" Hunter S. Thompson One evening earlier this week in Albuquerque, Gabi and I walked through the Sandia Casino on our way to get a drink at the hotel.
"Buy the ticket, take the ride." Hunter S. Thompson
One evening earlier this week in Albuquerque, Gabi and I walked through the Sandia Casino on our way to get a drink at the hotel. It reminded me of my two golf trips to Vegas; getting up early for our tee times, we would see a few isolated people—usually sitting alone at a blackjack table or at a slot machine — still in their evening wear from the previous night, desperately trying to hit the jackpot, reverse the losses, go on a hot run. All night, plied with free drinks, super-oxygenated air, and full of Hopium and steps from the ubiquitous ATM machines, they had stayed and played. I try not to judge other people and make assumptions about others’ circumstances, but that sight made me profoundly sad.
Longtime readers know I often feel that markets imitate life, and so it is again here. The equities markets are, to me, ignoring the ‘reality’ being communicated by other asset classes: higher nominal and real rates, high and rising commodity prices, profound geopolitical uncertainty and dislocations, and a domestic political and social environment that can at best be described as in profound disarray. Yet the stock markets continue to rally, albeit in an increasingly narrow and AI-centric way. FOMO continues. ‘You gotta be in it to win it, one hears. Why settle for 4-5% ‘risk-free’ when a guy you know made 700% in Micron or crypto? Yeah, well…timing is always uncertain, but these situations never end well. Just saying.
**THE STRIKE PAUSE RUNS ON THE ELECTION CALENDAR.**The blockade stands, the Houthis hit Riyadh three days running and Bab al-Mandeb is now in play. I’M WRONG IF Brent settles under $95.**THE LONG END FOUND A BUYER AT 5.6 AND STILL DOES THE FED’S TIGHTENING.**Indirects took 72.3 percent of Thursday’s 30-year. I’M WRONG IF the 30-year closes under 5.50.**AI IS NOW PRICED BY WHO PAYS FOR THE BUILD.**Debt-funded names fell twice as hard as the chipmaker with net cash. I’M WRONG IF Oracle outperforms Nvidia by 5 points through October 28.**THE CROWD IS LONG UPSIDE INTO A RATE-SCARE MIDTERM.**Call skew sits at the 99.6th percentile of its year. I’M WRONG IF the 10-year closes under 5.05.
I think Thursday was a flush, and the bond market said so at 1:00 p.m.
THE SETUP. The 10-year traded 5.35 in the morning and closed at 5.22. In between, the 30-year auction went like this:
I read that as end users buying the level. The other read is short covering after a 24-year high, which prints the same table; I lean to mine because Tuesday’s 10-year cleared at 5.30 with indirects at 80.3 percent.
A buyer at 5.6 need not mean the top is in for yields. It ends the momentum argument, and I am fine with that.
THE WAR PREMIUM. Brent gave back 1.5 percent on the President’s word that nothing happens before November 3, and I think that buys a month, not a settlement.
The blockade stays in force and Treasury sanctioned 17 more tankers Thursday. The Houthis hit Saudi airports for a third day and their leader promised a long war, with fighting near Bab al-Mandeb, the Red Sea’s own chokepoint.
That fattens the tail and leaves the modal barrel near $100. I like the barrel from the long side through options, where a bad headline pays and a quiet month costs only premium.
A record El Niño, 3.4C over average and past the November 2015 high, adds drought and flood risk to food prices into the first half of 2027 (Washington Post).
WHY THE LONG END STILL CARRIES IT.
The Fed hiked to 3.75 to 4.00 percent on September 16, and the 2-year at 4.75 already sits 75bp over the top of that range.
The CBO puts the fiscal 2026 deficit at $1.993 trillion, up 12 percent (WSJ). Its director says that at 5 percent rates the economy needs 6 percent real growth to hold the debt ratio (Bloomberg).
Barclays has oil, Treasuries and the S&P moving at a 56-point pairwise correlation, the highest in more than 30 years. Inflation is the channel, and the long end is where it lands.
Apollo’s Torsten Slok calls the AI build a ‘Dutch disease’: core capital goods orders run about 14 percent y/y on a 5 percent cost of capital while housing and autos starve.
**THE MULTIPLE.**ISM prices paid printed 77.9 last week, in the top fifth of a 75-year series. Maxence Visseau at Arkevium leads it 12 months against the change in the forward P/E and gets a multiple that keeps compressing into 2027. His arithmetic: forward EPS up another 6 percent, the multiple from 19 to 17 times, the index about 5 percent lower.
**THE CASE AGAINST.**Forward EPS rose about 6 percent over three months, and higher nominal growth helps offset a higher discount rate. A strong auction may simply be the market telling me 5.6 is a fair price for a 30-year with a war on.**THE CALENDAR.**Deutsche Bank counts 21 rallies in 23 midterm windows, a median 7 percent. The two misses, 1978 and 2018, were rate scares. So is this one.
Polymarket has a Democratic sweep at 64 percent, up from 49 in September. BofA says a sweep skids stocks more than 10 percent, and gridlock lifts them 5.
Pew has Democrats up 8 on the House ballot among registered voters, and 78 percent of their backers say control ‘really matters’, 9 points more than Republican backers. In 2022 that gap ran the other way.
**Before the open, Delta.**The first read on how much of a $100 barrel an airline can pass through.**10:00 ET, Michigan sentiment.**Consensus 47.8, prior 48.1. One noisy survey; the inflation expectations line matters more than the headline.**All day, Hurricane Isaias.**Landfall tonight between Gulf Shores and Pensacola, east of the main production corridor, with about 63 percent of Gulf oil output shut in as of Thursday.**Kansas City’s Schmid and the ECB’s Schnabel speak.****Monday, Columbus Day.**The bond market is closed, and stocks are open, so today’s close is the last official curve until Tuesday.**Next week.**September CPI Wednesday at 08:30, PPI and retail sales Thursday, the money-center banks Tuesday through Friday.
Two of these point opposite ways: the AI complex sold on a funding question while the carriers sold on a competitor that has funding to burn.
**ORACLE.**Fell about 5.5 percent, CoreWeave about 7, Nvidia 2.94. The FT put OpenAI’s annualized revenue near $50 billion, compared with about $70 billion; Bloomberg says the gap is between gross and net, and OpenAI targets $70 billion net by year-end while raising $30 billion or more at a $1.4 trillion valuation. The market sorted the complex by balance sheet, and the names that borrow to build took the hit.**AT&T, VERIZON, T-MOBILE.**Down about 6 percent before the open after SpaceX agreed to buy Grain Management’s 800 MHz licenses for about $8 billion, subject to FCC approval. Starlink Mobile has no ground network yet. The headline risk to the carriers is permanent now, and the tower names rallied on a capex spree SpaceX said it does not plan in August.**APPLE.**Lower before the open on a Nikkei report that iPhone 18 component orders were cut at least 15 percent this month on tepid demand. With the top five S&P names worth as much as the bottom 434, one supplier note moves the index.
Behind the wall this morning:
FINANCIALS: what Tuesday’s bank prints have to show, why banks were the least damaged group in a four-month drawdown, and the two financials trades I want into it.
FLOWS AND POSITIONING: call skew at the 99.6th percentile against $166 billion into cash, the most since April 2020.
The free part tells you what I see. The part below the line is where my own money sits. It is $450 a year at marketmusing.com.
Really, I think this is cruel and unusual punishment.
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