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Railroads change cities’ fate

Read some interesting discussion on railroad build-outs in early 20th century in China, and its impact on cities.

Before railroads expanded, China’s economy relied a lot of waterways / canals.

Railroads changed the trajectory of cities. Traditional waterborne centers were sidelined and small towns can quickly become new centers, for example,

津浦铁路: Linqing fell; Dezhou rose

京汉铁路: Kaifeng fell; Zhengzhou rose

Additionally, if two railways are built with different standard, they shall create a city, for example,

Shijiazhuang: Zhengtai Railway (metre gauge) intersecting Jinghan line (standard gauge)

Changchun: Chinese Eastern Railway (broad gauge) intersecting South Manchuria Railway (standard gauge).

Beijing’s 1q25 consumption..

Overall retail sales dropped 3.3% yoy in the first quarter of 2025 in Beijing, with March dropping 10% yoy.

Auto contributed nearly 2% of the drop (-20% x 10%).

Meanwhile, average spending looks okay – it’s rising 2.3% yoy. It’s a very good number for Beijing actually.

It might be due to the parallel export (?) – people bought cars and export (e.g. Russia).

Are things really bad?

S&P 500 has declined 10% YTD. It dropped as much as 15% till Apr 8, before a tariff pause was announced.

Things have since recovered a bit.

E.g. after Walmart missed guidance on Feb 20, its stock has only dropped 4.1% (Feb 20 to Apr 17). To be fair, the one day drop on earnings is bigger – 6.5%!

Walmart guided 3-4% annual revenue growth, 3.5% to 5.5% adj. operating income growth, flat to 3.6% adj. EPS growth. Considering the 50bps of FX headwind, organic adj. EPS growth is guided at 3.6% at mid-point.

On Apr 9, Walmart pulled Q1 profit guidance, but maintained full year guidance.

 

 

What are people buying?

Clearly not LVMH.

 

The core fashion and leather goods has not been growing much since 2024.

 

Back in 2018, LVMH still grew 10% yoy.

Back in 2008, LVMH still grew 4.3% yoy.

In 2009, LVMH revenue decline by 1% yoy. However, the fashion and leather goods segment still grew ~5% in 2009.

 

Core issue with USD

The unofficial “Mar-a-Lago Accord” raised this issue – that USD as a reserve currency bears additional burden.

Countries bought US Treasury to facilitate trade with another nation (not necessarily the US), thus creating an inelastic demand and causing USD to appreciate.

This appreciation shall weaken US export, especially in the manufacturing sector.

Such phenomena reflect what can be described as a “Triffin world,” after Belgian economist Robert Triffin..

However, when the reserve country is smaller relative to the rest of the world—say, because global growth exceeds the reserve country’s growth for a long period of time—tensions build and the distance between the Triffin equilibrium and the trade equilibrium can be quite large.

Source: A User’s Guide to Restructuring the Global Trading System

Another interesting point from the artcle.

..value-added taxes are a form of tariffs because they exempt exported goods but tax imported goods.

 

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.