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Chapter 1: What caused the recent volatility in tech stocks?
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Pushkin. Some spectacular results from Micron, another AI biggie, seems to have got the good vibes going again, but it's been a very up and down kind of week. Today on the show, is this a random wobble or a sign that the AI trade has got a little over-caffeinated? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin.
I'm Katie Martin, a markets columnist at the FT in London, where the current temperature is 1,000 degrees Celsius. Skeletons are dotted around the streets, the city is deserted, and everyone is grumpy because it's just too hot. Joining me down the line from his bunker in New York City is that guy, Rob Armstrong. Rob, I gather it's cooler there.
It's very nice. And I just want to note for the record that our editor, Brian, begged you on his knees not to talk about the weather in today's show. And you would not be stopped.
Brian does not understand how hot it is though, man. Like everything is bad and wrong.
Yeah.
The English do not manage the heat well.
It hits different over here. It hits different. It was nice to see you the other day in your hometown.
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Chapter 2: How does SpaceX's IPO illustrate market behavior?
Because we know that the data center boom is going to be darn good for the chip companies. What it means for Alphabet, Amazon, Microsoft, the big mag sevens, we don't know what it's going to mean for their businesses yet.
But also, I think there is a degree to which... Investors are a little bit nervous. They look at the decline of free cash flow among these companies and just the sheer amount of money that they're spending. And a lot of this is money that they're now borrowing from the bond markets.
And there is just a bit of a sense of, look, this capex boom, this boom in spending by big companies is fun and everything, but has it gone just a little bit too far? And I think the other kind of key ingredient in all that is that We spoke about this the other day. We had a Federal Reserve meeting the other day.
So the US Central Bank got together and decided on interest rates and kept them steady, but did offer a hint that they are serious about pulling inflation down, which means all things equal that you get higher interest rates. Now, again, you and I were talking to Rishir Sharma about this on the last pod that we did in New York, like...
That is the thing that pops bubbles, is much more expensive money and rising interest rates. And so there is just a sense that, OK, tech companies are kind of running too fast and they are spending money too fast. And there's a lot of leverage money and retail money in this. And it all feels a bit overexcitable. If that were to combine, still an if, but with a big rise in interest rates,
that's where this can go belly up.
That is no question about it. The easiest to imagine nightmare scenario right now. We did have the personal consumptions expenditures inflation report this morning. It's very hot if you include energy, up above 4%. And it's still above 3% if you strip energy out. So, I mean, the way I see inflation is, is that we're fortunate it's not getting worse. But it is just plain old above target, right?
And I think we can kind of live. I don't think inflation at this level, even if the Fed has to do a little bit to fight it, pops a bubble. But if we get another shock or another leg up, whew, that's scary. And I just want to emphasize, I don't think that's especially likely. I don't even know why that would happen, why inflation would get worse from here. But that's the scariest scenario.
There's no question in my mind.
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