"Insanity is doing the same thing over and over again and expecting different results." -Albert Einstein
Happy 122nd Birthday, NYC Subway! We should all feel lucky it still seems to use so many original parts ;)
As a Jets fan, I find a certain familiarity and comfort in reaching that point in the season, almost always before Halloween, when the football season is basically over, and I can make plans for Sundays. But underneath that is the feeling of “just make the mediocrity stop” and “why do I put myself through this every year?”
I’m feeling much the same way about election season and politics in general. I go down rabbit holes on Twitter and Substack, listen to umpteen podcasts, and give the whole thing far more of my attention and energy than it deserves. And guess what? Nothing changes. Same nonsense.
I’m the poster child for AE’s quote. I get excited about my Jets (and yes, my Mets) every off-season, even though I know, and I mean
, I’ll be disappointed. And I keep convincing myself that sanity and rationality will somehow return to politics and the world at large.know
THE AI BILL IS LANDING ON CREDIT. Equity buyers are taking the paper; I’m short high yield and private credit anyway. I’M WRONG IF high yield prints near 290bp with the 10-year above 5.00%.
IN OIL I’M TRADING THE GAP BETWEEN TWO BARRELS. Long the refiner, short the airline. I’M WRONG IF Brent settles at or under $110 before 5 November.
CARD LENDERS SPENT THEIR RESERVES TO MAKE THE QUARTER. I’m short Synchrony. I’M WRONG IF its next print pairs lower charge-offs with a higher allowance ratio.
MOST OF MY BOOK IS ONE BET ON RATES AND CREDIT. I’M WRONG IF high yield drops back inside the 325bp stress line.
The main story is the supply of AI paper. In two sessions the market was handed Meta’s equity, Anthropic’s prospectus, SpaceX’s chip debt and a bank-built leasing vehicle, and it rallied through all of it. Israel, Brazil and the oil count are secondary this morning; they matter to me mostly through how much risk the buyers still want.
**THE SETUP.**Meta upsized its Class A sale to $25 billion and priced it under 1% below Monday’s close, the first piece of a plan to raise up to $95 billion.
Anthropic’s S-1 shows first-half revenue of $16.3 billion against a net loss of $80.7 billion, most of it non-cash. The next ask is reportedly $100 billion or more at a valuation above $1.5 trillion (Vital Knowledge).
Bank of America, Blackstone, Citi and Morgan Stanley put together a $63 billion vehicle that buys Broadcom accelerators and leases them to Anthropic. SpaceX lined up $40 billion of debt for chips.
Microsoft is offering buyouts to roughly 60,000 employees (Business Insider), and Verizon signed an AI infrastructure deal with Amazon Web Services worth more than $2 billion. Somebody has to pay for the build, and labor is the line that can move fastest.
Absorbed isn’t the same as cheap. High yield printed 338bp for 23 October, through the 325 line where I stopped calling it a repricing and started calling it stress, while the equity tape put semis back on top. Semiconductors are a bigger share of the index than of its earnings, the same shape the sector had before its last two busts.
My credit shorts aren’t AI borrowers, and that’s deliberate. I think a heavy calendar of high-grade and equity supply hits the weakest paper first, competing for the same dollars, a consumer lender or a private credit fund, long before it shows up in Meta’s own spread.
Could the widening be the barrel and the Fed alone? Partly; high yield was already moving off 268bp on 22 September, before any of these deals were announced, so I can’t pin the whole move on supply.
THE TRANSMISSION.
How does a funding scare become a 7% day in a chip stock? Partly through product design.
Leveraged single-stock ETFs passed $190 billion in the US this year (BIS), and they have to rebuy after a rally and sell after a drop to get back to their 2x or 3x target every night. The Kospi rose 3.09% overnight on Samsung and SK Hynix, two of the names where that ‘feedback loop’ is biggest. The loop doesn’t start a move; it lengthens one, in both directions.
THE CASE AGAINST.
The plentiful-capital reading says the opposite. A $25 billion deal clearing near the last trade is a market with money to spare, and spreads are wide because of a $115 barrel and a Fed that wants to hike, with AI borrowers barely in the picture (Vital Knowledge reads Monday’s deals as proof the capital is there).
What would tell the two apart: Meta holding its deal price and high yield back inside 325bp within two weeks says the money is plentiful. High yield above 350bp with Meta under the deal price says the bill is landing. I’m maybe 60/40 my way, and I’m less sure of the timing than the direction.
Durable goods at
8:30, consumer confidence and new home sales at10:00, and the 5-year auction at1:00against a 5.033% prior stop. Monday’s 2-year tailed 0.3bp with indirect bidders down to 45.7% from 57.8%. A second tail on thinner foreign demand would be the term premium case showing up somewhere I can see it.The Fed decides Wednesday at 2:00, with Warsh at 2:30. A hold is priced; the argument is December. The growth data has stayed firm into it, and the supply and demand halves of core inflation are now about even, so a hike can reach half the problem (Apollo, from San Francisco Fed data).
Boeing, Coca-Cola, PayPal, SoFi, HCA, UPS and S&P Global report before the open, Visa and Robinhood after the close. I’m short Visa into it.
TWO ELECTIONS.
Brazil: Flávio Bolsonaro said he’d seek to annul the vote, then effectively conceded once Trump signaled he wouldn’t intervene (Washington Post). Trump still called the result ‘rigged’ (Politico), a week before his own midterms, while his Justice Department sues to stop Alaska certifying a Senate race unless the Republican wins and he offers a million dollars for voter fraud reports (
Letters from an American). He seems to be rehearsing. On the Alaska side, the NYT found hidden financing in the gas project talks with the Kremlin, and US energy executives say they quit a startup over undisclosed Russian funding (WSJ).Israel: Eisenkot’s Yashar leads in the polls, neither bloc is close to a majority, and there’s talk of a unity government with Netanyahu that would let him drop the far right. Netanyahu spent weeks pushing for new strikes on Iran before the vote, and the military chief of staff resisted (NYT).
Venezuela: María Corina Machado is back from exile, complicating Washington's arrangement with acting President Delcy Rodríguez to open the oil industry (Bloomberg).
Why I care: a transit accord is the only switch in my book that is a political act with no price attached. Saudi, Turkish and Pakistani officials met their Iranian counterparts in Tehran Monday with no outcome, the Houthis resumed strikes on Saudi targets (Reuters), and Egypt’s parliament authorized military support for Riyadh (AP). The road to a deal got busier and produced nothing. Supertanker rates are up more than 1,600% this year, and Sinokor’s brokers are under scrutiny for how their messages moved the Gulf-to-China benchmark (
Bloomberg).
BRAZIL (EWZ). Down about 21% Monday, with circuit breakers tripped in São Paulo and the real at about R$5.60 against R$4.99. That’s a market that had priced the other result, and Lula’s fourth term starts with the currency selling off.
UNITED AIRLINES. Up 2.82% Monday on a session the international barrel settled $115.81 and its gap to the domestic one widened. JetBlue’s quarter last night had a ‘huge fuel headwind’ eating a strong revenue line (Vital Knowledge). I’m short United; the stock is trading the bookings and ignoring the fuel bill.
META. Off 1.88% Monday on the raise, then priced the deal near the close. Every share sold at that price is a share an AI bull already had to make room for.
Behind the wall this morning:
THE BOOK: 13 live lines, 3 new today, each with the factor it monetizes, its size and the condition that kills it.
FLOWS AND POSITIONING: how the leveraged ETF reset turns a good day for Samsung into a better one, and what the risk appetite gauges say after Thursday.
FINANCIALS: the regional bank I’m long against the one I’m short, and the card lender whose earnings came out of its reserves.
Above the line is my read of the morning; below it is the book I’m running with my own money. Subscribe at marketmusing.com.
*Disclaimer: Opinions are mine alone and may change. It does not constitute an offer to buy or sell or a solicitation of an offer to buy or sell any security, loan or asset or to participate in any trading strategy. It is not intended to form the basis of any investment decision, should not be considered a recommendation, and does not constitute an offer or solicitation with respect to the purchase or sale of any investment, nor is it a confirmation of such terms.*
