The A.I. Bubble

It's coming, but I'm cautiously optimistic that there are still enough rational adults on scene who're working their butts off, understanding that they have to let some of the air out before it pops altogether, while also coming up with a plan to mitigate the damage if it does blow up.

But I think the biggest problem that's both pushing the bubble and hindering the efforts to keep a little sanity in the system, may well be that too many of our illustrious Wall Street geniuses have adopted the Silicon Valley mantra of "move fast and break things".

Cuz y'know, "global economic crash" just doesn't sound very appealing to me.

AI 'bubble' bursting could cause a global economic crash, Bank of England chief warns

The AI 'bubble' bursting could cause a global economic crunch, the Bank of England governor has warned.

Andrew Bailey delivered a stark message about the consequences of a 'future market correction' in a letter to powerful finance ministers.

He said the effects of a shock could be 'amplified' because firms were borrowing huge sums to invest in the tech.  

In his missive to the G20 meeting, taking place in North Carolina, Mr Bailey pointed to the 'volatility' caused by the Iran war fallout.   

Writing in his capacity as chairman of the Financial Stability Board, he said 'markets remain vulnerable to a potentially disorderly correction that could spread across borders, particularly given fragilities in sovereign debt markets'.

He added: 'The issue is not simply that investors are borrowing more, but that leverage is interacting with high valuations and market concentration, in particular the increasing cross-investment between artificial intelligence companies and hyper scalers, in a way that could amplify a future market correction.

Nerves have been growing about the risks of an AI correction, with governments around the world facing rising costs to borrow. Pictured, the interest rate on UK 30-year gilts

Nerves have been growing about the risks of an AI correction, with governments around the world facing rising costs to borrow. Pictured, the interest rate on UK 30-year gilts

'I remain concerned therefore that a large shock or combination of shocks could concurrently trigger multiple vulnerabilities.'

Does "the crash of 2008" ring any bells for ya?

AI has been booming, with the US leading the charge to develop the tech. But nerves have been growing about the risks of a correction, with governments around the world facing rising costs to borrow. 

Mr Bailey also flagged concerns about 'frontier AI' – the most advanced form of AI – and the 'threat' it poses to cyber security. 

'The risks associated with frontier AI will not respect national borders,' he wrote.

'The global financial system is highly interconnected, and cyber disruption can spread across jurisdictions through common technology providers, shared infrastructure, and cross-border financial activity. 

'Differences in legal frameworks, cyber capability, resilience and recovery capacity across jurisdictions could therefore have consequences well beyond the jurisdiction in which an incident originates and may themselves become a source of vulnerability.' 

Mr Bailey's warning came as Chancellor John Healey announced a £100million fund aimed at backing British AI start-ups.

The fund is part of the Government's efforts to grow 'Sovereign AI' capacity, ensuring the UK is not dependent on services and infrastructure developed abroad.

Ministers want to see companies compete for the funding to help tackle challenges like cutting waiting lists in the NHS, and improving patient care, as well as bolstering cyber-security and defence.

Mr Healey said: 'Britain is home to some of the most innovative AI companies in the world, and this government is backing them to start, scale and succeed here in the UK.

'This first-of-its-kind competition will help make sure more of the benefits of AI are felt in every UK postcode.

'As G20 countries seek to make the most of AI opportunities, I'm determined Britain has a lead role in harnessing this technology to drive more jobs, better public services, and growth that's UK-wide.'

Belle

Trump's #1 preferred go-to response to everything is force - one kind or another, he's going to use or threaten force to get his way.

Kinda what a malignant narcissistic abusive rapist does, isn't it?

The Bubble

"Earnings are opinion. Cash flow is fact."

Opinion: The bond market is going to burst the stock-market bubble

Rising yields threaten everything, especially overextended equities

When it comes to stock-market downturns, listen to the Bible. Even if one is coming, “of that day and that hour knoweth no man,” not even “the angels which are in heaven.”

But one is surely coming, and the unraveling of the long-term bond market is raising the chances that one is imminent.

It is already absurdly obvious that we are in a massive stock-market bubble. Former Federal Reserve governor Bill Dudley just pointed out many of the signs, which will likely come as no surprise to regular readers of MarketWatch but which are worth repeating.

While Dudley listed a number of different issues, they boil down to three big ones. First, stock-market valuations are already crazy by any number of measures. Second, the entire artificial-intelligence financial boom is now in the kind of classic Ponzi-style loop that always happens in financial manias, and which has always been followed by a downturn or worse. And third, the rise in long-term interest rates in the U.S. and around the world are exactly the kind of thing that could burst the bubble.

The interest-rate argument is most timely. It looks increasingly like the U.S. Treasury, the global lender of last resort, is losing control of long-term rates. The alleged Treasury “buyback” program that sparked a brief rally was far less than it seemed; it involved trivial sums of money and no new money.

And the bond rally is already over: By early Thursday, the yield or interest rate on the benchmark 10-year Treasury note was already back to where it was before the announcement.

The underlying cause is that both the U.S. and other major developed countries, including Japan and in Europe, have been piling on debt like crazy for decades and lenders, at long last, are starting to ask some serious questions about how sustainable it all is. Epic levels of debt added during the COVID lockdowns, following hefty additions during the global financial crisis, have changed the financial picture.

The word “credit” comes from Latin, and means “he or she believes.” People extend credit because they believe they will get their money back plus interest. Once they start to question that belief, things can spiral very quickly. This happened to the Middle Eastern emirate of Dubai in late 2009, and the so-called PIIGS — Portugal, Ireland, Italy, Greece and Spain — in the years that followed.

Every single financial bubble has burst when some people have started to ask whether they will really get all their money back. In the aftermath, the motto among high-net-worth advisers is that return “of” capital is more important than return “on” capital. Then, as markets boom in the next bubble, the lesson is forgotten.

There are astonishingly few people around on Wall Street who remember the bubble of the mid-2000s, which was followed by the cataclysmic global financial crisis of 2007-09. There are even fewer who remember the great stock-market bubble of the late 1990s, followed by the crash of 2000-03. Alarmingly, there are also astonishingly few people who seem to understand math, or how all these things are connected.

The interest rate on U.S. Treasury bonds, especially on the 10-year note, is the bedrock upon which the entire financial system is based. Back when I was still soaking wet behind the ears and being trained by business-school professors in the arcane world of “corporate finance” and “valuation,” everything started with the “risk-free rate,” meaning the rate of interest an investor could earn on supposedly risk-free investments — meaning U.S. Treasury bonds.

All “risky” assets, meaning all stocks and corporate bonds, are priced in relation to this so-called risk-free rate, using a variety of calculations. If the market starts to worry about U.S. debt levels and pushes up the rate of interest on Treasury bonds to compensate, this in turn pushes up the rates of return demanded by everything else.

And that’s even before you factor in any rise in actual risk aversion caused by a financial crisis.

So if the Treasury is losing control of the Treasury bond market, that isn’t just a matter for bondholders — it’s a matter for everyone. From their peaks in 2007, the various stock markets of the PIIGS each fell between 65% and 85%, when measured in U.S. dollars, before hitting rock bottom around 2012.

So what is happening in the bond market right now is deeply ominous.

Meanwhile, Dudley highlighted the circular financing loop involved in AI. Right now, AI investment is driving the economy and the stock market.

In other words, rising equity prices get reported as corporate earnings, which are then used as an excuse to … raise equity prices still further.

The phrase for this is Ponzi finance. It’s absurd double counting.

Matt Miskin, co-chief investment strategist at Manulife John Hancock Investments, says that the second quarter amply highlights the old adage that “earnings are a matter of opinion, while cash flow is a matter of fact.” In cash-flow terms, he notes, many of the biggest tech companies are now cash flow negative as they spend gigantic sums of money on new AI data centers. They have been forced to issue bonds and even new stock to raise the sums needed.

And the assumptions needed to suggest these investments will earn a good return on capital are somewhere between challenging and preposterous, depending on whom you ask, how well they know you and how much their job depends on keeping the whole thing going.

Sadly, those who warn about stock-market manias, bubbles and Ponzi finance always look wrong until they look right. Actually, they look increasingly wrong until they look right. The late 1990s was littered with the careers of people who had called the stock-market bubble, but too early. Ditto the mid-2000s with the housing boom.

Nobody knows the day or the hour. But that doesn’t mean it won’t come.

To The Rescue

I don't know what it means, if it means anything. 

What I do know is that the Trump administration isn't any kind of reliable source. So we're all just pissin' in the dark and hoping there's a bucket to catch some of it.



Treasury doubles debt buybacks as Bessent moves to steady bond market

Key Points

• The Treasury Department said Wednesday it will at least double the level of government debt buybacks in the next few months, targeting the sensitive longer-duration segment of the market.
• Yields tumbled following the announcement and stock market futures surged.

The Treasury Department on Wednesday said it will more than double the size of its government debt repurchases, sending yields sharply lower at a time of substantial market stress.

With fixed income markets under pressure and yields surging to levels not seen in nearly 20 years, the announcement targets the sensitive longer-duration part of the Treasury market.

Under the accelerated buyback, Treasury, led by Secretary Scott Bessent, will target the 10- to 20-year and 20- to 30-year portion of the market, which has seen a buyers’ strike since late June. The government will “at least double” the maximum size of its buyback operations, from $2 billion to “at least” $4 billion, according to an announcement from the department.

Yields cratered following the announcement while stock market futures rose sharply.

The benchmark 10-year note fell 6 basis points to 4.647% and the 30-year “long” bond tumbled 9 basis point to 5.196%. A basis point equals 0.01%. Yields and prices move in opposite directions.

The change will start Sept. 9 and stay in effect through Nov. 4.

“This increase in buyback operation sizes reflects Treasury’s desire to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants, as evidenced by the significant volume of high-quality offers Treasury routinely receives in longer-dated buyback operations,” the department said in a statement.

At its core, the move means that Treasury will be a larger buyer of older, longer-duration debt, providing liquidity to a part of the market that historically has shown strong demand.

The stepped-up operation “can help crowd in potential buyers tempted by the prior run-up in yields and force some near-term short-covering, while discouraging investors from going max short in the future for fear of being ambushed again,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a client note.

“But the operation changes almost nothing in terms of the fundamentals in particular the unchanged need to finance the tidal wave of hyperscaler debt in addition to very large government deficits,” he added.

Moreover, the attempt to keep yields in check could end up making the Federal Reserve’s job of getting inflation back to 2% more difficult, said RSM’s chief economist, Joe Brusuelas. Fed Chairman Kevin Warsh has expressed a preference in the open market determining rates, and a move such as the one Treasury announced could artificially suppress yields and make inflation control more difficult.

“Bessent is a political actor. His interest is purely short term and is organized around the upcoming election and not a return to price stability,” Brusuelas wrote.

Economist Mohamed El-Erian wrote on X that the planned purchases are “small in both absolute terms and relative to net issuance” and more about “a broader deployment of ‘yield curve control.’”

In the most recent run-up in yields, market experts have pointed to various factors, including a higher term premium for holding government debt — essentially the extra yield that investors demand — as well as a changing profile of the Treasury buyer base. In addition, they cited increased supply of corporate debt, specifically related to artificial intelligence.

Wednesday’s announcement signals that Treasury is attentive to the liquidity issues at the longer end and is willing to be a more active participant.

“This is NOT a debt paydown, it is just a rearrangement of the maturity schedule of Treasuries,” wrote Peter Boockvar, chief investment officer at One Point BFG Wealth Partners.

An Unsettled Vibe

We've been sold an image of Wall Streeters as a buncha drunken drovers hitting the bars in Abilene and getting crazy. And while there are plenty of those jerks on the street, they mostly work for people whose assholes are so tight they squeak when they walk.

And just like the rest of us, they want to go home at night feeling nice and safe and secure.

With a jagoff like Trump in office, the whole thing feels shaky and threatening.

When Wall Street starts to feel more like Main Street, some big things could be starting to change in big ways.

The ‘Unsettled’ Vibe That’s Creeping Through the Markets

Stocks face major tests this week from tech earnings and the Federal Reserve rate decision

This year’s stock rally has withstood war, inflation and uncertainty surrounding the tech sector’s massive artificial-intelligence investments. The question now is: Have investors finally reached their limit?

Major stock indexes have posted healthy gains this year. But the S&P 500 and Nasdaq composite both fell last week for the second time in a row—their first consecutive weeks of declines since March, in the initial aftermath of the U.S.-Israeli attacks on Iran.

The catalysts behind the declines weren’t surprising new developments, but rather the same threats that have dogged investors for months, only dialed up a little further. Those include the widening conflict in the Middle East driving up oil prices, bond yields surging to their highest levels in more than a year and a tech giant announcing yet another increase in capital expenditures.

The pressures could mount in the week ahead, with both Microsoft and Meta Platforms set to report earnings on the same day that the Federal Reserve makes a decision on interest rates widely seen as one of the least predictable in years.

With the economy still growing and companies reporting solid earnings, the S&P 500 is still within 3% of all-time highs. But analysts say that the outcome of this week’s events could easily tip the market one way or the other.

“Right now the worry list and the list of what’s going right kind of balance each other,” said Ed Yardeni, president of Yardeni Research. “There’s an overall unsettled sense that there are too many uncertainties and too many problems, so let’s all hunker down.”

Investors’ focus on tech earnings stems from their conflicted feelings about AI investments.

The historic spending on chips and data centers by the likes of Alphabet, Microsoft and Meta has helped power stocks to double-digit gains in recent years by lifting economic growth, creating windfall profits for suppliers and stirring dreams of a more productive economy. But it has also spurred periodic selloffs, as investors have blanched at the mind-boggling cost of the enterprise.

Those concerns have rarely been more acute than they are now. Investors entered the year expecting tech companies to spend hundreds of billions of dollars on AI infrastructure. But they have still been surprised by the scale of those investments and the measures needed to fund them.

Big AI spenders, often called hyperscalers, have already borrowed more than $200 billion this year in bonds and loans, and announced another $115 billion in equity raises, according to the research firm CreditSights. Surprise $25 billion bond sales from Nvidia and Amazon.com have sparked sharp declines in hyperscaler debt prices in recent weeks, with investors worried about how much more issuance could come in the future.

Similarly, Alphabet’s Class A shares have slumped 15% since it announced on June 1 that it would issue at least $80 billion of equity. They dropped 7.8% this past week after the company raised its forecast for 2026 capital expenditures by $15 billion to a new range of $195 billion to $205 billion.

Alphabet’s losses spread to other tech stocks, sending the Magnificent Seven to their biggest collective one-day drop in market value since the tariff turmoil last April.

“The spending numbers just keep going up, and the market is getting nervous,” said Eric Diton, president and managing director at The Wealth Alliance. “When you make investments like this, there’s not an immediate return.”

Adding to those anxieties is an intensifying conflict in the Middle East that is lifting oil prices and threatening to hamper the global economy. On Wednesday, Houthi militants fired on Saudi tankers in the Red Sea. President Trump threatened to unleash a “major military punishment” against Iran if the attacks continued.

For months, investors have been often willing to look past the conflict, wagering that the two countries could negotiate a resolution well before the war posed a long-term threat to markets.

Their patience has limits, however. Not only did oil prices jump last week, but yields on U.S. government bonds also climbed to their highest level since January 2025, reflecting growing concerns that the Fed will need to raise rates soon to keep a lid on inflation.

Treasury yields are heavily influenced by investors’ expectations for short-term rates set by the Fed. They in turn set a floor on other borrowing costs such as mortgage rates, so their rise can slow economic growth and drag on stock returns.

Interest-rate futures showed Friday afternoon that traders see a roughly 36% chance that the Fed will raise rates this week, according to CME Group, pointing to unusual uncertainty about the central bank meeting.

Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said that there could be “a little bit of a sigh of relief” if the Fed doesn’t raise rates or strongly signal that rate increases are coming but that the feeling likely wouldn’t last long, as investors anxiously await coming inflation data.

With the yield on the 10-year Treasury note hovering around 4.7%, “we’re really on the cusp of breaking through some key levels,” he added. “If we sustain a break of 4.7%, I think 4.8% is the next move, and if we break that, it’s 5%.”

The Fall Is Coming

The moves from real assets to paper to electronic to cyber is unsettling and disruptive at best - and potentially catastrophic.

Unlimited infinite growth is not sustainable. Left alone, an economy will overspeed and explode. Like a cancer, rapid unregulated growth kills the host 100% of the time.

Here we go again.

Blockbuster Stock Sales Are Threatening to Overwhelm the Bull Market

Companies’ race to issue shares reminds some analysts of later stages of prior rallies

The rush for cash by some of the world’s largest companies is putting the long bull market at risk.

SpaceX’s record $75 billion public offering. Alphabet’s $85 billion equity raise. A $26 billion-plus sale of American depository receipts from the South Korean chip-making company SK Hynix.

Investors have been cheering the raging bull market for years—three years and nine months, to be precise—with the S&P 500 having more than doubled during that period. Now companies are racing to take advantage, raising concern that the party could be coming to an end.

Markets don’t collapse because of old age. Even high prices aren’t usually enough alone to cripple a bull. But one way stocks can slow is when new issuance overwhelms investors, as supply outstrips demand. Companies raced to sell shares in late 1999 and the first half of 2000, for example, which some believe contributed to the dot-com collapse.

That is why some investors are wary of the recent rush of stock and bond issuance, as well as a slowdown in stock buybacks. Already this year, $344.7 billion of new shares have been sold to investors—more than the full-year totals in 2025, 2024, 2023 and 2022, according to Dealogic, which includes public offerings, follow-ons and convertible bonds in its totals.

“Stock issuance tends to surge in the late stages of a bull market,” says Rob Arnott, chair of Research Affiliates.

The pace of issuance is picking up. Last month, SpaceX went public in the biggest-ever IPO. On Friday, SK Hynix’s offering marked the largest-ever share sale by a non-U.S. company. More issuance is on the way, with the AI developer Anthropic and others planning to go public.

And fewer companies are buying back shares, another way the overall supply of shares is swelling.

Overall, U.S. companies will issue a net $500 billion of equities and debt over the next year, compared with a net reduction of $1 trillion of stocks and bonds in recent years, mostly from stock buybacks, according to Elm Wealth, an advisory firm.

A surge of share sales doesn’t guarantee a stock slump, of course. Comparable issuance took place in 2021, as investors hoovered up shares of special-purchase acquisition companies, also known as SPACs. Many of those deals ran into problems, costing investors big money, though the S&P 500 shook the concerns off, soaring 27% in 2021.

But a surge of stock sales is a phenomenon sometimes witnessed near the end of bull markets, as companies take advantage of investor exuberance.

One of the bigger shifts lately is that AI “hyperscalers,” or companies operating huge data centers and other AI services, are selling shares and debt to raise capital for a historic capital-expenditure spree.

These companies are expected to have total capex of more than $800 billion this year, up from $450 billion last year, and the figure will top $1 trillion next year, according to Janus Henderson Investors.

“Many of the hyperscalers are beginning to undo years of carefully manicured capital allocation, with share buybacks now making way for share issues,” says John Lloyd, Janus Henderson’s global head of multisector credit.

Amazon.com alone raised $85 billion in equity sales in the first half of this year, Lloyd notes, while Oracle now has negative cash flow.

“Pre-AI, these companies were extraordinary cash businesses with little debt that really focused on buybacks,” he says. “That’s all changed.”

Some veterans say a surge in stock issuance along with fewer stock buybacks shouldn’t worry investors too much, partly because they have a marginal impact on the overall market’s supply and demand. After all, the value of the U.S. stock market is close to $80 trillion, dwarfing the changes in issuance.

It is difficult to predict when rising stock sales and slowing buybacks might weigh on stocks, says Howard Marks, co-chairman of the investment firm Oaktree Capital Management. Just as important, he says, they are unlikely to be enough by themselves to end a bull market.

“It is a reflection of an environment of optimism in the business sector and that investors don’t want to miss out,” says James Paulsen, the former chief investment strategist at Leuthold Group, who writes a Substack. “In the extreme, that’s a sign that things are overdone.”

It isn’t clear whether a surging supply of shares can derail a market that has a lot going for it. Earnings have been strong, and the economy shows few signs of slowing. Stock prices are at expensive levels—the dividend yield of the S&P 500 is 1.05%, for example, its lowest level on record, according to Research Affiliates—but markets rarely fall because of high valuations.

If spending on artificial intelligence can continue apace, this bull market might have longer legs than past such markets.

“I’m in the Cassandra camp, but continued good news on the AI front can sustain this rally,” says Antti Ilmanen, global co-head of the Portfolio Solutions Group at AQR Capital Management.

Even those who consider the market overpriced are wary of betting against it. Arnott, for example, recommends that investors buy shares of smaller companies and emerging-market value stocks, rather than pulling out of the market.

Historically, rising interest rates, new regulations and underappreciated risks have brought bulls down. In 1987, it was portfolio insurance, while subprime lending sank the market in 2008. But the Federal Reserve isn’t likely to raise rates enough to cripple the economy or the market, according to investors.

Marks says he doesn’t detect similar potential risk factors comparable to portfolio insurance or subprime lending.

“I don’t see prominent excesses, and our economy feels pretty good,” he says. “It would be folly to predict a recession any time soon.”

Storm Comin'

The stock market is about to suffer a 'snapback' and will lose much of this year's gains as 'speculation is hitting extreme levels,' BofA warns

The S&P 500 just notched its best quarter since 2020 and is up about 9% so far this year, but it’s mostly downhill from here, according to Bank of America.

In a note on Tuesday, analysts reaffirmed their year-end price target of 7,100 for the broad market index, representing a 5% drop from the week’s closing level.

“Our bear market signposts suggest speculation is hitting extreme levels as high multiple stocks have gapped up demonstrably, an event that has historically preceded a valuation ‘snapback,'” BofA said.

The bank added that S&P 500 companies are generating less free cash flow relative to net income compared to historical trends. That’s as so-called hyperscalers have seen their free cash flow plunge due to massive spending on the AI boom, eroding their earnings.

At the same time, the Federal Reserve is fighting sticky inflation after more than five years of letting it run above its 2% target. BofA recently predicted the Fed has now run out of patience and will hike rates three times this year to finally rein in inflation.

To be sure, the S&P 500 generally saw positive returns during previous tightening cycles, as stocks peaked six to 12 months after the first rate hike.

But Fed rate hikes now would hit differently, BofA explained, because the S&P 500 is more expensive ahead of a first rate hike than any other cycle, except for the one that ran from 1999 to 2000.

Chip stocks in particular have been on astronomical runs lately as the unrelenting AI boom sends demand soaring. Micron Technology, for example, is up 242% so far in 2026 and up 700% from a year ago, even after a recent selloff.

That’s fueled worries that the good times may be coming to an end soon. After hitting an all-time high of 7,621 just a month ago, the S&P 500 has gone on wild swings, losing about 2% in the process.

Elsewhere, stocks have been on even worse stomach-churning rollercoasters. South Korea’s high-flying Kospi stock index, which is dominated by AI darlings SK Hynix, and Samsung, set a new record a few weeks ago only to suffer its fifth worst daily plunge ever days later.

Such moves are especially worrisome for Capital Economics, which pointed out that similar selloffs have previously only happened during bear markets like during the Asian financial crisis, the dot-com bubble, and the Great Financial Crisis.

“This volatility is, in our view, evidence of excessive froth and calls into the question the sustainability of this rally,” analysts said.

Even a mostly bullish outlook from JPMorgan last month came with a “flash crash” warning. Still, analysts raised their year-end S&P 500 target to 7,800 from 7,600, citing strong earnings estimates.

The forecast assumes the Fed holds rate steady this year, then raises next year, while the market’s top gainers will remain highly concentrated in AI stocks.

“That said, the path higher is likely to be non-linear given a tougher bar into 2Q earnings, crowded Momentum positioning (especially Low- Quality and Speculative Growth segments) that continues to face high probability of a flash-crash, rapidly increasing equity supply, and potentially tighter monetary policy that could constrain equity multiples,” JPMorgan wrote.

Others on Wall Street are more bullish. Yardeni Research President Ed Yardeni, who has been beating the drum about another Roaring Twenties since the decade began, hiked his year-end target for the S&P 500 to 8,250 from 7,700 in May.

He cited strong corporate earnings and expectations that they will remain robust. Yardeni backed his view over the weekend and dismissed comparisons between today’s AI boom and the dot-com bubble.

“The late 1990s meltup was led by the forward P/E of the S&P 500 Information Technology sector,” he wrote on Saturday. “It was driven by FOMO (fear of missing out). The current bull market is driven by FEMO (fabulous earnings momentum).”

The Oil

The Stoopid-Fuck-in-Chief continues to fuck up his fuckup - because he's too much of a fuckup to know what a fuckup he is.

Dunning-Kruger is a real thing.

Today's SNAFU

Markets hate uncertainty.



Panic-stricken markets are losing faith in Donald Trump

The president’s contradictory statements on the Iran war have sent trading into chaos

In roughly 14 years of trading oil, including during the pandemic when crude prices briefly went negative, Greg Newman has never seen a market like this.

“It’s almost a broken market. People don’t know what to do,” the chief executive of Onyx Commodities says.

Onyx employs 60 traders across London, Dubai and Singapore who buy and sell oil contracts covering things such as crude oil and jet fuel. They trade with everyone from oil producers to trading houses and hedge funds, helping the market flow.

Knowing which way prices are going is a key part of the job: buy high and sell low and you’ll soon be out of business.

Yet working out where oil will go as war rages in the Middle East has proved unusually difficult.

Past crises also saw wild swings in the price of oil but the big physical trading houses, which have vast control over oil flows and the hedge funds that have become increasingly prominent players were still largely in control.

This time, it’s different. The reason? Donald Trump, the US president.

Oil has been sensitive to Trump’s comments about the US war in Iran. Yet his view of it seems to change hour by hour.

As oil futures began to trade in Asia on Sunday night, prices surged close to $120 a barrel as the US president said expensive fuel was a “small price to pay” for world peace.

Yet by Monday afternoon, Trump was saying the war in Iran was “very complete, pretty much”, sending crude prices plummeting to below $90. It was the biggest daily swing in dollar terms on record.

Hours later, Trump threatened to hit Iran “20 times harder” if they blocked oil flows, prompting another rise in prices.

The course of the war matters hugely to oil prices. Around a fifth of the world’s supply passes through the Strait of Hormuz, a narrow Gulf waterway shut by Iran since the conflict began.

The International Energy Agency has said the disruption is the biggest shock to supply in history.

Trump’s stream of often contradictory statements on the future of the war has left oil prices on a roller-coaster ride.

“This week, everyone in the industry feels like we’re in a washing machine on spin mode,” says Pierre Chapuis, the head of petroleum and green fuels trading at Axpo, Switzerland’s largest energy company. “You come home and put the TV on, and you watch live news. We’re constantly glued to our phones.”

He adds: “I was talking with some colleagues on the desk. We have the feeling that we’re binge-watching Netflix. You want to know what’s happening next.

“You know it is coming in imminently, and it will be unexpected. Eventually, you say it cannot be true, but it is. That’s a bit the way that we’re following the news [from the White House].”

‘Headlines remain unreliable’

The Trump administration has shown an extreme willingness to put downward pressure on the cost of oil, with rumours that the treasury department was even considering actively trading oil futures contracts in an effort to tame prices.

The president’s public statements on the war often appear to be part of that campaign, with Trump trying to talk down the price even as ships burn in the waters off Iran.

Yet the increasingly contradictory nature of his statements has left many questioning whether they can trust the messaging coming from the administration.

Prices whipsawed earlier in the week after Chris Wright, Trump’s energy secretary, posted on X that the US navy was escorting an oil tanker through the Strait of Hormuz, before promptly deleting the message.

The White House denied any escort shortly after and said the incident was an error. Yet, it didn’t stop Iran’s foreign minister from accusing the Trump administration of deliberate market manipulation.

“US officials are posting fake news to manipulate markets,” Seyed Abbas Araghchi posted on X. “It won’t protect them from inflationary tsunami they’ve imposed on Americans.”

Paul Gooden, the head of global natural resources at asset manager Ninety One, says a “PR battle” is raging over oil. While Trump insists prices will soon “drop very rapidly”, Iran is telling the world to brace for $200 a barrel.

“Headlines remain unreliable,” Tamas Varga, an analyst at PVM Oil Associates, part of the world’s largest energy and commodities broker, says. “Headlines remain very difficult to try to translate or interpret, but their impact ever since the Iranian crisis broke out is much larger than before.”

A trader at a London firm puts it more succinctly: “If you’re trading just on [headlines], you’re just gonna get f-----.”

Some of the world’s largest hedge funds and trading houses have found themselves caught offside. One hedge fund run by Caxton Associates reportedly lost at least $600m (£449m) in this month’s market upheaval.

Trafigura, one of the four largest commodity trading firms in the world, secured an extra $3bn banking facility to defend against any possible margin calls.

Hedge fund Citadel’s flagship Wellington fund lost 2pc last week, while Balyasny Asset Management dropped by 3.5pc. Two of its senior energy traders, Toby Sheppard and Max Iakovlev, left the firm last week, according to Bloomberg. A reason wasn’t given.

“They don’t know what’s going to happen, certainly minute to minute, but even day to day,” Newman says, referring to the hedge funds and trading houses. “So even they’re getting called out. Whereas clearly some people do know what’s going on. Political information and timely information is evidently everything.”

Some observers think they have the answer. Adam Kobeissi, a US analyst who runs an investment newsletter, claims to have identified Trump’s “conflict playbook”. It begins with intense pressure to strike a deal before rapid escalation and then de-escalation.

“One of the most overlooked elements of this strategy is the degree to which financial markets themselves become part of the negotiation environment,” the Kobeissi Letter, his X account, wrote earlier this month. “President Trump has consistently demonstrated awareness of equity market performance, energy prices, and inflation expectations as components of broader political optics.”

The US president’s sensitivity to markets led to speculation that “Taco” Trump could be returning earlier this week when he called a press conference in the wake of oil’s surge to $120. The “Taco” nickname – Trump always chickens out – came after he backed away from the worst of his trade war following a vicious market reaction.

Yet this time, Trump is trying to have his cake and eat it too. Asked at the Monday press conference whether the war was escalating or “very complete” as Trump had suggested, he replied: “You could say both.”

The result is confusion and significant volatility in oil.

‘Too much volatility is a killer’

Chapuis has traded oil for two decades. This week has been the most “intense” moment of his career.

“You’re so focused. We even forget about lunches and meetings,” he says.

The situation is far more complicated than previous periods of turmoil, such as the pandemic or Russia’s invasion of Ukraine.

“This time, it’s so complex,” Chapuis says. “You have the Middle East, Israel, the States, then you have Europe that might step into it. Then you have Hormuz, then you have some fields that are shutting down.”

He adds: “We never had an environment that was as concentrated in terms of so many different events all over and all at once as what we have at the moment.”

He and his team buy and sell future contracts rather than physical oil barrels, providing producers, refiners and retailers with an ability to hedge against the risk of price swings.

Normally, having some movement in prices helps traders make money. But too much, and it can turn existential.

“Too much volatility is a killer. [It] can destroy the market,” says Chapuis.

When prices swing by as much as 30pc, it can trigger margin calls where banks that have lent people money to trade with ask for more capital to back up the position. Traders unable to do so risk getting wiped out, creating yet more volatility.

“The market volatility that we see right now is very unhealthy, especially when you’re talking about headline-driven swings that are confusing every market player,” Chapuis says.

“You have some funds that are used to manoeuvre more steady environments. And then all of a sudden, a black swan like this one happens, and it is very difficult for them then to manage it.”

Rumours are circulating in the City about entire teams being sacked on the spot after incurring big losses.

Adding to the confusion is the fact that price setters are struggling to provide accurate benchmarks for some of the world’s major oil grades. S&P Global Energy, better known as Platts, was forced to revise its methodology for its key Dubai oil price earlier this month after energy shipments through the Strait of Hormuz were brought to a halt.

The uncertainty has led some traders to draw back from the market, leading prices to become increasingly untethered from reality.

“You just see people just trying to get the bare minimum done,” Newman at Onyx Commodities in London says. “It’s gotten to the point where it’s not healthy for this market.”

Chapuis believes there is no point trying to chase Trump’s statements, given how contradictory they can be.

Instead, he relies on a network of analysts monitoring the situation in the Middle East and Iran around the clock. Then Chapuis and his team make calls and try to stick to them.

“You need to be very, very strict and disciplined. You need to go into a trade with a clear plan and stops,” he says.

That’s easier said than done. One oil trader who has been in the market for more than a decade says every moment away from his screens has become “pure stress and anxiety”.

“You don’t have any confidence that [Trump] knows what he wants to do,” he says.

The last two Sundays have seen him trade at his desk at his home in Kent when the oil markets open at 11pm, getting only a few hours’ sleep between 2am and 6am before trading throughout each weekday.

“It’s hard to trade with any confidence and have any strong belief in your trade because it can just change on the flip of a dime,” the oil trader adds.

Every time things appear calmer, something else happens. Often, it’s a message on Truth Social from the president.

More Uh-Oh

UBS downgrades the U.S. stock market. Here’s what has the investment bank worried

• UBS downgraded U.S. equities, saying factors that powered years of outperformance are starting to fade.
• The dollar risk is a central concern as the firm sees “asymmetric structural downside risks” to the greenback.
• Another pillar of U.S. stock strength — corporate buybacks — is also losing its edge, the bank said.

UBS’ top equity strategist dialed back his view on U.S. stocks, citing mounting risks from a weakening dollar, stretched valuations and policy turbulence in Washington.

Andrew Garthwaite, head of global equity strategy at the investment bank, downgraded American equities to “benchmark” in a fully invested global equity portfolio, arguing that the factors that powered years of outperformance are starting to fade.

The dollar risk is a central concern, Garthwaite wrote. UBS forecasts the euro climbing to $1.22 by the end of the first quarter and sees “asymmetric structural downside risks” to the greenback. Historically, when the dollar’s trade-weighted index falls 10%, U.S. equities underperform by roughly 4% in unhedged terms, according to the bank.

Foreign markets are trouncing the U.S. this year as a weaker dollar and cheaper valuations draw capital overseas. The MSCI World ex-US index has gained about 8% in 2026, compared with the little changed performance for the S&P 500. Japan’s Nikkei 225 has rallied 17% year to date, while the Stoxx Europe 600 is up 7%, underscoring a sharp rotation away from American equities. U.S. stocks struggled again Friday as investors fretted over the potential downsides of the artificial intelligence build-out and persistent inflation at home.

Another pillar of U.S. stock strength — corporate buybacks — is also losing its edge, the bank said. The buyback yield in the U.S. is now only roughly on par with global peers, eroding what had been a key support for earnings per share growth and investor flows, UBS said. The combined shareholder yield from dividends and buybacks in the U.S. is now about half that of Europe, the bank said.

“The buybacks yield is no longer exceptional and this had been an important driver of funds flow, EPS and valuation,” Garthwaite wrote.

Valuations add to the unease. UBS calculates that the sector-adjusted price-earnings ratio for U.S. stocks is 35% above international peers, versus an average premium of about 4% since 2010. Roughly 60% of sectors trade not only at higher multiples than their global counterparts but also above their own historical premium, the strategist wrote.

Policy volatility under President Donald Trump is another headwind. This year has brought shifts in tariff policy, proposals to cap credit card interest rates, potential limits on private equity investment in housing, renewed scrutiny of drug pricing, and suggestions to curb dividends and buybacks for defense companies, UBS said.

Still, the noted strategist stopped short of turning outright bearish. Garthwaite said the U.S. economy and equities tend to benefit more than peers when markets are in the early phases of a potential bubble. The bank also expects artificial intelligence adoption to outpace most other major regions, with the possible exception of China, helping sustain earnings growth across key industries.

UBS strategist Sean Simonds set a year-end target of 7,500 for the S&P 500, compared with an average forecast of 7,629 among 14 top strategists, according to CNBC Pro’s strategist survey.

everything Trump touches

turns to shit

The A.I. bubble

There's an AI bubble growing by leaps and bounds. And while it may not crash and take whole sectors of the economy down with it, there will be a "correction" at some time.

If anybody knows how I might be able to short the thing, please let me know. The crash is more-or-less widely expected by about January 2027.

What they're saying about an AI bubble impacting credit markets

Credit investors have reportedly become increasingly concerned about the potential impact of an AI bubble on credit markets.

Bank of America (BAC) said Monday its January client survey showed that 23% viewed the emergence of an AI bubble as their No. 1 concern, up from 9% in its December survey, according to Bloomberg.

Here's what other bankers and analysts have been saying about the AI bubble threat.

Jamie Dimon, CEO, JPMorgan Chase (JPM):

“There’s always a surprise in a credit cycle,” Dimon said Monday, according to CNBC. “The surprise has often been which industry [is impacted]…you didn’t expect utilities and phone companies in ’08, ’09, and this time around, it might be software, because of AI.”

Dimon added he was concerned about a cycle at some point, which could result in a wave of borrower defaults.

“There will be a cycle one day … I don’t know what confluence of events will cause that cycle. My anxiety is high over it,” Dimon said. “I’m not assuaged by the fact that asset prices are high. In fact, I think that adds to the risk.”

Damir Tokic, Seeking Alpha analyst:

"In my opinion, the AI bubble burst with the Oracle (ORCL) earnings report on September 10th, 2025—that's when ORCL stock price spiked, reversed, and crashed," wrote Tokic earlier this month. "The first phase of the AI bubble burst was essentially a burst of the credit-driven infrastructure bubble—with Oracle as the poster child."

Tokic goes on to argue that the second phase of the AI bubble burst was the selloff in software stocks, which he expects to be followed by a broader decline.

"It's Phase Three that will cause a recession with the bubble burst—that's when the stock market will likely 'crash' like in 2000 and 2008. Phase Three will likely start when the unemployment rate starts rising, specifically due to AI-related job losses—and this will start happening over the next 6 months. In the meantime, markets will likely be volatile," Tokic added.

High Yield Investor, Seeking Alpha analyst:

"While mega-cap tech and software have been phenomenal investments in recent years, the market appears to be growing nervous about AI exposing and bursting bubbles in both, as software stands to be disrupted by AI, and mega-cap tech is sinking hundreds of billions of dollars into AI CapEx that may not deliver significant enough returns to justify the spending, thereby destroying shareholder capital," High Yield Investor wrote on Feb. 19.

"Instead, we think that conservatively positioned and heavily discounted software lenders, as well as dividend-paying AI infrastructure companies, are the best risk-adjusted ways to play this dual bubble-bursting threat," they added.