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Monday, June 8, 2026

2026-06-07

 ***** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic Fare:

The US and Iran exchanged military strikes on Wednesday as American oil inventories dropped to the lowest level in more than two decades.

.................. “As storages dwindle and run out, the only way to match demand to supply will be for the price to rise high enough to destroy something like 10 to 20% of global oil consumption,” Cooper wrote. “And because a great deal of oil demand is obligatory and therefore not very price-sensitive, that price will likely be north of $150 per barrel.” ...............





This week Goldman Sachs (GS) CEO David Solomon stated the obvious when he noted that there is “more greed than there is fear” in comments to the Economic Club of New York. Solomon’s observation came as Goldman projects that the war with Iran will cause “a modest drag” on U.S. and global GDP while significantly elevating inflation and delaying interest rate cuts.

In fact, we expect the war with Iran to result in higher interest rates, higher inflation and rationing of key petroleum byproducts in coming months, something that nobody in the Trump Administration seems willing to discuss. If Washington was populated by serious people, the federal government would already be making plans for rationing key refined products.  .........................

William H. Janeway, special limited partner of Warburg Pincus, distinguished affiliated professor in economics at the University of Cambridge, and author of Doing Capitalism in the Innovation Economy (Cambridge University Press, 2018) commented in Project Syndicate this week:
“One highly relevant place to examine how the world really works right now is the extraordinary boom in AI-related investment to fund construction of the physical infrastructure needed to enable the training and deployment of large language models. These investments are motivated by problematic long-term expectations with respect to commercially useful and financially rewarding applications of generative AI. The question from the world of financial economics is whether, in aggregate and with respect to specific players, the cash flows generated by these applications will be sufficient—and sufficiently timely — to validate the investments now committed. In turn, funding from the operational cash flows of the established, monopolistic tech giants has been giving way to rapidly growing issuance of debt securities. The entire phenomenon cries out for analysis in the spirit of Minsky’s Keynes.”
Bill Janeway, who we interviewed previously in The IRA (“The Interview: William Janeway on Capitalism and the Innovation Economy”) reminds us that America today is deep into the third phase of classical finance, the Ponzi phase, when valuations are purely a matter of manipulation and hubris. He recalls that the “Minsky Moment” arrived two years before the collapse of Lehman Brothers, when companies began to pay their debts by issuing more debt. Sound familiar? Like the standard practice today in private equity and debt. ...........


Record-high diesel costs, combined with rising fertilizer and chemical prices, threaten farm profitability and could drive food inflation in the coming months.





A dominant economic fact of the past half century is the extreme and increasing concentration of U.S. wealth into the hands of ever-fewer people, families, and dynasties, and the corporations (including banks, insurers, major media companies, etc.) that they own as shareholders — with the accompanying concentration of economic, political, and cultural power, influence, and control. The post-1980 era has been a complete reversal of the unprecedented and epochal six-decade wealth dispersal from the 1930s to the late 1970s ............




The U.S. economy appears resilient, judging from key economic measures. AI-driven capex continues to power investment, support equity markets, and sustain a wealth effect that has propped up consumption. Real GDP growth remains positive. Private sector balance sheets are in generally good condition and many higher income and wealthy households have benefited from equity markets gains.

However, fragilities are increasing, especially as U.S. households must now absorb another meaningful hit to their purchasing power, on top various other drags on real income growth. Tariffs, higher energy prices, slowing wage growth, and other factors have driven a sharp drop in real disposable personal income.

Usually, we would expect households to smooth through temporary changes in current income. However, households have been dealing with a series of shocks that have reduced the savings rate to historically low levels and risk denting expectations for future real income growth. Furthermore, AI is a new source of uncertainty for many workers.

This means real consumption growth, at some point, could catch down to real income reality. And if consumption slows, the effect could reverberate through the economy….





Market Fare:

Equity indexes remain in rally mode, but beneath the surface fragility persists

Key takeaways: Global equities remain in rally mode but have not been able to overtake commodities on a relative trend basis. Our models continue to incrementally increase exposure to US equities, relative to global equities, while steering clear of those sectors (Financials and Utilities) that have falling absolute trends.

Our broad, cross-asset risk appetite indicator shows an ongoing surge in risk on behavior. This is consistent with ongoing strength from equities. This sort of behavior, like increasing optimism, fuels bull markets. Risks rise when risk on behavior fades and they become more acute when evidence of a risk off environment emerges.



Today's number is... 1.3

The market's appetite for risk just reached its strongest level in roughly five years. The Risk On / Risk Off Indicator climbed to 1.3, breaking above a ceiling that had capped advances for years.

............. Credit, currencies, commodities, growth stocks, small caps, emerging markets, and cyclical assets are all contributing. Multiple asset classes are moving in the same direction at the same time.

That’s why this looks more like the environment we saw during the 2021 bull market than the choppier conditions that dominated much of 2024.

When risk appetite is expanding across multiple asset classes at the same time, I’m generally thinking about how to stay aligned with that trend rather than looking for reasons to fight it.









Credit Fare:





Bubble Fare:

Passive investing, active extraction.

Nasdaq changed its index rules in February.
Consultation opened, comment period closed February 27, rules came into effect May 1.
Three months, soup to nuts.
Fastest index overhaul in years.
(checking notes)
SpaceX announced it was listing on Nasdaq shortly after.
(re-checking notes)
Right. So. The Nasdaq-100 used to require a seasoning period - newly listed companies waited anywhere from three months to a year before getting swept into the index. The idea being: let the price actually get discovered. Let float build. Don’t force $527 billion in ETF assets to mechanically pile into something that went public last Tuesday.
That rule? *poof* Gone with the wind.
Effective May 1, any newly listed company in the top 40 by market cap enters the Nasdaq-100 after a grueling delay of 15 trading days.
The minimum float requirement? *poof* … also gone. Eliminated. A stock used to have 10% float to be able to be included. The quaint idea being that less float meant less price discovery. Instead, we now get a weighting multiplier of up to 3x. So a company that floats 3% of its shares gets treated as if it floated 9%.
I need you to hold that thought while I introduce SpaceX’s numbers.
$75 billion raise. Target valuation $1.5 to $2 trillion. Public float of 3% to 5%. GAAP loss of $4.28 billion in Q1 2026 alone, following a $4.9 billion loss for all of 2025. The company that was profitable in 2023 has been bleeding cash ever since it started integrating xAI and X into the corporate structure and decided Starship needed to happen faster.
Largest IPO in history.
Listing expected for June 12.
And 15 trading days later - so, July 7, give or take - every passive fund tracking the QQQ has to own it. Not “should consider”. Not “might want to”. HAS to.
The index says so, the algorithm executes, no human involved.
To buy SpaceX, they’ll have to sell everything else. Apple will get trimmed. Microsoft. Nvidia. Every constituent shaved proportionally to make room. Price-insensitively. At whatever the market clears on rebalance day, against a known wall of incoming mechanical demand. .........



....................... Normally, a company this unproven doesn't walk straight into your retirement account.

The S&P 500 has required 12 months of trading and four quarters of GAAP profitability since 2002. Both waived.

Nasdaq cut its inclusion window from 90 trading days to 15, and the FTSE Russell cut its to 5.

All three benchmarks are now structured to buy SpaceX at IPO pricing.

The rules designed to protect passive investors were quietly dismantled so they could be force-fed the largest, least-disclosed offering on record.

This forces over $30 trillion in passive 401(k) and retirement money to buy SpaceX at IPO valuations. ...........

The same profitability screen that kept Tesla out of the S&P 500 until late 2020 is now being broken three times in a single year.  ............



........................................... There are many good arguments that can be made about why you should not invest in SpaceX, but basing that conclusion on the fact that they are money-losing or have negative cash flows or trade at a high multiple of revenues is both lazy and unconvincing. In contrast, making a case against investing in SpaceX because you believe that the target markets for its businesses will be far smaller than the company thinks they will be, or that cost and competitive pressures will drive margins down or even that you find its corporate governance structure and dependence on a personality (Elon Musk) off-putting is perfectly reasonable. If you do make that case, though, it is worth remembering that this is your point of view, and that disagreements about market size and profitability across investors, especially in young companies, are natural and healthy. In short, based on my inputs and story, I think that SpaceX is worth about $1.25-$1.3 trillion, but if you contend that it is worth $3 trillion or only half a trillion, it is neither my job nor my place to convince you that I am right and that you are wrong. .................................

If you are a trader, though, the game changes. Specifically, the intrinsic value of the company is not central to your decision, perhaps even irrelevant, and your judgment on whether you seek to partake in the SpaceX offering will depend on your reading of market mood and momentum. I would not be surprised in the least to see the offering priced at $1.8 trillion, and see a jump in the price on the day of or in the weeks after the offering, and if that is your most likely scenario, being able to get into the offering at the offer price or even in the first few hours or days of trading will be a winning strategy. The risk, of course, is that momentum can shift quickly, causing a significant price drop, effectively making timing your trades right key to your trading strategy. The shifting and often unpredictable forces of mood and momentum are also the reason that as an investor, I would not sell short, notwithstanding my value assessment, even if the pricing for the company pushes from $1.8 trillion to $2 trillion or more. ........................



A.I. Fare:




Part I: The Math
1. Everybody, even Google, seems to be treating AI as if it were some kind of winner take all competition like web search was, in which Google taking over 90%

2. But everybody is building essentially the same technical solution with essentially the same data, so there is no moat.

3. If there is no moat, nobody is going to take 90% of the market.

4. With no clear winners, nobody can charge monopoly prices; instead, you get price wars and commodity pricing.

5. Which means everybody will wind up overpaying compared to the modest profits they will be able to make in an intensely competitive regime.

Am I missing something?

Part II: The Psychology
None of that would matter in the near term if people weren’t noticing.

But they are. Consider: .......


Digital Gods, real costs: why a rational world would see the doom of the foundation‑model-builder IPO, because the AI labs are highly unlikely to ever get profits, let alone hyperprofits…

.............. I do not see such a path for either Anthropic or Open AI. That has now crystalized for me. And it is reading Paolo Perrone that has done it, and that has led me to the conclusion in the title.

From Paolo Perrone I get four things: ..............

(2) Language models now have sufficient verbal fluency. What they do not have is judgment as to which pieces of the human information corpus that has made up their training data are knowledge as opposed to simply s***posting. Hence anything they produce that is not for the immediate assessment by a skeptical human for whom it is part of their information diet requires IMMENSE “babysitting” not to run off the rails: ............

........................ Thus for existing investors, especially those who came in at nosebleed prices, the only realistic way to “win” is to sell out to Ms. Market while she is still willing to dream: to get an IPO done soon, distribute their positions into public hands, and hope that the day when the economics of inference and the limits of judgment finally knock on the door comes after the lockup expires, rather than before.



 


........................ 
  • NVIDIA’s $2B investment in CoreWeave is effectively free optionality: NVIDIA received $2B+ back in GPU revenues the same year; if CoreWeave succeeds, the investment multiplies; if not, principal is recovered
  • Historical parallel: Lucent financing its own customers during the dot-com era (keeping the build-out going, then collapsing)
..........
  • “Never bet against engineers” — over time, efficiency improvements will reduce power and cooling requirements per unit of compute
  • However, even as efficiency improves, the grid is backed up and cannot be built overnight; demand growth is outpacing efficiency gains for the foreseeable future
............
  • Math can be right but “you can still lose your shirt” going against momentum in open capital markets
  • Goldman’s numbers show the year-over-year first derivative of CapEx growth is peaking right now — the rate of acceleration is topping out



Material Fare:


Why the world’s most critical metal is structurally short supply and consensus is still behind the ball.

Copper demand is set to rise by more than we have ever produced.

BHP’s own published outlook calls for global copper demand to grow roughly 70% to more than 50 million tonnes PER year by 2050. The world produced approximately 22 million tonnes in 2024. Total copper mined throughout the entire 6,000 years of human civilisation is around 700 million tonnes. The cumulative demand the global economy needs to meet between 2025 and 2050, integrating under that demand curve, runs close to 1 BILLION tonnes. We need to mine more copper in the next 25 years than humans have mined since the Bronze Age. We are not equipped to do this. We have not even tried in a millennia.



One of the most respected economists on Wall Street, Dr. Ed Yardeni, has maintained a relentlessly bullish outlook on the U.S. economy throughout this decade. His “Roaring 2020s” thesis; which targets the S&P 500 at 10,000 by the end of the decade, rests on a foundation of strong corporate earnings, A.I.-driven productivity gains, and a resilient consumer.

Even Dr. Yardeni, however, acknowledges the risks: elevated valuations, irrationally exuberant earnings expectations, bond vigilantes, a still-unresolved Gulf War, and the mounting stress in private credit markets.

Here is what makes the current moment so compelling for hard asset investors: it does not matter which road the economy takes. Whether Yardeni’s bull case plays out or a severe recession materializes, the destination for monetary metals and critical natural resources is the same; higher. The only variable is the path.

YOU NEED TO KNOW:
  • The Bull Case Carries Its Own Inflation: A “run it hot” Roaring 2020s scenario drives structural demand for critical natural resources that are already in supply constraint; prices must rise.
  • The Bear Case Forces the Fed’s Hand: A severe recession after decades of debt accumulation would be so damaging that the Fed would have no choice but to print aggressively, debasing the dollar and repricing everything denominated in it.
  • Resource Security Is a New Structural Driver: The Iran war and U.S.-China decoupling have permanently elevated the strategic value of domestically sourced critical minerals, adding a geopolitical premium that does not disappear in either scenario.
  • Yardeni’s Own Risks Confirm the Thesis: Elevated valuations, crowded momentum trades, private credit stress, and monster IPOs (SpaceX, Anthropic & OpenAI) are all conditions that historically precede the kind of volatility that drives capital into hard assets.
Both Roads Lead to the Same Destination: Boom or bust, the purchasing power of the U.S. dollar is under structural pressure; and monetary metals are the historically proven refuge.


  • Governments and industry have softened the impact of energy and commodity supply disruptions by releasing reserves, reducing inventories, and increasing operational flexibility.
  • These measures are temporary, and continued inventory drawdowns are pushing oil and metal markets toward historically tight conditions.
  • Once inventories become critically low, higher prices may become the primary mechanism for balancing supply and demand, leading to weaker economic growth and lower consumption.
.......................... Economists have a sanitised term for this process: demand destruction. The reality is more painful. Demand destruction occurs when prices rise to a level that forces consumers and businesses to reduce their consumption. Households spend more on fuel and less on everything else. Airlines reduce routes. Manufacturers delay investment. Energy-intensive industries curtail production. Consumption falls not because people choose to consume less but because higher prices leave them no alternative.

This is why inventory levels matter so much. As long as stockpiles remain available, markets can postpone the adjustment. Once they are exhausted, prices become the primary mechanism through which balance is restored. .....................



Vid Fare:






Quotes of the Week:

Thoughts of Dan Loeb (My 16 Favorite Takes)

The two macro variables that trump everything else right now: where oil goes (driven by war and geopolitics) and what AI does to infrastructure spending. Everything else the government reports — growth, unemployment, inflation, rates, currencies, gold, crypto — is secondary. Two variables. That’s it.

On Nvidia today at 15x 2027 earnings, 12x 2028 earnings: “Unless you’re really draconian and think the AI world is going to roll over in 2031 or 2032, I think it’s the most attractive sector right now. It’s where the bulk of our capital is invested.” Not a bubble call. A “we’re still early” call.


“I’ve had a lot of worries in my life, most of which never happened.”



Charts:
1: 
2: 
 
3: 
4: 
7: 



...



(not just) for the ESG crowd:

Arctic ocean passes 'irreversible' chemical tipping point

A new study spanning two decades reveals that the loss of sea ice has triggered an irreversible chemical shift in the Arctic Ocean. By exposing shallow coastal waters to intense sunlight, the melting ice has accelerated a process that destroys nitrate, the foundational fertiliser required for marine life to survive. ..........


The U.S. is impaired by a lack of supportive policy and subsidies, the unavailability of affordable Chinese models, and a preference for big cars.



Sci Fare:




War Fare:

Unwilling to finalize a peace deal with Iran and restrain Israel, the Trump administration attempts another illusory "ceasefire" in Lebanon

Despite repeatedly claiming that a peace deal with Iran is at hand, President Donald Trump is unwilling to finalize one. An agreement would cement the failure of Trump’s regime change war. It would also require recognizing Iran’s sovereign rights, including having an economy free of crushing US sanctions. Trump would also have to halt his Israeli ally’s continued attacks on southern Lebanon, which have killed more than 3,000 people and displaced more than 1.2 million since March. Israeli attacks on Gaza also continue daily, with no protest from Trump or his so-called “Board of Peace.”

Having promised to make a “final determination” on an Iran deal last week, the Trump administration can only stall with more deception. Secretary of State Marco Rubio told Congress this week that “the war is over” even as US-Iran clashes continue and Gulf states absorb Iranian retaliation. ............

Trump, like Biden before him, could simply tell Netanyahu to stop the bombing of Lebanon. Instead, every US action has been geared toward encouraging Israeli aggression. ..............


becoming?


How great is Iranian patience? How willing are they to end this war for good?



Geopolitical Fare:

Narratives of US decline are coinciding with explosive expressions of US dominance. Are we witnessing the transition between hegemons? The official dawn of multipolarity? Or force and hubris continuous with the Cold War and the unipolar moment?
The first issue of Phenomenal World features thirteen essays and interviews on American power.


Nukes, London, Belarus, Kaliningrad.

......... What does the future hold?

There was once an era of sea power. The tank introduced mechanized combat to the two world wars. The atomic bomb heralded the beginning of a new sky power. Subsequently, it seemed that mutually assured destruction foreclosed the possibility of great wars, limiting international conflict to conventional or irregular proxy wars.

But now things are different. There is no shortage of voices in London, Moscow, Kiev or Brussels speaking of an imminent world war. Many even agree on the dates — 2028-2030. Some would like to see it earlier. The red button beckons.

There is also a new approach towards the nuclear question. Palantir summed it up in their recent manifesto — nuclear deterrence, apparently, must be and is being replaced by artificial intelligence-powered unmanned weaponry.

Perhaps purifying destruction is necessary to move history forward. There are certainly some who think that way. ...........

In short, the idea is that by 2030, the EU will have an overwhelming military advantage over Russia, allowing this barbaric neighbour to be finally democratized through a storm of steel. ........



......... For those that didn’t twig it: a British drone manufacturer runs a war game that concludes the only way for Europe to survive is—you guessed it—for it to buy tens of thousands of that very drone manufacturer’s massively price-inflated drones. 

You can’t make this up.

The next paragraph is even richer, admitting the drones proved worthless in Ukraine: .................



Other Fare:

The tech elite are pouring billions into dispensing with inconvenient humans. Now governments want the same trick to wish away the migrants their economies desperately need, writes the author and Nerve columnist 

............................ The wealthy have always dreamed of transforming the proletariat into the precariat: desperate workers who do as they're told. But in the automation story of which AI is the latest chapter (and purportedly the climax), the precariat becomes the unnecessariat: workers who are surplus to requirements and can be vaporised or liquidated or warehoused or simply ignored. ...................


Partying Like It’s 1929?

.................................... All empires, and all Golden Ages, end in humiliation.  They end when they forget their origins.  They end when they believe too strongly in their mythologies and forget the luck that opened the door to their journey upward.  They forget that they are rooted in the same earth as everything else.  They forget that nature always dominates the ultimate destination of us all.

So it is.

It is with us now.

The excessive concentration of wealth has produced an efflorescence of stupidity.  The excess flows into itself creating a vortex heading towards self-destruction.  ................



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Friday, May 29, 2026

2026-05-31

***** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic Fare:


.... The more I thought about it, the more I realized that the modern macro world is becoming less about access to information and more about the ability to interpret complexity, connect systems together, and identify structural shifts before they become visible in traditional data.

......... That observation matters because it reveals something important about the phase we are entering globally: the problem facing investors, policymakers, and even societies is no longer the lack of information, but rather the inability to distinguish signal from noise in a world saturated with endless data, headlines, commentary, opinions, and short-term reactions.

........ The rapid evolution of AI and public-data infrastructure is also progressively democratizing access to macroeconomic information. Large institutions, banks, hedge funds, sovereign investors, and increasingly even smaller independent research platforms now possess the technological ability to recreate significant portions of traditional macroeconomic databases internally through public APIs, automated pipelines, AI-assisted systems, and open-source data infrastructure. In such an environment, the future value of macro research will increasingly depend not on access to raw information itself, but on the ability to interpret structural change, connect systems together, identify second-order effects, and recognize regime shifts before they become consensus. ...........






 



Real Household Disposable Income (2017 $bn):




  • Global oil inventories and floating storage have acted as temporary shock absorbers against the Hormuz disruption.
  • OPEC spare capacity has stabilized markets, but it cannot fully replace lost Persian Gulf exports indefinitely.
  • Prolonged disruption could eventually exhaust market buffers and trigger a much sharper oil price surge.
I think most energy analysts would have been shocked to learn that roughly three months into a total closure of the Strait of Hormuz, oil would be trading at just over $100 a barrel. I certainly expected prices to be significantly higher by now. The physical math seems indisputable: take that much supply off the market, and prices should respond quickly and decisively. .........



China has pulled off probably the biggest surprise of the Iran war — and it's confounding commodity analysts.

Why it matters: Since the start of the conflict, China has sharply cut the amount of oil it imports — and that has kept a lid on global oil prices.

The big picture: "If Chinese imports had stayed at prewar levels, oil prices would almost certainly be significantly higher today," says Salih Yilmaz, a senior oil analyst at Bloomberg Intelligence.

The country "has probably been one of the single biggest reasons oil prices didn't spike much higher during the Hormuz disruption." ...........

Between the lines: China has been operating for a while like a doomsday prepper, to borrow an analogy from Soumaya Keynes and Chad Bown's new book, "How to Win a Trade War." ...........



........ Building on UBS analyst Arend Kapteyn's note from Friday titled "When The Oil Buffers Run Out," Brookings' Robin Brooks and Ben Harris outline in a note that oil markets could face a massive price shock by mid-July as temporary supply buffers run dry.

There appears to be consensus building among Wall Street analysts at Goldman, JPMorgan, UBS, and many other desks that if the Hormuz chokepoint is not reopened in the near term, an energy cliff may materialize in early summer. .........



......................... But if Chevron was pessimistic, the company's biggest domestic competitor, Exxon, was downright apocalyptic. Speaking at the same Bernstein conference, Exxon SVP Neil Chapman had some truly horrifying remarks, certainly not something that Donald Trump would like to hear. We present them below.
Commercial inventories of crude oil, of liquids, think petroleum, gasoline, diesel, jet fuel, they've all run down. And running down those inventories has mitigated or offset, supplemented by the release of strategic petroleum reserves, which most of the Western countries have done. All of that has mitigated the impact. You can model this. We've modeled it. I think a lot of people in the industry have modeled it.
Nothing new here: we've discussed all this in the previous three months. But it is what he said next that was a moment of shocking insight into just how bad things are about to get: 
We're approaching unheard of inventory levels. I mean, really, really low levels. You can debate whether that's going to hit those really low levels in two weeks or three weeks. Once you get to that point, then you'll see price shoot up. A model would say dated Brent will shoot up. Once you get to that really low inventory level, up to $150, $160.

The models would tell you that. And then what happens is when the price gets to a certain level, demand destruction brings it back into balance. Prices go so high, it becomes unaffordable. And that's what happens. And so we're at that level right now.



Market Fare:

McCullough: #Quad2 Flows = ATHs

Key takeaways
  • Markets do not revert to some neat textbook “balance.” They compound through fractal flows, positioning, leverage, and machine-driven signals that keep forcing the next move.
  • The real portfolio killer is bad assumptions. Gaussian math, valuation comfort, and old-school narratives do not protect you when #Quad2 flows go exponential and crowded shorts get ripped.
  • The playbook is not to argue bubble or no bubble. Respect the timestamps, book some gains in winners like DRAM and QTUM, rotate into higher-quality flow beneficiaries like NVDA, and keep following the signal.
........ What is their definition of "balance" exactly? Is it some optimal "valuation" that makes sense to a Business School student still studying frameworks that Ben Graham himself said stopped working decades ago?

Brennan puts the autopsy on Gaussian math cleanly in The Fractals Of Finance: "For more than a century, finance placed its faith in the mathematics of certainty. It offered more than a method. It offered reassurance."

Markets aren't orderly. They're fractal. The bell curve never saw a Quad coming. The Machine doesn't need reassurance. It needs signal that perpetuates The Flows. The signal says #Quad2 went exponential.

............. Are they “bubbles”? I don’t know. But it would be cool if they were… because bubbles keep going up.

............ NVDA is almost 9% of the index. Do the math on The Flows going into that stock during #Quad2 in June. The Machine already has.

If reading ROC numbers from Hedgeye and Tier1 Alpha every morning isn't their thing, that's fine. They’re not paying for this anyway. The most important reader of these Quad & Flow numbers isn't human.

It's AI's evolving Machine. It doesn't need reassurance. It doesn't have feelings about “being like” Buffett or Ben Graham. It reads the signal, processes the fractal, and moves. Every. Single. Day.

That's not a threat to your process. It's the point of ours. ...........




History Says To

The chart I run every single week
(Momentum) - Top panel: RSI and its bullish regimes (green).
(Trend) Middle: SPY with the sustained uptrends labeled.
(Breadth) Bottom: the share of S&P 500 members trading above their own 200-day.
I post a version of this every week, and it's not decoration.
It sets my posture for the whole week.
Three questions:
  1. Is RSI in a bullish regime (holding above 50)?
  2. Is price above the 200 day moving average?
  3. Are more than half the S&P's members above their own 200-day?
When it's yes, yes, yes, you're in a bull market and you position with optimism.


......... Simply above the 200-day versus below it. 

......................... Here's the part nobody wants to hear, myself included.
  • Doubt your doubts. Make your list of problems - it's good to have one. But hold it loosely. The data that looks bearish is the same data that can flip bullish. That's the wall of worry.
  • Innocent until proven guilty. The market gets the benefit of the doubt until price says otherwise. Once it's below the 200-day, fine go ahead and start believing the bad news. Until then, you're optimistic.
  • The market is smarter than you and me. It solves the problems you can see and the ones you don't even know about yet.
None of this is voodoo, and it's not dogma.
It's robust data that backs one simple idea: doubt your doubts in a Bull Market.






AI Validation Fuels A Ninth Weekly Advance

The headline tape made fresh history. The S&P 500 closed Friday at 7,580.06, finishing up 1.43% on the week and posting its ninth consecutive weekly gain. That’s the longest weekly winning streak since 2024, and only the 5th time since 1965 that has occurred. While markets previously saw weakness following such streaks, the 24- and 52-week outcomes were primarily positive, except in 1989 ............


(Or: The Risks in Your Private Equity Portfolio)

.......... It is not good news, then, that over the past 10 years, private equity has focused on taking companies private that are both more levered and less profitable than similarly-sized businesses (which we have already established are junky to begin with), all while paying a higher price for them than their size-peers. These companies bank on the same set of factors—that interest rates will remain sufficiently low and the economy sufficiently robust—for them to be able to generate enough cash flow to pay down their debts. Different types of shocks—an economic slowdown, a further pickup in real interest rates if inflation proves sticky, a widening of credit spreads if private credit continues to sour—can all be enough to meaningfully hamper the profitability of these businesses, and to do so in a correlated manner.



Head of Multi-Asset Macro Investing Michael Contopoulos explains why, with credit spreads at historic tights and rates moving higher, investors should focus on resilient yield, as there is limited room for price appreciation.
Key takeaways:
  • Liquidity, not credit quality, is likely to be the primary risk in corporate markets, particularly as stress emerges in private credit and investors are forced to sell what they can, not what the want.
  • Spikes in rate and equity volatility should further erode carry, creating asymmetric downside risk.
  • In our view, the current environment argues for patience, flexibility, and an emphasis on resilient yield over stretched credit.

One sector is flashing the most extreme oversold reading in its history. We're paying attention

Summary: The Nasdaq has posted eight consecutive weekly gains — a historically rare signal that has preceded positive three-month returns in the large majority of prior instances. Defensive sub-industry relative performance has reinforced that reading. Both data points argue for remaining long the trend.

Against that, three developments warrant attention: our Trifecta Lens Score deteriorated last week; fund manager sentiment surveys show signs of euphoria; and BofA’s Bull-Bear Indicator triggered a sell signal. We are not calling a top. But the distribution of outcomes has widened. The appropriate response is to trail stops, size down on risk and tactically ride the momentum.



The Core Observations
  1. Roughly one-fifth of the S&P 500 today sits directly in semiconductor names, and by our classification around 60% of the index is invested in companies whose valuation is primarily driven by the AI narrative. Diversification has quietly left the broadest US benchmark.
  2. At the same time, the relative performance of Quality stocks versus the S&P 500 stands at its lowest level since 1999, and the Momentum factor trades five standard deviations above its long-term trend. Quality has never been offered more cheaply against the broad market.
  3. Our view: Quality today is primarily an allocation question, not a crash hedge — the missing diversification pillar against a concentrated index, at historically most attractive relative valuation.


Bubble Fare:


................................... The report compared the current environment to previous periods of speculative excess, but stopped short of calling for an immediate market collapse. Instead, Hartnett suggested investors remain “long and paranoid,” balancing strong momentum against growing risks from inflation, interest rates and crowded positioning.



With valuations at the most extreme point in U.S. stock market history, pressed to fresh extremes by a wildly narrow advance in “AI adjacent” stocks, it’s tempting to warn investors that bubbles typically end badly – that even the final doubling, and tripling, and quadrupling, and quintupling of the Nasdaq 100 during the late-1990’s tech bubble was wiped away in the collapse that followed. Instead, let’s talk about the hippo. .................

As historically-informed investors, we have to observe that current conditions are no less extreme than at the 1929 and 2000 bubble peaks. Even so, we needn’t rely on any pointed forecast or scenario about what might happen next. We can take good care of the future simply by taking good care of the present moment, again and again, as conditions change.

In order for valuations to reach the most extreme level in the history of the U.S. financial markets, it must be true, by definition, that valuations have plowed through every lesser extreme, time and time again, without consequence. Unfortunately, the deferral of consequences is often confused with the absence of consequences. As investors, we should be capable of seeing both the possible continuation of the bubble, and also the possible collapse of the bubble. Knowing that both are possible, and refraining from being locked into any forecast or scenario, we see better what to do and what not to do. ..............

The U.S. equity market has again pushed to the most extreme valuations in history, on the measures we find best correlated with actual subsequent market returns across a century of market cycles. The chart below shows our most reliable gauge of market valuations in data since 1928: the ratio of nonfinancial market capitalization to gross value-added (MarketCap/GVA). Gross value-added is the sum of corporate revenues generated incrementally at each stage of production, so MarketCap/GVA might be reasonably be viewed as an economy-wide, apples-to-apples price/revenue multiple for U.S. nonfinancial corporations.


........... The S&P 500 Information Technology Index presently trades at a price/earnings multiple of 45, on earnings that benefit from a record operating profit margin of 30%, well over three times the historical norm in prior market cycles. This is equivalent to saying that at historically normal profit margins in the information technology sector, the price/earnings multiple would be well over 135. One can take the present multiple of 45 at face-value only if one relies on the continuation of record profit margins forever. Meanwhile, the price/revenue multiple stands above 11.6. 

........ Observing the frantic “swarm-like” buildout of AI capacity, investors are paying valuations that essentially assume that this frenzy of spending, revenues, and profits will be sustained, year-after-year, forever. Indeed, at a P/E of 45 one has to assume that it will grow at a considerable rate from here. Nothing in our investment discipline requires us to rule this out, but it’s worth observing that across history, extreme speculation of this sort has ultimately been punished rather violently. 

Of course, taking current record revenues and profit margins at face-value does “improve” earnings-based valuation multiples, but it’s important to remember that a valuation ratio is nothing but shorthand for a proper discounted cash flow analysis. A valuation multiple implicitly assumes that the denominator is proportional and representative of long-term (decades and decades and decades) future cash flows. If profit margins are elevated, but may only be elevated for 5 or 10 years, taking the price/earnings multiple at face value will give you a strikingly optimistic view of where valuations stand.

Here is what that face-value P/E multiple looks like here, based on analyst estimates of year-ahead S&P 500 forward operating earnings. Since “forward operating earnings” were only invented by Wall Street in the 1980’s, and popularized in the 1990’s, the chart also shows our estimate of what the forward P/E would have looked like across history, had this measure been available.


....... One of the striking aspects of a speculative bubble is how many investment professionals who ought to know better somehow forget what they know. We saw this during the tech bubble and the mortgage bubble – how the lure of seemingly easy money and sure-fire returns encouraged countless portfolio managers to drift into top-heavy overweighting in technology stocks or financial stocks. Meanwhile, fixed income investors, hedge funds, and institutions across the entire banking system were lured into mortgage-backed securities that seemed to promise that 2 plus 2 could somehow equal 5.

Ten companies now comprise 40% of the S&P 500 Index. ............

When I left teaching finance and economics at the University of Michigan and the Michigan Business School more than 25 years ago, I resolved to continue teaching through my writing. I’ve always considered these market comments as a way to share perspectives and investment research freely, and I rarely discuss the Hussman Funds directly. We don’t “market” the Funds because I prefer investors to find us through an understanding of our discipline rather than through advertisements. Given current market extremes, however, I think it’s worthwhile to discuss the Funds specifically, both to illustrate how alternative investments actually function in a portfolio, and because I believe the increasing concentration of investor portfolios in a single industry makes this a critical moment to think carefully about portfolio construction.

.... Faced with the most extreme valuations in U.S. stock market history, now may be a particularly useful time for investors to consider the potential for alternative assets to improve the expected return/risk profile of their portfolios.

The essential feature of a useful alternative asset isn’t that it’s unusual or exotic, but that its returns aren’t tightly linked to the risks that already dominate the portfolio. The value of an alternative asset comes from the way it interacts with the other assets in the portfolio. The lower the correlation, particularly if the asset tends to hold value or advance when the rest of the portfolio is under pressure, the more the asset can improve the expected return/risk profile of the portfolio – even if the “standalone” return on that asset may be low.

A useful diversifying asset can improve the profile of return/risk either by raising expected return for a given level of portfolio risk, or by reducing portfolio risk for a given level of expected return. It is both naïve and incredibly dangerous to construct a portfolio simply by cobbling a group of assets together based on their standalone returns, particularly if those returns are backward-looking ...........

........... Across history, whether we look back to 2000, 1940 or even 1928, we find these “roses in the garbage” exist. They’ve existed all along. It’s just that prior bubbles devolved quickly enough that it was enough to take our ball and go home as soon as market internals deteriorated – indeed, it was enough to leave the party as soon as we observed sufficiently “overvalued, overbought, overbullish” conditions.

The thing that’s been “different” about this bubble has been the unprecedented amplification of speculation, first by monetary policy, then fiscal policy, and finally by novel technology that may – or may not – have reached the point of systemically destabilizing overinvestment. From the standpoint of our own discipline, we’ve had to extend our strategic flexibility to every sort of condition.

See, even in the most speculative markets, constructive opportunities exist – not because of what’s happening in the economy, in monetary policy, or in market valuations. They exist because of what’s happening in the heads of investors, and we can quantify that through measures like investor sentiment, market volatility, credit spreads, and certain components that “feed into” our key gauge of market internals – even when broad internals themselves are unfavorable. These periods often take the form of brief, explosive advances after a bout of market weakness. The question of whether a market pullback follows through to further downside, or whether it leads to a “fast, furious clearing rally”, has everything to do with what’s happening in the heads of investors. That’s essentially what we’re quantifying.



Vid Fare:




A.I. Fare:


......... The second sentence— “Tokens got burned for millions of dollars without any real significant ROI to show for it” – might well turn out to be the epitaph for an era.





.............. The West is building vast numbers of data centers, far more than the Chinese, because nothing is optimized for efficiency. Our models use far more electricity, far more GPUs, and far more water. Additionally the Chinese are working hard on real-world AI uses: robotic AI, in other words, so that their AI can be used for actual production, and pushing on humanoid robots so they can take care of their old people, do household work and so on: Chinese AI is optimized to do shit work so you can read and write and paint, while Western AI is optimized to do creative work so you can shovel manure, do your own laundry and clean toilets. 

............. I’m shaking my head as I write this. This is the greatest mis-allocation of resources I’ve seen in my entire life. It makes the housing bubble (out of which we at least got some homes) look brilliant and wise. ........



...


Quotes of the Week:

Wintersberger: But if one looks at the price action, one can clearly see that markets reacted positively to the news again. At this point, it seems that financial markets have moved on and assume that the Iran war is basically over. Everyone seems to expect a deal is in the pipeline, and setbacks are treated simply as a delay to a deal. Whether that turns out to be right needs to be seen.




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(not just) for the ESG crowd:


Sci Fare:



Optimized programs with heavy weights are the gold standard for trained athletes. How much do they matter when starting fresh?

Strength and mobility are foundational for maintaining independence and the ability to navigate the world comfortably. And maintaining muscle mass as we age—combating age-related sarcopenia (muscle loss)—provides amino acid reserves and metabolic protection during inevitable periods of illness or stress. Despite this, uptake of resistance training—our best tool for building strength, mass, and mobility—remains low. A large percentage of our society remains in the “untrained” category, often for decades or even their entire lives. 

Most popular training advice emphasizes optimization: how do you maximize muscle and strength? Programming for those kinds of goals entails lifting heavy loads, training near muscular failure, and doing so for long sessions, many times per week. While effective, these approaches impose meaningful costs in time, effort, and perceived risk, creating a barrier to entry for many people.

Here we encounter a mismatch: what is optimal isn’t necessarily what is sustainable for everyone, especially those new to weight training. For athletes and fitness enthusiasts with the right time, motivation, and interest, optimization is often the right goal. But for most people first starting a training program, the more relevant question is not how to maximize strength or hypertrophy—it’s how to obtain the majority of health benefits with the lowest possible cost in time and complexity.

A recent meta-analysis addresses that question directly.1 In untrained individuals, resistance training performed with only moderate loads, multiple sets, and just two sessions per week was shown to capture most of the strength benefit, produce near-maximal hypertrophy (muscle growth), and deliver the full improvement in mobility seen with more demanding protocols.

This study does not change what is optimal. But it does help define what is sufficient to obtain meaningful benefits when starting resistance training.  ..........



U.S. B.S.:








War Fare:




Since February 28, we have experienced the geopolitical equivalent of a roller-coaster ride on magic mushrooms. We hurtled from Operation Epic Fury to Operation Economic Fury to Project Freedom to no fury at all, and not much freedom of navigation either. We sped from the impending obliteration of Iranian civilization to “a Memorandum of Understanding pertaining to PEACE . . . largely negotiated, subject to finalization.” If you have not experienced the psychological equivalent of whiplash in the last 12 weeks, you have not been paying attention. How many nearly-peace nearly-deals have we nearly had? Four? Five?


.................. Iran won the war. They want a peace deal that reflects that. They aren’t willing to give in peace what the US can’t win by arms.



My best guess is that the Trump administration has successfully fooled markets once again into thinking that there is to be an imminent agreement between Iran and the US. Trump will do and say anything that tempers oil markets (and make him, his family and co-conspirators even richer). The probability of a real peace settlement is remote. Why? Iran has the advantage right now and would be foolish to give it up in negotiation with a demonstrably undependable, bad-faith and fanatically Zionist interlocutor.....................

Iran is rightly insisting on retention of its recently-established control over the Strait of Hormuz because this is a major source of leverage over the political West, and a source of revenue which, for the immediate future, can help compensate it for the massive damage that the West inflicted upon it, while it waits upon a time when the West will be forced to lift all sanctions on Iran, release $26 billion dollars of frozen Iranian assets, and pay reparations, and this time is not as far away as many people suppose. ................


Israel imported military-related goods from six European countries despite arms restrictions.




Geopolitical Fare:



Other Fare:


It's Not Okay To Join The Military

Polly on Twitter asks, “Is there a pejorative term for military like what pig is for cops?”

Dear Polly,

No, but there should be. We need to start stigmatizing that shit.

It is not okay to be a stormtrooper for the western empire. It is not honorable. It is not worthy of respect. If you are a westerner who is considering joining the military, you should choose a different career path instead.

Don’t thank soldiers for their “service”. Don’t play along with the lie that your nation’s soldiers fight for your rights or your freedom. It only encourages more people to join the military when you do that. It’s irresponsible and unethical.

If you live in the west and you join the military, at no point will you ever be acting in defense of your country; you will be murdering people who are trying to defend their country.  ............

......... The crimes of the empire will continue until people stop facilitating those crimes. Anyone who volunteers to help the empire inflict murder and devastation on targeted populations should be regarded as the lowest of the low.



Pics of the Week:



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