JD Straight Up - 2Mar26 - War & Peace

War & Peace

Drulard Family Capital Fund

Fortnightly Macro View

JD Straight Up:

S&P 500 at 6856 – flat from 6836 two weeks ago

VIX at 22 – up 5% from 21 two weeks ago

10yr Treasury yielding 4.03% (down 1% from 4.06% two weeks ago)

Agg (US Aggregate Bond Index) at 100.66 – flat from 100.99 two weeks ago

Gold at 5350 per oz (up 9% from 4923 two weeks ago) - all time high

Silver at 90.44 per ounce (up 20% from 75.55 two weeks ago)

Crude Oil (WTI) at 71 per barrel (up 13% from 63 two weeks ago)

Bitcoin at 67k (down 3% from 69k two weeks ago)

JPM shares at 297 (down 2% from 303 two weeks ago)

Deutsche Bank shares at 34.29 (down 3% from 35.28 two weeks ago)

Truist shares at 49.59 (down 5% from 51.90 two weeks ago)

Blackstone shares at 113.32 (down 13% from 129.86 two weeks ago)

Magnificent 7 Index at 395 (up 1% from 393 two weeks ago)

US unemployment: at 212,000 in latest claims – down 7% from 227,000 two weeks ago

EUR at 1.17 USD (down 2% from 1.19 two weeks ago)

GBP at 1.34 USD (down 2% from 1.37 two weeks ago)

Macro Environment

US inflation at 2.4% while Core PCE inflation (US Fed's preferred gauge) is at 2.9% and moving on an upward trajectory through 4Q25 into 1Q26.  US GDP growth for 4Q25 was 1.4%.  EU inflation is at 1.7% and 4Q25 GDP growth at 0.3%.  War persists in Ukraine.  US and Israel attacked Iran, killing the supreme leader and other members of leadership.  Iran retaliated with missile strikes on Israel and multiple  US bases.  Fighting continues.  US Supreme Court overturned US tariffs.  Oil prices rose to highest level in eight months.  Gold eclipsed all-time highs.  US Department of War labeled AI firm Anthropic a "supply chain risk" after negotiations between the two on AI safeguards failed to reach agreement.

Macro View

Acute uncertainty and heightened leverage make poor bedfellows.  The first year of the US administration was celebrated with a State of the Union pep rally last week where the President rhapsodized for nearly two hours to partisan ovations.  An overly brief summary would conclude that "America is back!" and it is "the hottest country in the world!".  Beyond this energy, excitement and enthusiasm remains compounding uncertainty from tariffs, geopolitical action (think Venezuela, Mexico, Iran, Greenland, Cuba...), AI (Anthropic) and immigration (ICE) amongst many other known and yet to be known issues.  The uncertainty makes longer term investment in businesses and markets challenging.  When you pair that with the degree of leverage inherent in markets and companies right now, it is concerning.

As an example, there are only three times in the last thirty years that margin balance ratios have risen anywhere near as high as they currently sit.  The two prior moments are not exactly ones to reflect on with optimism.  The first was the dotcom crash where prices peaked in '99 and came off precipitously over the next two years before Fed action to pump money into the system.  The second was the GFC where exuberance peaked in '06 with a crash starting in late '07 and the Fed and Treasury having to coordinate cash for a rescue.  We are now back at the same levels of margin balances as speculation is rife.  Of course correlation is not causation and we could probably have Claude find us a few more unrelated lines to correlate that would be amusing rather than enlightening, but the chart below is worth a thought.

Relevance

Further to thoughts on leverage, there are some businesses that rely on it heavily to generate returns.  Private Equity, Private Credit, Commercial Real Estate, and many participating in the carry trade.  It makes you wonder whether Blackstone (BX) is a good proxy given their engagement in many of these places at scale.  It then makes you wonder whether BX is the highly leveraged canary in the coal mine (see chart above).

It was arguably hard enough to figure out up from down given the AI driven uncertainty and the virality of pieces from Shumer, Citrini, Amodei, and many others and the volatility starting in the SaaS space and spreading to businesses likely to be disrupted by AI.  Then you throw in widespread missile strikes, targeted killings, and subsequent ongoing unrest in the Middle East and uncertainty spikes to a level beyond comprehension.  Beyond human comprehension anyway, so maybe AGI can make sense of it and everything will be ok...

Head Scratchers

1 - Can you still cry foul if senior members of the US or Israeli government are attacked via drone directed by AI?  Are you still wrapped in the mantle of the righteous after these past few weeks?

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#37 - 2Mar26