Gavekal-IS

The cost of financial intermediation in the US has remained remarkably stable at around 2% a year for more than a century, despite huge productivity gains and sharply falling fund management fees. For Didier, the explanation may lie in Baumol’s cost disease, as rising coordination and compliance costs have absorbed much of the savings generated by technology. This matters particularly for long-term government bonds, whose real returns increasingly struggle to cover the cost of keeping the financial system running.

In the third part of his series on the macroeconomics of AI, Didier develops a framework for deciding when investors should favor information and technology over energy. After briefly tilting toward energy during this year’s confrontation in the Strait of Hormuz, the framework is once again signaling that investors should favor information.

In the second part of his series on the macroeconomics of AI, Didier argues that the economic impact of artificial intelligence will depend not just on technological progress, but on how widely it diffuses through the economy. Countries do not need to develop the world’s best AI models to reap the productivity gains and can instead win the race by diffusing the technology across their economies. This sets up an emerging contest between the US model of proprietary AI leadership and China’s push to spread cheap, open-source technology around the world.

The economic promise of artificial intelligence depends not only on expanding computing power, but on how effectively its gains spread into the wider economy. Didier frames growth as the interaction of energy, information and network effects, arguing that AI’s impact will ultimately be determined by the productivity it delivers beyond the data center. Even a modest transfer of AI-generated knowledge into the traditional economy could materially raise global productivity, although the adjustment in employment may prove disruptive.

Currencies have long resisted traditional economic models, yet one simple pattern has proved remarkably persistent: short-term momentum. Didier revisits a systematic strategy first introduced in 2022, showing that it has continued to outperform while extending naturally beyond fiat currencies to gold and oil. The result is a straightforward quantitative framework that offers a fresh perspective on trading money in all its forms.

The foundation of modern finance—the assumption that long-dated US treasuries are the world's risk-free asset—is increasingly being called into question. Didier argues that the era of abundant savings and stable sovereign bonds is giving way to one of capital scarcity, forcing investors to rethink everything from valuation frameworks to portfolio construction. As central banks diversify into gold and bond markets become less reliable anchors, he explores what should replace the traditional risk-free rate and how investors can adapt.