Greetings from Edinburgh. I'm taking a break from vacation to post a market update, which is rumbling like an empty stomach. Nothing seems to be happening yet, but it feels foreboding. Momentum is struggling, but not imploding, as investors lean into value and revenue factors.

Not Yield Curve Control

Yesterday, all those folks rooting against the administration and the market sized up news that the Treasury will double the size of buybacks for long-dated Treasury bonds. Some are saying this is a form of yield curve control, or YCC.

A lot of folks understand this better than I do. However, this is not YCC, where the Treasury buys long-term assets, not just bonds, and yield caps determine the influx of buying.

This was an effort to bring the 30-year yield (TYX) lower, and that’s what it did out of the gate.

The question now is what type of curve are we left with? It looks like a bull flattener, with long-term rates falling more than short-term rates.

Some of the smarter work I follow suggests this is good for gold (see yesterday’s move) but not so great for Technology (XLK). That may be the standard reaction, but the current capital expenditures (capex) cycle for technology is at a different level than ever before. There are no signs of limited demand. On the contrary, that demand has helped push up long-term treasuries in order to compete.

Nor are there signs of an end to the business cycle, although it's clear consumers have become more cautious lately. The answer is that Secretary Bessent knows the 30-year yield has become too high and needs to stave off jitters that could morph into panic.

Tech spending and, more recently, capital raises have been a cause for concern since hyperscalers began ratcheting up their investments. Now, there is talk of off-balance-sheet commitments that sound like the nefarious stuff that happened during the dot.com bubble phase.

The investments (financial media insist on calling it spending) will be rewarded.

There are questions about the eventual prices and profitability of frontier models, but increased token use and eventually lower prices mean faster adoption. But frontier artificial intelligence (AI) is a linchpin to the financial structure of the current AI buildout scheme. These companies are seeing mind-boggling revenue run rates, but they cannot miss a beat or be beaten.

Freedom

I’m worried about the politicization of data centers, which could become a midterm election-year topic. To lose this race means losing U.S. predominance. As I make my way through Scottish castles and ceremonies, I think about the greatness and dominance that Europe once enjoyed.

The truth is, Europe will never dominate like it once did, in part because of political suicide; it makes me wonder if America is capable of such a mistake. This means they will lack true economic freedom. Our guide waxed poetically about all of the Chinese students coming to Edinburgh for university. 

These students demand higher-end accommodations, which has meant new building construction. That’s fine, but I'm sure educational demands and, soon, local involvement will mean more decisions are made thousands of miles away from here.

Could America give away its freedom?

We’ve come close in recent years with environmental, social, and governance (ESG), anti-fossil fuels, and anti-nuclear, just as our need for more power surged even without data centers.

We cannot afford to lose the AI race.

The good news is big money and powerful players are at work to make sure it doesn’t happen. To be sure, they are driven by profit motivation, which is good because it means they will have to do the right thing most of the time to prevail.

Bracing for Volatility

The Volatility Index (VIX) is really low – so low it looks like a coiled spring.

Next week, volatility is poised to pick up, in part because of Jackson Hole, Wyoming, where Fed Warsh will have to deliver the address of a lifetime - and Nvidia’s (NVDA) earnings – the ultimate update on the AI Revolution.

I expect both to be great!

Today’s Session

The market opened lower out of the gate as longer term yields recover some of yesterday’s losses as oil continues to move higher on Middle Eastern tensions.

An important note of yesterday’s story is that Moderna's (MRNA) cancer vaccine is built with machine learning, which reads each patient's tumor DNA and picks the mutations their custom shot will target.

In other news, Micron (MU) announced a $10B investment in domestic memory research.

Hudson River Trading signed a multi-year multibillion-dollar deal to use CoreWeave (CRWV) for trading research and model development.

Earnings season continues with Walmart (WMT) getting hit after a rare miss on same-store sales which came in at +2.65%, the lowest since 2021, missing consensus of +3.5%.

For the quarter, Health and Wellness saw a low-single-digit decline while its Grocery segment saw mid-single-digit growth. General merchandise revenue rose slightly due to strength in toys, fashion, furniture, and private labels.

On the economic front, the Philadelphia Manufacturing Index rose to 47.4 in August from 41.4, its highest level since April 2021, and above forecasts of 25. New orders and shipments eased, while employment saw its highest reading since April 2022 and the Future General Activity Index surged 39 points to 73.6, its highest reading since 1983.

Comments

Thanks for taking time out of your vacation to correspond with your followers! I really appreciate it! Patricia Harkness on 8/20/2026 10:20:33 AM

Have a great trip. Get home safely. Thanks for the update. Dustin Coffey on 8/20/2026 11:22:19 AM

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