The disconnect between momentum in global macroeconomic leading indicators, benign conditions in financial markets, and volatile global geopolitics could hardly be greater at the moment. Granted, leading indicators will always lag the latest gyrations in global geopolitics—especially in a world where Mr. Trump is conducting the orchestra—but judging by the past 12 months, not even the potential collapse of NATO or a full-blown EU–U.S. trade war will knock risk assets off course for more than a few minutes. That is not because such events would lack significance, but because markets are now deeply wedded to the idea that Mr. Trump’s bark—on tariffs and otherwise—is much worse than his bite. Time, as always, will tell. The fundamental problem for markets is that lofty valuations and generally exuberant investor sentiment mean that any repricing in response to a less optimistic view of the world would be violent.
Read MoreA weaker dollar seems to be the answer to everyone’s prayers at the moment—or more specifically, investors want exposure to the exceptionalism of U.S. capital markets without the currency exposure that comes with it. From the BIS, via FXStreet:
Read MoreMany investors still want to remain invested in US equities (belief in US exceptionalism is alive and well!), but at the same time, they see growing risks for the US dollar, not least due to the US government’s attacks on the Federal Reserve. A significant depreciation of the dollar could reduce the returns on the actual equity investment or even wipe them out entirely. So what is the solution? Hedging against dollar weakness. Ultimately, these hedges are effectively bets on a weaker US currency and, if widely adopted, create selling pressure on the dollar."
Dani Rodrik is disappointed with the way the world is responding to Mr. Trump’s wrecking-ball foreign and economic policy. Professor Rodrik opens with the argument that Trump’s policies are “misguided, erratic, and self-defeating,” lamenting that the rest of the world is only feebly resisting—failing to recognize that “imperialism must always be challenged – not accommodated – and that [this] requires both power and purpose.”
Read MoreAdam Butler, head of ReSolve Asset Management, makes an interesting observation on AI in the wake of the publicised roll-out of ChatGPT 5. In effect, he argues that the AI cycle is over, for now.
Read MoreThe problem isn’t that the models stopped improving. It’s that the improvements we need are measured in orders of magnitude, not percentage points. Every step up the scaling laws now demands a city’s worth of electricity and a sovereign wealth fund’s worth of GPUs. You can still squeeze clever tricks out of mixture-of-experts or chain tiny specialists into something that looks like agency; that keeps the demo videos cinematic. It just doesn’t get us to super-intelligence. For that we need either an architectural miracle (unforecastable by definition) or a civil-engineering miracle (a decade-long sprint to build nuclear plants and 2-nanometer fabs). The first is luck. The second is politics. Both are scarce.