JD Straight Up - 11May26 - Who Knows

Who Knows

Drulard Family Capital Fund

Fortnightly Macro View

JD Straight Up:

S&P 500 at 7411 – up 4% from 7155 two weeks ago - all-time highs again - up 17% in six weeks

VIX at 18 – down 5% from 19 two weeks ago - low and stable enough to trigger IPO activity

10yr Treasury yielding 4.38% (up 1% from 4.32% two weeks ago)

Agg (US Aggregate Bond Index) at 99.10 – flat from 99.54 two weeks ago

Gold at 4748 per oz (up 1% from 4709 two weeks ago)

Silver at 86.17 per ounce (up 14% from 75.47 two weeks ago)

Crude Oil (WTI) at 97 per barrel (up 1% from 96 two weeks ago)

Bitcoin at 81k (up 4% from 78k two weeks ago)

JPM shares at 302 (down 3% from 312 two weeks ago)

Deutsche Bank shares at 31.90 (flat from 31.86 two weeks ago)

Truist shares at 49.00 (down 5% from 51.28 two weeks ago)

Blackstone shares at 122.52 (up 2% from 119.98 two weeks ago)

Magnificent 7 Index at 446 (up 4% from 430 two weeks ago) - all-time high - driver of S&P rally

US unemployment: at 200,000 in latest claims – down 7% from 214,000 two weeks ago

EUR at 1.18 USD (flat from 1.17 two weeks ago)

GBP at 1.36 USD (flat from 1.36 two weeks ago)

Macro Environment

US inflation for April expected to report at 3.8% from energy shocks impacting fuel and transportation costs.  US GDP growth is 2% with unemployment at 4.3% and strong corporate earnings.  US GDP is near $32trn with US debt at $39trn for debt to GDP of 122%.  EU inflation is expected to report at 3.0% with energy costs up 11%.  EU GDP growth is at 0.1% with unemployment at 6%.  Ceasefire continues in Gaza while Israel is active in Southern Lebanon.  Ukraine war persists.   US and Iran are in ceasefire though peace proposals have been rejected.  Strait of Hormuz remains blockaded.  Leaders from US and China will meet in Beijing next week.

Macro View

Strong corporate earnings and belief in coming significant productivity gains from AI continue to combine with excess cash to outweigh concerns about war, energy shocks, debt levels, inflation, private credit, and central bank independence to drive tech, AI, and semi to ever higher levels.  The focus is on compute and delivering sufficient infrastructure to power transformational AI en route to superintelligence.  The fact that many of the components of the S&P are lingering and trading flat is almost entirely ignored in favor of those connected to AI.  

Relevance

As it always does in massive rallies, talk is moving to discussions about the end of business cycles and "this time is different" narrative.  Of course, every time is different, but capitalism remains cyclical.  Whether in the age of steam power, electrification, information, or AI, there will be a flood of capital to facilitate the change and innovation and many losers will fall by the wayside.

The following chart shows an inconceivable curve.  The S&P 500 comes out of the GFC at 700 and now eclipses 7400.  10x in 15 years with a mere hiccup from Covid along the way.  Is it attributable to an unprecedented economic run the likes of which the US has never experienced?  Or to the printing and pumping of money into the system starting with GCF stimulus and continuing through Covid stimulus?

Will the curve continue to steepen until it goes vertical?  Is that what AI ultimately delivers or will we see the cycle reemerge?

Who knows.

Head Scratchers

1 - How does a multi-trillion dollar industry exist full of 'experts' that claim to be able to forecast, project, and interpret this activity in order to generate recurring alpha?  Are the rest of us mere mortals blind to their genius?  Will superintelligence enlighten us and have all become clear at the singularity?

Drulard Family Capital Fund

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#42 - 11May26