Daily Research Updates
Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
On China’s Banking Crisis & New Trade Flexibility
In consolidating its banking system, William reports, China risks repeating the mistakes Japan made in the 1990s when bad loans simply migrated to new balance sheets instead of being recapitalized. That paved the way to years of deflation and near-zero interest rates. … Also: Uncharacteristically, China has agreed to EU demands to halve its hybrid vehicle shipments to Europe, deescalating tensions between the two and perhaps opening the door to similar deals for other industries. What does China’s new conciliatory tack imply for its trade negotiations with other economies? Does the deal represent a new model for global trade?
When American Consumers Are Depressed, They Go Shopping!
Consumer spending may seem to be defying economic gravity—remaining robust in the face of depressed consumer confidence, affordability concerns, and elevated interest rates. Indeed, the saving rate is dropping toward zero and could even turn negative by the end of the decade. Today, Ed and Elias explain why that’s no worry; why consumer spending has been so resilient, like the economy itself this decade; and why they expect the resilience of both to continue. … Also: Inflationary expectations are on the rise. That raises the risk that so are secondary inflationary effects from this year’s inflationary shocks. And that raises the probability that the Fed’s September rate hike won’t be the last this year. … And: Dr Ed reviews “Lioness” (+).
On Global Borrowing Binge & Nuclear Fusion
Globally, countries have been spending way beyond their means, absolutely and as a percentage of GDP. And the problem has been worsening, Jackie reports. Rarely has global debt issuance as a percent of GDP approached the 23% expected this year. With higher interest rates escalating governments’ interest expenses and wars necessitating higher defense spending, the end of this tunnel is dark. … Also: A look at the junk bond funding of two data center construction projects. … And: The promise of nuclear fusion is attracting big bucks from Big Tech investors. Five fusion-focused startups are cases in point.
On The AI Economy, Brazil’s Election & Gangbuster Q3 Earnings
The economic impacts of the AI boom extend far beyond the leading providers and their executives. Today, Melissa assesses how AI is altering the general US economy—currently and how it’s expected to in the future. Also: William warns that Brazilian markets, keen to see President Lula ousted, may be celebrating prematurely. … And: Joe’s data on analysts’ aggregate consensus estimates suggest Q3 will be one for the record books, with all 11 S&P 500 sectors growing both earnings and revenues year over year.
On China’s Disappointing Stock Market & France’s Looming Debt Crisis
China’s stock market hasn’t been buoyed by AI exuberance; today, William examines the reasons it’s been left behind. … Also: Why China’s capital markets aren’t ready for prime time as President Xi claims. … And: French government bonds are under mounting pressure as investors lose hope that leaders will rein in chronic budget deficits. … France’s higher borrowing costs could weaken the broader Eurozone economy, putting the European Central Bank in a tough spot. It’s been tightening in response to oil price shocks.
Bond Yields On The Spectrum: From Good To Ugly
Is the bond selloff the Revenge of the Bond Vigilantes, i.e., a looming debt crisis? Not yet. Despite the recent surge, the 10-year Treasury yield remains below the growth rate of nominal GDP. That points toward an upward repricing of the neutral interest rate. Ed and Elias examine the spectrum of forces behind higher yields, from rising R* to a potential debt-crisis scenario. The real warning sign would be if the yield rises above nominal GDP growth. In addition, they consider two other spectrum scenarios: the war in the Middle East and the yen-carry trade. … Also: The latest labor market data suggest resilient but noninflationary strength. … And: Dr Ed reviews “Tony” (+).
On Stock Market Churn, Corporate Debt & AI Agents
The S&P 500 Equal Weight index is up less ytd than the S&P 500, so the average company’s stock isn’t faring as well as the overall index’s performance would suggest. That’s a reversal from mid-August, Joe points out. Today, Jackie looks under the S&P 500’s hood, identifying industries that have toppled the most from their summer peaks. … Also: Corporate bonds have had a tough year, with rising Treasury yields and lots of new supply. But their declines don’t reflect credit-quality concerns. … And: The AI agents Big Tech has been launching are likely to squeeze entrepreneurs’ niche offerings out of the market.
On AI’s Rollercoaster Ride & Canada’s Moneyball
Frontier AI models are debuting fast and furiously, with no sign of “pacing” yet. Today, Melissa takes stock of the AI boom, breaking down a host of recent developments into bullish, mixed, and bearish categories. Net, net, we’re bullish on the AI boom, fueled by exploding demand and enormous infrastructure investment. But we acknowledge caveats including uncertain returns on investments and risk from credit exposure. … Also: Canada is taking a strategic “Moneyball” approach to filling the hole that lost trade with the US is leaving in its economy, William reports. Trade agreements with numerous smaller economies are in the works.
On Australia & The Global Mountain Of Debt
The Reserve Bank of Australia is tightening monetary policy to corral stubbornly high inflation and limit imported second-round inflationary effects from the Middle East war. Australia serves as a bellwether for the global economy, argues William, so its challenges presage the same for other economies. … Aggravating Australian inflation stickiness are hot services inflation rates and years of productivity declines. … Also: Mountainous government debt globally hasn’t alarmed global financial markets much, yet. Will it when money is no longer cheap? William looks at the risks of such high debt, particularly for emerging market economies, and the potential responses of governments.
On Inflation, Capital Spending & Economic Resilience
Today, Ed and Elias take a deep dive into core inflation, i.e., minus volatile food and energy prices. The Fed’s preferred measure, the core PCED, justifies tightening monetary policy—both the recent September rate hike and presumably future ones provided that underlying inflation remains elevated. … The alternative measure, the core CPI, is structured differently, causing it to diverge from the core PCED in response to price changes in AI-related spending, financial services, and shelter. … The US economy should remain resilient during this tightening cycle, as GDP growth has become increasingly desensitized to interest rates. That’s one reason the recession widely expected in 2022 and 2023 never happened.
On RVs, Drought & Crypto Regs
Economic conditions have dealt RV makers a tough hand, with high oil prices and interest rates discouraging RV sales and high input prices squeezing profit margins at the same time. Today, Jackie looks at the business decisions Thor Industries management has made in response to these challenges. … Also: The drought in western US states has gotten so bad that it threatens electricity production at the hydroelectric plants in the dams that created Lakes Mead and Powell, and the government has imposed a water conservation plan. … And: A look at the Trump administration’s crypto-promoting regulations.
On Scarce Diesel & BOJ’s Latest Baby Step
The oil market has proved surprisingly resilient in the face of war-related supply constraints, with workaround solutions mitigating the impacts so far. The world has plenty of oil, so the supply constraints and higher prices won’t be permanent. More problematic, says Toby, is the tight supply emerging downstream in markets for refined products like diesel fuel. Wars have reduced refinery capacity in the Middle East and Russia, and unaffected refineries are operating near capacity limits. That’s not a problem solved overnight. Inventories could stay low and diesel crack spreads and retail prices could stay high even after crude prices normalize. … Also: William explains why investors were underwhelmed by the BOJ’s recent rate hike.
He Said, Xi Said
Don’t expect a game-changing breakthrough in Chinese-US relations when President Xi meets President Trump on Thursday. Presidential fireworks are entirely possible, William says; but so is limited progress toward resolution on certain aspects of certain bones of contention. Today, William outlines where he sees potential for headway and where that’s unlikely. The best outcomes investors can hope for are extension of the expiring truce, a handful of commercial deals, and a commitment to keep talking—which may be wins enough for now. … Also: Toby looks at why investors have soured on China’s stock market.
All About The Fed, The Economy & Inflation
In a scant three months, FOMC members moved from a unanimous hold to a unanimous hike, raising the federal funds rate by 25bps and suggesting more of the same to come. President Trump, preferring rates be slashed, blamed everyone on the FOMC except Fed Chair Kevin Warsh. Today, Ed and Elias examine what motivated the September decision and Warsh’s role in it. He had argued all summer that conditions were ripe for a rate hike: The economy was resilient, with a full-employment labor market and financial conditions not restrictive, while inflation was a problem. By September, the Committee at large concurred. … We expect one or two more rate hikes this year. … Also: Dr Ed reviews “The Whisper Man” (+).
On Energy, Earnings & A New, Efficient Chip
Today, Jackie examines the causes and the ramifications of the oil supply shocks resulting from the Middle East war. The US Strategic Petroleum Reserve is believed to be about as low as it can go and still operate. With energy prices surging, energy-related industries are having a heyday. … Also: Industry analysts have had to play catch-up as S&P 500 companies seem bound for ever-stronger results. Joe reports that net estimate revisions for 2027, as for 2026, have been rising over time instead of falling as is typical. … And: A new kind of inference chip could curb data centers’ ravenous consumption of power and water.
On AI Apocalypse & China’s K-Shaped Economy
Is AI an existential threat to humanity or just dangerous in the wrong hands? Today, Melissa examines the question of AI safety from multiple angles, separating facts from fears and identifying what investors should be looking out for and needn’t worry about (at least not yet). … Also: China’s overall GDP growth looks healthy, but the economy is far from resilient. Some areas are thriving, while others sink deeper into morass. William discusses the perils of China’s increasingly “K-shaped” economy.
Japan’s Difficult Return Back To Normal
The Bank of Japan is widely expected to raise its key interest rate by 25 basis points this week following June’s hike to 1.00%. William likens the surrounding circumstances to a minefield. With the economy fragile, the stakes of tightening too fast are high, warn the BOJ’s doves. But the US is exerting fierce pressure to tighten faster, buoying the yen, and the BOJ’s hawks want higher rates ASAP after the decades of ultra-low interest rates that have enervated Japan’s economy. … Also: Toby observes that analysts have been raising their earnings sights for Japanese companies even as investors have been devaluing Japanese stocks. It’s a market repricing risk, not earnings strength.
Worry List Is Growing More Worrisome
We’re still strong believers in our Roaring 2020s scenario, hinging on a productivity boom that strengthens economic growth even as it contains inflation. However, we’ve shaved the subjective odds that we ascribe to that scenario from 80% to 70% and now see a 30% chance that rising geopolitical and other risks could derail it. Today, Ed and Elias update our deepened worry list, detailing the concerning prospects, as well as reiterate the reasons that we remain bullish. We still believe that strong earnings growth will lift the S&P 500 to our 8400 price target by year-end.
On Housing, Technology & mRNA’s Potential
The rising mortgage rate isn’t good news for a housing market that’s already in the dumps. The only positive news is that the market may be slowly adjusting, with builders starting construction on fewer new homes and cutting prices, Jackie reports. ... She also takes a look at one of Australia’s neoclouds, which is being helped by the country’s new regulations and ample funding from Nvidia and others. ... And: The news that Moderna’s mRNA treatment of melanoma was successful in Phase 3 trials gave many patients hope. We look at how Moderna and other companies aim to use mRNA to treat more cancers and diseases.
On AI At Jackson Hole, Trump’s Bromance With Li’l Kim & Great NERIs
Stablecoins and AI captured central bankers’ attention during this year’s Jackson Hole symposium, Melissa reports. Presenters discussed how stablecoins could help the dollar retain its dominance and how AI agents could trade central bankers’ communications. ... William examines how the “very special bond” between President Trump and North Korea’s Kim Jong Un could unsettle South Korean markets. ... And: analysts’ earnings revisions are decidedly more positive than negative, Joe calculates. That bodes well for future S&P 500 earnings strength.
On Latest US & Canada Tiff & Latin America’s Warsh Woes
The inability of President Donald Trump and Canada’s Prime Minister Mark Carney to play nicely resulted in the US placing 50% tariffs on certain Canadian imports. The move risks exacerbating US inflation, making Fed Chair Warsh’s job tougher, William writes. It also won’t help Canada solve its productivity problem. … Fed Chair Warsh’s hawkish Jackson Hole speech triggered selling in Latin American currencies. Higher US interest rates and a stronger dollar pressure nations with heavy dollar-denominated debt loads and commodity imports. William lists Latin American countries to watch. … And: the EM Latin America MSCI index may have a low earnings multiple, but analysts are very optimistic about future earnings growth. Toby examines the discrepancy.
Warsh World
Fed Chair Kevin Warsh isn’t one to give the markets a heads-up. Investors are trying to translate what he says into what he would like the Fed to do. To that end, Ed and Elias parse Warsh’s remarks last week at the Jackson Hole symposium. While Warsh’s assessment of economic conditions is hawkish, is it just hawkish squawk or indicative of his vote at September’s FOMC meeting? Whether he backs raising or maintaining the current federal funds rate may hinge on whether August inflation data suggest persistent weakness. But Warsh’s Jackson Hole comments did give the FOMC’s hawks some support and did shed some light on his policy approach.
On Tech Inflation, Nvidia & Humanoid Robots
As demand for AI surges and the war-related supply shocks that have raised materials prices continue, semiconductor chip prices have skyrocketed. In turn, that has bumped up the prices consumers pay for tech devices, suddenly and dramatically. Jackie examines the tech-inflation ripple effect and what may help restore balance to the market in coming years: new semiconductor factories planned in the US. … Also: Nvidia stock is trading at a bargain-basement forward P/E multiple—some reasons why. ... And: More and more Chinese companies are churning out robots that are more and more humanlike. China wants to corner the global market for humanoid robots, but the US government has banned their importation.
On AI Concentration, Booming Earnings & Germany’s Surprise
The AI industry may well consolidate, possibly down to a few powerful players. That’s especially possible if demand for AI falls short of the expectations assumed by the funders of the AI infrastructure buildout, straining ability to meet financial commitments. Melissa examines AI bears’ arguments and puts market-concentration risks into perspective. … Also: Joe reports that analysts have been raising their estimates for most S&P 500 sectors’ companies. That’s translating to rising forward earnings and revenues, contrary to the usual pattern at this time of year. Margins are strong too, and the AI boom should improve them further. … And: William reports on the German economy’s surprising resilience.
On Learning From Japan & Investing In Brazil
The US Treasury’s attempt to free the bond market from the Bond Vigilantes by injecting more liquidity via buybacks recalls Japan’s similar decision prior to its “lost decades.” The US economy isn’t headed for any such abyss, but Japan’s experience nonetheless highlights the tactic’s drawbacks. Liquidity can soothe a market, William writes, but not cure what’s ailing it in the first place. … Brazil’s central bank is in a tough spot: Its push to curb inflation has taken an economic toll right before a presidential election. … And: Toby points out an opportunity in Brazilian stocks. Valuations have dropped as share price gains haven’t kept pace with rising earnings expectations.