Author: admin

Oh bond market.. will real yield go higher?

Bond market is volatile these days – US 10-years treasury yield just swung from under 4% to near 4.5% in a few days.

The inflation protected 10-year TIPS yield also rose from under 1.8% to over 2.2% in a few days. (this is like a 20% move? even higher than the 10% move in 10-year treasury).

I shall discuss 10-year TIPS more below.

It was ~5% in early 2000s. Then, it went down a bit before GFC. Between GFC and 2021, it was sub-2%. Now it’s back to pre-GFC level.

✅ Summary

Period 10Y TIPS Real Yield Key Characteristics
Pre-2008 2%–3%+ Higher real rates, less Fed intervention
2009–2021 <2%, often negative QE, ZIRP, low inflation, high demand for safe assets
Post-2022 >2% again Inflation shock, Fed tightening, rate normalization

Source: ChatGPT

 

And in terms of why 10-year TIPS was low from 2009 to 2021, it seems that Fed QE is a big factor.

📆 Timeline of Fed TIPS Purchases

Period TIPS Purchase Status Notes
2010 (QE2) ✅ Began buying TIPS First inclusion of TIPS in QE
2010–2021 ✅ Continued buying in QE3, COVID QE Purchases scaled with overall Treasury buying
Nov 2021 🔻 Began tapering all Treasury purchases Including TIPS
Mar 2022 ❌ Fully stopped purchasing TIPS (and other Treasuries) QE ended completely
Jun 2022 onward 🔄 Began Quantitative Tightening (QT) Letting TIPS holdings roll off gradually

Source: ChatGPT

 

As to whether yield will go up from here? The equilibrium real interest rates (r*) depend on several things:

1/ real productivity growth. AI is helping? So can push r* higher.

2/ global saving. Can be lower in China, thus less supply of capital. So can push r* higher.

3/ risk appetite. Going down sharply. So should push r* lower.

4/ DOGE. Lower gov spending should push r* lower.

5/ Reshoring. Need to borrow more. So can push r* higher.

 

Unfortunately, these factors are all moving..

Adding tariff on drugs is like killing people?

Some people will be priced out if tariff significantly increases drug price.

That to some extent is like “killing” those people.

Of course, prices on drugs shall increase over time for different reasons.

Would you argue that if a drugmaker raises price, it’s “killing” people?

It will be interesting then.. as pharmaceutical companies are saving and killing people at the same time. They are still saving people net net.

For investors in pharma, if they expect higher profits, are they also killing people as companies need to raise price? But if you invest in drugs, you should be saving people right?

What a humanitarian cap on the industry!

Tariff discussion is educational

For many in the US, tariff discussion should be very educational.

For one thing, people now know more about where things are produced and where different parts are coming from.

It asks people to debate what’s really needed to happen in the US and what’s not. And the feasibility of any changes.

Also, without all those analysis and breakdowns, many people probably just complain, but rarely value the importance of global collaborations – that it’s hard to have everything happen in the US.

The entire debate and the prospect of an iPhone city (the whole Boston population is needed) let people understand why those decisions were made in the first place.

The debate is magnified by the financial market. All participants globally need to think about this.

For wealthy people, a more expensive iPhone means nothing. They might see the impact of deglobalization as limited if it’s just things are just getting expensive. But the upheaval and collapse of the financial market will let the wealthy know it’s more than the living cost.

On the other hand, tariff threat can be good?

Cooling off the excessive confidence

If the economy is running too hot, you need to cool it off.

One way to cool it off is to add uncertainties.

Individuals and businesses will pause new investments and rethink how fast they shall run when uncertainty (not short-term, or can be overlooked) skyrockets.

Perfect excuse to change gears

Sometimes, business leaders also need a good external excuse to press the “pause” button. Why?

Normally, they want to be seen as the encouraging voice internally. That what business leaders do – to grow the companies. And they always want suppliers to increase their capacity. Thus, showing extra confidence in business can ensure suppliers are confident enough.

To be seen as credible in the long-term, business leaders can’t change the tone overnight. And it’s hard to change the tone if there is no external shock. Otherwise, it feels like you were trying to “trick” your suppliers or employees.

Suddenly, tariff becomes this perfect excuse – external, lingering, impactful.

It’s just the perfect time to take a step back and rethink business leaders. And it’s the perfect opportunity to change gears.

Tencent x Ubisoft: a new model?

Ubisoft created a new entity and put valuable assets into it.

Tencent put money into this new entity and got 25% ownership.

While Ubisoft’s shareholder got nothing, Tencent can do more with the important IPs like Assassin Creed.

Maybe there is a limit on how much Tencent can buy into Ubisoft. Maybe the possibility of Ubisoft being acquired is low due to France regulation, not due to Tencent’s previous investments.

Probably it’s the complications and regulations around the world are making those deal structure necessary. Capital is not allowed to buy anything it interested in.

So.. on the positive side, will this model serve as a template for TikTok US?

ByteDance inject some assets  (TikTok US) into a new entity, and new investors inject money or assets into the new entity, so that the new ownership structure can satisfy both US and China’s demands?

Supply chain – Lululelom

Approximately 40% of our products were manufactured in Vietnam, 17% in Cambodia, 11% in Sri Lanka, 11% in Indonesia, and 7% in Bangladesh,
and the remainder in other regions.

Approximately 35% of the fabric used in our products originated from Taiwan, 28% from China Mainland, 11% from South Korea, and the remainder
from other regions

Special government employee

A Special Government Employee (SGE) can work no more than 130 days during any consecutive 365-day period.

They’re allowed to maintain private-sector jobs or other roles.

They are subject to federal ethics rules, but with some exceptions or leniencies given the part-time nature of their service.

They can be paid.

 

Elon Musk is a SGE.

He won’t be paid though.

 

https://www.law.cornell.edu/uscode/text/18/202

China’s fixed asset investments: smaller discrepancy and better numbers vs 2023

Found another closing discrepancy in reported numbers.

These were the reported numbers for fixed asset investments (excl. rural) between 2020 and 2024.

The 2023 number has the biggest difference. If you directly compare 503,036  and 572,138, that’s dropping -12% yoy. Yet, the reported yoy was +3%.

This resulted in a 15% gap in yoy percentage number for 2023.

That gap has been shrinking to less than 1% in 2024, with +3.2% reported for 2024 fixed investments, compared with +2.3% in calculated comparison.

In 2024, the investment in the water conservancy management industry increased by 41.7%, investment in the air transportation industry increased by 20.7%, and investment in the railway transportation industry increased by 13.5%.

Those are some big % numbers. If you compare some headline numbers, e.g. water conservancy, the growth should be 13%, rather than 42%.

  • 2023年全年完成水利建设投资11996亿元
  • 2024年完成水利建设投资13529亿元

Maybe 2023 was indeed a lower base than reported.

Anyways, the picture in 2024 indeed looks better.

Brail set to rise

One thing is certain – US is trying to fight its trade deficits.

Who would be relatively safe from Trump’s tariff threat?

Countries that US runs a trade surplus!

Any examples? Brazil.

If a company wants to relocate its production, Brazil would be a top destination due to the trade surplus US enjoys, which means tariff threat is lower.

Plus, Brail has a big population with a relatively lower labor costs vs other countries like Australia, UK, or Singapore (US runs a trade surplus to those countries as well).