🎙️ NEW PODCAST WITH CHRIS AND BRAD
Welcome to 2025! If the events of the past couple of days are anything to go by, we’re up for an “eventful” year…
To kick things off, we have a new podcast to share with you today. Chris and Brad recently joined Danny on the CapitalCosm show. Here’s a few topics the gents discussed:
- The #1 topic on our radar right now
- With many popular stocks trading at absurd valuations, should you be worried about a stock market crash (and how to position for it)?
- Biden vs Trump: how the new Trump admin could affect the markets and various asset classes (and how does that affect our thinking and positioning)
- The hidden link between energy markets and the cost of your bread
- Seeking validation vs. information: the majority of investors are looking for validation, but what they should be really searching for is information
- Why we are NOT looking to invest like Warren Buffett (and why we believe most people — even the majority of asset managers — should do the same)
- Update on Argentina; with Argentine stocks up 5-10x since we first bought them (and the country now frequently making headlines in the international media), is now the time to start offloading our positions?
- The importance of asset allocation vs. finding the “right stock to buy”
- Plus, a whole bunch of other stuff.
You can listen to the entire conversation on Youtube here.
🤷 ALL THINGS TRANSITORY…
Feels like a lifetime ago, when — back in February 2020 — we started warning that COVID lockdowns will bring about inflation and shortages. At the time, the pointy shoes were telling us that the soaring cost of everything is transitory and as such “no problemo.” Plus, it was all Putin’s fault, anyway.
Today, a full five years later, they’re finally fessing up that all the government spending (financed by the unprecedented money printing) might in fact have had something to do with inflation prints hitting the highest levels in decades.
Funny how we’ve finally come full circle, eh?
As you might know, back in 2020, we set up a dedicated inflation channel in our Insider private forum for members to share their own experiences with all things “transitory,” such as this recent “shrinkflation” report from Clint:
These showed up in my stocking today. I don’t think I’ve had one since I was a kid, but pretty certain they were much bigger. I opened them up and laughed. There’s a toothpick for scale. The box itself is probably “normal size” but that plastic tray it comes in buffers about 1”
Plus, a report from Russia — this one from member Vitalie, who shared a note from a friend in Russia.
You once asked about inflation. Well, officially it’s 10%. According to my feelings (without using any scientific methods) it’s 50-70%.
But that’s not how most investors feel! Somewhat ironically, they have virtually eliminated the tail risks of an inflationary shock — as you can see in the chart we shared in the Insider Newsletter a while back.
Put differently, the market has priced in an extremely low probability of inflation moving materially higher over the coming months.
Time will tell if they’re indeed right…
🇺🇸 JUST GIVE UP ALREADY!
Those contrarian indicators just keep on coming.
If you’re a long-time reader, you’ll probably know we’re big fans of using things like magazine covers and news articles as a market sentiment barometer and a contrarian indicator.
Much like that George Costanza bit — if every instinct you have is wrong, then the opposite would have to be right.
When everyone is telling you to pile into one sector, market, asset class… it might be worth doing the opposite.
Case in point…
Now, it’s not hard to see why these kinds of headlines are popping up right now. Compared to the rest of the world, US stocks are at 75-year highs.
That’s a full 14 years of the S&P 500 outperforming the world stock market in a linear fashion… and by a huge magnitude.
So much so that the US stocks now account for 73% of the MSCI World Index, as this chart from Tavi Costa (@TaviCosta) shows:
Here’s Tavi’s commentary:
US stocks currently account for 73% of the MSCI World Index, the highest single-country weighting ever recorded in its history.
This overwhelming dominance reflects how US equities have attracted the majority of global capital, leaving the rest of the world largely overlooked and underfunded by investors.
At what point does the tide shift?
Those who believe it never will are blatantly ignoring the lessons of history in my view.
Market leadership undergoes secular shifts, and after an extended period of US stocks outperforming the rest of the world, I see an increasing likelihood that capital could begin to flow back into countries that have long been overlooked.
While on the topic of countries that have long been overlooked…
🇨🇳 CHINA, CHINA, CHINA
A while back, we discussed coal and oil and gas stocks as a way to capitalize on the AI boom and the massive pickup in energy demand that comes with it. And when yuuuge amounts of energy are required to power AI supercomputers and data centers, energy costs matter… a lot.
Consider that China produces 1GW of nuclear power for $2 billion. At the same time, in the US, it costs $12 billion to produce the same 1GW of nuclear power. That’s six times more — just to get the same amount of energy.
We recently came across an insightful post from Petri Kuittinen (@KuittinenPetri), which echoes the same sentiment:
You need 3 things to be #1 in AI:
- Data
- Computing resources
- Electricity
USA leads in #2 (twice as much as China), and has slight lead in #1. But Chinas has 2 more electricity generation than USA and far cheaper energy. China’s advantage in electricity generation is likely to grow in next few years.
And when it comes to number of STEM students and AI scientists China has a massive lead.
It might be so that USA maintains lead in the most cutting edge models as big USA companies have deeper pockets than anybody else, but most people don’t need genius-level intelligence. They need something to do their home work, boring bits of their work, help them composing messages. DeepSeek will of course improve from V3, but V3 is already good enough for many tasks, including coding, which is #1 use case for many.
Price and availability of course matters enormously. If its price is near zero, you can run 1000s of instances in parallel and get the job, which would normally require you weeks, done in mere few minutes. If the price is cost to zero, all kinds of apps from productivity (Office, multimedia) to games could be AI powered.
AI diagnoses will be (near) free as it will consume so little electricity & tokens that it will be less $0.05 for an expert diagnosis.
Combine with fast & cheap net, you can bring AI to all sorts of devices, vehicles etc.
Some societies will adapt and take advantage of this faster than others. Some will put legal hurdles (like EU) and have strong unions (like EU) to make sure they will stay behind in AI + robots race.
Perhaps that’s why Chinese tech companies are able to slash their AI prices by 85% (at the same time, OpenAI struggles to make money with ChatGPT Pro costing $200 per month)…
Curiously enough, Chinese tech stocks got absolutely decimated over the past couple of years — down some 70% from their 2021 peaks.
Surely, their earnings must’ve collapsed, right? Nothing could be further from the truth. In many cases, in fact, earnings are now materially higher.
Sticking with Alibaba as an example (share price in white vs. earnings per share in orange)…
Now, to be fair, earnings for American tech companies have also been hitting record highs… but so, too, have their share prices.
This is exactly the kind of asymmetric setup that makes us giddy with excitement.
Assuming these earnings dynamics don’t get much worse from here, we don’t think it would take a lot for Chinese tech stocks to go much higher than where they are today. Certainly, stranger things have happened in the markets.
🤣 WEEKLY HUMOUR
You’ve heard of Karl Marx. But we bet you’ve never heard of his athletically gifted sister.
Have a great week!
