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Thursday, January 1, 2026

2026-01-01

**** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic and Market Fare:


................................ In the G2 world, the imagined global village is a gladiatorial arena where the EU and the United Kingdom now wander aimlessly. A new, harder, colder world order has been erected on the grave of European ambition. The year’s enduring lesson is that in an age of existential contests, strategic dependency is the prelude to irrelevance.





We are now living in a technocracy that is changing too fast to metabolize, what futurist Alvin Toffler back in 1970 referred to as ‘future shock’. We travel through life guided by our metaphorical GPS; we no longer know the complete route to our destination, only the next turn, and it doesn’t always work. My internal GPS device is now randomly rerouting me, constantly flipping to new directions, causing dysfunction the magnitude of which will become clear shortly. Facts do not stay factual. The past is like a Tarantino film where history is rewritten to control the narrative. I can no longer trust my lying eyes. As Bret Weinstein so incisively noted, somebody has intentionally broken all of our fact-checking mechanisms .............................................................................................................................................................................................................................................


Major Markets Letter #3: A tale of two curves: The US and Europe diverge

The yield curve has steepened for three consecutive years, and the prevailing narrative says the US curve is on track to make it four. Consensus feels comfortable. Which is usually the moment to ask an uncomfortable question: what could possibly go wrong?

Anyone who trades or invests in bonds knows that talking about “the curve” is meaningless unless you specify which part of it. There is also an important difference between being right in principle and making money in practice. Curve calls live and die by segment, timing, carry, and magnitude. .........

At the front end, the story is the same in both markets: policy rates were cut by more than investors expected at the start of the year. What was priced in turned out to be insufficient, so front‑end yields adjusted lower. How far that rally can extend further out the curve depends on the proximity of policy rates to their perceived neutral level.

Mention the neutral rate and eyes tend to glaze over, but it remains central to how markets think about the destination for policy. In simple terms, it is the equilibrium rate at which the economy is neither too hot nor too cold, with full employment and inflation at target. It is unobservable, model‑driven and deeply uncertain; all good reasons for economists to argue about it endlessly. ..........

............... So will the curve steepen again? At the start of 2025, the extent of the Bund steepening to come was far from obvious. If the US curve delivers another version of this year’s move, it is most likely to be led by the front end rather than the long end selling off aggressively. In that environment, the cleanest trade may not be a curve position at all, but simply holding an outright long in intermediate maturities and letting policy do the work.



 

............... With analysts expecting strong revenue growth and margin expansion despite rising input costs, global uncertainty, and declining employment, a market priced for perfection leaves little room for earnings misses or growth shocks. If those optimistic assumptions fail, market risk could rise abruptly. ......................


Thomas: Off-Topic ChartStorm - Commodities
Taking stock of Commodities: an insight into trends across supply, demand, valuations, sentiment and positioning, technicals, and super-cycles...

Overall, there’s growing evidence for a new cyclical bull market in commodities (following a cyclical bear market from 2022-24). This is likely to become a major macro theme in 2026 (not to mention a very interesting opportunity for investment in both commodity related stocks and commodity prices themselves).

1. Follow the Leader: gold has blazed the path, commodity catch-up comes next.

.......
9. Supercycling: speaking of which, it looks like we are already in a new supercycle for commodities, and the way I see things; we’ve basically just wrapped up a cyclical bear market (from 2022-2024) and a new cyclical bull market is now underway. This is significant because it’s set against a structural bull case (underinvestment in supply, thematic demand drivers such as electrification and energy transition, new space race, AI & robotics race, geopolitics, and infrastructure (re)building). So we shouldn’t underestimate the opportunity in commodities as bullish forces set in motion, nor the upside risks this will present to inflation.




Bubble Fare:

The Danger of Today's 10x "Opportunity"


............. Some argue these multiples are justified by the Mag 7’s dominant business models and exceptional growth—but we see several problems with that logic:
  1. Even great companies can disappoint when expectations are sky-high.
  2. Speculation has inflated valuations for many firms without the market power or fundamentals of the top-tier leaders.
  3. Equal-weight perspective reveals the breadth of excess. Roughly 8% of all U.S. stocks trade above 10x sales, approaching the 2000 peak and not far from the 2020 growth bubble. 
In short, today’s market reflects more than optimism—it reflects risk. History suggests such extremes rarely persist without painful corrections.


You must leave now, take what you need you think will last.
But whatever you wish to keep, you better grab it fast.
— Bob Dylan
If September 2025 was peak bubble, 2026 will likely the year which it all falls apart. The clues are everywhere. .................

............ It’s all over now, Baby Blue. Whether it all falls apart suddenly, or gradually, I do not know. And LLMs will continue to exist.

But the economics don’t make sense, and never will, in large part because of the core technical problems that I have stressed repeatedly here and elsewhere since 2019. Without world models. you cannot achieve reliability. And without reliability, profits are limited.

The technical problems are not new. And a trillion dollars or so of investment hasn’t remedied them.

What is new that they have at last become widely recognized, not just as the transitory “bugs” the industry wanted you to think of, but as inherent limitations that flow from the very design of LLMs they really are. This cold reality in turns undermines a large fraction of the use cases that people initially fantasized about.

Once the implications are fully appreciated, the whole thing will begin to unwind.







Quotes of the Week:



Charts:
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(not just) for the ESG crowd:


.................. Figure 3 shows what’s actually happened since the Paris Accords. Mitigation efforts—renewable energy, carbon capture, electric vehicles—have not changed the trajectory of global CO₂ emissions at all. Nor is there any evidence of decoupling between emissions and GDP. Economic growth and carbon emissions continue to move together, just as they always have.

................... As long as economic growth continues, fossil fuel use will rise—and so will carbon emissions. Population growth is entangled with that dynamic, and reducing population is not a serious or humane policy option. This leaves us in a quadruple bind: emissions, growth, energy, and population pulling in the same direction, with no obvious escape within the window of climate urgency.


The Fallacies That Doom Our Solutions


Backpedaling from net zero

................... But the big problem is that we simply don’t have the natural resources to pursue the renewable energy transition at the speed required.

...................... I don’t think fossil fuels are going away. Solar and wind look more affordable, as long as you don’t have to think about how you’re going to store the electricity. Fossil fuels in contrast, are their own storage system. As long as people can’t cooperate to shut down economic growth and implement a global carbon tax, we’re stuck pursuing the maximum power principle, which means we’re stuck burning fossil fuels


Why Oedipus and Cassandra Both Failed

It is a tradition that, at the end of the year, people who discuss political and economic matters (like me) try to make predictions for the year to come. Modern predictors (myself included) have a generally poor record, especially for long-term predictions. Yet, we all indulge in this hobby, one way or another. We are born predictors.

The current debate sees two camps facing each other: the catastrophists and the cornucopians. The first group sees our civilization brought down by a combination of pollution, resource depletion, or overpopulation. The second sees technological progress breaking through all physical barriers and leading humankind to keep growing in power and numbers.

It is remarkable how this debate is polarized. Both sides see no shades of grey ............

Unfortunately, today, taking extreme positions seems to be commonplace in the debate about our future. T hose of us who try to strike a balance between doomerism and cornucopianism are normally seen as traitors from both extremes of the spectrum of the debate. Yet, there is space for a view that considers that neither the return to the Stone Age nor the colonization of Mars are just around the corner. A viewpoint that sees collapse not as an event but as a process. We may not be able to avoid it completely, but we can manage it, soften it, and prepare a return from a decline that doesn’t necessarily have to arrive at the very bottom of the chasm. ............

The Energy Transition in Mind-Sized System Dynamics Models: Four Scenarios from Collapse to Abundance

Can we model the transition from fossil fuels to renewable energy in a way that captures both the collapse dynamics of resource depletion and the potential for a sustainable energy future? This post presents a simple extension of the Single-Cycle Lotka-Volterra (SCLV) model that treats fossil and renewable energy systems as two independent capital stocks. The model was created in view of a “mind sized” approach proposed by Seymour Papert in 1980. To maintain the model simple, the two stocks (fossil-generated capital and renewable-generated capital) were treated as independent from each other. This is, obviously, an approximation. ..................

............................................................... Despite these limitations, the model captures something essential: the energy transition is a race between fossil fuel depletion and renewable energy deployment.

The “collapse” we experience depends on:
  1. How much capacity renewables can ultimately provide (L)
  2. How fast we can build them (k₁_renew)
  3. When we start in earnest (C_renew_0 and initial growth phase)
Conclusion: Not Doomed, But Challenged

.................. We face difficult times - the model is clear about that. The fossil fuel decline is based on physics. But the depth and duration of the transition crisis depends on choices we’re making right now. The question isn’t whether we’ll face disruption, but how much - and what we’ll build on the other side.




Sci Fare:

COVID-19 infections are rising again across the U.S. Here's which symptoms to look for and how to protect yourself over the holidays.

........................ According to the CDC, the most common symptoms of COVID-19 include:
  • Fever or chills
  • Sore throat
  • Cough
  • Fatigue
  • Congestion
  • Shortness of breath
  • New loss of sense of taste or smell
  • Headache or muscle aches
  • Nausea or vomiting, diarrhea


............................................... A small number of researchers have become interested in the intestinal microbiome, but so far, we don’t have enough understanding of interrelationships among species to be the basis for effective treatments. 

These spectacular, early results for the effectiveness of a bacterial strains in fighting cancer remain in a backwater of medical literature. You can be sure that if any molecule had shown such promise, the public relations machine would be in full gear, promoting the breakthrough in Science Magazine and in the news media as well. 

The universe of bacteria and fungi with potential for treating human disease remains an untapped resource which could be seminal for the future of medicine. 

Our American for-profit model of medical research has introduced distortions into the field, and whole areas of possibility are being neglected. Lifestyle changes, exosomes, natural hormones, traditional herbs — all of these are non-patentable, so no company is motivated to invest in researching their potential. 

It’s not just that pharma companies fund their own in-house research as well as research at medical schools. Government-funded research is overwhelmingly the same model. Everyone is looking for one molecule for one disease, preferably a new molecule that can be patented.

Through the last century of medical research, we have come to view the body through a biochemical lens. Our bodies are also ecosystems of symbionts, commensals, and parasites, each with multiple counter-balancing and reinforcing effects. We look for biochemical imbalances as the root of disease, when some diseases are better understood as ecological imbalances. 



U.S. B.S.:



Geopolitical Fare:


Which is saying something,  because worthless has been in charge of the West for generations. There are no leaders in charge of any major Western country who aren’t functionally morons.

Europe is run by utter idiots who want war with Russia, refuse to acknowledge that Ukraine is losing, are actively speeding up their loss of industry and imagine they can bully China and think America was their friend before Trump.

Trump is the stupidest president of my lifetime. No one else even comes close. Reagan with Alzheimers was better. Congress is a sewer of morons. Every major American politician, even AOC and Bernie, are functionally psychopaths. (Yes, both Bernie and AOC have repeatedly voted to send more money and weapons to Israel.)

Britain’s Starmer is the stupidest PM of my lifetimes and stunningly incompetent and evil. Yes, his job is to make rich people richer and suck off Netanyahu, but a competent pol would do that without destroying Labour as a party.

Macron has accomplished nothing for France except to make it weaker and its citizens poorer. Germany’s government is presiding over the destruction of a German industrial base that is 150 years old and one of the greatest in the world: the very foundation of Germany’s power and affluence.

Australia is acting as if America is more important to them than China with a military buildup, which is insane since Australia’s future is with China, or it has no future. Japan is antagonizing China, again, insane, without a serious plan. Either make nice or try and get nukes, there are no other paths.

Everyone is destroying free speech to symp for a genocide. Everyone is immiserating their own populations, setting up serious future political instability.

The US is all-in on AI, spending trillions it does not have, driving up energy prices, and creating a larger more concentrated bubble than the real-estate bubble which caused the 2008 crash. If AI is everything they say, it will utterly destroy the US economy by replacing 30% of workers, and if it isn’t, it’ll never pay back all the resources spent. Plus China will win the AI race anyway, since no one with sense will pay for a proprietary model when Chinese open source models are about as good and mean you can’t suddenly be hit with a massive price increase or rate restrictions.

Politicians are either ignoring climate change and doubling down on fossil fuels (which are more expensive than solar) or using climate change as an excuse to immiserate their own people.

Britain is destroying their own farmers.

Meanwhile morons are constantly whining about fertility rates when humanity is in population overshoot so severe that it is causing the second fastest great extinction in Earth’s history. Most countries would be better off with fewer people, but because they don’t know how to stabilize an economy whose population isn’t always growing leaders and their intellectual dupes are panicking.

Only China is handling this with some grace, but they’re not Western. They’re trying to increase fertility somewhat but have accepted there will be population decreases and are moving hard on robotics to care for an aging population and reduce the need for workers.

There isn’t a single major challenge that the West is facing that our leaders are not actively making worse, not better. Not a single one. It’s extraordinary. Even Nixon managed to sign Clean Air and Water Act and to pivot on China. Reagan reduced nuclear weapons. Clinton made everything worse long-term, but was able to manage the economy during his Presidency, at least, so that it felt good to ordinary people, including pushing oil prices under $20/barrel. George Bush Sr. managed the collapse of the USSR with grace. Biden had good anti-trust policy and half decent industrial policy. Trump has done nothing good of significance. Nothing. Even when he has a good idea (tariffs, reduction in H1-B Visas) he fucks it up completely because he can’t execute and has the attention span of a coked up flea. 

This reminds me of the Weimar Republic or the late Roman Empire. Most things can be fixed in principle: in theory. Nothing can be fixed in practice because leadership is beyond corrupt and incompetent, high on their own wealth and convinced they are the masters of universe and that reality is what they want it to be.

Prepare, if you’re in the West. By all means feel free to keep working at the politics, but don’t count on it. Instead prepare as individuals and groups. Government isn’t going to save you, not in the West. Your leaders are the number one danger to you, more than any outsider, “terrorist” or “foreign enemy.” Treat them as such, and protect yourselves from them.



There’s a lot of confusion about the end of the American empire, and the fall of neoliberalism. Many people think the US will just be in “second place” and it’ll be OK.

No.

The problem is the nature of America’s decline. Since 1980 the US economy has been progressively financialized. Profits are all that matters, not what is done to make profits. In properly functioning markets the idea is that products fill a need, on net improve human welfare and lead to more growth of real products.

If a company doesn’t make a profit, that means it isn’t growing the real economy with products which are a net positive. In such a case it goes out of business.

This is approximately how the Chinese economy works. It’s how the US economy worked for much of its history. It’s how the British economy worked up till about 1890 or so.

It’s not how the US economy works.

You could say that the US economy is currently auto-catabolic. The more money that is made, the more real economy is damaged. You see this most purely in Private Equity. .............

............... The only possibility of the US avoiding the UK’s fate, despite being a continental power, is for the oligarchs to lose power and for there to be a huge compression of asset and service prices. This process will be extremely painful and is currently politically impossible, due to the control of the duopoly. Both parties are owned by oligarchs, the tech bros are rising and none of them have the least interest in creating a good economy when it’s so much more profitable to loot America.

Real innovation is moving to China and will increasingly do so. ..............


U.S. National Security Strategy marks a break with America's globalist committments. Yet its regime-change playbook and capabilities remain intact through the NED.

It is becoming increasingly obvious that the EU has gone rogue and lawless, although it’s hard to say when or how this happened. Recent turns of events have even set the EU and nations like France, Germany and the UK on a collision course with the United States, particularly over their divergent views on Project Ukraine.


Defending it is our urgent task in the year to come, speech itself our instrument


Bondi Beach reconsidered

........................... Read in the larger context of these awful events, the obsessive humanization of the Bondi Beach victims is an upside-down exercise in dehumanization. This is first, straight off the top. Jewish lives count, white lives count, names, faces, generous smiles—all this counts. But the names, faces, and lives of those the Zionist regime has terrorized and brutalized for the past two years or eight decades, depending on how you reckon history: No, no need for any of this because they do not count.

This is an obscenity, in my view—obscene for what it is and because what it is has a 500–year history. Since the opening of the imperial era in the late 15th century, the West has aggrandized itself with never-to-be-questioned claims to civilization, decency, reason, law, and moral superiority, while the rest of the world consists of unruly, racially inferior, not-quite-human barbarians. The horrors of the mission civilisatrice—inhumanity in the name of humanity—were the inevitable outcome and so they remain. ..................................

I have called the Bondi Beach attack transformative. Two reasons.

One, these awful events mark a major step in the erasure not only of history and memory but of sheer cognition. I have heard or read no mention from any mainstream quarter of the campaign of terror and dehumanization the Zionist state now wages not just in Gaza and in the West Bank but against Muslim populations across much of West Asia. How big is the elephant in this room going to get, you have to wonder. 

This is hardly new. Apartheid Israel and its too-numerous, too-powerful enablers have sought to erase and otherwise obscure the truth of the Zionist project since there was a Zionist project to speak of. ..........................



If the right to free speech does not include the right to oppose an active genocide using strong and unmitigated language, then there is no freedom of speech.

This is exactly the sort of thing that freedom of speech is intended for: times when the government is doing something wrong which needs to be ferociously opposed. That’s the primary reason it’s an enshrined value in our society. Freedom of speech is for holding the powerful to account.

If you only have freedom of speech when you’re agreeing with your government and saying nothing which inconveniences the powerful, then Saudi Arabia has free speech. Every tyrannical regime that has ever existed has had freedom of speech by those standards. You don’t measure a society’s freedom by how much its citizenry are allowed to agree with their government, you measure it by how much they’re allowed to disagree. ......................................

That’s what they’re telling us with this mad rush to stomp out freedom of speech this past week. They are telling us that we do not live in the kind of society we were taught about in school. They are telling us that the only reason we were allowed to speak as we pleased in the years leading up to the Gaza genocide is because we were a bunch of compliant sheep who were not meaningfully challenging the interests of the powerful, and now that we are meaningfully challenging them the facade of freedom and democracy is falling away.

As Frank Zappa once said, “The illusion of freedom will continue as long as it’s profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain, they will just take down the scenery, they will pull back the curtains, they will move the tables and chairs out of the way and you will see the brick wall at the back of the theater.”



.......................... This has been going on for generations. As Martin Luther King Jr famously wrote all the way back in 1963:
“I have almost reached the regrettable conclusion that the Negro’s great stumbling block in his stride toward freedom is not the White Citizen’s Counciler or the Ku Klux Klanner, but the white moderate, who is more devoted to ‘order’ than to justice; who prefers a negative peace which is the absence of tension to a positive peace which is the presence of justice; who constantly says: ‘I agree with you in the goal you seek, but I cannot agree with your methods of direct action’.”
If you have loyalty to the establishment order of things, then obviously you’re never going to support efforts aimed at the upheaval of that order. If you support Israel and its western military backing, the only kind of protesting against the Zionist state that you’ll ever accept is protest that makes no difference and draws no attention to itself.


Reunification ‘is unstoppable’, says Chinese president, a day after the conclusion of intense military drills




Other Fare:


Introduction
I am not a stock picker. I worship at the altar of a large breadth of low confidence (<= 53% win-rate) bets, but I am absolutely betting the house that long degeneracy is the prevalent socioeconomic theme of the coming century.
It is why people above the age of 40 will recommend you to get better at your job and increase your salary, whilst everyone else seem to be ignoring exactly THAT and desperately clawing at something, ANYTHING that can give them a shot of outrageous success.
The easiest thing to sell to a crowd like this is "hope", and when you understand this, you will understand the rise of the casinos (in all forms, dexes, prediction markets, etc) and the rise of trading gurus, business gurus, courses, and of course... substacks.

The Set-up
One doesn't need to be locked up to be imprisoned. There is a generation walking around with invisible bars.
They know the life exists, the house, the stability, the reward for showing up and doing the right thing for thirty years. They know people have it. They just can't imagine how to get there. Not "it's hard"; they literally cannot construct a realistic path from where they are to where they're supposed to end up.
The traditional path to wealth accumulation is closed. Not difficult. Closed. When boomers hold ~50% of national wealth while comprising 20% of the population, and millennials hold ~10% despite being the same share, the game reveals itself to be fundamentally broken. 
The ladder got pulled up and it's not like the boomers wanted to do this; asset price inflation just happened to benefit those who already owned assets. But the effect is the same.

The Collapse of the Traditional Bargain
The implicit deal used to be simple: show up, work hard, stay loyal, and you'll be rewarded. Companies offered pensions. Tenure meant something. Your house appreciated while you slept. The system worked if you trusted it.
That deal is dead. ........................



.................................... None of this is organic. None of it follows from the logical dictates of the free market. People are not paying for AI, but they don’t care. A handful of billionaires expect they can just continue spending enough money until everything is AI and you have no choice on the matter.

Why? Who knows. Some like Peter Thiel fear death and hope the AI will let them upload their mind to a computer. Others like Larry Ellison just fear the public in general and want to control people. Elon Musk needs AI to keep Tesla from imploding. And in general, they don’t seem to like those pesky workers, who can demand rights. They prefer imported labor over natives and they prefer machines over humans.

People like to insist that all of this stuff is “value neutral”. But it isn’t. Certain technologies just inherently centralize power in the hands of a small group of people. .........


Stoller: In 2026, Will Americans Finally Turn Against Oligarchs?
Americans are noticing private equity roll-ups in everything from youth sports to fire trucks to big tech. And they really don't like it. Is a genuine anti-monopoly revolt finally brewing in 2026?



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