Complacency

 The music is playing and we ought to dance. I think this is what Howard Marks' memo is saying.

I was rewatching Margin Call yesterday: fabulous drama. 
And what struck me was the dichotomy between ex-post and ex-ante.

Back in 2006-7; the overwhelming majority was aware that 'this is too easy' and that any mention of 'risk' was rubbished away. There was genuine complacency.

Just like 1999, where anybody who got out before the bubble burst, felt left out, dumb and cheated. 

That, even in Margin Call - once the 'company' was done selling its assets, if the market recovered and continued chugging along: everyone felt like a fool.

"May be there is some oil to be found in hell".

Ex-post however, everyone sees it as alarmingly obvious; "if I was there then, I would have surely figured it out and gone into cash or sold short..."

And yet, here we are. 

Today:

"I own great companies. So what if some of them are at 40x PE"
"Well, yes. But I have 4% in cash, and look at these bargains in the other corner of the market"

As on Nov 25: Mag 7 total + Oracle + Broadcom : All 9 combined: $23.692T ( of 67.5 T US total)

As on 2019-12-31: 5,448.13 (of 33.9 T US total)

The magnitude of this is alarming. 


From the movie:

"It's just money; it's made up. Pieces of paper with pictures on it so we don't have to kill each other just to get something to eat. It's not wrong. And it's certainly no different today than it's ever been.

1637, 1797, 1819, 37, 57, 84, 1901, 07, 29, 1937, 1974, 1987—Jesus, didn't that **** me up good—92, 97, 2000 and whatever we want to call this (2008).

It's all just the same thing over and over; we can't help ourselves. And you and I can't control it, or stop it, or even slow it, or even ever-so-slightly alter it. We just react."

So, 2020 got a COVID crash; but the recovery was mad quick; there was a bit where the end of ZIRP took down a few big banks in the US, and nobody really cared. 

My point being: 

The attitude towards risk is - more is good.

There is complacency towards the downside.

Freedom's Forge - AI

I was once asked, whats the point of reading history books when investing is all about the future?

Freedom's Forge was a great book on how the US marshalled its resources to supply materiel (as it is called?) for Europe, USSR and for itself to be a great force to beat the Axis powers.

And 2025 reminds me of that.

The world is not at war right now, but the AI wave has the US pitted against another great economy which is a lot more 'closed'. And the US cant explicitly fund the massive buildout, whereas China and its top-heavy machinery can. 

For example, China can marshall resources to build out a $200 B network of computing and data centers / AI factories. But the US has to rely on free market forces?

So, the current wave of 'circular deals' where OpenAI gets funding from NVIDIA and Msft, and now Anthropic has a big deal, etc. all point to an unsaid commandment from the US Govt.

That 'we have to win this'. Reminds me of the Space Race and the Nuclear race; if we win this AI race, we get to be the dominant economy, and dominant geopolitical force.

If it sounds like a duck and walks like a duck... 

I guess thats what I am alluding to; that these large tech companies have effectively zaibatsu-ised and interlinked to make sure that nobody goes bankrupt, and that innovation can happen.

This might be one of the greatest leaps of innovation that the world has seen.   

Avalanche

 A fragile system.

It looks like thats where we are.

Pvt credit using insurance subsidiaries to raise capital, and magically have no NPAs to speak of.

Cryptogeeks justifying 'underlying' whatever and using leverage from lenders who like 8-10%. Apparently there is an entire market where lending is happening to crypto stuff that is disguised as treasuries or other currencies. And this is lending is outside of the banking channels almost like the private credit mania. 

Companies getting equity capital and pre-IPO capital to keep bankrolling their acquisitions or ventures, while keeping negative ROE (something a lender would definitely not like)

The everything bubble is scary.

My wife asked me when I doubted a particular crypto: "But if its going up, and has gone up for 5 years or even 10 years, doesnt it mean that you are wrong or plain envious?"

I said: "Yes, it means that I have been wrong until now."

Akshay Khanna from Taal said it well : "Aaawaaz unchi karne se, ya chillane se, aapka jooth sachh nahi ban jaata"

But beyond whether i am right or wrong (I am right of course), the big factor is the interconnectedness of things.

The wealth effect, and the leverage effect is probably the most I have seen even if I count the IT bubble of 1990s.

I asked chatgpt this:

Here’s the “Magnificent 7” + Oracle + Broadcom market caps at 2019-12-31 vs 2025-09-17 (USD, billions). Sources are shown per row.

Company	2019-12-31	2025-09-17 (yesterday)
Apple	1,304.76	3,550.00. (StockAnalysis)
Microsoft	1,203.06	3,791.06. (StockAnalysis)
Alphabet (Google)	923.77	3,017.82. (StockAnalysis)
Amazon	916.15	2,470.21. (StockAnalysis)
NVIDIA	144.02	4,138.05. (StockAnalysis)
Meta Platforms	585.32	1,948.71. (StockAnalysis)
Tesla	75.40	1,420.00. (StockAnalysis)
Oracle	169.94	856.52. (StockAnalysis)
Broadcom	125.71	1,634.74. (StockAnalysis)

Group totals (Mag7 + Oracle + Broadcom)

• 2019-12-31: 5,448.13

• 2025-09-17: 22,827.11

• Absolute change: +17,378.98

• Multiple vs 2019: 4.19× (≈ +318.99%)

(Arithmetic shown using exact figures above.)

Notes on sources & dates

• All figures are end-of-day market caps from StockAnalysis pages that list both historical (Dec-31-2019) and current values for Sep-17-2025; Apple and Amazon pages explicitly show “as of Sep 17, 2025.” Tesla’s page shows Sep-17-2025 in the header (“Market Cap … as of September 17, 2025”) and the 2019 figure in the history table. (StockAnalysis)

So; basically, even from pre-covid highs, we have $17 T of wealth sloshing around the world economy just from these 9 companies.

I am quite scared of a 1987 crash kind of scenario...

A fat finger, or a Meta saying that capex will drop from the guided 70 B to only 35 B would lead to quite the avalanche. 

Again - I highlight the interconnectedness risk, and the euphoric wealth effect where social media is full of people who got the right stock, and right portfolio, etc.

"We may not know where we are going, but we sure as hell ought to know where we are" - Howard Marks

Where we are is close to the summit. 

And just like the 1989 Japan, or the 1999 IT bubble, the narrative is: "dude, the world is going to change around this new epicenter, and all we have to do is sit tight."

 

Fragile Markets

There is something really fragile about the top companies' makeup.

Oracle just moved to almost 1 T, Broadcom is at 1.7 T...

There are 4 big hyperscalers now; they all buy most of their stuff from 1 supplier - NVIDIA.

NVIDIA makes all of its stuff from 1 supplier - TSMC

TSMC buys most of its stuff from 1 supplier such as ASML, and the Japanese companies...

The hyperscalers are deeply entwined with particular companies.

OCI depends on OpenAI and Meta, and NVIDIA (as customers)

Azure depends on OpenAI

Google depends on itself and Anthropic

AWS has many customers?

All of them need nutty amounts of power.

If claude, or chatgpt begin losing customers (switching costs are super low now) - what happens?

__________

Then there is the pvt credit market which is also depending on steady inflows because the round robins seem to have started. Banks like JP M are simply stepping back...

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And then, gold, bitcoin and crypto treasury companies.

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Looks like a weird pack of cards

Something's off

Nov 2024: I wrote: "Boom, boom boom, and I fired those people, emptied the whole building, but not a whine... its like those people had never existed."

Somethings gotta give

And here we are in August 2025

• The China real estate bubble burst - and nothing happened? Nobody's upset, people havent lost their life savings? Normally, when RE is a big chunk of the economy, and if RE bubbles burst, there is degrowth - how has China continued to grow?
  This makes me believe that similar to how nobody expected degrwoth and stagnation in Japan in 1985; this time too, there is degrowth and its like the 4th dimension that nobody can see.
• Israel attacked Iran, and the nuke facilities got bombed and no retaliation?
• Nobody cares about Gaza
• People are bugged with Putin, but he just isnt backing down
• Trump announces tariffs on everybody and the US economy still grows?
• The Mag 7 turn from FCF to low FCF and yet they add trillions in market cap?
• The Pvt Credit bubble continues unabated, and nobody cares about NPAs?
• Crypto assets are now mainstream? I mean, it says "Crypto".

Its all very fishy.

Reminds me of when I read this book in 2015; and it took until 2022 or so for the bubble to burst.

Bad!

Include me out

 Something just feels off.

The private equity and private credit market are just too big man. 

And then, that the NVIDIA GPUs are a fast depreciating asset of not more than 2-3 years of real life + I think its a bit like quantum physics (nobody really gets it), which is why Deepseek did what??

Scenarios:

NVIDIA falls to $1.5 T

That small island is scared because the ships came too close? Wait, they make 90% of all chips?

All those AI factories are kind of obsolete, because AI figured out how to make its own reasoning and inferencing more efficient

50% Depreciation of the currency

Something weird about gold going up 40% in a year ?

Hmmm; 4% NPAs on private credit. Of course, there is no hidden borrowings and cross collateralisations

Whats up with Elon + Trump? What if they have a fall out?

Things just feel odd. 

Old Man Buffett is ready.

Boredom

A bored mind can wander and wonder.

NVIDIA is a chip company, but does CUDA and 'locking' effects make it an OS for accelerated computing?

Also, cash spewing tech companies needed to put their cash to use; the NVIDIA GPUs is a great forced bet for so many of these companies.

Funnily, that doesnt mean its a good investment by the hyperscalers or newbies ; nor does it mean that NVIDIA cant go to $10 T from the curent $3.5 T

_______

Google had a search/ advtg monopoly; along came FB and took away a good chunk via the website facebook.com

And then, the app culture, has taken away more of Google's business.

And now, will chatgpt-esque competition change the nature of search? But does Youtube stay intact?

Also - have you noticed how whatsapp is now the primary 'mailing' app for personal, B2C and small businesses? I know people who kind of dont see their emails anymore.

______

Why did the Fed reduce the overnight rate target from 5.5% to 4.75% (4.5-4.75) in the last 60 days?

Was it an egoistic imperative to have a 'soft landing'? Because there didnt seem like any reason:

"The Federal Reserve's mandate, also known as its dual mandate, is to promote maximum employment, stable prices, and moderate long-term interest rates".

None of these seem to have been triggered.

_____

I have a folder going back to 2011 chronicling the building China bubble, and the logical fallacy of capex/ infra spending and genuine growth. I kept making new folders for every year. 

And after 10+ years of everyone praising the growth model, it looks like there were no clothes.

It's a good lesson in the gumption and humility in seeing the truth.

Similarly, what I see today is:

Below is the Fed Funds rate; 

And it reminds me of an Icahn anecdote: "Boom, boom boom, and I fired those people, emptied the whole building, but not a whine... its like those people had never existed."

From 2022 to 2024; nothing monumentally negative has happened; with rising rates, there were no crazy commercial defaults, gold kept going up, Bitcoin kept going up, stocks up, no spike in junk bond defaults.

It feels like China. 

And my sense is that Private funds have a lot to do with this; there is a chance that they have evergreened some assets/ loans; that the ETFization of Bitcoin has had consequences, and the underlying defaults of these private funds are hidden because of steady growth (similar to how high bank asset growth can hide default rates because of base effects)
"Private markets assets under management totaled $13.1 trillion as of June 30, 2023, and have grown nearly 20 percent per annum since 2018." 

I guess I am a skeptic at heart who believes that there is no free lunch.

And Reflexivity says that so many years of (since 2008 almost) continuous rise in asset prices has dulled rationality. 

'Stocks tend to go up', 'gold tends to go up', 'crypto is the future'. These maxims have taken a strong hold, not only in the US; but more so in Japan and India too. 

I wonder what Turkish, Sri Lankan, Chinese, South Americans, Ukrainians etc are saying to these things. 

My conclusion is: We are precariously poised. Similar to 2006-2007 where the world was oblivious to the tail of CDS and CDOs wagging the dog of the economy; and when the tail got infected, the dog could not do much... 

The music is playing and we are dancing. 

______

And dont get me started on what the political effects of a recession of world leading economy could be. One spark is all that is needed. 

Addendum: History shows that pegs dont tend to last. Wondering if there will be a cataclysmic 7.19 going to 10 someday soon. 

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Boredom is a wonderful thing.