In this episode of In the Know, you'll hear our reaction to Bill Aman's very interesting tweet. You'll also find out why we're not worried about inflation and what the credit markets are thinking about this AI revolution.
Well, greetings everyone. It is employment Friday once again and here we are in the know. So as usual we'll go through fiscal policy, monetary policy, market indicators, economic indicators and market indicators. But I'm going to start a little differently this time. We're going to feature first a tweet by Bill Aman and then a number of slides to explain in more detail the letter that I wrote within the last 10 days, really putting into context our outlook for much stronger than expected real GDP growth, much lower than expected inflation, but interest rates moving up influenced much more by real growth than by inflation. In other words, the market is working and profitability at probably all-time highs. We're almost there now, but we think we will hit all-time highs thanks to the productivity gains we expect out of AI and all of the technologies around which we have centered our research.
So let's start with the tweet from Bill Aman. I thought it was very interesting and one of the reasons is when I first started in this business, now I was in college and it was the late 70s, but this argument, the one that Bill is putting forth, was prevalent back then. But it was more predicated on just inflation stuck in the double digits and this idea that interest costs would continue to rise feeding the inflation rate. So a vicious cycle. We actually think that this time is going to play out very similarly to the 80s. And in the 80s what we saw was real growth picking up thanks to productivity, inflation coming down. And one of the reasons inflation was coming down is we were in a little bit of a technology revolution, really started by the PC and then software. That did feed some of the disinflationary effects we saw back then.
Today we think the five major innovation platforms, so AI, robotics, energy storage, blockchain technology and multiomic sequencing. Those five major technologically enabled innovation platforms are going to drive inflation down to much lower levels than most people expect. And in fact, we would not be surprised to see deflation, especially if oil prices crack the way we expect them to. So with that, I'll go into the charts now that I featured in my letter and explain them perhaps a little bit more. So here's the first one. Now, talk about long term. We're going back to 1790.
And really piecing the interest rate picture together prior to the 1900s is quite the task. And we worked with academic research. Nick Gruce actually did a lot of this work for us in 2019 when we first published a piece about long-term interest rates and inverted yield curves. But what I'd like to point out from this chart is we've seen a big spike in interest rates and boy does it feel like a big spike. We got down below one I think during COVID and now we're above five on the 10-year Treasury yield. But look at it in the context of history and you'll see that where the rate is today is really at the midpoint of and maybe the midpoint of where we were on average going back to 1790, although certainly higher than we were for large parts of history here.
And the other thing I wanted to point out was really the anomaly in terms of history is not what's going on now. But what happened in the 70s, 80s, and 90s, and really up to COVID, the big spike in rates. And we link that to a couple of things. Most important, we went off the gold exchange standard in 1971. We closed the gold window. And what had been happening before that was starting with the Vietnam War and then the Great Society program. So it's called guns and butter. Government was financing everything and spending, you know, spending was somewhat out of control then. That was all accommodated by monetary policy and which became unhinged around the closing of the gold window and all hell broke loose and from a monetary point of view we ended up at double-digit inflation and it took us a long time to work out of that.
We think we went too far in the other direction. The market stopped working. The Fed was really feeding the economy, spoon feeding. There was still a lot of fear after 08-09 and then again in COVID, but now we think we're back into a situation where the market is working and this Fed I think is going to be very good for all of us. So now this is PCE inflation. We're focused on this because Fed Chairman Worsh is focused on headline PCE inflation. So, we got an update. When we first produced this chart, it was 3.7% with the update and there was a little bit of a downward revision. We are down to 3.4% on a year-over-year basis. You can see core is a little bit lower than that. The problem is I think Fed Chairman Worsh is fixated on headline or at least he says he is and it is a long way from 2%.
And so we heard a lot of hawkish talk meaning the Fed is going to keep tightening. The Fed is going to keep tightening until this report came out on PCE inflation still very high. But if we go through and look at a private measure of inflation, which we believe Fed Chairman Worsh is focused on private metrics as well. Here you can see trueflation. We featured this before. You can see that if you look at the headline it has picked up, that's in the purple there, to roughly 2.7 with oil prices probably a big part of the recent tick up. But look at what's happening to core. Core is continuing to tick down. And we don't think this is lost on Fed Chairman Walsh. And you can see that if you look at pre-COVID, we're really moving into the averages we saw back then.
And here you can see the dollar. This is another again long-term chart, not as long as the last one. But we like to point out the early 80s here that you see in green with the dollar. Back then we had excellent monetary policy and fiscal policy that was very business-friendly. Lots of tax cuts and deregulation as well similar to the environment we're in today. And some may argue with that but we do think we're in a business-friendly climate here. And we see that the AI revolution by and large has started from the United States. In fact one of the statistics I saw in Bloomberg this month is that if you look at all the data center financing in the world, 90% of it, and this is based on fixed income metrics, 90% of it is in the United States.
So I do think what has happened with our corporate tax rates, the effective tax rates now being the lowest in the world, we think around 8% because of the accelerated depreciation for new manufacturing facilities and certainly data centers qualify for that 100% depreciation in the first year of service. That means that these companies are seeing massive tax refunds that they can redeploy into more investment in the United States. And we're seeing an investment boom. What that meant in the early 80s was that the return on invested capital, and this is true today in the US, was moving up relative to that in the rest of the world. And what happened was the dollar went up. You can see how dramatically it went up back then.
Well, we're coming from a bit of a different level. In the late 70s, the dollar was shellacked by horrible fiscal and monetary policy. And so it was coming from quite a low level and very low expectations. This time around you can see the dollar on this basis. This is the DXY against just six countries. It's closer to the higher end of recent ranges. But we think it is going to continue to move up for the same reason it did in the early 80s. A lot of the narratives out there would suggest that the dollar is done and American exceptionalism is done. We disagree with that. I think the statistic I mentioned about data centers would speak to that. And we do think the pressure is going to be up again because of foreign direct investment and other kinds of investment moving more towards the US because of business-friendly policies.
Now here's Kalshi. As you know we are partnering with Kalshi. I think anyone can partner with Kalshi and contribute ideas to make new markets, new prediction markets. And you'll see here what was very interesting as we started this market is that Kalshi got this more right than I think many people expected. When we started this, the actual level of the dollar was I think around 98 on the DXY. Now it's a little above 100. Kalshi had the expectations always above 100 and in fact when they started out you can see here 103, 105, 100. So there was something in the mind of people who were placing bets on this market that the dollar was going to be stronger than when we started and as it turns out that is true. It did go down and now it's turning around. So we found that kind of fascinating and we will be doing more with Kalshi in terms of economic statistics and other statistics in the months ahead.
Here is something fascinating. This is the dollar again. Now the DXY which we just showed you, that is how most people think about the dollar, the financial markets, you know, people making judgment calls about the dollar, investment decisions about the dollar, they're fixated on DXY. But this is the real trade-weighted dollar. It's produced by the Fed and it involves 26 different countries and you can see relative to history that the dollar looks like it's not that far from its all-time highs. You can also see the early 80s here. What happened to the dollar on this basis, but how much higher we are now than even we were back then on the DXY just to revert back to that quickly. You can see that, you know, if you believed this chart, that the dollar is much weaker than it was back then. According to the Fed's measure, that is not true.
And the dollar going up, and as I said, we think it will return to all-time highs on this basis. The dollar going up is a powerful anti-inflationary force, especially because most commodities are priced in dollars. Here's the gold price. So, you can say the dollar is up near all-time highs and that's good because commodities are priced in dollars. But if you're looking at gold, our monetary policy in the last I would say it looks like 15-20 years has been very bad. The dollar has lost a lot of purchasing power relative to gold. Now you see in green there we highlight what the dollar did during Volcker's term and Greenspan's term and we have a suspicion even though they did not say so explicitly that they were managing monetary policy using the gold price as one of their prime indicators.
And when it went down, they gave them more room to ease. When it went up, they were more in a tightening mode. As you can see, the gold price started going up, went up to its prior high under Greenspan and then he left office and you can see since then very bad track record. Interestingly, the gold price peaked the day or the day after that President Trump appointed Kevin Walsh to be Fed chairman. And it has been down since then. And we would not be surprised to see it continue to decline as he gets this monetary policy under some kind of disciplined control using price indicators.
Here you can see the oil price and we think that the oil price has levitated over these last 20-25 years. Partly because of monetary accommodation which is the same reason the gold price went up. But if we're right, the combination of disciplined monetary policy using more of a price rule like the gold price, maybe not the gold price but like the gold price, and the fact that innovation, technologically enabled innovation is going to really put a big dent in the global demand for oil. 57% of oil consumption is for transportation and we believe transportation is moving away from gasoline-powered cars and engines elsewhere and diesel-powered trucks to electric. And so we do believe that the oil demand has been in the process of peaking ever since this transition started and it started in earnest in China and Europe. US is following.
But we do believe that the oil price could drop into the 30 to $35 range. And the reason we say that is you can see during the various crises it's dropped to that range. In fact during COVID it dropped well below that range. And so now this won't be a crisis. It'll be a technological shift that's taking it back down and that certainly will help inflation expectations.
Here's another thing that is going to impact inflation mightily. You can see the two learning curves here. The one in blue is for genomic sequencing. And just to give you what we've pictured here, it's Wright's law in action. And it says for every cumulative doubling in the number of whole human genome sequenced, cost declines by 40%. That's the learning curve for genomic sequencing. For AI inference, the learning curve that's in black is much more dramatic. It gives you a sense of how much more quickly innovation is happening today for AI. And on this basis we're not even using Wright's law. I'll give you an annual number. The cost of AI inference, so what it costs for ChatGPT to answer your questions, and this is at a fixed performance level, the cost is dropping 99.99% per year. And so any activity that involves AI is going to experience significant cost declines.
Now, Jevons paradox would have us believe, and we do believe, that as the prices for AI come down, for AI inference come down, the volume will explode and the revenue growth, think OpenAI, Anthropic, think SpaceX AI and Muse now, the volume growth associated with those kinds of price declines is going to be explosive and that's why we've seen OpenAI's revenue go from 20 billion, that's the annualized revenue run rate at the end of last year, to 70 billion they just reported, which surpasses the 65 billion reported for July for Anthropic. So I'm sure Anthropic is higher than 65 billion. So they are back neck and neck again probably.
But despite those price declines and that the revenue growth is exploding, we've never seen anything like this. And that's kind of a microcosm that we expect for the economy as a whole. We expect that as these price declines seep into the economy more and more deeply and they will, that the volume growth associated with any given activity is going to accelerate fairly significantly and that is how we get to an outsized GDP growth forecast in the years ahead.
So and here's in action so to speak how we look at the world. We look at the world as you know through a technology lens. And here you can see the 15 technologies involved in those five major innovation platforms. And you can see how they are converging. And you can see how AI in purple is having the biggest impact on the other technologies. So the cost declines impacting AI will be feeding into these other technologies. And I often say when we first, and I should give Brett Winton, our chief futurist, the credit for drawing this, when we first drew this chart, I think there were, I don't know if there were any lines between the gold section there, blockchain technology and AI. But now there are because of Agentic Payments, Agentic Commerce, Grokbot, Muse, and now bots from OpenAI.
So we're going to, we believe, see a lot of deflationary pressure, but it's good deflation meaning it causes a boom in growth. And I'll just round out the red there is robotics, the green is energy storage, and the blue is multiomic sequencing. And as you can see, AI is going to have a profound impact on them all and is probably going to speed up the innovation in all of these areas relative to what it would have been without AI.
Now here is global real GDP growth. Again thanks to Brett Winton in consultation with academic research and academic researchers. He's come up with this growth chart or growth timeline going way back to 100,000 BC. And he's going to go into more detail in this year's Big Ideas. And you'll see that as we carry out this chart to 2036 the growth rates go higher but you can see what happened from 1500 to 1600 is you know pretty much we stayed at a 0.6% real GDP growth rate as best as academic research can help us understand. Actually I think he might be refining that down to 0.5 and I think that's really good because I think there was a little bit of false precision with that 0.6.
But you can see what we expect from real GDP growth for or what we did expect for the five years ended in 2030, 7.3%, so 7 to 8% and we've been going around with this forecast and of course most people think that's crazy because we've never lived through a regime change like this, we didn't go through the industrial revolution and so we've just been living in this 3% GDP world. Well, this is a technology revolution and we think it's bigger than the industrial revolution. So, you can see going from 0.6 to 3, that was a five-fold increase in the growth rate. We actually do believe we're going to overtime see much more than a five-fold increase in the growth rate. It may take a while to get there or maybe it won't. We don't know. This is all happening so much more quickly than we expected.
But we do believe that we'll see, you know, high single-digit real GDP growth. But the other side of that is that we will see much lower than expected inflation, perhaps deflation, if these technologies converge the way we think they will. And you can see there the IMF forecast at 3%. Actually I think the IMF forecast has gone down to two and a half percent or something like that. So effectively the IMF is saying these technologies are not going to have any impact on real GDP growth. We disagree and that's what makes markets. So stay tuned for our Big Ideas. It'll be out in January and this chart will be updated.
Now why does that growth rate accelerate? It accelerates because of productivity and you can see in the 80s and 90s from a trend sense we had an upward shift in productivity as the PC and software came into being and then the wireless and smartphones and so forth. We think we'll see a replay so that productivity growth accelerates into the 5 to 6% plus range. That would make sense given where we think technology is going.
Now this was an interesting again long-term chart. Give credit to Nick Gruce who's now director of research for consumer AI and fintech. But here is the yield curve. So, the 10-year Treasury yield versus the two-year Treasury yield. And you can see that back in the industrial revolution, we had an inverted yield curve more often than we had a positively sloped yield curve. What that meant was long rates below short rates. And then we had the depression. We had the Fed. The Fed was put into existence in 1913. And since then whenever any investor has seen an inverted yield curve he or she has basically assumed correctly that we were heading into a recession. That was not true.
Now you can see there were a lot more recessions back then before the Fed and that's because we were on the gold standard, a price rule, and so the adjustment had to be taken in volume or unit growth in order to keep the price rule in effect. And so but you can see that we had inverted yield curves before recessions, after recessions, again more than 60% of the time. Interestingly, the last inverted yield curve we had and it was quite a lengthy one in the context of post-World War II history was after COVID when the Fed raised interest rates 22 or 24-fold within 16 months. We went into an inverted yield curve and we think we were in a rolling recession. Certainly that's what housing, manufacturing, small business, lower income consumers, they were all in recession, but the economy never fell into a recession, which is very interesting.
And maybe taking us back to the industrial revolution when the yield curve was inverted more than 60% of the time on average by 100 basis points. So we shall see.
And then yes, just to get a little bit at that, many of you who have been paying attention or tuning into In the Know that I have been very intrigued by this chart. I know it's kind of geeky but I am a geek when it comes to economic statistics and the yield curve in particular. I was struck that during COVID, we did not, as the Fed and the government generally, governments around the world both from a fiscal and monetary point of view, they put the accelerator to the floor, everyone at the same time. And yet we could not get back to that 200 to 300 basis point of steepness in the yield curve. And I was thinking, okay, what does that mean? I think what it means, and this last turn down from, we didn't even get to 150 basis points like we did during COVID as the yield curve was steepening. We got to roughly 75 and now we're down into the 40s.
What does this mean? I do think it means that Treasury yields are sniffing out some deflationary undercurrents out there. In other words, that the inflation expectations inside the long-term Treasury, and we'll go into that in a second, but those inflation expectations are pretty tame and maybe getting tamer. Now that's not what's quite shown with inflation as implied by TIPS, but we think that's where this is going.
So let's do just a quick run through some of the charts. I know I've used a lot of time with the letter or a summary of the letter. But we'll go through a few charts here. I'll skip through some, but here's the deficit. We're at mid-5%. Bessant expects 3% by the end of this term, the presidential term. We think he's right and that's because we think nominal GDP growth will be a lot lower than people expect. And this is how we started turning things around in the 80s as well under Reagan and then when we got into the 90s even more so with Clinton. So stay tuned.
This is what people fear. So they're worried. We see in the headlines we're at $40 trillion of government debt now. This is terrible. It's above our GDP. And what we say is we agree we think there's too much government spending because government spending is taxation period, either now or in the future or through inflation. So we agree with that. But we don't think the consequences right now are as dire as many would think. Why is that? Well if you look at debt to GDP, you're comparing a balance sheet statistic with an income statement statistic. So what people would say a stock versus a flow. And so that's one way to look at it.
But there's another way to look at it more like for like debt to equity, both of those are balance sheet items and you can see on that basis we're nearer to the low in the context of this history than we are to a high. In other words, the wealth generation in this economy and the growth are taking the edge off of this statistic. Again, I agree with the sentiment that government spending is too high. And of course, the recent government spending is in large part about defense spending. So, national security, I am for that. But I do think government spending generally needs to be brought under more control.
Here is another again long-term chart. You know, I think the reason the bond market and equity, everybody's a little confused, is because we went through 40 years when nominal GDP growth decelerated mostly because of inflation and interest rates followed. And now we're on the other side of this. Well, I think this is good news. I know it's not good news for bond holders who don't like seeing, you know, their principal whacked. But I do think it's more a testimony of what is going on in terms of accelerating growth and I think these few charts will show you.
This is the five-year Treasury yield and you can see the real yield. So broken down between inflation and real, you can see the recent interest rate move is much more a function of real yields than it is a function of inflation. So you can see I find it very interesting. I know fixed income investors pay attention to every basis point and of course we in the equity market probably are just more focused on percentage points so 100 basis points. But you'd think some days that as fixed income investors and reporters are talking about inflation implied in the bond market that inflation was moving out of control. We look at this and say, okay, looks like the bond market expects this five-year inflation rate to behave pretty well. Sure, it's above 2%. But it's kind of been steady state for the last few years. We actually think it will break down once the impact of technology is understood more and more by the markets, its impact on inflation.
I'm just going to rip through some of these charts quickly. This is a four-year annualized growth rate in federal outlays and money. And you can see federal outlays are up with defense spending a big part of the increase recently. But monetary policy is not accommodating it. So the last few years of monetary policy the growth rate of the M in the low single digits not accommodating this. And so that's good news. That means it's not going to be inflationary. And you can see what happened in the 80s, 90s that the money growth rate was much higher and velocity increased which was a big problem.
And here's velocity, speaking of it, the closest correlation we see velocity has been falling. Another reason the money growth rates did not cause inflation is because velocity, the rate at which money turns over, was falling. The only statistic that we see that peaked in the late 90s like velocity is the labor participation rate. And you can see it's been falling recently. It did tick up in today's report. That was good. Some of it may be because of affordability and you know more people coming back into the labor force just to make ends meet. If that continues maybe velocity turns around. We don't think it will continue because baby boomers are retiring and immigrants have been leaving. So the velocity of money should not, we think it will flatten out here. It seems to be flattening out and will not be turbocharging money growth.
Here you can see money growth at 5 point, I believe that's 5.7 and many people worried that the inflation rate will follow. Understandably, if velocity weren't flattening out and rolling over, we'd probably be wondering this ourselves.
Here you can see very importantly, diffusion index. This is what Fed Chairman Worsh is watching and you can see the diffusion index. And this is the categories of inflation that are 0.3 or higher. And he didn't like the direction of those. Well, you can see we're seeing now a quick reversal. The blue there or purple is the six-month diffusion rate. And we think that is going to build momentum on the downside and pull the annual one down as well. So very important piece of information.
Employment today just to run through that quickly much lower than expected employment if you use non-farm payroll. If you use household employment which is this one it was 400 and something thousand. So again something for everyone. The more important point is on a year-over-year basis this has been pretty flat. It's been pretty volatile month-to-month, but pretty flat. So that's employment, but labor, the labor force growth has also dropped off. As I mentioned earlier, partly boomers, partly immigrants leaving. So we've got an unemployment rate in the green there that has been quite well behaved in this rolling recession that we've been in. And so it's at 4.2.
But do look at the purple line that's the 16 to 24 year old age cohort. That is back at 9.9%. So those, you know, students leaving college having trouble finding jobs, go out, start your own company with AI, no employees, solve a problem, keep interviewing, and you'll go to the head of the class, meaning you'll be recruited first.
Michigan sentiment terrible and the Conference Board joined this. It had held up much better than expected. So, sentiment is terrible. I think diesel prices 650 and gasoline still a problem. Average hourly earnings a problem surprisingly up only 0.1 maybe because of mix shift, a lot of technology jobs tailing off, those are high paid jobs so this is coming under pressure 3% and we think productivity as I showed you on that other chart is going to go well above 3% so we do think there's going to be a labor shortage and that compensation per man hour, average hourly earnings growth rate will turn around as the economic momentum becomes clearer.
Personal saving rate again down very low by historical standards and that's because affordability, probably people digging into their savings. On the high end consumer with equities near an all-time high maybe there's a little bit of a decline in their saving rate as well. We haven't seen that data yet.
Existing home sales still in a recession, just terrible. And one of the reasons, of course, is mortgage rates have turned up. They're above 7%. So this is a big problem. And to move houses well, and this is the new one family houses for sale, inventory is near all-time highs. These builders are cutting prices to move that inventory, but it's still at a high level. Interestingly, there was a little bit of a tick up. This is a three-month moving average basis for existing home price inflation. We thought that those prices would start falling as well if people really wanted to move their houses as rates go up. Still think that could be the case. Here are the rates moving back up. Not surprisingly.
Here's manufacturing, it has moved out of recession. So that rolling recession that we saw there, it is out. And one of the reasons is capital spending, non-defense capital goods ex-aircraft. And as we know defense spending you can add to this, this is booming but I like to remind people that it was kind of capped from the tech and telecom bubble and bust on it just stopped. Again, looking at if we were looking at this as a stock, we'd say the longer the base, the larger the breakout, and that certainly is happening. And the more sustained, I would say, too.
Trade balance. We think this is going to continue deteriorating. In this last month we saw our imports up, I believe, 2.8, our exports down 2.2. So we are growing faster than the rest of the world. That's why this will continue to deteriorate. President Trump may not like that, but it's the flip side of a trade deficit is a capital surplus. We're getting a lot more foreign investment and foreign direct investment in bricks and mortar than I think many people expected.
Here's domestic profitability. Productivity going up will probably continue to help it. We could go to an all-time high. You can see where that was. I think I can't read the date, but it was a long time ago.
Here you can see we're going into the market indicators. This is quite interesting to us. So, you can see that the 10-year Treasury yield has moved up. And I've given you reasons why. What's very unusual is that that bottom indicator, metals to gold, has not gone up more than it has. Gold has been falling, so that would put upward pressure on it. But metals relative to gold just hasn't turned. And I'll tell you, we're seeing so many indicators out of China that are just terrible. I think I might have mentioned last time around auto production in China is somewhere still in the 30 to 35 million units per year. But their consumption of autos has dropped from roughly 30 down to I think 19. And interestingly our own auto sales dropped below 16 million in the latest reading which would have been yes September and I do believe we're seeing the impact of Uber, Lyft affordability on auto sales and so I think auto sales have peaked secularly just like we think oil prices have peaked secularly.
And here quickly S&P to oil still near a high even though oil had gone out to 90 to 100. If we're right on what's going to happen to oil prices, the S&P is going to go up dramatically relative to oil. And here's the S&P relative to gold. Again, the reason we feature this is it was a very good indicator in the 60s, 70s of the stock market being in a world of hurt. It started down back then and we went through a terrible bear market from 1966 effectively until 1982 is when we got back to that 1966 high if you can believe it or not.
So we were looking at this indicator fading, fading, and a lot of people focused on government deficits, government debt. Isn't this terrible? And we're going back into the 70s kind of environment. We are not. We are not and happy to see it tick up again. We think this will tick up to all-time highs as the S&P continues to move up with earnings growth and gold perhaps moves down.
And here very nice, very nice turn. Bitcoin to gold, Bitcoin going up, gold going down. We've talked about the correlation between Bitcoin and gold. Ironically, Bitcoin's known as digital gold for its store of value characteristics. But the correlation one to the other over the study we did was back to 2019 when institutions were becoming more interested. The correlation between the two is 0.1. No correlation. Recently, it's been a negative correlation. So we do think the turn is in here for Bitcoin.
And final market statistics, you know if you look at credit default swaps, so insurance policies against bankruptcy and this is bank credit default swaps. They're very low. There's no systemic risk even though private credit is still in a difficult moment, shall we say? It's not feeding back into the banking system. You can see here this is these are junk bonds effectively high yield bonds relative to the 10-year Treasury. Again, a little bit of an uptick here, but you know, in the context of history, very low. So, not a worry in the world. Though you can see before recessions they typically are low. We don't think we're in a recession at all. We think we came through a rolling recession. But so far so good.
Last chart, two last charts here. So this is AI equities in the purple and this is Kalshi's, I think this is Kalshi's bet on will the Republicans lose control or not and this would say the higher the black line is the higher the probability Republicans will stay in control. As you can see, the probability has dropped and many people were making the case that as that happened, that a Democrat-controlled House and Senate would be very bad for AI. And so they were trying to figure out a correlation here. As you can see, these have broken apart. And I think the reason is if the Republicans lost the Senate and the House, all that would mean would be gridlock because we have the same president who basically threw out President Biden's executive order on AI, which could have become very punishing, and put in, and we know this has been the topic of the week. Are we going to regulate AI given the Hugging Face incident, the hacks we've heard about recently? And this administration has come down squarely on you self-regulate and oh by the way you large language model companies are liable if something goes really wrong here. So that was interesting.
And there is this worry in terms of the credit default swaps, this worry about hyperscalers. And it is interesting, look at the green there, to see that those in the context of a short history. You know, they were cash fortresses for years and they didn't need to tap the debt markets at all. And yet here they are tapping the debt markets and this is quite an unusual moment. So you know their credit default swaps are deteriorating. Going up means they're deteriorating. And we're seeing the investment grade tick up that's in black. The high yield, the junk bond in purple, those are ticking up more. And I'm sure the Neocloud providers are a big part of the reason for that. As is, I don't know if Oracle was downgraded or I don't know if it was downgraded. It may be featuring in there as well.
So with that, there's a quick trip through lots of data. So thank you for joining us and I hope you have a lovely weekend.
