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Sunday, October 18, 2026

2026-10-18

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


Economic Fare:




Key Takeaways
  • Inflation driven by supply shocks is "bad" inflation, and bad inflation is self-liquidating because rising income doesn't support it.
  • September headline CPI ran 3.7% while core sat at 2.6%. The gap is gasoline, up 34.2% over the year and now more than half of the monthly increase.
  • Real wages have turned negative, and labor's share of output just set its lowest reading since the series began in 1947.
  • The 10-year breakeven sits near 2.3%. The market that gets paid to price inflation is not pricing an inflation problem.
Most of the argument about inflation right now is a fight between people using the same word for two completely different things. One side sees a 3.7% headline print and starts sketching a repeat of 1979. The other sees core running more than a point below it and declares the problem solved. Both are reading the same release. The distinction that matters is not how big the number is, but whether anybody's income is financing it. That is the line between "good" inflation and bad inflation, and almost nobody draws it. ................



The United States is putting another 17 million barrels of crude from the Strategic Petroleum Reserve on offer, one day after the IEA accelerated emergency stock releases as governments scramble to get more oil and fuel into a tight market.



The world is entering a new era of geopolitical confrontation, increasingly reminiscent of the Cold War. The wars in Ukraine and the Middle East, the rearmament of major powers, the fragmentation of international trade and the growing importance of strategic alliances are transforming the foundations of the global economic system. What distinguishes the present environment from the original Cold War, however, is the financial condition of the world economy. Governments are carrying substantially higher debt burdens, while financial asset valuations have benefited from decades of declining interest rates, expanding liquidity and relatively predictable inflation.

To understand the economic implications of this geopolitical transformation, we must begin with what I consider the three fundamental axioms of world dominance: energy, defense and money. ..................

......................................................................... The world is entering a period in which the three axioms of dominance—energy, defense and money—are becoming more closely interconnected.

The Middle East demonstrates that possessing energy resources does not guarantee economic security when production facilities and export routes are vulnerable to military conflict. Japan demonstrates that sophisticated industrial economies remain strategically exposed when they depend on imported energy and feedstocks. Europe demonstrates how energy costs can weaken industrial competitiveness, reduce household purchasing power and aggravate existing fiscal and political vulnerabilities. France, in particular, illustrates how the pressure can extend into sovereign bond markets when governments face rising expenditure requirements and declining fiscal flexibility.

These developments are different manifestations of a common geopolitical transformation. The globalization era encouraged countries to organize production around economic efficiency. The emerging order is increasingly organized around security, strategic alliances and the capacity to withstand prolonged confrontation. The transition requires substantial investment in defense, energy infrastructure, industrial capacity and strategic inventories. It can increase production costs and reduce the efficiency of international capital allocation.

And it is occurring at a time when governments, corporations and households already carry exceptionally large debt burdens. This is the fundamental difference between the original Cold War and the world of today. The earlier confrontation took place within a very different financial system. Today’s global economy has accumulated debt and financial asset valuations that make it considerably more sensitive to sustained increases in interest rates. If geopolitical confrontation persists, the consequences may become structural.

The resulting increase in the cost of capital would affect governments, corporations, households and financial asset valuations. The most important consequence of the energy shock may therefore emerge not in oil markets, but in the market for capital. Energy determines a nation’s capacity to produce. Defense determines its ability to protect that capacity. Money determines how long it can sustain both.

The central risk is that the cost of defending the new geopolitical order will exceed what the existing financial structure can comfortably sustain. And if that happens, the ultimate adjustment will be determined not by the price of oil alone, but by the price of money.




Market Fare:

The stock market's record-high margin debt is keeping Wall Street pros up at night

.............. The fear is that a steep tech sell-off could be the spark that causes the record amount of borrowed cash to combust, triggering margin calls and resulting in a wave of forced selling that derails the bull market.

It may sound like an unlikely scenario, but it's a growing risk investors need to contend with, especially considering how concentrated the market is in tech and how exposed US households are to a sudden drop in equity prices ..............




Material Fare:


It ended, apparently, in the spring. Gold ran to a record in the last days of January 2026 - $5,608 an ounce on one spot reading, roughly $5,405 on the LBMA benchmark, and $5,318.40 on COMEX futures, three figures describing the same metal and differing by nearly $300, which is a reminder that the price depends on which price you mean - and then it simply stopped. By the middle of October the metal was changing hands near $4,112, some 27 per cent below the January spot peak, while silver, having briefly touched $121.62 on 29 January, had lost more than half its value and was trading around $56. Two metals, two collapses, and for anyone who had spent three years waiting for the precious metals complex to deflate and stop interrupting the serious business of equity markets, a comfortable conclusion was available: the thing had been a trade, the trade had unwound, and the world could return to its previous arrangements. ..................

That pairing - a violent correction alongside a deteriorating physical balance - is the substance of what follows. The word shock has been devalued by overuse, and precision is worth the trouble here. A shock, as the term is used in this article, is not a spike on a screen or the sort of one-week convulsion that produces memorable charts and forgettable analysis. It is closer to a condition: the moment when the price of a metal and the physical availability of that metal stop agreeing with one another, and the gap becomes large enough that ordinary arbitrage can no longer close it. Price spikes are events. What gold and silver have been signalling is a change in the settlement mechanics of the world economy, ..................

Gold is behaving the way an asset behaves when sovereign institutions begin treating it as a reserve again rather than as a diversification, and silver is behaving the way a metal behaves when its industrial consumption outruns its ability to be produced. These are two different mechanisms producing two different prices, but they are pointing in the same direction, and the direction concerns confidence: confidence in the financial system in the first case, confidence in the productive system in the second. When both begin to erode at once, the practical consequences run through supply chains, borrowing costs, defence procurement and ultimately consumer prices, and they do so with a lag long enough to be politically comfortable and short enough to be economically unpleasant. ........................

..................................... Zoltan Pozsar, then at Credit Suisse, published a note in March 2022 whose central claim has aged unusually well. He argued that the freezing of Russia's reserves had fractured the assumptions underpinning the dollar-based financial order, and that what followed would be organised around commodities rather than around credit.
"We are about to witness the birth of Bretton Woods III." - Zoltan Pozsar, Credit Suisse, March 2022.
Whether the label is accurate is debatable; the substance - that reserves would be held in things rather than in promises - has been borne out by four years of official-sector behaviour. ...............

.......................................... The argument, honestly stated, rests on three legs - sovereign accumulation, physical deficit, and fiscal deterioration - and it would take the failure of at least two to make it wrong. A single leg giving way would be survivable. All three failing within the same decade would be close to a refutation, and anyone who insists that cannot happen is overstating the case in the opposite direction.



3. Commodities: see upside risk for commodities given macro tailwinds, constrained supply, thematic demand drivers, messier for longer geopolitics, and resurgent sentiment/positioning.
4. Agri Commodities: continue to see upside risk in agri commodities (as a group) given cheap valuations, soft capex, improving sentiment, weather risk (El Nino), geopolitics, and bullish technicals.






Investing Fare:

Plus, energy trounces equities


Same finish line, opposite portfolios, and two completely different ways to lose. Quality fails too early, momentum fails too late, and the interesting portfolio is the overlap.


.......... Top-quintile momentum in large-cap US stocks compounded at 13.78% a year against 9.83% for the S&P 500, over ninety-four years. Note the log scale, and note that this is a different universe and a different construction from the MSCI numbers above. Do not read the two side by side as though they measure the same thing.

What matters is the shape. Nearly a century of the same tilt, through the Depression, the war, the Nifty Fifty, the 1970s and everything since. Whatever momentum is, it is not a data-mining artefact of the last thirty years.

So what is it doing?

It is not really reading stocks. It is reading factors.

This is the finding of Sina Ehsani and Juhani Linnainmaa, published in the Journal of Finance in 2022 under the rather good title «Factor Momentum and the Momentum Factor». Their result is that momentum in individual share prices comes out of momentum in factor returns, and that factor returns are positively autocorrelated almost everywhere you look. ...............

....................... Which is why the discipline is always the same at arvy: you research regardless of the tape, and you act when the tape stops arguing. Not one-year returns on capital, which predict essentially nothing. The five-year average, which is where the signal actually lives. ...............






A.I. Fare:

Why are convicted criminals at the heart of the financing and roll-out of AI? Because the global economy is based on practices which in any other realm would be a complex criminal conspiracy.

I'm writing about AI again today so you might think this is an article about AI and it isn't. So then you might think it's about data centres (which are not the same thing as AI), and it's not about them either. It's actually about vape shops. Or police colleges. Or the Royal Mail. And it's definitely about the Dark Triad. And political lobbying.

Because it is about almost everything in our economy. Because it's about company financial accounting.

But don't go! Because it isn't really about accounting at all. It's really about criminals. Well, criminals and vape shops and the Royal Mail and data centres and a police college. Because they're all sort of the same thing. That thing is Dark Triad. Oh dear, I'm going to have to slow down...

This week the International Monetary Fund placed a collapse in AI stock as a top five global risk along with nuclear war. That is quite a statement, but it is not an exaggeration. The US stock market is so reliant on Big Tech just now and the US is so reliant on stock markets these days and the world is still so reliant on the US as the foundation of the global economy that risk means big risk.

But from whence does the risk emanate? The short answer to this question is 'from the same place that subprime debt risk came from', because basically AI investment is almost exactly the same financial scam as subprime. I am not going to go into all of this here but you'll need a slightly longer explanation than that.....................

................ Complaining about the fact that almost no-one was charged over the 2008 crisis is not a complaint about moral failure but legal failure. Crimes were committed and swept under the carpet.

That financial jiggery pokery broke the world as we knew it, led to Trump and the rise of the far right and created a simmering financial and economic crisis we've never escaped and which is behind all the worry about western economic performance. So to stifle those worries, here's a new scam...

I mean literally. AI might prove the breakthrough western economies need but it can't be financed using methods that would get through normal accounting practices (like being able to show how you will get a return from trillions of dollars of investment). It is massively speculative and might fail as a business model (AI may just need too much energy for what it can do so and so be financially unviable at scale). So we're instead doing this through the power of scam. .....................

................... If I lied and charged you for a roof repair that wasn't needed and wasn't done, that would be illegal. That's what is happening with inflation. We're being lied to that the roof needs fixed when actually we just need Donald Trump to get the fuck off the roof.

If I offered you a contract that said 'give me money, I'll multiply it and give you back more than you gave me' and then I didn't, I'd be imprisoned. That is what every politician has said about wealth concentration and GDP growth for 50 years.

If I sold you a half-kilo bag of nails and you discovered half the contents were stones, you'd call the police. That is half the financial assets in the world just now. If I told the tax man I was 27 different people before admitting who I really was, I'd be charged. That's what nested shell companies are.

Yes, all this is now normalised. The argument is that once this kind of effectively criminality is embedded in the system, it is key to maintaining the integrity of the system. But that is because the system itself is basically a sprawling organised crime network which has only one purpose – strip wealth from the general public and the government and direct it all to the very, very rich.

I amn't talking metaphorically here. Every single element of this economy is either a public agency or regulator with 'GDP growth' as its priority, or it is a corporation legally obliged to maximise shareholder profits. It is set up to rob. Then they created university economic departments to indoctrinate another generation into this scam, and then they bought up all the media just in case. ...............



Quotes of the Week:

QTR: Friday’s selloff was not a surprise. Between deteriorating credit markets, rising Treasury yields, increasingly absurd artificial intelligence valuations, enormous amounts of leverage and an entire financial system that has spent the better part of two decades mainlining cheap money like a frat guy guzzling Jaegermeister at the bottom of an ice luge, the warning signs have been flashing for quite some time.


The power to synthesize  "a vast amalgam of constantly changing, multicolored, evanescent, perpetually overlapping data, too many, too swift, too intermingled to be caught and pinned down and labeled like so many individual butterflies"... requires a "direct, almost sensuous contact with the relevant data, an acute sense of what fits with what, what springs from what, what leads to what"...This skill combines reason, emotion, judgment, and analysis: "so many individual butterflies".





(not just) for the ESG crowd:

Ripple, Rockstrom et al: The 2026 state of the climate report: challenges and opportunities. 
Abstract
Earth’s climate system is moving deeper into uncharted territory. We present the 2026 update of planetary vital signs that track the state of Earth’s climate system, alongside indicators of the human activities driving ongoing change. Of 16 climate-related indicators, seven are currently at record extremes. Several indicators also show evidence of accelerating trends or abrupt shifts, raising concerns about increasing climate instability, interacting feedbacks, and the growing risk of crossing critical tipping points. Human activities, particularly fossil fuel combustion, remain the dominant drivers of these changes. Despite the worsening trends, encouraging signs of societal changes are emerging, including the rapid expansion of renewable electricity and battery storage, although progress remains far below the scale and speed needed to stabilize Earth’s climate system. Rapid reductions in greenhouse gas emissions, effective adaptation, ecosystem protection, and transformative societal change remain essential to reducing climate risks and securing a more resilient and sustainable future.

We are witnessing the rapid destabilization of the Earth’s climate system. This is no longer a warning for the future; it is a diagnosis of the present. Earth’s life-support systems are being pushed beyond stable limits, with changes unfolding faster than our ability to respond. Human activities are driving profound shifts in the atmosphere, oceans, and biosphere. Carbon dioxide levels in the atmosphere are higher now than any time in the last 2 million years (IPCC 2021).  ..........



Sci Fare:





U.S. B.S.:


................................. As climate change gets worse and worse it will discredit both Democracy and Capitalism. I don’t think the Chinese have done nearly as much as they should have or could have, but with their heavy electrification program, their mass planting of forests and so on they’re the only nation which has done anything significant. Not good, but better than us.

Democracy has proven unable to reign in capitalism. China executes or life imprisons billionaires who break the law, we bail them out and immunize them from their crimes by fining their companies, but not them, leaving them still rich.

It all adds up to a horrid indictment of our system, and people are not going to put up with it forever. Liberal capitalism and liberal democracy, and perhaps democracy almost entirely, will be replaced by Party systems throughout the world over the next couple generations, starting, I’d guess, in about 15 years or so.

Failure, greed and incompetence have consequences, and the democracy will one of the casualties of our elites depravity.




Geopolitical Fare:


A body of ideas with roots in academic theology and philosophy, postliberalism has emerged as an influential intellectual movement in the US and Europe. It gained a new kind of prominence with Donald Trump’s 2024 victory. Vice President JD Vance describes himself as part of the Catholic “postliberal right” and he is friends with two of its leading thinkers.1 One is Adrian Vermeule, whose work on common good constitutionalism invokes the controversial jurist Carl Schmitt, who joined the Nazi Party in 1933. The other is Patrick Deneen, author of the bestselling book Why Liberalism Failed (2018) and the successor tome Regime Change (2023)

In their recent book Why Postliberalism Failed (2026), James Patterson and Thomas Howes cast the Deneen-Vermeule version of postliberalism as an authoritarian threat to church-state separation and a quasi-fascist attack on the ideal of ordered liberty at the heart of America’s constitutional and civic republican tradition. Does Catholic postliberalism inevitably slide into fascism? Is this ideology now only one heartbeat away from the US presidency? Have European postliberals embraced the American version or forged their own vision? .............................



................... This Zuckerberg scale-tilting is a reminder of why right wing “populism” has been so successful: it is able to posture as a revolutionary anti-establishment movement while still retaining the backing of western oligarchs and empire managers. It gets the votes that come with opposing the status quo without actually opposing the status quo. It gets the popularity of revolutionary politics with none of the cost.

Capitalism leads to dissatisfaction, so some charismatic wingnut stands up and goes “You know, the problem is that we haven’t capitalismed hard enough! Those fat cats at the top don’t want you do know this, but what we actually need is MORE capitalism! MORE wealth for the wealthy! MORE authoritarianism! MORE abuse of the marginalized! And we should probably also send way more money to Israel for some reason!”

It’s a complete scam from top to bottom, but it works. It exacerbates all the problems we’d already been seeing because doing more of the same stuff that created the problems isn’t going to solve the problems, but the human mind is very hackable, and people are easily duped. These Trumpian fraudsters are able to ride popular sentiments of discontent into elected office with the backing of all the plutocratic parasites who’ve been leeching off the voters this entire time. We’ve been seeing it in the United States, we’ve been seeing it in Brazil, we’ve been seeing it in Argentina, Italy, India, and in surging iterations of the same scam in various political factions all around the world.

The question is, what comes next? What comes after people see through the scam and realize their beloved Trumps and Bolsonaros were working for the same establishment they despised and bolstering the status quo they’d been suffering under this whole time? Whatever the backlash is, we can be sure the empire will try to find some way to manipulate it and steer yet another generation back into support for the capitalist world order.

❖

Basically there are three different groups:

1. People who know things are fucked but are too busy, exhausted and propaganda-addled to oppose the status quo.

2. People who benefit from status quo fuckery.

3. People who know things are fucked and fight the status quo.

Group 1 is the largest. Group 3 is the smallest.

Right now those of us in the third group can’t do anything about the exhaustion and busyness of the people in the first group, but we CAN do something about how confused and propagandized they are. The most important thing you can do to help nudge us toward revolution at this juncture in history is therefore to inform, educate and spread awareness to counteract all the status quo indoctrination keeping public consciousness away from revolutionary politics.

By doing this we can start moving people from Group 1 into Group 3. Once Group 3 outnumbers Group 2, things will start moving very fast.



Other Fare:


....................... Anwar was someone I knew, but was not close to. My connection with Anwar was different; an important intellectual challenge on an intellectual journey. As I’ve discussed a few times in the past, my journey towards economics started in high school. Keynesianism was early on attractive and intuitive to me and reading Hyman Minsky’s book “Stabilizing an Unstable Economy” was a revelation for me. I remain one of the few defenders of that book. It’s not an easy read, but it is a very productive one. I knew, however, there was something out there called “Marxist Economics” and it looked down upon any kind of Keynesianism, whether mainstream or Post-Keynesian Economics. At least, that’s the impression I got from online articles and social media.

So I also started to read Marxist economists. I visited the offices of the independent socialist journal Monthly Review. The summer of 2010 I spent reading the “magnum opus” by some of the founders of Monthly Review called “Monopoly Capital”. I write with certitude today, but I spent the first number of years learning economics trying to hold myself in a zone of intellectual uncertainty. After all, what did I know? ...............


AI isn’t the only current challenge to the human spirit: How the hyper-specialization of higher education and the condescension of credentialed scholars can also cripple it

.................................................................. Substack has the potential as it evolves to become a kind of open forum where trained scholars can interact with ardent lovers of politics, literature and ideas.

In this context, I’d say, quite a lot of ignorance is not only OK — it’s a prerequisite for thinking new thoughts about hoary topics in the arts and sciences. A bit of whimsy goes a long way. Perhaps, as Emerson argued, it’s even a unique hallmark of The American Scholar.

Perhaps a rising generation of writers and intellectuals will leaven the crabbed caution of their learned teachers, and curb their instinct to parse every passing thought, in order to recommit themselves to a sheer love of the unknown, of reading widely and roaming freely, exploring the vastness of the universe, and the infinite riches of human experience.

In doing so, they would, like Naomi Kanakia and Jon Baskin, and Robert Boyers, rejuvenate a very great and very American tradition of letters.

And what a gift that is.



All our problems basically come down to narrative control.

People are manipulated into believing the story that Israel’s existence must be preserved at all cost because of this religious belief or that political ideology.

People are manipulated into believing the story that western elections are real and that voting in the two-party system is the only path toward beneficial policies.

People are manipulated into believing the story that capitalism is the best possible system, and that socialism always fails (organically, all by itself) because its tenets go against human nature.

People are manipulated into believing the story that the US-led liberal world order, while perhaps flawed, is still our best shot at a just and stable world.

People are manipulated into believing the story that the mass media are telling us the truth about our society and the world, and that everything works pretty much the way we were taught in school.

People are successfully manipulated in these ways because the wealthiest among us control the media and own all the largest platforms, which gives them a very high degree of narrative control. They decide what stories get told to the largest audiences about how the world works, so they control public perception of reality.

This has been happening for generations, so we grow up with our parents, teachers, preachers and pundits teaching us the narratives that they were trained to believe when they were young.

So we grow up marinating in this. It’s so rife throughout our society that most people don’t even notice it’s happening; they just think all those narratives are what reality objectively looks like.

But they’re not. They’re just thoughts. Mental noises. Stories made of words. Pick any of them apart and you’ll find that’s all they are: empty narrative fluff. Their power comes entirely from large numbers of people imbuing those narratives with the power of belief. 

The consciousness of the average human is dominated by mental stories, so if you can control the mental stories the average humans are telling themselves, then you can control the humans. Get them buying into your preferred narratives about reality and you can exert huge degrees of influence over the way they think, speak, work, shop, live, and vote.

Our entire civilization looks the way it looks because of this vast network of influence. It’s what made the Gaza holocaust possible, what makes homelessness possible, what makes ecocide possible, what makes war and militarism possible. If the public were not being successfully manipulated into accepting the narratives which justify these realities, then everyone would start un-jacking their minds from the psychological control network and building the kind of world they would prefer to see.

And what’s interesting is that believed mental narrative is also the source of suffering in humans as individuals. .....................

................. The more this happens, the weaker the hold our rulers will have on our minds at mass scale. The less we buy into the old narratives, the less capable the manipulators will be of influencing our thoughts, words and actions to their advantage.

And from there, anything is possible. If human consciousness becomes liberated from believed mental narrative on all levels, we could truly have paradise on earth.

I am more convinced then ever that this is possible. I am more convinced than ever that it is already happening.

Posted by at No comments:

Monday, October 12, 2026

2026-10-12

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


Economic Fare:



Lars Christiansen provides a useful, simple explanation for why the labor share of GDP has fallen, drawing on the writings of Polish Marxist economist Michal Kalecki. Kalecki was focused on centralized planning, yet his thinking seems to make sense. The profit share has increased because we have had fiscal easing with an interest rate peg. Now that interest rates are rising, we should start to see the profit share decrease and the labor share increase as a greater share of national income. Of course, we are seeing other effects, but we can say that rising interest rates should start to affect the share of national income going to profits. This does not mean that labor will be better off. It does mean, on a relative basis, that it will become a more important part of national income.






The debate about US and European competitiveness illustrates how narratives of economic decline and triumphalism tend to outrun their evidence



.................. The key question now is how much further the rally can go before it makes the business of buying crude, shipping it across the world and turning it into fuels unprofitable.







Market Fare:

Why the Level of Yields Matters Less Than What Drives Them


..................... That doesn’t mean policymakers can’t push long-term yields lower. History shows that governments can change the rules of the game. Central banks can impose yield-curve control by becoming the buyer willing to defend a certain yield, while governments can use forms of financial repression to create additional private-sector demand for their debt.

The distinction matters. If the central bank absorbs bonds the private sector is unwilling to hold at the targeted yield, more of the duration ends up on the public-sector balance sheet. Financial repression works differently. Regulation or other incentives redirect private capital toward government bonds that investors might otherwise not have bought. That can reduce the capital available for stocks, corporate bonds, real estate, or private investment. Either way, policymakers can influence the price of capital. But doing so doesn’t make the underlying scarcity disappear. It merely changes who has to absorb it.

Is that a likely scenario governments will eventually choose? Possibly. But we aren’t there yet. Demand for government bonds hasn’t collapsed, while long-term inflation expectations remain relatively anchored. For now, the market seems willing to absorb rising government debt, as long as the price is right.

In my view, the latest rise in real yields isn’t a warning about fiscal sustainability. It might simply reflect a world in which demand for capital is structurally increasing again, because more resources are being directed toward investment that could eventually raise real output and productivity. ..........

................ To sum up, at least part of the rise in yields appears consistent with stronger growth expectations and continued economic resilience. That is fundamentally different from an environment in which yields rise without stronger nominal growth, driven solely by a rising term premium or fiscal concerns.

Higher yields and higher stock prices are therefore not necessarily a contradiction. Under the right circumstances, they can be two sides of the same economic development. ...........



September was messy.
There’s really no way around it.
Only 112 of 503 S&P 500 stocks finished the month higher.
Roughly one out of every five stocks went up, while nearly four out of five went down. ..........
The mistake is assuming that means the entire market was bearish.
It wasn’t.
The equal weight S&P 500 was rolling over while the mega caps kept holding up. ..............


vs.
Beneath the surface, it’s already a bear market


Equity breadth weakening, watching the Cisco/Sycamore/Juniper analogs

 



Risks are overstated at the moment. You might be thinking “but the VIX is at 15!”. Don’t care. US equities have completed their transition into a different regime, one that I will write in length about in a mainline newsletter soon.

The start of the Iran war in March just happened to coincide with the first enormous upward inflection in revenue for both OpenAI and Anthropic. The improvement in their product over that time was the catalyst. That upward inflection transformed US tech into a huge call option - the optionality of runaway demand for AI providing unlimited upside with little downside.

This has proved more durable than most thought (including myself), but those that were most bullish were caught in the brutal high momentum beta sell-off in August.

The war hasn’t been forgotten - spend some time watching intra-day cross correlations and you’ll still see markets unduly affected by spikes in crude oil. As much as the market says it doesn’t care, it does in the short-term.

This has made oil into something that is more reflexive in terms of its relationship with equities. The VIX is dead as the indicator of risk on US equities because of the change in the underlying distribution of returns (I’m sorry but it just isn’t log-normal anymore, it is some sort of distribution with a fatter right tail as well as a skew in that direction as well).

Oil has become the new VIX. I’m not necessarily saying that oil doesn’t drive risk in equities. It does. But oil has become the asset to hedge a risky portfolio because the threat of all-out war again in the Persian Gulf is the outsized risk to equities where very little business-cycle type macro risks exist anymore. ...........



Summary: The evidence still points to the pain trade being higher, but risks and trend fragility keep climbing as yields stay elevated and the ex-AI divergence persists… In this week’s DD we walk through the unusual nature of this market and lay out why it’s actually typical Late Cycle behavior (which we’re in). We discuss what that means for forward returns and what we need to keep a close watch on. We then end with somewhat surprisingly bearish positioning and sentiment, and pitch two trade setups that should benefit in this single-narrative market, plus more…

.................. 8. The market is simply reflecting earnings. As GS notes, “At the stock level, AI infrastructure stocks are expected to drive more than half of S&P 500 EPS growth in Q3. The top 10 contributing stocks are expected to account for over two-thirds of aggregate S&P 500 earnings growth this quarter, with Micron (MU) and Nvidia (NVDA) together accounting for more than 1/3 of index growth.”













................. The key to avoiding the pitfalls of herd behavior is to think independently, question conventional “wisdom”, and always remember what it is you’re trying to do. In baseball, the goal is find players who can help win games, not to maximize exit velocity. In investing, the goal isn’t to buy growth stocks or value stocks or large caps or small caps. It’s to grow your capital over time.

............ Some well-known fund managers have said that quality investing is no longer working. One even suggested that adding a momentum component to his strategy might be necessary, because buying dips no longer works. But there is nothing wrong with the strategy of investing in growing companies. The problem is simply that growth stocks became overvalued.

........  Jake Taylor sent me this chart, which does a nice job at illustrating the sheer number of stocks in major corrections, even as the S&P 500 hits all time highs with lower and lower market breadth. This is the type of market that occurred in the late 90’s, and I think it presents a great opportunity for stock pickers over the coming years, just as it did then.



I think the key to long-term success (in the front office or as the portfolio manager) is to not get caught up in what others view as accepted practice. The crowd is often right, but don’t accept that it is right or wrong based on what conventional wisdom says. Make your own decisions. Don’t outsource your thinking, even to others who might be smarter or more experienced than you. When everyone piles into the same idea, that idea may no longer offer you any advantage.



Material Fare:

 
Portfolio Applications update: Our latest update to the Systematic Asset Allocation portfolios is now available. The key takeaway is that as bond breakdown and equity trends become ragged, commodities are cruising higher. Not having as commodities sleeve as part of your overall asset allocation is an expensive oversight at times like this. ..............


Every one was once a chart in progress

It’s been one year since we declared the commodity bull had begun, seven months since I shared the structure of my commodities swing trading playbook, and two months since our special report on the developing Super El Niño, the most significant climate event in 150 years. ...............



............ So China is backing up a very big truck, Retail is BTFDing in ETF-land, and India is still panicking over fuel costs (desperate to slow domestic demand for the only thing that hedges its currency's collapse).
“This isn’t a short-term trade, it’s a multiyear repositioning of household and official assets. The scale and persistence of Chinese buying is now a core driver of global gold prices and we expect it to hold as long as uncertainty over growth and geopolitics remains,” said Liu.
As Bloomberg's Garfield Reynolds notes, October in particular is looking like a sweet spot with rates traders sticking to bets that the Fed will delay any hikes until December, and with central bank appetite also showing little sign of abating, the level of demand out there has allowed bullion to show some resilience in the face of higher real yields and the resulting strength in the US dollar.

Gold is becoming an increasingly important diversifier for global investors at a time when government bonds no longer move inversely to stock markets.



Catherine Gordon, UBS's energy and resources expert, highlighted "AI Infrastructure Constraints Emerge As Next Leg Of The Trade" in a Friday note to clients. The theme closely aligns with our "Owning The Bottlenecks" note, which centered on companies positioned to benefit from supply constraints in the critical materials space that feed not only the AI infrastructure buildout but also the rearmament supercycle.

Gordon's note outlined that traders are shifting their focus to the power, data-center capacity, and financing needed to sustain the artificial intelligence buildout, as infrastructure constraints emerge as a potential driver of the next leg of the trade.




........ Ziegler said demand from electrification and data-center construction is expected to outpace supply growth and support high prices, as hopes for lower prices fade in a theme best described as scarcity. 

........ "Against that backdrop, the team continues to favor copper-linked miners with meaningful leverage to the theme. Preferred exposures include Freeport-McMoRan, First Quantum, Hudbay and Teck Resources, all of which are viewed as well positioned to benefit from what is expected to be a multi-year copper upcycle driven by structural demand and a constrained supply response."





 




Bubble Fare:


....... Mike Novogratz said that AI is in the "biggest bubble of our lifetime"... and that investors should jump right in. His reasoning, via Bloomberg, was a gem:
"Bubbles don't end like we are today. I know how bubbles end, and they end spectacularly, and this isn't spectacular enough."
In other words, the bubble is real, it's just not bubbly enough yet. 

Some 9,500 miles away in Singapore, Ray Dalio reached the opposite conclusion from the same premise, warning that AI is a "classic bubble" that is now close to bursting. Meanwhile, back in Greenwich, Nassim Taleb said both of them may be looking in the wrong place: the real fault line runs through the bond market. Below we lay out all three views, alongside Goldman's history of how every great capex bubble since the railways has ended ..............

......................... Dalio's rates-and-liquidation mechanism and Taleb's fragile bond market are two sides of the same coin, and the AI debt binge sits right in the middle of it, crowding out Treasuries for the same duration buyers.

So while it's possible that this bubble still has a spectacular blow-off ahead of it, the more likely outcome is that, as Molavi lays out, the stocks peak quietly while the capex keeps rising, and the "spectacular" part only becomes visible in hindsight. Then again, Novogratz did say it's the biggest bubble of our lifetime, and on that, at least, everyone agrees.



Canadian Fare:

The organizer of an inaugural Canadian agriculture investment forum says new capital could help with farm succession and productivity



The Canadian government launched its first-ever National Food Security Strategy in June 2026. The strategy aims to invest $750 million to increase year-round Canadian production of fruits and vegetables, including on so-called vertical farms. ..............

........... Canadians have grown accustomed to supermarket shelves stocked year-round with fresh produce. Vertical plant factories promise to sustain this expectation instead of adapting food systems and consumption patterns to ecological limits.

Vertical plant factories are a vivid example of the politics of continuity. Our point is that enormous technological and material investments are being mobilized to preserve the expectation that a particular version of the present can be sustained into an increasingly unstable future.



Charts:
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(not just) for the ESG crowd:





The PRI turns twenty in Amsterdam this week: 5,261 signatories, $139.6 trillion, 109 failing its minimum standard and none expelled.





U.S. B.S.:


................. Since oligarchs own the politicians and the supreme court, this won’t happen unless the rich lose their power in a Great Crash that even the Fed and Treasury can’t bail them out from, and since they can print as much money as they want, that means it isn’t going to happen short of some sort of revolution. The money as speech decision makes it unlikely this will be an electoral revolution (though not entirely impossible), so it will likely require a full revolution.

If that doesn’t happen America’s decline will continue until it is just a larger version of Brazil or India: lots of poor people, a small but prosperous upper middle class who are direct retainers of the rich and a mass of poor people.

It’s quite clever really, the only downside is that this sort of financialization and rentierism weakens America as a whole since returns on manufacturing can’t match financial returns under this sort of economic engineering, and industrial power is effectively military power in the post-industrial revolution world.

America’s oligarchs have thus chosen American decline in exchange for what they hope is permanent oligarch status.



War Fare:


Regardless of why Putin might have held off on this for so long, he's now arguably motivated at least in part by the tantalizing possibility of reaching big-ticket resource deals with the US after the conflict ends, the details of which his and Trump's envoys have been negotiating for over a year already.

The New York Times cited allegedly intercepted Russian communications to report that Russia plans to obliterate Ukraine's power, heating, and water systems this winter. While their claim can't be confirmed, it aligns with Putin mildly "escalating to de-escalate" over the summer in response to Zelensky's strike campaign, which has taken the form of ramping up attacks on Ukrainian infrastructure. If the report is true, then Russia doesn't just aim to sever Ukraine's military logistics, but to bring Ukraine to its knees.

Putin has thus far eschewed this arguably due to his belief that Russians and Ukrainians are kindred people. Some have suggested that Russia might not have had the drone and/or missile capacity to do so earlier, however, whether due to low production till now and/or to hedge against the scenario of a hot war with NATO. In any case, Putin now seems to have made peace with the humanitarian consequences of ending the war on Russia's terms sooner rather than later, or at least on as many of them as possible. ...........



................ Right now the US is still able to bully Latin American countries, but its clear that it’s lost the ability project power significantly beyond the Americas. The Iranians have picked up strikes against tankers, and it’s clear that the previous slow pace was a decision, and the decision has changed. 

During the initial part of the war they effectively destroyed all US bases in the Middle East, including radars. It would take tens of billions to rebuild them, but since they can’t be defended (the US had plenty of interceptors at the time) that’s pointless. Odds are that most of the permanent US military presence in the Middle East will never return.

It is impossible to overstate just how much the calculus of force has changed: the US can no longer simply sit aircraft carriers off any prepared country’s coast and bomb the hell out of them.

Likewise this makes building up troops for ground operations very difficult. Think about trying to invade Iran. Where would you stage the troops that Iran can’t hit even as you’re trying to bring them in? There will be no major invasion of Iran, because it’s straight up impossible. In the Gulf War the Americans spent months building up forces nearby, that can’t happen any more. .........

All of this will come to be. It cannot be stopped, only slowed. And with Chinese sanctions on the US and Japan crippling their war industries, plus the US’s pathetic financialized military-industrial complex being ridiculously expensive and slow to manufacture anything, the US will not even be able to keep up.

Plus, a lot of countries are target poor. The US and its allies aren’t. One of the reasons Ansar-Allah is going hog wild hitting Saudi infrastructure is that after over a decade of being bombed to hell there isn’t much for them to lose. Their missiles hit targets which matter, while the Sauds mostly are reduced to terror bombing, which won’t stop the Houthis any more than it did the North Vietnamese.

The world is changing, things are happening, and the world order is changing completely.


Israel is blocking thousands of ready-to-use shelter kits as part of its campaign of genocide, which entered its fourth year this week



................... That’s the sort of thing that changes you as a person. Changes your whole worldview. Changes your politics. Changes your beliefs. The average westerner needs to do a lot of internal restructuring to truly reckon with the Gaza holocaust and all its implications.

That, I think, has been the biggest reason why the genocide of the Palestinians has gotten so much attention and sympathy. It’s because its live-streamed nature caused it to affect us in ways other acts of mass military slaughter usually don’t.

Westerners are so propaganda-addled and indoctrinated that we are largely apathetic to what our bombs are doing to human bodies on the other side of the world. It’s only when we are given some skin in the game, as in the Vietnam draft, that we start caring in any politically significant way. Gaza gave us skin in the game in the way it entered into our lives through our electronic devices and showed us things that were so jarring it left a permanent mark upon our lives.

Gaza forced us to look, and forced us to see, against all the efforts the propagandists have expended trying to keep us from noticing such things. That’s why this thing isn’t going away. People are only getting angrier and angrier. The empire has spent three years scrambling around unsuccessfully trying to get us to close our eyes again, and it keeps failing and failing and failing.



Geopolitical Fare:




India faces the gravest risk any nation can face: it cannot supply the inputs it needs to stay independent. Every factory it is building to become an industrial power, every electric scooter, solar panel, transformer, medicine and missile, runs on materials controlled by the rival most likely to fight it. China holds the reins of India’s seven-headed horse. India holds no published reserve of any of them. Beijing has already stopped Indian production lines with nothing more than a slow export licence, in peacetime, and on 10 November its pause on wider controls runs out.

The irony is bitter: India's Black Warrant. A republic born of the fight to throw off colonial chains, whose first leaders built state plants to make its own rare earths, magnesium and penicillin, put on new chains by choice. It took up the West’s financial doctrine, which counts dollars and cannot see smelters. It closed the banks that funded its factories and let its plants rust. Today India is solvent in money and insolvent in matter, and the country that profits is the one it fears most. .............



QOTW:

Madam President, the most basic rules of international relations are being tested, not because we no longer know them. We do, but governments increasingly apply them selectively: international law applies until it becomes inconvenient; court decisions must be respected unless they challenge our own actions or those of our friends; sovereignty is sacred only unless someone else’s territory stands in the way of our ambitions.

We cannot build courts, celebrate them when they prosecute our enemies and undermine them when they turn their attention to our friends. When grave violations go unanswered, they are more likely to be repeated. And for small states, this is existential, not simply a matter of principle.
—Thorgerdur Katrin Gunnarsdottir, Minister for Foreign Affairs of Iceland, Sep 25, 2026.


he old world is dying, and a new world struggles to be born: now is the time of monsters.
— Norwegian Minister of Foreign Affairs Espen Barth Eide, Sep 25, 2026



Other Fare:


............ It’s essentially a race between revolution and high-tech totalitarianism. A race between the awakening of public consciousness to the urgent need for revolutionary change, and the ability of our rulers to prevent revolutionary change from ever occurring.

...... And right now our biggest disadvantage is that most of us don’t even know we’re in this race. Our rulers know it, but the average member of the public does not. Most of us are still chewing on the bait in the trap.

There is still time. The trap isn’t shut yet. But we need to awaken the other piggies in the pen to the reality of what the bastards have planned for us, and help them understand that the race is underway.

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