HEDGE AI

“This agreement marks a significant turning point for international AI guardrails.”

“It is not sovereign AI LLM models in my view. I think that one of two things will happen. Either it'll continue to be winner take most, and so a relatively small number of companies in The US and China will just continue to blaze past anyone that tries, or it's gonna become commoditized. Those models will be too expensive, but good enough will be good enough. Then you will spend a lot of money to catch up in something that becomes essentially free. If you're talking about the entire stack, that seems completely—it's a myth.”

“Microsoft is trading at 22 times forward earnings. Alphabet's trading at 30. Amazon's trading at 32. So we land where we landed last week. And that is that Microsoft stock still looks pretty attractive. As I mentioned a couple weeks ago, I bought it when the stock hit $400 and I bought again when it hit $380. It's now up to $425. We will find out more when the company reports earnings later this week. But as of today, it still seems relatively cheap.”

“So I am quite skeptical of this argument that we should preemptively, you know, justify rate cuts on the anticipation, on proven anticipation that AI was going to have this miraculous and dramatic impact on inflation, if anything. I think, you know, the AI build-up which still happens, you know, in all the rage, we're talking about hundreds of billions of dollars of, you know, cutbacks in the US economy that is not very good at manufacturing stuff, you know, that has a lot of frictions, that has all sorts of electricity shortages, you know, dilapidated grid system, you know, you have shortage of hardware and that's literally being driven up in price by the demand of AI. That's causing its own inflation.”

“We're witnessing a temporary disruption or the end of a the U.S. unipolar era.”

“Traditional assets like housing and equities represent exit liquidity risks for investors.”

“When it started, my worst case scenario was that this could end up being a US Suez 1956 moment. And now, seven weeks in, Hormuz is still closed. Supply chain issues are just now really starting to stack up. I think where this is all headed is forcing the US into a choice. I think it means we're forced to pull back or we're forced to print money into an oil spike to contain the bond market, or we let rates rise in a recession and an oil spike and let the economy take the hit.”

“I don't know if you saw the Dworkish podcast where Jensen was on there and he was saying that the biggest constraint they have right now is actually plumbers for their data center. That's where the bottom of that is, it's just like real life plumbers and that has a lot of real world impact if suddenly the average family does not have as easy access to a plumber.”

“If you plot tax receipt, federal tax receipt is the share of GDP over the course of the US modern history. It's always about 18 to 20 percent of GDP. We've been through significant tax reform, right? We've cut personal income tax, we've cut corporate income tax, we've got a level curve, and we've raised tax and whatever. Regardless of what we have done, the total tax receipt is about 17 to 20 percent. Now, the problem with that is that then the spending has been rising secularly and because the debt load itself, which last peaked at over 20 to 100 percent of GDP during World War II, and it went down in the 70s and now came back up.”

“Capital is a coward, and right now it is fleeing to wherever it feels most protected from the escalating conflict in the Middle East.”

“One of the big problems for academe and one of the big problems for people with analytic temperaments is a lot of them have overdeveloped their baseline research and underdeveloped their management skills, their people skills, their organizational skills. And yet when you have AI that is really good at researching and analyzing, it's the other skill sets that you really need more of. For us, AI is not displacing workers. AI is allowing us to actually have more effective labor. It's allowing us to essentially hire staff that we can't afford.”

“It's a one thirty thirty strategy, essentially, where you go one thirty long, 30% short. So the short positions effectively generate losses that can offset gains from selling your concentrated stock position. They tend to be pretty high fee, though, because they're high input. You could be paying, I don't know, one and a half percent on top of whatever your advisory fee is just to kind of manage that. You're also not really eliminating your taxes. You're just deferring them. Eventually, the tax man always gets paid.”

“We are currently advising the public to take standard precautions against the surge.”

“The proposed funding for the climate initiative has become a major sticking point.”

“Part of resilience will be more money on critical infrastructure and hardening targets that weren't thought to be as vulnerable, desalination plants. Part of it will be building infrastructure for other land based alternatives. The Chinese feel pretty good right now. They have Turkmenistan. They have power of Siberia. I mean, they're just this is a different environment to think about those investments. I do think The Gulf is gonna look also not just geopolitically, but sovereign wealth funds in The Gulf are gonna completely change what their long term priorities are.”

“Well, the the thing that's quite questionable about the way this IPO is being done is just the way that it is being forced into the Nasdaq 100 index almost instantly. I think there's gonna be a fifteen day delay. And also the waiting that it'll be given is much higher than you would expect for a company with a very low float. So in a funny way, the company goes public at a very high valuation. People will probably buy in. Firstly, there's a lot of people are just very excited about Elon Musk and his companies. They'll they'll put money in, but then the, the expectation is that the indexes will be buying fifteen days later. You know, at the current valuation they're talking about, it would have a four and a half percent weight in the in the Nasdaq 100.”

“The view I've had and the view I'm sticking with is, Hormuz is all that matters, and every day that it stays closed, it brings us closer to a non-linear break in supply chains. And my view has been that that's not going to be good for markets, if slash when that happens. That's why I highlighted that Japanese Toilet Maker today, down 7% on the day. If they had gone up 7% or up 10% on announcing that they couldn't make anything anymore because of supply chains, I probably would have to say, all right, well, maybe I'm just not getting this.”

“Well, I think one thing that you can't get away from is this the fact that despite oil being sustainably above $90 a barrel, US producers are not rushing to drill. The Dallas Fed did a survey which showed rig counts actually declined. Even after a month of 90 plus dollar oil, oil executives are saying that the price swings are a bit too wild, and they can't really stomach it moving based on tweets and paper market manipulation. It effectively makes it impossible to plan capital budgets.”

“The CFTC's recent prediction markets guidance is a 'nothingburger'.”

“A war few expected to last this long is exposing how fragile global systems really are.”

“Microsoft and OpenAI have had a contractual relationship for many years, but recently that situation became contentious. Part of the agreement was that in exchange for its compute, Microsoft would be the only cloud provider that could sell OpenAI's products. In other words, the relationship between Microsoft and OpenAI has long been exclusive. But now they're changing that. OpenAI will be allowed to partner with other companies, which means they can now sell ChatGPT through other platforms such as say AWS which is Amazon's cloud unit which effectively means that the relationship with Microsoft is now an open relationship.”

“What they're doing is long term, no regret, no risk moves to take advantage of The United States undermining its own reliability with allies globally. China still has problems... but in terms of Xi Jinping's ability to have more influence globally and invest in the big long term technologies at scale. They don't have a problem with American based architecture. They just wanna control it. This whole responsible stakeholder stuff was, oh, they're going to align with the Americans. Turns out the Chinese see that this is perfectly good architecture as long as the Americans aren't running it.”

“Markets may be underestimating cascading global disruptions.”

“People in finance are just sort of, well, hey, just hit control P and we'll print oil, or the oil will be where it needs to be, and the fertilizer will be where it needs to be. Because, oh, by the way, on fertilizer, as I'm sure you know, Erik, we're on the clock for a growing season. Like, you're not gonna be throwing fertilizer down in June or July. It's too late at that point. If that happens, like hundreds of millions of people could starve to death.”

“I think what people don't understand is the last tanker to transit successfully on February 28th before all of this stuff started, that Hormuz oil will arrive at its destination next week. That's how long it takes for oil that's flowing through the Strait of Hormuz to get to where it's going. So there hasn't been any supply disruption yet. And the actual disruption of supply hasn't even started yet. You don't just call up the captains of those VLCCs and say, hey, engage your warp drive and get to Asia in a week instead of a month and a half.”

“The CFTC's recent prediction markets guidance is a 'nothingburger'.”

“Our view is that the straits are still very much closed. Oil Brent oil is close to a $110 per barrel. And if you look at the refined products of gasoline, diesel, jet fuel, they're closer to $200 per barrel. And you're already seeing an economic slowdown across most Asian countries, and that our view is that the next leg will be in Europe. So so we actually think the markets are being very complacent about the risk of an oil shock or a higher for longer oil environment.”

“The Strait of Hormuz and how shifting power dynamics are reshaping global markets and strategy.”

“Capital is a coward, and right now it is fleeing to wherever it feels most protected from the escalating conflict in the Middle East.”

“China’s quiet advantage is part of the shifting power dynamics we unpack.”

“Now you have AI calling itself, right? Which changes the magnitude of AI compute demand, probably by a hundredfold or potentially more, depends on just how crazy you let the AI agents go. And that obviously changes the picture completely. And I think one reason why a lot of people underestimated the most recent acceleration, and that you have pointed out yourself, you know, the compute is underestimated, because most people don't code, right?”

“Traditional assets like housing and equities represent exit liquidity risks for investors.”

“It's the art of war. The generals tend to fight the last war. And while there's COVID and we did see a little inflation as of the last few years, really, the major crisis of most people's recent memory is o eight, is the financial crisis. And that was a big deflationary impulse. But the previous crisis is usually not the next crisis. The next crisis is usually something very, very different. And in this instance, it really is inflation, that the risk for most people's portfolios is that inflation continues to eat away purchasing power.”

“Well, there's somewhat of a ceasefire and a blockade in the Straits Of Hormuz, And about 13% of the global oil supplies have been basically closed off to the rest of the world. And gulf producers shut in about 9,000,000 barrels per day of output, which, as you would imagine, is a bit of a problem for especially countries that are dependent on energy. Goldman Sachs has estimated the Persian Gulf crude output is down 14,500,000 barrels per day. That's 57% lower than prewar levels. And total US oil exports earlier this month hit an all time high of 12,900,000 barrels per day.”

“And it's very clear to me that Trump wants to announce a win. He's desperate to announce a win. He wants to get past this. So what does that look like? He needs an agreement on the nuclear side, which means, a the removal of the enriched uranium stockpiles, which both sides seem to be close to agreeing on, and an agreement on no enrichment for a period of time, which both sides are pretty far from as of today. There's a three page document, an MOU, if you will, that is presently being circulated.”

“Currently, AI is too cheap, right? People are just out there consuming token because it's heavily subsidized, and they ask the most powerful model for cooking recipe. That's sort of your analogy, except that it's actually being used on the agent level as well, the agents are calling AI models inefficiently. Part of the reason why people run up these huge bills using open claw is exactly because the system has not been optimized for token deficiency, and part of the reason why is because price has not really been reflecting the genuine cost.”

“What's interesting with the the current composition of the emerging market index is that it's really not a reflection on the underlying emerging market economies. It's basically become a bet on the AI CapEx build out you're seeing. So the big drivers of the emerging markets for the last better part of last two, three years now have been the semiconductor plays, specifically in Taiwan, TSMC being the big one, and South Korea, the memory companies SK Hynix and and Samsung. And in one stat that's pretty mind blowing is that if you look at it on a year to date basis, those three semiconductor companies, TSMC, Samsung, SK Hynix, are driving almost 70% of the entire index's earnings growth. Wow. So this has basically become a one way bet on the CapEx build out that you're seeing.”

“I'm looking at Air Systems, AEHR, Air Test Systems. AEHR is the symbol. Small cap name, $2,600,000,000 market cap. It has boomed, Luke. It was trading just last April, one year ago. Down around $7 per share. Today, even after dropping 7% today, it's at $82 per share. It's moved, like, 800% in the past fifty two weeks. What about just a month? And then last month, it was trading at 30, and now it's at 82 in a in a month. I'll give you another number. 18.7%. What number do you think that is? Short interest. There you go. So this move is just probably a short squeeze.”

“I'm having my roof repaired. I've got this 100-euro house with beautiful Spanish tiles that are also quite nettlesome when they break. And I've had, it's been a struggle for me since last fall. I've been looking for contractors, and it's quite difficult to find them, right? And when they are busy, they don't answer your calls. They've got terrible websites. When they show up, they don't speak your language.”

“Now we're talking about a 125 times sales. And, you know, it's worth noting as well that that SpaceX is. It it is an exciting company. It is growing, but it's not grow you know, analysts expect it to grow 25% next year. That's not good enough. Like, Google went public, I forget how long ago, but it they were growing at 240% a year, and they went public at 10 times sales once again. And so the the price the it's not really the the question isn't whether it's a good or a bad company. A bad company can be a good investment if you get in at a low enough price, and an amazing company can be a terrible investment if you overpay for the stock.”

“Go back to the history of Micron's earnings. I will read them from 2020 to 2027. $5.14, $7.74, negative $5.34, 70¢, $7.59. So I think the question is not are earnings real today, but are they sustainably real moving forward, or are we just at a point in time where things are at the right position cyclically? The last peak in earnings for Micron was $8.35 in 2022. So analysis to earn over 10 times that next year. It's just not likely to be durable.”

“Overall, it was a down day driven by news around Open AI. The CFO, Sarah Friar, said the company may not be able to pay for competing contracts if their revenue growth does not accelerate from where they're at. They miss their own targets of new users, revenue, and raise concerns that they'll be able to continue to spend as much as they are on their data centers, which kinda hit the tech industry as a whole, and that's why you saw the Nasdaq down. About 1% on the day, S and P down about half a percent.”

“Ten years ago, these economies were in a funk. Morgan Stanley called had a term called a fragile five for a lot of these countries. But as these cycles go, they've turned around, and growth is finally coming back up for a long time. So I I I would say you do have to look at it from a country by country basis, because, again, the index is so misleading given how lopsided it is on AI. If the AI topic story slows down or, god forget, turns negative ever, then the index will be in a world of pain. However, outside of that, there's a lot of attractive bottom up stories.”

“Well, the real question is there's there's an awful lot of stuff in there that you would consider sort of lottery tickets. Right? Like, where it's stuff that it seems a little bit unlikely, this whole data centers in space thing. It's been tried. There's a company, I can't think of their name now, but they they launched one NVIDIA chip into space in a little satellite, to run an AI program where I think it was meant to, you know, learn the works of Shakespeare constantly had to be shut down because it overheats, because it's very difficult. You know, everyone says, well, space is cold, but it's also a vacuum, and you need air blowing over something or water or whatever to cool it, via convection. If it has to cool radiatively, you need these massive massive cooling fins on it.”

“And that's one big differentiation between, I think, the AI bubble and the Internet bubble is that the AI bubble is very much adopted and used by everybody almost right away, unlike the dot-com bubble where you actually had a lot of sort of unused capacity that was at the end built out.”

“I've had this conversation with countless people. They feel as though they are earning something when they get a dividend. This is passive income by getting a dividend, and that's just not the case. Settlers paribus, all things being equal, if a company pays out a cash dividend, its price should drop. Its market cap should drop by roughly the amount of the cash that leaves the portfolio. And so you are trading optionality for an income stream. If you want an income stream, invest in bonds.”

“We are so deeply afflicted by this idea of a concept of Bourbon's disease, right? Which for people who are not familiar, it's basically this idea that some sectors such as, you know, nannies or child care or health care doesn't really progress with technological innovation as you would have, you know, with say manufacturing, right?”

“The latest data shows inflation staying stubbornly above the two percent target.”

“I think one of the long term implications of the Iran war is that the GCC is increasingly not fit for purpose. I think that The Emirates and the Saudis will have a much more structural fight. The Emirates will tell you that, you know, in a time of war, this is when you really know who your friends are. Number one for them in this environment has been Israel... Saudis, that's a very different story. It's Pakistan. It's Egypt. It's Turkey. I think that becomes bigger, not smaller.”

“The aggregate numbers we're looking at, my intuition is that it's almost certainly not reflecting AI productivity, right? We are seeing measured labor productivity, which is a residual, right? And you basically sort of take a look at how total GDP growth is subtracted out, the stuff that you can measure and you attribute the rest of it to labor productivity. I suspect a big chunk of it is actually composition bias that we sort of move towards. If the labor intensive sectors are shrinking and then you have a lot more investments, and that is very capital intensive, and then productivity is measured on dollar value generated, it's going to look as though that productivity has gone up.”

“What I call a g zero world... is that when The United States rejects being the, the the the guarantor of collective security for its allies, when it rejects promoting free trade, when it rejects rule of law, and no one else is prepared or capable of responding. It turns out that in that environment, the a 100 plus trillion dollar global economy is extremely vulnerable to political actors that wish to disrupt it. And that might be the single biggest implication of g zero.”

“I've been doing this 30 years in investment research and I've only seen two other times like this that I can recall and the first is in 4Q07, where I was seeing the US economy and financial system collapse in real time. Yet, the equity markets hit an all-time record on the S&P in the fourth quarter of 07. It also reminds me of 1Q20 when obviously with COVID, markets were just sort of blissfully complacent. And then Tom Hanks said he had COVID, and then they shut things down, and the markets absolutely had a fit.”

“Energy markets are reacting sharply to the ongoing regional instability today.”