***** denotes well-worth reading in full at source (even if excerpted extensively here)
Economic Fare:
AI Duration, Fed Reform and the Long End. The flawed target, benchmark and model. Bank equities are pointing to more constructive monetary policy in the US and Japan.
- The Fed’s inflation target, benchmark and model are all flawed. The 2% PCED target was a crisis-era commitment that became permanent policy without adequate consideration of second-order effects, while the reliance on revision-prone PCED and a monetary-policy-centric inflation model ignores the fiscal origins of the postwar, 1970s and pandemic inflation shocks. Chairman Warsh understands the institutional problem, but reforming the Fed’s framework will require moving carefully against a deeply entrenched status quo.
- Mother Market got the inflation and policy setup right. July CPI, PPI and retail sales were consistent with cooling inflation momentum, lower odds of a September rate hike and a clean market forecast of disinflation that does not depend on additional Fed restraint. The end of reserve management purchases is a step toward balance sheet reform, but it remains modest relative to the Fed’s ongoing footprint in longer maturity Treasuries.
- AI infrastructure spending is rate sensitive, just not primarily to the Fed funds rate. The Big Spenders’ capex plans are already responding to changes in the cost of equity, credit spreads and long real rates, while AI-related duration supply is likely to remain an important pressure point for the Treasury market. If policymakers respond with policy-rate hikes rather than balance sheet restraint, they risk strengthening the AI impulse while tightening financial conditions for the rest of the economy.
- Government interest expense is not yet the Treasury market’s central problem. Deficits remain large, but outlay growth is running below nominal GDP and swap spreads suggest the rise in long real rates is not primarily a Treasury supply story. The risk is that higher short rates and another turn toward fiscal expansion after the election push the government closer to funding interest expense with still more debt.
- The market data have improved, but the long end has not yet cooperated. Payrolls, CPI and retail sales were all bond-friendly, yet the back end of the Treasury market failed to rally, likely reflecting ongoing AI-related supply concerns and investors waiting for post-Labor Day issuance. We are not giving up on longer maturity USTs, while financials—especially regional banks—remain a favored expression of a bull steepening curve and coming regulatory relief. Japanese equities are likely to respond favorably to rate hikes, banks are the key tell.
Trump doubles down on sanctions and a blockade while Tehran bets high oil prices will force Washington to relent
................... “Tehran has drawn a simple lesson from every game of chicken with Washington: Hold your nerve long enough, and America swerves first,” said Ali Vaez, the International Crisis Group’s deputy program director for the Middle East and North Africa. “For a system that believes it is fighting for survival…existential threats tend to harden resolve, not impose a price ceiling on resistance.” ..................
Market Fare:
Yardeni: History Lesson
........... The breakout is a good moment to ask where this bull market fits in the historical record. The answer is that it’s in the middle. That is a more bullish finding than it sounds. Bull markets do not die of old age or of accumulated gains. They usually die when earnings roll over.
Yardeni: Raising Our S&P 500 Earnings & Price Targets Outlook Due To FEMO (Fabulous Earnings Momentum)
Part 1 of 2 · Gold broke a six-month decline last week on heavy volume. Why the cycle points to $8,000 an ounce, why $10,000 is not the crazy number. Part 2 — the 5 gold miners — follows tomorrow.
In the last week of January, gold touched just under $5,600 an ounce and silver went through $120. Then both of them came apart.
For six months after that, the most exciting corner of the market was the quietest. Gold fell more than a fifth. The miners gave back a fifth in a single quarter. Silver lost close to half. Everybody who had arrived late went home, and the people who write about gold for a living stopped being asked about it.
On Friday it stopped being quiet. Something bought gold, and bought it in size.
Nobody rings a bell to say who. There is no announcement, no register, no list of names — and the people large enough to matter are the ones with the most reason to stay out of sight while they work. Which leaves you with an old problem: how do you work out who came through, and how many of them there were, when you did not see it happen?
A scout never sees the army.
He arrives after it has gone. What he has are traces — the depth of the ruts, the width of the trampled ground, how far the fires have burned down. From those he works out three things he did not witness: which way they went, how many they were, and how long ago they passed.
Markets work exactly like that. You never see who bought. You see what the buying left behind, and it leaves precisely two traces.
Price is the direction. Volume is the number. Almost everybody reads the first trace and stops there.
Last week, in gold, the trail was wide.
Gold rose more than 7% in five trading days, to around $4,340 an ounce, on volume some 44% above its normal level. The largest gold-miner fund gained over 20%, on volume up 37%. Agnico Eagle, one of the biggest producers in the world, added 23% on volume 41% heavier than usual. Those are weekly figures, not daily ones.
A word on that second number in each pair, because it is the one that matters and the one most people skip. Volume is simply how much changed hands. When a week’s volume runs more than 40% above normal, we call it heavy — and heavy is our evidence that large institutions were doing the buying, rather than a thin summer market drifting upward on nobody in particular. A price can rise on almost no participation. It cannot rise on a week like this one without somebody large having made a decision.
And that buying arrived out of a specific shape on the chart — a falling wedge, six months in the making, running all the way back to the January peak. We explain what that is, and why it matters less than most people claim, further down.
So here is the number this piece is built around, stated at the top rather than buried.
We think this cycle ends with gold above $8,000 an ounce. We think $10,000 is the upside case rather than the fantasy. And we think the ounce is the worse way to own it.
That is a large claim and it deserves arithmetic rather than adjectives, so most of this piece is the arithmetic. It comes from one place: the two comparable secular bull markets in gold, and what happens if this one merely repeats the weaker of them. Tomorrow’s part two takes the same number and runs it through five mining income statements, which is where the money actually is. ..................
If you did not want to buy the June dip, and a good number of you wrote to say exactly that, the tape has now handed you a different sort of message. Pro-cyclical instead of contrarian. You are no longer trying to catch something on the way down; you are following something that has already turned in front of witnesses. .......................
One rule governs everything we do, and it has a name: Good Story & Good Chart.
The Good Story is the business — the moat, the returns on invested capital, the balance sheet, whether management allocates capital like owners. The Good Chart is the market’s verdict on that business — the trend, the relative strength, whether large institutions are accumulating or distributing. We act only when the two agree. A great business with a broken chart is a watchlist item, not a position. A great chart on a mediocre business is somebody else’s trade.
Gold and the gold miners spent the last six months as the first of those. Last week they started becoming the second. That transition is the entire reason this piece exists, and it is why we score both halves as numbers rather than argue about them in prose — more on that, and on where you can look them up yourself, further down. .....................
This is why we keep saying that volume is the only part of a chart that cannot be manufactured. Price is an opinion until somebody has to fund it. A 20% week on heavy volume tells you that large pools of capital reached the same conclusion in the same five days, and that they were willing to pay up rather than wait for a better fill. That is the behaviour of a buyer with a mandate, not a trader with a hunch. .....................
→ Yesterday’s number, today’s consequence. Part one argued this gold cycle ends above $8,000 an ounce. This one asks what that does to the companies that dig it up.
→ The leverage is arithmetic, not sentiment. Sector costs run under $2,000 an ounce against gold near $4,340. Move gold to $8,000 and inflate costs by a third — harsher than any current guidance — and the operating margin still expands by 124%.
→ Which means the 2027 consensus is describing a different world. Analysts model a flat gold price beyond the current year. That is why estimated earnings growth collapses to single digits in 2027 on several of these names, and why an eleven-times multiple is either a bargain or a trap depending entirely on your gold view. ............
..................... Second, the downside case still works. VanEck’s stress test holds gold flat and raises costs 10–15%, and the sector still generates substantial free cash flow per ounce. So the question in front of you is not solvency or survival. It is how much of a very large margin the market is willing to capitalise, and at what multiple.
The honest limit of this arithmetic: margin per ounce is not earnings per share. Production volumes are flat to declining across the majors, royalties are struck on the gold price and rise with it, tax take rises with it, and several of these companies will spend part of the windfall buying reserves rather than returning it. Call it leakage. Even generously assumed, it does not come close to consuming a 124% margin expansion. .................
............ Last month, the Federal Reserve released a report that updated earlier efforts to quantify the level of hedge fund involvement in the US government debt market, and attempted a rough taxonomy of their different trades and strategies. This is the research mentioned in the introduction, and it was a bombshell.
The report — authored by a senior central bank economist called Phillip Monin — estimated that the gross exposure of hedge funds to US Treasuries had doubled between 2023 and September 2025, and amounted to $4tn by then. Of this, $1.6tn were short positions (meaning that hedge funds were betting on Treasury prices falling) and $2.4tn were long positions.
The latter means that hedge funds now own 8.5 per cent of outstanding US Treasuries. ........
At 2.7%, Japan's Share of Treasury Debt Is Too Small To Impact US Rates
A.I. Fare:
Things could get bad if this all falls apart
Last November, in Bubble Trouble 2, we looked at AI chips as the font of a new asset class. At the time, their prices weren’t going up, hence the cautionary title. But nine months is a long time in AI and as demand for compute has accelerated, legacy GPU prices have inflected.
“Everyone in 2024 and 2025, even if you were really bullish, you thought that GPU prices would decline slowly,” said tech investor Gavin Baker on a recent podcast. “If you were bearish, you thought they would decline precipitously. I don’t think anyone in ‘24 or ‘25 thought that the prices of old GPUs would be going vertical.”
Yet they are. According to Silicon Data, the price to rent a Nvidia Hopper H100 chip for an hour has risen to $2.71, up from $1.96 at the end of November. And there’s no sign of a slowdown ..............
Investing Fare:
A recent paper tries to develop a unified theory of trend-following by classifying trend-following into three groups; see “The science and practice of trend-following systems”.
The authors break trend-following into three types: European, American, and Time Series Momentum. .............
........ a Collective member sent me a conversation with Emily Haisley, the psychologist who leads behavioral finance at BlackRock. Her mandate, in part: keep the firm’s portfolio managers in a state of mind and body worth trusting with risk.
Her team’s instrument is a consumer wellness gadget: the Oura ring. Managers wear them day and night; Haisley overlays what the body reports on what the portfolio does. In lab studies, a week of elevated cortisol measurably tilts preferences toward risk aversion. Stress does not simply feel bad; it silently repositions portfolios. And her data shows it live .................
Charts:
1a:
(not just) for the ESG crowd:
Deadly heat, wildfires, and drought are a preview of the escalating catastrophe to come
.................... Scientists are increasingly rejecting the palliative mainstream consensus that this horrific summer represents the “new normal.” It is “just the beginning,” said Johan Rockstrom of the Potsdam Institute for Climate Impact Research in Germany. “It will inevitably get worse. It will get worse and worse and worse.” ..................
Don't believe the hype - we are still firmly on course towards climate catastrophe
.................... I am more than baffled at what some sections of the climate science community have been doing in the midst of this crisis. Over the past few years we have seen the quite astonishing spectacle of this community tying itself up in knots trying to decide what constitutes a worst case scenario when it comes to future heating. ...............
Pettifor: On Converging and Systemic Crises
... and Operation Economic Fury
What is happening to the US dollar? Why has the Federal Reserve set up a ‘pawnshop’ on its estate? Why do Japan’s low rates of interest threaten the US? Why are Europeans angered by US Treasury Secretary Bessant’s not-so-stealthy hedge-fund-style moves? And what has that all got to do with the AI bubble and Silicon Valley’s vast mountains of debt?
Above all, what has that to do with you or me? Those are the themes of this post.
But first. Writing is hard for a woman of my great age when the reality and the expected outcome of our converging crises portends a grim future - one widely foreseen and understood.
Like many others, I am grieving.
Many of us know that both the economic and eco systems will soon confront societies, our children and grandchildren with even bigger, well predicted and destructive shocks. But who will lead? Where are the great economists that could follow in the footsteps of John Maynard Keynes? And how will societies mobilise to storm the gates of private power and put a stop to the giant, globalised roller coaster that is finance and fossil capitalism?
Professor Kevin Anderson reminds us that that civilisations have collapsed in the past and all thought they weren’t going to - until they did. .............
Cold blob south of Iceland deflects polar jet stream northward, parking heat domes over Europe each summer
Well, this is some grade-A bullshit.
In December 2025, James Hansen predicted a temperature of 1.7 degree above pre-industrial for 2027.
Hausfather was predicting 1.57 back then, but moved his estimate to 1.7 above pre-industrial for 2027 too.
Well, have a look at what Hausfather is now predicting:
In 2027, we’re going to be a decade ahead of where we’re supposed to be.
Global warming, has accelerated. It’s very obvious on the graph, somewhere around 2010, it begins speeding up.
And look, this has real consequences, for real people. ...............
********** Tindale: The Copper Residual
Sulphuric Acid Deficits, Thermodynamic Reality, and the Impossibility of Decarbonization.
We are trying to build a world powered by green energy and AI, but the physical materials needed to support that goal remain unavailable and are, by any reasonable analysis, unobtainable by any means.
During the mining industry’s most productive recent decade (2014 to 2024), global copper supply grew by an average of 0.38 million tonnes a year. Over those same ten years, everyday copper consumption grew by 0.46 million tonnes a year. Normal demand outpaced supply exactly when the mining industry was expanding the fastest.
Now add AI data centres. AI requires an extra 0.13 million tonnes of copper every year until 2040. A single large data centre takes roughly 50,000 tonnes just for power and cooling. This one new technology demands a third of our total historical supply growth.
Add the 0.46 million tonnes of normal demand growth to the 0.13 million tonnes for AI, and subtract our 0.38 million tonnes of new supply. The number falls below zero.
Replacing all fossil fuels requires roughly 4.5 billion tonnes of copper. Known world reserves sit at 880 million tonnes. We currently mine about 25 million tonnes a year. At this pace, it will take 187 years to extract enough copper for the energy transition.
Even if we engineer miraculous ways to reduce metal usage, we remain radically short of the volume required to alter climate trajectories. It’s ironic, but the models we’ve used to address climate change assume hidden assumptions about miraculous technology being developed to absorb CO2 in some distant future.
The idea that we could change our climate trajectory by changing our energy systems never had a bill of materials to achieve it. ..................
....................... The IEA warns of a 25% shortfall by 2035. S&P Global forecasts a 10 million tonne deficit by 2040.
The only number that matters is supply growth minus incumbent demand growth. This calculation leaves nothing for the energy transition.
We lack the physical bill of materials to construct the new grid, guaranteeing our inability to escape climate change. It’s a policy misadventure because the Earth can't supply the materials for it to succeed, and policymakers never checked.
The policy class designed a system to avoid climate consequences by converting to green energy while entirely ignoring whether the materials to construct that system existed. .....................
........................... Today the choke point sits at refining, and China holds it. As the deficit deepens, the bottleneck migrates upstream from the smelter to the mine gate. When concentrate becomes scarce, the commercial market stops clearing, and allocation becomes a function of the state.
This phase is already active policy.
In July 2026, the United States invoked the Defence Production Act to institute export restrictions on recoverable critical minerals and materials. The state recognised the physical deficit and established absolute capital controls over physical matter. The commercial market no longer dictates where materials flow; sovereign necessity dictates it.
The primary actor securing these supply chains is no longer the environmental lobby. It is the defence apparatus. .................
Sci Fare:
A novel AI model can use information collected during routine sleep studies to identify patients’ long-term health risks, according to a study published in Nature Communications. Developed by a multidisciplinary research team, the model uncovered hidden sleep patterns linked to higher odds of heart disease, cognitive decline and death.
The crowded system may reveal how early black holes grew so quickly
U.S. B.S.:
............................. It should be noted that AOC was not some bystander during all of this. As she has done for every similar moral panic of the left — the incalculably deranged Russiagate conspiracy theories, the life-destroying and due-process-free #MeToo persecutions, COVID censorship — AOC supported and participated in the most extreme woke excesses because she does not have an iota of courage to resist social and political pressures.
............. If someone wants to stand up and say that they went along with and advocated a bunch of “crazy” ideas and demands because they simply got swept up in the hysteria of the moment — as AOC and her allies are now attempting to suggest — then that is a rather serious self-indictment. I can hardly think of a worse trait in a political leader, or a human being of any kind, than a lack of internal fortitude or personal courage to resist moral panics and accompanying demands for full submission by a gathered mob. .........
As it extends into other countries, the administration’s campaign will fuel the brutality and authoritarian tactics of regional governments.
The unhinged nature of Trump’s Iranian debacle continues to descend into something truly bathetic.
It calls to mind the popular description of the fall of Rome, one variation of which reads something like: “The average Roman citizen hadn’t noticed their empire had collapsed until one day the roads and bridges simply stopped being repaired.”
In this case, American society lives in a state of Normalcy Bias, as spray-tanned politicians bleat about some kind of ‘Golden Age’, while virtually everything associated with the American empire slowly goes to hell in a hand basket ............
War Fare:
Zelensky’s 40-day influence operation provoked Putin into rendering Ukraine de facto landlocked.
................................... Readers shouldn’t forget that the catalyst for this scenario sequence isn’t Russia’s new strike campaign in Odessa Region per se, but Zelensky’s 40-day influence operation earlier this summer that sought to coerce Russia into an unconditional ceasefire, but which provoked Putin into “escalating to de-escalate”. The ever-cautious Russian leader eschewed making Ukraine de facto landlocked for 4.5 years already but was finally pushed into doing so after Zelensky’s new Trump-backed and drone-driven “war of attrition”.
Zelensky is therefore responsible for setting into motion what might be the next Polish-Ukrainian grain crisis, not Putin ...........
Vid Fare:
Debunking 6 Key Myths
China Fare:
As US-China strategic rivalry intensifies, declining cultural literacy increases the risk of misreading Beijing’s intentions
Until about a decade or so ago, I bought the whole western line about China — that their governments were ideological and oppressive, that they kept millions of Uyghurs in forced labour ‘reeducation’ camps in Xinjiang, killed Hong Kong protesters without a second thought, and ruthlessly persecuted the people of Tibet and Taiwan. That government corruption and incompetence had produced whole ‘ghost cities’ of fenced-off uninhabited buildings while nearby citizens were left homeless. And that everything they made was inferior, cheap junk. The endless propaganda from expat and CIA-funded anti-communist organizations like the Falun Gong’s Shin Yun religious right-wing ‘dance’ company didn’t help.
I believed all this shit until I actually met and started talking with people who actually lived, and live, in China. I’m now quite ashamed of some of the Sinophobic crap I posted on this blog in its early years, and I leave it up as a constant reminder of the dangers of believing things just because you don’t hear (for a variety of reasons) any contrary perceptions or information. But substantially everything I believed about China was utterly wrong. It joins the long list of things I was wrong about. .....................
............................................ If I had a lot of money and no responsibilities, I would be really tempted to go to China for an extended time and employ someone there to teach me enough Mandarin to get by, and let me see for myself what is clearly a completely different way of life from the increasingly homogenized and precarious life of the west. China will of course be caught up in the global collapse of industrial civilization like everyone else, in the not-too-distant future. But I have a sense that their citizens’ pragmatic worldview, attitudes, skills, knowledge, innovativeness, openness and all-round competencies, might enable them to cope with, and adapt to, accelerating collapse, perhaps better than the citizens of any other nation in the world.
Lit Fare:
His 1960s science-fiction visions are a guide to our age of erratic billionaires, wild space fantasies and glitchy, invasive technology
........................... Technology in Dick’s world is invasive and glitchy, sometimes telling us that it refuses to work, or holding us to ransom. At the start of his 1969 novel Ubik, the apartment door smugly demands a payment for opening and closing. The protagonist, after losing the negotiation, decides to unscrew the door from its frame, prompting the latter to threaten a lawsuit. When characters in Dick’s world yell at the TV, the TV sometimes yells right back. The speech modules of our personal devices don’t yell, but they are beginning to combine alert attention with dim-witted obsequiousness, anticipating our needs while profusely apologising for irretrievably wiping our database.
Machines can be mistaken for humans and humans for machines. In Do Androids Dream of Electric Sheep? (1968), the basis of the film Blade Runner, human bounty hunters come to resemble the soulless androids they hunt down for money. In the movie, as in many of Dick’s short stories, they are unsure whether they might be androids themselves. ........
Other Fare:
It’s hard to wrap your mind around the abusiveness of the imperial status quo, partly because it’s all we’ve ever known, and partly because it’s too big to perceive all at once.
The statistics don’t show you the true human impact. The personal anecdotes just show you small snapshots of individuals suffering in their own lives. A working single mother crying in her car in a TikTok video because the endless toil necessary for survival is all-consuming and overwhelming. A news report about child labor in DRC cobalt mines. An Instagram reel about a father in Gaza carrying plastic bags he’s been told contain the remains of his daughter.
Individually, such stories are heartbreaking and enraging. But they are not merely personal anecdotes from separate individuals. These stories are unfolding all around the world, every moment of every day, affecting the lives of billions of human beings in different ways and to varying degrees.
If we could see it all, it would radicalize everyone against the empire instantaneously. ..............
The only thing keeping the heads of the oligarchs and empire managers attached to their necks is the limitations of human perception.
Which of course is why they work so hard to maintain the present limitations of human perception. All the propaganda, internet censorship, AI shenanigans, algorithm manipulation and government secrecy we see from the capitalist empire is there to keep us from seeing too much, because unadulterated truth tends to have a radicalizing effect on the mind.
That’s why they’re scrambling to roll out police drones, AI mass surveillance and autonomous weapons systems while doing everything they can to slow down our access to information and insight: it’s a race to get us fully locked down in a capitalist dystopia policed by militarized robots before humanity’s unprecedented ability to share inconvenient facts and ideas lets us see enough to awaken a revolutionary zeitgeist in our collective consciousness. ..................
Welsh: How I Learned About Leaders & Human Nature
......................................... Then I got involved in politics, and I can count the number of politicians I’ve met who I’d trust to walk my dog on one hand.
But what all this taught me is that leaders really, really do matter and nothing matters more to how well anything functions than who leads it. Nothing matters more than how we select our leaders.
We, of course, select them badly. But what was interesting to me was watching, over decades, as the number of good leaders declined and as the niches where they could operate were reduced in number. Every year, just a little. Over decades: massive.
Good groups are possible. Better societies are possible. But it all starts with who leads us and figuring how to select the right people.
..................................... Intellectual honesty is “I don’t know if we can find a better solution but I also don’t know that we can’t, and I do know that humans have often found new ways of doing things.”
A better world is easy enough to imagine. And that’s the first step to change: find a pole star and navigate by it. We chose “let’s organize our society around greed” as a polestar and it changed the world. Now it’s running us off a cliff.
Perhaps there are other polestars which would work better?
Humans generally change societies radically after a crisis. But when they do so, they reach for the ideas that are hanging around. If those ideas aren’t good ones (neoliberalism in the 70s, for example) humans will turn a crisis into something worse by choosing a cure that is worse than disease.
So the job is to make sure good ideas hanging around. ........
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