Tuesday, July 22, 2025

Asset Price Puzzles

Why Are Stocks Up? Nobody Knows
https://www.wsj.com/finance/stocks/why-are-stocks-up-nobody-knows-e40e5f42
A torrent of bad news hasn’t been enough to sink the market.
 
A Mystery in the High-Yield Muni Market: What Are the Riskiest Bonds Worth?
https://www.wsj.com/finance/investing/a-mystery-in-the-high-yield-muni-market-what-are-the-riskiest-bonds-worth-22b00e47 

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Can AI Run the Economy?

AI Can’t Replace Free Markets
https://www.wsj.com/opinion/algorithms-cant-replace-free-markets-artificial-intelligence-dd3b428f
Algorithms process data from the past while economic decisions are dynamic and forward-looking. 

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Economic Impact of the Trump Trade War

The Economic Implications of Tariff Increases
https://www.frbsf.org/wp-content/uploads/el2025-17.pdf
Trade policy in the United States has been in flux in recent months. A theoretical analysis of recent increases in U.S. tariffs, including potential retaliatory tariffs by other countries, suggests a resulting drop in overall U.S. employment, although manufacturing employment increases. Results also indicate a decline in overall real income for the United States of around 0.4%, although this number masks important variation across U.S. states.
 
Transshipment is the new dirty word of trade
https://www.reuters.com/commentary/breakingviews/transshipment-is-new-dirty-word-trade-2025-07-21 

The Global Economy Is Powering Through a Historic Increase in Tariffs

https://www.wsj.com/economy/trade/global-economy-tariffs-trade-growth-b2c1824a

Trade, production, growth and other global economic vitals are proving resilient almost four months after President Trump’s ‘Liberation Day’ tariffs.

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China Reduces Oil Dependence

How China Curbed Its Oil Addiction—and Blunted a U.S. Pressure Point
https://www.wsj.com/world/china/china-oil-demand-lower-b5ae15ed
The Chinese government is boosting domestic production and the EV industry in the name of national security. There are 14 million chargers nationwide. 

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Central Banking in the Age of Fiscal Populism

‘Fiscal populism’ is coming for central banks
https://www.ft.com/content/237226e8-78e5-4326-a701-cc8b1dede1de
When monetary policy is set to meet government budgetary needs, these institutions become piggy banks.

What the Federal Reserve Can Do to Help Itself
https://www.wsj.com/opinion/what-the-federal-reserve-can-do-to-help-itself-2f286619
The central bank should focus on its dual mandate and not try to solve all the economy’s problems.



Related:

My take:
Investors beware: Fiscal dominance and financial repression ahead by VIVEKANAND JAYAKUMAR, The Hill - 07/13/25
https://thehill.com/opinion/finance/5397963-fed-keeping-rates-low-trump-administration/

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AI at Indian GCCs

Multinationals turn to India’s back offices for AI engineers
https://www.ft.com/content/a46ee948-07c0-4083-9610-1d85d7e15cc7
McDonald’s, Bupa and others set up ‘global capability centres’ to perform core big-data tasks. 

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Friday, July 18, 2025

The Rise of Stablecoins/Cryptos and Financial Stability Concerns


The coming crypto crisis
https://www.ft.com/content/efc848c0-0990-4623-98ed-1176e97f04cb
Advocates talk about cryptocurrencies such as bitcoin as a hedge against traditional markets, but in fact, bitcoin is a “high beta” investment, meaning that it is highly correlated to the stock market. That means that both gains and losses relative to the S&P are amplified. Anything over a beta of one indicates a higher volatility than the market. A recent Fidelity report found bitcoin’s rolling 3-year beta to the S&P was 2.6. 

Stablecoins: the next big financial crisis waiting to happen
https://www.telegraph.co.uk/business/2025/07/27/are-stablecoins-the-next-big-financial-crisis-waiting-to-ha/
Loosening the regulations governing digital currencies involves Wild West trade-offs.

Can Markets Trust Stablecoins?
https://www.wsj.com/opinion/can-markets-trust-stablecoins-finance-investing-economy-policy-c03e0f1d
The Genius Act brings more order to crypto, but the new currency it enables dresses old risks in new tech.

Why Banks Are on High Alert About Stablecoins
https://www.wsj.com/finance/currencies/why-banks-are-on-high-alert-about-stablecoins-2f308aa0
Banks fear the tokens could siphon deposits they use to fund loans to companies and consumers. 

The rise and risks of stablecoins
https://www.ft.com/content/b3063d9a-d161-4dda-96bb-ea0dfaa2488d
US law bringing the asset into the mainstream has dangers for financial stability.

Crypto’s big bang will revolutionize finance
https://www.economist.com/finance-and-economics/2025/07/23/cryptos-big-bang-will-revolutionise-finance
The more useful stablecoins and tokens prove to be, the greater the risk.

Stablecoins Fall Short as Cornerstone of Monetary System, Central Banks Say
https://www.wsj.com/economy/central-banking/stablecoins-fall-short-as-cornerstone-of-monetary-system-central-banks-say-e0b33e70
Loss of monetary sovereignty and capital flight are major concerns, particularly for emerging markets.



Why Passing the Stablecoin GENIUS Act Might Not Be So Smart
https://www.newyorker.com/news/the-financial-page/why-passing-the-stablecoin-genius-act-might-not-be-so-smart
Critics say enacting the pro-crypto legislation will make the financial system less safe and less stable—and further enrich Donald Trump.


How Stablecoins Can Be Destabilizing
https://www.wsj.com/finance/banking/how-stablecoins-can-be-destabilizing-c14a98b0
Banks will retain lots of deposits, but they might become bigger and less reliable. 

Stablecoin Legislation Will Juice Demand for Treasurys—to a Point
https://www.wsj.com/finance/stablecoin-legislation-will-juice-demand-for-treasurysto-a-point-3724fad7
Issuers of digital currencies need Treasury bills for their reserves, but analysts say the consequences are uncertain.

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