33. Are Credit Markets Showing the Same Warning Signs as 2007? Professor Edwin Burton on SoftBank, Amazon, Microsoft, and the Fed

With the 10-year Treasury yield above 5%, housing showing signs of distress, and the Federal Reserve meeting October 28, investor Hunter Craig asks University of Virginia Professor Edwin Burton what is happening in the economy.

Burton compares today's credit markets to the spring and summer of 2007 and walks through what he sees as early cracks in AI data center financing: SoftBank's high-yield bond deal, bonds from data center companies trading at 12%–15% yields, and a sharp widening in credit default swap spreads on companies including Amazon, Nvidia, and Microsoft. He also discusses a Korean data center IPO that fell 32% on its first day and what it could mean for other AI companies planning to go public.

They discuss why the stock market keeps rising while bond markets send a different signal, how OpenAI and Anthropic are competing for investor capital ahead of potential IPOs, and why Burton expects an economic slowdown within three to six months.

Hunter then asks for Burton's Fed prediction. Burton argues the Fed risks setting its target range below where the market wants rates, explains the two-month Treasury arbitrage he sees as a result, and discusses money supply growth, mortgage rates near 7.5%, and producer price inflation. He draws on the 1970s, the 1873–1913 period without a U.S. central bank, and Turkey's recent experience to explain his view. The episode closes with prediction market odds on the October 28 decision and Burton's own $200 bet.

In this episode:

• Credit default swap spreads on Amazon, Nvidia, and Microsoft
• SoftBank's bond financing and AI data center debt yields
• OpenAI and Anthropic valuation talk and IPO timing
• The Fed's October 28 decision and Burton's call for a hike
• Mortgage rates, PPI, and inflation pressure
• Lessons from 2007 and the 1970s

Edwin T. Burton is a professor of economics at the University of Virginia, where he has taught since 1988. His work focuses on finance, particularly behavioral finance and the theory of financial markets, and his UVA courses include Behavioral Finance, The Theory of Financial Markets, and Global Macroeconomic Issues. He holds a BA and MA from Rice University and a PhD from Northwestern University. Before joining UVA, he held senior roles in the securities industry, including at Smith Barney, Rothschild Financial Services, and Interstate Johnson Lane Corporation. He is the author of Behavioral Finance and has appeared as a regular economic analyst on Charlottesville radio station WINA. He is the recurring guest on Rubber Meets the Road Economics.