James Carville: “as the bond market. You can intimidate everybody.” Despite Bessent’s efforts, bond ylds increased last wk 1-7 bps while S&P/Nas/SOX (AI proxy) -1.4%/-2.1%/-5.4%. Next wk has Iran sanctions (Mon), $NVDA earnings (Wed) & Warsh at Jackson Hole (Fri.) On Monday, the US is likely to put financial sanctions on Iran and any country supporting them in lieu of further military action going forward. The polling numbers in the US for support of the war are poor. But given China, who buys the most Iranian oil, will most likely be exempt from sanctions, I doubt this will have much impact other than what Iran does to retaliate. I believe Iran will try to keep the Straits hostage through at least the mid-terms. The US hostages in Iran were held for 444 days despite financial sanctions. They were released just hours into the inauguration of President Reagan in 1980. The “Gipper” (Knute Rockne, All American is a good nostalgic sports movie but I am a sucker for most of them) crushed the re-election attempt by President Carter by winning 489 electoral votes to 49 due to high inflation, interest rates and gas prices compounded with the foreign policy issues. On Wednesday after the market close, Nvidia reports results. Despite solid results, the stock has been down the next day in reaction for the past four quarters and declined from open to close the past eight quarters (and been down for the full day for six of them.) But trading at just a PE of 17x CY27 vs the S&P at 19x and with the stock down 4% over the past two weeks versus just a 1% decline in the S&P, I think the risk vs reward is good. However, the public (& therefore political) sentiment against datacenters continues to grow going into mid-terms which is likely to restrain multiple expansion. From a fundamental perspective for Nvidia, hyperscaler capex grew 92% y/y and 29% q/q in Q2 which is the fastest ever since launch of ChatGPT in late 2022. Public cloud revenue growth at the Big 3 vendors accelerated to the fastest pace ever at 43% y/y and 15% q/q in Q2 and arguably more importantly their operating margins expanded by 2% to a record 39% in aggregate. This compares to consensus estimates for Nvidia revenue growth decelerating to 13% q/q growth in Q2 from 20% or greater in each of the past 3 quarters. With regards to the AI infrastructure names, the roughly 50% decline in token costs driven by open-weight models since late May is being more than offset by the ~2.5x increase in token production during that time and increase in operating margins. But datacenters need to be put somewhere. When Gallup polling numbers for those opposing their construction locally are worse at 71% than for nuclear reactors at 53%, that is not good. Politicians want to keep their jobs also. On Friday at 10am, Fed Chair Kevin Warsh will speak at the central bankers meeting at Jackson Hole. The S&P declined 1.2% and 1.5% during his last two press conferences following FOMC meetings. The financial picture is even more complicated today: 1) the Iran situation looks likely to drag on for longer, 2) global bond yields are higher, 3) there is intervention in Japanese currency markets, and 4) the actions by the US Treasury to try and lower bond yields is putting downward pressure on the US dollar and upward pressure on inflation. In summary, despite strong S&P earnings growth, I am wary of further declines given the typical season drawdown of 10% from peak to trough during mid-term years since 1990 from 7/31-11/9. I gave more detailed stats last Sunday. Best of luck in the week ahead.