Apple in China - a very important read

 

If you want to learn about the complexities of trade and geopolitical relationships, read Apple in China. This is a long book with a lot of inside details about Apple, but only through a long history of the development of manufacturing to meet the strong need for Apple products can you appreciate how we got to the current place in trade wars with China. With a desire just to meet demand, Apple invested heavily in Chinese suppliers. Other firms could not deliver what Apple needed. 

It was a one-way street with Apple demanding extraordinary goals from its suppliers. In exchange for these demands, they provided significant knowledge and support, but eventually, Apple became too dependent on their suppliers and the handout from local governments. Tied with strong demand for Apple products, the China-Apple relationship flipped with China through suppliers, customers, and the government wagging the dog. With all of the knowledge transfer, suppliers were able to support local companies that now compete against Apple. 

The ties with China were expedient but now have an edge where Apple may not be in charge of its destiny. There are no easy solutions for relocating manufacturing from China without significant financial costs. While the author does not write about the future, Apple has some very hard choices to make and it may not be able to weather this trade storm

The quantity theory of money still exists

 

Tim Congdon authored a new book, The Quantity Theory of Money: A New Restatement, last year. It is a historical retrospective of the classic quantity theory of money with some new twists. It is not a easy book for those who are not familiar with the long history of money. It takes a number of twists and turns on why some explanation do not work, but in the end, Congdon again emphasizes that money is at the heart of any discussion of inflation. 

The key insight is that money will impact not just the bond market which is the traditional view in the classic IS-LM modei but will also affect othe asset markets and goods markets. Money seeps into everything we do. We have to also focus on broad money, and how it affects asset purchases and goods purchase decisions. The link between money and credit is a better description of how it impacts transactions nd prices than the simple Friedman money multiplier.  

The inflation post-COVID should not have been a surprise for anyone who follows the money trail.

A very important book even for finance people - Autocracy, Inc.

 

I don't often comment on non-finance issues, but I was moved after reading Autocracy, Inc. by Anne Applebaum. This was not an emotional feeling, but anger that the autocrats of the world are forming connections to maintain their power in their respective countries. These autocratic connections are thwarting democratic movements around the globe. Applebaum provides good descriptions with substantial evidence on how dictators want to work together for their common benefit. 

The solutions to this problem are not obvious; however, there needs to be some form of international order and coordination between Western democracies to ensure that the global behavior of dictators does not rule over others. A coalition of democracies needs to actively engage in efforts to stop autocratic coordination. Obviously, this is being done, but the efforts have not been strong enough. 

The next credit crisis - student loans again?

Corporate spreads are at all-time lows and household finances seem to be in good shape, but there is one area of concern - student loans. There was an extended moratorium on student loan payments during the Biden Administration due to the COVID pandemic, but that is in the past. Borrowers now have to pay up, and the bailouts are not there. The result has been an increase in delinquencies. This is especially the case for older borrowers who are nearing retirement. We are not at a crisis, but this is an area of concern that impacts spending and the ability of these consumers to take on any other debt. 

HedgeIndex July performance - generally on track

 

We look closely at the HedgeIndex Liquidity Alternative Beta indexes that are replications of the HedgeIndex Composite Index returns. As a liquid alternative, investors can get a quick look at performance before many hedge funds report their monthly returns. 

Returns were positive except the managed futures index, which continues to have a difficult time finding trends in the major futures markets. If there are no trends, the trend index will not make money. The other strategies continue to show positive gains. Nevertheless, the Liquid and Global Strategies are a weighted average of the other strategies and have been pulled lower in 2025 by the managed futures performance. 

While the SPX generated a return of more than 2% for the month, these liquid alternatives have a lower volatility than the market beta. The LAB indexes performed better than the low volatility index, which returned a negative 29 bps this month. These indexes are not supposed to beat the major risk factors but should add diversification to any portfolio. The equity LAB indexes performed better than the fixed income composite.

A Simple rulle of thumb on trading - the 3M's

 

"Markets always trading the 3Ms… Macro, Momentum, and Misfit trades" - Michael Hartnett BofA.

I like this short description of trading because it covers almost all you need to know. Trade the macro or at least have the macro determine the asset allocation. Trade the momentum or the trends because this is a risk factor that usually works. Trade the misfits or the outlier anomalies that are away from fair value. This is it. This is all you need to know as the base case. From there, the real work begins on how to make this work with actual trades.