Felix and Quinn: hyperscaler capex misses confirm the AI trade is fracturing

The Fed meeting was "Kabuki Theater" with two dissents

Felix and Quinn opened on this week's FOMC meeting, which held rates as expected with two dissents from Hammock and Cook, the latter described as her first-ever dissent. The statement language shifted from describing activity as expanding at a "solid pace" to a "strong pace." Quinn said he barely watched the meeting, calling it "the most meaningless Fed meeting in a very long time," and argued the Fed is now "a sideshow" that cannot hike without worsening an already precarious situation in AI, commodities and growth.

Felix noted Powell announced a reduction in meeting frequency going forward, with one non-live strategy meeting next year and a drop to six meetings with two strategy sessions the following year. Quinn was skeptical of the change, likening it to "a fat guy saying they're going to wait to accumulate more information" instead of acting, and suggested fewer meetings could make it easier to run financial repression by stepping aside while inflation runs.

"I think the Fed is sort of a sideshow at this stage. They can't really do much to help yet." — Quinn

Lagarde's exit and hikes from single-mandate central banks

The hosts discussed Christine Lagarde's announced departure in February, with Quinn noting she called the ECB's record of roughly 4% growth over two years "good work" on her way out. They also flagged a Bank of Canada hike this week despite weak jobs data and flatlining GDP, which Quinn attributed to currency defense rather than economic logic.

Felix called it "silly" for central banks like Europe's to hike given they are energy importers, though he said Canada is in a stronger position given its commodity base. He argued the dollar should eventually roll over once markets recognize "the emptiness of the Fed's promises," though the timing could take weeks or months.

Gold breaks to new lows despite dovish repricing

Gold traded below $3,900, a new low for the past year, which the hosts found notable given real rates and bond yields have come down somewhat, a backdrop that would typically favor gold. Felix pointed to rising implied correlations and suggested sovereigns defending currencies amid the energy shock may be selling what they can, including gold reserves.

Quinn framed his view as a trading plan: the key level is the summer lows, now broken. He said if gold recovers those lows and regains moving averages, he would "start to care again," but until then the stance is to "step aside" and wait it out.

The AI trade is "fracturing" as capex guidance misses

Felix laid out a framework built on hyperscaler earnings this week: Microsoft guided capex to $38 billion versus $45 billion estimates, and Google guided to $51 billion versus $55 billion estimates, which he called the first time he has seen capex guidance come in below estimates. He noted computer equipment investment is now the largest GDP contribution since 1959, meaning much of recent growth has come from AI buildout rather than broad economic strength.

Quinn added that real rates have risen to levels "as high or higher than the GFC," and credit spreads have widened sharply for AI capex spenders, who have become more reliant on credit markets as cash flow falls. He described the run-up as possibly "the largest leveraged bubble in history," citing Sol levered 3x ETFs in the hundreds of billions notionally and a hedge fund levered four times at $45 billion.

"It's got to be... when you just lay out the facts... real rates rising dramatically to levels as high or higher than the GFC." — Quinn

Both agreed the fundamental usefulness of AI technology is separate from its financing excess: Felix said his own token usage has roughly "10x'd" in recent months, while Quinn compared the buildout to the dot-com telecom cable glut, where builders went bankrupt even as consumer value later materialized. Neither host called a bottom for AI-related stocks; Quinn joked he might turn bullish on semiconductors "in 2027."

Oil's "one-way train higher" into the midterms

Felix argued oil's rally over the past two to three months reflects a genuine supply disruption rather than speculative positioning, noting futures positioning is actually falling even as price rises daily. He said peace has held during the run-up to midterms, but that this window closes once midterm trading days pass, and that the supply problem is severe enough that the US "has to unblock it" rather than simply waiting for prices to fall back to $60.

He pointed to rising mentions of congressional briefings, military asset stockpiling, and the Netanyahu/Israel election situation as signs pointing toward escalation, saying "this is the same song and dance we did in February."

Inflation as an "invisible tax" fueling populism

The hosts connected rising oil-driven inflation to visible public frustration, citing a viral video of a grocery store worker working multiple jobs and comparing it to unrest in Paris. Quinn argued inflation is an invisible tax people cannot quantify but can feel through lost purchasing power, which manifests as frustration directed at various targets.

On the midterms, Felix noted prediction markets are pricing a Democratic sweep as the base case but cautioned that Brazil's election this week, where an 80% favorite lost, shows polling and prediction markets can be wrong. Quinn added that Republican losses or wins both carry market risk: a win could embolden the administration, while a loss could prompt officials to stop "propping up markets."

Binance hack dents crypto sentiment

The hosts closed on the Binance hack, noting that Circle and Tether were able to freeze almost $3 billion of the stolen funds and that Binance has said it will cover the remainder. Felix said the native crypto community will likely be fine operationally, but worried about the effect on newer or more cautious participants considering re-entering the space.

Quinn said the hack, alongside other cyber and AI-related warnings, raises "antennas," though he views it as more of a bottom signal than a top signal typical of bear markets, since "nothing's changed" for those already not long. Both agreed conditions may not turn fertile again until sometime next year, and Quinn suggested gold may need to bottom before Bitcoin can stabilize, flagging gold's retrace to new lows as a potentially "ominous sign" for Bitcoin.

"I think you have to see analog gold bottom before you're going to get [stability] on the crypto." — Quinn