00:00Asia markets seem quite bothered by some of the latest AI commentary, increased regulation perhaps.
00:05Nasdaq futures look more than a little bit bothered, down by 1.3 percent right now.
00:10How seriously should we take this idea that we could see a slowdown in AI innovation?
00:20Extremely seriously. This is a potentially momentous moment in markets.
00:25For the last two years, the most important theme in markets, never mind Trump's attempts to make it about energy
00:31prices or tariffs, has been the AI CapEx bubble.
00:34And as we've talked about, that's provided an underlying strength to the economy.
00:37It's the investment out there that's employed hundreds of thousands of jobs in the U.S.
00:42And it's kind of driven, it's been the major driver of U.S. GDP and around the world.
00:47It's driven stock markets from Taiwan to Korea, etc.
00:50So it has been the biggest driver in markets.
00:52If this was a signal that we are going to get even a slowdown of the AI CapEx bubble, like
00:58a deflation, then it's a major moment in markets.
01:02But it might even be the start of the bursting.
01:04Now, what's really interesting is we're not going to know immediately.
01:07If it is the case, it's going to be a grower of a theme because the leaders won't want to
01:11say it about CapEx for a kind of retraction.
01:15They won't want to talk about the cutback in investment.
01:17So they'll deny it until it's forced.
01:19So we might find out slow indications, but it might be the October earnings season before you get confirmation.
01:24So that's why, even if it is the case, it's a grower, but it's still very much in play.
01:29Yeah.
01:29So it's a slow bursting.
01:31Is that how we should think about it?
01:35I think it might be.
01:36I mean, I think this was pretty major this weekend.
01:37Whatever the reasons, and I don't want to get into the speculations of the reasons here.
01:40There is lots going around on social media, and there are many valid reasons.
01:43If it is a change in the AI CapEx, it just cannot be overestimated.
01:48Now, what I think is really important here, what I'm really excited about, is I think this is a real
01:51bullish turning point in treasuries.
01:54Look, I'm often excited, but I'm never excited about big bullish treasuries.
01:58For the last six years, if I've ever been excited talking about treasuries, it's from a bearish point of view.
02:03But if we have an AI CapEx slowdown, that's going to be really bad for growth.
02:06It's going to be really bad for the jobs market in the U.S., and suddenly it's going to provide
02:09a bullish impetus in treasuries.
02:10Now, why am I focusing there when there's a lot of direct impacts of an AI CapEx bubble burst?
02:14Well, there's a couple of other things that have suddenly changed in the last few sessions for treasuries.
02:17One, a Fed hike post-CPI is suddenly 87% priced from about 60% price pre-CPI.
02:23That means they'll likely hike this week.
02:24I don't think WASH can afford to surprise the market that much.
02:27That'll be a flattening of the curve if they do so.
02:29The other thing is, since Trump's speech was at Wednesday or Thursday night in Asia, but towards the end of
02:34the week, when he said, like, look, the Iran situation might last a lot for the midterms, we've suddenly priced
02:39an extra premium in oil.
02:41So oil is now at cycle high, which means the asymmetric risk is to the downside, even though I don't
02:45know the path there.
02:46So you've got oil at the highs.
02:47We've got yields at the highs, with everyone suddenly bearish, eyeing 5% level in 10 years.
02:51We've got the Fed hike priced.
02:53And now we might have the AI CapEx slowdown.
02:55I think this is just a really momentous kind of juxtaposition of a load of factors suddenly turning bullish treasuries
03:00all at the same time.
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