Nic

The AI debt binge continues. Microsoft is officially back in the bond market for the first time since in 9 years! It's kicking off a 10 part high-grade bond offering today with tranches as long as 40 years! That's because in their results yesterday, they disclosed $45.2B in AI capex spend. Despite the Free Cash Flow beats, it's still not enough. The cleanest balance sheet in Big Tech is now borrowing to fund AI.

This midterm election will be unlike any other - and not in the way you think. Equity volatility has been considerably lower in the runup to these elections compared to previous midterms. The key question then becomes whether things correct post-election. A blue sweep + Iran attack could send markets sharply lower, spiking realised volatility. Less than a week to find out.

Despite Alphabet's massive miss on its earnings yesterday, it will be a big winner from the Anthropic IPO. It sold Anthropic TPUs & compute power in exchange for stock and convertible notes. Currently, it owns about 6.6% of the company (which at $1.75T is worth $115.5B). Not a bad deal at all...

French bonds have been the worst performers of all the major bond markets. And the outlook couldn't be worse. France's deficit target abandoned, parliament is blocking cuts, and a major presidential candidate has floated "cancelling" the debt.

The war could end tomorrow & the diesel crisis will still be far from over. According to the IEA: 1. Global diesel exports fell 700k bpd in Sept alone as losses from Russian & Gulf outweigh increased supply from US & China. 2. Restocking to take until H2 2027. Even if refinery output recovers, markets must make up for months of depleted inventories. 3. Oil flows have recovered faster than fuel supplies. Gulf crude exports climbed to 13.9M bpd in Sept, but refined product exports still remain far below pre-war levels. 4. Global oil inventories are down 509M barrels since Feb, with onshore stocks at their LOWEST since at least 2016. 5. The IEA warns global oil demand could fall 2.6M bpd as soaring prices & shortages force consumers to cut back. TLDR: A ceasefire could ease geopolitical risk. But that alone won't instantly restore lost diesel supplies, replenish inventories or repair disrupted refining capacity.

Those Alphabet earnings were BRUTAL. This was the first double miss in 4 years! The AI spend was also insane: - Long-term debt: +479% in a year, to $125.1B - Free cash flow: -$9.1B vs. -$2.7B expected - 2027 capex guided "significantly" higher, $300B+ Verdict? The stock is down over 10% in after hours. The burn is outpacing the payoff.

Guess who's been making massive profits from the gas & diesel surge? Refiners have been the best performing sub-sector of the energy industry. Next in line is tanker operators, then LNG exporters. "Scarcity" pays very well for those down the supply chain...

Rate hike in December. 2 rate hikes by March next year. That's what the futures market is currently pricing in.

As expected, the Fed keeps rates unchanged. There were two dissents who favoured a 25bp hike. The fed also upgraded their economic activity assessment and reinforced its goal of price stability. Translation: December rate hike likely & markets pricing that in.

This graph shows you everything you need to know about AI driven earnings growth. Nearly all of the earnings growth is going to those supplying the AI. Those adopting AI have seen earnings uplift, but it's been marginal. As they say: In a gold rush, sell the picks & shovels..

Brent is back above $115. The days ahead could be critical. 1. Saudi is facing renewed attacks - Houthis claimed strikes against Ras Tanura, the Kingdom's largest refinery, for the 3rd time this year. - Other KEY Saudi targets reportedly hit, including Defence Ministry HQ in Riyadh, two airports & an airbase, all in a single day. 2. US alerts vessels in Hormuz - US Military warns vessels to avoid unnecessary transits through Hormuz, citing potential blockade & persistent attacks. - Iranian attacks on ships topped 30 in October alone. 3. US warns Gulf allies to brace for fresh strikes - Washington warned Gulf states to prep for intense military campaign against Iran after midterms, per WSJ. - Iranian retaliation could threaten Gulf states even with no direct involvement from the latter. - Expect disruptions in energy, shipping routes & regional security. What happens now? Market is caught between two very different outcomes: 1. A deal could ease the risk premium in oil. 2. Renewed strikes, Iranian retaliation or attacks on energy infrastructure could drive prices higher. But there is a third possibility. The war drags on with no decisive breakthrough. Global fuel pressure remains as further escalation threatens to push prices higher.

The US is telling ships that they fully control Hormuz while at the same time asking them to avoid crossing it.

SK Hynix shares are SURGING! They've skyrocketed by 11% today on the back of record earnings. Revenue is up 328% with operating profit up a staggering 632%! They say they're sold out through 2029. Is this a genuine signal? Or a last gasp before the cycle turns?

This is absolutely WILD. At $131.7 Billion, Anthropic has more cash & equivalents than almost every company in America. You know what's even crazier? It's STILL only 22% of future leases & compute commitments of $587B. And that's why despite record cash, they need the IPO.

US Big Tech is expected to spend $1 Trillion on AI capex next year. That's 3.14% of GDP. China is expected to spend only $123B - a mere 0.57% of GDP. And yet, Chinese models perform just as well as American ones. They're open-source, cheaper, and gaining global adoption. So, does the US spend justify the ends?

Chinese stocks are collapsing! And the government is doing everything it can to prop it up. They're relaxing margin trading is encouraging buybacks. State media is pushing positive narratives. It's even deploying the "national team" (state-aligned funds and brokers) to help buy stocks. When it has to intervene this aggressively, the problem is bigger than they're admitting.

Why a Fed rate hold today isn't exactly good news: 1. Inflation is rising again Inflation is high at 3.7%, well above the Fed's 2% target. Core inflation is also picking up which shows that its getting embedded in stickier prices. 2. December could bring the same dilemma A hold today doesn't rule out a hike in Dec. If price pressure persists, Warsh may have to tighten further just as markets hope rates have peaked. 3. Warsh can't hike his way out of a supply shock AI investment is supporting demand while energy disruptions push costs higher. Rate hikes can cool spending, but can't restore disrupted supply. Fed risks slowing growth without bringing inflation down enough. For markets, today's hold offers short-term relief, but a Dec hike remains firmly in play.