JD Straight Up - 25May26 - High Plateau

High Plateau

Drulard Family Capital Fund

Fortnightly Macro View

JD Straight Up:

S&P 500 at 7474 – flat from 7411 two weeks ago - all-time highs

VIX at 17 – down 6% from 18 two weeks ago

10yr Treasury yielding 4.59% (up 5% from 4.38% two weeks ago)

Agg (US Aggregate Bond Index) at 98.44 – down 1% from 99.10 two weeks ago

Gold at 4521 per oz (down 5% from 4748 two weeks ago)

Silver at 75.89 per ounce (down 12% from 86.17 two weeks ago)

Crude Oil (WTI) at 97 per barrel (flat from 97 two weeks ago)

Bitcoin at 78k (down 4% from 86k two weeks ago)

JPM shares at 306 (up 1% from 302 two weeks ago)

Deutsche Bank shares at 32.43 (up 2% from 31.90 two weeks ago)

Truist shares at 48.38 (down 1% from 49.00 two weeks ago)

Blackstone shares at 118.51 (down 3% from 122.52 two weeks ago)

Magnificent 7 Index at 447 (flat from 446 two weeks ago)

US unemployment: at 209,000 in latest claims – up 5% from 200,000 two weeks ago

EUR at 1.16 USD (down 1% from 1.18 two weeks ago)

GBP at 1.35 USD (down 1% from 1.36 two weeks ago)

Macro Environment

US inflation at 3.8% and GDP growth at 2%.  EU inflation at 3% and GDP growth at 1%.  War persists in Ukraine and Iran with a ceasefire in Gaza.  Traffic in Strait of Hormuz remains interrupted.  Pipeline of record sized IPOs related to AI builds.  Yield on 10yr UST eclipses 52-week high.

Macro View

Everything is higher and resting on the higher plateau - oil, equity indices, yields, precious metals, tech, financials.  The time of offsets from rotations appears to have lapsed.  Shifts out of equities towards yield as the longer end of the curve neared or exceeded 5 percent looks to be a thing of the past.  The longer cycle could still be with us.  The one that nears its end with a flood of increasingly aggressive IPOs until investors are pushed too far and ultimately boycott.  That tends to be quickly followed by highly levered debt failing to roll.  Given the vast sums of leveraged loans and private credit sold in the last decade and their 7 year maturities, there is surely a wave approaching.  You can only PIK and amend & pretend for so long.  There could still be a way to go as IPO euphoria captures the imagination of retail investors and creates a froth tsunami, but eventually the cycle will exert itself and IPOs will stall followed by highly levered issuers failing to roll paper.

Relevance

Markets are waiting for resolution on key issues like Hormuz and a US Fed under a new head.  Inflation is too strong to contemplate any lowering of rates and even the re-opening of Hormuz will take some time to steady flows and bring energy prices back down.  Shorter term rotation by not be in play, but middle term capitalist flows and animal instincts persist.  The longer term cycle could be altered by the emergence of AI, but its impact and timing continue to be unclear.

Head Scratchers

1 - With US companies ultimately committing trillions to AI infrastructure and investment, how will other countries get a say in what is intended to be the most life-altering technological revolution of all time?  Even Pope Leo wants a chance to say something, but will the AI labs take note?  If the greatest technical minds are devoted to building superintelligence, would there ever be anyone in a government or regulatory role that could face off with them and stand a chance?

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#43 - 25May26