In the early months of 2000, during your correspondent's first tour of duty, a London-listed capital goods maker invited the press to attend the midday launch of its internet strategy. What exactly this company did isn't important now, and wasn't then. The invite said "internet", so the share price doubled. Newsrooms dispatched cub reporters to the firm's wood-panelled office, where we heard the chairman announce that its next annual report would be made available "in electronic document format".

Everything’s more sophisticated these days. Post the dotcom bubble, a company can’t just drop buzzwords like “blockchain”, “metaverse” and “tokenisation” into a presentation and watch its shares motor. The specific words and phrases it needs to use are “agentic”, “humanoid” and “data centre”.

For example, Valeo. It’s a French supplier of auto parts. Supplying auto parts is a pretty miserable game right now — what with chip shortages and tariff threats, manufacturing moving to China, stalled US electrification, European overproduction, and new car sales nearly everywhere in long-term decline — so it’s understandable that Valeo management would rather be doing something else. What they’d rather be doing is AI.

Valeo shares printed their biggest gain in forever this week, prompted by nothing other than a scheduled appearance at a JPMorgan European autos conference to deliver a presentation that hardly mentioned autos. AI infrastructure is now the thing. One broker called it an “anything but autos” strategy.

It’s not our intention to dunk a pivot. Maybe Valeo’s specialities are transferable? Auto engines and AI data centres both use liquid cooling. Power management systems don’t have to be mobile to be useful. Robots of all shapes need sensors and widgets. Humanoids are, to an assembly line worker, just cars with legs.

The worry is that (aside from one battery storage contract Valeo won in February) the AI business lines are all pre-revenue. They’re moonshots.

We should also note a short squeeze. Some investors had loaned out their shares to coincide with Valeo’s ex-dividend date (the cut-off date for receiving the next dividend) at the end of May, so short interest was still a bit higher than usual. When the stock rose, short sellers rushed to buy shares back, helping push the price up. So it’s not just investors barking like seals at any mention of AI, though there’s undoubtedly a bit of that.

Our point is only that we’ve been here before. In 103 years of operation, Valeo sold nothing other than auto parts. Now, suddenly, it’s a concept stock. It’s exciting when old-economy companies can add a billion euros by value on a hypothesis, but it rarely works out well for everyone.

A week on Alphaville

○ Golf club memberships, clothing allowances and relocation expenses all feature in this year’s Proxies, a celebration of substantial corporate perks.

○ We just don’t understand private credit, says Apollo CEO Marc Rowan, who likes to claim it’s a $40tn market of which only $2tn is below investment grade. Toby Nangle lists all the ways in which he’s probably wrong.

○ What’s been going into the ever-growing “other currencies” category of the IMF’s tally of central bank reserves? Here’s one candidate.

○ This will be an absolutely mammoth year for IPOs. Probably.

○ With SpaceX not being offered automatic entry into the S&P 500, passive investing is getting a bit more active.

○ UK GDP readings might be more reliable if you seasonally adjust the data twice.

○ What do you call an activist investor that doesn’t do activism? We call them an activist investor.

○ Rising star of the US Democratic left, and self-described class traitor, Saikat Chakrabarti is extremely rich. Sujeet Indap breaks down his investment portfolio.

○ Here’s your chance to buy a collection of supercars previously owned by Paresh Raja, founder of collapsed bridge lender MFS.

○ Spain will beat Argentina in the World Cup Final, England will be knocked out by Brazil in the quarters, and the US will defeat Iran early in the knock-out rounds, according to a Goldman Sachs quant model.

○ Because of the unique way Alphaville is funded, we can make a vibe-coded browser game about an ONS inflation basket item and release a range of themed merch without ever having to explain ourselves.

Promotional interlude

Registration is open for the FT’s new stock-picking contest. It has daily trading, mini leaderboards and a £1000 cash prize. Give it a go, why not?

Best of Further Reading

○ Ancient, Archaic and Classical histories of weather pricing, by Umit Dhuga.

○ Hanno Lustig’s The Two Cents newsletter considers America’s cap table.

○ The Atlantic considers the downsides of boom times in Spain.

○ How philanthropy can be the cornerstone of an industrial strategy for civil society, by Polly MacKenzie.

○ Reminisces of former Meta in-house pastry chef Titty Boobowitz (not her real name).

Chart blast

○ John Burn-Murdoch’s latest is on AI productivity, and how making stuff easier to make neither makes stuff better nor makes better stuff.

○ Martin Wolf, the FT’s own non-artificial superintelligence, seeks to make sense of AI.

○ After a crash, even for the winners, it can be a long way back.

○ Vanguard’s S&P 500 tracker is the first ETF to hit $1tn of assets under (minimal) management.

○ The idling rich.

Last year Alphaville wrote a big post about the nascent convergence of proprietary trading firms and quantitative hedge funds, as the former adds slower signals to their arsenal and the latter explores faster strategies.

As a result, the line between what used to be called a high-frequency trading firm and a “statistical arbitrage” hedge fund is getting a little blurred. As the head of one big quant hedge fund told Alphaville at the time:

At the very short end [of latency], opportunities have compressed; at the very long end, premia are crowded. Naturally, capital and talent migrate towards the middle. So you see prop firms with execution DNA stretching into multi-day signals, while classical stat-arb firms accelerate their cycles.

Well, the overlap has grown even further since then, with a flurry of intriguing moves in both directions in recent months. Here are some of the ones we’ve spotted.

In March, Bloomberg reported that Squarepoint, a big quant hedge fund that once operated inside Lehman Brothers, had started a separate prop trading firm. To run it, Squarepoint has hired Kirill Gelman, a former senior executive and trader at GTS, Barclays and Lehman. The firm’s Finra filing indicates that Eric Levine, another Lehman alum, is head of trading.

Last month, Business Insider reported that Yiming Zhang, a top quant researcher at Jump Trading, had quit to launch a new venture at Millennium Management (once his extravagantly long non-compete clause expires). Zhang is a big name in prop trading — he’s been a central person at Jump for 17 years — so this caused a stir in the industry.

These are the higher-profile moves, but they aren’t isolated examples. Alphaville hears that both Millennium and Qube Research & Technologies are hiring particularly aggressively from the prop trading/HFT industry lately, while the prop firms are almost all bulking up in slower “mid-frequency” signals. Everyone wants to get their hands on some of those Jane Street dollars, after all.

We’ve now learned of another sign of the great quant convergence. The Voleon Group — an AI-focused hedge fund set up by two former senior DE Shaw executives — has quietly set up something called Voleon Securities, which says it “provides liquidity in securities markets”. Voleon declined to comment.

Regulatory filings indicate that Simon Spenser, a British physicist and former DE Shaw and Two Sigma Securities executive, is the “designated principal” at Voleon Securities, but Alphaville gathers that Adam Kravetz is currently in charge of the new trading firm, and some low-level LinkedIn stalking gives it credence.

Kravetz was previously COO at Seven Eight Capital, a quant fund spun out of Schonfeld Strategies until it was shut down in 2024, and before that worked at Citadel Securities, BofA and Tower Research.

Voleon currently has four jobs listed on its website for Voleon Securities, stressing that it is a “new business” and hires will have a chance to “join the initial build-out of a fully modern securities business rooted in the frontier of AI/ML and statistics”:

We apply state of the art AI/ML techniques to construct our market making strategies. For nearly two decades, our affiliate Voleon Capital Management has led the hedge fund industry and worked at the frontier of applying AI/ML to investment management, becoming a multibillion-dollar asset manager. Voleon Securities builds on Voleon’s deep real-world experience applying ML to financial markets. Voleon Securities is looking for creative, entrepreneurial researchers who enjoy grappling with very difficult problems.

FWIW, in a sign of how white-hot the competition for talent is, Voleon is offering finders fees of up to $15k for anyone who refers a candidate that lands a job there. Please consider this ‘stack a referral, and let us know how it goes. 🫡

A week on Alphaville

○ Here’s this week’s quiz. Guess what these three squiggly lines show for a chance to win a fetch I❤️charts T-shirt.

○ It’s probably a bad idea to put Alphaville in charge of anything more important than the occasional pub quiz. But if Keir Starmer (at pixel time) appointed us head of the UK’s Debt Management office then here’s what we’d do.

○ More takeaways from an S-1 for the ages. Craig Coben took a look at SpaceX’s IPO prospectus and was suitably astonished.

○ Alphaville would also like to benchmark our pay against Tim Cook and Satya Nadella, just like Ford.

○ Hedge funds are AImaxxing. The title is mainly designed to annoy the FT’s Katie Martin, but it is noteworthy how many hedgies are going all in on AI (and fleeing software).

○ Trad bookies ♥ prediction markets. They might not like the competition, but they do like making markets on them.

○ The phrase “up to” can do a lot of work, but you should always take the big numbers they imply with a fistful of salt, as Dan Davies points out.

○ Et tu too, FTSE Russell? Come for the indexing gamesmanship, stay to learn that SpaceX might initially be classified as a “value stock”.

○ It’s always a good day when OG Alphavillain Joseph Cotterill returns to our pink pixels. This week he tackled Senegal’s increasingly domestic debt crisis for us.

○ What made the DoJ go after this particular prediction market insider? Impossible to say, really…

Best of Further Reading

○ MIT Press reader published a fun piece on the the strange melancholy of slaying monsters.

○ A Stock Certificate From 1941 Taught Me More About AI Than Anyone from OpenAI. A fun Substack from Apers Insight’s Francis Huang.

○ SpaceX continues to dominate the conversation. Polemic Paine pointed out that they don’t ring a bell at the top. They IPO.

○ Is AI profitable yet? No.

Chart blast

Rob Armstrong’s Unhedged newsletter asks whether semiconductor stocks are in a supercycle or a superbubble.

It’s getting hot in herrrre.

Original Sin — European version.

I seen a peanut stand, heard a rubber band. I seen a needle that winked its eye.
But I seen ‘bout everything, when I see SMIT trade at a premium to NAV. Naturally, SpaceX is to blame.

Leave a comment

How it used to work was that an investor would buy shares in a stock. Those shares would legally confer on the buyer certain fractional ownership rights to a corporation that usually failed, sooner or later, after which the investor might frame their stock certificate or keep it in a drawer, depending on how often they wanted to be reminded of their mistake.

Then, over the past four centuries, lots of things happened to weaken the link between a physical share certificate and its economic worth — electronic registration, fees pressure, a depository flood, etc. Latterly, it was stock derivatives.

From the mid-1990 or thereabouts, banks sold lots of over-the-counter contracts linked to equity values. These contracts were popular because they don't tie up as much capital as regular share ownership, could dodge taxes, and might be used to amplify or suppress price volatility. A few naysayers emerged but, as with commodity futures, the transfer of risk towards those who wanted it and away from those who didn't was seen as socially good and useful.

Whenever demand for risk is growing faster than the desire to hedge, however, things have often been left to spiral.

You may have seen this week that Polymarket, a Panama-based bookmaker, is going to offer event contracts on US private company valuations. Hyperliquid, a bookmaker of no fixed abode, already trades synthetic share-like instruments for private companies. Both these exchanges are closed to US residents, whose access to private markets and security-based swaps is restricted by law, but no one in authority right now seems to remember that. And when regulators show no inclination to apply the rules, why would anyone else? Nearly every form of securities trading now has an Agnes Harkness-sized wink attached.

It’s an odd backdrop for what's likely to be a record-breaking year for IPOs. SpaceX, OpenAI and Anthropic will sell shares to a public for whom not buying shares has never been easier. Any sufficiently motivated speculator already has plenty of ways to bet on their valuations. Unless the speculators are particularly excited about gaining second-class voting rights, or about the very distant prospect of receiving dividends, where’s their incentive to hold the underlying shares?

OK, let’s be honest, this is probably not today’s problem. For the moment, bookmakers offering security-like markets are insignificant to the Great American IPO Machine (and its latest preferred backstop, indexed passive flows).

On the other hand, every dollar riding on an offshore exchange won't directly support a new issue’s first-day pop, and nothing deflates a hype bubble like a couple of damp-squib debuts.

History also advises us to keep an eye on counterparty risk, particularly when things go south. How easy is that when it’s a pseudonymous counterparty on an unregulated operator’s blockchain? We’ll find out soon enough. A bull market provided cover for the US to lurch into its post-regulation era, but the latter is nearly certain to outlast the former.

In the meantime, how might IPO-ripe corporations encourage punters to keep punting on primary markets?

Here's one idea. Elon Musk often sells corporate keepsakes and gewgaws, from Tesla-branded tequila and short shorts to Boring Company flamethrowers. Maybe, for the next marketing promotion, SpaceX could issue stock certificates of the type investors might frame, or keep in a drawer.

A week on Alphaville

○ Is Nvidia too big to fail?

○ America needs to put the renminbi back on the international agenda, says economist supergroup Mark Sobel, Brad Setser and Robin Brooks.

○ Making sense of the US’s gigantic net international investment position.

○ A look at economic spillovers from China’s real estate crash.

○ Much more than you’ve ever wanted to know about the VAT treatment of dips in KFC meal deals.

○ Goldman Sachs secured top billing for SpaceX’s IPO and a lot of bankers will be very excited, for reasons that are not entirely ridiculous.

○ SpaceX paid sticker price for a lot-full of Cybertrucks.

○ The gambler’s fallacy, as applied to annual stock market performance.

○ Indonesia’s fuel subsidy regime is a mess that’s difficult to clean up.

○ A bitcoin miner spent $860k on armouring vehicles for its bosses, a fact for which we have very little context.

○ Hyperliquid’s tokenised contracts for difference promise a bright new future for the City, says City broker Panmure Liberum, which might be seen as a tad conflicted on the subject.

○ Frances Coppola dismantles a suggestion that the UK should issue euro-denominated debt.

○ A big El Ninõ season isn't something to fear unless it is, in which case it is.

○ One of the smartest arguments in favour of mandatory quarterly reporting is in an open letter co-signed by WallStreetBets, a Reddit forum for lunatics.

○ The Bank of England’s oil shock forecasts from August 2025 went stale very quickly.

○ The BoE’s Huw Pill did a metaphor.

○ The Economics Show talks to Alvin Roth about paying for kidneys.

○ FTAV’s merch shop has a new “lower-value human capital” range.

Best of Further Reading

○ LLMs are, among other things, lava lamps for information. Trippy things that happened when Andon Labs prompted four of them to each run a radio station.

○ Web developer Baldur Bjarnason has a long read on the current state of the tech industry, and why everyone hates it.

○ Deutsche Bank Research Institute has a bombastic note on Megatrends: AI vs the decade’s structural headwinds.

○ The Atlantic looks at the current state of ed-tech gamification.

Chart blast

○ Because who needs more accountants really?

○ Per this big read, London’s in a bad place (the UK).

○ Dominion Energy this week agreed to a $125bn all-share merger with Florida’s NextEra. Scale, Lex says, is a defence as opposition grows to hyperscalers outbidding households for electricity.

○ In the UK, as elsewhere, telecoms network capex is completely disconnected from broadband pricing power.

○ The above chart, from John Burn-Murdoch’s deep dig into fertility statistics, went viral this week among opinion-havers who only read the headline.

Is there a more overblown term in financial markets than bond vigilante? To claim investors rebel against reckless governments by selling their paper is to mistake cause for effect. It misrepresents their motivations and overstates their importance. Moreover, it’s cringe. The daily working lives of bondholders have nothing to justify dramatic nicknames. They’re not that interesting. Of the six films in the Death Wish franchise, none features debt trading.

Unfortunately, bond vigilantes ride high once again in the minds of the commentariat as the UK suffers through another bout of politics. To summarise, gilts are stuck near multi-decade highs and Keir Starmer was still Prime Minister at the time of writing, but may not be at the time of reading. Six British PMs and eight Chancellors since 2016 might suggest current levels of uncertainty are now entrenched, but shut your eyes to the rest of the world and crisis levels can still look toppy.

Seeking to know which of Starmer’s possible successors might be bullied by basis points, the FT on Wednesday asked bond investors to grade Labour politicians by how Labour they sound. Their preferred choice, health secretary Wes Streeting, committed political zugzwang a day later by resigning from the Cabinet. Their least-preferred choice, Greater Manchester mayor Andy Burnham, was then gifted a route towards a leadership challenge.

How these manoeuvres move Westminster’s psychodrama forward is anyone’s guess, though shrugs of indifference from traders this week have probably not been helpful to everyone who’s been trying to reverse-engineer an opinion.

Barely perceptible market twitches can be read as implicit votes for Starmer to remain, as our colleagues at FT Unhedged note. They can also be read as the reason why Starmer should go, Jeremy Warner tells Telegraph readers, using logic so twisty it could uncork a wine bottle. The country is doomed whichever way, adds the Daily Mail’s Alex Brummer, whose perspective on long-end prices is to be further consumed by an existential dread.

Meanwhile, not much continues to happen:

Onto a blank canvas, it’s possible to project nearly anything.

Gilt holders are often portrayed as the last line of defence for enforcing fiscal discipline and the sherpas along a political path of least drama. Their mob power is rarely more than theoretical. And, though memories are still raw from the 2022 mini-budget, history doesn’t always have to echo. Liz Truss set the bar of competency so low it takes rare pessimism to assume the next prime minister will limbo under it — which is not to say it's impossible, it's just not a future that needs to be fully priced in right now.

The Occam’s razor explanation for year-to-date pressure on gilts remains energy prices. Savers have raised inflation expectations for a gas-importing nation during a global supply shock. UK politics offers a near-limitless potential to generate panic but, in the meantime, retrofitting ideologies around the imagined reactions of the bond market’s mostly mythical home guard does no one any favours. For the moment, the vigilantes just ain't that vigilant.

A week on Alphaville

○ Toby Nangle has a post on gilts and the UK’s “plonker premium” that, as you’d expect, is much more nuanced and informed than what’s written immediately above.

○ More analysis of gilty displeasures from Robin.

○ A look at the geopolitical architecture of swap lines.

○ Metlen, a FTSE 100-listed Greek power and metals company, is more than a bit complicated.

○ American CEOs are getting older, not because they’re better at the job (they’re not!) but because the appointment process is more difficult, says a study.

○ Finance types are leaving New York City for Miami in increasing numbers.

○ Daily marking of private credit portfolios isn’t better, it’s just more, says Pimco in a veiled clapback aimed at Apollo Global Management.

○ Dan Davies walks us through the ECB’s scales of systemic importance, and their odd mismatch between local and global.

○ Jane Street, if viewed as a sort of hedge fund, is one of the biggest sort-of funds ever to hedge.

○ What’s keeping oil prices in check? A huge jump in American exports and a collapse in Chinese imports, mostly.

Best of Further Reading

○ Here’s a quite fun Jane Street job interview simulator, albeit with results that overweight the candidate’s performance at Texas Hold’em.

○ Recruitment is hard because, for politicians as well as real people, success in one job doesn’t guarantee success in another, Chris Dillow writes.

○ Divorce rates and occupation correlated by Flowingdata.

○ What does active and passive fund management even mean any more, asks Larry Swedroe.

○ A two-footed tackle on CFTC chair Michael Selig from John Lothian.

○ Paul Krugman visits Europe ($).

○ Panmure Gordon has a non-paywalled report on the AI bubble where all routes lead to pop.

○ Vittles chronicles the rise and fall of Mercato Metropolitano, an Italian-themed London food market owned by an FTAV person of interest.

○ How lightning works is complicated and mysterious, says Quanta.

○ Fox News reports on testicle enhancement, alas.

Chart blast

○ With global trade imbalances near a 150-year high, proposals aimed at encouraging more balanced patterns of global savings and investment look “timid relative to the scale of the risks”, says Daire MacFadden.

○ Oil futures, like analysts, don’t have much predictive power.

○ In all sorts of ways, American consumers are really feeling the knock-on effects of higher fuel costs and supply chain disruption.

○ Alan Beattie highlights forecasts that 2026 will feature Godzilla El Niño, a weather shock the global economy really doesn’t need right now.

○ John Gapper profiles cardboard box makers through the lens of one failed transatlantic sector consolidation attempt.

A favourite trope in the financial media is to get stock recommendations from people and things that have not shown a full understanding of the assignment’s complexities, such as cows, rats, astrologists, a yucca plant, and Neil Woodford.

The idea is to show that successful stock picking owes much more to dumb luck than skill. Comparing their results with professional investors is a cute way to demonstrate how persistent outperformance is rare and easiest to explain by survivorship bias. A professional’s other ways to win — such as having a non-public informational edge, or playing with a weight of capital that can move prices and buy favours — tend to be viewed by rivals and regulators as unfair advantages, so are rarely durable.

Asking an AI chatbot for stock recommendations is a recent variation of the trope. Bloomberg reports this week on Alpha Arena, a trading tournament that pits frontier large-language models against each other. Given two weeks to trade US tech stocks and $10k of punting money, they lost approximately a third of the total cash pile, with more than four-fifths of the LLM portfolios finishing in the red.

The LLMs “trade too much” and “make wildly different decisions when given identical instructions,” writes Justina Lee. Yes, that makes sense! Generative AI finds averages. Given the task of betting on stocks, they’ll synthesise the average meatbag market participant, who trades too much and will react in inconsistent ways to identical information. A chatbot has no edge, durable or otherwise, because the average investor has no edge.

Should anyone want such a thing, an LLM can also replicate the average response of a professional investor: that two weeks is a pointlessly short period to test any strategy; that different investment styles have myriad functions that won’t be captured by simple index comparisons; and that any discussion of active management also has to acknowledge that passive flows create systemic risks. How many times we need to hear these arguments is debatable. But, assuming a fund manager’s main function is to explain why they’ve lost money, a chatbot is certainly a more viable replacement than a cow.

Elsewhere, a paper from Goethe University in Frankfurt looks at the practicalities of seeking investment advice from AI. The researchers find that investors are significantly more likely to buy stocks when they use an LLM rather than a conventional search engine for research. This pattern, they say, can be explained by chatbots’ “effectiveness in confirmation-seeking”, where “users can prompt the model to validate beliefs they want to hold”.

Consumers may need to be protected from themselves, the researchers conclude, though with LLMs already widely adopted as an assistant to institutional decision-making, any trend towards confirmation-seeking may not be just a retail problem.

The vast majority of individual stocks lose money. The smartest trade is nearly always not to bother. But an entire industry is built on the idea that smart punters can beat the odds, and LLMs have been trained on all the bumf it produces. It would be unfortunate, but not altogether unexpected, if AI’s most visible effect in stock markets isn’t to democratise fundamental analysis but to individually reinforce the worst habits of the average.

A week on Alphaville

○ Do American healthcare costs drive global imbalances?

○ Alphabet, Microsoft and Amazon are booking a lot of income by marking up the valuations of OpenAI and Anthropic stakes.

○ Putting some numbers on SpaceX’s manufactured IPO demand from fast-track index inclusion.

○ After acquiring overseas, Chinese companies file a lot more patents.

○ GameStop is honestly very serious about wanting to buy eBay.

○ Here’s that huge and barely comprehensible Venn diagram you wanted of how the BDC ecosystem overlaps.

○ Oil might yet go parabolic.

○ How resilient is the US to rising energy prices? Maybe less than it looks.

○ Binance founder Changpeng “CZ” Zhao has written an “awful” book.

○ Brad Setser and Stephen Paduano on why the US should refuse the UAE a dollar swap line.

○ Hungarian government-linked stocks had a good run, then didn’t.

○ The 13F form, by which US investment managers report their holdings, is less informative than it might look.

○ It’s tradition for bank research departments to publish research to preview the World Cup. Bank of America has done one of the oddest notes we’ve seen.

Best of Further Reading

○ Brian Albrecht of Economic Forces takes and runs with the old comparison between demand for horses in the early 1900s and how AI might change the modern workforce.

○ Capital Gains considers bubbles and how they pop.

○ Conversable Economist has a history of the disposable nappy.

○ Via Off the Charts, a brief history of charts named after people.

○ Grok was spoofed by a Morse code attack to send $200k in crypto to some random dude, reports Dexerto.

○ Ars Technica reports on Toyota’s $10bn private utopia.

○ Brace yourself for a century of cringe, from our friends at The Fence.

Chart Blast

○ Spain’s been the world’s fastest-growing large advanced economy for the past two years, supported by an unusually open immigration policy.

○ The future of subsidies that support EU food security while entrenching farmers’ outsized political influence is the subject of this big read.

○ MSCI’s Frontier Markets index (30 per cent weighted to Vietnam, plus some Romania, Morocco, Kazakhstan and Slovenia) put in its best performance in almost two decades last month.

○ The post-COVID decline for the “Take This Job and Shove It” index speaks of vague uncertainty, as well as to the possibility that employees who changed their workday routines are now trapped by circumstance, writes Sarah O’Connor.

○ Cripes.

The only thing worse than being talked about …

A boring company caught a bid this week. DCC, a Dublin-based fuel logistics provider and FTSE 100 constituent, told KKR and Energy Capital Partners that their £4.95bn takeover offer was not enough.

General interest in DCC is such that around half of our readers will have given up already and skipped to the next section. Thank you for not being one of them. Here’s why we think it’s a story that deserves more attention.

DCC began as a late-stage venture capital fund whose founder, Jim Flavin, preferred buying to selling. Between its creation in 1976 and flotation in 1994, DCC had gathered a disparate collection of subsidiaries and minorities in areas including healthcare consumables, computer peripherals, snack food and oil recycling. Its biggest profit centre, via a stake in Fyffes, was bananas.

Investors never seemed sure what to make of DCC’s weird and ever-growing jumble of stuff, though they appreciated its reliable dividends. Several hundred acquisitions later, things got tricky for Flavin, who resigned as chair in 2008 after being found to have sold Fyffes shares while in possession of inside information. Nearly a decade of court wrangling had exposed the influence of Ireland’s old-boy networks, embarrassed some very powerful people, and provided the kick regulators needed to raise corporate governance standards.

Meanwhile, Flavin’s successors continued to pursue DCC’s strategy of buying nearly any business that would throw off cash. Acquisition roll-ups often attract scrutiny, and DCC was no exception: its balance sheet looked unnecessarily lazy, borrowing costs seemed needlessly high, and there were disagreements (amicably resolved) over the bookkeeping at one of its subsidiaries.

No specific criticism stuck, but with management fielding the same awkward questions every quarter, DCC marked the 30th anniversary of its IPO by putting everything other than the energy division up for sale.

Though it’s impossible to prove a counterfactual, we can still ask how much of the above would have happened had DCC remained private. The Fyffes scandal surfaced because trades had to be disclosed to the market. Scrutiny of DCC’s accounts has come almost exclusively from short-sellers. When a company does essential but dull stuff like petrol station deliveries and off-grid gas supplies, it’s good to have people around who are motivated to give it their full attention. Being answerable to a broad base of investors, long and short, helps keep companies (and their regulators) honest.

Now, depending on whether KKR and Energy Capital Partners want to stick or twist, the process may be at an end.

A thing people often say is that private markets are the new public markets. Maybe the opposite is also true? Maybe it always was? One lie the buyout complex likes to tell about itself is that it gives troubled companies the time, borrowing facilities and management attention needed to fix themselves away from the hothouse of quarterly reporting and shareholder short-termism. DCC makes a nonsense of that claim. Opportunistic bid interest only surfaced once repairs were nearly complete, when — for the first time in its existence — DCC has a single purpose and a simple story to tell. Maybe it’s too trite to say that public markets improve companies and private capital breaks them, but it’s hard to ignore a pattern.

A week on Alphaville

○ A history lesson on the petrodollar.

○ Spain’s pursuit of activist short seller Gotham City over its Grifols coverage, as Dan McCrum outlines.

○ Citadel Securities is getting into algorithmic trading of French government bonds.

○ The Proxies 2025: a what-happened-next recap of last year’s most egregious and unusual corporate perks.

○ FTAV has been flying on only three engines for a couple of weeks. Luckily, one of the engines is Toby Nangle, who delivers a very chewy taxonomy of fund finance.

○ Toby also parses an S&P Global Ratings report on US life insurers’ exposure to private credit.

○ Reddit, the self-proclaimed front page of the internet, has to figure out what it wants to become.

○ Never retire: study.

○ Hey, what happened to the UK’s 100 per cent debt-to-GDP ratio?

○ A non-comprehensive list of companies that made less money than Jane Street last year.

Best of Further Reading

○ Nick Nemeth of Mispriced Assets unravels a private credit transaction from one absent footnote.

○ Bloomberg wants to put AI on the Terminal: Wired speaks to the CTO.

○ John Herrman, New York Magazine’s tech columnist, fails to find anything to do with OpenClaw, the much-hyped agentic AI thingmy. ($)

○ Chris Brunet brings us up to speed on one of the dozen or so imbroglios engulfing academic publishing.

○ Dadaist microtonal maths-funk duo Angine de Poitrine are making an argument for universal basic income, among other things, says UBI Guide.

○ PastPresentFuture’s Dan Gardner goes to Portsmouth and thinks about ships.

○ Quanta considers what we can gain from losing infinity.

Chart Blast

○ A rip-roaring history of the petrodollar from Alphaville’s boating correspondent Brendan Greeley, whose book about the dollar comes out next month.

○ Martin Wolf’s latest is on the great commodities disruption and the interconnectedness of essential supply chains.

○ Electric vehicle adoption is at a tipping point, albeit not everywhere.

○ Arguably, insider trading is the whole point of prediction markets. But when the price effects of informed trading compromise military intelligence, that’s not ideal.

○ Are hyperscalers gettting serious about making their AI investments wash their face? Richard Walters says maybe.

○ Looks like we’re at the “Japanese bidet maker pivots to AI” stage of the cycle.

Subscribe now

Statistical nihilism is, we feel, a reasonable starting position in any analysis.

Here’s an interesting enough ‘chart of the day’, shared by Deutsche Bank’s Jim Reid earlier this week:

Reid used the chart to tee up a recent report by his colleague Adrian Cox, which explores the Gulf’s emergence as something of an AI hotspot. Cox argues that despite disruption from the ongoing US/Israeli war against Iran, the region’s long-term prospects are bright because disruption will make people want more AI.

The chart uses data from ‘Trust, attitudes and use of artificial intelligence: A global study 2025’, produced by the University of Melbourne and KPMG, the (primarily) advisory business.

How seriously should we take its findings? The research is based on 48,340 survey responses from across 47 countries, gathered between November 2024 and January 2025 — producing a sample of 1,001 to 1,098 respondents per country. The survey used “representative panels” that reflected each country’s gender, age and regional population distributions.

Although the aim was to highlight Saudi Arabia and the UAE, our eyes went directly to India.

Vibes are generally established long before facts, and Extremely Online readers (which, in the spirit of this post, we’ll assume is most of you) may have already got the sense that India, as a nation, is playing a pretty big role in the proliferation of AI slop. In that context, the chart is likely to feed or reinforce a hunch that India has embraced AI with great gusto.

But, like, really?

The survey tells us that 92 per cent of Indians are intentionally using AI semi-regularly at work, which it defines as meaning “‘every few months’, ‘monthly’, ‘weekly’ or ‘daily’”.

It’s a vague enough metric already, but let’s step back slightly. India has just begun a pandemic-delayed census of its alleged 1.4bn population, the first in 15 years. It will take about a year to complete, with results expected to drop in late 2027. It’s an extraordinarily complicated endeavour, because India is an extraordinarily complicated country. Any general statistic about Indians ought to be taken with a bucket of salt.

Let’s contextualise that alleged work AI use figure with some other alleged statistics. About two-fifths of India’s population work in agriculture, according to the International Labour Organization, many in extremely low-tech jobs. Internet penetration (ie usage) in India was about 70 per cent last year, according to the International Telecommunication Union.

Can those figures co-exist? Even if we adjust for workers probably (maybe? who knows?) being more likely to use the internet, they are hard to reconcile.

The 92 per cent AI figure feels like a stretch — but when you’re extrapolating from 1,000 people to 1.4bn, what can you do but stretch?

Maybe India is bound to be a problem in any international comparison. Maybe we ought to be more sceptical about all those numbers. Maybe numbers are just hard. On to the links…

A week on Alphaville

• Everyone’s turned into a history buff this week, possibly inspired by our Dear Leader’s involvement in The Story of Money, a “new podcast from The Financial Times exploring the past to see where the next opportunities — and disasters — may lie”. We recommend keeping tabs on the YouTube channel to follow Robin’s attempts to develop thumbnail face, and checking out the launch listicle.

• Despite spending the week spitting fire in the booth, Robin also found time to look at the rise (and rise?) of high-frequency traders.

• Toby also looked into the future of history by studying how China’s projected population plunge may interact with its economic expansion.

• Then, the madman, he put together a whole set of population plunges of yore, a reminder than, for Alphaville, a great dataset is its own justification. For the FTAV entity element writing this post, it’s another reminder of how crazy a ride the Aztec empire went on: around for less than a century, utterly devastated by Old World infections.

• Toby also put together a neat appraisal-of-an-appraisal of private credit, riffing on a recent report by Sona Asset Management…

• …and took a detailed look at falling income inequality in the UK, which suggests a big factor is that being a doctor isn’t as (relatively) lucrative as it once was.

• Meanwhile, the village idiot earned his gruel with an analysis of an American furniture boss who somehow racked up $904,099 of employee discounts last year.

• And, as part of our commitment to journalism that helps the public and other media outlets, we made an attempt to determine how old a significant man may be.

Best of further reading

• Your print-out, cut-out and keep guide to the UK’s upcoming local elections, including what they might mean for Prime Minister at time of publication Sir Keir Starmer.

• Family computers were good (and we suppose could be again).

• BDC loan magic.

• Salmon x gak.

• A piece about scarcity that is, we warn you, not scarce on words.

• The art of (economic) war.

Chart blast

• Taxes on wages in the OECD are the highest since 2016, which is probably not a beloved fact.

• Houses in bougie London are increasingly affordable.

• Petrol vehicles are on the ropes in China.

Got thoughts on what’s working and what isn’t? Please help us out by filling out this short and anonymous survey.

Happy IMF-World Bank Spring meetings to those who observe. Some of you will be in Washington for the festivities, the rest of us will have to settle for updated forecasts, a new Global Financial Stability Report, and lots and lots of unhappy headlines.

Because Alphaville is a glutton for economic doomerism we’ve leafed through the preliminary World Economic Outlook (the full-fat report won’t be published until April 30) and watched Tuesday’s press conference with the IMF’s chief economist Pierre‑Olivier Gourinchas. For those not so inclined, here are some of our main takeaways.

The IMF’s economists forecast that global economic growth will slow a tad this year, from 3.4 per cent in 2025 to 3.1 per cent this year. Which is a shame but given … recent events we’ll take it.

The main pain will be in Asia — which is acutely dependent on Gulf oil. While developed country economic growth will only fade by 0.1 percentage point to 1.8 per cent, the Fund predicts that the Asian expansion will slow sharply, from 5.5 per cent to 4.9 per cent. However, African, European and Latin American economies look reasonably resilient, and US growth will accelerate, according to the IMF.

If that all sounds hopelessly optimistic, the IMF unfortunately agrees.

The Fund also reveals more negative and positive scenarios, which most of the time feel like vague, badly-concealed arse-covering exercises. But this time Gourinchas admitted that the “bad” forecasts were now looking like increasingly plausible.

As he said at Tuesday’s press conference (Alphaville’s emphasis in bold):

The reference forecast has as its core assumption of a relatively limited conflict that gets resolved in the second half of the year and then with energy prices that are normalizing in that second half of the year and into next year.

Very clearly, with every day that passes, where we don’t have a resolution, where the flow of oil and gas is more limited through the Strait of Hormuz, we’re moving away from that scenario.

But does that mean that that scenario is not relevant? Well, not quite yet. That scenario's core assumption is that oil prices would be around $80 this year. That's an average for the year. Of course, we're above that now. We're close to $100, but we could still have a normalization if a solution is found that would bring down energy prices towards that scenario's assumption.

So I would say that we are somewhere in between the reference scenario and the adverse scenario. And of course every day that passes and every day that we have more disruption in energy, we are drifting closer towards the adverse scenario.

So what happens in this adverse scenario? Well, classic stagflation. The global growth rate slides to 2.5 per cent and inflation accelerates sharply to 5.4 per cent. Eyeballing the IMF’s database, if you set aside worst of the post-Covid inflation burst that would be the fastest rate of price increases since 2008.

The severe scenario is that energy disruptions continue into next year, growth slows to 2 per cent and inflation exceeds 6 per cent. “Downside risks are clearly very elevated,” Gourinchas noted. Quite.

So how much should you care about the IMF’s semi-annual WEO report? Not much, according to Robin Brooks at the Brookings Institution. He argues that the inflexible timeline of the Fund’s forecasts are “a complete anachronism”

The schedule for this exercise is rigid and starts months before each publication, so there’s no flexibility to change up the timing when unexpected shocks hit. That’s a problem because it’s pretty nonsensical to put out a global forecast now.

If the war ends in a matter of weeks, which is my expectation, it should be little more than a footnote in the 2026 and 2027 growth picture. If it drags on, there’s potentially a bigger hit to growth. The point is that no one - including the IMF - knows what’ll happen, making this forecasting round almost certainly pretty useless.

There’s a recent precedent for all this. The IMF’s World Economic Outlook (WEO) in April 2025 came shortly after “Liberation Day.” In those first few weeks, there was little clarity on how serious the Trump administration was about reciprocal tariffs and the IMF completely overreacted, cutting its global growth forecast far too much. That’s almost certainly happening again now, so you’re fine to skip this WEO.

With that in mind, feel free to instead enjoy some of FT Alphaville’s output this week. A reminder that the blog itself is also free, as long as you simply register with an email.

Yes, I want more Alphaville in my life

A week of Alphaville

○ We’ve been pretty down on private credit, but it might have calmed the credit cycle, according to some new research.

○ This might not surprise you, but we can’t get enough of the Kwarteng-Farage bitcoin treasury company. Here’s a look at its solitary NED, Melisa Lawton.

○ As soon as Invesco got its hands on more of the QQQ bonanza, BlackRock and State Street rocked up to ruin things.

○ Oil market lore has it that it was a Goldman trader that first bought oil at $100 for bragging rights back in 2008. Now someone in Sri Lanka might have a record that will hopefully hold for generations.

○ Kevin Warsh's financial disclosure revealed assets of at least $130mn, direct investments in about 300 individual companies, and mentioned "confidentiality" 190 times.

○ If you reckon crypto holders are overwhelmingly young bored men with a bit of spare money then .... well, ok, yes, you'd be completely right. But that might be a good thing for the ECB’s CBDC project.

○ Allbirds is turning into an AI compute provider, because of course it is.

○ The UK’s Green Party wants to enforce a 10:1 CEO/worker pay ratio for all companies in the country. We ran the numbers to see what it might look like in practice.

○ Toby read a stupid amount of US regulatory filings to not find out which asset managers are managing all the sovereign wealth. But the journey is worth following.

○ Did news of EQT’s takeover approach for Intertek leak 7,000 miles away? It seems so.

○ We love unfortunate financial acronyms. Here’s a banger from the ECB.

London Pub quiz

May 7. Team sign-up is now open. Details here.

The rock that keeps tigers away

Bill Ackman’s odd, but he knows how to pitch a story. The garrulous manager of funds and opinions this week made a sort-of takeover offer for United Music Group at a hypothetical valuation using money he doesn't yet have, that levers a majority of shares he doesn’t intend to buy, in support of a restructuring plan aimed at making the shares he owns go up, even though he lacks the public support of the controlling shareholder who due to conflicting interests may prefer the shares to go down. That most media reports skipped all these details and put a big dollar number above a picture of Taylor Swift is an example of Ackman’s knack for framing.

Similarly:

Bill Ackman is in talks to launch a strategy that would make big bets on complacency in financial markets, in a bid to mimic the success of doomsday trades the billionaire investor made during the pandemic.

Ackman’s Pershing Square would use the fund to make “asymmetric” trades aimed at profiting by wagering against the prevailing narrative in markets, according to people familiar with the matter.

Complacency is the theme of the moment. To be bullish right now means choosing to disregard surging energy prices, the threat of a stagflationary shock, a Middle East ceasefire in which firing hasn’t ceased, a blockaded Strait of Hormuz, a private credit unwind and a White House incumbent who’s corroding American exceptionalism one tweet at a time.

It sounds too much in combination, but, for the consensus, disregard is what’s happening. Stock benchmarks year-to-date are little changed or better. Bonds are doing nothing notable. The Vix volatility index is back to its February level below 20, while multi-asset measures like SocGen’s Sentiment Indicator have swung into the fill-your-boots zone:

Sensible people are saying sensible things. Here’s Robert Armstrong:

[T]he market should still be pricing in some chance of an oil-driven stagflationary snarl, even if that outcome became meaningfully less likely yesterday. But it is hard to find much sign that it is doing so.

And Gillian Tett:

[I]nvestors need to get better at imagining — and pricing — once-unimaginable disasters. This is hard. No business school teaches students how to model something like a presidential threat to wipe out a civilisation. And the success of the recent Taco trade will undoubtedly make many even more reluctant to do this. But the grim reality is that even if a ceasefire deal holds in Iran — a big “if” — peace looks elusive. […] So by all means celebrate that Taco moment and Buy The Dip. But buying a modicum of disaster insurance is also a wise bet.

Sage advice. The problem is how.

Professional money managers get to tweak discounts to match the prevailing mood, where credible apocalypse threats are worth an extra few basis points on top of their risk-free rate. Those with a more active approach can express their view through something thematic, like gold or soft commodities, or they can heft cash at credit default swaps while praying that things get worse before they’re insolvent. A third route is to seek protection with uncorrelated assets, such as life insurance policies or Counter-Strike skins or whatever.

All these options are difficult. They involve lots of work and cost lots in fees. The assets they’ll accumulate are relatively illiquid and carry all sorts of esoteric risks.

Wouldn’t it be easier to park some insurance money with a manager who did well in a previous crash? Even when their success is more easily explained by survivorship bias than foresight, the lack of good alternatives can make it an attractive pitch.

Hedge fund manager Boaz Weinstein already sells tail-risk funds based on his excellent record trading CDS through the Covid crisis, rather than a mediocre performance thereafter. Ackman — having a rough year, but similarly excellent with CDS during Covid — wants to do the same. For this moment, when uncertainties are depthless and markets seem ambivalent, it’s meeting a need.

Complacency protection is an itch that’s hard to scratch. Ackman promises a solution: sacrifice some percentage of your funds to his contrarian permanent capital vehicle and hope that you’ll never have to think of it again, with the bonus that he plans to sell you a Taylor Swift album to play while we’re waiting for the world to end.

Two weeks on Alphaville

○ No newsletter on Good Friday means it’s a bumper edition. Starting with a big animated timeline of global sovereign debt defaults.

○ Trump has built “a perpetual leverage machine with tariffs as the enforcement mechanism” that’s likely to outlast him, writes Sam Lowe.

○ US mortgage rates can fall if the idea of floating Fannie Mae and Freddie Mac gets canned, says Pimco.

○ European repo is very, very big.

○ Marshmallows can also be very, very big. What this means for their VAT treatment is, as usual, a descent into case-law madness.

○ THG, a UK-listed conglomerate we used to write about, is invested in finding out the far-from-straightforward VAT status of sports nutrition drinks.

○ Dogfooding — companies instructing bankers organising their IPO to use the products — happens more than it should. Craig Coben asks, has a line been crossed when the product is an AI chatbot owned by a rocket launcher?

○ Coben also riffs on Strategy’s use of AI slop video to promote STRC, its high-yield perpetual preferred instrument.

○ Introducing John M Fife, AI penny stock investor.

○ Some pretty chord diagrams showing how US household, government and business liabilities join up.

○ An update on the infighting at quant hedge fund Two Sigma.

○ Toby Nangle coins the Collateralised Whatever Obligation to help explain securitisation.

○ The current state of Middle East oil and gas infrastructure.

○ Why would we try to doxx Satoshi Nakamoto using text comparisons and that kind of stuff when it’s much easier to be snide about the efforts of others?

○ At what gold price does Tether’s USDT become balance-sheet insolvent?

○ Charting what’s happened to earnings estimates since Operation Epic Fury began.

Best of Further Reading

○ Via NBER, here’s a study of stock trading by US members of Congress that concludes they’re no better on average than the average schmuck.

○ Sakonnet Research (free registration) looks at how “poor regulation along with the federal government’s and Federal Reserve’s largesse” caused the private credit bubble.

○ Making gig work more easily accessible can reduce crime, says this paper summarised in VoxEU.

○ Works In Progress examines the creation of instant coffee.

○ Two bleak tales from hospitality: London Centric talks to the workers given unpaid front-of-house trial shifts that don’t appear to result in a job; and The Bureau of Investigative Journalism collaborates with Vittles to seek to hold Antipodea, a brunch chain, to account for ignoring employment tribunal rulings.

Chart blast

○ As a net energy importer that’s overweight industrials, transporters and consumer products makers, Europe’s an obvious short in an energy shock.

○ As Wednesday’s ceasefire relief rally shows, what’s obvious isn’t always profitable.

○ Big private credit funds in aggregate honoured just over half of the first-quarter redemption requests they received.

○ Chinese marques like Jaecoo and Omoda are rapidly making inroads into the UK auto market, while in the US, there’s a surge in sales of used electric vehicles.

Ackerlof’s market for markets

Let’s say a ghost visited you in the night and said: “Donald Trump’s about to do a war de-escalation tweet, woooo, etc”. Shorting oil futures and buying stock index options based on this information wouldn’t be insider trading, obviously. Ghosts can’t access material non-public information because they don’t exist. Your psychoses just landed lucky.

Now, let's say you shorted oil and bought stocks after your friend shared a draft of Trump's tweet on the group chat via her developer login to Truth Social's back end. This is very much insider trading! You've sought personal gain from information obtained through fraud, deception, or breach of duty. And, since you’ve traded on a regulated venue, it’s going to be quite a while before you’re confident to answer the door.

We’re talking, of course, about Monday’s price action:

OK, it looks bad, but it’s not smoking-gun bad. There’s nothing particularly unusual about lumpy trades with a notional value just north of $500mn, while consecutive moves seen in markets such as European gas could be algorithmic ripple effects. Timing can be coincidental. To presume shenanigans relies on countless logical fallacies, including confirmation bias, clustering illusion, Texas sharpshooter fallacy and the streetlight effect.

Just as importantly, any person or group with the capital and margin needed to take on half a yard of total exposure would surely be aware that the Commodity Futures Trading Commission has a duty, and has occasionally shown the gumption, to investigate suspected insider trading.

The global financial crisis swept away a principle that, because commodity futures and derivatives are for managing risk, any information that informs a price is fair game. Since 2015, the CFTC has gone after brokers for tipping off preferred customers, and for allegedly misappropriating information from their employers to punt on their personal accounts. Its conviction rate may be rubbish, but its stated ambition to root out misconduct hasn’t changed: former Commissioner Kristin Johnson’s farewell address last September went big on how the agency was built on the twin pillars of customer protection and market stability.

We mention all this because, ever since the CFTC disregarded its own rules to claim oversight of US prediction markets, a lot of it seems to have been forgotten.

Michael Selig, Johnson’s successor, told the Washington Reporter this week:

There’s this false media narrative that CFTC-regulated markets are the Wild West and have no regulation and that’s blatantly false. The CFTC uses complex surveillance tools and has seasoned career staff that pro-actively monitor these markets for insider trading and fraud.

Sounds great! It’s worth remembering however that he’s responding to questions about policing the online event contract marketplaces, where pseudononymous accounts with cartoon avatars are betting in plain sight on sports and politics, as well as on stuff like whether a company will beat quarterly earnings forecasts, and what MrBeast will say in his next video. The conversation didn’t touch on commodity futures trading.

Adding oversight of the innovative, exciting, degenerate world of event markets to the CFTC’s remit has undoubtedly raised its profile, but has been unhelpful for already weak perceptions that the regulator is good for anything.

This week’s sus oil trades are the kind of thing a financial regulator would, in normal times, be expected to check. Instead, nearly everyone just assumes the worst. Because the US allowed sports bookmakers to gain entry by the back door, every market has been tainted by the same Wild West perception that’s entirely of regulators’ own creation. Insider trading is assumed to be rife. And, until or unless there are subpoenas dropping on doormats, any person who wants to believe the game isn’t rigged against them is given no option but to believe in ghosts.

A week in Alphaville

○ This week on Toby Nangle Explains, it’s credit. Unless you know everything, you’re sure to learn something.

○ Stock picking is very difficult.

○ The complicated past of Nscale, the British AI data centre champion from Australia.

○ Will the Iran war trigger a global food crisis? Maybe.

○ Gold went up and then it went down.

○ Romania’s Digi Communications, the current big disruptive force in European telecoms, has made an incursion into Leighton Buzzard.

○ The next round of Boaz Weinstein versus Edinburgh Worldwide is a big one for fans of UK corporate governance rules.

○ An interactive annotated chart of OpenAI’s industry interconnections.

○ Legalised gambling does bad things to personal loan defaults.

○ Dan Davies looks at the transatlantic fudge that has succeeded Basel Endgame.

○ Temu owner PDD is still adding to its curiously large cash pile.

○ A Peter Thiel-backed cow collar maker is valued at $2bn.

○ OpenAI has canned its video generator app Sora.

○ More oil price guessing, this time from Goldman Sachs.

○ The Nigel Farage-backed, Kwasi Kwarteng-fronted bitcoin pantomime horse known as Stack BTC has been struggling a bit to attract outside investment.

○ Friday chart quiz.

Best of Further Reading

○ AQR’s Cliff Asness blogs on privates.

○ ArsTechnica considers orbital data centres.

○ For VoxEU/CEPR, Serkan Arslanalp et al summarise how the international reserve system has been evolving.

○ Alap Shah concludes his AI trilogy by looking at the economic effects.

○ Kevin Baker at Artificial Bureacracy pulls together some threads about frictionless automated warfare.

○ Mike Masnick at Techdirt is optimistic that vibe-coding will bring back internet hobbyists.

Chart blast

○ A deep dive into shadow tanker networks and the illicit oil trade is this week’s essential read.

○ The FT style guide says that safe haven is a tautology even though, as recent trading in gold shows, not all havens are safe.

○ John Plender has a history of oil shocks and how to hedge them.

○ Democracies are being eroded nearly everywhere, none faster than in the US, writes Martin Wolf.

○ Rather than compete at AI’s bleeding edge, Chinese companies are commoditising tokens.

Forty to 60 per cent of the time, it works every time

If your reaction to the news last month that the US and Israel had begun airstrikes against Iran was to buy Fartcoin, congratulations, you win. Nearly everyone else lost.

According to Goldman Sachs calculations, crypto is the only investable asset class to rise in value since the war started. Between then and Thursday morning, the value of global assets had fallen by $11tn.

Eleven trillion dollars sounds a lot but isn’t particularly. GS’s everything index tracks about $300tn in global assets, so it’s only a 4 per cent drawdown. That’s less than half a Liberation Day, and barely a fifth of a Covid:

More notable than the depth of drawdown is the breadth. Oil has kicked the chair out from under all the stuff the average investor has been favouring over the past year, like old-economy European stocks and dollar diversifiers. Equities and bonds have fallen together as markets seek to price in an inflationary shock of unguessable size and scope. Rising real yields eroded the defensiveness of defensives. Going by what the average punter can trade, that only really leaves cash and (not investment advice!) crypto.

The sound you may hear is of financial commentators refreshing their obituaries for the 60/40 portfolio. A strategy of using bonds to cushion equity volatility has been declared dead every other month since the pandemic, so they have plenty of archive material:

Stock and bond returns tend to correlate whenever inflation is sticky above 2.5 per cent. Some version of this rule is now widely accepted, the solution being to add to the mix things like commodities, real estate, art, whatever. It’s fair advice. Buying a Bored Ape NFT probably won't do much for your Sharpe ratio but, for those of us not blessed with foresight, any type of portfolio diversification is going to be better than none. So long as the assets are not perfectly correlated, their average volatility should be reduced.

What’s unfortunate is that things have a habit of happening all at once, and “could be worse” won’t pay for many carefree retirements. Gold, for example, would normally be the safe option when bombs are falling. But dollar avoidance and the debasement trade earlier in the year turned gold into a meme. Charts via SocGen:

US Treasuries? Nope. They’ve been correlated with risk assets more often than not this decade so, while yields are rising and interest rate expectations are being repriced, the protection they offer is minimal:

Real estate? AI bubble.

Private credit? Ha. It’s never smart to ride into battle on a cockroach.

What’s the solution? No idea. Lots of smart people have been proposing improvements to modern portfolio theory, such as sausage-slicing how asset correlations are measured, while other types of people have been loading up on shitcoins. It’s the latter group who are out in front. The only conclusion to take from all of the above is that investing is hard.

A week on Alphaville

○ Chinese stock market returns are rubbish because Chinese companies have routinely diluted their investors by stealth.

○ S&P Dow Jones Indices is considering fast-tracking SpaceX into the S&P 500 because Elon wants exit liquidity, so screw you, ETF investors.

○ The US Office of Financial Research had a go at measuring the size of counterparty exposures to private credit.

○ Deutsche Bank reported year-end private credit exposures and, unfortunately for Deutsche Bank, it was found to be Deutsche Bank.

○ There are many markets for oil and, while benchmark Brent and WTI have been fairly subdued, a lot of the other ones are not.

○ Drawing down the US Strategic Petroleum Reserve won’t add that much to oil supply, but might cause some salt caverns to collapse.

○ A fragile peace is declared in the Bank of England’s Monetary Policy Committee.

○ Seven months after her appointment, Meg Ryan (not that one) is no longer the SEC’s Director of the Division of Enforcement.

○ Warner Brothers Discovery received and rejected a takeover proposal from a mystery Singapore-based firm that appears to be run by a former Raffles City Rotary Club president who has business interests in Cyprus.

○ Business is good for war machines, Eurostat’s European manufacturing data shows.

○ The British public voluntarily donated £1.7mn to the UK Debt Management Office last financial year, which is both quite a lot and not very much.

○ A brokerage with links to the Trump family that’s under investigation for allegedly assisting organised crime networks is giving the impression of playing regulatory brinksmanship.

○ RBC Capital Markets analysts looked at US biotech M&A rumours over recent and concluded that it’s best to trade on the ones the FT publishes, which is nice.

Best of further reading

○ Hendrik Bessembinder has a new paper on 100 years in the US stock markets.

○ Government bonds do badly on average through extreme events like war and pandemics, says this paper on CEPR.

○ For Foreign Policy Research Institute, Emma Salisbury on why the US saw naval minesweeping as “unglamorous, low-priority, and someone else’s problem”. (Have a go yourself.)

○ The oil price shock is causing big problems for Australia, writes Alex Turnbull.

○ Les Barclays of This Is Not Investment Advice looks into the “collateralised chip obligations” paying for the great AI buildout.

○ Polymarket degens have been sending death threats to a Times of Israel journalist who refuses to change a story about a missile attack.

○ Lauren Leek pulls the data to map London’s latte line.

Chart blast

○ This week’s warning about the perilous state of private capital comes from Tony Yoseloff, managing partner at Davidson Kempner Capital Management.

○ TJ Maxx is huge and weird.

○ Japan’s vending machines are leaving service and not being replaced (news of which we accidentally put in a chart quiz earlier this month, having misread the publishing schedule).

Subscribe now

Ain’t nothing going on but the Brent

It’s important in moments like the present to keep reminding ourselves that most oil traders don’t trade oil. All the commonly cited benchmarks are futures, of which there’s never a shortage, so high and low bids are just bets on the likelihood of delivery. Price volatility is a measure of how difficult it is at any given moment to suppress the knowledge that no one knows anything.

Here's this week’s view. We made the chart below on Thursday afternoon, so by publication time today it’s likely to be missing at least four tape bombs:

Lots of noise, not much signal. Wild price moves reflect uncertainty while telling us absolutely nothing about when tankers might dock, how soon jets could be grounded, and if Thailanders can use elevators again. Our perspectives on where crude demand meets supply are always by degrees of separation.

This relationship between physical and paper oil is the subject of a newsletter by University of Lausanne professor Gianluca Benigno. Prompted by reports that the US Treasury wants to combat price spikes by shorting oil futures, Benigno explains that contract pricing hangs on confidence about delivery. Dependable supply is the only way to underpin that confidence. And while suppressing front-end futures prices could reduce the incentive to hoard, the only hoarding that happens during an oil shock is for need, not greed; each useful barrel “begins to trade less like a commodity and more like insurance”, he says.

Meanwhile, over at Reuters, columnist Clyde Russell highlights that cash-settled Dubai cargoes are trading at a wide premium to the equivalent swaps. Paper traders are more confident than oil consumers about a quick ceasefire and manageable supply disruptions, which “seems untethered from the reality on the ground”, Russell says.

To argue that a market is clearing at the wrong price is never not brave, but that’s particularly true when prices are moving like angry wasps in a Sodastream. In more predictable times, owning an oil future can be a hedge or a guarantee, whereas owning a barrel of crude before it’s needed is always a huge pain in the ass. Premiums now being paid at the dock might be no more than a consequence of unpredictable times.

There’s lots more to read on the theme but, honestly, unless you’re a Vitol trader or own a Lego factory, it’s OK not to bother. Commodity products are valued by what the buyer wants them for today, on known knowns. Those trying to guess what buyers will want tomorrow, on unknown unknowns, are asking for trouble. Of the two-dozen or so 2026 investment bank and fund manager outlooks we collected in December, only a couple make passing reference to Iran, and none contain the word “Hormuz”. All of their forecasts are for crude to end the year gently up or range-bound.

Don't get us wrong. Whether oil costs $60 or $120 a barrel is very important. But to the average person, whether first-month futures were $60 or $120 a barrel this morning is really only important for setting inflation expectations, which is what makes the Treasury plan to short them slightly less silly, though it’s still very very silly. Fuel price dependent, the money could be better spent on hiring skywriters to write “no one knows anything” in big letters each day over our major financial centres.

A week on Alphaville

○ Of oil’s wild days, which is the wildest? Early pandemic, going by the numbers, though Monday was close.

○ More crude analysis that lacks conclusions.

○ Money needs to be single to be considered money, but the economics of stablecoins require competition, says BIS wonk.

○ Wilshire Indexes is winding down, and with it goes all hope of ever breaking the index hegemony.

○ A walk through the murky definitions of adjusted Ebitda in loan agreements.

○ Tracking inflation fears.

○ The auditor to MFS, the bridging-loan provider that collapsed amid allegations of fraud, owns a greasy-spoon cafe in the north London suburb of Edgware. The FT’s Rob Smith went for breakfast.

○ Though dollars remain convenient, oversupply makes Treasuries less special.

○ Whatever might be attracting investors to an extremely expensive private market fund run by Octopus Investments, a specialist in tax avoidance vehicles?

○ The unsettling calm settles over Gulf bonds.

○ A poke around accounts from Nscale, the British-Australian-US cloud computing provider, reveals how much it’s in the pocket of Nvidia.

○ The takeover of International Personal Finance, a subprime lender, was thrown into flux because cornerstone supporter Janus Henderson lent some stock and didn’t recall it.

○ European private credit borrowers don’t go bankrupt much.

Best of Further Reading

○ In what’s hopefully not going to become a regular feature, here’s this week’s war watch: Lloyd’s List on the Hormuz closure; Policy Tensor on why the US is facing strategic defeat; and Systematic Hatreds’ reading of military economist Thomas Schelling.

○ For Aeon, Gavin Evans examines why so much of the world is now uninsurable.

○ John Cronin’s Financials Unshackled blog considers Revolut’s long-awaited banking licence award.

○ David Oks looks at why it was smartphones not ATMs that killed bank teller jobs.

○ Dan Neidle, the exception that proves the rule about lawyers, calls for English libel law reform.

○ Here’s a white-hat hacking group that claims to have breached McKinsey’s production database in a couple of hours by battering it with AI agents.

○ Colossal has an animated feature on Isamu Noguchi’s experimental playgrounds.

Chart blast

○ Partners Group chair Steffen Meister is worried about unrealistically low private credit default rates. Unhedged is, as always, worth reading on the same theme.

○ England burns a lot of rubbish, sometimes turning it into energy.

○ A big thing in crypto right now is ultra-short-term binary options.

○ We’re stretching the definition of “chart” to include this illustration from an article on lo-fi Farsi number stations suddenly flickering into life.

BTFD, Mr President

The two main types of financial market charts are this and this:

The one on the left tends to suggest a narrow momentum trade, such as silver futures. The one on the right tends to indicate a broader mean-reversion trade, such as the S&P 500. Between these extremes ought to be a diversity of pricing trends honed from rigorous analysis of all possible futures, each weighted by probability through dynamic price discovery.

At least that’s the theory. It’s not been working that way for a while.

Take, for example, Korean equities. The Kospi 200 index hit a record high on Tuesday, entered a technical bear market halfway through Wednesday, and set the floor for a new bull market early on Thursday. Even for a notoriously choppy index, that’s a lot:

As tends to be the way, explanations abound. Korean stocks went up on AI-related chip shortages, fresh interest in heavy industry, a possible narrowing of conglomerate discounts, and K-Pop Demon Hunters. Korean company earnings will more than double in 2026, consensus expectations having shot higher in recent months. Jitters only surfaced when bombs started dropping 4,000 miles away.

And with any rapid repricing comes volatility. Current uncertainty levels for Korean equities are rivalling the Great Financial Crisis, which is an odd thing to say about some memory chip supply bottlenecks and corporate stewardship code revisions, but there we are:

It’s mixed news for Korea’s punter army, who in recent years have been weaned off property investments and into stocks. President Lee Jae Myung this week activated a $68bn plunge protection fund to quell panic selling, having last week led by example and sold a rental apartment to buy ETFs.

“At the small downtown office of Mirae Asset Securities, scores of clients hurriedly lined up to get their money out,” reports Bloomberg:

What the episode shows is just how fast a market dominated by leveraged, margin-fuelled bets and amped up by frenzied day traders can sour, exposing the risks of an investment culture that had come to treat borrowing as a sure thing to bigger gains.

True, though it also shows the rapid flip-flop between greed and fear. A mania among Korea’s retail investors only really caught hold in February, and while their leverage levels are high in absolute terms, they’re unremarkable relative to market value. Some tourist capital will have been caught up into Korea’s recent rally, though risks can be overstated when retail and institutions are taking opposite sides of the bet:

All of which brings us back to the diagram at the top of the page. Powering the hand-crafted spike and sawtooth charts are two factors: momentum and mean reversion. In both cases, they’re amplified by retail and professionals taking opposite sides.

Last month’s AI disruption scare is a prime example. “Retail’s appetite to buy the dip has remained a dominant force in early-2026 flows,” says Citadel Securities, which reports net buying of US equities by individuals at nearly a five-year high.

As Matt Levine writes:

This is an interesting stock market story: Are retail investors the ultimate value investors in the stock market? Does the constant retail buy-the-dip bid insulate the market against volatility?

Maybe it does until it doesn’t. There’s a dampening effect to having lots of retail money sloshing around, but add a product shortage or an inflation scare, and it remains a volatile accelerant. Volatility is suppressed until it’s not. You can’t choose which chart you’ll get. There’s no BTFD without YOLO and FUD.

A week on Alphaville

○ The SpaceX IPO is a monster.

○ One of the most popular publicly traded wrappers around SpaceX shares is in a bit of a spot.

○ Private credit spreads look tighter than you might’ve imagined.

○ Just keep rollin’.

○ Among active fund managers, Capital Group wants you to know it could be worse.

○ What will happen to oil prices?

○Wars of future past.

○ Inflation worries are concentrated on the short end, with some transatlantic dispersion.

○ Barclays has gen-AI generating its AI analysis.

○ More on Korea.

○ Lunar holiday home pricing. Yes, really.

Best of Further Reading

○ Svenska Dagbladet and Göteborgs-Posten investigate the data categorisation squads employed by Meta to snoop through its pervert glasses.

○ Private equity weakens companies in predictable ways at the cost of customers, clients and employees, says this University of Chicago Law Review study.

○ Hanno Lustig parallels joint debt issuance in the Eurozone with Alexander Hamilton’s America.

○ Not All Doom’s Arthur Snell revisits moron risk premiums.

○ Interview magazine asks New York finance dudes some fairly dull questions and gets some fairly dull answers.

Chart blast

○ Chris Giles on the OBR’s charts of doom, and how they look a lot less alarming if income tax thresholds are assumed to rise with prices rather than wages.

○ “We don’t want a massage more quickly, we don’t want to play golf and go for a leisurely hike more quickly”, says economist Claudia Goldin in this long read on why productivity stalls in economies with ageing populations.

○ Italy’s workforce is benefiting from political stability, strengthening GDP growth and an improvement in public finances; the UK, less so.

○ The apparent purpose of prediction markets continues to be to transfer money from people who don’t have inside information to those who do.

What have we missed? What did we get wrong? What can we do better next week? Let us know at alphaville@ft.com.

Bonnie Blue-Chip

An economically incoherent Substack post about AI went viral this week and we’re furious it wasn’t ours.

For a catch-up on the Citrini Research story, go elsewhere. No more needs to be said about its retelling of Busted’s “Year 3000” over multiple thousand portentous words. Arguably, a lot less could’ve been said. From The Economist and Citadel Securities to this guy, sensible voices have taken the bait and dunked on a central premise that can be summed up as: “What if lump-of-labour-fallacy but computers?”

Not that Citrini will care:

A related theme, particularly among investment bank analysts who went freelance, has been whether Citrini’s celebrity marks a tipping point for freelance analysis.

Rupak Ghose has a good post about how independent authors are better placed than the sell-side because they bring personality and direct distribution to tell stories without being constrained by job title, word count, or institutional timidity. On our pixels, Marc Rubinstein complains about the petrifying effects of research unbundling and conflict disclosure rules.

Add in the atrophy of long-only fund management and the emergence of pod shops, whose teams tend to prefer specifics to scenarios. Retail investors, an ever-growing segment of the market, have a revealed preference for stories. Opportunities have never been greater to take their money by auto-renewing monthly instalments.

But to present any of this as new would be a mistake. Proto-bloggers were talking their book on Usenet more than 30 years ago, while the grubby business of investment newsletters is at least a century older. Underserved niches like short selling and forensic accounting are where independents thrive. Bonus season has always marked the start of an annual migration of analysts to freelance consultancy.

Sell-side research abides because its primary purpose is marketing. Some of the marketing is on behalf of other banking services, some is for clients who want a communications backchannel, and none of it makes sense without a cross-subsidy. It won’t fade away for the same reason that vibe-coders won’t displace Uber: the value isn’t in the product, it’s in the network of relationships and regulatory arbitrages formed by its creation.

That’s not to deny the room for improvement. Sell-side is a cludge of workarounds that, if it didn’t already exist, no sane person would think to invent. But windy postulating about industry trends never paid the bills. Banks give that stuff away while locking down what clients value: meeting invitations, forecast models, and specialist sales desk memos that say what the analyst can’t.

Meanwhile, here in the shallow end of the research pool, we’ll continue to live by the economics of OnlyFans, where 1 per cent of creators take 99 per cent of the money. A few accounts might eke out a living by appealing to some niche, while the unpopular majority tries to attract attention with increasingly extreme acts of shamelessness. The safest prediction is always that the future will be the same but worse; not much will change, but we’ll live underwater.

A week on Alphaville

○ For more Citrini, here’s a summary …

○ … followed by an examination of the many ways in which the future it presents is improbable …

○ ... and a list of provocative speculative fictions graded by their release-day stock market volatility.

○ It’s not the base case, but credit defaults from AI disruption could be at dotcom-bust levels, says UBS.

○ Too extreme? Possibly.

○ A heat map for what the leveraged loan market can tell us about the software sell-off.

○ Does Europe need more private credit? A lot depends on what we mean by private credit.

○ Partners Group, the Swiss pioneer of private capital for all, wants you to know that it’s fine and everything’s fine.

○ Small balance sheet, limited intervention, low volatility: central banks get to pick two.

○ Nasdaq wants to loosen its rules for index inclusion to attract the likes of SpaceX and Anthropic. Index tracker fund investors will be the ones holding the bag, writes Craig Coben.

○ Bain & Company’s Global Private Equity Report 2026 describes a buyout machine firing on two cylinders.

○ The administrator to Terraform Labs, a crypto Ponzi fraud, is suing Jane Street for allegedly trading on inside information during its inevitable collapse.

○ The State of New York is suing Valve for promoting video game loot boxes.

○ Strategy is the most-shorted US stock outside the small-caps. And because there’s only one letter between “hope” and “cope”, various people are now speculating about how it might catch a Gamestop-style short squeeze.

○ Robin rounds up where things stand in the continuing emasculation of US financial regulation …

○ … and Dan Davies highlights that the G20 website has a picture of Donald Trump where its policy agenda should be.

Best of Further Reading

○ So much AI! San Francisco Fed does productivity, Dallas Fed looks at wage data, NBER has a paper on public finance, Technically tries vibe coding, and 404 Media has a piece on automating academia.

○ WSJ has a story about the tax economist who bet on Elon Musk not doing what he said he would (and won, obviously).

○ Liberty Street Economics has a go at speculative fiction by tackling the post‑pandemic global R*.

○ IEEE Spectrum says Jimi Hendrix was a systems engineer.

Chart blast

○ Corporate governance reform and memory-chip shortages have very rapidly moved Korea’s stock market from cheap to expensive, which isn’t the trend elsewhere, notes Unhedged.

○ Meanwhile, US investors have been going low-tech.

○ The Art of the Deal, pt.1.

○ The Art of the Deal, pt.2.

○ Rapid growth is one reason why Blue Owl’s troubles have sent a chill through private credit.

What have we missed? What did we get wrong? What can we do better next week? Let us know at alphaville@ft.com.

Nerd mentality

Several times a day, someone posts something enthusiastic on social media about how they’re using generative AI and gets ratioed. For example:

Which caused an unnecessary amount of this kind of thing:

It’s a problem, honestly. AI’s early adopters are computer people, and computer people are often of a certain type. Clive Thompson, in his 2019 book Coders, profiles them as puzzle addicts who often struggle to empathise with normies. Their religion is efficiency for efficiency’s sake. The pleasure they find in an elegant database merge solution may not be as widely shared as they assume.

The other type of AI evangelists are the opposite of computer people. They include Accenture chief executive Julie Sweet, a former lawyer, whose company is forcing senior management to use AI tools by threatening to withhold promotions. They also include George Osborne, a former politician and recent OpenAI hire, who told an intergovernmental AI Impact Summit in Delhi that by resisting AI’s embrace, “you will be a weaker nation, a poorer nation, a nation whose workforce will be less willing to stay put”.

What rankles is the mismatch. AI’s pushiest evangelists are either full-time conference types, talking airily about how workers need to adapt in undefined ways for the Fourth Industrial Revolution, or earnest computer people who lionise their own small contributions to the rising tide of slop. Valuelessness comes in stereo. No wonder it’s cathartic to tell both sides to bog off.

Here’s something else that happened this week. Raspberry Pi, a UK-listed assembler of bare-bones mini computers, went meme stock.

Why stocks become memes is never straightforward, but as far as it goes, the logic loops back to AI. People are buying spare computers to run invasive desktop applications like OpenClaw without giving them access to all the videos in their main machine’s c:/temp/cache/cache/xtemp/ directory. Raspberry Pi, having launched an AI add-on last month, could plausibly pick up some of these sales.

It doesn’t make a whole heap of sense, as investment cases go. Raspberry Pis are built for coders, who approach each bare circuit board like it’s a puzzle to solve, and its current product line is too pernickety to become mass-market. But the Pi has geek chic and, as Gamestop showed, there’s an exploitable demographic overlap between meme-stock people and computer people.

All of that probably seems like a digression because, in the scheme of things, it is. Stories about machine learning deployments often are. There’s still a niche dorkiness overhanging the field, which is hard to square with the assumptions of rapid mainstream AI acceptance that underlie charts like these, from a recent Citigroup presentation:

Most people don’t have coder brain. The dominant workplace religion isn’t efficiency, it’s muddling through based on what worked last time. Employees tend to understand that generating more reports by autocomplete won’t improve productivity, because they can see how much office time is spent in pursuit of MacGuffins. Bottlenecks to AI adoption are “caused simply by humans being human”, says A16A research partner David Oks. Faster computers have made David Graeber’s 2018 book Bullshit Jobs no less relevant.

Resistance to structural change won't be talked away. Enthusiasm has proved non-contagious. Threats are no kind of strategy. Hostility is already entrenched.

So where does that leave us? With ratioed nerds on one side and Davos dwellers on the other. In the middle is an unconvinced workforce, who may use chatbots for search and summarisation but have no immediate need to vibe an app or sudo a Pi HAT, and who would rather not feel coerced by their employer into training their own replacement.

At some point, the only option will be for everyone to pipe down. Delivering those triple-digit CAGRs will require generative AI to enter a show-not-tell stage of usefulness, and it’s going to take something more impressive than a multi-calendar management widget.

A week in Alphaville

○ Hamilton Lane, the private capital behemoth, “has a clever but accounting-driven investment strategy that produces superficially healthy and mostly unrealised gains”.

○ By shrinking the Federal Reserve’s balance sheet, Kevin Warsh would be inviting interest rate volatility or rewriting how banks manage liquidity, write professors Stephen Cecchetti and Kim Schoenholtz.

○ Here’s a big, Oscar-shaped chart showing how the Fed balance sheet has evolved over the past century.

○ Lee Buchheit and Mitu Gulati walk us through what flip-clause proposals would mean for sovereign debt restructuring.

○ Have we hit peak dollar bearishness?

○ As Senegal faces default, a mysterious Togolese whale is keen to buy the debt.

○ What unites Board of Peace members? Other than them saying yes to the invite, not much.

○ Today in cursed sentences: a Kwasi Kwarteng top-ticking stackless bitcoin pivot chronology.

○ Goldman Sachs crunches some numbers on US electricity inflation.

○ Charting how US investment-grade credit markets care about the tech wreck, just not very much.

○ AI may or may not be coming for the transport and logistics stocks.

○ Palantir CEO Alex Karp is a frequent flier.

○ A Fed paper on tariff costs states the obvious; Kevin Hassett of the US National Economic Council didn’t appreciate that at all.

○ For the 2026th consecutive year, it’s a stockpicker’s market.

○ A look at XTB, a Warsaw-based retail trading shop that has former footballer Zlatan Ibrahimović as a brand ambassador.

○ This year’s CLSA feng-shui guide to markets is horse-themed.

○ Via the Economics Show podcast, a look at what China’s race to the bottom might do for robots and AI.

Best of Further Reading

○ Lauren Leek has data on how British pubs die in isolation.

○ Based on this WSJ report, the “English pub” on the 13th floor of JPMorgan’s Manhattan HQ sounds terrible (also on MSN if you’re cheap).

○ Francine McKenna and Olga Usvyatsky examine why EY marked Meta’s data-centre accounting a critical audit matter, and what it really means.

○ Musings on Markets has a long read on profit margins.

Chart blast

○ Martin Wolf’s latest is about how having easy access to cinemas, theatres, restaurants and nightclubs makes people less keen to have kids.

○ Blue Owl’s permanent gating of a debt fund for retail investors hasn’t been taken well by shareholders of its sector peers.

○ The remarkable story of Mexican billionaire Ricardo Salinas, loans brokered through a storied London dynasty, and a lot of bitcoin.

○ The TechAsia newsletter highlights Nikkei research showing a 16 per cent increase in mainstream academic papers published last year.

○ It’s always a good time to buy yield, says Richard Bernstein.

What have we missed? What did we get wrong? What can we do better next week? Let us know at alphaville@ft.com.

Subscribe now

The Gospel of the Immaculate Blockchain

Crypto, it’s often said, is a speed run of Finance 101. By creating from scratch an asset class that was insulated from reality, then making every mistake it was possible to make, crypto has been an expensive but mostly harmless way to teach finance from first principles.

It’s also said about bitcoin in particular that learning has been by devotional study. And fair enough, it’s a good story: from the annunciation by lowly mailing list to a conception most miraculous (an academic who didn’t want credit), plus numerous wise men and an escape plan from a tyrannical establishment. Short of swaddling baby Satoshi in a tea towel and singing about cattle, the callback couldn’t be clearer.

But with bitcoin turning 18 years old in October, maybe it’s time to mark the end of the elementary phase and treat everyone involved as adults. Here’s something that happened this week:

Susquehanna-backed crypto lender BlockFills has halted withdrawals and restricted trading on its platform, underscoring the strength of the recent tremors that have shaken the digital asset market.

The Chicago-based company, which in 2025 handled $60bn in trading volumes, has suspended client deposits and withdrawals as the price of bitcoin and other crypto assets has swung in recent days. The suspension was put in place last week but remains in effect, BlockFills told the FT.

The obvious echo is with 2022, when the gating of token shops started a domino effect that knocked over Three Arrows Capital, Celsius Network and FTX, among many others. Where it differs is the lack of amateur dramatics.

Crypto Winter was preceded by an altcoin sell-off and the bursting of the NFT bubble, both of which were widely anticipated, because altcoins and NFTs never seemed anything other than ridiculous. Bitcoin was insulated for a while thanks to demand from newly created ETFs and digital asset treasury companies, which people mistook for sensible money. It was only after the failure in May 2022 of TerraUSD, a stablecoin made of nonsense and fraud, that institutions began to question where all the tokens were.

This time round, with bitcoin nearly 50 per cent below its record high, we’ve skipped the preamble and gone straight to the action. Blockfills is a very grown-up sort of business, a CME-backed crypto intermediary that deals with clients who have at least $10mn in tokens. It’s not entirely expected for the first signs of distress to be at a broker for institutions and high-net-worth individuals.

The other big news in crypto this week involves Jeffrey Epstein, another broker of sorts for institutions and high-net-worth individuals. Recently released emails give weight to the allegation that, in 2015, Epstein funded a team at MIT that steered bitcoin’s development away from internet money and turned it into a digital bearer bond.

Whether the involvement of a convicted paedophile tarnishes bitcoin’s Genesis story is a question for the faithful, so is none of our business. More measurable are the after-effects.

For the past decade or so, bitcoin has been marketed as digital gold. That’s awkward, firstly because bitcoin hasn’t been a store of value, but also because the gold market looks a lot like the kind of deflationary fiat money system bitcoin was proposed to fix. Goldsmiths invented fractional reserve banking in the 17th century by issuing loan notes, pretty much, and the value of paper gold in circulation dwarfs the trade in physical gold, which to a lot of people seems a bit suss.

But gold futures are contractual claims on gold, underwritten by 6,500 years of uncovered scams and contested practices. The link between crypto futures and on-chain crypto can be more hazy. Neither side of a bitcoin perpetual futures contract ever needs to own a bitcoin, for example, any more than punters and bookmakers at the Kentucky Derby ever need to own a horse.

It’s hard to figure out how much of the $50bn or thereabouts of bitcoin futures open interest has on-chain backing, but why assume it does? When a race has no finish line and is run via numbers on a screen, why involve horses at all?

We don’t know. BlockFills’ gating of funds may not turn out to be significant, but it’s still interesting. It suggests institutions aren’t waiting to find out where their tokens are. Below them are small-time gamblers with voided betting slips referencing tokens that may or may not exist. The big idea of bitcoin scarcity has been replaced by a crypto paper-printing machine whose fractional reserve can go all the way down to zero, and all the wise men left the scene a long time ago.

A week in Alphaville

○ The Epstein files are a Rorschach test: everyone sees in them what they hope to find. Rob Smith went in search of evidence for a subprime crisis conspiracy theory, debunked it, and replaced it with an even better conspiracy theory.

○ Phenomenal gains from shorting the yen and punting stocks make Japan’s debt burden look a lot less alarming.

○ Will SaaSmageddon eat private credit? We can’t tell you that, but to help you form a view, here are some nice charts of software exposure among business development companies.

○ Now that US sheds with contracted electricity supplies are more profitable to use as data centres than for crypto mining, where does that leave bitcoin? In Russia, probably.

○ First-draft thoughts on Nuveen’s agreed offer to buy Schroders.

○ A map of nearly $1tn of university endowment assets and what they’re invested in.

○ For the renminbi to become the world’s reserve currency, what has to happen?

○ Want a job in the US? Try being a nurse.

○ Reflections on Trump’s crackdown on residential rentiers.

○ Sure-thing bets on prediction markets look sort of like illiquid, badly drafted bonds.

○ Bets on sure-thing bets on prediction markets are somewhat spicier, for very-obvious-market-manipulation reasons.

○ Central bankers are revolting.

○ Anyone who invests in an Aim-quoted miner, or who reads The Spectator, should probably know what to expect by now.

○ The ONS is worried about media misrepresentation of their door-knockers.

○ Norway’s central bank is going to publish meeting minutes, so apologies in advance.

○ Extel voting is now open.

○ Chart quiz.

Promotional interlude

○ Alphaville will turn 20 years old this year. Help us celebrate by sponsoring a pub quiz or an Art of the Chart show. It’s a unique opportunity to get your company’s name in front of the brightest people in finance, our readers.

Best of Further Reading

○ Harvard Business Review has a study on how AI is intensifying workloads, not reducing them.

○ Rupak Ghose looks at Bloomberg’s landmark deal with Merrill Lynch as an example of how partnerships build companies.

○ Hanno Lustig’s The Two Cents blog considers “the safe assets that weren’t”.

○ Les Barclays’ latest is on the financialisation of football.

○ From TheAltView, a look at how the performance of Ares’ private markets fund “has benefitted from NAV-squeezing”.

○ Hamilton Nolan, of How Things Work, implores you to remove your Ring camera with a claw hammer.

○ Ever since the FT newsroom was instructed to go woke, we’ve been maintaining a presence on Bluesky, the least brain-itchy of the short-form social networks. Here’s a neat toy that maps 3mn Bluesky accounts by follower connections.

Chart blast

○ Software and AI see a lot of coverage this week, including in this long read on private equity exposure and this Unhedged newsletter.

○ Rockefeller International chair Ruchir Sharma considers why, when it comes to the US, hardly anyone is putting their money where their mouth is.

○ John Burn-Murdoch’s latest is on London’s lack of new houses.

○ Hasbro’s done well with trading cards while Mattel struggles with dolls, explains this Lex note.

○ That’s from a chart-heavy look at Anthropic, which was almost immediately stale after the hypey chatbot maker raised another $30bn on Thursday.

What have we missed? What did we get wrong? What can we do better next week? Let us know at alphaville@ft.com.

Subscribe now

Don’t fear the repo

Approximately $300bn was erased from global stock markets this week because someone updated a GitHub.

OK, that’s a simplification. There are plenty of reasons for being on edge right now, especially about the prices of things. Heaps of speculative money have been moved around on talk of reflation and debasement. The AI trade is at risk of Milhousing, as is private credit’s mark-to-mystery trade. Software and enterprise media stocks — the focus of selling early this week — were already comfortably the year’s worst performers and, as crypto is demonstrating, a crash doesn’t need a catalyst.

Still, it’s notable that the first proper AI-related selloff since DeepSeek more than a year ago was triggered by something so prosaic as a software update.

The person doing the update was Matt Piccolella, a product manager at Anthropic. Last Friday, he added “knowledge work plug-ins” to a code repository for Claude Cowork, the company’s desktop management system. There was no official announcement or Anthropic press release, probably because it didn’t seem particularly newsworthy. Cowork was launched a month earlier and is nothing more than a user interface for Claude Code, which has been around since February 2025. The plug-ins he made available promise to help with menial stuff like client onboarding and email triage. The documentation is stacked with warnings to never leave them unattended.

NBD, right? From the Wall Street Journal and Barron’s to The Daily Telegraph, the media had already covered Cowork’s launch with “paperless office” type stories. Analysts were able to draw on back-catalogues of research compiled over many years about how software and data companies have competitive moats made of trust, proprietary information and subscriber inertia.

What was overlooked is that agentic AI has been sending everyone a bit loopy. Claude Code is viewed as a generative AI sandbox in the same sense that the Sonoran Desert is a sandbox: it’s a huge off-grid borderland that attracts those seeking wealth, enlightenment, degeneracy, freedom to experiment, or toads to lick.

An upgrade in November gave Claude Code’s agents more autonomy, which bloomed in a million unpredictable ways: Gas Town’s vibe-coding suite, the Moltbook procedurally generated Reddit-alike, the OpenClaw life processor ... It’s all chaotic, exciting and otherworldly in ways that just to talk about it can make a person sound like a bit of a berk.

But let’s be realistic. Companies are bound by what’s rational, not what’s possible. No law practice is going to let a chaos engine replace its LexisNexis subscription. No accountancy firm will wear the risk of botswarms doing P&Ls. Cowork GitHub’s modest list of office management-type tasks available for partial automation probably gives a fair reflection of where we are, and will be for a while.

So. NBD, right? Maybe, maybe not. Software and data services companies could still emerge as the losers, but so could everyone else.

Where we are with agentic AI feels a lot like the cloud computing boom of 20 years ago. Marketed on claims of efficiency and flexibility, its big innovation was to remove friction between a company’s operating expenses and revenue lines of Amazon, Microsoft and Google.

Whereas project purchasing decisions once had to go through Procurement, virtual machines can now be spun up in moments at a cost of a few dollars an hour. It’s impossible to guess how much rented hardware is left idling, never to be noticed again within the IT department’s Rube Goldberg machine, but experience tells us it’s likely to be a lot. Better waste management is one plausible explanation for why companies have been abandoning the cloud and bringing servers back on premises.

Office management by agentic AI promises to be all of this but much, much worse. For example, this chap slop-coded a reminder to buy milk and found it had a running cost of more than $13,000 a year. Extrapolate that level of misspend across dozens of workflow bots running on millions of poorly monitored corporate networks, with everyone being charged by one non-itemised monthly bill, and those AI return-on-investment projections start to make a little more sense.

A week in Alphaville

○ Robin went on a vision quest through the Federal Reserve’s FOMC transcripts from 2020 and emerged with this epic post about crisis management.

○ Josh Spero, FT Wealth editor, gives us a tour of art collateralisation as told through a Cezanne he spotted in the Epstein files.

○ A deep dive into how much BNP Paribas might pay for criminally breaching US sanctions against Sudan.

○ Michael Saylor’s Strategy is underwater on its bitcoin purchases. Craig Coben, unofficial biographer to the OG bitcoin treasury company, considers its options.

○ Craig also wrote about the lessons to learn from Figma’s IPO, which has gone very quickly from underpriced to overpriced.

○ A European buyers’ strike doesn’t have to be formal or coordinated to have leverage over the US, argue professors Paola Subacchi and Paul van den Noord.

○ The digital euro makes most sense when seen as an alternative to America’s credit card duopoly, writes Dan Davies.

○ PIIGS, an acronym coined 15 or so years ago that bundled together Europe’s perceived weaker nations, has not aged well.

○ A look at why productivity among US construction workers has been on the slide for 50 years.

○ The US jobs report may be an odd one, whenever it arrives.

○ Sell-side analysts are often wrong, but they’re rarely wronger than they were about SanDisk.

○ Do smart people eat better?

○ One luxury of blogging is being able to write the same post whether the price of a bitcoin goes up or down.

○ Friday chart quiz.

Best of Further Reading

○ Prediction market maker Kalshi has put itself in a weird fight with an analyst and a tiny data shop he cited, as Bloomberg ($) explains.

○ Liberty Street Economics comes to praise the Phillips curve, not bury it.

○ Portfolio Design as Gesamtkunstwerk is a white paper from AllianceBernstein strategist Inigo Fraser Jenkins, which you may have already guessed by its title.

○ From The New York Times, a dataviz that helps explain the US health insurance thing to those who don’t have to deal with it.

○ Data centres in space make no sense, writes CivAI.

○ NBER has a fairly optimistic paper about “how online dating platforms have impacted marital outcomes, assortative matching, and sexually transmitted disease”.

○ In Eater, a look at why British cooking is conquering America that steers away from stereotyping and cliche.

○ Journalist Allan Massie is remembered by his son Alex.

○ Random Wikipedia pages delivered as a sort of antidote to doomscrolling.

Chart blast

○ Donald Trump is officially less off-putting than Covid.

○ Labour market statistics contradict recent talk of a boom in blue-collar employment.

○ Elon Musk’s bailout of xAI with SpaceX is the subject of this long read.

○ US electricity prices are to 2026 what eggs were to 2025.

○ Thanks for playing the metals markets, degens.

What have we missed? What did we get wrong? What can we do better next week? Let us know at alphaville@ft.com.

Help us improve by filling out this short, anonymous survey.

Subscribe now

A Muskoverse divided

Hey Grok, how do you value a stock?

Valuing a stock means estimating its intrinsic value — the “true” worth based on the company’s fundamentals — and comparing it to the current market price. If the intrinsic value is higher than the market price, the stock may be undervalued (a potential buy). If lower, it may be overvalued (a potential sell or avoid).

The “gold standard” for intrinsic value […] estimates the present value of all future free cash flows (FCF) the company will generate, discounted back to today using a rate that reflects risk (usually the weighted average cost of capital, or WACC).

No, Grok, that’s wrong. The gold standard is vibes. Allow us demonstrate with a couple of charts:

When a company delivers one-fifth of the profit expected three years earlier, a person might expect its valuation to have decreased. When its future-year profit forecasts have been cut by between 50 per cent and 70 per cent over the same period, ditto. What such a person does not understand is that Tesla’s value is mostly extrinsic.

Valuing a company by conventional methods means looking at the things it owns and estimating the present value of their future cash flows. Valuation by vibes involves gesturing at things a company doesn’t own, either because they’re owned by someone else or because they don’t meaningfully exist. It’s more flexible than any intrinsic measure. Freed from reality’s bounds, present value becomes limitless.

For example, robots. Asked on Tesla’s earnings call this week about how chip shortages might affect production, CEO Elon Musk went off about how xAI delivers class-leading hardware efficiency and said the Optimus humanoid “is just a mannequin” without AI. Moments earlier, Musk had talked about how xAI’s Grok chatbot could manage fleets of Tesla robotaxis and Optimus labourers as they are put to work building rare-earth-minerals mines or whatever:

You kind of need an orchestra conductor. So then Grok would be kind of the orchestra conductor.

XAI is not owned by Tesla. Shareholders of Tesla voted in November not to invest in the AI startup and found out this week they’d been overruled by Musk. XAI is majority-owned by Musk.

It's unusual for a public company CEO to bet its future on products that need components supplied by a company that is owned privately by the CEO — but this is standard in the Muskoverse. By vibes, if not by law, the corporate structure is one-for-all and all-for-one. Tesla is the lone quoted vehicle through which an investor can seek to capture the boundless extrinsic value of a hyperbolic fantasist.

But not for long!

NEW YORK, Jan 29 (Reuters) - Elon Musk’s SpaceX and xAI are in discussions to merge ahead of a blockbuster public offering planned for later this year. The combination would bring Musk’s rockets, Starlink satellites, the X social media platform and Grok AI chatbot under one roof, according to a person briefed on the matter and two recent company filings seen by Reuters.

We don’t know how all this plays out, but it’s going to have to play out somehow. A pillar of Musk’s empire has been its shapelessness. Formally dividing the companies between two quoted vehicles feels like it might create a problem, not least around valuations.

Moving SpaceX to public ownership is expected to lift its value versus the last private funding round by about $700bn. XAI was last valued at $230bn, so there’s still nearly half a trillion dollars being conjured up from somewhere. Unless the extra uplift can be justified by previously unrealised rocket/chatbot synergies, it follows that SpaceX will be cannibalising the premium Tesla shareholders are paying for access to the Muskoverse. By how much is impossible to guess, because the numbers never had to make sense in the first place.

The danger for Tesla shareholders is that it’s valued intrinsically. Subtracting the full $700bn from its market cap would still put the stock on more than 100 times 2026 earnings — which, for an ex-growth automaker that has negative cashflow, an unfunded $20bn capex programme, and a long record of disappointment still looks pretty rich. For comparison: BYD, the Chinese automaker that is Tesla’s main global rival, has been trading in a range of about 20 to 25 times earnings.

Robocabs and humanoids can be the salvation. But how much robot value would sit with Tesla if their brains are made by SpaceX? Going by the forecast downgrade chart shown at the top of the page, it may be a long time before we have to find out.

A week on Alphaville

○ Hyperscaler profitability looks iffy after taking into account depreciation charges that are massive, difficult to model, and probably underestimated.

○ The foundations of dollar dominance are being eroded, write former Federal Reserve and US Treasury bigwigs Steven Kamin and Mark Sobel.

○ A post on the overlaps between AI labs and quant trading shops generated the most polarised reader response we’ve seen in a while.

○ Yen interventions: a brief retrospective.

○ Oops! Japan’s Ministry of Finance has made a heap of money trading FX.

○ As a market timing tool, the Shiller CAPE ratio is a fairly rubbish. Can it be improved? Maybe.

○ The gold price keeps going up while gold exports appear to be going down, which is slightly odd.

○ Gold’s recent appreciation has been good news for Azerbaijan’s SWF, the Tether of the South Caucasus.

○ Does Magic: The Gathering have its own debasement trade? That’s for a judge to decide.

○ Assumed benefits to the UK economy from building data sheds have been based on some rather questionable data.

○ Craig Coben writes on the sanitisation of European guns and ammo.

Best of Further Reading

○ Yale’s big bets on private equity and illiquid investments are no longer looking so smart, writes Bloomberg. ($)

○ OpenAI is facing a $130bn funding shortfall over the next two years, IFR estimates.

○ Rupak Ghose digs into what we mean when we talk about hedge fund alpha.

○ That an anonymous blogger called Conks feels inspired to write a technical explainer of repo market mechanics is one of the few nice things about the internet.

○ The Guardian has a neat visualisation of Newton Aycliffe’s dying city centre and a profile of its billionaire owner.

○ For The Fence, Ian Trueger writes an insider-y look at how PE ate the UK restaurant trade.

Chart blast

○ The dollar’s loss is lifting nearly all boats as emerging markets have a good January.

○ After Russia’s energy revenues plunged, the share of oil shipments to undisclosed buyers has risen.

○ Partners Group of Switzerland pioneered private equity for all, but flows have slowed as a structure “of dizzying complexity” makes performance data difficult to find, write Alexandra Heal et al.

○ Software companies have been in retreat ever since vibecoding became a thing. This Lex note argues that slop-code has its uses, but the software-as-a-service incumbents will be difficult to dislodge.

○ We enjoyed FT Unhedged’s reasoned take on precious metals, and not just because the goldbugs descended on its comment box rather than Alphaville’s.

○ Oh no.

What have we missed? What did we get wrong? What can we do better next week? Let us know.

Do please tell us what you think via this short, anonymous survey.

Subscribe now

The sun never sets on the degen empire

The cutting-edge trading technology of 1985 was the Reuters Pocketwatch. About the size of a cigarette pack, the Pocketwatch was a radio pager that showed currency rates to users in Greater London and Hong Kong for a cost at launch of £60 a month. Round-the-clock trading across all asset classes had long been the promise; portable quote terminals were a step towards making it a reality.

“They are preparing the way for the 24-hour market,” Bob Crooke, Reuters’ media relations manager, told the New York Times in 1989. “The lifestyle of the traders may change.”

Unfortunately for Reuters, the will was strong and the tech was weak. Pocketwatch and rivals, such as Metriplex Global 24 and Telerate PDQ, were commercial flops. Active user bases for each were still in the low thousands by the early 1990s.

It didn’t help that performance was unreliable — tall buildings blocked radio signals, data provision was patchy, and boxes made for New York would go blank in Chicago — or that multi-use pagers were already ubiquitous. Just as significant was the stigma of never unplugging. Colin Stiasny of Prudential, having been awarded second prize in a “Most Unpopular Fund Manager of 1986” poll run by Punch magazine, was moved to deny he checked prices on his Pocketwatch during lunch.

The mistake was to think professional investors want unfettered market access, when the opposite is true. A professional investor’s key motivation is to avoid being shouted at. Most days, that’s possible by demonstrating best execution, which is made easy by only trading when liquidity is deepest. For example, an optimal equities strategy is to pile into the closing auction alongside the mutual funds and passive vehicles, take the same reference price, then log off. The remains of the day are for retail punters and high-frequency trading bots.

Each trading session generates one nominally right price and lots of wrong ones. Professionals tend to value certainty, so they want the former. Amateurs tend to like volatility, so they seek out the latter. And since the number of right prices is capped at one, while the number of wrong prices is limited only by the number of hours of the day, it’s natural that more recent attempts to make trading 24/7 have been retail-led.

Via Business Wire this week:

The New York Stock Exchange […] announced its development of a platform for trading and on-chain settlement of tokenized securities, for which it will seek regulatory approvals.

NYSE’s new digital platform will enable tokenized trading experiences, including 24/7 operations, instant settlement, orders sized in dollar amounts, and stablecoin-based funding. Its design combines the NYSE’s cutting-edge Pillar matching engine with blockchain-based post-trade systems, including the capability to support multiple chains for settlement and custody.

Woo! Tokenised trading experiences!

NYSE’s proposal follows a similar request to regulators from Nasdaq in September. Both exchanges talk up potential benefits, such as streamlined clearing, though there’s an acknowledgement that stock trading would be spicier if it looked more like crypto. Michael Blaugrund, vice president of strategic initiatives at NYSE’s parent company, ICE, tells Bloomberg that tokenisation “will create new opportunities for retail to participate in the stablecoin-funded markets that have attracted their attention”:

“We think it aligns with the retail investor’s emerging desire to be able to trade something at 5:04 p.m. on a Saturday and then use that money to buy something else at 5:05 p.m. on a Saturday,” Blaugrund said. “This would facilitate that trade in a way that traditional equity infrastructure cannot.”

Sure, instant settlement is nice. What’s nicer is that, when it’s 5:04pm in Dallas, the sun is rising in Hong Kong and the pubs have just closed in London. Perpetual trading invites the drunk and bleary-eyed to vibe-trade an informational void, on bid-ask spreads so wide the liquidity providers can run on autopilot. All of which is fine. Why shouldn’t stocks trade like crypto and FX? Punters want to punt, so let them.

One risk is that professional investors will feel obliged to join in. Out-of-hours liquidity improves, volatility flattens out and trading edge evaporates. NYSE and Nasdaq broaden their duopoly. No one gets enough sleep.

The solution is simple: shut down the markets. NYSE and Nasdaq can run one clearing auction each weekday, which would pool liquidity and deliver a single definitive price for all participants whose jobs depend on certainty. The other 23 hours and 50 minutes are for the degens. Tokenised versions of every asset can come to resemble bitcoin, whose spot price leaps around for no purpose other than to harvest stop-losses, and no serious person ever needs to care.

Institutions would not be explicitly excluded from playing in the token swamp, but neither are they expected to compete all hours with swamp-dwellers when there’s a clean daily fix available. The best use of technology, now that everyone carries the market around in their pocket, is to ensure we never have to watch.

A week on Alphaville

○ Could Europe weaponise its Treasury holdings? Not easily …

○ … though a few pension funds are giving it a shot.

○ Garbage stocks are on fire again.

○ Whisper it, but maybe JGBs are cheap?

○ London’s broken, Pt.1: Zurich Insurance spent a year trying to buy Beazley, and no one found out.

○ London’s broken, Pt.2: InterContinental Hotels changed its stock denomination to dollars and blew out the bid-ask spread.

○ Dan Davies revisits the European Central Bank’s Trade Policy Uncertainty Index.

○ Picking sense from Donald Trump’s nonsense revealed something about the next Fed chair. Not much, but something.

○ Valium distributor Pharmanovia has changed auditors again.

○ UK inflation for December to come in hotter than expected because of airline ticket prices, as predicted by this post.

○ “Extremely little is at stake here”, says Louis Ashworth, accurately, about some pundit crossfire over whether Manchester mayor Andy Burnham moves markets.

○ Older people watch a lot of TV.

○ Chart quiz.

Best of Further Reading

○ Morgan Stanley Asset Management published a novella-length examination of what makes markets efficient.

○ Tech writer Cory Doctorow writes winningly, but also writes a lot, so can sometimes repeat himself. This Guardian essay on what to salvage once AI companies fail is a handy compilation of all his best bits.

○ Adam Tooze is the subject of a long and worthwhile profile in the Guardian, and offers two theories of Davos 2026 in his latest Chartbook.

○ It’s a weird era when one of the week’s highlights is Mark Carney’s speech to the World Economic Forum in Davos, as transcribed by Paul Wells.

— A companion piece, from Systematic Hatreds: The old world order is dead.

○ Jonathan Becker deep-dives prediction markets data to show how much their price formation relies on over-opinionated suckers.

○ For Noema, Anil Seth writes on the mythology of conscious AI.

Chart blast

○ From a big read on the reality of trying to make US manufacturing great again.

○ Martin Wolf spells out the dangers of complacency when there’s a “slow-motion erasure of the operating systems of the global economic and political orders”.

○ From: Can Europe still afford its generous state pensions?

○ Markets are getting wise to Donald Trump’s tariff ‘shock regime’.

○ Unhedged notes signs of life in the US mid-caps, which are more about financials and industrials than the tech-heavy S&P 500.

○ The “only official Trump meme” crypto token is down 94 per cent in a year.

What have we missed? What did we get wrong? What can we do better next week? Let us know by email, or by answering our reader survey.

We’re always open to finding out how we can do better — let us know by filling out this short and anonymous survey.

Sharkbait

Prediction markets mostly take bets on sports while offering a few specials and novelties. By revenue, this is pretty much exactly the shape of every online betting service launched over the past 30 years. But because they’re marketed to Americans, who for historical reasons are weird about gambling, and because their specials and novelty bets help create news, prediction markets are hot.

The other thing everyone knows by now about prediction markets is that they’re not for gambling: they’re offshore exchanges for trading derivatives in the commodity of truth. And even though the Commodity Futures Trading Commission’s rules prohibit the making of event markets related to “gaming”, the US regulator keeps twirling its pigtails when asked for clarity, so we’re obliged to pretend that definition makes sense.

It’s all extremely silly and more than a bit dystopian, but while hot money is available, we’re requested not to think too much about it.

However, one downside of putting bookmakers behind a layer of faux financialisation is that it attracts real finance types. The FT reports:

Trading groups are expanding into the rapidly evolving realm of prediction markets, hiring traders to arbitrage fleeting price discrepancies between contracts for events such as football games and elections. […]

Don Wilson’s DRW is looking for a trader who will be paid a base salary of up to $200,000 to “monitor and trade active markets in real time” across Polymarket and Kalshi, according to a job advert posted last week, as it builds a “dedicated prediction markets desk”. Options trading giant Susquehanna is on the hunt for traders to “detect incorrect fair values” and identify “unusual behaviours” and “inefficiencies” on prediction markets, as well as people to work on its dedicated sports trading desk. Crypto hedge fund Tyr Capital hopes to hire a prediction markets trader “who is already running sophisticated strategies”.

This might look like natural territory. Prediction markets are full of retail money. Retail money is attractive to liquidity providers because it provides healthy order flow with manageable pricing risk. That’s how it worked with meme stocks and crypto, which can be seen as cultural bedfellows to prediction markets.

But prediction markets differ from meme stocks and crypto because the latter two don’t involve fundamentals. There’s almost nothing useful a trader can learn about Gamestop and Fartcoin that will inform tomorrow’s price, but having non-public information about a real-world event will turn any wager into a sure thing. A prediction market hangs on one fundamental: “true” or “false”. Offering liquidity to that market in ignorance is inviting everyone with better information to wear you as a hat.

Bloomberg’s Matt Levine suggests that, to tap prediction markets while avoiding adverse selection, trading firms might hire teams of experts and create proprietary world-event research functions. Another possibility is that they don’t. The more cost-efficient path may be to arbitrage already popular markets with unknowable outcomes, meaning sports, while leaving everything else to wither.

What’s happening in effect is that the likes of Susquehanna and DRW will do the kind of flow management functions that traditional bookmakers like Ladbrokes and Bet365 handle internally. Nearly any bet on the platform remains a bet against the house. (Lex has an interesting note on their apparent win rates so far.)

For European investors, who’ve been talking about the limitations of peer-to-peer betting since the early 2000s, a lot of this stuff may feel like familiar territory. Take, for example, online poker. That bubble popped after US regulation changed overnight, but had already been in decline as over-financialisation sucked all the fun out of playing.

New poker players were finding their wallets drained by experienced types who played the odds methodologically, and/or by bots that did the same 24/7. It became known as the sharks-and-fish problem: once every poker table was populated by sharks, the survival time of any stray fish could be measured in minutes. Customer retention crashed. And, once all the fish had gone, the sharks followed.

What’s easy to overlook in the prediction market hype is that gambling is a branch of the entertainment industry, not a financial service. To attract new customers, gambling needs to seem fun. Winning is fun. Losing to a gamma-neutral Sequoia market hedging algorithm that snipes for mispricings and whittles away every inefficiency is not fun. Neither is it fun to lose to insider traders who’ll flush any market that benefits from an informed view. No one volunteers to be sharkbait.

Prediction markets won’t disappear overnight, at least under the current administration, but will probably go the same way as NFTs and memecoins. The excitement of giving money to insiders via online marketplaces soon wears off. What will remain will be sportsbooks, plus a few low-stakes novelty markets offered as loss leaders for marketing purposes.

In summary, America’s great “truth machine” revolution will have reinvented Paddy Power.

Meanwhile, in the marketplace of ideas

Alphaville has been ill this week, so some of the material held for review was to confirm it was genuine and not the result of a fever dream.

For example: did Barclays really publish a prediction cluster-bomb that charts by likelihood and impact 150 trends for 2035 that include insect protein, tax reform, psychedelics, extended reality, women’s empowerment, and a myopia epidemic? Remarkably, the answer is yes.

And, having last week sent clients a futurology-themed playlist, did Morgan Stanley analyst Adam Jonas really publish a meditation on “an acronym for the Muskology: MARS” that quotes Socrates and Star Trek in support of arguments like “the need to dig into the Martian regolith will be critical for a permanent settlement”? Again, yes.

Sell-side research quality has been eroded by regulation and the rise of passive investing, so it’s good to see it can still thrive when measured by variety.

The week on Alphaville

○ Repo is massive.

○ So is the Treasury basis trade, which now accounts for 6 per cent of the US government bond market.

○ Is the US about to screw sovereign wealth funds?

○ Subscriptions like Netflix don’t count towards UK retail spending.

○ Everything bad that happens was probably Bill Pulte’s idea.

○ Terry Smith is having a bad decade. His customers are paying.

○ In its enthusiasm to think about how robots might work, Barclays seems to have forgotten how humans work.

○ Boaz Weinstein expects the owner of 63 quirky London serviced offices to find buyers for the whole £2.3bn portfolio at or near to appraisal values within 12 months, because of course he does, he’s Boaz.

○ In light of Polymarket’s sponsorship of the Golden Globes, a look at the interplay between US box-office wagering and onion derivatives regulation.

○ What caused UK retail’s tilt to gilts?

○ The European Union is very keen right now on defence companies raising money, so has made nuclear weapons ESG compatible.

○ Donald Trump leaked jobs data on his vanity website and no one noticed or cared enough to believe him.

○ Various gifs about a research paper about measuring investor sentiment with gifs.

○ The FTAV merch store now stocks Free Jay Powell T-shirts and hoodies.

○ This week’s chart quiz.

Best of Further Reading

○ Who captures the value when AI inference becomes cheap? (This Is Not Investment Advice)

○ Postal arbitrage (Walzr)

○ All Gas Town, no brakes town (Today In Tabs)

○ There’s a ridiculous amount of tech in a disposable vape (John Graham-Cumming)

○ Animal Crossing: New Horizons is a time capsule full of 2020 anxiety (Polygon)

○ How to become a tree (Aeon)

Chart blast

○ HS2 is very expensive for various reasons, as outlined in this graphics-rich MainFT long read. Go to the comments for an argument.

○ The Takaichi trade is back!

○ An Unhedged note on the market’s non-reaction to the Trump administration’s criminalisation of the Fed contains this dull chart and excellent headline.

○ From “how Iran switched off the internet”. Not to make light of the circumstances, it’s good to know that’s an option.

What have we missed? What did we get wrong? Where can we improve next week? Let us know by email or this anonymous survey.