Nvidia reported after the close. As we discussed yesterday, if they follow the history of beating guidance, we’d likely be looking at a company running at a $400 billion annual rate, and growing at a triple-digit rate (again!). 

We got it.

Nvidia reported $96.2 billion in revenue this afternoon, up 106%.

Just four years ago it was a $7 billion quarter. Then $13 billion. Then $30 billion. Then $47 billion. Now $96 billion. Back to triple-digit growth.

Keep in mind, that’s doubling off an already enormous base. It’s unprecedented at this scale.

That said, the CFO led the call by saying they expect 70% revenue growth in fiscal 2028. That’s not demand slowing to a 70% growth rate, it’s a supply issue (again).

The supply constraint is back.

It’s memory. It’s advanced packaging. It’s power. Jensen says the entire supply chain is constrained. 

We’ve watched this pattern for three years now. The buildout looks like it’s found its limit, then it shifts into a higher gear, and then it runs into a new physical wall (chips, storage, power, memory).

And it’s severe enough that Nvidia has committed $279 billion to secure future supply and manufacturing capacity, up from $119 billion just three months ago.

Let’s talk about two other key takeaways from the call that tell us about, not just Nvidia, but about the state of the AI boom and outlook.

1) The demand is broadening.

Everyone sees the AI spending from the big hyperscalers (Google, Meta, Amazon, Microsoft, Oracle) . That business at Nvidia grew 102%.

The other business is the AI clouds, enterprises and sovereign governments. That business grew 138%, and it’s about to become the larger of the two. Jensen’s framing was that the hyperscalers were the beginning, not the destination.

2) The next key takeaway: They changed the way they report on the businesses within Nvidia. 

Five product lines are now two “platforms.”

There’s Data Center. And there’s Edge Computing.

Edge is only 7.5% of revenue today. Yet Nvidia now considers it one of only two “platforms.” Why? Jensen’s answer throughout the call was agentic AI. This is continuous inferencing from, ultimately, billions of AI agents running around the clock.

By making Edge Computing a one of only two platforms in Nvidia, is this Jensen telling us where he thinks the rest of this decade goes?

It seems that way. 

He says “when the world goes to fully agentic, you’re going to have agents running all the time, working with other agents running all the time.” That’s constant compute usage. And the meter is always running — billable compute.

And this works because, as he said, AI is doing productive work, which generates profitable tokens, which becomes more productive work and more profitable tokens with the addition of more computing capacity. That’s the self-reinforcing loop Jensen has been talking about all year — what we’ve called the “boom loop.”

Tomorrow we get PCE, the Fed’s favored inflation gauge. And it comes two days before Kevin Warsh gives his first speech, as Fed Chair, at the Kansas City Fed’s annual economic symposium in Jackson Hole. 

As we discussed in the past, this event has historically served as a platform for central bankers to communicate important signals regarding policy adjustments.

In 2010, Bernanke telegraphed QE2 in his Jackson Hole Speech.  Two years later, he telegraphed QE3 at the event.  In 2014, Mario Draghi (head of the European Central Bank) telegraphed aggressive action from the ECB to battle deflationary pressures — a bond buying program was formally announced just days later. 

More recently, in August 2024, Jerome Powell used it to say the time had come for policy to adjust. The Fed cut in September.

That said, Warsh has spent his first three months removing the Fed’s signaling apparatus. He ended forward guidance. Asked what he’d say in Jackson Hole, he called it “a blank piece of paper.”

So the market will pay attention on Friday to the one venue built for signaling, to hear from a Chairman who has spent the summer dismantling signaling.

The bigger event of the week, comes tomorrow after the close.

Nvidia reports Q2 earnings. 

They guided $91 billion in revenue for the quarter.

The Q1 number was $81.6 billion, which was up 85% year-over-year.

The data center revenue that had become a $4 billion quarterly growth rhythm for a couple of years — surged by $13 billion in Q1. That was 21% quarterly growth, 92% year-over-year.

So, clearly the explosive growth for Nvidia has returned.

And given the history of beating guidance, it’s a good bet that we’ll find tomorrow that Nvidia has returned to triple-digit revenue growth, for the first time in two years.

So, by this time tomorrow, we will likely have a company doing near $400 billion run rate, growing at a triple-digit rate.

Meanwhile the stock closed today at $213, about 10% below its May high, at roughly 23 times forward earnings (on tomorrow’s guidance).

Hold that share price flat and let earnings compound. At 25% growth it’s under 12 times by 2030. At 30%, roughly 10 times. Even at 15%, less than a fifth of what the company just delivered, it’s 15 times.

Now, we talked about the Treasury’s move last week to support the long-end of the bond market. And we talked about what looked like a new (or restored) Treasury-Fed Accord.

For the better part of eighteen years, when long-dated Treasuries needed a buyer, the Fed has been the buyer.

Warsh has been explicit that the use of the Fed balance sheet borders on fiscal policy, and he wants the Fed out of that business.

With that, the move last week by Scott Bessent’s Treasury to infuse demand in the long-end of the Treasury market looked like the Treasury taking over the role of crisis manager.

Stan Druckenmiller published an op-ed in the Wall Street Journal on Monday attacking the Treasury’s decision.

This was his case: it wasn’t liquidity management, it was price management. And it wasn’t prompted by market stress or crisis.

With that, he argued to “let the bond market speak.” Let the bond market do its job of disciplining fiscal profligacy (perpetual deficits).

He failed to mention that the market he wants to speak, hasn’t been able to speak freely since 2008.

The Fed manipulated it for the better part of eighteen years, and remember Powell even restarted monthly asset purchases last December on his way out the door, in size!

And Janet Yellen, Biden’s Treasury Secretary, skewed bond issuance toward bills deliberately, to hold the long end down. It was price management, and it ran through a presidential campaign.

Bessent is dealing with a market where the Fed is withdrawing, foreign dollar access is being made conditional, and the hyperscalers are competing with Treasury for capital. And last week he said, to justify the bond move, “what do I know that the market doesn’t know?”

Last week, President Trump threatened an economic “D-Day” to “crush Iran’s shadow economy.”

Today, the U.S. Treasury Secretary held a press conference to announce the start of the clock on that operation, and to threaten all countries financing the Iranian economy to either “stand with the U.S.” or “share in the isolation of a withering regime.”

Sanctions on Iran aren’t new. What’s new is the audience that falls within the net of isolation by association.

Bessent said, “No nation should expect to enjoy the rewards of our system while helping those who seek to destroy it.” And he said, it’s now “a time for world leaders to make a decision between prosperity and isolation, peace and terror, America and Iran.”

This is addressing whoever is still buying, shipping, insuring and banking the Iranian trade.

Who fits that description?  China. 

China takes as much as 90% of Iran’s oil exports.

With that, Bessent was asked directly whether Chinese banks would be targeted. He wouldn’t say. He did say that “no one is above the reach of US sanctions … we know who they are. They know who they are.”

Now, this “stand with the U.S.” or pay a price may sound familiar, because it was the underpinning of the tariff strategy.

As we discussed in our notes, back in April of last year, the point of the tariffs wasn’t revenue, it was about realignment.

Use access to the American consumer as leverage, and draw the rest of the world back toward the United States.

It worked. But not on China.

That’s because the tariff strategy is ultimately about China — ending its multi-decade economic war on the world. 

Remember what Trump’s Secretary of State, Marco Rubio, said in his confirmation hearing: “if we stay on the road we are on right now, in less than 10 years, virtually everything that matters to us in life will depend on whether China allows us to have it or not.”

So, China hasn’t made a deal on trade. It has retaliated. It has built workarounds. It has delayed.

And now the Trump administration is deploying another instrument, one that uses Iran to put China in the crosshairs.

The penalty for those funding the Iranian regime was stated plainly this afternoon. They “will be removed from the US dollar system.”

So the tariffs quickly realigned most of the world. This threat against Iran enablers is to realign who’s left — or isolate them.

With that, just as Venezuela has been the model for Iran — eradicate the regime, take the oil, remove the leverage — the economic isolation of Iran now presents a model for the Chinese Communist Party to contemplate. 

On that note, Bessent’s language today brought this to mind: In February of last year, at the AI Summit in Paris, Vice President Vance warned a room of world leaders about siding with China on technology/AI.  He said “partnering with such regimes, it never pays off in the long term,” and that doing so “means chaining your nation to an authoritarian master.”

Neither Vance, nor Bessent, explicitly called out China, but the dots are easy to connect. 

Today was another warning shot, but one with enough bite to further weaken Iran, and expose China’s complicity.  

Yesterday we talked about the Treasury’s move to support the long-end of the government bond market — providing “greater liquidity” in the 30-year bond market, pushing yields lower.

This is the Treasury taking over a function the Fed performed for the past eighteen years (managing liquidity and the level of bond yields).

This looks like the execution of a new 1951-like Treasury-Fed Accord.

Remember, we talked about this back in early February (here), just after Kevin Warsh was named Fed Chair.

As we discussed in that note, both Bessent (Treasury Secretary) and Warsh (new Fed Chair) worked for, and are very close with, legendary macro investor Stan Druckenmiller.

Druckenmiller is a mentor to both.  And few in the world understand global liquidity, sovereign debt supply, and how they affect capital flows, risk premiums and market psychology like Druckenmiller.

Fast forward six months, and his proteges are now managing the world’s most important liquidity spigots (one from the fiscal side, one from the monetary side).

On that note, in an FT article back in January, Druckenmiller had used the word “accord” to describe the relationship Warsh and Bessent would have between the Fed and Treasury.

That word “accord” is significant, because it’s in reference to the 1951 Treasury-Fed Accord that established the Fed as an independent central bank.

During World War Two, the Federal Reserve pegged yields on the government bond market. Bills were at three-eighths of one percent. Long bonds at two and a half. The Fed committed to buying whatever quantity was necessary to hold those levels, with newly created money, without limit.

It worked. It financed the war at cheap rates. But when the war ended the peg stayed, and by 1951 inflation was running hot and the Fed was still legally obliged to buy Treasury debt at prices the Treasury wanted.

The 1951 Treasury-Fed Accord ended it.

The Fed was freed from financing the government. It became an independent central bank. And managing the government bond market went back where it belonged, to the Treasury, through the supply of debt.

That arrangement held for roughly fifty-seven years.

It ended with the Global Financial Crisis.

The Fed became the largest buyer of Treasury debt in the world in response to the financial crisis. Through three rounds of quantitative easing, then a fourth in the pandemic, the central bank bought government bonds to hold long-term rates down.

The Fed financed the deficits. The deficits kept growing.

What the 1951 Accord was designed to separate was again entangled.

As we discussed back in February, it appeared that Warsh and Bessent were assembled to take them apart again.

End the Fed’s QE business. Stop the distortion. Give the responsibility back to the fiscal side.

Then yesterday, we saw what may be the execution of that arrangement — the Treasury stepped in to manage liquidity in the long end, taking back the job of managing the bond market through supply.

Is the 1951 Accord restored?

The dollar fell on the news. But that’s the opposite reaction of this policy move.

A central bank that monetizes deficits debases its currency. If the Fed is genuinely out of the deficit-financing business, and the Treasury has to manage the debt on its own balance sheet with real constraints, then the structural change toward fiscal discipline should shore up credibility in the dollar. 

This should be dollar-positive.

As we discussed back in February, if the U.S. chooses structural reform, those who don’t will get punished.

Which brings us to Europe.

The European Central Bank is running the opposite policy.

Its bond market is being held together by the credibility of ECB intervention, and by an instrument built in 2022 that has never actually been used.

This is policy divergence.

One central bank is withdrawing from managing its bond market, and its Treasury is picking up the job openly, with published operations and stated sizes. The other is holding its bond market together with the threat of intervention.

One is separating the fiscal and monetary functions. The other is fusing them tighter.

The currency market should figure it out.

 

On Monday, we talked about the rise in government bond yields and the related vulnerabilities in sovereign debt markets (most acute in Europe).

This morning, the U.S. Treasury addressed the U.S. government bond market, by saying it will “provide greater liquidity” to support the long end beginning next month.

The 30-year fell 10 basis points to 5.19%, and yields were down globally on the news.

Let’s talk about the significance of this move by the U.S. Treasury Secretary, Scott Bessent. 

Remember, as we discussed in these daily notes, when Kevin Warsh was sworn in as the new Fed Chair back in May, the “Warsh doctrine” went into effect: a smaller balance sheet, less telegraphing, and structural reform to break the entanglement of the Fed with government financing.

And with that, under a Warsh-led Fed, the fiscal dominance funded by the Fed for eighteen years should give way to fiscal discipline, with crisis management given back to the Treasury.

We just saw it this morning.

The Treasury stepped in to support the long end of the bond market. That’s the job quantitative easing used to do. For fifteen years, when long-dated Treasuries needed a buyer, the Fed was that buyer.

Those days are over. Warsh has been explicit that the balance sheet borders on fiscal policy and that he wants the Fed out of that business.

So the backstop didn’t disappear. It moved to the Treasury.

And this is now the second time we seen evidence of the handoff.

Emergency dollar liquidity for foreign central banks used to run through Fed swap lines, extended automatically to allies. Three weeks ago the Treasury intervened to support the value of the yen and asked the Fed to expand a facility that lends dollars only against Treasuries already held.

And crisis management at the long end used to run through Fed asset purchases. Today it runs through Treasury buybacks.

So, the Fed and the Treasury are reorienting dollar policy.

On that note, one of the biggest movers on the day in global markets was gold.

Earlier this month we talked about the 4.1% jump in gold — the magnitude of which was matched or exceeded in only three episodes of the past 7 years.

And as we discussed, all three of the outsized rises in gold (going back seven years) had one thing in common: change in the architecture of global dollar liquidity (who supplies the dollars, and on what terms).

Today gold jumped 4.3% — another rise of rare magnitude.

Another big trading session, and again, it came with a change in the architecture of dollar liquidity. Not an inflation print, not a war headline, but the Treasury taking over a function the central bank used to perform.

Let’s talk about some spots in Europe that are flashing warning signals.

It’s all related to vulnerabilities in the European sovereign debt markets.

First, for comparison, the U.S. interest rate curve is steepening and the 30-year is at two-decade highs. But the 10-year sits at the high end of the same 75 basis point range it has held all year, still well below the significant 5% level. Long-end steepening with inflation expectations anchored is a term premium story. It is not a stress story.

Europe, on the other hand, is a stress story.

Italy’s 10-year is at 4.02%. France is at 4.08%, the highest since 2009. And Germany, the anchor for the entire system, is at 3.23%, a 15-year high.

Notice, France is now borrowing more expensively than Italy. The euro zone’s second largest economy, is paying more than the country everyone has spent a decade worrying about.

Is this periphery stress?  Or is this is the core repricing?

Look at Germany. It’s the safest credit in the euro zone, the benchmark every other European borrower is priced against. It’s now funding itself at a level it hasn’t paid since 2011.

Then there’s the UK, where the 10-year is back above 5%.

As you can see in the chart above, this 5% area for UK yields has been tested repeatedly over the past few months. It hasn’t sustained.

But look at the other spike in that same chart. The one that compelled the Bank of England to step in back in 2022, to resolve a liquidity crisis that was threatening to become a solvency crisis.

That spike revealed leverage in the financial system. As Warren Buffett says, when the tide goes out you see who’s swimming naked.

The tide went out, and the margin calls followed. Then forced liquidations, which drove yields higher, which brought more margin calls, and more forced liquidations.

It was a self-reinforcing debt spiral, and it happened fast. Major pension funds came within hours of insolvency. The Bank of England was forced into emergency bond buying to stop it, as the buyer of last resort.

It was never that 4% or 5% was a magic number.

It was a threshold that revealed the leverage already sitting in the system.

Now, what else happened in European bond markets in 2022?

The European Central Bank was forced back into the business of backstopping the weak spots of Europe. Italian 10-year yields crossed 4% that June, and that was enough to warrant an ECB response.

Italy is at 4.02% today. There is no response.

Why? In 2022, Italy at 4% meant a spread of roughly 240 basis points over German bunds, because Germany was yielding 1.6%.

Today Italy at 4% is only 79 basis points over Germany.

Same Italian yield. But a rising anchor. 

And this time around the ECB isn’t fighting the rise in yields, it’s contributing to it. The market is pricing in a 90% probability of an ECB rate hike on September 10, into an economy that is barely growing.

Why would they hike into that? Because of this chart.

This “gas ratio” shows the multiple Europeans pay for natural gas relative to Americans. It closed Friday at a new war high of 7.6 times, 145% above where it stood before the February strikes.

That feeds straight into European inflation. And a central bank’s response to inflation, even energy-driven inflation, is rate hikes. More upward pressure on yields.

And the energy shock is not letting up.

Scott Bessent said last week the campaign has moved from Epic Fury to Economic Fury, that the pressure has been raised again, and that Washington will apply (on Iran) measures of economic isolation unlike anything in the history, alongside a continued blockade of the Strait of Hormuz.

So Europe is refinancing debt at 15-year-high yields, with a central bank raising rates rather than supporting the market, and an energy shock that Washington intends to extend.

In 2022, the buyer of last resort arrived (to supress yields). Today the central bank is the one applying the pressure (upward pressure on yields).

All of this, while European equities sit at or near record highs.

So, the bond market is pricing the highest cost of government money in fifteen years across the three largest economies on the continent. The stock market is pricing the best conditions ever.

That’s dislocation.

Oil is back up. WTI traded back to $82 today, up 5%. That’s an $8 round-trip inside of a week. 

And it’s the sixth time the de-escalation campaign (orchestrated by the U.S. administration) has evaporated. 

Iran’s Revolutionary Guards said over the weekend that they will not reopen the Strait of Hormuz until the U.S. meets its list of demands. Iran wants to retain control of the waterway after the war, and it wants to charge tolls for passage.

That’s not going to happen.

As we’ve discussed for months, Venezuela is the model for how Trump will resolve the Iran war: eradicate the regime, take the oil, remove the leverage.

That said, Trump has made a series of starts and stops on Iran, to massage market sentiment. But the endgame is regime change and control, not a peace deal. Kharg Island, which handles 90% of Iran’s crude exports, has to come under American control.

So, clearly this does not resolve with a deal that leaves Iran charging a fee on a fifth of the world’s oil and gas. 

With that, the U.S. naval blockade remains, and the gas ratio (chart below) is pricing in risk of bigger, longer global energy supply disruption — more war. 

Remember, this gas ratio is the multiple that Europeans are paying for natural gas, relative to what Americans are paying. It just printed another new wartime high — trading above the prior highs marked in the early days of the war, and in late July.

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Gold closed up 4.1% today. And as you can see in the chart below of historical one-day price changes, we’ve only seen three episodes like this since 2019. 

Let’s talk about what was happening in these two other episodes. 

Gold closed up 4.1% on April 6th, 2020. 

What was happening? 

We were less than a month into the pandemic. Global central banks and governments had gone all-in, pumping stimulus to keep the economy alive. And there were signals from data in New York and Europe that infections and death rates might be slowing. And with that, the move in the gold market was the contemplation of the inflationary impact of the massive liquidity that was dumped onto the economy from the pandemic response. 

Episode number 2:  This was late January/early February of this year.  Gold swung sharply. Up 4.1% on January 28th. Down 12% over three days, and then a 5.9% bounce. 

What was going on? 

The Fed met and held rates steady that day, as expected. 

And remember, it was a month prior that the Fed started buying Treasuries again to address a liquidity problem that was bubbling up. 

Like 2019, it was “strains in the money markets” again, that prompted the return of Fed action. 

Not only did they start with $40 billion worth of short-term Treasuries (what Powell himself described as ‘big’), but he said the situation would require ongoing $20-$25 billion a month (a perpetual liquidity injection — up to $300 billion a year, indefinitely).

This pro-liquidity pivot was pro-asset prices.

And one of the clearest reactions was in gold:  it moved up 34% in the 35 days going into that January 28th meeting.

Two days later, Trump named Warsh as his guy for Fed Chair. And markets spent the day unwinding the ‘fiscal profligacy trade,’ and selling the ‘easy money trade.’  With that, the market narrative on Warsh painted him as an inflation hawk.

Spot gold collapsed 9.8% that day.

So, what is today’s outsized move in gold about?

Perhaps an acknowledgement of a new Fed/Treasury regime. A Fed Chair that promotes his committee’s dissents (three votes for rate hikes last week), while rejecting the dissenters “old Fed” mental model by publicly saying that pushing down demand (via higher policy rates) until it meets supply is “not my mental model” (at least in the current circumstance). 

Meanwhile, the Treasury Secretary spent this past week reorienting dollar policy.

On Friday the U.S. bought yen for the first time since 1998 — trading (selling) euros for yen.

And Bessent said Washington will do “whatever it takes” to support Japan, and asked the Fed to expand the facility that lets foreign central banks borrow dollars against their Treasuries instead of selling them.

With this event, the guaranteed dollar swap lines (dollar liquidity) managed by the old Fed, may now be conditional dollar liquidity dictated by the Treasury — conditional on alignment with the U.S. administration.

So, what do all three of the outsized gold days of the past seven years have in common.

Each was a moment when the architecture of dollar liquidity changed.

Who supplies the dollars, and on what terms.

 

Palantir reported after the close.

Revenue was up 93% from a year ago. Net income was up three-fold from a year ago ($1.07 billion, against $329 million).

Adjusted operating margin came in at 62%. So, add that to 93% growth and you get a Rule of 40 score of 155.

That said, this is a stock that was trading down 29% on the year into today’s close (35% below its all-time highs), just prior to the earnings release. 

And now we know the company grew faster in the recent quarter, became a more profitable business, and raised the outlook. 

The decline in the stock was not related to the business. It was about market positioning.

That has been the theme for AI stocks all summer. And it’s a gift.

Why? It’s in Elon’s post this morning. 

This chart describes the “singularity curve.” In singularity, AI capabilities broadly exceed human intelligence, and can rapidly self-improve.

Progress stops feeling linear and starts feeling vertical. So, the change is no longer a little better every year. More like: the world changes fast enough that the old way of thinking breaks.

Elon said months ago that we are there.

AI understands its own code and hardware. It begins rewriting its own software more efficiently. The progress accelerates because it can rewrite itself faster and more effectively than before. The cycle repeats exponentially, leading to a massive and accelerating leap in capability.

And the next phase, robots.

Models self-improving, leads to robots building robots (self-improving), which leads to machines doing physical work. And that will effectively create unlimited labor, and therefore, ultimately, a limitless-sized economy.

So, Wall Street has spent this summer debating whether the capex is too big. Debating whether the multiple is too high. Debating whether Alphabet should blow all of its free cash flow (and then some) to build more datacenters/buy more chips. 

Those are ripples on the surface. As Elon has said, if you knew a tsunami was coming, would you bother cleaning up the beach?

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The Fed held today. Three members dissented and wanted a hike, the biggest divide in 10 years.

In the press conference, for forty-five minutes the financial media expressed their displeasure with the decision. Inflation (PCE) is over 4%. Employment is full. Why aren’t you raising rates?

AI capex is running hot. Oil prices have had wild surges.

Raise rates, slow the economy, cool the prices.

Bring demand down to meet supply.  

That is the model the old Fed has run. Warsh says pushing demand down until it meets supply is “not my mental model.”

He is not starting from the assumption that demand has to come down.

He described a race between supply and demand, and he is giving supply a chance to show itself.

Unlike the old Fed, a good economy doesn’t have to be taken out back and shot. When demand outstrips supply, it should incentivize building — more productive capacity in the economy, more supply.

That leads to cooler price pressures, and a bigger, more robust economy. 

And as we’ve said, the productivity gains from AI should be structurally disinflationary. 

We know this is the Warsh view. He called productivity strong. And it’s easy to see why he wants to give it more time, and it’s also easy to see why the old Fed regime that still sits in the room wants to aim and fire at the culprit of hot demand (AI infrastructure).

Warsh fought off the room full of financial journalists that wanted their rate hike with this: “nominal and real yields are materially higher across the Treasury curve” … “market participants are learning to play the ball, not the referee.”

So, he said rates are higher since the last time the Fed met. The market has tightened financial conditions in the past month, without the Fed’s steering, or outright policy rate change. 

That said, Warsh made this comment about the old Fed’s preferred inflation gauge, PCE (which we’ll get tomorrow, for the month of June) — he said, “I’m looking at a broader set of inflation data than PCE.”

Remember, earlier this month, in a report prepared for Warsh’s first Congressional testimony, he criticized the timeliness of the data the Fed depends on.

So, it’s fair to assume he’s looking at a mix of real-time data (private and public), as are the top companies in our economy. And with that, he reminded the room of journalists that inflation has been above the Fed’s 2% target for 63 months. But for the 64th (which will be the July number) he says “the final calculation might be a close one.” 

If he’s talking about core cpi, a negative 20 basis points for July would bring the year-over-year down to 2.0% — for the first time since March of 2021.