That70s Da

Next week has one scheduled release that matters: the Federal Reserve's rate decision on Wednesday, Oct 28, after a Tuesday-Wednesday meeting and a press conference. That70s Da lays out why the tone matters more than the decision itself, with Brent crude settled around $117 a barrel, the 10-year yield at 4.99% just under the 5% line, and only 38.5% of the stocks he tracks above their 200-day average.

His two home-built readers disagree as usual: Slide Rule (numbers only) calls Monday neutral at roughly -1.3% to +0.6%, while Ham Radio (news and calendar) leans lower at about -1.5% to +0.4%. Both flag the same risk - weekend Gulf headlines sending oil past $120 - and corporate borrowing costs already sit at the 96th percentile of their history.

Key points:

* A quarter-point move is mostly priced in by the time it arrives; a sentence or two in the press conference about whether more hikes are coming is not.

* History cuts both ways: in 2004 the Fed raised at every meeting and markets mostly shrugged, while in late 2018 it raised into a wobbling market and the index fell close to 20% by Christmas.

* The watch list: the press conference wording, the 10-year versus 5%, Brent versus $120, and credit spreads.

Article: https://that70sda.substack.com/p/one-meeting-and-everything-else-is

Not financial advice.

- That70s Da.

If this was useful, follow the show - a new episode lands with every piece.

Friday’s innings scorecard named the GPU renters as the build-out’s sore spot: heavy borrowing, estimates cut 15%, shares down 23% in three months. This piece opens the tech track with the strangest answer to that squeeze - a new kind of neocloud that belongs to a rocket company.

Google rents data-center capacity from SpaceX for $920 million a month over 32 months; Anthropic pays $1.25 billion a month through May 2029 for the Colossus data centers in Memphis. SpaceX’s AI business took in $7.56 billion last quarter (about half the company’s revenue) and earned $431 million after a $1.2 billion one-time Cursor stock cost. The other side: $19.6 billion of capex in one quarter, a $413 million nine-month net loss, two customers carrying the business, and a stock that fell about 9% on Thursday as up to 1.3 billion shares came out of lockup.

Key points:

* The pivot only a one-owner company makes inside a year: build for your own models, fall behind, rent the buildings out, buy the coding tool, keep the lab.

* Musk’s two numbers - 200,000 chips a month promised, 20,000 a month actual - and why the smaller one is the one to hold him to.

* The giants were born renting out spare capacity (Amazon); now one of them pays Musk for it.

* What to watch: Microsoft and Alphabet (Wed Oct 28) and Amazon (Thu Oct 29) - whether the builders’ spending plans keep climbing.

Article: https://that70sda.substack.com/p/one-owner-one-pivot

The sequence: The safe places aren’t safe either - https://that70sda.substack.com/p/the-safe-places-arent-safe-either | Late in the second inning - https://that70sda.substack.com/p/late-in-the-second-inning | Rented money - https://that70sda.substack.com/p/rented-money

Not financial advice.

* That70s Da.

If this was useful, follow the show - a new episode lands with every piece.

Every Saturday, That70s Da grades his two home-built market readers - Slide Rule (numbers only) and Ham Radio (news and calendar) - against what the market actually did, line by line, the way a mechanic explains a repair bill. This week only four sessions could be graded: Wednesday’s data was missing, and he doesn’t score what he can’t trust.

The week in short: on the S&P 500 both readers kept the close inside their range on 3 of 4 sessions; on the Nasdaq-100, 2 of 4 each. Ham Radio called the S&P’s direction twice; Slide Rule’s flat calls never counted, because every session moved more than the 0.3% “flat” band. Thursday was the instructive miss - both readers had the S&P landing between about -0.5% and +0.7%, and it fell 1.18%, while the Nasdaq-100 fell 2.85% against ranges that topped out near +1%.

Key points:

- A forecast is a statement about odds; four sessions can’t grade the odds, only show where they felt too tidy - this week, the tails.

- “I don’t see a clear direction” is itself a forecast, and it can be wrong.

- Next week’s watch list: the Fed decision Wednesday Oct 28, Brent crude after settling around $116.70, and the 10-year yield at 4.99% against the 5% line.

Article: https://that70sda.substack.com/p/four-sessions-graded-and-the-one

Not financial advice.

- That70s Da.

If this was useful, follow the show - a new episode lands with every piece.

Every rally is part owners, part renters. Owners came for the business - the sales, the profits, the plan. Renters came for a reason outside it: a rate move, a scare, an election, a crowd. Both push the price up the same way; they leave for very different reasons. This piece closes the week’s trio by asking how much of the money in today’s leaders owns the business, and how much is only renting it.

The tells: ask what brought the money in (Thursday’s rotation map has a big outside reason - the 10-year at 4.99%); watch what happens when the reason goes away; and check whether the earnings follow. Health care holds both kinds at once - drug distributors up 15% in a month on estimates up about 2% (rent), diagnostics and data companies with estimates raised 19% in ninety days (owners arriving) - while Eli Lilly, sales up 48%, fell 13% in a month. AI software is the mirror image: shares up 39.6% in three months, estimates up about 1%.

Key points:

- Rented strength is not a verdict on a business - the 2023 turn embarrassed confident calls in both directions.

- Renters can stay a long time when the reason stays; prediction markets see no Fed cut coming.

- Where renters go when they leave is the innings question: back to the companies doing the building, if the pace holds.

Article: https://that70sda.substack.com/p/rented-money

The trio: The safe places aren’t safe either - https://that70sda.substack.com/p/the-safe-places-arent-safe-either | Late in the second inning - https://that70sda.substack.com/p/late-in-the-second-inning

Not financial advice.

- That70s Da.

If this was useful, follow the show - a new episode lands with every piece.

Yesterday's rotation piece ended with a promise: point the same habit of asking who is getting paid at the AI build-out itself. This is the scorecard I use to say we're late in the second inning - and what would prove me wrong.

The second inning is the building. The big cloud companies have more than doubled capital spending from a year ago (up 121%) while their revenue grew 24%, and the money visibly lands with the suppliers: server makers' revenue up 62% with estimates raised 36% in ninety days, memory makers up 197%, data-center networking up 35%. Why "late" in the inning: the GPU renters' estimates have been cut 15%, power and cooling (up 18%) is still the slowest trade, and the market is already paying for a third inning - AI software shares up 39.6% in three months against estimates raised only about 1%.

Key points:

- A construction site at full tilt: capex +121% vs revenue +24%, with the supplier chain paid first.

- The first hard questions are aimed at the renters of compute, not the builders.

- The third inning (users visibly earning from AI) is being paid for before its numbers arrive - at a 10-year yield still hovering at 5%, faith is expensive to hold.

- Thursday's live test: Meta posted record revenue and still fell 7%, because free cash flow swung negative.

- What to watch: Microsoft and Alphabet (Oct 28) and Amazon (Oct 29) - next year's spending plans, not the quarter.

Article: https://that70sda.substack.com/p/late-in-the-second-inning

Yesterday, the rotation map's first piece: The safe places aren't safe either - https://that70sda.substack.com/p/the-safe-places-arent-safe-either

Not financial advice.

- That70s Da.

Every few months money gets up from one set of chairs and sits down in another. This piece opens a new corner here: the rotation map, which sorts sectors by strength against the whole market and whether that strength is speeding up or fading - prices only, never earnings.

The surprise this fall is the shelters. Gold is down 5.2% in a month, long-term Treasury bonds down 6.1% over six months, utilities down 9.0% over three months, defense contractors down 15.9%. In a flight to safety those would be the winners; they are among the losers. What leads instead is health care (up 10.8% over three months) and energy (up 10.3% in a month), with staples along - money coming in now, in a market priced off a 10-year Treasury yield of about 5.15%.

Key points:

- A higher yield marks down anything whose value is a promise far in the future - long bonds, utilities, fast growers, and gold all qualify.

- The AI chip group peaked on June 22 and has been boxed between roughly 504 and 640 since July; the old 600 ceiling turned it away again in October.

- Both home-built readers see defensives in front and tech’s long-run strength rolling over; neither is calling a turn in tech yet.

- What to watch: chips closing back above 600, and whether the 10-year eases.

Article: https://that70sda.substack.com/p/the-safe-places-arent-safe-either

Related, the map’s first sketch: Who’s running in front tonight - https://that70sda.substack.com/p/whos-running-in-front-tonight-and

Not financial advice.

- That70s Da.

A calm fear gauge sitting on top of a nervous bond market is not a new picture. Two autumns looked a lot like tonight, and they ended in very different places. The 1998 half gets the short version here - Russia’s default, the Long-Term Capital Management blow-up, three Fed cuts in about seven weeks, and a market back at a record by late November (the full telling is in Friday’s alarm). The 2007 half gets the full telling: the Bear Stearns funds, the French bank freeze, the September cut, and the October record that turned out to be the top.

Tonight’s pieces rhyme with both. The VIX is a quiet 16.68, but only 42.3% of tracked stocks are above their 200-day average, every AI theme is down over the past month, and the 10-year Treasury yield sits around 5.15%. Over the last five days corporate bonds have lagged government bonds by about a third of a percent - small, but the kind of gap that tends to show up before the stock market notices. What separates the two endings, as far as I can tell, is whether the stress stayed in the markets or leaked into the places that lend.

Key points:

- 1998, short version: the stress stayed out of the lenders, the Fed could cut, and it was fixed by November.

- 2007, full telling: the stress was already inside the lenders, and the October record was the top.

- What’s different tonight: oil near $98 and a 30-year mortgage above 7% make a rescue by lower rates harder to count on.

- What to watch: the corporate-bond gap widening past about 0.6%, breadth slipping under 40%, or the 10-year closing above roughly 5.25% - and, the other way, breadth climbing past 45% with the gap closing.

Article: https://that70sda.substack.com/p/two-autumns-with-the-same-tell-and

Related, from Friday: Friday’s alarm - https://that70sda.substack.com/p/fridays-alarm

Not financial advice.

- That70s Da.

Stocks had a decent Wednesday - the S&P 500 rose 0.58% to 7,757.17 and the Nasdaq gained 1.05%, helped by a strong SpaceX report - but the number worth slowing down for is the 10-year Treasury yield at about 5.15%. Nearly everything else is priced off that rate: mortgages (the average 30-year is at 7.41%), car loans, and what companies pay to borrow.

Over the weekend dashboard read, the yield sat at 5.09%. The creep since then is the story, because a rising yield ended two very different ways before - 1994’s bond rout followed by a strong 1995, and the 1999-2000 climb that dot-com stocks ignored until they couldn’t. What separated them was whether companies were earning real money at the higher rates, and whether they needed to borrow more to keep going.

Key points:

- The bull case: a calm VIX around 16.7, no rush for crash protection, and a news read that leans slightly up for tomorrow.

- The bear case: a narrow rally (small companies up just 0.27%), oil near $98, and AI stories that lean on borrowed money - where a 5%-plus rate bites hardest.

- Only 42.3% of tracked stocks sit above their 200-day average, even with the index near its highs.

- What to watch: whether the 10-year closes above roughly 5.25%, whether credit spreads start widening, or whether the yield slips back under 5.10% with breadth improving.

Article: https://that70sda.substack.com/p/the-one-number-i-cant-stop-looking

Related, from the weekend: Reading the dashboard - https://that70sda.substack.com/p/reading-the-dashboard

Not financial advice.

- That70s Da.

This was supposed to land on Tuesday - a bit of travel, a bit of life - so Tuition Tuesday arrives a day late, with a lesson the market charges full price for: a rising business and a falling stock can both be true for a long time.

The companies that build the AI servers - Dell, Super Micro and Celestica - grew revenue between 58% and 93% over the past year, and analysts raised next-quarter earnings estimates for the group by 36% in ninety days. Their shares still fell about 17% in a single week, and about 30% at the worst point from their peak. Neither one is lying: the price is arguing with the future, and this episode works through what it is worried about - thin margins (Dell keeps about 20 cents of every sales dollar, Celestica about 12, Super Micro about 11), Super Micro burning cash to grow, and a whole group depending on a handful of big cloud buyers.

Key points:

- The tuition: a rising business and a falling stock can both be true for a long time - neither cancels the other.

- Ask what the price is worried about, then check whether the numbers back up the worry.

- Thin margins mean small surprises move the stock a lot.

- The shares are still up about 89% this year - and the next tell is the big cloud buyers’ spending lines when they report over the coming days.

Article: https://that70sda.substack.com/p/tuition-tuesday-when-the-stock-falls

Related, from Monday: The guys who bolt the racks together - https://that70sda.substack.com/p/the-guys-who-bolt-the-racks-together

Not financial advice.

- That70s Da.

Prediction markets turn real-money bets into odds. Tonight's board: the US-Iran ceasefire holding through Oct 31 at 81.5%, crude touching $105 this month at 34% after Monday's close near $104, no Fed change in October at 85.5%, and a NATO-Russia clash priced small but not nothing at 8.5%. How much should you trust any of it? Plus the late-2021 lesson - the crowd priced almost no hikes for 2022, and the Fed went to over 4%.

Read the article: https://that70sda.substack.com/p/what-the-bettors-think-about-the

Not financial advice.