Global Finance and Trade 1: Global Markets, AI, and Fiscal Trends

Author(s): Scott Douglas Jacobsen

Publication (Outlet/Website): The Good Men Project

Publication Date (yyyy/mm/dd): 2025/06/06

Michael Ashley Schulman, CFA, Chief Investment Officer of Running Point Capital Advisors, offers expert insight into current global financial dynamics. Schulman offers timely insights into macroeconomic trends, U.S. fiscal policy, and the global tech landscape. Schulman discusses the implications of President Trump’s $3.8 trillion budgetary package, the risks of deflation in China, and OpenAI’s $20 billion partnership with Abu Dhabi. He highlights the emergence of tokenized equities, Bitcoin’s behaviour in volatile markets, and the shifting dynamics of global investment ecosystems. Schulman emphasizes strategic diversification between U.S. and Chinese tech domains and notes the importance of climate risk in ECB policy. The conversation is wide-ranging, deeply analytical, and forward-looking.

Scott Douglas Jacobsen: This discussion covers the period from May 8 to May 22. Today is May 22, 2025, and I’m speaking with Michael Ashley Schulman. Our sources include Reuters, Business Insider, Financial Times, The Guardian, and Fortune.

Let’s delve into fiscal policy and market reactions. The House of Representatives has narrowly passed President Trump’s “One Big Beautiful Bill,” a $3.8 trillion tax and spending package. The bill includes substantial tax cuts and spending increases.

This legislation has raised concerns about the national debt, which now stands at approximately $36.2 trillion. Could this lead to a spike in long-term Treasury yields or even a global market sell-off? What implications does such a significant spending package tied to major tax cuts have?

Michael Ashley Schulman: Firstly, while the House has passed the bill, the Senate still needs to review and possibly amend it, which could alter the final figures. The current estimate is $3.8 trillion, but with potential changes, it could increase to around $5 trillion.

President Trump’s trade policies, including tariffs and challenges to the global economic order, as well as his criticism of Federal Reserve Chair Jerome Powell, have impacted investor confidence in the U.S. dollar. Coupled with high deficits and growing debt, the dollar’s appeal has diminished.

Achieving the administration’s goals of reviving U.S. manufacturing, reducing the trade deficit, and rebalancing global trade may necessitate a weaker exchange rate. Ironically, this could be part of the strategy to expand opportunities for the U.S.

However, a clear resolution to these concerns is some time away. The U.S.–China tariff truce is set to expire on July 9, and the final approval of Trump’s tax cut bill might not occur until around the July 4 recess, once the Senate and House reconcile their versions. Following that, raising the debt ceiling could become the next pressing concern for investors, likely in July or August.

Jacobsen: Regarding yields, the current environment is prompting many investors to reassess their holdings in dollar-denominated assets, especially U.S. Treasuries. Long-term bonds are under pressure due to rising concerns about Washington’s mounting debt and deficits.

Schulman: Investors, analysts, and the broader market are now trying to determine how much higher yields might go, even if inflation does not materialize. If inflation increases, yields will likely rise further. But even without inflation, there remains the question of: how high will they go? Is now the time to step in and buy bonds, or should we continue to hold off?

Jacobsen: On the tech front, OpenAI has announced a $20 billion infrastructure partnership with Abu Dhabi’s G42 to develop a one-gigawatt AI cluster known as Stargate UAE. To provide context, one gigawatt is equivalent to the power used by 750,000 American homes. The initiative aims to make the UAE the first country to implement ChatGPT Plus nationwide, offering it free to all residents. 

OpenAI has also acquired the hardware startup io, founded by former Apple design chief Jony Ive, to support its ambitions in creating consumer AI devices.

Do you have any thoughts on these fronts, especially considering the scale of financial commitment?

Schulman: Yes. I see two big pieces here.

Let’s start with Sir Jony Ive. That’s massive. He’s best known as the legendary designer behind the Apple iPhone and the iPod. His joining OpenAI strongly suggests that ChatGPT is moving toward hardware—specifically, in-house devices that could redefine how we interact with AI.

With Ive’s gift for turning raw metal into must-touch tech and Sam Altman’s knack for transforming neural tokens into eloquent interface experiences, the collaboration is being hyped as a likely origin for an ambient AI device—not quite a phone—more of a “voice-first, screen-last” companion. Think Star Trek ComBadge meets Jiminy Cricket—something whispering GPT insights from your collar rather than fighting for your screen time.

We’ve already seen some attempts in this space—like the Humane AI Pin and Rabbit R1—but they’ve largely flopped. So, the bar isn’t particularly high right now. The expectation is that Ive will deliver his trademark ergonomic minimalism paired with OpenAI’s cutting-edge intelligence. The result could feel less like a gadget and more like a polite, ever-present sixth sense—one that never forgets your calendar invites.

This deal also collapses a long-standing divide between cloud-based intelligence and physical devices. We’re entering an era where models and metal are converging. Expect a surge in demand for context-aware sensors, local inference chips, and subscription-based AI integrated into consumer hardware.

Jacobsen: What might this mean for consumers and investors?

Schulman: For consumers, the vision is a digital concierge—one that can offer recipe tips, manage spreadsheets, or even voice existential concerns—without hijacking your visual attention. For investors, it’s OpenAI aiming to own the final strategic moat: distribution.

Yes, hardware margins are traditionally less attractive than those of software, but if you combine Apple-level design with ChatGPT-level stickiness, you could end up with a pocketable product that becomes an annuity stream. In essence, this could be a new “app store”—but located on the underside of your collar.

The snarky version of me wants to say that screens are so 2025. What we’re seeing is the potential for ambient AI form factors—where inference happens locally on your lapel, and the cloud fills in the gaps. From a strategic standpoint, this could pose a real threat to Amazon Echo, Meta’s smart glasses, Apple Vision Pro, and other players.

Jacobsen: Is that inconceivable? Or could this happen?

Schulman: We’ll have to wait and see—but it’s certainly a powerful thesis and potentially quite disruptive.

Then there’s OpenAI’s $20 billion partnership with Abu Dhabi’s G42. That’s the infrastructure side. It’s all part of Stargate UAE—a plan to build one of the world’s largest AI training hubs. A gigawatt of computing power is enormous.

Jacobsen: So we’re seeing OpenAI scale vertically on two fronts: upward into infrastructure with G42 and outward into consumer hardware with Jony Ive and io. Together, these could give OpenAI greater control over both the cloud backend as well as the physical endpoint.

Schulman: Yes, the AI cluster that is part of OpenAI’s $20 billion partnership with Abu Dhabi’s G42 is substantial.

It would be one of the largest AI data centers outside the U.S., underscoring the UAE’s determination to pivot from oil to algorithms. For the regional economy, this move could be a masterstroke—it diversifies revenue streams and positions the UAE as a global hub for AI. So, investors take note.

The desert sands are shifting—and they are rich with silicon. On a global scale, the implications are profound. The U.S. gains a strategic ally in AI development, potentially counterbalancing China’s technological ascendancy. However, the risks are just as vast as the opportunities.

Geopolitical tensions could flare. Launching a project of this scale will invite scrutiny—it’s hard to go from zero to a behemoth without encountering stumbles or hiccups—it’s a bold leap into the future but one likely to face challenges along the way.

Look at The Line in Saudi Arabia—it’s a bold leap, too, but pivots are inevitable. By the time this is fully built, the technology landscape will have evolved. So, yes, there will be course corrections, but the project burns with potential.

Thus, we’ll be watching and interpreting the implications, as usual, with a healthy mix of skepticism and eager anticipation.

Jacobsen: Let’s pivot to Bitcoin. It’s at a record high now—what do we make of that?

Schulman: Yes, it’s remarkable. Currently, we’ve experienced significant global volatility in stocks, yields, and currencies. So the question is—for Bitcoin, which is inherently volatile—what happens when you stack its volatility on top of global volatility? Well, you’re off to the races, Scott.

What was it—six weeks ago? Bitcoin was around $83,000 to $86,000 and fell as low as $75,000. Now it’s at $111,000. That’s a huge jump. Yes, it’s volatile.

If you had asked most people five to eight years ago what would drive Bitcoin, they’d likely say it was a safety asset—something to hold if the world collapses. However, over the past four to five years, we’ve seen Bitcoin behave more like a “risk-on” asset and not a “flight to safety” asset.

Typically, when capital is plentiful, stocks rise, people spend, and Bitcoin goes up. When there’s a “risk-off” move—stocks are down, people yell and sell, and capital tightens—Bitcoin usually falls. It’s become a kind of market light switch. It rises in “risk-on” environments and declines in “risk-off” ones. That dynamic seems to be happening again now.

But there may also be another layer—an emerging inference of a safety net. Stocks have recovered most of what they lost after Liberation Day on April 2. However, the U.S. dollar hasn’t. It’s still down about 7%.

There’s much belief that the dollar will continue to weaken—and as I’ve said, that might be part of President Trump’s plan. A weaker dollar boosts U.S. manufacturing and exports. It can also improve corporate earnings, especially for multinationals, since most analysts do not model a weaker dollar into their spreadsheets. So, when companies beat earnings due to favourable exchange rates, it often surprises the market positively.

Some of crypto’s current rise may be due to the weak dollar, but more likely, it’s being driven by policy signals out of Washington: better regulations, possibly some deregulation, but overall, a clearer regulatory environment. That creates room for growth and more institutional confidence in the space.

For example, Kraken is cracking open the traditional equity vault by minting what they call “x-stocks” on the Solana blockchain. It’s turning Apple, Tesla, NVIDIA, and about 50 other U.S. equities into 24/7 programmable digital assets—like cocktail olives served in a DeFi martini glass.

For investors outside the U.S., this eliminates a significant amount of friction. No more jet-lagged limit orders or T+1 settlement hangovers. These tokenized shares settle in seconds. They can trade in micro-slivers and, in theory, go straight into an on-chain covered call vault—before the New York closing bell even rings.

With Backed Finance holding the underlying stocks and offering 1:1 redemption, the price tracking is expected to be tight—tight enough to impress even an options market maker. Think of it as Robinhood but with 24/7 access and complete transparency in custodial services.

For competitors, this is a tentacle tap on the shoulder. Remember Binance’s attempt to offer tokenized stocks back in 2021? Regulators quickly torpedoed that. Kraken is betting that their Swiss-based structure, MiCA [the EU’s Markets in Crypto-Assets Regulation] regulatory clarity, and Solana’s low-fee rails will keep this new Kraken ship watertight.

Neo-brokers that still close on holidays and weekends are starting to look very quaint. Traditional clearinghouses may now face the cringy task of explaining why they need a whole day to settle “paperwork” that a blockchain can handle in milliseconds.

If the experiment holds up, we could see a wave of tokenized options, structured notes, and maybe even proxy voting flood into the space—forcing Wall Street’s intermediaries to decide whether to sink, swim, or create a Kraken of their own.

Jacobsen: What about gold? We’ve seen much volatility there recently.

Schulman: Yes, and that’s not entirely surprising. Gold is considered a safe haven asset, but upon examining its historical behaviour, it has frequently exhibited periods of high volatility followed by troughs of low volatility.

Recently, it’s had a strong run of outperformance. However, in moments like this, some investors may liquidate their gold positions to raise cash or create liquidity. That’s exactly what gold is supposed to provide in times of uncertainty—something solid to convert when needed. And that can cause short-term selling pressure.

There are a few reasons for the shift. For investors, some of the fear that drove them into gold has started to dissipate. Now that tariff deals and truces are being codified, they may feel they can take on more risk. Additionally, as we’ve noted as gold rose over the past couple years, retail investors tended to pile into gold every time it made a new high. More money flowed in with each milestone. Part of the reason is psychological and media-driven. Each time gold hits a new record, it’s in the headlines. The news covers it, so consumers get a little reminder—”maybe I should buy gold.”

But when gold isn’t hitting new highs, those reminders fade. The media doesn’t cover gold consistently unless there’s a massive gain or a dramatic drop. Stocks, on the other hand, get coverage daily. Keeping an investment top of mind and in the press headlines makes a significant psychological difference for markets, and that matters!

Jacobsen: U.S. home sales went down in April. Why are people buying fewer homes?

Schulman: First, mortgage rates are still high. Second, consumer confidence has declined. And third, what I call the “wisdom of crowds.” From 2020 through most of 2024, I was saying home prices had a floor and strong fundamentals—limited supply, strong demand, and lots of home improvement investment. However, we’re now seeing more supply coming onto the market.

So when I talk about the wisdom of crowds, I mean that many people still want to buy a home, but they’re waiting—waiting for prices to drop as supply builds. Initial asking prices are starting to come down, which supports that theory.

Those three factors—rising yields and mortgage rates, declining consumer confidence, and increased supply—are combining to slow the housing market. Higher yields—like we were discussing earlier—with the yield curve pushing up, is not helping mortgage rates. Higher yields mean higher mortgage rates. It becomes more expensive to borrow. Combine that with falling confidence, and it discourages home purchases.

Jacobsen: The European Central Bank has highlighted that droughts could reduce Eurozone economic output by nearly 15%. That would affect manufacturing, construction, and agriculture. Banks currently hold around €1.3 trillion in loans to these high-risk sectors.

They’re using this data to push the importance of climate risk mitigation. Are these reasonable concerns? Are there other factors they may not be accounting for, or are they capturing everything relevant?

Schulman: To clarify, that 15% potential loss in economic output—that’s not projected for 2025, right?

Jacobsen: They’re talking about a potential cumulative impact over the next decade.

Schulman: So yes, it’s a forecasted risk, not an immediate one. However, it remains a stark reminder of how climate change can impact multiple industries. Agriculture, construction, and manufacturing are all deeply dependent on environmental stability.

And with €1.3 trillion in loans exposed, banks are right to sound the alarm. Whether it’s droughts or floods, climate-related shocks can jeopardize repayment, impact employment, and destabilize entire sectors. Mitigation and adaptation strategies are no longer optional—they’re core to financial risk planning.

And the climate is changing. You can debate whether it is due to pollution or natural variations in Earth’s cycle—as we’ve seen historically, with transitions from ice ages to warming periods long before humans existed. But regardless of the cause, the climate is changing. And yes, we (locally and globally) have to factor that into our calculations.

As investors, we have no choice. That’s one of the reasons I’ve stayed away from catastrophe bonds. When I speak with investors and modellers who specialize in catastrophe bonds, they’re often relying on historical data to predict future outcomes. However, historical data is no longer reliable.

Hurricanes are shifting. Flood zones are shifting. Wildfires are emerging in new locations with increased intensity. Look at Australia—massive wildfires one year, then massive floods the next. Europe’s seeing similar extremes. We have to prepare for it. Part of this will involve the destruction of land and, yes, weaker crop yields.

But, as a developed continent, Europe can pivot. And perhaps other parts of the world—previously less agriculturally viable—can step in. We’re already growing more crops in Iceland and northern Europe than ever before. Even vineyards are starting to spread north due to climate change.

So, yes, in a static world, the ECB is right: there is a strong chance of decreased economic output due to climate disruption. But the world isn’t static. Industries, banks, and lenders will adapt. And along the way, they may even discover more fruitful (pun intended), unexpected areas of investment.

Jacobsen: Let’s turn to fiscal stimulus in China. They’re facing sluggish GDP growth and deflation, and now they’re planning to increase their fiscal deficit to 4% of GDP this year. The government is also leveraging vast state-owned assets—valued at around 184 trillion yuan. I’m not great with conversions, but that’s a significant figure. This move is intended to maintain the company’s creditworthiness. Is it a wise move for 2025?

Schulman: Yes, it is. China’s primary policy concern is maintaining social order—keeping people employed, economically engaged, and generally content. Youth unemployment is already high, low birth rates are shifting the median age significantly higher, and they’re highly aware of the risks of social instability.

Increasing the fiscal deficit to 4% of GDP is a manageable and necessary move. They’re using the resources they have—state-owned assets—to inject capital into the economy, counteract deflation, and boost growth.

Deflation is particularly hazardous for a country like China, which relies heavily on consumer confidence, exports, and stable demand. Stimulating the economy in this way—especially when inflation isn’t the immediate concern—makes economic and political sense.

The United States has a relatively short history—we were founded in 1776. However, China has a rich history spanning thousands of years, marked by dynasties, rulers, revolutions, and regime changes—often stemming from internal unrest or local conquest.

That historical memory matters. China wants to keep its people happy and stable—and frankly, it can afford to, even if that means running a fiscal deficit or increasing the deficit. Not only can it afford to—it almost has to.

A careful expansion can be justified, but it should be paired with credible measures to stabilize local government finances, shore up the struggling property market—which probably needs another couple of years—and improve the transparency and efficiency of public spending.

Their debt is already high—about 25% of GDP and rising. Interestingly, Fitch downgraded China’s sovereign credit rating in April. It didn’t make as many headlines as Moody’s downgrade of the U.S., but it’s significant.

There’s also the deflation danger, which you mentioned earlier. China’s headline CPI has been negative for three consecutive months.

Jacobsen: When we talked about those trillions of yuan in state-owned assets—who is valuing that?

Schulman: The Chinese government is. So, the transparency around those valuations is questionable. There’s much value there, but the true worth is hard to assess.

Still, institutions like the IMF and other analysts argue that Beijing does have room to increase stimulus. I agree with that.

They should do more to support the property sector, which still accounts for over 5% of GDP.

Of course, market perception matters, too. A visibly widening deficit could trigger additional ratings pressure, just as we’ve seen with the U.S., or lead to higher borrowing costs.

But like Japan, China can fund a significant portion of its debt, especially if China is successful in transitioning the Yuan to be more of a reserve currency. And their extensive public assets provide a backstop. Official valuations of those assets put them well above GDP, so monetizing part of that asset base could offset some of the additional borrowing costs.

That said, China’s past stimulus efforts have had diminishing returns. Heavy infrastructure spending often led to inefficient allocation, crowding out private investment, and failing to boost domestic consumption. What would make this new round of stimulus a wise move?

Target areas with the highest multipliers: finish the stalled housing projects, fund household trade-ins and subsidies, and bolster unemployment benefits and pension schemes. The goal is to encourage consumers to spend, as China aims to expand its domestic market.

Right now, when most people think of China, they think of the Belt and Road Initiative, global exports, and trade surpluses with the U.S. and Europe. But that needs to shift. They need more domestic consumption of Chinese-made goods by Chinese consumers.

That translates into creating more employment opportunities, increasing wages, and helping more people move into the middle class—similar to what we’ve seen in Europe and the U.S. So yes, couple that stimulus with credible medium-term fiscal anchors, accelerate local government debt restructuring, and keep transitioning toward a complete balance sheet framework—one that tracks both assets and liabilities. That’s how they make this sustainable.

Raising the fiscal deficit to around 4% of GDP is defensible in the face of deflation and likely necessary. Beijing needs to spend more wisely, communicate a more straightforward debt narrative, accelerate local government reform, and likely allow its native tech industry to operate freer, with less government interference.

If you think back to the clampdown on Alibaba and the broader suppression of capitalist influence a few years ago, you can now see a trend reversing. The government is allowing more room for companies to self-manage, innovate, and profit from their ideas.

Jacobsen: Yes, Jack Ma is back in the public eye. He’s been giving interviews again—it took a while, but he’s gradually re-emerging.

Schulman: Jack Ma and the team behind BYD. It’s interesting. You have this handful—or more—of capitalists who challenged the state, and all seems to be fine now. But they do have different social priorities and operating assumptions.

Jacobsen: So, the G7 addressed nonmarket policies that undermine economic security, including discussions about adjusting the Russian oil price cap—which is currently set at $60 per barrel but may be reconsidered below $50. I don’t want to dive too far into the war-related commentary here—that’s part of a separate geopolitics series I’m working on.

They also focused on coordinating economic policies and made a firm commitment to combat nonmarket practices—many of which are associated with China. What do you make of this meeting and its emphasis on economic imbalances and potential sanctions?

Schulman: Yes, the G7 made direct references to nonmarket practices by China, particularly in sectors like steel, EV batteries, solar panels, and shipbuilding. These are sectors where China’s subsidies and industrial policy are seen to depress global prices and crowd out private competitors.

Some of these sectors, such as steel and shipbuilding, are strategic industries. Even electric vehicle (EV) batteries and solar panels are now considered strategic, given their critical roles in the green energy transition and the electrification of the automotive industry.

The emphasis from the G7 could signal a desire to act in concert rather than through unilateral tariffs or isolated protectionist policies. That would be a shift toward greater G7 alignment, possibly reducing friction over perceived U.S. protectionism within the group.

More sanctions on Russia were discussed. These measures are likely to involve stricter enforcement mechanisms, potential reductions in the oil price cap, and renewed efforts to limit Russia’s access to dual-use technologies.

There are already numerous sanctions in place against Russia. And as Moody’s was arguably late to the party in downgrading the U.S., the G7 finance ministers may also be late to the party in pushing additional sanctions on Russia. I know you didn’t want to dive too far into geopolitics, but from what it looks like, we may soon see a peace accord—or at least a ceasefire framework—between Russia and Ukraine.

For Russia to agree to any resolution, fiscal and economic sanctions will almost certainly need to be lifted. There is little incentive for Russia to end the war if sanctions remain in place. So if the G7 is only now—this late in the game—talking about more sanctions, they may be behind the curve.

Those are my thoughts on the China and Russia angles, without having studied them in detail. On a different note, I’ve been receiving many questions about investment correlation lately. People often assume stocks and bonds are uncorrelated, but sometimes they do move in tandem. From an investment standpoint, numerous options are available—but the world is becoming increasingly bifurcated.

It reminds me of the old VHS versus VideoDisc format wars. Today, we see this split between the U.S. and China: two technological ecosystems, two regulatory regimes, and two diverging economic strategies.

So, if you want to diversify your investments, you can either make a strong directional bet on one ecosystem—or you have to engage with both. As an analogy, you may want to participate in both the Apple and Android ecosystems. If you went all in on one, you might still do fine. But if proper diversification is the goal, you want to consider and juxtapose exposure to both.

The same goes for AI. If you want to diversify AI investments, you cannot just bet on Google’s Gemini—you need exposure to other large language models as well.

Globally, you have to think about both the Chinese ecosystem and the U.S. ecosystem and consider how to balance your investment strategies across both. That’s how you hedge for the zigs and zags of a complex, volatile global economy.

Jacobsen: Thank you for your time and insights, Michael.

Schulman: Always a pleasure.

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