NY Times Bestselling Author, over 1 million copies sold, now published in 12 languages globally. Long-time @CNBC Contributor, founder of the @BearTrapsReport
New York, NY
Joined March 2009
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Got Hard Assets?
It's Happening - Financial Repression
Breaking - LONG-TERM US YIELDS DROP ON TREASURY PLANS TO BOOST BUYBACKS - Bloomberg
If you’re a fiduciary putting a 70-year-old’s retirement into the S&P 500, more than 15% of that money now sits in two stocks. Ten years ago? It was 5%. On $1M, that’s $150,000 in Nvidia and Apple alone. The index didn’t just get riskier. Your client’s exposure did.
A five-year-old knows there’s endless demand for compute.
Where are the molecules? The gas, the land, the transformers, the years it takes to build them. That’s what the credit market is pricing, not the apps. The cost of default protection? Nvidia’s five-year CDS just crossed 116 vs 35 a year ago. Oracle’s > 300bps. CoreWeave’s > 1100. All the monkeys in the tree are shouting demand. The bond market is answering where the supply actually is.
Andy Jassy reveals AWS capacity is sold out for 2026, largely sold out for 2027, and a good chunk of 2028 is gone
“If you think about it, there’s only so much data center and power today. There’s only so much memory, and I don’t think that that shortage ends in 2027."
"I believe, one of the reasons, coming back to the capital investment, why I think we could invest a lot more and it wouldn’t be a bad use of capital is that '26 is obviously at this point sold out. '27 is largely sold out. We always leave a certain amount for on-demand in our inference service, Bedrock or EC2, but largely sold out, all the big chunks. A good chunk of '28 is sold out."
"There’s so much demand. If you think about the AI business and what we call core business, which think of core as non-AI, they’re both growing at really rapid rates right now. And if you have only a certain amount of memory, you have to decide how much of the memory you want to allocate to HBM, to the AI accelerators, versus to DRAM, into your core. So these are real trade-offs you have to make.”
Companies that control hard assets (commodities) in a multipolar world.
*$XOM at $183 today — Kicked out of the Dow Jones Industrial Average in 2020 ($42), after being in the index since 1928 (Standard Oil). Replaced by a software company whose shares are off 8% since.
Dear Blackstone’s Pump Master - A five year old knows there is endless demand for compute. The high impact question is - where are the molecules to power compute, and are they in the right place? A meaningful disconnect there = a credit crisis.
I like Blackstone and JG but I don't think this is quite right. While Gray's description of general conditions in spot market for compute is correct, that isn't super relevant to Coreweave since a vanishingly small % of Coreweave's compute can harvest these lucrative spot market rates. 98% of $CRWV's compute is locked up in contracts whose average life is 5 years.
The irony is that if Coreweave was more "speculative" and wanted to build compute before having customers first, they would be gushing cash now. But because they were "responsible" and secured offtake partners that gave Blackstone and other lenders the confidence to lend, they are locked in at "low" compute rates.
S&P comments on inflation "were a complete train wreck: Selling price inflation picked up further momentum in October. The overall rise in prices across goods and services was the largest since August 2022."
The upturn in price pressures was also broad-based: while services inflation edged up to the steepest since August 2022, manufacturers’ selling prices rose at a pace not seen since July 2022, with the rate of inflation accelerating markedly. Higher prices reflected a further sharp increase in companies’ costs. Average input costs measured across both goods and services rose at the fastest pace since November 2022, excluding only the rise seen in September.
Today's Headline
"Apple $AAPL is Wall Street’s Favorite AI Haven as Spending Fears Hit."
*Bloomberg Terminal data.
Wall St. Research: I was literally told 20x this month that Mag7 - unchanged since May and up 6% YTD - are impervious to higher interest rates, cost of capital.
Don’t overthink it. Hyperscaler and AI CapEx stocks are dumping because the assumption that there will be unlimited cheap debt to fund the AI buildout is proving false.
Only two ways around it:
1) Cut the CapEx
2) Fund it with equity
And both result in lower EPS.
Welcome to your first commodity cycle, Muse bros.
Financial assets vs. Hard Assets
My parents paid $16,000 for the house I grew up in. It’s now worth $783,000 on Zillow.
Sounds like they made a fortune, right?
In gold terms, that house cost 450 ounces in 1962. At today’s gold price, it’s worth 250 ounces.
The house actually lost value.
Politicians get away with robbing working class people blind because most people don’t realize their nominal gains aren’t real gains.
They think they’re inflation-adjusted rich, but they’re not.
How can the Fed hike rates? Net interest on the U.S. debt is > $1T, approaching a *record* 20% of every tax dollar collected > defense spending. We’re not borrowing for the future anymore, we have to pay the bill on the past. This isn’t a fiscal problem. It’s a math problem.
*TREASURY 5-YEAR YIELD FALLS 15 BASIS POINTS ON DAY TO 4.80%
*Credit risk surges with a bond rally, hmmmmm.
Quick update - a few things you need to know right now.
CIO level Ideas Dinner - Special thanks to Astrid & Gaston! An outstanding venue.
"biggest threat to USD bears right now, is the FREXIT, France has to roll $500B debt annually, well known bear case, the gov proposed $50B in savings in recent weeks, that has already been wiped out by the change in spread (credit risk last 30 days), a lot of their rolling debt is refi-ing near 5% from zero to 2% (bonds issued 2020-2022, interest on the debt is exploding higher. The ECB must stop the bal sheet runoff, threaten the bears with $10B a month of QE to stop this bleeding. SX7E -14% drawdown, new local lows, with the XLF +600bps off the October lows (strong counter trend rally), this is telling" CIO London