It’s the type of extraordinary backdrop that flashes “critical juncture”. Ongoing “Terminal Phase Excess” is the culmination of a historic multi-decade global Credit Bubble. The post “liberation day” tariff pause rally – fueled by short covering, the unwind of hedges, powerful FOMO, and feverish late-cycle speculative leveraging – stoked epic excess, certainly including the global AI mania and arms race.
Pertinent insight is gained from mortgage finance Bubble dynamics. While that Bubble imploded during Q4 2008, Credit excess had peaked the preceding year. Non-Financial Debt growth reached a nominal $692 billion during Q2 2007. Broker/Dealer Asset ($682bn) and system repo ($436bn) growth peaked during Q1 2007. Growth in Corporate Bonds reached a record $471 billion during Q3 2007 (record holding until the pandemic). The S&P500 reached a cycle high on October 11th, 2007.
I point to the June 2007 implosion of two Bear Stearns funds - the High-Grade Structured Credit Fund and the Enhanced Leveraged Fund - as a key Bubble-piercing catalyst. These funds employed sophisticated CDOs, derivatives, and heavy leverage - an aggressive “cutting edge” strategy that beamed brilliance - until it abruptly blew apart. As is commonplace during “Terminal Phases,” “sophisticated” strategies that incorporate derivatives and aggressive leveraging rest on the specious assumption of liquid and continuous markets.
The Bear Stearns fund implosion essentially ended the subprime mortgage/derivatives Bubble, crucial Wall Street alchemy that had transformed essentially unlimited high-risk mortgages into (mostly) perceived (relatively) safe and liquid money-like instruments. The marginal homebuyer lost access to the mortgage marketplace, leaving inflated home prices and throngs of over-levered speculators no place to go but down – a cycle’s worth of masked fraud no place but to be exposed.
Crisis at the “periphery” unleashed contagion that would be revealed as deeply systemic months later. Importantly, the Fed would slash rates from 5.25% to 2.00% between September 2007 and April 2008. This extended the boom in AAA GSE-backed MBS, which only exacerbated “Terminal Phase Excess,” deepening financial and economic crises.
The ongoing global government finance Bubble so dwarfs mortgage finance Bubble excess. The amount of debt, speculative leverage, derivatives, and economic maladjustment is so far beyond anything previously experienced. Today’s backdrop is fraught with monumental excess, along with important developing cracks.
Q3’s perilous Bubble inflation only exacerbated fragilities. First Brands’ Sunday bankruptcy filing is an important crack. It is a company that took full advantage of the loosest financial conditions imaginable: “Private Credit,” “fintech”, off-balance sheet financing, structured finance (i.e., CLOs), supply chain finance, invoice financing…
September 11 – Financial Times (Robert Smith and Julie Steinberg in London and Eric Platt): “Patrick James — a little-known businessman who was previously accused of fraud in civil lawsuits that were ultimately dismissed — is the sole owner of FBG, which has expanded rapidly through a string of debt-funded takeovers of competitors. On top of the more-than-$5bn of debt FBG has borrowed through the loan market to fuel its acquisition spree, the company has raised further financing linked to its customer and supplier invoices from specialist private credit funds.”The first of many questions: were any of the more than 80 creditors listed at bankruptcy performing Credit analysis? And that’s exactly the point: With conditions so loose and liquidity abundant, the marketplace simply assumes companies will continue to enjoy access to new borrowings. While reports are so far careful not to allege fraud, there appear to be at least a couple billion more liabilities than previously represented – apparently related to off-balance sheet obligations. There’s fear that seemingly low-risk inventory and “supply chain” financiers face the prospect of the same collateral backing multiple liquidity facilities.
Little known Onset Finance, out of Draper, Utah, with $1.9 billion of exposure to First Brands? Wall Street completely blindsided? Are we to assume First Brands is an isolated case or the proverbial tip of the Old Credit Cycle Iceberg? As noted by Bloomberg’s Chris Bryant: “First Brands’ bankruptcy might indicate that some corporate capital structures are even more financialized than creditors appreciate; it also raises questions about the quality of their due diligence… The rapid implosion of a business that until recently had a decent cash buffer shows how companies involved with this supposedly low-risk funding can quickly unravel…”
Stocks of the big “private Credit” players have been under notable pressure. Over seven sessions (9/24 to 10/2), KKR sank 15.4%, Apollo 12.2%, Areas Management 16.9%, and Blackstone 9.9%. Not as dramatic yet still notable, over this period (as the S&P500 added 0.9%), Citigroup dropped 5.5%, Wells Fargo 4.6%, Morgan Stanley 3.4%, Goldman Sachs 3.3%, US Bancorp 2.9%, Bank America 2.4%, and JPMorgan 1.7%. Significantly underperforming, the KBW Bank Index fell 2.2% this week – its worst performance in two months.
October 3 – Bloomberg (Georgie McKay): “Beneath the surface of what’s been a remarkably resilient US economy, a series of small shocks in the world of consumer credit have combined to rock companies that service the most financially vulnerable Americans. Auto lender Ally Financial Inc. tumbled 13% during a nine-day losing streak. Fintech lenders Upstart Holdings Inc. and Pagaya Technologies Ltd. sank more than 20% in the same span. Digital payments company Affirm Holdings and lender Bread Financial Holdings Inc. suffered similar fates. Even Capital One Financial Corp., one of the nation’s largest credit card issuers, lost 7%. The selloffs have been fueled by isolated events that have alarms over the health of low-end consumers blaring. The collapse of Tricolor Holdings Inc., which built its business selling used cars and making loans to lower-income and undocumented immigrants, suggested subprime lending stress.” October 3 – Bloomberg (Steven Church): “The trustee overseeing bankrupt Tricolor Holdings is investigating possible wrongdoing by the subprime auto lender before its collapse in order to raise money to pay creditors, a lawyer said in court... The company’s business ‘appears to be a pervasive fraud of rather extraordinary proportion,’ Charles R. Gibbs, who is representing the trustee, told the judge overseeing the company’s liquidation. ‘Initial reports from these reviews indicate potentially systemic levels of fraud.’”First Brands’ bankruptcy filing followed subprime auto lender Tricolor’s by a couple weeks. First Brands’ stability was apparently impacted by tariffs on auto parts imports, while immigration and deportation issues hit Tricolor – underscoring the risk Washington policymaking poses to an inherently fragile Credit system. The government shutdown comes at an especially inopportune juncture.
I appreciated both Financial Times (Robert Smith and Harriet Agnew) headlines: The original: “Short Seller Jim Chanos Predicts More First Brands Fiascos in Private Credit” and the replacement, “Jim Chanos Slams ‘Magical Machine’ of Private Credit After First Brands Collapse.” Jim Chanos, of short selling and Enron fame, knows accounting chicanery and Credit cycles as well as anyone. His First Brands comments are worth sharing:
“I suspect we’re going to see more of these things, like First Brands and others, when the cycle ultimately reverses, particularly as private credit has put another layer between the actual lenders and the borrowers.”“Chanos likened the near $2tn private credit apparatus fuelling Wall Street’s lending boom to the packaging up of subprime mortgages that preceded the 2008 financial crisis, due to the ‘layers of people in between the source of the money and the use of the money’.”“Privately owned First Brands’ eschewed the more public bond market in favour of borrowing money through so-called leveraged loans. It also raised billions of dollars through even more opaque financing backed by its invoices and inventory, which was often provided through private credit funds. ‘With the advent of private credit… institutions [are] putting money into this magical machine that gives you equity rates of return for senior debt exposure,’ he said, adding that these high yields for seemingly safe investments ‘should be the first red flag’.”“His short thesis against Enron was fuelled in part by the realisation that executives at the group were managing SPEs [special purpose entities] that engaged in complex transactions outside the purview of its corporate balance sheet. In contrast to Enron, First Brands’ financial statements were not publicly available. While hundreds of managers of so-called collateralised loan obligations had access to its financial disclosure, they had to consent to non-disclosure agreements to receive the documents. ‘The opaqueness is part of the process,’ Chanos said. ‘That’s a feature not a bug.’”“A Feature, Not a Bug.” I would contend that opaqueness is integral to the “private Credit” process. As Chanos stated, “We rarely get to see how the sausage is made.” And this lack of transparency, including market pricing, seems to serve borrower and lender alike during boom times. As we now see with First Brands, it comes back to bite hard.
In analysis dear to my analytical heart, Chanos likens the subprime mortgage Bubble to today’s “private Credit” boom: “Layers of people in between the source of the money and the use of the money.”
This is such a critical point: risky lending, with its high rates, presents the opportunity for “layers of people” to profit from the wide spread between the cost of funds and the elevated rates “subprime” borrowers are willing to pay. These “profits” entice more lenders and additional layers of profiteering, in the process expanding system Credit Availability and growth. The easy access to Credit will promote spending and investment, with resulting economic activity only emboldening aggressive lenders, financiers, and risk-takers. Over time, an enterprising Wall Street will cultivate an extensive infrastructure that provides relatively cheap finance to even the most marginal borrowers.
As always, Credit is self-reinforcing, with this era’s risky “subprime” variety dispensing rocket fuel. So long as borrowers can borrow more, delinquencies and charge-offs remain manageable, lending profits appear robust, and the cycle seems robust.
Simple enough. Looking ahead, things are incredibly complex. Trouble at the mortgage finance Bubble “periphery” (subprime) in 2007 initially bolstered the “core” (i.e., AAA GSE MBS). The Fed aggressively slashed rates, while confidence in federal backing of GSE securities (MBS and debt) held firm. Those powerful forces for months impeded the full force of contagion effects. Moreover, the craziest excess was generally contained within mortgage Credit and housing construction. While there were clearly imbalances and major distortions, the U.S. economy did not suffer today’s degree of broad and deep structural maladjustment.
The “periphery” of “Private Credit” – of leveraged lending more generally – is today acutely vulnerable to waning confidence, risk aversion, reversal of financial flows, and deleveraging. “Subprime” consumer and business lending is increasingly suspect, thus susceptible to a problematic tightening of lending standards. But might AI rapidly evolve into “private Credit’s” “core”? Does momentum associated with the historic AI mania today somewhat buffer the “private Credit” and leveraged lending complex – while providing the critical system Credit growth necessary to temporarily impede “periphery to core” contagion effects?
“The First Brands Disaster Began With Business as Usual.” “First Brands’ Fallout Exposes Risks of Lending Private Debt.” “First Brands Probing Billions of Off-Balance-Sheet Financing.” “UBS Funds Face Half-Billion-Dollar Exposure to First Brands.” “Millennium Takes $100 million Hit in Collapse of First Brands.” “Leveraged Loan Default Rate Jumps as First Brands Takes Fast Track to Bankruptcy.” “Lender Clash Over First Brands Collateral Spotlights Off-Balance Sheet Risks.” “CLOs see $2B of exposure to bankrupt First Brands debt as ‘manageable’.” While not a major player, First Brands is a microcosm of this historic Credit cycle and perilous “Terminal Phase Excess.” There’s going to be hell to pay when lending standards tighten, speculative flows reverse, deleveraging commences, and Credit becomes much less freely available. Arguably, history has never seen so many borrowers – from household Credit cards, auto loans, and mortgages to levered and cash-flow challenged small, medium, and large business enterprises – vulnerable to tightened lending standards.
AI-related finance might be the proverbial black hole, with the potential to extend an already most protracted Credit cycle and “Terminal Phase.” But as we experienced with the mortgage finance Bubble, extending the day of reckoning is not to be celebrated. Indeed, the further burgeoning AI (buildout) finance evolves outside of the major cash-heavy technology behemoths, the greater the risks of a Credit debacle.
On the one hand, so long as the AI mania spell holds, underlying sector Credit quality might not play much role. The lack of “private Credit” transparency may remain a non-issue. On the other hand, when the market environment turns south and folks start to fear deteriorating economic, market, and Credit prospects, I expect a much more circumspect view of “private Credit,” leveraged lending, structured finance, and AI-related finance more generally. Q3 exuberance ensured fading memories. But early April provided inklings of things – like risk aversion and deleveraging - to come.
This CBB is already too long. But I’ll conclude with brief comments on unusual market dynamics. The Goldman Sachs Most Short Index surged another 9% this week, with a notable 17-session gain of 21%. The underperforming Biotech stocks posted a 7.6% weekly gain. These moves are indicative of stress on some hedge fund strategies, long/short in particular – indicative of incipient de-risking. It’s not uncommon for short squeezes and the unwind of hedges to support stock prices even in the face of negative developments – especially near critical market junctures. Negative developments in Credit and Washington may prove more than fleeting. Currently, global markets remain over-liquefied and extraordinarily speculative. It has been about six months of destabilizing excess since April’s bout of market tumult. Underlying fragilities create mounting vulnerability to market de-risking/deleveraging.
For the Week:
The S&P500 gained 1.1% (up 14.2% y-t-d), and the Dow rose 1.1% (up 9.9%). The Utilities jumped 2.8% (up 17.1%). The Banks dropped 2.2% (up 18.3%), and the Broker/Dealers fell 1.0% (up 30.5%). The Transports increased 0.7% (down 0.3%). The S&P 400 Midcaps added 0.6% (up 5.4%), and the small cap Russell 2000 rose 1.7% (up 11.0%). The Nasdaq100 increased 1.1% (up 18.0%). The Semiconductors surged 4.4% (up 32.2%). The Biotechs shot 7.6% higher (up 14.2%). With bullion surging another $127, the HUI gold index gained 2.6% (up 125.0%).
Three-month Treasury bill rates ended the week at 3.86%. Two-year government yields dropped seven bps to 3.58% (down 67bps y-t-d). Five-year T-note yields declined five bps to 3.71% (down 67bps). Ten-year Treasury yields fell six bps to 4.12% (down 45bps). Long bond yields declined four bps to 4.71% (down 7bps). Benchmark Fannie Mae MBS yields dropped nine bps to 5.13% (down 71bps).
Italian 10-year yields fell seven bps to 3.51% (down 1bp y-t-d). Greek 10-year yields dropped seven bps to 3.36% (up 14bps). Spain's 10-year yields fell eight bps to 3.23% (up 17bps). German bund yields declined five bps to 2.70% (up 33bps). French yields fell six bps to 3.51% (up 31bps). The French to German 10-year bond spread narrowed one to 81 bps. U.K. 10-year gilt yields declined six bps to 4.69% (up 12bps). U.K.'s FTSE equities index rose 2.2% (up 16.1% y-t-d).
Japan's Nikkei 225 Equities Index increased 0.9% (up 14.7% y-t-d). Japanese 10-year "JGB" yield added a basis point to 1.66% (up 56bps y-t-d). France's CAC40 rallied 2.7% (up 9.5%). The German DAX equities index jumped 2.7% (up 22.5%). Spain's IBEX 35 equities index gained 1.5% (up 34.4%). Italy's FTSE MIB index added 1.4% (up 26.5%). EM equities were mixed. Brazil's Bovespa index declined 0.9% (up 19.9%), and Mexico's Bolsa index slipped 0.6% (up 25.1%). South Korea's Kospi surged 4.8% (up 47.9%). India's Sensex equities index gained 1.0% (up 3.4%). China's Shanghai Exchange Index added 1.4% (up 15.8%). Turkey's Borsa Istanbul National 100 index fell 2.6% (up 10.5%).
Federal Reserve Credit declined $16.8 billion last week at $6.544 TN. Fed Credit was down $2.346 TN from the June 22, 2022, peak. Over the past 316 weeks, Fed Credit expanded $2.817 TN, or 76%. Fed Credit inflated $3.733 TN, or 133%, over 673 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt fell $6.1 billion last week to $3.116 TN - the low back to November 2016. "Custody holdings" were down $195 billion y-o-y, or 5.9%.
Total money market fund assets (MMFA) surged $50.5 billion to a record $7.365 TN (5-wk gain $158bn). MMFA were up $902 billion, or 14.0%, y-o-y - and have ballooned a historic $2.781 TN, or 61%, since October 26, 2022.
Total Commercial Paper dropped $31 billion to $1.347 TN. CP has expanded $289 billion y-t-d and $155 billion, or 13.0%, y-o-y.
Freddie Mac 30-year fixed mortgage rates increased four bps to 6.34% (up 22bps y-o-y). Fifteen-year rates rose six bps to 5.55% (up 30bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates unchanged at a 20-month low of 6.49% (down 59bps).
Currency Watch:
For the week, the U.S. Dollar Index declined 0.4% to 97.723 (down 9.9% y-t-d). On the upside, the Japanese yen increased 1.4%, the New Zealand dollar 1.0%, the Australian dollar 1.0%, the South African rand 0.6%, the British pound 0.6%, the Swedish krona 0.4%, the euro 0.3%, the South Korean won 0.3%, the Swiss franc 0.3%, the Singapore dollar 0.2%, the Brazilian real 0.1%, and the Norwegian krone 0.1%. On the downside, the Mexican peso declined 0.2%, and the Canadian dollar slipped 0.1%. The Chinese (onshore) renminbi increased 0.17% versus the dollar (up 2.48% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index added 0.2% (up 6.7% y-t-d). Spot Gold surged 3.4% to a record $3,887 (up 48.1%). Silver jumped 4.2% to $48.0003 (up 66.1%). WTI crude sank $4.84, or 7.4%, to $60.88 (down 15%). Gasoline fell 8.7% (down 8%), while Natural Gas gained 3.7% to $3.324 (down 8.0%). Copper surged 7.1% (up 27%). Wheat declined 0.9% (down 7%), and Corn slipped 0.7% (down 9%). Bitcoin surged $12.560, or 11.4%, to $122,280 (up 30.5%).
Market Instability Watch:
September 30 – Financial Times (Ian Smith and Emily Herbert): “Foreign-exchange trading volumes hit a record $10tn a day during the fallout from Donald Trump’s ‘liberation day’ tariff blitz… There were an average of $9.6tn of daily transactions in April, according to the latest triennial report from the Bank for International Settlements, up from $7.5tn in the same month three years earlier. The data underscores the relentless growth of forex volumes in recent decades, and the growing influence that this over-the-counter trading — deals struck privately between banks — has over global financial markets. The UK retained its position as the leading forex trading hub, with 38% of the April trading activity.”
September 28 – Forbes (William Pesek): “If you’re looking for another reason why the Bank of Japan won’t be hiking rates anytime soon, the number $338 trillion sure fits the bill. That’s the debt level milestone the global economy reached in the second half of 2025. And it’s after a $21 trillion surge in the first six months of the year. Japan, not surprisingly, is one of the nations that the Institute of International Finance flags as places where ‘markets fear fiscal strains could deepen.’ Already, Japan has the largest debt load among developed nations, roughly 260% of gross domestic product. And, already, 20-year Japanese government bond (JGB) yields are trading near the highest since 1999.”
September 30 – Financial Times (Ian Smith): “For much of the past decade, Japanese government bond yields were rooted near zero. Negligible inflation and ultra-loose monetary policy — which included vast asset purchases by the central bank — confounded any bets that yields would rise. But the return of inflation, which allowed the central bank last year to call time on eight years of negative interest rates, has flipped the market on its head. The Japanese government bond market — still dominated by the Bank of Japan, which owns half of it — has suffered a brutal sell-off that has pushed the benchmark 10-year yield in recent months above 1.5% to its highest level since the 2008 financial crisis.”
September 29 – Bloomberg (Mia Glass and Masahiro Hidaka): “Japan’s auction of two-year government bonds drew the weakest demand since 2009 amid rising speculation the central bank will raise interest rates as soon as October. The bid-to-cover ratio… fell to 2.81 from the previous auction. It was significantly lower than the 12-month average of 3.79. Two-year notes extended declines, driving the yield up 1 basis point to 0.935%, the highest since 2008.”
September 30 – Reuters (Michael S. Derby and Gertrude Chavez-Dreyfuss): “Federal Reserve liquidity facilities saw much less interest from Wall Street than expected on Tuesday as the third quarter came to a close, though a climb in repo rates showed some liquidity pressure… This quarter end was expected to be particularly choppy because overall liquidity levels have been declining as the Fed shrinks its holdings of bonds in a process known as quantitative tightening, or QT. ‘Repo rates did spike,’ said Tom di Galoma, managing director of rates and trading at Mischler Financial. ‘There was a lot of pressure at quarter ends, just getting deliveries done and everything else. It was pretty tricky and it's just that the system is overwhelmed.’”
October 1 – Financial Times (Michael Stott, Ciara Nugent and Claire Jones): “A fresh bout of jitters is shaking Argentina’s financial markets, as investors express concerns about the lack of detail surrounding a promised US bailout for President Javier Milei and the difficulties in implementing it. A plunging peso prompted Argentine authorities to sell dollars to prop it up on Tuesday and Wednesday, for the first time since Treasury secretary Scott Bessent pledged on September 22 to do ‘whatever it takes’ to support the Trump administration’s most important ally in Latin America amid a crisis of confidence.”
October 1 – Bloomberg (James Hirai): “A sale of UK 10-year bonds was the least oversubscribed in almost two years and the tail was the longest since January, both signaling waning investor appetite.”
Global Credit and Financial Bubble Watch:
October 2 – CNBC (Hugh Leask): “PIMCO President Christian Stracke is upbeat on the asset-based finance segment of the private credit market, but warns of ‘cracks’ in corporate direct lending, which makes up the bulk of the sector. Speaking… at the annual Milken Asia Summit…, Stracke highlighted the widening gap between the two lending spheres. ‘There are problems [in corporate private credit] where borrowers are going to their lenders and saying, ‘Can I not pay you cash interest now, but basically borrow the interest from you and pay it later?’ It’s called Payment-in-Kind [PIK], and it’s fairly prevalent right now,’ Stracke said.”
October 2 – Bloomberg (Kat Hidalgo and Francesca Veronesi): “Private credit funds running down their traditional sources of cash are developing new ways to branch out to insurance and retail investors, the next potential drivers of their growth. The need for alternative drivers hit home as a report revealed that the time to raise a traditional fund aimed at institutional investors had reached a record 23 months. According to PitchBook…, that marks the longest stretch since at least 2006. In the heyday of 2021, some funds closed within a year. ‘When we ask where do we see the growth coming from, it’s from more allocations in terms of private wealth, from retail investors and from insurers,’ said Monsur Hussain, head of markets research at Fitch Ratings.”
September 29 – Reuters (Patturaja Murugaboopathy): “Global companies are ramping up convertible bond issuance in 2025, taking advantage of strong equity markets and investor appetite for hybrid debt, with tech and growth firms raising funds to avoid high borrowing costs. According to Dealogic data, companies have raised a total of $81.2 billion in convertible bonds so far this year, the most in five years… The SPDR FTSE Global Convertible Bond UCITS ETF is up nearly 7% year-to-date…”
October 1 – Bloomberg (Kriti Gupta and Francesca Veronesi): “Vintage private credit deals will have some problems, according to Danielle Poli, assistant portfolio manager for Oaktree Capital Management’s global credit strategy. Certain portfolios that have a lot of capital will have to grapple with some issues, she said…, adding that she saw no chance of wider systemic risk, given lenders are not lending to each other and leverage has been relatively contained. ‘Credit is still in its primetime,’ she said. ‘I’m still bullish.’ The $1.7 trillion private credit industry is widely considered untested, after booming in recent years. The asset class has already exhibited ‘bubble-like’ attributes, including financial innovation, heightened competition, growing retail participation and rising leverage, according to… Fitch Ratings.”
Trump Administration Watch:
September 30 – Bloomberg (Erik Wasson, Caitlin Reilly and Jennifer A. Dlouhy): “President Donald Trump said ‘a lot of good’ could stem from a government shutdown, threatening to oust federal workers and eliminate programs that are favored by Democrats if Congress doesn’t meet a midnight funding deadline. ‘We can get rid of a lot of things that we didn’t want and they’d be Democrat things,’ Trump told reporters... ‘They just don’t learn. So we have no choice. I have to do that for the country.’”
October 2 – CNBC (Kevin Breuninger): “President Donald Trump… said Democrats have given him an ‘unprecedented opportunity’ to slash federal agencies, signaling plans to harm his political opponents during the two-day-old government shutdown while blaming them for causing it. Trump’s warning came a day after his administration froze about $18 billion for two major infrastructure projects in New York City and canceled roughly $8 billion more for climate-related projects in Democratic-leaning states. Both of the funding halts were first announced by Russell Vought, the director of the White House’s Office of Management and Budget, not by the departments that have oversight over the projects. Trump said he will soon meet with Vought ‘to determine which of the many Democrat Agencies, most of which are a political SCAM, he recommends to be cut.’”
September 30 – Financial Times (Lauren Fedor and James Politi): “Speaking on the steps of the US Capitol…, Hakeem Jeffries said his Democratic party was ready to do battle over the looming government shutdown. ‘We are in this fight until we win this fight,’ the House minority leader said. ‘We are not going to support a partisan Republican spending bill that continues to gut the healthcare of the American people. Not now. Not ever.’ Jeffries’ comments reflected a high-stakes gamble by the Democrats to stand their ground in a showdown with Donald Trump and Republican leaders over government funding. Democrats are betting the White House is more likely than them to be blamed for the shutdown, and are under pressure from their voters to take a tougher stance towards the president and his allies.”
September 27 – Financial Times (Stefania Palma and James Politi): “Donald Trump has sparred with James Comey for years. But on Thursday night, their confrontation culminated in a federal indictment of the former FBI director that marks a watershed for the rule of law in America. In recent months, the Trump administration has unleashed a series of attacks against its perceived foes. But Comey’s indictment, which comes days after the US president demanded his prosecution on social media, ruptures a decades-old tradition of curbing presidential influence on law enforcement. Critics say the charges that Comey lied to Congress and obstructed a Senate proceeding risk turning the Department of Justice into a White House weapon. ‘There’s been a pattern since day one of this administration of using government power to reward and excuse the president’s friends and to harass and punish the president’s critics,’ said Gregg Nunziata, a conservative lawyer and executive director at the Society for the Rule of Law.”
September 28 – Financial Times (Guy Chazan): “When Stephen Miller took to the podium at the memorial for conservative activist Charlie Kirk this month, he issued a stark warning to the leftwing forces he believes were responsible for the assassination. ‘You have no idea the dragon you have awakened,’ he said, addressing his ideological enemies. ‘You have no idea how determined we will be to save this civilisation, to save the west, to save this republic.’ Other eulogies that day also blamed the Trump administration’s political opponents for Kirk’s death. But Miller’s words carry real weight. Perhaps more than anyone else, he has the power to transform conservative rage over the killing into what he calls ‘a righteous thunder of action’. The left has good reason to fear his retribution.”
September 30 – Axios (Herb Scribner): “President Trump and Defense Secretary Pete Hegseth used a rare gathering of the country’s highest-ranking military officials to outline their vision for a cultural and operational military reset… at Marine Corps Base Quantico… Trump told military leaders that troops should use ‘dangerous’ American cities as ‘training grounds.’ He floated the idea of using the D.C. playbook for Chicago and Portland. ‘Last month, I signed an executive order to provide training for quick reaction force that can help quell civil disturbances. This is gonna be a big thing for the people in this room, because it’s the enemy from within and we have to handle it before it gets out of control,’ the president said. ‘I told Pete, we should use some of these dangerous cities as training grounds for our military. National Guard, but our military. Because we’re going into Chicago very soon. That’s a big city with an incompetent governor. Stupid governor,’ Trump explained. ‘America is under invasion from within. We’re under invasion from within. No different than a foreign enemy, but more difficult in many ways because they don’t wear uniforms. At least when they’re wearing a uniform, you can take them out,’ Trump said.”
September 30 – Axios (Zachary Basu): “More than 800 top military brass sat quietly… as President Trump declared a new ‘war from within’ — an American battlefield he claimed to be more dangerous than any foreign war zone. In one historic speech at the Quantico Marine Corps Base in Northern Virginia, Trump eviscerated decades of civil-military restraint and proclaimed the armed forces as his weapon of choice against domestic ‘enemies.’ Both the content and setting were unprecedented: Generals and admirals flew in from across the globe to hear the president redefine the military's mission and attack his political enemies in blistering terms. ‘We’re under invasion from within. No different than a foreign enemy, but more difficult in many ways because they don’t wear uniforms,’ Trump mused during Tuesday's extraordinary hour-long address. Trump vowed repeatedly on the campaign trail last year to unleash the military on the ‘enemies within’ — a phrase he has used interchangeably to describe both violent criminals and elected Democrats.”
September 30 – Financial Times (Aime Williams): “US trade representative Jamieson Greer has warned that Washington will continue to hit its trading partners with tariffs even if some are ruled illegal by the Supreme Court later this year. The US’s top court is set to hear cases brought by businesses challenging President Donald Trump’s use of emergency powers to impose tariffs in the first week of November… Greer said the Trump administration expected to win the case, but would fall back on alternative legal measures to apply tariffs if it did not. ‘We are very confident in the case,’ Greer said. ‘We believe that the court will defer to the president on the emergency, the fact that tariffs can be used under this law.’ But Greer also insisted that tariffs would remain ‘a part of the policy landscape’, and said the so-called reciprocal tariffs imposed in August represented ‘how it’s going to be’.”
October 2 – Bloomberg (Sanne Wass): “Greenland is seeking closer ties with the European Union after getting more financial support from the bloc, a rebuke to US President Donald Trump’s ambition to woo the Arctic territory. The island, which is part of the Danish kingdom but not a member of the EU, wants to ‘expand and strengthen’ its partnership with Brussels, Premier Jens-Frederik Nielsen said…”
September 28 – Financial Times (Stefania Palma): “Wall Street’s top watchdog has pledged to pursue a minimum ‘dose’ of regulation and fast-track President Donald Trump’s proposal to scrap quarterly corporate reporting, underlining an abrupt loosening of financial regulations by the Securities and Exchange Commission. SEC chair Paul Atkins, appointed by Trump in the spring, said… he would look at the option of semi-annual corporate reporting in place of the current requirement that listed companies report results every three months. ‘The government should provide the minimum effective dose of regulation needed to protect investors while allowing businesses to flourish,’ Atkins wrote.”
October 1 – Wall Street Journal (Paul Kiernan, Alexander Osipovich and Alex Leary): “White House nominees to lead the Bureau of Labor Statistics and the Commodity Futures Trading Commission were withdrawn after both ran into political resistance, according to people familiar with the decisions. President Trump’s choice of conservative economist E.J. Antoni to lead the BLS had prompted concern on Wall Street that he was unqualified to lead an agency that releases key economic data.”
October 1 – Wall Street Journal (Greg Ip): “President Trump likes to portray himself as the champion of capitalism standing up to the forces of socialism. A frequent target: New York City mayoral candidate Zohran Mamdani, whom Trump has called a ‘Communist Lunatic.’ Mamdani says he is a democratic socialist, not a communist. More to the point, the lines are blurring between capitalism as practiced by Trump and socialism as advocated by the likes of Mamdani. On Tuesday, Trump announced the launch of a federal website ‘TrumpRx’ through which the public will be able to buy discounted drugs. This bears echoes of Mamdani’s proposal for city-owned grocery stores. Trump and Mamdani share a fondness for strong-arming private companies that raise prices.”
October 1 – Wall Street Journal (Editorial Board): “When politicians interfere in private markets and industry, crazy things happen. So it goes with President Trump’s rolling attempt to play Pharmacist in Chief on drug production, government approvals, and consumer access and prices. The comedy portion of this show debuted this week with Mr. Trump’s announcement of a new government website dubbed (of course) TrumpRx. The plan is to sell medicines directly to consumers at discount prices. Details are vague, though the business theory is supposedly to bypass insurance ‘middlemen.’ Someone should have told the President that private businesses already do this.”
September 28 – Financial Times (Stephen Foley, Sarah White, Kana Inagaki and Lauren Fedor): “Donald Trump’s ‘unpredictable’ policymaking and immigration crackdown have prompted some multinational businesses to consider relocating staff from the US or diverting activity away from the world’s largest economy, according to executives and their advisers. The chaotic rollout of new rules on visas for highly skilled workers and moves against his political opponents have reignited boardroom concerns first triggered by Trump’s on-again, off-again tariffs this year. Business leaders also cite a lack of clarity in executive orders for increasing risks in their American operations, with some in Europe saying they have pulled back US investments. ‘It increases the cost of capital,’ said a senior executive at one European multinational. ‘You invest more for the short term, do the strict minimum and it means less investment in the US ultimately.’”
Trade War Watch:
September 30 – Bloomberg (Yoshiaki Nohara): “The $550 billion investment fund into the US that’s a pillar of the US-Japan trade deal won’t affect currency markets, according to Japan’s top trade negotiator Ryosei Akazawa. Tokyo will fund the vehicle via methods including loans from the foreign exchange special account, generally using what Japan already holds in dollar terms, Akazawa said… ‘We will operate with caution to make sure that the yen doesn’t weaken, causing a rise in import prices for Japan,’ Akazawa said. ‘We’d calculated that $550 billion is a scale where we can operate without impacting foreign exchange’… Akazawa also said that the US doesn’t care about the breakdown of the $550 billion vehicle, which will be a combination of investments, loans and loan guarantees. As long as the funds are available as needed, it will be up to Japan to decide on the breakdown, he said.”
September 28 – Bloomberg (Soo-Hyang Choi and Yoolim Lee): “Donald Trump faces fresh hurdles in his push to secure major investment pledges from Asian allies, after South Korea said Washington’s terms were unrealistic and a contender to lead Japan’s ruling party hinted at the possibility of reviewing the agreement. ‘We are not able to pay $350 billion in cash,’ South Korea’s National Security Adviser Wi Sung-lac said… ‘It is objectively and realistically not a level we are able to handle.’ Wi’s comments came after Trump described the investment pledges agreed by South Korea and Japan as ‘up front.’ Seoul and Washington agreed in July to a $350 billion investment pledge as part of a broader trade deal to lower US tariffs to 15% from 25%, but the two sides remain divided over how it should be structured. A similar pledge made by Japan worth $550 billion also remains unclear on the specifics of implementation…”
September 28 – Bloomberg (Debby Wu and Edwin Chan): “Washington is demanding Taiwan move investment and chip production to the US so half of American demand is manufactured locally, outlining a radical shift for the global semiconductor industry. The US has held discussions about that with Taipei to reduce the risks of over-reliance, Commerce Secretary Howard Lutnick said… It was the only way to effectively counter Beijing’s threats to invade a self-ruled island it views as its own, Lutnick argued. ‘That’s been the conversation we had with Taiwan, that you have to understand it’s vital for you to have us produce 50%,’ he said. The US aims to get to ‘maybe 50% market share of producing the chip and the wafers — the semiconductors — we need for American consumption. That’s our objective,’ Lutnick said…”
October 1 – Wall Street Journal (Sherry Qin): “Taiwan’s top trade representative has pushed back on the idea that the island will shift more of its chip production to the U.S. as the tariff tug-of-war continues. Taiwanese Vice Premier Cheng Li-Chiun said… her negotiation team has not made, and will not ever make, a commitment on a 50-50 split of semiconductor production with the U.S. That came after U.S. Secretary of Commerce Howard Lutnick said… he had floated the proposal. ‘My objective, and this administration’s objective, is to get chip manufacturing significantly onshored—we need to make our own chips,’ Lutnick said. Splitting production would diverge from the current direction of supply-chain collaboration and investment between the two sides, Cheng said…”
September 29 – New York Times (Ana Swanson): “The Trump administration sought to close a potential loophole in its global technology restrictions on Monday by expanding the range of companies that are subject to sanctions when included on a government ‘entity list.’ The change will allow the United States to sweep in any majority-owned subsidiary of a company that’s on the entity list. In the past, an entity listing applied only to the corporation specifically named by the U.S. government, not other companies related to it… Some targets of the entity list have easily sidestepped the impact of U.S. sanctions by shifting business to their subsidiaries instead. The rule change is aimed at cracking down on that practice.”
September 30 – Reuters (Akash Sriram and Harshita Mary Varghese): “President Donald Trump said… he would impose a 100% tariff on all films produced overseas that are then sent into the U.S., repeating a threat made in May that would upend Hollywood’s global business model. The step signals Trump's willingness to extend protectionist trade policies into cultural industries, raising uncertainty for studios that depend heavily on cross-border co-productions and international box-office revenue.”
October 2 – Bloomberg (Alberto Nardelli): “The European Union plans to hike tariffs on steel imports to 50% and cut by nearly a half the volume of steel that’s allowed in before that higher rate is imposed, according to a draft proposal… The EU currently has a temporary mechanism in place to safeguard its steel industry, which imposes a 25% duty on most imports once quotas are exhausted. That mechanism expires in June and the EU has been working to replace it with a more permanent regulation, which it plans to unveil next week.”
Constitution Watch:
October 1 – Associated Press (Mark Sherman): “The Supreme Court… allowed Lisa Cook to remain as a Federal Reserve governor for now, declining to act on the Trump administration’s effort to immediately remove her from the central bank. In a brief unsigned order, the high court said it would hear arguments in January over Republican President Donald Trump’s effort to force Cook off the Fed board. The court will consider whether to block a lower-court ruling in Cook’s favor while her challenge to her firing by Trump continues. The high-court order was a rare instance of Trump not quickly getting everything he wants from the justices in an emergency appeal.”
October 2 – Associated Press (Aamer Madhani and Lisa Mascaro): “President Donald Trump has declared drug cartels to be unlawful combatants and says the United States is now in an ‘armed conflict’ with them, according to a Trump administration memo…, following recent U.S. strikes on boats in the Caribbean. The memo appears to represent an extraordinary assertion of presidential war powers, with Trump effectively declaring that trafficking of drugs into the United States amounts to armed conflict requiring the use of military force — a new rationale for past and future actions.”
October 2 – Axios (Ben Geman): “The Energy Department said… it’s terminating $7.56 billion worth of financial awards that support 223 projects funded via several of its clean-energy offices. It’s among the starkest reversals of Biden-era DOE financial support for low-carbon energy and manufacturing initiatives. The department didn’t list projects. But its announcement came hours after White House budget chief Russ Vought posted on X that ‘Nearly $8 billion in Green New Scam funding to fuel the Left’s climate agenda is being cancelled.’ The intrigue: ‘The projects are in the following states: CA, CO, CT, DE, HI, IL, MD, MA, MN, NH, NJ, NM, NY, OR, VT, WA,’ Vought added. Those states also all voted for Kamala Harris in 2024, have Democratic Senate delegations, and most have Democratic governors.”
October 1 – Wall Street Journal (Joseph De Avila): “The Trump administration said it is withholding $18 billion in infrastructure funds for some major transportation projects in New York City, citing concerns about diversity, equity and inclusion. The administration is freezing funds allocated to continue construction of New York City’s subway line along Second Avenue, Russell Vought, director of the White House’s Office of Management and Budget, said… The money was also allocated for the Hudson Tunnel Project, which is constructing new tunnels for commuter rail trains to cross the Hudson River. ‘Roughly $18 billion in New York City infrastructure projects have been put on hold to ensure funding is not flowing based on unconstitutional DEI principles,’ Vought said.”
October 2 – Bloomberg (Ari Natter): “The Trump administration’s plan to cancel billions of dollars for energy projects following the US government shutdown includes an initiative to upgrade electric transmission lines in California. A consortium that included the California Energy Commission and Southern California Edison was awarded a federal grant of $600 million for the upgrade last year, which was to allow faster access to clean energy. But that project — slated to improve 100 miles of transmission lines — will have its funding cut…”
October 3 – CNBC (Dan Mangan): “The Trump administration has put on hold $2.1 billion in Chicago infrastructure projects, primarily two efforts to improve the city’s transit system, Office of Management and Budget Director Russell Vought said… Vought’s announcement on the third day of the U.S. government shutdown comes on the heels of two other moves by the Trump administration targeting funding in cities and states led by Democrats.”
September 28 – Wall Street Journal (Joe Barrett and Zusha Elinson): “Oregon political and business leaders urged President Trump to stop ‘perpetuating outdated narratives’ about Portland and not deploy federal troops to the city. ‘Recent statements by the president suggesting Portland needs federal military intervention are inaccurate and counterproductive,’ said an open letter… by the Portland Metro Chamber and signed by more than 100 organizations and leaders… President Trump has said he was directing the Pentagon to send in troops to ‘protect War Ravaged Portland, and any of our ICE facilities.’ Scores of Portland residents have responded on social media by posting picturesque photos of life in Portland this weekend with the hashtag #WarRavagedPortland.”
September 29 – Axios (Andrew Solender): “Some congressional Democrats are going so far as to check their own personal finances after the indictment of James Comey, Axios has learned. With President Trump calling for Sen. Adam Schiff (D-Calif.) and New York Attorney General Letitia James (D) to be prosecuted for mortgage fraud, members fear that a loose thread could provide an opening to go after them next. ‘Many are… going through mortgages, tax returns, etc.,’ one senior House Democrat, speaking on the condition of anonymity… ‘I’ve explored liability insurance,’ another House Democrat said. ‘And so have other members [in case] they come after us legally’…”
October 2 – Associated Press (Collin Binkley and Aamer Madhani): “The White House is asking nine major universities to commit to President Donald Trump’s political priorities in exchange for more favorable access to federal money. A document sent to the universities encourages them to adopt the White House’s vision for America’s campuses, with commitments to accept the government’s priorities on admissions, women’s sports, free speech, student discipline and college affordability, among other topics. Signing on would give universities ‘multiple positive benefits,’ including “substantial and meaningful federal grants” and ‘increased overhead payments where feasible,’ according to a letter sent to universities alongside the compact.”
September 29 – Wall Street Journal (Natalie Andrews and Douglas Belkin): “The Trump administration is escalating its fight with Harvard University by starting a process that could make the nation’s oldest and wealthiest university ineligible for federal grants over allegations of antisemitism on campus. In a letter addressed to Harvard President Alan Garber…, the Office for Civil Rights in the Health and Human Services Department said it is referring the university to a process called debarment. That move could deliver the biggest financial blow yet to Harvard during its fight with the Trump administration, putting billions of dollars in jeopardy.”
Budget Watch:
October 1 – Reuters (Marc Jones): “European rating agency Scope has said that the shutdown of the U.S. government is another negative for the country’s downgrade-threatened credit score. Scope, which currently rates the U.S. ‘AA’ with a ‘negative outlook’, said it showed deepening political polarisation in the world's largest economy and also comes amid mounting worries about President Donald Trump’s attacks on the Federal Reserve. ‘The administration’s increasingly unconventional policy approach has placed pressure on the long-standing checks and balances of the U.S. governance system and are seen as credit negative for the U.S. sovereign rating,’ Scope analyst Eiko Sievert said.”
September 28 – Bloomberg (Jack Ryan): “The US Treasury’s gold reserves have surpassed $1 trillion in value — more than 90 times what’s stated on the government’s balance sheet — as the precious metal breaks new all-time highs.”
U.S./Russia/China/Europe/Iran Watch:
September 30 – Financial Times (Richard Milne and Henry Foy): “Nato must step up its response to Russia’s hybrid war, which is ‘only the beginning’ and is aimed at dividing Europe, the Danish prime minister has warned. Mette Frederiksen told the Financial Times that there was a need to discuss ‘more deeply’ within the western defence alliance on how to respond to Moscow’s hostile acts, ranging from airspace violations to sabotage. ‘We need to be very open about [the fact] that it probably is only the beginning,’ she said. ‘We need all Europeans to understand what is at stake and what’s going on. When there are drones or cyber attacks, the idea is to divide us.’”
October 2 – Associated Press (Lorne Cook): “Europe must take a more aggressive approach with Russia by shooting down drones that enter European airspace and boarding shadow fleet ships illicitly transporting oil to deprive Moscow of war revenue, French President Emmanuel Macron said… Speaking at a European summit in Copenhagen, Macron and other European leaders called for more sanctions against Russia — notably targeting its energy sector — and emphasized that Ukraine is on the front line in a widening hybrid war against Europe. Indeed, the positions of some of Europe’s leaders toward the continuing drone incidents, acts of sabotage, cyber-attacks and sanction-busting appear to have hardened over two days of talks in Copenhagen, including a closed session among them without phones or advisors.”
September 27 – Wall Street Journal (Lingling Wei): “Having set the stage for a year of high-level engagement with the Trump administration, Xi Jinping is now chasing his ultimate prize, according to people familiar with the matter: a change in U.S. policy that Beijing hopes could isolate Taiwan. As President Trump has shown interest in striking an economic accord with China in the coming year, the people said, the Chinese leader is planning to press his American counterpart to formally state that the U.S. ‘opposes’ Taiwan’s independence. Since coming to power in late 2012, Xi has made bringing Taiwan under Beijing’s control a key tenet of his ‘China Dream’ of national revival. Now, well into an unprecedented third term, he has repeatedly emphasized that ‘reunification’ is inevitable and can’t be stopped by outside forces—a reference to Washington’s political and military support to Taipei.”
October 2 – Bloomberg (Foster Wong): “Beijing warned the top US envoy in Hong Kong against interfering in the country’s internal affairs, days after she reportedly invited pro-democracy former politicians to her inaugural receptions. Cui Jianchun, commissioner of the Chinese foreign ministry’s office in Hong Kong, lodged a ‘stern representation’ and explicitly laid out four ‘must-nots’ during a meeting with US Consul General Julie Eadeh this week…”
New World Order Watch:
September 29 – Associated Press (Didi Tang): “Hardly a month after Chinese President Xi Jinping proposed his ‘Global Governance Initiative,’ Beijing made its intent clear at the most global of forums — that it should, and is qualified to, help shape the world order even as the United States tips more inward under Donald Trump. In a seemingly jargon-filled speech delivered to the U.N. General Assembly…, Chinese Premier Li Qiang told the audience that ‘a China that bears in mind the greater good of humanity and stands ready to take up responsibilities will bring more positive energy into the world.” His words seized on the retreat by the American president from international organizations and on his apparent disdain towards the United Nations.”
October 2 – Bloomberg (Martha Viotti Beck): “Brazil’s Development Bank and the Export-Import Bank of China agreed to create a $1 billion fund that will invest in sectors such as energy transition, infrastructure, mining, agriculture and artificial intelligence. BNDES, as the Brazilian bank is known, will provide $400 million and China’s CEXIM will come up with $600 million for the initiative… The new fund, which will start operating in 2026, will invest in debt securities and equity stakes in Brazil.”
Ukraine War Watch:
October 1 – Wall Street Journal (Bojan Pancevski, Alexander Ward and Lara Seligman): “The U.S. will provide Ukraine with intelligence for long-range missile strikes on Russia’s energy infrastructure, American officials said, as the Trump administration weighs sending Kyiv powerful weapons that could put in range more targets within Russia. President Trump recently signed off on allowing intelligence agencies and the Pentagon to aid Kyiv with the strikes. U.S. officials are asking North Atlantic Treaty Organization allies to provide similar support… The expanded intelligence-sharing with Kyiv is the latest sign that Trump is deepening support for Ukraine as his efforts to advance peace talks have stalled. It is the first time, officials say, that the Trump administration will aid Ukrainian strikes with long-range missiles against energy targets deep inside Russian territory.”
September 28 – Financial Times (Christopher Miller and Raphael Minder): “Ukraine’s limited air defences fought to repel a large-scale Russian air attack in the early hours of Sunday, but four people were killed and several buildings in Kyiv and its outskirts were destroyed or damaged, according to officials. President Volodymyr Zelenskyy said the ‘massive Russian attack’ on Ukraine lasted for more than 12 hours, calling it ‘savage’ and ‘deliberate, targeted terror against ordinary cities”. He said that Russia had fired nearly 500 attack drones and more than 40 missiles, including ballistic missiles.”
Middle East Watch:
October 3 – Bloomberg (Fares Akram, Galit Altstein, Magdalena Del Valle and Dan Williams): “Hamas agreed to release the last of the hostages from its 2023 attack on Israel but said the rest of a US peace plan would be subject to negotiation, a stance that offered uncertain hopes for an end to the conflict in Gaza. President Donald Trump responded favorably to the Hamas statement even though the group failed to address other key elements of his 20-point proposal that Israel has also demanded, including that it disarm. He called on Israel to stop its bombing campaign and said discussions were underway on ‘details to be worked out,’ suggesting that he was willing to give Hamas some leeway.”
AI Bubble/Arms Race Watch:
October 2 – Bloomberg (Shirin Ghaffary): “OpenAI has completed a deal to help employees sell shares in the company at a $500 billion valuation, propelling the ChatGPT owner past Elon Musk’s SpaceX to become the world’s largest startup. Current and former OpenAI employees sold about $6.6 billion of stock to investors including Thrive Capital, SoftBank Group Corp., Dragoneer Investment Group, Abu Dhabi’s MGX and T. Rowe Price… That boosted the US company’s price tag well past its previous $300 billion level during a SoftBank-led financing round earlier this year. That rapid rise underscores the investment frenzy surrounding the leaders of a technology with the potential to transform industries and economies.”
September 29 – Wall Street Journal (Asa Fitch): “In the initial years of the AI boom, comparisons to the dot-com bubble didn’t make much sense. Three years in, growing levels of debt are making them ring a little truer. Early on, wealthy tech companies were opening their wallets to out-joust each other for leadership in artificial intelligence. They were spending cash generated largely from advertising and cloud-computing businesses. There was no debt-fueled splurge on computing and networking infrastructure like the one that inflated the bubble 2½ decades ago. While big tech companies are still at AI’s forefront and are in solid financial shape, a crop of more highly leveraged companies is ushering in an era that could change the complexion of the boom.”
October 3 – Bloomberg (Ryan Gould, Michelle F. Davis, Matthew Monks and Manuel Baigorri): “BlackRock Inc.’s Global Infrastructure Partners is in advanced talks to acquire Aligned Data Centers, targeting a major beneficiary of AI spending in one of the year’s biggest deals, according to people familiar with the matter. Aligned, which is backed by Macquarie, could be valued at about $40 billion in a transaction, one of the people said. An agreement could be announced within days…”
September 30 – Wall Street Journal (Tracy Qu): “Chinese AI developer DeepSeek has released an experimental large language model that it says has much better training and reasoning, and which can be operated at a lower cost. The Hangzhou-based company said its latest offering uses a ‘sparse attention’ technique that cuts application programming interface prices by half… DeepSeek called the model an advancement in its next-generation lineup of AI… Chinese tech firms have been stepping up efforts to upgrade their LLMs as competition rises both at home and abroad. Last week, Alibaba Group rolled out a version of its flagship AI model that it described as its largest and most capable yet.”
September 29 – Associated Press (Will Wade): “Soaring demand for electricity will drive a $350 billion nuclear spending boom in the US, boosting output from reactors by 63% by 2050, according to Bloomberg Intelligence. The key driver is power-hungry data centers running artificial intelligence systems, and that investment will add 53 gigawatts of reactor capacity, bringing the total nuclear fleet to 159 gigawatts, the research company said… While demand is on the rise for carbon-free fission power as the US races to meet a surge in electricity needs, costs remain high and construction will be slow. Nuclear developments have been hampered by a lack of skilled labor, domestic fuel supply and regulatory infrastructure, among other things. There have been just three traditional reactors completed in the US this century — and none are currently in development.”
October 1 – Wall Street Journal (Callum Borchers): “There has rarely, if ever, been so much tech talent available in the job market. Yet many tech companies say good help is hard to find. What gives? U.S. colleges more than doubled the number of computer-science degrees awarded from 2013 to 2022, according to federal data. Then came round after round of layoffs at Google, Meta, Amazon and others… All of this should, in theory, mean there is an ample supply of eager, capable engineers ready for hire. But in their feverish pursuit of artificial-intelligence supremacy, employers say there aren’t enough people with the most in-demand skills.”
Bubble and Mania Watch:
October 3 – CNBC (Robert Frank): “The top 10% of Americans added $5 trillion to their wealth in the second quarter as the stock market rally continued to benefit the biggest investors, according to new data from the Federal Reserve. The total wealth of the top 10% — or those with a net worth of more than $2 million — reached a record $113 trillion in the second quarter, up from $108 trillion in the first quarter, according to the Fed. The increase follows three years of continued growth for those at the top, with the top 10% adding over $40 trillion to their wealth since 2020… The top 1% have seen their wealth increase by $4 trillion over the past year, an increase of 7%. Their wealth hit a record $52 trillion in the second quarter. The top 0.1% saw their wealth grow by 10% over the past year. Since the pandemic, the top 0.1%, or those with a net worth of at least $46 million, have seen their total wealth nearly double to over $23 trillion.”
September 30 – Wall Street Journal (E.B. Solomont): “Luxury homeowners who kept buying and selling real estate even as the overall housing market contracted in recent years are slowing their roll. The number of luxury-home sales nationwide dropped 0.7% during the three months ended Aug. 31, compared with the same period last year, according to… Redfin, which said luxury sales nationwide dropped to the lowest level for that period since it began tracking the market in 2013… During the three months ended Aug. 31, the median sale price for luxury properties—defined as the top 5% of the market—increased 3.9% year over year to $1.25 million… But that is down from a 6.1% year-over-year price jump for the three months ended Aug. 31, 2024.”
October 1 – Bloomberg (Steven Church and Sabrina Willmer): “Massage therapist James Lakin didn’t even know it was possible for outsiders to buy stakes in private companies until a client told him that he could be approved to do so on a platform called Linqto. Now, he’s one of thousands of retail investors with frozen savings after the firm filed bankruptcy. With trillions of dollars potentially flowing into private markets as restrictions on mom-and-pop investors are relaxed, Linqto finds itself at the center of a debate over the safeguards for amateurs putting money in hard-to-value assets that can be difficult to sell when things go wrong.”
September 30 – Bloomberg (Swati Pandey): “Australian home prices posted their strongest monthly gain in nearly two years with an expanded government incentive for first home buyers expected to further intensify buyer demand at a time of already tight supply and declining borrowing costs. The Home Value Index jumped 0.8% in September, property consultancy Cotality said Wednesday, the strongest monthly gain since October 2023.”
Inflation Watch:
September 29 – Bloomberg (Josh Saul, Leonardo Nicoletti Demetrios Pogkas, Dina Bass, and Naureen Malik): “Data centers are proliferating in Virginia and a blind man in Baltimore is suddenly contending with sharply higher power bills. The Maryland city is well over an hour’s drive from the northern Virginia region known as Data Center Alley. But Kevin Stanley, a 57-year-old who survives on disability payments, says his energy bills are about 80% higher than they were about three years ago. ‘They’re going up and up,’ he said. ‘You wonder, ‘What is your breaking point?’’ It’s an increasingly dramatic ripple effect of the AI boom as energy-hungry data centers send power costs to records in much of the US, pulling everyday households into paying for the digital economy. The power needs of the massive complexes are rapidly driving up electricity bills — piling onto the rising prices for food, housing and other essentials already straining consumers.”
October 1 – Bloomberg (Naureen S Malik): “The data center boom added $7.3 billion in power-supply costs on the largest US grid, raising bills for nearly a fifth of Americans from the Midwest to the mid-Atlantic. During the last power auction held by grid operator PJM Interconnection LLC this summer, data-center demand accounted for 45% of total power-supply costs… PJM’s independent market monitor also found that about two-thirds of the previous auction’s record price tag was due to data centers. Across both auctions, data-center consumption added $16.1 billion in costs.”
September 30 – Associated Press (Alex Veiga): “If it seems like its getting more expensive to replace a broken door, kitchen fixtures or upgrade a major appliance, you’re not wrong. The cost of home repair and remodeling projects is up compared to a year ago and running ahead of inflation overall, according to… analytics company Verisk. The firm’s latest Repair and Remodeling Index jumped 3.4% in the April-June quarter compared to the same period last year.”
October 2 – New York Times (Sydney Ember): “President Trump’s latest round of tariffs aimed at wood, furniture and other household furnishings could drive up the cost of building and owning homes, further weighing on an already weak housing sector. In a proclamation this week, Mr. Trump said he would impose tariffs on imported wood, furniture, kitchen cabinets and bathroom vanities beginning Oct. 14. The president said in a social media post that they were needed to protect American manufacturing because of ‘the large scale ‘FLOODING’ of these products’ into the United States. Analysts said the steep levies could aggravate the nationwide housing shortage by slowing the pace of new home construction. The higher costs, as well as hefty tariffs on steel and aluminum that went into effect in June, could also dampen any jolt the housing market might have derived as the Federal Reserve begins to lower interest rates.”
Federal Reserve Watch:
October 1 – New York Times (Colby Smith): “The Federal Reserve was already facing a tough decision about how quickly to lower interest rates after restarting cuts last month. But that judgment call is set to get much harder if the government shutdown deprives the central bank of essential data points that help it gauge the state of the economy. The Bureau of Labor Statistics has said it would not publish Friday’s hotly anticipated jobs report. Other key data releases, including the next Consumer Price Index report, are also in peril if Congress and President Trump do not reach a deal soon.”
September 30 – Bloomberg (Catarina Saraiva): “Federal Reserve Bank of Dallas President Lorie Logan said policymakers should be cautious in considering additional interest-rate reductions while inflation remains above target and the labor market relatively balanced. ‘The combination of persistent inflation, resilient demand and modest labor market slack indicates to me that policy is likely only modestly restrictive,’ Logan said… ‘There may be relatively little room to make additional rate cuts… It is critical for the FOMC to keep its commitment to deliver 2% inflation. Achieving this will require carefully calibrating the stance of policy… The gradual increase in labor market slack to date is what I expected and what is necessary to bring inflation down,’ Logan said.”
September 29 – Reuters (Shubham Kalia): “The U.S. Federal Reserve needs to maintain a restrictive stance of monetary policy to get inflation down to its 2% target, Cleveland Fed President Beth Hammack told CNBC… ‘It's a challenging time for monetary policy. We are being challenged on both sides of our mandate,’ she said… ‘When I balance those two sides of our mandate, I think we really need to maintain a restrictive stance of policy so that we can get inflation back down to our goal… When I start seeing pressure in the services side, things like insurance that feeds into our super core inflation that, to me, says that maybe this isn’t just coming from the tariff impacts, and it's something we need to be more attentive to,’ Hammack added.”
September 29 – Reuters: “St. Louis Federal Reserve President Alberto Musalem said he was open to further interest rate cuts but the Fed must be cautious and keep rates high enough to continue to lean against inflation that remains roughly a percentage point above the central bank's 2% target. ‘Monetary policy is now somewhere between modestly restrictive and neutral,’ Musalem… said… ‘I am open minded to future potential reductions in interest rates. I do believe we need to move cautiously because the room between now and the point where policy becomes overly accommodative is limited.’”
September 29 – Reuters (Michael S. Derby): “Federal Reserve Bank of New York President John Williams said… emerging signs of weakness in the labor market drove his support for cutting interest rates at the most recent central bank meeting. ‘It made sense to move interest rates down a little bit’ and ‘to take a little bit of the restrictiveness out of there,’ to help ensure ongoing health in the job market while still keeping some downward pressure on above-target inflation levels, Williams said…”
September 30 – Bloomberg (Enda Curran and Craig Stirling): “Federal Reserve Vice Chair Philip Jefferson… warned the US central bank faces a softening labor market at the same time as inflation pressures increase, complicating the outlook for monetary policy. Jefferson said the level of uncertainty around his outlook for the economy is high, given the breadth of policy changes being rolled out by the White House… ‘I see the risks to employment as tilted to the downside and risks to inflation to the upside,’ Jefferson said… ‘It follows that both sides of our mandate are under pressure.’”
September 29 – Bloomberg (Molly Smith): “Federal Reserve Governor Stephen Miran may still hope to persuade his central bank colleagues that there’s a case for dramatic reductions in interest rates. But he hasn’t convinced many on Wall Street. Economists poured cold water on Miran’s first major policy speech, in which he argued that the Trump administration’s policies — on trade, immigration, taxes and regulation — have significantly lowered the level of interest rates needed to guard against inflation. That suggests the Fed’s benchmark rate is now far too high, Miran said, arguing policymakers have been slow to recognize this fundamental change. ‘We find some of his arguments questionable, others incomplete and almost none persuasive,’ JPMorgan Chase & Co.’s Michael Feroli wrote…”
October 1 – Bloomberg (Christopher Anstey): “Former Treasury Secretary Lawrence Summers blasted Stephen Miran’s first speech as Federal Reserve governor, saying it failed to provide a proper analytical basis for slashing interest rates. ‘I cannot remember an analytically weaker speech given before the New York Economic Club or given by a Fed governor,’ Summers said... ‘If this was the best case for the radical reduction in interest rates that President Trump has been advocating, then that case is even weaker than I had previously supposed.’”
U.S. Economic Bubble Watch:
September 30 – Associated Press (Matt Ott): “U.S. consumer confidence declined again in September as Americans’ pessimism over inflation and the weakening job market continued to grow. The Conference Board said… its consumer confidence index fell by 3.6 points to 94.2 in September, down from August’s 97.8... A measure of Americans’ short-term expectations for their income, business conditions and the job market fell to 73.4, remaining well below 80, the marker that can signal a recession ahead. Consumers’ assessments of their current economic situation dipped by 7 points to 125.4. Write-in responses to the survey showed that references to prices and inflation rose this month, regaining its top position as consumers’ main concern about the economy.”
October 1 – Wall Street Journal (Jeff Cox): “Private payrolls saw their biggest decline in 2½ years during September… Companies shed a seasonally adjusted 32,000 jobs during the month, the biggest slide since March 2023, payrolls processing firm ADP reported… Job losses spread across sectors during September, offset by a 33,000 increase in education and health services as schools reopened and health care continued its long streak of hiring. Elsewhere, leisure and hospitality, a key sector for consumer demand, saw a loss of 19,000 as vacation season wound down. The other services category posted a drop of 16,000, while professional and business services was off 13,000, trade, transportation and utilities declined by 7,000, and construction lost 5,000. On a broad scale, service providers decreased 28,000 and goods producers shed 3,000. Businesses with fewer than 50 employees lost 40,000, while companies with 500 or more employees added 33,000.”
September 30 – Reuters (Lucia Mutikani): “U.S. job openings increased marginally in August while hiring declined… Job openings, a measure of labor demand, rose 19,000 to 7.227 million by the last day of August… Hiring decreased 114,000 to 5.126 million in August. Layoffs dropped 62,000 to 1.725 million.”
October 2 – Reuters (Lucia Mutikani): “U.S. employers announced fewer layoffs in September but hiring plans so far this year were the lowest since 2009…, adding to evidence of a labor market standstill as the demand and supply of workers fall because of policy and technology advances… Challenger, Gray & Christmas said planned job cuts dropped 37% month-on-month to 54,064 in September. Employers have so far this year announced 946,426 job cuts, the highest year-to-date since 2020. Hiring plans so far this year have totaled 204,939, the lowest year-to-date since 2009 when the economy was just emerging from the Great Recession.”
September 30 – Yahoo Finance (Brian Sozzi): “Ford CEO Jim Farley is bullish on President Trump’s drive for more US-made products. However, there might not be enough skilled workers to service the spike in demand, let alone build the new plants. ‘That is what is happening right now. It’ll be inflation. It’ll be, these projects take twice as long,’ Farley told me at Ford’s Pro Accelerate summit... The gathering included top leaders spanning the industrial economy, including Union Pacific CEO Jim Vena and FedEx CEO Raj Subramaniam.”
October 2 – Bloomberg (Prashant Gopal): “Manhattan home sales jumped to the highest level in more than two years as affluent buyers armed with cash forged ahead on deals. There were 3,158 completed condo and co-op sales in the third quarter, up 13% from a year earlier, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman. The median price of those transactions was $1.18 million, a 5.8% increase. Manhattan’s real estate market is getting a boost from the stock boom and last year’s rich Wall Street bonuses. With that added wealth, many buyers can afford to sidestep high borrowing costs and pay cash. About two thirds of the quarter’s purchases were made without financing… More than 90% of deals above $3 million were in cash.”
September 30 – Wall Street Journal (Carol Ryan): “Big corporate landlords have unwelcome new competition. Regular homeowners who can’t sell their properties are renting them out instead, and the growing number of ‘accidental landlords’ is a headache for pros. Rents in the top 20 U.S. markets for single-family homes are expected to rise 0.8% this year, according to John Burns Research & Consulting. That would be the slowest pace since 2011… As more homes are put up for sale, owners are finding that demand isn’t there at the prices they expected. Of the 3.06 million properties listed at the start of this summer, only 28% sold… That leaves 1.96 million homes left on the market going into the fall, a fifth higher than this time last year.”
October 1 – Bloomberg (Nazmul Ahasan): “US factory activity shrank in September for a seventh consecutive month… The Institute for Supply Management’s manufacturing index edged up 0.4 point to 49.1… The group’s orders index slid 2.5 points to 48.9, slipping back into contraction territory after expanding a month earlier for the first time since January. Factory employment shrank less in September but remained historically depressed… Eleven industries reported a contraction in September factory activity, led by wood products, apparel, plastics and rubber, and paper. Five industries expanded… The prices-paid measure dropped for a third straight month, the longest such stretch since 2022, to 61.9.”
China Watch:
September 29 – Bloomberg: “China announced it’s offering 500 billion yuan ($70bn) worth of capital to spur investment, in a long-anticipated move to boost growth after provinces likely diverted funds from projects as they borrowed more to restructure hidden debt. The government is allocating the money as equity capital under the so-called ‘new financing policy tool,’ said Li Chao, a spokesperson of the National Development and Reform Commission... As part of the program, China’s three policy banks will raise funds through bond issuance or other means and buy stakes in projects…”
September 28 – Bloomberg: “Chinese banks are recalibrating their investment strategies to build hedging portfolios, as bond market conditions become increasingly challenging toward the end of the quarter, according to a Securities Times report… Many banks are finding bond investments more difficult due to persistent wide-range volatility in the market this year. The yield on 10-year government bonds has fluctuated by nearly 40 bps, underscoring the unstable environment…”
September 30 – Reuters (Liangping Gao and Ryan Woo): “China’s new home prices rose at a slower pace in September, traditionally a peak buying month, while resale home prices fell again, as the market struggled to find its footing despite a raft of support measures… New home prices grew 0.09% month-on-month versus a 0.2% gain in August, according to China Index Academy… Resale prices declined 0.74% compared with a 0.76% drop the previous month. September and October are traditionally popular months for home purchases, with projects usually announced by developers to coincide with expected demand.”
September 29 – Reuters (Joe Cash): “China's manufacturing activity shrank for a sixth month in September, an official survey showed on Tuesday, suggesting producers are waiting for further stimulus to boost domestic demand, as well as clarity on a U.S. trade deal. The official purchasing managers' index (PMI) rose to a six-month high of 49.8 in September versus 49.4 in August.”
France/Europe Watch:
September 29 – Wall Street Journal (Leila Abboud): “French Prime Minister Sébastien Lecornu’s three-week-old tenure is already hanging by a thread after his ideas for a deficit-cutting budget were rejected by the Socialist party, a key voting bloc in the hung parliament. Lecornu ruled out several demands of leftwing members of parliament — including a large new tax on the wealthy and the suspension of a pension reform that raised the retirement age to 64 — when he gave the first indications of his budget plans… Lecornu, president Emmanuel Macron’s third prime minister in just over a year, has sought to leave open some avenues for discussion with the left, including over a softening of the pensions reform, raising spending on health and pensions, and obliging the rich to contribute more. But the Socialist party reacted with immediate outrage, calling Lecornu’s positions ‘obstinate’ and ‘unreasonable’.”
September 28 – Bloomberg (Tara Patel, William Horobin, and Claudia Cohen): “One way or another, the taxman is coming for France’s wealthiest citizens. As Prime Minister Sebastien Lecornu navigates a narrowing path to political survival, the 39-year-old is under pressure from the left, the extreme right and even his own centrist allies to include higher levies on the well-heeled as part of an effort to rein in the largest deficit in the euro area. The country’s fifth premier in less than two years on Friday criticized calls for a broad-based wealth tax, including one proposal named after economist Gabriel Zucman. But he left the door open to measures that could affect the richest, saying it’s impossible not to hear French people’s demands for ‘tax justice.’”
September 29 – Associated Press (Stephen McGrath): “Moldovans gave the country’s pro-Western governing party a clear parliamentary majority in a weekend election, defeating pro-Russian groups in a vote widely viewed as a stark choice between East and West. European leaders Monday hailed Moldovans for re-affirming their commitment to a Western path and future membership in the European Union in the face of alleged Russian interference. The country is small in size and population but with outsized geopolitical importance. ‘You made your choice clear: Europe. Democracy. Freedom,’ European Commission President Ursula von der Leyen said... ‘No attempt to sow fear or division could break your resolve.’ Landlocked between war-torn Ukraine and EU and NATO member Romania, Moldova was a Soviet republic until it proclaimed independence in 1991.”
October 1 – Financial Times (Olaf Storbeck in Frankfurt and Ian Smith): “Eurozone inflation rose to 2.2% in September, the first time it has gone above the European Central Bank’s 2% target since April… There is consensus among economists and traders that the central bank will keep interest rates unchanged at 2% for the third meeting in a row when rate-setters convene at the end of this month. Analysts suggested that the rise in inflation supported the view that the ECB had neared the end of its rate-cutting cycle.”
October 1 – Bloomberg (Alessandra Migliaccio): “Italy’s budget deficit will match the European Union’s 3%-of-output ceiling already this year, according to people familiar with the latest draft of the country’s finance plan. The number is contained in the document being prepared for approval by Prime Minister Giorgia Meloni’s cabinet… The draft includes a projected growth forecast of 0.6% for this year and 0.7% in 2026, they said.”
Japan Watch:
September 29 – Wall Street Journal (Megumi Fujikawa): “Bank of Japan policy board Member Asahi Noguchi suggested increased pressure to raise interest rates, adding fuel to expectations for central bank action in October. ‘Various economic indicators for Japan show steady progress in achieving the 2% price stability target. This suggests that the need to adjust the policy interest rate is increasing more than ever,’ Noguchi said… ‘In terms of making policy decisions, upside risks to prices and economic activity in Japan are currently outweighing the downside risks,’ he added.”
September 30 – Reuters (Leika Kihara): “Confidence among big Japanese manufacturers improved for the second straight quarter and firms maintained their upbeat spending plans, a central bank survey showed… The survey, which is among key data the Bank of Japan will scrutinise at its policy meeting this month, suggests the export-reliant economy was weathering the hit from U.S. tariffs, at least for now... The headline index measuring big manufacturers' business confidence perked up to +14 in September from +13 in June to mark the highest level since December 2024, the ‘tankan’ survey showed. It compared with a market forecast for a reading of +15. An index gauging big non-manufacturers' sentiment stood at +34 in September, unchanged from the level in June…”
September 29 – Reuters (Satoshi Sugiyama): “Japan’s factory output fell more than expected while retail sales declined for the first time in over three years in August… Industrial output fell 1.2% in August from a month earlier… Japanese retail sales in August declined 1.1% from a year earlier, the first decline in 42 months, dragged down by lower automobile sales. The median market forecast expected a 1.0% rise.”
Levered Speculation Watch:
September 26 – Wall Street Journal (Peter Rudegeair): “Top hedge-fund recruits are getting hounded with job offers that would pay them like Hollywood stars or pro athletes. So why don’t they also have agents representing them? That’s the idea Ryan Walsh had about a year ago when he launched a talent agency dedicated to stock pickers, bond traders and other investment professionals that he believes is the first of its kind. A former portfolio manager at firms including Citadel and Millennium Management, Walsh is now parlaying his own experience to help clients navigate a manic marketplace for hedge-fund jobs. ‘I’m looking to be the Scott Boras of the hedge-fund world,’ said Walsh, referring to the baseball superagent who negotiated record-breaking contracts for major-league sluggers like Juan Soto and Bryce Harper.”
September 30 – Bloomberg (Sridhar Natarajan and Nishant Kumar): “Millennium Management is one of the biggest Wall Street names to get hit by the sudden unraveling of the auto-parts supplier First Brands Group. An investing team at Millennium… took a writedown on a First Brands bet as the auto supplier slid toward bankruptcy, according to people with knowledge of the matter. The loss is expected to total about $100 million… First Brands filed for Chapter 11 protection on Sunday night in Texas after weeks of concern about the company’s use of opaque, off balance-sheet financing to manage its network of auto parts brands, including Fram air filters and Anco wiper blades.”
Social, Political, Environmental, Cybersecurity Instability Watch:
October 1 – Bloomberg (Will Wade): “The US coal industry is having a good year. Demand for the dirtiest fossil fuel is increasing, utilities are running their plants harder, and miners are boosting production. The country’s coal consumption had been trending downward for much of the past two decades in the face of cheap natural gas, tighter environmental restrictions and pressure to curb planet-warming emissions. But utilities are now concerned about being able to keep the lights on and the growing fleet of data centers buzzing. That’s thrown a lifeline to coal, as has President Donald Trump’s move to reinvigorate the industry by easing regulatory barriers.”
September 29 – Bloomberg (Chris Bryant): “Four weeks after Jaguar Land Rover Automotive Plc confirmed having been hit by a crippling cyber attack, its vehicle assembly lines remain at a standstill, triggering concern about the financial health of less-well capitalized suppliers. Although too late for JLR, its humbling should be a code-red moment for manufacturers: The industrial sector appears worryingly vulnerable to cyber incursions, and the resulting downtime can be financially devastating.”
Geopolitical Watch:
September 29 – Wall Street Journal (Drew FitzGerald and Lara Seligman): “The Pentagon, alarmed at the low weapons stockpiles the U.S. would have on hand for a potential future conflict with China, is urging its missile suppliers to double or even quadruple production rates on a breakneck schedule. The push to speed production of the critical weapons in the highest demand has played out through a series of high-level meetings between Pentagon leaders and senior representatives from several U.S. missile makers… Deputy Defense Secretary Steve Feinberg is taking an unusually hands-on role in the effort, called the Munitions Acceleration Council, and calls some company executives weekly to discuss it… The department summoned top missile suppliers to a June roundtable at the Pentagon to kick off the industry effort.”
