Oracle Spoils the Fed-Led Party

Powell’s warning on job overcounts, and cracks in the AI spree signal that risk may be badly mispriced.

Key Takeaways

• Debt-Fueled AI Binge Starts to Spook Investors: Oracle has spoiled the party after it reported a massive jump in spending on AI data centers and other equipment (and missed slightly on revenues). Investors have become more discerning these past few months as the “winner take all” AI spending spree has moved from being financed from internally generated cash flow to stepped-up debt financing.

• Fed Chief Calls Out Flawed Job Data: “We think there’s an overstatement in these numbers.” This was the bombshell remark from Powell at yesterday’s post-meeting press conference. Instead of adding about +40k per month, the latest evidence shows that the economy has actually been shedding -20k per month — and over a six-month stretch, such a pattern has never happened without the economy heading into a recession.

• K-Shape Also Appears in Holiday Spending: The K-shaped nature of the U.S. consumer sector was on full display today on page B5 of the NYT — Holiday Spending Shows Effects of an Uneven Economy. The top 10% may well account for 50% of all the spending, but let’s keep in mind that there are 27 million American households that reside in the bottom 20% of the income scale. That is over one-fifth of the country, so I wouldn’t exactly consider this number to be trivial.