The Uncertain Path
By Peter Boockvar:
That SOS call was rejected, for now/The uncertain path to profitability/Oil/Other
The selloff in French bonds is resuming, in turn taking yields up across the Euro region and in the US too, as the Governor of the Bank of France and ECB Council member Emmanuel Moulin himself said “The ECB is not there to deal with the fiscal problems of countries – it is there to fight inflation and have inflation around 2%. So the conditions are not met today for an intervention from the ECB.” Not that market players expected the ECB to step in anytime soon but this was a reminder.
Interesting stat from Goldman Sachs that I read in the FT, “more than a quarter of investment grade French companies had a lower yield on their bonds than comparable government debt as of the end of September.” This would include LVMH and Sanofi.
Because of the continued dominance of AI spend both on the US economy and US stock market any prudent investor, market watcher and business person has to always be on the lookout for when the spend slows or is disrupted in anyway.
I took note of a piece in the FT last week titled “Corporate America eyes cheaper AI options” which said this is because of “spiraling IT expenses push executives to look for alternatives to Anthropic and OpenAI’s frontier systems.” And that “So-called open weight models, which users can customize and run on their own hardware, can be far cheaper for businesses to run than paying for access to the most advanced versions of Chat-GPT or Claude.” Not that we don’t know open models are cheaper but highlighted the growing take rate of them.
Further, “While the shift is most pronounced among techology groups, a cross-industry swath, including PNC Financial Services, logistics group CH Robinson and industrial giant Siemens, have discussed using open-weight models.”
“In August, open weight models accounted for 56% of all tokens processed through Vercel’s AI Gateway, up from 7% in December. A similar pattern is visible on OpenRouter, where open-weight models from Chinese labs dominate the top 10 by tokens processed.”
https://www.ft.com/content/d9de4776-1fc9-4f2b-aaaf-9961c35d8acd?syn-25a6b1a6=1
And you’ve heard me say many times before, the Chinese won’t stop with their growing competitive presence on the global tech stage. In an article in Nikkei News yesterday, “China’s artificial intelligence development drive is showing no signs of slowing, with DeepSeek, Xiamoi and others rolling out models last month despite calls from Anthropic CEO Dario Amodei to slow down as risks mount.”
It followed by saying, “According to a Nikkei tabulation, 10 of China’s leading AI companies – including startups like DeepSeek as well as tech giants Alibaba Group, Tencent Holdings and Xiaomi – launched a combined 16 models in September. The count is only newly developed models, including those for image and audio generation, and excludes models that merely modify existing systems developed by other companies.”
I continue to bring this up because so much of the US AI tech trade is dependent on OpenAI and Anthropic and the crucial path to profitability for them both because of the massive financial obligations they’ve created for themselves that flows through the entire infrastructure spending ecosystem.
With respect to oil and gas stocks, we remain long and positive, especially after hearing from the CEO of Saudi Aramco again who spoke Monday at the Energy Intelligence Forum in London. With the caveat that he’s talking his book, he said that we entered the conflict with Iran with about 10 billion barrels of oil inventory globally. We’ve lost 3 billion barrels of gross oil supply which is about half the crude and refined products that would have transited the Strait normally. Add in another 1 billion barrels that have been drawn down from commercial inventories and you have 6 billion barrels left but Amin Nasser, the CEO, said that those are not “practically available” and the supply cushion is “Scarily thin.” He believes that even if the Strait fully reopened today, it could take up to two years to normalize global inventories again.
The CEO of Vitol Group, the large trading firm, speaking at the same conference said “We need about 10,12, 14 million barrels to come out via the shipping route in order to keep things in balance as we go through the winter. Because there aren’t any more inventories to drain in the West.”
According to the Mortgage Bankers Association, the average 30 yr mortgage rate as of 10/2 jumped to 7.49% vs 6.85% one month ago and it sent purchase applications down by 2.1% w/o/w, lower for the 5th straight week and to the lowest since February 2025. Refi’s declined by 7.5% and lower for the 7th straight week and to the slowest pace since early 2025.
Overseas, Japanese wage earners saw another solid increase in base pay in August of 3.8% y/o/y, matching the best since the early 1990’s. The BoJ has every reason to raise rates again at the end of the month meeting but rate hike odds are only at about 10% as the market believes they will wait until the December meeting to hike again.
After a soft factory orders figure for August in Germany, today they said industrial production was better helped by spending on defense.
