Dear Reader,
Today I want to share a note that came out last week from Apollo Global.
One of the biggest banks on Wall Street.
Their chief economist is a man named Torsten Sløk.
Most talking heads on Wall Street talk a lot and say nothing.
They babble.
They give you no insight.
Torsten is different.
He's one of maybe a dozen people I actually pay attention to — because he tells you what's actually happening, not what sounds good on television.
And last week, he flagged something that every investor needs to understand right now.
Credit Default Swaps on Hyperscaler Debt Are Getting More Expensive
Let me explain what that means in plain English.
Hyperscalers — Microsoft, Google, Amazon, Meta — are issuing enormous amounts of debt to fund their AI build-out.
When institutions buy that debt, they often want to insure it against default.
The insurance contract they buy is called a credit default swap.
Think of it as protection against the company not being able to pay back what it borrowed.
Recently, the price of those insurance contracts has risen by 60 basis points — six-tenths of one percent.
That might sound small.
But in the bond market, that is a meaningful move.
It means the people who know this debt best — the institutions buying it, the banks pricing it — have decided it is riskier than it was.
The Numbers Behind the Warning
Here's what the balance sheets actually look like right now.
Alphabet has a forward debt-to-equity ratio of 13% and negative free cash flow of $25 billion.
Amazon has a debt-to-equity ratio of 23% and negative free cash flow of $30 billion.
Meta has a debt-to-equity ratio of 34% and negative free cash flow of $25 billion.
Microsoft has a debt-to-equity ratio of 7.34% — and positive free cash flow of $33 billion.
Go, Microsoft.
The others are spending so aggressively on AI infrastructure that their free cash flow has gone negative.
And the bond market is starting to notice.
Why This Matters — And Why It's Not a Panic Signal
I want to be very clear about something.
This is not me saying the AI bubble is popping.
I have said for months that the bubble pops when one of two things happens.
Either these companies stop spending a trillion dollars a year building out AI infrastructure.
Or they can't sell their debt anymore — nobody wants to buy their paper.
We are not there yet.
But this is one of those early warning signs that professional investors are watching very carefully.
Think about how every bubble in history has ended.
The dot-com bubble popped when the paper got bad.
Pets.com goes public — garbage paper — and two or three weeks later, the market implodes.
The mortgage bubble popped when the paper got bad.
Nobody could figure out what was inside those mortgage-backed securities anymore, and the whole thing collapsed.
This bubble — the AI bubble — the paper is hyperscaler debt.
It's not bad yet.
But it's getting more expensive to insure.
That's the canary in the coal mine.
What You Own When the Paper Gets Expensive
Now sit with that phrase for a second. More expensive to insure.
Because every asset I just described is somebody's promise to pay.
A hyperscaler bond is Amazon promising to pay you back.
A credit default swap is a second firm promising to cover it if Amazon can't.
Insurance on a promise, underwritten by another promise.
That is what most of a modern portfolio is actually made of. Paper stacked on paper.
So when the cost of insuring that paper moves 60 basis points, strip away the jargon and here is what was really said: the promises are worth a little less than they were a month ago.
There is exactly one asset in this entire conversation that isn't anyone's promise.
Gold has no counterparty. Nobody has to stay solvent for it to be worth something. There is no one to insure it against.
And here's the part almost nobody knows.
Washington already has a dedicated instrument for this exact situation.
A fund created 92 years ago, in the middle of a national emergency, seeded with $2 billion — money the government booked when it rewrote the price of gold by decree.
It answers to the Treasury Secretary. Not Congress. Not the courts. Not the Federal Reserve.
It was used in Mexico in 1995. Again in the panic of 2008.
It is still open today.
I've spent this year working through what happens when that fund turns toward gold again — including a private meeting on March 2nd with Congressman Bill Huizenga, who oversees the money behind America's financial warfare.
I wrote the whole thing down, including the one gold mine the U.S. government has actually agreed to finance.
Where Are We in the Party?
Here's the honest picture.
I don't know if it's 4am and the party is almost over.
But this feels more like 1am or 2am.
People aren't arriving anymore.
Some are starting to leave.
The most important guests are still there.
The music is still playing.
But the early warning signs are accumulating.
My job — and your job — is to keep watching.
No one is going to protect our money for us.
We have to manage it ourselves, with clear eyes, based on the best information available.
This is one of the most important pieces of information available right now.
File it away.
Add it to your filter.
And keep watching.
And if you only do one thing with this letter, make it this: own at least some of your money in a form that doesn't depend on anybody else staying solvent.
Here's the research on how I'd do that.
Have a wonderful Monday.
I'll see you tomorrow.
"The Buck Stops Here,"
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Written by Dylan Jovine