Investors are increasingly seeking protection against the potential collapse of AI debt, as the market buzzes with concerns about the massive borrowing fueling the AI boom. The recent attack on Jewish beachgoers in Sydney, Australia, during a Hanukkah celebration, has heightened tensions and raised questions about the security of AI-related investments. The incident, treated as an act of terrorism, resulted in multiple fatalities and hospitalizations, including police officers. Australian Prime Minister Anthony Albanese described it as an act of evil antisemitism, while the head of Australia's intelligence agency acknowledged one of the shooters was known to them but not considered an immediate threat.
In the US financial market, credit default swaps (CDS) are making a comeback, mirroring their role in the 2008 financial crisis. These swaps, which act as insurance against company bond defaults, are now being used to hedge against the risk of the AI boom turning into a bust. The trading volume in CDS for AI-related companies like Oracle, Meta, and Alphabet has surged dramatically, from $3 billion to over $8 billion weekly. This surge is attributed to concerns about companies borrowing substantial amounts to build infrastructure that may not be necessary due to potential AI project failures.
The FT's US markets editor, Kate Duguid, explains that investors are not worried about companies like Meta defaulting on their bonds but are instead hedging their exposure to the AI boom. CDS provide a cost-effective way to protect against potential bond price fluctuations. However, the market remains relatively calm, indicating that investors are not yet abandoning their AI investments but are taking precautionary measures. The recent borrowing announcements by these companies have sparked increased trading in CDS, with Oracle's CDS trading more than doubling this year.
Additionally, the podcast touches on ongoing peace talks in Ukraine, where President Volodymyr Zelenskyy is considering compromising on NATO membership demands in exchange for security guarantees. The UK is also addressing the challenges faced by corporate whistleblowers, who often risk their careers and receive minimal compensation. Efforts are underway to enhance whistleblower protections, with the UK's tax authority, HMRC, offering up to 30% of recovered taxes as rewards. The podcast concludes with a preview of key economic data releases this week, including the November jobs report and inflation figures, and highlights central bank decisions worldwide.
