I’ll Be Live at 8:30… The Room’s Open Today for Everyone
Good morning: I start today with a strange occurrence in the West. New Mexico has been hostile to Oracle’s new data center, Project Jupiter. So hostile, that Oracle declared an Act of God against a zoning board. Project Jupiter declared force majeure due to “conditions beyond contractual control.” These actions are typically reserved for natural disasters or for war. The latter was a reason why we saw force majuere declared on natural gas deliveries tied to airstrikes on shipping containers. Well, permit denials are in play too… Oracle shares slumped because the company still has to pay the bond holders. The company owes a “carry cost” that covers the full interest payments to the debt holders and an equity return to Blue Owl for up to three years. And that comes even if the 2.45 GW site never obtains power. God has ruled in favor of the lenders. Flow Check If you’ve seen the movie Margin Call, you’ll recall the two younger analysts talking about what happens to the market capitalization of the company if volatility continues to surge. That was a Value at Risk (VaR) shock. VaR is a statistical metric that estimates the maximum expected loss over a time horizon under normal conditions at a specific confidence level. Some are suggesting that with bond yields rising, bank bond books are experiencing that sort of shock. The MOVE Index has now exploded up to 104.58, as bond volatility keeps showcasing the global rate shock. As I’ve said since early August, sometimes years happen in weeks.
This VaR shock forces volatility limited desks to slash their positions into the move. Systematic short positions (currently at the largest since early 2022) press in the same direction. Recall, equities are very high in terms of trading, but the net position is still very low. This is a market where no one really wants to pick a direction. The Russell 2000 has seen its largest outflows since March, and bond volatility is lapping equity volatility as markets continue to “tolerate” higher yields. This final week can get very bumpy, but it’s important to recall that buybacks will return next week. For Traders A couple ideas worth our attention this morning. On our list, the first is Eaton (ETN), which is an electrical connections company. Basically deals in components, grid interconnects, transformers. It’s breaking out with data center demand behind it... Continue reading this post for free in the Substack app
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