**** denotes well-worth reading in full at source (even if excerpted extensively here)
Economic and Market Fare:
ABN Amro: Tariffs have entered the hard data
‘Soft’ consumer and business confidence data deteriorated rapidly due to US government policy. ‘Hard’ data has held up better, partly due to frontloading effects from the tariffs. But now the negative impact is starting to show in the hard data as well. ...........
..................... Overall, we continue to expect the hard data to show more substantial negative effects over the course of the next half year. Recent data has been strengthened by frontloading effects. Upcoming months will show the payback on top off the overall deterioration. For GDP growth, a reversal of the strong imports of Q1 will mean a boost in Q2, while investment will decline. Consumption will slow, as consumers too have frontloaded purchases, and further suppressed by sentiment, increasing credit constraints, and equity volatility dampening consumption of high-income households. The de-escalation of the trade war is a positive, but current tariffs will still do substantial damage to the economy.
China’s transition from lead bilateral banker to chief debt collector of the developing world
Soaring debt repayments and a sharp reduction in lending have transformed China’s role in developing country finances from capital provider to debt collector. Mounting pressures from Chinese debts are especially severe for many of the world’s poorest and most vulnerable countries. A retrenchment in Western aid and trade is compounding these challenges while undermining any geopolitical advantage for the West.
Key findings
- In 2025, the world’s poorest and most vulnerable countries will make record high debt repayments totalling $22 billion to China. Beijing has transitioned from capital provider to net financial drain on developing country budgets as debt servicing costs on Belt and Road Initiative projects from the 2010s now far outstrip new loan disbursements.
- China continues to finance strategic and resource-critical partners despite a broader collapse in its global lending. The largest recipients of new lending include immediate neighbours, Pakistan, Kazakhstan, and Mongolia, and developing countries that are critical mineral or battery metal exporters, such as Argentina, Brazil, Congo DR, and Indonesia.
- China is grappling with a dilemma of its own making: it faces growing diplomatic pressure to restructure unsustainable debt, and mounting domestic pressure to recover outstanding debts, particularly from its quasi-commercial institutions. But a retrenchment in Western aid and trade is compounding difficulties for developing countries while squandering any geopolitical advantage for the West.
Elon Musk says the republican bill can be big or it can be beautiful, but it can't be both. As fate would have it, it's neither.
................. You can argue that beauty is in the eye of the beholder, but gratuitously stripping 13.7 million people of health insurance and taking food assistance away from millions of parents struggling to feed their children is pretty ugly stuff. And doing it to “pay for” tax cuts that will overwhelmingly benefit the wealthiest is both shameful and immoral.
As the economist and former State Senator Reynold Nesiba put it, this isn’t a beautiful bill. It’s an egregious transfer of wealth from the least among us to those who already enjoy substantial economic security .................
Investors are fretting about a clause that would penalise foreign holders of US assets
Thirty years ago, when I was a rookie reporter, a veteran writer offered me sage advice: whenever presented with a government or corporate document that is more than 100 pages long, hunt for hidden bombs.
Donald Trump’s thousand-page (plus) “big, beautiful bill” is a case in point. Since the House of Representatives passed it last week, this fiscal act has been (rightly) lambasted for many reasons: it favours the rich over the poor; cruelly cuts social safety nets; and recklessly expands the debt. Even Elon Musk is upset.
But what investors should also fret about, if they care about the state of Treasuries or are a non-American entity holding US assets, is a clause buried in the bowels of this behemoth called section 899. This would enable the US Treasury to impose penalties on “applicable persons” from “discriminatory foreign countries” by increasing US federal income tax and withholding rates by up to 20 percentage points on their US investments, on a variable scale. It might thus be viewed as a novel “revenge tax” (as some lawyers call it) that Trump could use to bully friends and foes alike in trade negotiations.
So, at best, all this undermines prior efforts to build a collaborative global tax system via groups such as the OECD, with its undertaxed profits rules. At worst, it makes Trump look like a feudal European king intent on using tax as a capricious tool to extract foreign tribute. Either way, it undermines the idea that America is a place of consistent investment laws — and has shocked lawyers in countries such as Canada.
“Section 899 is toxic [and] a potential game-changer for foreign investment,” Larson Gross, a tax advisory group, told clients this week. Or as Neil Bass, a Canadian lawyer wrote in his own missive: “The US just declared a tax war and it’s targeting allies.” ............
Vid Fare:
Variant Perception: Where are we now? VP's 2025 Top 10 Surprises
Inspired by Byron Wien, we listed VP's 10 surprises as part of our 2025 Themes. We followed his definition of a “surprise” as an event that the average investor would assign less than a 33% probability, but which we believed were “Probable,” having a 50%+ likelihood.
The below AI summary provides the key takeaways that can be read in less than 5 minutes.
AI Summary - Evaluating VP's 10 surprises for 2025
#1 – Trump's tariff and migrant policies are not as inflationary as feared [00:01:05]
Contrary to early concerns, tariffs and immigration restrictions have not forced the Fed into hiking. Inflation has risen, but not in a way that demands aggressive tightening. Instead, sticky inflation limits the Fed's ability to cut. Labor market impacts from immigration limits and deportations are still playing out, especially in construction and agriculture.
#2 – US growth neither collapses nor surges, supported by consumption [00:04:10]
Growth has been stable, but risks are rising. The fiscal impulse has plateaued, and manufacturing capex has weakened. Services have held up, but forward-looking indicators show rising downside risks to activity. Consumption remains resilient, though softening—so far, no cliff.
#3 – Powell does nothing after Jan 2025; no cuts, no hikes [00:11:58]
Initially seen as a hold scenario, Powell now has scope to cut if growth slows. The market is pricing in about three cuts, but this probably reflects a weighted probability of 1-2 cuts (without recession) or more than 4 cuts (with recession). Rate hikes are almost unthinkable due to political and fiscal constraints; even in a sharp rebound scenario, yield curve control would likely emerge instead.
#4 – U.S. 10y yields never break 5% thanks to “Bessent put” and foreign buyers [00:16:46]
Despite market volatility and bear steepening, 10-year Treasury yields have held below the key 5% level. The administration appears committed to ensuring yields don't breach this level. Policy intervention - either direct or via tools like SLR reform - is expected to keep long-end rates contained. This is a high-conviction view for us, given the importance of the bond market.
#5 – US small caps continue to underperform [00:21:34]
Despite optimism post-election, small caps have lagged due to poor index quality, interest rate sensitivity, and weak fundamentals. The index remains vulnerable to high funding costs and lacks appeal outside of single stocks related to reshoring or possibly regional banks. Tactical rallies may occur, but the broader underperformance trend remains intact.
#6 – Trump and Xi make a deal [00:25:30]
While rhetoric escalated sharply, both sides have signaled openness to talks. A shallow, symbolic deal is likely—low-quality but headline-friendly. Structural tensions remain, but neither side wants to escalate beyond manageable limits. Economic pain on both sides will push toward de-escalation later in the year. We believe peak escalation has passed, and the two parties will gradually move toward some form of a agreement.
#7 – Euro breaks parity as Germany “brakes” its economy [00:34:32]
This was a clear miss for us. German politics unexpectedly unified in response to Trump's early policies and managed to pass a massive fiscal expansion (~€1 trillion), loosening the debt brake. Liberation Day also unleashed a repatriation wave that weakened the dollar and boosted the euro. While economic fundamentals remain shaky, capital flows have overridden them. The euro might give back some of its gain on a tactical basis, but flows are a structural tailwind from here.
#8 – OPEC Loses More Members as Oil Falls [00:43:49]
The oil price has fallen since the start of the year, with Kazakhstan exceeding quotas and OPEC adjusting “voluntary” cuts. While no formal exits have occurred, cohesion in the cartel is weakening. The oil story is both supply- and demand-driven, with supply rising and growth headwinds reinforcing downside for demand. We still prefer energy equities over crude itself. So far, the surprise remains valid, with more to play out.
#9 – Gold fails to make new highs, underperforms 60-40 [00:41:43]
Liberation Day triggered a shift in global reserve preferences, with gold benefiting from reduced trust in Treasuries. Emerging market central banks, esp. those wary of sanctions, may now see gold as their primary neutral reserve asset. Gold is now seen as a structural allocation, and we think tactical sell-offs are opportunities to add exposure.
#10 – Capital Cycle: buy China tech, luxury goods as contrarian play [00:46:26]
The call began well with a rally in Q1, but Liberation Day and the intensification of trade tensions prompted a reassessment. Chinese equities now face structural headwinds, especially for international investors. Luxury goods remain appealing long-term due to their IP and Lindy effect characteristics, but timing is poor amid global growth concerns and geopolitical risk. Both themes remain valid from a capital cycle view, but we are shifting our attention towards LatAm and US single stocks that may benefit from reshoring and other key themes that have emerged since Liberation Day.
Bubble Fare:
The dumbest PE performance metric still bamboozles some investors
Private Equity is ramping up efforts to get at the $12 trillion 401k sector.
Charts:
1:
(not just) for the ESG crowd:
Exclusive: André Corrêa do Lago says ‘answers have to come from the economy’ as climate policies trigger populist-fuelled backlash
.................... “It is not possible to have [scientific] denialism at this stage, after everything that has happened in recent years. So there is a migration from scientific denial to a denial that economic measures against climate change can be good for the economy and for people.”
The failure of the climate movement isn’t just political or scientific—it’s philosophical. At its core is a reductionist mindset: isolate one culprit, pursue one goal, rally around one fix. Fossil fuels became the villain, CO₂ emissions the metric, and renewables the savior—embraced more for narrative simplicity than system reality. Missing was any serious reckoning with energy, complexity, ecological limits, or human behavior. If fossil fuels caused the problem, then renewables must solve it. Doubt didn’t fit the script. ...........
.............. That’s the deeper failure. Not that the warnings weren’t loud enough. Not that the science wasn’t clear. But the framing itself was naïve and simplistic. We tried to solve climate in a way that let us avoid the real questions—about limits, about how we live, about what kind of future we’re actually powering toward.
This wasn’t just a climate mistake. It’s the same pattern we’ve seen with GDP as a proxy for wellbeing, with technological fixes for social breakdown, with laws against addiction instead of understanding its roots. We break the world into parts, fix the ones we can see, and call the system stable—until it breaks again. ................
Tverberg: Economic contraction, coming right up
Trump 2.0:
I predict that the world economy will shrink in the next 10 years. I think that this is bound to happen because of energy and debt limits the world economy is hitting. There are a variety of other factors involved, as well.
In this post, I will try to describe the physics-based limits that the economy is facing, related to diminishing returns of many kinds. The problem we are facing has sometimes been called “limits to growth,” or “overshoot and collapse.” Such changes tend to lead to a loss of “complexity.” They are part of the way economies evolve. I would also like to share some ideas on the changes that are likely to occur over the coming decade.
[1] The world economy is a tightly integrated physics-based system, which is experiencing diminishing returns in far more areas than just oil supply.
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Trump 2.0:
***** Tracey: My remarks at last night's Trump 2.0 debate
.................................................... In his 2024 campaign announcement speech, Trump vowed that if given a second term he would “dismantle the deep state.” Now, predictably, he is touting Trillion Dollar military budgets and a new boondoggle “missile defense” program that makes every “Deep State” operative tremble with glee. He marketed himself as the “candidate of peace,” which is usually what Americans want to hear — and then undermined his own “ceasefire” arrangement to fuel the annihilation rampage of an Israeli government controlled by messianic fanatics. He strode into office signing an executive order to “Restore Free Speech,” and proceeded to spearhead a relentless campaign to punish disfavored political speech. He railed against influence-peddling and corruption — and now you can buy a Trump “memecoin” for presidential access. The list goes on.
It’s true that when Trump first won in 2016, he did so by overthrowing the two reigning American political dynasties, Bush and Clinton, and also overturning much conventional wisdom that had for too long prevailed. This did present a historically unique opportunity to inaugurate what you might call a “new prosperity,” unshackled from outmoded conventions. The reality, let’s say, has been slightly more complicated.
Geopolitical Fare:
"What we are doing in Gaza is a war of extermination: indiscriminate, unrestrained, brutal, and criminal killing of civilians," said former Israeli Prime Minister Ehud Olmert.
............... "The school was supposed to be a place of safety. Instead, it was turned into an inferno,"
The Trump administration announced a truce with the Houthi rebels on May 6, but this was after the United States had already bombed critical infrastructure for importing food and fuel.
Vid Fare:
The ongoing Israeli military assault on Gaza is, in my view, one of the worst crimes in human history. For the last year and a half, Israel has carried out a mass murder, ethnic cleansing, and now starvation campaign against a besieged, defenseless population of two million Palestinians.
Sci Fare:
One computer scientist’s “stunning” proof is the first progress in 50 years on one of the most famous questions in computer science.
Other Fare:
America's government and technology giants are fusing into a codependent superstructure in a race to dominate AI and space for the next generation.
Why it matters: The merging of Washington and Silicon Valley is driven by necessity — and fierce urgency.
The U.S. government needs AI expertise and dominance to beat China to the next big technological and geopolitical shift — but can't pull this off without the help of Microsoft, Google, OpenAI, Nvidia and many others.
These companies can't scale AI, and reap trillions in value, without government helping ease the way with more energy, more data, more chips and more precious minerals. These are the essential ingredients of superhuman intelligence.
The big picture: Under President Trump, both are getting what they want ..............
I think it’s clear that democracy and capitalism don’t work together. Capitalists always wind up buying the government, and the only solution is a Great Depression sized catastrophe to reset the wealth of capitalists. But then, over time, they will capture the government again.
This isn’t to say much good may not be done at various times. Usually after things get bad enough, a generation winds up in power who is determined to make government work “for the people” because they’ve seen what happens when it doesn’t. War, revolution, poverty, depression and so on. ................
How the consumer welfare and tort reform movements eroded the right to a civil jury trial, and how to fix it.
I am not a politically complicated person. I think genocide is bad. I think peace is good. I don’t think anyone should be struggling to survive in a civilization that is capable of providing for all. I think we should try to preserve the biosphere we all depend on for survival.
To me these are just obvious, common sense positions, no more remarkable or profound than ........
Gabriel Zucman is a French-born economist who teaches at California, Berkeley and the Paris School of Economics. Zucman’s academic specialization is in wealth inequality, using tax data to track the stratification in wealth in the US and the rest of the world. A student of famed inequality expert, Thomas Piketty, he is an important figure in the World Inequality Database.
His most recent findings expose a gross obscenity, a level of wealth inequality in the US that should shame every politician, every mainstream-media commentator, and every cultural influencer who fails to make recognition of this travesty central to his or her message. ..........
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