Ben's Market Chat - Insights and Interviews

US inflation continues unabated, with higher fuel costs now feeding through into logistics. CPI is running at 3.7%, with energy costs up 5.3% on the back of oil rising more than 9% on the month. This week we look at whether US manufacturing PMIs can sustain the recent momentum in industry, and in the UK, we get the latest unemployment and inflation prints.

On rates, Warsh’s first October decision comes with a twist. Once rates start moving in one direction they normally keep going, but not this month (we think!). We also look at the UK’s plans for an expanded social security scheme, which will carry a cost in both tax and debt, pointing to weaker growth, higher inflation and a softer pound.

We then turn to the likely outcome of the US midterms. A blue wave that flips Congress to the Democrats should have little effect on the legislative agenda, as the administration will veto and Trump will lean harder on executive orders. The real friction would come at state level, slowing planning for data centres and potentially leading to lower 2027 capex guidance, which markets might take well. It would also kick off the presidential election cycle and move the debate on from cost of living.

The second half of the show is a deep dive into Meta’s Muse. It is an autonomous, goal-executing platform rather than an interrogative one, which makes it always-on, memory-heavy and expensive in tokens. Deep app integration, password access and the ability to pay for services autonomously make it powerful, which is why Amazon is saying no while Shopify stands to gain from more merchant transactions. The key question is the economics. 

Reaching a long-term 15% ROIC likely requires $20-a-month subscriptions becoming the norm plus a share of merchant revenue. Jefferies’ forecast of 1bn users by end-2027 with 3% on subscriptions gets to $10.8bn, which isn’t enough; reaching $50bn needs the merchant rev share. Compute costs imply lower operating margins than today’s ad business. In short, Meta has to earn historic-level returns just to stand still.

We close with what to watch when Meta reports on Wednesday: 23% YoY revenue growth, early commentary on Muse subscriptions, take-up and retention, and capex confirmed at high levels with free cash flow still under pressure. If the Muse discussion is vague or ling-dated in terms of potential returns, that could mean weakness for a stock that has priced in a lot since launch.
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The landscape of late-stage technology investing is undergoing a fundamental shift. As high-flying "unicorns" opt to stay private longer, resisting traditional public listings, the secondaries market has transformed from a liquidity alternative into a primary destination for sophisticated institutional capital. Navigating this complex, highly concentrated environment requires a rare combination of macroeconomic foresight and deep private market expertise. 

Few investors are better positioned to decode these market dynamics than Denis Blank , the Chief Investment Officer of LTC. 

With over 25 years of experience as an investor and financier, Denis has successfully deployed more than $2 billion in capital across private and alternative asset classes. His pedigree includes a transformative decade-long tenure at Hermitage, once one of the world’s largest independent Emerging Markets funds. He later scaled his multi-asset capabilities by running the family office of Hermitage’s founder, followed by several high-profile CIO roles at multi-billion-dollar family offices. Today, he leads the investment strategy for LTC, a $250 million technology-focused secondaries fund manager. 

In this exclusive interview, Denis pulls back the curtain on the institutional shifts defining the tech sector today. We explore why the world's most valuable tech firms are shunning the public markets, how the Rest of the World can compete against absolute US tech dominance, and how LTC leverages its unique London ecosystem—anchored by industry titans like Martin Gilbert—to source off-market opportunities. 

From the disciplined underwriting to how their portfolio companies are defensive-proofing their moats against AI disintermediation, Denis shares a masterclass in modern private equity investing. 

Join our email list to be the first to see these videos every week: https://mailchi.mp/traderoutescapital/giuox24tmg 

Always do your own research or seek the advice of your professional financial advisor.

You can find us on LinkedIn and YouTube, Money Matters, Ben Hakham CEO at Traderoutes Capital.

The Fed raised rates after all last week. Our expectation of political expediency and therefore a hold pose was set aside by a more pragmatic FOMC fearing persistent and non transitory inflation in the system.

The 10 year US Treasury blew through 5% and the yield curve steepened. Ie the long end rose faster than the short. The implication is a recession or at least an economic slowdown.

Whilst Brent crude declined back below $100 per barrel last night, thanks to expectations of resolutions to be agreed at this week’s UN summit in New York, we are of the view that the reality on the ground is worse than it has been since the start of the conflict with Iran.

The blocking of the Strait of Hormuz resulted in disruption to 20% of the global demand for oil. The escalation in the last 2 weeks by Houthi rebels and Iraqi militias allied to the Iranian regime, has resulted in a further 10% of global demand disappearing from markets. With a 1/3 of global demand now disrupted and the US’s Strategic Petroleum Reserve (SPR) down to lows not seen since 1982, we see significant upside risk to the oil price.

With Brent Futures contracts exchanging hands at $120+ per barrel and the northern hemisphere heading into winter, the inflationary impact cannot be underestimated.

A $130 Brent price implies a $5+ gasoline price in the US, significantly above the current level and more than double pre-war levels. This would contribute 0.75-1% to inflation. Add in the impact of logistics cost increases and jet fuel, and the impact is even more severe.

Inflation of 4.5%+ implies a further 50bps of Fed rate hikes over the next 5-6 months leading to a slowdown in US GDP toward 1-1.5%. 

Furthermore, the rate increases would bring already insipid capital expenditure (ex AI spend) to a virtual halt and would severely hamper the housing market facing 30 year mortgage rates of 7.5-8%.

The implication for risk-assets is clearly not a positive one. We remain sanguine over the long-term positioning in equities. We are in the midst of one of the most consequential Industrial/Digital revolutions that mankind has hitherto been exposed to. There will be major winners and to a large extent we can already see who those may be.

However, near-term, the inflationary impact of higher energy prices and no discernible off-ramp for the Mid-East war will only raise investor concern and angst leading to higher volatility and near-term market correction.

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The ECB raised rates last week to 2.5% despite slowing growth citing rising inflation as the key driver for the decision. Lower growth and higher inflation smells of deflation, the worst possible economic outcome!

Energy prices have risen 14.3% in the Eurozone this year pushing the CPI to 3.3% for August. This is lower than the 3.4% headline number print in the US putting intense pressure and focus on the Fed for this Wednesday’s FOMC decision on rates.

Wil they? Won’t they – Investors have been chasing their tails for the last month trying to forecast direction of travel on US rates. Our take is that the decline in growth overall despite rising inflation, may be the economic fundamentals to anchor a no change decision. In the meantime, the political consideration (which will of course not be enunciated in Fed personnel speeches)  is that so close to the mid-terms, an increase could be construed as partisan. Warsh is no wall flower but equally it makes little sense to raise the Administration’s ire so early in his tenure.

But to make that policy decision of no change, the committee will have to consider the likely downside to waiting. 

1. GDP growth has slowed significantly from Q1 and is showing no signs of recovery.

2. Inflation is certainly on the up but the Fed can view this like us, as a geo-political ploy that may begin to unravel post mid-terms.

3. Unemployment is steady at near full-employment but, setting the latest, print aside, momentum is not positive.

Waiting to raise in December, assuming they and us are wring about energy prices, will do little to harm the economy short term whilst maintaining the impression of political neutrality up until the mid-terms.

Unfortunately bond markets are unlikely to take a no change well. They have been trying to force the Fed’s hands with a protracted bond sell-off for a month already.  

The treasury’s light hearted attempt at creating liquidity through bond purchases has resulted in further angst. US 30 year yields finished the week at 30 year highs, the UK treasury paid the highest coupons on bond sales last week since 1988 and German 10 year bunds are at 2009 GFC levels.

The equity market has faired relatively well through this bout of worry. However, with $46bn of cash flowing into money market funds in the last few days, risk assets are on the verge of a short-term ‘crack’.

In the meantime, AI appears to be slowing for no human! Former Anthropic employees are suggesting that the current pace of AI development is likely to lead to the end of humanity within 10 years! A wholly negative outcome for risk assets! 

 Oil prices have surged through $100 per barrel as the Houthis (Iranian proxies) have damaged the Saudi overland pipeline and taken control of a strategic port. Expect these disruptions to continue all the way to the mid-terms with full intent to keep inflation front and centre for the US electorate.

In terms of asset allocation, we’re in defensive mode. US remains the best of the rest with our equal weight S&P500 Index at the highest weight at 10% of the portfolio. Consumer staples going from 4% to 5%, energy from 3% to 5% and utilities from 4% to 5% and materials to 4% with over exposure to Gold. 

Taking profits from Financials, Aerospace, Healthcare and Crypto. All high volatility, recently strong performing sectors.

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In a US economy that is showing significant signs of deceleration, an acceleration in employment in last week’s job release was a comforting factoid. The unemployment rate remained unchanged at 4.1% near full-employment levels. The Fed will most likely treat this latest economic signal as neutral when deciding on action for the September rate announcement.

However, there will be dissenting voices in the Fed. Friday sees the release of August CPI in the US. Consensus is for an unchanged 3.4% headline number. This is way higher than the Fed’s long-term target of 2%. But even with that in mind, it’s unlikely that the newly appointed governor will want to lock horns with the administration just yet and will likely view a ‘no rise’ September FOMC session as a balance between being accused as partisan (despite having been appointed to the role by this administration) and the potential relatively minimal damage to the economy by holding off for a couple of months.

In the meantime, the bond market is likely to get increasingly nervous and the current bond sell-off will gain further momentum. US 10 year treasury yields are at 4.8%. The rate is back to levels not seen since Jan 2025. If the latest inflation print in the US exceeds consensus, there is a strong chance that the rate breaks through 5% sending shivers down the Fed’s and Treasury’s accumulated spines!

An interesting battle is brewing on the mid-term hustings, Data Centres. The issue has become partisan. DCs use significant real estate, water and electricity on the one hand but create jobs, drive productivity nationally and despite their attempts to minimise their tax toll, are still a net revenue benefit for states. 

The likely compromise will be for DCs to procure their own electricity needs and offer community based incentives to locate in certain areas. In the short term this will still imply significantly higher utility prices. The constraint in supply is likely to drive the utilities sector back into the limelight.

We also discuss asset allocation using a Passive/Aggressive approach using cheap ETFs to reflect a more diversified and less correlated portfolio. As an example, the equal weight S&P500 Index has generated a near 3% return over he summer compared to the market cap weighted index at 2.5%. 

An over concentration on the MAG7 (whether you like the group or not, and we do) is still creating portfolio risk through concentration. 

In this week’s episode we discuss the sectors to focus on going toward the year-end and sectors to stay away from.

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Warsh was exceptionally hawkish at the Jackson Hole symposium last week suggesting that the “Fed still has work to do”. Still, we don’t believe that the FOMC will raise in Sept. There are supporting economic factors including slowing GDP & slowing employment but more likely, so close to the mid-terms, it’s unlikely that  the Fed will want to appear to be choosing sides. If a raise were to occur, the timing is would be year-end or Q1 '27. Whilst most economists assume the next move is a hike, the currency markets don’t appear to be supporting this given the DXY remains 3-4% below its June highs.

Employment has not grown over the last 5-6 quarters in the US and the latest GDP figures for Q2 suggest a significant decline in momentum falling from 2.1% in Q1 to 1.5% in Q2. The only supporting indicator for a rise in rates remains inflation. Short-term, the PCE indicator most favoured by the Fed (out this week) will not read well. Inflation is likely to persist above 3%, well off the target rate of 2%, thanks largely to energy market disruption. However, moving forward, energy prices post the mid-terms are likely to recede as Iran will have achieved its objective of providing external interference and productivity gains from the AI capex spend will begin to show through in keeping prices stable whilst reducing costs for producers and manufacturers.

Nvidia blew past analysts forecasts in their announcement last week with a 70% revenue growth guidance vs 45% forecast. As an example of the pace of growth, their digital agents number 400k pushing towards 4mn working 24/7 over the next year. Compare this to their human employees who number 40k. Management suggest an average datacentre is breaking even in less than a year and sees a $2trn industry backlog and growing. Customer base expanding beyond just hyperscalers to governments and large corporates keen to build their own AI capabilities. The stock is trading on a forward PE of 21x with 25% earnings growth consensus forecast. As the stock in the centre of all things AI, this looks like a very reasonable valuation.

The Meta strategy for its build-out could well turn out to be the best risk adjusted mechanism of all and bring the company closer to Free cashflow generation before its peers. 

Meta decided to go down the route of leasing rather than owning and thus becoming an asset heavy business when it comes to data centre AI capacity. The mechanism is simple and neat. Meta invests in 20% of an SPV with the balance owned by major financial institutions including Blackrock and Apollo. The SPV then raises debt in the market from investors to pay for the DC land and assets. 

Meta is the leaseholder and signs rolling 4 year contracts with the SPV. The Meta liability becomes its 20% equity holding and its contractual obligations. The financial institutions and bond holders take on the financial exposure with no debt showing on the Meta balance sheet. The bond holders have no recourse to Meta but rather the SPV. So this is not an off balance sheet risk for Meta. 

The bond investors enjoy a long-term income on a long-lease from a blue chip covenant but have to accept that at the end of the lease life, they will end up with a highly specialised asset which may be difficult to monetise. 

In case of demand stalling for AI buildout capacity, Meta would still need to meet its contractual obligations but does not face other financial penalties bar its 20% stake in the SPV. 

Meta turned up late for the DataCentre party but may end up being an early beneficiary. At 18x forward PE, a substantial discount to the S&P500 Index and a consensus revenue forecast of 33% for next year, Meta looks increasingly like a value play. 

We’ll cover asset allocation further next week but as a starter, our winners over the summer have been Cybersecurity, Energy, Healthcare, Biotech & Crypto. Whilst the losers have come in with Space, Chips, Utilities, Industrials and Japan. We’ll likely stick with chips, utilities but shave back crypto and cyber.

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This week will see Kevin Warsh's 1st Jackson Hole meeting as Chairman of the Fed and expect little drama. No change in rates is the most likely outcome despite investors goading the Fed via the 10 year UST market to raise rates. The 10 year is already at 4.74% and set to move higher setting a bearish outlook near term for risk assets. 

Median Brent Crude spot came from $107 per barrel in May down to $85 in June and has spiked back up again to between $90-95 per barrel in August. With no signs of tensions easing in the Middle East, the core inflation measure is likely to remain elevated at 3.5% or more, potentially till mid-November. 

We don't believe that the Fed's next move will be to raise rates to counter the inflationary pressure from energy price spikes but equally, there is little room for a cut over the next 6 months. With tariff imposition once again taking centre stage for the administration implying further cost increases on staple goods, inflation doesn't look like heading to the Fed's long term target of 2% for at least another 12-18 months. 

Nvidia reports this week, but all the major earnings have come and gone. Capex is heading still higher, cash flow is disappearing and investors are fretting over returns. We believe, this is presenting an opportunity to jump back on the technology gravy train for another round of upside. 

Alphabet's increase of the capex range for 26 was not on our expectation horizon and the 27 wording of 'significant' increase in capex has remained where we believed this would have been tempered. Free cashflow fell to a negative $5.9bn for the quarter. All this spooked investors and the stock had a rough week post results. 

However, we believe the AI revenue opportunity is alive and well. Enterprise take up of AI tools is increasing at a fast pace. During the quarter API token usage per minute was at 37bn per minute, a 37% uptick QoQ. The contracted backlog grew 12% QoQ to $514bn with management expecting 50% of this to turn into revenue over the next 18-24 months. 

Amazon witnessed the highest growth for years in its AWS revenue at 37% YoY and Microsoft witnessed a 43% YoY Azure revenue growth. Both increased their outlook on capex and saw free cashflow slump. Meta. Who’s a got one foot in and foot out of the data centre capex race (more on this next week) saw capex accelerating and cashflow decline from $8bn this time last year to $800mn this year. Meta has further issues in court in California where it is defending against claims that its platforms have been causing mental harm to children and teenagers. 

In the meantime, Apple announced record units sold with 22% Iphone growth resulting in 2.5bn phones sold to date. 

We thought about what all this means for valuation. The S&P500 Index (37% of which is technology weighted) according to consensus is trading on 21.5x forward P/E with 30% EPS growth in 26 and forecast growth od 14% in 27. The Equal weighted S&P500 is on 20x forward P/E but only 12% earnings growth this year and 11% next year. The clear implication is that the tech heavy un-weighted index is delivering more growth for a somewhat similar forward P/E. 

On a more granular basis, we see Alphabet offering the clearest valuation upside on 15-20% consensus earnings growth on 18x forward P/E, a discount to the index. Microsoft and Amazon trade at a small premium to the market but better growth and Apple is at a significant premium with lower growth making it the weak link in the basket in terms of GARP (Growth At a Reasonable Price). Meta is a special situation. The low valuation (15x forward P/E ) reflects some near term challenges. It would be prudent to let the legal case play its course given the binary nature of the outcome. 

Overall, valuations would support a technology sector re-investment heading into Q4.

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In this week's episode we discuss the economic releases from Europe and the UK. The ECB is set to announce its rate decision. We see no room for manoeuvre. The UK is likely to witness a small uptick in headline CPI. We see further reliance on the debt market going forward, making it virtually impossible for the BoE to lower rates in this cycle and may even be looking at a rate rise before year-end.

The Iran conflict doesn't look like its ending any time soon. Energy prices remain elevated creating a higher base for inflation in the US resulting in the 10 year UST staying above 4.5% and staying the Fed's hand in terms of interest rate declines. We don't believe an increase is on the cards before year-end but anyhow, lack of action is likely to keep the USD strong vs Euro and GBP in the coming weeks.

The earnings announcements come thick and fast this week with the US consensus earnings expansion forecast at 26% vs Europe's consensus forecast growth of 16% largely driven by the European oils integrated companies currently taking advantage of significantly higher oil prices.

Intel and Alphabet report on Wednesday after the close. This week presents a seminal potential turning point for the semiconductor trade. The SOX Index (Semiconductors) is already 20% below its June highs and investors are wary what Alphabet and the other hyperscalers might say about the capex cycle. 

Alphabet is likely to re-iterate its 2026 capex plan of between $175-190bn but might revise its previous guidance for 2027 which was set at significantly higher levels than 2026. 'Significantly' (paraphrase for management's sentiments for 2027) may well be paired back setting in motion a more subdued positioning on the semi trade. Just as a reminder, MIcrosoft's capex plan for 2026 is $190bn and for Amazon at $200bn. 

A quick look at who is the most cashflow resilient to cost pressure from increasing energy prices and higher overheads would suggest that Microsoft sits on top of the pile with Alphabet second and Amazon last. This is largely thanks to the higher margin other businesses at Alphabet and Microsoft that can offset any AI datacentre cost inflation. Analysts are looking for expansion on the operating margin for Alphabet from a current 32% to 35% over the next couple of years.

Amex reports on Friday and will most likely confirm our view of an increasingly polarised consumer base. Higher non-discretionary prices are affecting lower income consumers considerably more resulting in potential fall away from discretionary spend by a large portion of the consumer base. More on this in the coming weeks as consumer related stocks report.

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This week we discuss Iran's long game in the ongoing war, the week's economic releases, including US CPI as well as the potential scenarios from the upcoming earnings season.

Iran has no interest in ending the war. They are fully aware that the US administration wants a swift cessation ahead of the Mid-terms and a significant lowering in oil prices. Equally however, Iran is not equipped or able to escalate the war. The plan seems clear. Low level attacks on shipping on the Straits of Hormuz leads to US bombing of what they see as strategic sites followed by counterattacks on US bases in the Gulf. Not quite all out but not quite all quiet! A perfect scenario from an Iranian perspective to keep the pressure on the administration.

The end game, of course, is to create sufficient pressure on the current administration so that Congress falls to the Dems in November and effectively compromises the administration's continued execution of the war, thereby handing Iran an effective victory and control of the Straits. Iran also knows full well that the US administration is unlikely to escalate given its domestic pressures. 

From an economic perspective, we get CPI this week. Month on Month the headline is likely to be tempered given the de-escalation in the mid east. However, when the Fed chair speaks to Congress this week, the median forecast of 3.6% CPI will be  uppermost in his mind. We still don't believe that the Fed will raise rates (consensus expectations are now looking for 25bps increase before year-end) but reducing rates is becoming less and less likely particularly if the conflict lingers, as we expect.

UK GDP for Q1 26 is released this week and a potentially better than expected number is expected. Combined with a likely increase in reliance on the debt markets in Andy Burnham's new administration, expect the next potential move in UK rates to head higher to defend GBP and make UK government paper more attractive for foreign bond investors.

On the corporate front, US financials begin to report this week. Significantly higher Investment Banking fees thanks to the SpaceX IPO and increasing Net Interest Margins (NIMs) should see strong results momentum maintained by strong guidance. 

The yield curve in the US is steepening again allowing for better profitability for banks. The 2 year UST has remained steady just over 4% but the 10 year UST has been pushing towards 4.6% on the back of higher energy prices and the potential effects of a slowdown that this could bring with it.

Finally, ASML reports this week. ASML is now Europe's largest company but its guidance is globally consequential. What they say about demand and likely spend on AI going forward is likely to set the trend for the semiconductor industry and technology generally for some weeks to come. ASML's management is forecasting a E36-40bn revenue range for 2026, an 18% increase YoY. If they increase the range, expect the sector to grind higher. The company has also been shipping more than 50% of its tools for memory production, outpacing logic sales. 

On a risk basis, bad news or a slowdown in demand will result in significantly worse downside for the sector. Good news will only confirm investor expectations.

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This week we discuss the productivity gains in the global economy thanks to the AI spend revolution. We witnessed a consistent 2-2.5% productivity gain throughout the late 90’s-early 2000’s as China opened up and started a global trade boom. AI is likely to deliver a similar if not even bigger opportunity. Productivity dampens inflationary pressure and drives growth. 

In this week’s Ben’s Fireside Interview we talk to Martin Dubbey, CEO & founder of Harod Associates Group, one of the fastest growing fraud investigation and asset tracing businesses in the UK. Harod utilises a proprietary investigation and asset tracing technology platform which Martin and team architected and which he talks about. Harod’s clients include Family offices, Corporates and High net worths looking to protect their assets in a fast moving and digital world. Head to https://www.youtube.com/@bensmarketchat for the full interview.

The $750bn of AI spend this year and at least this number again next year, has resulted in a major boost for semiconductors and hardware at the expense of the vast number of MAG7 companies YTD. However, the SMH (US semiconductor ETF) has fallen over 10% in the last 2 weeks. Earnings are upon is for Q2 over the next couple of weeks and guidance will be key. Do investors believe that capex spend momentum will slow? In terms of the 2nd derivative (ie the pace of growth) this may well imply a slower pace.

Equally, if we see guidance from MAG7/Hyperscalers that AI related ROI is starting to grow, a potential rotation from PHASE 1 (the hardware beneficiaries) to PHASE 2 (the spenders) may well ensue implying a strong finish to the year for MAG7. Q3 guidance therefore could present a seminal turning point for the technology sector and focus therein.

It looks like the war with Iran is back. It didn’t really ever go away. Anthony Scaramucci told us a few weeks ago that the US does not control the narrative. This war and economic consequences are likely to linger for many more months. Will this be enough to dislodge the growth trajectory in the US? We don’t think so. Despite the short term impact on inflation, longer term, productivity is likely to dampen the energy spike.

We remain overweight the US going into the second half and increase exposure to US small caps as productivity gains tend to have a democratising effect on smaller company performance vs their larger rivals. 

Europe remains a backwater for us despite its cheap valuation and EM is a cheaper play on the semiconductor trade in the US given the over reliance in the indices to TSMC, Samsung and Hynix. If we are witnessing a transition, EM, at least at the headline Index level, may not fair so well for the balance of the year.

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You can find us on LinkedIn and YouTube, Money Matters, Ben Hakham CEO at Traderoutes Capital.