Bonds could pressurize this too quiet market.

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Today’s links

My FX Update from earlier today - looking at many of the issues on the podcast and the misleadingly low levels of FX volatility.

Will any productivity suite ever challenge Microsoft’s office?
WSJ out with a piece profiling an outfit called Paradigm that is using AI as a starting point in its spreadsheet software startup - a possible disruptor of the Excel monopoly that goes back seemingly to the beginning of time.

Early thoughts on the 2026 US mid-terms, where Republicans will have to take increasingly nutty and unconstitutional steps like the Texas gerrymandering farce to keep the Democrats at bay.
I am reluctant to begin covering anything to do with the 2026 mid-terms, but I think the One Big Beautiful Bill will cost Trump dearly in the November 2026 mid-terms, especially in deep Trump country where he won’t be able to hide from the Medicaid de-funding that will cost the welfare and even lives of some of his most ardent supporters, not to mention independent fence sitters, which is the largest party in the US. New types of candidates emerging on “the left” as the traditional Democratic politicians are out of touch. Here is the Wall Street Journal coverage of a new (to me) Democrat profile Rob Sand running for Governor next year in Iowa, an increasingly pro-Trump state in recent elections. Remember that Dems can still win even if Maga and Trump have shifted the political center of gravity in the US. Clinton demonstrated that, keeping so much of the Reagan consensus with some minor tax tweaks to suggest Democratic credentials. If the Dems co-opt some of the base Trump positions on the social/culture signaling front and sprinkle in a bit of leftist economic policy, the Democratic party has a chance for a huge surge in the House at minimum. Stay tuned.

Russia would like to be US’ buddy, but maybe not?
Here are some thoughts from Kamil Galeev after the Putin-Trump summit, who suggests that Russia would like to align with the US again if it could do so, in part due to long standing cultural affinity and perhaps for less flattering reasons. He does point out that being a US ally can extract a very high price - ask Ukraine, South Vietnam and the Kurds in 1991. A quote attributed to Henry Kissinger: “To be America’s enemy is dangerous, but to be America’s friend is fatal”. I would add that Russia would be happy to resume normal trading conditions with the West rather than cozying up to China as long as it could keep security alliances like NATO far from the “buffer zone” surrounding its territory (what is fate of NATO and Baltics/Finland??) and provided it could keep all threat of color revolutions at bay after the ones in Ukraine and then Belarus came too close for comfort. In general, Galeev puts out bold positions and has deep historic and cultural knowledge of Russia, frequently displayed for free on his X feed. I am not endorsing his positions on anything, btw.

Meta’s business model now more positively correlated than ever with intensifying mental illness in its users?
Is that a rhetorical question….? You decide - meantime, have a look at Stratechery.com, which is at it again, this time zeroing in on Meta’s Q2 earnings and offering some food for thought both on the positive and negative side of their prospects from here. The bit about Meta risking having reached a saturation point on Reels “inventory growth” - the average number of mindless minutes the average user spends watching short videos - is particularly compelling. Without increasing those engagement minutes per user, the company would have to increase prices to grow revenue when it is competing head to head with Tik Tok and YouTube Shorts for ad revenue linked to the short video format. Prior slowdowns in inventory growth Stratechery associates with “the point when previous investor freak-outs have happened.”. So the company is at a risky pivot point, especially with the vast Superintelligence AI capex. In parsing Zuck’s Superintelligence speech, Stratechery suggests the language on social interaction has been drastically demoted to focus on your personal rabbit holes, in my paraphrase. Zuckerberg: “Meta’s vision is to bring personal superintelligence to everyone. We believe in putting this power in people’s hands to direct it towards what they value in their own lives.” So something like the WALL E dystopia?

Chart of the Day - UK 30-year Gilt yields

On a weekly chart, the recent move higher in the longest UK guilt yields to near cycle highs doesn’t suggest anything disorderly, but the dynamic continues to pressurize the UK sovereign bond market. Policy options are fraught for a country with large twin deficits (budget and current account):

• The taxing approach to bolster revenue sees capital flee the country, eroding tax revenue

• The austerity approach sees the economy shrink, aggravating revenue shortfalls further and preventing the ability to stimulate.

• The most likely approach - some eventual combination of capital controls (forcing apportionment of savings into UK public debt), QE, yield-curve control and most of all even MMT (just spending the money without bothering to issue debt to “finance” it) are the policy options that will be taken to keep the nominal economy running ahead of the real level of the sovereign debt load.

Incredible that the 2073 Gilt with a 1.125% coupon was issued several months after the pandemic policy response-driven inflation breakout was already maturing rapidly. It was issued in early February of 2022 and closed on March 1, 2022 at 99.86 - almost par - less than two weeks after headline UK inflation for January was released and showed headline inflation at 5.5% and core inflation at 4.4%.