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New all time high for the Dow Jones Industrial Average, the least tech heavy index of the three majors (18%). The Nasdaq 100, with almost half of its components in the the sector, is still hustling to regain its peak from 2 weeks ago. Is there any value left to support the push for new highs? It’s getting more difficult to answer yes to that question, both in absolute and relative terms: on one hand, earnings continue to come strong, although their quality has decreased sign

Bond investors are starting to see the actual cost of building the AI infrastructure in the U.S. in the chart below, you can see the 5 year Credit Default Swaps (CDS) for the Banking sector and the Tech sector. Despite the fact that banks are going through a tough period, with low liquidity levels in the short term market, the perception of risk by bond investors is mostly muted. For the tech sector, however, the fact that organic cash flow can only satisfy half (if at all) o

We start the week with the good news about the reopening of the U.S. government, which has been closed for a record 40 days. But there is a full laundry list of items that are problematic for the Trump administration. Among them: The SCOTUS decision on tariffs, which doesn’t look good at this point, inflation and high short rates, which are squeezing the middle class, and housing affordability. In the chart below you can see two charts that would indicate the American dream i

The current market concentration phenomenon has been discussed extensively. Concentration at company level, with the mag 7 wonder, at sector level, with the AI related companies responsible of 75% of the S&P500 gains since the introduction of chatGPT on November 2022, and concentration at country level, where the U.S. dominance has been exceptional over the last 15 years. These companies have created an unprecedented level of dependency for the world. To the point that the wo

Central banks are combining different levers to manage the current economic environment. On one hand, they are cutting rates at an unprecedented rate for a non recessionary period. On the other, they have been reducing their balance sheets (mostly G7), which suffered a staggering expansion during the pandemic. In the chart below, you can see the Fed’s balance sheet and how it went from 35% of GDP to the current 22%. As a consequence of that, liquidity might’ve been running a

It looks like the art of the deal is becoming challenging these days. After a victory lap last week where President Trump announced a set of agreements on the White House website regarding a potential sealed agreement between him and President Xi, information is coming out that challenges if in fact the deal is seen the same way by both parties and, more importantly, if they’re going to honor it. China is imposing conditions to a president that doesn’t want to be told what to

As of today, the government shutdown we are currently suffering has been the longest in modern history. 37 days and counting, where thousands of government employees are furloughed, until Congress authorize the treasury to fund it and reopen it. As you can see in the last column on the right, in the table below, the market seems to be numb to the fact that we don’t have a functioning government, which begs the question of the need to have a big government. Perhaps also the ma

The Supreme Court is holding oral arguments today in cases like Learning Resources, Inc. v. Trump , challenging whether the president can use IEEPA to impose broad tariffs by declaring a national emergency. Although no final decision is expected today, the importance of today’s hearing is clear, since the president is using tariffs as the core of its negotiating tactics with China, one of our biggest trade counterparts, and the major contender for establishing the word order.

AI is starting to disrupt the economy. You would hope that it would do it by increasing productivity first, which in the end, it’s what is intended for. But it looks like first is going to dislocate the job market, and the efficiency, at least initially, will be achieved at the expense of human labor. The chart below shows corporate layoffs announced by year, and 2025 is already showing more layoffs than any other year since 2010, with the exception of 2020, due to COVID. The

The month of November has started, and the U.S. equity market continues to show incredible resilience. 16.6% YTD return, after correcting 20% on liberation day due to tariffs. Corporate earnings are coming out solid, albeit with plenty of help from buybacks, on the back of substantial debt issuance. Warren Buffett, however, doesn’t seem to like this market. The chart below shows his massive cash position, which is $384Bn, a signal that he doesn’t find companies with attractiv

Big tech firms are going all in when it comes to funding data centers destined to train AI models. It is expected that just the big hyperscalers (Meta, Amazon, Google and Microsoft) will invest $400Bn in infrastructure. Where will that money come from? It does come primarily from earnings, of course, but earnings are already being used to fund dividends, buybacks and other projects. At this scale and with rates still relatively low, and with IG spreads at historical minimums,

The financial pipes got a tempeorary fix yesterday. Banks used $50Bn in REPO to get the liquidity they needed to close the books for October, decreasing the need to tap other Banks through SOFR, pushing the rate down from 4.3% to 4%. As you can see on the chart below, is not common for banks to take that amount of money in the REPO market. In fact, it’s unusual, and typical of crisis, like COVID. Perhaps banks have dodged this bullet, but the problem is still there, whether i

The silent tension in the financial system continues, even after the rate cut from the Fed on Wednesday. In the chart below, you can see the time evolution of the difference between SOFR, the rate at which banks lend to each other, and IORB, the rate at which the Fed pays bala on reserves. With the cut, IORB went down, and in a normal market, that should pull from SOFR down too, but not in today’s environment. SOFR remains elevated and if this tension continues, th Fed might

The Fed concluded its two-day meeting on October yesterday, with the expected 25 basis point cut to the federal funds rate, bringing the target range to 3.75%–4.00%. the highlights of Powell comments were: (1) Job gains have slowed, with unemployment holding steady but risks to employment increasing. (2) Inflation has eased but remains somewhat elevated, with recent CPI data showing a rise to 3% year-over-year in September (up from 2.9% in August). (3) Balance Sheet Policy:

Today the Fed is expected to lower rates 25 bps. The chairman would probably feel more comfortable keeping rates intact, due to potential inflation pickup as a consequence of tariffs and government spending. But his world is not that simple (neither is ours). US labor market is deteriorating, and several big corporations are already announcing big layoffs. The real employers of the majority of the labor force, the small businesses are suffering and lower rates will help a lot

China just unveiled the 15th 5 year plan which will govern the country’s future froln2026-2030. The plan outlines seven core targets, which are: (1) High-Quality Development : Shift from scale to productivity, with domestic demand driving ~86% of GDP growth (up from prior periods). Boost consumption (targeting 56% contribution to growth) through expanded social security, rural revitalization, and regional coordination. (2) Scientific and Technological Self-Reliance : Achieve

Inflation is a global problem and it is slowly picking up again, not only in the U.S., but across the globe. In the chart below, you can see the latest CPI reports for different economies, and in most instances, prices are higher than they were in August. That should trigger a more restrictive monetary policy response. But central banks seem to be in a difficult spot, as unemployment is also going up, and economies are slowing down, conditioned by debt. What we are likely to

Central banks all over the world are cutting rates. According to the chart below, over the last 24 months, central banks have cut 312 times, one cut shy of the absolute maximum that occurred as a response to the 2008 Great Financial Crisis. If the Fed cuts next Wednesday, we will march the prior historical stretch. The major difference is that at the time, the financial world was on the brink of a depression; now, we don’t even have an officially confirmed recession. The Fed,

The expected US inflation report for the month of September was published yesterday by a short headed BLS. The report came slightly better than expected at 3.019% vs 3.1% for consensus. As you can see in the lower part of the chart below, the trend for CPI is upward sloping, not down, and if we take the 3 month average and annualize the result, we get 4.75%. So we do have an inflation problem, and it’s getting clearer that tariffs are pushing goods prices up. At the beggining

The IMF has released its world economic outlook report where among many things, they project growth for the global economy. For advanced ones, as you can see in the chart below, the expected growth for this year and the next, is an anemic 1.6%. It’s interesting that China is not included in the group of advanced economies, being the second largest and the one with the fastest growth. But what it’s also interesting is that the IMF does not foresee any major impact from AI in g