What happens to the sellers of picks and shovels when the driver of the spending turns out to be not as huge as expected? Remember that Cisco was part of the picks and shovels of the internet.
"Europe gets crushed in this world. No energy, no tech leadership, no military independence."
"I've been beating this drum since 2015: Chinese banks are sitting on trillions in property losses they can't recognize without imploding. The solution? Print. China has created more M2 in the past two years than the US has since COVID."
Good post, but I don't follow your argument that AI being revolutionary and the unemployment remaining low are mutually exclusive. Every other major technical innovation in human history drastically expanded employment opportunities and types - why should we assume LLMs are different? There's a good case that LLMs represent a massively reduced barrier to entry to company formation and will cause an explosion in consumer spending as more high paying jobs are created.
was going to ask what you thought about market pricing of Fed expectations when I saw the "short treasuries/TIPs" allocation, but you got there at the end and came to the same conclusion I've come to over the past two weeks on the yield curve. I've been more focused on the spot tsy curve and forwards and some distortions there and you provided another piece of evidence that supports the working hypothesis I've been running with that the belly will outperform in a duration rally.
If you look at the belly of the tsy curve it optically looks rich but due to the weird curve pricing you highlight it's also pricing in a lot of steepening 5-7yrs out. this makes complete sense given the inflation narratives but is another way the market is pricing in a perfect landing for this cycle which is unlikely to actually occur. the tsy complex is really struggling to price the growth narrative of AI with its disinflationary impacts.
Great summary. I will be coming back to this and digesting for a while. I always appreciate a writer who can be extremely concise in pulling together strands that others fail to connect. As for the “regime change” hypothesis. This is my core thesis also but what the post-change regime looks like is not yet very clear to me: I suspect the more work one does on this the less clear it becomes, so you keep working until you achieve clarity. If you are already there “Te Salute, Don Corleone” and I’d love to hear more about it. If I’m reading you right you’re saying “I don’t know either, but there are a few things I can see emerging and I can trade on those things, and that’s enough until I see more and adjust my trades”.
Pretty much exactly what I landed on, with the exception of strong USD.
That point is kinda added at the end, maybe I missed something, but it doesn’t quite follow from the rest of the article. From my (albeit limited) understating, we’re at the end of a bull cycle, and regime change (which trump has strongly endorsed), would be a weakening USD no?
What do you mean by "debasement", the fiat currency losing value through inflation? by definition it loses value through inflation? so by definition should never hold cash, but that doesn’t mean gold should be that asset to hold?
I know humanity has valued gold for millennia, it has some value in electronics, jewellery but it is useless metal otherwise. Shouldn’t capital be flowing to whatever makes our society more fair or productive?
Just a clarifying question, in your portfolio you state "short SPX puts" -- but it seems that you mean that you are short the market by being long SPX puts, right?
Thank you. Would be nice if you could please share more about the puts, how far OTM, duration, etc. Of course, I am not seeking an investment advice - just ideas and good discussion.
Alexander - Great post. Can you share a bit about how you're actually implementing these positions? Specifically shorting HY credit and long downside volatility.
What happens to the sellers of picks and shovels when the driver of the spending turns out to be not as huge as expected? Remember that Cisco was part of the picks and shovels of the internet.
If globalization is dying doesn't that mean dollar weakening?
"Europe gets crushed in this world. No energy, no tech leadership, no military independence."
"I've been beating this drum since 2015: Chinese banks are sitting on trillions in property losses they can't recognize without imploding. The solution? Print. China has created more M2 in the past two years than the US has since COVID."
Good post, but I don't follow your argument that AI being revolutionary and the unemployment remaining low are mutually exclusive. Every other major technical innovation in human history drastically expanded employment opportunities and types - why should we assume LLMs are different? There's a good case that LLMs represent a massively reduced barrier to entry to company formation and will cause an explosion in consumer spending as more high paying jobs are created.
was going to ask what you thought about market pricing of Fed expectations when I saw the "short treasuries/TIPs" allocation, but you got there at the end and came to the same conclusion I've come to over the past two weeks on the yield curve. I've been more focused on the spot tsy curve and forwards and some distortions there and you provided another piece of evidence that supports the working hypothesis I've been running with that the belly will outperform in a duration rally.
If you look at the belly of the tsy curve it optically looks rich but due to the weird curve pricing you highlight it's also pricing in a lot of steepening 5-7yrs out. this makes complete sense given the inflation narratives but is another way the market is pricing in a perfect landing for this cycle which is unlikely to actually occur. the tsy complex is really struggling to price the growth narrative of AI with its disinflationary impacts.
Great summary. I will be coming back to this and digesting for a while. I always appreciate a writer who can be extremely concise in pulling together strands that others fail to connect. As for the “regime change” hypothesis. This is my core thesis also but what the post-change regime looks like is not yet very clear to me: I suspect the more work one does on this the less clear it becomes, so you keep working until you achieve clarity. If you are already there “Te Salute, Don Corleone” and I’d love to hear more about it. If I’m reading you right you’re saying “I don’t know either, but there are a few things I can see emerging and I can trade on those things, and that’s enough until I see more and adjust my trades”.
is Europe really a museum economy?
they seem to have a few decent industrial cyclical-co type companies that have done well this year, not to mention defense
i would guess they will help building out US manufacturing
(i refuse to call cyclicals sh**cos in an environment like this)
Excellent piece Mate!
Thanks for another excellent post.
Curious why the zero allocation to bitcoin or ethereum?
Great article!
Pretty much exactly what I landed on, with the exception of strong USD.
That point is kinda added at the end, maybe I missed something, but it doesn’t quite follow from the rest of the article. From my (albeit limited) understating, we’re at the end of a bull cycle, and regime change (which trump has strongly endorsed), would be a weakening USD no?
What do you mean by "debasement", the fiat currency losing value through inflation? by definition it loses value through inflation? so by definition should never hold cash, but that doesn’t mean gold should be that asset to hold?
I know humanity has valued gold for millennia, it has some value in electronics, jewellery but it is useless metal otherwise. Shouldn’t capital be flowing to whatever makes our society more fair or productive?
You can hold cash if the returns to holding cash is higher than inflation aka real yields.
"valued gold for millennia" + electronics is all you need. Also why I like silver, because it's even more useful (solar panels).
Looking at short vol this week.
Just a clarifying question, in your portfolio you state "short SPX puts" -- but it seems that you mean that you are short the market by being long SPX puts, right?
yeah, it's missing a 'via' thanks for highlighting will fix
Thank you. Would be nice if you could please share more about the puts, how far OTM, duration, etc. Of course, I am not seeking an investment advice - just ideas and good discussion.
Alexander - Great post. Can you share a bit about how you're actually implementing these positions? Specifically shorting HY credit and long downside volatility.
Are you able to put the silver trade on given bid/ask and liquidity constraints. I suspect some of the smile on silver is just due to low liquidity
Isn’t Fed reducing money supply? Not sure how much printing they’ve done since ‘22.
So Trump is stacking the Fed like he did the Supreme Court and YCC is on the table. They will call it something else but printer go Brrrrr.