Weekend reading links

1. This captures the big problems with Chinese exports to Europe.

In the early 1970s workers at Dongfeng, or “East Wind”, imported American trucks to inform their early attempts at making off-road vehicles destined for the People’s Liberation Army. Nearly 60 years later Stellantis, the European owner of the Jeep brand, is partnering with Dongfeng to produce a new battery-powered version of the iconic American light utility vehicle for consumers in China, the Middle East and south-east Asia... International carmakers, struggling for survival amid an expensive transition to electric vehicles, are turning to China’s technologically advanced and cost-efficient factories as manufacturing bases for their global businesses. Foreign companies already account for around two-fifths of China’s car exports to Europe, when joint ventures with local groups are included, according to the Rhodium Group, a US consultancy... Indeed, Volkswagen, BMW, Nissan, Hyundai and others are increasing exports from Chinese factories with spare capacity to markets other than Europe and the US.

2. A new approach to making clean hydrogen. 

Most of the hydrogen the world uses today — mainly for fertilizer and refining — is produced using natural gas in a process that creates lots of emissions. In recent years, the United States and other countries have invested billions of dollars trying to make “green” hydrogen with wind and solar power, but it has proved difficult and expensive. Now a growing number of companies think a better answer could lie underground. Dozens of start-ups are trying to find large reservoirs of natural hydrogen thought to exist below the surface. Others, like Vema, are trying to stimulate the processes that generate that hydrogen, without any emissions. It’s a field often referred to as “geologic hydrogen.”...

Hydrogen is the most abundant element in the universe, and it gets made naturally in the Earth’s crust when certain iron-rich minerals react with water and rust. This process, known as serpentinization, often leaves behind rocks with a mottled green color. For a long time, many geologists believed that any natural hydrogen produced this way was unlikely to accumulate in large underground deposits because the tiny molecules would slip away through cracks in rocks. Lately, that conventional wisdom has been upended... By the 2020s, scientists were publishing papers estimating that natural hydrogen deposits underground could supply the world’s needs for hundreds of years. One promising location was North America’s Midcontinent Rift, an enormous formation of iron-rich basalt that stretches 1,200 miles from Kansas to Michigan... The Energy Department has estimated that geologic hydrogen could be produced for less than $1 per kilogram. That would be cheaper than hydrogen made from fossil fuels and one-sixth the current cost of making hydrogen from wind and solar power.

It has started attracting private capital.

Companies are racing to find the fuel. One of the best-funded start-ups, Koloma, has raised $400 million from investors including Amazon and United Airlines and has drilled exploratory wells in Iowa. HyTerra, an Australian firm, is searching for hydrogen and helium in Kansas and Nebraska. Not everyone thinks the best strategy is to search for natural deposits underground. A better idea, some say, is to create them. In Quebec, a startup called Vema Hydrogen plans to spend the rest of the year injecting water into its underground test wells to see if it can speed up the process of serpentinization that creates natural hydrogen underground... Vema has already raised $15 million and is working to raise more. There are ophiolites all over the Earth, including a ridge stretching from Costa Rica to Alaska, and the company is looking at sites in Oregon and California as well. Other start-ups, including one out of M.I.T. called GeoRedox, are developing their own approaches.

3.  Semiconductor chips are one area where China lags badly.

Chinese companies will most likely make just 2 percent as many A.I. chips as foreign firms do this year, said Tim Fist, a director at the Institute for Progress, a think tank in Washington. The production gap between Chinese and foreign manufacturers is especially big for memory chips, which are essential for the large calculations done by A.I. Companies outside China will make 70 times as much memory storage capacity this year as Chinese chip makers will, Mr. Fist said...The inability to get essential tools from ASML has been a major chokehold for Chinese chip makers. Since U.S. officials led an effort to lobby the Dutch government to block shipments to China, no Chinese company has been able to buy ASML’s most advanced tools. Instead, Chinese chip makers have recruited engineers with experience using those machines at TSMC, the world’s top chip maker. And now, Chinese start-ups are trying to make their own chip manufacturing equipment... China’s A.I. companies are trying to get the computing power they need by strapping together numerous less powerful chips. Huawei has taken such an approach... The chips Huawei does produce are prone to defects and use more electricity than cutting-edge foreign ones.

4. This is one of the greatest messages from a student to a teacher, Albert Camus to his elementary school teacher Louis Germain after he won the Nobel Prize.  

5. Japanification in demographics.

And this impact of smartphones is striking.

6. Soumaya Keynes has a good read on the history of export restrictions and their impact, and why trade wars will endure. 

7. Southeast Asian economies struggle on the face of rising inflation from the War.

Their currencies have weakened.

The Philippines and Indonesia have already raised interest rates. 

8. Good FT visual story on maritime chokepoints.

This is a good illustration of the extent of damage from the Strait of Hormuz closure.

In a sign of Bab el-Mandeb strait’s strategic importance, Djibouti – whose coastline runs along the waterway – is home to military bases of several major countries, including the US, Italy, France, Japan, and the sole People’s Liberation Army base outside China. The Bab el-Mandeb strait is among several trade chokepoints that, when blocked, require vessels to travel more than 8,000 miles. These also include the Strait of Gibraltar and the Suez and Panama Canals...

The knock-on effects of a blockage can be much more significant where there is no alternative route to fall back on, as with the Strait of Hormuz, the Øresund between Denmark and Sweden, and the Turkish straits, comprising the Dardanelles and the Bosphorus, which act as the gateway between the Black Sea and Mediterranean. With the Hormuz strait, says Jasper Verschuur, co-author of a study into the risks of the world’s 24 narrow straits, “there is no alternative for 80 per cent of the trade”.

This is India's exposure to various maritime routes

9. Sajjid Chinoy writes that India's economic problem is less of a current account and more a capital account problem, arising from the sharp decline in FDI and FPI inflows. In the circumstances, he argues that demand compression can be counterproductive by slowing growth. He suggests a combination of depreciation and augmentation measures for foreign capital inflows.

The objective must be to attract a large-enough quantum of near-term capital inflows across multiple avenues — even if it involves a subsidised swap — to change exporter, importer and investor behaviour, and prevent a destabilising overshooting of the Rupee.

I am not sure how this is at all possible precisely when capital is flowing the other direction.  

10. For all talk of private participations and efficiencies, the long-distance railway networks in continental Europe is largely state-owned - Deutsche Bahn (Germany), Ferrovie dello Stato (Italy), Renfe (Spain), SNCF (France), and SBB (Switzerland). The Economist writes about how Italo, the private high-speed rail operator co-founded by Luca Cordero di Montezemolo, is trying to disrupt the German network. 

11. Securitisation and deepening of financial intermediation in Europe. 

The securitisation market in Europe remains moribund, comprising around 0.3 per cent of GDP compared with 4 per cent in the US.

12. SpaceX's IPO prospectus takes the widest liberties with US securities law. 

13. K-shape in US economy.

And now in wage decline

14. Ukraine's drones are inflicting massive damage and casualties on Russia as the country forces its way into its most favourable situation since the war began.

Some intelligence reports indicate that a staggering 1.2mn Russian soldiers have been killed or wounded since February 2022, a casualty figure no major power has suffered in a single conflict since the second world war... Backed by some €90bn in EU loans, Kyiv is pouring resources into domestic arms production in a bid to reduce dependence on western weapons and the political constraints that often accompany them. It has moved at breakneck speed to scale up the manufacture of land, sea and air drones, artillery systems, electronic warfare equipment, and even ballistic and cruise missiles.

15. The consulting industry is threatened by AI.  

Few industries are debating AI’s implications more intensely than consulting, whose core work of research, summarising data and producing neatly designed PowerPoint presentations is highly automatable. Richard Susskind, co-author of The Future of the Professions, says consultants are more vulnerable than other mainstream professions in part because the work of junior staff “can now be taken on, with mild supervision, by increasingly capable AI systems”. The sector now has two new competitors, he adds: “the AI-empowered client and disruptive start-ups. Both challenge the conventional model.”... AI also threatens one of professional services’ foundational economic models: billing by time. When a bot can review thousands of contracts in minutes and draft complex documents in seconds, the relationship between hours worked and value delivered begins to break down. Increasingly, clients are demanding pricing linked to outcomes rather than labour inputs.

16.  

Weekend reading links

1. China may be turning to its traditional industrial policy playbook to reduce its current import dependence and achieve self-sufficiency in food, especially animal protein, thereby upending global supply chains. 

Adam Tooze writes, pointing to analysis by the research group Systemiq.

This involves a combination of investment and innovation. Beijing is coordinating central and provincial government, state-owned enterprises and financial institutions around smart agriculture. It has licensed the commercialisation of genetically modified maize and soya. Research clusters are forming around neoproteins, fermentation-derived ingredients, feed additives and agricultural biotechnology. State banks are on hand to provide cheap finance. To channel demand, Beijing is tightening food and feed standards and tweaking procurement requirements. This is the kind of whole-system policy that has given China a commanding lead in the new energy sectors. With all the levers in play, we may, by as early as 2030, see a significant fall in soyabean demand, slashing imports from the US dramatically. By 2040, innovation and efficiency gains could plausibly turn China into a net exporter of poultry, dairy, eggs, fish and seafood. If agriculture follows the industrial policy timeline, by 2050 we should expect to see China emerging as a major source of “cultivated meat”.

2. Indonesia's President Prabowo Subianto has signed a presidential regulation cutting the percentage that ride-hailing platforms like Grab and GoTo can take from each order to a maximum on 8%, down from the current 20%. 

3. The latest on the dominance of the Magnificent Seven (US stocks make up 65% of global stock market capitalisation, up from 40% in 2010).

This is an important data point.

Bloomberg data suggests that almost 80 per cent of the S&P 500 companies that reported first-quarter results this month beat analyst earnings estimates.

4. Chinese ports facts of the week.

Chinese firms now operate or have a financial stake in at least 129 ports outside China (see map), and have spent at least $80bn on port construction from Antigua to Tanzania, with many of the investments tied to bilateral trade and regional shipping agreements. More than a third of China’s overseas ports are near maritime chokepoints, including the Strait of Malacca, the Strait of Hormuz and the Suez Canal, making them indispensable operators in strategic areas. China’s firm grip on global ports has rattled Western governments. MERICS, a think-tank in Berlin, found that after a terminal operating contract is signed, total trade with China rises by more than a fifth, while countries that allow Chinese firms to run all their terminals at one of their ports see a 19% drop in exports to the rest of the world. Operating ports allowed Chinese firms to prioritise their cargo and vessels and speed up customs and logistics...

China’s reach extends beyond physical infrastructure. LOGINK, a Chinese government-run logistics-management software, is used in at least 24 countries and 86 ports (America banned its use in 2023). LOGINK shares data with CargoSmart, another shipping-management software firm owned by COSCO, another Chinese state-owned firm, and in turn gives it access to the whereabouts of 90% of the world’s container ships. It also has a tie-up with CaiNiao, a logistics provider with hundreds of warehouses around the world... Chinese firms are also building industrial parks and manufacturing facilities close to their existing ports in Africa and Europe.

5. Good FT article on how data centres construction is triggering local backlash as residents fear for their water and electricity.

Around two-fifths of all US data centres are located in areas of high water stress, according to S&P Global... In DeKalb, a city of around 40,000 people, water demand averages just over 3mn gallons a day, rising to in excess of 4.5mn gallons at peak. The latter figure is broadly comparable to the needs of a single large AI data centre.

Data centres have already emerged as a significant driver of economic expansion in the US, accounting for 80 per cent of private sector growth in the first half of 2025, according to S&P Global... Researchers at the Lawrence Berkeley Laboratory forecast that so-called hyperscaler data centres will consume anywhere between 60bn and 124bn litres (16bn and 33bn gallons) of water on-site each year in 2028. This figure excludes the indirect water use tied to electricity generation, which the lab previously forecast could be as much as 12 times higher than direct consumption...

Of the roughly 100GW of additional electricity capacity that the US is projected to need at peak times by 2030, roughly half will be used by data centres, according to the Department of Energy... On average, American bill payers — including residential, commercial and industrial customers — paid over 6 per cent more for electricity year on year at the end of 2025. This increase was starkly higher in the mid-Atlantic states which house a large number of data centres such as Pennsylvania and Virginia, where bills rose by 19 and 10 per cent respectively.

6. Indian equities suffer from a high valuation gap with EM peers.

In recent weeks, a string of global brokerages – including Goldman Sachs, Nomura, HSBC, UBS, and JPMorgan – have downgraded Indian equities in their emerging market portfolios. The concerns converge around a common theme: Deteriorating macro conditions amid rising energy prices, weakening earnings visibility and, crucially, more attractive opportunities in other EMs... The relative valuation gap still stands at around 65 per cent—well above South Korea, Brazil, China, Mexico and South Africa. “South Korea is expected to deliver about 180 per cent earnings growth at around 7x P/E. Taiwan offers about 35 per cent growth at 18x. China delivers about 14 per cent at 11x. India, by contrast, offers 8–14 per cent growth but trades at ~19x,” said Amish Shah, head of India Research, BofA Securities. From a global allocator’s perspective, India remains expensive.

The weight of Indian equities in the MSCI EM index has continued to fall since March 2025, from 18.5% to 12.58% in March 2026.

7. India's trade deficit with China continues to grow.

On April 8, Xu Feihong, Chinese ambassador to India, posted on X: “Glad to know that China has become India’s largest trading partner in FY2026 — for the 11th straight month.” This was great news for China but not for India. The $151.1 billion trade between the two comprised $131.63 billion of exports from China to India and a meagre $19.47 billion of imports from India. It was a one-way street. China was flooding Indian markets even as it became India’s “largest trading partner”...

India must import electronics and electrical equipment ($40 billion-50 billion), machinery ($27 billion), organic chemicals ($12 billion-13 billion), plastics, steel, medical equipment, and so on from China every year. These are critical products without which the Indian economy would not be able to function. Alternative sources exist for some, but at a much steeper price. Moreover, China has diversified its supply sources, so even if not directly from it, Chinese goods would still reach India through Southeast Asian and other manufacturing bases.

8. One explanation with oil markets are still not rising as much as expected. 

In 1973, the year of the first oil price shock, I calculate from industry sources that about 80 per cent of one barrel of oil was consumed per $1,000 of global GDP in 2025 prices — 131 litres, to be precise. In 1980, the year after the Iranian revolution, this was down to 116 litres. Last year, it was 52 litres. The current level is still a lot, but the average oil burden is 60 per cent less than 50 years ago. If so much less oil is needed, real prices should have much more room to escalate before they cause the economic damage associated with previous disruptions. A simple illustration of today’s diminished oil cost burden to the global economy is to adjust the nominal price of oil not only for inflation but also for the efficiency improvements. If one does, a hypothetical price of $115 per barrel today compares with an average price of $339 in 1980 in today’s dollars. By this measure, prices have plenty of runway before the oil burden resembles 1980.

But it must be balanced against other factors pulling in the opposite direction.

Oil consumption today is more concentrated in high-value uses and in areas where there is no substitute, like road or air freight and maritime shipping. These are load-bearing economic activities, less price sensitive than discretionary or consumption-oriented drivers of growth. Once disrupted they are likely to cascade through the economy... Oil concentrated in high-value uses is a little bit like rare earths, tiny compared with the size of GDP but essential for much of it. If the size of a supply disruption requires demand to come down and prices surge to the required level, the response will be sudden with a potentially unforeseen and disproportionate impact on economic activity.

9. Jakarta's success with mass transit appears exemplary.

In 2014, Jakarta was crowned the world’s most congested city by the Stop-Start Index and a year later was ranked far below other Asian cities on livability by the Economist Intelligence Unit. Ten years later, Jakarta has the world’s largest and one of the most used bus rapid transit (BRT) systems. The old, crowded diesel commuter trains, famous for allowing passengers to ride on the roofs, are now electrified, air conditioned, and run on regular schedules linking the suburbs to the city center. There are multiple subway and light rail lines crisscrossing the city. The transformation has been remarkable: in 2015, less than 20% of residents were within walking distance of transit. Now, nearly 90% of the city has access to BRT or trains... 

The user experience has also been streamlined. All of the new MRT lines are part of an integrated digital fare system. A journey from one end of Jakarta to another is capped at 10,000 rupiah (about 70 US cents). According to WRI Indonesia, as of 2024, 10 percent of trips in Greater Jakarta are now made by public transit, compared to just 2 percent in 2015... While the JICA loans covered the cost of building the MRTS and training local staff, the full cost of operation has now fallen to the city government. So far, this has worked reasonably well, with Jokowi arguing that the cost of running the system — at about 800m billion rupiah (US$50 million) a year — is justified by the estimated 65 trillion rupiah (US$3.5 billion) in annual economic losses due to traffic.

However, much more remains to be done. 

The city has recently overtaken Tokyo as the world’s largest city, with a metro population of over 41 million people, and it is still growing rapidly. It is projected to add another 10 million people in the next 25 years. To serve this population, Greater Jakarta has only six train lines and under 250 miles (400 km) of track. Tokyo, by contrast, has an astounding 158 train lines and 2,930 miles (4,715 kilometers) of track connecting 2,210 stations throughout its massive metro area.

10. Foreign portfolio investors sharply cut exposure to Indian software firms.

Foreign Institutional Investors’ (FIIs) allocation to the Indian technology sector stood at an all-time low of 7.3% at the end of March compared to 10.1% at the end of FY25, according to brokerage Motilal Oswal Financial Services... So far in 2026, FIIs have sold $21.6 billion of Indian equities – more than the $18.9 billion they sold in all of 2025 – of which $2.4 billion worth of net sales have been of Indian IT stocks (until April 15). As a result, FII holdings in the IT sector reduced to $41.4 billion from $59.8 billion at the end of 2025.

11. TIDCO stake in Titan Company.

This state government-owned industrial promotion agency, TIDCO, has a 27.88% stake in Titan Company Ltd. That’s more than the combined 25.02% share of the Tata Group through its holding company and various subsidiaries. It makes TIDCO the main promoter of Titan, which was established in 1984 as a joint venture for manufacturing quartz analog watches at Hosur on the Tamil Nadu-Karnataka border. That company — originally Titan Watches Ltd — has today grown to a premier lifestyle accessories maker with a product portfolio spanning watches and wearables (Titan, Fastrack and Sonata brands), jewellery (Tanishq and CaratLane), eyecare, women’s bags (IRTH) and ethnic wear (Taneira sarees and tops). Titan Company earned a net profit after tax of Rs 3,337 crore on a total income of Rs 60,942 crore during the year ended March 31, 2025... at the share’s closing traded price on May 6... TIDCO’s 27.88% holding in Titan will alone be valued at Rs 1,07,873 crore... if TIDCO were to sell its entire stake in Titan Company, the Tamil Nadu government would be able to mobilise upwards of Rs 1 lakh crore and bring down its outstanding debt by roughly a tenth. The annual savings in interest outgo resulting from it will far exceed the Rs 272 crore that TIDCO received as dividend for 2024-25 from its 27.88% shareholding in Titan Company.

12. Ruchir Sharma makes some very important points about the critical role being played by retail investors in the US equity markets. Some numbers.

The share of US households that own stocks has surged this decade to nearly 60 per cent, the highest proportion in any country. Americans are all in on the market, holding more wealth in stocks than in their homes for the first time. And retail is now the most active class of traders as well. Retail’s share of daily trading in US stocks doubled in the past 15 years to 36 per cent, surpassing that of big banks or hedge funds, and making them the market price-setters. Last year US retail trading topped $5tn, exceeding the pandemic high, only this time Americans weren’t stuck at home or flush with savings.

He points to contributors to the rise of retail investors.

Three forces are encouraging small investors’ deep faith in the stock market: stimulus, bailouts and technology. Record sums of money pouring out of government and central banks, intended to lift the fortunes of the real economy, have instead been used by households (particularly the richer ones) to invest in the stock market. With policymakers rushing to rescue the economy at the slightest hint of trouble, investors have come to believe the government will always bail them out. And low-cost, mobile trading platforms have given everyone easy access to investments of all kinds.

Finally, a very important political economy dynamic arises from this trend. 

The larger the retail community gets, the more pressure builds on politicians to support the market. What was said of Wall Street banks after the crisis of 2008 can now be said of the stock market as a whole: it’s “too big to fail”.

13. The rise and rise of stock market concentration in the US.

Analysts at UBS said that a measure of how many stocks were materially contributing to the index’s performance — so-called “effective constituents” — hit a record low of 42 last week, far below the level of about 100 that has been typical in recent decades.

14. Nice interactive story of how oil from the Gulf reaches Japan, gets refined, and is distributed. 

15. The $725 bn capex spending projected by the Big Tech (Amazon, Alphabet, Microsoft and Meta) is estimated to leave them with their lowest free cash flow since 2014. 

16. Fascinating 5km split of Sebastian Sawe's sub-two-hour marathon.

Weekend reading links

1. China is rising up the ladder on higher education and research.

In 2010, only one mainland Chinese institution ranked in the top 50 of the QS World University Rankings, a closely watched global league table. By 2025, that number had risen to five, and they were positioned higher up the table... A report by the US-based Center for Security and Emerging Technology found that in 2019, a group of 10 elite Chinese universities each had a budget exceeding $5bn a year... Holden Thorp, editor-in-chief of the Science family of journals, says 14 per cent of papers accepted in Science in 2025 were from China, the second-largest share after the US, at 45 per cent... As China has climbed the rankings, many critics have pointed to the industrial scale of fraudulent or poor-quality research, driven in part by incentives that reward publication volume in tenure and promotion decisions... In 2025, Ivan Oransky, co-founder of Retraction Watch recorded nearly 3,000 retractions of Chinese-authored papers from journals, compared with 177 for US authors.

And this on R&D spending

China is close to surpassing the US in total expenditure on R&D, with China spending $781bn and the US $823bn in 2023, according to data from the OECD. By contrast in 2007, China spent $136bn compared with $462bn by the US. The OECD also calculates that China spends, on average, $305,000 on R&D costs per researcher, which is more than the European average of $268,000.

2. Ed Luce has a good description of the war in Middle East.

The war threatens to turn into a contest over which can hold up longer — Iran’s ability to produce drones versus America’s capacity to intercept them.

3. Emmanuel Macron has outlined a new more aggressive and collaborative nuclear strategy for France.

Laying out a new concept, “forward deterrence”, he offered to extend French protection “into the depth of our continent”. Successive French presidents since Charles de Gaulle have consistently alluded to the “European dimension” of France’s “vital interests” covered by its independent force de frappe. Macron has now suggested concrete steps to materialise this. These include the temporary deployment of French nuclear-armed aircraft, the Rafale, to allied countries, as well as participation in deterrence exercises. The conventional forces of allies may also take part in France’s nuclear activities. Macron mentioned seven — Germany, Poland, Sweden, Denmark, Greece, Belgium and the Netherlands — with whom this strategic dialogue has already started. This is all new and quite remarkable. Together with the Northwood Declaration, which committed France and the UK in July 2025 to an unprecedented level of co-ordination in nuclear policy, Macron’s speech signals a major development in the history of European defence.

4. Insurance premiums rocket 12-fold on ships sailing through the Strait of Hormuz. 

Premiums jumped as high as 3 per cent of the cost of a ship on Wednesday, up from about 0.25 per cent before the war... Typical prices in the high-risk region now ranged from 1 to 1.5 per cent of the cost of a ship, while ships linked to the US, UK and Israel had been quoted prices as much as triple those rates, Marsh broker Dylan Mortimer told the FT.

5. On Nvidia's staggering 75% gross profit margin.

Nvidia makes its money selling physical chips that must be manufactured in fabrication plants the company does not own. Nvidia’s most advanced AI chips rely heavily on fabrication by Taiwan Semiconductor Manufacturing Company. Its most profitable products, including the H200, Blackwell and the next-generation Rubin architecture, are made on TSMC’s advanced 4 and 3 nanometre production processes. There is currently no alternative capable of manufacturing those designs at the same scale, performance and yield. In chipmaking, whoever controls advanced manufacturing has the greatest leverage. TSMC decides how much it charges for each wafer and how much advanced production capacity each customer receives... Nvidia designs the architecture and the software. TSMC builds the chips and spends more than $40bn each year expanding and upgrading fabrication capacity. Nvidia enjoys software-like margins without bearing the cost of constructing and upgrading factories. TSMC keeps its most advanced factories running at full capacity. For now, that balance has held. Nvidia’s valuation, however, assumes it will continue to hold... At current revenue levels, every one-point move in gross margin would represent about $2bn in annual gross profit, which would be enough to move earnings forecasts... Today, the chip industry revolves around two critical bottlenecks: ASML in advanced lithography equipment and TSMC in advanced chip manufacturing. Credible alternatives are rare and the barriers to entry are vast. Nvidia’s advantage sits above manufacturing, in chip design and in the software ecosystem built around its processors.

6. Brilliant essay by Dean Ball, a former White House policy adviser who wrote the Trump administration’s A.I. strategy, on the consequences of the US Government's decision to cancel the Department of War's contract with Anthropic to use its AI system Claude in classified contexts and designate the firm a "supply chain risk". Specifically, the US DoW objected to two restrictions in the contract with Anthropic (a contract that was renegotiated with these restrictions by the current Trump administration) that Claude could not be used for mass surveillance on Americans and it could not be used to control lethal autonomous weapons which are can identify, track and kill targets with no human in the loop at any point in the process. 

The Department of War’s rational response here would have been to cancel Anthropic’s contract and make clear, in public, that such policy limitations are unacceptable... War Secretary Pete Hegseth has gone even further, saying he would prevent all military contractors from having “any commercial relations” with Anthropic... Essentially, the United States Secretary of War announced his intention to commit corporate murder... the message sent to every investor and corporation in America: do business on our terms, or we will end your business. This strikes at a core principle of the American republic, one that has traditionally been especially dear to conservatives: private property...

This threat will now hover over anyone who does business with the government, not just in the sense that you may be deemed a supply chain risk but also in the sense that any piece of technology you use could be as well... No entity with meaningful ties to government business would use DeepSeek, simply because the regulatory risk was too high. Now that the government has applied this regulation to an American company, the regulatory risk simply exists for all software... this could end up making AI less viable as a profitable industry... Simply for having different ideas, expressing those ideas in speech, and actualizing that speech in decisions about how to deploy and not deploy one’s property. Each of these things is fundamental to our republic, and each was assaulted.

7. The economics of Iran-Israel/US war.

The United States is dominating the skies above Iran. But math is not necessarily on America’s side. Iran is using low-cost drones for precision attacks in the Middle East. The United States and its allies have air defense systems capable of intercepting a vast majority of Iranian ballistic missiles and drones, which are sophisticated yet costly... The cost ratio per shot, per interception, is at best 10 to one. But it could be more like 60 or 70 to one in terms of cost, in favor of Iran... Iran’s Shahed drones are triangle-shaped loitering munitions, roughly 11 feet long... They are small enough to be launched from the back of a truck, making them relatively easy to hide and tough to hunt down. The long-range version of the Shahed drone, known as the 136, can travel roughly 1,200 miles... Built with off-the-shelf commercial electronics, each Shahed is said to cost $20,000 to $50,000 to manufacture, depending on the model... The gold standard in missile defense, the Patriot air defense system, uses interceptors that can cost more than $3 million per shot and are in limited supply. For instance, Lockheed Martin delivered just 620 PAC-3 interceptors in 2025, which broke a record for production.

8. One of the biggest casualties of the war is UAE, Dubai and Abu Dhabi. This about Dubai.

Since the US and Israel launched the war a week ago, the United Arab Emirates, which for years has enjoyed spectacular success as a global entrepot, has been the target of about two-thirds of all ordnance fired by Iran across the Gulf. For years, the UAE’s brand — and that of Dubai in particular — was underpinned by its claim to be an island of stability in a dangerous neighbourhood. Tech billionaires, influencers and holidaymakers alike were pulled in by factors ranging from favourable tax treatment to winter sunshine and a location where east meets west, convenient for Europe, Africa and Asia alike... Iranian attacks have also peppered military, infrastructure and energy targets in Saudi Arabia, Bahrain, Kuwait and Oman, confirming long-held fears that Tehran would lash out at its US-allied neighbours if the regime’s survival was at risk... The UAE’s multi-layered defence system’s interception of 93 per cent of more than 1,100 incoming missiles and drones has limited casualties and damage...

Transforming itself from fishing village to regional trade hub in the 1970s, the rise of Emirates airline — linking cities across the continents through its ever-expanding airport — kick-started a tourism industry that made Dubai the world’s sixth most visited city last year. In the aftermath of the 9/11 attacks in the US, funds from Muslim-majority nations flowed to the Gulf. Dubai opened its property market to foreigners, fuelling the city’s first real estate boom. The global financial crisis rattled the region in 2009, shrinking Dubai’s debt-strewn economy and prompting bailout loans underpinned by Abu Dhabi. But the influx of money and people precipitated by the Arab popular uprisings of 2011 boosted its economy further. When the coronavirus pandemic struck in 2020, the government locked down harder and reopened faster than others, fostering a relaxed, safe environment that attracted a new generation of newcomers: social media influencers, cryptocurrency investors and hedge fund managers. The war on Ukraine in 2022 brought Russians seeking sanctuary, while higher UK taxes lured a wave of wealthy residents and long-term residency programmes incentivised all foreigners to put down roots.

9. Formula 1's spectacular growth since its takeover by Liberty Media.

F1’s accounts for 2025 show a sport in rude health. Annual operating profit rose 28 per cent to $632mn as revenues — across media rights, sponsorship, fees from promoters and hospitality — increased by 14 per cent to $3.9bn. In 2017, when Liberty Media acquired the sport, F1 made a $37mn operating loss on revenues of $1.8bn. Big brands continue to flock to Formula 1... F1 now has 10 global partners, versus four only four years ago. Sponsors are also flooding to racing teams... The most lucrative partnerships can make more than nine figures for F1 teams. Global appetite for attending races is stronger than ever. Tickets for this weekend’s opening race in Melbourne sold out in minutes when they went on sale in September, setting the tone for the rest of the season. Last year, 6.75mn fans attended races, up 4 per cent from the year before... Bankers and financial analysts think there is still plenty of room for further growth. According to data from sports news group Sportico and investment bank Houlihan Lokey, F1 teams were valued at around 6.1 times revenues last year, compared to 10.3 times for franchises in the NFL and 11.9 for those playing in the NBA.

This comes at a time when Formula 1 has introduced sweeping changes to the cars from this year.

Owing to new rules introduced by the sport’s governing body, cars this year will all be shorter, narrower and lighter, wings will be simpler and aerodynamic redesigns will result in flatter vehicle floors, which F1 says will increase the scope for different driving styles. While engines have been hybrid for years, the balance of power between petrol and battery has been altered significantly, meaning that cars will now rely on electric power around 50 per cent of the time. The changes have been brought in for two main reasons. One is to shift F1’s approach to sustainability by leaning more into battery power and using so-called e-fuel made from carbon capture, municipal waste and non-food biomass or a combination. The other is to attract more car companies into the sport. The new engines will be “more road-relevant”, F1 says, pointing out that Ford, Audi and, from 2029, General Motors have all been enticed into producing engines as a result of the reforms.

Two new teams, Cadillac and Audi, are entering the race this year.

Weekend reading links

1. While the US tariffs are undoubtedly reducing US imports from China, the imports are substituting towards other developing countries. See this about the trends with mobile phone imports.

And, this about imports of wooden furniture.

The moot point is how much of these imports are merely repackaging and re-routing of supply chains. 

2. Has Spain reached peak solar generation?

The country has become a solar champion thanks to abundant sunshine and the government’s pro-renewables policies. But a surge in power production has outpaced demand, depressing electricity prices and profits for generators. Some power producers are struggling to offload plants whose valuations have plunged as executives talk of solar “saturation”... Operational solar plants were valued at an average of €916,000 per megawatt in early 2024, but have now dropped to €648,000 per megawatt, according to nTeaser.

... the gloom is even greater over so-called ready-to-build projects, where land, permits and grid access have all been secured, but construction has not begun. A senior executive at an owner of Spanish solar plants said: “The market is flooded with ready-to-build projects that developers want to sell since they’re no longer good enough in the current market.” Some projects were up for sale for just €1, the executive said, reflecting developers’ desperation to avoid further spending, and potential government penalties for not executing agreed construction plans. The least attractive ready-to-build projects are often far from power grid nodes, requiring investment in expensive power lines.

... low prices are painful for producers. When they fall below zero, as they have for more than 500 hours in Spain this year, producers can end up having to choose between paying wholesale customers to take excess power off their hands or switching off. Many producers insulate themselves by selling electricity through long-term power purchase agreements (PPAs), which they sign at fixed prices with corporate clients for 10-20 years... Adding battery storage to solar plants helps to limit price plunges by enabling generators to store electricity when prices drop during the day, then sell it in the evening when demand and prices are higher.

3. John Burn-Murdoch points to a rising inflation in reported children with "special needs" in US and UK, with some distortions. 

38 per cent of undergraduates at Stanford this year are registered as having a disability, as are 21 per cent at Harvard — both up from 5 per cent in 2009... The bulk of the rise in special support for youngsters is cases of non-profound autism spectrum disorder (ASD), attention deficit hyperactivity disorder (ADHD) plus anxiety and mental health, all of which have flexible diagnostic criteria… we consistently see mild, not severe, cases driving the rise... As the number of more mild cases receiving support has climbed over the past decade, average funding per child (including the most severe cases) has fallen by a third in real terms… In 2010, 1 per cent of American young people from the poorest school districts were on plans that provide special support, and today that figure is unchanged. But among those in the richest areas, it has tripled from 2 to 6 per cent.

4. The Big 5 Indian IT firms have added just 17 net workers in the first three quarters of Fy26!

5. This is what industrialisation success looks like, the example of Hosur in Tamil Nadu, the leading EV and electronics manufacturing cluster in India.

6. India's industrial power prices are the highest.

7. Consumption's share of China's GDP is lowest among all major economies.

China’s decline in private final consumption expenditure is in sharp contrast to consumption-dependent economies like the United States (US) and India, with their share of private final consumption reaching 68.39 per cent (in 2022) and 61.38 per cent (in 2024) of their GDP, respectively. Among the top five economies of the world, China has the least share of private final consumption in its GDP. On the contrary, China has the highest share of fixed investment in its GDP – almost 10 percentage points higher than India’s share. Further, China has the largest share of net exports, after the EU.

8. The biggest trade promotion policy ever? The shipping container.

Nothing has done more to juice global trade than a simple receptacle—spanning about 40 feet on the long side and eight on the other two. It could be stuffed with cargo and hoisted onto lorries, trains, ships or planes with equal ease. That humble steel box—the standard shipping container—did “more than all trade agreements in the past 50 years put together” to boost globalisation

9. The US government has announced a $1.6 billion investment in USA Rare Earth, a listed Oklahoma-based miner that controls significant US deposits of heavy rare earths. 

One person said the government would get 16.1m shares in USA Rare Earth and warrants for another 17.6m, both at a price of $17.17. The government agreed to pay $277mn for the equity, giving it an implied gain of $490mn for the equity and warrants based on the current share price of $24.77. USA Rare Earth will also receive $1.3bn in senior secured debt financing at market rates from the government. The money will come from a finance facility created for the commerce department as part of the CHIPS and Science Act passed in 2022... A condition of the government investment in USA Rare Earth was that the company raise at least an additional $500mn from investors. It is on track to raise more than $1bn because of high demand for the financing deal, which uses a mechanism known as a private investment into a public equity, often called a “Pipe”...

USA Rare Earth, which has a market value of $3.7bn, is developing a huge mine in Sierra Blanca, Texas that it says contains 15 of the 17 rare earth elements underpinning production of cell phones, missiles and fighter jets. It also plans to open a magnet production facility in Stillwater, Oklahoma... Last year, the Trump administration invested in at least six minerals companies, including MP Materials, Trilogy Metals and Lithium Americas. Some of the investments overlapped with the financial interests of people associated with the administration. The government did a funding deal with Vulcan Elements, a rare earths start-up three months after the president’s son Donald Trump Jr’s venture capital group invested in the company... USA Rare Earth has separately tapped Cantor Fitzgerald, the Wall Street firm previously owned by commerce secretary Howard Lutnick and now run by his sons, to raise more than $1bn in fresh equity financing, the people said.

10. President Trump has announced his intention to cap credit card interest rates at 10% and has enlisted the services of an unlikely partner, Elizabeth Warren, to draft legislation in this regard. 

But a study by Liberty Street Economics found that spreads are high across all levels of credit ratings measured by so-called Fico scores and that default losses cannot explain the huge spreads above FFR... A recent Vanderbilt study concludes that at a 10 per cent cap, banks could continue profitably serving the vast majority of their customers... Americans pay about $160bn a year in credit card interest.

Sheila Bair, the former FDIC Chair, has this alternative proposal.

A better approach would be a permanent cap expressed as a spread over the FFR, say 10 per cent. This would be consistent with pre-crisis spreads. It would ensure that banks pass on the benefits when the Fed lowers rates but also allow them to raise rates when the FFR goes up. At the current FFR, it would bring credit card rates to just under 14 per cent.

11. Debashis Basu on the challenges with tripling exports by 2035, a CAGR of 13%. From history, South Korea increased its exports by a CAGR of around 18% between 1965-85, Taiwan by 16% in the 1965-80 period, Thailand by 14% in 1986-96, Malaysia by 14% in the 1987-2000 period, and Vietnam by 14% from 2005-24. 

History suggests that sustaining export growth of around 13 per cent for a decade requires these conditions: Cheap currency, strong central coordination and disciplined policy execution, a large surplus of labour at low wages, assured access to large and open markets, and a willingness to tolerate overcapacity and frequent failures. India currently possesses none of these in sufficient measure. Instead, it faces headwinds from rising protectionism, aggressive dumping by China, and reforms that are often procedural rather than outcome-oriented.

12. The non-profit only mandate for schools in India is among the biggest charades. 

India’s rules continue to insist that most private schools are “charities”. The result is a system that makes it hard to bring capital in openly or take returns out transparently. Founders instead resort to legal gymnastics. A single school is often split into three entities: a trust to hold recognition and collect fees; a land company to own the campus; and a services firm to run everything from transport to maintenance. Three entities mean three sets of books, audits, and compliance calendars. Even routine decisions, like paying salaries or upgrading infrastructure, require cross-entity coordination that adds weeks of delay. Hanging over all this is the lingering uncertainty of the government suddenly cracking down on the school or changing a rule about the trust... Every rupee that leaves the account must be defensible on paper. Salaries are routed as lease payments to a land-owning entity and as service fees to an operating company. Each transaction is vetted by his chartered accountant, ensuring no regulator can later accuse the school of making a profit—before it has even run payroll.

The arrangement is captured nicely here.

13. Tamal Bandopadhyay has an interesting article on the trends with central and state government borrowings.

In the current year, the central government’s gross borrowing is pegged at Rs 14.72 trillion, and net of redemptions, the net borrowings, at Rs 11.54 trillion... The gross SDL in the current year is Rs 11.83 trillion... Will there be demand for such a large borrowing programme? That’s the challenge before the RBI. In the current year, it has managed this by buying bonds from the market, popularly known as open market operations, or OMO. In FY26, a record Rs 6.45 trillion (till February 12) is being raised through this route, more than double of what the RBI had bought in FY25. The highest OMO before this was in FY21 – a little over Rs 3.13 trillion... 

Until the global financial crisis of 2008, the central government’s gross borrowing never crossed Rs 2 trillion. And SDLs were much lower – in thousands (for instance, Rs 20,825 crore in FY07). In FY09, the central government’s gross borrowing crossed Rs 2 trillion for the first time. The following year, it jumped to over Rs 4 trillion. The next big jump came in the Covid-hit FY21. From a little over Rs 7 trillion in the previous fiscal year, it rose to Rs 13.7 trillion that year. It crossed Rs 15 trillion in FY24, and is now set to cross Rs 16 trillion in FY27. Though the size of borrowing has increased over the years, as a percentage to GDP, it has remained largely in range... But SDL is becoming a burden. Before the global financial crisis, state loans were just 15-20 per cent of central borrowing every year. In FY27, these could be 75-80 per cent; and over the next few years, SDL may even exceed the centre’s annual borrowing. The oversupply of SDL has widened the spread between the yield of 10-year central government and state government papers to 85 basis points. Typically, it is about 40-50 basis points.

14. China is enhancing state capability by recruiting more tax officers to strengthen enforcement amid widening budget deficits. 

Central and local government tax departments plan to recruit 25,004 staff in 2026, accounting for two-thirds of the new bureaucrats to be appointed from among the millions taking part in fiercely competitive national exams, according to the state civil service administration. The plans mark a fourth successive year of heavy recruitment of tax officials, with the number of appointments set to marginally exceed a previous peak of 24,985 in 2023 to reach the highest level since at least 2012… Tax authorities have also announced moves to tighten tax enforcement and to scale back the use of corporate tax breaks by local governments… Authorities are also broadening the tax base by capturing more high-income earners, including those making capital gains on offshore equity investments… China’s tax revenues have fluctuated in recent years and fell 3.4 per cent year on year to Rmb17.5tn ($2.5tn) in 2024.

15. The rise and rise of Gold.

16. India mortgage housing market facts.

Housing accounts for 18 per cent of employment, making it the second-largest generator of jobs. It has deep linkages with more than 250 ancillary industries, creating powerful multiplier effects. Every investment in a housing unit generates 1.54 direct and indirect jobs and 4.05 induced jobs — much higher than employment multipliers in agriculture (0.8 and 1.2)... The average loan-to-value (LTV) ratio is a mere 65 per cent, compelling homebuyers to rely on other expensive borrowing sources for interiors and registration... less than 8 per cent of loan originations have an LTV greater than 80 per cent... even in a relatively safe asset class like mortgages, more than 75 per cent of lending is still to “prime” borrowers (bureau scores of 730 and above). The likelihood of a “near-prime” borrower (bureau score 650-700) getting a loan approval is just 40 per cent... housing finance to GDP ratio at 11-12 per cent is much lower than comparable economies.

17. What explains the weakness in East Asian currencies despite these countries running large surpluses, the general weakening of the US Dollar, and the smallest interest rate spread with the US in years?

Heavy buying of US assets, and concerns on how to fulfil the pledges from Japan, South Korea and Taiwan to invest $550bn, $350bn and $250bn in the US, and Sanae Takaichi's large spending plans are contributors. 

18. On the historic India-EU FTA deal.

Under the deal, Indian levies on EU cars will be gradually reduced from 110 per cent to 10 per cent, with a quota of 250,000 vehicles a year. Tariffs of up to 44 per cent on machinery, 22 per cent on chemicals and 11 per cent on pharmaceuticals will be mostly eliminated. Steel and iron levies of up to 22 per cent will also be phased out over a 10-year period... Tariffs of more than 36 per cent on EU food products will be reduced or removed, the bloc said, while those on wine will be slashed from 150 per cent to 75 per cent and eventually to levels as low as 20 per cent. Olive oil tariffs will also fall from 45 per cent to zero over five years. Those on processed agricultural products, such as bread and confectionery, of up to 50 per cent will be eliminated. In exchange, more than 99 per cent of Indian exports, worth about $75bn, will gain preferential entry status to the EU... The Indian dairy industry, a politically important constituency that New Delhi has sought to protect in the past, was excluded from the deal. Sensitive EU agricultural sectors, such as beef, chicken, rice, sugar and ethanol, were also carved out.