finance
Weekly market commentary by retired Hedge Fund Manager Erik Townsend and interviews with the brightest minds in the world of finance and macroeconomics.
Luke Gromen argues that Iran possesses more leverage than the Western narrative acknowledges because its goal is not to defeat the U.S. militarily, but to outlast the bond market by exploiting the imbalance between U.S. air defense missile expenditure and replenishment rates.
Luke Gromen warns that large-scale white-collar layoffs driven by artificial intelligence at companies like Microsoft, American Express, and Barclays could lead to significant defaults on the $19 trillion consumer debt market, threatening the equity capital base of the U.S. banking system.
Eric Townsend and Luke Gromen discuss an unprecedented disclosure in Anthropic's S-1 IPO filing noting that insufficiently advanced AI systems could pose catastrophic or existential risks to humanity if proper safeguards are not maintained.
Patrick Ceresna suggests a January 200/175 bear put spread on Capital One as a vehicle to express growing vulnerabilities in consumer credit resulting from potential economic headwinds and tightening conditions.
Patrick Ceresna notes that the USDA raised its corn production forecast to 234 million bushels, leading to significant long liquidation and shorting among traders as the bullish scarcity narrative cools.
Dr. Anas Al-Hajji reported that Saudi Arabia is expanding its total pipeline capacity to 10 million barrels per day to circumvent the Strait of Hormuz, including a proposed pipeline through the Empty Quarter to Oman. He stated that this infrastructure project could be completed within two to three years.
Dr. Anas Al-Hajji shared that the German economy minister announced plans to reopen closed refining capacity, reversing previous climate change policies due to escalating energy security pressures.
Dr. Anas Al-Hajji detailed how poor monsoon seasons and drought conditions in India and Indonesia are creating global sugar and palm oil shortages, which will severely impact ethanol and biodiesel production.
Dr. Anas Al-Hajji pointed out that while agencies like the IEA and OPEC projected US oil demand growth of over 100,000 barrels per day for 2026, actual average demand for the first seven months of the year is virtually zero year-over-year.
GavCal founder Louis-Vincent Gav argued that France is experiencing an emerging market-style debt crisis driven by a divided parliament, a 5% GDP budget deficit, zero capacity to raise taxes further, and a majority of debt owned by foreign entities.
David Rosenberg of Rosenberg Research stated that historically, when a one-party system transitions to a two-party system with gridlock, there's an 80% chance of economic slowdown, decreased inflation, and lower bond yields within two years post-election.
David Rosenberg argues that the current inflation narrative is overblown, noting that the same people who cited tariffs last year are now citing energy prices. He points to the core goods CPI decelerating to a four-year low of below 0.7%, suggesting that the feared persistent inflation from tariffs did not materialize.
David Rosenberg explained that for inflation to become sustained, price shocks must feed into wages, creating a wage-price spiral. He notes that while a recent energy price shock exists, the labor market is not showing the acceleration needed for wages to catch up, thus preventing a sustained inflationary development.
David Rosenberg attributes the rise in real interest rates primarily to a regime change at the Federal Reserve, specifically under Chairman Warsh, rather than government debt levels. He notes that while corporate credit demand is up due to increased CapEx by hyperscalers, the Fed's hawkish stance and policy shift are the main drivers affecting the bond market.
David Rosenberg predicts that the upcoming midterm elections, leading to fiscal policy gridlock, will historically result in an economic slowdown, lower inflation, and decreasing bond yields over the subsequent two years. He emphasizes that this pattern has an 80% historical success rate.
David Rosenberg suggests that the rise of free, open-source AI models from China could act as a global disinflationary force and challenge the dominance of US AI companies. He believes this global competition indicates that there are no significant barriers to entry in the AI space.
David Rosenberg highlighted that the US housing market is experiencing deflation, with new home prices down 8.5% year-over-year and rents also falling due to an oversupplied apartment market and declining population growth. He believes these factors, if included in CPI calculations, would push core inflation close to zero.
David Rosenberg explained that the fundamental driver for the secular bull market in gold is central banks reallocating reserves away from US dollars and into gold. Despite a recent corrective phase for gold, he stated that this diversification trend has not changed and is the primary positive fundamental for the precious metal.
According to reports, Iran has presented the United States with a one-week ultimatum to lift a military blockade, or face a resumption of asymmetric escalations. This news caused a spike in crude oil prices, with WTI crude rising significantly. Michael Every suggests this action was predictable given simultaneous reports of Saudi Arabia increasing oil shipments through the Strait of Hormuz, despite ongoing risks.
Politico reports that President Trump is committed to a potential 90-day ban on U.S. diesel exports, a move that faces opposition from Energy Secretary Chris Wright. Wright has publicly stated that such a ban would not work as intended and could create more problems than it solves, including potential shortages and higher crude prices internationally and domestically.
Michael Every suggests that a potential 90-day ban on U.S. diesel exports, if implemented, could lead to market chaos and serve as a tool for economic coercion. He posits that such a move, while intended to solve domestic issues, could backfire by increasing crude oil prices and creating international shortages, potentially used by the administration to exact concessions from other nations.
Reports indicate that Canadian Prime Minister Mark Carney directed the Canadian military to conduct war games simulating a response to a potential U.S. military invasion. While acknowledging historical precedents for such planning between the two nations, Every notes the significance of this simulation being revealed. He suggests it highlights Canada's "elbows out" foreign policy stance under Carney.
Matt Barrie, CEO of Freelancer.com, highlights the growing capabilities of agentic AI, enabling automation of complex workflows at potentially greater than human efficiency. He demonstrated this by automating a 24/7 project queue processing task previously handled by 11 employees, reducing the time to complete it to just two half-hour sessions.
Matt Barrie explained how an AI agent was deployed to automate the tasks of a performance marketer, a role that previously commanded a salary of $150,000-$200,000. This agent analyzes Google Ads, Google Analytics, and financial data daily to optimize ad spending, performing the role at a 'superhuman level' by waking at 4 AM to produce a report by 4:10 AM.
Matt Barrie shared that his extensive use of AI agents resulted in a daily token usage of 4 billion, costing approximately $1300. This spend was primarily on Anthropic's models, with some usage of Google's models for specific tasks like writing tickets for an AI software engineering team.
Matt Barrie highlighted a massive cost reduction by switching AI models, from $1300 per day for Western models to approximately $150 per day using Chinese models like GLM 5.3 from Z.AI. He noted that this represents a 500x difference in cost.
Matt Barrie discussed the adoption of NVIDIA DGX Sparks for on-premise AI computing, noting their ease of setup and ability to run various AI models, including open-source options like GLM 5.3. He mentioned that a previous free offering, Ox Alpha, saw dramatic improvements due to extensive training data, raising questions about user data usage.
Matt Barrie projected a significant increase in AI operational costs, estimating that a tenfold increase in agent usage from 40 to 400 could escalate daily expenses from $1300 to $13,000. He compared this to the cost of human employees, noting that a single $200,000/year role could be replaced by AI, and that optimizing ad spend could save $1600-$1700 daily.
While Chinese AI models offer significant cost savings, Matt Barrie raised concerns about data privacy, stating that using these models would mean 'all my data goes to China.' He also touched upon the potential for AI models to use user data for their own training, citing the example of Ox Alpha's free offering.
Daniel Lacalle, Chief Economist at Tress, argues that governments have surpassed crucial economic, fiscal, and inflationary limits, undermining the credibility of their debt as a store of value. He states that unchecked debt and currency issuance by governments can lead to economic stagnation, unsustainable deficits, and inflation, contrary to the belief that governments can always bring stability.
Daniel Lacalle suggests that the US dollar's status as the world's reserve currency may be nearing an end, as reserve currencies historically last about 100 years and the current cycle is overdue for a shift. He notes that while this topic was once discussed by a fringe group, it's now a more mainstream concern.
Daniel Lacalle states that countries like Russia, China, and Iran are actively seeking to diversify away from the US dollar due to its perceived 'weaponization' through sanctions. This geopolitical pressure, coupled with the desire to avoid sanctions, is a primary driver for exploring alternative reserve assets such as gold and cryptocurrency.
Daniel Lacalle discusses gold and cryptocurrency as potential alternatives to the US dollar in a diversifying global financial system. While gold is recognized as a traditional safe haven outside government control, cryptocurrency, particularly Bitcoin, is noted for its decentralized, global, and scarce characteristics, though its volatility remains a challenge.
Daniel Lacalle explains that Central Bank Digital Currencies (CBDCs) present a dilemma for central banks, potentially offering a more efficient way to issue debt and control the monetary system by bypassing commercial banks. However, this increased control could lead to unprecedented surveillance and also foster greater fragmentation in the global financial system, potentially increasing demand for alternative assets.
Michael Howe of Crossborder Capital states that the global liquidity cycle, a key driver of asset markets, peaked in late 2025 and is now in a downturn. He anticipates the cycle bottoming around mid-to-late 2027, which is a normal timeline for such cycles.
Michael Howe suggests that rising bond yields globally, driven by strong nominal GDP growth, will force the Federal Reserve to increase policy interest rates. He believes the Fed cannot easily resist this trend, especially with limited available tools.
Michael Howe draws a parallel between the current market conditions and late 2021/early 2022, a period marked by significant drops in the S&P 500 and Bitcoin. He warns that risk asset markets react negatively to central bank tightening, which he sees as inevitable given the strong economic backdrop.
Michael Howe explains that the financial system now creates liquidity endogenously through rising asset prices and collateral values, which are a backstop for credit. This cycle of liquidity booms and busts has been a root cause of past market bubbles, and he believes the current 'everything bubble' will also end in a bust.
Michael Howe notes that China's liquidity policy is diverging from the US, maintaining a tight stance to support the yuan. This has led to a debt problem, lacklustre growth, weak inflation, and falling bond yields in China, creating a unique economic scenario.
Michael Howe suggests that China might manage a bifurcated exchange rate regime to devalue its currency internally while maintaining a stable yuan-US dollar rate externally. This strategy could help address China's debt burdens and economic challenges.
Viktor Shvets discusses a significant shift in US Supreme Court rulings, which have effectively sidelined most federal institutions by vesting all executive power in the president. However, the Supreme Court has carved out an exception for the Federal Reserve, preserving its independence.
Viktor Shvets suggests that Federal Reserve Chair Kevin Warsh's policy proposals, while appearing laudable, are not practical or realistic. Shvets believes that Warsh, being a politician, might not be perceived as a strong leader within the Fed, and his differing ideas may not gain traction.
Viktor Shvets reiterates his long-term view of a disinflationary world, attributing it to technological advancements. He explains that current inflation spikes are reactions to events like geopolitical conflicts and policy choices, but disinflation would reassert itself if these disruptions ceased.
Viktor Shvets describes the K-shaped economy as a phenomenon where the bottom of society struggles while the top thrives, impacting wealth, income, and opportunity. He identifies the increasing skew in wealth and income distribution as the primary risk factor for the US economy.
Viktor Shvets argues that modern technology has leveled the playing field in warfare, making it difficult for sophisticated armies to defeat less advanced ones. He draws parallels between the conflicts in Ukraine and Iran, suggesting that decapitation of leadership or regime change without occupation is unlikely to succeed.
Adam Parker, founder of Trivariate Research, believes the US equity market is likely to trend upwards over the next six to twelve months, driven by strong corporate earnings. He suggests that while valuations may be stretched, the underlying earnings growth will support the market, leading to a potentially choppy but positive trajectory.
Adam Parker suggests that energy equities present a compelling diversification opportunity within US equity portfolios, noting their attractive valuations and earnings achievability. He highlights that the correlation between energy stock performance and oil price changes makes them appealing, especially given their low correlation to the tech sector.
Adam Parker identifies Artificial Intelligence (AI) and broader compute growth as the primary drivers for the semiconductor market. He believes compute will be an above-GDP growth business for several years, with approximately 265 of the top 3000 US equities having meaningful AI revenue exposure.
Adam Parker views Micron Technology's stock as potentially undervalued, trading at a low multiple of its peak earnings. He suggests that despite expected volatility in the semiconductor sector, there is significant upside potential in Micron's base and peak earnings, making it a challenging but potentially rewarding investment to time correctly.
Adam Parker's firm recommends an overweight stance on technology, healthcare, and energy sectors. This strategy is based on their analysis of AI revenue exposure across US equities, with tech and healthcare showing strong AI correlation, while energy offers diversification benefits.
Adam Parker expressed skepticism about significant secular inflation risks, contrasting his view with some market participants. He believes that relying on interest rate strategists for equity cap forecasting is often unproductive, citing his past experience where rate forecasts were consistently inaccurate.
Rory Johnston discusses the rapid pace of oil flows out of the Strait of Hormuz, which have exceeded 20 million barrels on some days, surpassing pre-war levels. He notes that while other routes are maxed out, the overall Middle East supply is seeing about 130% of pre-war levels, boosted by the drawdown of floating storage. Johnston anticipates this drawdown will only be sustainable for another week or two.
Rory Johnston reports that while outbound flows from Hormuz have averaged around 12 million barrels per day, fresh loadings are only around 5-6 million barrels per day. He notes that the remaining difference is being made up by drawdowns of floating crude. Johnston expresses surprise at the impressive number of inbound empty tankers, indicating that the constraint on loadings might not be as severe as initially anticipated.
Patrick Szersna observes a significant repricing across macro markets, with the S&P 500 advancing and risk assets remaining firm. More notably, crude oil, specifically WTI, saw a substantial decline of 690 basis points, settling at $67.26. This move is attributed to the market unwinding geopolitical premiums and downward pressure on energy prices.