There is renewed discussion about the reasons and how long-lasting the latest declines in China’s crude oil imports might be. I calculated that according to the latest data released by the Energy Information Administration, China is likely bring in on the order of 3.9 million barrels a day less than a year earlier. The EIA itself reports 8.1 million b/d for crude oil imports at a 32 percent drop from a year earlier, but adjusts by dropping 2.2 million of barrels of crude run on spec it would not have run in its refineries. It seems more productive to track what actually goes in inventories (currently at 1.206 billion barrels onshore or 104 days of cover), than try to resolve a distracting accounting controversy over net imports. Also with my projected decline in net imports to around 1.7 million in 2025, there was in the meantime little reason to calculate what the EIA would have reported under a different accounting convention, since we can only guess when and how resumes resuming buying, or how much storage officials will permit refiners to use. A new study by Erica Downs and Michal Meidan posted on August 13 arrives at a similar number (1.93 million bpd for net imports in the second quarter down by 3.5 million barrels compared with the same period a year earlier, though it isn’t quite clear what comparison period they mean) arriving at that number by accumulating stocks of 1.93 million bpd and concluding that the remainder of the difference is accounted for by reduced refinery processing.

First of all we have to agree that there are valid points in the report and in the other conclusions briefly forwarded by analyst Anais Downs and ond Linda Meidan of Xiean University in China. But what we question in the summary of the report, is the credulity at times, and the disciple-like reception of the challenges aimed at those critical of China.

We are not saying that analyst should not be critical of China, of course you should, and argue convincingly about your points instead of at times upwards of initiate arguments which draw how few conclusions.

The fact that no oil inventory sizes were mentioned after December 2017, by the analysis of the latest Chinese statistics does not cast doubt on the ‘strangeness behaviour’ of statistics, at some oil numbers Beijing has stops trying to keep its oil inventory size secret, It is the release of numbers that, by China own logic, that could justify larger ups and downs in buying for storage than it wants to admit.

Disciples at this academic institution earn intellectual points for initiating arguments and drawing conclusions leaving other’s scratching their heads. This timing strange but motive appears clear of Beijing plans to announce a daily stock draw of 3 million barrels a day in September that is contrary to Beijing’s interests and start to raise questions of how this target was made.

On the other hand, China’s refiners processed an average of 13.91 million barrels per day (bpd) in August with only marginally better August than refineries performance in August of 13.46 million bpd but it was the second best month so far in calendar-year 2018.

Get ready because Beijing did not show any such reluctance in releasing on Sept.15 information that Chinese refiners processed the equivalent of 13.91 million bpd last month which was up from 13.46 million bpd in July.

Let’s say you were an oil producer planning to withdraw 363,000 barrels a day from your accumulated reserves in the second quarter, and targeting an overall average withdrawal of 1.57 million bpd for 2018. Then you found out that imports and domestic production had added up to a whopping 13.27 million bpd in August. You would have never been able to justify the credibility of your plans if the data set you used also indicated that you had actually built stocks by around 640,000 bpd.

But this is the astounding effect inventory stock levels have had on crude prices - even if they have absolutely nothing to do with USEABLE stocks.

Yet we seem to be in situations where there are more and more Ponder this. If the inventory guys are using this data as guidance (which they have done religiosly in the past) then China has fallen by a less jaw-dropping 24.05 million barrels on September 9 than was the case on the last day of August. And, unless there is a whacking big draw rate between now and the end of September, this is just yet another point for the inventory guys.

If we ALL knew what the usable stocks themselves are, we could take a fair guess at withdrawal rates. And how do you calculate a billion barrels, give or take, measured by a date in the EA data? Seems a little arbitrary, doesn’t it?

Anyway, I see on a second reading of the PDS message that it is just as full of total communications spin as I suspected on the preview.

Both your arguments attempt to say that the PDS crude ceiling of 2.5 million barrels of oil per day is only the very most that could possibly be gotten out of there but you are being disingenuous when you talk about taking the 400 days it gets you by sticking 3.5 million barrels aside and then coming to say that reducing — and starting only — by 286 has no relevance to what a country actually has accessible to it. The additional 500,000 barrels being sought by Troderman may well be merely to replace withdrawals. We are actually talking about getting stock levels back to where they should be — not extra consumption. Your figure of $125 used in this context as a clearing price has supposed million barrels is also an assumption based on no verified calculation that would hold up to scrutiny. The other side will just say well it could go up to $150 if we show another million barrels. We will have to wait for increasingly persuasive data of an actual Chinese demand for crude ceiling that will not go beyond the 800,000 barrel a day level.

On August 3, I referred to an as yet unverified Troderman statement, claiming that Russian waterborne deliveries to China had fallen 640,000 b/d quarter on quarter from January through July 31. The statement acknowledged stable deliveries by pipeline — without contradicting the other deliveries statement — and added that these had improved in August. This past week, the Centre for Research on Energy and Clean Air claimed that Chinese unloadings of Russian seaborne crude had risen 28% over the previous month. It remains to be seen whether a period from January through July 31 in which all data were compatible can unveil Troderman’s claim to be true or false. Put another way: without verification of a figure for an actual ceiling of 800,000 barrels the Chinese are importing every and all pipeline routes into their territory from Russia.

According to a report from the Centre for Research on Energy and Clean Air, not only have Indian refiners shrugged off previous attempts to ostracise Russian oil exports through sanctions, the value of Russian oil imported by India has hit an all-time high in July, at an estimated €5.5 billion ($5.9 billion) worth of refined oil, when accounting for taxes paid on the cargoes. This was a 2.1% increase by volumes over June figures, and set records for the second month running that India set records in purchasing Russian oil over June.

The figures also point to the fact that the scenario discussed not too long ago when Indian refiners were expected to have purchased every replacement for Russian cargoes may not be so absolute.

Meanwhile, chairman of the House Ways and Means Committee Jason Smith said in comments on September 16, that, These are just a couple of the many reasons I am proud to propose legislation, such as the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, that would place duties of up to 100 percent on goods sold to anyone who purchases energy from Russia – a number that could reach 500 percent on Russian goods as the committee decides once the markup starts.

Smith’s plan includes a dubious reward for early childhood educators. Smith proposes to give teachers who work with children aged zero to five a fun new deduction to help them pay for things that they might have personally purchased for their students. It’s no secret that teachers often foot the bill in their classrooms to ensure their kids have all they need, Smith’s office said by email this week. But there’s no such recognition for teachers who work with older kids, even though many of them buy things for their students, too. President Donald Trump signed a sanctions package on Sept. 18. The votes were 262-159 in the House and 86-11 in the Senate. The AP report did not state which oil purchases, if any, might change first. Trump was reportedly aware that China had just ordered an additional million barrels a day. The other major pipeline interruption occurred on what is called the East-West pipeline, which was closed on September 11. Rystad Energy estimates the Saudi loss to be as much as 2.6 to 4 million bpd. The firm’s VP for oil markets, Janiv Shah, thinks Saudi inventories will be able to support its exports for now. Until repairs are made however, that could change quickly, he said.

The report doesn’t indicate whether Saudi exports have actually been stopped, only that two unnamed officials from the kingdom said repairs would take between three to five weeks with modification of American pumps progressing slowly.

The EIA report of September 14 has diesel costing an average of $6.285 a gallon and regular gasoline averaging $4.319 national. (Of course, both of those numbers include taxes, which contribute to variation by region. For California, regular is $5.827, and for The West Coast excluding California $5.026. The EIA doesn’t do a regional figure that excludes its national number one California.)

Diesel costs more per gallon than regular gasoline, so it’s expected to rise more in terms of cents. In the weekly change, for example, gasoline was up 16.2 cents while diesel was up 31.8 cents.

While we noted the EIA likelihood of gasoline sales prices making it to the national average between $5 and $6, there were really no differences in crude costs and refining margins calculated by his group than those assumed on Chinese purchasing figures and thoughts of successful transitions.

Economic supply response on the part of suppliers would be most likely seen by Indian refiners but with global availability to those barrels transferred to another buyer rather than shut in, the potential were for loss of an extra million from China. In fine tuning the original scenario, without that supply response to potential loss of an extra million barrels from China of course changes the likely change in crude target being, as we noted, flawed.

Questioning any of those assumptions clearly affecting refining conditions and resultant gasoline price range of the original scenario get a lot more complex.

The final release of gas prices and diesel observations will be on September 22, 2026, and the prices in the September 15 release are for September 14 (it sure would have been nice to know those before signing the latest sanctions)). Interested in commentary on the sanctions and some of China’s plans for 2025 imports? Check out Erica Downs’ great Eastern China. As I noted CRE’s July survey of Russian energy trade is here. So far the AP reports on the September 18 signing have gotten all the details wrong, as has this report on the Saudi pipeline (actually they said September 17 admittedly unconfirmed). In case you missed it you can find the EIA summary of their gasoline and diesel observations here and here is my summary of gasoline price components.

When the metric changes, so does who wins the US vs. China rivalry. Crown whichever country you want. But when it comes dollar rankings or purchasing power or demographic projections, none are proof of permanent economic supremacy.

You have a hypothesis that China will never overtake the United States. How would I convince you that you are wrong? First, I need to know what you mean by overtaking our country to be genuine. Let’s say I hypnotize that you mean by dollars. You’re obviously gonna assume that USA is a winner in this scoreboard, 2:1. Let’s say that difference is only our top exports and electricity. You’re basically saying you would go defend your country economy at least as aggressively as you will defend China on. You’re downright ignoring the rest of our respective countries economy which is largely unexplained. You are making sure the debate is not on that. You are just asking the experts and throwing a lot of rhetoric on both sides. Conveniently correcting, China’s GDP actually exceeds America’s GDP if you put up their respective GDPs in PPP. The World Bank dearly and promptly points out you are still wrong about.

Americans are better off than the rest of the world, although we might need to qualify it and say in what measure larger. Purchasing power parity is a measure that is good for those things where the cost to...

Even if that were true, a correction would have its limits.

Strictly, measures of PPP indicate how many dollars a government would be able to obtain in the foreign-exchange markets; never how many dollars it would be able to spend on goods. That is why the IMF gives a variety of different measures: they do not try to pick whichever will give the preferred winner. At the heart of this is the essential distinction between the domestic purchasing power of a unit of currency and that unit’s external financial capacity.

For the sake of argument, let us grant that the IMF really has been able to get a perfect measure of PPP (which is debatable).

But even if it has, that still has no bearing on the reliability of the adjusted growth figures. After all, PPP is simply a method for eliminating price differences in levels, not a logically valid method for adjusting real growth over time.

Of course it is possible to present a growth data series without specifying that it is in current prices (which would imply that the inflation adjustment is dubious) or without specifying that it actually does adjust for inflation.

The first is obvious; the second would normally be a shortcut for taking for granted that the current-dollar gap is widening (which is not at all guaranteed unless there is a widening gap in real economic capacity).

And if the latter is the case, it is game over for the nation’s economy; this is not a game of simply operating more factories better and being exquisite sensitive to currency movements.

Taking the reverse view and ascribing value to all of those factories does let us call the yuan undervalued, just as choosing the preferred exchange rate for a larger dollar economy becomes simple. But it’s been long established that picking one hypothetical valuation exercise over another is the least-difficult task. Measuring what would actually happen is a little more complicated.

It’s too early to say whether this is false cheer. Cynicism or scepticism is entirely appropriate.

The real question is how seriously foreign households or other governments concerned about protecting their domestic producers will take any sign that China is throwing in the towel.

We can go through the maths as often as we can stomach it: if household consumption is flat then any (perhaps all) of the increase in GDP must be in public consumption, investment, inventories, or (if imports are excluded) then the latter will be accompanied by an increase in domestic value added in line with whatever growth rate is being claimed in manufacturing. The required export bill puts a share of the increased rate of growth down to this.

It’s even duller than it sounds, but it’s not anything like as tedious as making dour arguments when you need to be making a calculation. Anything which can be regarded as comforting (at least in the absence of a calculation) should be just as open to suspicion as anything regarded as alarming.

We have been considering how to identify whether we are producing more than enough. This can be asked how much benefit from production the households are willing and able to absorb. But returning to the arguments we have considered thus far, we shall see that these are not purely economic questions, even though they are pertinent to our criticisms of technocrats in the Introduction. This is because the objective statement of choice we have at this stage in mind is not a predetermined result. This has already been established as the principal justification of judged economics, attempted provision of judgments of what is best as free of all biassed attitudes, an admirable but clearly unrealistic desire, is of no concern to those restraining bad state activity from counting the consequences of what the states will cause, a priori appearing state of the states, in this case because of the a priori decision to have some intervention in a prior choice of states and their direction. (Judged legitimation also a priori states directed at the desired result, familiar from the military spending case and equally unsound as jobs-program defense of the unwise-industrial-policy protection of jobs.)

Indifference to these contrary assumptions is rational because our only purpose is to maximize the number of dollars changing hands. If we assumed an equivalent improvement in our everyday life, without rising costs, it might be creating more services not yet imagined (made possible, of course, by our dutifully contributed smokestacks) or merely avoiding some negatives. Why assume we would have made that choice if Washington were our nationality? An economy made entirely of speculation would still be quite durable, for those sufficiently willing to pretend, to justify its discussion, if not its subscription fees or insurance premiums.

There’s not a straightforward relationship between energy consumption and economic efficiency. More energy consumption usually means less efficiency (unless you take into account how much energy it was used to make a process more efficient) but in the case of most energy intensive processes there’s just no way around it. More energy consumption is correlated to more energy intensive industries which isn’t necessarily a good thing. As long as we don’t have severely limited energy supplies the basic idea is that we shouldn’t care too much about how much energy we are using; the goal should be to use as little of it as possible and still be productive. Never underestimate the importance of energy but at the same time it’s foolish to overestimate it.

(As a meme, relying on Deng Xiaoping isn’t half bad. When not seeking out the seemingly omniscient one to settle arguments, the person being referenced has most likely made some sort of commitment that we trust, and gossiping about what that person never really made a commitment to is kind of pointless.)

Assessing the future of any country means considering several different paths and deciding which one is the most likely to happen, and in the abstract I will point out that three of the paths laid out for China are more positive than the most likely to happen. But doubting one of them is taken to mean doubting everything, and I guarantee you it is actually everything that leads to less comforting end states. The most interesting of those paths, the one where current policies lead to a negative outcome for the Chinese economy, I discuss in much greater detail in Greater Italy.

But simply doubting one of them (or indeed the potential for maintaining Chinese growth at all) will have you viewed as a heretic. It is interesting to note that the way to get around this is to doubt how well China is maintaining its GDP numbers but not how well China is racking up GDP growth. From this perspective, China’s growth is to be believed regardless of how it was arrived at. Why? Because assuming Chinese GDP numbers are fabricated makes your own numbers automatically better, and gives you projections that are more comforting than whatever statistics the Chinese might present.

But this is exactly what many financial analysts arguing pessimistically about China’s future do.

We heard a lot more from this man and people that think as he does; while we may agree with some assertion authentic of what the man believed (and we should not), we have to notice that the demographic arguments he offers are not worth listening to, since it is impossible to know what evidence he has to support or undermine them, and also it is impossible to know what predictions he makes about anything that comes afterwards.

Let’s have a look population paths, for instance, from Our World in Data (all the projections UN produces) and so known; Notice that the essential difference between total population or working-age population in this context and employment and output, is that Chinese workers need only achieve a fraction of American productivity to support a larger aggregate economy. Ratios of population and employment tell you something about what future rates of productivity growth are realistic. The real questions, if both countries are to have a future, is how the redistributive effects of an American demographic advantage (if that’s what it is) play out and depend on institutions, and vise versa.

There is nothing wrong, of course, in considering migration policy to enhance productivity. But then, if productivity is what can make up for our American constraints, we should be looking at every possible way of increasing it.

Two similar statements made in the above post are:

(a) No contraction in population similar to our own has ever, in the past, led to an economic collapse.

(b) Sufficiently confident predictions that a contraction in population will lead to an economic collapse.

One way of examining (a) is to think of a list of populations that have contracted and collapsed and see if they look similar in any sense that is meaningful to the argument. Another would be to examine the reasoning behind the claim. If either of those two things are unjustified, assertions like the above come to rest on nothing more than impressive confidence dressed up with a bibliography-shaped hat.

Even if the statement is justified, it does not follow that government mismanagement is the cause of our demographic future. One could easily construct a number of instances where government policy has failed to avert the consequences of severe economic constraints brought about by large demographic change without any serious collapse.

The second problem with the catch-up argument in development economics is that it does not look ahead by giving an arithmetic of growth for a period without realizing that, although being ahead might give as an advantage in growth by a constant (over time and, therefore, in percentage terms) absolute value, the assumption that this constant remains justified is a problem when growth of population is not constant (and will be, for all practical purposes, always in percentage terms). If one holds recent averages constant, growth in absolute terms of population is something one could argue for when picking a catch-up date just before suddenly changing the assumption half-way through the argument. Justifying holding recent average constant, on the other hand, is impossible unless some theory is provided regarding which mechanism under which conditions could lead it to be true for a century-long forecast immune from revisions.

Sometime between March and April, the economy will be in recession or depression. Guaranteed.

The real strength of these predictions is not the fact that such things come-forecasted by almost every economist for ages, nor a supposed ballpark of the month where some flexibility will save your ass, as if there were some special uncertainty about the month, but never related to the economy which gets none.

Nor is it the amount of luck such extraordinary collapse will take. Disrupted energy, transport expenses, fertilizer shortages causing agricultural damage, consumers just exhausted, an artificial-intelligence bust... All of that, and maybe more, on top of already strained public finances.

What I address here is not the extraordinary luck a collapse case will require. Neither am I talking about the lifespan assigned to the word This. You might be surprised to know there’s such a difference between announcing an oil shortage, falling stock prices, or household financial distress as causing tomorrow’s predicted recession and today’s depression.

When we talk about avoiding a decline in activity, it’s important to note that this doesn’t mean experiencing some type of brief, vicious cycle of prolonged collapse involving employment, production, and a financial crisis. At its worst, it will manifest as obligations that cannot be met and losses spreading. Perhaps a sequence of expensive groceries feeling miserable. But this is not the case we see now.

The situation will be more difficult to see when we are moving in and out of conditions like the ones portended by the above description. It is much clearer when you can put up a deadline in spring when some of these things happening to squeeze production, consumption, or financing. What could add up to damaging effects. But we must also stress that some of this has to give. In trying to avoid households buying less, businesses accepting lower margins, or investors all taking losses, it will be down to governments, making expensive interventions that leads to a somewhat impossible situation. Our forecasts will typically present us with some details on this front.

Start with the word blocked

Conversely, if energy-related effects ever could make conditions like major shipping routes remarkably unavailable or simply moving into a less productive state, surely beliefs that alternative pipelines or similar projects could lead to closing down petrol stations could suddenly turn more reasonable. Fuel not only is critical to freight, but sustains agricultural operations and industrial production too. Stalling businesses from taking care of their efforts would force increasingly difficult choices as inventories that are accessible gradually would run down.

Consider what blocked means. It may not yet be clear what the word means in relation to duration, but it almost certainly means greater than brief, therefore. Does it mean all, or could some supply be moved, albeit at greater cost? Who are your buyers assuming you rely on the word for your forecasts and have kept hidden these conditions that are central to your assumption?

What are you assuming? Could some supply be redirected? what if particular users substitute another input, what if production continues albeit at higher prices? All of these conditions would suggest that your forecasts could be more accurate and consequently ultimately much more valuable. Assume you are just a little slow in preparing them. Expensive however unsuitable you may assume the level of relief that is being searched for.

Popular as the quote became, an alarming rental for a particular class of tanker, on a particular route under a particular contract for a particular date, does not preclude it being the price or rental offered for that particular journey. It will not however, necessarily match the charge for transporting every cargo or predicting the eventual increase it will cause in the supermarket aisle. You can be certain however that the household receiving the higher grocery bill will not care, you had better be certain that anyone forecasting that bill is.

The signals and noise problem is particularly evident in this cycle, for two reasons. The price spike has hit energy and transport (both major inputs to fertilizer) so it’s possible that the connected description of the same shock could lead to spikes on all three fronts. Counting the shocks separately could actually amplify them, and independently confirm what is likely an inevitable cascade.

This is a commonplace in the dynamical systems we’ve been looking at for the last few days. Simply ordering and timing the shocks allows us to calculate their effects on the system, and determine the properties of the system that will be threatened by a collapse.

We can’t do that in our situation, because we don’t have a deadline. And while it is useful to think of plausible sequences, and expect that some of them will actually happen, it doesn’t prove anything. Lastly, it is dangerous to make the same expectations of dynamical systems of our thinking on sequences, instead of on the ordering of events.

And the household still has bills

The impact on families and households is obvious and it is yet to be seen how much it will constrain consumer spending. After a certain level the aggregate amount that can be borrowed by consumers will be limited, and lending conditions are becoming more difficult. Besides, something will have to move in the household budget when you are already close to the edge. This is true, but consumers as a whole is not a single household. The real question is how many people are having an immediate problem making their payments, how many are feeling the pain of higher essential costs. Of those, how many will cut back on discretionary purchases and which creditors will be affected. Private hardship without a doubt contributes to a wider contraction when there are sufficient numbers, but we have yet to see how many will be financially exhausted.

It’s better to run a household than an economy: most households should be able to get by, and not every household that is forced to scrimp and survive will mean that the economy will no longer be producing and transacting. It’s true that there will be particular households where the pressures are intolerable, and one could make a forecast of severe hardship in the future.

But most of the data we look at to figure out what is going on in the economy is backwards-looking. So even though it is impossible to predict the precise timing of any possible collapse, those of us who would like an economic prediction need a better idea of what to look for.

How do we know we are in one in process?

The most important point is that economic activity has not ceased completely. Families might be postponing new purchases or waiting to make investments in their business, but as long as they continue to buy essentials there is some economic activity, even if the displacement of other spending means considerable damage is being done.

At least for survival, then, we have defined our standard.

It would be silly to hold the economy to such a low standard for prosperity in 2028: we’d be better off looking for firms that have failed and investments that have disappeared.

But these will still be ones that will cause households to suffer lasting losses and create serious political problems.

Who owes whom?

Much of the discussion of the ill effects that a proposed artificial-intelligence bust would have focus on comparisons to earlier bubbles. There are certainly lessons to be learned from those. But the practical implications of what might happen next depend in part on which aspect of the business cycle is guiding comparisons. Take equity valuations, for instance. In a traditional model, large gains from investment commitments translate into operating losses over time. But in this case the pressure on the financial system is very different.

A traditional business cycle holds that any industry causing so much damage must have a bunch of participants that are all relying on the same source of funding. We don’t have that component in this cycle. For one thing, much of the equity valuations are simply priced into expensive shares. Speculative borrowing is also absent. So rather than worrying about obligations owed to some sort of financing (who owes whom?), investors ought to be much more focused on the question of what sorts of projects they’re committing funds to, and how much money they stand to lose.

A fall in asset prices could trigger a shortage of cash needed to meet obligations only if it can be shown that one or more obligations will not be met. Otherwise, any disappointing investment could be promoted to the status of a financial emergency. It matters if this turns out to be an investment boom that merely ends badly (because of a fall in confidence, perhaps) as opposed to a boom that goes poorly for other reasons. A really rich appraisal of past experience, perhaps with some better resemblance than mere mood, would be helpful in this respect.

The buyer steps back. Then what?

A rising tide of public debt could one day drown an economy, crushing it under the weight of servicing ever-growing debt. It’s a rare fact, though, that draws attention away from the public in pain, as it shrouds in darkness the problems that add to its burden. What happens when the demand for foreign buyers goes down? How high will financing costs have to get before demand goes back up? Does it really matter when the foreign buyer has so many choices of securities? What other buyers will be attracted and at what price? What affect will changes in financing costs have on spending, taxation, and credit conditions?

When one foreign buyer steps back, it’s hardly a door closing on the forecast.

But simply articulating all potential adverse scenarios does not justify assigning certainty that they will all materialize. Perhaps even a severe energy shock will not materially relax household spending, relieve speculative investment, or bring public finances under additional pressure. Yet the potential exposures could also react with one another and increase the scale of themselves, on the theory of compounding.

Assigning certainty to every single aspect of this issue, whether we are identifying size of exposures, insufficiency of buffers on hand, futility of all potential responses, requires significantly more evidence than merely listing a long inventory of hazards. We cannot simply assume that an inventory is complete, let alone have certainty that the evidence will point in a certain direction.

Suppose spring comes and goes

What, then, allows for continued economic activity, even into 2028, in the absence of any adjustment? Simply the fact that an adjustment will mean people and businesses plan on less consumption, some businesses will close or shrink, investors take financial losses, and governments pay the costs, not a comfortable adjustment, but how we continue when some parts of the economy are doing badly.

An inevitable-collapse forecast needs to explain why that response is insufficient; merely describing the pressure leaves that task unfinished.

No one could’ve doubted that it would really be a miracle if we were to emerge from another year without suffering even one serious economic loss, if not a recession. Nor is it essential that every arrangement now in force should survive. Many arrangements and enterprises are bound to fail; businesses, projects, and households will cancel their plans, suffer losses, and, ipso facto, in all probability, never recover. This may be serious, but the significance of these failures can easily be assessed by the way we consider or characterize their possible outcomes.

Their significance becomes serious, if we start qualifying the expectation of collapse as final. As long as the expectation is simply an observation, the logical structure of the argument is correct. It is as yet undecided whether in future there will indeed be confirmation of the forecast of collapse, or whether at the last minute it might be called off. And on what basis could we decide this? If the conditions deteriorate, that is confirmation; and if they improve, it will be temporary, so the deadline can simply be moved.

If spring arrives and finds people still able to pay for necessities, businesses not yet cutting jobs, and families going about their lives without purchasing the things they need, it will not mean we avoided the promised collapse. It means we have bought more time. But that answer cannot explain every possible outcome forever. If things getting worse confirms the forecast, and things getting better merely postpones it, what would ever count against it?

There may still be families struggling with bills when the deadline passes. Their hardship deserves attention whether or not the promised collapse arrives. It would be a miserable result if an overconfident prediction gave everyone else an excuse to stop listening.

References:

U.S. Energy Information Administration, World Oil Transit Chokepoints

International Monetary Fund, Rising Global Debt Requires Countries to Put Their Fiscal House in Order

In the wake of the September 16 turmoil in Turkish markets, fund managers have discovered a liquidity shortage. That can lead to uncomfortable questions about investor rights, but the bottom line is a manager’s need to buy time, which may be at odds with an investor’s plans for the money. One of them gets to change the timetable, however.

Turmoil in the Turkish market played out on September 16 to the delight of traders in all markets except, it seems, Turkey. In the seconds before Borsa İstanbul’s market-wide circuit breaker secured an orderly close to the session by halting the index’s free-fall at 16:04:32, it was no fun to be watching the BIST 100 lose 6% or more. Anyone who happens to be an investor in one of the funds around which dark clouds have gathered at Tera Portföy may find it considerably less enjoyable than the developments taking place now related to the trading halt are.

Tera went into low-frequency, monthly pricing for two of its funds (TLY and DOH) that now require payments ten business days after their valuation for only certain classes of fund unit. It is also in notices of default in fund-unit redemption payments related to two other funds (THF and TP2). It should be clear, however, that Tera did not voluntarily shift to monthly pricing. What should have been the easy process of getting out of these funds has proven to be very difficult indeed now.

An announcement of a potential change to future redemption terms should not be lumped in with a failure to make a payment already due, no matter how many uses of the terms liquidity management are included.

Taken together, two notices that failed to inform investors about either the cause of the wider market’s decline or the urgency of the question of who will be supplying cash and when, reveal nothing.

If an investor is to be asked to give a manager a little time rather than settle up immediately, as would normally be their right, then it follows that an investor should also want to know exactly what that manager plans to do with whatever additional time they are being granted. Asking a seller to wait while an injection of capital is awaited is a reasonably optimistic interpretation of the situation, but waiting for a receiver to be paid, or for someone else to sell them an asset, is a lot less desirable.

Investors given little information on what extra time will solve, should be a lot less inclined to agree to grant it.

If you’re contemplating a plan with low chances of actually working, the one advantage is that at least you get to describe the monthly pricing carefully. What you can’t avoid for long are the holdings underlying the portfolio, which will continue to be changing in value, making it hard to get away with just moving the date of valuation for a month off. Not when your investors are going to have their exit price fixed-set at the next valuation, and so know the amount and the date on which they will receive it. Of course, if this exit price is usually made payable ten business days after the order, you can try and be devious and claim that it meant ten business days after you have invented a future monthly valuation. Making it awkward for your investors who have decided to leave, and have to carry on bearing the investment risk while they are waiting for the price to be fixed. But if you care so little about the devious ones, you probably don’t care that if the portfolio recovers while the decision to sell didn’t actually do anything to end the exposure, and if it falls further, it’s true that the decision to sell was right, but not on the timings.

Assuming that I need to raise the $10 million, I sell my securities to Sam today and agree to buy them back from him next month at an agreed price. Sam advances the cash and holds the securities in the meantime. There can be no guarantee that if I cannot complete that repurchase, someone else will pay him the same amount for the securities. While Sam might cut me some slack in terms of the repurchase price, depending on the market conditions at the time, he is probably going to want some haircut, or additional margin, to protect himself. Everybody concerned is actually better off if the securities can eventually be sold. When the time comes to actually sell them, yes, the contract will matter, but so will the market. ICMA has spelled all this out, including the possible risks for the collateral. The good thing about repo is that it has largely mitigated the risks caused by its structure, but that does not mean they do not exist.

Sam, as the cash provider, needs to know that the securities he is holding really fit this bill. To elaborate on all those things that are carefully avoided in our example, the arrangement gets a touch harder still if the money borrowed is of a sort that its providers expect to have prompt access to it.

An illustration of the mechanism for establishing the role of particular funds in the transactions. We can look at transaction records showing which funds were matched with which counterparty, in what amounts, with what collateral, and with what repayment deadline. Plenty of ways to know something will be safe absent a repo counterparty (we know there’s collateral), but part of a proper assessment of risk is not just knowing that there’s collateral, it’s being able to form an expectation, however imprecise, about how much that collateral will sell for, in what quantity, at what discount, and how that value will not be impaired along with the borrower’s cash.

It’s the classic bad news. You may be able to sell a troublesome holding with a perfectly observable market price, but that may just be tough luck if you also need to sell a large relative amount of that position in order to be satisfied. Alternatively, you may be able to sell something else instead — that doesn’t get you off the hook for worrying about how you will meet the next payment, but potentially gives you something you don’t need. Or rather your remaining investors will be holding a portfolio of which the harder exit will ultimately have consequences and someone will need to wear, maybe in the form of transaction costs or a loss or something else.

I have a bit of an issue with the rhetoric of protecting investors: it’s just so vague. Which investors? For what period? From what particular loss? I know what they mean, of course, they just seem to aim rather more broadly than is strictly deserved when the benefits they stand to enjoy by the action they’re considering will be accruing to a certain demographic and the costs to another.

Is a fund manager being disingenuous if he says he’s doing this to serve everyone? Of course, they’re always serving someone a little more than someone else on occasion. There are just too many variables conflicting for it to go any other way.

I don’t fault TP2 for pursuing a measure in order to recoup any defaulted redemption-payment; I hope they manage to, I would think that anyone still invested in the money market fund would share that feeling. It just rankles with me, how they seem to imply the investor who chose to remain invested did so merely to have the satisfaction of watching others not get at their cash, rather than thinking they would also have access to the fund, which they did indeed expect and had every right to.

A temporary liquidity shortage is one way of describing the situation at Tera. An adequate description for sure, possibly even an accurate one. But of no real use, unless you’re an investor in the firm’s equity fund, who really ought to have a detailed understanding of how, and when, any repayment is likely. And: if it will be made with the help of new borrowing, what the terms of that borrowing are likely to be.

Though additional financing may be welcome if it enables a fund to avoid a damaging sale today, in itself it doesn’t indicate whether it’s going to be a sensibly choice. If the new borrowing goes down as a new line on the fund’s interest payments, or maybe even a pledge of its assets, it’s more likely to prove unwise. But deciding whether something is a sensibly choice, or not, requires a lot of work behind the scenes.

For an equity fund, the end is sure. A lender will provide the cash needed, ie the investor can expect to be paid. Tracing the connections behind the accounts reveals a more complicated picture, and different implications. All are likely to be accurate accounts - a clear account of the exposures is vital - but you cannot infer the connections by looking for things that share a manager, or have overlapping holdings, or had a bad day in the market.

I saw one recent fund presentation in which they asked for more time to make payments. It’s good to know it’ll allow them to concentrate on collecting their receivables, but knowing that doesn’t tell me if they are asking for more time because they are facing a temporary funding interruption and need to arrange financing, or if they want to be able to take a little more time to value and allocate losses that haven’t been recognised yet.

Extending the calendar doesn’t tell me which situation it is. Don’t get me wrong, I’m happy that they are making the practical decision to stop and concentrate on getting things right, I just wish they weren’t making the practical decision to stop and extend the period between order and pay!

When I next look at entry and exit terms, I think I’m going to spend a bit more time checking how much flexibility each side has to change the timetable, what happens to the orders already submitted when someone does make a change, who carries the market risk while an order is waiting to be priced and what happens if they miss the payment date.

It will be rather easier to settle these questions when you still have the option of putting your money somewhere else rather then when you have already crossed the deadline for withdrawal.

Related:

Turkish Funds With $7.5 Billion Assets Default on Redemptions

La Bolsa turca se desploma un 9% en tres sesiones por los problemas de una gestora de fondos

Nor should tried-and-true common sense be entirely dismissed as an invention of the left. For the ironic alternative extremes are right there to engage with. Do the ultra-xenophobia of the new Swedish nationalist government, for example, really reflect the grounds for condemning the dynamics of the global economy in favour of some older, idealised, and increasingly untenable world of nation-states? Or is it simply the latest cry of those unfortunate ex-pats who are still unable to find the wherewithal to thrive in the very world of new breakthroughs that they have otherwise so successfully insulated themselves from?

No, tried-and-true common sense really is being taken to new extremes in this new affiliate-phenomenon, where the scope of perspectives available broadens to the point of overwhelming you with yet more variety, and yet more extremes. Engaging with it all requires first taking your eye off the moorings of the age. It means checking out some of those perspectives to make sure the sight is still not deceiving you in the investments you are prepared to make.

To appreciate the full stakes of the question consider the citizen: naturalization is essentially membership in a political community, not an expression of permanent party preference or turnout record, or even of lifelong obligation to reward the government that granted citizenship. All of these can certainly change, and indeed sometimes do. Nor does it matter much to the citizen whether the weight of political storytelling on a particular voting preference or set of groups is convenient or disastrous; it is the latter only for understanding.

But the kind of attribution that seems plausible in a comparison, when justifying a voting preference, becomes much less certain when the question is who would have been on the winning side but for support from the group. For not only do we not know how other eligible people would have voted, or how the group’s participation today has affected their behavior; we do not even know how their support for the parties might have been affected.

Once you’ve been through all the work of scrutinizing the results of a close election, the temptation to avoid diving back in and actually doing something may be strong. Which is too bad: what’s really most challenging about narrow-margin elections is the urge to declare a single cause of the result. People are reluctant to accept that so many things might have been different — from the weather to the mood — which, in retrospect, can make all the difference. Voting patterns are endlessly complex, and small changes can shift results in big ways. New people might have voted, or older campaigns might have failed, or a million factors could have combined.

All of which makes the complaints about new Canadians voting for the Conservative Party so futile. There’s no inherent reason to assume a relationship between the two activities, nor to think that any such relationship reflects poorly on the naturalization process. It’s simply an expectation that, once a government is elected, it ought to receive a measure of electoral gratitude from those that it has welcomed as Canadians.

In his latest column, Andrew Coyne responds to spurious accusations of disloyalty to a party long since out of power. Of all the things you might say about the Conservative party’s woeful citizenship policy, the one thing you can’t say is that it’s an admission of failure to convince New Canadians of its conservative message.

That presumes competing for our votes is a matter of persuasion. Losing our votes is done to you. And it’s up to the party that was losing, to figure out why, and how to change. An obligation to re-examine its message to see how it can resonate more broadly, in other words.

If Andrew’s right, Can it be quantifiably shown that new citizens– workers, parents, entrepreneurs, future taxpayers– are classed not as an asset, but as a potential loss to be written off and lumped in the opposition? I would love to read it.

This harder argument can be put in terms of the change that membership will mean for the institutions we have. If there are not too many considerations of this kind to take into account when assessing our present institutions and how they work, the question of eligibility makes the whole assessment very much more complicated. This is especially true if immigration has to be assessed in terms of who it would allow us to vote for in future. Everything about the eligibility rules is now bound up with the administrative capacity we possess, how easily people can be integrated into our way of life, and how confident we can be that the rules will be enforced. The more complicated our rules become for electoral reasons (how legitimate soever), the more difficult these other issues are likely to become.

Of course it is a serious question whether any such last consideration should influence our immigration policies; it is quite another matter to believe that it should.

Empathizing with our fellow citizens and seeing them as allies in a common struggle is much harder when one views them as the members of rival demographic teams.

To put it in slightly different terms, demographic determinism may tell you a lot about the arithmetic of the future of our political parties — and it would definitely make a lot of data points about voters’ attitudes very easy to interpret — but it comes with a heavy analytical cost, since it implies that parties will never need to adapt their messages or priorities, their supporters will never grow disillusioned or disappointed, and their children will never reject their political loyalties.

This doesn’t mean that prediction will be more difficult without a version of demographic inevitability. In fact, it makes things pretty easy: If the only future we could imagine was one of voting populations growing older and better or worse proportioned by attributes, but otherwise set in its pattern of behavior, we really could just treat citizens as unchanging demographic data points.

In that sense, you could say that a version of demographic inevitability that took active politics out of the equation would only apply to people who are not yet citizens. We could regard established voters as being the country, and treat newer citizens only as a force acting upon it, acknowledging their legal inclusion while insisting on their exclusion.

Broadly speaking, any argument for the durability of partisan advantage that fails to state its assumptions clearly is best understood as one that relies on preference persistence, participation, and responsiveness, and simply hopes that these assumptions will be met in practice, rather than ones that are laid down at the start as premises of a more sophisticated argument. After all, arithmetic cannot rescue an unstated premise.

The unstated assumptions in the case of the narrative of nationalist momentum are similar, but less surprising: they are that resentment of demographic change will cause pressure for stricter policy, and that the demands of resentment will be less vital in deciding who will govern and what measures are passed than how well the institutions constrain their response. The tension with these assumption in the other argument — that nationalist parties are facing permanent exclusion from electoral competition — has gone unremarked upon so far. Either it is an oversight, or else it is itself an argument that the continued dominance of nationalism in the future will be unaffected by the exclusion of nationalists from government. The last point, however, requires that some mechanism be laid out.

Europe needs an alternative explanation; a Swedish interpretation, enlarged into a credible continental argument, needs to consider countries in which the proposed mechanism fails. At some level, one more facet of nationalism that doesn’t need a label is undoubtedly risk-friendly; if the market goes up after a nationalist victory, anyone who has put their money elsewhere will be motivated to put the blame on the frustration that is feeding the trend. Any influence that opponents of the trend can have in persuading its supporters to adopt even stricter policies is drowned out by the sound of money being made — and lost. There’s no end to debates about the meaning of trends and what they will lead to, unless you either tire of them or come to accept all the possible outcomes as no worse than long-term exhaustion.

If you’ve spotted an investment story behind the political-intensity-of-markets theme, you’re thinking like an analyst in a discipline that embraces all the concepts we’re discussing — nationalism and its variants — but sets investment intensity and urgency in the context of each specific commercial case.

Unless you have a way to establish a cause-and-effect relationship between one specific type of spending and greater national security, policy decisions regarding the budget generally run the risk of being fuzzy at best. Who calls the shots, and what decisions are made based on their priorities? As a starting point, ignore for now the ways in which all sorts of political and economic factors affect the budget and spending priorities. Consider simply that the funds devoted to defense could be used for any number of projects that would contribute to greater national security — procurement or implementation strategies for some, recipients or choices for others. Although the pitch sounds good and correlation surely exists, it’s hardly a perfect one. The same is true for an investment thesis: you could endorse greater national security and still have no particular reason to believe one particular business will perform better because of it. Which business might be better for surveillance, or cybersecurity? Or a variety of physical infrastructure projects? All stand up to their own arguments, but placed side by side under a concept privileged by political heading, they will have no guarantee of being correlated on the purchasing decision.

So consumer preference for domestic manufacturing has wide-ranging implications. But there are so many practical questions to work out. Which firms will be beneficiaries? What exactly will they be expected to deliver? And what obligations does public support create? If you assume protection, you can make a political case. But you can’t own the political situation. In budgeting for a prospect of disappointment, you also can’t own the investment case. You can’t accurately forecast the political situation until you finish developing the investment case, just as you can’t finalize a commercial inquiry without knowing the price of the transaction and the expectations imbeded in it. You can’t assume any case will go through without at least some disappointment; to make such an assumption, you need to know what has to go right first — and have a question of ownership of the analysis.

Investors should think about timing issues. It should be clear by now that when there is a political theme in play it may be difficult to make the decisions required to support a particular investment because of the timing of things. Sometimes an election may come along, or a policy announcement, that creates an executable commercial opportunity but not manages the timing of the decision well. We have noticed in some countries a bit of a backlash against nationalism that appears to be inconsistent with the legitimacy of the purpose. A government that puts national autonomy ahead of returns for outside investors, for example, may be right to support a business out of domestic capacity or the promise of future employment, but it may both be at odds with that business’ objectives and give the business a pretty good excuse for thinking that their political alignment looks pretty good. Political alignment is, in principle, a pretty good thing, but it requires a good deal of specific examination as to exactly what is meant by alignment, and what conditions are required for the alignment to hold.

The shareholder will be most impressed by the factory and will look for a chance to sign the invoice. The minister of finance may admire the same building, but his objective is entirely different - he would like to see a sharp disagreement between the two over who pays the invoice. There are few choices of investment thesis that are as easy to identify and, therefore, any number of choices for those who are willing to do some real research in find out which businesses are most likely to meet the proposed policy.

References:

Swedish Election Authority, 2022 Election Results

Council of the European Union, Security Action for Europe

The government bails out a company in an economic emergency. It’s only right that the terms are clear as to what will happen to the people who own that company and what is happening to their investment in that company, especially when large amounts of public funds are going to protect that investment. Security of control is a perfectly reasonable demand to make in any settlement with the public.

This is, of course, an entirely different matter from the bigger argument as to whether wealthy interests should have any political power at all in a democracy. It is, in fact, to the benefit of critics of influence-buying to focus on particular decisions, rather than principles. Once a particular person or company has been proved to have benefited, it remains to prove that the particular person or institution was willing to prolong a war deliberately to make its investment profitable.

There may be a compelling reason to rescue this company (other than the simple fact that it employs people). On the surface, it seems that owners of a company who made bad decisions should eat the losses and not expect the public to help them cope with the consequences of their refusing to take responsibility for those decisions, even if it means lost jobs and interrupted services that damage other businesses, too.

Still, it may very well be possible to make an even better deal if enough voters can be persuaded to make up the difference, leaving everything else good or better while leaving the responsible people completely free of any consequences.

So, then, what is the urgency about an agreement whose terms are not revealed?

If they have to be protected for this specific agreement to work, then we have a true tradeoff that voters must decide is an acceptable one. The issue also gets more complicated by considering that different debt holders and investors with varying levels of equity may have all sorts of claims on the company that they would not have in the absence of the deal.

What exactly is the objective, by the way? Keeping the service available? Preserving jobs? Preserving the ownership arrangement? Depending on the details, the answer may be yes or no.

If we want to make the most of the situation, one of the most important steps is to identify exactly who you’ll be offering support, and what obligations you might be imposing on them, and what might happen if those obligations were not met. The first proposal you have to offer might not be the only possible way to save the company, or to save yourself.

Don’t give yourself a reason to believe that the wealthy always win just because you have no money. It’s already a struggle to understand the real reasons why a household struggling to pay food and fuel bills would be infuriated at the idea that someone else might have their trouble financed out of money it has worked hard to earn, or that the help it was ever likely to get had been postponed, reduced or transferred into something with a more reassuring name.

Give them answers to these questions, and tell them that you have taken time to look at the answers in a way that makes sense. It will be money well spent.

Happens far too often.

A homeowner desperately needs to sell to an institutional buyer willing to pay a low price. A homeowner caught in a downturn may have no money and no capacity to wait for prices to return. Technically both parties can refuse the price, but one can live with the consequences of refusing and the other cannot.

Suppose that public policy supports the buyer in these situations and provides substantial backing, providing no comparable room for the seller to wait.

Have the economics changed? Have the respective abilities to hold out changed? Is public policy providing too much support to the buyer? Why? What public purpose does it serve? Are there alternatives? If public policy feels the need to keep the household in place, would that not be preferable to putting the seller on the street? Does this all flow from the particulars of economic fundamentals?

Or is it simply prescribed by expensive energy and dependency on Europe? If the latter, does it indicate an organized strategy to put pressure on allied countries? Or coincidence? If coincidence, there may still be a conflict of interest to examine. Who wants the concession and why would an official approve it?

In reviewing material on conflict, questions are often raised about the beneficiary of a conflict of interest and the chance it will be exploited or has been exploited. Having an opportunity to exploit a conflict of interest is something that deserves investigation.

Do we really need a subsidy to develop a particular technology that would be viable without it? If the business requires a bailout to survive, what happens to the value of labor? Is there an obligation to retain employment or continuity of service in return for public funding? These are important questions to ask before approval. The value of research into these conflicts is undeniable.

The public good should be a primary consideration in deliberation and in holding a company to a contract once formalized.

If a company goes to the government for support, and in return makes a bargain that includes a commitment to the public good, then there should be a written contract clearly articulating its concept of success.

Going forward, if and when the company becomes profitable again, there should also be a way to establish whether workers and customers and households received the something better they were promised. The company will be held to whichever result it contracted to deliver. The point here is that something specified in advance cannot simply be substituted for something else after the emergency is over.

Public decisions usually require some kind of written record, if only to make future decisions about maintaining them more secure. Those seeking to provide more security for people may be making a mistake if they bet on a financial breakdown severe enough to disrupt elite power without evaluating its costs and consequences. A collapse of the petrodollar would need that scrutiny too.

It is all the more important for decisionmakers on such significant matters to keep a record of the decision, allowing others to verify that these questions were carefully considered. Candidates who skip out on such scrutiny shouldn’t be occupying decisionmaking structures of the country.

Many of those who wish to pursue tax reform aren’t precise about what conditions they’d want to support. Some won’t even tell you that they want to raise your taxes. Why not force their terms to be defined? There’s no obligation to spend time pretending not to understand tax-and-spend agenda items. Whether a proposal to raise taxes on wealthy households and corporations would affect your own check, or your neighbors, depends on its terms.

Instead, take up the task of arguing principles. Anyone who wants to raise taxes is going to have things they want to fund, for better or worse, so they should readily admit, nay embrace, the next question. Which households and corporations, including the biggest but also the next biggest, do you plan to raise taxes on? And what mechanism, if you have one, do you plan to use?

I’m happy to accept the scheme of things that puts healthcare, childcare, housing, and other priorities ahead of my own commitments to work and study when I see others doing the same to tend to their own relatives. I may find it hard to do all of those things, but I manage. Those who have been so unjustifiably impatient with this discussion are at a loss to understand how others with what they could justifiably call more important obligations can’t seem to pay their bills.

If our impatience comes from the privilege of those who’ve done well in life (and I think it’s perfectly reasonable to expect that the old-fashioned way of earning it by education and demanding work has its pride of place), then who can blame those who expect their families to appreciate that fact? Indeed, they can hardly be blamed for expecting the pleasure of a successful family when they see prosperity as a measure of the national economy and not a zero-sum game.

I believe it is a more caring person who goes through the effort, once at the top, to see how they can enable others. The desire is to make things more affordable, more manageable, and more secure.

It is still said that everyone is entitled to their own opinions, as long as what they wish to do does not restrict others in what they want to do, own or study. So, as long as there is an understanding of the terms and conditions in which the agreement was made, everybody should be able to get along fine.

However, when you want an asset to hold for the long term and see the benefits of that but also need the money today, advice about holding it long term may not help. What if it is not the right time to cash in, and being patient could be the best thing for the investment, but you have to cash in so that you can live comfortably in retirement?

Also remember that in both examples the people giving advice may have real security in their lives. They don’t necessarily know the conditions, arrangements and responsibilities you are working within. That is why their advice may not apply to you. When their advice becomes your expectations, holding on can start to seem like an obligation even when it no longer makes sense.

Generational wealth is of course a nice thing, but helping the next generation get a chance is fundamentally more important. Any policy that takes opportunity seriously must take this into account. Conversations confined to rescuing people who already possess generational wealth leave that question unanswered.

If talks about the next rescue begin, there will again be tremendous pressure to approve it and sort out the uncomfortable questions later. Those who choose this arrangement today will leave their successors with obligations never properly written down, making recovery of the public benefit considerably harder.

References:

U.S. GAO: TARP transparency and accountability

Consumer Financial Protection Bureau: Options for homeowners unable to pay their mortgage

OECD: Adult learning and barriers to participation

It is an indication of how mainstream the AI madness has been of late that chip makers are now getting into the financing business, most notably Nvidia.

Instead of simply pairing up its own products with the customers who love them best, Nvidia is designing financing packages which will allow those customers to build data centres.

This is a little uncomfortable, as it could put Nvidia in the position of financing demand for its own products.

Nvidia has seen the light – or perhaps all this has been planned from the start. The company has designed a few data centres for its customers to use.

It has signed deals with land and buildings developers, including SB Energy, to lease a site in Ohio which – and this is the really clever bit – will be a data centre Nvidia designs and controls.

This will be leased exclusively to Nvidia’s partner, OpenAI which is the current media darling in the AI sector, for a pile of processors. SB Energy is happy because it has signed up a guaranteed customer.

And Nvidia is doubly happy as it now has a revenue stream off its land and buildings partners designed to make sure they remain happy too. Everybody wins and nobody has to pay more per processor.

Nvidia’s view - ‘We’re in that business because data centers are expensive to build and, you know, somebody has got to build them. This is an example of how we are helping very promising projects get financed.’ Certainly there isn’t anything inherently wrong about financing customers, although some skeptics might cite the adage about lending money to a friend. One problem is that lending money - aka investing - exposes you to the success or otherwise of the project, but as a maker of chips you don’t have a financial stake in whether or not the equipment you supplied works out any better than promised. It seems very likely that if you’re providing financial aid you will have more reason to see your customers prosper, but that is not necessarily misconduct - there are all sorts of ways of doing this, from overt help to obvious bluffing, that don’t amount to gaming the numbers for a processor to make it look better than it is.

The concerns over competition aren’t unfounded. Amazon.com (AMZN), Google (GOOGL), Meta (META) and Microsoft (MSFT) are all developing their own processors while still being major customers of datacenter chip leader Nvidia. Some are even selling the processors they’ve developed as alternatives to Nvidia.

Who Are the Customers?

Some of them are even less established cloud providers scaling their facilities which is noteworthy in that lenders are not as willing to provide financing to these less-established cloud providers as they do not have the borrowing power of the giants such as Microsoft and Google. Anyway while there are plenty of other reasons to be supportive of building a cloud ecosystem that is not all dominated by just the largest tech companies in the world, doing so may create an environment for more investment in competing AI businesses. These companies push to have open-weight models and do more experimentation on the datasets they release and also what the model building frameworks are that is not available is that these companies most likely won’t ever productize but some seems to think it matters. Regardless of their chances of success (maybe half) it does mean that there is a large increase in the number of independent businesses that could eventually be buyers. From Non-Conventional Lenders

It’s entirely possible that Nvidia was looking into some of these down market investment opportunities before dipping into lending.

What I can understand from all of this is that the deal must include Nvidia receiving some or all of the revenue from whatever capacity is sold above the price it is selling the equipment at. And, yes, I understand that this is speculation based on limited information but this is the way these sorts of things work — we just won’t know the details of every part of the deal. The essential point of the deal is that the cloud provider wants to build a facility but it is expensive to borrow the money to do so. By forgoing some future revenue, Nvidia is guaranteeing the value of the equipment, which helps convince lenders that financing the whole project makes sense. The only requirement of Nvidia is to sell them the processors, which they will sell and the cloud provider will use to sell computing services. The final requirement is that customers actually want to buy those computing services. Making the loan safer is not the same thing as ensuring the library will be fuller and quieter.

There would appear to be legitimate case for such a support and it may prove beneficial in some instances. In particular if it allows a customer to demonstrate to lenders that its model will produce a reliable income and it isn’t a leap of faith. This may be the case at least initially, if the customer goes on to buy its own expansion without the support from the supplier. If however it shows the customer requires an increasing amount of support with each stage of the expansion this suggests that expanding was never intended to be a bridge to greater financial health. In either event it would be unwise if the lender accepted such a guarantee without fully understanding what this signifies about the arrangement. Assuming they do understand the arrangement and there is no real question mark against their judgement, there is nothing wrong in principle with it. It’s just important to ensure that an arrangement designed to fulfil this role has shifted risk and it is impossible to tell whether this is so from the construction announcements.

But as we noted with some uneasiness yesterday, there’s an overlap among the three separate business relationships. Nvidia has made an investment in CoreWeave, sells it processors, and has also agreed to purchase any unused capacity that CoreWeave has. If demand is weak, these three relationships can’t be completely separated. This makes the three relationships part of either a genius partnership or a genius group of investment bankers who have, over the years, raised money from institutional investors around the world (sovereign wealth funds, insurers, pension funds) to finance independent vehicles who buy hardware and build the infrastructure to deliver the hardware as computing services. They might then contract with one of the chipmakers to provide technical assistance and guarantee shortfalls of value of the eventual equipment.

In the past, we’ve seen deals that seemed great and turned out not to be. The difference between NVIDIAs potential with and without a partnership might be compared to partnerships that required cash, or worse, debt from shareholders. While those deals are littered across Wall Street’s history, the aftermath of the financial crisis has taught everyone not to expect anything that touts future value without an upfront cost associated with it. Ultimately, how coverage, duration and triggers are set will determine how expensive it ends up being, and it should be the only real judgement of an investor’s enthusiasm.

It does not really care how much capacity its customers will need it explains, in theory. Uncertainty ? Well it will just sell more capacity. In practice, it has a narrow customer base, and does care very much how much capacity these customers will need; this is its ambition of high margins. This should be seen as a gamble, rather than a default commitment; and statements about how it feels about smaller customers is pure marketing. Look for anything in its sales data that it has no choice but to respect, rather than its own commitments; these will be obligations rather than anything that would look like committments. Consider any comments about the gaming and mining fans as Huang with his fingers crossed.

Finally, it’s possible that Huang is right — just not for the reasons he states. As we wrote recently, CoreWeave has found business for older Nvidia hardware, which strongly suggests that there are workloads (notably some sort of inference) which don’t have an immediate alternative. If that’s true, though, the market for older processors must be pretty good, and we’d expect to see those being turned around quickly (upgraded) from current states. It’s quite possible that the low depreciation period which cloud providers like Microsoft and Amazon use is having an effect here, but that is also the point that Michael Burry is raising. This leads to our conclusion: Huang has the benefit of a big reputation with years of evidence in the rear view, but this specific claim has a lot of missing evidence. Each of his bits of evidence could (with some fairly easily implied assumptions) fall apart, at least if you assume that the short term of continued demand for older equipment is really just a market flooded with more capacity. We also expect that there will be more evidence that shows what the continued demand is — specifically because of the lack of clear alternative to newer processors. If we can’t identify those, then it’s only cheaper, more specialised alternatives that we’re looking for.

Bankers running the numbers on Nvidia’s latest and improved products have two distinct reasons while cheap and free for now. One set of clients are interested in developing new ways to lend more money on more profitable terms. The other is new technologies primarily in developing and refining artificial intelligence along with imbuing robots with the ability to work alongside humans more safely and efficiently. Cisco Systems and Lucent Technologies had voracious appetites in the telecoms boom and bust because they were financing a lot of customers who wanted to buy their gear. Just as and if banking gets ahead of itself in a bullish story about the AI phenomenon coming true instead of likelihood it won’t, like the nearly guaranteed chance Cisco and Lucent made the same mistake of thinking demand for their products would justify their returns — the telecoms boom and bust was a case of stock prices getting ahead of themselves not companies having to absorb losses on loans they should have never made. Banking is already factoring in cheaper computing and new technologies will generate demand and returns that will overcome the disappointment of whatever the AI phenomenon will come out to be.

Nvidia seems much more certain of _how_ it’s going to lose on these facilities than GGP is of its $300bn figure. The other big difference is that for Nvidia, the losses only get worse if things go well.

GGP could find itself in an upside scenario where demand is so strong it has trouble keeping the new facilities full. In that case it wouldn’t suffer depreciation obligations on an actual customer shortfall, and the only thing it might do is deploy some extra capital on buying services.

For Nvidia, though, the scenario where demand completely vanishes just piles on the bad news. It doesn’t just mean that its growth was huge, it also means that new facilities operators built _under the bet that_ they would be able to sell their capacity at profitable prices. Network demand might also come in such a scenario, but there are definitely situations where operators are stuck with more computing services than they have customers for.

CreditSights analyst seems not overly worried that Nvidia will see losses arise from these substantial guarantees, and neither am I — were an economic downturn severe enough to create losses on such guarantees to occur, Nvidia would be just fine financially (with an oversized cash pile and liquid investments) and still doll it out of its operating business pretty profitably. Furthermore, one isn’t guaranteed anything to begin with, and any contrary view assumes guarantees are free simply because the company doesn’t have to put up any cash immediately.

To be sure, Nvidia’s guarantees aren’t shrinking by any means. As CreditSights analyst Andy Li points out, So far, people are betting against a company that hasn’t broken. But it’s a question of how long you can push the pedal until something breaks.

Li is only suggesting cautions in regards to Nvidia’s accumulating obligations, not that current levels are unmanageable. To that point, rivals are responding to Nvidia’s guarantees with some head-scratching options of their own. AMD, for instance, has offered to sell equity stakes in exchange for large chip orders. Broadcom has agreed to cover a possible payment shortfall in a financing arrangement involving Google and Anthropic. Once competitors start helping customers finance their purchases, refusing to join in means risking the order as well.

The revealing moment will come when an existing customer wants to expand. If it can finance the next facility on the strength of its operating business, the earlier support will have helped establish something durable. If it needs a larger guarantee from Nvidia to make the numbers work again, another chip order will arrive with another obligation attached. The sales announcement will look much the same either way.

References:

Nvidia is the central bank of AI

There is a great deal of concern about competition with China and many of the arguments center around industrial capacity or economic efficiency or, at the very least, industrial power consumption and the ability to satisfy number-crunching dependencies. The selective list of competitors would encompass the U.S., the European Union, the U.K., Canada, Israel, Taiwan, Japan, South Korea and Australia, all of which have something that numbers lend themselves to comparing: electricity consumption.

China generates electricity astonishingly on an aggregate scale. Its concentration among countries is not only comparable to that of the U.S. but also a selective group of economies: the European Union, the U.K., Canada, Israel, Taiwan, Japan, South Korea, and Australia. It is useful to make electricity generation relevant through a definition based on the electricity produced, which accomplishes the traditional tasks of industry. This defined dependence thus becomes part of China’s quest for economic prosperity.

The ability to operate an electric generating system on this aggregate scale is perhaps best illustrated by the ability to produce approximately 10,580 terawatt hours of electricity, which just edges out the combined generation of the entire group of economies listed above. Any obsession with its precise ranking is misplaced; we provide this only as an indication. Our task here is concerned with reporting for exactly the same total in the two reporting periods and true definitions. Few comparisons are broader in scope and fewer still balloon the importance of rich economies like this one.

Everything depends on adding up the electricity; the rest supplies the geopolitical argument.

Making comparisons is a good way of sizing up the relative highlights and virtues of different countries, and sometimes it allows one to have a good sense of whether one country is better than another at a whole bunch of things. I say that with some authority, because we have other ways of generating electricity faster. I won’t get into the specifics on that one you should know by now. Suffice it to say, larger economies with masses of population will tend to have electricity generation supplies a great deal larger (in absolute total basis) than smaller capped one, and yet when you normalize for that on a per capita basis, the results can still be interestingly useful from an analyst’s or investor’s perspective.

In always viewing this problem on an industrial scale, some move too much towards the numbers and lose the quality (important if you also presume). If you were to be judging how much industrial work could be done on numbers alone it would miss important quality weightings in the numbers (or maybe this is impossible unless presuming numbers relative to quality). Most pressingly, someone moving into the area of more general scale problems can find large numbers becoming quickly irreversible where you have begun taking various parameters for granted.

Your judgement on how much industrial work could be done with different potential energy inputs (numbers) could lead you to the conclusion that it would be easier to generate electricity by burning imported fuel rather than on any renewable energy basis (limited now to a small fraction of our electricity). If you did not stop to consider any aspect other than the numbers you would ignore the case for not even presuming renewable energy is limited, as generating all our electricity this way presents enormous advances in most every area of industrial work.

By pretending that we don’t have a problem of dependence because we’re burning imported fuel at home, the vocabulary sliding that takes our focus from electricity to energy also blinds us to an obligation to prove that we’re right to celebrate progress, or perhaps just lets us slide right past a serious problem that creates the illusion of lessening the tension.

All of that said, it may seem churlish to question the use made of this number (amount of capacity added) in the treatment of other data, here as elsewhere. Surely we all know that a full potential output at a specified set of conditions is what’s normally taken into account in putting the addition of newly installed capacity in perspective.

Well, OK, it is a number. But that distinction does bear stressing again: it is quite possible to add significant capacity that does not translate into an equivalent increase in annual generation.

But before we develop that theme further, we should address a couple of additional questions, the first being whether it makes sense to group the countries this way.

If anything, then, a miracle is how long it has taken. Heads of Statistics are a bit like those baffled reporters in the immediate after the theft of a major work of art. Tracking every comparison is an impossible task. But human beings, and headlines, are mysteriously reticent to apply yet another comparison label to this group.

The scope of the comparison makes a difference here. Different phrasing is required. The list of data points compared is long enough already.

But why only national totals (advanced and emerging) for the purpose of comparing aggregate scale? If relevant for this, it would presumably be even more so for the practical industrial power (electrical supply) comparison, in which case the pool of electricity that users can dispose of should be the only relevant one. Admittedly, this is somewhat repetitive, but it is important to stress since we are dealing with a situation where a particular electrical system will satisfy a particular production need at given location under real operating conditions. We do not think that this was actually the question posed.

The answers are evidently much more relevant for the rhetorical (rather than analytical) coalition.

When gripped by the large numbers that come with economic statistics, it’s easy to forget the neck of the funnel that these numbers are passed through. There are shortcuts, ingenious tricks that can give you the answer you want without asking more than a couple of numbers. But there is a way to accurately measure size, so why bother finding a trick?

One shortcut is to compare economies by how rich they are, compared to how much electricity they use. While there might be interesting exceptions at the extremes that make you think again about your generalisation, generally a richer economy is a more energy-efficient economy.

This suggests that a services economy like the UK’s should outperform a more manufacturing-focused economy like Germany’s. Strip out the generalisation, and you’re just left with us being better at specialisation, except perhaps when it comes to making steel ourselves.

No matter how impressive the results, a statistic is worthless if it can’t survive a little scrutiny. There’s a meaningful difference between making a factory that makes more of the same product using less electricity and an economy that makes more money out of activities that use little electricity. Even though both will improve the economic output per unit of electricity, the thickening of the ratio doesn’t have to include another step.

However, even if this does turn out to make things look worse than they are, there is still a question of whether it is actually a good thing to be running the meter harder that we have not yet examined, if only because it is a breed of reverse mistake from thinking that more of everything is always better, and presupposes a set of priorities that deem as obvious an amount of electricity that is saved as its registered output makes use of.

This is true of some of the things that everyone agrees should have a sort of heavy duty industrial strength process of creation, but is the sort of thing that will involve a great deal of electricity but not all of it. In the service economy defense, citizens do not consume as much as other nations, and all of the physical goods that they do consume were produced with a lot of electricity.

While we could in theory reduce the electricity generation requirements of a nation by producing something less intensively, say by shifting an electricity intensive stage of production abroad, or if we made a few more services that didn’t require any electricity generation, we have in fact reduced requirements for production by moving the location of production.

In principle this can make a country look less dependent on electricity in their domestic accounts, but more on electricity embodied in the goods that they consume.

At the moment we are just considering how to draw a boundary around electricity consumption. If this is along the production chain then things that pass though other countries won’t be counted in electricity consumption. This can be useful for explaining things like the power demands of electric vehicles without the power needs of railways in another country.

We include some discussion of whether the requirement to expand electricity consumption by replacing another energy source or expanding a process already in place is a requirement that would apply to a less efficient process using more electricity to achieve the same outcome. Our analysis leads us to the conclusion that over our city’s future electricity consumption will actually grow slower than past trends would infer.

This of course is the more normal way of thinking about such things, while proponents of a service economy that uses less energy would have you believe that more energy intensive work needed to turn out some of the finished product will no longer be done. An invoice for our advice to a steel mill is attached for those wondering how we will alter our margins to account for the changes.

Comparing diamonds as a bulk material is not an efficient comparison, because process-to-process comparisons should only be made where it makes sense. Even broad comparisons are not valid when applied to processes with attributes that are too different. Comparing purchasing power by focusing on comparisons with diamonds or wages ignores the many aspects of what that purchasing power can buy.

Steadily comparing diamonds to wages makes sense in only an abstract way, and focusing on distribution of purchasing power within the household obscures real comparisons. Using diamonds to compare large generating systems is likewise only a small part of the big picture, and confuses the industrial objective of the generating systems with that of the economy. A prosperous household must steady supply its industrial input, and likewise an industrial supply chain can be viewed as a kind of household where purchasing power is likewise used in the steady supply of industrial input.

There are many reasons why China is building conventional power stations, but one of the more interesting is the electrical generating capacity that moving low value work brings with it. Nor is it hard to see similarities between the electricity generation and interruptions to supply in which the capacity and supply we produce and procure ourselves are matched by assertion of the extent of our industrial ambition.

The electricity we additionally choose to produce and procure ourselves means choice about who else is. It is more economic to know how to identify the specific capabilities that have to be provided in their production if developing industrial policy makes procurement decisions easier, and it is easier if you know the reasons why.

Arguments about overrated engineering prowess and industrial capacity apart, proven capability for producing electrical generating systems is a positive indicator. We wish China the best of luck on this project, and the many similar ones.

References:

U.S. Energy Information Administration: Generation capacity and electricity generation

The logistical exercise of shipping 86 tonnes of gold across the Atlantic raises eyebrows under any circumstances. The reasons for moving the gold from Fort Knox were never made clear, and many regard the supposed transatlantic divorce with some scepticism. But the choice of London as the ‘temporary’ home of the gold is peculiar. True, it is closer to the Netherlands but it is also under foreign jurisdiction, something at odds with the avowed objective of escaping the clutches of foreign custody.

Unless the Dutch believe they will actually get to use some of that gold they have just moved (for operational reasons - in case of some emergency), sending their gold to a foreign jurisdiction does not make any sense.

It is impossible to validate the transaction because we don’t know whether there is anything wrong with the gold they have shipped out of Fort Knox. As for the issue of whether gold reserves can be legally owned, apart from being safely guarded intact, it would be interesting to see how far seizure could go?

Sebastien Tillett, an economist at Oxford Economics, cautions that seizure of central bank’s gold reserves isn’t likely to occur. European central banks have little reason to worry about outright seizure, and the risk is extremely remote, Tillett told Fork in the Road. However, their assets could become temporarily inaccessible under extreme sanctions, legal, or geopolitical circumstances. But temporarily would do a lot of heroic work in such a scenario. A reserve would potentially be in exactly those circumstances when waiting is expensive. Certainly, gold would be available at some point, but when you need it immediately, being broadly legally entitled and practically free to do so isn’t much of an answer.

Finally, a few contextualizing facts about the shipment to help evaluate the motor behind this massive transfer of gold. Some have speculated, for example, that Washington is making a secret preparation to seize or lay claim to European bullion. Alternatively, some have argued that the shipping of gold to the US is a sign of growing Dutch confidence in Washington. If anything, the example of the Dutch central bank is a case of a central bank adopting a new crazy habit – making decisions to store its gold in a foreign jurisdiction, in an obvious sign that it has taken leave of its senses. Geopolitical unrest is, at this point, a euphemism for the possibility of lunacy taking us all over the edge into catastrophe. At the same time, the central bank has gone out of its way to downplay the significance of this particular movement of its gold, aside from the delays and complications. Furthermore, even the mention of geopolitical unrest was only to explain the move in the context of resilience, flexibility and crisis preparedness – exactly the nature of specific delays that the bank experienced in moving its physical gold were not given, but would be much less serious costs and complexity than the latter objectives.

The liquidity of the gold market is one reason why a European institution is moving its gold from across the Atlantic to London, argues Krishnan Gopaul of the World Gold Council. If at some time in the future it needs to be mobilised, then it’s easier to do so in London than anywhere else, he tells us. And holding it closer to home is another plus point. We’re not so sure that the health of the London bullion market is much of a reason, though.

No one threatened action against the postal service, so it seems rather unlikely that it has played a role in the decision by one European institution to reassess the usefulness of gold, at least in terms of the first factor. No, the moving of gold presumably has more to do with where it is physically stored than with how much gold there is. But given the manner of the transaction, and the relentless succession of financial crises, perhaps this is one of those areas where just guesswork gives some advantage in front of the queue. If and when central banks decide to move their gold around again, this transaction strongly suggests that exposure will be one of the considerations (along with liquidity and geographic considerations, and possibly proximity). While it doesn’t affect market liquidity – 86 tonnes of gold is hardly the size of an attractive transaction for profitable trading – exposure seems to rank up there with attraction in an already liquid market. Ultimately, however, the priority condition is for access.

It is arguably only a mixture of circumstances that gives the former character. The aspects of foreign policy which can be inferred from his signals up to now, the willingness to adopt a posture of hostility to the European Union, are all clearly lined up. Buying Greenland has only exceeded boundaries of the friendly approach to Germany’s and Italy’s gold, which some politicians in these countries have openly called for. A conspiracy theory is not required either, it should rest assured that Europeans can be made serious on this issue without help from the Americans.

You have to love the paradox of encouraging and then looking askance at Europe’s exploration of its options in exposure to this government’s troublesome-ness, yet invoking gold as an explicit sign to sit up and pay attention. Surely, nobody could actually think that gold is beyond American jurisdiction, and that it would be possible to ship a ton of the stuff without drawing the attention of the black helicopters? If there were such naïveté, it would surely disqualify its bearer from ever being entrusted with any grandmaster plan. Yet if moving gold features so prominently in the discussions of their anxiety, it must be because they consider it one of those options. In which case, even the very improbable event that Washington would sit up and pay attention, properly belongs to the European institutions that hold it, whichever way they choose to store it. As a reserve manager-style backup plan to a grandmaster plan that’s not all that well thought out, price of gold sounds a whole lot easier to use than any other option, but has the added disadvantage of being even more muddled.

The focus on an alleged removal in protest against Washington is a well-admitted distraction. The official word from Governor François Villeroy de Galhau is that there are unpolitical reasons for France removing its New York gold. One could always go looking for evidence of something that did not actually happen, and riskier approach than looking for evidence that undercuts the questionable assurance by Bundesbank that the New York Fed is a reliable custodian. The fact is most evidence implies Bundesbank is in need of bringing some gold home.

Had the article focused on a Bundesbank return instead, it’s almost certain cover both moves instead of just the French return, with both assessments discrediting the loss of confidence in the custodian itself rather than it being a simple difference of jurisdiction where it happens to be.

The explanation for that discrepancy is simple. This is how professionals view the minutiae and make the complex calls. For someone who like grooming the horse after the fact, however, the relative trust in the New York’s role might actually have mattered.

Two things are irrefutably true about gold storage: It’s safe, and you have access to it under unusual circumstances.

Not every Australian is fortunate enough to have access to a facility for custody of gold as excellent as the one detailed in the story linked above. But that doesn’t diminish the merits of such a thing.

When the Dutch insist on slightly more access to their gold stored in London, it’s fair to wonder if the story might contain interesting reasons.

Conversely, anyone who wants to keep and use gold stored under another jurisdiction is every bit as entitled to reason about the balance of all sorts of factors. They might do so out of a desire to somehow retain some dependence on foreign facilities. Or they might simply have a practical ambition to move the gold to another jurisdiction to keep it around, should the markets of supply and demand be disturbed under the present one. In that case it’s irrelevant which jurisdiction is selected.

The amount of diversification in exposure to different jurisdictions is another good reason for what the Dutch are doing. If the gilded of America think that their government won’t misbehave at some point with their ability to use the gold they have stored under its jurisdiction, that assumption on their part might be dangerous. It could be far too late to decide otherwise if they later find that some other government will.

The political consequences are now up to Washington, which can dress the whole thing up as showing concern for its own security, or make whoever thinks otherwise look silly — call it a sleight of hand if you like, even if there is a closet you will never need to read again. The relation of the dutch relocating some of its bullion to the future of the dollar is as clear as the fate of the treasury markets. It is a revision to the geography of one reserve holder’s preparedness, concrete enough to warrant attention, and yet at the same time so little of an american financial power’s public obituary that the dutch will rely on another place for the next emergency, with the expectations that those who benefit from its decision will be capable of mobilizing the gold they have as readily.

This must be a follow up to the previous note about access arrangements, but some more clarity on how quickly reserves can be mobilized or what might possibly prevent it would be of interest to the good folk taking the supplied account of where it has gone.

References:

Arthur Sullivan, Fork in the Road, analysis of European gold custody and the Dutch transfer

It’s complicated. You could make the decision to leave a social platform because you’d like to use another application that has better terms. But when you install it, and invite everyone you like to join you, you may find a person who decides to stay. Perhaps they dislike the other company’s data practices even more than those they currently use. But your acceptance button records nothing but an agreement that the transaction is settled.

This is the rationale behind Enrique Dans’ manifesto for European rejection of the way Big Tech has come to influence society, seen through the lens of the European approach to personal information, which connects it back to the rights of the person it concerns, rather than just what accepting the service’s conditions means. Wherever you come down on consent under the GDPR, it’s clear that freely given, informed permission about how this data may be used precisely has to be given beforehand.

It’s difficult to talk about freely without acknowledging that the ability to stop using a service is less meaningful if stopping carries a substantial cost. Or that in some cases, a technically optional arrangement is in practice so difficult to refuse that doing so would be unwise.

This is not to suggest that this invalidates any agreement made in such situations, or that every platform is equally problematical. But if people know they won’t be able to prove they disapprove of anything they do, then that is an excellent reason for a regulator to specify what freely means.

Imagine trying to figure out what someone could turn down, and whether or not that choice would deprive them of the ability to use the product in question, and whether or not they will be able to use what’s left. It’s a useful thought experiment to get out from under the rather narrow question of whether clicking a consent form documents a decision.

Dans also gives a good overview of how the principle of informational self-determination has evolved in Germany since a 1983 ruling by the Federal Constitutional Court over a census.

Of particular interest is the Court’s analysis of how informational self-determination is weakening if people are uncertain about who knows them and what use will be made of that information.

A census and a social platform application collect information about you for entirely different purposes. However, what information is collected, and how it is used, depends on your position. The fact that you have no influence over the data collection helps little to protect your interests. Likewise, obtaining information about you does not give the institution collecting the data a license to view the individual as a mere aggregate of that information. A history of such issue is useful for considering whether any modern regulation has been able to address it.

According to Dans, the fact that Europe has not been successful at solving the privacy problems, is a qualification that limits its claim to have diagnosed the problem before the United States. While the recognition of a danger is an important first step, it is not an accomplishment by itself if an effective means of reducing that danger has not been found.

Yet another explanation for what is seen as a difference between Washington and Brussels is that the companies themselves are American, and that their regulation may have political costs for the United States that do not exist for the EU.

This means control over the information and services with which you interact. It means the ability to easily leave a service when it no longer meets your needs. It requires service providers to explain clearly the information they collect and what they do with it. And better information about what services collect your data gives you more bargaining power in deciding whether to accept or not.

And this is all independent of how American and European attitudes towards privacy might change, or how American attitudes about the economically disruptive effects of privacy protection might evolve alongside European ones. Building an argument that depends on any of those things running exactly the same direction on either side of the Atlantic will clearly outrun the pace of change.

Rather, the ability to control the information and services with which you interact is as broadly applicable to foreign companies as it is to the dominant platforms in the US.

As well as affecting alternatives directly, compliance might indirectly affect who is able, and willing, to compete. For example, if a requirement imposes substantial fixed costs that only large providers can absorb, this might reduce competition, but evidence would be needed for that. Some obligations might also make it less easy for existing users to improve the protections that they already have. It would be necessary to know whether that is a risk, and if so whether the business costs of compliance, if any, and the number of companies likely to remain in the market, provided a sufficient measure of the effect. There will be people seeking to exercise the rights that the law offers, some of whom will be told this is not as straightforward as it should be, others who will find they cannot afford to lose what could be a valuable service, and for whom the right to challenge the use of their information may be too burdensome.

Europe’s historical experience and position in the platform economy explain its institutions’ desire to provide this type of protection. Consider whether protections like these actually provide the desired results. The question of whether people have the option to refuse unwanted data and whether a complaint is likely to change the company’s behavior has already been addressed. There is also the option of leaving. Someone who objects to the terms but stays, because the alternatives are worse, is nonetheless included in the assessment, however clearly their agreement has been recorded.

References:

Three reasons Europe learned to distrust Big Tech before America did

Guidelines 05/2020 on consent under Regulation 2016/679

Judgment of the First Senate of 15 December 1983 — 1 BvR 209/83

Four paragraphs from the Ministry of Finance. The one about the Fed’s repo facility came last.

Camp David, Friday, cabinet meeting. The notepad sitting in front of Scott Bessent had a heading on it reading To Do and under that, in his own hand, Buy Japanese Yen (JPY) $5-10 bil. Reuters ran the photograph that afternoon.

Five to ten billion. Japan had moved something in the region of ¥8.45 trillion two days before that, a figure Bloomberg arrived at by comparing Bank of Japan account movements against money brokers’ forecasts, and Reuters worked the same accounts and got a higher ceiling, $58.97 billion. So, $53bn to $59bn. Nobody actually knows is the honest position here. The ministry publishes intervention totals monthly and in arrears and the July number isn’t out.

Ten months ago Bessent did something structurally similar for Argentina. A $20 billion arrangement with the central bank there, announced October 9, drawing on the Exchange Stabilization Fund, and the Treasury went and bought pesos in the spot market and in the blue-chip swap. Argentina had taken $2.5bn of it by the end of that month. Democrats on House Financial Services wrote to Bessent on the 16th asking for the terms and the terms were never published. I bring it up because it is the same fund and almost nobody mentioned it last week.

Katayama Satsuki’s statement went out Monday morning Tokyo time, 7:30, four paragraphs. The joint action was taken pursuant to the U.S.-Japan Finance Ministers’ Joint Statement issued in September 2025, it said, and countered excessive volatility and disorderly movements in the Japanese yen in recent months. Countered, past tense. The fourth paragraph is the one that got almost no pickup anywhere. Japan also plans to utilize the Federal Reserve’s Foreign and International Monetary Authorities Repo Facility in the future.

FIMA has been sitting there since March 2020, made permanent the following July, and the mechanics are that a foreign central bank posts Treasuries as collateral, takes dollars overnight, then unwinds or rolls it. The securities never get sold. If you are a finance ministry that needs dollars for a currency defence and you very much do not want a headline saying you liquidated US government paper to get them, this is the facility for that, and it matters at the scale Japan works at because Japan was holding $1,191.6 billion of Treasuries in March, down from $1,239.3 billion in February, call it thirteen percent of everything foreigners hold, which is enough to move the long end of a market Bessent has been complaining about in public since roughly February. The rate sits above IORB so it isn’t free money. Japan hasn’t drawn on it. The statement says plans to.

The New York Fed sold euros to buy yen on the Treasury’s behalf, per the FT, and asked at least two US banks to check the yen rate against the euro during the session. Euros, not dollars. I have not been able to establish whether that was a preference or a constraint, the ESF’s euro balance being finite and the Treasury not being in the habit of explaining its reserve management.

Why the yen was where it was. It went through ¥161.97 on June 30, first time since December 1986, and printed 163.24 on July 21. Tokyo had already spent the record on this problem — ¥11.73 trillion across April and May, close to double anything it had attempted before, and the pair was back above the intervention level inside six weeks. Another $20.7 billion went out on July 11. None of it held.

The Takaichi government has mapped ¥370 trillion of combined public and private investment across 17 strategic fields out to fiscal 2040. Semiconductors take ¥68 trillion of that. Physical AI for moving robots takes ¥10.5 trillion, and the government’s own projection is that the AI spending throws off ¥443 trillion in economic impact, a number I would like to see the workings on. There’s a ¥21.3 trillion stimulus package. There’s a proposal to suspend the 8% consumption tax on food for two years. The FY2026 budget: ¥122.3 trillion, with ¥29.6 trillion of new issuance. The criticism, and it isn’t only coming from the opposition, is that the roadmap doesn’t say how projects get picked or where the financing comes from.

Bonds went the same way as the currency rather than the other way. 10-year at 2.830%, a thirty-year high. The 30-year printed a record 3.45% and then came back on reports the ministry would trim super-long issuance. The 40-year went through 4.20% for the first time since that maturity existed, touching 4.24. Yields like that are supposed to bring foreign buying in. Both were being sold at once instead. Capital Economics argued the Liz Truss comparison people kept reaching for is the wrong one and that the yields reflect a new normal for Japan rather than a run.

The board met on the same two days as the intervention and held, 8-1. It had gone to 1% in June, the highest since 1995, still 275bp under the top of the US range. Ueda said at the briefing afterward that hikes at coming meetings were possible without saying one was coming. Bessent had told Fox Business on the Thursday that the yen is very undervalued and that excess volatility is not healthy. Over the weekend he posted that the BOJ has demonstrated a strong commitment to monetary and financial stability and that the two of them continue to enjoy a strong relationship and close coordination. He has been publicly telling the Bank of Japan to raise rates since at least June. He is due to see Ueda at the G20 in Asheville, North Carolina, this month.

Michiyoshi Kato at Sumitomo Mitsui Trust Bank said the market had underestimated the authorities and that another intervention probably takes dollar-yen under 155. At Rakuten Securities, Nobuyasu Atago — who used to be at the BOJ — said Bessent’s influence is significant. Evercore ISI’s Marco Casiraghi and Gang Lyu wrote Friday that without rate differentials behind it the effect of intervention is likely to be relatively short-lived. Atsushi Mimura, who runs currency policy at the ministry, said Japan was getting more than moral support from Washington.

Most of the write-ups called Japan the world’s largest creditor. It hasn’t been since 2024. Net external assets did set a record at the end of 2025, ¥561.75 trillion, eighth straight year up, and Japan still finished third behind Germany at ¥675.5tn and China at ¥636.3tn. Part of that slippage isn’t real: foreign holdings of Japanese equities appreciated ¥62.2 trillion over the year and appreciation on the liability side counts against you. The savings are still out there. Whether normalisation brings any meaningful share of them home is what the JGB market is trying to price and there’s no clean read on it.

The carry unwind risk took up most of the commentary. August 5, 2024 is what everyone points at, the Nikkei down 12.4% in a session.

The yen closed at 157.40 in New York on Friday, the strongest since early May, and got to 155.20 on Monday. Euro to a six-week high of $1.1559 on the back of it, sterling near $1.3476. The Nikkei fell. Asked why the US was doing any of this, Trump said They have a weakening yen, and they wanted a little bit of help. And we’re always there for Japan. South Korea bought won on the Thursday and nobody wrote much about that either. The ministry’s monthly intervention operations release covering this period is due at the end of August, and until it lands the figure for July 30 and 31 stays a reconstruction assembled out of central bank balance sheet residuals.

References:

Statement by Ms. KATAYAMA Satsuki, Minister of Finance, Japan — Ministry of Finance, August 3, 2026

Bessent joins Japan to help reverse months of yen losses — Bloomberg via Fortune

Japan and US confirm rare joint intervention to prop up yen — Reuters via Al Jazeera

Ignore the Truss comparisons: rising JGB yields reflect Japan’s new normal — Capital Economics

There is a question bitcoin holders have quietly agreed not to put to one another too directly, and it happens to be the simplest one available. Not whether the price goes up. How much, by when, and measured against what.

The loud answer is a million dollars. A few analysts still pencil bitcoin in for seven figures on the strength of the same network math everyone else uses, and the number gets repeated at conferences with the serene confidence of a weather forecast for yesterday. It is a good applause line. It has been a good applause line for a decade.

The quiet answer is uglier, and it has the inconvenient quality of having actually worked.

Six years ago a former commodities portfolio manager at TCW Group named Claude Erb handed the financial columnist Mark Hulbert a way of pricing bitcoin off Metcalfe’s Law, the old engineer’s rule that a network is worth something like the square of the number of people on it. Plot bitcoin’s price against the fair-value line that rule produces and a stubborn pattern appears. Every time the price has wandered off, above the line or below it, it has wandered back. Not sometimes. Each time. And right now bitcoin is parked almost exactly on top of it.

All of which would be reassuring, if not for what the line does from here.

It flattens.

Run the model forward and bitcoin’s return over the long haul comes in south of one percent a year. Carry it all the way to the end, to the moment more than a century out when the final coin is mined and supply slams into its built-in ceiling, and the annualized gain from today’s price settles at around 0.6 percent. After that the line goes horizontal and stays horizontal. A dip recovers. A bear market ends. The flat line just keeps being flat. That is the destination. Forever turns out to be a long time to underperform a savings account.

Erb himself does not oversell any of it. Bitcoin’s behavior is consistent with the model, he has stressed, which does not prove that it is right or true. Honest of him. But consistency over many years is more than the rival forecasters can claim, and their models share a curious tic: they keep arriving at whatever figure would make the holdings worth the storage trouble. Fair value in their hands is just the current price with an exponent bolted on and the optimism left running.

It is worth remembering how crowded the graveyard of bitcoin price prophecy already is. Model after model has promised a six-figure floor or a seven-figure moon by some specific date, and the dates keep arriving without the prices. Erb’s earns its hearing precisely because it is the rare one that flatters nobody, least of all the audience that tends to commission this sort of forecast.

The flat line is not bitcoin’s obituary. It is the only road back to the thing the project promised in the first place, the use case its own evangelists keep invoking the moment regulators walk in: a medium of exchange. Money. Not a lottery ticket with a podcast attached. Money.

And money is supposed to be boring. That is the entire job description. The dollar sitting in a checking account is a famously dreadful investment, and that is not a defect; it is the precise property that lets a person hand it over for a sandwich without doing arithmetic at the register. The boredom is the utility.

Now layer appreciation on top. A currency everyone expects to be worth more next year is a currency nobody spends this year. Why surrender the magic coin for a burrito today when holding it is supposed to make you rich by Christmas? So the holder holds. Every holder holds. (The maximalist word for this is conviction; the older word is hoarding.) And a thing nobody spends is, by definition, not circulating as money, however reverently it gets described as the future of money.

That is the cul-de-sac the maximalists have talked themselves into, and they walked in cheering.

The tax bill is merely the visible bruise over the deeper injury. Take the model’s own illustration: try buying an ordinary $800 phone with coins picked up years ago at half the price, and the federal government treats the purchase as though a stock had been sold, cost basis and holding period and all. Washington wants its piece of the paper gain. For a buyer in California, Sacramento queues up right behind it for a second helping. A trip to the store becomes a taxable event, line by line, coin by coin. No serious payments system gets built on a foundation that turns lunch into a brokerage statement, and none should be.

So the very appreciation bitcoin’s believers pray for, the number go up that is the whole emotional content of the asset, is the same mechanism that guarantees bitcoin can never become the thing they insist they want it to be. The outcome they are rooting for is the outcome standing in the doorway. Number go up and digital cash are not two compatible features of one clever asset. They are opposites, and the holders quietly chose the first while keeping the slogans of the second.

Read the other direction, Erb’s flat line stops looking like a curse and starts looking like an offer. A price that barely budges is a price a merchant can actually quote and a customer can actually pay. It is the version of bitcoin that circulates instead of sitting in cold storage appreciating, which is only ever a polite synonym for sitting in cold storage waiting to be sold, which is the same as never having been money at all. Store of value and medium of exchange have been at war inside this asset since the beginning, and the model is merely announcing the winner the holders refuse to hear.

They will call a flat forecast a death sentence. It reads more like a diploma.

Send the childish question back down the table, the one the holders would rather not field between the turkey and the pie. What is it really going to be worth? The honest answer carries no string of zeros. It is a shrug. Roughly what it costs today, give or take, for a stretch longer than most countries last.

And the shrug, strange to say, is the bullish case, for anyone in the room brave enough to pick it up. The afternoon bitcoin finally gets dull enough to spend on groceries without phoning an accountant is the afternoon it does the one job it was built to do. The holders already have a name for that afternoon. They call it a crash.

References:

Bitcoin’s long-term return may actually be close to zero, and that could be just what it needs

Bitcoin Is Just Like Gold Except When It Isn’t

Metcalfe’s Law in Bitcoin

Ask what it takes to make tens of millions of people buy the same stock on the same morning, not one of them having chosen it, and the honest answer is that it takes nothing at all. No vote. No prospectus anyone reads. No moment where the saver leans back and decides that Elon Musk belongs in the retirement account. The machinery handles that part. The saver just funds it, out of a payroll deduction set up years ago and barely thought about since.

Index funds get sold as the sensible grown-up choice, the passive, diversified alternative to picking stocks badly on your own. And mostly they are. But passive was never the same word as neutral. Passive means rule-bound. A fund buys what its index tells it to buy, in the exact weight the index assigns, at whatever price the market happens to be asking that day, and it is forbidden from holding an opinion about whether any of it is wise. None of that is a malfunction. It is the entire design. What gets sold is a promise not to think.

Which is a fine thing to own, right up until the index starts filling with companies no saver would have touched on purpose.

There was a version of this story for the people who chased it on purpose, the ones who paid up to get a slice of SpaceX early through a brightly tickered fund and mistook being first in line for being protected. This is the quieter version, the one that reaches everybody who never went looking for a rocket at all.

First through the door is SpaceX, arriving on the largest public offering anyone has ever run, at a valuation pushing two trillion dollars that would carry its sole owner most of the way toward becoming the world’s first trillionaire. Most of what the company actually earns comes from selling internet access. The money it is raising is for the other thing: the AI ambitions, the plan to blast datacenters into orbit. Close behind it, OpenAI and Anthropic have already filed their own paperwork. More multitrillion-dollar wagers on machine cognition, lining up for the indices, which is only another way of saying lining up for the country’s payroll.

And they are being waved through. The tech-heavy Nasdaq rewrote its listing rules to fast-track precisely this kind of entrance. FTSE Russell smoothed the path for megacaps into its American indices. Of all the supposed gatekeepers, only Standard and Poor’s is making them stand in line: turn an actual profit first, float a real slice of the company, wait the better part of a year. It is a remarkably low bar, and SpaceX has not yet cleared it. In the present climate that passes for rigor.

The index committee is not plotting against the savers; it is applying a methodology. The fund manager is not plotting against anyone either, because much of that job is the discipline of holding no view. Musk is doing what a man who intends to be a trillionaire does. And the buying itself is not a decision anyone in the chain actually makes; it is closer to a line of code that fires the instant a stock crosses a threshold in the index, indifferent to whether the price that day is sane or deranged. The whole appeal of the index was that no human had to decide anything, which turns out to be exactly how a decision this size gets made with nobody at all standing behind it.

The rule has a cruel little property folded into it, too. The higher one of these names climbs, the larger its weight in the index, and the more of it every tracking fund is then obliged to go out and buy. Strength begets buying, buying begets strength. It is a machine that reads a rising price as confirmation and a soaring one as a mandate, which is a serviceable way to behave in a market that only goes up and a memorable one in a market that does not. The saver is not really betting on artificial intelligence. The saver is betting that a self-reinforcing bid never runs out of road.

Set the mechanism beside the mood of the country and a small comedy surfaces. The polling says eight in ten Americans are worried about what artificial intelligence will do to their lives. The least trusted technology of the decade is about to become one of the largest compulsory holdings in the nation’s retirement accounts. Millions of people are going to spend the next decade anxiously reading about AI on their phones and quietly buying more of it every payday, with the same hand, never quite connecting the two gestures.

A valuation pushing two trillion dollars is hard to hold in the head, so translate it. It places one rocket-and-broadband company among the most valuable enterprises on the planet, larger than the entire economies of most nations on earth. Then comes the other feature of the arrangement. Whoever ends up owning a sliver of SpaceX through a fund picked for its dullness hands sole control to one person: the same one who set about gutting the federal workforce under the banner of Doge, firing hand over fist, and who helped dismantle USAID while, by his own account, understanding what that would cost in lives downstream. The retirement money rides on his instincts now. The machinery never paused to ask whether that sounded prudent, because asking is not a function it was given.

Here is the consolation even the worriers get offered. Owning all this AI is supposed to be a hedge. If the machines come for your job, the theory goes, at least your retirement account will hold a slice of the machine that did it.

Sit with that one.

It is severance paid in the stock of one’s own replacement, and it pays out only for as long as that replacement keeps impressing strangers on an earnings call. The instrument sold to shield the worker from the disruption turns out to be the disruption, bought on his behalf, with his money, by a fund that cannot tell the one from the other. (Somewhere a brochure files this under exposure.)

Money tires eventually. It scares. It moves on to a new story. The market gave a small preview of this not long ago, when the Nasdaq buckled on the dawning suspicion that a sturdy labor market might keep interest rates higher for longer, and the optimism leaked out of the room in short order.

But here is the line the brochure leaves out. The fund cannot move on first. It is built to track the weight, which makes it the designated last buyer on the way up and a methodical seller on the way down, forever a step behind the people who actually get to decide when the story is finished.

So what happens when the mood turns, and moods always do? The selling comes just as automatically as the buying did: same proportions, same rule, the same total absence of anyone choosing. The savers will not be consulted on the way down any more than they were on the way up; they will read about it afterward, on the phones, in the same half-distracted way they are reading about it now. The crash of 2008 at least arrived with villains who picked up a pen and signed. This one is being wired to land with nobody’s fingerprints anywhere near the trigger.

What actually changes when the European Parliament resets the default search engine on its staff computers from Google to a French competitor? At the level of the machine, almost nothing. The query leaves the laptop, travels much the same plumbing it always did, and comes back with results. A box was ticked. A setting was flipped. The institution that runs much of a continent’s lawmaking now reaches a different search index by default, and a European company collects the traffic an American one used to.

Then again, the gesture is the point, and the gesture is also the problem, because gestures are most of what is currently on the table.

The switch to a French engine is one entry in a long catalogue. Across Europe, dozens of governments, cities, NGOs, and universities have moved or drawn up plans to move away from American technology firms in favor of open source or local alternatives, and the people keeping count are careful to call it the tip of the iceberg. The moves are real and they are accelerating. The question worth asking is what the single word stretched across all of them is actually carrying.

The word is digital sovereignty, and it is doing an enormous amount of work.

Listen to how officials use it. The French government wants to break free of its dependence on American firms. Citizens, companies, and organizations, says Marietje Schaake, a former member of the European Parliament now at Stanford, are energized to take their digital future into their own hands, untangled from billionaire interests as well as Trump’s policies. The verbs are aspirational and the tense is future. Sovereignty reframes a story that is mostly about dependence as a story about agency, which is a flattering trade if a continent can actually make it.

Look at where the moves cluster, though, and a pattern shows up that the vocabulary would rather not name.

The Parliament changed a search default. France is rolling out its own office software so civil servants can stop opening American suites. More than a dozen European firms are readying an open-source documents product of their own. Cities in the Netherlands, France, and Germany are migrating off Microsoft Office and Google Docs. The Dutch government is moving its code from Microsoft-owned GitHub to a repository it controls. Finland declined to put its election data on Amazon’s cloud (a sentence that, read slowly, is its own small alarm); the organization behind Belgium’s .be domain says it will leave Amazon Web Services; an outfit called Eurosky has been stood up as a European alternative to Bluesky on the same underlying protocol.

Notice what these have in common. They sit at the visible, swappable top of the stack: search boxes, office documents, the tools an employee actually clicks on. They are the layers where switching is cheap, the change is announceable, and the press release more or less writes itself.

The layers underneath are the ones nobody is swapping this quarter. US-based firms continue to dominate almost every layer of Europe’s digital stack, one European Parliament report says, naming cloud computing, artificial intelligence, cybersecurity, and mobile operating systems among them. Those are the expensive, invisible foundations, and even the officials leading the charge concede that entirely unpicking the continent’s connection to American technology is probably impossible. A government can change its search engine over a long weekend. It cannot re-host its cloud over one.

What changed recently was not the dependence, which has been understood for years. Many of these sovereignty plans were drawn up well before the current American administration took office. What changed was the perceived cost of the arrangement.

The fallout from American sanctions against officials linked to the International Criminal Court turned an abstract risk into a demonstrated one. The court itself ended up moving away from Microsoft’s technology, which is the sort of decision an institution reaches only after the theoretical becomes uncomfortably concrete. The lesson European officials drew from it is not complicated: a dependence is comfortable right up until the day the vendor’s government decides it would like to use it. The legal scaffolding that turns the dependence into a lever, the CLOUD Act and FISA, has been on the books the entire time. It simply reads differently once an ally starts behaving less like one.

This is the part where the temptation is to reach for a villain, and the story politely declines to supply one. No one in Redmond or Mountain View set out to trap a continent. The dependence accreted the way dependence usually does, one sensible procurement decision at a time, because the American product was there, it worked, and switching was a hassle nobody had a standing reason to take on. The incentives built the cage; the sanctions merely rattled the bars and let everyone hear the sound.

Which is why, last week, the European Commission launched its official long-term plans to rely less on American technology, and why the whole moment carries the faintly frantic energy of a New Year’s resolution. The intention is real. The arithmetic is brutal. (The digital-sovereignty beat has heard versions of this resolve before, and could be forgiven for waiting to see the invoices.)

The cheap moves are the ones that get announced.

There is a tell in how the most quotable officials talk. We no longer have time to cheaply discuss the importance of digital sovereignty; given the geopolitical situation, we need to get from talking to doing, a minister in the German state of Bavaria said recently. It is a rousing line, and folded inside it is a confession: that talking has so far been the main activity, and that everyone in the room knows it. The same officials acknowledge that all of this risks irritating an administration in Washington that already dislikes Europe’s technology laws, which means the continent is picking a fight at the precise moment it is discovering how poorly equipped it is to have one.

So the vocabulary and the infrastructure are now openly out of step, and sovereignty is the word laid across the gap. It lets a continent bank the symbolism of the easy switches while deferring the cost of the hard ones, and present the whole bundle as a single coherent project with a single stirring name.

It comes back to that search default. A single administrator flipped it, and a single administrator can flip it back, which is exactly why it was there to be flipped at all. The cloud underneath does not answer to a setting; neither do the chips, the cybersecurity, or the operating systems on the phones in everyone’s pocket. Those are the layers that actually hold the continent in place, and so far no resolution has reached them, because they were never a checkbox to begin with.

Related reading:

Digital sovereignty: Europe’s declaration of independence?

Why the ICC’s move off Microsoft matters

The bombs are over there. The bill arrives at the pump, the register, and the closing table, and it lands hardest on the people who can least lift it.

Start with the airline, because that is where it got too dumb to wave away. Spirit Airlines, more than three decades in the sky, gone last month, and the bankruptcy filing skips the euphemism: fuel did it. A budget carrier killed off by the price of jet fuel sounds like a small story, the sort that lives three paragraphs deep in the business section, right up until the same arithmetic surfaces in the gas tank and the grocery cart and the mortgage paperwork, which it now has, all at once, a hundred days into a war that most of the country never wanted and a solid majority now calls a mistake.

So that is the frame. Not the footage from over there; the receipts over here.

Anyway. The number everyone keeps passing around is $750, the average extra a US household has eaten since the first strikes, most of it at the pump, per an analysis from Moody’s Analytics. Mark Zandi, the firm’s chief economist, called it a big economic blow, the kind that lands on the already hard-pressed middle- and lower-income households. Averages being what they are, the figure tells a soft lie about who actually pays it. A family that banks a chunk of every paycheck shrugs off a worse month of fill-ups. A family that spends the whole thing does not get to shrug. Folks at middle income or lower income, they spend a bigger proportion of their income on goods and services each month than people at the higher levels of income who can save, Michael Klein, who teaches international economic affairs at the Fletcher School at Tufts, told Al Jazeera. More of their money goes to housing and food, he added, and both have been climbing fast. The war did not start that squeeze. It located the people already inside it and pressed down.

And the scary part is not even the pump. It is the fertiliser.

The Gulf is one of the planet’s big suppliers of the nitrogen and sulphur that go into the stuff farmers spread before anything grows, and the World Bank expects those prices to climb hard by year’s end, urea worst of all. That cost does not hit the supermarket this week. It hits in autumn, after the planting and the harvest, folded quietly into the price of anything that began life as a seed. It’s been a double whammy for US farmers, who are both paying a lot more for diesel to run their tractors, drive their trucks, and transport their goods, but also paying a lot more to get those crops in the ground, Jonathan Ernst, an economist at Case Western Reserve, told Al Jazeera. Most of it, he said, will not show up as higher prices until later in the fall, six to nine months out, once the crops are harvested and reach the shelf.

Which gets ahead of the story, because the cheap preview of the grocery shock is already on the shelves: tomatoes leading the charge, meat and produce edging up behind them, food posting its sharpest monthly jump since the tail end of 2022.

Back up to the obvious stuff, the part you can see from the car. Gas that used to start with a two now starts with a four, because Iran answered the strikes by throttling traffic through the world’s busiest oil corridor, and prices did what prices do when supply gets scared. Inflation went to its biggest jump in three years. People are working from home to dodge the commute and telling pollsters they have flat out cut back on driving, which is what a country looks like when a tank of gas turns into something you ration. Consumer sentiment has slid three months straight, the lowest in a couple of years, and the people who track it keep jabbing a finger at the same thing on the corner.

Bullionbite

16,000 Bombs Later, Iran Got a Worse Regime

Sixteen thousand airstrikes. One strait. A month of war. And Brent crude sitting at $126 a barrel while the IEA calls this the largest supply disruption in the history of the global oil market…

Read more

6 months ago · 7 likes · Bullionbite

Now here is the part that should make a person set the paper down.

The Pentagon is burning an estimated $2 billion a day on the war in Iran, by a Harvard Kennedy School count. One day of that costs about what nearly three million households will lose to the whole thing across a year of higher bills. Sit with that. A single day over there, set against the twelve-month grind of a mid-sized city’s worth of families over here, and the official answer to the families coming up short is not a hand but a bigger ask: the Pentagon went hunting for a war chest in the hundreds of billions outside the normal budget, the White House shaved the figure and sent it up anyway, and the next budget swells into the trillions on the back of cuts to schools, farms, the environment, and the tax collector itself.

Nobody here is twirling a mustache, which is the depressing part. The White House saw the receipts and picked the war chest. The watchdogs who could have made noise mostly did not. The Federal Reserve is simply stuck: it cannot cut into an energy-driven price spike without feeding it, an analyst at JPMorgan now figures there is no move at all until well into 2027 and a hike when it lands rather than the cut a pinched country keeps begging for, and the president spent last December promising to install a chair who would cut regardless (subtlety was never the point). He got one. Kevin Warsh gavels his first meeting in the middle of this month, and the math on the desk will not care who signed the appointment.

Oh, and the houses, which a piece like this one keeps almost forgetting because they are quieter than a four-dollar pump. A thirty-year mortgage that opened with a five in February opens with a six now, the war having shoved up the inflation lenders price in, lenders who then demand more to wait it out. People anticipate higher inflation; lenders are going to require higher interest rates to compensate them for the erosion of the value of the dollar that they’ll be paid in the future, Klein said. So it reached the closing table too. Of course it did.

The fall is the part nobody is pricing in yet. The fertiliser bill comes due after the harvest, which means the grocery number people are wincing at today is the preview and not the feature, and whether the shooting has stopped by October hardly matters, because the cost is already written and grinding its way down the supply chain on a delay, deaf to any ceasefire. The next budget, meanwhile, asks the country to feed another fortune to the thing that caused all of this while trimming the school lunch line to make the columns balance. The crops come in around autumn. Plenty of time to stop thinking about it until then.

References:

Moody’s Analytics: U.S. household cost and inflation analysis

University of Michigan Surveys of Consumers

World Bank Commodity Markets Outlook

The Conference Board Consumer Confidence Survey

There is a question that drifts around trading floors and never really gets a straight answer, probably because the honest one is a little embarrassing. Say a stock has run up to a number its owner could retire on. Say a few thousand other people are sitting on the same winner. And say they all decide, on more or less the same Friday morning, to take the money and go. Who is on the other side of that? Who is buying, and with what?

Most of the people who run money already know the answer and would rather not say it anywhere near a live microphone. The cash was never really sitting there. There was a story instead, a good one, told for years by the people who do best when everyone keeps believing it.

Start there.

For a generation now, the job of explaining the market to the public has been handed, more or less, to the people who get rich when it climbs. They picked the comparisons. The one everyone settled on, lifted from Benjamin Graham and worn smooth from handling, says the market is a weighing machine, calmly tallying up earnings and cash flow and whatever a chief executive means by vision. Read the filings. Run the cash-flow model. Sit through the guidance. Do the work, the promise goes, and the scale treats you fairly in the end.

It is a calming picture and, for the people selling it, a conveniently slippery one, since it cannot really be tested on anything shorter than a decade. Give it that long and the scale is real enough. The trouble is that almost nobody holds for a decade. They are trading this week. And this week the thing setting the price is not the scale, it is the flow of money in and out the door. There is a blunter line for that, the kind that gets muttered on a desk and would never survive a client meeting: fundamentals are a luxury, liquidity is oxygen.

That is the paradox the whole performance exists to paper over. There has never been more wealth on paper, more record closes, more happy talk about an everything boom, and still, the second a handful of big holders try to turn any of it into money they can actually spend, the thing starts to wheeze. Abundance that cannot scrape together a dollar when it finally needs one. The word that would explain it is the one that never quite gets said out loud.

None of which makes the boom fake. The build-out is real, the data centers are real, the hunger for the chips that train these models got real enough that buyers were double-ordering, putting in for the same parts twice to hold a place in a line everyone assumed would only get longer. On top of that real thing grew a much less real one, a tower of what the desks fondly call paper wealth, prices climbing far faster than any factory could ever follow. Paper is the honest word in that phrase. The other one is decoration.

Every so often the business says the quiet part in the open, as a number. Call it the 70/30 rule: liquidity does most of the work in any market, and fundamentals and earnings and momentum are left to split whatever is left over. It gets passed around desks and newsletters like scripture, and the giveaway is how tidy it is. Nobody ever ran the test that produced a clean seventy. The figure is really a confession in the costume of arithmetic, an admission that the weighing machine was mostly a pump the entire time, handed over in the one language the industry actually respects, which is numbers.

The whole thing runs in plain sight if you watch for a week. This past one was the worst for stocks in months, and the explanations turned up almost before the losses did, each of them neat, each pointing somewhere other than the obvious place. The hot May jobs report shoved Treasury yields up and put the summer rate cut out of its misery, so that was the story for a day. Then it was Broadcom, guiding soft on its AI sales and taking the rest of the chips down with it, which got called profit-taking, the gentlest phrase in all of finance for a crowd that is sprinting. And off to one side, bitcoin, the asset that was supposed to answer to nobody, slid to lows it had not touched since winter as the money drained quietly out from under it. Different desks, different headlines, one event sitting under all of them: everyone reached for cash in the same hour and found out there was a lot less of it around than they had been letting on.

What gets described as a rotation is closer to a stampede that has learned some manners. The early ones, the people who always seem to get the memo first, trim and call it discipline. The trend-following machines clock the line bending and flip from buying to selling without anybody upstairs forming a thought. Last to hear are the ones who got sold the dream hardest, and by the time they make it to the door the name for what they are doing has slid from investing to panic, even though it is the same people at the same screens running the same scared arithmetic.

The clever part is that the language never points a finger. Profit-taking has no subject; the profits do their own taking. Liquidity dries up the way a pond does, by weather, with nobody to answer for the drought. All of it is built to make a mechanical thing sound like a natural one, and it holds together because most of the people repeating it are at least half persuaded themselves. The strategist on cable explaining the drop is not lying, not exactly. He is reading from a script he inherited from the last batch of strategists, who got it in turn from the people who needed the public calm and fully invested. (The same desks that called it a supercycle on the way up will call it a healthy correction on the way down, and invoice for each.)

The watchdogs, for the most part, just narrate. The same financial press that will spend next week dissecting the slide in elegant detail spent the past several months relaying the supercycle line with a straight face, and the regulators who might have leaned on all that borrowing mostly seemed to enjoy admiring it. No conspiracy is required for any of this. A shared script and a room full of people with every reason to keep the night going until the lights come up manage it perfectly well on their own.

And there is a word being kept on a shelf for later. Once the selling gets ugly enough, once the funds that borrowed to buy are forced to sell whatever they can rather than whatever they would like to, the calls for help will start, and the help will not be called a bailout. It will be called providing liquidity. The central bank will not be described as rescuing a boom it spent years feeding with cheap money; it will be described as supporting orderly markets. You could draft the press release tonight. A system carrying this much borrowed money does not leave a lot of doubt about whether the rescue eventually arrives. What stays unsettled is the name it travels under when it does.

Strip the soft words off and it is a small, old story. Cheap money built the thing, cheaper talk explained it, and the same people who were paid for both will be paid a third time to clean it up. The one left holding the bag is the saver who did exactly what the magazines told him, who hung on because hanging on was supposed to be the whole virtue, and who gets to find out near the bottom that his patience was the product all along, not the favor anyone was doing him. That part rarely comes up afterward.

Utterly stupid, morally wrong. Take your pick.

That was Mitch McConnell, not some lifelong antagonist of the right, passing sentence on a scheme cooked up inside Donald Trump’s own Justice Department. The nation’s top law enforcement officer, the former Republican leader said, had gone looking for a slush fund to pay people who assault cops. He was not reaching for a metaphor.

Here is what the department, run by the president’s former personal lawyer, actually proposed. It would set aside $1.776 billion of public money to compensate the supposed victims of weaponization and lawfare, and it would call the thing the Anti-Weaponization Fund, which is the sort of name you hang on a door so that nobody opens it. Open it. The victims it existed to make whole turned out to include the rioters who beat police with flagpoles on January 6, now first in line to be reimbursed for the inconvenience of having been prosecuted.

Nobody picks 1.776 by accident.

The number is the costume. It dresses a raid on the Treasury in the colors of the Revolution, and it does it for an audience of exactly one. And the sum was no abstraction: $1.776 billion is the kind of money that keeps a real army in the field through a hard winter, the artillery and the air defense and the back pay. There is such an army at this moment, holding a line in Ukraine against Vladimir Putin, and it has been told the drawer is empty. The drawer was never empty. It was reserved for the people who stormed one capitol instead of the people defending another.

There was a second piece of paper, a single page signed by the acting attorney general, Todd Blanche, declaring the government FOREVER BARRED and PRECLUDED from pursuing pending tax claims against the president, his family, and his businesses. (The capital letters are the government’s own, not added here for effect.) A federal judge froze the fund and set a hearing. Cornered by the courts and by a rebellion among the only people whose loyalty he can usually bank on, Blanche pulled the fund. The tax page stayed exactly where it was.

What deserves a long stare is how close this came to working. The fund did not collapse because the system has antibodies. It collapsed because a retired senator with nothing left to lose said the obvious in public, because a single judge in Virginia hit pause, and because even the president’s most reliable sycophants could not make themselves swallow this particular helping. Take those three accidents away and the money moves. The watchdogs built to bark, the guardrails, the party that holds the Congress, mostly did the thing they have trained themselves to do, which is to study the carpet and wait for the cycle to turn.

This is not a new instinct in a president who keeps the public trust and his private brokerage account in the same ledger. While American troops sat deployed near Iran, he logged more than 3,600 buy and sell orders in a single quarter, a healthy share of them in the very defense suppliers his war was busy enriching. Richard Painter, the chief ethics lawyer in the last Republican White House, told the Associated Press that a defense secretary who traded that way would be committing a crime, and that the president was guilty only of a fundamental breach of trust. Technically legal. That was the entire defense, offered as if it were a clean bill of health rather than the charge sheet.

For three generations the word the Atlantic alliance kept for its enemies was deterrence, and the enemy lived in Moscow. Listen to whom it describes now. Nader Mousavizadeh, once a senior adviser to a United Nations secretary general, said the quiet part without flinching: deterring Trump’s America is becoming a strategic priority of the allies, as much as deterring Russia ever was. Daniel Fried, a former American ambassador to Poland, watched European governments send troops to Greenland to guard a NATO member’s own territory against an American president, and wrote for the Atlantic Council that the allies had begun, if only by implication, to use the word deterrence about Washington itself. He called it a low point. He also called it necessary.

They had watched him do the rest in the open: threaten to annex Canada and to take Greenland from a treaty ally, open a war with Iran without a word to NATO and then demand that NATO haul him out of the mess, set the Russian aggressor on the same moral plane as the country it invaded, aim tariffs at nearly every friend at once, and thin out American troops along NATO’s eastern edge at the precise moment Putin, sensing the war slipping, leaned harder on it. None of it read as strategy. All of it read as appetite.

When your oldest friends start war-gaming you, the friendship is already finished.

Mousavizadeh’s counsel to the allies came down to two words, deter and diversify, and the warning beneath them was harder: no NATO government can ever again responsibly hand the United States the dependence it once extended on trust alone. (Somewhere in Moscow, an analyst is having the best year of his career.) The allies have finally read the doctrine off the wall, and the president had shown them the template himself: early in the term he made Ukraine sign over access to its critical minerals as the price of American help against the army trying to overrun it. The help came with a lien attached. Oppose him and you are tariffed; depend on him and you are extorted. Either way the invoice arrives.

In Portugal this spring, European executives have been describing the loss with something close to vertigo: faith in American institutions, and in the United States as the guarantor of the rules everyone else lives by, draining away after decades of being treated as permanent. They sound like hikers who have lost their compass. That is the asset the slush fund spent, and it does not come back with a press release.

The fund is gone. The page shielding the president’s taxes is not, and Blanche says it stays. The party that could have ended any of this studied the floor until a man with no reelection left to lose said it out loud. And the allies who built their security around American power have started running the arithmetic of defending themselves from it, which is the one calculation no country ever runs twice.

Related reading:

Even Mitch McConnell is mortified by Trump’s slush fund to pay people who assault cops

European troops arrive in Greenland as Trump throws another curveball

When Richard Nixon went on television in August 1971 to announce that the dollar would no longer be convertible into gold, the men who ran the world’s central banks assumed the metal’s monetary career was over. Bretton Woods had been built on the opposite faith. A generation earlier, several hundred delegates had filed into a hotel in the New Hampshire mountains and lashed the dollar to bullion and every other currency to the dollar, and for a quarter of a century the arrangement mostly held. Vaults filled. Gold sat at the center of the system like a small fixed sun. Then the window closed, the fixed rates fell apart inside two years, and a long procession of economists settled into the comfortable position that gold was a barbarous relic, a sentimental rock that paid nothing to the people who hoarded it.

The rock is back near the center of the system. A report would like that understood as news.

The European Central Bank announced on Tuesday that gold had overtaken US Treasuries to become the single largest reserve asset held by the world’s central banks. The story wrote itself, and the financial press obliged: the metal topples the bond, the bedrock of the dollar order cracks, a new age dawns in the world’s vaults. Geopolitical tensions continue to drive strong central bank demand for gold, wrote ECB president Christine Lagarde in the report, a sentence built to be lifted into a thousand summaries and to explain very nearly nothing.

Consider who is holding the microphone. The institution announcing that the dollar’s signature instrument has slipped to second place is the issuer of the dollar’s only serious rival. That is not a conspiracy. It is just a fact worth keeping in view while reading a press release about the decline of the competition.

Read a few lines past the headline and the awkward figure sits right there in the ECB’s own tables: dollar-denominated assets still account for 42 per cent of global reserves, comfortably the largest share of anything on the board. Gold edged past Treasuries. Treasuries are one dollar instrument among several. The dollar kept its crown; one of its products merely lost a ranking to a commodity in the middle of a blistering rally. That is the real story, and a far less cinematic one. A large part of gold’s climb is not central banks buying more metal so much as the metal already sitting in the vault being repriced upward by a soaring market. Mark your house to value at the top of a boom and you too can overtake the neighbor’s bond portfolio without doing a single thing.

The tell is in the buying itself, which actually slowed last year after three straight years of record purchases. If the gold share is leaping while the gold buying eases, the share is being driven by price, not by appetite. The vaults did not so much fill as appreciate.

Strip the price effect away and the deeper fact is stranger still. The world’s central banks now sit on nearly as much bullion as they hoarded at the height of Bretton Woods, the very arrangement Nixon was supposed to have buried for good. Half a century of treating the metal as an embarrassment, of lecturing finance ministers about the folly of holding a rock that yields nothing, and the vaults quietly refilled to something close to their old monetary peak. No one called a press conference to announce the relic had been readmitted to polite society. It simply accumulated, year by year, while the official line stayed dismissive and the buying went on beneath it.

The report’s preferred word is diversification, which earns its keep precisely because it sounds like it is doing none. Diversification is what a prudent saver does. It is calm, sensible, faintly boring. It is also not quite what happened.

The thing the genteel vocabulary is arranged to avoid naming happened in 2022, when Washington froze Russia’s dollar reserves after the invasion of Ukraine and showed every government on earth that dollar assets belong to you only until the people who issue them decide they do not. Gold in your own basement cannot be switched off by a memo from the US Treasury. That is the engine under the strong central bank demand Lagarde gestures toward, and it is not mysterious, and it does not need the limp passive of geopolitical tensions, a phrase that files a deliberate act of statecraft under the same heading as bad weather.

The buyers are not coy, and the report lists them: China, Poland, Turkiye and India, the predictable roster of governments with motive to hold something Washington cannot reach across a wire. The detail that should have led every write-up, and led almost none, is that the single largest buyer of gold last year was not a country at all. It was Tether, the offshore firm that prints a dollar-pegged stablecoin and evidently prefers to back its digital dollars with the one asset that exists because a meaningful slice of humanity does not trust digital dollars.

Set that beside Lagarde’s tidy sentence about geopolitics and the framing begins to wobble. A crypto company and a handful of sanctioned-or-nervous states are loading up on bullion for reasons that share nothing except a common suspicion of the dollar system, and the ECB has folded all of it into the soft language of demand and diversification, as though a tide had simply come in (tides, conveniently, have no author).

Then there are the back pages, where the actual product is shelved. The same report observes, in the modest tone of an institution that would never dream of boasting, that the international role of the euro has grown gradually but steadily, that euro-denominated debt issuance reached a record high, that foreign money has flowed into euro-area assets at a pace not seen since the currency was launched. A document the world received as a gold story devotes its closing movement to a quiet advertisement for the euro. The metal overtaking Treasuries makes the front of the report; the issuer’s own currency makes the close.

Nobody writes the last act of a document by accident.

None of this means the shift is invented. Central banks really are buying gold, the dollar’s instruments really have lost ground, and the freeze of 2022 really did rattle the world. The point is narrower and a degree colder: the body certifying the trend is also a competitor inside it, the language it chose hides the reason behind it, and the 42 per cent that never moved was left out of the headline because it spoiled the ending.

The trouble with a safe haven is that it stays a haven only until the storm it was built to outlast actually arrives. Turkiye spent four years stacking bullion as insurance against precisely the sort of crisis it said it feared, and then, when its war with Iran began, sold or loaned 130 tonnes in what the ECB itself called one of the largest reserve drawdowns in years, because insurance you cannot spend is not insurance. Expect more of that as the decade’s conflicts multiply, vaults that filled in the name of independence emptying in the name of survival, each reversal relabeled as resilience by whichever central bank happens to be narrating at the time. The relic at the center of the system, it turns out, is mostly on loan.

References:

European Central Bank: The international role of the euro

Financial Times: Gold, reserves and the dollar

Britain has quietly turned into a discount destination for global employers, a high-cost country that pays its skilled workers like a low-cost one. On the internal pay bands that multinationals use to budget their hiring, the United Kingdom now lands in the third tier, grouped with Poland, Spain and Brazil. Canada and the United States hold the top tier, Germany, France and Ireland the second, and India and China the fourth. The distance between Britain and that bottom rung is no longer a chasm.

The arithmetic is not subtle. A senior engineering job that pays between eighty and a hundred and twenty thousand pounds in London commands more than three hundred and fifty thousand dollars in Seattle, a city no more expensive to live in than the British capital.

The respectable explanation is productivity, the word economists reach for when they want to sound serious and a little sad. As Paul Krugman put it, productivity isn’t everything, but in the long run it is almost everything. British output per hour stopped its long climb around 2007 and has barely moved since, leaving the typical British worker less productive than a German in the same chair and further still behind an American. Brexit deepened the hole; the official forecasters still bake a permanent productivity loss into their long-run numbers, a self-inflicted wound the country agreed to and then mostly stopped discussing.

But productivity and Brexit are the diffuse, blameless explanations a minister can offer on television without flinching. They are not the strangest feature of the British pay landscape. The strangest feature is that, having priced its talent at a discount, Britain then taxes the upper reaches of that talent as though ambition were a habit to be discouraged.

The number to hold onto is £100,000. Not because it is large, but because of what the British state does to the pound that crosses it.

Above £100,000, the personal allowance begins to disappear, clawed back pound by pound as income climbs, so that the same money is taxed once on the way in and again as the allowance evaporates. Those who hit the band have a name for it, and not an unfair one: a special punishment tax band. A blunter reaction, common among those who have run the maths on their own payslip, is simply That’s insane. Both are correct.

It gets funnier, in the way only tax policy manages to be funny. Layer on the free childcare hours that vanish the moment a parent’s income grazes the line, fold in student-loan repayments and the tax-free childcare account that dies with them, and the marginal rate on that stretch of income does not merely rise. For a parent of young children it can climb clean past the point where the next pound earned leaves the household with less than it had before. A modest salary keeps the childcare; a much larger one can leave the same family poorer. As one British earner who had run the numbers put it, you can be better off earning 99 than 140.

Read that twice. A pay rise that makes you poorer.

This is not a loophole, nor an edge case the system is straining to close. It is the system behaving exactly as written, because nobody has bothered to rewrite it. The £100,000 threshold has sat untouched since George Osborne introduced it in 2010, never lifted for inflation while wages and prices marched on, so a figure meant to snag a thin sliver of high earners now closes over a steadily larger crowd through the slow tide of fiscal drag. Every year the band swallows more people. Every year nobody moves it.

The rational response, naturally, is to make yourself poorer on paper. Britons who reach the cliff are counselled to shovel the offending income into a pension, or to lease an electric car through salary sacrifice, anything to drag their adjusted net income back under the line.1 An entire cottage industry exists to help people refuse money they have technically already earned. There is something almost tender about a tax system so badly built that the financial-planning trade’s signature service is helping clients escape it.

Stand back and the shape of it is less conspiracy than autopilot. A country that grew less productive and chose to trade less freely was always going to struggle to pay like the Americans. Fine. But on top of that it constructed a tax structure that punishes the few roles still worth bidding for, then froze the structure in place and let inflation widen it by stealth. Nobody here is twirling a moustache. The Treasury enjoys the revenue, lifting the threshold looks politically like a giveaway to people on six figures (no minister wants to defend that one on the morning broadcast round), and so the cliff stays put, year after year, quietly doing what cliffs do. Add a housing market that makes moving for work a genuine sacrifice and the picture darkens further: the country has arranged its incentives so that earning more, and moving to where the work is, both come at a discount to the worker.

One professional who lived through it described spending years clawing past £100,000 while inflation ate every raise, her take-home just going backwards, a decade on still roughly where she started. That is not a glitch. It is the designed behaviour of a machine no one is willing to switch off.

For now the band stays where it is, and fiscal drag does the quiet work of widening it, pulling a larger crowd toward the cliff with every passing year and not a single vote cast. Ministers who will not raise the threshold, and cannot easily defend it, have settled on a third option, which is to say nothing and let inflation make the decision for them. The talent, meanwhile, reads the same numbers the employers do and reaches the same conclusion. A country can spend years debating how to grow faster while the people best placed to help it are being handed every reason to leave.

References:

The £100k tax trap is a quirk of the UK system, where earning more can mean keeping less

Beat the £100,000 tax trap that could cost parents tens of thousands

Britain needs a new economic strategy to end its stagnation

Brexit analysis and the long-run productivity hit

Last time the space rush came by blank check; this time it wears a government’s initials, and the same voices narrate the risk without ever interrupting it.

A few years back, the fastest route from a rocket to a retail portfolio did not involve a rocket at all. It involved a blank check. A sponsor would raise a pile of money against nothing in particular, promise to go find a space company to merge with, and watch the ticker light up while small investors crowded in on the romance of orbit. Most of those merged ventures never flew much of anything. A few trade in pennies now. The blank-check vehicles that carried them have largely been wound down or quietly forgotten, their glossy prospectuses a small monument to how fast a theme can be sold before it is ever built.

The theme did not die; it changed vehicles. This spring a London shop called Tema launched an exchange-traded fund and handed it the ticker NASA, four letters that belong, in every sense that counts, to a federal agency with a long public record of actually reaching space. This time there was no blank check. The fund went one better and bought into Elon Musk’s SpaceX directly, holding private shares in the most coveted pre-IPO name on the planet, then offered the position to anyone with a brokerage app. Money arrived in the billions within weeks, from buyers who had absorbed the last boom’s lesson imperfectly: not that the romance is dangerous, but that it pays to be early.

What is genuinely new here is not the appetite. It is the chorus. Every prior mania had its skeptics shouting from outside the tent. This one keeps them miked up inside it. Turn on the financial channels and the very strategists who move the space theme will, in the next breath, warn you to handle it with care, and both halves of the performance are sincere.

Todd Sohn of Strategas, one of the clearer-eyed voices on the plumbing, says the funds run anywhere from pure to watered down, and that the homework now lands squarely on the buyer. He is right on both counts. He also expects these funds to morph into more concentrated bets once SpaceX is finally public, which is a careful way of saying the diversification printed on the label is a temporary setting, one that gets changed after the assets are through the door. Mike Akins of ETF Action describes the same shift admiringly: a theme that used to make an investor hunt down companies one at a time is now, in his telling, simply a ticker. (He offers it as progress, and from a certain chair it is.)

The chorus has company, too. In the same short stretch a clatter of rival funds reached the market under bright tickers of their own (WARP, ORBX, MARS; the names get more on the nose with each launch), each racing to brand its slice of the same theme, which the sober analysts read, reasonably, as a signal that the industry expects space to be the next thing retail chases after artificial intelligence. That is the part that ought to give pause. The surest sign a trade has matured into a product is not that the underlying business has improved; it is that a crowd of firms has decided there is shelf space for it. The shelf came first. The companies, in plenty of cases, are still being invented.

The tell is what the chorus does with the single most revealing line in the whole affair. Tema’s founder, Maurits Pot, has said plainly that the fund has no intention of selling when the IPO prices; the event, in his framing, is simply a remarking of the position to market price. That phrase describes a machine. The fund holds SpaceX at a private mark, the public offering rewrites that mark as a market price, and the retail money pouring in now is part of what lifts the number the fund will then book against shares it already owns. None of it is concealed. It was said on air. The response from the assembled experts was to nod, log the volatility, and cut to the next segment.

Notice who is not in the room raising a hand. The structure itself, the exchange-traded wrapper that makes any of this tap-to-buy simple, arrives pre-blessed by the same machinery meant to scrutinize it, because the wrapper is old and respectable even when the contents are neither. The auditors sign. The exchanges list. The regulators who require a wall of disclosure get their wall of disclosure, and a wall of disclosure is not the same thing as a warning anybody reads. Complicity is too strong a word for most of it; indifference dressed as procedure is nearer the mark. Everyone with a title performs the role precisely, and the sum of all that precise performance is a product that moved billions into a single rocket maker before that rocket maker had so much as set a price.

The risk is not theoretical, and it does not wait for anyone to finish reading a fact sheet. The same week the fund was busy gathering assets, a Blue Origin New Glenn rocket came apart in a fireball on a Florida pad during a ground test, the kind of event that has always been part of the work of building rockets and has never once been part of the work of selling exposure to them.1 And the market for the actual prize is about to turn stranger still: SpaceX is letting ordinary buyers in near the front of the IPO line, an unusual courtesy in a deal this size, which raises an honest question about the premium-priced fund standing right beside that open door. If the front entrance unlocks in a matter of weeks, the side entrance is mostly selling the wait. The wait, and the relief of not having to pick a company, which is precisely what the last boom sold too, right up until its vehicles emptied out.

Here is the part worth watching, because the calendar already has it. SpaceX prices in June and begins trading days later. The mark becomes a price, the fund books the gap, and the founder gets to call the whole thing arithmetic. Sometime after that, once the novelty cools and the inflows slow, the careful diversification will narrow into the concentrated bet the strategists can already see coming, and the buyers who showed up for a word will find they own a great deal more rocket company, and a great deal more weather, than the label ever advertised. The chorus will still be there, still miked, still describing the storm in the present tense as though describing it were the same thing as calling it off.

References:

Two months, $2.6 billion: How NASA ETF turned SpaceX IPO access into a hot retail trade

How retail investors can get in on the SpaceX IPO

Blue Origin’s New Glenn rocket explodes during prelaunch testing at Cape Canaveral