Productivity

Europe faces deep structural problems. Dismantling large parts of the welfare state might be necessary to rectify these problems, which is unlikely to happen before there is a major crisis. Until then, investors should “sell Europe” on any rallies.

We continue to overweight Mexican stocks, local bonds, sovereign credit, and currency within their respective EM portfolios. Also, stay long Mexican equities / short the S&P500.

In Section II, Jonathan examines whether the AI “scaling laws” are likely to hold. They will over the near term, but cracks are already beginning to form in the narrative of ever-improving AI.

The rush to build AI infrastructure is based on a false premise: that there are significant advantages to being the first to come to market.