Investment Report No.90

Rising yields and financing risks will eventually challenge the concentrated AI-led equity boom, making inflation protection and genuine diversification more valuable.

• Capital expenditure at the six largest US hyperscalers is expected to exceed their operating cash flows in both 2026 and 2027, while they are issuing record amounts of debt; CoreWeave carries approximately $50bn of debt and some bonds recently yielded close to 16%.
• US 10-year Treasury yields rose by about 1 percentage point in 2026 to 5.1%, UK 10-year gilt yields reached 5.4%, and 30-year UK yields approached 6%, levels not seen since before the Global Financial Crisis or, for 30-year gilts, since 1997.
• A 1.625% conventional gilt maturing in 2071 fell from £160 in May 2020 to £36, a nominal capital loss of more than 75%, while inflation rose by over 30%; Troy therefore prefers shorter-dated index-linked bonds and has increased their duration to 3.3 years as real yields reached 3%.
• Chris Elliott argues that the collision of climate-related and man-made disruptions, including a Super El Niño and risks around the Strait of Hormuz, could create serious global food-security problems with effects lasting three to five years; US national debt also exceeded $40tn in July and hedge funds held 9% of Treasuries by August 2026.
• Market concentration has increased around AI leaders, but historical de-ratings show how quickly expensive growth stocks can fall: McDonald’s and Walt Disney declined from roughly 80 times earnings to mid-teens multiples in the early 1970s, while Coca-Cola’s multiple fell from 46 times to 15 times.

Takeaway: Investors should avoid excessive duration, monitor inflation and fiscal credibility, retain inflation-linked bonds and gold, and build portfolios with genuinely diversifying assets rather than simply owning more concentrated equities; nominal bonds may be cheaper, but the authors still view long-duration exposure cautiously.