Why Jamie Dimon Won't Buy Stocks OR Bonds Right Now

It is tech earnings week, and on Monday, Jamie Dimon, JP Morgan's CEO, said he would not buy U.S. equities nor treasuries at current levels. Yesterday, Bloomberg ran an article pointing out the fact that short interest in S&P 500 index stocks is sitting steps away from an all-time high going back to 2010. For the Russell 3000, shorts are up to 6.3%, which is also a record. SpaceX was the ninth most shorted stock as of last week, with $25 billion in bets against it, which is almost one-third of its free flow. So what we're talking about today is why is everyone so bearish when the S&P is up more than 15% from the March lows? What are these tech earnings telling us? And what should we be looking out for at next week's Fed meeting? So let's start with tech earnings. Kristin, you have been doing a ton of work on these AI companies. We had Alphabet last night. What's going on? I mean, look, it's really funny because literally, I think it was this morning, I posted a reel where we were talking less about the spending of these companies, but more of like the tax savings. And one of the things that I had not observed, but if you look at the top five hyperscalers, you have like your Amazon, Meta, Google. And by the way, it's funny because I've started to call Meta, Meta, not Facebook, but I still, with Google, I got to call them Google, Google, Oracle, and I always forget one. But together, given their initial estimates of their CapEx for 2026, they were basically like at $800 billion, which is almost close to a trillion, which is like in spitting distance of how much we are spending on the US military. So they are expected to spend so much money, and that's just those five. Now, between when I put that video up this morning and then looked at what the actual estimates were for their CapEx, Google alone has increased their estimate of how much they expect to spend this year from like $175 to $85 billion to $195 to $205 billion. So they are expecting to spend even more. Now, part of that, Jen, I had said to you was like, is anyone surprised? Because A, if you look at what they have been doing, I mean, they've been laying all the hints that this was going to be happening. They'd issued a 100-year bond a few months ago. They did the largest follow-on offering we had ever seen right before, obviously, SpaceX did their IPO. So none of this is surprising. And by the way, back to my point on this tax savings thing, right now, because of the, again, just massive tax incentives that a lot of both states and then we have at the federal level, these guys can basically sort of take advantage of a very favorable environment that I don't think is going to be lasting for long. People, you can tell, are not thrilled about A, some of the tax savings, B, some of the impact on energy prices. There's a lot of pushback. But I mean, alphabet said they need more compute. They're running short on that. So if you look at their year-over-year revenues and operating income, I mean, it was up like 20, their year-over-year growth was up something like 24%. And then if you look at their free cash flow, their free cash flow for the quarter turned negative for the first time since going public. That is insane, by the way. And so, yeah, I mean, this is basically spooked the crap out of a lot of investors. And you saw something similar, I think Tesla announced that they were going to be increasing their spending. And back to the point on SpaceX, I mean, this is not at all surprising. We had talked about this ad nauseum. Again, we have another lovely little diagram reel if you want to check that out on how the unlock goes. Because SpaceX was such an interesting company, they went public and they only took like 4% of the business public, meaning of the entire valuation of all the equity, only a teeny tiny fraction of the shares were taken public. And by the way, actually, there was no insiders who sold out because we talked about this idea of primary versus secondary proceeds. Every dollar of cash that came in through the IPO went to the company to all these, again, early investors, all these institutional investors who bought into the private markets, who have been like patiently waiting to be able to start to sell out. And that selling out is going to start happening in the next couple of weeks because it lines up with their first earnings announcement. So as we're about to see, again, SpaceX start to announce earnings next week, you are going to have a whole bunch of these people who've been like waiting patiently to start exiting to become these, you know, like these millionaires, billionaires by the house, like they put this tons of effort and time into growing SpaceX and it's paid off and they want to freaking like take their money off the table. And so, yeah, I think people are really freaking nervous. And this was what we had said the whole time when the company first went public. A, you did not have the ability to short, you did not have the ability to sell easily. And also people knew that there was this sort of forced buying that was going to happen through some finagling that Elon had done with inclusion into some of these indices. So it wouldn't have been a smart idea to kind of go against, again, like that wave, you kind of got to go with what the market's doing. But at the end of the day, I mean, this is like technically, this is technical supply and demand. We know there's a lot of supply coming and there hadn't been. So, I mean, like it is so not surprising that we are seeing what is happening with SpaceX. Yeah. You talk about supply and demand and I think it's really interesting using SpaceX as an example. SpaceX and all of these other tech companies are issuing a lot of debt and they've issued a lot of long dated debt and the market is really struggling with it now. SpaceX, Meta and Oracle. If you look at the 30 year bonds that they've issued recently, Meta's are 40 basis points wider and Oracle's and SpaceX's are 60 basis points wider since they were issued in the last month. That is a massive move, all in an environment where the treasury market is selling off as well. So this isn't just, hey, listen, no one specifically wants these 30 year bonds from these companies. They don't. They want them a heck of a lot less and they want 30 year treasuries. 30 year treasuries have stayed above 5% for the longest stretch in something like 20 years. That is not good. We have a lot of pundits out there talking about 5% potentially being the new floor for 30 year treasury, not the ceiling where traditionally you'd see a lot of support come into the market. A lot of buyers come in to bring those yields down. We've got 10s sitting above 450. All this before a Fed meeting next week where we have a lot of conversation about inflation and what that means for chairman Warsh, who historically has been a hawk, meaning someone who's really focused on the inflation side of the dual mandate. Bloomberg ran an article this morning, in fact, that I think was a little click-baitily titled, if you will, saying that all of these AI and tech bonds were crowding out the treasury market. No, no. It's not like people are expressing a preference for this tech debt over treasuries. If treasuries were selling off in a more idiosyncratic way, we would expect to see swap spreads tighten. They're not. It's that nobody wants any of this stuff. What you are seeing is you are seeing these sell off and treasury bonds sell off and now equity is selling off. Nobody wants anything. The risk premium baked into pretty much every asset class seems insufficient right now. It's kind of the bottom line. No, no. And I just wanted to go back to your point on SpaceX because I think that what was even like super alarming for them and one of the first reasons, like you saw that their share price was doing great and then it initially had its first drop ever, it was because they had done this $85 billion offering in the equity market and then immediately went back to the bond market and raised an additional $25 billion of debt. And so they're basically tapping both sides of things. Now, historically last year, they had been able to do some kind of creative maneuvering. So you saw both with Elon Musk and then also Meta, they were doing a number of like these project financings, which at some point I should do a whole thing on because again, that's like, I love that ----. I think it's so interesting, but it basically means that you don't see the debt at the level of the companies. It basically kind of sits off balance sheet and they get around it through some like accounting trickery, to be honest. I mean, like this is something that you saw and I'm not saying this is like Enron. I mean, this is perfect. It's not fraud. It's not fraud. They're getting around. They know what the accounting loopholes are. They understand how to like make this thing work. They understand there's this like weird situation where it's like, if you are leasing, instead of building your own and depending on the terms of the lease, like the accountant say, hey, it's off balance sheet. It's like an operating lease, not a finance lease. So they were kind of using some of that stuff and that was allowing them to keep some things off balance sheet. But the debt investors who were, for example, like lending money to these projects, it was Meta's credit rating that was kind of backing this debt because they were like, oh, but it really is Meta. There's like these four year lease agreements, but like really it's backed by the full faith and credit of Meta. And now, I mean, stuff like that too is starting to widen out. So like it's, this is, again, I feel like this is going to be interesting. I do think that there's just, I don't know. I mean, we are obviously a little bit more of like doom and gloom because of how we started our careers. I think like, if you're ever like, is it going to be a fiasco? We're like, oh my God, yes. And then usually like things are like, fine. It's like, well, things went bad. And then it's like, it's back to the reasons again. So again, I'm not saying that this is going to be like the next big financial crisis, but I think that, I don't know, there's a lot of, the circular financing is interesting and I don't know. Well, I think it's, it certainly helps explain investor apathy right now, where it's hard to love anything. And if we look to the Fed next week, you know, we had after Warsh took office, all of a sudden a total repricing of expectations that Fed hikes were on the horizon. Last week on Tuesday, we got the biggest negative CPI print since COVID in 2020. That's pretty significant in terms of measuring the correction from the oil price shocks that we had in the spring, which by the way, are coming back now, right? This is all backward looking data. And as we pointed out on our social media, the Fed doesn't even look at CPI. The Fed looks, if anything, at PCE and at core PCE for direction. And we can talk about the difference between the two indices. But the point is, is when you think about just the fundamental theory of investing, when you start to get long end yields in the bond market, creeping well up above 5%, and okay, you can say, well, those are just nominal yields. Okay, but let's look at real yields, real yields being in the, you know, low to mid 2%, right? We're no longer in a zero interest rate environment. At a certain point, you become incentivized to take your money out of super risky stuff like the stock market and put it in safer stuff like the bond market, where you can earn a relatively high risk-free return, as long as you hold these things to maturity. Because yes, you do have duration and price risk if you hold on to, you know, if you're going to sell out of them, but just to be very clear. And we are not in the 70s and 80s right now, but if that's where we're going, that's what happened. That's eventually what the Fed had to do. You mean like 1970, 1980s? Yes. No, again, because no one knows what the 70s and 80s are anymore. No, I was saying it just because it's funny. It's like sometimes when you're like 70s and 80s, I'm like 80%. And I was like, wait, no, she's talking here. So she's just like translating for people, for the audience to like, let them know which century we're talking about. Like we're talking about the 20th century, the late 1900s. Oh God. Exactly. I'm not saying we're there yet. I'm just saying, especially when you have still these massive returns in the equity market, when it's like, oh, well, stocks return 11% or whatever. Like who really cares about inflation? But at some point something's got to give, we're not there yet. But like you start to creep up on that theory of at what point is it no longer attractive to take this massive risk, giving your money to companies who are very honestly telling you, we're not going to turn a profit on this stuff for like three years. So like, just bear with us, just trust us. It's funny. It's just like the US government in a way, who's like, yeah, just give us your money. We'll give you this nice coupon payment. Don't worry about it. We're totally fine. We can just print more money if we need to. Yeah. And by the way, amidst all this backdrop, did you see about the open AI model that basically like jail broke and hacked somebody? But I will, I will add, right. Because you look at, again, a company like Google that literally have been free cashflow positive printing cash. And this is the first, the first, I was about to say semester, but the first quarter that they have had negative cashflow. Again, I like can't, I can't say enough how crazy that is. And then you have, again, the opening eyes of the world that like, they don't have this, the actual profitable business subsidizing like this cash incineration because they are, I do believe they have, you know, they're, I think it's like project Stargate. They are combining with like Oracle and, or somebody to, to build out compute and to actually like build this infrastructure themselves. Now, again, I haven't looked into the specifics of like how it works from who owns what and like what percentage is theirs and blah, blah, blah, because we have seen that, for example, like Meta and SpaceX are renting out and actually they're probably turning a profit on their ability to sell compute and sorry, Alphabet saying they don't have enough compute, which is why they need to like incinerate a whole bunch more cash and all that. So, yeah, I mean, but at the end of the day, I do think that, you know, there's just still a lot of uncertainty about how these companies are going to actually be able to be profitable. And, you know, I do, because you have all these good models. There was this other situation out of China where I think it was called like Kimmy K three, you have these models that are a bit cheaper. Right. And like, at the end of the day, the actual models themselves almost start to feel like they're being commoditized in a way. And so back to this whole point of like, how are you actually going to turn a profit given all this money that is being incinerated? Are you going to actually be able to turn a profit? And then you get to some of the meta questions about like, is money going to even like be used anymore? You know what I mean? Have you heard some of those like crazy theories about how we talk with the post literary world, post money worlds where it's not crypto versus the U S dollar. It's just all of that is like basically gone. Yeah, no. I mean, again, I think, I think people have had that question in many different forms for a long time. I think the sad truth of things is like, we talk about the K shape. I think we'll look at a very K shaped society in a lot of ways. If we kind of see all of this out to its natural, very dark place that I think we're talking about it going. Yeah. Yeah. So that's fun. But yeah, that's all I wanted to cover today. Just quick and dirty. Anything else we will add that we're continuing to do our book, deep dive, some of which are related to finance. Others that are not, we did yesteryear, which was a lot of fun. It's about a trad wife influencer, um, kind of Allah ballerina farm, but this woman ends up in the 18 fifties. And if you're curious, like why the heck we did it, Jen has a whole spiel on the trad wife economy. But on top of that, there was kind of the bigger themes about sort of going the corporate path versus, you know, being a traditional homemaker, if you will. And again, lots of kind of interesting conversations there. And we also have recently decided we're going to do the man who solved the market about Jim Simmons and run tech. So that's our next big one. Um, so if people want to read along with us, we're going to be getting into that as well, because that's just like kind of one of the fun ones back to back to our initial days of doing going infinite about like Jane street and Sam Bankman freed and money ball and all that kind of awesome. We will hop back on the mic next week to give you our thoughts after the fed meeting. And, uh, as always, if you are enjoying the show, please share it with a friend. You can find our self-paced courses on our website. We have all of the fundamentals in investment banking and private equity and everything they teach you at Goldman Sachs, literally in the first two weeks of training, this is exactly what you learn. Just saying that's exactly right. All right, guys, we'll see you next time.