JD Straight Up - 8Dec25 - Concentration

Concentration

Drulard Family Capital Fund

Fortnightly Macro View

JD Straight Up:

S&P 500 at 6859 – up 2% from 6697 two weeks ago

VIX at 17 – down 20% from 21 two weeks ago

10yr Treasury yielding 4.14% (up 2% from 4.05% two weeks ago)

Agg (US Aggregate Bond Index) at 99.75 – down 1% from 100.54 two weeks ago

Gold at 4221 per oz (up 3% from 4096 two weeks ago)

Crude Oil (WTI) at 59 per barrel (up 2% from 58 two weeks ago)

Bitcoin at 90k (up 3% from 87k two weeks ago)

JPM shares at 315 (up 6% from 299 two weeks ago)

Deutsche Bank shares at 36.69 (up 8% from 34.00 two weeks ago) - up more than 100% YTD

Truist shares at 47.71 (up 5% from 45.52 two weeks ago)

Blackstone shares at 151.53 (up 7% from 141.57 two weeks ago)

Magnificent 7 Index at 425 (up 3% from 413 two weeks ago)

US unemployment: at 191,000 in latest claims – down 13% from 220,000 two weeks ago - lowest since Jan '24 - thanksgiving count anomaly

EUR at 1.16 USD (up 1% from 1.15 two weeks ago)

GBP at 1.33 USD (up 2% from 1.31 two weeks ago)

Macro Environment

US inflation rate is 3.01% and EU is 2.5%.   US inflation is driven by housing, food, energy, and medical while EU is driven by energy and food.  US GDP growth is 3.5% and EU is 1.6%.  War continues in Ukraine with ongoing posturing and intervention aimed at bringing about ceasefire.  Ceasefire remains in place in Gaza.  US is engaging in military strikes against suspected drug boats from Venezuela.

Macro View

Major economies, led by the US, are levered to historically high levels.  Cost of capital has ticked up meaningfully over the last few years so the payoff from that leverage is less certain.  A generational bet on AI being the panacea is underway and has considerable momentum.  The productivity and efficiency gains brought about by AI are believed to be sufficient to moderate the cost of capital and to continue to drive economic growth.  There does not seem to be much of a Plan B anywhere so leaders of corporations, governments and investors are concentrating their rhetoric and capital allocation on AI.  In line with the industrial revolution or the digital revolution, the AI revolution is a one way bet.

Relevance

Mag7 represents 35% of the S&P 500.  This degree of concentration has occurred rarely.  Some examples include the US trusts in the early twentieth century with railroads, industrials and energy companies accounting for 40%, then in the early '70s with the nifty fifty concentration around blue chips at 28%, and finally in the dotcom era accounting for nearly 30%.  The times where excitement and focus swing to a narrow channel for capital to run through provide some unique opportunities for rapid innovation, yet also accompanying risk of bubbles or overweighting.  It is unclear how often a concentration like the current one has been associated with a flood of liquidity at the scale of that from fiscal and monetary stimulus running from the GFC through the pandemic to now.  It could mean that the scale at which this concentration is happening is truly unique in modern history.  That could be great for tipping the scales towards AGI, the singularity, and as yet unimagined advances in AI, but it could also bring about unimaginable excesses with the accompanying wreckage of an unforeseen tsunami.

Head Scratchers

1 - Is there any other country than the US that could or would have private and government commitments in excess of $5trn to AI?  In nominal value or as a percentage of GDP?  How often in the past has the concentration of capital been as extreme and what has that focus facilitated?  What is the near and long term cost of ignoring other potentially worthy uses of capital and is it justified?

Drulard Family Capital Fund

Drulard Family Charitable Fund

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#31- 8Dec25