not interest rates, and didn’t telegraph moves. The result was that markets had to think for themselves, and the discipline that emerged was real. Risk was priced because nobody could assume a backstop.

The Bernanke-Yellen era of high credibility coupled with a high degree of forward guidance ensured that the latter became the market’s mirror. When participants believe the central bank will do what it says, and the central bank tells them exactly what it will do, the rational strategy is to front-run the guidance rather than analyse fundamentals. The “dot plot” era, the “considerable period” language, the “whatever it takes” formulation created a world where the trade was to decode the Fed rather than decode the economy. The moral hazard is structural insofar as investors are rewarded for taking risk they don’t understand because the central bank has told them the floor exists.

The worst combination for policy effectiveness is that of low credibility and high forward guidance. The central bank issues guidance but nobody believes it. Participants pursue their own interests, and policy actions run counter to market expectations. This produces whipsaw where the central bank says one thing, markets price another, and when the policy actually arrives it dislocates rather than stabilises. One could argue the late-stage BOJ falls here (decades of forward guidance that markets progressively stopped believing).

Finally, the Warsh era tries to limit forward guidance but in a period of low central bank credibility, inducing a period of “greatest uncertainty”. Worse still, the transition itself amplifies the shock - moving from a regime of high credibility andhigh forward guidance (the post-2008 consensus) to one where both are removed simultaneously. The question to analyse is whether the Warsh Fed currently sits in the fourth quadrant.

There are four points to be noted.

First, the transition path matters enormously. Moving from the Bernanke-Yellen quadrant (high-high) to the Volcker quadrant (high-low) requires maintaining credibility while withdrawing guidance. This means the central bank must demonstrate through actions (not words) that it will do the right thing even when it doesn’t tell you what the right thing is. The Warsh challenge is that he has withdrawn guidance and may not yet have established credibility through a demonstrated willingness to act decisively against inflation. The risk is that he lands in the bottom-left quadrant (low-low) rather than the top-left (high credibility, low guidance).

Second, while I had blogged here listing forward guidance as an important channel in eroding market discipline, it must be noted that it’s not forward guidance per se that erodes discipline, but forward guidance combined with high credibility. Low-credibility forward guidance is merely useless. And high-credibility forward guidance is actively dangerous because it works too well, by substituting the central bank’s judgment for the market’s own.

Third, there’s a temporal asymmetry in credibility. Credibility is earned slowly (Volcker needed 2-3 years of painful rate hikes) but lost quickly (a single capitulation can destroy it). Warsh’s current position - rates unchanged while prices rise - coupled with the circumstances of his appointment (and the credibility problem it engenders) risks a credibility test analogous to Arthur Burns in 1972-73. If inflation accelerates and the Fed is seen as having waited too long, the move from “low guidance with emerging credibility” to “low guidance with low credibility” could be swift and self-reinforcing.

Fourth, this also highlights the less discussed aspect of policy making that involves shaping expectations. Once collective beliefs are formed and incentives aligned, it is very hard to reshape them. The Bernanke-Yellen response to the market tumult during and after the Global Financial Crisis, guided by the research works of Gauti Eggertsson and Michael Woodford, and Paul Krugman, may well have been required in its immediate aftermath. The mistake was to continue and institutionalise it as part of the regular central bank policy toolkit. Bernanke or Yellen, with their credibility, ought to have exited forward guidance once normalcy was restored. But instead, they chose to please the markets with this new crutch. It is a bit like subsidies - once offered, there’s no sunset. 

Weekend reading links

1. SpaceX IPO is ample proof that the Chinese wall between equity research and investment banking in IB firms is a myth.

You might expect wildly divergent views on a company as speculative as SpaceX. Here the underwriters disagreed only over the scale of the upside. Sceptical voices came from outside the syndicate. Morningstar, for example, valued the shares at $63.

This is now dead

When the dotcom bubble burst, regulators uncovered emails showing that Wall Street analysts were privately disparaging stocks they were publicly touting. A 2003 global settlement between banks and regulators on analyst research imposed sweeping restrictions. It barred investment bankers from influencing analyst compensation, tightly controlled communications between research and banking, and banned analysts from IPO pitches and roadshows. New York Attorney General Elliot Spitzer’s premise was that shielding analysts from bankers would deliver truly independent — and better — research. On one level, the reforms succeeded. Banks have constructed a robust compliance apparatus to wall off research from investment banking. “Chaperones” now police interactions between analysts and corporate finance to prevent even the appearance of pressure. The Spitzer global settlement formally ended last December in favour of more flexible rules overseen by an industry association.

It is hard to see how SpaceX shares can avoid a cratering.

About 30 per cent of the roughly 640mn SpaceX shares available to trade have been borrowed to sell short, up 10 percentage points over the past 10 days, highlighting how traders are becoming increasingly sceptical of the company’s market prospects... About 900mn further SpaceX shares could become available to trade as soon as next month when certain lock-up provisions for pre-IPO investors expire. Traders who doubt there is sufficient demand for the deluge of extra equity are cashing out now as a result, market participants say.

2. After reducing their hiring last year, firms with jobs exposed to AI are planning to increase their entry-level hiring this year, but they come with a "seniorisation". 

Candidates for starter roles in the most AI-exposed industries are now expected to show a mastery of the skills traditionally demanded of more seasoned staff, such as data-driven decision-making and people management... Eleanor Lightbody, CEO of Luminance, which develops AI for the legal profession, says these middle layers could be squeezed out altogether, “because we are going to hire more juniors, who are really going to understand how AI works, and more seniors [are] staying in the business because [by using AI], they can be more productive and have more capacity”. The challenge for job seekers is that it is hard to find entry-level jobs that allow them to develop the higher proficiency that seniorised roles now require... Reliance on AI is increasing the demand for distinctively human “soft skills” — or “power skills”, as some are now calling them — such as creativity, empathy, judgment and networking ability. PwC’s jobs report found that new tasks added to job adverts for AI-exposed roles were two and a half times as likely to call for such capabilities.

3. Very good description of how China became so dominant.

It enticed unsuspecting giants such as Apple, Tesla, Motorola, and Lucent with low-cost logic. When sufficient local manpower was trained, subcontractors developed, and stakes became important, China applied the squeeze. China would break contracts, cancel licences, coerce the transfer of technology, control pricing, withdraw incentives, force equity participation, conscript technology and evict them. Huawei, BYD, CATL, and SAIC are some examples of the resulting indigenous giants that emerged. In an act of silent invasion, conscripted technologies have been converted into military capability. It is dominant as a supplier of several raw materials, such as rare earth minerals, gallium, graphite, and lithium; a dominant buyer of soya from Brazil and iron ore and wines from Australia; a financier of BRI projects; and a provider of processing technologies for Chilean copper and lithium in select South American countries. With this web of dependencies, it can choke several factories.

4. Janan Ganesh feels that for Britain to start making real reforms, the incoming PM Andy Burnham must do more welfare and subsidies and discredit the whole .ideology.

What is the precedent for a rich democracy doing pre-emptive economic reform? Which nation ever made controversial structural changes — involving winners and losers — to prevent a crisis, rather than in response to one? Southern Europe needed the Eurozone panic of 2009 onwards to make spending cuts. Hawke, Keating, Margaret Thatcher and Ronald Reagan were reacting to 1970s stagflation. François Mitterrand in 1983 was reacting to a market shock that to some extent he’d created. Reform only happens when it absolutely has to happen. So try again, prime minister. Fail again. Fail worse.

5. Japan embraces a more proactive government-driven economic growth policy.

Sanae Takaichi's cabinet approved a policy blueprint that targets a combined $2.3tn of public and private sector investment between now and 2040 in 17 chosen sectors. Ministries will be able to make budget requests without upper limits; budget construction, according to the document, will be “fundamentally” changed. Much of the blueprint is about economic security, but a refreshingly large amount is about growth... possibly the most meaningful lines in the new strategy place Japan’s future efforts in the global context. “Among advanced countries, there is a big trend of the government and private sectors working together on large-scale, long-term industrial spending,” it read... The government would strive, the document further promised, to meet the challenges of “the era of great global competition between industrial policies”... 

On the same day that the blueprint was agreed, the Ministry of Economy, Trade and Industry produced separate guidance for growth investment — an effort to encourage Japan’s 4,000-odd listed companies to shift more of their endeavours towards growth and a witheringly blunt critique of how matters are at the moment. Within Japan’s 350 largest companies (by sales), 65 per cent of invested capital remains locked in what it calls value-destructive segments, according to METI’s research. In the US, the equivalent ratio is 39 per cent. Both Takaichi’s blueprint and the new METI guidelines are attempting a new version of industrial policy that not only seeks to spur growth, but places a huge bet on the government’s ability to encourage companies in a way that market forces have not.

6. Kevin Warsh is trying to scale down forward guidance

“Financial market prices are probably the most important source of information to guide central bankers,” he said at his inaugural press conference last month. “But when all the financial markets are doing is reflecting back what we’ve said, then we’re taking the most important source of information and we’re being blind to it.” Many agree with the Fed chair’s view that central banks’ focus on predictability has led to a world in which markets obsess more over what officials say than what is actually happening in the economy. “Forward guidance has turned markets into a mirror,” says Ajay Rajadhyaksha, global chair of research at Barclays. “The Fed watches markets; markets watch the Fed. And no one’s actually watching the economy.”...

Recent research by the US central bank suggests its decisions also have an outsized impact on equity markets, leading to big changes in how investors price stocks. Advocates of forward guidance say it helps avoid the sort of surprises for the markets that feed overall volatility and eventually raise borrowing costs as investors demand greater compensation to stomach market swings. Warsh and his allies counter that the attempt to pacify markets simply encourages greater risk-taking, damping short-term volatility but storing up bigger shocks for later. The debate is all the more important because of the backdrop: the surge in borrowing over almost two decades. Government debt around the world has risen sharply following the global financial crisis, the Eurozone crisis, the pandemic and the wars of the 2020s...

Some analysts highlight the so-called taper tantrum of 2013 — when markets were unnerved by Fed statements about its plans to shrink its balance sheet as a result of officials’ false sense of certainty. Others link the 2023 collapse of the US’s Silicon Valley Bank to central bankers’ previous pledge to keep interest rates low.

This is a very important factoid about Fed communications.

Between 1990 and 2022, an era in which the status and prominence of central banks steadily grew, US 10-year government bond yields fell by more than 7 percentage points. All of the downward moves throughout that period took place during the three days around Fed meetings, rather than in response to political events or economic data. But the relationship broke down after the Fed appeared flat-footed on inflation in 2022. The Riksbank data shows that the central bank’s meetings had little to do with the subsequent rise in yields.

An important concern for the bond markets is the sharply increased volume of Treasuries held by hedge funds that use leverage to bet on tiny differences in interest rates. 

The Fed estimates that large hedge funds’ holdings of US Treasuries doubled between 2023 and 2025, faster than the growth of the market as a whole. Such funds now own more than $2.5tn in Treasuries, according to the US central bank and US Treasury data. Such sums dwarf China’s official holdings — not an exhaustive account of the country’s exposure — which have fallen from $1tn in December 2021 to $659bn in May 2026, according to US Treasury statistics. Moreover, the Bank for International Settlements, the central bankers’ bank, has warned that the hedge funds might have to dial back their stakes in government bond markets even quicker than they arrived — a possibility it describes as one of the most troubling financial stability risks in the world today.

Then there are the other concerns for bond markets.

The Bank of England said this month that AI hyperscalers borrowed more in the first half of 2026 than in the whole of 2025. So far this year they have accumulated as much new debt as the UK government. An interest-rate surprise from the Warsh Fed might not only unsettle Treasury yields but set off a vicious circle of margin calls — when a sudden price movement in assets bought with borrowed money requires an injection of capital — and fire sales by hedge funds that could create a dash for cash.

7. A cautionary tale on the difficulty of private enterprise establishing and managing entire railway systems comes from the example of Brightline Express, which connects Miami and Orlando, and became operational in 2023.

Brightline traces its roots to 2007, when Edens’ Fortress spent $3.5bn to acquire Florida East Coast Railway, then a listed freight transport company. Its tracks spanned from north to south in the Sunshine State, and construction for what would become Brightline began in 2014, with the Orlando service beginning a decade later. In a 2024 bond prospectus, Brightline executives forecast that by 2026 they would have nearly 8mn annual riders, split roughly evenly between the Orlando-Miami route and a more local service in South Florida. That base of customers was expected to generate $700mn in revenue... Even with customer levels up 16 per cent year to date through May this year, ridership will struggle to hit 4mn this year. Operating income has at best reached break-even before debt service costs... 

The promoter Wes Edens’ Fortress wrote off its investment long ago, and it is now hedge fund bondholders who are jockeying for control of Brightline. But alongside distressed debt specialists such as Nut Tree Capital Management, Aristeia Capital and Redwood Capital Management, there are a handful of more staid asset managers including Nuveen and First Eagle also at the table. As well as corporate bonds issued by subsidiaries, the group’s debt stack includes more than $2bn of traditional municipal bonds, half of which are guaranteed by a bond insurer.

Weekend reading links

1. On the origins of infrastructure financing in the UK.

In the summer of 1858, Britain’s parliamentarians soaked the curtains in the Palace of Westminster with lime chloride in an attempt to counter the “Great Stink” emanating from the river Thames. It failed. The prime minister demanded the Metropolitan Board of Works construct a sewerage system, legislating to allow the board to raise £3mn. This was to be repaid by a three-penny levy on all London households for 40 years. By 1900, the municipal bond market in England was about 50 per cent of the market for UK government debt. Today it is just 4.7 per cent. Back then, most infrastructure projects were not only financed by the private sector but also backed by hypothecated cash flows from money raised locally. For example, the debt for the 1892 Elan Valley Aqueduct to pipe water into Birmingham was funded by an increase in water rates on businesses and households there. So the residents of, say, Manchester were not funding infrastructure elsewhere.

2. India is marching ahead on adoption of electrotech.  

3. Germany is the poster child for central bank independence.

4. Spurred by surging data centre loads, electricity demand is rising sharply in the US.

Data centre power demand will surge from 34.7 gigawatts in 2024 to 106GW by 2035, according to BloombergNEF, a research group, equivalent to more than 80mn homes. Overall US electricity demand is forecast to jump by a quarter by 2030 and by 78 per cent by 2050, compared with 2023, according to consulting firm ICF... Between January and November, the latest month for which data is available, the cost of electricity for residential customers in the US increased by 11.5 per cent.

5. Most Indian state boards focus on memory and conceptual understanding, as opposed to analysis and application. 

6. At 16%, US after tax corporate profit margins are at historic highs.

7. Nick Bloom, Paul Mizen, Gregory Thwaites et al have an estimate of the costs of Brexit (HT: Adam Tooze)

These estimates suggest that by 2025, Brexit had reduced UK GDP by 6% to 8%, with the impact accumulating gradually over time. We estimate that investment was reduced by between 12% and 18%, employment by 3% to 4% and productivity by 3% to 4%. These large negative impacts reflect a combination of elevated uncertainty, reduced demand, diverted management time, and increased misallocation of resources from a protracted Brexit process.

8. Some data on students and migrants from Asia in the US. Even as enrolment of Chinese students has declined, that of Indian students has taken off since 2014. While Chinese students were mainly for the UG programs, Indian students have been mostly for PG studies. (HT: Adam Tooze)

Indian students dominate the workforce of computer science workers. 

Similarly, Indians dominate physicians and Filipinos dominate nursing. 

9. India has one of the lowest free floats in its equity markets.

10. Japan's public debt at 237% of GDP is way off the charts, and considerably constrains Sanae Takaichi's room to manoeuvre. 

11. Tej Parikh writes that UK's biggest economic challenge is its political instability.

The UK doesn’t have a productivity puzzle. The causes of Britain’s weak underlying growth are well known and discussed ad nauseam. Why policymakers aren’t delivering is the bigger conundrum. Instability undermines business investment, hiring and planning decisions, and absorbs the political bandwidth that could be used to address lacklustre growth... Uncertainty and slow growth weaken the appeal of UK assets too. Pound sterling and British stocks have underperformed relative to peers over the past decade. Long-term UK government borrowing costs have remained elevated compared with other G7 nations, having come under frequent selling pressure thanks to fiscal mishaps... For all the turbulence, Britain remains attractive. London remains the leading European destination for foreign direct investment. The country’s strengths in finance, university research, tech and life sciences are draws. Cheap assets add to the allure.

12. Fascinating account of China's largest hotel chain, H World, with 12,700 hotels, adding 1700 hotels in 2025, aiming for 20,000 hotels by 2030, and took in 8.3 m guests during last year's Lunar New Year holiday. As a reference, Marriot has 10,000 hotels worldwide. 

H World was launched in 2005 by Ji Qi, co-founder of online travel booking site Ctrip, after he took inspiration from the multi-brand French group Accor... Its Hanting Inn brand, a fixture of the streets of major Chinese cities, often charges well below Rmb300 ($43) a night, while mid-range Ji Hotels typically cost slightly more. H World has several other brands, while internationally it also operates German brand Steigenberger. Its franchise model mirrors an approach that other Chinese businesses have used to expand in consumer sectors from bubble tea to fast food. For the “vast majority” of its franchised hotels, H World retains a degree of control, sending in hotel managers on its own payroll under what it calls a “manachise” approach. In the US, “typically the franchisees decide almost everything . . . we think in China this would not work,” said He. “A lot of people would not abide by your rules.”

13. VC funding for India's tech startups has fallen 73% since 2021, which also coincided with the rise of Byjus.

14. Fascinating account of the Jeffrey Epstein world. 

15. Shruti Rajagopalan has a good essay on India's AI ambitions, and more. This on regulation.

The EU went first and went heavy, a binding cross-sector AI Act with tiered risk categories, compliance obligations, and a governance apparatus that could employ a small city. China took the authoritarian-efficiency route. Regulate fast, regulate specifically, and make sure the state retains control over what models can say and do. The US, characteristically, has been light touch at the federal level, leaving governance to a patchwork of executive orders, state laws, and vibes. India, with these guidelines, has landed somewhere interesting, closer to the US in its instinct to avoid a standalone AI law, but far more deliberate in articulating why it is choosing not to regulate horizontally yet. The framework’s core bet is that India’s existing legal infrastructure (the IT Act, the Digital Personal Data Protection Act, sectoral regulators like the RBI and SEBI) can handle most AI risks if enforced properly and updated where needed...

Do not regulate the technology itself, govern its applications through the regulators who already understand those domains. Build incident databases so you learn from failures instead of pretending to prevent them through preemptive compliance theater. Use “techno-legal” mechanisms (standards, system-architecture-level controls, provenance tools) so that compliance scales without armies of auditors. Create sandboxes so regulators can see what actually goes wrong before writing rules. The explicit preference for “innovation over restraint,” listed as a core principle, rejecting the EU’s precautionary posture. Both committees looked at Brussels and decided that regulating AI the way you regulate pharmaceuticals, before you know what the side effects actually are, is a bad trade for a country where AI adoption is still nascent and unevenly distributed... The liability framework it recommended is graded. The regulated entity remains liable to consumers for any losses, but first-time failures where the entity followed prescribed safeguards and reported promptly would not automatically trigger full supervisory penalties. A rigid liability regime that punishes every probabilistic error will cause institutions to constrain AI capabilities to the point of uselessness.

16. Shyam Saran writes about Marco Rubio's speech at the Munich Security Conference, describing it as an "unabashed white, racist manifesto". 

His remarks celebrated the history of conquest, exploitation, barbarity, and even ethnic cleansing, which has marked the history of Western imperialism and colonial empire-building across Asia, Africa, and Latin America. He wants this to be a source of pride and inspiration, not something to “atone for purported sins of past generations”. What is perplexing is that the history of the world after the Second World War, which is often described as an American era, is instead seen as a period of Western decline: 

“But in 1945, for the first time since the age of Columbus, it [i.e. the West] was contracting. The great western empires had entered into terminal decline accelerated by godless communist revolutions and by anti-colonial uprisings that would transform the world and drape the hammer and sickle across vast swaths of the map in the years to come.” Anti-colonial uprisings, which would include our own against British colonialism, are not celebrated as struggles for freedom and human dignity but as evidence of the abdication of the Western will to rule. Strange that this should come from a representative of a country that is celebrating 250 years of its own successful war of independence against British colonialism.

17. AI is leading to changes in software industry business models, resulting in less predictability and more uncertainty.

Software companies have, for decades, sold their wares on a “per seat” basis, where an employee gets unlimited use of a package of tools. Think of the traditional Microsoft 365 licence... In a world of AI “agents” carrying out duties autonomously, that model makes less sense. The unit of account will no longer be users but tasks completed, queries undertaken, and data “tokens” used. Sticky, predictable, year-round software-as-a-service revenue — the kind of thing that private equity firms love because it makes companies easier to load up with debt — may become an endangered species. Some are already embracing the post-seat era. Snowflake, a data management software maker, charges based on consumption, as does Databricks, an unlisted hotshot valued at $134bn, according to Crunchbase. ServiceNow is one of many working on hybrid models, where monthly fees meet pay-as-you-use add-ons... consumption-based pricing... Software companies’ predictability was an asset that contributed to high valuations.

18. Europe telecom industry facts of the day

Europe has more than 44 mobile operators that each have more than 500,000 subscribers compared with eight in the US and just four in China, according to industry group Connect Europe’s State of Digital Communications 2026 report.

19. China high-speed railway facts.

China’s railways have in recent days been ferrying about 20mn passengers a day, with half a billion train trips expected over the 40-day lunar new year period... Nearly three-quarters of passengers will travel at speeds of greater than 200kph, streaking across the country in the white and silver high-speed trains that have become a defining symbol of China’s industrial might. In December, China reached 50,000km of high-speed rail, enough track to circle the globe, compared with 8,500km in the whole of the EU as of 2023. Just over two decades after it was launched, the network now links 97 per cent of cities with populations of more than half a million... China opened its first high-speed passenger line in 2003 between Qinhuangdao and Shenyang in the north-east, with speeds of 200kph. The World Bank estimated in 2019 that China spent about $17mn to $21mn per kilometre on high-speed rail... Another 20,000km of track is planned by 2035... 

China has benefited from a combination of relatively cheap land, enormous scale, standardised designs and a permissive regulatory environment, experts say. The country’s rail project is now overseen by China State Railway Group, a huge state-owned enterprise that operates the network and helps fund new line development. The group plans to invest Rmb520bn ($75bn) this year... The group’s total liabilities have mounted to Rmb6.4tn. China State Railway reported a modest profit of Rmb11.7bn in the first three quarters of 2025, following several years of losses during the Covid-19 pandemic. Analysts said profits from the freight network helped offset losses from passenger high-speed rail. Local governments typically share the burden of building and operating the tracks. But many are struggling with their own shaky finances following the pandemic and the collapse of the property market.

20. Finally, the US Supreme Court has struck down the tariffs imposed by Donald Trump under the International Economic Emergency Powers Act. Also this. 

Weekend reading links

1. Dame Sarah Mullally, 63, becomes the 106th Archbishop of Canterbury, the first woman to serve as the senior-most bishop of the 85 million-strong Anglican Communion since the role's creation for Augustine of Canterbury in 597 AD!

2. Kevin Warsh as Fed Chairman may pursue significant changes to the way the Fed sets monetary policy.

The Fed’s vast bond-buying programmes, which Warsh initially supported as a Fed governor during the financial crisis, are at the centre of the Trump administration’s allegations that the central bank is acting far beyond its remit to keep prices in check and maximise employment. The... quantitative easing, expanded the Fed’s balance sheet from less than $900bn in 2008 to a peak of almost $9tn. The balance sheet now stands at $6.6tn, following a three-year reversal of QE — dubbed “quantitative tightening” — that the rate-setting Federal Open Market Committee has recently paused amid signs banks were falling short of reserves. Warsh has said he would like to shrink it much further... Warsh in April said successive QE programmes meant politicians found it “considerably easier appropriating money knowing that the government’s financing costs would be subsidised by the central bank”... 

Warsh’s claims that the response to the pandemic “was the biggest monetary policy error in 45 years”... Along with shrinking the balance sheet, Warsh would like to change the Treasury-Fed Accord, a 1951 agreement seen as the foundation for the US central bank’s freedom to set interest rates free from political pressure. Warsh has said he wants a “recommitment” to the accord that would entail a smaller, less powerful central bank, with some control of its balance sheet handed to the Treasury... Trump’s nominee will push the Fed’s staff to gather more “real-time information” to rely less heavily on official government data that comes on a longer lag... He could also deploy economists to find out whether his view is right that an AI-led productivity boom can boost US workers’ pay without stoking inflation — a move that could potentially pave the way for more interest rate cuts.

This is Warsh's WSJ op-ed of March 2023, where he called for an "economic regime change", including stopping the practice of providing forward guidance and stopping the provision of forecasts of the path of interest rates. The expectation now is that Fed may dispense with its widely followed dot plot showing the interest-rate projections of each participant of the FOMC, and end the tradition of press conferences by Fed chair following every FOMC meeting. 

3. Soumaya Keynes points to new research that links commerce and markets to the shaping of cultural norms.

One 2010 study ran money-sharing experiments across a diverse mix of communities, including smaller ones where people foraged or hunted for food. In those less marketised societies, norms around fairness towards strangers seemed weaker... A new study by Max Posch of the University of Exeter and Itzchak Tzachi Raz of Hebrew University takes a different approach, exploring the US economic transformation between 1850 and 1920. Thanks in part to a vast expansion of railroads, internal commerce became much easier. Mail-order catalogues served remote communities with items including shoelaces, suitcases and booze. The researchers compared places and people gaining more and less market access. Unsurprisingly, they found that in the places that enjoyed juicier connections, work shifted to involve co-operation with more distant partners...

Compiling many metrics, they found that on at least three dimensions, new markets did seem to affect culture. First, commercial opportunities made people more outward-looking. In places that became more connected, Americans became more likely to marry someone outside their local community and parents more likely to pick out nationally common names for their children. Second, access to markets raised tolerance levels, as measured by higher religious diversity and greater variation in family size, as well as mothers’ ages at their first birth. (The logic being that more dispersion should reflect more of a “you do you” attitude.) Third, greater market access came with higher trust towards others, as extracted from language in local newspapers. This measure wasn’t perfect, but reassuringly matched trends in more recent survey data, and fell during wars... Instead, they emphasised a story of rapid cultural adaptation among people who were most engaged with impersonal, anonymous exchanges. The changes in naming practices, for example, were concentrated among migrants working in industries that were more exposed to trade with other parts of the country. For those working in construction and entertainment, the market access had no effect.

4. Paul Blustein questions claims about the dollar's dethronement. 

Participants in this market are international banks, securities firms, multinational corporations, insurance companies and pension funds — the biggest private actors in the financial system. Their globe-girdling operations require the movement of immense amounts of money across borders on a constant basis. They use the market to hedge themselves against currency fluctuations by trading a pair of currencies (say, the dollar and Japanese yen) twice, first at the current exchange rate and then swapping back later at an agreed rate. Japanese life insurance companies, for example, invest their portfolios heavily in US Treasuries and other dollar securities. Because they have obligations in yen to their policyholders, they need to protect themselves against movements in the yen-dollar rate and they use swaps to do so. These sorts of transactions occur at such a huge scale that, according to data from the Bank for International Settlements, the amount of outstanding swaps currently stands above $100tn. Some 90 per cent involve the dollar, reflecting the myriad ways it is used. Unwinding all of this activity and subbing in another currency would be staggeringly costly and difficult.

The $12.6 trillion European holdings of US Treasuries confer less leverage to the Europeans than they appear.  

Europe’s US government debt holdings don’t translate into usable leverage, because most of them can’t be politically co-ordinated and selling would be self-defeating. The reason is simple. “Europe” may hold a lot of US assets, but that doesn’t mean Europe can control them or deploy them as a co-ordinated political tool. Much of Europe’s exposure actually sits in private portfolios — pension funds, insurers, banks, and asset managers — not in a single public balance sheet that can be mobilised strategically.

But while a deliberate and coordinated weaponisation is difficult, "a slow, decentralised buyers' strike, as investors gradually stop adding to US assets" is a distinct possibility.

5. Singapore's acclaimed public housing model.

More than three-quarters of its citizen and permanent resident population live in 1.1mn government-built flats, bought at subsidised rates... Rising property costs, notably in the resale market, have sparked concern over affordability, while the lottery system for allocating flats, which favours traditional nuclear families, is being tested by changing social norms. Over the longer term, property values are also being eaten away by the 99-year leases on which they are sold. “The main thing that worries me is that . . . as the lease clock ticks down and as the stock ages, housing equity drops to zero,” Gee added...

When Singapore introduced national service after gaining independence in 1965, home ownership was also encouraged as an incentive for conscripts to fight for their country. Today, more than 90 per cent of Singaporeans live in an owner-occupied home — among the highest rates in the world. Properties are allocated to would-be buyers via a lottery system to applicants who are typically required to be married, engaged or older than 35. Prices are eased through a raft of government subsidies based on personal circumstances. Singaporeans can also dip into their mandated savings and pension plans and obtain mortgages and loans from the HDB directly. But critics have said that the lottery system is unfair to singles and non-traditional families, for whom it is harder to get a flat. Singapore’s marriage rate has been steadily falling in recent decades, dropping from 57 per 1,000 unmarried males in 1994 to 42 in 2024. The HDB system has also been used by Singapore’s government to promote multicultural integration by setting limits on the proportion of different ethnic groups in the same estate. However, this policy has caused problems for some in the resale market by restricting potential buyers... Construction ground to a halt during the Covid-19 pandemic... Wait times to move into a property rose from three years to as many as six. As a result, more buyers turned to the resale market, where HDB owners can sell properties after five years of occupancy. This led to a sharp rise in resale prices, especially in more desirable estates.

6. FT has a long read on Latin America's rightward turn.

“Crime and violence is clearly the top concern of Latin Americans today,” says Jean-Christophe Salles, Latin America chief executive at pollster Ipsos. “It is the biggest concern in almost every country.” Some 55 per cent of Latin Americans name crime and violence as their prime worry, according to Ipsos data, against just 34 per cent worldwide. In Chile, the figure rises to 62 per cent. Fear of crime propelled arch-conservative José Antonio Kast to a landslide presidential election victory last month in Chile over a Communist opponent, Jeannette Jara. His broader rightwing message had failed in two previous elections, but this time he won by focusing on pledges to erect border fortifications, deport illegal migrants and reduce crime...

El Salvador’s President Nayib Bukele is the inspiration for many rightwing challengers across the region. His extraordinary success in transforming El Salvador from one of Latin America’s most murderous countries to one of its safest — albeit through mass incarceration and authoritarian rule — is firing up anti-establishment conservatives across the region just as it enters a major election cycle... Bukele’s newly built giant prison, the Centre for Confinement of Terrorists (Cecot), which has capacity to hold about 40,000 inmates, many detained indefinitely... Even Costa Rica, a country so peaceful that it decreed the abolition of its army in 1948, has been shaken by record levels of drug-related murders. Ahead of elections on February 1, its outgoing president, Rodrigo Chaves, appeared with Bukele to lay a foundation stone for Costa Rica’s own version of Cecot, a $35mn maximum security jail project with capacity for 5,100 prisoners... In Peru, which is set to go to the polls in April, leading presidential contender and former mayor of Lima Rafael López Aliaga is promising to fight what he calls “urban terrorism” with life sentences for serious crimes... In Mexico and Uruguay, leftwing incumbents are cracking down on violent crime to curry favour with voters.

7. The rising share of debt raising by hyperscalers (companies like Alphabet, Amazon, Meta, Microsoft, and Oracle) to finance their AI infrastructure rollouts.

8. What does the India-EU FTA mean for Europe?

9. Ed Luce has this description of the breadth of the Jeffrey Epstein network.

This includes the sitting US president and a previous one, big Wall Street figures, a network of Ivy League luminaries, Silicon Valley entrepreneurs, foreign government officials, Democrats, Republicans, a Maga influencer, a far left scholar, British and Norwegian royals, wives and girlfriends of powerful men, government lawyers, heads of law firms, movie directors and endless celebrities. Epstein’s network is an MRI of the establishment. The idea that anyone did not know about Epstein’s conviction as a sex abuser is absurd. Some people spurned his social approaches. Having been invited in 2010 to an Epstein dinner with Woody Allen and then Prince Andrew in New York, the magazine editor, Tina Brown, replied: “What the fuck is this . . .? The paedophile’s ball?” Brown’s reaction should have been everyone’s. So should that of Melinda Gates, the now ex-wife of Bill Gates, who stepped into Epstein’s home once and immediately regretted it. Alas, their reaction was all too rare.

10. Fascinating account of the egregiously one-sided US-Japan trade deal.

Proposed projects are screened for “strategic and legal considerations” by a committee of US and Japanese members, according to a joint MOU and a document prepared by Japanese officials. Projects are then sent to an investment committee headed by US commerce secretary Howard Lutnick, who chooses which proposals to send to the US president for approval. Donald Trump has the final say on which projects are “deemed to advance economic and national security interests”. Japan and its state-backed bank can delay or refuse to proceed but face potential penalties, including higher tariffs. Funds for approved projects — from JBIC or with guarantees from Japan’s insurance corporation — then flow into an SPV alongside “the provision of land, water, power, energy, offtake agreements, regulatory support, etc” from the US. Free cash generated by projects will be split equally until the Japanese loans are paid back, according to officials. After that, the US will receive 90 per cent. Officials believe Japanese companies outside the project can also make agreements with it separately, with terms negotiated that are different from the US-Japan split of cash flow... The way the agreement with the US is structured also means that if Japan delays or refuses to fund a project recommended by Trump, it could be liable for “catch-up” payments or an increase in tariff rates.

11. Elon Musk may have pulled off the biggest bluff of the century by merging SpaceX with xAI to create the most valuable private company at a combined valuation of $1.25 trillion. xAI, which had revenues in the low hundreds last year and is burning through $1 billion a month, was bought by SpaceX at an eye-popping valuation of $250 billion. Musk says that the move was needed to launch data centres into space, build factories on the moon and colonise Mars. Musk controls both the private companies, whose combined valuation has increased by over $1 trillion in 18 months. To pay for the deal, SpaceX will issue $250 bn in new shares, thereby diluting the existing shareholders.

This from the comments section sums up the deal

You set your own price for a company you own, sell it to another you own and, miraculously you can then leverage the hell out of it.

12. Thailand has become the sick man of Asia

South-east Asia’s second-largest economy has been stuck at about 2 per cent growth for the past five years, with its pivotal drivers of consumption, manufacturing and tourism all in decline... Making matters worse are prolonged political instability and frequent changes in leadership. The royalist-military establishment has been locked in a stand-off with reformist parties that have won the past two elections but have been blocked from power. Thailand has had three prime ministers in as many years... Signs of economic malaise are increasing. Banks worried about defaults are lending less, the property market is in its worst slump in three decades and headline inflation turned negative last year, signalling weak demand. Thailand’s stock market has been the worst performer in Asia over the past 12 months, declining 10 per cent in 2025 in local currency terms. The government has projected 2 per cent growth this year, but the IMF has forecast just 1.6 per cent, the slowest among major south-east Asian economies...

Manufacturing has been on the decline for years, weighed down by weak domestic demand, an influx of cheaper Chinese goods and intense competition from newer manufacturing hubs such as Vietnam. That has also taken a toll on Thailand’s once mighty auto sector. The country was a regional hub for car manufacturing but Nissan, Honda, Suzuki and others have shut down factories or scaled back production in recent years... Household debt-to-GDP is close to 90 per cent, among the highest levels in Asia, as wages have remained stagnant. And Thailand’s population has been shrinking for four years, with the birth rate hitting a 75-year low in 2025... Tourism, another economic engine, is sputtering and this has had a knock-on effect on retail, agriculture and hotel construction... Thailand recorded 32.9mn foreign visitors in 2025, a 7 per cent fall from the previous year and still below the pre-pandemic peak of 40mn tourists in 2019.

13. US federal debt is at pre-war highs.

14. With the purge of General Zhang Youxia and Gen Liu Zhenli, Xi Jinping has removed all the six members of the Central Military Commission (apart from himself), 35 out the 43 generals in leadership positions of the PLA.

15. Indian cities need much more buses.

While the Ministry of Housing and Urban Affairs recommends 40-60 buses per 100,000 people, India’s cities together have only about 47,650 buses, nearly 61 per cent of which are concentrated in just nine mega cities.

16. Primer on Project Vault, the $12 bn US program to procure and develop a reserve of critical minerals for civilian and other purposes through a public-private partnership involving the US federal government and US companies. 

Project Vault is a public-private partnership that will buy and store critical minerals and rare earth elements. These include gallium and cobalt, which are essential for modern technology and defence equipment. It will combine $1.67 billion in private seed funding with another $10 billion from the US government’s Export-Import Bank... Companies will make an initial commitment to buy materials later at a fixed inventory price. They will also pay some upfront fees. Based on these commitments, companies can give Project Vault a list of the materials they need. The project will then purchase and store those materials. Manufacturers will pay a carrying cost that covers loan interest and storage expenses.

16. Mihir Sharma has an excellent op-ed that raises the questions about the emerging international order arising from the US National Security Strategy released in December and the more recent National Defence Strategy. Both are anchored around an America First approach that narrowly defines its interests in terms of drug trade, energy security, immigration, etc. 

The rest of the world matters only as a market or as a source of certain raw materials that are not specifically available in the US. This is not a status-quoist view of the world, nor is it radical or aggressive. It is essentially defensive. US interests are defined far more narrowly than earlier, and are more localised. But they will be as aggressively and unilaterally defended as ever, perhaps more.

I'll blog on this in due course.

17. Some staggering numbers in the Big Tech capex plans announced this week, along with their quarterly earnings which have spooked the markets. 

Big Tech stocks sold off heavily after unveiling plans to spend $660bn this year on AI, as investors fret that the “breathtaking” capital expenditures are outpacing the earnings potential of the new technology. Amazon, Google and Microsoft are set to lose a combined $900bn in market value since filing their quarterly earnings over the past week... Along with social media giant Meta, their proposed outlay on data centres and specialised chips needed to train and run advanced AI models would mark a 60 per cent rise from the $410bn they spent in 2025 and a 165 per cent increase from $245bn in 2024... Even a 14 per cent boost to their combined annual revenue to $1.6tn was not enough to overcome the pessimism.

18. Big infrastructure deal in the UK, as Canadian pension fund majors CPPIB and Omers announced sale of their 34% and 33% stakes in Associated British Ports (ABP) in a deal estimated to value the UK's biggest port operator, owning 21 ports in the UK, at more than £10bn. ABP was taken private in 2006 by a group of investors including Goldman Sachs' infrastructure arm and Omers, for £2.8bn. Ownership has chaged over the years, with CPPIB taking stake in 2015, along with others like Singapore's GIC and Kuwait Investment Authority's Wren House Infrastructure. CPPIB manages C$777.5bn ($568bn) of assets and Omers manages C$141bn of assets.