Xi Will Return And Put His Foot On The Pedal To Develop Better Chips, Better Models, And The Energy To Drive That Compute

We came into this week with a list of things to think about with the Fed Behind Us, and a SITREP focusing on the Houthis vs Saudi Arabia. We also kicked off the week with a preview on CNBC. Our “official scoring” was stocks did well, Bessent faced setbacks on bonds and the yen, and for the world, well, not as much clarity as we could have hoped for. I was going to go with i instead of ? but √−1 seemed overly complex vs ? even if it is more reflective of the current complex state of the world!

We weighed in on some possibilities in Let’s Make a Deal: NYC Style. We started off with a bang, with the Greenland deal and a pre-summit trade “status quo” extension, but finished the week with a lot of wasted opportunities. The confusing messaging with Ukraine and Russia (confusing on everything except a desire for diesel prices to go lower). The contradictory messaging with Iran: public threats, closed door meetings allegedly leading to a deal, the terms of which seemed to be rejected by the President on Friday after the close. The summit had a lot of pageantry, some amazing moments, some awkward moments, but little seemed to come out of it in terms of concrete proposals.

We ended the week on Bloomberg TV (click play, as we kick off Friday’s show) where we get to review what happened and preview what’s next. I’m sure I got some of the military details incorrect, but I lay out a case (explained more thoroughly in last weekend’s report), why the admin might be pushing to frame the midterms as a re-launching point, rather than an artificial constraint on U.S. activities (fortunately, Friday’s messaging from the admin is consistent with that view). So far, the admin has not proceeded with a diesel export ban, which I think would backfire in a relatively short period of time.

If you haven’t heard Academy’s latest Around the World Podcast (Academy Podcasts, iTunes, and you can also find on Spotify) I highly recommend it. We cover:

• Iran, Saudi Arabia, and the Houthis
• Cuba
• Russia/Ukraine War
• Greenland Deal
• The Trump / Xi Summit
• Macro Impacts

Recently retired Air Force General Kruse joins Spider, Maria, Bret, and me to run through the variety of topics, with some pretty interesting takes.

Supercalifragilisticexpialidocious Intelligence

Who knew that was a word that not only appears in the Oxford English Dictionary, but also in spell check?

According to a Truth Social post, the President and Xi agreed to rename Artificial Intelligence as Super Intelligence. As you might guess, the number of memes is growing exponentially (with the aid of AI). My favorites so far are the Terminator ones where AI Terminator is BAD, Super Intelligent Terminator is GOOD. Never one to doubt the power of marketing, but this name change doesn’t seem likely to address the questions, domestically, internationally, and geopolitically around the development and deployment of AI.

Trump: "A big day with President Xi of China. Super Intelligence (SI) will be a big topic of discussion, but I want to leave it exactly where it is." pic.twitter.com/QYEWYMQlLF

— zerohedge (@zerohedge) September 24, 2026

But if we are going to go for “super,” why not supercalifragilisticexpialidocious? You’ll always sound precocious. (I am scared of what small percentage of readers will recognize the song, but for those who do, it isn’t a bad song to have stuck in your head, getting ready for another long week).

But seriously, by the time you are done saying Supercalifragilisticexpialidocious Intelligence, you will have forgotten what you are arguing about!

Stocks did quite well this week, with the Nasdaq up 2% and the SOXX index up 6.3% (though, depending on the index you track, most of the gains came on Monday’s rip-roaring rally!). Also, the Russell 2000 was down on the week.

As many have pointed out, the lack of breadth remains an issue. We continue to have a “compute” economy, which funnels into semiconductors (a sector with a disproportionate number of large sector and single stock leveraged ETFs).

ZeroHedge has been focused on this more than most and pointed out on Friday that we had 9 days in a row of more 52 week lows in the S&P 500 than 52 week highs. 

The market has given up: there is no more breadth - 9th day in a row of more 52 week lows than highs pic.twitter.com/fUeIqlXfZ9

— zerohedge (@zerohedge) September 25, 2026

The “mechanical” nature where $1 of new money triggers activity in ETFs (and leveraged ETFs), along with other fears around “faux liquidity” (a market driven by algos and machines, that is incredibly liquid for small moves, but prone to gaps on larger moves), are growing concerns for me. Trying to dig deeper into this, but some of the experts in the area are arguing (persuasively to me) that depending on the sector, the market impact of that $1 in new money can create much larger market cap changes (hence the fixation on leveraged ETFs in particular).

Short term, markets are swinging around with oil, but longer term, it is the compute build and spend that will drive markets and the economy.

A lot of positive vibes, but not sure what was really accomplished or not this week on the AI front, especially with China. Much Ado About Nothing is the likely case there, as I expect whatever was said, Xi will return home and put his foot on the gas to develop better chips, better models (using distillation if need be), and I would say the energy to drive that compute, but on that front, they seem to be ahead of the U.S. where braggawatts remains a concern.

At its most simple, since last year in Geneva, if not before then, I think the simplest way to frame every meeting with China is that after they go back to their respective countries, each side has one specific agenda:

• The U.S. must continue to maintain or increase its lead in compute, while working on being less dependent on China in sectors where we need to be truly resilient (ProSec). Processing, refining, and smelting rare earths, critical minerals, and even basic commodities is a part of that, but it goes far beyond those industries (more on this later).
• China needs to grow its compute and chip industry (in terms of size and quality) faster than the U.S. can catch up on things that the U.S. is currently over-reliant on China for.

Both sides have improved their hands (or cards) since the Geneva meetings, but my nagging concern is that China is more fixated on its goal and better organized in terms of achieving it, hence my repeated concerns for markets AND National Security, on Cheap Chinese Compute.

The House Doesn’t Always Win

10-year Treasury yields jumped to 5.2% this week. A 20 bp move. The part of the move that seemed to be triggered by S&P PMI data seemed particularly unusual (it is rarely such a market moving event).

Bessent of I am the House Now and 6 Billion Dollar Man fame, is not getting his way on bond yields, nor on the yen.

On bond yields, the data isn’t helping him. The war isn’t helping him. At the same time, the supply (just not in size but in average maturity) from the corporate market isn’t helping him. Neither are bond yields that are higher globally than they have been in a long time. Treasuries just aren’t that exciting, which is one of the messages the 5-year bond auction seemed to send.

The buybacks left a lot to be desired. The Treasury continues to only help buy back some illiquid bonds, even then only at yields in the context of the market.

Bessent Plays Hardball With "Bloomberg Bros": Yields Spike As Treasury Accepts Just 68% Of Maximum Buyback Offers https://t.co/c4WFUI7Cej

— zerohedge (@zerohedge) September 24, 2026

Some “don’t bet against the Fed (or Treasury)” positioning was likely wiped out this week on that move, meaning it should be more difficult to push yields higher. But to get yields much lower, we need peace in either Russia/Ukraine or the Middle East (which we didn’t seem to get) or something akin to the “whatever it takes” moment Draghi unleashed on the Euro.

The yen move hasn’t been quite as bad as the move in yields, and the yen diligently responded to more chatter about intervention (and maybe some actual intervention), but look for a weaker yen to remain a talking point, for both the admin and markets. To some degree I’m not sure why it is so front and center, especially as I’m not a big believer in the yen carry trade, but it is, and markets need fewer rather than more distractions.

The World

I’ll admit, I was kind of optimistic about the UN convening in New York City with so many opportunities to address so many potential issues. NYC is where Trump is really in his element.

My main takeaway from this week is that I’m convinced that Mark Rutte, the Secretary General of NATO, was on the cusp of saying ProSec™ during his interview with Annmarie Hordern on Thursday.

He wasn’t comfortable talking about trade (that was for the politicians), but he had no problem lamenting the lack of refining capacity in Europe.

Rather than rehashing our thoughts on this subject, we can just direct you to our longer pieces:

ProSec 2026 (our start of the year kick-off piece).

Is ProSec The New ESG? What sounded preposterous even in the U.S. when we first started touting this concept seems to be turning into the norm. Look at investment committees. Look at recent ETF launches. Look at Canada and Australia, who seem to be contorting themselves to this reality. And finally, while Europe isn’t quite there, it seems a growing part of the population, including leaders like Rutte, is starting to face that reality that “true” sustainability requires real world resiliency.

Our Mid-Year ProSec Update and first real attempt to introduce the concept of Vertically Integrated Nations.

While investing in ProSec has been mixed outside of the compute/semiconductor/energy side of the concept (including the companies that make the equipment to build out compute), I think it is time to

add to some of the ProSec sectors that have lagged (nuclear for one, rare earths and critical minerals as another) and also to start moving allocations more aggressively into Global ProSec!

Bottom Line

Difficult to be bearish rates after the big moves. Even on oil and diesel and the wars, the “surprise” would seem to be a solution rather than ongoing problems (though by no means have markets priced in bad cases, let alone worst cases, for global energy distillate supplies). Let’s call rates “neutral” here, maybe playing for a bounce in prices (lower yields).

TLT (long-dated Treasury ETF) dropped 2.4% on the week, while LQD (long-dated IG) dropped only 1.4%. Some of that is linked to a shorter duration, but I continue to want to combine my credit risk with my duration risk and own longer-dated corporate bonds, with an emphasis on the compute build bonds (which make up a large part of the end of the curve anyways). Any slowdown in compute build (which was off the table this week) will be incredibly good for all-in compute bond yields.

Energy, energy, and more energy. While rare earths and critical minerals (especially the processed and refined versions) are important, they don’t resonate with the public the way higher energy prices do (or god forbid, actual shortages). What the public wants, the public often gets, so continue to be skewed heavily to energy and energy production in all forms (electricity, LNG, diesel, etc. are at the top of your investing list). Yes, the sector will sell off on any resolution of today’s oil price problems, so be careful there (plenty of profits to be taken already), but look to reload on any sell-off. If Canada and Australia can start addressing their self-inflicted energy wounds, and Europe can at least admit they might have a problem, there is a lot more opportunity in this space!

Good luck and I cannot help but feel a bit disappointed that this week’s opportunity in the U.S. didn’t seem to create much real momentum that markets or the economy could latch on to. On the other hand, it is difficult not to smile with supercalifragilisticexpialidocious running through your head on repeat. If you haven’t heard it, look up the word and Mary Poppins and give it a shot; it can’t hurt!