Gravitas Spark CrowdFunding

Tag: America

  • A Wave Of Huge Numbers And New Thoughts

    A Wave Of Huge Numbers And New Thoughts

    Freezbrury waters are imminent, but I sense things are actually hotting up. I’m also conscious it’s Friday before a bank holiday weekend so will keep it light. Let’s just highlight a few significant datapoints from the tsunami of numbers bombarding our screens this week. Then, next week we might dive deeper. Not quite as low as Cruella “Reformed” Braverman, Commandant Greg “Himmler coat” Bovino, Stephen “Peewee German” Miller, or Kristi “ICE Barbie” Noem who definitely fall into wannabe Waffen SS territory. There’s something deliciously ironic about a world which has embarked on an artificial intelligence (AI) space race while “Trump Is Making America Stupider” per The Bulwark newsletter headline. Maybe the bots won’t need to be that good? Anyway, that possibility doesn’t seem to be stalling spending by global technology giants on AI… for now.

    My favourite AI datapoints this week come from Microsoft, Meta, Sandisk, OpenAI and ElevenLabs. Given these numbers are like an assault on the senses I think it’s best to present them in bullet form:

     

    • Microsoft’s fiscal Q2 update this week showed its cloud/AI order backlog rocketing by 110% to $625 billion. But, that wasn’t the show stopper or the share price killer (down 10% overnight). A whopping 45% of that backlog ($281 billion) was linked to one private start-up company, OpenAI.

     

    • Meta/Facebook also announced a huge number, but not a future revenue one. Its planned capital spending on AI infrastructure and development this year will be $135 billion. For context, as recently as 2023 Meta did not even generate this much money as its entire year’s REVENUES (not profits).

     

    • Lesser-known memory chip player, Sandisk, was the S&P 500’s best performing stock last year (+577%) as a beneficiary of investors’ search for AI ‘picks and shovels’. That story continues and is a reminder not to quit on your winners. Sandisk’s quarterly update this week beat expectations with 600% earnings growth and another 25% jump in the share price in after-hours trading. So far this year, the Sandisk share price is up 127%. Yep, just January.

     

    • In start-up land ElevenLabs is the hot AI Voice tool backed by Sequoia. It’s not just a hot investment, it’s a hot career choice. Only 0.018% of 180,000 job applicants in a 6 -month period get a job. As the brilliant VC commentator and fund manager, Harry Stebbings, pointed out, you are 200x more likely to get into Harvard.

     

    • Back to OpenAI. Yes, people worry about that famous FT graphic and OpenAI as the potential AI investment “weakest link”. However, the capital cavalry could be on its way. Latest chat is that OpenAI plans to IPO in Q4 2026 with a raise of $100 billion on a valuation close to $1 trillion. For historical context, the previous biggest IPO raise in history was $26 billion by Saudi Aramco.

     

     

    There’s now a bigger qualitative exploration of the AI theme due, given the pretty scary comments from OpenAI rival, Anthropic, CEO founder Daro Amodei. He reckons we are moving towards “AI systems that will be better than almost all humans, at almost all tasks….by 2026, 2027.” Check out the videos on social media showing how the likes of Moltbook and Clawd are blowing people’s minds with the power of their agentic capabilities.  Here’s a few other mind-blowing datapoints in a variety of areas where regular readers will know I have been thematically focused.

    Opportunity outside USA: We talked about real things (atoms) versus digital code (bits) previously. So, see how Brazil’s real asset-rich stock market has clocked 14% gains in January alone. However, the genuine head-rocker outside US stocks is the latest earnings growth  estimates for South Korea’s stock market. Goldman’s reckon earnings growth for the entire blue chip Kospi Index will be 75% in 2026. Note most of that earnings growth will come from two companies who are critically plugged into the supply squeeze for memory chips (RAM, DRAMs, thank you Mam) – Samsung and SK Hynix. Amazingly, South Korea’s stock market is now worth more than Germany’s DAX index ($3.25 trillion).

    Automation/Power Infrastructure: It’s not a huge surprise software stocks (SaaS) like SAP are being hurt by AI speculation, investment capital shifts. However, we should note the recent overtaking of SAP as the highest valued German company by Siemens. Its key three divisions? Automation processing, power/grid systems and transport infrastructure. Note none of the famous German auto stocks feature in this table-topping race.

    Electric Vehicles: Europe hit an inflexion point in recent weeks. Latest data shows EVs as a percentage of new car sales overtook traditional internal combustion engine (ICE) powered vehicles. Looks like ICE on two levels this week faces an existential threat. Thinking of not nice people, it was amusing to see Tesla post a 61% decline in profits in its results this week. Who knew, apart from Ryanair’s Michael O’Leary, that idiotic interfering in other people’s business (politics and privacy too) can be brand destructive…?

    Last thought, and this merits a much bigger discussion. The problems for Tesla might result in a $3 trillion mega-merger/pivot of SpaceX, Xitter, xAI and Tesla, but also subtly highlights the scale of manufacturing dominance exerted by China in the electrification race. While Trump focuses on Bruce Springsteen, White House ballrooms, Melania movies and Venezuelan oil grift, the Chinese are stealing a march on the US in so many technologies. Oh, and the Chinese consumer might be coming back. Apple just told us it had its greatest ever quarter in The Middle Kingdom. A 38% jump in China sales blew the hinges off all the ‘expert’ analyst expectations.

    Lots to think about over the weekend and well done to all who invested in Social Voice before its dramatic funding close; a great illustration of investor ‘social listening’  in the venture world of little gems.

  • Keep Your Eyes On The Prize, Not the ICE…

    Keep Your Eyes On The Prize, Not the ICE…

    I know, I know…. we’ve all heard enough of “big piece of ice”, “ICE”, “Iceland”, “hundreds of feet of ice”, “not on the frontlines” etc. And…best not mention the threat to the icy “G” spot (thousands of miles from Melania) which has ‘ruptured’ the rules-based world order. Anyway, it’s Friday and the past week felt like months before closing with the ‘bigliest’ TACO ever at Davos. Not the food version, but the geopolitical clown car currently posing as the leader-for-life of the autocrats anonymous therapy  group, The Board of Peace. Entry fee is a billion, leave your moral compass at the door. Parody is dead, but for investors not quite exhausted by awful, there are genuine investment prizes out there and they are developing nicely despite the Davos noise. The White House brown shirts in ICE might ask you not to believe your eyes and ears in Minneapolis, but for the next 3-4 minutes, just read and believe….

    Smaller companies are doing very well in 2026 on public markets. In fact, the smaller company US equities index, the Russell 2000, has beaten the blue chip S&P 500 index for the 14th consecutive day. That’s the best relative (small vs large) winning streak seen in markets since 1996. So, despite the headlines confidence in markets is actually pretty high. A more esoteric check on confidence can be found in the way bigger (than equities) bond/debt markets. Confidence in high quality company bonds is measured by the gap(extra cost) between US risk-free government bond yields (Treasuries) and the yields of the bonds(debt instruments) issued by companies themselves. The larger the gap(the “spread”), the larger the uncertainty of investors. So, check out current spreads of just 0.71% which are the lowest demanded by investors since 1998. In other words, investor confidence is riding high. That means many investment themes remain intact.

    Best performing US large company stock last year? Good ol’ Sandisk. Yep, it delivered 577% returns to investors in 2025 alone. Its run continues. Sandisk has just clocked another 110% return in January…That’s a 1,300% return in less than one year and a reminder that the ‘picks and shovels’ of AI infrastructure are still hot, hot, hot. Not long ago Sandisk was a stodgy old memory card company (think USB thumb drives) but memory chips have became a major supply bottleneck for AI development. Generative AI models like Gemini, ChatGPT and Claude need ever-increasing ‘context’ as reference data. Or, as we used to call it, memory. An interesting part of this story is Sandisk’s partnership with Japanese manufacturer, Kioxia, whose multi-decade expertise in manufacturing is delivering a significant cost advantage. There will be more Japan surprise cost/value stories this year but it’s no surprise to Gravitas readers of our “Japan Series” of articles in 2025. Take-private buyout deals in Japan hit a record $40 billion in 2025. Now, think about Japan household savings storing up $14 trillion of firepower which equates to more than three times its GDP. However, there’s another Japan story which is worth watching too…

    We keep writing about the bullying power of global bond markets. One of the biggest is Japan’s government bond market (JGBs). Last week witnessed Japanese government bond yields (cost of money) rising to levels not seen since the 1990s. That is a worry because Japan has a lot of debt (but also a lot of savings). However, there is a bright spot in this rising bond yield story. Ordinarily, inflation is a bad thing, particularly for bonds. But… in Japan, monetary authorities and successive frustrated governments have spent decades trying to generate inflation to encourage spending NOW, and not years in the future. Of course, bond yields can’t be let run out of control but if managed/balanced carefully, there will be many more buyout deals, venture capital growth and M&A in the Land of the Rising Sums….of investment capital. The bond yield spike is not just a Japanese phenomenon.

    US monetary authorities have been cutting interest rates since 2024 but bond yields (and mortgage rates) remain stubbornly high. In this instance investors are worried about Fed independence, tariff chaos and the vaporising of the rule of law in Washington. Somebody might have to explain to Agent Orange that bonds and debt instruments are financial contracts. Then again, that never meant much to him or his poor bankers in Manhattan during the ‘90s. However, this inflation uncertainty can be a good thing for particular parts of the investment markets. In particular, you will hear more about real assets. Atoms rather than bits. Anyone seen the silver price this week? Yep, $100 here we come.  Or check out Brazil. It makes and owns lots of real things in the agricultural, mineral and materials spaces. Brazil’s stock market is already up 10% year-to-date while US and European markets are sitting on more restrained returns of 1-2%.

    These are not new themes. Really this article is a reminder, despite the bewildering headlines and global ‘rupture’ (do read Canadian PM Mark Carney’s Davos speech), that investment and economic stories continue to develop along the same trajectories experienced in 2025. Indeed, to use Carney’s words, if there is a new theme/story, it is to look at the ‘middle powers’, not the autocratic gorillas, and explore opportunity in the likes of Japan, Brazil and ….. a Europe which finally stood down a bully with some not-so-subtle assistance from those law-loving global bond markets.

  • Don’t Get Angry, Get Ready….

    Don’t Get Angry, Get Ready….

    I was right. The first of my predictions for 2026 was spectacularly on the money. Sadly, it won’t make any of us wealthier given its focus on noise rather than direction. To refresh memories, the final words in my last article, Themes and Dreams For 2026, were as follows: “I’ve a feeling I won’t be short of writing material in 2026.” Little did I know there would be a year’s worth of material in just the first 10 days of 2026. Where do we start?

    The US is celebrating its 250th birthday by re-branding as an exploration company with an army (hat tip George Carlin) as Venezuela is ‘acquired’ and ‘takeover bids’ are lined up for the Panama Canal and Greenland. Back at HQ, the Boss re-asserts control of executive salaries and cash flows in the company’s defence supply divisions while promising a 50% expansion of investment ($1 trillion to $1.5 trillion) in its Business Development unit, previously known as the Department of War, and before that, as the Department of Defense. Meanwhile, the company’s traffic stop management division has secured immunity from regulatory or criminal oversight of its shoot-to-kill (or stop) policy on a nationwide basis, not just in Minneapolis. Of course, none of these revolutionary business initiatives can happen without funding. The company’s Treasury unit has set up overseas bank accounts to deposit proceeds of its newly acquired Venezuelan oil unit. In the interests of tax efficiency these bank accounts will be overseen directly by the Boss, and will not be consolidated in the parent company accounts. But, of course. However, US Inc is not the only company turning to oil….

    It is probably more accurate to say some companies are breaking with a seismic global shift to electric power. Again, it’s American-sourced exceptionalism. This week General Motors (GM) has followed Ford and abandoned its move in to electric vehicles (EV). These recent investment write-offs amount to $7 billion and $19 billion respectively which will hurt. But… that might not be the end of the pain. The train, or car, has already left the station. The Electric Age, per the superb Noah Smith, is here with 25% of cars purchased in 2025 of the EV variety. In many Asian and a few European countries that penetration rate is through the 40-50% level. China leads the world in the entire EV technology stack and have focused their attentions on battery production, manufacturing scale and grid expansion (solar). Fewer moving/motor parts, efficiency and superior performance are the current and long-term edge for EVs which will kill the internal combustion engine (ICE). Writer’s note: Be careful how you say or ‘weaponise’ that acronym these days.  All is political these days rather than factual which highlights why the US is making a fatal error on oil over electric. Noah Smith writes:

     

    The main reason America is missing the EV transition is that we’ve insisted on thinking of EVs in terms of climate — as a “green” technology whose purpose is to save the environment, rather than a superior technology whose purpose is to save you time and money. Trump canceled EV subsidies because he associates them with the environmental movement and the political left.

     

    It’s not just electric vehicles(EVs) experiencing their electric break-through moment. EVs share the same components as drones, trains, cameras, phones …..and robots. Just this week at the massive CES 2026 conference in Las Vegas, Nvidia’s Jensen Huang didn’t even blink when asked how long it would take for humanoid robots to match human-level ability. “This year”, he said. Guess what – those robots run on many of the exact same components which go inte EVs. Think batteries, power/motor electronics, sensors, software…..and AI. Clearly, in the AI piece of the assembly package, the US is perceived as the global leader. However, even AI and its support infrastructure is inextricably tied to electric power. And, before you say “but, but, but… the Venezuela oil reserves”, get ready for more non-delivery from the “stable genius” back at HQ. Venezuela currently produces less than a million barrels of oil per day. It’s like a rounding error of less than 1% of global oil production. Yes, that production level can grow but please note the lack of announcements from US oil company executives about investment plans and potential commercial negotiations with Venezuela’s 5,000 plus generals and regional warlords. While the Department of War was planning ‘business development’ in Latin America, China built more solar power capacity than the rest of the world combined in 2025. For perspective, that additional solar capacity of 380GW built in 2025 equates to 5x China’s total existing nuclear capacity (58 plants). Get ready or get digging on two fronts.

    First, we have written a lot in 2025 about the asynchronous explosion of excitement and revenue projections for the AI world and the mining sector. At certain times in 2025 one AI company, Nvidia, was worth 4 times more than the entire publicly listed mining sector. Get ready for a change. Gold, silver, platinum and copper prices have soared which has finally juiced the risk spirits of mining sector executives. We said the sector needed a big deal. Well, global giants Glencore and Rio Tinto are talking a megadeal again with a copper focus (yep, all that electricity) and a $260 billion valuation. Metals of course in earlier times were the basis for currency. In time, central banks became the back-stop or guarantor of currency but we might have to dig again.

    The global reserve currency, the US Dollar, lost almost 10% of its value in 2025. In isolation, this is not unprecedented. In fact, the Trump regime are quite keen on a softer dollar and lower interest rates for trade deficit and investment reasons. However, we must get ready for a further assault on institutional independence in the US. The current Fed Chair, Jerome Powell, is due to leave his post in May this year. The new appointee (apparently already decided by the Boss) will be expected to cut interest rates dramatically to keep Trump happy. However, the potential unintended consequence of this action in the context of a $40 trillion US national debt is loss of credibility for the Fed and its ability to prudently manage that debt, and the currency. Hopefully, the bond markets are more effective than Russian or Chinese radar systems in spotting and thwarting that assault on Fed and dollar credibility. A final word on markets and pensions.

    Those of you reading your pension updates/reviews for 2025 might be underwhelmed by the performance. Before you get angry, I would recommend a read of Terry Smith’s own review of his $20 billion fund which underperformed in 2025. As always, my former boss writes superbly and highlights some key factors driving investment markets these days. Terry always sticks to the basics and this might well be a theme for 2026. The thoughts above should ready minds for investment opportunities in electrification, real assets, financials, mining and assets located outside the exploitation company, US Inc, formerly known as the United States of America…..

  • Big Deals And Big Themes To Watch….

    Big Deals And Big Themes To Watch….

    Been a tough week. And that Epstein dog hasn’t even barked yet. Anyway, let’s not dwell on the ‘what ifs’, let’s focus on more positive action. In particular, activity in the M&A and funding worlds, which should be taken as generally upbeat pulse-takes for individual investors. These deals also reflect the key structural drivers for the rapidly changing global economy. Change, you say? Well, Germany has had an engineering/capital goods trade surplus with China for decades. Not anymore. China in 2025 is now running a surplus with Germany. Oh, and nobody in the Oval Office will tell the Donald…. but “America First” has caused US equities to underperform overseas equities for only the third time in a decade. I know, whoodathunk amid all the giddy AI headlines? Interestingly, the deals I’m seeing in recent days also have a non-US focus.

    Infrastructure is still a huge magnet for investment capital. Blackrock’s Global Infrastructure Partners vehicle has swooped in Spain to acquire the Digital & Energy unit of domestic construction giant, ACS. Yep, that’s a data centre and AI play with a whopping $27 billion price tag. Sticking with AI, and back in the US, Mira Murati’s Thinking Machine Labs is currently doing a funding round with valuation in the $50 billion region. In its last funding round in July (checks notes, yes) that valuation was $12 billion. Not to be outdone, Elon Musk’s xAI is raising $15 billion at a $200 billion valuation. So, I think we can safely say AI and the US are still leading the giddy stuff. Elsewhere, the deals are more fundamental. Try energy.

    Private equity monster, Carlyle, is exploring an acquisition of Russian oil giant Lukoil’s global assets valued at almost $22 billion. Meanwhile, Spain’s energy champion, Repsol, is considering a reverse merger of its $19 billion upstream unit with potential partners including US energy producer APA. In addition, Google has signed a deal with French oil giant, TotalEnergies, to buy 1.5 terawatt hours (TWh) of solar electricity over the next 15 years in Ohio. That’s enough power to run the entire state of California for 10 days. Again, data centres are the key driver for the energy land-grab, be it fossil-fuel or renewable. However, as Spark closes out a lightning-quick raise of €1.5m for the impressive AuriGen Medical team, we should not forget demographics and the hugely significant structural growth in healthcare opportunities(check out our May 2025 series of articles on Japan).

    Pfizer has acquired weight-loss start-up, Metsera, in a $10 billion all-cash deal. Then the rebuffed original buyer of Metsera, Novo Nordisk, went to the debt markets to finance the $5.2 billion purchase of US biotech Akero Therapeutics. The sense of a deal ‘cluster’ in pharma-land was further heightened by Merck’s likely acquisition of another biotech, Cidara Therapeutics, in a $3.3 billion deal. Like the Metsera deal, the bidding war for Cidara was intense too. So, things are looking pretty healthy in health M&A. As for the unhealthy world…. we continue to watch ‘Whiskey Pete’ deploy US Navy assets off Venezuela.

    If ever there was a classic ‘wag the dog’ distraction mission this might be the one. Particularly, given both Jeffrey Epstein and Ghislaine Maxwell in emails from 2011, sound mystified about the “dog (Trump) that hasn’t barked” in the criminal investigation under way at that time. Venezuela is yet another prompt for all sovereign nations and the investment world to be thinking defence. Some aren’t just thinking. Valor Equity Partners have led a chunky $510m funding round for a counter-drone radar start-up, Chaos Industries, at a $4.5 billion valuation. Also, watch out for Germany’s Quantum Systems which manufactures interceptor drones which can climb 4 kilometres in 30 seconds(!). Last heard on the street, they were raising $150m at a $3 billion valuation.

    All of the above sectors, bar health, position power sources and storage as key elements in competitive advantage. Note infrastructure and power are closely linked. The best positioned infrastructure assets will be those which bring energy/cost efficiencies in a world where AI is gobbling up more and more electricity, possibly at the expense of everyday consumers and traditional businesses. There is a reason why 40% of e-commerce deliveries in Europe are now done in out-of-home (OOH) parcel lockers. It makes sense for both the primary carriers (DHL,UPS, FedEx etc) and the consumer to make ‘the last mile’ more efficient. At Spark Private, we also think OOHPod makes a load of sense with lots of exit opportunities (and founder exit track-record) and great infrastructure positioning. In all of the above deals, everyone is trying to take the lead in positioning in the market. It can feel good too when it’s good for the world. In fact, I can still remember seeing a much-loved guy on his cool new electric bike just 5 years ago, and thinking to myself how happy he looked. I will keep that thought always…..

                  W.H. RIP.

  • Have You Checked Your Pension’s American Assets Recently?

    Have You Checked Your Pension’s American Assets Recently?

    I’m nervous. This won’t win me a Nobel Peace Prize, a Pulitzer or a Green Card but it must be said. The United States is the richest, most successful and most powerful country in the world. On a global basis, we owe the United States on many levels, be it culture, sport, technology, education, medicine, defence, investment capital, tourism or friendship. Closer to home, our fortunes and miraculous recovery from a Troika bail-out are inextricably linked to US commercial supremacy. The vast majority of our pensions reflect that supremacy by holding significant amounts of US debt/bonds or stocks. EVERY pension should have exposure to US assets but risk radars are flashing red for a seismic investment shift. Behind the headlines and in the critical plumbing of the global financial system, there is increasing evidence of a global ‘exit’ from the US. That might sound odd and inevitably the counter view will cite current data which paints a record-rosy picture.

    US and global stock markets are regularly hitting record highs in recent weeks. However, the US stock markets have been clocking up vastly superior returns compared to other major bourses in the 16 years since the GFC. This outperformance of US assets has resulted in extreme levels of US weightings in global indices/benchmarks which your pensions are attempting to either track or beat. A recent Deutsche Bank research note flagged IMF data showing US equities now accounting for 67% of Bloomberg’s World Index. That’s quite the weighting for a country which represents 15% of global GDP. Go back 20 years, and the US actually accounted for a higher 19% of global GDP.  In 2005 US equities made up 51% of the same Bloomberg World Index. For context, Europe(EU) accounts for 12% of global GDP and 14% of the Bloomberg index. Of course, the big driver is technology stocks where the 6 top US tech companies are currently valued at $20 trillion, or more than the GDP of China. The AI/cloud (AI) revolution might be the more specific driver but is this hiding a bigger picture?

    According JP Morgan’s always interesting Michael Cembalest, “AI related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth and 90% of capital spending growth since ChatGPT launched in November 2022.” AI is indeed the gift that keeps on giving for US markets. But there’s giving and then there’s giddy. I’m not sure if anyone can keep up with tech companies trying to out-do each other on the size of their investment spend announcements. It has clearly been noted by the tech C-Suite that, if you announce huge investment spend on chips, data centres or any AI related infrastructure, your share price and stock options go up. Microsoft says $100 billion, Google says $85 billion, Alibaba says $53 billion and Nvidia thinks they’ve a better twist. This week Nvidia promised to invest $100 billion in ChatGPT parent, Open AI. Excellent news but where’s the $100 billion going? Ah, that would be mostly going back to Nvidia whose AI chips will be used in Open AI’s data centres. Yep, readers might see the Baldrick-esque possibilities around circularity and vendors(Nvidia) financing customers like Open AI. Anyway, investors seem optimistic, for now. Moving away from AI, and the risk of over-investment, there’s a bigger worry for US corporates and their share prices.

    The S&P 500 broke another record in recent weeks. Valuations observed by investors these days seem to ignore earnings multiples (Tesla P/E of 200x anybody?) and focus on revenues. However, there’s a traditional metric, the price-to-book ratio, which compares the market value(price) of a company to net assets (total assets minus liabilities aka book value). Where the ratio exceeds 1x, the valuation of the company is capturing ‘intangibles’ like goodwill, brand and future investment/revenue acceleration. Currently, the S&P 500 is trading at a price/book of 5.3x. That’s higher than the peak of the TMT ‘bubble’ in 2000. For context, that metric dropped to 1.6x in 2009. Of course, many companies are more ‘asset-lite’ these days and enjoy higher price/book and revenue multiples. But… there is an intangible element in many US companies’ valuation which is critically important to their premium rating over competitor companies in other countries; goodwill and/or brand power. You can see the potential goodwill problem.

    I’m no Jimmy Kimmel so it’s best be straight rather than funny. Corporate America from Disney to Tesla to law firms is haemorrhaging “goodwill” and brand value. Two thirds of the global middle-class will come from India and China by 2030. Yet, right now the US assets of Chinese video platform, TikTok, are being seized/transferred to White House friendly oligarchs while India is dealing with punitive Ukraine-related tariffs (not Russia?) and a shake-down on vitally important H-1B visas for overseas technology professionals (70% of recipients are Indian). Friendly countries like South Korea are in shock after ICE raids on Hyundai’s plant in Georgia and the detainment of more than 300 Korean workers. Trump’s speech this week to the UN with “your countries are going to hell” could have been shortened to a simple message of “Go to Hell” to the rest of the world. Anecdotally, the news from Canada is a window into future “ally” consumer behaviour. Supermarket shelves are seeing a buyers boycott of many US products as car traffic across the US-Canada border craters by 34% according to latest August data. Meanwhile, corporate America and its leaders cower in silence while the Trump White House vandalises US institutions, global trade and sovereign alliances. The assault on US rule of law is captured in almost every headline emerging from Washington:

     

    Trump’s new ABC threat proves Jimmy Kimmel right – CNN

     

    Former FBI Director James Comey expected to be indicted on criminal charges – The Guardian

     

    Trump pressure on Bondi to charge political foes could backfire – NBC News

     

    US Supreme Court ruling lets Trump fire top official – BBC News

     

    The final headline featuring the Supreme Court is critical to the risk profile of the US. Investors are worried that the Supreme Court will let the Trump regime interfere with the Federal Reserve Board, the most important financial institution in the world. The Fed underpins the status of the US dollar as the world’s reserve currency. That credibility is under threat as the dollar’s value against a basket of major currencies has fallen by 10% this year. That ‘fallen’ bit is people selling the US dollar and buying other stuff. Like Gold. Lots of investors are liking bullion’s 40% increase in value year-to-date. I’m not so sure it’s a positive signal. I’m also watching deposits sitting in US money market accounts hit a record $7.7 trillion, treble the number just 8 years ago.

    These depositors are not the only ones not fully convinced about the US being the “hottest” country on the planet. Investors SOLD $3.8 billion of US stocks last week (Source: BofA Securities) with institutions and hedge funds the biggest sellers by far in one of the highest exit numbers seen this year. Oh, and if record US stock markets sound positive, context is everything. The whole world is up this year and OUTPERFORMING the US. The S&P World ex-US Index is up over 20% year to date compared to US equity markets up only 10%. But…it’s worse than that if you factor in US dollar weakness. Returns for overseas investors in US equities are closer to ZERO this year. To be clear, this re-rating of US assets will happen over years not weeks but commercial contracts, the law and international treaties require a high degree of confidence. Imagine how Canada and Mexico feel right now re-negotiating a deal which Trump himself shook hands on as recently as July 2020. His own deal. Investors will deal too, and consider a sea change in how the US attracts talent (H-1B, visas), investment capital (Fed, US dollar) and goodwill (premium equity ratings). Sadly, US-based investors might struggle for similar analysis in their media.

    Despite Trump railing against windmills (literally) and media bias, the awkward truth is that the wealthiest person in the world, Elon Musk, owns Twitter/X. The second wealthiest person in the world, Larry Ellison, owns Paramount(including CBS) and will now be taking over TikTok and CNN. Jeff Bezos owns The Washington Post and Twitch. Mark Zuckerberg owns Facebook and Instagram. Throw in Larry Page as Google’s controlling shareholder and that looks like the top 5 richest men in the world are ALL media owners. It also looks like oligarchy. US corporate leaders should also consider another consumer shift within the borders of the US.

    Research from Moodys using Federal Reserve data shows the top 10% of earners in the US now account for 50% of all consumer spending. In the early 1990s (before Fox News) that number was closer to a third of all spend. Disney just discovered (as corporate America said zippo) that the average person felt that taking a comedian off air after government threats was plain un-American, and proceeded to cancel in massive numbers their Disney+ and Hulu subscriptions. Maybe, the 90% will push back on other White House over-reach? I’m not so sure, and that’s not good for US assets or pensions in the long run. Investment securities, after all, are contracts and the undermining of the rule of law will end in tears. Or, something less oligarchic. As my favourite bear strategist, Albert Edwards, said this week when posting the Bloomberg chart below, “When I look at this chart, I look at my calendar and just wonder when I should pencil in the next revolution..”   The chart dramatically shows consumer sentiment splitting sharply between the ‘have yachts’ and ‘have nots’…..

  • Are We Ready For Another Banking B-AI-L Out?

    Are We Ready For Another Banking B-AI-L Out?

    Domestic business and investing titan, Dermot Desmond, upset the orthodoxy this week. Ireland’s 500-year plan to build the Metrolink might be cut short, even ended. Desmond suggested the €12 billion urban rail project due to start in 2028 could be a white elephant project superseded by AI and autonomous-driving vehicles. Any bets on the kilometres per annum build speed on this 18 kilometre ‘monster’? Actually, don’t bother. Reflect on China’s average motor expressway construction build of circa 8,000 kilometres per year. Then think about the UK adding barely 65 miles of motorway over the past ….decade. Given the Irish public service obsession with tracking the UK National Health Service or UK Housing/Planning as benchmarks, one shudders to think what our ‘ambition’ could deliver in over-spend and century-shifting deadlines. On a more positive note, AI could be one of the tools which could dig us out of our transport infrastructure black hole.  A bit early to call that one you might say, but I’m beginning to think another crucial economic sector which gets its fair share of criticism is enjoying the halo AI effect. Don’t bank on it but the banking sector is suddenly looking interesting….

    The ”animal spirits” of Wall Street and record financial market highs always help the banking sector. Indeed Wall Street’s banks have just finished reporting quarterly results where trading revenues clocked a whopping $34 billion in Q2, up 17% on the previous year. Yes, the phenomenal gains in AI-focused stocks like Nvidia and Microsoft inflate bank trading revenues and drive increased investment activity but there’s more going on. You might have read about meme-stocks and unheard of companies in the US smaller cap markets (Russell 3000) tripling their share prices since April; 33 companies at the last count and only 5 actually making profits. But, banks as meme-stocks? Really? Well check out the Financial Times headline this week:

    “European banks get their meme-stock moment”

    Not even US banks, but European ones tracking an economic bloc getting its tummy tickled on tariffs by the Fiddler on The Roof of the White House. Can’t wait for the South Park treatment on that one, but back to the FT and European banks. When French banks like Societe Generale see their share prices increase by more than 100% year-to-date then my “spidey sense” tells me this is not about mundane cyclical banking drivers like trading revenues, interest rates or the shape of the bond yield curve. The aggregate European bank sector is up a whopping 40% in 2025 and there could be an (infra)structural driver of this story. Think back to our earlier sniping about Ireland’s struggles on transport infrastructure. Banks have struggled with unwieldy data and service infrastructures which have been a nightmare to upgrade to modern customer expectations. As we have written many times on these pages, the banks sit on some of the richest consumer data on the planet. Critical information on individual and institutional funding, spending and income patterns are in the possession of the banks. What if that data could be mobilised in a far more efficient way using AI and its agentic tools? Like Dermot Desmond’s thinking, could AI allow banks to skip an infrastructure bottleneck? It is early days but let’s take a look at a company you’ve probably never heard about before.

    Palantir Technologies might be named after a Tolkien crystal ball but it looks like its future might be right now, thanks to AI. The Denver-based company has been around since 2003 and specializes in software to analyze or “mine” data. Its early customers were government departments seeking assistance with unwieldy datasets and looking for actionable information. In particular, it gained traction with security/police departments searching for surveillance and predictive intelligence solutions. Sound familiar, or creepy? Park that thought and think banking. Then consider Palantir only just hit quarterly revenue run rates of $1 billion in its most recent results. However, that was enough to make it one of the 20 most valuable companies in America. Stock market investors think it’s worth $440 billion which is bigger than the mighty healthcare player, Johnson & Johnson (J&J) and its 138,000 employees. Yes, if you were wondering if the valuation of Palantir was looking a bit punchy, you’d be correct. Annualized revenues of just over $4 billion (vs J&J’s $85 billion) means the Palantir valuation multiple is currently 110x current revenues. The excitement and valuation is driven by two recurring messages whenever Palantir is mentioned:

     

    1. AI is accelerating the monetization of data infrastructure
    2. AI is reshaping enterprise software and Palantir is uniquely positioned

     

    Palantir is expanding beyond government into commercial sectors like healthcare, finance and energy. The first thing that should strike readers about government and these three specific sectors is that they have enormous customer/user bases. This is the banking sector clue, and possibly its infrastructure B-AI-L out. AI will very likely remove the need for “transition” projects to upgrade data infrastructure and provide banking organizations with valuable action prompts which might even be carried out by AI-agents/bots. That’s a business model ‘Hail Mary’ for the bank sector and Wall Street’s banking analysts are doing something unusual too.

    Typically, bank analysts stick close together and move their recommendations in tandem with their competitor analysts at the other investment banks. Remember, “nobody gets fired if we are all wrong” is an established career strategy for the average analyst. This also means that share price targets set by analysts move in relatively small increments so as not to spook the herd or attract excessive attention to their analysis or models (usually flawed as with all human forecasting exercises). So, I was checking a few market analytics dashboards today and spotted the following:

    KeyBanc target price moved UP from $60 to $100

    RBC Capital  target price moved UP from $63 to $97

    Raymond James target price moved UP from $79 to $95

    Believe me, 25%-65% banking share price target upgrades are not the done thing on Wall Street when TACO Trumpolini is threatening the Chairman of the Federal Reserve Bank on interest rate policy.  So, this is yet another sector to add to your list where the two letter response to any share price move query can be “AI”. However, at a structural level, you don’t need a Tolkien crystal ball to know that technology can transform the commercial prospects of a country or sector saddled with a perceived long-term ‘challenge’. I’m old enough to remember the gloomsters telling us Ireland was destined to perpetual under-development because we had no energy resources and could never compete in manufacturing/building things. Who knew? Maybe, the leaders who finally gave up on Ford in 1984 after welcoming and watching Apple begin manufacturing in Cork in 1980…..

     

  • Big Beautiful Bull Market Or Bust?

    Big Beautiful Bull Market Or Bust?

    It has been a very good week for the accused. Vlad Putin gets free war-crime shots at defence-stymied Ukraine courtesy of ‘Whiskey Pete’ in the Pentagon, P.Diddy is acquitted on the worst RICO charges, Bibi flies to Washington without fear of arrest and the US Supreme Court gives King Donald a July 4th gift of even more freedom to ignore other judges. Oh, and Trump’s “Big Beautiful Bill” was passed in the US Congress. Tempted to laugh, cry or rant? Don’t. Investors need to focus on the ‘cards’ dealt and be alert to an investment environment which is increasingly looking like a “Big Beautiful Bull Market”. Despite ongoing tariff tantrums and confusion (Japan and South Korea getting their letters as I write) we should be keeping a close eye on a number of market developments.

    The obvious pulse take on investment market health is the performance of stock markets. Irrespective of dollar weakness, the key US benchmark indices of the S&P 500 and Nasdaq hitting all-time-highs in recent days is a strong positive signal to investors. But it’s not just the headline numbers which are flashing green. There are additional promising signals in different parts of the capital markets. Many commentators believe the markets are entirely driven by AI optimism so it is no harm to see the AI chip poster child, Nvidia, regain its crown as most valuable company on the planet and gently ease its way to within 2% of a $4 trillion market value. The all-too-recent excitement about the first trillion dollar company (Apple in 2018) seems almost quaint amid such phenomenal acceleration in wealth creation. And, there’s more AI chip good news in Washington’s Big Beautiful Bill.

    There’s a quasi-arms race going on globally in AI chip manufacturing which the Biden administration spotted and supported with the CHIPS & Science Act. Trump might be happy to burn the planet (and Elon Musk!) by reversing the electrification revolution championed by Biden but…. he’s not reversing the CHIPS tax incentives. In fact, Trump’s bill has increased investment tax credits from 25% to 35% for any manufacturers building new facilities on US soil.  It’s not the only recent policy win for the industry. Last week, the US Commerce Department told leading semiconductor design software providers — including Synopsys and Siemens — that they are no longer required to obtain government licenses to conduct business in China. One can be sceptical about the true value being created by AI but there’s no doubt real money being spent by Big Tech companies like Microsoft, Amazon and Google has massive knock-on positive impacts in the global economy. Forget that old canard of “trickle down” tax reliefs for the wealthy benefitting the wider economy, but corporate incentives really do work. Indeed, if you want money to flow into the economy then it’s always good to see banks become more ambitious in their lending activities. Even better, if an entirely new bank comes along.

    Silicon Valley Bank may have failed the basics of asset-liability matching (term horizons) in 2023 but the venture funding world never really managed to fill that $218 billion gap left by the early-stage champion. Now, there are reports Musk billionaire buddy, Peter Thiel, and an investing team of tech titans have applied for a bank charter. The new bank will be called Erebor, another Tolkien reference like Anduril and Palantir, to assist the ‘innovation economy’ and companies engaged in developing cryptocurrencies, AI and next-generation defence technology. Banks don’t usually emerge in risk-off moments so there must be some confidence bubbling back into the private early-stage investing world. Of course, it’s great to see new money or new bank flows IN to riskier parts of the investment market but what about getting OUT the other side of the risk journey? More good news.

    IPO data compiled by Bloomberg shows that a slowish start to 2025 has delivered some very interesting performance figures. The weighted average performance of companies whose shares made their debut on US exchanges in 2025 was a punchy 53% compared to single digit returns year-to-date on the S&P 500. The highlights were stablecoin fintech Circle up a whopping 585% since its IPO in…. June. Not far behind, cloud computing player, Coreweave, has returned 300% since its March listing. Suddenly, but not surprisingly, it’s raining IPOs with another high profile fintech, Wealthfront, filing for IPO.  Crypto exchange, Gemini, has filed for a public listing too. Europe didn’t miss out on the IPO fun either in the first 6 months of 2025– a weighted average return of 38% for its newly listed companies is not too shabby. They are the public liquidity or exit events a market needs to see for confidence to flow into the early stage private markets and there’s early evidence of increasing optimism.

    Medtech VC funding activity had its best quarterly performance since 2022 with $4 billion invested globally in young companies (Source: Pitchbook). Meanwhile the value of VC exits hit a 3-year high in Q2 with almost $115 billion of deals completed and exits celebrated. It can be a little too easy to criticize the US these days at a political level but Europe needs to look in the mirror. This article mostly cites US capital market develoipments. For good reason. Mark Rubinstein in his excellent Net Interest newsletter titled “Ode to America” this week put it well:

     

    “European policymakers bemoan that while households in their part of the world save more than Americans, they keep a third of their assets in low-yielding deposits, compared with a tenth in the US. European pension funds allocate just 0.02% of assets to venture capital versus 2% for their US peers. And the median European venture-backed company receives around half as much funding as its US counterpart. European Central Bank president Christine Lagarde recently calculated that, if Europeans matched Americans’ appetite for capital markets, some €8 trillion currently trapped in bank deposits would be unleashed to finance transformation.”

     

    Wowzers. Eight trillion euro. Food for thought but we might need that eight trillion for other things. One can’t ignore that there is a critical part of financial markets which is not as cheery as a Republican pardon party. The half year reviews are in and the mighty US dollar is feeling the heat. A loss of purchasing power to the tune of 11% in just 6 months has not happened since Richard Nixon was President, and then he wasn’t. We might not want to draw a dreamy historical parallel but it is curious how quiet the bond market has been since the passing of the Big Beautiful Bill and its reckless debt implications. If the US dollar is pointing to a credibility issue and ultimately a US bond market BUST, it could be European savings pools which will be needed to stabilise things. The price will be a hell of a lot more than tariff tweaking and that’s not wishful thinking. Even if you’re on the beach, it’s worth following the money right now but do keep an eye on the bond market too.

     

  • Watch Out For The New Stable Empire Build

    Watch Out For The New Stable Empire Build

    Stability wouldn’t be the word of the week. Middle East war, Indian air crash tragedy, horrific school shooting in Graz, the US Marine Corp deployed in Los Angeles and the death of America’s Mozart, Brian Wilson. But… the ground-breaking Beach Boy might also SMILE**. Tortured by mental health challenges for most of his life, his genius is rightly being recognised at a rather weird moment. Thousands of miles away from the Californian beaches which inspired a true genius, a delusional “stable genius” is marking his birthday with a military parade in Washington. The irony indeed of a wannabe emperor, without clothes or genius. However, the sharper minds out there have been busy building another type of empire….Here’s a few timely illustrations.

    Stripe kicked off the week with the $1 billion acquisition of Privy. This is Stripe’s second billion dollar acquisition in less than six months (Bridge $1.1 billion in February) in the area of stablecoins. As a quick refresher, stablecoins are digital currencies (crypto) built on blockchain technology whose value are fixed to the value of a recognized liquid security or currency. In the vast majority of cases the “stable” part of a stablecoin is the world’s chosen reserve currency, the US dollar. This means that these stablecoins can be instantly exchanged for US dollars, in most cases, at a 1:1 ratio (FX rate). However, I only use the “FX rate” terminology to assist understanding because stablecoins operate differently, and have one massive potential advantage over typical foreign exchange (FX) rates. They cut out all the intermediaries’ costs and “toll takers” that drive us all to distraction at airports when it feels like a robbery rather than a financial service has taken place. This digital capacity to cut out costs and deliver ‘frictionless’ currency services has been identified by Stripe as an enormous opportunity to “grow the GDP of the internet”, namely e-commerce. Two deals in 6 months demonstrate that strategic appetite.

    Stripe, as a global leader payments platform, bought Bridge specifically as a platform for payments in stablecoins. Bridge provides the payments infrastructure for financial services companies to issue stablecoin-linked Visa cards. So, that covers the payments bit but Stripe has moved further into stablecoin infrastructure with its Privy acquisition. As Stripe CEO, Patrick Collison put it, “Money has to reside somewhere, and Privy builds the world’s best programmable vaults. Alongside our other stablecoin work, we’re looking forward to enabling a new generation of global, internet-native financial services.” In relatively simple terms, Stripe has acquired the ability to handle stablecoin payments AND the digital wallets (vaults) needed to store those digital currencies. Note, this is not some futuristic ‘bet’. This is a very current service. Indeed, Mastercard reckon one third of Latin American consumers have already used stablecoins for purchases. And, it’s not just “Main Street” embracing stablecoins. Wall Street is buzzing this week.

    The IPO of Circle on the NYSE was 25x over-subscribed before it even began trading last week. Circle is the issuer of probably the safest and most transparent stablecoins, USDC, which is pegged 1:1 with the US dollar. By the end of its first week of trading, Circle’s share price had rocketed 378% above the IPO price to reach a valuation of $32 billion. Clearly, Wall Street’s frenzied embrace of digital currencies, wallets, payments etc could spell trouble for the traditional custodians of currency storage and movement, the banks. They are moving too.

    French banking giant, Societe Generale, announced this week plans to launch a publicly tradable dollar-backed stablecoin. Societe Generale is the first major bank to enter the stablecoin market and has named its new digital currency “USD CoinVertible”. Meanwhile, in the US, Congress is poised to pass legislation to create a regulatory framework for stablecoins. Bank of America could launch a stablecoin, its CEO said earlier this year, and some other large banks are also considering issuing a joint stablecoin. The banks won’t be alone.

    The world’s two biggest retailers, Amazon and Walmart, are looking into issuing their own stablecoins for US customers to use at checkout instead of credit or debit cards, the Wall Street Journal reported yesterday. The WSJ article suggested other big companies, including Expedia and some airlines, are also considering the move. The motive is simple and relates to my earlier explainer. Costs. Stablecoins are hugely attractive digital innovations to process payments quickly and potentially save corporations billions of dollars in swipe fees that they pay every year to credit card companies, banks, and fintech startups like Toast and Square. Businesses forked out over $172 billion in US transaction fees in 2023, a near 50% increase from before the pandemic, as more customers went contactless. Even Washington is taking notice, and is moving legislation with, again, a teeny weeny bit of irony….

    The US Congress is due to vote on a bill known as the GENIUS Act (the other crypto legislation due is the STABLE Act, I kid you not)  which would give private companies a blueprint for issuing their own stablecoins. That vote could be as soon as Monday, and rely on a body politic flushed with the narcissistic joy of watching a military parade on the streets of Washington DC – an exercise once the autocratic preserve of the Kremlin, Beijing or Pyongyang. It’s a strange new world, but there is still real genius and opportunity out there.  Watch that stablecoin empire build….

     

    **Brian Wilson and the Beach Boys began recording their album, Smile, in 1966. Brian was convinced it would be his masterpiece. Struggles with mental health intervened, and delayed the release of the album until almost 40 years later. TIME magazine described its ultimate arrival as “rapturously received” and ranked it as one of the ten best comeback albums of all time.

     

     

     

  • Three Winning Hidden Trends

    Three Winning Hidden Trends

    I was tempted. The “buddy breakup” in Washington between the Taco Toddler and the Ketamine Kid is fabulous writing material. But, no. The real risk these days is being distracted by America’s slide towards lawless autocracy and missing something bigger. Eighty one years ago on a June 5th morning President Roosevelt brought good news to the American people and its allies. Rome had been liberated by Allied troops – “The first of the Axis capitals is now in our hands.” Little did Roosevelt’s audience know that later that day paratroopers would be dropped into northern France ahead of 7,000 ships landing on the D-Day beaches of Normandy on June 6th. Fast forward to that anniversary today, and there are winning opportunities again being potentially obscured by Washington broadcasts. Indeed, it’s possible you may have missed some striking data updates to three huge investment trends this week. Let’s dive in.

    Last month at its annual Stripe Sessions conference, CEO Patrick Collison identified the “gale-force tailwinds” of AI and stablecoins. The first tailwind trend won’t be a surprise to any readers of our AI article last week but it was intriguing to hear Collison say, “Stablecoins are the underdog everyone’s sleeping on.”  He also had an interesting take on the macro “noise” and uncertainty prevalent in today’s business world – “when new technologies collide with a turbulent economy, the technology tends to win”. That seems a prescient call this week when we briefly touch on AI and reflect on its chip champion, Nvidia, revealing its latest quarterly results. Despite tariff disruption of its China business, Nvidia beat Wall Street analyst expectations and regained its status as the world’s most valuable company. Thanks to a 50% surge is its share price over the last 8 weeks, Jensen Huang’s chip behemoth is worth $3.4 trillion. The latest data point on stablecoins was also quite eye-catching.

    Not long ago Circle Internet Group was saved by the US government when Washington guaranteed deposits at the collapsing Silicon Valley Bank(SVB). Circle as an issuer of dollar-backed stablecoins was the top dollar depositor customer at SVB. However, this week the newsflow was way more optimistic as Circle waited to IPO on the New York Stock Exchange. Reports suggested investor interest was massive and the listing was 25x over-subscribed. Not surprisingly, with more buyers than sellers, Circle’s share price surged 168% on its first day of trading to a valuation just shy of $17 billion. It’s difficult not to conclude that stablecoins have “arrived” and investors are excited by Collison’s own description of stablecoins’ “real world utility in regular business”. In fact Stripe confirmed stablecoin issuance has increased by 39% year-on-year while “demand for borderless financial services go through the roof….at a growth rate which eclipses anything we’ve seen before in Stripe”. Ok, that’s two winning trends. The last one won’t surprise but the numbers might.

    Private equity (PE) and its billionaire leaders could be doubting their love-in with the Taco Toddler but they are not the only PE-related cohort in doubting mode. PE investors are quietly wondering how private equity houses are going to deploy the $1.2 trillion of ‘dry powder’ which is currently sitting on the side-lines and hurting overall return on investment (ROI) figures. A quarter of that massive total has been available for the last 4 years (Source: Bain &Co). However, there is no doubting our mantra “the future is private” when you consider private equity now controls a record 29,000 companies worth more than $3.6 trillion.  But, there are cyclical challenges. Higher interest rates, reduced IPO activity and M&A paralysis (execs can’t Taco trade those deals) don’t help valuations or exits so it’s worth noting global PE fundraising has declined for 5 straight quarters. Global PE raises in Q1 were down 33% per Pitchbook/Bloomberg reports but that cycle might be about to shift. The Wall Street Journal this week reported that the software-focused PE giant, Thoma Bravo, has just raised a staggering $34.4 billion which is the biggest funding round since the start of 2024.

    As a final thought, one must be mindful that as investment funds become bigger and bigger their opportunity pool shrinks due to size and liquidity constraints. On the other hand, as the ECB cuts interest rates, Ireland GDP growth hits almost 10%, German equities touch all-time highs and Trumpolini begs President Xi for a trade détente, it is arguably a particularly good time for investors to think small, and think private. So, if you want to build a private asset portfolio quickly, Spark Private can certainly help with a very exciting summer EIIS** pipeline of PhD-packed medtech innovations, real-time AI applications, 3-year infrastructure exits and super-growth software stories. Do not be distracted. Check out www.sparkprivate.com  and, as my old boss used to say, “They ain’t door numbers, they move !!”.

    ** EIIS tax rebates of 35-50% on your 2025 personal income tax.

     

  • Big Beautiful Bull Breaks Bonds…

    Big Beautiful Bull Breaks Bonds…

    Here we go again. Toddler throws tariff tantrum again, and then some. I’d say “Happy Friday” but our screens have just puked up a headline about 50% tariffs hitting Europe within the next week. Clearly, the crypto-corruption-fest dinner last night in Virginia didn’t lighten Agent Orange’s mood. Indeed, in the past few hours we have also seen Harvard’s entire international student programme blown up by a planned White House denial of education visas and Apple have been threatened with 25% tariffs on foreign manufactured iPhones. Only a few weeks ago commentators were flagging that trade policy had already changed more than 50 times since Trump 2.0 entered office, rather than a prison cell. One could despair, or even ignore the headlines, but in the bowels of the financial system something is stirring. At first, you’ll be alarmed but there might be an optimistic twist to follow. First, let’s look at the finance stuff.

    The global tail wagging the dog (or DOGE) is the bond market. Specifically, investors in US bonds (Treasuries) are worried about a now centrally-controlled economy run by a fella who almost uniquely bankrupted a casino. There were two events this week which signalled increased investor nerves about US debt and Washington’s ability to rein in its budget deficit. The catalyst was the passing of Trump’s “Big Beautiful Bill” by one vote in the House of Representatives which was a mix of spending cuts for poorer Americans and tax cuts for the rich. Economist, Robert Reich, estimates the have-nots will lose $700-$1000 of benefits (including Medicaid) while the have-yachts in the top 0.1% of US society will pocket an extra $390,000 per year. Sounds ugly, but the bond market is clearly not buying the thesis that making oligarchs richer will benefit the nation overall. Nope, investors in US Treasuries expressed their concern in two ways:

     

    1. US Bonds of longer maturities (20-year and 30-year Treasuries) were sold by foreign investors which resulted in the yields(rates) on those bonds rising. In simple terms, when a bond falls in price, its yield or rate of interest rises to hopefully attract new buyers.
    2. A regular auction of 20-year bonds conducted by the US Treasury was received poorly and forced the Treasury to offer higher yields to attract sufficient investor interest.

     

    The blunt impact of these events is that US bonds are becoming less attractive for investors and so they are demanding higher yields (interest rates) to compensate for the risk of policy lunacy in Washington. Think Liz Truss and lettuce economics and then put on your helmet. The undermining of the credibility of the US bond market is a far bigger deal than turbulence in the British bond markets. The critical point about US bonds is that they are the source of the primary building block in every debt or investment calculation around the world. You will see it referenced as the “risk-free rate” of interest which makes the presumption that the US would never default on its debt obligations. Did anyone say bull…..??? Well, the whole world is beginning to wonder is the next toddler tantrum going to be the stiffing of a sovereign counterparty on a debt repayment. And the casino cracker guy has form. However, it will be US citizens who suffer monetarily first.

    The price of mortgages, auto financing, insurance, credit cards, BNPL rates will all rise as ‘risk-free’ interest rates rise. The scary thing is that the concept of “risk-free” returns on dollar denominated debt being trashed will impact the entire financial system and the calculations of everything from M&A deals to commodity prices.  Hopefully, this might spook the right people in Washington, including the 100 Senators who must vote on the “Big Beautiful Bill” too. There are potentially a few other things that might catch their eye.

    Firstly, credit default swaps (CDS) which this country became familiar with prior to Troika/IMF intervention can measure a sovereign state’s risk of default. Right now, the financial markets (through these CDS instruments) are pricing US default risk higher than…. Greece. Second, somebody might spot a little flaw in the MAGA make- everything-in-America dogma. Sure, the US has trade deficits on goods. But, what about services surpluses? More importantly, and a critical input into all GDP calculations, is foreign investment in US assets. We have written recently on Japan’s position as the world’s biggest creditor/investor in foreign assets. But, do you know the country which has the world’s worst, or most negative, net international investment position…? According to research by Deutsche Bank, that would be the good ol’ USA in the chart at the end of this article.

    Finally, as institutional vandalism is in full swing in Washington, the rest of the world is hoping the independence of the Federal Reserve (the Fed), and its Chairman Jay Powell, can be preserved. Again, there is breaking news and it’s not so good. The US Supreme Court overnight has decided that it is comfortable with the idea of independent government agencies (like the FTC, FCC, EPA etc) being abandoned. Instead, the right-wing constructed court has embraced the idea of a “unitary executive” which means Trump gains control over these agencies. However, the majority decision of the court stated that the Fed was not covered by this judgment.  For now. There is perhaps a wider perspective than Fed independence. If US rule of law is under threat, that will ultimately feed into US bond market weakness. Bonds are, in effect, a legal contract between the USA and investors. And, I’m quietly hopeful international bond market investors are going to be bullying quite a few US Senators before they vote…..and understand the impact of the chart below.