*** HAPPY NEW YEAR ***

2026 is my 18th year blogging.

Today should be a rest day but yesterday I came across two items I deem important to share.

Cracks Widen in US Credit

This is from the excellent Chris Whalen (The Institutional Risk Analyst):

What about the train wreck in private equity and credit? The backlog of unsold companies in private equity is monumental. As the FT notes: “Private equity firms sell assets to themselves at record rate.” This will not end well. And the end may begin in 2026 as private equity companies fail in growing numbers.

Last year we saw concerns about the private credit and private equity markets begin to surge, but the best is yet to come. Credit is slowly rolling over in the US markets, one reason why equity markets around the world are likely to outperform the US in 2026. Under-utilized banks have fed the two-headed mania in private credit and private equity caused by quantitative easing in 2020-2023 with loans to non-depository financial institutions (NDFIs). (…)

Source: FDIC/WGA LLC

The strong rally in silver and gold, and the weakness of crypto tokens, are leading the decline in US fortunes when it comes to the equity markets. Literally dozens of crypto ventures have failed in the past year, notes Comsure. Crypto exchange collapses have led to $30–50 billion in investor losses, the UK consultancy reports. But the greater concern is the mounting backlog of corporate insolvencies, a real and growing danger that could push the US into recession even as short-term interest rates fall.

According to statistics released by the Administrative Office of the U.S. Courts, annual bankruptcy filings totaled 542,529 in the year ending June 2025, compared with 486,613 cases in the previous year. Business filings rose 4.5 percent, from 22,060 to 23,043 in the year ending June 30, 2025. Non-business bankruptcy filings rose 11.8 percent to 519,486, compared with 464,553 in the previous year.

The growing number of individual and corporate insolvencies are part of a rebound of a long-term trend of falling defaults. For more than a decade, total bankruptcy filings fell steadily, from a high of nearly 1.6 million in September 2010 to a low of 380,634 in June 2022. Total filings have increased each quarter since then, but like loan default rates, they remain far lower than historical highs.

Like credit metrics, the statistical measures of default reflect a growing tendency for negotiation rather than formal events of default.  Some estimates suggest that 1 out of three insolvencies are restructured out of court. As the chart below illustrates, cash accrued but not collected is over $100 billion, but banks are avoiding taking possession of foreclosed real estate (REO).

Source: FDIC

One way to measure the stress building in private equity and credit is the poor performance of lenders to private businesses. Long-term equity returns for business development companies (BDCs) have been hammered since the middle of 2025 and now are running at a negative 4% vs up 16% appreciation for the S&P 500, KBW reports.  The chart below shows the VanEck BDC (BIZD) ETF vs the S&P 500.

Source: Google Finance

“Short sellers are taking note of rising signs of stress within the private credit market, and using publicly traded BDCs to signal that outlook,” notes our colleague Nom de Plumber from his perch high in the world of large bank risk. Banks have substantial exposures to private equity, but most of the risk is borne by private lenders lower in the credit stack. Or at least that is what many bankers believe.

PIK or “Payment-in-Kind” refers to a mystical financial arrangement where interest or dividends are paid with additional securities, goods, or services instead of cash, allowing companies to conserve cash flow but increasing debt principal. PIK is commonly seen in high-risk sectors like leveraged buyouts and venture debt, with examples including PIK Notes and PIK Interest. But there are literally thousands of private equity financed companies now using PIK to avoid default.

Income from payment-in-kind debt, which allows borrowers to defer interest and can signal an inability to pay with cash, has been rising across BDCs, reaching 7.9% in the third quarter, according to data from Raymond James. In the third quarter, 3.6% of investments across BDCs were on non-accrual status, a designation that indicates a lender expects losses, Raymond James data show.

Like REITs, BDCs are pass through vehicles that must pay out most income. “BDCs still accrue the PIK loan coupons as non-cash income, but lack the corresponding cash to pay the required dividends, to maintain their favored IRS treatment,” NDP notes further. “If they lose that tax treatment, there is risk that such PIK loan coupons become taxable at the BDC level, rather than treated as simply passed through to BDC shareholders for taxation.  Then, the BDCs would lack the cash to pay the IRS, too.”

The growing number of illiquid private equity-backed companies presents a huge problem for Wall Street sponsors and lenders. “Even with interest rates falling and the number of initial public offerings increasing in recent months, it has not made a dent in the industry’s backlog of at least 31,000 companies valued at $3.7 trillion, according to research from Bain & Company,” Maureen Farrell reported in The New York Times. She continues:

“That amount exceeds last year’s record of 29,000 companies valued at $3.6 trillion. Many recent attempts by private equity firms to sell companies or take them public have stalled…. The private equity firm Thoma Bravo has failed repeatedly over the past several years to sell two companies it owns for an acceptable price. Thoma Bravo bought J.D. Power, the consumer analytics company, and ConnectWise, a software company, in 2019 and hasn’t found a buyer for either. This year, in light of the tough market, the private equity firm did not attempt another sale, according to two people briefed on the matter.”

Consider an appropriately named example. United Site Services, a provider of portable toilets owned by private equity firm Platinum Equity, filed for bankruptcy with plans to wipe out $2.4 billion in debt and hand the company to senior lenders, Steven Church, Reshmi Basu, and Harry Suhartono of Bloomberg report. They write:

“The bankruptcy case comes less than 18 months after the company reshuffled its debt stack in order to raise cash. Platinum, which acquired United Site in 2017, would likely see its investment wiped out, since shareholders cannot collect anything in bankruptcy unless creditors are paid in full. The company owes secured lenders more than $2.7 billion, court filings show.”

We expect to see a growing number of BDCs, private equity sponsors and other parties forced to recognize asset impairments and related losses in the New Year. The backlog of private equity companies using PIK or other means to avoid bankruptcy is going to be cleared out substantially as it becomes clear that merely lowering short term interest rates will not make moribund PE companies attractive to investors.

The damage done to the PE sector is massive and could see more than half of all managers unable to raise new funds. These Lame Duck managers will eventually exit the sector once the remaining proceeds of asset sales have been returned to investors.

Weakness in the US equity markets in 2026 could contribute to a negative environment for credit that has been years in the making. Moreover, we expect that the steady decline in bank default rates viewed over the past year, an accounting illusion manufactured by bankers, investment sponsors and regulators acting together, will end when it becomes apparent that the Fed is not coming to the rescue of the private equity and credit community.

If we assume that visible default rates on bank loans and private debt are understated by the same monetary excesses and forbearance that caused bankruptcies to fall for a decade, the period ahead is very likely going to involve a painful and extended reversion to the mean in terms of credit expenses.

The charts below shows delinquency and loss-given default on $13 trillion in mostly prime bank loans as of the end of Q3 2026. As any bank CEO or chief financial officer will tell you, credit loss rates have been very low for a very long time.

 

Source: FDIC/WGA LLC

Although the Fed’s QE program inflated home prices 50% it also took net loan loss rates for banks down to ~ 50% of par in 2021, this compared to ~ 95% after 2008. QE enabled some very stupid and foolish behavior by investors and lenders. These behaviors are only partly described by the nominal level of interest rates because, of course, we must account for leverage in calculating the full scope of the prospectives losses.

Lend More Upon Default (LMUD) has concealed the scope of the disaster and even pushed down reported loan default rates, but we suspect that 2026 earnings results will see the benign trend in bank credit defaults come to an end.

KKR is one of the savviest credit lender around. The theme in its latest analysis is “Move up in quality, particularly in Credit”.

We see Credit losses continuing to normalize in 2026, especially around 2021 vintages and sub-scale businesses. (…)

As we look ahead investors should brace for higher loss rates. Indeed, recent events across both Private and Public Credit markets have been a useful reminder of what happens when investors drift away from basic credit discipline and/or over-concentrate to one sector or time period.

Weak underwriting, limited transparency in due diligence, and overly permissive covenants all tend to show up the same way: deteriorating fundamentals and then higher loss rates, especially in parts of the economy experiencing rolling recessions rather than broad-based stress. (…)

The mix and quality of risk now matter more than the quantity of risk one takes. In our view, 2026 should be a year to upgrade portfolios rather than stretch for yield, including moving up in quality where we can, locking in fixed-rate income where it is still adequately compensated, and leaning into collateral-backed structures that offer both contractual cash flows and protection in downside scenarios.

This is the essence of our High Grading thesis. Rather than reaching down in rating or structure to pick up a few xtra basis points of spread, we think investors will be better served by reallocating towards high-quality High Yield over Loans, favoring CLO liabilities and Asset-Based Finance where structural protections and diversified collateral pools help mitigate loss severity, and selectively deploying Capital Solutions/Structured Equity where the supply/demand imbalance is most acute.

We also favor international diversification, including leaning into Asia, at this point in the cycle.

Done thoughtfully, this approach should allow investors to preserve yield carry, improve capital efficiency (especially for insurance balance sheets), and build portfolios that are better positioned to navigate an environment of episodic volatility, idiosyncratic losses, and ongoing macro uncertainty.

This right when the US government is taking several regulatory and executive actions to “democratize” access to private equity and private credit for retail and retirement investors.

Among many measures, the SEC is exploring changes to the “accredited investor” definition to focus more on investor sophistication rather than strictly wealth or income criteria.

How will the SEC objectively measure sophistication?

Sophistication is not intelligence, and certainly not judgement (remember LTCM).

Wealth and income are much better measures of one’s ability to weather investment losses than sophistication. This is what the “accredited investor” definition was for.

***

Winston Churchill: The Second World War (VI), August 28, 1944:

It has been said that the price of freedom is eternal vigilance. The question arises, What is freedom?

There are one or two quite simple, practical tests by which it can be known in the modern world in peace conditions, namely:

• Is there the right to free expression of opinion and opposition and criticism of the Government of the day?
• Have the people the right to turn out a Government of which they disapprove, and are constitutional means provided by which they can make their will apparent?
• Are there courts of justice free from violence by the Executive and from threats from mob violence, and free of all association with particular political parties?
• Will these courts administer open and well-established laws which are associated in the human mind with the broad principles of decency and justice?
• Will there be fair play for poor as well as for rich, for private persons as well as Government officials?
• Will the rights of individual, subject to his duty to the State, be maintained and asserted and exalted?
• Is the ordinary peasant or workman who is earning a living by daily toil and striving to bring up a family free from the fear that some grim police organisation under the control of a single party, like the Gestapo, started by the Nazi and Fascists parties, will tap him on the shoulder and pack him off without fair or open trial to bondage or ill-treatment?

Other quotes:

“Whoever would overthrow the liberty of a nation must begin by subduing the freeness of speech.” ―Silence Dogood, likely pseudonym of Benjamin Franklin.

“Each of you, for himself or herself, by himself or herself, and on his or her own responsibility, must speak. It is a solemn and weighty responsibility and not lightly to be flung aside at the bullying of pulpit, press, government or politician.” (Mark Twain)

“It is by the goodness of God that in our country we have those three unspeakably precious things: freedom of speech, freedom of conscience, and the prudence never to practice either of them”. (Mark Twain)

China’s manufacturing sector returns to growth at end of 2025

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI) rose above the 50.0 no-change mark in December to signal a renewed improvement in manufacturing sector conditions. At 50.1, up from 49.9 in November, the latest reading indicated a fractional expansion of the Chinese manufacturing sector. This also marked the fourth improvement in the health of the sector over the past five months.

After stagnating midway through the fourth quarter, manufacturing production returned to growth in December, albeit only marginally. This was supported by higher amounts of new work, as the launch of new products and successful business development efforts reportedly boosted sales in the final month of the year. The improvement in demand was largely limited to the domestic market, however, as new export orders fell for the second time in three months amid reports of subdued external conditions.

Despite greater inflows of new work, purchasing activity stagnated in December. According to anecdotal evidence, a number of companies noted that they had sufficient holdings of raw materials and semi-finished products.

Indeed, stocks of purchases increased after falling in November. The upturn in holdings of pre-production inventories was also associated with improvements in vendor performance as lead times shortened again in December amid improved customer service and communication from suppliers.

Despite the rise in new business, staffing levels fell for a second straight month in December. Panellists indicated that this was underpinned by both resignations and redundancies, with the latter often attributed to restructuring efforts and concerns over costs.

Higher sales and lower workforce capacity led to another accumulation of backlogged orders. Moreover, the rate at which the level of unfinished work increased was the quickest in three months. To support order fulfilment, Chinese manufacturers opted to ship out existing stocks of finished goods, resulting in a second consecutive monthly decline in post-production inventories.

Turning to prices, cost burdens increased across the manufacturing sector due to rising raw material prices, especially for metals. Average input prices have now risen for six months in a row, with the latest uptick the fastest since September.

Despite stronger cost pressures, goods producers continued to lower their output charges in December as part of efforts to support sales and clear existing inventory. However, this was not the case for exporters, as average export charges rose for the first time in three months, and at the sharpest pace since July 2024, with companies seeking to defend margins.

Finally, business sentiment among Chinese manufacturers remained positive at the end of the year. Firms were hopeful that business expansion plans and the introduction of new products in 2026 will help to support growth in sales and production. That said, the level of optimism eased from November and was below the historical average amid lingering concerns about the outlook for growth.

• China’s Industrial Hubs to Cut Power Prices to Support Recovery

China’s two largest industrial hubs will reduce power contract prices in 2026 as Beijing pushes to shore up a manufacturing recovery.

The eastern province of Jiangsu, which surrounds Shanghai, will cut rates by 17% compared with 2025, according to data from the local trading bourse, cited by the state-owned power giant China Energy Investment Corp. on Tuesday. Last week, the southern province of Guangdong trimmed prices by 5%.

China’s factories have faced a challenging year of weak domestic demand and trade headwinds, though manufacturing activity staged an unexpected recovery in December after the longest slump on record. While price cuts provide support to industry, they will likely squeeze the profits of power suppliers. (…)

• Xi Declares China’s Economy Set to Hit 5% Growth Goal in 2025

(…) “China’s economy is forging ahead under pressure, moving toward innovation and quality, demonstrating strong resilience and vitality,” Xi told an annual meeting of the Chinese People’s Political Consultative Conference. “The growth rate is expected to reach around 5%, continuing to rank high among the world’s major economies.” (…)

• China Rolls Out Expanded Trade-In Subsidy Program to Boost Consumption in 2026

The National Development and Reform Commission (NDRC) and the Ministry of Finance announced that 62.5 billion yuan (about $8.9 billion) will be allocated in the first tranche of funding for the 2026 consumer goods trade-in and equipment renewal scheme, underlining Beijing’s commitment to counter sluggish consumption and support industrial upgrades

The new program significantly expands both the scope and scale of subsidies available to consumers:

• Electric vehicles (EVs):
  Consumers scrapping old cars and buying new energy vehicles can receive subsidies worth up to 12 % of the purchase price, with a cap on the maximum amount.
• Digital & smart products:
  Mobile phones, tablets, smart watches, fitness bands — and now smart glasses and smart home products — qualify for a 15 % rebate on purchase price as part of the trade-in program.
• Home appliances:
  Incentives for replacing old household goods such as refrigerators, washing machines, TVs and air conditioners remain, with eligible products receiving a 15 % subsidy up to specified caps.

Officials said the expanded coverage — particularly the inclusion of high-tech consumer devices and intelligent products — reflects a policy shift toward services and tech-driven consumption as well as durable goods.

The trade-in subsidies are part of a larger package of demand-boosting tools outlined by policymakers to support China’s economy in 2026. Last week’s Central Economic Work Conference designated strengthening domestic demand and building a robust internal market as a top priority for the year ahead.

Domestic consumption has been a weak link in China’s economic recovery, and authorities have repeatedly stressed the need to expand consumption’s share of GDP — currently lower than in many advanced economies — to drive more sustainable growth.

Did you miss Lastly, From Our China Trip?

China Takes Record Share of Europe’s EV Market in November

Chinese carmakers captured a record 12.8% of Europe’s electric-vehicle market in November, building on gains made this year despite the cost of European Union tariffs.

In the fast-growing hybrid-car categories, Chinese brands resumed their rise, surpassing 13% across the EU, EFTA countries and the UK, according to researcher Dataforce.

Brands led by BYD Co. and SAIC Motor Corp., along with newer entrants such as Chery Automobile Co. and Zhejiang Leapmotor Technology Co., have redoubled efforts to crack the European market this year. Overcapacity in China has fed the export push, as manufacturers seek a release from relentless price wars in their domestic market.

Mainland automakers have largely absorbed the extra fees that the EU imposed on Chinese-made EVs in late 2024, while pressing into areas unaffected by the new tariffs, such as hybrid models and non-EU markets like the UK. (…)

EU officials have proposed dropping a plan to ban sales of new combustion-powered vehicles by 2035, in the latest bid to protect one of the continent’s most important industries from a chaotic energy transition.

Did you miss Shhh…?

Fed Minutes Suggest Caution About Further Cuts Early Next Year At the December meeting, some officials backed holding rates steady ‘for some time’

(…) The written record of the Fed’s December meeting, released after the customary three-week delay, showed that most members of the Fed’s policy committee thought that rates could eventually fall further if inflation declines. (…)

Cuts have become an increasingly close call because price increases have been more persistent than the Fed would like, the minutes indicated. (…)

Most Fed policymakers backed this month’s rate cut, but some of those officials “indicated that the decision was finely balanced or that they could have supported keeping the target rate unchanged,” the minutes said. Other officials opposed December’s rate cut, expressing concern that the Fed’s efforts to get inflation back to the 2% target had stalled this year, the minutes said.

The minutes underscored deepening divisions within the Fed, especially in the most recent vote which drew three dissents—two from officials against any cut and one from a Trump ally who favored a larger cut.

Looking ahead, some officials suggested that “it would likely be appropriate to keep the target range unchanged for some time,” the minutes said. (…)

Each of the fall’s three rate cuts faced successively greater internal resistance.

In the forward-looking “dot plot” published earlier this month, the median Fed official projected just one more rate cut in all of 2026, although the outlook varied widely among the 19 officials who submitted forecasts. (…)

For now, bets in interest-rates futures show that traders mostly think the Fed will hold rates steady in January. (…)

• Job Vacancies Dropped 8% in November; LinkUp Forecasting Anemic Job Gains in November and Job Losses in December

(…) U.S. job openings posted globally by companies and employers on their websites around the world dropped last week by 145,877 or 5.0% from the week before last. Over the past 3 previous Thanksgiving weeks since 2022, the average decline was 3.7%, so this year’s drop, while expected, is nonetheless quite a bit larger than history would suggest. (…)

In November, U.S. job openings indexed daily directly from company and employer websites globally declined by 8%, while new job openings plummeted 20% and removed job openings fell 9%.

…in both manufacturing and services…

…and in every single industry except Retail-General Merchandise which rose a paltry 1% (so much for holiday hiring).

(…) based on the huge drop in job vacancies in November, December job gains will certainly be negative, perhaps materially so.

How Meta’s Newest Acquisition Target Got Around Worries Over Its Ties to China The $2.5 billion deal could herald a new era for China-linked AI companies and U.S. investors

Workers at Butterfly Effect, an artificial-intelligence startup with Chinese roots, gathered in March to count down to the launch of a demo of a new AI-powered tool called Manus.

Released in the shadow of DeepSeek, a China-built AI model that rocked the U.S. market in January owing to its advanced capabilities and low cost, Manus became an overnight hit. The product, which used models from Anthropic and others to produce detailed research reports and perform a host of other tasks, showcased the talents of China’s entrepreneurs and startups in a burgeoning global battle for AI supremacy.

The assumptions that underlie the East-West divide were turned upside down Monday when Meta Platforms said it was buying Manus, which is now based in Singapore. The deal, which was valued at $2.5 billion, according to people familiar with the matter, included a $500 million retention pool for the startup’s employees, one of the people said.

Chinese AI chip makers, chatbot developers and robotics startups have recently raised billions of dollars and are preparing for initial public offerings in Shanghai or Hong Kong. But they still face challenges squaring off with U.S. rivals that can access enormous sums to compete globally.

The founders of Manus made strategic decisions to distance it from its Chinese roots, helping position the company for U.S. investment.

Winston Ma, a professor at New York University School of Law and a partner at Dragon Capital, said that if the deal closes smoothly, “It creates a new path for the young AI startups in China.” The question is “whether D.C. will support this or say this is just another way of U.S. capital being invested into a Chinese company,” he said. (…)

Meta spokesman Andy Stone said that there would be no continuing Chinese ownership interests in Manus after the transaction and that the startup would discontinue its services and operations in China.

Meta’s deal surprised some officials in Beijing, some of whom disliked the agreement because they considered Manus an example of China’s AI power, people familiar with the officials’ thinking said. They believed that the sale would give the U.S. access to technology developed by Chinese engineers and encourage other startups to pursue a similar funding path, the people said. Beijing appears to have few tools to influence the deal given Manus’s foothold in Singapore. (…)

Chris McGuire, who worked on technology-export controls in the Biden administration and is now a senior fellow at the Council on Foreign Relations views the deal as evidence that export and investment restrictions work and could squeeze other Chinese AI companies, pushing them to do more deals with U.S. partners.

The response in Washington is a departure from earlier this year, when Trump administration officials including members of the National Security Council worried about a $75 million fundraising round for Manus led by the U.S. venture firm Benchmark, people familiar with the matter said.

Shortly afterward, the Treasury Department began reviewing whether the funding round ran afoul of rules banning investments in critical technologies for countries that pose national-security risks, the people said. The issue generally fell off the radar of many administration officials after Manus moved its headquarters to Singapore, they said. (…)

Manus in March released a demo of its AI agent, which is designed to handle more-complex tasks than a typical chatbot, such as producing a 100-page research report, generating a slideshow or building a website. At the time, most of its researchers and engineers were based in China.

Some in China called it another “DeepSeek moment.” An invitation code that gave people early access to the tool was resold for more than $1,000 on social-media and e-commerce sites.

Earlier this year, several local governments in China approached Manus and offered to invest in the startup, but its founders turned them down, according to people familiar with the matter. They were concerned that such connections could cause scrutiny in the West and create challenges for its global business, the people said.

Manus also shelved a plan to join with Alibaba to introduce a Chinese version of the tool that had been announced in March, people familiar with the plan said.

Around that time, Manus secured the funding that drew scrutiny in the U.S. It soon moved its headquarters to Singapore and laid off some employees in China.

Manus has since expanded its team in Singapore, recruiting new staff and showering the city-state’s subway platforms with its black-and-white logo. In recent months, Manus has announced partnerships with Microsoft and the payment company Stripe.

Earlier in December, Manus said its revenue run rate, a metric used by startups representing a short-term revenue figure that has been annualized, had risen to $125 million from $90 million in August. (…)

Selling to Meta gives Manus access to distribution channels such as WhatsApp and Instagram and a well-funded owner able to help cover computing and infrastructure costs. Meta said it plans to continue to operate and sell Manus’s service and integrate it into its suite of social-media products.

“Manus’s exceptional talent will join Meta’s team to deliver general-purpose agents across our consumer and business products, including in Meta AI,” Meta said in a blog post. (…)

Reuters:

Manus went viral early this year on X ⁠after it released what it claimed was the world’s first general AI agent, capable of making decisions and executing tasks autonomously, with much less prompting required than AI chatbots like ChatGPT and DeepSeek.

The company, whose products are not available in China, claims ​its AI agent’s performance surpasses that of OpenAI’s DeepResearch. It also has a strategic partnership with Alibaba to collaborate on their AI models.

Big deal in many respects. AI agents are key. Chinese agents are strong. Successful independent AI agent companies will quickly be absorbed by the tech giants. China has a problem with West acquiring Chinese agents. The Western world may have a problem with Chinese-developed software. Can cashless OpenAI keep pace? Etc…

Trump’s Rx for Chinese Biotech By importing foreign price controls on drugs, he’s compounding Biden’s mistake.

(…) Days before Christmas, the Centers for Medicare and Medicaid Services (CMS) proposed a 560-page regulation to implement the President’s “most-favored nation” (MFN) plan in Medicare. The point is to force drug makers to sell drugs to Medicare at the lowest price available in other developed countries.

This is bad policy for many reasons, but it’s also a government double-cross. More than a dozen firms struck agreements with the Administration this year to boost investment in the U.S. and to sell medicines directly to consumers at lower prices—supposedly in return for a reprieve from Mr. Trump’s threatened tariffs and most-favored nation regime. Now Mr. Trump looks to be playing them for suckers.

The CMS proposal would require drug makers to pay rebates to Medicare covering the difference between prices in the U.S. and the lowest price in 19 countries, including Canada, the Czech Republic and Sweden. While rebates will vary by drug, the kickbacks to Medicare could be upward of 80% of list price. (…)

Chinese biotech firms fast would be poised to take global market share from U.S. drug makers. Mr. Trump’s plan would also reduce the incentive to develop innovative medicines in the U.S. if firms don’t think they can make a profit to recoup their investment. The companies may also increase prices for commercial payers to offset the Medicare rebates.

Economist Tomas Philipson recently explained in these pages how the Biden Inflation Reduction Act’s Medicare price controls have caused companies to slash research on new cancer drugs. Yet those Biden controls cover fewer drugs than Mr. Trump’s new rule.

Since the IRA passed in 2022, companies have halted at least 55 research programs and abandoned 26 medicines. The damage has been greater for development on small-molecule pills, which are subject to the price controls four years earlier than biologics. This is a disincentive to develop easy-to-administer drugs.

Mr. Trump’s MFN regime would turbo-charge those disincentives and might even discourage low-cost generics. Why bother creating an inexpensive drug copy when it could be undercut by the MFN price? (…)

This is a tax on drug makers in another form—a bizarre way of getting them to invest in America. (…)

As for government savings, CMS projects that the MFN pilot would reduce Medicare spending by some $26 billion over five years—out of the roughly $7.5 trillion that Medicare is expected to spend in total over those five years. The cost in lost U.S. innovation will be far greater than the government savings.

It’s already cheaper and faster to develop new medicines in China, and many U.S. companies are scouting for drugs there. During the first half of this year, U.S. drug makers signed deals worth $18.3 billion to license medicines from Chinese companies. By doubling down on Mr. Biden’s price controls, Mr. Trump’s MFN rule is TrumpRx for Chinese biotech.

• Drugmakers raise US prices on 350 medicines despite pressure from Trump: Drugmakers plan to raise U.S. prices on at least 350 branded medications including vaccines against COVID, RSV and shingles and blockbuster cancer treatment Ibrance, even as the Trump administration pressures them for cuts, according to data provided exclusively by healthcare research firm 3 Axis Advisors. The number of price increases for 2026 is up from the same point last year, when drugmakers unveiled plans for raises on more than 250 drugs. The median of this year’s price hikes is around 4% – in line with 2025. The increases do not reflect any rebates to pharmacy benefit managers and other discounts.
• Ph.D.s Can’t Find Work as Boston’s Biotech Engine Sputters A job in life sciences was once a sure path to a high-paying career in the city, but empty labs and unemployed grads now herald tougher times

Jeremy Liew, 31, moved to Boston from New Jersey in 2018 to study for a Ph.D. in chemistry and, he hoped, a career in the city’s bustling biotech industry.

But after earning his University of Massachusetts, Boston degree last year, Liew said he has applied to about 500 local jobs with no luck. Born in Hong Kong, he said he has also started considering LinkedIn messages from biotech recruiters much farther away. “The industry really is booming in China, and that’s what a lot of people have told me, that I should consider applying there,” Liew said.

Boston’s biotech sector, long a vital economic engine for one of America’s wealthiest metro areas, is sputtering. A double whammy of cutbacks in venture capital and government funding have taken a toll, leading to layoffs and struggles for job seekers. (…)

By the end of September, nearly 28% of greater Boston’s laboratory space sat empty, according to the latest estimates from real-estate firm CBRE.

“Every stage of the life cycle has been impacted by policy or regulatory uncertainty this year,” said Kendalle Burlin O’Connell, chief executive of MassBio, an industry trade group. The impact has hit startups especially hard, she said. (…)

Biotech is an integral part of Boston’s economy. Offices and laboratories from big-name companies and startups dot the region, clustered near universities churning out research and future employees. Developers bet that demand would keep soaring during the Covid-19 pandemic and added millions of square feet of space. (…)

On the federal front, the Trump administration has terminated tens of millions of dollars in active grants in Massachusetts this year, according to Grant Witness, an independent group of researchers tracking grant terminations and reinstatements by government science agencies.

Also, while Massachusetts gets the most National Institutes of Health funding of any state on a per capita basis, changes are afoot. The NIH announced a strategy in November to promote “broad distribution and geographic balance” by spreading around future research funding. (…)

In Boston, real-estate developer IQHQ this past fall paused plans to build two lab-filled towers atop a platform over the Massachusetts Turnpike while it looks for tenants. In nearby Somerville, construction of a nine-story life-sciences building has been on hold since July 2024. (…)