One day, is gonna be the day, the K-shape really gets to you.

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Today’s Links

My new look FX Update, now called The FX Trader, as I try a new format that is hopefully a bit more engaging and looks more explicitly at levels. I have the intention to deliver it more regularly - hope I succeed on that front, too.

Daniel Lacalle argues that government spending and money printing is killing the middle class as inflation outstrips wage growth, certainly an important point. And lowering the short rate to allow better financing terms might only provide partial relief as it would likely further super-charge asset markets. As a good friend of mine pointed out after I passed him the link to this article “We so need a debt jubilee, paid for by super tax on Mag 7”. I dunno what the answer is, though I like the idea of reducing debt. The problem may be that raising incomes for the bottom 50-75% in real terms might only be achievable by destroying the wealth of the top 1-10% to clear out the impacts of too much wealth (the flip-side of indebtedness) or financialization in our societies.

A great conversation over on the Forward Guidance podcast, with some older Gen Z’s (and a Millenial?) discussing everything from the justified angst of their generation - due to the K-shape and the serial bailout of the wealthy - as well as discussions of divergences that we have also noted, market structure and more.

On Germany, following the Zeitgeist, we have a the-Germany-economy-is-doomed piece from FT citing the things we all know so well, while my friend Peter sent a link to a great Erik Nielsen substack pointing out the positive sides of Germany relative to the US, particularly in terms of quality of life, but even in quality-of-GDP terms, especially from low relative costs of security in Germany and vastly lower levels of crime.

Endgame Macro also weighed in yesterday on the troublesome aspects of Coreweave’s earnings report and financial projections. The market seems to be listening - the share price is in freefall, down another 15% in yesterday’s session.

WSJ was out with an exclusive discussing China’s apparent intent to enforce an intrusive “validated end users” policy with its rare earth minerals exports to ensure they aren’t going toward military applications. Good luck.

Caveat: I don’t know the quality of the source here, but this is remarkable stuff, and as I mentioned on the podcast, if it is true and the US government isn’t ginning up popular outrage, what are we supposed to infer, that it wants to take things carefully with divorcing from China because US national security in supply chains terms is so vulnerable? Talk about asymmetric warfare - the US defense infrastructure must be scrambling like mad on things like this: the US Air Force base harboring much of its strategic nuclear fleet of bombers shares a fence with a trailer park owned by CCP-linked operatives. Remember Ukraine’s drone attacks on Russian aircraft?

Wolfgang Münchau on the EU needing to get serious about the threat to the euro from stablecoins.

Chart of the Day - 2025: K-shape gone wild

The chart below compares the trajectory of the US Nasdaq 100 Index with that of Goldman Sachs’ Middle Income Discretionary Basket, both indexed to 100 on the last trading day of 2024. The GS basket is intended to represent stocks most exposed to the discretionary spending of the broader middle class, for example in apparel, restaurants/leisure/amusement parks. Today’s challenge: see if you can spot any divergence this year relative to last. (Hat-tip to Forward Guidance for highlighting this same GS index on their recent podcast (see link above), I am simply copying their point in the chart below).