Weekend reading links

1. A bond market story of the last two weeks has been the rise of the 10-year Japanese government bond yield above 3% for the first time since September 1996, following a weakening yen and an unprecedented bilateral market intervention with the US Treasury to shore up the currency.

The market expects a rate hike by BoJ from its current 1% to prop up the yen and also quell rising inflation. However, this would clash with the commitments of Prime Minister Sanae Takaichi for fiscal spending to boost the economy. 

The pressure on yen and rising bond yields are also a matter of concern for the US, since it could trigger repatriation of the massive Japanese investments in dollar assets, including the holding of US Treasury bonds.

Japan is the top foreign holder of US government debt, with more than $1tn, much of it held by financial institutions... market concern that Japan’s enormous pension funds and life insurers, nursing tens of billions in paper losses on their bond holdings, could shift their investment strategies as yields at home become more attractive... Citi’s Takashima said life insurers had been waiting for yields on 20-year JGBs to hit 2.5 to 3 per cent but were still not buying at scale as they feared that prices could drop further.

2. This is an excellent article on baby diaper manufacturing in India. The two costliest items are not manufactured in India and are imported.

Further, there's an inverted tax structure.

At the 56th GST Council meeting on 3 September 2025, diapers were moved from 12% to 5%, effective 22 September 2025... But SAP sits under HSN 3906, taxed at 18%... Output at 5%, inputs at 12% to 18%... input tax credit piles up faster than it can ever be set off against output tax. The credit is not lost. It is refundable under Section 54(3), and from 1 October 2025 the government began granting 90% of such refunds provisionally. But refundable is not the same as available.

Diapers are covered under PLI, and it is ending up supporting contract manufacturers who import SAP. 

Until an Indian chemical major commits to commercial SAP capacity, every rupee of PLI is subsidising the assembly of imported chemistry. We are building the world's fastest converting industry on someone else's molecules.

In this case, the PLI should target the SAP manufacturing in India. Supporting contract manufacturers to make what they are already doing does not require PLI. It underlines the point that PLI needs to focus on domestic value addition and not merely investment and sales. This requires more detail-based policy making. 

3. Tata Capital Healthcare Fund appears to be doing what public innovation funds ought to be doing, de-risking new market segments in healthcare. 

TCHF is not really in the business of spotting the next unicorn and riding it to a listing. It is in the business of manufacturing acquisition targets. It finds a chronic, non-negotiable demand, dialysis, cancer, joint replacement, wraps a proven clinical model in Tata credibility, scales it into Bharat where nobody else will do the asset-heavy work, de-risks the operations, and hands a finished, cash-generating, regulation-cleared asset to a global consolidator or a domestic roll-up desperate to enter that exact niche...

TCHF works because of a stack of things that have nothing to do with money: extreme sector focus, operational depth, brand-as-regulatory-passport, a structure that insulates it from its own parent, and the patience to build assets strategic buyers are forced to buy. Take any one away and the model wobbles... The winners in corporate venture will look... more like TCHF: narrow, patient, operationally heavy, and quietly building things the giants of their industry will one day have to acquire.

Jayant Mundhra's Substack is excellent.

4. Is AI exposure driving students to pivot away from Computer Science?

Also on AI, the latest PISA student learning outcomes survey findings show uniform declines in reading and math. 

The new report shows that reading scores across the OECD have fallen by 25 points and maths by 22 points since 2018. “Given that 20 score points is roughly equivalent to a year of learning, this implies that a majority of 15-year-old students across the OECD in 2025, on average, were performing at a level typically expected of 14-year-olds,” according to Pisa. Schleicher linked the decline in the latest scores to the dominance of distracting short-form videos on platforms such as Instagram and TikTok, as the report suggested that “digital distraction” is harming education across the world. “We cannot say for sure, but skimming social media feeds and rapidly processing information may be contributing to worsening ability and motivation to engage with complex texts and data,” the report said.

5. US labour-capital share of output - rising corporate profits amidst falling wage share. 

Pre-tax earnings hit an annualised $4.8tn in the second quarter, or 18 per cent of national income, according to Bureau of Economic Analysis data, the highest share since the aftermath of the second world war. Employees’ share from wages and benefits fell to 60 per cent, the lowest level since the 1950s... Bumper returns largely benefit richer Americans, who receive much of their income from investments, while middle- and lower-income households rely more heavily on pay cheques. Inflation has also outpaced wage growth, causing real hourly earnings to fall by 0.2 per cent in July versus a year earlier.

6. A global whisky glut, or whisky loch, amidst rising consumption in India.

The amount of whisky maturing in casks has soared from less than 400mn litres a decade ago to around 1.4bn litres this year, or 389mn cases — enough to meet current consumption levels for three years, according to Martin Purvis and Duncan McFadzean’s Commercial Spirits Intelligence newsletter. That has caused many of Scotland’s distilleries to curtail output by more than a third, insiders say... Today’s glut is the result of increasing production during the 2010s, which led to an excess of casks maturing during times of global economic uncertainty.

7. California, the bastion of liberalism, struggles to build. 

A high-speed rail line that voters approved in 2008 but that has yet to lay a track. A large housing project outside Los Angeles and the redevelopment of a Navy yard, both in planning stages for decades. The state has arguably the nation’s worst housing crisis, with rent and home prices that far exceed the national average. The high cost of living, combined with strict environmental and land-use regulations, has led to a steady migration of companies and residents to less expensive states. The main problem, Mr. Metcalf continued, is that California’s overlapping regulatory processes, scattered among state and local agencies, make it nearly impossible to approve — or even outright deny — a project. Even when the governor or state legislators get behind an idea, local governments often have effective veto power. Delay becomes the normal course of nonaction.

8. London's experience in reducing knife crimes.

Knife crime rose dramatically in Britain from 2017, especially among teenagers... Hospitalisations for “assault by sharp object” have fallen by a third in London since their peak. Knife-related homicides have shrunk by a half. Last year teenage homicides in the capital fell to their joint lowest level (similar to 2012) in almost 30 years... As English politicians scrambled for answers during the 2017-19 “epidemic”, Lord Sadiq Khan looked to Scotland. In the previous decade Glasgow, once labelled Europe’s murder capital, had achieved impressive reductions in violent crime. One reason was the roll-out of the Scottish Violence Reduction Unit (VRU), which aims to prevent violent crime by bringing the police, schools, hospitals and sports clubs together to identify at-risk children and direct them away from crime. Between 2008 and 2018 Scotland’s VRUs were credited with bringing about a 38% fall in homicides and a 43% drop in attempted murders and serious assaults—many of them knife-related. 

Lord Khan announced England’s first VRU in London in 2018. Today there are 20 such units across England and Wales, covering areas that account for 80% of all knife crime. A recent Home Office review found that England’s VRUs caused a 12% fall, since 2019, in hospital admissions for violent assault among the under-25s. That is modest compared with Glasgow, but the Home Office looked only at the national average. Violent crime has fallen most in cities like London—dense urban areas where the model is easiest to implement.

9. The state of gender empowerment.

In India violence against women is so normalised that nearly 40% even of women think a husband is sometimes justified in beating his wife. In Mali the figure is nearly 70%... In South Asia only a third of women are in the labour force; in the Middle East and north Africa, only a fifth are. Since 1990 the share of labour income that accrues to women has risen from 35% to 44% in liberal France; in patriarchal Pakistan, from 1.5% to a still-woeful 9%. Removing the barriers to women working would raise income per person by a fifth in many countries, estimates the World Bank—a bigger economic benefit than avoiding a typical civil war...

Yet even the most sexist laws can be scrapped, as Saudi Arabia has shown. Before a series of reforms that started in 2011, women there were barred from all but a handful of jobs and not even allowed to drive. Now they are free to work, drive and shun the hijab if they choose. The share of women in the labour force has nearly doubled since 2010, from 18% to 34%. That is startling progress for a kingdom many thought hopelessly stuck in the past—even if there is still a long way to go.

See also this. 

10. Nvidia is the central bank of AI?

Over the past three years it has pledged over $70bn in investment in startups and offered $300bn in financial support to its customers... It has promised around $25bn in future equity investments. It owes around $33bn in debt. Its potential liabilities to customers amount to about $300bn, but only come into play in a downturn and so do not appear on its balance-sheet. These include the $105bn guarantee behind Open­AI’s data centre; as much as $125bn through the Wall Street partnership; and around $67bn in other backstops.

Also this

Nvidia’s financial engineering is partly a response to its biggest customers’ transformation into rivals. “Hyperscalers”, tech giants such as Amazon, Google, Meta and Microsoft, account for roughly half of Nvidia’s revenue. This year they are projected to invest around $800bn, largely on AI infrastructure. But most of them have begun designing their own chips, which puts their future purchases from Nvidia in doubt. For the hyperscalers, these custom chips are much cheaper, costing between a fifth and a third as much as Nvidia’s...

Hyperscalers have investment-grade credit ratings, which keep their borrowing costs low. Upstart neoclouds have similar spending needs, but little revenue. Their loans are naturally much more expensive. Alphabet, Google’s parent company, sold $2.75bn of 50-year bonds in November, at an annual interest rate of 5.7%. The rate at which CoreWeave, the biggest neocloud, borrowed $2.6bn in July was almost double. It is this gap, between hyperscalers’ borrowing costs and everyone else’s, that the bank of Nvidia would like to narrow. One way it does that is by taking equity stakes in startups that will be customers themselves or that will help fuel demand for Nvidia’s chips indirectly. Last year Nvidia made about 90 such investments, nearly twice as many as two years earlier. This year it has already agreed another 60-odd. 

Some of these cheques aim to propagate open-weight AI models, which users can download free of charge and adapt, unlike proprietary offerings from firms like Anthropic, OpenAI and Google, which users tend to access via subscriptions and whose inner workings are hidden. In August Nvidia agreed to pay Poolside, a startup building AI coding models, $6bn to license its software and a further $1bn for a stake. It has also agreed to buy Hugging Face, a platform hosting open-weight models, for $12.9bn. The intention behind such investments is to fuel demand for Nvidia’s chips by creating a proliferation of AI products and companies that are independent of the hyperscalers... In early July it announced a new stratagem in which it promises to top up neoclouds’ income from new data centres to an agreed floor. These undertakings, the exact terms of which vary from deal to deal, often last for six years. Throughout that period, Nvidia promises to pay a set price for “compute”, as the jargon has it. If the neocloud manages to sell the capacity in question at a higher price, Nvidia receives a share of the difference. This safety-net makes neoclouds’ future revenues much more predictable and so lowers the cost of the debt they take on to build new data centres. That, in turn, spurs demand for Nvidia’s processors.

In the graphic below, red are neoclouds, yellow are AI labs, and blue are financial firms. Also, the dashed circles are equity stakes, and the black boxes indicate guarantees and purchase commitments. 

But things may still be under control.

Morgan Stanley, an investment bank, reckons Nvidia’s “all-in” debt will rise from $53bn early next year to $200bn by the beginning of 2029 as guarantees come into effect. But that is offset by a stash of cash and liquid securities currently worth $99bn, and a business that will generate about $200bn in cash this year. Only a cataclysmic downturn that caused all Nvidia’s guarantees to come due and its profits to evaporate almost entirely would imperil the company—as things stand. The picture may change, however, if Nvidia’s commitments keep growing.

See also this. 

11. Friendships across classes matter for life outcomes. 

Recent research suggests... having pals across class boundaries appears to be one of the strongest predictors of upward mobility for people in low socio-economic groups... What’s more, children who grow up in areas with more cross-class mixing go on to earn more on average, controlling for parents’ income. To isolate the effect of the county itself, the researchers tracked families who moved. Assuming those moves were not related to their children’s future prospects — a reasonable assumption — the analysis found that people who spent a larger portion of their childhood in a better-connected county went on to earn more.

12. The graduate premium is reversing in US and UK.

13. The Indian space ecosystem is a reform success.

India’s space ecosystem has expanded significantly, with more than 450 space industries and over 440 startups now engaged in the sector. Isro is facilitating greater private-sector participation through the government-owned, company-operated (GOCO) model, under which private industry can manufacture, test and supply components and subsystems using its own facilities and infrastructure. Isro has facilitated nearly 440 technology transfers so far, enabling wider adoption of space technologies.

14. The victory of the far-right Alternative for Germany (AfD) in the Saxony-Anhalt province in the east of Germany was expected. Though it has fallen short of a majority by just three seats, an FT editorial calls for allowing it to form the government.

The firewall, a well-intentioned policy of non-cooperation with the far right, which is considered a threat to democracy, has turned into a trap for the mainstream parties, particularly the Christian Democratic Union of Chancellor Friedrich Merz. As support for the CDU shrinks, it is forced to share power invariably with its leftwing opponents in dysfunctional coalitions, whose quarrelling and meagre results drive votes to the AfD, further reducing the scope for compromise between the centrist parties. The firewall has failed to stem the AfD’s advance and is probably furthering it. The alternatives, though, are all bad given the far right’s current strength... 

The least bad outcome there would be for the party to take power with the backing of the Bündnis Sahra Wagenknecht (BSW), a small leftwing nationalist movement that rejects the firewall approach. An AfD regional government would lack the powers to enact some of its more outlandish policies, such as abolishing the right to asylum or renewing energy imports from Russia. To be sure, it could be an extremely uncomfortable time for Germans of immigrant backgrounds and other minorities living in the state. But extra vigilance from the courts and civil society could help to keep a far-right regional government in check. The far right would pose less danger in power regionally than nationally and executive responsibility could deflate its support. In any case, its opponents lack the seats to form an alternative majority. To try to do so would look undemocratic, given AfD’s vote share, and could backfire electorally.

15. Despite all its ubiquity, India's media and entertainment industry is a small revenue earner in proportion to its size.

Last year, IT accounted for 7.3 per cent of India’s GDP, against 0.8 per cent from M&E. The figure is 7 per cent for the US and 4.6 per cent for China... At $32 billion in revenues, the Indian M&E business is abysmally small. It is about a third the size of the Walt Disney Company or roughly equal to that of Tata Consultancy Services. Given the numbers, almost 700 million smartphone users, 650 million television viewers, and 421 million newspaper readers — the size of the firms in any of these segments doesn’t even scale up to Indian standards, let alone global ones... There are only two large media firms with any scale — JioStar and Google India — both at roughly $4 billion in top line. For a country that loves to chat and debate, there is no news brand that has found traction elsewhere. Ninety per cent of all that is watched in theatres, on TV or streaming is Indian stories. Yet there is no global entertainment firm of any heft from India... there is talk about Indian cinema’s soft power globally. But our presence in the global market is a blip compared with, say, Hollywood or Korea. The Indian movie business has been stuck at $1.5-$2 billion in domestic revenues for years. Indian studios simply do not have the money or distribution heft to attempt full-fledged global releases. It is only when the domestic market hits $10 billion or more will you have Indian studios that can have the strength and appetite to go global.

16. This contradicts the oft-repeated claim that a generous social safety net has made Europe a region of shirkers.

17. Huw van Steenis channels Charles Goodhart on the importance of practical wisdom in monetary policy.

Goodhart once put it to me, “every Monetary Policy Committee should have members who have a real-world understanding of the plumbing of financial intermediaries”. In my shorthand: the PhDs need the plumbers.

18. The latest PISA school test scores, where Swedish student scores declined, draws attention to the debate on the country's decision to encourage private schools. Contrary to public perception, Sweden has gone the farthest among continental European countries in privatisation of schools, healthcare, and elderly care, through a series of reforms in the 1990s and 2000s. 

About one in five Swedish children now goes to an independent school... This week’s scores in the international Pisa survey revealed the country’s worst-ever rankings of levels of reading, maths and science of 15-year-olds... The Swedish system is as distinct as it is extreme. Unlike most countries with private schools, Sweden’s system is meant to be egalitarian — so the schools are open to all, through the same free system as state-funded institutions. The private schools receive funding from the state in a voucher system that means they get the same amount of money per pupil as state schools, but can make profits from it if they run things efficiently.

19. Chinese exports have been growing faster than world imports since the turn of this decade. 

20. Finally, an excellent long read on how Javier Milei is taking deregulation to boost Argentina's oil and gas and mining sectors. 

Weekend reading links

1. The solutions proposed by Andy Haldane to address housing supply in the UK is universally valid.

Public land developed for public purpose but privately operated; co-financing by municipal bonds and private capital; a bespoke planning regime; and a transformative method of new construction — these are the base elements needed to ease the constraints suffocating the UK’s housing market and to tackle the housing crisis in every postcode.

2. Talk about a company mobilising debt for others to buy its products, and look no further than Nvidia.

The world’s largest financial groups are working with Nvidia to assemble a funding package of more than $500bn for AI infrastructure development, in one of Wall Street’s most ambitious lending efforts to date. A consortium of groups including Apollo Global, Blackstone, BlackRock, Brookfield Asset Management, Goldman Sachs and KKR is entering a partnership with Nvidia to invest in the AI build-out... Nvidia said on Monday afternoon that it has signed memorandums of understanding with the six Wall Street firms to “mobilise over $500bn of third-party capital for the build-out of AI infrastructure over time”. Under the deal, which is still subject to final agreement, the firms will create dedicated pools of capital to finance Nvidia’s AI ambitions “at attractive rates for Nvidia customers”... Morgan Stanley projects so-called hyperscalers will spend $3.5tn between 2026 and 2028.

3. India manufacturing output trends.

But services exports have doubled in less than four years.

4. Israel's scorched earth policy in South Lebanon.

Weeks into the latest conflict, defence minister Israel Katz invoked a different approach, one used with devastating consequences after Hamas’s October 7 2023 attack: the “Rafah and Beit Hanoun model”, a reference to Israel’s wholesale levelling of cities in Gaza. “All homes in Lebanese villages near the border will be destroyed,” Katz said. By July, Katz claimed his threat had been carried out. “Twenty-four Lebanese villages, hundreds of years old, we destroyed all the buildings,” he said, boasting that up to 20,000 homes had been demolished. “Not house by house, but entire villages.”...

Israeli evacuation orders forcibly displaced some 1.2mn people in the war’s first 10 days, the vast majority from Hizbollah-dominated southern Lebanon, as Israeli forces advanced. Fighting raged for weeks, but most of the destruction documented by the FT and Lighthouse came after an initial Israel-Lebanon ceasefire on April 17. While the truce did not hold and some clashes have continued even past the latest ceasefire in June, Israeli forces — who had already established control over many emptied villages — continued to lay waste to the south through air strikes, controlled detonations, bulldozers and the use of white phosphorus. Israel’s occupation is now deeply entrenched, the area under its control demarcated by what it calls “the yellow line”. The zone covers about 6 per cent of Lebanese territory and stretches roughly 10km inland from the two countries’ informal border...

Israel has also done extensive damage to historic monuments and Unesco-listed sites, including 16th-century mosques, 19th-century libraries, religious shrines, ancient Roman ruins and Crusader castles. “It is an attempt to make the areas unrecognisable . . . to sever people’s connection to their land and their history,” said Joanne Farchakh Bajjaly of Biladi, an organisation dedicated to preserving Lebanon’s cultural heritage. “How can they rebuild their communities if everything is gone?”... Lebanon’s environment ministry and rights groups have documented Israel’s widespread use of white phosphorus — an incendiary chemical that triggers fires and can leave contamination in soil and water — in both populated and agricultural areas. Israel says it uses white phosphorus lawfully to clear brush and create smokescreens, but use over populated areas can violate international law.

5. Janan Ganesh is on to something.

If a politician could decouple socialism from the set of cultural ideas known as “woke”, he or she would be difficult to stop... The one place that might have produced a culturally conservative or at least culturally neutral socialism is continental Europe, but even the French left has absorbed American woke jargon, perhaps recognising in it the authorial stamp of Michel Foucault. And so capitalism glides on, never quite facing what would be its sternest political test. The question is why the left allows it to happen... Woke has been such a godsend for capitalism — making its enemies look ridiculous — that it can seem almost engineered for that purpose.

6. Purchase commitments of the hyperscalers jumped from a trillion dollars to 1.5 trillion from Q1 to Q2 of 2026. These are debt in another form. 

7. Guy Chazan describes elite capture of the political system in the US.

In America’s Gilded Age, millionaire robber barons operated from the shadows, bribing pliant lawmakers to do their bidding. Under President Donald Trump, billionaires have gone one better. Some are in his cabinet... No longer content to lobby from afar, ultra-rich tycoons — especially from Silicon Valley — have infiltrated the capital’s ecosystem, taking on advisory roles in government, cultivating ties on Capitol Hill and weighing in on the most important issues of the day, from AI to industrial policy. They attend glitzy dinners, donate millions to White House fundraising projects and are photographed with Trump promising eye-popping investments in the US. Many have enjoyed regulatory relief, policies that benefit their businesses and, in some cases, lucrative government contracts worth billions of dollars. But unlike the robber barons of the past, who were often charitably minded and gave generously to public institutions, the tech billionaires of the present show a “complete indifference” to any kind of “social contract” and any need to “compensate people for the disruption they have brought into their lives”, says Quinn Slobodian, a historian of capitalism at Boston University...

If there was a trigger for the growing influence of the ultra-rich in America’s political system, it was the Supreme Court’s 2010 Citizens United ruling, which held that independent political spending on elections by business was protected by the First Amendment. The judgment opened the floodgates to big money in politics. America’s rich had spent $31mn in the 2010 elections, according to liberal advocacy group Americans for Tax Fairness (ATF). In the 2024 election cycle, the 100 largest billionaire donor families gave $2.6bn. A huge proportion of that came from just a handful of individuals. Three billionaires — Elon Musk, Miriam Adelson and Timothy Mellon — accounted for more than a third of the roughly $1.5bn spent to elect Trump.

8. C Thi Nguyen has a brilliant essay on the value of doing something for its own sake or as labour of love (play, as he describes it), and doing something as part of a requirement (work, as he describes it). He channels Aristotle (through Bernard Suits' The Grasshopper) to describe it as the core of a meaningful life. 

For Suits, play is not just a side dish for the main meal of work. Play is at the core of a meaningful life. Underneath the hood, Suits’ argument is Aristotle to its bones. For Aristotle, a good life — a truly meaningful life — lay not in the creation or accumulation of stuff or the achievement of outcomes, but in the process of doing itself, in the rich exercise of our full human capacities. Suits found the deepest illumination of Aristotle’s point in the simplest human activity: playing games. Suits provides, and defends, his definition. To play a game, he says, is to voluntarily take on unnecessary obstacles to make possible the struggle to overcome them. To play a game, therefore, is to be inefficient on purpose. When you run a marathon, you are trying to get to a particular spot in space, but you avoid the most efficient ways to get there. You do not take a subway or a taxi or a bicycle. You force yourself to run, and you try to run as quickly as possible. Which means, for Suits, that the struggle must be an essential part of the true value. What you care about can’t just be the bare outcome by itself. You can’t just care about being at that spot in space. Otherwise you’d just take the most efficient path. But if you took the subway then it doesn’t count — not for the game of marathon-running, anyway...

To understand games, distinguish between two things: the goal of a game and your purpose for playing it. The goal is what you pursue inside the game; the purpose is why you played it... For some people, the goal and purpose are one. They want to win, period. Call those people achievement players. The Olympic runner wants to win the marathon by running it — but they do truly care about winning it. But for other people, goal and purpose come apart. We try to win because we are interested in the struggle, and it is the struggle itself that we truly care about. Call us striving players. It’s all right if we try and we lose, if the attempt was beautiful. In ordinary, practical life, we take the means for the sake of the ends. In striving play, we take the ends for the sake of the means. What is the point of life? Is it to make stuff? Or is it to take difficult actions, think rich thoughts, weigh subtle decisions? Is it having a pile of stuff — or does the stuff just support our quest for interesting action?... Suits argues... that play itself is the point, and that we work in order to survive so that we might play...

Rephrase Suits’ definition this way: play is wasting resources for fun. But also: the whole point is that, deep down, it’s not a waste. A truly wasted life would be one spent working hard, stockpiling goods like the ant and never using them to support joyous play. And to truly waste humanity would be to push people so hard to work productively, to make more stuff, to the point where nobody had time to play. Let me try my own fusion of these two definitions. “Work” isn’t distinguished from “play” by difficulty, suffering or practicality. You can make pottery, knit scarves or grow a garden as play. The true difference between work and play is the reason you have, and the control you have, over what it is you’re doing and why. Here’s my suggestion: to “work” is to perform activities to create outcomes that are set by something external. When you work, you are making what the world tells you to make. Maybe you’re gathering food, because biology tells you you have to eat. Maybe you’re earning money, because the world says you need money to buy food and shelter and medicine. Maybe you’re making products, because the world wants something specific from you — planks of wood, a ride to the airport. But “play” is different. You still have goals and struggles, but your goals are up to you.

9. Two important graphics on the Chinese economy. One, the great job squeeze resulting in the rise of the gig economy, whose workforce has increased by 10 million in just two years.

Second, the persistence of negative household sentiment for the fifth successive year.

10. Andrew Puzder, the US ambassador to the EU, draws attention to the substantive equivalence between US tariffs (50% tariffs on primary steel) and the EU's CBAM on their respective steel and aluminium imports. 

Protesting against US national security measures while erecting protectionist barriers reveals a striking double standard... The US approach is direct and transparent. Primary steel faces a 50 per cent tariff (with some rates recently increased), and aluminium a comparable duty. To stop circumvention through finished goods, the tariffs extend to derivatives... CBAM differs in form but not in substance. Importers of iron, steel, aluminium and related products must report embedded emissions and relinquish a corresponding number of CBAM certificates priced at the EU’s carbon price — currently around €80 per tonne of CO₂... At root, both policies are adjustments to protect domestic producers from unfair competition, whether from lax environmental rules or subsidised excess capacity. US Section 232 tariffs address foreign overcapacity that threatens to hollow out its metals sector; CBAM is designed to combat carbon leakage, when production shifts to jurisdictions with less stringent climate standards... In both cases, the measures raise the cost of imports to safeguard local production. The parallels are unmistakable. A shipment of steel-containing machinery faces extra US duties based on metal content. In the EU, the same goods face fees based on production emissions under CBAM. One is framed as security policy; the other as climate policy. Both increase the price of targeted imports relative to domestic options.

11. The US equity market today in perspective. 

Weekend reading links

1. The rise of zero-sum politics in the West.

In the US, UK, France and Germany zero-sum beliefs on the left (eg people only get rich by making others poor) and the right (eg immigrants succeed at the expense of the native-born) are related expressions of the same underlying worldview. Namely that there is only so much to go around and we must therefore use restrictions, exactions and preferential treatment to redress the balance between winners and losers.

2. Primer on how the Labour Codes will contribute to the formalisation of the economy. 

3. Tim Wu contrasts America's all-in bet on proprietary AI-led innovation with China's diversified bet on renewables and green technologies coupled with applications of AI through open-source models. The article has this graphic which shows how Chinese exports to developing countries has taken off exponentially.

Last year, 70 per cent of the world’s EVs were manufactured in China. China also accounts for roughly 80-85 per cent of global solar photovoltaic manufacturing, and more than 75 per cent of all global battery production.

4. Data centre construction in the US is now on par with office construction!

And this on their power demand.

Across America, data centres represent a combined capacity of about 51GW. Running at their maximum, this equates to 5 per cent of the country’s peak demand. By 2028, an estimated 44GW of additional capacity will be required by new data centres, according to S&P Global Energy. Given constraints to grid infrastructure, power capacity coming online in the next three years will only be able to provide about 25GW for these data centres. That leaves a gap of 19GW — just over 40 per cent of the power needed... After more than two decades of flat or anaemic growth, US power demand is now surging. Electricity usage is projected to rise by an average of 5.7 per cent a year to 2030, based on forecasts from utility companies... more than half of the expected increase stems from the rapid build-out of AI data centres, according to consultancy Grid Strategies.

And the constraints to power capacity expansion.

Boosting the US power grid is an enormous and time-consuming task due to a complex web of regulatory, financial and supply chain challenges. Interconnection queues — backlogs of projects waiting to plug into the network — have become a major chokepoint, slowing the rollout of new power capacity and leaving data centres facing lengthy delays... The average time from filing an interconnection request to achieving commercial operation now exceeds eight years, according to energy think-tank RMI... On average, federal permitting for a new US transmission line takes about four years, according to the Department of Energy. State processes add further delays to grid build-out. Last year, almost 900 miles of new high-voltage transmission lines were completed, according to lobby group Americans for a Clean Energy Grid. This is the most since 2020, but still far short of the 5,000 miles a year the group estimates is needed to support grid reliability and growth.

5. Like in China, India's solar manufacturing capacity is entering a glut and is also due for consolidation. 

Edinburgh-based energy consultant Wood Mackenzie estimates the country’s solar module manufacturing capacity will exceed 125GW by 2025, which is more than three times its domestic demand of around 40GW. Nomura projects capacity additions of 100-110GW in the next three years, further raising the risk of oversupply and painful consolidation.

This is an interesting comparison with China, pointing to future pain.

In China, half of the six major solar IPOs of the past two decades now trade below their issue price. In the US, SunPower has filed for bankruptcy. Even today, China’s JA Solar, with nearly 85GW each of ingot-wafer and cell capacity, is valued on par with India’s Waaree Energies, which has only a fraction of that scale... Some distress from oversupply is already visible in the supply chain. While the large, cash-rich players, including Adani, Waaree and Premier Energies, are tightening their hold on the sector by backward-integrating their supply chain and protecting their future margins, the smaller players are struggling to keep their plants running.

Worsening matters further is the lack of demand for solar power among discoms. 

India’s solar energy capacity currently totals 130GW, according to the ministry of new and renewable energy... As of September, around 44GW of tendered clean energy capacity, out of 93GW since fiscal year 2024 (FY24), remains without buyers... The ministry said in early November that it may look to cancel these projects on a case-by-case basis. One of the primary reasons for unsigned agreements is that state utilities expect solar prices to fall further. 

This capacity explosion has been facilitated by industrial policy.

In 2022, India imposed 40% tariffs on solar modules and 25% tariffs on solar cells to discourage imports from China. Last year, the country dictated that Indian solar power producers must purchase from an approved list of domestic solar-module makers—there are 93 companies in the approved list so far. Similar rules for solar cells will come into effect next year. Further restrictions on imports of ingots and wafers that are building blocks of modules and cells are expected in the coming years.

But industrial policy does not appear to be able to bridge competitiveness. 

Under new domestic content requirements, an entirely ‘Made in India’ module would cost more than double Chinese-manufactured modules, making it uncompetitive without substantial government policy support.

While India's solar manufacturing capacity is now largely at the level of modules, the government is pushing hard to integrate backwards into cells, ingots, wafers, and polycrystalline. But that's challenging. 

Owing to the complexities involved, the cell is the most capex-intensive segment. According to Nomura, capital expenditure per GW of cells can total ₹6,500 crore versus ₹2,000 crore for modules. Ingots and wafers need up to ₹4,500 to build 1GW capacity. As the supply glut in modules deepens, large integrated players such as Reliance Industries, Adani Enterprises, Waaree, Premier and Tata Power, which are investing across the value chain, are better positioned to survive... All large and listed players have announced plans to backward integrate, expecting that impending import restrictions further down the value chain will keep profits coming. According to Nomura, 70-80GW of cell capacity additions will come online over the next three years. It is 18.5GW right now.

Solar energy has the lowest tariff rate.

6. As developed countries grapple with high and rising debt burdens, some pointers.

While the ratio of debt to GDP in the world’s biggest economy shrank from 106 per cent in 1946 to 21.6 per cent in 1990-91, it has since lurched back up to almost 100 per cent thanks to, among other things, the financial crisis and Covid-19... The postwar experience of the UK provides a case study of how these factors interact. The country’s debt-to-GDP ratio went from more than 250 per cent in 1946 to just 42 per cent three decades later. In a seminal piece of research, Barry Eichengreen and Rui Esteves show that for most of the 1946 to 1955 debt consolidation episode, the UK ran consistent, large primary budget surpluses despite the Labour government’s huge expansion of the welfare state. Yet the largest contribution to debt reduction came from inflation, which was responsible for more than 80 per cent of the debt consolidation over the period. That said, from 1955, fiscal discipline and economic growth did most of the work — surprisingly given Britain’s record at the time for economic incompetence — because the contribution of consumer price inflation, which peaked at 24 per cent in 1975, was neutralised by rocketing interest rates.

7. K-shaped income gain + K-shaped wealth gain = K-shaped economy. Rana Faroohar writes about the K-shaped economy in the US.  

Consider income growth, which was higher for low-income households right before and during the pandemic — in large part because of support from the Biden administration — but has diverged since. Wage growth for low-income workers is now lower than for middle- and high-income workers. This is partly explained by the artificial intelligence boom that is showing up in higher unemployment figures for young college graduates as more entry-level white-collar work is done by technology. Asset growth is K-shaped too, with higher-income households seeing lots of paper wealth from stocks at still near-record highs and rising home prices. According to investment group Apollo, the cash flow received in fixed income, including private credit, is nearing levels not seen in decades. That wealth effect has propelled the existing K-shaped trend in consumer spending. The percentage of overall spending done by the top 10 per cent of the socio-economic spectrum has risen from 36 per cent to nearly half since 1989, according to Moody’s analytics.

8. Daron Acemoglu points to the breakdown of the liberal democratic politics.

Liberal democracy was made by its pledges. It plunged into crisis because of their undoing. A lot of this volte-face was about the eclipse of the industrial compact and the rise of a post-industrial society, dominated by digital technologies and the college-educated professionals that these empowered. Digital technologies severed the link between economic growth and shared prosperity. With the widespread automation enabled by digital tools, companies could expand without hiring more employees and paying workers more, and the skill bias of these technologies gave a boost to the earnings of highly educated and managerial workers. The result was a staggering increase in inequality in the US, with the inflation-adjusted wages of low-education men falling most years between 1980 and 2014 — even as the aggregate economy and the urban, globalised professionals were flourishing.

That the computer age was leaving behind the working class, which used to typically support left-leaning parties, was unnoticed by the college-educated, who were becoming politically and socially ascendant in the environment digital technologies created. That they had started living separately, socialising separately, marrying separately, and holding very different views from the less educated undergirded this omission. There was also a major sin of commission on the part of left liberals. As they abandoned classic working-class or social democratic issues, they started focusing on cultural politics — in part because cultural divides had become more pronounced and in some ways more intractable in an age defined by shifting mores, globalisation and increasing immigration flows from countries with dissimilar traditions.

But the cultural divide that emerged between different education groups and ideologies did not have a simple solution. Even as norms were changing on important issues such as gay marriage, new rifts were opening related to the assimilation of new immigrants, transgender rights and cosmopolitan versus local priorities. The college-educated, fatefully, turned to social engineering efforts, trying to accelerate cultural change — in universities, schools, the entertainment industry and even workplaces. These efforts, though often well meaning, were nonetheless perceived by many working-class communities as the imposition of the priorities of college-educated values on the rest of society. The scene was set for a crisis of liberalism and of liberal democracy.

9. Importance of Samarium, a rare earth mineral, and how the US gave up its leadership.

Most rare-earth magnets are made of neodymium, which is used in everyday applications such as cellphones, auto parts and electronics. But the defense industry requires samarium-cobalt magnets, which can withstand extreme heat... Unless new sources of samarium or a substitute material can be found, American manufacturers won’t be able to build fighter jets or precision-guided missiles. They may be forced to sacrifice precision if they can’t get the right magnets... 

Although samarium-cobalt magnets were invented in an Air Force research lab in Ohio in the 1960s, the industry moved to China in the 1980s, partly because of rich rare-earth deposits there. Today, China mines, processes, sells and consumes such large volumes of rare-earth metals that it can drop the price below the cost of production when foreign competitors come online. American and European companies have struggled to stay afloat. Many either declared bankruptcy or opened factories in China.

And the difficulty of reshoring, even with good policy intent, without a crisis hitting.

In recent years, American policymakers have tried to build a domestic supply. The National Defense Authorization Act of 2023 and 2024 gradually tightened restrictions on the use of rare-earth metals from China in weapons systems, and stipulated that all such materials must be China-free by Jan. 1, 2027. But such mandates have been inconsistently enforced, partly because alternatives are not available. In 2023 and 2024, when magnets were supposed to be made of metal that was created outside China, Lockheed Martin notified the Pentagon that its F-35 Joint Strike Fighter had Chinese-made magnets. The military paused production of the jet for months but eventually issued a waiver allowing the parts.

10. The Bank of Japan raises its benchmark interest rates to a 30 year high.

Alongside, yields on 10 year government bonds have touched 2% for the first time since 1999. 

11. Assessment of the Insolvency and Bankruptcy Code implementation.

The data from the Insolvency and Bankruptcy Board of India (IBBI) shows that by September, 8,659 corporate insolvency resolution processes (CIRPs) had been admitted. Of those 1,898 cases were ongoing. More tellingly, about 1,300 CIRPs that resulted in resolution plans took an average of 603 days, while 2,896 cases that ended in liquidation took 518 days, far exceeding the statutory outer limit of 330 days prescribed under the IBC... Despite procedural delays, the IBC has had a meaningful impact on India’s banking system and credit culture. Resolved cases have delivered 32.44 per cent recovery of admitted claims, translating into more than 170 per cent of liquidation value, and have helped rescue about 1,300 firms. Equally important, the threat of losing control has altered borrower behaviour, improving repayment discipline and encouraging early settlement.

12. US corporate profits are at all time highs.

13. America's K-shaped economy.

14. Financial engineering is never far away in boom times. FT reports how Big Tech firms are shifting debts assumed to finance AI spending out of their balance sheets through project financed SPVs. 

Financial institutions including Pimco, BlackRock, Apollo, Blue Owl Capital and US banks such as JPMorgan have supplied at least $120bn in debt and equity for these tech groups’ computing infrastructure, according to a Financial Times analysis. That money is channelled through special purpose holding companies known as SPVs. The rush of financings, which do not show up on the tech companies’ balance sheets, may be obscuring the risks that these groups are running — and who will be on the hook if AI demand disappoints... 

Tapping private capital funding through off-balance sheet structures protects companies’ credit ratings and flatters their financial metrics. Meta in October completed the largest private credit data centre deal, a $30bn agreement for its proposed Hyperion facility in Louisiana that created an SPV called Beignet Investor with New York financing firm Blue Owl Capital. The SPV raised $30bn, including about $27bn of loans from Pimco, BlackRock, Apollo and others, as well as $3bn in equity from Blue Owl. The deal meant Meta could in effect borrow $30bn without any of the debt appearing on its balance sheet. This made it easier to raise a further $30bn in the corporate bond market a few weeks later.

15. Demystifying Adam Smith's invisible hand

The popular understanding of the “invisible hand” is even further off the mark. Smith borrows the phrase from Macbeth, who talks about a “bloody and invisible hand” shortly before murdering Banquo. In all his works, the economist mentions the phrase just three times, in three different contexts—and never in reference to the price mechanism... In fact, he often favoured the visible hand of government. He urged the state to provide education. He favoured legal caps on interest rates. Today, almost all free-market economists despise America’s Jones Act, which requires that shipping between American ports be conducted on vessels that are built, owned and largely crewed domestically. Smith, by contrast, favoured the Navigation Acts, a similar British law. 

Smith acknowledged the benefits of markets, but also their costs. Consider his famous pin factory. The division of labour within it allowed workers to produce thousands more pins than if they were working alone. Countries that perfected the art of dividing labour, Smith argued, would grow rich. Yet he also worried that a life spent on a few simple operations would make a labourer “as stupid and ignorant as it is possible for a human...to become”. Did Smith think the costs outweighed the benefits? It is hard to be sure.

16. VC failure rates

Sequoia’s best-ever US fund had half its investments fail.

17. Cross-border payments company Aspora is disrupting US-India remittance transfers. 

Fintechs Wise and Remitly do that by partnering with a local bank, with which they park funds worth two to three days of remittance volume as a lien. This fund lies as a security, untouched. Now, when a person in the US sends money to somebody in India, the fintech pings its Indian banking partner, which uses its own funds to make a local transfer to the recipient’s account. This reduces the speed of transfer from days to minutes. The fintech then reimburses the banking partner for all the transfers via a bulk cross-border transfer.

... 30–40% of the $135 billion remittances to India are locked in as liens to banks. Aspora does about $300 million worth of remittances a month. So, to maintain two days’ worth of remittance volumes with its local banking partners, like Yes Bank, the startup needs to park away at least $20 million of capital... In 2024, Aspora chose to route nearly a third of its cross-border remittances through stablecoins. These digital currencies operate with little legal oversight and take away the need to have so much capital as a lien... In using stablecoins, all that a fintech like Aspora had to do was partner with a cryptoexchange in the originating and receiving countries. And in the process, it can simply swap the US dollar for a stablecoin like Tether. That gets swapped out for the rupee by another exchange in India. This swapping involves a fee of 20 basis points in all, said the crypto-exchange executive, as the exchanges also take care of compliance, conversion, and the payout. That’s much less than maintaining liquidity, which can add up to 1% of the total cost...

When a fintech uses stablecoins to process remittances, the recipients are in a fix. For one, Indians have to pay a 1% tax on the money they receive. Two, the instruction that comes along with the remittance would only show that the money came from an exchange, not the sender... In fact, in some cases, when users sent money to their own accounts in India, local banks, unable to see the sender, saw it as suspicious activity and blocked their accounts.

The big risk Aspora faces is regulatory. Though not banned in India, RBI does not recognise Stablecoins or cryptocurrencies generally. Only about 1% of the $135 bn annual remittances use Stablecoins for now. 

The article also has an interesting graphic about the changes in sources of remittances into India. Declining share of Gulf remittances (except Qatar) and increasing shares from the US, UK, Australia, and Singapore. 

 18. For all talk of China's AI surge, it has few listed companies in the sector.

And the US and Europe dominate the higher end of the supply-chain. 

19. The world economy's China problem in one graphic.

20. Huawei triples local sourcing ratio in smartphones from 19% in 2020 to 57% in 2024!

Huawei increased the proportion of Chinese-made components in the Mate 70 Pro to 57%. The estimated total component cost of the Pura 80 Pro is $380, with the Chinese-made component ratio steady at 57%... For the Pura 80 Pro's system-on-a-chip, which integrates multiple semiconductors, the company used the Kirin 9020 chipset designed by subsidiary HiSilicon... For DRAM, which handles short-term memory, Huawei switched from imported products to those made by ChangXin Memory Technologies. For long-term NAND flash memory, it switched to products made by Yangtze Memory Technologies. Huawei switched to products from BOE Technology Group for the organic light-emitting diode display, which is estimated to cost over $64 per unit.

21. China is not leaving even caviar!

But in recent years Chinese companies have also entered the sphere with state support, led by Kaluga Queen, a farm on Lake Qingdao. And they have dived in with such stunning efficiency and focus — echoing what has happened with, say, solar panels — that Kaluga is now the biggest caviar producer in the world. Indeed, China accounts for between half and two-thirds of global production... And Chinese officials now want their entrepreneurs to expand into other gourmet foods like smoked salmon, Wagyu beef and truffles. That is creating waves: at a recent meeting of the North Atlantic Seafood Forum, a Nordic luminary flourished a 7kg Chinese-farmed salmon on stage — and declared it to be tasty, and cheap because of Beijing’s subsidies. Meanwhile, the Japanese government has restricted exports of Wagyu genetics to China to protect its beef farmers, and some Italian and French caviar houses are complaining about the pricing threat from Chinese rivals. American caviar makers are reportedly lobbying the White House for protection, too.

22. Finally, in celebration of racial integration, the Springbok rugby team.

The one thing that unites South Africans of all colours is the Springboks rugby team... South African rugby has been so “transformed” — a word the African National Congress uses to mean overcoming the grim legacy of apartheid — that affirmative action is no longer necessary. A squad, picked purely on merit, is automatically multiracial. The Springboks’ most celebrated players include Siya Kolisi, the inspirational captain, who is Black and from an impoverished township in the Eastern Cape. Sacha Feinberg-Mngomezulu, the brilliant fly-half, has a Zulu mother and a father of Jewish heritage. The 50-plus member squad named this year by Johan “Rassie” Erasmus, the Afrikaner head coach who has led the team to successive World Cup victories, contains players from South Africa’s Black, white and so-called Coloured communities. The Springboks are a case study of what successful Black empowerment looks like. Where once players were selected from among 4.5mn white people, today they are drawn from the entirety of South Africa’s 65mn population.