What we’re reading (1/28)
“Global Economies, Converging On Equilibrium, Confront A Geopolitical Regime Shift” (Bob Prince, Bridgewater). “After five years of severe imbalances, global economies are converging on a reasonable state of equilibrium, a condition that is generally good for assets. Developed world central banks, including the Fed, are responding to the stabilization of conditions within tolerable ranges by gradually cutting rates toward what they view as a neutral posture. Meanwhile, China, which has been a deflationary outlier over this period, has begun to recognize the problem and is prioritizing boosting domestic demand, even if the policies are not yet clearly defined. And AI technology has advanced to show real potential to enhance productivity over time. If these were the only developments in the world, you should expect an era of stability and strong profits. That’s what markets are discounting and what is therefore required to generate a strong positive return, particularly for US equity indexes, which are pricing an even more exceptional decade than the last.”
“DeepSeek’s Rise Exposes Nvidia’s Weakness” (Wall Street Journal). “Nvidia cast the DeepSeek jolt in a positive light. In a statement Monday, it said that DeepSeek’s advance was an excellent illustration of new ways of operating AI models. Doing the work of serving up such AI models to users—a process called ‘inference’—required large numbers of Nvidia’s chips, it said. The concern for investors is that DeepSeek’s more efficient way of developing AI could upend a status quo where the most sophisticated AI models require the largest number of Nvidia’s AI chips to train. AI development has thus far led to insatiable demand and supply shortages for its most advanced chips as big tech pours cash into AI data centers.”
Olivier Blanchard on DeepSeek: “Probably the largest positive one day change in the present discounted value of total factor productivity [i.e., efficiency] growth in the history of the world.”
“Expect Record-High Egg Prices For Most Of The Year” (CNN Business). “Egg prices are estimated to increase about 20% in 2025, compared to about 2.2% for food prices in general, according to the US Department of Agriculture’s price outlook. Beef, coffee and orange juice are among groceries with higher prices, but eggs are uniquely impacted by the aggressive strain of avian flu, which has strained supply.”
“Why Tariffs Are Never The Optimal Industrial Policy” (Something To Consider). “In this essay, I will argue that differences in management quality explain much of the difference in productivity between countries. These differences are only able to exist because of uncompetitive markets and barriers to foreign trade, and I will show theoretically how trade affects both what is made, and how it is made. I will then show, with evidence from the United States and Latin America, how trade restrictions have led to poor productivity in the past, and what that implies for industrial policy in the present day.”
