Last Gasp
Doug Nolan
Let’s start with Monday’s session: Nvidia rallied 5.8%, Alphabet 4.0%, and Tesla 3.7%.
The MAG7 Index rose 2.8%, and the Semiconductor Index jumped 3.0%.
Micron Technology gained 6.5% and AMD 4.5%.
Palantir recovered 8.8%, and Robinhood rallied 4.2%.
Across the board, financial conditions indicators signaled risk embracement and loose conditions.
High-yield CDS dropped nine bps Monday to 324 bps, trading only a few bps off six-week lows.
High-yield spreads (to Treasuries) narrowed a notable 12 bps to 284 bps.
Investment-grade and bank CDS prices declined marginally.
For the most fascinating dynamics, look to international markets.
European high-yield (“crossover”) CDS prices sank 11 to 261 bps Monday – trading only 13 bps off September’s multi-year (2021) lows.
European (subordinated) Bank CDS dropped an outsized five to 99 bps.
Curiously, emerging market (EM) CDS was the start performer.
EM CDS declined three to 135 bps – the low all the way back to March 2018 (and 80bps below April 11th trading highs).
UK yields traded Tuesday at a near one-year low of 4.37%, while France vs. Germany spreads narrowed to a three-month low (73bps).
At Monday’s close, major equities indices enjoyed y-t-d returns of 29% in Brazil, 33% in Mexico, 44% in Chile, and 61% in Colombia.
In Asia, South Korean equities had returned 73%, China 21%, Hong Kong 37%, Taiwan 24%, Indonesia 23%, and Vietnam 26%.
Strong returns in European EM include Poland’s 42%, Hungary’s 36%, and the Czech Republic’s 47%.
Equities had returned 41% in Israel and 36% in South Africa.
The iShares MSCI Equities ETF (EEM) had returned 34% y-t-d at Monday's close.
Major developing equities markets are similarly inflated.
Notable Monday y-t-d equities index returns include Spain 46%, Italy 33%, Germany 20%, and the UK 23%.
Japan’s Nikkei 225 Index closed Monday with a 30% y-t-d return.
The global market environment has been one of extraordinary liquidity overabundance.
Monday trading particularly flashed precarious liquidity instability.
Monday also saw Gold prices surge $114 (2.9%) to $4,116.
Silver jumped 4.5% and Platinum added 1.8% - all adding to spectacular 2025 advances.
The Bloomberg Commodities Index gained 1.7% to the high since February 1, 2023.
With eight Democrat Senators voting Sunday with Republicans in an initial procedural vote, markets could anticipate the end of the government shutdown.
On Bloomberg television Monday morning, the anchors wondered what the government reopening had to do with surging AI and tech stocks.
Simple enough: The news provided a catalyst for another round of short squeezes and the unwind of hedges.
Was Monday’s global trading symptomatic of a Last Gasp of historic global liquidity excess?
I’ve discussed the faltering U.S. Credit cycle.
I’ve delved into super-cycle “terminal phase excess” – culminating with a historic AI mania and arms race.
Today, Credit cycle dynamics and a fragile AI Bubble are on a collision course.
Monday was more about the third leg in the stool – the ongoing global liquidity Bubble.
Money market fund assets (MMFA) surged $347 billion, or 25% annualized, over the past 12 weeks - and have ballooned an incredible $2.96 TN, or 64%, since October 2022.
I associate this historic monetary inflation with the proliferation of leveraged speculation (i.e., “repo” borrowing financing Treasury “basis trades”).
Federal Reserve research recently corroborated this analysis, which highlighted a doubling of hedge fund holdings domiciled in the Cayman Islands over two years, to end 2024 at $1.85 TN.
There is every reason to fear that U.S.-style leveraged speculation has proliferated throughout global finance – every nook and cranny.
Clearly, a massive “yen carry trade” funded by cheap Japanese finance has stoked bond issuance globally.
I suspect massive speculative leverage has accumulated throughout emerging bond markets.
Leveraged speculation also dominates European debt markets.
Especially over recent years, a sophisticated global infrastructure developed to profit from leveraged speculation and derivatives trading.
Moreover, this historic speculative bubble was stoked over the past year by a global central bank easing cycle.
A strong case can be made that we’ve witnessed the heyday in global speculative Bubble excess and resulting liquidity overabundance.
Importantly, this liquidity onslaught has masked major festering problems – at home and abroad.
In a less accommodating market environment, France would today be up against the wall; markets would forcefully punish Japan and the UK; Greek, Italian and others’ finance would be suspect; EM issues (i.e., Brazil’s corporate debt) would be pressing.
If not for liquidity excess, we would have today quite different U.S. economic and Credit environments.
November 12 – Bloomberg (Kevin Kingsbury):
“Annual US investment-grade corporate bond sales have reached their second-highest level ever as companies capitalize on lower borrowing costs to refinance debt, fund acquisitions and invest in AI initiatives.
Supply of $1.499 trillion has edged last year’s total of $1.496 trillion…
While issuance is unlikely to reach 2020’s record $1.75 trillion, borrowers have benefited from a favorable environment this year, with strong investor demand and central banks around the world lowering policy rates.”
Monday was about market exuberance for yet another episode of short squeezes and unwind of hedges, which stoke liquidity excess and further extend the speculative cycle. Thursday and Friday were something quite different: the fear of faltering crypto and tech/IA Bubbles unleashing risk aversion and deleveraging.
After a Tuesday morning high of 107,428, bitcoin sank 12% to trade to 94,147 at early-Friday trading lows (down 18% from October 28 highs).
Bitcoin’s almost 35% y-t-d gain as of October 6th has quickly evaporated.
Nvidia traded to almost $200 late Monday, only to sink a quick 10% to trade as low as $181 at Friday’s open.
Meta traded from $635 down to $595, Oracle $247 to $211, Tesla $450 to $383, Strategy $250 to $195, and Amazon $252 to $233.
It’s the type of rapid loss of perceived wealth that captures people’s attention.
At Friday’s lows, the MAG7 index was down 3.7% for the week, with the Nasdaq100 2.1% lower.
For the second straight week, a (miraculous) Friday rally salvaged the week and (somewhat) eased concerns heading into the weekend.
I expect the vigor of such recoveries and buy-the-dip enthusiasm to dissipate over time.
Meanwhile, leveraged loan prices slipped seven cents for the week to 96.53, with prices now only 16 cents off October 14th (First Brands) lows.
Global Liquidity Abundance vs. Faltering AI Bubble:
November 14 – Bloomberg (Caleb Mutua):
“The cost of protecting Oracle Corp.’s debt against default is surging by the most since 2021, as jittery investors and lenders rush to hedge against the billions of dollars the software giant is pouring into artificial intelligence.
Oracle, known for its namesake database software, saw the spread on its five-year credit default swaps jump 13.5 bps on Friday to 101.68 bps.
That’s the biggest bounce since December 2021…”
November 14 – Bloomberg (Rene Ismail):
“CoreWeave bonds issued earlier this year hit fresh record lows Friday and were leading high-yield decliners amid a tech stock-led selloff in global markets.
The data-center firm’s 9% note due 2031 fell 1.75 cents on the dollar to 93.25 cents…”
November 10 – Bloomberg (Victor Swezey):
“The furious push by AI hyperscalers to build out data centers will need about $1.5 trillion of investment-grade bonds over the next five years and extensive funding from every other corner of the market, according to an analysis by JPMorgan…
‘The question is not ‘which market will finance the AI-boom?’
Rather, the question is ‘how will financings be structured to access every capital market?’’ according to strategists led by Tarek Hamid.
Leveraged finance is primed to provide around $150 billion over the next half decade, they said.
Even with funding from the investment-grade and high-yield bond markets, as well as up to $40 billion per year in data-center securitizations, it will still be insufficient to meet demand…
Private credit and governments could help cover a remaining $1.4 trillion funding gap, the report estimates.
The bank calculates an at least $5 trillion tab that could climb as high as $7 trillion, singlehandedly driving a reacceleration in growth in the bond and syndicated loan markets…
The analysts project $300 billion in high-grade bonds going toward AI data centers next year.
That could account for nearly one fifth of total issuance in that market, which a report from Barclays Plc estimates will grow to $1.6 trillion.”
After closing Wednesday at all-time highs, the big financial stocks came under notable pressure.
Ominously, Goldman Sachs dropped 5.7% during Thursday/Friday trading, with JPMorgan sinking 5.2% and Morgan Stanley falling 3.6%.
In two sessions, the Broker/Dealer Index dropped 3.3%, and the KBW Bank Index fell 2.9%.
I’m again reminded of the feverish bank rally to record highs into mid-July 1998, only a few weeks before the Long-Term Capital Management/Russia deleveraging and market crisis.
“AI Bubble Talk is Overblown.”
“Softbank Says Skipping AI is Riskier Than Betting Big.”
“An AI Bubble? The Bond Market Is Not Seeing One.”
“AI Boom vs. Dot-Com Bust: TD Wealth Says Today’s Market has Real Profits, Not Just Promises.”
“The AI Bubble is a ‘Rational Bubble,’ Say’s Mohamed El-Erian.”
“Ed Yardeni Says ‘Buy The Dip’ In AI Stocks, Calls market Nervousness Healthy Sign.”
“AI Isn’t a Bubble – But It’s Showing Warning Signs.”
“Microsoft President Brad Smith Says: There is no AI Bubble.”
“Goldman Sachs Says We’re Not in an AI Bubble.”
“AI Isn’t a Bubble but Rather an Opportunity, JPMorgan’s Erdoes Says.”
Blackrock’s Rick Rieder:
“I don’t think it’s an AI Bubble.
I don’t think there’s too much froth.”
(Bloomberg, Nov. 7)
JPMorgan’s Mary Erdoes:
“AI itself is not a Bubble.
That’s a crazy concept...
We are on the precipice of a major, major revolution in a way that companies operate. So, if you say to yourself, is AI in a Bubble, I feel you have to get very granular on how you’re going to answer that, because in the U.S., we’re starting to gain traction, but we’re nowhere near the ability to have the stuff all to the bottom line.”
(CNBC, Nov. 13)
Ares Management’s Michael Arougheti:
“We have a long way to go in terms of the economic investment relative to the size of the economy.
We can’t bring the supply on fast enough to meet the near-term demand.
So, I just feel there’s a lot of hyperbole because the numbers are big and it is that revolutionary.”
(CNBC, Nov. 13)
Goldman Sachs’ Brittany Boals:
“We did have a conversation about markets and whether or not we think we’re in a Bubble.
We do not think we’re in a Bubble, and we pay very close attention to that.”
(Fortune, Nov. 9)
BofA semiconductor analyst Vivek Arya:
“We believe the recent concerns re AI financing are highly overstated.”
(Investopedia, Oct. 9)
“This degree of concentration is, in our view, unsustainable, but this is not the same as saying that we are experiencing a Bubble.”
(Goldman Sachs: “Why We Are Not in a Bubble… Yet,” Oct. 25)
I’ll simplify the Bubble discussion: the expansion of finance required for the historic AI and energy infrastructure arms race buildout is increasingly unstable and inevitably unsustainable.
In Monday’s liquidity abundance and market exuberance, the AI boom appears at least somewhat feasible.
But late in the week, with de-risking/deleveraging knocking on the door, it’s a different unfolding story.
November 11 – Wall Street Journal (Matt Wirz):
“Tech giants need so much money for their artificial-intelligence ambitions that Wall Street is developing new ways to get it for them.
Details of some of the biggest AI infrastructure deals, including those involving Meta, OpenAI and xAI, are coming into focus, revealing lucrative, innovative—and in some cases risky—funding schemes.
Exhibit One is the deal fund manager Blue Owl Capital struck with Meta in their joint venture to build a giant data center in Louisiana called Hyperion.
Blue Owl is buying private equity in the deal and is receiving a debt-like guarantee from Meta if the partnership falls apart, an extraordinary protection…
Another deal involving OpenAI and Oracle involves a lending syndicate of more than 30 banks…
Tech titans are offering sweeteners in their deals because they need to offload risk as the cost of the AI arms race soars, threatening even the strongest competitors.
Meta’s market value dropped by around $300 billion in a few days after Chief Executive Mark Zuckerberg warned about higher spending on AI…
Banks and fund managers are writing big checks for now, but many are worried about how the complicated deals being signed today will perform when the AI frenzy calms down.
Another concern is that each time tech companies take on lots of new debt, their cost of borrowing rises.”
November 11 – Bloomberg (Chris Bryant):
“Costing tens of thousands of dollars each, Nvidia Corp.’s pioneering AI chips make up a hefty chunk of the $400 billion that Big Tech plans to invest this year — a bill expected to hit $3 trillion by 2029.
But unlike 19th-century railroads, or the Dotcom boom’s fiber-optic cables, the graphics-processing units (GPUs) fueling today’s AI mania are short-lived assets with a shelf life of perhaps five years.
As with your iPhone, this stuff tends to lose value and may need upgrading soon because Nvidia and its rivals aim to keep launching better models.
Customers like OpenAI will have to deploy them to stay competitive.
So while it’s comforting that the companies spending most wildly have mountains of cash to throw around (OpenAI aside), the brief useful life of the chips and the generous accounting assumptions underpinning all of this investment are less consoling.”
Curiously reminiscent of April’s market dynamic, safe haven Treasury buying was notably MIA during Thursday and Friday’s “risk off” sessions.
After trading down to 4.05% in Wednesday trading, 10-year Treasury yields reversed higher to end the week at 4.14%.
UK 10-year yields surged a quick 19 bps, from 4.38% to 4.57% - gilts slammed after UK Chancellor Rachel Reeves reversed course on raising income taxes to reduce deficit spending (up 11bps for the week).
Not receiving deserved attention, Japanese 10-year JGB yields rose three bps this week to 1.71% - a new high back to 2008 (new Prime Minister Sanae Takaichi gearing up for fiscal stimulus and to pressure the BOJ).
Other noteworthy bond instability included two-day (Thursday/Friday) 10 bps surges in Greek and Italian yields.
It's reasonable to assume that huge leverage has accumulated throughout the crypto universe.
Deleveraging has commenced, and, unlike equities, crypto currencies don’t enjoy the powerful liquidity backstop provided by corporate buybacks.
Huge flows into bitcoin and crypto (perceived liquid) ETF structures now face the prospect of destabilizing deleveraging, an abrupt shift in perceptions, and a run from the asset class.
This tech/AI monster Bubble is an accident in the making.
After a parabolic liquidity-induced speculative blowoff, the sector has transitioned to a pre-crisis, hyper-instability phase.
Here, we can assume massive speculative leverage – margin debt, options and derivatives-related, hedge funds and such.
Millions of speculators across the country embraced bigger balances for Credit cards, personal loans, auto loans, and mortgages to ensure greater liquidity available to play the ever-rising stock market.
An exceptionally powerful and protracted bull market has at this point thoroughly conditioned retail investors to buy the dip.
The hedge funds and broader “leveraged speculating community” have similarly been conditioned.
But they have daily market gains and losses, investors and, importantly, leverage.
I have a hard time believing that the more sophisticated players haven’t begun – at the margin - the process of moving to mitigate risk and leverage.
I contend that we’re at peak global liquidity – Monday epitomizing a Last Gasp of liquidity excess-induced exuberance.
Unfolding risk aversion and waning liquidity excess will accelerate Credit market deterioration.
November 14 – Bloomberg (Gowri Gurumurthy):
“US junk bonds tumbled Thursday, posting their worst one-day loss in nearly five weeks…
Yields jumped the most in five weeks to 6.89% and risk premium climbed to 291 bps.
Losses swept across ratings tier, with CCC yields rising 18 bps to a near three-month high of 10.29%.
Spreads widened 15 bps, the most in five weeks, to 652.”
November 14 – Bloomberg (Scott Carpenter and Josyana Joshua):
“The record number of Americans falling behind on car payments is stoking concerns that more pain is in store for subprime auto lenders, following the recent high-profile collapses of Tricolor Holdings and PrimaLend Capital Partners.
The worries are showing up most clearly in the market for bonds backed by car loans, a key source of funding for lenders to higher-risk borrowers.
Investors now want roughly 50 bps of extra yield to own the lowest-rated slices of subprime auto ABS compared with two months ago…”
November 9 – Financial Times (Lee Harris, Euan Healy and Toby Nangle):
“Seventeen years after credit rating agencies’ starring role in the financial crisis, ‘ratings shopping’ is in focus again.
The first time around, large established agencies competing to grade a finite pool of debt gave out inflated stamps of approval to risky assets.
Buyers of the assets were falsely left with the impression that the subprime credit they were holding was as safe as it got.
This time it is not the big three agencies… in the line of fire, but second-tier shops that have shot to prominence by catering to the booming private credit market, which has grown to some $3tn in recent years.
Smaller, specialist providers such as Morningstar DBRS, Kroll Bond Rating Agency, HR Ratings and Egan-Jones have seized market share by offering private capital groups the chance to shop around.
Some of the world’s biggest asset managers, including Blackstone and Apollo, are now among the most frequent users of ratings from firms beyond the big three.”
November 12 – Wall Street Journal (Matt Wirz):
“The private-credit boom is rapidly changing the investments made by U.S. life insurers, with some firms parking more than half the fixed-income assets they need to fund policies and annuities in hard-to-trade debt, according to new research by Moody’s…
Illiquid investments accounted for $685 billion—about 18%—of the $3.8 trillion in fixed-income investments insurers held at the end of 2024.
The pace of purchases seems to be increasing, with less-liquid private debt comprising about 23% of the $522 billion of bonds insurance companies bought in the first half of 2025, the report said.
The industry’s holdings are unusually concentrated, with just 10 insurers controlling about 43% of the illiquid assets held at the end of 2024…”
A Friday evening Bloomberg headline:
“Wall Street’s Retail Army Hammered as Crypto, Tech Trades Crack.”
De-risking/deleveraging risk is now highly elevated.
The extraordinary backdrop of highly unstable global liquidity, faltering Bubbles, and the risk of extremely destabilizing speculative de-leveraging seems to guarantee wild market volatility.
Year-end rally – or a big downdraft that catches everyone by surprise?
When de-leveraging risk rises, I’m conditioned to ponder possible policy responses.
Right now, a deeply divided Fed has its work cut with next month’s rate decision.
What would it take for the Committee hawks to agree to the type of massive QE program that will be necessary when serious deleveraging erupts?
The President back in April triggered one heck of a (squeeze and unwind of hedges) rally – that took on a life of its own - with a mere “pause.”
The administration will surely pull out all stops and resort to extraordinary measures to sustain the Bubble.
But I can’t help but believe the President’s astounding power and influence are weakening before our eyes.
Counter point…
Andrew Ross-Sorkin (October 20, 2025, CNBC):
“I’m curious where you land on the private-Credit issue.
There’s some people suggesting there are cracks in that, and therefore we need to be very mindful of those cracks – they could lead to other problems in the economy.
Other people say private-credit is effectively separated from the banking system.
The bank earnings have been pretty great.
A lot of people are excited about all the things happening in the markets right now – IPOs, pipelines for M&A.
Banks should be sort of set.
Are they?”
Mohamed El-Erian:
“First, in terms of financial stability Andrew, whether you call it cockroaches or ants, they’re correct.
We’ve seen a few strains.
We are going to see more.
But they are not termites.
I want to stress: they’re not eating away at the foundation of financial stability.
These are isolated cases.
They come in a period where people have stretched too far for returns.
That’s what happens when spreads compress.
It pushes certain people out the risk curve and they take on risks that they shouldn’t.
So, I think of it as yes there will be more cases.
I think Jamey Dimon is correct.
But it’s not termite.
In terms of the system as a whole, not only is it not a problem for financial stability, but actually it’s good.
It’s allowing certain companies to get financing they wouldn’t get otherwise.
And if you go to developing countries – if you see what’s happening to Credit in developing countries, that’s a really good thing as well.”
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