What Causes Recessions

  • Useful table studying recessions from this year’s DB Long Term Asset Return Study.
  • 79% of US recessions over the last 170 years have seen the central bank policy rate rise at least 1.5pp over a rolling 12-month period within 3 years prior to a recession. It’s 65% if you use 2.5pp of hikes over a rolling 24-month period. So most US recessions are preceded by tighter monetary policy“.

IRA and Pharma

  • Interesting set of company quotes on views about the impact of IRA on Medicare negotiating drug prices.
  • Most of the industry has launched multi-pronged lawsuits (including constitutional challenges) against this.
  • To read more transcripts from AlphaSense Expert Insights get a free two-week trial here [use work email].

Chinese FDI

  • Has gone negative for the first time in many decades.
  • Some have pointed out that this is due to retained earnings repatriation out of China and not true investment, but the concern still remains longer term.
  • This chart is paired nicely with a very interesting article from the New Yorker – “China’s Age of Malaise”.
  • Some fantastic anecdotes “a leak from a Chinese social-media site last year revealed that it blocks no fewer than five hundred and sixty-four nicknames for him, including Caesar, the Last Emperor, and twenty-one variations of Winnie-the-Pooh.
  • Chart source: Axios.

Trucking

  • The trucking industry is undergoing another downcycle.
  • In a classic capital cycle, weakening demand has met over-expanded supply.
  • Bankruptcies have abounded from established trucking firms like Yellow (30,000 employees 100-year-old trucking firm)
  • to start-ups that tried to disrupt the less asset-intensive freight brokerage market such as Convoy (once valued at $3.8bn), where it looks like financing (both VC or otherwise) has met cold reality.

Closed-End Funds

  • “For a firm that eats, sleeps, and breathes discounted CEFs, this is the most compelling entry point we’ve seen in 15+ years,” Matisse’s Nik Torkelson, whose firm invests in and researches closed-end funds, wrote in a note.
  • Full Bloomberg articles here.
  • Interesting opportunities in closed-end funds as discounts have blown out. This is the case in the UK as well which has a large investment trust industry.

Cat Bonds

  • Pricing levels of Catastrophe Bonds (explained here) have hit a 30-year high.
  • According to estimates by Guy Carpenter, a global risk specialist and provider of ILS sourcing and pricing information, the premium, or rate on line, of cat bonds increased by an annual rate of approximately 30% in January 2023, only the third time in three decades prices have reached such a level.”
  • Bloomberg article here.
  • Source: Amundi h/t bpsandpieces.

China is not Shifting Away from the Dollar

  • The world of foreign exchange reserves is full of false narratives and complex data.
  • Here, Brad Setser, uses international banking sleuthing to show that China has not switched its reserves away from dollars.
  • Bottom line: the only interesting evolution in China’s reserves in the past six years has been the shift into Agencies. That has resulted in a small reduction in China’s Treasury holdings – but it also shows that it is a mistake to equate a reduction in China’s Treasury holdings with a reduction in the share of China’s reserves held in U.S. bonds or the U.S. dollar.

AI and Healthcare

  • Healthcare is one area where the application of AI, in its LLM and other forms, could be enormous.
  • This nice article from AlphaSense Expert Insights explores the topic, mirroring the huge rise in expert calls in the sector mentioning the term.
  • It is not all areas that can be bent to the will of ML. As this piece argues, academic literature and the correspondent knowledge graph is both difficult and not that useful to program.
  • If you want to read some of these transcripts, you can grab a two-week free trial.

UK Has a Serious Underinvestment Problem

  • Cancelling HS2, and rolling back on net zero, are two vivid examples of a long-term UK problem that has become acute since 2010. The government does not invest enough, and partly as a result the private sector does not invest enough. As this excellent report from the Resolution Foundation’s Felicia Odamtten & James Smith shows, public and private sector investment are complements; the former encourages the latter. This chart from the report shows that UK public investment is consistently below the international average, and that average includes many countries that have underinvested over the last two decades like Germany and the US.
  • High-Speed 2 (HS2), the flagship rail line, as the blog points out, is not about faster transit time between the North and London, but rather helping create more capacity around major northern cities to improve their development. As the chart in the blog shows, outside of London, major UK cities are woefully behind other comparable cities in Europe in terms of productivity. This is something we covered before.
  • Full post here.
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