To The Moon

Hello. The Treasury's buyback tool was upsized again, and the bond market bought it for half a day.

US Treasury Secretary Bessent said on Thursday that the size of each long-dated Treasury buyback had gone from US$2 billion to at least US$4 billion, and could rise further. The 30-year yield fell as much as 10 basis points and the dollar index weakened — and then the bond market pushed back.

The reason is simple enough: buybacks deal with liquidity, while the deficit, inflation and the term premium have not moved at all.

There was a new variable that day: the consumer. $S&P 500(.SPX)$ closed down 0.87 per cent and $Dow Jones(.DJI)$ 1.32 per cent, about 600 points — Barron's put those 600 points down to a bond selloff that has not eased, while the worst performer within the Dow was Walmart, though it was not the index's biggest drag.

Its report card and the choice it made that day do not point the same way. On the beat side: revenue grew 5.9 per cent, or 5.1 per cent in constant currency, earnings per share came in about 9 per cent ahead, and full-year guidance was raised.

On the defensive side, two things: third-quarter adjusted earnings guidance of US$0.62 to US$0.64, below the US$0.68 consensus; and the decision to spend US$2.9 billion of tariff refunds on lowering prices.

The second matters more than any figure in the report. The strongest retailer in America is taking one-off income and using it to subsidise price rather than keeping it in the profit line. Management supplied the threshold itself: at US$4 a gallon for petrol, shoppers start making trade-offs.

The result was a 9.15 per cent fall to US$103.84 on 3.5 times normal volume — its worst day in four years. A day earlier it had been closing in on a US$1 trillion market value. It was not the only one falling — $Costco(COST)$ dropped 2.3 per cent the same day.

The whole week of retail results points the same way. Target's net profit rose 100.8 per cent year on year, but the main driver was a US$994 million tariff refund rather than better operations, and the shares still closed down 0.47 per cent. Lowe's chief executive named consumer spending pressure outright, and the stock fell 1.21 per cent.

TJX is the one to note. Citi downgraded it because comparable sales at its core Marmaxx business were weak, and it closed down 2.64 per cent. That disproves a popular assumption: discount retail does not automatically benefit when consumers trade down.

What the three have in common is that one-off income is flattering profit while comparable sales growth weakens underneath.

Gold said the same thing from the other end. After the Treasury said on Wednesday it would at least double its buybacks, spot gold rose more than 4 per cent in a day and cleared US$4,500.

The important part came the next day: yields turned back up and gold did not give the gain back. What the buying is pricing is not "rates are coming down" but "this tool does not fix the problem".

Silver is the harder evidence. Spot silver rose 4.77 per cent in a day and $iShares Silver Trust(SLV)$ closed up 2.75 per cent, while $SPDR Gold ETF(GLD)$ rose only 0.34 per cent — the gold-silver ratio is narrowing, which says this is not only haven money. $VanEck Gold Miners ETF(GDX)$ closed up 2.59 per cent.

The other side deserves saying too: gold set an all-time high of US$5,608.35 in January, and on the COMEX front-month contract it is still up only about 4 per cent for the year. It is filling a hole, not making new highs.

Alibaba reported before Thursday's open, and it is the most representative set of accounts in this AI cycle.

Revenue was RMB268.953 billion, up 9 per cent year on year and a little above expectations. Profit needs both measures: reports put net profit down about 75 per cent, while the company's adjusted figure was RMB20.715 billion, down 38 per cent. With that much distance between them, quoting only the adjusted number would badly understate the bleeding.

Where the money went is not in doubt: capital expenditure of RMB67.678 billion in the quarter, up 75 per cent, almost all of it into AI infrastructure. What came back is real too — cloud revenue grew 45 per cent, AI cloud is at an annualised run-rate of about RMB49.5 billion, or roughly US$6.9 billion, and the company guides that to US$10 billion next quarter.

The share price is the interesting part. The US listing closed up 1.26 per cent while the Hong Kong line fell 0.79 per cent. The "profit collapses" headlines that day were all filed intraday; at the close it was green.

Insiders were going the other way, though. The president sold 720,000 shares at US$94.95 in late June, all but clearing his position, and the chief financial officer and several other executives sold around the same time. The company also sold its Lingxi Games unit to Trustar Capital, reported at anywhere from US$1.5 billion to more than US$2 billion, read as funding the AI buildout.

At Moderna, the two days together are the whole lesson. It closed down 23.55 per cent at US$133.32 on Thursday, and fell another 2.76 per cent after hours, having risen 176.97 per cent the day before.

Reports called that Wednesday rise a historic short squeeze. Once the forced buying was done, profit-taking took over immediately. The things that were already on the table a day earlier were settled within two: a consensus target below half the share price, a phase 3 read-out with only top-line data released, and management selling two weeks before the spike.

Memory, cut for two sessions, fought back on Thursday: $SK hynix(SKHY)$ closed up 4.43 per cent, $Micron Technology(MU)$3.97 per cent and $SanDisk Corp.(SNDK)$ 2.02 per cent, with $Tradr 2X Long SNDK Daily ETF(SNXX)$ up 3.84 per cent and $Tradr 2X Short SNDK Daily ETF(SNDQ)$ down 4.46 per cent — the first reversal in two days of leveraged de-risking.

The reason was not demand data but shareholder returns: SK Hynix's 40 trillion won buyback has just landed, and Samsung is reported to be planning to commit half of free cash flow to returns.

$SpaceX(SPCX)$ closed down 4.05 per cent at US$134, back below its 12 June issue price of US$135, after a second unlock released about 319 million shares. The pricing peak of a mega-IPO tends to be the moment it lists; the unlock is the test.

Yangtze Optical publishes interim results on Friday, after the close covered here. Two more things collide next week: Nvidia reports after Wednesday's close — it fell just 0.33 per cent on Thursday, which counts as resilient — and Jackson Hole runs from 27 to 29 August, with Warsh appearing as Fed chair for the first time.

The numbers that beat will pass; the choice will not. $Wal-Mart(WMT)$ put US$2.9 billion of refunds into price — of all the good-looking figures, that is the only one it picked itself.

The above is personal analysis, not investment advice.

💬 【Talking Point】

Alibaba's capital expenditure rose 75 per cent to almost entirely fund AI, cloud revenue grew 45 per cent, and net profit fell about 75 per cent. Do you price that trade as buying the next platform, or as a margin structure that has not found its floor?

💰 【Bounty】

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