Weekly Good Reads: 5-1-1
Germany Fiscal Bazooka, Bond Yields Surge, Mar-a-Lago Accord, Defense Budgets, Zhe Da (University alumni: Deepseek)
Welcome to a new Weekly Good Reads 5-1-1 by Marianne, a 25-year investment practitioner sharing something interesting and topical in investing, the economy, wellness, and AI/productivity.
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~ Prof Sir Andrew J Wiles
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Market and Data Comments
Barclays aptly describes the current global macro situation as “When MAGA Made MEGA”—the US foreign policy change has sparked a surge in strategic spending in Europe, led by Germany when last week it announced an unprecedented fiscal package that includes a €500 billion (11.6% of 2024 GDP) off-budget infrastructure fund, defence spending exceeding 1% of GDP (exempted from the constitutional debt brakes), and an increase in the states’ structural deficit allowance from 0% to 0.35% of GDP, to be voted by March 25.
European Commission President described this as a “rearmament era” while economists call it “a game changer” and a “whatever it takes” moment. This can lift Germany’s annual real GDP to 2% by 2027 (about 0.2% in 2025, 1.5% in 2026, Goldman) and the broader Euro Area real GDP growth by 0.8% in 2025, 1.3% in 2026, and 1.6% in 2027 (Bank of America, see chart below).
The European stocks reacted positively: the Euro Stoxx 600 jumped 14% YTD (in USD terms) while the DAX (Germany) surged close to 21%. The revived growth expectations also strengthened the Euro against the USD (+4.5% YTD), European defense stocks were up anywhere from 70 to 110%, and most importantly, European bond yield has surged 43bp this past week to 2.84%, pushing up the term premium (interest rate of long-term bonds over short-term ones) globally (see chart below).
In the US, the blitz of tariff announcements continued last week—first was the 25% tariffs on imports from Canada and Mexico on March 4; two days later, President Trump exempted Mexican goods that complied with the 2020 USMCA (US-Mexico-Canada Trade Agreement) free trade deal and then paused the tariffs on both countries until April 2 (when broader tariffs measures can be announced) but further suggested reciprocal tariffs on Canada might be imposed at once.
US growth is slowing down and “recession” concerns are rising, albeit the US administration firmly denies it, with Trump saying that there will be a transition period as the trade war escalates (see Econ/Invest #3).
YTD, the S&P 500, Nasdaq, and Russell 2000 (-1.9%, -5.8%, -6.9%) have underperformed the rest of the Developed Markets (EAFE: +10.3%) in USD terms. WTI prices have declined 6.5% YTD and almost 4% this past week, and the “Trump trades” including US stock sectors such as energy, financials, and information technology (all down YTD) and Bitcoin (-7.9% YTD) are not working (see Weekly Change table below).
Atlanta Fed GDPNow estimated Q1 US GDP growth at -2.5% (as of March 6), sharply down from around 3% in early February. Fed chairman Powell would still await more clarity before adjusting monetary policy, recognising the elevated levels of uncertainty but delaying judgement about how it may affect investment and spending, while believing disinflation can continue. US 10-year government bond yield has rallied 27bp to 4.3% YTD, reflecting heightened expectations of rate cuts and slowing growth.
In contrast, China firmly and steadily announced its economic targets after the NPC meeting: GDP growth (5%), inflation (2%), and budget (4% deficit including RMB 1.3trn and RMB 0.5trn of special treasury bonds). Bloomberg estimates that demand stimulus amounts to 8% of GDP, compared to 6.6% of GDP in 2024. In addition, there will be more consumption support to promote income growth for the low and middle income groups and more supportive measures for the high-tech sector by strengthening innovation and stimulating high-tech related education.
One thing to watch is the Chinese CPI trend (needs to be rising) to see if domestic stimulus is making the desired impact. China’s February CPI fell 0.7% year on year (+0.5% prior), with core CPI sliding into deflation for the first time in four years—this speaks to the need for the government to implement the pledged stimulus policy promptly as demand is still slacking and not reviving.
This coming week, we will monitor US February CPI on Wednesday and PPI on Thursday, Germany’s January industrial production on Monday and the Euro Area January industrial production on Thursday, and Japan’s Q4 real GDP on Monday.
Economy and Investments (Links):
Can Germany Spend Its Way Out of Industrial Decline? (FT or via Archive)
With potentially more than €1tn in additional debt over the next decade, economists have compared the fiscal stimulus to the country’s reunification in 1990, when the government led by CDU chancellor Helmut Kohl poured billions into the former eastern communist states.
The effects on Germany’s industry should be significant, economists, policymakers and business executives believe, as defence contractors help replace part of the shrinking automotive base and infrastructure projects jolt the construction sector back into life.
“One should not underestimate what confidence does on decision-making for investment and employment,” says Kaeser. “This [deal] is a priceless effort to set out a mission — to say this is what we’re going to do: this landing on the moon.”
Europe Is Having the Right Sort of Bond Rout (Bloomberg)
Peripheral nation yields are certainly rising - as Brussels has made sure they can do their bit for regional security. Importantly, though, their borrowing costs aren’t blowing out disproportionally and stirring a flight to higher-rated German debt. There's no sudden existential crisis that weaker economies can't pay their bills or borrow freely across the yield curve. Investors should happily help themselves to higher bond yields. That the euro is up more than 3% versus the dollar this year, second only to the yen among major currencies, confirms this is Europe helping itself the right way.
Whisper It and It's Back: Recession Risk Creeps Onto Markets' Radar (Reuters)
Morgan Stanley estimates that the new U.S. tariffs on China, Mexico and Canada could shave 0.7-1.1 percentage points off U.S. economic growth in coming quarters, deliver a 2.2 to 2.8 percentage point hit to Canadian growth, and push Mexico into recession.
Canadian Chamber of Commerce CEO Candace Laing warned that U.S. tariff policy was forcing Canada and the U.S. toward "recessions, job losses and economic disaster".
"Time to add a new word to the dictionary, 'Trumpcession', SEB economist Marcus Widén said in a note.
Finance/Wealth (Link):
‘I’m Deeply Disturbed’: My Portfolio Lost 20%. With Trump’s Trade War, Do I Sell My Stocks and Buy Gold? (The Moneyist, Market Watch)
Here’s J.P. Morgan Wealth Management’s take on gold as a classic safe haven: “Economic factors, like currencies, interest rates and inflation, typically have a limited impact on precious-metals prices. For example, the price of gold increased 12.8% in 2009 amid the economic and financial crises and as the Federal Reserve ramped up its quantitative-easing campaign.”
Gold did not behave like a traditional safe haven during COVID-19. “The price of gold followed the general direction of the S&P 500 index lower; gold lost 4.9% of its value on March 12, 2020,” the bank adds, “while the S&P 500 index dropped by approximately 10%. Indeed, the Swiss franc outperformed the U.S. dollar as a safe-haven asset during the pandemic.”
But it warns: “The price of assets like gold is often unpredictable, and it can be volatile even during market crises. Using cash as a safe haven also implies risk, as the dollars or other currency you hold in your account can drop value in the event of devaluation or inflation. It is important to be aware of the risks associated with different financial safe havens.”
Wellness/Idea (Link):
A Guide to Treating and Avoiding Canker Sores (Time Health)
Assuming it’s not cancer, a very painful and frequent canker sore may indicate another chronic problem to be explored and addressed. Several underlying conditions are associated with canker sores.
Poor nutrition is sometimes involved. “There’s pretty strong data to support that nutritional deficiencies could be a causative factor for canker sores,” Villa says. Mir tells some patients to take a zinc supplement. Other nutrients that may play a role include ferritin, folate, and B12.
A preliminary study last year found a connection between canker sores and vitamin D deficiency. Not enough antioxidants in your diet is another potential factor, research shows. “If you’re eating a lot of ultra-processed food, or you’re in a nutritional desert, then by all means, it’s important to look at diet,” Mir says.
One Chart You Should Not Miss: Largest Defence Budgets in the World
Talking about defense budgets…according to Visual Capitalist and based on data from the International Institute of Strategic Studies, the US tops the list spending almost $1 trillion in 2024, or about 3.4% of GDP and larger than the next 12 largest countries combined in defense spending. European defense spending will jump further from an average of 1.9% of GDP in 2024.
Term to Know: The Mar-a-Lago Accord
The Mar-a-Lago Accord is a theoretical framework aimed at restructuring the international financial system to better serve American interests. It involves a collaborative effort with US trading partners and creditors in weakening the US dollar, lowering American borrowing costs, and promoting more manufacturing-related investments in the US, while maintaining the dollar's primacy on the global stage.
The Mar-a-Largo Accord is the idea that the US will give the G7, the Middle East, and Latin America security and access to US markets, and in return, these countries agree to intervene to depreciate the US dollar, grow the size of the US manufacturing sector, and solve the US fiscal debt problems by swapping existing US government debt with new US Treasury century bonds. ~ Torsten Slok
It is implemented via three-prong strategies as below - (1) raising tariffs (2) creating a sovereign wealth fund, and (3) reducing debt with the issuance of a century bond (no coupon but redeemed as a premium upon maturity).
(Table courtesy to
)The implications of the Mar-a-Lago Accord are complex and carry significant risks. Mitigating and eliminating Canada and Mexico from the auto supply chains could take years and cause much chaos and uncertainty, thus reducing the incentives for its partners to sign the Accord. With possibly heightened inflation due to more manufacturing jobs and wage growth in the US, bond yields and borrowing costs would be jacked up. Furthermore, strong-arming partners into the deal could accelerate their search for a dollar substitute, threatening the dollar's reserve status.
[🌻] Things I Learn About AI/Productivity:
1. Google Adds “AI Mode” To Search (Google)
With AI Mode, you'll be able to ask complex, multi-part questions and ask follow-ups to dig deeper…
It uses a “query fan-out” technique, issuing multiple related searches concurrently across subtopics and multiple data sources and then brings those results together to provide an easy-to-understand response. This approach helps you access more breadth and depth of information than a traditional search on Google.
2. Behind DeepSeek Lies a Dazzling Chinese University (The Economist)
Alumni are among the wealthiest entrepreneurs in China, according to rankings by Hurun, a research firm, of those with more than 5bn yuan ($700m) in assets. They include Colin Huang, the founder of Pinduoduo, an e-commerce giant, and Duan Yongping, an electronics tycoon.
In recent months the university’s reputation for enterprise has reached new heights. China is abuzz with talk of the “Six Little Dragons” of Hangzhou, a clutch of zippy startups, three of which were founded by Zhe Da alumni. DeepSeek is one. Another is Manycore Tech, a 3d-design software firm, which on February 15th announced a plan to list in Hong Kong this year. Then there is deep Robotics, which specialises in dog-like robots (pictured), used for patrolling and rescue operations.
Three factors lie behind the university’s success. The first is its ability to attract and foster talent. Although many students in China yearn for a stable government job, Zhe Da has long drawn more daring souls, who throw themselves into startup competitions where they can pitch business ideas to get university funding. Their professors are unusual, too, encouraging students to dabble across disciplines in order to spark ideas, and trying to foster what they call a “mistake-tolerant” atmosphere.
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