JD Straight Up - 8Jun26 - AI=All In

AI = All In

Drulard Family Capital Fund

Fortnightly Macro View

JD Straight Up:

S&P 500 at 7456 – flat from 7437 two weeks ago

VIX at 19 – up 12% from 17 two weeks ago

10yr Treasury yielding 4.55% (down 1% from 4.59% two weeks ago)

Agg (US Aggregate Bond Index) at 98.23 – flat from 98.44 two weeks ago

Gold at 4353 per oz (down 4% from 4521 two weeks ago)

Silver at 68.16 per ounce (down 10% from 75.89 two weeks ago)

Crude Oil (WTI) at 92 per barrel (down 5% from 97 two weeks ago)

Bitcoin at 64k (down 18% from 78k two weeks ago)

JPM shares at 314 (up 3% from 306 two weeks ago)

Deutsche Bank shares at 31.65 (down 2% from 32.43 two weeks ago)

Truist shares at 49.26 (up 2% from 48.38 two weeks ago)

Blackstone shares at 115.57 (down 3% from 118.51 two weeks ago)

Magnificent 7 Index at 432 (down 4% from 447 two weeks ago)

US unemployment: at 225,000 in latest claims – up 8% from 209,000 two weeks ago

EUR at 1.16 USD (flat from 1.16 two weeks ago)

GBP at 1.34 USD (down 1% from 1.35 two weeks ago)

Macro Environment

US inflation continues at 3.8% with energy costs up 32% YoY and the Strait of Hormuz still largely blocked.  EU inflation is at 3.2% compared to 2.4% prior year.  If inflation continues at 3.8%, prices will double in under nineteen years versus the thirty-five years it would take at the central bank target rate of 2%.  War persists in Ukraine while an uncertain ceasefire is in place in Iran.  Retaliatory bombing between Iran and Israel continues.    

Macro View

A great rotation out of precious metals, crypto, treasuries, and anything else even remotely liquid is underway as it all flows to the next great trade in AI.  History is rhyming as it does and did with railroads, energy, telecoms, and dotcoms.  The hot trade sucks in all the capital it can and facilitates great change and innovation until it overflows with capital and the flood drowns the smaller animals and leaves wreckage in its wake.  Frothy IPOs signal high tide and drag the retail money in.  Everybody wants a piece of the AI trade through labs, chips, infrastructure, power, or anything else that can apply the AI moniker to it to juice its valuation.  The rotation started with shifting out of threatened SaaS businesses to allocate to core AI trades and continued to pull capital from private credit and is now sucking capital from anywhere deemed to offer less return potential than the magic AI trade.

Relevance

On the positive side, this ensures sufficient capital to reach critical mass on compute and the infrastructure to support it.  However, it probably also leaves less exciting yet important industries short of the capital they need to develop.  In the AI All In trade, nobody really cares as the mentality is that AI and ultimately superintelligence solves for everything.  This will continue to be believed to be true until it is not.  Cracks will show in the ROI for datacenters and in suspect business models and the flood will recede.  It is impossible to tell how or when this will occur, but it will.

Head Scratchers

1 - Who will ultimately ensure the safety of AI models being released into the wild?  Regulators appear slow and inadequate to the requirement so that it is hard to imagine what role they would play.  AI labs are going public and increasingly competing for a seat at the oligarchy table so they are not going to collaborate.  Opensource or collective oversight have not been effective or possible.  There is one contingent arguing that there is no danger and it is all overhyped and will resolve akin to Y2K.  There are others suggesting the next iteration of models will surpass our ability to either understand them or control them.  Yet the train keeps rolling down the tracks and picking up speed...

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#44 - 8Jun26