The Fed gave markets a pass at its October meeting and left rates unchanged. However, another potential rate hike looms for December that could affect markets in multiple ways. Meanwhile, more questions about AI revenue growth and debt management were raised this week with some market pundits showing concern. Who really benefits from AI and who might be at risk? This week we gather inspiration from the 1980s TV show "The Fall Guy" starring Lee Majors. Here is some trivia about the show:
The Fed gave markets a pass at its October meeting and left rates unchanged. However, another potential rate hike looms for December that could affect markets in multiple ways. Meanwhile, more questions about AI revenue growth and debt management were raised this week with some market pundits showing concern. Who really benefits from AI and who might be at risk? This week we gather inspiration from the 1980s TV show "The Fall Guy" starring Lee Majors. Here is some trivia about the show:
- This show ran from 1981 until 1986 for 5 full seasons. It ranked as high as #14 in the Nielson ratings. The success of the show was actually the highest in Lee Majors' career. Majors played a stuntman who doubled as a bounty hunter.
- The Hollywood career of Majors has spanned more than 60 years. He has more than 40 feature TV-film credits. He got his start as a guest star on "Gunsmoke" in 1965 and parlayed that into a starring role on "The Big Valley" for 4 years. He was awarded the Life Career Award in 2017 by the Academy of Science Fiction, Fantasy, & Horror Films.
- It's a little known fact that Lee Majors actually sang the lyrics to "The Unknown Stuntman" which was the theme song for the show.
- The show was another hit in a long line of successful shows produced by Glen A. Larson, also known for "Buck Rodgers in the 25th Century,""Magnum P.I.,""Quincy, M.E.,""Knight Rider," and "Battlestar Galactica."
- The initial pilot of show features a cameo of Farrah Fawcett, who had just finished a messy divorce with Majors. However, against the advice of her manager, she appeared on the show to make the public think they were separating on good terms.
- According to Majors' he began his career hanging out with stuntmen and occasionally working as one before getting his acting opportunity.
Here's what we've seen so far this week...
Who's The Stunt Double? Majors sings of his career as a stuntman that serves to make the movie stars like Redford and Eastwood look like tough guys. If you weren't in TV or movie business, you might not know the relationship of stuntmen and the actors they portray. The same could be said for investors and the sometimes confusing relationship of AI companies. A brief primer might
be helpful for the novice and expert alike. You have the "hyperscalers" and "neoclouds" who rent out the computing power behind AI. Neoclouds rent the GPUs (AI chips) to the AI labs. These are companies such as Coreweave, Lambda, & Nebius. Hyperscalers are the huge data centers the sell cloud computing to the AI labs. These companies include Microsoft, Amazon, and Google. The hardware behind AI includes the designers of the chips such as Nvidia, Broadcom, and AMD. The AI labs - the companies that provide access to AI for end users include OpenAI, Anthropic, Google, & SpaceX. These companies are intertwined as dependent on one another and also are connected via circular financing, which we have referenced in prior posts.1
When it comes to circular financing, the same attributes that could help a company's stock move higher, an also increase risk and add to a company's stock price falling as as a result of that perceived risk. Take for example the grocery store industry. If a large supermarket chain decided to take a large investment (example, $10 bil) from one of the cereal or canned goods wholesalers
When it comes to circular financing, the same attributes that could help a company's stock move higher, an also increase risk and add to a company's stock price falling as as a result of that perceived risk. Take for example the grocery store industry. If a large supermarket chain decided to take a large investment (example, $10 bil) from one of the cereal or canned goods wholesalers as a "strategic partnership", the investment could fall into the same category as circular financing. The supermarket, in this example, would buy $10 bil worth of cereal and canned goods from the wholesaler to place in their stores. The wholesaler books the $10 bil as revenue and "demand" that groceries are selling. The supermarket's stock rises because it is "well capitalized" and expanding stores. The wholesaler's stock rises because of grocery "demand." The risk is that real consumer demand is being skipped or distorted in favor of the circular financing. It also makes the financials of the two firms, in this example, harder to read versus actual sales and expenses. With free cash flow in negative territory for some hyperscalers, as evidenced in the graph, investors have begun to pay more attention to the circular financing of AI-related companies - neoclouds, hyperscalers, hardware, and AI labs.
The Fall Is The Job. For stuntmen, the "fall" is the job, until the risks become too great or the stunt impossible to perform. Like Lee Majors who sings that the life of a stuntman is "death defyin", the life of Fed Chairman Warsh is probably not very comfortable these days. Yesterday, the Fed kept rates unchanged in a move largely expected by the market. Warsh indicated that there was
"consensus is medicine starting to work" and there's "no firm conclusions now about monetary policy."2 It would appear that he's leaving the door open for flexibility, yet UBS believes the Fed's action and language to be hawkish as it stated, "The US 10-year yield took a few moments to consider the new statement wording, concluding that the guidance was for a December hike. The new wording about accumulating more data appears to nod to Warsh's view that he bases his decisions on trends rather than single data points. If trends continue as they are, then December is on."3 Currently, Fed futures show a 74% probability of a 25 basis point rate hike in December, up from 49% just one month ago.4
The problem facing the Fed is that debt has ballooned for AI in 2026. A rate hike of at least 25 basis points would tighten financing at the margin. For the housing market, a channel already in stress as there are currently more sellers than buyers5 and the 30-year mortgage rate is near 3-year highs.6 Financing could take a hit as the 10-year Treasury Bond might inch back closer to the
October high of 5.35% which could affect equity valuations.7 Finally, a rate hike could cause overnight financing to rise which could affect rental and power deals between neoclouds, hyperscalers, and AI chipmakers. Even Warsh himself admitted in yesterday's post-meeting presser, when asked, that rate hikes would affect the "investment surge" in AI.2
Credits vs. Bruises? Majors sings of the lack of credit the stuntman gets despite risking life and limb. While the stuntman gets his knee bandaged, as portrayed in the theme song, the leading lady is filming with the leading man. It will be interesting to see how this plays out with AI - who will be the companies that emerge and take all the credit versus the companies that will take the
bruises and get little credit? According to the graphic, the hardware behind AI - chips, data centers, power, etc. - is getting more expensive. Actually using AI, at the corporate and individual level is getting cheaper. Meanwhile, hyperscalers continue to spend and AI labs are largely unprofitable. This is not an ideal scenario for an emerging technology. If today's spending by AI-related companies doesn't pay off soon enough for investors, it's possible investors could rotate to other sectors with more sustainable metrics.
In parallel, the Wall Street Journal this week brought up concerns about not just what is "on the books", but what is "off the books" for AI-related companies.8 According to their their analysis, there's some $2.42 trillion in leases not yet started and purchase commitments for some of the largest AI-related companies. It's important to note that "off balance sheet" does not mean improper
accounting. This practice is allowed under GAAP. However, it does mean that details about those "off balance sheet" items are not readily available to current and prospective investors. Just this week, S&P Global estimated that the world's biggest tech firms likely have more AI-linked liabilities that is currently known.8 S&P's Global Head for Digital Infrastructure Mark Habib noted that the biggest risk to hyperscalers' credit ratings remained whether expected profits "fail to materialise."9 Corporate earnings may become more important over the next couple of quarters.
Just Part Of The Job...Until It's Not. Falling from a building or rolling a car is part of the job of a stuntman, but it clearly doesn't get you any glory. The rigors of the job can can put too much strain on the human body that the job is usually not long-lasting. That may be the case with the easy ride with AI-related investments. It's importantly to note that references to specific securities are for
illustrative purposes only and are not recommendations. In the case of Google, clearly a major player in hyperscalers and AI labs, the company missed earnings expectations this week due to negative free cash flow, higher capital expenditure guidance, and a 479% increase in borrowing from one year ago.10 In fact, over the past three quarters, Google has fallen short of analysts expectations which may put hyperscalers and AI labs further under the microscope given financing concerns.10
Lastly, there ought to be some consideration to the future and where AI might be headed. At some point there could be consolidation in the AI industry if financing costs and revenues become untenable. There is no way to know exactly when that will occur, but history has given us some perspective. In early 2000, as represented in the graphic, Lucent was one of the first major
companies to warn of missing analysts earnings expectations. Equity markets continued to march higher to hit an ultimate peak 3 months later. It wasn't until after the first wave of downward pressure on equities that companies started to miss earnings expectations on a regular basis. The point is that market prices tend to lead fundamentals. Earlier this week, as reported by PANews, citing Bloomberg, a report indicated that the bond giant Pimco had reduced AI debt holdings by up to 50%.11 It is usually a good idea to annually review investment portfolios to make sure risk and time horizons are accurately represented in portfolio holdings.
Click here to a watch the classic opening of "The Fall Guy".....
- https://www.eudaimoniagroup.com/post/reality-vs-illusion
- https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20261028.pdf
- https://x.com/zerohedge/status/2115515168402620555
- FedWatch - CME Group
- https://www.redfin.com/news/data-center/buyers-sellers/
- 30-Year Fixed Rate Mortgage Average in the United States (MORTGAGE30US) | FRED | St. Louis Fed
- $UST10Y | SharpCharts | StockCharts.com
- https://www.wsj.com/tech/ai/why-big-techs-ai-spending-is-3-trillion-higher-than-it-seems-e1067bb2
- https://www.investing.com/news/stock-market-news/top-hyperscalers-likely-to-have-more-ailinked-debt-than-now-known-sp-global-warns-4958070
- https://www.cnbc.com/2026/10/28/alphabet-googl-earnings-q3-2026.html
- https://www.panews.io/articles/01a1833e-9bd0-7178-8cab-92f5df9e1e98
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Disclosures
The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.
References to specific securities are for illustrative purposes only and are not recommendations.
Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
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