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After yesterday's solid 2Y auction, today's 5Y auction was an uglier mirror image. 

The sale of $70BN in 5 year paper priced at a high yield of 4.200%, up from 4.182% in May and the highest since Jan 25. It tailed the When Issued 4.193% by 0.7bps, and was the 8th consecutive tail for the 5Y tenor.

The bid to cover was 2.351, better than the 2.340 in May and the highest since October. 

The internals, however, a disappointment: Indirects took down just 61.60%, a big drop from 74.85% in May and the lowest since January. And with Directs jumping to 25.51% from 12.34% in May - the highest since January - dealers were left with 12.9, the highest since March.

Overall, this was a rather disappointing auction, and one which pushed yields fractionally higher from the lows of the day, although considering the big slide in the 10Y from 4.49% this morning to just over 4.40% we doubt too many will lose sleep. 

Moscow's largest oil refinery is expected to remain out of service for at least six months after suffering significant damage in a series of Ukrainian drone attacks this month, according to Reuters, citing sources familiar with the matter, after Zelensky earlier vowed to bring the war to Russian territory. Kiev and the West are flirty with massive Russian retaliation at this point, which is precisely what Putin has vowed.

The refinery is located on the southern outskirts of the Russian capital and a major fuel supplier to the whole region. It was struck at least twice before this month - as dramatic and intense eyewitness videos captured - forcing operations to halt. Meanwhile via Newsquawk: 

Russia has reportedly asked for 50k tonnes of gasoline from Kazakhstan to help ease domestic fuel shortages, according to sources.

"Repairs will take at least six months," one source said, describing the extent of the damage at the Moscow Oil Refinery.

The Gazprom Neft operatd facility processed 11.6 million metric tons of crude oil in 2024 and produced roughly 2.9 million tons of gasoline and 3.2 million tons of diesel fuel, according to public data.

It comes at a sensitive moment Russia continues to grapple with fuel supply challenges. At the moment, the Crimean peninsula is witnessing unprecedented government restrictions on selling gas to civilians, as well as half the population suffering an electricity blackout due to major Ukrainian drones strikes on Kerch port, and in particular damage to the large thermal power plant there.

Also, Russian Deputy Prime Minister Alexander Novak said this week that Moscow is considering a ban on diesel exports to stabilize domestic markets amid emerging shortages.

Ukraine's Security Service (SBU) previously claimed responsibility for a June 16 strike that reportedly damaged the refinery's primary oil-processing unit, described by Ukrainian officials as the plant's "heart." That's when the facility first reportedly suspended operations following the attack.

Two days later, Ukraine launched another large-scale drone assault on Moscow. Russian authorities reported hundreds of drones targeting the capital, resulting in fires at multiple locations.

Since international crude oil prices surged following the war in the Middle East centered on Iran, Russia has boosted its oil revenues as not only prices have jumped - but Russian oil was made desirable in India again - thanks to American waivers for sales of Russia’s crude already loaded on tankers in connection to easing the global crisis due to the Iran war.

Some reports have suggested Russian 'friendly fire' initially hit the Moscow refinery, the result of errant local anti-air missiles:

Rather than back down in the face of Moscow's new threats of "massive group strikes" on Ukraine, it seems Ukrainian forces are flexing with yet more attack waves. 

The Kremlin has long believed that Ukraine can't accomplish such sophisticated long-distance strikes on its own, but that it has had significant targeting help from US and Western allied intelligence.

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

In 1891, at 14 years old, with nothing but the clothes on his back, Jesse Livermore left his family and headed to Boston. He quickly found a job posting stock quotes at a Paine Webber brokerage office. Livermore spent his lunch hours trading in “bucket shops,” loosely regulated offices where ordinary people bet on stock prices without owning the underlying stock.

His lunchtime trading activities earned him a $1,000 profit in his first year, and by the time he was 30, he had already made and lost a considerable amount of money trading. In 1929, he hit the jackpot. It is estimated that he made over $100 million by shorting stocks during the market crash. Such an enormous gain against the backdrop of despair made him a Wall Street legend, but five years later, he filed for bankruptcy.

The prolific trading stories about Jesse Livermore and the fortunes he made and lost are well documented in two books. The first, Reminiscences of a Stock Operator (1923), authored by Edwin Lefèvre, is the better-known of the two. The second book, How to Trade in Stocks (1940), was written by Livermore himself. It conveys the many lessons of what four decades of speculation had taught him. Specifically, he presents 21 market rules. While his career was marked by the incredible volatility of his wealth, and some consider him a failure as he died broke, his market knowledge is invaluable. Accordingly, we share his 21 market rules. While the language he uses is outdated, the rules remain prescient.  

Due to the length of the rules and our summaries of each, we are breaking this topic into two articles. Part Two will include rules 10 through 21.

Old Yet Valuable Insight

Today’s markets and those in which Livermore operated are vastly different. The technological transformations since Livermore’s trading days are immense. Regulation is much better today than it was then. Market news, rumors, and narratives spread at the speed of light today compared to days or weeks when Livermore traded.

Jesse Livermore wouldn’t recognize today’s markets. However, Livermore understood that at the core of every market, the most important factor is human behavior. As such, Livermore’s rules remain just as valuable in 1940 as they are today because human behaviors largely remain the same.

The human side of every person is the greatest enemy of the average investor or speculator. –How to Trade in Stocks

Rule 1: Nothing new ever occurs in the business of speculating or investing in securities and commodities.

Market cycles repeat because human psychology repeats. The specific market triggers change, but the cycles of greed and fear continue. Today, for instance, it is AI valuations; fifteen years ago, it was housing, and the decade before that, it was internet stocks. Yet despite the differing triggers, the underlying pattern of euphoria that separates reality from fundamentals remains consistent.

Understanding this rule does not require predicting the future. It only requires an understanding of where we are in the cycle.

Rule 2: Money cannot consistently be made trading every day or every week during the year.

This rule runs directly counter to what the financial services industry sells. Brokerage platforms, financial media, and trading apps are built on the false premise that more trading activity yields better results. The data argues otherwise. Research consistently shows that retail investors who trade most frequently underperform those who trade least. Livermore says that genuine great opportunities, where the risk/reward is favorable, and the trend is confirmed, are rare.

Jesse Livermore believes that most market action is noise. Treating noise as a signal is one of the most reliable ways to lose money over time.

The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street, even among the professionals, who feel that they must take home some money every day – Reminiscences of a Stock Operator

Rule 3: Don’t trust your own opinion and back your judgment until the action of the market itself confirms your opinion.

Your investment analysis, no matter how right you think you are, is not tradeable until the market agrees with it.

Some stocks are greatly undervalued and can remain so for years. Conversely, others keep rising long after fundamental analysis no longer makes sense. The market’s price action provides real-time information about the balance of supply and demand for the shares. Wait for your analysis and the price action to align before deploying meaningful capital.

Rule 4: Markets are never wrong — opinions often are.

This is perhaps one of Livermore’s most important rules, but hardest to enact. When an investment moves against you, our instinct is to make a case for why the market is wrong. The case you make may prove to be correct in the long run. But “the long run” can be a prolonged and expensive waiting period. As he alludes to in Rule 3, markets are the collective judgment of all participants. That does not make markets rational, but it does make them the most accurate real-time measure of where the money is positioned.

We recently wrote a short piece The Market Knows What You Don’t that puts Livermore’s thoughts into the current context. As we wrote:

Humility is an underrated investment discipline. The moment we believe our views outweigh the market’s, we have stopped managing risk and started taking it. The market does not care what we think. Investors need experience and hard lessons to appreciate the market’s voice, especially when it differs from their own opinions.

Rule 5: The real money made in speculating has been in commitments showing in profit right from the start.

A position that immediately moves against you is important information. Livermore observed that the trades that produced the largest returns almost always worked from the opening entry. To his point, if you enter a trade at a pivotal point, like a confirmed breakout, the market should validate your position by moving in your favor. A trade that requires patience before it begins to work is a trade that you may have misjudged. Early confirmation is not a guarantee of profits, but its absence can be an important warning.

Rule 6: As long as a stock is acting right and the market is right, do not be in a hurry to take profits.

We are psychologically wired to take profits quickly, locking in small gains out of fear they will disappear. Per Jesse Livermore, the largest returns come from a small number of positions that are held through extended moves. Selling a position simply because it has risen is a mistake unless something has changed in the underlying conditions or price action.

It’s also worth noting that most investors also tend to hold on to losing positions too long, hoping for a recovery. The habit of selling winners too early and holding onto losers is called the Disposition Effect. Shefrin and Statman, who coined the term in 1985, describe it as the inclination to “ride losers and sell winners.”

Losing money is the least of my troubles. A loss never bothers me after I take it. I forget it overnight. But being wrong — not taking the loss — that is what does damage to the pocketbook and to the soul. – Reminiscences of a Stock Operator

Rule 7:  One should never permit speculative ventures to run into investments.

Rule 7 is a follow-up on Rule 6. When a speculative position declines, the temptation is to reframe it as a long-term investment to avoid accepting the loss. The position was entered under a specific thesis with an expected time horizon. If the thesis has failed or the time horizon has passed without confirmation, the rationale for holding the position has changed. Renaming a failed speculation as a “long-term hold” does not change its economics. It only delays the recognition of a loss and ties up capital that could be deployed profitably. Know why you own what you own, and revisit that thesis regularly.

Rule 8: The money lost by speculation alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride.

Rule 8 challenges the conventional wisdom that long-term buy-and-hold investing is inherently safer than active management. Livermore’s point is that passive inaction can produce catastrophic results when positions deteriorate, and nothing is done to mitigate the losses. Consider investors who held Cisco through its 80% decline from 2000 to 2002 and then waited over 20 years for it to return to its highs. Capital preservation is not a secondary consideration. It is the foundation on which everything else is built.

The graph below shows the decades during which many Cisco investors were trying to claw back from losses, even though they could have bought better performing stocks.

Rule 9: Never buy a stock because it has had a big decline from its previous high.

What matters is not where a stock was trading but whether the conditions that drove the decline have changed. Buying into a declining trend because a stock “looks cheap” relative to its former price is a costly mistake investors often make.

Summary Part One

We write articles like this as much for us as for our readers. Taking the time to compile Livermore’s rules and summarize them reminds us that we are human and prone to making investment mistakes. The rules Jesse Livermore presents, regardless of whether we agree with them or not, allow us to step back from our daily job of watching markets and managing investments and to ask ourselves some important questions that are often ignored.

OpenAI and Broadcom unveiled Jalapeño, OpenAI's first custom AI accelerator, as Sam Altman's chatbot maker pushes to control more of its data center chip stack and drive greater efficiency to lower inference costs.

The new chip is described as an "Intelligence Processor" and was designed from scratch for large language model inference, the compute-intensive process of serving AI products such as ChatGPT, Codex, and the OpenAI API.

"While OpenAI is still measuring final performance, early testing shows that Jalapeño will deliver performance per watt substantially better than current state-of-the-art," OpenAI wrote in a press release.

Both companies moved from initial design to manufacturing tape-out in just nine months, supported by OpenAI's proprietary models and Broadcom's silicon expertise.

OpenAI said the chip's architecture is designed to reduce data movement and better balance compute, memory, and networking resources, allowing workloads to run closer to peak performance. The company said the new chips are already powering machine learning workloads in a lab.

"Democratizing AI means making advanced models available, dependable, and affordable enough for more people to use every day," OpenAI continued.

It is clear that OpenAI is forging ahead with new in-house chips to lower costs from expensive Nvidia GPUs while simultaneously expanding compute capacity.

Another key factor is control, as Altman wants greater command over OpenAI's chip stack ahead of its push into physical AI. Improved cost efficiency protects margins and could drive profitability down the road. Internal projections estimate the profitability window opens in 2029-30.

Meanwhile, OpenAI has already struck deals involving Amazon's Trainium chips, AMD hardware, and Cerebras systems as it diversifies beyond Nvidia.

Related:

• OpenAI 'Unsatisfied' With Some Nvidia Chips, Has Been Looking For Alternatives For Months: Report

Broadcom shares rose 1.5% after the news, while Nvidia shares remained flat.

How long until Altman finds a contract supplier to produce OpenAI-designed memory chips?

The Department of Energy's (DOE) Office of Energy Dominance Financing (EDF) issued a conditional commitment for $17.5 billion in American nuclear supply chain loans. The money targets long-lead time components to accelerate deployment of 10 large-scale Westinghouse AP1000 reactors across up to five projects. 

Each reactor is rated at ~1.1 GWe. The combined output would power nearly 10 million American households.

Westinghouse will partner up to develop five new reactor plants, with each project involving two AP1000 units. The financing will require $1 billion in upfront equity, $500 million from Westinghouse and $500 million from the partner, before DOE loan funds flow. Westinghouse has already signed letters of intent with seven potential partners who have identified sites. 

The loans finance bulk purchases of long-lead items such as reactor vessels, steam generators, and other complex components that can take years to manufacture at fixed prices. The goal is to cut deployment timelines by up to three years through supply chain efficiencies and economies of scale.

To be clear, this announcement has nothing to do with the SMR or microreactor sector. There is no funding here for NuScale, Rolls-Royce, Oklo, Terrestrial, or any of the smaller advanced designs still navigating licensing and demonstration hurdles. 

This is explicitly about restarting the heavy forging, fabrication, and component supply chain for the only large advanced reactor design with operating experience in the United States today. Think nuclear supply chain companies including BWXT, MIR, CW, and FLS.

This is the financing mechanism behind the broader government push we have covered for months. As we reported when the national emergency framing surfaced around government backing for 10 large new reactors, and again when Cameco surged on the $80 billion Department of Commerce deal with Brookfield, the focus has stayed on proven large reactor technology.

Energy Secretary Chris Wright framed it as essential to reviving the domestic industrial base needed for large commercial reactors under President Trump's Executive Order on Reinvigorating the Nuclear Industrial Base. The target remains 10 new large reactors under construction by 2030.

Bulk equipment orders should drive down per-unit costs and give suppliers the volume signals they have lacked for decades. Conditional status still requires technical, legal, environmental, and financial conditions to be met before definitive documents and funding.

Oil prices are testing down to pre-war levels this morning as more tankers cross the Strait of Hormuz and signs of progress in US-Iran peace talks eased fears of an immediate supply crunch.

Vessels are transiting Hormuz with their satellite signals switched on, indicating growing confidence among shipowners about safe passage of the chokepoint, through which about a fifth of global oil supplies transited before the war. The International Maritime Organization also said it had received safety guarantees allowing hundreds of ships to exit the Persian Gulf.

Washington and Tehran have both flagged early progress in talks to end the war, although negotiations are likely to be protracted and claims from the two sides have diverged. In a sign of how much oil has been leaving Hormuz in recent weeks, the International Energy Agency estimates that the United Arab Emirates is exporting oil at nearly 85% of pre-war levels. 

API

• Crude -765k

• Cushing

• Gasoline -1.24mm

• Distillates +1.45mm

DOE

• Crude -6.088mm (-4.1mm exp)

• Cushing -1.077mm

• Gasoline -2.064mm

• Distillates -3.064mm

Crude stocks have now declined for 9 straight weeks (as have inventories at the crucial Cushing Hub)...

Cushing is now well and truly testing 'tank bottoms' with stocks at their lowest levels since 2014...

That is the lowest level for this time of year since 2004...

The SPR saw another dramatic drawdown (over 9mm barrels last week)...

US Crude production is back near record highs as rig counts keep rising...

WTI is holding near the lows of the day after the report...

Finally, a closely-watched oil market indicator flipped into a bearish structure on Wednesday for the first time since February, with Brent’s prompt time-spread trading in a shallow contango, with the nearest contract’s price below the next month’s. That structure typically signals expectations of oversupply.

There’s also been a collapse in prices for real-world barrels, with premiums for barrels from the North Sea to West Africa tumbling.