'Tour de Force'.
Ratings shopping.
“It’s the first thing I read every morning.” — David Barboza, founder of WireScreen and former Shanghai Bureau Chief for The New York Times.
1. Torsten Slok:
The bottom line is that the financial system is nearing the point where reserves are no longer ample. We are watching this development very closely because if rates volatility in funding markets persists, it could begin to have consequences for credit markets. (Source: apolloacademy.com)
2. Seventeen years after credit rating agencies’ starring role in the financial crisis, “ratings shopping” is in focus again. The first time around, large established agencies competing to grade a finite pool of debt gave out inflated stamps of approval to risky assets. Buyers of the assets were falsely left with the impression that the subprime credit they were holding was as safe as it got. This time it is not the big three agencies of Moody’s, S&P and Fitch that are in the line of fire, but second-tier shops that have shot to prominence by catering to the booming private credit market, which has grown to some $3 trillion in recent years. Smaller, specialist providers such as Morningstar DBRS, Kroll Bond Rating Agency, HR Ratings and Egan-Jones have seized market share by offering private capital groups the chance to shop around. Some of the world’s biggest asset managers, including Blackstone and Apollo, are now among the most frequent users of ratings from firms beyond the big three. But as sudden bankruptcies at First Brands and Tricolor have fueled fears that cracks are emerging in the private credit universe, some financial heavyweights are warning that ratings arbitrage could pose risks to the wider financial system. UBS chair Colm Kelleher warned last week that insurers shopping for better ratings on their private credit assets was creating a “looming systemic risk”, while Bank of England governor Andrew Bailey said industry figures were sounding the alarm to him about “the role of the rating agencies”. “What you’re seeing now is a massive growth in small rating agencies ticking the box for compliance of investment,” Kelleher said. (Source: ft.com)
3. Thorsten Slok:
(Source: apolloacademy.com)
4. The Senate late Sunday cleared a critical procedural hurdle in its drive to end the record-long government shutdown, after Democrats provided enough votes to advance a measure designed to end the more than monthlong impasse. The vote was 60-40 on a measure to take up House-passed spending legislation that required 60 votes under the Senate’s filibuster procedures. Eight members of the Democratic caucus joined almost all Republicans in voting in favor, allowing the bill to move forward after more than a dozen failed votes since September. The Senate’s next big step is to amend the measure and send it back to the GOP-led House—but that can’t happen unless the Senate unanimously agrees to dispense with other procedural steps that would delay action. (Source: wsj.com)
5. Bloomberg:
Democrats entered the shutdown seeking to renew tax credits to stave off insurance premium price hikes and to show voters they have the stomach for hardball negotiations in President Donald Trump’s Washington.
As the record-long shutdown neared its end more than a month later, they failed to achieve either.
A group of eight Democrats on Sunday broke with the rest of their party — including Senate Minority Leader Chuck Schumer — to vote with Republicans to advance a bill to re-open the government on the impasse’s 40th day. (Source: bloomberg.com)
6. A federal appeals court late Sunday denied the Trump administration’s bid to avoid fully funding federal food-assistance benefits for November, a ruling that means the government will have to make the payments within 48 hours unless the Supreme Court intervenes. The U.S. Court of Appeals for the First Circuit, in a decision just before midnight, said a trial judge hadn’t abused his authority by ordering the administration to make the full monthly payments under the Supplemental Nutrition Assistance Program, or SNAP, during the government shutdown. (Source: wsj.com)
7. Voter anger over the cost of living is hurtling forward into next year’s midterm elections, when pivotal contests will be decided by communities that are home to fast-rising electric bills or fights over who’s footing the bill to power Big Tech’s energy-hungry data centers. Rising electric costs aren’t expected to ease and many Americans could see an increase on their monthly bills in the middle of next year’s campaigns. (Source: fortune.com)
8. The political terrain of next year’s battle for the House looks most like Caroline County, (Virginia) with a median household income of about $86,000, census data show—just ahead of about $79,000 nationwide. Of 26 competitive House districts, more than half, or 16 districts, were also in the middle of the income spectrum, ranging from $70,000 to $99,000 in median household income, according to a Wall Street Journal analysis of districts that the nonpartisan Cook Political Report said would likely have close races. Each block represents a competitive House district, grouped by median household income and share of people with a four-year college degree or higher. Democrats won big margins in wealthy counties in Virginia and New Jersey. But only a few competitive House districts have such high incomes or educational attainment. Most competitive House districts have more modest income levels. Democratic margins there were smaller. (Source: wsj.com)
9. Scientists in China have solved a 140-year-old chemistry problem in a breakthrough that could overturn traditional production methods and slash the cost of cancer treatments and other expensive medicinal compounds. The research was co-led by Zhang Xiaheng, from the Chinese Academy of Sciences’ Hangzhou Institute for Advanced Study, and Xue Xiaosong, a professor with the Shanghai Institute of Organic Chemistry, and published in the peer-reviewed journal Nature. In his review of the paper, Scott Bagley, a senior principal scientist at Pfizer, described it as a “tour de force”, while some within China’s chemical research community are rating the team’s feat as “Nobel Prize level”. The researchers proposed a straightforward alternative to the expensive, complex and dangerous method used by the chemical industry for more than a century to synthesise drugs and pesticides from a class of organic compounds called amines. According to the paper, the team’s approach overcomes the many issues that have plagued the classical method – including the risk of explosions – and holds promise for making the production of important chemicals safer and more affordable. “Overall, the authors have delivered a true tour de force here, not just developing the method but doing extensive scope, in-depth mechanistic studies and synthetic applications that clearly demonstrate the capabilities of this chemistry to be useful in many contexts,” Bagley said. (Sources: scmp.com, nature.com)
10. Chinese electric vehicle (EV) maker Xpeng has unveiled a new humanoid robot with such lifelike movements that company representatives felt compelled to slice it open onstage to prove a human wasn’t hiding inside. Fortunately for the audience, there wasn’t. Instead, the robot, named “IRON,” features a flexible, humanlike spine, articulated joints and artificial muscles that allow it to move with a model-like swagger. This is thanks to Xpeng’s custom artificial intelligence (AI) robotics architecture, which enables it to interpret visual inputs and respond physically without needing to first translate what it sees into language. Speaking during IRON’s unveiling at Xpeng’s AI Day in Guangzhou on Nov. 5, China, He Xiaopeng, chairman and CEO of Xpeng Motors, suggested that IRON’s appearance was designed to be recognizably human — if slightly unsettling. The machine is equipped with 82 degrees of freedom, including 22 in each hand, allowing it to bend, pivot and gesture at multiple points throughout its body, representatives said in a statement. It’s powered by three custom AI chips that give it a combined 2,250 trillion operations per second (TOPS) of computing power, which Xpeng says makes it one of the most powerful humanoid robots developed to date. (Source: livescience.com)
11. A Bloomberg Economics analysis shows that prices are unmistakably dropping in China. Among 67 items tracked by Bloomberg News, prices on 51 dropped over the last two years. Economists say that official inflation measures may only partially capture the reality. Many key data series have quietly disappeared in recent years, and the National Bureau of Statistics has never offered the sort of granularity more common in the US, where inflation trackers go so far as to publish the cost of indoor plants and pet food. An outdated methodology for calculating rent changes in the CPI likely led to its overestimation in the past few years. Meanwhile, a broader gauge that includes upstream sectors, known as the GDP deflator, has been steadily declining for 10 quarters, indicating that deflation is much more entrenched in the industrial sector. Polysilicon, the raw material for solar panels, saw prices drop to less than a fifth of its peak in 2022. Prices for steel rebar, widely used in construction, fell to an eight-year low in May. The drop in prices is already weighing on company results. Recent filings show losses widening and margins thinning, with many firms citing weak demand and price wars. A Bloomberg News analysis of around 6,000 publicly traded Chinese companies points to a broad-based strain. (Source: bloomberg.com)
12. China’s government on Monday announced export controls on drug precursor chemicals to the U.S., Canada and Mexico, after the U.S. lowered its fentanyl-related tariffs on Chinese goods. The Ministry of Commerce published a list of 13 precursors that can be used to make synthetic opioids like fentanyl and will require a license to be exported to the three countries. The rule takes effect immediately. Earlier this year, U.S. President Donald Trump imposed a 20% tariff on China for what it said was Beijing’s failure to control the flow of precursor chemicals into the U.S., contributing to the deaths of thousands of Americans each year. But after meeting with Chinese President Xi Jinping in South Korea late last month, Trump agreed to halve the tariff to 10%, crediting China’s commitment to take “significant measures” on the issue. (Source: asia.nikkei.com)
13. For three years, a crack team of detectives gathered each weekday morning around a whiteboard at the German Federal Police headquarters in Potsdam, near Berlin. Now their investigation into who was behind the greatest act of sabotage in modern history—the bombing of the Nord Stream pipelines—is threatening to splinter support for Ukraine, the country they hold responsible. Poland already has refused to extradite one of the suspects to stand trial in Germany. It instead views him a hero for destroying a vital source of revenue for Russian President Vladimir Putin’s war machine. Polish Prime Minister Donald Tusk, who has long questioned Germany’s dependence on Russian energy, ridiculed the investigation. The problem isn’t that the pipeline was blown up, he said. The “problem is that it was built.” At home, the opposition AfD party has seized on public anger with how the bombings cemented high energy prices with no relief in sight. It is now campaigning to cut aid to Kyiv, a vital plank in the West’s support for Ukraine. Another extradition case, this time involving a Ukrainian suspect in Italy, is expected to be resolved in the coming weeks and threatens to place Kyiv’s role under further public scrutiny. (Source: wsj.com)
14. A tiny worm’s brain could transform artificial intelligence. Today’s artificial intelligence (AI) models are behemoths. They run on billions of parameters, trained on oceans of data, all hosted in energy-hungry server farms. But does it have to be this way? Apparently not. One of the most promising new contenders for the future of machine intelligence started with something much smaller: a microscopic worm. Inspired by Caenorhabditis elegans, a millimetre-long creature with just 302 neurons, researchers have created ‘liquid neural networks’ – a radically different kind of AI that can learn, adapt and reason while running on a single device. (Source: sciencefocus.com)
15. One of the largest studies ever conducted on the link between the shingles vaccine and brain health offers insight into how the disease increases dementia risk. People who experienced multiple episodes of shingles had a higher risk of dementia for several years after the second outbreak, the study found, compared with those who had it only once.The findings, published recently in the journal Nature Medicine, provide additional evidence for why getting vaccinated for shingles could help protect the brain. (Sources: washingtonpost.com, nature.com)
16. International students in the United States have defied predictions of a huge downturn in their population. Data for the current academic year show that the number of international students — including PhD candidates and newly minted PhDs — has remained essentially flat, year-on-year. The Trump administration has shaken up the landscape of higher education, revoking student visas, cutting funds to institutions and implementing travel bans for selected countries. As a result, many higher-education researchers had expected significant numbers of overseas students to turn away from US academia. But data released by the US Department of Homeland Security (DHS) for September and October show almost no change in the population of international students and recent graduates in the United States between this year and last — and specialists say these data are more reliable than others. (Source: nature.com)
17. Janan Ganesh:
I just wonder if the nation state has known this precise kind of internal stress before. Conservatives have always been able to see a Giuliani in New York or a Richard Riordan in LA and conclude that metropolitan life isn’t so alien. Coastal Democrats could in turn point to a reassuring bloc of like-minded people in the interior. (Tennessee was a blue state in the 1990s.) The subsequent “sorting” of the population into ever more progressive cities and a heartland of entrenched right-wingery — each bidding up the other’s extremism — is a new test for the nation state. Were it going on at a time of central budget surpluses, we could spread those around as a balm. But look at the fiscal numbers. Geographic polarization and material scarcity: that is what nationhood must withstand.
For all their jibes at Marx and Fukuyama, conservatives have a teleology of their own, in which the nation state is the final word in large-scale human organization. Why should it be? The multinational empire has more historical pedigree. So does the city state. Even some of the most successful countries had to consolidate themselves through civil war.
No one foresees that, but the trend is ominous regardless. The gilets jaunes were an anti-metropolitan movement. A similar spirit infused Washington on January 6 2021. Rural protests disturbed various capitals last year. At best, these two worlds will become strangers to each other. If a conservative-run New York seems remote history, remember that John Major entered 10 Downing Street via a seat on Lambeth council. Would a Tory even think to attempt that route now? One hope for the nation state, I suppose, is that cities and provinces stop short of conflict and settle for mutual incomprehension. (Source: ft.com)
18. BBC director-general Tim Davie has resigned after days of criticism over the public service broadcaster’s coverage, including misleading edits of a Donald Trump speech in a documentary. BBC News head Deborah Turness also quit on Sunday, with the simultaneous departures of two senior figures shocking staff and underlining the scale of the crisis at the corporation. The BBC had been due to apologize to MPs over the Panorama documentary about Trump on Monday. The White House this week denounced the broadcaster as a “leftist propaganda machine”. Davie said in an email to BBC staff on Sunday evening that “the current debate around BBC News has understandably contributed to my decision”. (Source: ft.com)
Quick Links: Iran faces unprecedented drought as water crisis hits Tehran. Water levels below 3% in dam reservoirs for Iran’s second city, say reports. BBC coverage of the BBC resignations. Lenny Wilkens, one of five people inducted into the Basketball Hall of Fame as a player and coach, died at his home Sunday. He was 88 years old and much beloved.
Political Links: President Trump suggested tariff revenue could be used to fund payments of at least $2,000 to most Americans. Charlie Cook’s analysis of the 2024 and 2025 (off-year) elections is superb.
Science/Technology Links: CALM: From discrete next-token prediction to continuous next-vector prediction. Cheap and open source, Chinese AI models are taking off. AI unravels the hidden communication of gut microbes. DNA’s hidden power could transform how we make medicines. Introducing a compact short-pulse laser that achieves up to 80% efficiency—far surpassing current models. Question of the Day: Why does boiling water have bubbles, except in a microwave?
War: US offers to back Lebanese army to disarm Hezbollah, end impasse.