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Sunday, August 2, 2026

2026-08-02

***** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic Fare:

HUDSON BAY RESEARCH: A Return to Monetarism?
Peter Ireland · Stephen Miran · Nouriel Roubini

Executive Summary
Due to the instability of money demand, monetary policy implementation in the United States has held a smaller and smaller role for analysis of money, to the point that the Federal Reserve and therefore market participants rarely if ever mention it. However, new Fed Chairman Kevin Warsh has clearly indicated a view that money supply is relevant for monetary policy. Our contention is not that a return to targeting monetary aggregates is imminent or appropriate, but that monetary aggregates contain useful information for forecasting growth and inflation and this information should not be discarded, as it currently is.

Because they generally follow the Fed, financial markets are ill equipped to understand the return of monetary analysis. We aim to bring them up to speed. We first review monetarism and its rise and decline at the Fed. Next, we survey the state-of the-art in this unjustly neglected field of macroeconomics. There is significant evidence that Divisia monetary aggregates outperform simplesum aggregates. Finally, we extend the frontier of monetary analysis to current data through an application of the Greenspan-era P-star model.

Under benchmark assumptions for the supply side, most monetary aggregates indicate monetary policy is at present approximately neutral in its effect on inflation. ...........


A sustained oil price surge could drive inflation fears, or even spark a global recession, analysts say.

......................... The International Energy Agency agreed in March to make a record 400 million barrels of oil from strategic stockpiles available after a surge in global crude prices sparked by the Iran war. This week, the agency said that around 290 million barrels have already been released. Meanwhile, the United States’ Strategic Petroleum Reserve fell to around 310 million barrels last week (its lowest level since 1983) as the government continues a 172-million-barrel emergency release program.

“This brings us into a more dangerous phase versus March,” says Christopher Haines, global head of oil at Energy Aspects. “We have drawn down 300 mb [million barrels] of crude oil stock since March, including 170 mb of SPR [Strategic Petroleum Reserve], so global stock levels are far more constrained.”

............... “If there’s no de-escalation, if the conflict continues, if the Strait remains effectively closed, how does the world reach a balance in this new equilibrium? And the answer is very high prices, because you need to destroy demand,” says Alan Gelder, senior vice president of refining, chemicals, and oil markets at Wood Mackenzie. “That just drives the global economy off a cliff. So we go into this energy-induced global recession.”





.......................................................................... But physical matter does not obey political communication indefinitely. One can influence the financial price of oil for a few weeks, perhaps a few months. One cannot create barrels that do not exist. If stocks fall, if refineries produce less, if refined products become scarcer, sooner or later the market must ration demand. And rationing takes place in two ways: through political decision-making, with conservation measures, or through price, by making fuel expensive enough to destroy demand.

The second scenario is the most brutal. If the system has to reduce consumption through price, then the current level might not be enough. Oil – or rather, refined products – would have to rise high enough to force households, businesses, airlines, hauliers and governments to cut back on their use. In that case, the crisis would no longer be hidden away in storage facilities, but would become visible in everyday life: reduced flights, more expensive fuel, higher freight costs, inflation, local shortages and emergency measures.

The geopolitical crux remains the Strait of Hormuz. As long as the strait remains closed or virtually closed, a return to normality is impossible. Even if a reopening were announced, a return to normality would take months. .......................



So, it seems that Ansar-Allah (the Houthis) struck an oil refinery in Jizan, Saudi Arabia. They also took a shot at a refinery in Yanbu, apparently intercepted by a battery the Greeks had there (what?)

Anyway, this is getting real. Between the Ukrainian strikes on Russian refineries, which have been very successful, Iranians hits, and now the Houthis, I don’t see how we avoid serious shortages. It’s the refineries that matter most: crude is worthless without refineries and they’re expensive, take a long time to build and aren’t always easy to repair, depending on what exactly got hit.

I also don’t see how we avoid massive famines and increased food prices in places that don’t have a formal famine. A lot of fertilizer runs from oil thru refineries. .............



I have been on record as "higher for longer" against the naysaying Team Transitory for a few years. Thus, I pushed back hard on the late-2025 expectation of three FED rate cuts.

To my chagrin, I was more right than anticipated, and I now offer that the FED should hike their rate by 50bps after tomorrow's meeting.

I will say I can offer no economic support for a 50bp hike, rather I am looking solely at market psychology and politics.



....................... Dr. Lacy Hunt is a living economist who has had a profound influence on me over the years, particularly as it pertains to the interaction of debt, money, savings, velocity, and economic growth.  His understanding of how excessive government borrowing crowds out productive investment and stunts long-term economic growth is remarkable, and the work he has done, in my opinion, in this domain is unparalleled.

Dr. Hunt has been a long-time proponent of the view (which I share) that the long-term inflation range has been compressed by the twin effects of fiscal and monetary policy interventions.  I refer to this dynamic as “Japanification” and argue both from history and economic theory that excessive government indebtedness, followed by the elixir they use to treat it all (fiscal and monetary interventions), puts downward pressure on economic growth, and in that sense is either disinflationary (best case) or deflationary (Japan’s generational experience).  Regardless of the outcome to the price level, the impact on both nominal and real growth is erosive, and undermines the economic potential of a country (such as ours).

Lacy has recently argued that the structural range of U.S. inflation is likely to move higher after 30+ years of this lower equilibrium range due to a “steady erosion of the disinflationary architecture that dominated the 1990-2020 period.”  He frames his argument for a new inflation range around the death of globalization.  Essentially, the argument is that:
  1. Globalization accounted for the prior period’s disinflation
  2. Globalization is dying
  3. Therefore, the prior period’s disinflation will be gone
.............. I want to suggest to Dividend Cafe readers that we can agree globalization contributed to disinflation (it is undeniable), and we can even agree that globalization has seen its peak (though I need to comment more on this shakier premise in a moment).  But what I believe warrants further scrutiny is whether or not globalization explains all disinflation of the prior generation, and if it doesn’t, whether or not the other contributing factors are also seeing a paradigm shift.

I want to suggest that old deflationary factors still exist in spades, and that new deflationary factors may very well be coming – for good or for bad. .....................................



Market Fare:







......................................... Another pivot is underway, in the stock market’s attitude to the capital expenditures building out artificial intelligence. The hyperscalers — Amazon.com Inc., Alphabet Inc., Meta Platforms Inc., Microsoft Corp. and Oracle Corp. — that are trying to build a dominant position in the new technology saw their shares rally for years after the launch of ChatGPT. That is over. Their share prices have gone nowhere for the last 12 months as the excitement moved to chip manufacturers, the suppliers that stand to benefit most.

Last week, there appeared to be a further pivot, when Alphabet announced revenues and earnings ahead of expectations but also said that it would be further stepping up capex. Both the hyperscalers and their suppliers are falling. All the constituents are still sitting on huge gains for the ChatGPT era, but at least implicitly the market is now asking whether the hyperscalers will really go through with their capex plans, and are cutting back on the chipmakers accordingly ........

It’s way too early to say that the AI trade has peaked, and this week’s results from Apple, Amazon, Meta and Microsoft should shed further light. But note that the nerves over AI are happening even as overall earnings remain remarkably strong.


Diverging internals, widening credit spread, rising inflation vol…

Summary: Internals, credit, and short-term breadth are all deteriorating. Add rising inflation volatility and a run of news failures, where earnings beats are getting sold in names like MU, INTC, GOOG, and ASML. That’s enough to stay defensive into this week’s FOMC, where the market may be underpricing a surprise 50bp hike. .......................

13. We’re not bearish but we are increasingly cautious. Add the deterioration in credit to the list (chart from Jason Goepfert / SentimenTrader).

14. Internals continue to deteriorate. We still haven’t seen enough in the weight of the evidence to call a major trend change, but the backdrop points to more near-term weakness and volatility. If Bassman is right and the Fed hikes this week, let alone 50bps, we could be in for a volatility pocket.

15. Our preferred short-term breadth measure, the McClellan Summation and Oscillator, have both rolled over. That confirms what internals and credit are telling us. Be defensive and wait for clarity or a positive catalyst. We’re comfortable holding high cash and will reassess post-FOMC.



The S&P 500 spent most of the year riding above its 50-day moving average, and we have warned for the last couple of weeks that a break lower would be worth paying attention to. That break occurred on Thursday, as the index closed the week at 7,411.98, roughly 0.8% below the 50-DMA at 7,467, marking its first decisive break below that line in months.

Momentum has clearly rolled over. The 14-day RSI sits in the mid-40s, below the neutral 50 line but not yet oversold, suggesting there is room for further downside before the tape gets stretched. The MACD agrees with the signal line crossing bearish about a week ago, and the histogram keeps widening to the downside. This is what the early innings of a pullback look like, not the middle or the end.

............. The bigger trend is still intact. The 200-day moving average sits at 7,001, and the index remains almost 6% above it. A slide to the 50-DMA or even the July closing low near 7,354 would be entirely normal inside an ongoing uptrend. The line that matters is the 200-DMA. Lose that, and the conversation changes.

............... Be honest about the near-term risk first. Valuations are not cheap. The broad market still trades well above its long-term average multiple, and the megacaps carry a premium on top of that. Free cash flow is under real pressure, and Alphabet just posted negative free cash flow of $5.9 billion and paused buybacks to fund the buildout. Capex guidance keeps getting revised higher, not lower, which means the deferred depreciation bill I described earlier is still growing. Add a tape below its 50-day average and the worst three-month stretch of the calendar dead ahead. More downside over the next quarter or two would not surprise me.

............ Those are not the numbers of a dying business. They are the numbers of businesses that cannot build capacity fast enough to meet demand.

This is where Howard Marks and his second-level thinking earn their keep. The easy call is to sell what just went down. The harder and usually more profitable call is to buy durable franchises when the crowd has decided the story is over. The hyperscalers are not dead. They are expensive, early in the payback, and briefly out of favor, which is a very different thing. We’d use this weakness to build positions in the names where cloud growth and backlog clearly justify the spend. And we’d do it in pieces rather than all at once.



I. On Industrials
Investors are suffering from AI fatigue. They’ve concluded that there is no way to estimate whether all the capital spending on AI infrastructure will generate good ROIs in the coming years. What they do know is that hundreds of billions of dollars are being spent on AI capex in the here and now. That explains why S&P 500 Industrials is the second-best-performing of the 11 S&P 500 sectors with a gain of 17.7% ytd (chart). That’s ahead of the 15.4% gain for the S&P 500 Information Technology sector…. Within the S&P 500 Industrials sector, several of the industries have benefited from the AI capex boom, especially Construction Machinery, Electric Equipment, and Industrial Conglomerates (chart). They should continue to do so, and we continue to recommend overweighting the sector.


Big Tech Debt Flood Is Taking Over Risk In Market: Credit Weekly
  • Big Tech's appetite for AI investment is driving a wave of bond sales, having a bigger impact on the US corporate bond market than might be obvious.
  • Debt from the six biggest tech companies represents 8.6% of the duration times spread for the US high-grade corporate market, more than the 7.3% for the six largest banks.
  • The biggest tech companies are expected to issue around $285 billion of investment grade debt globally this year, with some investors welcoming the tech-led issuance wave and others expressing concerns over concentration and potential risks.


Bubble Fare:

One day the bust will be the big one, but for now the pullback in AI-related stocks has been almost completely offset by gains elsewhere

..................... My best guess on the reason for all these bubbles is a mix of easy money, the gambling instinct and hopes for new technology. These are the standard ingredients of bubbles from canals and railroads to the Great British Bicycle Bubble. But they’ve been on steroids since the 2007-09 financial crisis.

............ “The banking system is in rude health,” says Russell Napier, a global macro strategist and keeper of the Library of Mistakes, an Edinburgh-based collection of books on financial history. “That means there’s always more credit to do the next bubble.”



A.I. Fare:

The AI “bear case” isn’t one argument; it’s three. Burry on earnings. Bernstein on circular financing. MIT on revenue. Two are half right. One falls apart on the data.




Recently I saw a piece from popular AI Boom commentator Ed Zitron entitled “The Subprime Data Center Crisis”. I’ve long been critical of how often the topic du jour is analogized to the Great Financial Crisis of 2007-2009 so I knew I would read the piece critically and likely feel the pull to write about it. I did, hence the piece you’re reading right now.  .................


Nvidia is falling. The mood has changed.





CDS spreads have started to widen out for names in AI, and the market is asking three fundamental questions:

1) Will the AI capex pay off, and how quickly? With trillions committed to data centers, chips and power up front, the question is whether AI monetization ramps fast enough to clear the cost of capital before the assets depreciate, or whether it’s an overbuild whose ROIC never catches up to its WACC on a massive, front-loaded outlay. For more, see also here.

2) How is all of this being financed, and at what spread?  .............





Crypto Fare:

The Bitcoin forecast a pension actuary is obliged to make


...................... For a decade the question was whether serious institutions would ever put Bitcoin on the list. They are on the verge of something stranger: putting a number next to it, in a document with an audit trail, that binds them for three years at a time. When that number appears, it will not be the market’s best estimate of what Bitcoin is worth. It will be one profession’s most defensible estimate of what it can be blamed for. How much of the price should be set by a figure chosen for its defensibility?



Vid Fare:







Quotes of the Week:

Rabo: Markets have a habit of explaining every move with the most obvious narrative available. This week, that narrative was earnings. Investors spent days dissecting cloud growth, AI capex, free cash flows, and also Fed messaging, while some of the most dramatic price action of this summer was being driven by something else entirely. 


I saw a post on Reddit that said that “The underlying purpose of AI is to allow wealth to access skill while removing from the skilled the ability to access wealth.” And I don’t think I’ve ever seen AI described so incisively.



Charts:
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(not just) for the ESG crowd:




How the many converging crises lowered the prospect of keeping all 8.3 billion of us alive

Happy Earth Overshoot Day Everyone!
Yesterday, on July 30, we humans have consumed the last bit of ecological resources what Earth had the capacity to regenerate within our current calendar year of 2026. From yesterday on we are living on borrowed time—as we have been doing so every single year since 1971—drawing down the last remaining stocks of fisheries, top soils, forests, you name it in the process. At the same time we were merrily burdening the biosphere with an ever increasing amount of pollution as if there’s no tomorrow, overloading Nature’s capacity to cope. How bad could it be? Well, in case you were wondering: climate change, biodiversity loss, and extreme weather events (just to name a few symptoms of this planetary scale overshoot) are not a result of CO2 emissions alone but a direct consequence of the sum of our agricultural, mining, industrial etc. practices we call ‘modernity.’ And even if all 8.3 billion of us lived like an average Honduran or Cambodian we would still live up a year’s worth of natural resources in eleven months. Sounds sustainable? Not to me. 


............



............ And you have to keep in mind, we’re not done yet. The big jump in food prices still has to happen. The Strait of Hormuz, is shut down again right now. This results in higher fertilizer prices, which results in higher food prices. The Bab El Mandeb is now also shut down.

Since my last post on the topic, it has become clear that we’re now facing a bigger El Nino than anything ever seen before. The median forecast is 0.8 degree Celsius above the previous worst El Nino we’ve ever had.




To understand where climate change is heading, we have to look at the planet’s distant past and appreciate the disturbing uniqueness of our situation




What Is a Fire Cloud and How Are They Making Europe's Wildfires More Dangerous?

..................... Described by NASA as a “fire-breathing dragon of clouds,” fire clouds are created by the intense heat of wildfires, generating an updraft of superheated, fast-rising air that can trigger powerful storms. Jean-Baptiste Filippi, a researcher at the French National Centre for Scientific Research (CNRS), tells TIME that the clouds fall into two categories: pyrocumulus and pyrocumulonimbus (also known as pyroCb). He explains that pyrocumulus is the first stage of a fire cloud. As the wildfire releases large amounts of heat, the air near the ground heats up and rises rapidly, generating a strong upward current.

.................................. Pyrocumulus and pyrocumulonimbus remain relatively rare in Europe. Further afield, fire clouds were observed during Australia's 2019-20 bushfires and in California's 2020 wildfire season. Filippi warns, however, that climate change could make these events more common in Europe. "You need stormy conditions, and then you need fire. We are going to have more stormy conditions, and we are going to have more fire. So the probability of having both together, at the same place and at the same time, is higher," he says. ...............



Sci Fare:

Sleep disturbances are far more common among workers in mid-later life than previously believed, according to a study that links work-related stress to a range of wellbeing issues.







U.S. B.S.:




There’s a powerful new documentary out called Earth’s Greatest Enemy by Abby Martin about the ecocidal abuses of the US war machine, and it addresses the most pressing existential hurdles we face as a species like nothing I’ve seen before.

The film breaks down how the US military has become the single most environmentally destructive institution on our planet by an extremely massive margin, walking the audience through the many ways the Pentagon and its global metastases have been churning out carbon emissions, pouring toxins into the air and water, wiping out precious ecosystems for gratuitous military bases, and pummeling our sea life with sonar and noise pollution, all while gleefully salivating at the prospect of plundering the resources which lay hidden beneath our planet’s rapidly thawing polar ice caps.

Martin skillfully ties the planet-devouring behavior of the US military to the global systems of capitalism and imperialism it was built to uphold. The viewer is left with a crystal clear picture of the ways ecocide, militarism and capitalism are inseparably intertwined, and an understanding that meaningfully opposing any of these malignancies necessarily entails opposing them all. The liberal fiction that one can be pro-environment while also supporting the US military is forcefully exposed for the absurdity that it is.

It’s a jarring film with extremely dark subject matter, but it also manages to be a work of transcendent beauty and optimism. A deep love of humans and all of earth’s creatures shines through in shot after shot, while slick editing and an inspired soundtrack allow the movie to zip along at a lively and entertaining pace. Martin concludes with a galvanizing call to use our outrage to loosen the empire’s already weakening grip on humanity’s collective consciousness, because our entire world depends on it. ..............



War Fare:


Trump ordered the US military not to carry out new strikes on Iran Friday night, despite approving earlier a "Gates of Hell massive attack" on Iran. The US has now requested a new temporary ceasefire with Iran and is seeking a return to the collapsed and suspended MoU, with discussions to include Yemen, and with Trump seeking to make AnsarAllah a party to the negotiations.

Clearly Trump is angry, and fears that that the war is consuming his Presidency (and his legacy). Iran comprehensively rejected all negotiations throughout this last week and confirmed it will not start negotiations under any circumstances. Put simply, why would Iran consent to give the US time to regroup and rearm before launching another round of strikes on Iran when it has the US “on the run.”

A return to the MoU whose credibility Trump repeatedly has shredded? Unlikely.

Will Schryver notes that rumors are swirling that the Pentagon is pressuring Trump to call off the war with Iran because the US has nearly exhausted its stockpiles of air-defence interceptors and stand-off strike missiles. ...........


That's one way to deal with data centers.





Geopolitical Fare:


An aspect of the current clash of civilizations that goes largely unnoticed in the US is that there is only one civilization, if we can call it that, doing the clashing. That would be the US and its arrangement of vassals that emerged from WWII. As if participating in an exploitation video called good vassals gone bad, the former liberal governments of Europe have moved hard to the foreign policy right. Through near complete reversal of the Western liberal order, the West is back to fighting WWII. Only without any defensive missiles. Or competent leaders. ...............

............ That US military planners didn’t foresee this suggests that competence isn’t their strength.

Not that Americans would know anything about it. No news or low-quality propaganda are what we are fed. For one-and-one-half-trillion-dollars-per-year (Pentagon budget), higher quality propaganda should be the least that we get. ........................


Why western leaders refuse dialogue with their adversaries while pursuing unwinnable wars

................................................................................... George Orwell used the phrase “History is written by the winners” in a 1944 essay. And yet modern conflict defies outright victory. It seems unlikely that any side will claim outright victory in either Ukraine or in Iran.

Few believe the USA will conquer Iran and by the same token Iran can only inflict severe damage on America’s standing in the world and its alliances in the Gulf, without undermining its position, for now, as the preeminent military power.

Britain and Europe’s attempts to defeat Russia in Ukraine will ultimately prove to be unsuccessful and also self-defeating, as Ukraine is turned into an angry failed state on its periphery. Nevertheless, Russia simply doesn’t have the means either fully to conquer Ukraine or indeed, Europe, an even more fantastical idea.

But herein the central truth of the western post-diplomacy model.

The US, Britain and Europe refuse diplomacy because this would require an admission of failure to their publics who they have repeatedly assured of victory.

When a clear victory appears unachievable, they settle for ongoing war and media manipulation to ensure that their voting publics maintain their support.

By claiming stalemate as success, they can position Russia and Iran as both losing, even if western powers aren’t winning.

History, however, will likely record the wars in Ukraine and Iran as catastrophic for western powers in terms of their global standing and credibility. ................



History has cycles. When dealing with ideas about how to organize societies there are ideological and sub-ideological cycles. Various nations have been capitalist since the 16th century, but what the means kept changing, usually every 50 to 80 years. Britain started very protectionist. It had periods where imperialism and capitalism were very intertwined. It had laissez faire periods. All of these were forms of capitalism, but they were quite different from each other. The Roman Empire is an empire from Augustus to the end, but the Rome of Augustus is very different from future Romes, with their serfs (something Augustinian Rome didn’t have), their German legionnaires, and so on.

In our times there are people alive who remember two and a half transitions:
  • The transition from laissez-faire (in America) to New Deal.
  • The transition of New Deal to Neoliberalism.
  • The transition of neoliberalism to whatever the new system will be called. (This is not the old system, Trump’s crazed tariffs, export controls to major buyers, the severe cutting of research, etc… all show that.)
In China they remember:
  • The change from warlordism and Republicanism to Maoism.
  • The change from Maoism to Dengism.
  • The recent change from Dengism to Xiism.
Globally we remember multiple transitions as well
  • The transition from the multi-great power world centered on America/Europe to the Cold War world dominated by the USSR and US. (Note this transition involved two world wars.)
  • The transition from the cold war world to the unipolar superpower world with the US the world hegemonic power.
  • The current transition from the American hegeomonic world to whatever will replace it.
................



..................... Things are happening. Big things. If you want the official “big collapse” well, it’s not here yet for the first world, but the death by a thousand self-inflicted wounds continues. As much as I admire what China has done, and as impressed as I am by solar and so on, they are still an industrial society based on planned obsolescence and over-production and are about to hit a demographic cliff (good in the long run, but it will cause issues.) The only escape from much of the resource trap would be large scale off world mining. Musk isn’t going to manage it. The Chinese are taking a shot, we’ll see. That wouldn’t, by itself, fix ecological collapse, however and won’t supply all necessary resources. It’s also unlikely to come on line in time, if at all.

You’re living thru an epochal period, similar to the WWI thru WWII period: everything is changing, but this time including serious environmental issues. There’s also all the social issues related to AI, phones, the collapse of reading and reasoning ability in some societies, mass surveillance and the rise of authoritarianism, even as civil liberties are contracting in almost every country in the world.

The post-war and post-cold war orders are dying or dead. The negative consequences of the industrial revolution are hitting home after we got the goodies for a couple centuries.

Things are happening. More things will happen over the next couple decades. If you can’t see that, you’re blind.



Vids:






Other Fare:

How the US's long push to deregulate outer space led to SpaceX's dominance of the skies

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Monday, July 27, 2026

2026-07-26

***** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic Fare:


................. Amrita Sen, founder of Energy Aspects, pointed out that heading into the US-Iran war, the global oil market had around 400 million barrels of excess inventories, not including strategic reserves controlled by governments.

"Now we have close to nothing ... and market complacency around Hormuz flows is being severely tested," Sen warned.










This is not a blanket levy on everything crossing the northern border, and what got left out is as revealing as what got hit. Oil - of which Canada is the largest foreign supplier to American refineries - is exempt. So is potash, the fertilizer input U.S. farmers depend on and cannot readily source elsewhere. Fish and critical minerals are out. So are goods already carrying national-security tariffs, including steel and many auto parts, per the White House fact sheet.

What remains is still enormous. ..........



Market Fare:

A holistic review of the recent changes in the distribution of risk across the financial system and their consequences for market structure in general and Liquidity Dynamics in particular.



The second-quarter earnings season is in full swing. So far, the results are landing in line or better than the upwardly revised Wall Street estimates. That’s the opposite of how this usually works. Analysts normally trim their forecasts as a year wears on. In 2026, they’ve done the opposite. The S&P 500 is on track to grow earnings north of 20% for a second straight quarter. The earnings are real. However, a meaningful slice of them is also an accident of accounting timing. That timing, the AI capex depreciation risk, hasn’t hit the income statement yet. But it is about to turn from a tailwind into a headwind. ...........

Currently, the entire earnings growth story is concentrated in the semiconductor and AI-infrastructure names. The accounting underneath it is where the catch hides. .......... 

Todd Castagno at Morgan Stanley calls this “a golden window where everybody looks good.” He’s right. Revenues and margins look strong among chipmakers and the companies buying the chips at the same time, which is exactly the kind of broad, simultaneous strength that convinces investors a cycle is durable rather than borrowed from the future. Make no mistake, there’s nothing improper here. This is how companies book capital assets. What’s different this cycle is the sheer scale of the spending, and the eventual AI capex depreciation is being overlooked. ........


Big momentum thrust signal across financial sub-industries…

.......... 4. The S&P continues to coil. Our base case remains an eventual break higher. Near term, renewed US–Iran tension and firmer oil argue for some potential downside first.

5. Breadth eased but held .......

6. Internals are deteriorating. The key market internals are moving the wrong way. If the picture doesn’t stabilize soon, our one-to-three-month outlook turns decidedly more cautious.

7. Liquidity keeps grinding lower. Our Liquidity Gauge continues to trend down, which adds weight to the intermediate-to-longer-term caution.

8. Positioning and sentiment are stretched, especially on longer horizons. ...............

12. We still like precious metals, and we think we’re early. For now we’re waiting out the correction, which is a rates story. Until bonds find a durable floor, we stay on the sidelines here.

13. Central banks keep buying gold. The pace is accelerating, which puts a floor under how far the metals can fall.

14. The clearest positive is in the financials. Our new colleague Dean Christians (TPMR) flagged a rare breadth thrust in the sector. This week every financial sub-industry group registered a bullish short-term Dual Trend buy signal, something last seen in 2021.

The base rate is encouraging: when more than 95% of financial sub-industries are on buy signals, the sector has compounded at 19.6% annually, well above its average back to 1959. As Dean put it, “the ongoing rotation out of technology has fueled improving participation across several other sectors, with financials standing out as one of the primary beneficiaries.”



......... Momentum has been the undisputed king for global factor investing in 2026, particularly for Asian markets. Those trades are fracturing, as reversals in South Korea and other tech-heavy sectors set off a deepening rotation in the region. Investors look to be taking some of the hefty profits that remain on the winners from 1H 2026 and pivoting toward other assets. That’s a theme also gaining traction for US chipmakers, with the SOX Index down more than ~18% from the highs of June. ........


Google Tumbles After Boosting 2026 Capex Guidance Again


A new Fed chair, weakest seasonality of the four-year cycle, record IPO supply, and a liquidity cycle that is cresting — all lining up into October. History says that's not the warning. Buy the Dip.

......... Because across nine decades, every new Fed chair has been greeted the same way: with an equity drawdown in his or her first three months in office.

....... Twelve new chairs, twelve drawdowns, an average of roughly −12%. Not one got a free pass.

..................... 2026 is a mid-term year.

And mid-term years have a script so consistent it borders on the mechanical: the market sells off into the weakest stretch of the four-year presidential cycle, bottoms in the back half of the year, and then it runs.

........ Ten mid-term years. Ten meaningful drawdowns. Not one skipped its turn. The mildest was 1994’s −8% — a year the Fed hiked seven times. The average sits around −21%, which is to say: a bear-market-sized scare, arriving on schedule, in the second year of every presidency for half a century, under Republicans and Democrats, in inflations and disinflations, in secular bulls and secular bears alike.

........ We are in July.

The weakest window is directly ahead. Inflation is running above 4% again after the spring oil shock, which means the Fed cannot simply promise rescue. Washington is heading into an election that will decide whether the current administration keeps Congress. And the man whose job it is to steady the ship has been in the role for eight weeks. The script does not need to repeat exactly. It only needs to rhyme — and the stage is set precisely as it was set in 1974, 1982, 1990, 1998, 2010, 2018 and 2022.

.............................. And here is the part that flips the whole thing. Every single one of those ten mid-term drawdowns was a buying opportunity.

Not most of them.

All of them.

..................................... First: hold your quality. The temptation, having read four thousand words about an autumn washout, is to sell everything and wait in cash for the low. Resist it. The pattern is reliable in shape but not in schedule — some mid-term lows came early, some shallow, some in pieces — and selling everything obliges you to make two perfect decisions, the exit and the re-entry, against a market that took out its prior high four times out of five within the following year. Round-tripping great businesses to feel clever in October is how you miss 2027. We are not selling compounders to sidestep a drawdown we cannot time. We would rather be approximately invested than precisely absent.

Second: keep dry powder, and attach a shopping list to it. Dry powder without a list is just anxiety with a cash yield. Decide today — calmly, at a VIX of 18 — which businesses you want to own cheaper and at what prices, so that when the VIX is at 28 and X is wall-to-wall crash memes, you are executing a plan instead of forming one. ....................



Bubble Fare:

Stock markets can be valued, and because they can be valued, the long-term risks involved in holding stocks vary from time to time. When stocks are cheap these risks are small, but when they are expensive the risks become very great indeed. In current conditions, the risks in holding stocks are too great to make them sensible investments. This approach is completely different than claiming that it is possible to know when the stock market has hit a peak or a trough. All that the ability to value stocks provides is the ability to assess when holding them becomes too risky. On every occasion in the past that we can find, when a stock market has become as overvalued as Wall Street was at the end of the twentieth century, the consequences have been extremely bad for the economy as well as for investors.
Andrew Smithers & Steven Wright, Valuing Wall Street, March 2000
The current level of stock market valuations remains – easily – the most speculative extreme in U.S. financial history, beyond both the 1929 and 2000 extremes. Our baseline estimate is that the S&P 500 has a material risk of losing something on the order of 75% over the completion of this cycle, a view that’s shared by GMO’s Jeremy Grantham. We can narrow that baseline estimate to a loss of about 55% if we assume that the robust profit margins of the past decade are permanent. We don’t assume that, but then, we actually don’t need to assume anything at all.

On that point, we remain as emphatic as usual: Nothing in our investment discipline relies on a retreat in valuations toward their historical norms, nor any retreat at all. Indeed, our investment stance has been at least briefly constructive (albeit with a safety net) even in recent weeks. As I wrote in February and May, I expect that to be a regular occurrence going forward, even at present valuations, whether this bubble ultimately collapses or continues higher forever. ........

Our estimate of 55-75% downside risk is just that: a downside risk estimate. What, then, is our forecast? We don’t need one. We can use historically-informed valuation measures and risk estimates without making our investment stance dependent on any of them. Mountain, cliff, or ocean in the distance, we choose our footing for the terrain beneath us. Rather than attaching ourselves to forecasts and views, we’re content to respond with our best mindfulness as the evidence changes.

In the financial markets, as always, we consider the return/risk profile associated with the market conditions we observe, and our actions reflect that ............

Long-term returns are always set by valuation arithmetic – which determines the “slope” between the current price and the very long-term stream of cash flows that will be delivered into the hands of investors far into the future. Yet at any particular moment, the market price will be whatever the collective psychology of investors chooses it to be. Short-term returns are driven by data only to the extent that the data affects what’s in the minds of speculators and investors. That’s why – beyond valuations – our discipline attends to measures like market internals, investor sentiment, credit spreads, implied volatility, commitments of differing sets of futures traders, insider transactions, and other measures that offer a look into the psychology prevailing in the heads of market participants.

When I write about not “discriminating” against the bubble, it doesn’t mean that we don’t have a long-term outlook, or that we’ve suddenly embraced the bubble generally (we haven’t). Non-discrimination doesn’t erase discernment. It frees discernment from coarse, rigid, dualistic concepts that imply coarse, rigid, dualistic responses.  .................



A.I. Fare:








...................... China is going to eat America’s lunch on this. If they ban Chinese AI (harder than it seems, given it’s open source) all that means is writing off the rest of the world. And since American models are handicapped, smaller American companies will be stuck with worse AI.

Since Chinese AI is far cheaper, as well, I’d expect American companies to set up subsidiaries overseas to use it, rather than be stuck with American AI.

The entire situation is a complete clusterfuck. Major companies have taken on serious debt in order to build data centers which have a lifecycle of five to seven years, and often less (since new generations of GPUs are much better.)  But the Chinese product is cheaper, open source, lacks nearly as much sovereign risk and I’ll bet multiple models will soon be about as good as Anthropic and OpenAI’s.

Where’s the business case that spending all these trillions of dollars is going to produce enough revenue from US AI to pay for all of it?

There isn’t one. It doesn’t exist. 

And that means that, at least in America, this is an AI bubble. All bubbles burst and this will not be an exception. If the government bails them out it will be the last major US bailout.

This is also very likely one of the last major tech revolutions which will start in the US (which it did.) Going forward they China will produce the vast majority of them.

This is the endgame. The turning point where China obtains not just the industrial base but the absolutely undisputed tech lead. From now on China will like America in the 1950s — it’s where almost everything new is created, the dynamic center of the world, and soon people will be competing to move there, because everyone knows it is the future.


........... I’ve predicted, for a couple years now, that Chinese AI models will be the main models used in most of the world, including in much of the West, assuming they aren’t banned outright, because they’re open and cheap. Costs of running them are about twenty times lower than the US frontier models made by OpenAI and Anthropic. They’re almost as good, and they aren’t that far behind.

The problem with US models is not just that they’re expensive (though that’s huge, there are tons of reports of AI use being cut back) but that they are CLOSED: meaning you can easily be cut off, or have prices raised, or have the model changed on you with no recourse. Open models you can adapt the model, you can run it on your own servers, or various server companies can, will and do run them for you on their servers which you rent.

It’s clear that Xi gets this, and thus that the CPC understands it as well. Open Source isn’t a liability, there’s a reason why Linux runs most of the world’s servers: closed tech is the liability. Open Source is the advantage. ......................

China just keeps coming across as smarter, more strategic and more human than the West. It’s sad, in a way, but it is what it is.

And I remain convinced that Chinese AI will be the winner over American.


The incident is a first and signals a seismic shift in cybersecurity.


and what we should do about it





........................................... What professionals are most concerned about is not stock prices themselves but the leverage structure underlying them. The current loop runs: AI expectations → semiconductor prices rise → leverage increases → ETF buying → index gains → additional leverage. In this structure, gains accelerate rapidly on the upside. On the downside, a chain reaction can develop: margin call → forced selling → further price decline → additional margin calls. The June 5th episode — a 3x leveraged semiconductor ETF losing 31% in a single session — is not an outlier. It is a preview.

............... A colder and more precise analysis of the current situation is the prerequisite for setting direction. At present, ordinary investors, professional daily traders, and institutional investors alike are riding a roller coaster. The April through June period saw indices and individual names — including AI and semiconductor stocks — move with volatility levels that defied prediction. This cannot be characterized as normal equity market behavior. The presence of overheating driven by credit investment and leverage strategies must be acknowledged .........


A new statement signed by 16 Nobel laureates marks a shift among economists who once greeted such warnings with skepticism



Investing Fare:

Are you still looking for a great summer read for your vacation? The Best Book Ever Written About Emotions, Markets, and Why You Sell at the Bottom

....................................................... The first kind of sitting happens before you own anything.

Livermore spent enormous stretches of his career doing nothing at all. Not analysing, not hedging, not “keeping a toe in” — flat, in cash, waiting for a setup that met his standard. The pivotal point either arrived or it did not. If it did not, he did not trade.

This is far harder than it sounds, .....

Livermore’s counter-position is blunt: not trading is a trade. A flat book is an active expression of the view that nothing on offer is good enough. He put it best in the line that deserves to be as famous as the first:

“There is a time to go long, a time to go short, and a time to go fishing.”



Charts:
2: 
3: 
4: 
5: 



(not just) for the ESG crowd:

Abstract. Emerging climate extremes should draw public attention to human-caused climate change. We expect unusual sea surface temperature (SST) and global warming the rest of this year to make 2026 hotter than 2024, despite 2024 being a peak El Nino year, while 2026 is only the lead-in year of an emerging El Nino. Beware the “surprise” record high being blamed on an extreme El Nino on top of global warming otherwise consistent with IPCC estimates. Instead, record warmth provides additional evidence of high climate sensitivity and increased net climate forcing in the past decade. These two factors are driving an unusual increase in global SSTs with major consequences.

................................................... O.K., so we were grasping for straws. We didn’t really have good news. If we want the accelerated warming to slow down, we must get Earth’s energy imbalance (lower panel of Fig. 6) to decrease. That means the world needs to get serious about reducing the humanmade climate forcing, and the world has not got very serious yet. Sorry, we will keep searching for some good news in our planet’s data.


(How not to deal with Canada's wildfire smoke situation)

............... boreal fires are very different than the kinds of fires in the Western US which can more feasibly be managed with brush clearing in the forest understory: “The Canadian boreal is not the Sierra Nevada. It burns in infrequent, high-intensity, stand-replacing crown fires that kill the whole stand on natural fire cycles measured in many decades to centuries”. In other words, to truly reduce the fire risk in the boreal forest ecologically you need to actually burn the forest, or remove it.

As such, effective forest management to prevent boreal wildfires thus means either a) logging the forest entirely (which takes away the risk on a temporary basis, but could increase fire risk in the long run according to the Canadian Parks and Wilderness Society); or b) controlled burns (which, unless timed to occur during periods of north-facing winds, could also cause large amounts of smoke to filter down to the US).

One of the main problems with both of these proposed solutions is scale. It simply isn’t feasible (nor desirable) to log or prescribe burn 1.3 billion acres of boreal forest. It’s simply too large and most of it too remote. ..................




A new study finds that tiny deep-ocean turbulence drives sea level rise, fisheries collapse and carbon absorption within a human lifetime - but current climate models fail to capture its speed or scale.


A hard look at the possible severity of the coming global food crisis and how it demands new approaches to analysis and decisions.

Even though this site, like many many others, warned early on that reduced fertilizer supplies and high energy costs, particularly of diesel, would translate into higher food costs. The added whammy of a super El Nino means even greater harvest shortfalls, bigger price increases for staples, and not just widespread hunger but starvation. Yet like many, we’ve been engaging in a bit of “drunk under the streetlight” behavior. Public officials and following them, the press and pundits, have intently covered war action, political positioning, and the most visible and imminent resource to come in short supply, oil and key distillates like diesel, gas, and jet fuel. Even though baked-in food shortages will produce not just desperation but could kick off social upheaval (recall food riots during the 1997 Asia crisis; Arab Spring was also triggered in large measure by a spike in food costs), they are getting bizarrely little interest now. The implicit attitude seems to be that there is nothing that can be done, so why worry, or worse that poor people, i.e., those who don’t matter much anyhow, will be the ones to suffer, while will merely have to do some belt-tightening.

Ruben lays out the sobering scope of the interconnected shortages and how the lack of data-gathering on farm planting means that officials are flying blind on how large the fall in agricultural output could be. He attributes the bizarre pervasiveness of “business as usual” thinking in the face of a looming disaster as the result of the strong preference for linear, narrow thinkers in most analytical/decision-making positions as opposed to those who take a broader, systems perspective. ..................





Berman: A Climate for Civilization: What Was Special About the Holocene?

I’ve been thinking a lot lately about why climate change is so difficult to discuss calmly.

For some, it is the defining challenge of our time. For others, it is exaggerated or even a hoax. How can intelligent, well-intentioned people look at the same evidence and reach such different conclusions?

For me, the starting point is simple. The Earth is warming, and it’s warming faster than at any time since civilization emerged. It’s as if our civilization has developed a fever.

I’m not a climate scientist by training. I’m an Earth systems scientist. That gives me a somewhat different perspective—not because I know more about climate, but because I’m interested in how complex systems behave and adapt. ..................



U.S. B.S.:


Have you noticed how the liberal establishment hasn’t been nearly as emotional and outraged about Trump’s second term as they were about his first? Now that he’s the president who bombed Iran, the entire western political/media class is cool with him.

The term “Trump Derangement Syndrome” has always been used by the MAGA crowd as a blanket pejorative to protect the president from criticism, but during Trump’s first term it wasn’t entirely unfair. You’d see Democrats shrieking their lungs out over Trump doing things that other US presidents did all the time ..............

We’re not seeing any of that in Trump’s second term. ..........

Which is nuts, because he’s quantifiably far worse this time around. His domestic policies are much more tyrannical. He’s as evil a warmonger as the White House has ever seen. He’s so corrupt that he’s just openly admitting to being bought and owned by Zionist oligarchs while making his family a fortune using the power of his office. .................

................... They view him as one of their own now. When he finally dies, he will be lovingly eulogized by all the same liberal institutions which called him a second Hitler during his first term. He did enough to reassure them that the presidency of the United States had not been accidentally awarded to a decent human being.



.................... One of the dumbest popular narratives you see today is the idea that Zionists persuaded a reluctant Trump to start a war with Iran after he was re-elected, like they were chasing him around going “Would you like to bomb Iran?” like the guy from Green Eggs and Ham while he yelled “Not in a box! Not with a fox!” until he eventually caved in.

It is now abundantly clear that this war was planned a long time ago. ...............



War Fare:

.......................... Anything can happen in war, but I don’t see any way for the US to win this war if Iran stays the course, and we haven’t even included all the shortages coming down the line, especially now Ansar-Allah has closed another strait.

......... If America were even marginally competently run this would be the point where Congress would impeach Trump. He won’t admit defeat and oil stockpiles are running low. He has no viable part to victory, but keeps acting as if he does. He’s turning a military defeat into an economic catastrophe thru his delusional disconnect from reality, or perhaps because he’s being blackmailed. Whatever the reason for his behaviour, he needs to go. (Yes, I’m aware this won’t happen, that’s the point.)

In all my life, and I’m getting old now, I have never seen a stupider war or an American elite more determinedly detached from reality.


Move along

A drone crashed into an oil tanker at Basra on Thursday morning.

No fire. No damage. Or so they said. Nobody got hurt.

And just because nothing happened, Iraq suspended loading at every export terminal it owns.

Until further notice.

The day before, Washington had reimposed its naval blockade of Iran and during seven hours was blasting the same hangars and inflatable launchers they already “love-tapped” thrice before.

West Texas crude closed twenty-six cents higher.

… Just because.

You are excused if you didn’t know that there’s a frickin’ war going on...

NOTHING makes any sense any longer.
The closer you stand to the actual stuff, the less you believe its price.

And because the strait itself is the running headline, let’s start with that:

Iran says Hormuz is closed until further notice.
Central Command says it isn’t.

IT IS - IT ISN’T - IT IS - … playground squabbles on the world stage.

Who knew Idiocracy would arrive this early?

The answer to “Schrödinger’s Strait” is the billion (maybe even trillion) dollar question. It’s only a fifth of the planet’s oil after all... And the whole artifice of abundant money and debt and derivatives is built on… I don’t know… A working economy??? Which without oil is kinda like … not working, you know? .....................



Geopolitical Fare:

More also have confidence in Xi than Trump, according to a survey in three dozen countries



Other Fare:

And no home either, come to that.

....................................................................... Today we have not heroes but victims, and we live in a world of competitive victimhood. This victimhood is a curious phenomenon, inasmuch as it is largely collective and identitarian. You are automatically a victim if you are a member of a “marginalised” or “historically disadvantaged” community, or one which suffers “structural discrimination.” It is rarely, these days at least, a status gained from identifiable personal experience, except of the kind “I was obviously discriminated against because I was …” Of course, the motives behind such assertions are comprehensible and even banal, if we understand that they are essentially entrepreneurial in nature, and amount to moral claims on others for money, power and influence, and special treatment. The problem arises when victimism becomes the default lens through which we view the world, and where people come to see themselves and others not as actual or potential actors, but just as passive victims.

We can see this in the way that coverage of conflicts and emergencies in the world is increasingly fixated on trying to count alleged victims, at the expense of trying to understand the issues. .................

But of course identifying yourself as a victim only makes sense as a strategy if you can thereby persuade or coerce some greater power or authority into helping you, or intervening in your favour. .............

This is why the learned helplessness of victimism is so dangerous at all levels. There have been bad times in history before now—worse, I should say—but there has never been a time I can think of when the necessary mental and moral resources to address and try to overcome challenges have been so lacking. .................



.................. So, basically, there is no psychologists’ consensus on question 1 at all. There is no credible broadly accepted definition of inner speech, or any of the terms used synonymously for it. Some papers argue that most people ‘have’ inner speech. Others, just as long and convoluted and full of (often reciprocal) citations, assert that most people don’t have it.


Living With Unbearable Knowledge in an Era of Polycrisis

................ While it is almost impossible to not know about these threats in the digital age, at least on some elementary level, it may also be unbearable to live with this knowledge, in which case people typically choose to willfully ignore what they cannot tolerate knowing. As Upton Sinclair famously quipped: “it’s difficult to get a man to understand something, when his salary depends upon his not understanding it.”

In his review of Mark Lilla’s book, Ignorance and Bliss: On Not Wanting to Know, Robert Pogue Harrison highlights T.S. Eliot’s observation that “humankind cannot bear very much reality,” nor Harrison adds, “can it bear much truth.” Humans have a remarkable capacity to willfully ignore realities and truths that threaten their identities, core values and beliefs, sense of belonging, and physical and economic security. As Harris explains:

Just as our sensory organs filter out all but a fraction of what surrounds us, our minds deflect from consciousness a great deal of what we can bear only in small measures. Our ability to ignore, repress, and deny is matched only by our ability to believe the unbelievable and to give chimeric notions the power to found religions, nations, and institutions. .................




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