Was The Post-Midterm Hyperscaler Rally A Bull Trap?

All right. Good morning everybody. Good morning all you magnificent melon heads of the world and happy Thursday everybody. Remember remember the 5th of November. Our top story today is the hyperscalers and the Dow are ripping ripped yesterday. Huge move in the Dow, big move in the hyperscalers, but meanwhile, everything else data center related burns. Yesterday was one of the craziest days I've ever seen. We saw semiconductors get obliterated, neoclouds get obliterated, yet the NASDAQ was higher. Since when does that happen? And of course, the Dow 1,500 points higher yesterday. You can add another 400 ahead of the open this morning. The Dow is just ripping. So, so what's going on? We're we're selling data center and infrastructure stocks and we're rotating into the mag 7 the biggest builders of data center in the world the hyperscalers apparently so because the mag 7 stocks at m minus nvidia mind you uh all rallied 5 to 7% yesterday now the neoclouds the data infrastructure stocks they just got absolutely destroyed there was a great post on X yesterday listing all of these data center infrastructure names all down double digits 10 to 20% %. And then of course we got, we'll show this later in the show, what I consider to be just the dumbest headline I have ever read in my life. And yet I'm kind of struggling to disagree with it. And I know that's something of a contradiction, but this bubble is just so ridiculous. It's the market is so out over its skis and it has been for three years and now it's just it's flipped over itself several times and it's still sitting there like so far so good. Yeah, the ground's getting closer. Uh but we're going to talk about this headline and what it means. Here's the gist of it. The midterms and the Democrats are going to force the hyperscalers to cut their capex because of blocking data center projects. And this is somehow a good thing. That's that's the gist of it. Now, okay, yeah, I get it. It is a good thing because in my opinion, this money is being burned and it's never going to come back. And so, forcing them to stop is a good thing. But that's not a reason to run out and buy the stocks because that's also an admission that this monster run in these companies over the last few years has been a mistake and that all that capex that was invested was lost and it's not going to come back. There's not going to be an ROI. If you're happy that the midterms forced the hyperscalers to cut their capex, then you're also admitting that this capex has been a mistake. And so why are these stocks ripping? And there's more. Because when these data centers get cancelled, keep in mind most of the debt for these data centers is through special purpose vehicles. They're hiding how much money they've borrowed. Well, when those projects get cancelled, that debt starts to go bad and it gets it's called consolidated. All right? Ask anybody who ever owned Enron stock. What happens when special purpose vehicles get consolidated back into the parent company's balance sheet? Yeah, great things happen. All that debt comes back on the books and suddenly the people who cosign for it, now they're on the hook for it. And then all those contracts, all those remaining performance obligations and backlogs, those start to get canceled as milestones are missed. Oh. Oh, well that's not so good. And then the depreciation comes in and there's no corresponding increase in earnings to offset that. Whoops. And what about the thousands upon thousands of GPUs that are sitting idle on shelves as we speak that will never be turned on because they can't get the data center built now and the bubble's pretty much over. What happens to that money that was invested in those? What kind of a write down are the companies going to take when they sell them for scrap value 5 years from now? Earnings are going to be demolished by this. The MAG7's earnings are going to take years to recover from this. Yeah, the free cash flow problem may be resolved or at least not get worse, but there is plenty of bad news ahead for the Mag 7 on here, but apparently this is all great news and people bought the stocks on this yesterday. Okay. Okay. Hey, I'm new at this, so maybe I just don't get it. Now, there was one big silver lining to the big gray Neo cloud yesterday, and that's this company called Nex DC. And we've spoken about Nex DC over the last couple weeks. they uh they were a data center or they are a neocloud in Australia. They have been trying to IPO and they had to cancel a big project in Melbourne because they can't get power or that project is delayed. Um so we've covered this one recently, but that stock while all the other Neoclouds were selling off high double digits yesterday, that stock actually ripped 51% when uh US data center operator Digital Realy took a stake in the company. That's kind of interesting. things in the US not going so well because of the midterms. Might as well buy a chunk of a struggling data center operator in Australia. I don't think it's going to pay off for them, but I understand what they're doing. They're trying to pivot to a new region that maybe is more friendly to data centers and they'll give Australia a go even though we already found out that company can't get power. So, that hasn't changed, but I wish you luck. And then we've got this company Isomorphic is in the news. They're raising $5 billion at a $50 billion valuation. Once upon a time, that was a lot of money. $50 billion. Yeah. Isomorphic wants 5 billion at a $50 billion valuation. This is an AI drug discovery business that was spun off from Google's deep mind. Now, this is interesting because this story broke yesterday about a half hour after this article in the Wall Street Journal about all the drug makers calling on Silicon Valley and all their promises about how AI is going to cure diseases and cancer and 90% of the diseases affecting humanity will be canceled within seven years. People really say these things with serious straight faces. They say these things even though we have not yet seen a single AI developed drug receive FDA approval. And the drug makers are like, you know, these things are helpful. They're useful, but all the things these tech bros are saying, it's BS. Huh? Nobody saw that coming. How about that? Meanwhile, we've got Goldman and Apollo are trying to sell a $40 billion chip financing deal that they made with a SpaceX special purpose vehicle. That's going to be interesting to see how that plays out. They've already agreed to the terms. They haven't priced it yet. They're on the hook for it. and now they're trying to find buyers. What if they can't find buyers? Well, then they're stuck holding that loan on their books. And of course, they'll probably do what the other guys have done, just start issuing uh significant risk transfers, SRTs, and offloading that risk onto pensions and people's retirements. Meanwhile, Apple announced yesterday that they are cutting their AI usage budgets for employees, joining the ranks of Microsoft, Tesla, Uber, and Meta, who have all done the same in recent months. It must be because the demand is so insane that all these companies are cutting their demand. But yeah, don't let that interfere with your tech bro narrative by all means. Now, changing gears and shifting across the pond to Europe. We've got the Bank of England just hiked interest rates by 25 basis points today. That's their first rate hike since 2023. They're the last of the major Western central banks to do so. And it comes just as Euro area producer price inflation or PPI rose sharply to 11.1%. Higher energy prices are the culprit there. Europe and the US, we still got this inflation thing going on. That's right. And uh well Kevin he's got his December FOMC coming up. Probably going to hike at that one. Kevin over at the Fed. We've also got a copper squeeze going on in China. That is an interesting story. The price of copper going ballistic in China but only in China even though copper is near all-time highs in the West. And last one we're going to talk about for today. Stick around for the end of the show. We have got a bank failure in Paraguay. A big one. This one is ugly. I may have more to say about this bank in in the days, maybe even hours ahead, but we'll at least give you a quick run through what happened at UAO Bank in Paraguay. Yikes, baby. Yikes. Guys, we got a lot going on today. How about we shrink my big melon of a head and let's see what's going on in the world of finance. Don't forget the like button and your new guys, hit the subscribe button so you can come back tomorrow and have your coffee with us, melon heads, cuz we do this every business day. And right now, the S&P 500 is lower by one. Count them one points. 01% just breaking into negative territory. We have got the Dow is up 316 points now. It was up over 400 points at one point after yesterday's stunning 1,500 point move in the Dow. That was unreal. The rip in the Dow we saw yesterday. Adding to that today a little bit. And the NASDAQ though is selling off, giving up yesterday's gains, down 323 points, 1.13% lower. Guys, I would not be surprised to see all of those gains and the MAG 7 stocks from yesterday evaporate in very short order, maybe even before the end of this week. Uh I think people who were buying the MAG 7 on that story yesterday probably haven't really thought through two, three moves ahead and realize what it really means. And when they do, well, they'll be getting out. Now the selling was also extending into South Korea. Yesterday we had the Cosby index otherwise known as SKHix and Samsung sold off five and a quarter% yesterday triggering side cars, trading halts, all that stuff. Stocks aren't allowed to go down. We shut things off whenever it gets too heavy. Uh so the volatility returning to South Korea following the midterms. Looking over at the US dollar, we're at 101.64, 64, higher by 11 basis points this morning, but still down since the midterms. And looking over at interest rates, we're a little bit higher here this morning. The 30-year yield is at 5.287. That is higher by a fraction of one point, not quite one point. 10-year yield 4.906 higher by one point in change. We've got the 2-year yield 4.620. That is higher by almost four points. And the one month is actually down a fraction of a point at 3.909. Looking over at Bitcoin, Bitcoin had a hell of a day yesterday, rallying over $3,000, back above the 80,000 mark. We're giving up about half of that now. Here, $79,278 for Bitcoin is priced on Coinbase. That's lower by about 1,100 bucks, maybe a little more than a third of yesterday's gains now going away. And again, oh, the Democrats swept the midterm. Buy Bitcoin. Uh, okay. That that's a different choice. Sure. Good. I I don't get it. But that's apparently the message yesterday because reasons. Looking over at the commodities board, gold also ripped yesterday, adding to those gains today. $4,127 an ounce, higher by 67 bucks or 1 and 2/3%. Spot looking good here as well. $52.97 after briefly dipping into the 40s earlier this week. That's higher by 73 or 1.4% this morning. I really wish I had gotten that video I did with Bob Coleman out on Tuesday when we recorded it. It just we we met in the day a little bit late and by the time we were done recording it was too late to get that thing posted that day. So I ran it yesterday. Bob Coleman did an excellent job. We were speculating on the reasons why gold and silver may have sold off so hard in October despite an apparent flight to safety and we had commented that there's a lot of things suggesting gold and silver were were primed for a bit of a bounce here and then well we got that bounce before I could publish the video. So anyways, we did record it before the bounce happened and just mind you. Uh let's see what else we got. By the way, I like this shiny. I don't know if you guys heard that. Uh copper is higher by about.1%. Platinum higher 2.9%. Palladium higher by five and a half percent. Crude oil is up by about two bucks here. There$1.70 this morning, 1.9% higher. 8977 for December WTI futures. But we got to talk about oil. It's it's a little higher this morning, but we actually had a big selloff in oil yesterday. Let's take a look at the oil chart here. Take a look at the selloff at the beginning of this week. Rather substantial here. Almost 20% at one point. I mean, we were what we were about 105 and we bottomed out at 86. So, not quite a 20% selloff in WTI over the beginning of the week, including about eight or nine dollars yesterday. So, let's talk about what happened here. This one in Bloomberg this morning. Oil climbs from two-month low as traders parse Iran war outlook. Brett crude rose for two-month low rose from a two-month low after tumbling almost 9% in the previous session as investors bet that a democratic sweep in the US midterm elections could accelerate efforts to end the war in the Middle East. The international benchmark traded above $96 a barrel while West Texas Intermediate was near 89 after falling the most since May on Wednesday. US President US Vice President JD Vance said voter frustration over the war and USIsrael relationship doomed Republicans in the elections. Meanwhile, Senate Majority Le Senate Minority Leader Chuck Schumer, who will soon be Senate Majority Leader, a Democrat, pledged to end the conflict that's now in its ninth month. The prospect of easing tensions has pushed Brent down almost 20% this week. Yet, uncertainty persists in a market that has swung wildly during the war. While crude exports from the Persian Gulf have rebounded near to pre-conlict levels, shipping in the region still faces constant risk of attack, and USI talks are yet to move toward a resolution. The oil market is clearly pricing in an increased likelihood of a diplomatic breakthrough. But Tyrron and Washington must now demonstrate a genuine willingness to compromise, said Ulles Hansen, head of commodity strategy at Saxo Bank. Without tangible progress, the recent sharp decline in prices could quickly reverse. And I mean that that's it, right? This deal or no deal thing, this we'll call it. U both sides need to demonstrate that they're serious about ending the conflict. And let's be honest, neither side has done so. They they both talk a big game. They both talk a lot, more than we wish they would. Um, but they both talk a lot. Very little talking to each other, a lot of talking past each other. No progress yet. And look, there's still men and material being moved into the Middle East. They're they're scaling up. There were some air strikes in Lebanon yesterday by the Israelis. So, no end to the conflict in sight, although the oil traders seem to think so. All right. Now, let's talk about what I consider the dumbest headline I have ever read in my life. And yet, it it it kind of makes sense, but it's still it's just so stupid. Big tech soarses on bet Dems will save AI spenders from themselves. Think about that. Big tech soarses because the Democrats will save them from themselves. In other words, the AI capex spending has been a mistake and we're glad it's over. But that's not a reason to run out and buy the stocks for crying out loud. Shares of US tech giants led the market higher on Wednesday as investors bet that a democ Democratc controlled Congress will slow the massive spending on artificial intelligence that's eating up free cash flow. Amazon was up as much as 8.3%. Microsoft gained seven. Alphabet jumped 5.9%. Meta advanced 3.6 together with Apple which is which has avoided heavy AI spending and leaped more than 6%. The five tech behemoths are on pace to add nearly $1 trillion in market value on Wednesday. Uh Nvidia and Tesla, by the way, were negative. Democrats secured majorities in both the House and Senate. Okay. Yeah, we know about that. Flipp flipping a bunch of states. The party candidates ran heavily on slowing down AI development, in particular checking mass construction of data centers. The market is acting like this represents the end of the AI buildout, said Robert Pavick, senior portfolio manager of Dakota Wealth Management. If that means the hyperscalers aren't spending ridiculous amounts of money to build out compute, that means they could become cash flow positive again. And I agree. All right. It it would be good if they became cash flow positive again. And it would be good if they stop their spending, which I do consider to be a ridiculous amount of money on AI that will not make them a return on investment. But Robert Pavick, senior portfolio manager at Dakota Wealth Management, that also means you're admitting everything they've done for the last 3 years has been a huge effing mistake. And that several hundred% rally in all of these stocks therefore should be unwound. So what the hell are people doing buying the hyperscalers now? And think about it. I mean, we don't really know how much SPV debt is out there. I have heard that the number could be over a trillion dollars. And understand, just because they're hiding it off their books, doesn't mean they're not on the hook for it. All right? Because with special purpose vehicles, there's this thing called consolidation. When that debt goes bad, when the shell company they set up to to borrow that money defaults and goes under, that debt comes back onto their books. And now Meta, Microsoft, Google, now they're responsible for that debt. All of a sudden, we can see how much money they secretly borrowed. And now they're on the hook for the interest and the service cost and the principal payback. And that's what torpedoed Enron. That's exactly the failure mode of Enron. This is not good news for the hyperscalers. This is horrible news for the hyperscalers. That's we we've stopped this reckless behavior. Great. But you're also admitting it's been reckless this whole time. And then look at this one from Leaf Investing or Leif Investing saying, "Wall Street is declaring the AI infrastructure buildout is dead." And I agree it is dead. Welcome to the AI bare market. The captain goes down with his ship. And take a look at some of the stocks that he's posting here and the moves. Cipher Digital down 22%. Hut 8 down 21%. Sterling Infrastructure 21%. Forgant Power 19%. Masttec 15. Vistra, Verdive, Iron, Quana Services, GE, Vernova, Credto Technology, Lummentum Holdings, all down double digits. Oh, there's a whole other page of this stuff. Celestica, Corewave down 10%. Oh, I love those guys. Applied Opto Electron Eaton Dell Bloom Energy Constellation SanDisk Penguin Solutions Coherent Corning Seagate all down 7 to 10%. Anything data data center related is selling off like crazy except THE PEOPLE WHO ARE BUILDING THE most data centers. Their stocks are ripping. Somebody make it make sense. Somebody please. Nobody's special, right? No, no formal pedigree in finance, right? I try to wear that on my sleeve. I stamp it on my forehead. I'll be the first to admit I just don't get this. How are the people building the more more data centers than anybody else rallying while everybody else that is one step removed from them is getting absolutely destroyed. And again, this story, this is the dumbest headline I have ever seen. I'm really struggling with this. All right. Now, there's a silver lining though, especially in the uh especially in the data center space here in the Neoclouds. Next DC shares soar nearly 51% after Goodman and Digital Realy staked purchases. Shares of Australian data center operator NextDC closed 50.84% higher on Thursday after Goodman Group and USlisted data center operator Digital Realy moved to acquire stakes of up to 9.9% in the company. In a regulatory filing on the same day, NEXDC said the two companies conducted an aftermarket book build Wednesday, seeking shares at a $9.50 Australian price. Next DC's board called the move opportunistic, noting that it came two weeks after the company disclosed a power supply delay at its M3 Melbourne data center and revised its fiscal 2027 guidance. We covered that story here on this channel last week. Uh take a look at what happened with NextDC stock. All right, so we're looking at a one-mon chart here. Here's where they announced that delay at their M3 data center campus. The stock was about 920 when that happened. It instantly trades down to about five bucks, gives up about 50%. And then along comes Goodman and Digital Realy and they come in and they buy up 10% of the company, bid it right back up to nine and change. So it's basically right back where it was. This almost looks something like a hostile takeover here. You've got an American data center REIT is looking to diversify out of the states because of the midterms. Hey, we've got this Australian company that just took a big hit last week. Let's buy a chunk of them so we have some business that's safe from the Democrats. I'm not sure how safe Australia really is. They've there's data center opposition there as well. Oh, and by the way, the biggest project at this company is still on hold because they can't get power. So, I'm not really sure what their what what their goal is here, what their long-term plan. Uh, but this is the one silver lining to the gray neo cloud of yesterday. Next DC ripping 50% while the rest of the industry just got absolutely bludgeoned. Now, let's talk about Isomorphic Labs, who's in talks for about $5 billion in funding. Alphabet's Isomorphic Labs is in talks to raise roughly 5 billion in new funds to support its efforts to use AI for drug discovery. According to people familiar with the matter, the round would value Isomorphic, which spun out of Alphabet's Google Deep Mind uh at about $50 billion, said the people who spoke on condition of anonymity as the information is not public. A $50 billion valuation is drunk for this company. These guys have no product. These guys have no service. They have no revenue. They have nothing but an idea and a TED talk and they're getting a $50 billion valuation. The financing hasn't closed and details could change, the people said. Isomorphic didn't respond to a request for comment. Londonbased Isomorphic was formed in 2021 out of DeepMine with the goal of building upon the lab's breakthrough alpha fold protein folding model. It competes with an array of businesses trying to apply the latest AI advances to medicine. That includes open AI which this year released a model for life sciences research. We hear all about this, right? All about how AI is going to discover drugs. It's going to cure cancer. It's going to be great. Every there's stories about tech guys started smoking again because they're like, "Don't worry. Sam Alman's going to cure lung cancer." And then we get this one. Look at this. Silicon Valley promises AI will cure disease. Drug maker CEOs aren't buying it. No drug designed by AI has won FDA clearance and farmer leaders say biology is the obstacle. Yeah, it turns out AI doing science. The only problem is science because science is hard and AI is not really that smart. We're just figuring this out now in 2026. The promises are grandiose. Anthropics CEO said artificial intelligence could cure most human diseases within a decade. Another tech exec joke joke that AI researchers had started smoking cigarettes because they're so confident AI will cure lung cancer. Pharma executives don't buy it. That's complete BS, said Jeff Leot Leiden, executive chairman at Vert.Ex Pharmaceuticals, recalling a recent conversation with a tech leader who claimed AI would cure 90% of human disease in the next seven years. That's Daario Amodi, by the way, who's saying that Vert.Ex Ex has used roughly 50 AI companies to comb through its data set of 10,000 drug compounds. Leiden said not one managed to generate a working drug. Hang on a second. Let's let's go through that again. I feel like some of you maybe didn't take the walk with me. All right, everybody. Tinfoil hats at the ready cuz I have a crazy conspiracy theory. All right. Vert.ex has used 50 AI companies, 50 different companies to comb through their set of 10,000 drug compounds. Not one has managed to generate a working drug. 50 companies, 10,000 compounds, zero progress. All right. Crazy conspiracy theory. AI does not discover new medicines. I know. I know. It's crazy, right? Because every day we hear about this on Bloomberg and CNBC. Every day the the the tech bro talking points get more and more hyperbolic. But where are they? Where's the medicine? Where's the cures? It's 2026. We've been talking about this for four years. They've got nothing. It just doesn't work by itself, Leiden said. And any company that says they can do that, at least in our experience, we've looked at most of them, it's not true. In other words, he's calling on AI and drug discovery. But don't worry, good luck with your $50 billion valuation over at Isomorphic. Meanwhile, Goldman and Apollo are in talks to sell SpaceX's $40 billion AI debt deal. Now, this was a previously announced debt deal. Goldman and Apollo basically gave him the money already. Now they have to talk about how much it's going to cost them and now they need to find buyers. Goldman Sachs and Apollo are in talks with Wall Street investors to start selling portions of a roughly $40 billion chip financing deal for SpaceX just as the AI boom braces for upheaval following a sweeping Democratic victory. The two firms have begun approaching potential buyers for the multi-trunch financing. According to people familiar with the matter, the deal structured to keep the debt off SpaceX's balance sheet is the largest arrangement of its kind for GPUs on record. SpaceX has said in some cases, investors are being asked to purchase slices of as much as $500 million before the official syndication process starts in an effort to swiftly close the transaction, the people said, asking not to be identified. Syndication is slated to start soon, according to the people. Yep. You guys, you got to give us $500 million before we can even talk. Okay, that that sounds very responsible, especially when it's other people's money. Um, Elon's Musk's Rocket Satellite and AI venture announced the financing in October with investors agreeing to the package before it priced. That is amazing. Hey, you want to buy a thing? Sure. And then he buys it. And then after he's already bought it, oh, by the way, how much does it cost? Isn't price information you typically need before buying something? Isn't that a vital component of the exchange price? Funny, funny how that works. That has exposed lenders to market risk during a volatile period. Investors have retreated from the AI trade, questioning whether revenues can ever justify the breathtaking spend. It can't. A sentiment that turned lenders against some of SpaceX's Neocloud competitors, including Coree. That's right, guys. SpaceX is a Neocloud now. I I know. Oh yeah, they got their Grock bbot, but Grock is a is small potatoes. Uh SpaceX is now a Neo cloud that does rockets and Starlink on the side. Unfortunately, that's where most of their revenue comes from. Those pressures intensified after the Democrats swept into power in Congress following midterm elections. Data centers too became a fierce electoral flash point, particularly in Texas, which flipped blue just months after freezing new project approvals. Under the $40 billion deal, a win for Musk, a special purpose vehicle managed by Apollo's backed Atlas will buy Nvidia chips and issue the debt held by the lenders. By using this structure, SpaceX protects its corporate ratings. SpaceX will rent the chips through a 5-year agreement, according to the presentation, but it's not providing a residual value guarantee or other commitments that have become common for tech firms to secure financing. SpaceX's obligation to pay rent is absolute. Crucially, the documents show SpaceX cannot use force major clauses to pause payments, a contrast to firms like Oracle, who reported uh cited force major in an attempt to put off its data center obligations. Rent is owed regardless of equipment condition, casualty, or force majour, providing investors with a clean look through to SpaceX credit. In other words, SpaceX has to pay this whether they ever use the chips or not. And that's one of the mechanisms of how this debt, if it ever goes bad, it gets swept right back on the SpaceX balance sheet because it is SpaceX's debt. The debt is structured in several tranches, including an 8.3 billion senior secured loan that will be syndicated to the banks. Uh let's see what Goldman led the loan portion while Apollo was the key investor in the bonds. The debt package along with a lease payment of $7 billion will be used to pay about 47.3 billion of graphics processing unit equipment, namely Nvidia's latest Reuben chips. The document showed the chips will be delivered in the first half of 2027. In other words, it's not too late to cancel this stupid idea. We can all see this bubble is bursting all around us. Why not cancel spending 47 billion on making the problem worse if you're SpaceX? I just throw it out there. you guys do it. Uh you can do what you want with it. But look, $47 billion going right to Nvidia, guys. We got Nvidia earnings coming up in a couple couple of weeks here. They're going to be fantastic again because all of these debt raises, these tens of billions, 11 figure 11digit numbers that are coming up on a daily basis, they're all designed to funnel money to Nvidia. The question is, how much longer can they keep it up? And the answer is not much longer. But for now, Nvidia's earnings are going to be fantastic. And full disclosure, I'm short Nvidia. But the demand is insane. Remember, the demand is insane. And that's why Apple cuts internal AI usage budgets and move to reduce spending. It can't be right. My revenue growth, my token maxing, you know, cuts internal AI usage. Apple is reducing employee budgets for artificial intelligence usage as part of its cost cutting effort, even as the company seeks to put AI at the center of its operations. Last month, Apple quietly lowered the daily spending cap for some engineers using AI models to $200 from 300. That's according to people with knowledge of the change. The company is now planning further cuts for some engineering teams, potentially reducing their daily allowances to as little as $100, said the people who asked not to be identified because the discussions are private. Apple isn't the only company seeking to control AI spending. Microsoft has also tightened internal AI spending allowances, while Tesla imposed a $200 weekly limit on employee AI spending. Uber, meanwhile, capped usage of individual AI coding tools at 1,500 per month. And Meta Platforms introduced token budgets and encouraged employees to shift toward internally developed AI tools. I'm sure Anthropic and OpenAI's revenue growth numbers are safe. I mean, it's not like these are big companies cutting their AI budgets, right? I mean, we're talking about little outfits like Apple, like Microsoft, like Tesla, like Uber and Meta. I mean, as long as this is not big companies cutting their AI spend, we should be okay, right? Yikes. All right. Meanwhile, across the pond in Europe, the inflation problem is getting worse, and the Bank of England is finally doing something about it. Bank of England hikes interest rates for the first time since the Iran war and warns inflation will near 5%. Uh this is the first time since 2023 that they've hiked rates. They raised it 25 basis points to 4%. It was nearly a unanimous vote. There was one denter, but that one denter actually wanted to hike 50 points. So it wasn't even really a disscent. Everybody voted to raise rates. You had one guy voted to raise twice. Uh so the Bank of England is finally hiking rates to fight inflation and just as this information hits we get this Euro area producer prices or PPI and this was not good. Eurozone producer price inflation accelerated sharply to 11.1% year-over-year in September exceeding market expectations for 10.9% and reaching the highest level since February of 2023. That is up sharply from the 8.3% we had in August. Guys, this is diesel, this is gasoline, and this is natural gas energy causing massive producer price inflation in Europe. That will bleed through to some consumer price inflation. We don't know how much. There's going to be margin compression because I don't think European consumers can handle an 11.1% increase in the prices. I don't know if you noticed the streets of Paris are are are somewhat on fire these days because of the cost of living going up and other things. Um so yeah, now let's put this in perspective though. Zoom out 5 years on the chart. All right, so PPI, hey, at least it's not 2022 when it was 40.3%. Yikes. Um but give it time. They're certainly heading that direction. All right, now we got this one. This is a pretty odd story. And this one snuck up on me. We have seen copper prices rise this year pretty substantially. But apparently in China, copper prices are going a little wacky here. China's copper squeeze deepens as buyers scramble for metal. Copper buyers in China are scrambling for physical metal with spot premiums soaring as supplies tighten sharply in the world's biggest consumer. The premium for spot copper in Shanghai jumped to 2,100 yuan or $315 a ton over futures on Thursday. That's the highest since 2021, according to the Shanghai metals market. The surge is the latest sign that immediately available cathode is becoming increasingly scarce as production curves by Chinese smelters tighten supplies. $300 a ton worth of backwardation. That is a significant shortage going on in China. The squeeze is also showing up in futures with Shanghai copper for December trading at a $900 a ton premium to January, the steepest backwardation since 2022. Meanwhile, the Yang Shan premium for imported copper, another gauge of domestic demand, extended its recent surge to a record $200 a ton, $210 a ton. And again, when they're talking about this as a premium, this is the premium above the other futures prices that we're talking about here. So, an extra 900 bucks a ton to get your your copper in December versus waiting until January. That goes to show you how desperate for supply they are short term. The persistent shortage is due to production cuts at domestic smelters and limited supplies from overseas such as Africa and Russia said something I can't pronounce or some guy I can't pronounce or an analyst over at Zigjin Chenfang Futures. Fabricators are buying hand-to-mouth, and that's why they're bidding up that $900 premium to get it in December versus January, because they have to shut down their production lines if they don't get it by then. Copper has rallied to record levels this year as bets the Trump administration would slap tariffs on refined metal drew huge volumes to the US, squeezing markets elsewhere. The surge has eased in recent weeks, however, as concerns mount over the durability of the spending boom on data centers that has become a key driver of demand. All right. So, you got the trade war playing a role here, the AI bubble playing a role here. A lot of the metal left China, went to the United States. Now, that's causing shortages in China. The surge in spot premiums is being driven primarily by a shortage of available metal rather than a growth in demand. That's according to a note from My Steel. While buying has improved slightly following the pullback in prices, the interest has come mainly from large cable manufacturers simply topping up thin inventories. All right, so we got a copper squeeze going on in China. Congratulations to my commodity bulls. And the last one of the day, this one. Boy, this could get ugly fast, guys. And don't for a second think this kind of stuff doesn't happen here in the United States. Bank accounts vanish just before dawn and shock Paraguay shutdown. This is causing riots, by the way. This we're going to hear more about this one. We cannot display your balance. Please try again later. That was all 20-year-old nursing student Daisy Asva could see on her life savings on Tuesday morning when she attempted to log into her account at Ueno Bank, which caters to one in every three Paraguans. Shortly after 3:00 a.m., while most of the country was asleep, Paraguay central bank announced the lender shutdown over a solveny crisis. In other words, the bank failed. The public prosecutor's office then launched an investigation issuing arrest warrants for at least eight people tied to Ueno, including Michael Vasquez, chairman of the lender's controlling shareholder, Groupo Vasquez. President Santiago Pñena was previously an investor in Ueno's holding company, selling his stake in March of 2025. Oh, and guess what? The head of the Paraguayan Central Bank used to be the CEO of this bank, too. Oh, that's fun. Regulators have insisted that the situation is isolated. Isn't it amazing how these are always isolated events and that deposits of up to 228 million granny's or $37,400 would be guaranteed. In other words, a lot of people are going to lose everything over that which the central bank has 15 days to return. Still, that's been little comfort to customers like Asma who are struggling to figure out how to pay for everything from rent and groceries to bus rides now that their deposits have been frozen. In the capital of Asunion, is that how you say that? Asunion customers gathered outside shut shattered branches looking for answers. Hundreds crowded around a Ueno location in Soda de Estee. While complaints from customers across customers unable to access their money flooded social media, the national police went on full security alert and deployed officers to bank locations across the country. Uh this has descended into riots. Now this is ugly, guys. This bank by assets was not that big. This was a a medium-sized bank by assets, but by the number of customers was the biggest bank in Paraguay. So, what does that mean? That means lots and lots of small accounts at this bank, which means this is poor people's money. And what happened is the the bank's owners were lending the bank's money, the depositor's money to companies that they controlled. In other words, doing the same thing US uh insurance company, US private credit firms have been doing. And this actually plays this is the same failure mode of a recent bank failure here in the states. Um anyways, I may have more to say about this in in the days ahead. But this is ugly, guys. And just understand that this very thing is happening in the United States. And the problem here is that it touches the upper echelons of power in Paraguay, the head of the central bank and even the president of the freaking country. And uh people are justifiably pissed about this. And that is all I've got for you guys today. I want to say thank you so much for having your coffee with us Melon heads this morning. Don't forget the like button, the subscribe button for you new guys. And how about that hype button? I I hear that hypes things. Sure. Hype away. Um also, thank you very much to my magnanimous melon head supporters on YouTube memberships, Patreon, and buy me a coffee for supporting the channel. You guys are awesome. links down below should you feel so inclined. Hi mom. Hi dad. Love you guys. Everybody till next time. Live small and dream big.