Will Santa be coming to town this year? 🎅
The last five trading days of the year plus the first two trading days of the new year are known as the "Santa Claus rally". Since 1980, there have been positive returns 73% of the time, with average S&P 500 upside of 1.1%. Source: Edward Jones thru Markets & Mayhem
Federal Reserve expected to begin buying back an all-time high $45 billion of debt each month beginning in January 🤯👀
Source: Barchart
🚨 The AI Boom's Ticking Time Bomb: Debt, Valuation, and the Cost of Capital
BNY just dropped a massive reality check. Everyone is celebrating the Magnificent 7's AI investments, but how are they paying for this revolution? The playbook is simple: Free Cash Flow OR... massive debt. (Look at Oracle's recent debt noise—it's a leading indicator). The Math That Makes Value Investors Sweat: The Mag 7 (ex-Tesla) forward P/E is nearly 30x. That's nowhere near "value investor comfort." The market is demanding a clear ROI by 2026. The pace of this AI buildout is directly tied to two things: Future Earnings and the Cost of Capital. The Domino Effect: If Margins Drop or Borrowing Costs Rise, the AI investment boom must slow down. That deceleration hits U.S. GDP hard. Hello, Federal Reserve and Government intervention? The feedback loop's timing will dictate how the entire equity market trades. 2026's Real Headwinds: Everyone expects lower rates, but don't forget the silent killers: Term Premiums Government Deficits (Crowding out private investment) Future Tax Risks The core question isn't whether AI is real—it's whether the current investment pace is sustainable until the returns finally justify the spending. This is the true AI bubble concern. Are we watching a self-sustaining cycle, or an investment spree built on borrowed time (and borrowed money)? Source: Neil Sethi
J-C Parets: When we talk about healthy sector rotation, this is exactly what that means.
High Beta is making new all-time highs, AND it's making new all-time highs relative to Low Volatility. That's not weak breadth. That's not deterioration. That's called a raging bull market.
Lots of people are going on about cheap electricity in China and how this will allow it to win the AI race with the US.
Here's the thing about that electricity: it's from burning fossil fuels like coal - see chart below courtesy of Robin Brooks. Note however that China has massive plans to progressively replace fossil fuels by renewables and nuclear.
Boring Investing Still Works
"Introducing more complexity into your portfolio can make it much harder to manage. The fees are higher, they’re more illiquid, it’s harder to rebalance, and there isn’t nearly as much transparency." Source: Ritholtz @RitholtzWealth NYU
The IEA’s “historic oil glut” narrative is collapsing in real time.
US production, the foundation of their entire forecast, has now been quietly revised downward. And not by a small amount. This is the largest US supply revision in the IEA’s entire history. 660,000 kbpd just for the month of September The reason: - US shale, the only global source of meaningful growth for 15 years, is peaking. - Tier 1 acreage is drilled out - Gas-to-oil ratios are exploding - Water cuts are rising across every major basin - Decline rates are accelerating as sweet spots exhaust Shale’s boom phase gave the world a decade of easy barrels, masking the fact that the rest of the world wasn’t investing. Its bust phase will do the opposite... leave a supply hole the world cannot fill in the short term.
Otavio (Tavi) Costa just made a case for energy stocks, which have been quietly inching higher.
Here's his view: ▪️Positioning remains deeply bearish. ▪️U.S. oil and gas rigs are contracting meaningfully. ▪️Oil is trading near one of the cheapest levels in history relative to the money supply. ▪️Energy’s weight in the S&P 500 is hovering near record lows. He sees energy equities as one of the most fundamentally attractive corners of the market right now. Your thoughts? Source: Tavi Costa, Crescat Capital, Bloomberg
