The Fed may worry about inflation, but there's one source that it doesn't need to worry about as much -- tariffs effects are fading (so Bloomberg Price Project shows) Our full CPI preview (with @tdurie95) @theterminal

Both core CPI, unit labor costs suggest underlying inflation is heading to 2%. Usually core pce should move in same way, but not this time. If anything there is a justifiably case to be looking at measures beyond pce for the unusual historically large deviation.

Key here is “if” inflation reading comes in hot — but core cpi is about to fall to the lowest year over year rate in more than 5 years next couple months. We were on the low side on core cpi when the Iran war broke out, but core cpi is shaping up to be even lower than we forecasted earlier.

Morgan Stanley mapped out the entire AI infrastructure supply chain and it reveals who actually gets paid at every layer of the trillion dollar buildout (Save this). This heatmap breaks the AI infrastructure value chain into two dimensions those who owns and operates the data centers at the top and what physical and technical components get built underneath to make those data centers function. At the top sit the owners/operators, the hyperscalers like Meta, Alphabet, Amazon and Microsoft, alongside data center REITs, private equity giants like Blackstone and Brookfield, enterprises and neoclouds including CoreWeave and Nebius. These are the companies writing the massive capex checks that fund everything below them. Below that sits the actual build out, split into seven layers, semi production, processors, server components, servers, network, internal power/cooling and power supply. Semiconductor production is dominated by names your audience already knows well, Nvidia and AMD for GPUs, TSMC adjacent foundries, ASML and Applied Materials for capital equipment, and Micron and SK Hynix under memory/storage. But the less obvious money is in the physical infrastructure layers most retail investors never look at. Server components include passive parts from Yageo and Murata, thermal solutions from Sanyo Denki, and PCB substrates from companies like Unimicron. Network infrastructure includes InfiniBand and Ethernet gear from Nvidia and Arista, plus optical/DCI routing from Cisco and Ciena. Internal power and cooling is arguably the most underappreciated category here. It includes liquid cooling specialists like Vertiv and CoolIT, power electronics from Siemens and Eaton, and uninterruptible power supply makers like ABB and Legrand, all companies solving the literal heat and electricity problem created by cramming more GPUs into less space. So who benefits from all of this? Everyone in every box benefits in some way but the real insight is that value doesn't concentrate at just the GPU layer anymore. The hyperscalers at the top are distributing capex across seven distinct physical layers which means the picks and shovels opportunity set has expanded well beyond Nvidia into cooling, grid infrastructure, and power generation. Bullish on AI infrastructure, make sure to follow @MelvinInvests for more AI infrastructure insights, and if you want to see exactly what I'm buying as an analyst at Milk Road Pro, you can check out the link below for more.

US manufacturing is booming, expanding at the fastest pace since 2022 and beating expectations in many metrics for the month of July. Omar Sharif of Inflation Insights points out that the ISM production index rose by the most for any July since 1951.

This is amazing. The White House waived Jones Act requirements in mid-March, and it's generated billions in economic activity and revealed tons of natural trade routes that were impossible while the Act was in effect. We really need to permanently remove this stupid law!

a special post-Warsh edition of bloomberg surveillance: PURVES DAVIS DROSSOS and ANNA WONG on 'When asked about conclusions, answer with process. Q: Why haven't you hiked? A: We spent an inordinate amount of time looking at monetary policy strategy...thinking hard...looking at data...'

A guide to Warsh's rhetorical techniques. (since we'll living with it for the next 5 years) Here's 8: : 1. Replace the question with a broader one (otherwise known as "bridging), i.e. when someone ask X, you answer Y. Q: Was today's decision close? Answer: The vote was 9-3. The broader discussion showed a lot of agreement. We had commonality on the questions.... 2. Reject the reporter's premise. I.e. Q: What's the argument for a pause? Answer: I wouldn't characterize what we did as anything like a pause. 3. When asked about conclusions, answer with process. Q: What haven't you hiked? A: We spent an inordinate amount of time looking at monetary policy strategy...thinking hard...looking at data... 4. Admit uncertainty, but only about the economy, not objectives. i.e. he never expresses uncertainty about the 2% inflation target or the Fed's mission, but he freely admits uncertainty about anything about the economy. 5. Create memorable slogans to create rhetorical anchors. i.e. "Watchful thinking, not watchful waiting." "Family fight." "We're in the performance business." "No magic wand." 6. Controlled self-deprecation to diffuse tension. i.e. "Believe it or not, this press conference is not all I've done today." 7. Use questions to answer questions. He presented the four questions that the FOMC discussed, but never provide answers. 8. Divert attention to the markets but does not provide market analysis. Q from reporter: what are you hearing from the markets? A: Markets are the best source of information.

Many are pissed that Warsh didn’t hike, citing the credibility issue as the long end rises — but Warsh just kept in telling us he is happy that the long end has risen during the intermeeting period. The move in the long end is basically equivalent to a 25 bp hike. Warsh is probably happy about this —rather than see this as a bad thing. This will be restraining the economy with the squeeze on the housing market and financial conditions being immediate.

If Greenspan’s mantra is “if you think you can understand what i am saying, you do not understand what i am saying.” — Warsh’s would be: “If you think i am saying anything at all, you do not understand what i am not saying.”

If Greenspan’s mantra is “if you think you can understand what i am saying, you do not understand what i am saying.” — Warsh’s would be: “If you think i am saying anything at all, you do not understand what i am not saying.”

Hiking tomorrow delivers no disinflation gain this year, but more immediate activity losses — how is that supposed to boost “credibility”? With token prices falling, the supply side for AI is already in motion (and the “bubble” may even be starting to burst). If the Fed hikes tomorrow, it would be the most un-Greenspan thing to do.