Economics

This time Is different We don't often say that about the Fed, but after yesterday's FOMC meeting, we think it may actually be true. In fact, we believe yesterday's meeting ushered in a new era of monetary policy in the United States.    For the better part of two decades, monetary policy has followed a familiar playbook: extensive forward guidance, frequent communication, data dependence and the  Federal Funds rate as the primary policy tool. While leadership has changed, the broader framework has remained remarkably consistent.   What we heard yesterday suggests the possibility of a meaningful evolution.   We believe the Fed may be moving toward a framework that places less emphasis on signaling every move in advance and more emphasis on assessing where inflation, employment and broader economic conditions are heading. In a world of real-time data and increasingly sophisticated analytics, that could prove to be a healthier and more effective approach.   We also continue to hear indications that the policy toolkit could broaden beyond the overnight policy rate, with greater consideration of balance sheet policy, liquidity conditions, money supply dynamics and longer-term interest rates.   Importantly, change does not automatically mean more volatility. A broader set of tools and a more forward-looking approach could ultimately increase confidence in policy outcomes rather than diminish it.   For investors, the near-term message remains straightforward: inflation is still above target and remains the Fed's primary focus. While rate hikes are far from certain, they remain a possibility that markets need to respect.   That's one reason we continue to favor income-oriented fixed income opportunities over pure interest-rate expressions. And when markets overreact to uncertainty around policy change, we think there may be opportunities to sell volatility rather than buy it.   This time may indeed be different, and it will be fascinating to watch how this evolution in monetary policy unfolds. The real question is whether less signaling creates more uncertainty, or ultimately more confidence in the Fed's ability to achieve its objectives.

If you don't understand this, you will not understand why LLM-based agents are irreparably failing for a general-purpose problem solving. An agent (by the way it was the topic of my PhD 20 years ago) to be useful, must be rational. Being rational means to always prefer an outcome that results in the maximal expected utility to its master/user. Let’s say an agent has two actions they can execute in an environment: a_1 and a_2. If the agent can predict that a_1 gives its user an expected utility of 10, and a_2 gives an expected utility of -100, then a rational agent must choose a_1 even if choosing a_2 seems like a better option when explained in words. The numbers 10 and -100 can be obtained by summing the products of all possible outcomes for each action and their likelihoods. Now here is the problem with LLM-based agents. The LLM is not optimizing expected utility in the environment. It is optimizing the next token, conditioned on a prompt, a context window, and a training distribution full of examples of what helpful answers are supposed to look like. Those are not the same objective. So when we wrap an LLM in a loop and call it an “agent,” we have not created a rational decision-maker. We have created a text generator that can imitate the surface form of deliberation. It may say things like: “I should compare the expected outcomes.” “The best action is probably a_1.” “I will now execute the optimal plan.” But the internal mechanism is not selecting actions by maximizing the user’s expected utility. It is generating a continuation that is statistically appropriate given the prompt and prior context. This distinction matters enormously. For narrow tasks, the imitation can be good enough. If the environment is constrained, the actions are simple, and the success criteria are close to patterns seen in training, the system can appear agentic. But for general-purpose problem solving, the gap becomes fatal. A rational agent needs stable preferences, calibrated beliefs, causal models of the world, the ability to evaluate consequences, and the discipline to choose the action with maximal expected utility even when that action is boring, non-linguistic, or unlike the examples in its training data. An LLM-based agent has none of that by default. It has fluency. It has pattern completion. It has a remarkable ability to compress and recombine human text. But fluency is not rationality, and a plausible plan is not an expected-utility calculation. This is why these systems so often fail in strange, brittle, and irreparable ways when given open-ended responsibility. They are not failing because the prompts are insufficiently clever. They are failing because we are asking a simulator of rational agency to be a rational agent.

#Batteries have become so cheap that around-the-clock solar is becoming economically viable for the first time. And this isn't just theoretical, it’s based on real world data. In 2024 alone, average battery prices fell by 40% and signs are a similar fall is occurring in 2025. These cost reductions are being driven by: ➡️ The rapid scale up of assembly plants ➡️ Intense manufacturer competition ➡️ The continued decline of LFP battery cell prices But there’s more to it than just falling prices. Batteries are also getting better: ✅ Higher round-trip efficiency ✅ Longer usable lifetimes ✅ Projects becoming cheaper to finance as the technology de-risks 20 years is now the standard design life of the battery – a big shift from just a few years ago. Taken together, this changes the economics entirely. Pairing solar with enough batteries to keep the electricity flowing though the night is no longer a distant dream – it's an economic reality. At around just $76/MWh all in, dispatchable solar is already competitive with other forms of firm generation in many markets. This analysis focuses on markets outside of China and the United States, where competitive procurement of Chinese-manufactured equipment is reshaping global storage economics. This isn’t a silver bullet. Future power systems will still rely on a diversified mix, including wind, hydro where available, gas backup, potentially nuclear, interconnection and longer-duration storage. But cheap batteries fundamentally change the role solar can play. They turn it from a purely daytime resource into a genuine round-the-clock contributor and this has profound implications for power systems, investment decisions and energy security. Data and original chart is from Ember's latest report, link below. #energy #renewables #energytransition

The European Parliament has officially passed Extended Producer Responsibility (EPR) legislation that fundamentally shifts the responsibility for textile waste management to fashion brands and retailers – with far-reaching global implications. This new law requires all producers, including e-commerce platforms, to cover the full cost of collecting, sorting, and recycling textiles, regardless of whether they are based within or outside the EU. The financial burden of Europe's textile waste now falls squarely on the brands that create it. What are the critical business implications? UNIVERSAL SCOPE: The legislation applies to all producers selling in the EU market, including those of clothing, accessories, footwear, home textiles, and curtains. No company is exempt based on location. FAST FASHION PENALTY: Member states must specifically address ultra-fast and fast fashion practices when determining EPR financial contributions, creating cost penalties for unsustainable business models. GLOBAL SUPPLY CHAIN DISRUPTION: As the world's largest textile importer, the EU's new rules will ripple across global supply chains, particularly impacting exporters from Bangladesh, Vietnam, China, and India who supply much of Europe's fast fashion. TIMELINE PRESSURE: Officially adopted September 2025, this creates immediate operational and financial planning requirements. COMPETITIVE RESHAPING: Brands and retailers will inevitably pass increased costs down their supply chains, fundamentally altering supplier relationships and pricing structures globally. What are the implications for various stakeholders? For CEOs and board members: This represents more than regulatory compliance – it's a complete business model transformation. Companies must now integrate end-of-life costs into product pricing, rethink supplier partnerships, and accelerate circular design strategies. For sustainability and decarbonisation executives: This creates unprecedented opportunities for circular economy solutions, sustainable material innovation, and traceability system development across global supply chains. Link: https://lnkd.in/dTyHtHuD #sustainablefashion #circulareconomy #textilwaste #epr #fashionindustry #sustainability #supplychainmanagement #fastfashion #environmentalregulation #businessstrategy #decarbonisation #textilerecycling #fashionceos #boardgovernance #climateaction #wastemanagement #producerresponsibility #fashionsustainability #textileindustry #greenbusiness

President Trump's announcement that steel and aluminum tariffs will rise to 50% this week is terrible news for U.S. manufacturing. The reason is simple: steel mills and primary aluminum plants employ a fraction of the people that are employed in downstream industries that use steel and aluminum. One chart below created from the 2022 Economic Census (https://lnkd.in/gmSA3E8F) - you can't access higher frequency data for aluminum employment from the Current Employment Statistics survey. Thoughts: •The left two columns are payrolls at steel mills (NAICS 33111) and primary aluminum (NAICS 331313). Together, these industries employ somewhere between 80-90k people. •The three rightmost columns show payrolls in downstream industries: fabricated metals (NAICS 332), machinery (NAICS 333), and transportation equipment (NACS 336). Those three industries alone account for over 4 million workers employed. •Why do I say this is negative news? Simple: domestic producers will raise their prices of steel and aluminum, which will increase the cost structures of downstream users. We have ample evidence from numerous economics papers that upstream protectionary tariffs reduce total manufacturing jobs by impacting downstream employment. Two examples: Cox (2025): https://lnkd.in/d6CeCaqA Barattieri & Cacciatore (2023): https://lnkd.in/gWgxQjtY Implication: raising steel and aluminum tariffs to 50% is, simply put, horrible economic policy. Domestic producers will raise their prices for these metals, which will inflate cost structures for tens of thousands of plants than employ over 4 million workers (compared with just 80-90k in the protected industries that make steel and primary aluminum). This makes exports of goods containing steel and aluminum less competitive and may be the final straw that encourages EU retaliation. Remember: Canada is our largest source for imported steel and especially aluminum, so arguing this is for national security just doesn't make sense. #supplychain #shipsandshipping #economics #markets #manufacturing #freight

📢 New analysis on the leaked EU Omnibus Proposal – What will be the planetary price of simplification? Can Europe combine sustainability and competitiveness? Big changes are certainly coming to the EU’s sustainability reporting landscape. A leaked draft of the European Commission’s Omnibus Proposal suggests major rollbacks in the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy Regulation. 💡 To help navigate these changes, our put together a comparison table—let us know if it’s useful! Here are some highlights of what’s being proposed: 🔹 𝗖𝗦𝗥𝗗 𝘁𝗵𝗿𝗲𝘀𝗵𝗼𝗹𝗱 𝗿𝗮𝗶𝘀𝗲𝗱 – Only companies with 1,000+ employees and €450M turnover may need to comply (previously 250 employees, €40M). This scopes out 85% of firms previously covered. 🔹 𝗦𝗲𝗰𝘁𝗼𝗿-𝘀𝗽𝗲𝗰𝗶𝗳𝗶𝗰 𝘀𝘁𝗮𝗻𝗱𝗮𝗿𝗱𝘀 𝘀𝗰𝗿𝗮𝗽𝗽𝗲𝗱 – Industry-specific ESG reporting rules may be permanently shelved. 🔹 𝗗𝘂𝗲 𝗱𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲 𝘄𝗲𝗮𝗸𝗲𝗻𝗲𝗱 – Companies only need to assess direct suppliers, not the full supply chain. 🔹 𝗖𝗶𝘃𝗶𝗹 𝗹𝗶𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗿𝗲𝗺𝗼𝘃𝗲𝗱 – Under CSDDD, firms won’t face legal consequences for failing to meet sustainability obligations. 🔹 𝗧𝗮𝘅𝗼𝗻𝗼𝗺𝘆 𝗿𝗲𝗽𝗼𝗿𝘁𝗶𝗻𝗴 𝗺𝗮𝘆 𝗴𝗼 𝘃𝗼𝗹𝘂𝗻𝘁𝗮𝗿𝘆 (not directly mentioned in the leak) – Instead of mandatory reporting, firms could opt-in, aligning with corporate lobbying efforts. ⚖️ I am wondering about if this is simplification or just plain deregulation. In addition, what will the effects be of a watered-down EU Green Deal for the bloc's sustainability leadership and for firms that have already invested in reporting? How do you see the balance between competitiveness and sustainability? Can we reduce red tape and still protect the planet? Drop your thoughts below! 👇 #CSRD #CSDDD #EU #Sustainability #ESG #SustainabilityReporting #ESGRegulation #Climate #Finance #CorporateResponsibility

HOW THE TAX REFORM BILLS WILL AFFECT YOUR PERSONAL INCOME TAX Q1 - What is the thinking behind the proposed changes to the current tax table of personal income brackets and rates? A1 - The current tax table was introduced in 2011. Due to high inflation and lack of review, the structure has resulted in “fiscal drag" where many low income earners have been pushed to the top tax bracket over time. This means that an individual earning just N400k a month is paying the same top marginal income tax rate as a wealthy individual earning say N20m per month. Therefore, the tax table has become regressive rather than progressive as it was originally designed. Also, the current personal income tax regime does not encourage formalisation given that the effective top tax rate on companies is nearly double that of enterprises which also encourages arbitrage in some cases between the two income tax regimes. Hence, the proposed changes seek to address these issues and simplify the system by incorporating current reliefs and allowances into the bands and rates to achieve an overall lower effective tax rate for the majority of workers. Q2 - There is a general perception that workers will pay more tax under the bills. Is this true? A2 - This perception is not correct. Individuals earning about N1.7m or less per month will pay lower PAYE tax under the bills while those earning the new minimum wage and slightly more will be fully exempted. These thresholds will result in over 90% of workers in the public and private sectors paying lower taxes while high income earners will pay slightly more in a progressive manner up to 25% for the ultra high networth individuals. Q3 - But the proposed table only exempts N800k per annum which is just about N67k per month meaning that minimum wage earners of N70k per month will still pay tax. A3 - No. Besides the N800k p.a. which is exempt from tax, there is a rent relief of up to N200k p.a. which together will exempt individuals earning up to N1m per annum (about N83k per month). This is particularly beneficial to low income earners. Also, the new tax bands and rates have been designed to avoid a situation where individuals earning slightly more than the exemption threshold are taxed to an extent that makes them worse off than a person whose income is within the exemption threshold. For example, a person earning N30k per month is exempt from tax while a person earning N30,001 per month will pay about N500 leaving the latter with a net of N29,500 which is N500 worse than the person earning N30,000. Under the tax bills, this problem has been addressed as everyone will be eligible to the first tax-free bracket.  Continues in the comments section ...

Use this simple approach to master the Bond Market. Nominal bond yields can be thought of as the interaction between: 1️⃣ Growth expectations 2️⃣ Inflation expectations 3️⃣ Term premium 1. Growth expectations When it comes to economic growth we must consider two angles: structural and cyclical growth. Structural economic growth can be generated through more people joining the labor force (good demographics) and/or through a more productive use of labor and capital (strong productivity trends). The ability of an economy to generate structural growth is an important driver behind long-dated bond yields (strong structural growth = structurally higher long-dated yields and vice versa). Short-term economic cycles also matter for bond yields and particularly at the short-end. Cyclical growth trends are driven by the credit cycle, the fiscal stance, earnings growth, labor market trends and more - the healthier they are, the higher short-end bond yields can be pushed also as a result of a likely tightening from Central Banks that might grow worried about economic over-heating and inflationary pressures in such an environment. 2. Inflation expectations The second component driving nominal bond yields is inflation: but NOT TODAY'S inflation - instead we are referring to long-term inflation expectations. Central Banks might temporarily react to concentrated bursts of inflationary pressures by raising short-term interest rates but when it comes to long-dated bond yields investors will always pay close attention to inflation expectations. That's because consumers and borrowers will tend to make important decisions based on these rather than on volatile short-term trends in inflation. 3. Term premium An investor looking to get fixed income exposure can do that via buying 3-month T-Bills and rolling them each time they mature for the next 10 years. Alternatively, it can decide to purchase 10-year Treasuries today. What's the difference? Interest rate risk! Buying a 10-year bond today rather than rolling T-Bills for the next 10 years exposes investors to risks – term premium compensates for this risk. The lower the uncertainty about growth and inflation down the road, the lower the term premium and vice versa. 💡 The Main Takeaway 💡 If you want to make sense of bond yields, a useful approach to use is to think of them as the result of growth expectations, inflation expectations and term premium. P.S. If you liked this post you'll love my macro research. I share my macro analysis every day with the biggest institutional investors and hedge funds in the world. Get your FREE trial here👇🏼 https://lnkd.in/dyFFJp-z

A couple of news items have me thinking. And frankly, getting a bit agitated. The first was the news that the Kiwisaver gender gap has got worse in the past year. New research from Te Ara Ahunga Ora The Retirement Commission shows a 36 percent gap between the amount men and women are putting into KiwiSaver each year, far outpacing the actual gender pay gap. Men and women are contributing the same percentage of their salaries, but women are disadvantaged by working part-time and taking greater (unpaid) care responsibilities. The other bit of not-unrelated news, is the NZ Herald’s list of top-earning CEOs. Of the top 10 - just one woman. In the 54 CEOs surveyed: seven women. In the immortal words of Carrie Bradshaw: I couldn’t help but wonder… WTF is going on here? How have we not come further? Of those top 10 CEO’s companies, how many are reporting on their gender pay gaps? (The answer, according to the Mind the Gap registry: 4) Is there a relationship between perimenopause/menopause support (or lack of it) and the lack of women in CEO roles in our top organisations? AND between perimenopause/menopause and the Kiwisaver gender gap? I think there might be. We know, for example, from the work of Sarah Hogan who found in her NZIER research that 14% of women said they had to reduce their working hours to manage their menopause symptoms, and 6% had changed roles. Twenty percent of women who experienced symptoms said it would have been helpful to be able to make adjustments, but they never requested any, mostly because of menopause and gendered ageism stigma. All of us who are working in menopause education have heard stories from women who - at a critical stage in their careers in midlife - have made the call to step back rather than step up into senior roles, because of the challenges of menopause and the lack of support for them in their organisations. We have to talk more about this. In fifty years we’ve made so little progress… we REALLY don’t want our granddaughters to be still facing these kinds of shocking statistics in fifty years’ time. 

The Fed has taken a significant step by officially initiating its cutting cycle, which holds profound implications for the financial world. ⚠️The #FOMC has cut the FFR by 50 Basis Points to a 4.75%-5% Range. ⚠️The latest projection of the Neutral Rate, R*, came in at 2.8% versus the previous estimation of 2.9% A cutting cycle might affect other central banks' stance on monetary policy because the US Dollar could devalue considerably going into 2025, making exports from other countries like Japan more expensive. For the past two weeks, business media has made a huge story out of a 25—or 50-basis point cut, but in my opinion, today's decision on the magnitude of the cut is meaningless. Financial conditions have eased considerably since July, so it should not be a surprise that the US economy might have already started to re-accelerate. The Atlanta Fed GDPNow is flashing a Real Growth Rate of 3% for the US Economy. If that materializes, it would mean that the US #Economy is already running 1% above its potential. Why financial conditions have already started to ease? Here are some examples: ✍️Mortgage Rates decreased from 7% in July to 6.15% today ✍️The 2-Year Yield decreased from 4.75% in July to 3.63% today ✍️The 5-Year Yield decreased from 4.06% in July to 3.47% today ✍️Housing Starts have picked up momentum What market participants have priced out is a resurgence of inflation during 2025. That scenario is entirely possible if the Dollar Index drops below 100. A cheaper dollar will make commodities and import prices more expensive for the US consumer, and a reduction in real income could squeeze even more of the low to middle class into the USA. Considering the decrease in US Treasuries for the past two months, I find US Government Bonds expensive across the yield curve at these levels. I think R* is well above what the Fed estimates because of factors like de-globalization, the reshoring of strategic industries, and increased protectionism. The terminal rate post-pandemic is between 3.5% and 4%, in my opinion, and that is where I think this cutting cycle will end. If I am proven right, bond investors must reprice government bond yields higher. How do we play a potential increase in inflation in a no-landing scenario? I tilted my portfolio as I outline here below: 👉Tilt the portfolio to over-weight energy and miners. 👉Have a marginal exposure to Gold and Silver. 👉Favor TIPs over US Treasuries 👉Increase allocation to US Value Stocks and International Stocks. 👉Lock-In US Investment Grade Credit at the belly of the yield curve where we can still get 4.8% to 5% yields, especially on issues at the Single-A Rating Enjoy the ride! #Finance #InterestRates #Economy #Investing