Nightmare on Bear Street
I want you to imagine, if only for the duration of this post, you are a grizzly bear. Generally speaking, you hate stocks for all of the same reasons why people hated stocks at the bottom of 2009. It is your belief that each and every retrenchment is nothing more or less than the opening salvo to the great big crash bound to come — the one promised to you a generation ago with all of the prevailing pomp and certitude briefly offered during the COVID-19 lockdowns which severely demoralized your effective position as consummate bear.
In the past two weeks, especially the past week, markets continued to rotate out from some of the higher beta stocks, most of which had triple digits run ups the past year, in favor of some defensive stocks — but now all of a sudden Mag7 is resurgent!
Yes indeud, as a bear, this is not what you’ve bargained for — seeing money flow out from AAOI and back into META is the very last thing you’d want — especially since money flowing into those forlorn tera caps will buoy indices and compress the value of your index puts. You’d very much prefer for all Mag7 to suffer under the cloud (double entendre alert) of their capex, with money traversing into Great Depression era favorites Clorox and Cambell’s Soup, perhaps on occasion a rare earth stock or two just for good measure.
BEHOLD GAINS
Maybe, just maybe, you can spin this proper into your narrative by saying “CAPEX CUTS ARE COMING”, ergo the chasm of performance between the semis and hyperscalers are bound to compress. Your chief argument is of course memory and by extension is fixate on the KOSPI, because S. Korea is now dominated by two of the best memory makers: SK Hynix and Samsung.
Away from your frustration with the Mag7 “ruining their balance sheets” by investing into the future, as opposed to share buybacks (which are now awesome) — you just don’t understand why the Iran war isn’t having a more profound effect on the price of oil and markets. When that fails to interest others, you move to the olde fashioned FUD of Japan and how the JGBs and currency are “days away” from full collapse, at which point the Yen-Carry trade will unravel and then you could profit from your index puts.
Every so often you will mention private credit and how so many of those meaningless boutique firms are flailing in the wind, when in fact you know, for sure, that the vast majority of AI capex is being financed and underwritten by Mag7. That, of course, will remind you of “circular investments”, just like in 2000 before the DOT COM BLOW UP, the proverbial good olde days.
It’s all very frustrating, the SPY within 1% of recourd highs, the NASDAQ 3%. You can seek comfort and solace knowing the semis are 8% off their highs, encroaching on correction territory! In fact, there was a stat being bandied around that 66% of “tech stocks” are now in correction territory, a very nice thing for you to stew on as you plot your next swashbuckling adventure into markets.
Time for a nice bowl of cereal. Good luck in the coming week. This time we will win.
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