Weekly Research Briefing: Full Flow Gusher

"The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.

This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation."

“If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none. It is now the independence and credibility of the Department of Justice that are in question.

I will oppose the confirmation of any nominee for the Fed—including the upcoming Fed Chair vacancy—until this legal matter is fully resolved.”

".. This is the first time Powell has decided to fight back. We are stunned by this deeply disturbing development .. the administration and the central bank are now in open war –- something Powell and .. Bessent have tried strenuously to avoid. .. This is unambiguously risk off."

".. We expect that almost the entire FOMC .. will rally behind Powell .. Moreover, we think it is now more likely that Powell will stay on as a governor .. after his term as chair ends, and more likely that others – Barr in particular, also Jefferson – who might have left will stay on too."

".. This would deny the new chair a majority and constrain rate policy .. almost certainly resulting in fewer cuts than would otherwise have been the case, but also raising the risk that the Trump administration will try to find other legal tools to attack the Fed .."

Institutional investors simply aren’t to blame for the more than 50% increase in housing prices since early 2020. The biggest culprit is inflation followed by the higher interest rates to contain it. Owners who locked in low mortgage rates are now reluctant to move, which means fewer homes for sale.

The longstanding problems for housing supply are zoning regulations and permitting red tape that limit new construction. Mr. Trump’s tariffs and worker deportations are also raising costs and exacerbating labor shortages. Housing starts in August were down 6% from the prior year and permits were 11.1% lower, according to the Census Bureau’s latest data

@RenMacLLC: Housing starts, which hit a fresh low in October, are running below housing completions. This means units under construction will keep falling.

CHART OF THE DAY: Due to the impact of Trump's tariffs, the all-in cost of aluminum in America has surged to a record high well above $5,000 per metric ton (LME price + US Midwest premium). The impact would be soon felt on anything made with aluminum -- including beer cans.

Venezuela holds the largest reserves in the world, more than Saudi Arabia and the U.S., and for decades was one of the stars of the oil world. But recent years have brought a crushing descent. Venezuela has been producing well under a million barrels a day—less than North Dakota—and accounts for less than 1% of world oil production.

Estimates range widely for what it would cost to bring back the industry. One reasonable guess is $20 billion to boost Venezuela’s output to 1.5 million barrels a day from the 870,000 barrels it produced in November. To get back to the 3.4 million barrels a day of peak production at the end of the 1990s could cost $100 billion or even more, including new facilities, infrastructure and environmental remediation.

But what will it take to persuade companies to make such big bets on Venezuela again? The country’s state-owned oil company, devastated by years of corruption and political turbulence, doesn’t have the money or technology for a recovery, let alone a massive upgrade. The international oil companies who do will want to be confident about security, regulation and the legal foundations of their investment, given that Venezuelans across the spectrum—including most of the 70% of the public that voted against Maduro in the last election—believe the country’s oil resources belong to the nation and are essential to the recovery of their battered economy. Any real plan for reviving Venezuela’s oil industry has to reckon with the political legacy of the country’s long, turbulent history with its petro riches.

"I think we have a path forward here very shortly to be able to increase our liftings from those joint ventures 100% essentially effective immediately...We are also able to increase our production within our own disciplined investment schemes by about 50% just in the next 18 to 24 months" - Chevron Vice Chair Mark Nelson

“If we look at the legal and commercial constructs, frameworks in place today in Venezuela, today it’s uninvestable,” Woods told Trump in a meeting that included many of America’s most prominent energy executives and some of the president’s top lieutenants.

“Significant changes have to be made to those commercial frameworks, the legal system, there has to be durable investment protections, and there has to be change to the hydrocarbon laws in the country.”

Woods said the company’s assets in Venezuela had been seized twice since Exxon first entered the country in the 1940s.

His remarks underline how the biggest energy groups remain reluctant to rush into making big capital commitments in Venezuela even as Trump seeks to cajole them into pouring “at least $100bn” into the country to increase production and drive down US oil prices.

Since 1979, eight notable regime changes have occurred in oil-producing nations, with prices spiking by 76% from onset to peak and averaging a 30% increase, leaving lasting effects. As a result of these regime changes spikes in oil prices averaged +76% from onset to peak, with a 30% increase over the three-month period from the onset of the conflict and eventually settling 30% higher than pre-conflict levels.

As a reminder, Iran currently produces about 3.4m bpd or so of crude and exports 1.8-2m bpd , nearly all to China, so there is significant potential for disruption. Current significant global oil oversupply and OPEC spare capacity would mute the overall market impact even should there be any disruption to Iranian flows, but given bearish positioning in oil and oil equities the upside risk.

Over the second half of 2025 the economy seems to have settled into an equilibrium of slower labor supply growth met by slower labor demand growth, though with few signs of further deterioration. The recent stabilization in the unemployment rate should finally bring some cohesion to the FOMC, and we now look for the Committee to be on hold at the meeting at the end of the month. After that we see the Fed holding the target range for the funds rate steady at 3.5-3.75% for the rest of the year; the proposition that rates are restrictive looks increasingly untenable given economic and financial developments.

@NickTimiraos: Private sector employers added 61,000 jobs per month on average in 2025, which is the weakest pace of private-sector job growth since the so-called "jobsless recovery" of 2003 for an economy that wasn't in recession.

@KevRGordon: Manufacturing payrolls -8k in December... eighth consecutive month of declines for the manufacturing sector

@SoberLook: The New York Fed’s consumer survey points to growing anxiety about the labor market. Perceived job security worsened, and confidence in finding new employment slumped to the lowest level since the survey began.

“Consistent with what you’ve heard from others, the environment remains mixed and continues to reflect pressure across income segments. At the low end, shoppers are clearly stretched, putting fewer items in the basket each trip and prioritizing essentials while visiting more frequently as they manage their cash flow. Middle-income households, which have been relatively resilient, are showing some signs of softening, with increased price sensitivity and trade-down behavior emerging in certain categories.” – Albertsons Companies CEO Susan Morris

@MikeZaccardi: $IWM massive week, +4.6%, to a record weekly settle @stockcharts

Where do you see value now in public markets?
Outside the U.S. The investment bubble is extreme in the U.S., as it was in 2000, but there are plenty of reasonably priced opportunities elsewhere, as there were in 2000. My biggest investment for my family is in international developed-market value stocks. I have also invested in emerging market stocks...

Which non-U.S. markets look most appealing to you?
Right behind international developed-market value, we have a big position for the family in Japan. The Japanese corporate system has been steadily improving for 20 or 30 years, and the market is still cheap. Plus, the yen, at 155 per dollar, is ludicrously cheap. It used to be breathtakingly expensive to visit Japan. Now it’s a cheap holiday.

‪The trajectory of capex spending established this quarter will have meaningful implications for the earnings outlook and share price performance of stocks involved in the AI build-out, including the largest stocks in the index. Consensus estimates show hyperscaler year/year capex growth slowing from 75% in 3Q to 54% in 4Q and to 24% by the end of 2026. We expect AI spending will exceed consensus estimates again this quarter, but agree that a deceleration in the pace of AI capex growth is likely in 2026.

Meta Platforms on Friday unveiled a series of agreements that would make it an anchor customer for new and existing nuclear power in the U.S., where it needs city-size amounts of electricity for its artificial-intelligence data centers.

The Facebook parent said it would back new reactor projects with the developers TerraPower and Oklo and has struck a deal with the power producer Vistra to purchase and expand the generation output of three existing nuclear plants in Ohio and Pennsylvania.

Financial details weren’t disclosed, but the arrangements are among the most sweeping and ambitious so far between tech companies and nuclear-power providers. Vistra and Oklo shares both rose about 15% shortly after the stock market opened. TerraPower is privately held.

Meta aims to see the first new reactors delivered as early as 2030 and 2032, a speedy target even for more-conventional power projects. Its purchase of nuclear power from Vistra starts later this year and will keep power on the grid.

"Why bring all of this to CES? Well, interesting, because the biggest bottlenecks in technology today, they're not in software. They're actually in the physical world. AI needs more chips. Chips need minerals that are pulled from the ground. Data centers demand power more than today's grids can provide. In the entire digital economy, needs infrastructure that can be built faster, run harder and stay online, no matter what. Those aren't software problems. Those are problems Caterpillar is uniquely positioned to solve."

The state’s population growth stalled after the pandemic. Oregon’s job market flatlined and the regional economy fell into malaise. Those are phenomena usually associated with a decline in power consumption.

But something unexpected happened. Oregon’s electricity use jumped.

Data centers, lured by billions of dollars in local tax breaks, turned everything upside down. While consumer and commercial power demand has remained relatively constant for more than a decade, big tech companies have sent electricity consumption soaring from one side of the state to the other.

Power planners say that’s only the beginning. They expect artificial intelligence to trigger a massive increase in power use at new and existing data centers in the years ahead...

A new study commissioned by regional utilities concluded that within five years, the Northwest may need nine gigawatts more than it currently has the capacity to provide. That is an immense amount of energy, roughly equal to all the electricity Oregon uses today.

XAI reported a net loss of $1.46 billion for the September quarter, up from $1 billion in the first quarter, the documents reviewed by Bloomberg show. In the first nine months of the year, it spent $7.8 billion in cash...

XAI revenue nearly doubled quarter-over-quarter to $107 million for the three month period ended Sept. 30, 2025, according to financial documents shared with investors and reviewed by Bloomberg...

For now, xAI Holdings, the parent company of both xAI and X, is focused on raising money to keep up with its large expenses. It recently closed a $20 billion equity round from investors, including Nvidia Corp., Valor Equity Partners and the Qatar Investment Authority, which valued the company at $230 billion. That cash will presumably power the company for the next year or more, as it is still spending under $1 billion per month on investments, according to people familiar with the firm’s finances. XAI used almost $8 billion in cash on investments through the first nine months of 2025, financial documents show.

XAI has been raising both equity and debt. The firm has worked with Valor and Apollo Global Management on a special purpose vehicle to buy Nvidia Corp. chips, and it expects to do more deals soon to keep building out its Colossus data center site in Memphis, Tennessee. The firm is already planning an expansion of the Memphis complex, and recently purchased a third building in the area that will bring the company’s computing capacity to almost 2 gigawatts, Musk said late last year...

On the investor call, xAI executives were optimistic about the firm’s results, highlighting the revenue growth. Still, it may not meet its annual goal. In June, the firm told investors it hoped for $500 million in revenue for the year. Through September, xAI reported over $200 million in sales. The company’s gross profit has increased, though, and xAI reported $63 million in gross profit during the third quarter, up from just $14 million in the prior quarter, the documents show.

Despite this, xAI’s losses continue to grow. Ebitda — earnings before interest, taxes, depreciation and amortization — were negative. The company reported an ebitda loss of $2.4 billion through September, indicating its earnings have yet to make up for its expenses. That’s not uncommon for startups, which often require a lot of cash to grow and take time to turn a profit. Still, xAI’s losses were more than initially expected; the firm previously projected an ebitda loss of $2.2 billion for the full year, Bloomberg previously reported.

@PitchBook: Andreessen Horowitz has raised over $15 billion for a group of new funds, including $6.75 billion for its fifth growth equity fund. This is a major boost to the U.S. venture capital market, which just experienced its weakest year for fundraising since 2017.

Heading into 2026, absent any major market shocks, the pieces are in place for one of the strongest years for North American M&A and IPO activity we have ever seen. Favorable economic conditions, an increasingly permissive antitrust agenda in Washington and cheaper financing costs should make it easier to facilitate transactions, with companies now operating in one of the most pro-business deal-making environments in years.

But under the contract Artists Equity reached with Netflix, all 1,200 people involved in the nearly $100 million production, whether Mr. Affleck or a production assistant, will get a one-time bonus if the show performs well on the streaming service.

“We wanted to institute fairness and address some of the real issues that are present and urgent for our business,” Mr. Affleck said in an interview. He said he and Mr. Damon formed Artists Equity in late 2022 with an investment from RedBird Capital for this very reason. “This deal is fundamental, philosophically, to the ideas we had in starting this company.”...

For “The Rip,” according to Mr. Affleck, no member of the cast or crew received the upfront bonus. Instead the bonuses will be judged on the film’s performance over 90 days on Netflix and will be rated against other films on the service. The idea is that there could be a bigger potential payout for the whole crew.

“Everybody who’s in this movie, from top to bottom, or worked on the crew, will be bonused according to metrics which we’ve already defined and they’ve shared with us,” he said. Mr. Affleck declined to share what those performance metrics were, but said a movie could reach different levels. The top one, he said — the “grand slam” — would require viewership similar to that of “KPop Demon Hunters,” which, with 325 million views by August, is the most watched movie on the service. (He said he had no expectation that “The Rip” would hit that.)