“It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions.”
To paraphrase Metallica, yesterday was “DeepSeek and Destroy” for AI names, especially the semi-conductor names and Nvidia where market cap was eviscerated. The pain extended to names associated with AI infrastructure in sectors like energy and construction. The S&P finished at 6,009, down ~1.5% and the NDQ was down ~3% and the SOX (semis) was down ~9%. Ironically the old-school Dow was up on the day.
Remember this post from last December about AI and the “capital cycle”, it seems worth more consideration now. Is this the end of the “Nvidia tax”? Do we need to build so many data centers? Are we under-estimating the wins that come from DeepSeek? Does the U.S. need to treat AI the way they treated The Manhattan Project?
Perhaps a lesson from this DeepSeek hysteria is something like “necessity is the mother of all invention”, when money and resources are tight you are forced to find divergent solutions.
At least bonds filled their traditional safe haven role yesterday, the 2Y fell ~8bps to 4.20% and the 10Y fell 10bps down to 4.54%. In Treasury Auctions both the 2Y and 5Y seemed to be well received, but it was the very solid direct bidding on the 5Y that garnered attention which some believe indicates investor confidence in either the direction of rates, inflation, or structural deficits.
Bitcoin on the other hand does its best to act like a levered bet on the Nasdaq.
A non-AI narrative that is worth keeping an eye on is one related to government spending. It goes something like if the government were to cut $2 trillion in spending, won’t that lower GDP (remember the GDP equation)? In this narrative discussion I don’t feel like I see people necessarily capture some nuance here, or perhaps they don’t believe that in the idea that the government can “crowd out” private investment, or the longer term impacts due to lower interest costs, etc. Anyway, keep an eye on that narrative.
On the day ahead it’s durable goods and 7Y auction.
XTOD: Has any president ever reduced wealth inequality this fast?
XTOD: open source everything
XTOD: $AAPL's AI is so bad they don’t even include it in the AI selloff.
XTOD: The smart money will be desperately trying to convince the dumb money not to sell and to "buy the dip," so they can liquidate their positions to the bagholders. Sad but true.
XTOD: Some ways of thinking will serve you well for some purposes and serve you poorly for others. It is highly desirable to understand one's own and others' ways of thinking and their best applications. Some qualities are more suitable for some jobs. For example, you might not want to hire a highly introverted person as a salesman. That's not to say an introvert can't do that job; it's just that a gregarious person is likely to be more satisfied in the role and do a better job.
https://x.com/ByrneHobart/status/1883979412208771271
https://x.com/jack/status/1883976555686420844
https://x.com/TradingThomas3/status/1883880040594854157
https://x.com/chsm1th/status/1883717380607746294
https://x.com/RayDalio/status/1883640170018197862
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