finance
Welcome to The David Lin Report! I’ll be reporting on the most impactful market-moving events, as well as interviewing experts in finance, economics, science, and technology.
Chris Vermeulen discussed the ongoing sharp sell-off in the technology sector, noting that major companies like Google, Intel, and Amazon are facing severe pullbacks. He pointed out that Goldman Sachs reported record tech selling by hedge funds in October as institutional investors rotate out of tech and into safer defensives.
Chris Vermeulen and host David Lin analyzed the dramatic drop in tech stocks, highlighting Intel's single-day plunge of over 30%. Vermeulen explained that investors are severely punishing companies whose heavy capital expenditures on AI are not translating into immediate profits and are even hurting existing revenue streams like search.
Addressing why gold prices declined alongside equities, Chris Vermeulen stated that gold fell well below the critical $4,000 threshold due to margin calls and forced liquidation as investors scrambled to raise cash during the market panic.
Chris Vermeulen noted that because financial advisors and hedge funds cannot simply go fully to cash under their rules, heavy capital is rotating out of technology and into stability plays like dividend stocks, utilities, consumer staples, healthcare, and real estate.
David Lin and Chris Vermeulen discussed Google's recent earnings report, highlighting a massive 30% miss on consensus earnings per share expectations. Vermeulen noted that Google is one of the top spenders on AI, which is currently harming its core search revenue.
Meta reported a 26 percent jump in third-quarter revenue to approximately 64.6 billion dollars, but its operating expenses surged 68 percent and free cash flow turned negative at 2.1 billion dollars due to heavy investments in AI infrastructure. Additionally, Meta announced a new class of non-voting Class C shares effective January 2027 to provide capital structure flexibility.
Tesla reported third-quarter revenue of approximately 28 billion dollars and adjusted earnings per share of 48 cents, beating Wall Street expectations. However, GAAP net income fell about 44 percent to 787 million dollars and operating margins dropped to 2.6 percent as the company attempts to fund multiple capital-intensive ambitions.
George Noble, managing partner of Noble Capital Advisors, argued on the show that Tesla's robotics venture is valued at a fraction of its total market cap and that the true product being sold is the stock itself rather than its legacy or future products.
AI cloud computing company CoreWeave held approximately 35.6 billion dollars in debt principal as of June 30th and expects to spend between 35 billion and 39 billion dollars on CapEx this year against projected annual revenue of 12 billion to 13 billion dollars. Consequently, yields on some of its unsecured bonds surged to between 15 and 16 percent.
Oracle issued a force majeure notice in September to the developer of Project Jupiter, a massive AI data center campus in New Mexico developed by a unit of Blue Owl Capital for OpenAI, due to delays in securing necessary energy infrastructure. Oracle is seeking protection from certain payment obligations if the project fails to come online as planned in 2028.
Iran has submitted a new proposal for a seven-day ceasefire, which is currently under review by the U.S. However, market reactions have been muted, with analysts citing a history of similar proposals without material shifts in the conflict's core issues. Despite the diplomatic efforts, three tankers were reportedly attacked in the Strait of Hormuz.
Shipping traffic through the Strait of Hormuz has recovered to around 14-16.5 million barrels a day, up from earlier lows. However, the cost of this transit is immense, with shipping and insurance costs potentially exceeding $30 per barrel, a stark increase from pre-war norms of $2. This elevated cost is attributed to ongoing risks and the need for defensive postures in the region.
Rory Johnston criticizes claims made by the White House regarding oil throughput in the Strait of Hormuz, accusing them of cherry-picking data. While acknowledging that some days see higher volumes, Johnston emphasizes the importance of 7-10 day rolling averages to capture the true trend, rather than isolated 24-hour periods.
Despite an 80% recovery in Strait of Hormuz oil traffic compared to pre-war levels, crude oil prices remain high due to a persistent supply deficit. Markets have been in deficit for months, steadily depleting inventories, including strategic reserves. Rebuilding these buffers and achieving a sustained market surplus is necessary to bring prices down significantly.
US diesel prices have reached historic highs, with the national average above $6.41 per gallon. This is driven by a combination of factors, including reduced refined product exports from the Middle East due to the Strait of Hormuz closure and refinery damage, and Ukrainian attacks disrupting Russian refining capacity. Russia has also banned diesel exports.
The US is considering a ban on diesel exports to address soaring domestic prices, especially with mid-term elections approaching. While a ban could temporarily lower US prices by increasing domestic inventories, it would significantly inflate global prices and potentially harm US refining operations by reducing profitability. Analysts suggest a throttling of export licenses is more likely than a full ban.
China is identified as the most significant potential source of relief for the tight global diesel market, possessing underutilized refining capacity. While China has the physical ability to increase diesel exports, its policy choices remain uncertain due to domestic price considerations. An increase in Chinese diesel supply could significantly lower global prices.
High diesel prices are a significant driver of inflation, acting as a pervasive input cost across nearly all sectors of the economy. Unlike gasoline, diesel demand is less elastic and harder to reduce without a broad economic slowdown. This persistent inflationary pressure may lead central banks to continue raising interest rates.
US Treasury yields, both 10-year and 30-year, have significantly risen, reaching levels not seen since 2007 and 2002 respectively. This increase follows geopolitical events and mounting economic pressures, including expensive fuel and mortgage rates above 7%. Economists are expressing concerns about a potential run on the bond market.
Consumer optimism in the US has fallen to its lowest point since 2014, even surpassing the lows of the COVID-19 era. This decline is attributed to a combination of factors including expensive fuel, mortgage rates exceeding 7%, and weakening job prospects.
Professor Steve Hanke identifies the affordability crisis as the primary concern for US citizens, stating that households below the median income of $87,500 are experiencing significant financial strain. He predicts this issue will heavily influence upcoming elections.
Professor Steve Hanke discusses the dramatic increase in the average age of first-time homebuyers, now over 35, compared to his own experience of buying property at age 21. He argues this lack of housing affordability for younger generations leads to anxiety and dissatisfaction, impacting their education and career prospects.
A chart presented indicates that the home price-to-income ratio is currently above the peak levels seen during the 2008 housing bubble. Professor Hanke also notes that this ratio is significantly higher than during the 1960s, suggesting a severe affordability issue.
Jim Bianco, president and founder of Bianko Research, announced a significant shift in his investment strategy, moving from being 'outrageously bearish' on bonds since 2020 to now looking to 'get long the bond market'. He believes current bond yields near 5.25% have largely priced in inflation, deficit, and debt supply concerns.
Traders are pricing in a 70% chance of a 25 basis point Federal Reserve rate hike by the October FOMC meeting, an increase from 50% just a few weeks prior. This shift is attributed to rising oil prices and concerns about inflation.
The discussion clarifies the difference between the 2-year/10-year yield curve (traders' curve) and the 3-month/10-year yield curve (economists' curve). While the former has been flattening, indicating recessionary fears, the latter has been steepening due to the Fed's recent actions and the three-month yield's proximity to the Fed funds rate.
Jim Bianco argues that the most critical indicator for an impending recession is not the day the yield curve inverts, but the day it un-inverts (becomes positive again). This event, historically occurring about two years after inversion, signifies the Fed cutting rates aggressively in response to economic slowdown.
The Federal Reserve faces a difficult decision regarding an October rate hike, with prediction markets showing a 70% chance of a hike, while most Wall Street forecasts expect no hike due to its proximity to the midterm elections. This creates a potential conflict between political considerations and market expectations for rate cuts.
A historical analysis revealed that the recent rate-cutting cycle, spanning two years, produced higher long-term rates, a phenomenon not seen in 50 years. The speaker posits this indicates the market's message to the Fed: be less easy, take inflation, deficits, and strong growth more seriously.
Bill Smead, founder and CEO of Smith Capital Management, warns that the current market conditions, characterized by high demand for capital and a general investor focus on speculative AI and space stocks, are unsustainable. He predicts that this "mania" will break, leading to a significant market downturn.
US Gold Mining Inc. has announced the results of its first Preliminary Economic Assessment (PEA) for the Whistler Gold Copper Project in Alaska. The PEA estimates substantial production of gold, copper, and silver over an initial 15-year mine life.
Bill Smead attributes the rise in interest rates to aggressive borrowing by the U.S. federal government and massive capital expenditure in the AI sector. He states this high demand for money will crowd out other borrowers, leading to a 'fever break' in the market.
Bill Smead predicts that as interest rates rise, money will be drawn from the most popular stocks, specifically the top 20 companies that make up a significant portion of the S&P 500. He believes this will negatively impact the S&P 500 index and these large-cap stocks.
An observer notes that the market appears to be prioritizing companies with high valuations based on future promise, rather than current profitability, citing Nvidia's growth and Cisco's historical stock performance as examples. This trend rewards 'transformation technology' over established fundamentals.
Arthur Laffer argues that the recent sell-off in bonds is not indicative of higher inflation, but rather reflects an increase in real returns on capital. He stated that this trend is a positive development for the economy.
The US 10-year Treasury yield reached 5.09% on Wednesday, September 23rd, marking its highest level since 2007. This development raises questions about potential intervention by the US Treasury to lower long-term yields.
Arthur Laffer believes that changing the personal incentives of Iran's leadership is crucial for a deal, rather than relying on sanctions. He explained that pressure on Iran as a nation is different from pressure on its leader.
Arthur Laffer advises against banning diesel exports, stating it would exacerbate existing problems. He argues that market forces, rather than government mandates, are more effective in managing supply and demand.
Arthur Laffer expresses optimism about the US economy, describing it as "astoundingly good" and "in spades." He believes that despite issues like the Iran war impacting oil prices, the underlying economic strength is robust.
Arthur Laffer believes Kevin Warsh possesses a superior understanding of monetary policy compared to previous Federal Reserve chairmen like Paul Volcker and Alan Greenspan. He considers Warsh potentially the best Fed chairman seen so far.
Keith McCullough predicts that Q2 of 2027 will be a "nasty" period for the markets, potentially worse than the 2022 downturn. He attributes this to an increase in market bubbles and a forecasted major policy mistake by the Federal Reserve, leading to an inverted yield curve and subsequent rate cuts.
The US 10-year Treasury yield has climbed to 5.13%, its highest point since 2007, while the 30-year yield is at approximately 5.44%, the highest since 2004. Traders are anticipating a continued rise, with a 42% chance of the 10-year Treasury exceeding 5.5% by year-end, according to Calshi data.
Keith McCullough identifies that current US growth is significantly augmented by AI spending, describing it as a "debt-financed bubble." He contrasts this with other countries experiencing stagflation due to a lack of similar growth components.
Keith McCullough outlines his 'risk-on' strategy, which includes being long software stocks, cannabis stocks (MOS), Bitcoin, and Ethereum. Conversely, he is shorting cyclical growth sectors and rate-sensitive industries like utilities, consumer discretionary (XLY), and industrials.
Keith McCullough's firm, Hedge I., reports that their inflation nowcast is consistently trending upwards, showing a 27 basis point increase while the headline CPI year-over-year was reported at 3.40%. He states that this data is widely used by the hedge fund community.
Keith McCullough believes the Federal Reserve will raise rates, possibly multiple times, as they are "raising rates into a Quad 2 data, but it's also peak data." He forecasts this will put the Fed in a difficult position heading into 2027, as they will have "hiked into a pending slowdown."
Despite rising bond yields, Keith McCullough advises being "long oil with both hands," noting that energy stocks were the only sector to rise the previous day. He sees a correlation between oil prices and the entire yield curve, suggesting bond yields could continue to climb.
Keith McCullough explains that current market dynamics are exacerbated by "way more leverage in the system" and significant retail participation through short-term options trading. He highlights the AI bubble as a key factor contributing to increased volatility compared to 2021.
Keith McCullough states he is short the Canadian dollar against the US dollar, noting this often causes controversy. He expresses a critical view of former Bank of Canada governor Stephen Poloz (referred to as Carney), attributing his stance to a perceived lack of macro understanding and competitive drive.
President Trump delivered a speech at the UN discussing a potential deal with Iran, creating market anticipation. He stated he believes a deal will be made after the midterm elections, but also presented the alternative of annihilating the country.
Danielle DiMartino Booth argues that the Federal Reserve's decision to raise interest rates is premature, given the current fragile state of the economy. She points to rising costs for essentials and consumer spending pullback as indicators.
A report from Challenger, Gray & Christmas indicates that hiring for the upcoming holiday retail season is expected to be even weaker than in previous years. This projection is based on companies' announced plans.
Evidence of a consumer spending slowdown is emerging from corporate statements. American Airlines and United have reduced capacity, and Dollar General reported that even their high-end consumers are spending less.
A recent survey by the New York Fed indicates that U.S. households are setting aside progressively less money for housing expenses. This finding suggests a precarious financial situation for many consumers.
Jason Shapiro states that governments are in a difficult position regarding their debt, as traditional macroeconomic solutions like austerity are politically unfeasible. He suggests that increasing demand for T-bills through new currency issuance might be the only viable option, though he admits he's not an expert on such matters.
Jason Shapiro believes that many traders attempting to be contrarian by buying bonds may be making a mistake. He argues that true capitulation, where investors give up on government payments, has not occurred, and current market sentiment suggests the opposite. Shapiro emphasizes the fine line between being contrarian and simply being wrong.
Jason Shapiro observes that the stock market has shown remarkable resilience despite numerous negative factors, including rising oil prices, higher yields, political uncertainties, and even fears of AI-induced humanity's end. He notes that the market has largely shrugged off these concerns, continuing to trend upwards.
Jason Shapiro suggests that speculators are surprisingly under-positioned in energy markets, based on his analysis of commitment of traders data. He finds a lack of chasing by speculators in crude oil, Brent crude, WTI, heating oil, and natural gas, which he believes indicates potential for further price increases.
Jason Shapiro dismisses the concept of a four-year cycle in Bitcoin as 'complete garbage,' arguing that its historical occurrence twice does not guarantee future repetition. He observes that many Bitcoin bulls have missed recent rallies by trying to time these supposed cycle lows, leading to a chase for assets.
Jason Shapiro believes that Bitcoin has become a normal market where sentiment is driven by price, unlike in 2021 when bullish conviction was more consistent. He notes that current bullishness on Bitcoin emerges only when the price is rising, and disappears when it moves sideways, indicating a more emotionally tied investor base following the price.
Ron Paul asserts that inflation is a persistent issue driven by monetary policy and will continue to worsen. He foresees a potential collapse of wealth and markets, with gold and silver prices rising.
Ron Paul argues that the current oil price issues are not due to a lack of supply but rather excessive government intervention and interference. He criticizes the current approach to addressing these problems.
Ron Paul characterizes current wars as undeclared and unnecessary, serving the interests of the military-industrial complex and other special interests. He notes that Congress rarely declares war, which founders intended to be a deliberative process.
Ron Paul contends that U.S. policy, rather than deterring Iran from acquiring nuclear weapons, actually provides them with an incentive and excuse to do so. He believes arguments about preventing Iran from obtaining weapons are worn out and that politicians use fear to control the public.
Ron Paul attributes the rise of socialist sentiments among young Americans not to capitalism itself, but to what he calls 'corporatism' and welfare-ism benefiting the rich and banks. He believes people are reacting to perceived failures of the current system.
Ron Paul states that cutting government spending is necessary but politically impossible due to the current debt levels. He believes that liquidating past mistakes is required for a fresh start, but this is not permitted, leading to the debt's continuous explosion.
August's CPI report revealed a 0.4% monthly and 3.4% annual rise in headline inflation, largely driven by gasoline prices. Core inflation also edged higher than expected. However, economist Anna Wang noted that some price increases, like those in wireless phone services and hotel rates, are one-off outliers, while housing rents and some food categories show disinflationary trends.
The market is now pricing in an 80% chance of a 25 basis point Federal Reserve rate hike next week, a significant jump from 60% the previous day. This shift is attributed to hawkish signals from Fed officials like Kevin Walsh and Chris Waller, who indicated that the CPI report would heavily influence their decision. The market's interpretation is that the Fed is leaning on market signals rather than detailed inflation nuances.
High diesel prices are directly impacting headline CPI and are expected to lead to a more than 5% increase in gasoline prices in September, adding to the CPI figures. Economist Anna Wang explained that this surge creates an economic feedback loop, restraining activity by increasing costs for farmers and freight companies, which will likely lead to higher prices for groceries and appliances.
According to economist Anna Wang, if there is a de-escalation in geopolitical tensions, such as between Iran and Gulf states, leading to lower oil prices, the current inflation scare could largely dissipate. She predicts that headline CPI could fall below 2% in the first quarter of next year if crude oil prices return to more moderate levels around $60-$70 per barrel.
Economist Anna Wang highlighted that the CPI report's upside surprise was driven by minor factors like wireless phone plans and Airbnb policy changes, not broad inflationary trends. She suggests this is a consequence of the Fed's move to reduce forward guidance and rely more on market signals, which limits their flexibility to address nuanced data.
Todd Horwitz, founder of Buba Trading.com, maintains his short position on oil, believing current prices are driven by fear rather than fundamentals. He forecasts a significant drop to the low 60s, citing a lack of demand and a glut of oil.
Todd Horwitz anticipates a significant rise in the ten-year Treasury yield, predicting it will reach six percent. He believes there will be a dramatic push towards this level by the end of the year.
Todd Horwitz explains that current oil prices are largely dictated by a 'fear trade' and that the forward curve indicates lower prices in the future. He points to the difference between current futures and those for next September as evidence of this expectation.
Todd Horwitz highlights that record-high diesel prices and crack spreads (the margin between crude oil and diesel) are expected to increase food prices. He notes that 86% of commercial trucks in the US run on diesel, making this a significant factor for food transportation costs.
Todd Horwitz acknowledges the ten-year Treasury yield's importance in determining lending rates for mortgages and car loans, but criticizes official inflation metrics for excluding food and energy prices. He argues this omission is significant as energy is a major cost for most people.
Todd Horwitz suggests that high oil prices have contributed to the Federal Reserve's rate hikes due to their impact on inflation. He also posits that oil companies might be intentionally limiting refining to keep prices artificially high and maximize profits.
Steve Hanke reports that Fed Chair Kevin Warsh is increasingly adopting monetarist principles, a shift from his predecessor Jerome Powell. Warsh's recent statements, including emphasizing that "money matters" and focusing on monetary aggregates like M2 and Divisia M4, indicate a departure from a sole focus on interest rates.
Professor Steve Hanke notes a potential conflict between Fed Chair Kevin Warsh and President Trump regarding interest rate policy. While Trump has advocated for lower rates, Warsh appears to be leaning towards a more disciplined, rules-based approach consistent with monetarism, even if it means diverging from presidential preferences.
Steve Hanke highlights Fed Chair Kevin Warsh's stance that increases in energy and food prices are changes in relative prices, not direct causes of inflation. Hanke agrees with this perspective, contrasting it with previous discussions that may have conflated the two.
Professor Steve Hanke suggests that the Federal Reserve, under Chairman Warsh, will likely continue raising the Fed funds rate. He believes this will persist until the growth in the money supply decelerates to a level consistent with a 2% inflation target, specifically around 6% growth for Divisia M4.
Steve Hanke emphasizes that Fed Chair Kevin Warsh, aligning with monetarist views, downplays the significance of interest rate changes in monetary policy. According to Warsh and monetarist theory, the focus should be on the money supply.
Prime Minister Mark Carney released a video message stating that US tariffs were meant to pressure Canada into annexation but instead made Canada stronger and diversified its trade. The message has been used effectively by the Liberal Party for political advantage, particularly in response to perceived insults to Canadian sovereignty.
There are concerns that Canadian leadership is emulating a European model of state intervention, which is argued to have a failed track record. Despite this, the government plans significant stimulus, including $7.5 billion in new aid on top of existing spending, and a $1 trillion investment in joint ventures.
The effectiveness of Canada's retaliatory tariffs against US imports is questioned, with arguments that it harms Canadian consumers and businesses without aiding negotiations. Historical examples suggest such tactics do not work, and Canada previously removed tariffs for this reason.
Deputy Prime Minister Chrystia Freeland stated that Canada is prepared to endure economic pain to defend its sovereignty against US actions, a sentiment echoed by former Prime Minister Stephen Harper. However, some argue that framing it as a sovereignty issue distracts from the core economic and trade aspects of the dispute.
Despite President Trump's unpredictable statements, there is an expectation that a US-Canada trade agreement will be reached. The economic pressure on both sides from ongoing tariffs is significant, leading to increased likelihood of a resolution, though the specifics remain uncertain.
In late August, the US imposed 50% tariffs on approximately $20 billion of Canadian imports. Canada retaliated with tariffs of 15%, 25%, and 50% on about $20 billion worth of American imports.
There are claims from the Trump administration that Mark Carney was not acting in good faith during trade negotiations. However, the speaker states they will not attack their Prime Minister on foreign soil.
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