Starting with the labor market. So last week we had Challenger report something that was pretty surprising. So Challenger is a private consulting company that goes and pulls companies about their intentions to hire or fire. Now according to them, businesses have significantly ramped up their intention to lay off workers. In fact, the total amount of announced layoffs could be as high as it's been in many years. Now that seems to be corroborated by official data that was announced a few days later. The Jolts report that shows that job openings surprisingly decreased. Now job openings per worker looking for a job has now declined to levels that are below pre-pandemic. So it's very clear that the labor market continues to soften.

Now recall at the last Fed meeting, Governor Waller dissented and wanted a 25 basis point cut. The rationale he gave was that he was hearing from his contacts that everyone is thinking about laying off workers and so there was significant downside risk to the labor market. Direction seems very clear. The labor market is softening and if that's the case that also suggests downside risk to inflation. The US is largely a services-driven economy. If you have a weak labor market, then wage growth will decelerate and that suggests downward pressure on service inflation, which of course implies downward pressure on the broader inflation indexes. Together, weaker labor market, weaker inflation suggests that we'll probably get more Fed cuts than the two cuts priced into the market.

The second thing we have to talk about, of course, is the volatility and the equity markets. And this was largely centered in tech. Collectively the mag 7 companies are investing hundreds of billions in the AI buildup. In the past, the market rewarded seeing that the companies are investing in AI. But this week though there seems to be a little bit of a change in tune. When Amazon announced that they would invest 200 billion in AI this year, the market punished them. Their stock was down 10% after earnings. AI is obviously really cool technology but it may not be very profitable.

Now the other thing in the tech world of course was the announcement of Anthropic AI. Its new Claude version which apparently can do a lot of vibe coding really well that allows people who are not trained programmers to be able to vibe code things really easily. Basically customized software that could potentially replace software that their companies currently use, let's say things like document review, back office stuff, payroll accounting. So companies that currently specialize in things like that like Salesforce or Adobe, they saw their stock price decline pretty notably. The thinking is that if a company can use an AI bot to create customized software to suit their needs at a very low price, why would they be using the services of these SaaS companies. This also bled into the credit markets. Ares Capital Corporation has almost a quarter of their assets in loans to software companies. The market is worried that AI could cannibalize other software companies and that could present downside risk to the loans.

Last thing that I want to talk about of course is crypto. This last week we saw tremendous volatility in Bitcoin. It looks like Bitcoin has basically given up all the gains that it had from the Trump boost. President Trump carried out a lot of pro-crypto promises. He did shepherd in legislation, the Genius Act that created a regulatory framework for dollar stable coins and even suggested the creation of a strategic bitcoin reserve.

Notwithstanding all of this, it seems to me that there is a very much a crisis of confidence in the crypto world. One of the biggest arguments of proponents for Bitcoin is that it's basically a hedge against fiat, the debasement trade. And what we've seen over the past few months is that it doesn't seem to have been benefiting from the debasement trade. You've seen gold surge, you've seen silver surge. But through all that Bitcoin just continues to sell off. It's not doing what many people thought it would do. The people who invest in Bitcoin usually are tech-savvy and so they could be invested in other tech stocks as well and so this could be in part be a deleveraging thing. At the moment, many people who bought this on the idea that it would be a hedge against fiat are having a crisis of confidence.