What I read this week

The tech sell off, Saudi Arabia's oil lobbying machine, and why the left can't beat the far-right at its own game.

This week’s WIRTW will be free to read – if you like what you see and you want access to this column every week, plus the weekly podcast, you can subscribe here. If you can’t afford the full £5 per month, DM me and I can give you a solidarity discount.

Articles

Social Democrats in Denmark suffer sweeping election losses – The Guardian

I hate to say I told you so… Check out this video from a few months ago, when I appeared on Novara Media to discuss the success of the Danish social democrats on an ‘economically left, socially right’ (i.e. red-brown) platform. I argued at the time that people vote for far-right parties because these parties provide what seems like a convincing explanation as to why their lives keep getting worse: migrants are taking all the jobs, leaching off social services, and stealing from hardworking, law abiding citizens.

In politics, there can only be one answer to a question. If people think they’re getting poorer because of migrants, they will vote for the party they believe will clamp down on migration most effectively – regardless of its other policies. If you, as a left party, continuously repeat the message ‘you’re poor because of migrants’, people are going to vote for the party they believe to be toughest on migrants. I’m not saying red-brown strategies never win elections for social democrats – I’m saying that over time, left parties that pursue such a strategy erode their own base.

The Dutch social democrats also adopted an ‘economically left, socially right’ strategy years ago – it worked for a while but eventually ended up strengthening Geert Wilders’ Freedom Party. I predicted during the Novara interview that the Danish social democrats would go the same way as the Danes – and this is exactly what has happened. Red-brown politics just isn’t a viable strategy for a left of centre party. Keir Starmer is about to figure this out to his detriment – though I highly doubt that he, or any member of the political class, will learn the right lessons from defeat.

US tech stocks slide as traders fret over ‘frothy’ AI valuations – The Financial Times

Ah, the AI bubble. What more is there say? I wrote a piece a few weeks ago explaining how the whole thing has ballooned, and how it might collapse, but I can’t claim any clairvoyance on this front. Anyone following markets will have been hearing speculation about the bubble for years now – and the evidence has only been getting stronger.

During the late phase of a financial cycle (i.e. when all the lines have been going up for a while), there’s always talk of what might cause the next crash. When people first started speculating about the AI bubble, investors were well-advised to ignore it. It’s never a good idea to exit markets at the first sign of a bubble – but it’s an even worse idea to exit markets once the bubble has already burst. It’s all about timing (as I explained way back in Feb).

This is why markets are getting a bit tetchy. Everyone is waiting for the right time to sell – and no one wants to be the last out of the gate. Earlier this week, there was some bad news out of China and some jitters about Nvidia’s earnings (which actually turned out fine – but, then again, where are these earnings actually coming from?). Investors started selling, and the big tech companies are all down.

According to this piece, “the Nasdaq has fallen more than 5 per cent in November, putting it on track for its first monthly drop since March”. I just saw another piece while writing this, which said that the tech-heavy Nasdaq lost more than 2% in its most volatile day of trading since Trump’s liberation day tariffs (see pic below).

https://www.ft.com/content/2c0bb19c-7c64-453f-95ab-c0f54a184089

At this point, no one knows whether tech stocks will keep falling, or if investors will crowd back in and try to buy the dip. But people are getting anxious. The FT reports that, “[t]he Vix index, Wall Street’s so-called fear gauge, jumped 11 per cent on Tuesday to a high of 25, above its long-term average.” Investors will be waiting on any negative economic news – from jobs, to manufacturing numbers – with their fingers on the ‘sell’ button. Exciting times for market watchers…

BlackRock Private Credit CLO Fails Tests as Bad Loans Mount – Bloomberg

Be patient with me while I write a little more about the scary stuff going on in private credit. I really believe that you can’t understand the AI bubble without understanding how its linked to private credit, and we need to get to grips what’s going on in both if we want to predict how the whole thing might blow up. Check out this piece for a bit of a primer.

This article is about how Blackrock has been packaging corporate loans into collateralized loan obligations (CLOs – sound familiar?). I won’t go into all the gory details, but a few of these CLOs have tumbled in value as investors have realised that some of the loans that make them up are – to put it mildly – a bit dodgy. To quote the article:

“The BlackRock CLO in question… contains loans to a slew of troubled companies. One of those is Renovo Home Partners, which filed for bankruptcy earlier this month. BlackRock drastically revised to zero the value of private debt it had extended to the home improvement company after deeming it worth 100 cents on the dollar just some weeks before.”

This is worrying. It suggests that Blackrock has been lending to companies that aren’t particularly creditworthy, and some of them may be unable to pay their debts. The fact that these loans have been packaged up into securities is even more concerning, because investors might nor have properly scrutinised the underlying loans closely, meaning risk can build up unnoticed. They might panic and start selling everything, causing prices to fall even further, causing more panic selling. Loans will start getting called in, firms won’t be able to pay, and then the crash will start hitting the real economy.

How did we get here? Blackrock is not a bank – it’s an asset manager. It doesn’t take deposits, which are insured by the government, and make big loans on that basis. It manages peoples’ savings – not insured by the government – and invests in lots of different assets. Recently, firms like Blackrock have been trying to figure out new ways to muscle in on the loan markets previously dominated by banks. As a result, private credit – i.e. lending undertaken by non-bank firms like Blackrock – has boomed.

As I wrote a few weeks ago, this boom has created a lot of problems – including the fact that no one really knows where risk is building up because these markets aren’t especially transparent. There’s also some dodgy stuff going on with the firms supposed to be rating these loans (again, remember 2008??) but I need to do a bit more research on this before writing about it.

At the moment, there seems to be an air of mild concern regarding private credit, rather than all out panic. This article notes that other Blackrock CLOs are doing extremely well and private credit markets are booming. It’s also worth pointing out that private credit does have some advantages over bank lending – most notably, there’s less leverage involved. But there are still some big dangers – including the fact that we

How is all this related to the AI bubble? Firms like Blackrock and other ‘non-bank financial institutions’ are in up to their eyeballs on AI. They’re big investors in the companies involved, but they’re increasingly becoming lenders too (see this piece for an explanation). And there’s a lot of lending going on. According to this piece, “[s]ince September, Amazon, Alphabet, Meta and Oracle have issued a combined $81bn of debt to fund the build-out of AI data centres”.

If the companies doing the borrowing suddenly can’t pay their debts, this could mean big losses to firms like Blackrock. Again, less leverage, so they’re not likely to go under – but someone is going to have to pick up the bill, and it’s not going to be Larry Fink.

$170,000 a minute: why Saudi Arabia is the biggest blocker of climate action – The Guardian

Saudi Arabia has been shelling out $170,000 per minute on supporting its own fossil fuel sector and lobbying against tough climate action. This has been going on for a long time. The Saudis have taken a “wrecking ball” to climate negotiations year after year, all the way back to blocking the use of voting to take decisions in UN climate negotiations.

Their approach isn’t surprising – the country was the world’s biggest oil producer in 2024 and has the second largest proven oil reserves in the world. And the profits the country makes off oil production are truly staggering. According to this piece, it costs $2 to extract one barrel of oil in Saudi Arabia, and that barrel has been selling for between $60 and $80 on international markets of late, making the state oil company the most profitable company in the world.

Naturally, the Saudis know they can’t stand in the way of climate action forever, but they want to delay the transition long enough to ensure they’re able to adapt. Delay tactics include disputing the agendas at meetings, making absurd demands like insisting on compensation for oil producing countries as part of the transition, and even obstructing virtual negotiations during the pandemic. And it’s not just oil production – the Saudis also blocked what would have been a landmark plan to tax global shipping, and another to cap plastics production, earlier this year.

The obvious flaw in the strategy is that Saudi Arabia is going to be one of the nations most affected by climate breakdown, with many of its citizens already living “on the edge of liveability.” But the House of Saud does not care about the population of Saudi Arabia – it only seeks to retain enough legitimacy to hold on to power. As a petrostate, it can do this by maintaining low taxes and providing handouts to citizens. In 2023, it spent more on fossil fuel subsidies than on the entire national health budget.

This strategy will work as long as the money keeps flowing. Such is the nature of the ‘resource curse’: countries with plentiful natural resources are more likely to be authoritarian in part because their governments don’t need to tax citizens as much, and citizens are therefore less likely to demand representation. But as soon as the money starts to run out, the regime is going to face some serious problems. And oil prices won’t stay this high forever – even if the Saudis keep blocking climate action for years to come.

Podcasts

The Pinkerton Detective Agency – A Short History of…

I’m kind of obsessed with this podcast at the moment. Yes, it is annoyingly liberal in its outlook, but it covers so many fascinating historical events about which I know very little. This might seem like a weird one to pick for a political economy newsletter, but the Pinkerton Detective Agency was actually the US’ first and most successful union busting firm.

The episode tells the fascinating story of how, in the mid-1800s, Allan Pinkerton emigrated from Scotland, where he was an ardent participant in the labour movement, to land in the US. There, he started a detective agency, which morphed into a private army that provided protection for sitting presidents, and was sent to beat unionists for striking.

The podcast tries to take a pretty neutral line regarding Pinkerton himself, which I found grating, but I enjoyed it anyway because it introduced me to parts of US labour history I’d never heard about. I was particularly fascinated to learn about the Homestead strike of 1892, when 300 Pinkerton agents were sent to confront steelworkers at the Carnegie Steel factory in Pittsburgh. 16 workers were killed, 23 wounded, and the country was outraged. Homestead is regarded by some historians as a turning point in US labour history.

Videos

I Tracked Down The Company Ruining Restaurants – More Perfect Union

If you like watching YouTube videos like this to relax, but don’t want to rot your brain with memes, you need to subscribe to More Perfect Union. They make short films that are entertaining, enlightening, and enraging all at once. This one is no exception. In this episode, the team investigates the food distributor Sysco, showing how its cheap, ultra processed products have found their way into restaurants across the US. And it’s not just that Sysco is making all our food taste like crap – it’s that they’re exploiting cheap labour, working under terrible conditions, to do so.

Thanks for reading What I Read this Week - subscribe if you want access to the archive, and future columns.