What if AI cuts jobs faster than rates can fall?
The Essay and Audio
Summary
Markets have a habit of choosing the path that hurts the most people, and this week they proved it. We open with a jolt: CarMax plunges 24%, the CEO is shown the door, and used‑car demand looks like a classic pull‑forward that left a hole in today’s sales. From there, we follow the thread across the macro tapestry: consumer sentiment hovering near crisis lows, layoffs announced at a pace that clashes with payroll prints, and a tech slide that turns “AI capex” from dream to existential doubt in a heartbeat.
I break down how cobweb dynamics and inventory timing errors ripple through industries as disparate as toothpaste to autos, why tariffs distorted the clock on purchases, and where the economic data is more theatre than truth. China’s export picture adds another twist: a bilateral surplus that widens even as shipments to the US shrink, exposing the difference between volume and value in a tariff world. I dig into the money plumbing too, because it’s no longer just M2. Offshore dollar creation rides on the collateral of investment portfolios, trade invoices, rehypothecated claims that shape and form money in ways the Fed doesn’t fully map.
For investors, the practical edge is structure and levels. Options now mediate the market’s mood, with the algos seeking to turn volatility into potential income. Covered calls on quality after big drops can pay you to wait, but path risk matters. I map Meta’s gap fill and key Fibonacci retracements, and consider Oracle’s recent stock price round‑trip as a reminder that narratives can outrun cash flows. The stance is clear: acknowledge the pullback, respect the signs of strain, and build selective shopping lists rather than chasing every bounce. Let the market pay you for patience, and let price confirm when the turn is real.
Tell me what level you’re watching next. I’ll bring the charts.
Hugh
Transcript as Essay
Recording has started. It is 9.33. It is not Pi. Not American Pi even. But perhaps Pi will reveal itself. Perhaps we will navigate a route through Pi. What am I talking about? Maybe Fibonacci. I love Fibonacci. We have not done enough Fibonacci discussion. We’ve done no Fibonacci. We will discuss Fibonacci, later.
Ladies. Ladies and gentlemen, it is I, Hugh Hendry, the acid capitalist in the wonderful st barts. The old me would be at Bagatelle on a Friday, drinking and chasing the ladies, but instead tonight i’m here with you. And I’m no longer at Maison Blanc Bleu, and maybe, my voice is, is it quiet (?) because I’m staying in the, what I call, the ghetto. It’s not the luxury of Blanc Blue. I even have neighbours in close attendance. Goldie, my 22-year-old blonde, beautiful villa manager just departed. She’s been staying here. And when I got back, the apartment was so clean. I thought I was clean living, but clearly I’m a slob just as much as every other guy.
Now, I’m on this new concoction called StreamYard. And it’s got fun things that we can do. Well, not we, not collectively. All “we” can do is this: I can talk and maybe, if I’m very lucky, you can listen. But apparently, I can play music in the background [this proved disastrous to my vocal].
What is that Hollywood saying? Never share a stage with dogs, pets, animals, and kids. And then later on, in the world of finance, they added, never share a stage with Hendry. Let’s do the introduction. Well, Do you hear it? Isn’t it blessed? It’s time for me to talk.
Let’s start, my brothers and sisters. Let’s start at the very beginning. Because it’s a very good place to start. No! The Sound of Music is Banned!
That song came on just as I was driving my big car through Gustavia the other day. I have an external speaker that just goes boom, boom, boom, and broadcasts to those in the vicinity. Normally it’s kind of rock music, but today, today it was Do-Re-Mi and I was down with that. I do like this music.
Right, where are we? George Gammon. And the economic theologian, Karl Marx.
That’s right, Carmax. I was telling him the pratfalls of trading pairs: he was short KMX and long the S&P. It reminds me of a story. One of my kids had to write a legal essay. I can’t quite remember the context. And my ex-wife, a lawyer, assisted and mostly wrote the essay. And the kid’s paper received a really poor grade. Actually, it wasn’t one of the kids. It was her sister who was doing an MBA and had to write a legal essay.
Anyway. What was I talking about that took me into that? Yes, George Gammon. Maybe I was boasting that I’m a hedge fund guru. Sometimes I can say intelligent things, sometimes not. And he was telling me about his CarMax short. And I spent the weekend saying, ‘George, you’re such an amateur.' You’re the king of social media. But no one does pairs trading these days because of the risk disconnect. That on days of massive risk reduction. The kind of two or three Z-score type days that happen maybe once a decade and cause mayhem. A day where the S&P might fall 10%, and your short probably rallies because hedge funds are reducing their balance sheet having been told to take less risk, cover and buy back their shorts. Imagine, I was beseeching him to cover KMX.
I even decided to put something out on Twitter and chase social media likes. And, unknown to me, George is on WhatsApp, and he’s laughing his head off. He’s like, ‘check the monitor, check the monitor’. And I’m like, ‘what monitor? My heart monitor?’ And true enough, it was the sound of a Death Star. CarMax was joining Karl Marx in the cemetery. CarMax, the United States largest retailer of second-hand automobiles, its stock price tumbled. Tumbled? I don’t think tumbled is the right adjective. It collapsed 24% on Thursday. Closing around about $30. The shares are now down to their lowest level in 15 years. They have so much debt and precious little market capitalization that I fear for their survival.
No mercy, no mercy was shown to the long-standing chief executive. None. Bill Nash, Nash got slashed. Been with the company for 30 years. Departure, immediate. They were like, sling a hook buddy, get out of here! Also, they kicked him off the board. They’re mighty peeved at Bill. The company cut its earnings per share, who cares, but to somewhere between 18 and 36 cents, which means they don’t know, they have no idea what’s going on. And the Wall Street consensus had been for 69.
What’s going on? The same store sales are now expected to decline. There’s been a pull forward, a pull, we borrowed, I want to say, we reached out and we pulled the future demand for cars used or otherwise into today, or better said, yesterday. That we over consumped this time last year. Same thing the country’s doing with debt. We’re pulling the debt capacity of the USA forward. Depriving the American economy of debt capacity over future decades. Its very selfish. And we’re consuming that government debt on lots of crazy shit that won’t benefit tomorrow..
That’s what was happening with tariffs. I am constantly amazed. Cars are really expensive. I want to say around 1x American per capita income, c. $50k. A shitty car, a shitty new car costs you so much. And they all look the same. But put a tariff on top of that, and that’s a big deal. So people were buying cars and buying second-hand cars ahead of the tariffs hoping to save maybe $10k. And so that confused things, made it difficult for garage parking lots like CarMax to judge true demand.
And actually, so this is something which is common. The cobweb theorem is one such explanation, the displacement between production and consumption. Running a business is kind of complicated. Even the guys who manufacture toothpaste. I mean that business should be easy, right? Demand is very stable. There are no variable time lags or booms nor busts in toothpaste. And yet they tell me the manufacturing, the ordering and the inventory is a complex procedure.