It’s been a blast at #TheCurve# Thank you @GoldenGateInst for bringing together such a wonderful group of people this weekend 🫶 (Also, peak merch design, I adore this year’s light pink sweater 🩷)

I’ll be at The Curve in Berkeley this weekend. If you’re going too, DM me. Would be great to connect at the conference and talk about anything from AI policy and AI safety research to protecting the open frontier. Hope to see some of you there. #TheCurve# #AIPolicy# #OpenSourceAI#

The FOUR players in this OIL GAME I see: Freight on a supertanker from the Gulf to China now runs above ~$30 a barrel, close to a 1/3 of the price of the crude itself. Before the war it was 2%. That number tells us where the Strait of Hormuz standoff is currently and I narrow it down to about FOUR major actors, each holding a position that actually PAYS them to wait, to keep closure, and no path back to “normal” until one of them acts outside the price system. 1. Iran controls the Strait of Hormuz chokepoint, and its leverage grows with EVERY day and EVERY dollar the rest of the world pays to move oil around it. A settlement worth less than sanctions relief costs Tehran more than another month of stalemate, so Tehran waits. 2. The Gulf producers move their crude out on state-owned tanker fleets and transfer it ship-to-ship off Oman. They lose at the wellhead and recover part of that loss inside their own shipping companies, so their pain is smaller than the headline suggests and their urgency is also smaller with it rationally. 3. China sits on more than a billion barrels it never reports and has drawn roughly a million barrels a day from tanks rather than bidding in the open market. Each month Beijing declines to buy, prices STAY LOWER for everyone; the day it decides to refill, it sets the price of the recovery. It has Incredible power and leverage and can cause pain if it decides to move again… 4. USA and Trump holds probably about three moves, and each one breaks faith with somebody. A convoy, on the “1987 Operation Earnest Will” model, would crush freight overnight and put carriers inside missile range. A distillate export restriction WOULD ease the diesel record at home and cut off the allies buying American fuel. A deal would hand Iran the relief it is holding the strait to obtain. The reason the market cannot fix this on its own is that the curve can only recruit private shipowners, and private shipowners cannot buy war-risk insurance at any price, never mind the duty of care restrictions and fiduciary responsibility towards its owners and shareholders. The parties able to send tonnage into the Gulf are mostly governments, and governments answer to security “guarantees” and their threshold is very low, the move when they need to and stop when no need. Backwardation has nothing to offer them. So the resolution arrives when the White House chooses which party it is willing to disappoint, and the first market to register that choice will be tanker rates, well before Brent moves. I see this as a situation where the export lever comes first, because it is the cheapest of the three. Let’s see what happens by December 2026. One thing that’s nearly certain, this stalemate and this Existential war will continue until then. Amplify this signal! 𝗦𝗜𝗚𝗡𝗔𝗟, 𝗡𝗢𝗧 𝗡𝗢𝗜𝗦𝗘!

The 2-Year Treasury Rate of 4.56% is now 93 bps higher than the Fed Funds Rate (3.63%). This is the widest spread since November 2022. The Fed was behind the curve back then ("inflation is transitory") and is behind the curve again today. Video:

The yield curve inverted, and no recession was declared, so people say the curve broke. Inversion was never a countdown clock to a committee declaring a recession. The shape of the curve tells you something about monetary and rate conditions. Treating it as a binary recession indicator throws away most of the information in it. More of this, in person, in October:

The S&P 500 Cycle Composite—which blends the one-year seasonal cycle, four-year presidential cycle, and 10-year decennial cycle—is now entering what historically has been its most challenging stretch of the year. The composite points to a period of increased vulnerability from roughly mid-August through early October, before conditions improve and the historical pattern turns more decisively higher into year-end. I normally view seasonal and cycle work as context rather than a trading signal. The market is ultimately going to trade on the weight of the evidence in front of us, and price action always takes precedence over a historical composite. But cycle work becomes more meaningful when several independent factors begin pointing in the same direction. That's what makes the current setup worth paying attention to. We are entering the historically weak September period at the same time that interest rates appear poised to turn higher (the short end of the curve has already turned up). Meanwhile, oil looks as though it may be troughing, and the Energy Relative Strength Cycle Composite is approaching a period in which the historical cycle begins to favor improving Energy leadership. Rising oil prices and rising interest rates occurring together would represent a much different backdrop than falling yields and benign energy costs. Both can tighten financial conditions and pressure areas of the market that have benefited from lower rates and subdued inflation expectations. This is why I think the cycle work could carry more significance than it would on its own. It's not simply that "September is historically weak." We potentially have three forces converging: a seasonal/cyclical headwind for the broad market, an emerging cyclical tailwind for Energy, and the prospect of higher interest rates. When independent pieces of evidence begin confirming one another, I pay closer attention. None of this means the market has to correct. Cycles identify tendencies, not certainties. If the tape remains constructive and leading stocks continue to act well, price action gets the final vote. But with September seasonality, oil and interest rates potentially turning higher at roughly the same time, I would not dismiss the historical cycle message. The convergence is the message—and right now, it argues for keeping risk tight and letting the market prove that it can overcome these developing headwinds.

The Big Tech Bond Paradox, Explained: 1. The United States just hit $40T in debt. The only way for us to deal with this is growth because no political party is ready to cut spending. 2. How are we getting that growth? AI CapEx. That CapEx is coming from Big Tech companies like Meta, Google, Microsoft, Amazon, Oracle. 3. How have those Big Tech companies been funding the capex? Well, initially it was their free cash flow, but that dried up so now, it's by issuing bonds. Google issued a 100 year bond with a 6% yield. Meta and Oracle have 6-8% yields as well. 4. The US 10-year treasury is yielding 4.7% and the 30-year is yielding 5.2%. The US sells these treasuries in order to fund the government. People buy them with an expectation that it is the safest return they can get because the US will never default on their debt. The yields that are currently being offered are the highest in decades. 5. What's the problem? Well, the Big Tech companies are giving bond yields at 200-300 basis points ABOVE what the US Treasury is offering...which is an issue because if you are a credit investor and don't think that Meta or Google are going out of business...why would you not buy their debt over the US debt? As a result, people are SELLING US treasuries, causing yields to go higher, and buying Big Tech corporate debt. The paradox in all of this is that Big Tech NEEDS to issue this debt in order to continue to spend on capex and that same capex growth is what is supposed to solve our debt issues! If Big Tech stopped spending on capex, we wouldn't have any growth, but in order for them to grow, they have to issue bonds with high coupons and take away money from the long end of the curve for US treasuries, causing the highest yields we've seen in 20 years. The simple way to resolve all of this is to end the Iran War because oil prices will go down, inflation expectations will go down, and credit markets will buy up US treasuries yielding 4.5-4.7% since they will be getting a great yield on lower inflation expectations. The problem is, the war hasn't stopped for months and the market doesn't think it's stopping anytime soon...which means until it does, we have to deal with higher oil prices, higher yields on bonds, and more uncertainty for stocks if the credit market continues to scream that they need yields to come down.

The Bessent Put Today the US Treasury doubled the size of its long-end bond buybacks, the day after the 30-year yield hit a 19-year high at 5.33%. The extra dollars are small. The signal is enormous. For the first time, the fiscal authority, not the Fed, stepped in to defend the long end within 24 hours of the highs. There is now a put under the long bond, and the market has just been told the top of the range... Look at the plumbing underneath it... The buybacks pull old, illiquid bonds off dealer balance sheets and get funded at the front end with bills, which the banking system absorbs. Duration out, money-like paper in. Lower long-end volatility raises the collateral value of every Treasury in the repo system, which is itself a liquidity easing. And the QRA language quietly changed two weeks ago to allow exactly this. It isn't happening in isolation. This month's joint yen intervention was about stopping Japan from ever becoming a forced seller of Treasuries, and the new dollar swap lines across Asia and the Gulf keep the region's dollar debts rolling, with China the ultimate beneficiary. A weaker dollar is the tool that brings the big foreign buyers, Japan and eventually China, back to the long end. Supply managed on one side, demand rebuilt on the other. With a long end now potentially anchored, the steepening of the curve should come from Warsh, who will probably deliver his part of the grand bargain between the Fed and the Treasury. All of this is to fund the hyperscaler capex along with government debt. For the first time since the GFC both public and private debt as a % of GDP are growing and both are vital. This is the everything code fully at play and brings together many threads I've been talking about for the last two years. The debt must be serviced and liquidity, by whichever mechanism they can route it, is the method. Financial conditions started easing through both legs at once today, and financial conditions are the first domino in the sequence we have been mapping all year. To be warned this is not an instant liquidity flood happening right now. This is the entire scaffolding being set up for the much larger game. The Great Game is the funding of the aging population along with the funding of the new demographic of AI and robots. Both games are too big and too important to stop. The funding of the the intelligence build out is the most important game of all time. It is too big to fail. The full Flash Update is coming for GMI and RV Pro members came out earlier today: the full mechanism, the 2011 and 1940s precedents, what it likely means for every asset class, and what would prove the thesis wrong. Overall today was a big marker point on a story that I've been predicting for many years and have the receipts to prove it. The outcome is always MOAR COWBELL!

The amount of negativity on the timeline about AI just reinforces how early and non-consensus we still are There are basically 2 arguments: 1. Enterprises aren’t getting ROI and will stop or slow spending 2. The financing of AI buildout is a bubble that will pop And to give the bears and skeptics credit, there is some evidence that supports these arguments But these arguments mostly miss the forest through the trees Enterprise ROI isn’t immediate and in many cases AI spend will be existential and table stakes (see my pinned article for a detailed breakdown on this) So just because a McKinsey or MIT study that is already dated says that many pilots are failing doesn’t mean enterprises are going to drop AI adoption efforts - all you need to do is look at the Anthropic revenue run rate to see the spend continues to happen at unprecedented rates And on the financial circularity that many think will create a meltdown like the 2008-09 mortgage crisis, you obviously weren’t close to that situation otherwise you would see how very different it is I spent the better part of 2007-2012 right in the middle of that crisis and it’s cleanup - these two things are not the same Are there concerns we should be monitoring on the financing side? Absolutely, and history tells us risk will get pushed as far down the curve as possible until something breaks But the warning signs right now are not even close to flashing red When you see reports of datacenters that are empty, large GPU contracts going unrenewed or being cancelled, and solvency issues among capacity providers - then you can start to compare it to 2008-09 If you think we’re close to that situation, I encourage you to listen to or read the Coreweave and Nebius earnings from the past week - we’re not even close So the base case for me right now is that we remain in the early innings of AI buildout and adoption, and enterprises that lean into AI will be the standouts and their performance will drive all other enterprises to up their adoption game, all of which fuels the already insane demand we see and supports the continued expansion To those that still remain negative and skeptical, I’ll see you on the other side of the trade