Market Stories by Fathom 16/10/2025

It has been a while since I wrote something in our usual post and apologize for that, but time is a serious constraint. I will not go into details of traditional macroeconomic evolution or comments on the FED policy or EU politics. I will just try to summarize some huge things that are shaping the world at this period.

The first one is the meteoric rise of precious metals along with the worst US dollar devaluation in decades. Put simply, the now named "debasement trade" is money slowly leaving assets that depend on trust and moving into things that can stand on their own. Emerging Markets Central Banks are playing a crucial role in this, as reserve managers of sovereign wealth and China has led the flight. The rate of change of gold is a major red flag and especially on such a huge global asset (27tr) and potentially another 500tr to be minted. It is a hold position for me (but having said that since 3850) and definitely not a buy. Crypto tries to gain a share of this debasement trade and indeed it has, with the push of the grifters from the US, but is underperforming its beta due to excessive leverage and speculation.

The second is the unprecedented arms race in AI CAPEX. I firmly believe that AI is a huge scientific leap that can lead mankind to new heights or to its destruction (as science is not in the same pace with the necessary ethical evolution). But financially we have now entered the circular part of equity investments (cross holding based on doubtful future cash flows) and related entities are about to hit the corporate bond market with another 500 billion of AI related CAPEX issuance. As first line companies are running out of organic capital, investing in dubious technologies (GPU depreciation rates) with yet minimal revenues, the risk return of these equity plays is gradually becoming unattractive. Not mentioning the huge bottlenecks that money alone cannot solve (components shortages, grid, power generation etc).

The third is the new round of US-China trade clash. It signals that the world's two largest economies are no longer trying to manage their rivalry, they are trying to decouple. The highest uncertainty lies in the inflation path of the next two years. We can have accelerating inflation if the world trade erodes further, or we could have a new wave of deflation if weaker trade, falling investments and tightening credit drag the global economy in a deflationary loop like the Great Depression. Leading indicators like commodities point to the former at this point.

Big picture is that capital is still moving out in the risk curve as loose fiscal policies and liquidity conditions continue to incentivize it (nominal rates below nominal growth). The investment community is heavily tilted on the growth/thematic factor (as for the past 2 years), which is now rather fragile in my opinion.

Alexandros Tavlaridis