What We're Reading #6

Medicines, inflation, AI, capital markets plumbing, geopolitics, and classic economics.

Hi folks, hope you’ve had a great week!

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’ve started “What We’re Reading”, where every weekend, our team outlines the interesting articles — even books — that put our brains in seventh gear (if that even exists). And with this edition, we can successfully say that we’re spreading our wings with our recommendations. It’s really fun, and we think you should check these recommendations out.

We also have an important announcement at the end if you’d like to read with us.

We’d also love to know what has piqued your interest, too! Please feel free to let us know in the comments.

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What Pranav is reading

Ambika Grover, Microbubbles (link)

At one point, it appears, this post was called “The Cruise Missiles of Medicine”. Then, a bunch of internet pedants came and browbeat everyone, because when titles are too fun, they make us all stupid. Or something like that.

Either way, what a fascinating thing to learn about!

There’s a fundamental problem with medicine: your body isn’t actually meant to take in massive molecules that stop its processes from playing out, even if that’s in service of curing disease. It intercepts medicinal particles and kicks them out well before they get to where they need to be. Which is why you need a vehicle to get the medicine where it needs to be, bypassing the body’s defences.

The vehicles Ambika talks about are tiny bubbles. If you can fill them with medicine, and then command them to pop in a specific place (driving them through magnets), you can get medicine right where you want it to be. And that’s just one thing: bubbles are useful at everything from helping sensors detect where blood is flowing, to breaking down kidney stones by popping in the right place.

We know this is solemn business. But the thought that there are grim scientists in lab coats blowing bubbles makes the world seem a tad bit more whimsical.

Joshua R. Hendrickson, Two Percent is a Bargain (link)

How much inflation do you usually want? Most people probably answer with a zero. If you’re the sort that prides themselves on being familiar with macroeconomics, you probably lean back, flash a knowing grin, and say something like two percent. Or maybe four percent, if you’re in India. At least that’s what I did, perhaps because I like sounding smart than I like perfect intellectual clarity.

This paper — or more accurately, asking Claude about this paper — pushed me to think harder about the question.

Turns out, the ideal amount of inflation depends on who you ask. Left to their own devices, governments would like much more inflation — in the range of 10-14% — so that they can happily print money while their debts amount to nothing. People, on the other hand, benefit from less than zero inflation, because that lets them hold, and use, more cash.

But nobody really wins with 2% inflation. Then why do countries across the world use this as a target?

Hendrickson argues that it’s a deal. It’s a number that leaves neither side better off, but one that they can all agree upon. Interesting idea.

Alap Shah / Citrini Research, THE 2028 GLOBAL INTELLIGENCE CRISIS (link)

I only just got around to reading the Citrini memo that had everyone in a spin around a month ago (which, in the AI era, feels like a decade).

It has an interesting premise: it imagines the year 2028, in a world where there has been a crisis. Then, it writes a post mortem.

This is a story. A beautiful, but depressing, story. As you might imagine, with a topic like this, the tone is consistently apocalyptic. That makes it unique — it is, really, a finance-based horror story; one that has more in common with Dracula or Frankenstein than with your average equity research memo.

Like the best horror stories, though, it has one leg in reality. It is speculative, but that speculation is grounded here, in the real world, in all the dark possibilities we look past because the alternative would be to consider, even if for a moment, the end of any world we recognise as ours.

What if there are no new jobs where humans have an advantage? What if corporations, in chasing efficiency, hollow the economy out of anyone willing to spend? What if our IT sector can’t escape being slowly devoured by synthetic software engineers, and as those surpluses evaporate, the Rupee has nowhere to go but down? What if the financial system failed to see the crisis coming its way, and took too many wrong bets? What if the world’s governments aren’t prepared to deal with an industrial revolution on hyper-speed?

What if we’re living in the darkest timeline, and the bottom falls off from everything we know to be true?

Read this as a warning; read this as fiction. But read this. It’s a remarkable piece.

What Kashish is watching

SEBI Algo Trading Changes (Link)

We don’t usually like recommending our own content, but this one felt worth making an exception for — partly because it helped me fill a fairly embarrassing gap in my own understanding of how broking actually works.

The video walks through SEBI’s recent changes around algo trading, especially on the retail side. What stood out to me was how, until very recently, retail algo trading wasn’t really regulated in the same way as institutional activity. It existed in this grey zone — allowed, but not tightly supervised — which made it fertile ground for bad actors selling “guaranteed return” strategies. These new rules are, in many ways, a response to that.

But beyond regulation, the more interesting bit is how it breaks down the plumbing: how broker platforms actually handle algo orders, how APIs fit into the picture, and what really happens when you “run a strategy.” It’s all fairly basic — but that’s precisely why it’s useful. If you work around markets but not directly in execution or infrastructure, this is a great refresher on how things actually function under the hood.

Definitely worth a watch if you’re trying to build first-principles clarity around broking.

What Bhuvan is reading

Bret Devereaux, Miscellanea: The War in Iran (link)

This was one of those essays where I found myself nodding along almost the entire way through. The analysis was so clear-eyed, so unsparing, and so obviously right that the moment I finished reading it, I started sending it to other people.

The basic point is not complicated. There was no imminent threat to the United States from Iran. Yes, Iran has long been a thorn in Washington’s side and has attacked U.S. assets in the region. But for all practical purposes, the central American interest here was keeping the Strait of Hormuz open. And that was not under immediate threat. If reports are to be believed, Iran was even open to talks and willing to make concessions. But even setting that aside, there was no urgent danger that required this kind of escalation.

And yet Trump, in his infinite lack of wisdom, did what Trump does. He governs according to the aaj kuch tufani karte hain school of foreign policy. The governing instinct is not to think, assess, and then act. It is to act, improvise, posture, and then hope that reality rearranges itself into a victory speech.

But states are not cardboard movie sets. Regimes, especially ugly durable ones, are not held together by one or two visible faces. Even if Israel might have attacked Iran anyway, that does not make the American decision any less foolish. It makes it more so. Whether Iran believed the United States was directly involved or not, Washington was always going to get pulled into the consequences. And once it did, it inherited the mess.

And now we are living through that mess in real time. And, as usual, some of the hardest-hit countries will be the poorer ones. Bangladesh. Pakistan. Large parts of Africa. The countries with the least room to absorb another shock are often the ones forced to absorb it anyway.

And now diplomacy has become harder too.

Trump seems to have underestimated how layered, decentralized, and resilient the Iranian state actually is. Iran is bigger, more mountainous, more rugged, and far harder to straight-up be invaded. After this, the Iranian regime cannot afford to look like it is simply yielding to the United States, especially when it is the same power that just tried to break it. Whatever room there might once have been for talks has now been narrowed by force, pride, and survival. Iran has every reason to show that it can still deter, still retaliate, still impose costs.

What is clear is that this war is now in a very dangerous place where it is no longer obvious who the winners are. In fact, I would go further and say there are no winners. It is not even obvious that there is a good option on the table for anyone involved.

It may well turn out that this war ends up reinforcing Iran’s de facto position as the power that can hold the Strait of Hormuz at risk, and in doing so reinforces its leverage over the region. In that sense, this fits the broader pattern we have already seen elsewhere, like the Houthis in Yemen effectively holding the Bab el-Mandeb choke point hostage and imposing global economic costs far beyond their immediate battlefield.

The full economic damage of this idiotic conflict has not even been felt yet. Markets still seem to be underpricing how severe things could get if a massive volume of oil supply remains disrupted for weeks. The costs are not yet fully visible. But the longer this conflict drags on, and the longer the Strait remains effectively closed or threatened, the larger the bill will become for the global economy.

Bloody awful. But yes, this is a really, really good analysis.

What Manie is reading

Lukas Fuchs, Spontaneous order and industrial policy (link)

I’ve read more economics since I joined the Markets team 10 months ago, than the 3 years I spent doing an undergraduate degree in the subject. And sometimes, I can’t believe my class did not teach me the things I do know today. There’s so much about the field that I still internally debate myself. I am far more willing to accept defeat that I do not know than when I was younger. But, if there’s one thing I’ve truly taken away from all these debates, it’s that economics is not a science with physical laws.

On that note, I came across a very interesting paper (on LinkedIn, of all places) by Lukas Fuchs. Most of it boils down to ideas originated by one man: Friedrich Hayek.

Hayek is one of the most influential AND the most controversial economists of the 20th century. He was a stringent believer of free markets, while also being a huge skeptic of most government action.

One of his core beliefs was that the economy is a social order that isn’t planned from the top-down by anyone, but is rather the outcome of decisions taken by people in their individual liberties. In a way, it’s a decentralized, evolutionary process that’s based on the local knowledge of those people, and a set of rules agreed upon by everyone. This is what Hayek called “spontaneous order”, and the result of this order is a market with prices, which communicates information to everyone.

It’s a powerful idea that I like and get to observe in daily life. However, what I never bought were Hayek’s conclusions from the existence of such an order. He said that if governments intervene in such a social order by making commands, it would produce worse outcomes than what already exists. This was Hayek’s basis against why an economy should not be centrally-planned by the government. For Hayek, the economy was a tussle between the market and the state.

Now, as much as I like evolution, decentralization, and markets, it’s hard to believe that such a social order will not have abuses of (market) power, or that all rules will be perfect. Powerful entities and companies can indeed try to sway such an order to benefit them obscenely. In other words, an economy can be centrally-planned by companies, if not the government. This, in my view, is a very valid critique.

Fuchs’ paper refreshingly takes a stab at Hayek’s conclusions, and states the opposite: government industrial policy and spontaneous order can be quite compatible. A state, after all, can buy, sell, and invest in things. It can, and does, shape the spontaneous order.

However, it doesn’t necessarily have to “command” people to do so. You can enforce policy that forces local markets to adapt and create new forms of knowledge — the state may not care how the market gets to the desired outcome, just that the incentives exist for that outcome to be achieved. Naturally, this doesn’t always work, but it doesn’t have to have a 100% hit-rate, either. The state can indeed influence decentralization in a positive manner: one country does that very impressively.

What this paper does so well is also change the framework of how one should think about an economy. “State-planning vs market” is not an adequate lens — each industry has its own features that make it suitable for one or the other. I highly recommend reading this thread as well on the fallibilities of this framework.

Weirdly, this paper bolstered my belief in both markets and industrial policy. I’d love to know what you thought of it, too.