Toby Nangle

For an economy already feeling the strain of war-driven energy costs and embedded gas inflation, a sudden contraction in credit could be the catalyst that turns a slowdown into a slump.

However, it is worth asking, as Toby Nangle did in the FT this week, who cares if private credit goes kaput? Nangle's point is that while the individual cockroaches are unpleasant, the system itself might be more resilient than we think.

Unlike 2008, where a credit collapse threatened to take down every checking account in the country, the losses in private credit are largely contained within the portfolios of sophisticated institutions and wealthy individuals who signed up for the ride.

If a fund loses 40% of its value, it is a tragedy for the investor, but as long as it doesn't trigger a run on the banks, it isn't necessarily a systemic catastrophe.

Now, we won't know the exact mechanics until the Treasury publishes its official statement on August 30.

It is possible that they simply sold Euro currency forwards, but as Toby Nangle pointed out on the Unhedged podcast, the bulk of the Euro assets sitting in America's exchange stabilisation fund are held in French government debt.

So, there is a very real possibility that the US Treasury propped up the Japanese yen by dumping a mountain of French government bonds, without telling Paris or Frankfurt.

Senior European central bankers were reportedly furious, describing the move to the Financial Times as an unprecedented breach of central banking etiquette.

Yeah, I'm going to throw this in as a bit of a weird one.

So Toby Nangle and Lee Harris at the FT wrote this article, which is the is Lloyd's of London, the world's oldest pod shop.

Subtitle, no, but it's sort of a bit like one.

Well, OK, that kind of says quite a lot about this article, which is.

And these look far more likely to be transformational, for good and ill, than the behemoths the frontier labs like OpenAI and Anthropic are building.

On this, Toby Nangle in the Financial Times Alphaville blog has a write-up of some fantastically interesting economic research being conducted and how people actually use the AI they have access to.

In particular, how do small language models, SLMs, the sort of thing you can run on a home computer, compare to large language models like Claude or ChatGPT that sit on a massive data centre somewhere else? Toby writes this.

A team of Stanford University computer scientists has been benchmarking the relative performance of SLMs against frontier models for the kind of everyday tasks that dominate chat requests since 2023.

And there's some links, again, within this LinkedIn post to some articles.

There's a really good one from Toby Nangle at the FT on AI.

SLMs versus LLMs, where he actually discusses an article we ourselves passed along some time back.

What is this guy's name? Clement on Substack.

AI model to anyone, obviously, in order to save money.

And then this whole idea of a potential shift to so-called sovereign AI, I'd not really come across this expression before.

The idea that's, for example, bigger players, and there's a super interesting example, by the way, somewhere in one of these articles, I think it was the Toby Nangle piece as well, where he talks about a you know, some AI model coming up with some amazing answers to a super difficult math problem.

And basically, there was an accusation from a math professor who was doing all the work on this, that it may have just lifted all his sessions and his interactions with an advanced AI, and essentially just stolen his work and made it public.

For an economy already feeling the strain of war-driven energy costs and embedded gas inflation, a sudden contraction in credit could be the catalyst that turns a slowdown into a slump.

However, it is worth asking, as Toby Nangle did in the FT this week, who cares if private credit goes kaput? Nangle's point is that while the individual cockroaches are unpleasant, the system itself might be more resilient than we think.

Unlike 2008, where a credit collapse threatened to take down every checking account in the country, the losses in private credit are largely contained within the portfolios of sophisticated institutions and wealthy individuals who signed up for the ride.

If a fund loses 40% of its value, it's a tragedy for the investor, but as long as it doesn't trigger a run on the banks, it isn't necessarily a systemic catastrophe.

The reason why I say that is because when you look at net debt ratios, which should theoretically be closer to telling us about fiscal sustainability, then you don't really see the same correlations.

Toby Nangle had a great article in the FT just showing how actually the Japanese net debt ratio is less than the US debt ratio.

And yet that's Japan is where we've seen that big kind of expansion of term premium and the big... increase in 30-10 spread, perhaps more pertinently.

So fiscal policy does matter.