Final days of a bubble. Or, the final 364 days.

 And just like that, we are at new global highs.

Sandisk, Samsung, SK Hynix, Micron, Intel, Kioxia and others going mad.  
Kospi is up 200% and Taiwan approx 100%

I am excited

I am scared

I am heavy

The Nasdaq is up almost 30 percentage points since the fall due to Iran was reversed.

Meanwhile, the Iran issue still remains.

The China, Japan Taiwan issue still remains.

And the US is in a recession without this AI bubble; there is a stronger divide between the AI economy and market prices, and the non AI stuff.

The battle for Investment Survival.

For a lot of oldies, they are prepared for a sharp sell off and recession, or an even wilder blow off.

Market reflexivity is at its weirdest, because we now live in a world where the oldies can warn well, the aggressive can spur on well, there are 'stages of a bubble' predictions everywhere, we are in the globally most well oiled liquid market ever; 

And as Terry Smith warned recently, ETFs and index funds have become momentum plays, and self deceit inducing plays.

I hope I survive.

Mandi ka moo kala

 I wonder whats up; the IEA is saying that things are going to get worse in April because physical supplies of oil and gas will actually dry up.

Helium shortage; Open AI closes a $122 B round, Pvt credit companies figuring out continuation vehicles and secondary buyers, Fannie and SpaceX IPOs?

But lets see.

The odds are that economies tend to cope.

The IVs of the OTM calls have crashed.

But one simple table shows us what can happen:

See the YoY numbers.

A country which should attract a mad amount of FDI because of AI, and where the consumption story is genuinely intact ought to rerate soon. 

In a scenario where the world goes back to normal oil and gas, or a scenario where India's heft allows it to get a chunk of the oil and gas at the expense of poorer economies, a sharp rerating is possible. 

Anyway.

Focus is always: One foot fence, low price, margin of safety, position sizing and knowing one's competence. 

I wonder if long dated calls fulfil these conditions.

Howard Marks reminded me: Best to stay in the 'I dont know' bracket of investors.

Addendum:

This is 14 days later :D

Kospi is up 185% YoY and Taiwan is up 92% YoY  

I ran from Iran

 So, the market has found its issue.

The Iran thing was building up, but I doubt anyone foresaw the intensity of damage, the Hormuz being shut, and that Iran would retaliate against its neighbours.

I foresaw an oil price spike but nothing more really - thought it would be an extremely localised issue.

Just another example of unknown unknowns.

I doubt anyone foresaw a Qatar gas shutdown. 

_________

Meanwhile, in another corner of the market there are rumblings of a private credit issue; guess it got precipitated by the SAASpocalypse because of Claude etc.

And skeletons like First Brands, MFS etc.

(Intg story, I had met Paresh 8 years ago when he pitched me for a product - bullet dodged)

____

Meanwhile, the Mag 7 continue to spin money and build out the AI stuff; NVIDIA, TSMC, Broadcom, and suppliers keep getting dollops of cash from the hyperscalers.

Oddly, the consumer is not really spending a lot more, but are enterprises spending more?

The more things change, the more they remain the same.

This is another market cycle; it will destroy a few companies; Berkshire is ready with cash.

The Iran war might end abruptly, but the AI and private credit fiasco will continute to grow/ unravel?

 

The ability to see

 If only we could be kids.

They see things the way things look to them.

Chatgpt is a commodity.

Bitcoin is a fraud

Trump is just another president.

Why are all the wild animals only in my books?

Private Credit was a fine idea; they are now just hungry lenders who dont have a 'run on deposits' risk. Hungry lenders tend to lose money.

Fat people are now injecting themselves because they cant resist the temptation of high carbs and sugars.

Adults keep looking into their phones.

Now, can I please go and play.

Remember

Remember that in 2019, even before the COVID mayhem, we had ADAG, DHFL, GMR, Yes Bank, ILFS, Crompton, Jet Airways, Essar Group, Coffee Day, Zee Group, Cox and Kings, Adhunik, Amtek, Videocon, Bhushan failing.

And since 2021 we have barely had a whimper.

No frauds, No NPAs.

Its only when the tide goes out...

Addendum:

Maduro gets kidnapped

Iran is falling? 

Greenland is being purchased?

And there is barely a whimper.

Reminds me of the Icahn interview... "I fired the whole floor, and its like a bomb went off... there were no complaints, nothing. Its like nobody even cared and nobody was ever there"

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.