Earthquakes and Chemical Reactions
Doug Nolan
The turbulence from waves, tsunamis and earthquakes.
As for the week’s earthquake swarm, we’ll start with global markets.
The Semiconductor Index was slammed 12.25% Thursday, the largest daily loss since the height of Covid deleveraging (March 16, 2020).
Micron sank 17.5%, AMD 17.3%, Intel 10.3%, and Nvidia 9.3%.
The Nasdaq100 slumped 6.35%, also the biggest loss since March 2020.
MAG7 dropped 4.8%, led by Tesla’s 10.8% swoon.
For the week, South Korea’s KOSPI Index sank 11.7%, with Japan’s Nikkei 225 Index down 9.3%, and Taiwan’s TAIEX falling 12.2%.
Your choice: “blue wave” or “blue tsunami.”
“Sweeping repudiation.”
“Bloodbath.”
“Dem-olition.”
“It was epochal and marks a new era in our political history.
And for once everyone rushed to name clearly what happened.
The morning after the 2026 midterm elections, Florida Gov. Ron DeSantis was searingly blunt.
For the Republican Party it was ‘close to an extinction level event.’
Its effects will ‘reverberate for the next decade or more.’
‘It was a Watergate-level repudiation,’ said Ted Cruz…
Ronna McDaniel, Republican National Committee chairman in the first Trump term, told Fox News… the election wasn’t only a Democratic wave, it was ‘a Republican rebellion.’
It wasn’t only the number of Democratic victories, it was their size.
It was a night of landslides
—- James Talarico of Texas by 12, Jon Ossoff of Georgia by 18, Roy Cooper of North Carolina by 20.” WSJ’s Peggy Noonan, November 5, 2026
From various reports:
“Republicans lost ground in 99% of the roughly 2,200 counties where most votes had been counted by Wednesday morning, including rich and poor areas, cities, and suburbs.”
“Kansas elected a Democrat to the Senate for the first time in 94 years.”
“Every majority-Hispanic county that had nearly finished counting swung heavily toward Democrats.”
“A Yahoo analysis cites a projected Democratic House popular-vote margin of 14 points, the largest for either party in a midterm since 1974.
It also notes that no party had flipped more than nine Senate seats in a midterm since 1958.”
“Democratic support among men under 30 rose from 51% in 2024 to 59% in 2026, and among young women from 61% to 70%.”
“CIRCLE found 79% of young Black voters and 71% of young Latino voters backed Democratic House candidates.
Young white voters favored Democrats 63% to 34%, after splitting 50% to 48% in 2024.”
The seismic shock registered at an 8.0.
A deeply unpopular war.
Inflation and affordability crises.
And it’s not as though the Democrat Party cruised into the midterms with flattering approval ratings.
The American population is extraordinarily disgruntled – from coast to coast, rural and urban, wealthy, the vast middle class, and the poor.
The scourge of inflationism: an explosion that was in the making over decades of insidious price inflation, wealth inequality and corruption.
A rapacious tech oligarchy and piggish Wall Street hell-bent on jamming data centers down the throats of communities across the country.
The super wealthy (including a notable trillionaire) with the gall to try to buy election results.
The administration had hyped Scott Bessent’s “3-3-3 plan” – 3% GDP, a 3% federal deficit, and 3 million additional barrels of oil daily (that was to pressure inflation lower).
They used aggressive deregulation to goose lending, speculation, and economic activity.
Crypto unleashed.
Most importantly, the over-financed great AI arms race was prodded to propagate completely unchecked.
In short, the Trump administration ran the most pro-Bubble agenda imaginable – recklessly stoking terminal phase excess.
Stock prices inflated to record highs, as the economy achieved 3.4% Q3 GDP growth.
The unemployment rate dipped to a historically low 4.1% in October.
It all worked like magic – except that Bubble inflation had stopped working for the population at large.
It was as if President Trump believed that so long as stock prices climbed and people had jobs, everyone would be content.
Nothing else really mattered.
Corruption wouldn’t matter.
He could proceed with pet projects to his heart’s desire.
With a public-pleasing closed border, the President could move aggressively with ICE operations and deportations.
The President and his team misread (ignored, rejected, scorned…) so many things.
DOGE and Elon with his chainsaw.
Overreach of our courts and justice system, universities, law firms, and late-night comedy.
The East Wing of the People’s House, an extravagant Ballroom, The Kennedy Center, Reflecting Pool, and the specter of “Trump” plastered everywhere. Chair Powell, Fed Governor Lisa Cook, and hideous attacks on Federal Reserve independence.
The Unrelenting Drumbeat of Chaos.
The administration ridiculed the “No Kings” rallies when they should have recognized that the American population is fiercely opposed to authoritarianism.
“Liberation day” and the wielding of tariffs as a fundamental facet of some “unitary executive theory” of ultimate presidential power.
Noem, Bondi, Chavez-DeRemer, Gabbard, Pulte, Patel, Hegseth, and Zacharia.
The President’s habitual lying made him appear clown-like.
Denigrating our allies while cozying up with autocrats Putin and Xi.
Siding with the invader Russia at the expense of a democratic Ukraine.
Blowing up alliances in Europe and elsewhere.
Greenland.
Denigrating and picking fights with our Canadian brother.
“Lake America.”
America, unacceptably, at its most repulsive.
There are many messages from Tuesday’s quake.
Likely lost in the pile is America’s silent majority (red, blue, black, Hispanic, young, old, wealthy and needy), all at wit’s end, determined to have its voice heard.
Sick and tired of all the disrespect; depleted tolerance for all the nonsense – the lack of focus, the incompetence, graft, malice and ugliness.
That’s just not us.
It’s past time for a shift back to American values and principles – including liberty, individual rights, rule of law, checks and balances, pluralism and tolerance, and common decency.
Many of us – Republican, Democrat, and Independent alike – believed our democracy was under the greatest threat in our nation’s storied 250-year history.
Earlier today, I thought to myself, “Good decision.
Better late than never.”
But I had misread the Drudge Report headline (in big, red letters).
He’s not leaving the White House along with Susie Wiles.
Stephen Miller is instead the President’s new chief of staff.
For those hoping Trump might turn over a new leaf and find some common ground with the Democrat majority - “I look forward to working with you [Dems] for the good of our country” - “We’ll work with the Democrats” – the Miller announcement tempered optimism.
Those of us fearing backlash from an erratic and cornered President, an even more powerful Stephen Miller, is an alarming development.
“Ready to Rumble.”
“Shot across the bow.”
“Declaration of war.”
Hegseth posting with a photo with Steven Miller: “Stand. Fight. Defend the Republic.”
Miller: “The mission now is more clear than ever: Fight with all of our soul to support our President and defend this magnificent Republic.”
Axios: “Trump Still Defiant After a Bruising Week.”
Enough of that.
This week’s developments span much beyond Peggy Noonan’s “epochal and marks a new era in our political history.”
Earthquakes corroborate the thesis of epochal and historic cycle transitions – political, social, financial, market, and geopolitical.
History might look back and see Tuesday as a cause, when it was more of an effect – a key indicator of seismic change.
As for the markets, de-risking/deleveraging gained powerful momentum.
November 6 – Bloomberg (Nishant Kumar, Liza Tetley, and Hema Parmar):
“First the AI whiz kids were humbled.
Then came the macro shocks.
Credit scares followed.
Soon, nowhere would be safe for hedge funds.
Pain cascaded across the industry in October, as a broad tech selloff collided with a shock election in Brazil and violent protests in France, bruising many of the world’s sharpest money managers.
Walleye Capital is returning some cash following its worst monthly performance since March 2020.
Greg Coffey’s macro shop, Kirkoswald Asset Management, recorded its worst-ever monthly decline, breaking a 16-month winning streak.
Credit fund Arini Capital Management, one of Europe’s fastest-growing hedge funds, lost more than 12% last month alone…
And, Said Haidar’s macro hedge fund tumbled 11.5%...
For an industry premised on making money no matter the direction of the market, the breadth of the damage is stunning.
Strategies designed to behave independently suddenly lost money in lockstep, exposing crowded positions, heavy leverage and vulnerabilities that had been easier to overlook during the long ascent of AI-linked stocks…”
From the above article, key insight from Bruno Schneller, managing partner at multifamily office Erlen Capital Management:
“The real danger isn’t the market selloff itself, but the illusion of diversification across hedge funds.
I suspect the bigger risk is still ahead: As losses mount, risk managers may force funds to cut exposure, potentially triggering another wave of selling regardless of fundamentals.”
For highly levered and speculative global markets, this week’s instability and chaos portend intensifying cycle transition (global de-risking/deleveraging).
November 6 – Bloomberg:
“Hedge fund managers, brokers and wealthy investors in Asia had a hectic Friday as the sharp selloff in equities reignited fears that the unwinding of AI bets is far from over.
Money managers fielded worried phone calls as losses rippled through some of the market’s most crowded trades.
Wealthy clients from Taiwan to Hong Kong faced margin calls on leveraged bets, according to people familiar…
‘This is as extreme as almost any I have seen since the dot-com bubble,’ said Chris McGuire, who began trading options at the CBOT in 1991…
‘The unwind by equity holders who all appear concentrated in the same stocks or sectors has created more one-way momentum than we have seen for a long time.’”
Global market chaos has been unleashed.
First, there was Wednesday’s post-election U.S. equities rally.
The MAG7 Index rose 2.2%.
The Banks gained 2.4%, with the Broker/Dealers surging 3.2%.
The S&P500 advanced 1.6%. In a classic case of the news/analysis following market direction, the election was said to have “removed a major source of uncertainty.”
Various sectors (i.e. healthcare and renewables) would supposedly benefit from Democratic leadership.
Pressure on the big hyperscalers to reduce investment spending would help allay cash-flow concerns.
Basically, major hedging ahead of a critical election created a decent short squeeze opportunity.
Squeeze dynamics proved fleeting, however, with reality biting hard Thursday.
The VIX traded above 28 for the first time since April. High yield and emerging market CDS also traded to highs back to April.
But the key dynamic seemed to be wild moves associated with hedge fund de-risking – on both long and short sides.
While tech-heavy Asian stocks and indices were hammered, some (heavily shorted) underperformers caught fire.
Toyota’s 16.7% Thursday spike was notable.
India’s Sensex equities index jumped 2.6% Thursday, with a notable 8.8% gain for the week.
Turkish stocks surged 6.7% this week. European Banks (STOXX600) jumped 4.4% in Wednesday trading (up 3.6% for the week).
Spanish equities (IBEX) rose 3.8% this week, with major indices up 2.1% in France and 1.1% in Italy.
France’s 10-year yields sank 18 bps Wednesday to 4.77% (closed week down 21 bps at 4.76%).
Trading to 165 bps early in the week, the France-to-German yield spread had narrowed to 150 bps by the week’s close.
Destabilizing squeeze dynamics were at play throughout European bonds.
Italian yields fell 19 bps this week (4.33%), and Greek yields dropped 18 bps (4.11%).
UK yields fell 13 bps to 5.15%.
Commodities market volatility was also indicative of hedge fund liquidations.
Crude sank 13.6% this week, with unleaded gasoline dropping 12.7%.
Copper lost 3.4%.
Meanwhile, the precious metals caught fire.
Gold and Silver rallied 5.2% and 6.3%.
Currency markets have turned increasingly unstable.
The Norwegian krone was hit 2.71%, the Australian dollar 2.35%, the South Korean won 2.20%, and the New Zealand dollar 1.55%.
Performance dispersion was notable in EM currencies.
After trading up to 4.96% in Wednesday trading, 10-year Treasury yields were down to 4.81% late Thursday (closed week at 4.86%).
Two-year yields swung from 4.62% down to 4.45% in wild Thursday trading.
At Wednesday’s peak, the market priced an 85% probability for a Fed rate hike next month.
It had dropped to 60% by late Thursday.
A much stronger-than-expected jobs report (165k), coupled with rallying stocks, had the probability back up to 78% by Friday’s close.
November 5 – Bloomberg (Kyle Stock and Miquéla V Thornton):
“Data center opposition had been building across the country, one moratorium or blocked project at a time.
Then, virtually overnight, the midterm election tilted a broad swath of the regulatory map against the AI buildout.
Newly elected governors in Ohio, Georgia, Michigan, New Mexico and Texas campaigned on a promise to stop — or at least pause — data center construction statewide, while those in New York and Oregon pledged to prolong pauses already in place…
All told, about 40% of pending data center capacity in the US is planned to be built in states where newly elected governors have promised to stop or pause such construction, according to data from Cleanview, a market intelligence company.
That’s on top of 46 local ballot measures approved or on track to pass that also stall development…; at least 17 of those are outright bans on large-scale data centers.”
CoreWeave yields (’32) spiked to a record 16.42% in early Friday trading (up 215bps w-t-d), before closing the week at 15.22%.
Oracle yields (’36) surged 15 bps Friday – 30 on the week – to 7.89%.
Oracle CDS rose 13 this week to 309 bps.
Meta yields (’36) rose another seven this week to 6.18% - with spreads to Treasuries widening 14 bps.
SpaceX CDS traded to a record 295 bps Thursday (up 12 w-t-d), before closing the week at 285 bps.
Tesla CDS surged 21 this week to a record 235 bps (up 60 the past month).
Notable stock losses for the week included CoreWeave 15.4%, Nebius 16.0%, Oracle 11.2%, Tesla 10.4%, and Nvidia 8.8%.
All the bullish talk of a healthy rotation from tech to the broader market ignores ramifications of unprecedented leverage and crowding throughout AI and technology generally (stocks and Credit).
November 6 – Financial Times (Ian Smith, Emily Herbert, Costas Mourselas and Harriet Clarfelt):
“Wall Street’s surge to record highs this year in the face of war in the Middle East and spiralling borrowing costs has been powered by a single investment idea — a relentless boost to stocks from the AI boom.
After weeks of warning signals from credit markets, that dominant market narrative spectacularly combusted on Thursday in a $3.2tn rout sparked by the political fallout from the US midterm elections.
The sell-off was fuelled, investors say, by a brutal unwind of leveraged tech positions that had built up among hedge funds — with some hacking back their exposure at the fastest rate since Covid-19…
‘It’s like a chemical reaction,’ said one senior equities banker.
‘You have one, two, three elements, and then there’s an explosion.
The election was the explosive element.’”
I fear a chemical reaction in its initial phase.
The “big one” will challenge the Richter Scale.
And Thursday was a precipice on the horizon kind of day.
Meanwhile, especially post-election, there is extraordinary ambiguity associated with so-called Fed and Trump “puts.”
Deleveraging is at the cusp of unleashing abrupt financial conditions tightening.
But, at present, general Credit conditions remain loose, economic activity hot, and inflation persistently elevated.
November 5 – Bloomberg (Courtney Subramanian):
“President Donald Trump blamed Democrats for the losses in Americans’ 401(k) portfolios as the selloff in technology and artificial intelligence-related stocks deepened after his Republican Party suffered widespread losses in Tuesday’s midterm elections.
‘Such a sad thing to watch!’ the president said in a post…
‘It took us so much work to get us to a level that no one has ever seen before, and then this.’ ‘Your 401(k)s have, therefore, dropped.
Remember, it wasn’t Republicans, it was Dumocrats,’ the president said…
In another post, the president wrote that the market rout occurred because Democrats ‘had a big Tuesday — So sad to see, you only have yourselves to blame!’”
0 comments:
Publicar un comentario