Meta, France and the American Homebuyer Hit the Same Wall This Week

Last Friday we said the thing to watch was whether the market's tougher grading of AI borrowers would spread to the cash-rich tech giants. This week it started to, with Meta.

Meta reported on Wednesday that it spent more in a quarter than its business brought in. Its filings show that hadn't happened since 2012. On Thursday its stock fell 7% and the quoted cost of insuring its debt against default hit a record.

Meta wasn't alone at the wall. Riskier companies postponed borrowing. Fewer homebuyers signed contracts. And on Thursday, France's 10-year borrowing cost ended up higher than America's.

These are four very different borrowers with different problems. What they share is a price: what lenders charge for money, plus the extra they charge borrowers they're less sure of. So how did all four hit it in the same week?

THE WEEK IN ONE SENTENCE

Money stayed expensive, and this week you could watch it change decisions: Meta's AI bill outgrew its cash flow, riskier companies waited, homebuyers backed off and markets charged France more than America on Thursday, while oil kept up the pressure on the price of money.

WHAT ACTUALLY CHANGED

• Meta started getting graded. Its spending outran the cash its business generates, it approved a new kind of share it can sell later to raise money, and the quoted cost of insuring its debt hit a record on Thursday, according to Markit data cited by Reuters.
• Riskier companies stepped back. US junk-bond sales fell to about $7 billion in October through Wednesday, from $51 billion in September, according to Bloomberg data. By Thursday, the extra yield investors demand on junk bonds was the highest since March.
• Homebuyers pulled back. Contracts to buy homes fell 7.3% in September, and mortgage rates are above 7%.
• France crossed 5%. Its 10-year borrowing cost hit its highest level since 2002, and on Thursday it was higher than America's.
• Oil climbed to its highest since the spring, with no loss of Saudi supply confirmed. Traders are paying for fear.

META'S AI BILL OUTGREW ITS CASH FLOW

Start with what didn't go wrong. Meta's business is booming: revenue rose 26% from a year earlier, to $64.6 billion in the three months to September.

The problem is that spending is growing faster. In those three months Meta's business brought in $32.8 billion of cash. It spent $34.9 billion on capital projects, mostly data centers, servers and network gear (Meta's figure includes about $1 billion of lease repayments). That $2.1 billion gap is what Meta calls negative free cash flow. Meta also raised the low end of its spending forecast for this year, to $135 billion.

Last week we described Meta as a borrower that repays from cash its business already earns. This quarter, that cash didn't cover the spending.

When a company's spending outgrows the cash its business brings in, it has three doors.

Borrow. Meta has sold $55 billion of bonds in the past year.

Sell shares. This week Meta's board approved a new class of stock with no voting rights. Meta says it expects to use those shares "to conduct equity offerings from time to time in the future, subject to market conditions." Nothing has been sold, and the new class can't exist before Jan. 19. But the door is now built, and built so that Mark Zuckerberg keeps control: shares without votes can raise money without diluting his voting power.

Slow down. Spend less.

Credit markets noticed. On Thursday, the quoted cost of insuring Meta's debt against default touched a record of about $115,000 a year per $10 million, according to Markit data cited by Reuters, which said it was on course for its biggest one-day jump since at least 2025. Last week, citing Reuters, we put it at about $105,000. That's still far below Oracle's and CoreWeave's. And as we explained on Wednesday, it's a price quote, not a literal bill, and a price, not a forecast.

Meta isn't in financial trouble. It had $82 billion in cash and investments at the end of September, though it now has about as much in bonds outstanding. What changed is where the money for its AI build-out comes from: less of it from the business, more of it from lenders and, someday, new shareholders.

Tesla took the third door. It cut its spending plan for this year to "in excess of $20 billion," from more than $25 billion, and generated $1.5 billion of free cash in the quarter. Its stock fell 3% on Thursday anyway, even after reporting positive free cash flow.

Chip stocks fell hardest. The Philadelphia semiconductor index dropped 6.7% on Thursday, and the Nasdaq Composite had its worst day since June 5. Nvidia's chief executive, Jensen Huang, told CNBC that "the demand for the neo clouds," companies that rent out AI computing power, "is off the charts." He also said "there's a scarcity of capital," though he expects that to be solved. That's the AI story in two quotes: the demand is there, and the question is who pays for it.

RISKIER COMPANIES: NOT AT THAT PRICE

When a lender asks more than a borrower is willing to pay, the usual result isn't a deal at a higher price. It's no deal.

Companies have postponed more than $5 billion of US and European debt sales this month, the biggest spate of postponements this year, Bloomberg reported on Wednesday. AVI-SPL, which designs and installs video-conferencing and other audio-visual systems, abandoned plans for a $690 million loan. Circet, a French company that builds and maintains telecom networks, postponed a €3 billion refinancing. Sales of US junk bonds, the debt of lower-rated companies, have fallen to about $7 billion this month through Wednesday, from $51 billion in September, according to Bloomberg data.

Meanwhile Walmart and Kimberly-Clark sold about $8 billion of bonds on Monday. Lenders are still lending. They're just choosier about whom, and at what price.

And the charge kept rising. By Thursday, the extra yield investors demand to hold junk bonds rather than Treasuries had climbed to its highest since March, and for the riskiest tier, rated CCC, to its highest in at least three years, according to ICE BofA index data. When that charge goes up, borrowers who can wait, wait.

THE HOMEBUYER'S ARITHMETIC

For a homebuyer, the price of money is the mortgage rate. Tuesday's housing report, covering September, was ugly. Pending home sales, contracts signed but not yet closed, fell 7.3% from August and 11.3% from a year earlier, with declines in every region. Bloomberg called it the lowest reading since the index began in 2001. Lawrence Yun, chief economist of the National Association of Realtors, pinned it on "fast-rising mortgage rates."

Here's the arithmetic. Freddie Mac's average 30-year mortgage rate was 7.32% this week, against 6.19% a year ago. On a $300,000 loan, that's about $2,061 a month in principal and interest instead of about $1,835: roughly $225 more, every month, for 30 years. And paychecks aren't closing the gap. Median weekly pay for full-time workers rose 1.5% over the past year while prices rose 3.5% over the same period, the Bureau of Labor Statistics said on Wednesday.

Rates eased slightly this week, from 7.40%. That's a little relief, not a reversal.

FRANCE PAID MORE THAN AMERICA

On Wednesday, France's 10-year borrowing cost rose above 5% for the first time since 2002. On Thursday it touched 5.14%, according to Reuters, and the extra yield investors demand to lend to France rather than Germany reached about 1.75 percentage points by the close, the most since the euro-zone debt crisis of 2011.

On Thursday, France's 10-year yield also ended up above America's, partly because America's fell: by the US close, the US 10-year was down to 4.96%. The two borrow in different currencies, so this isn't a clean verdict that France is the riskier borrower. But for the euro zone's second-largest economy, it's a striking line to cross.

The main reasons for that gap over Germany are French: a 2027 budget being fought over in a divided parliament, protests in the streets, and a record borrowing plan for next year. Higher energy prices, which feed expectations of tighter policy from the European Central Bank, added to the pressure. As we explained in France Needs €340 Billion, cheap debt that comes due gets replaced at today's rates, so interest takes a bigger slice of the budget. Every tenth of a point on that 5% shows up there eventually.

Moody's rates France Aa3, its fourth-highest grade, with a negative outlook, meaning a downgrade is possible. It is scheduled to review that rating on Friday; such reviews are usually published after European markets close. We're not going to guess the outcome.

WHAT'S HOLDING THE WALL UP

Every other borrower in this issue pays the safe rate plus a charge for risk. The safe rate is the part inflation and central banks drive, and this week oil kept pushing on it, even as the US 10-year yield fell on Thursday.

Brent crude settled around $113 a barrel on Thursday, a five-month high, after deadly attacks in Saudi Arabia on Wednesday. Yemen's Houthi movement had claimed several strikes earlier in the week that couldn't be independently verified. On Wednesday, debris from an intercepted drone killed two people near the Shaybah oilfield, and an attack on the airport in Dammam killed two more. Saudi Arabia said the oilfield kept operating, and no loss of Saudi supply has been confirmed. Analysts at ING said the market is pricing in "a significant risk premium": traders paying up for what could be lost.

On Friday morning Brent rose again, to about $116, its highest in six months, CNBC reported, as traders weighed a New York Times report that the US and Israel have plans for fresh strikes on Iran after the midterm elections.

Oil prices feed the inflation numbers the Federal Reserve watches. Gasoline made up more than half of September's 0.6% rise in consumer prices. The Fed raised rates in September for the first time since 2023. In a Reuters poll this week, 94 of 100 economists expected no move next Wednesday, and all 100 expected another increase in December.

The borrower that got the clearest break was the US government, and only on Thursday. On Wednesday it paid 5.469% to sell 20-year bonds, the highest at that auction since the bond was relaunched in 2020. On Thursday, as tech stocks fell and traders trimmed bets on a Fed hike, investors ran to Treasuries and the 10-year yield dropped to 4.96%, its first close below 5% since September. Safety got cheaper. Trust didn't.

THE NOISE CHECK

"The market crashed." It didn't. Thursday's selling was concentrated in tech: the Nasdaq Composite fell 2.6% and the S&P 500 1.2%, while the Dow and the Russell 2000 index of smaller companies ended slightly higher.

"Meta is running out of money." It isn't. One quarter of spending more than its business brought in changes how Meta pays for the build-out, not whether it can.

THE PART NOBODY EXPLAINS

Every interest rate is two prices stapled together: one for time, one for trust.

The price of time is the safe rate, what the US government pays. The price of trust is the extra a lender charges you in particular.

This week the price of time eased, and only on Thursday. The price of trust rose for the borrowers lenders worry about most: Meta, France and the riskiest companies. Thursday showed both at once. The average junk bond's yield actually dipped that day, because the Treasury rate underneath it fell. But the extra charge for risk on top rose to its highest since March. So when you read that rates fell, ask which of the two prices moved.

WHAT THIS SETS UP

France's gap over Germany. Whatever Moody's decides on Friday, that gap is the number to watch. It is the market's running verdict, and it moves every day.

The Fed, Wednesday. Most economists expect a hold next week and a hike in December. Watch whether the Fed treats energy-driven inflation as passing or persistent: the longer oil stays above $110, the harder it is to call it passing.

The other giants' spending. Microsoft and Alphabet report on Wednesday, after the Fed, and Amazon on Thursday. The question is no longer only how much they'll spend on AI. It's whether their own cash still covers it, or whether they reach for the same doors as Meta.

Thursday's data. Third-quarter GDP and September's spending-and-inflation report land Thursday morning, a broad read on whether expensive money is slowing the whole economy and not just individual decisions.

On Monday, expensive money was a story about interest rates. By Friday it was a story about decisions: a tech giant funding its future partly with other people's money, companies choosing to wait, fewer families choosing to buy, and lenders charging France more than America.

Four borrowers, four different reasons, one price.

That is what the hell happened this week.