Fascinating paper on credit markets going dark i.e. the rise of private credit – “We offer new data that illustrates the meteoric rise of the now $1.5 trillion private credit industry and explore the allure and implications of private credit.“
We all know indices are concentrated right now, more than ever. Just how bad is it?
“The startling conclusion is that, despite the Russell 1000 nominally providing exposure to its namesake number of stocks, the index affords an effective diversification of only 59 stocks.“
“Not only does market-cap weighting induce substantial single-stock risk, but the diversification provided by this foundational asset class has evaporated by 70% over the past decade.“
Equal weight, as the article argues, is not the solution here, as it “suffers from significant operational costs, underperformance, questionable assumptions, and skewed risk bets.“
At the end of the 19th century “Japan transformed from a relatively poor, predominantly agricultural economy specialized in the exports of unprocessed, primary products to an economy specialized in the export of manufactures in under fifteen years.“
How did it achieve such a feat?
“In a remarkable new paper, Juhász, Sakabe, and Weinstein show how the key to this transformation was a massive effort to translate and codify technical information in the Japanese language. This state-led initiative made cutting-edge industrial knowledge accessible to Japanese entrepreneurs and workers in a way that was unparalleled among non-Western countries at the time.“
Relevant especially with the rise of AI. At first quantity matters here but “as training sets grow ever larger, it’s often more efficient to do this than to acquire the next token; beyond a certain point, data quality scales better than data quantity“.
“So there you have it: 5000+ words on data pricing. We’ve covered use cases and users; quality and quantity; internal and external value factors; pricing axes and maturity curves; table stakes and usage rights; and much more.“
“Antti Petajisto analyzed the return distribution of all US stocks in the CRSP database going back to 1926. Below is the distribution of returns for different investment horizons. Note that the distribution gets more and more skewed to the left as investment horizons increase and that the left-hand side of the distribution is not zero, but a total loss of investment (-100% return).“
“China’s surplus in manufacturing has risen as much relative to world GDP in the last few years as it did during the first China shock following the country’s accession to the WTO“
A big driver of this is the export of Chinese manufacturing into Vietnam and other countries for final export.
“the reality is more complex: put plainly, it is impossible for a global economy characterized by a large U.S. deficit on one side and a large Chinese surplus on the other to truly fragment.“
Corporate tax avoidance also boosts globalization – “American multinationals now often produce abroad to book large profits in offshore tax havens“.
The two main US jobs surveys – the famous non-farm payrolls (establishment) and household survey – are broken.
For one there is a stark difference in trajectory between the two.
Response rates are also collapsing.
“Totting it all up, ABN Amro finds that the gap between the two series is driven largely by underestimating immigration, and overestimating business births, and then definitions.“
