Is the AI capex bubble’s increasing reliance on circular financing bullish or bearish?

Happy Tuesday, 1342, your skipper here, Darius Delta, present our macro-minute for Tuesday, August 11th, 2026. As always, we'll start with the executive summary from today's "Lead off Marty" note. So let's dive right in. Today's key macro question is, is the AI CAPEX bubbles increasing reliance on circular financing bullish or bearish? The short answer is both. It's overwhelmingly bullish for now. Respect the X-axis. As Bulls will argue, that because compute is increasingly serving as collateral for debt capital, transferable compute allows circular financing to be reallocated to different buyers in the event of a default, thus reducing the risk of capital impairment for the creditors. We agree. This is a profoundly bullish development that should propel the AI CAPEX bubble to new heights. Shifting more of the financing burden as strong hands in the institutional investment community and a weight from weak-handed retail investors creates scope for substantial upside with respect to AI-related asset valuations because it reduces the marginal supply of equity and debt capital in public markets. Bears will argue that NVIDIA has already signed many hundreds of billions of dollars in AI ecosystem deals and that the circular financing agreements artificially inflate industry demand and asset valuations while genuinely inflating concentration risk in global financial markets. We agree with this take as well. The price NVIDIA and its financing partners are paying for more runway to build out AI infrastructure is more circular financing, more concentration and investor portfolios, and ultimately, more leverage chasing opportunities that have yet to yield significant productivity enhancements for end adopters of AI enhancements that may not arrive on time on the accelerated timeline baked into current S&P 500 earnings expectations. So today's note was a doozy. We really went a deep dive on the circular financing, a deep dive on the capital demands from AI and how that's intersecting with capital demands for the US sovereign and sovereigns broadly and ultimately, how that's all pushing up our star and what the implications of those dynamics are on asset markets and the economy. So really, really, really, tool to force, if you will, on this topic. We also unpacked the probability that Japan will ultimately force the Fed to print more in the context of this failed Nyan intervention on all the dynamics that are driving that from a Japanese Nyan carry trade perspective. So if you are interested in that, definitely check that out as well. And then lastly, we unpacked the July NFIB Small Business Optimism Survey data, particularly as it relates to the Ford Outlook for the US economy. So when you get a chance, check that out as well. So it's always a wrap up with a question from our community. This was titled, "If the Fed doesn't run the Play Action Pass," says high skipper. First, a big thank you for the excellence of your work. I've only been a member for a few months, and I'm already seeing the difference in how I approach markets. It's an incredible privilege that you also speak to smaller investors. And I appreciate it every single day. So I appreciate you. Thank you for the kind compliment. Going back to the question, does that listen to your interview with Adam Taggart last weekend? You explain that if the Fed doesn't run a Play Action Pass, which is tightening sickly and then to set up the run, being easing structurally, if the Fed doesn't run a Play Action Pass, stocks should keep climbing. We'd have an excellent year. My question is about the other branch. If the Fed does run the Play Action Pass, couldn't it end up spooking the bond market rather than reassuring it? In other words, couldn't long-term yields keep rising and eventually break the economy and the stock market along with it? I think you may be too simplistic, and that's exactly why your insight on this was so valuable to me. Thank you so much. So the first thing I'd say is, it's unlikely that the bond market will blow up in the event of Fed tightening monetary policy. And here's why. Tight money makes bond prices go up, yields go down. Easy money makes bond prices go down, yields go up, because easy money inflates nominal growth and tight money deflates nominal growth. Is it simple is that? Are there other dynamics at play as well, but certainly not for macro-minute? But just simply think about the bond market from that perspective. It's all about the bond market's yield level is a signal to capital allocators, to investors, how much it wants their capital. The higher the yield, the more the bond market is desperately streaming to capital allocators added to its need, it really needs their capital. And the more the bond market really needs their capital from the perspective of higher yields, that obviously drains capital from the private sector and can cause problems in the economy and risk asset markets. Right now, the Fed is currently about two rate hikes away from getting back to neutral, according to our market implied Fed nutrient model. Our stars risen by about 50 to 75 basis points over since the end of February, at least according to our RSTAR model. And if that's true, then ultimately, you have a Fed to reserve in modestly accommodative territory, specifically as it relates to the policy rate. We know the balance sheets in accommodative territory. I think it's the monetary basis about 17% of GDP compared to a long run mean or a pre-GFC mean somewhere in like the four to six range. So clearly, the balance sheet is in accommodative territory. So as long as you have a Fed to reserve that's in a accommodative territory, during a time where there's a massive capital expenditure boom globally across the world, then ultimately, it's going to continue to push up interest rates. So ultimately, in our view, a Fed that does play action pass a Fed that does tighten cyclically, will ultimately actually tone down volatility in the bond market. But obviously, this could be at the expense of the equity market. It's our view that the probability of that being at the expense of the equity market is actually declined in recent weeks in the context of the signals that we're getting up from the Treasury. So check out our research from the past a couple of weeks on that. So we're wrapping up there. There's still here presenting our macro-media for Tuesday, August 11, 2026. That's the look out there today. We'll catch back here. I'm actually going to catch back here on Monday. I got a conference this weekend and we got our macro-scattering report. So our next macro-media will be on Monday of next week. So everyone have a wonderful week for the two macro members. We get excited for our August macro-scattering report on Thursday. It's going to be a tour de force of everything you need to know to see on the right side of market risk from the upset of the six key macro cycles and unalways through the lens of our kiss and Dr. Moe, Rosman of Novelay. So we'll wrap it up there. Everyone have a great day. Cheers. If you enjoyed this content, please remember to like and subscribe. Thank you. This content is for informational purposes only and does not constitute an offer or a solicitation. Reliance upon the information in this material is at the sole discretion of the viewer or listener. Investing involves risks. Any reference to a company, issuer, or investment strategy is for instructive purposes only and does not constitute investment advice. For full disclosures, visit 42macro.com/disclamer.