Air Pocket, Crashed Through the Floor Boards, or Wobble?
Good day fuckers —
Well I am back from Japan and was going to discuss that this week — but the market Gods chose to crash stocks yesterday, so now I am obliged to discuss it. The monsters on X are out in full force with tall tales of 2008 and 2000 — suggesting that this is the opening salvo to the great big crash to come — all because they’re morons and don’t know any better.
Before we get into it, I’d like to dispel the notion of 2008 being a “bubble.” It was not a bubble, but a great big malinvestment, whereby banksters offered million dollar loans and HELOCs to homeless folks into Greenspans purposeful 16 interest rate hikes that took the entire system down. One could argue this was a controlled demolition.
Is the current AI trade a bubble? No. It is a highly priced trade, re-rated higher, for good reason. For one, the traditional tech growth allocation into software is now wrought with fears that Anthropic is one release away from rendering them obsolete. Investors are unwilling to pay high multiples for software anymore. Secondly, have you seen the fucking capex? While it’s true the asset heavy nature of the hyperscalers make them totally different companies — it’s also true that the money they are spending is extraordinary and where the real opportunity lies is more in the vendors, less in the spenders — if you catch my drift.
The way I see it, the AI trade has a very specific infrastructure, and it goes as follows.
Raw materials: steel, silica, copper, fiber, concrete, piping, electrical wiring, plumbing.
Network equipment: servers, switches, GPUs, CPUs, memory.
Power: primary energy sources, secondary, modulation, off grid, on grid.
Compute
Ultimately, the bottlenecks will be sufficed and prices will come down for everything. The impetus for the hyperscalers to do it now is two fold: 1. first to market will enjoy a moat and capture the most AI customers. These customers will pay for AI cloud services that are multiples higher than present cloud services. 2. Inflation across the AI infrastructure build is significant. The longer you wait — the higher the cost to build.
This doesn’t even take into account scarcity of materials: GPUs, CPUs, memory, construction firms, power. People are chimping out because Google, Amazon, Microsoft, Oracle and Meta are spending all available FCF on this build, “ruining” great balance sheets. But what these MORONS are not taking into account is the fact these investments will be immensely FCF positive, much sooner than people think.
Once the AI models shift wholly from training to inferencing (customer facing), you will start to see the fruits of their investments and much of future capex will be funded by this new FCF generation.
Ok, now back to Friday’s market calamity.
Nearly every high growth stock fell more than 8%. The semis dropped 10% and the entire world burned for an afternoon. But the banks were up and the olde man stocks were up, and boring healthcare names were up. This wasn’t a market calamity, but a very hot trade cooling off. Bear in mind, wash outs are necessary to clean the field of pleblians who leverage long and/or position wholly by way of short term call options. Their money and blood is needed to nourish the tree of prosperity for future stock market rallies.
Is the selling over? Probably not. The way these routs work is by way of overshooting and then sharp recoveries.
Some perspective: the SPY was down a whole 2.5% last week. The SMH is still +9% the past month. The QQQs are +15.8% the past 3 months.
I’d also like to point out, the SPY is merely +8% midway 2026 amidst what people believe to be the greatest industrial build since the early 1900s. These sort of selloffs, while jarring and unfortunate, are part and parcel of living in the modern era amongst ADD addled people strewn out on narcotics and caffeine, attempting to get rich quick and use those funds for prostitutes and profligate gambling at casinos.
The much greater risk to the tape lies in Washington, where the vapid lizards are trying their best to ruin it all. I will leave that for a future newsletter. We need the price of oil lower and fast, else say goodbye to rate cuts and the consumer ever being able to buy Tiny Tim a new wooden leg this Xmas.
In summary, you are in the midst of transformation and many of you do not like it one bit. I get that — but there is nothing that you or your idiot friends can do about it. Try to allay your autism and box watching sensibilities, tick tarding yourselves into oblivion and think bigger picture. Keep some cash available to buy the margin call liquidations of those who are heading to homeless shelters and try to hold some convictions, damn it.
Good day.
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