Seeking Alpha by Adding Beta

Rockets, Relics & Roaring Markets: The $4 Trillion Crossroads of 1927 and 1999

noreply@blogger.com (Unknown) — Sun, 24 May 2026 16:21:59 +0000

Happy (almost) Summer! After watching Kevin Warsh get sworn in at a White House ceremony two days ago, tracking three S-1 filings that could collectively hoover up more capital than every U.S. IPO since 2022 combined, and watching 26-year-old stock charts finally break to new highs — it felt like the right moment to ask the uncomfortable question out loud.

Are we at a party that ends gracefully, or one that ends with the furniture on fire?

The market is simultaneously flashing the neon signs of 1999 and the orchestral excess of 1927. Most commentators reach for the dot-com playbook. I think the original Roaring Twenties is the better map. Here's why...

Assembly Lines to AI Clusters

Ford's River Rouge complex was the largest industrial facility on earth in the 1920s — raw iron in one end, a Model T out the other. Steel, rubber, and oil became the picks-and-shovels of the age. GE and Westinghouse were electrifying factories and homes. The infrastructure buildout was the story, not just the product.

Today, Nvidia's GPU farms are the River Rouge of the AI era. Corning lays the fiber, Micron supplies the memory, the power grid strains under the load. AI data center capex is projected at nearly $1 trillion this year alone. Jensen Huang recently called it "the single largest infrastructure buildout in human history." That is exactly what people said about the electrical grid in 1925. They were right. The infrastructure cycle always pulls in the old industrial players — and then eventually outruns them.

Swampland to Starships

By 1925, Florida lots were changing hands multiple times a day. Buyers bid on land described only in pamphlets, using "binder contracts" — options on future options — to lever up without ever taking delivery. The boom peaked in 1926. The bust came before 1929. And nobody connected the two until it was too late.

SpaceX, OpenAI, and Anthropic are being valued at $900 billion to $2 trillion on businesses that are real, growing — and largely unprofitable at scale. The SpaceX S-1 hit May 20th: $1.75–2 trillion target valuation. OpenAI targets $1 trillion in September. Anthropic follows in October with over $1 trillion Combined: $3.75 trillion pricing in a five-month window — roughly the GDP of France.

The Florida binder contracts are today's IPO allocations. The pamphlets are pitch decks. The lots are orbital launch rights and foundation model APIs. The underlying assets are real. The arithmetic, at these prices, requires a great deal of imagination. Every era has an asset class where imagination outruns math — until it doesn't.

Ticker Tape to Twitter Feeds

The 1920s gave ordinary Americans real-time price data for the first time. Bucket shops let small investors speculate on margin without owning the underlying. By 1929, nine million Americans — in a population of 120 million — held stocks. Speculation had been fully democratized. That was both the triumph and the trap.

Today: zero-commission trading, zero day options, options on phones, Reddit-driven price action, and retail IPO allocations have extended the party to a new generation. The mechanics differ; the psychology is identical — easy access, leverage, and the primal fear of missing the decade's defining trade. Democratizing speculation is always celebrated right up until the margin calls arrive.

The Ghost Fleet & the Change of Guard

Woven through all three themes is an eerie subplot: the infrastructure names of the last technology boom are back at record highs. The companies that defined the dot-com era — Intel up nearly 200% in 2026, Cisco crossing century mark first time ever, Corning finally breaking its year-2000 peak, Micron at an $800 billion market cap — are all riding the AI infrastructure wave. Intel now trades at 108x forward earnings, richer than the most celebrated networking names were at their dot-com apex. Same ships, new cargo delivering the goods for the AI infrastructure

The Fed parallel is equally striking. In 1999, Alan Greenspan had spent three years warning of "irrational exuberance" — then watched the market double anyway. He finally raised rates six times between June 1999 and May 2000. The hikes were what ultimately punctured the bubble. Greenspan had the political independence to act. The market paid the price on his schedule.

Kevin Warsh just took the oath in the East Room two days ago, with the President watching. He inherits 3.8% inflation (three-year high, driven by the Iran war oil shock), real wages falling, and a political principal with a well-documented preference for rate cuts regardless of the data. The inversion from 1999 is the critical distinction: Greenspan had independence but waited too long. Warsh may lack the runway to use it at all. If he cuts while inflation sits at 3.8%, bond markets will reprice violently and every long-duration AI growth name will feel it. If he holds, the political pressure will be unlike anything the institution has faced in a generation. There are no clean exits from this inheritance.

1927 or 1999? Both. Simultaneously.

The three-layer reality:

The Real Thing. AI productivity gains are structural and compounding. The infrastructure buildout will run for years similar to internet infrastructure buildout because need for tokens would be exponential (When the dot-com bubble burst in 2000, global internet traffic averaged roughly 84 petabytes per month. Five years later, in 2005, monthly global traffic had grown significantly to about 2,426 petabytes (2.42 exabytes), representing roughly a 29-fold increase)

The Froth. Infrastructure names at 100x+ earnings, trillion-dollar IPOs priced on terminal-value imagination, retail speculation at historic participation rates. That's where 1999 lives.

The Structural Trap. A new Fed chair under political pressure, 3.8% inflation, a war that markets have priced as resolved when it isn't, and three capital-market whales surfacing simultaneously. That's where 1927 lives — and it's the layer most investors aren't pricing.

The 1927 lesson that the 1999 frame misses: the crash doesn't require fraud. It requires excess capital chasing a genuine thesis faster than that thesis can deliver returns. The 1929 bubble wasn't built on delusion. It was built on extrapolation.

What's the Play?

Mega-IPOs: entry price over first-day pop. SpaceX is the most defensible — real cash flow, near-monopoly in commercial launch. Size for the five-year hold. The first-day pop is for insiders. The five-year hold is for investors.
The Ghost Fleet: trade, don't marry. Infrastructure names at 100x earnings are real businesses priced for perfection. Know whether you're buying the thesis or the multiple.
Warsh Watch is the underpriced risk. The Fed chair transition is the single most important variable for the second half of 2026. Watch his first two moves carefully — they will telegraph whether he has the independence to act or the political constraints that make 1999's ending look orderly by comparison.
Cash is not trash. Three trillion-dollar IPOs competing for institutional capital creates dislocations in everything else. The patient investor who bought Amazon at $7 in late 2000 didn't need a time machine. Just dry powder and conviction.

Final Thought

We came into 2026 asking whether this was 1998 or 2000. The better map is a century older — assembly lines becoming AI clusters, swampland becoming starships, bucket shops becoming 24 hour trading on mobile apps. And a new Fed chair, like Greenspan before him, inheriting a market that has already decided what it wants to believe.

History doesn't repeat. But sometimes it rhymes so loudly you can hear it from the balcony.

The question for 2026–2027 isn't whether this ends. The question is whether you're positioned with enough real exposure to capture a genuine technological transformation — and enough intellectual honesty to know that the price you pay determines everything.

Enjoy the summer. It might be a memorable one.

/Shyam

Personal views and market observations, not investment advice. Do your own diligence.

The AI Siege: From SaaSpocalypse to BugArmageddon

noreply@blogger.com (Unknown) — Wed, 15 Apr 2026 04:48:00 +0000

Happy Spring! After navigating "Ides of March", it’s time to tackle the story that has every SaaS executive reaching for antacids and every cybersecurity CISO simultaneously terrified and quietly pumping their fist.

This saga has everything: a mythology-named AI model too dangerous to release, a real-time startup mortality tracker called "Death by Clawd," and an unannounced emergency meeting at the U.S. Treasury.

You genuinely cannot make this stuff up. And we are not even halfway through April...

SaaSpocalypse: The First Shoe Drops

The trouble started well before Mythos. In early February, roughly $285 billion in software market cap evaporated in 48 hours. Stalwarts like Salesforce, Adobe, and ServiceNow—names that had compounded investor wealth for a decade—suddenly dropped 25-35%. A Jefferies trader coined the term that stuck: the SaaSpocalypse.

The structural logic is elegant in its brutality. The SaaS golden model was built on one premise: charge per seat, watch headcount grow, and profit forever. Then the AI agent arrived. The agent doesn't have a headcount; As Gartner analyst noted, if AI agents do the work of 100 seats independent of humans, tying licenses to humans simply doesn't make sense anymore. The per-seat model is starting to look like a horse-and-buggy pricing strategy in the age of autonomous vehicles.

BugArmageddon: The Second (Bigger) Shoe

Just when investors thought the pain was priced in, Anthropic dropped Claude Mythos on April 9th and simultaneously announced they would not release it publicly. It’s the equivalent of unveiling a car that does 400 mph and saying: "Impressive, right? It stays in the garage". and that was right decision to make sure that companies which are part of "Project Glasswing" (equivalent to "J.P. Morgan’s Library" of the AI era - more on this analogy later). It is a closed-door, high-stakes defensive perimeter established to prevent a total collapse of digital credibility.

The reason? Mythos can identify and exploit vulnerabilities at a scale that makes traditional security testing look like a candlelight audit in a hurricane. In demos, it found a crash vulnerability in OpenBSD that had evaded hackers for 27 years.

The market reaction was catastrophic. Many software companies dropped 6-8% that day. Meanwhile, Powell and Bessent quietly summoned Wall Street CEOs to the Treasury—no press release, just dread in a room full of people whose institutions run on software Mythos can dissect like a grad student with a library book. It reminded of similar meetings during depth of financial crisis of 2008 - but this time was not about liquidity crisis but potential of exposure to vulnerabilities!

The SaaSpocalypse was about AI replacing software workflows. BugArmageddon is about AI dismantling the security assumptions those workflows are built on.

What’s the Play?

Markets are answering a healthy question with the precision of a sledgehammer. Here’s how I’m thinking about the fallout:

Trim the pure workflow SaaS: If your product's moat is "doing the task"—drag-and-drop UI or basic automation—you are exposed. Someone can screenshot your UI, hand it to Claude Code, and have a replica in days. The per-seat expansion story is structurally capped, and valuations haven't fully adjusted.
The cybersecurity contrarian setup: If Mythos-class models proliferate (and in a tech race for AI supremacy, they will), demand for elite security infrastructure doesn't collapse—it explodes. The same AI that finds 27-year-old bugs makes every enterprise desperate for zero-trust architecture and AI-assisted threat detection. This short-term pain may be setting up one of the decade's better long-term plays.
Don't abandon "system of record" SaaS: Salesforce, ServiceNow type SAAS companies are not just workflow; they are 10-20 years of "system of records". That doesn't get one-shotted overnight. These names would do ok as long as they evolve quickly with their own Agentic workflows based on system records to help their customers (and of course take care of BugArmageddon in their own software)

Final Thought

Mythos didn’t create the new "Y2K" type problem — it just turned the lights on and created AI speed urgency. We came into 2026 asking if this was 1998 or 2000. I have been thinking about historical analogies.

The dot-com comparison is the obvious one — and it’s partially right. We’re in a
period where transformational technology is genuinely real, but where the valuations had
priced in a frictionless utopia that reality doesn’t deliver on schedule. Some of 1999’s
casualties (Pets.com, Webvan) were genuinely worthless. Others — Amazon, Google — just
needed time.

There is one lesser but similar analogy: 1907 and the Bankers’ Panic. The panic wasn’t caused by bad fundamentals. It was caused by a credibility crisis — the realization that the financial system had grown complex and interconnected in ways that no one fully understood, and that a shock in one corner could propagate unpredictably. J.P. Morgan famously corralled the country’s major bankers into his library and essentially strong-armed a private sector bailout.

The Mythos moment feels similar. This isn’t fundamentally about bad software companies. It’s about the market suddenly confronting the fact that the software infrastructure of the global economy may have systemic vulnerabilities that we didn’t know existed — and that a single AI model can find them faster than the industry can patch them. That’s a credibility crisis, not an earnings crisis. The question isn’t whether software companies survive. Of course they will. The question is: at what multiple, with what margin structure...Markets are still trying to figure that out.

That's all for now...next week would be another interesting week...in meantime, I will enjoy my weekend in Mexico city exploring some history and excellent food!

/Shyam

Statues, Seeds, and Straits: Navigating the Ides of March

noreply@blogger.com (Unknown) — Sun, 15 Mar 2026 00:20:00 +0000

March is always a month of transitions. We move from the scripted drama of Hollywood to the unscripted chaos of the basketball courts with NCAA March Madness and continued chaos in geopolitics due to surprise late Feb events. Here is my take on Oscar predictions and other events..

Statues: And the Oscar goes to....

Tomorrow night, the Dolby Theatre becomes the center of the universe. This year’s race is a fascinating battle between the "Record-Breaker" and the "Auteur's Epic." Ryan Coogler’s Sinners walked in with a historic 16 nominations, but Paul Thomas Anderson’s One Battle After Another has been cleaning up the precursors.

Here are my predictions for the top 10 categories:

Best Picture: One Battle After Another (Surprise: Sinners)
Best Director: Paul Thomas Anderson (One Battle After Another)
Best Actor: Michael B. Jordan (Sinners) - even though close second, Timothée Chalamet (Marty Supreme) may have to wait to win his first Oscar some more time!
Best Actress: Jessie Buckley (Hamnet)
Best Supporting Actor: Sean Penn (One Battle After Another) - this win should put Sean Penn in esteemed company of 2nd most Oscar winners (Meryl Streep, Jack Nicholson, Daniel Day Lewis, Ingrid Bergman and Walter Brennan)
Best Supporting Actress: Amy Madigan (Weapons)
Best Original Screenplay: Sinners (Ryan Coogler)
Best Adapted Screenplay: One Battle After Another (Paul Thomas Andersen)
Best Animated Feature: K-Pop: Demon Hunters
Best International Feature: Sentimental Value (Norway)

GTC 2026: The "Vera Rubin" Era and the Gigawatt Factory

Just as the Oscars wrap up, the "Woodstock of AI" begins. This week’s NVIDIA GTC in San Jose isn't just about faster chips; it’s about the architectural shift to Agentic AI and "Physical AI." While everyone is eyeing the Vera Rubin platform—which promises a 10x reduction in inference costs over Blackwell— watch out for the networking and energy play. Jensen is talking about "buildouts measured in gigawatts," and for those of us in the networking world, that means the AI Factory is the new unit of scale. Look for big news on the Spectrum-X photonics side and how BlueField-4 will handle the storage-heavy reasoning required for autonomous agents. If Blackwell was the engine, Rubin is the entire grid.

Seeds & Straits: The Geopolitical Full-Court Press

Selection Sunday is one day away, and while the Seeds (Duke, Florida, Michigan, and Arizona) are nearly settled on the top line, the real "Madness" is happening in the maritime chokepoints.

As we enter the Ides of March, the Strait of Hormuz has become the ultimate "bracket buster." Following the military escalations in late February, the effectively closed strait has sent oil traffic plunging by 70%. We are seeing roughly 20 million barrels a day—20% of global energy—sitting on the sidelines. Brent crude has already kissed $126 per barrel, and with the "Ides" historically being a time for settling debts, the global economy is footing a massive bill. One "unforced error" in these narrow waters can bust the entire global stability bracket. The geopolitical game is moving faster than the world and markets can keep up with it...

The markets are currently "shooting first and asking questions later." We’ve seen a massive rotation as the AI narrative shifts from pure excitement to "show me the productivity."

The AI Rotation: We are moving from the "infrastructure" phase (chips and servers) to the "implementation" phase (software and productivity). Watch for the laggards in the SaaS space to finally catch a bid if they can convince markets that they hold the key to "final mile" of enterprise productivity unleashed by AI and holds trove of "system of records" in enterprise (aka they control the "straits" to unleash the power of AI in enterprises)
The "Real Asset" Hedge: With geopolitical tensions refusing to simmer down, hard assets such as Gold and Energy remain the "anti-fragile" plays. I still believe "Stree-Dhan" (the wisdom of holding gold) will outperform the paper-pushers this quarter.
Volatility Rebound: The VIX has been suppressed for too long. Much like a 12-point underdog making a run in the final two minutes, expect a spike in volatility as we approach the next Fed meeting.

Final Thought: Whether you are predicting on a film, a team, or a stock, remember that March is the month where "momentum" is a fickle friend. Keep your positions tight and your eyes on the Ides.

Happy "Pi" Day!

/Shyam

Stree-Dhan vs. Oracle of Omaha!

noreply@blogger.com (Unknown) — Sun, 01 Feb 2026 20:20:00 +0000

Happy February! After another brief hibernation from the blog—partly to digest the early year volatility and partly to observe the shifting sands of global liquidity—it’s time to look at some fascinating disconnects in the market.

Lately, I’ve been thinking about the "Unbeatable Asset Class." No, I’m not talking about the S&P 500 or Nvidia. I’m talking about a collective force that has quietly outperformed the "Oracle of Omaha" for over two decades.

1. The Golden Saree: Indian Women vs. Warren Buffett

If you look at the performance of Berkshire Hathaway (BRK-B) since the launch of the GLD ETF (the first gold ETF) in late 2004, you’ll find a startling reality. While Buffett is the gold standard of value investing, the "Gold Standard" itself—specifically in the hands of Indian households—has been a formidable rival.

Data shows that since the inception of the GLD ETF in November 2004, the total return on Gold has actually surpassed Berkshire Hathaway. In USD terms, Gold is up roughly 932% compared to Berkshire’s 744%. But for the Indian woman, the "Alpha" is even higher. Because she buys in Rupee (INR), she has benefited from a "Double Engine" of growth: the rising global price of gold and the steady 3–4% annual depreciation of the Rupee against the Dollar.

For decades, Buffett dismissed gold as a "non-productive" asset that just sits in a vault. But for millions of Indian families, Stree-Dhan has been the ultimate hedge, outperforming the smartest man in Omaha by simply buying gold on every festival and wedding in the family and holding it forever. My mom used to advise exactly this since I was young (which unfortunately I did not act on but fortunately as every Indian woman my wife did).

2. The "Warsh Effect"

Moving from real assets to macro policy, we have to talk about the Warsh Effect. With Kevin Warsh’s influence looming large over the fiscal intersection, markets are bracing for a "hawkishly pro-growth" stance.

The Warsh Effect is essentially the market’s anticipation of Rule-Based Monetary Policy.

Stocks: We are seeing a "Bad News is Bad News" regime. The market wants growth, but it’s terrified of a bond vigilante comeback and by appointing a credible candidate, Trump gave markets assurance that Fed would remain independent and balanced in its approach to inflation and employment
Cryptos: Liquidity came out of cryptos to chase hot rally in gold and silver. With Warsh effect and potential shrinking of Fed's balance sheet, it would be interesting how cryptos behave in new normal. Unfortunately extreme leveraging in cryptos and washout events like in Oct and maybe this weekend decide prices of cryptos more than macro factors.
Commodities: A tug-of-war is underway. A stronger dollar usually hurts commodities, but if the Warsh doctrine successfully re-industrializes the US, industrial metals like copper and silver should do ok. And as far as gold goes, it has almost become new "reserve currency" of the world.

3. Hot Memory and Storage: What's next?

Finally, the "Nuts and Bolts" of the AI revolution. 2024/2025 was about the "Brain" (GPUs). 2026 is the year of Memory.

Stocks like Micron (MU) and SK Hynix are hitting record highs because AI models are "memory-bound." You can’t have a super-intelligent AI if it has the short-term memory of a goldfish. HBM (High Bandwidth Memory) and Flash memory (for storage) are now the most valuable real estate in tech. No wonder analysts are predicting Sandisk to reach 4 digits followed by 1:10 split.

What’s next? We are approaching the "Cyclical Peak" anxiety. Usually, when everyone realizes memory is essential, the industry overbuilds and prices crash. However, the "AI needs" feels permanent. With Micron alone committing over $100 Billion in expanding capacity, eventually enough supply would come online to have usual cyclical patterns - maybe in 2028. As adjacent players, one should look at storage infrastructure players to understand how their business model evolves in this "hot memory" world

And the Grammy goes to...

I am no expert in western songs and very rarely listen to latest albums (I am into old classics and Hindi songs)....But that should not prevent me in enjoying a good show and best way to enjoy the show is to make predictions (even if I have no clue) and check how many were correct...

So here are my predictions with help from AI and various articles I read

Here is my take for the Big Four + Pop Album:

Album of the Year: Bad Bunny’s DeBÍ TiRAR MáS FOToS. With his Super Bowl halftime show looming next week, the momentum is undeniable. This would be historic since this would be first full non-English album to win.
Record of the Year: Kendrick Lamar & SZA - "Luther". Kendrick leads the field with 9 nominations, and this track has the "cultural resonance" the Academy loves.
Song of the Year: "Golden" (from KPop Demon Hunters). This one I know since I was the movie and it’s been 12 weeks at #1 for a reason.
Best New Artist: This is the most wide-open field in years. Olivia Dean has the "Grammy Soul," but Sombr has the algorithm. I’m betting on Olivia Dean for the win, but watch out for Leon Thomas
Best Pop Vocal Album: I’m betting on Lady Gaga’s MAYHEM. However, watch out for Sabrina Carpenter. Man's Best Friend is a masterclass in pop engineering, and she has momentum.

Bottom Line: Whether it’s the gold in an Indian locker or the HBM chips in a Blackwell server, the theme for 2026 is Tangibility. In a world of deepfakes and AI hallucinations, investors are soul-searching for things that actually exist—and can touch!

Stay invested, stay curious.

/Shyam

2026: The Year of Convergence – Melt-up, Moonshots, or Mid-cycle Correction?

noreply@blogger.com (Unknown) — Thu, 01 Jan 2026 06:45:00 +0000

Happy New Year!

After another period of self-imposed hibernation from the blog—partly due to the festivals, travel, intertia and partly to watch the dust settle on a chaotic 2025—I decided to use the quiet of this New Year’s morning to finally reboot.

Looking back at my October post, “Clicks to Tokens,” the hunch about the AI theme held firm. We spent much of 2025 debating whether we were in 1998 or 2000. As we enter 2026, the answer seems to be "neither and both." We have the roaring optimism of the 1920s fueled by "Silicon Spirits," but with the high-speed volatility of the 2020s.

So, as the calendar flips, what is in store for 2026? Markets may experience melt-up (S&P touching 8000), with some moonshots (like SpaceX and OpenAI) IPOs or even see mid-cycle correction bringing down S&P to 6000. That's a wide range and will be decided by Four R's...

Here are my thoughts on the "Four R’s": Rates, Robots, Rotations, and Real Assets.

1. Rates - The Macro Picture: The Fed’s Final Act?

The Fed spent 2025 playing a delicate game of "tag" with inflation. With interest rates finally settling into a "new normal" range, the question for 2026 is whether they will hold steady or be forced to cut further to prevent a cooling labor market.

Prediction: I expect the Fed to remain "data-dependent" but leaning dovish. We might see a "Goldilocks" first half with at least one rate cut before Powell hands over the reins to newly appointed and most likely "rate" friendly chairman. Once that transition happens, we may have two more cuts in rest of 2026 totaling 3 rate-cuts of 25 basis points in year.

2. Robots - AI: From "Hype" to "Harvest"

2024 was about the chips; 2025 was about the infrastructure. I believe 2026 will be the year of the Agentic Economy. We are moving from chatbots to "Agents" that actually execute tasks.

Investment Hunch: Keep holding the "picks and shovels" (ETF like SMH) but start looking at the "applied AI" winners—companies in healthcare and logistics that are actually showing margin expansion from automation, not just talking about it in earnings calls. SAAS companies stocks should show some life in 2026. (ETF: IGV)

3. The Great Rotation: Looking Beyond the "Wall"

While 2025 was a year where most investors felt safer staying behind the high walls of US Mega-cap Tech, 2026 is shaping up to be the year of the "Great Rotation."

Europe’s Reawakening: Germany is finally moving past its stagnation with massive infrastructure and defense spending. With the ECB likely to be more dovish than the Fed, the Eurozone is looking at a "catch-up" year. (ETF: IDEV)
Emerging Markets & India: On a cyclically adjusted basis, US equities are trading at a massive premium. The "India + 1" theme remains the obvious beneficiary of supply chain decoupling. After the 2024 reality check and 2025 consolidation, 2026 looks like a year where Indian manufacturing finally catches up to the digital service hype. (ETF: IEMG)

4. Real Assets: The Return of Sound Money (Gold & Silver)

2026 requires a serious look at "Hard Assets." With the US deficit ballooning and central banks diversifying away from the Dollar, Gold and Silver are no longer just for the "preppers."

Gold (The Anchor): Gold hit record highs in 2025, but 2026 could see it move from a "fear trade" to a "structural trade." As central banks in the East continue to swap Treasuries for bullion, Gold remains the ultimate insurance policy.
Silver (The High-Beta Play): If Gold is the anchor, Silver is the sail. Given its industrial necessity in the AI-driven power grid and the Green Transition, Silver is significantly undervalued relative to Gold.
Hunch: We might see the Gold-to-Silver ratio compress significantly this year. If Inflation and Innovation collide, Silver could be the surprise outperformer of 2026. Would we see GOLD at 5000 and Silver at 100? It's possible given the momentum and structural changes unleashed since "liberation day". Best way to get exposure to these is via ETF focused on mining companies (GDX, SLVP)

Lots to write on Crypto, movies, geo-politics, sports etc but maybe later in January...

Final Thoughts

In the spirit of the Samudra-Vasane Devi stotra I’ve shared before, let’s remember to keep our feet on the ground even as our portfolios reach for the stars. 2026 will likely be a year of high "vibration"—lots of noise, but for the patient investor, plenty of signals to find alpha.

Wishing you all a healthy, prosperous, and peaceful 2026

/Shyam

Clicks to Tokens: Will 2026 Echo 1998's Boom or 2000's Bust?

noreply@blogger.com (Unknown) — Sun, 26 Oct 2025 20:48:00 +0000

My "blogging" was in hibernation last 8 months due to my self-imposed restraint given the environment as well as built-in inertia to get started despite so many interesting events and markets reaching all time highs after taking a big dump around "Liberation Day" in Apr...Around that time I had the blog ready that it would be repeat of Mar/Apr 2020 panic and recovery during onset of Covid Pandemic. The hunch happened to be correct and I was glad that I could keep and take some positions which I am still holding especially around AI theme.

But that was then...as 2025 is about to wrap up in 10+ weeks, let's look at what's in store for rest of 2025 and 2026. And what's better time than to start writing again just before one of the most important week on the calendar with multiple key events coming up next week...

Fed meeting to decide the course of interest rates - it's almost guaranteed that Fed will cut rates by 25 basis points (2nd time in 2025) and could also indicate another cut in Dec due to weakened labor conditions despite economy running slightly hotter to Fed's comfort. But given that Fed is coming to realization that with inflation "3% is new 2%" (I wrote about this about 2 years ago)...
Earnings from big tech players of "MMAANG" group - MMAANG = Microsoft, Meta, Apple, Amazon, Nvidia, Google. (it's play on hindi word माँग means demand or request). The markets demand a strong earnings from these companies which most probably they will deliver. On top of their earnings, markets would be looking for their Capex spending plans for 2026 and even more importantly how they are able to convert these huge outlays into actual revenues and earnings. And this is where "token" economy comes in play - more on this later
USA and China trade discussions with Nov 1st deadline...today morning news are saying that treasury secretary Bessent is making progress and 100% tariffs on China due to their blockade of export of rare earth materials are on hold. So cooling of these tariffs wars between two biggest economies should help continue market's "hot streak"

As markets are reaching all time highs, many pundits and newspapers have started publishing articles about "AI bubble" similar to articles in 1998/1999 about dot.com bubble...which eventually did burst in 2000-2001.

So let's look at "Will 2026 Echo 1998's Boom or 2000's Bust"?

At end of 2024, I wrote about "2025 = is it going to be 1997 or 2000" and 2025 is turning out to be like 1997. Hopefully many of my readers invested in ETFs like XLK, IGV, SMH etc which handily beat S&P - SMH is up nearly 47% in first 10 months. So logically 2026 should be like 1998.. would it be?

There are key differences between Internet heydays days and today's AI enthusiasm...

Click vs Token pricing model - Internet boom was based on "clicks" with no clear plans on how to convert "clicks" into $ because end consumer was not directly paying for clicks - companies had to depend on users clicking on ads and getting paid. AI boom is based on "tokens" which is getting converted into real $ with subscriptions ranging from $20 per month to $200 per month for some high-end enterprise plans.
The business model behind companies laying out fiber plants to connect the websites were flawed with no immediate revenue conversion..Hence most of these companies like Global Crossing etc went belly-up. Compared to these, the neo-clouds and Cloud titans investment in buildout of AI infrastructure is based on actual "token" consumption instead of "all you can consume" model. So as long as "token" consumption continue to grow exponentially, the business model behind these large Capex investments will work
Demand - Here is where we could take some lessons from Internet days - even in depth of busting of internet bubble, internet traffic was 30+ times larger than when bubble was forming

1998: Global internet traffic was approximately 12 petabytes (PB) per month.
2002: Global internet traffic reached approximately 405 PB per month.

No one would doubt that token consumption would be multi-fold higher in 4 years from now than it is today given adoption of AI in our daily lives as well as small and large businesses to improve their productivity, revenues and earnings.
There is no froth in IPO market like internet bubble days when stocks of flimsy companies with no revenues were doubling on opening day and more later. In fact most of the recent IPOs such as Klarna (KLAR), FIGMA (FIG) have billion $ plus revenues and still markets are skeptical about their valuations - they are trading to close to their IPO prices after first day enthusiasm. This is healthy

We can keep going on factors why so called AI bubble may be different or we may still be in early cycle. Hence 2026 would feel more like continuation of 2024/25 with higher volatility the way Internet driven markets were in 1998/1999.

So what should one do with their portfolios? - simple advice: Stay invested and do systematic time based (weekly/monthly) investments in ETFs focused on secular trend of AI, Energy and productivity boosting industries while also allocating some capital for dividend producing ETFs (I personally prefer JEPI/JEPQ)

I am reading latest book by Andrew Ross Sorkin titled "1929"..it's well timed and well written book. Still early in my reading so not ready to provide analogy to Roaring 20s of 100 years back which led to biggest market crash of 1929...

In meanwhile - Happy Diwali (delayed) and Happy Halloween!

/Shyam

And the Oscar goes to...

noreply@blogger.com (Unknown) — Sun, 02 Mar 2025 19:27:00 +0000

It's Oscar Sunday and time for predictions for few categories - before I digress into talking about drama in DC or markets.

First of all, I want to recognize the damage LA fires have done to the beloved areas of Los Angeles and impacted families across all spectrums. My heart goes out to them and wish them recovery and rebuilding of their lives...

This year's Oscar nominees and post nomination period had been interesting to say the least. Due to this, the field is wide open in almost all categories and that's what makes prediction game so interesting. Just to set expectations, I would consider a win if I get even 50% predictions correct given the dynamics of nominees this year. So here are my predictions - "And the Oscar goes to..."

Best Picture - Anora (surprise could be "The Brutalist")
Best Director - Sean Baker for "Anora" (Surprise could be Brady Corbet for "The Brutalist")
Best Actor - Adrien Brody for "The Brutalist" (long shot surprise could be Timothee Chalamet for "The complete unknown")
Best Actress - Demi Moore for "The Substance" (surprise could be Mikey Madison or Cynthia Erivo)
Best Supporting Actor - Kieren Culkin for "A Real Pain" (there is no competition in this category)
Best Supporting Actress - Zoe Saldana for 'Emilia Perez"
Animated Picture - "Flow". I saw this just yesterday and it's such a refreshing take on animation movie (you must check out on Max) and I really feel that it should win despite heavy marketing for Inside Out 2 or Wild Robot
International Feature - "I am Still Here" - Brazil

Now turning the page to other topics...where do I start...it's only 6 weeks since USA has new President and it's already feeling that it has been more than one year...some aspects are good - moving at corporate or even faster pace while some are not that good...government is not a business and instead of worrying about quarterly results, it need's to look at long term impact. I won't get into individual policies but only statement I will make it - Washington DC needed a shock therapy since status quo was not delivering...maybe it got more than it bargained for.

Markets are reacting to every news coming out of DC instantly...the Oval office briefings are making impacts similar to days during 2008-09 financial crisis. For now, markets are still holding up reasonably well but its just matter of time when economy and markets will take a decisive turn (up or down) as reaction to these constant onslaught of policy changes and associated news. As an investor, one should turn off this noise and not react/panic and instead should just stay the course of weekly investment plan you may have setup...because no matter what happens every day in DC, in the long run, US economy and markets are the best place to invest your hard earned money.

Have a great Oscar evening and great week ahead

/Shyam

The Politics and Gamesmanship of TikTok!

noreply@blogger.com (Unknown) — Sun, 19 Jan 2025 02:25:00 +0000

TikTok is less than 3 hours from going dark on USA's east coast if TikTok owner Bytedance (and Chinese Government) follows thru its "bluff" to honor the law "Protecting Americans from Foreign Adversary Controlled Applications Act" which goes into effect on Jan 19, 2025. And suddenly there is lots of politics and gamesmanship around TikTok.. Let's look at the players and their positions

US Congress:

The "TikTok Ban" law was passed by congress with bipartisan support and coincidently it goes into effect one day before new administration takes charge. Everyone knew the exact date and time of oath taking ceremony of new President...but maybe the congress did not think that there would be change of President and did not bother to put effective date post new government taking charge...that created a window of 36 hours of "law being in effect" unless...

President Biden:

Biden himself did not think that he won't be President for 2nd term. So now it comes to Biden to either do nothing (means law goes into effect) or extend the deadline by 48 hours so that further decision can be taken by Trump...But President Biden does not want his last decision to be over-ruling the law which was passed by bi-partisan support and signed by him. So they are pushing TikTok to continue operating as if law is not in effect and push....

President Trump:

Biden's decision to not provide extension means President Trump would have to make the decision of what to do about the law as one of his first few decisions in 2nd term...Trump was supportive of TikTok ban in his first term only to change the opinion given how it helped him win 2nd term with billions of views to his account on TikTok...so suddenly he wants to keep it running by providing 90 day extension to law taking effect and do what he does best...play negotiator to broker a deal so that it's owned by American entity....unless

Chinese Government:

Chinese government understands that it got a strong bargaining chip since the app is popular among 170 million Americans and livelihoods of thousands of creators depend on app running....so they want to put this in the mix of negotiations around tariffs, export controls and many other thorny issues between USA and China...they don't mind economic aspects of total shutdown may cost Bytedance $50-100 Billion of valuation...and potentially billions to its....

American Investors:

While exact amount invested is not known, American investors are sitting on billions of investment gains on their investments in TikTok and they would like to see TikTok keep running and keep growing their huge gains...they must be lobbying tech billionaires who have become friends of Trump and would be....

The Acquirers:

There are already two bids for TikTok US - one from 2 year old company Perplexity which was valued at 300 M just 12 months back and is now worth about 9 Billion. This is bold move by Perplexity to bid for TikTok which may be 8 times bigger in terms of valuation and 50-100 times bigger in terms of revenues..they want access to troves of data TikTok has amassed to help train their AI models and engines...and then there are other large players like Google, Oracle, Meta (it's also competitor with its Instagram Reels and one to benefit most with the ban), OpenAI, Musk companies (X, X.AI) who will like to have piece of this lucrative property..and don't forget Trump's company Truth Social which also will like to be in the play...with business friendly administration in Washington and forced by law, acquirer will have easier time to get approval from regulators under the premise of concerns for.....

The Americans:

I must say TikTok is addictive and quite entertaining...it provides entertainment to 170 million people and by one estimate has contributed to 71 billion to American Economy....so Americans enjoy the app and many of them get their news from TikTok videos...most of them open it multiple times and on an average spend about 54 minutes per day on....

TikTok:

TikTok has become synonymous to short videos and its algorithm does pretty good job in keeping the engagement (much better than its competitors). It is growing by leaps and bounds and has created real employment (direct and indirect). The company claims that data collected on users is kept in the USA and will not comply in case Chinese Government asks access to the data. By one estimate, US operations of the company has revenues of about $8 Billion and valuation of 50-80 billion. Its owner Bytedance has valuation of over $300 billion and would like to keep TikTok US. But due to law, it has to divest it to American investor(s) provided Chinese Government approves. It does not want to be on wrong side of Chinese Government (knowing fate of Alibaba and Didi) so will do what can be approved by Chinese Government.....

I can keep going but let's see what most likely is going to happen...

President Biden will provide short-term last minute reprieve to delay the ban...or TikTok will go dark for about 48 hours...

President trump will provide 90 day extension and start negotiating the deal involving all the players mentioned above and in the end TikTok will remain in USA and Americans will forget why the law was even passed in the first place...

Maybe someone should make a TikTok video on this topic followed by full-length movie as this saga unfolds...

/Shyam

2025 = Is it going to be 1997 or 2000?

noreply@blogger.com (Unknown) — Wed, 25 Dec 2024 13:19:00 +0000

Happy Holidays...

After 5 months of hibernation with no real reason than writing block, I decided to use quiet morning of Christmas day to start writing again. Lot has happened in last 5 months - in particular release of Animal Spirits with Fed starting interest rate reduction cycle and historic victory of President Trump for 2nd term. As the year turns into 2025 and stock markets at all time high, one would wonder, what's next?

To answer this, one needs to look back at 1920s and 1990s to give us some context on where markets may be headed.

1920s saw invention of televisions, radio, wider adoption of cars, vacuums, penicillin and many other which we consider household items now. These inventions created roaring 20s with markets going up by 500% eventually leading to crash of 1929. However during mid-20s, markets keep going up due to excitement of these inventions and end of World War-1 and Spanish Flu Pandemic.

1990s also saw many inventions - the key being launch of Netscape in 1994 leading to dot.com boom which continued till end of the decade. Netscape was released on Dec 15, 1994 - post that S&P returned 34% in 1995 and 20% in 1996. At that time, Fed started its rate cutting cycle from over 5%. All of these gains led to famous Greenspan comment about "Irrational exuberance". But despite all of these, markets continued to pivot higher returning 33% in 1997, 28% in 1998 and 21% in 1999. People who stayed invested despite two years of bumper returns in 1995/1996 reaped the benefits. This also was with 2nd term for President Clinton. The internet boom created massive cycle of investments in building the internet. Eventually after 5 years of double digits returned, markets corrected in 2000 leading to dot.com bust.

So now that we understand little bit of history, we are again at similar cross-roads as mid-20s and mid-90s. Just over 2 years back release of ChatGPT created the massive investment cycle of rebuilding the compute infrastructure led by cloud titans with over $200 billion Capex investments each year spent and planned. Similar investments are needed to rebuild private data centers to be ready for AI workloads. Fed is reducing interest rates albeit slowly than markets would like them to do. President Trump is all about de-regulation and his MAGA theme would get into over-drive of investments coming into USA (Softbank already announced intention of investing over $100 billion). Cryptos are getting major boost due to crypto friendly policies by new administration. The tax cuts which are supposed to expire in 2025 would definitely get extended (selfishly I hope they also fix SALT part of tax-cuts). All of these bode well for the economy and the stock markets. USA is best positioned in all of the world in terms of economy and markets.

So what should an investor do? This time, instead of recommending individual stocks, I would recommend sector ETFs like:

Technology: XLK, QQQ, SMH, IGV

Overall Market: SPY, IWM, MDY, VTI, FAS

Dividend/Income: JEPI, JEPQ

China: KWEB

Crypto (very small amount): BTC, XRP, HBAR

Given markets are at all time highs and it can correct in a flash of moment (like it did last week post Fed meeting), my recommendation is to do periodic (weekly) investments into these ETFs to cost-average your investments and let it ride for next few years...Eventually we will see corrections like in 1929 and 2000 but that's little further out. As Mark Zuckerberg had said... "The Biggest Risk is not taking Not Taking any Risk"...and he knows this since Meta has been one of the best performer of big stock in 2024!

Enjoy the holidays and Happy New Year.

/Shyam

Elections and Rotations!

noreply@blogger.com (Unknown) — Sat, 13 Jul 2024 18:19:00 +0000

2024 will be known as an important year in terms of elections (97 nations covering half the population) across the major countries in the world. We are only halfway thru the year and already some key nations have gone thru elections and voters have indicated their preference for change (in a way). Let's take a look at few.

India - Modi's BJP started with lots of enthusiasm with slogans of "Modi ki Guarantee" and "400 paar" (more than 400) seats (out of 543). Indian voters (which I considered one of the most smartest) gave reality check to Modi and BJP by reducing BJP count to 240 (from 303 in previous parliament) forcing it to form coalition government. I have lot more detailed hypothesis on these results (but not here). Almost everyone (including me) got their predictions wrong and lost some friendly bets. Indians want balance between "Strong, Prosperous, Proud" India with "Inclusive, Employment and Harmony". Modi and BJP are quick learners and have already started adopting their style of governing...next test would be upcoming state elections
South Africa - Results were similar to India. Dominant party ANC's seat count went down significantly forcing it to form coalition government
UK - It was almost guaranteed that Tories are going to lose and Labor will form government after 14 years. It's just the scale of win was surprising.
France - Elections in France are complicated with two rounds...In between two rounds, French left/socialist parties realized what could happen and prevented outright wins by right-wing. It was still a big setback for President Macron
Mexico - Elections in Mexico created the history by electing Claudia Sheinbaum. She is the first woman elected for this position. She comes from scientific and academic background which is a plus (this is as historic as when Obama became president of USA)
Pakistan and Bangladesh - India's both neighbors had elections in early part of 2024. Both used to be one country till 1971. But what a difference in the way both elections were done. Bangladesh had normal elections while there is nothing much to write about elections in Pakistan
Russia - The results were "known" even before first vote was cast
And now the big one - United States of America

The elections are in Nov and voters are still doubtful who will be their choices on ballots - especially democrats.
President Biden had bad debate and subsequent gaffes in most of his public appearances. He has become the fodder for TikTok/Reels meme videos. In his decades of public service, he has served the nation very well and should be proud of his contributions and achievements. He would do a great deal of service to his nation by stepping away from the race and letting someone else take the mantle of running against Trump and possibly winning
Both house and senate are also for grabs and if democrats don't address their presidential nominee, they run the risk of giving house, senate and president to GOP

So in summary, voters want "rotation" in the governments (or at least style of governance)

And talking about rotation, that's exactly the theme when it comes to markets. Last week the rotation from big-caps (especially Mag 7) to other 493 S&P stocks and small caps started. It was evident when Russell 2000 went up by 5% while S&P was up by less than 1%. DOW, S&P and Nasdaq indexes reached their all time highs mainly due to Mag 7. Top 3 companies (Apple, Nvidia and Microsoft) - each one of them have similar market cap as **ALL** companies in Russell 2000 (approx 3.2T). As Fed becoming more dovish with 2 rate cuts coming in 2024, the gap between big-cap and small-cap performance will narrow. One way to play this rotation is to keep investment as equal weight SPY (Big-cap), MDY (Mid-cap) and IWM (Small-cap).

Earnings season is about to get into high-gear for next 4 weeks...generally it should be as expected propelling indexes to further highs towards end of year. Won't be surprised if S&P makes a dash to 6000 during holidays.

/Shyam

The "i" factors are back again!

noreply@blogger.com (Unknown) — Sun, 21 Apr 2024 16:38:00 +0000

Happy Earth Day!

In following Stotra, we remember Mother Earth every morning before touching feet to the ground.

।

॥

Samudra-Vasane Devi Parvata-Stana-Mannddale |

Vissnnu-Patni Namas-Tubhyam Paada-Sparsham Kssamasva-Me ||

Meaning:
1: (Oh Mother Earth) O Devi, You Who have the Ocean as Your Garments, and Mountains as Your Bosom,
2: O Consort of Lord Vishnu, Salutations to You; Please Forgive my Touch of the Feet (on Earth, which is Your Holy Body).

(source: Green Message site)

So let's make sure that we honor Earth every day and preserve her for millions of years..After all we have only ONE!

It has been six weeks since I wrote about markets. During that time, markets reached all time highs (almost touching 5300) and down by 5% from those levels. What's worrying markets?

Back in August of 2023, I wrote about three "i" influencing markets (Interest rates, inflation and A"i" momentum). 8 months later markets are up by 11% even after recent drawdown of 5%. There are two additional "i" which got added to market worries...let's look at all of these once more...

Inflation:

Last mile is always difficult..Inflation getting down to Fed's target of 2% is going to take longtime and may happen only if there is recession. So as I wrote about "3% is new 2%", Fed needs to start getting comfortable that supposedly golden 2% target may not happen in a very strong economy. Fed needs to look at 2% as average over a decade in which economy would go thru shocks like Pandemic or Wars, growth spurt after shocks and mundane growth as seen in 2010s....then only markets will not get too obsessed with every CPI, PPI and PCE reports as long as inflation does not get out of hand like in 2022. Both Fed and markets need to target range of 1-3% as average over 10 year period..

Interest Rates:

Interest rates are directly linked to inflation.. And level of rates decide everything for borrowing costs across the board (Home loans, business loans, savings rate and so on). That why when 10-year treasury start inching towards 5%, markets get very nervous. That's what is happening over last 3 weeks with 10-year going near 4.7% with predictions of it breaching 5%. Projections for Fed rate cuts have gone from six at the start of year to zero in a span of 4 months...and there is even talk about rate hike (2% probability). This was not supposed to happen in supposedly efficient markets...

(Artificial) Intelligence:

After first two factors, this is the most talked about topic...is momentum for AI slowing down? What about real outcomes or use-cases outside of ChatGPT creating itinery for summer trips or writing a thank you letter? What about monetization of tens of billions of $ spent on building AI infrastructure? After nearly quadrupling revenues, is growth for NVDA and associated AI stocks over? Earnings season is about to get into high gear...and these questions are coming to the forefront. One example - after announcing earnings date (but not pre-announcing great results), another AI darling, Supermicro (SMCI) got crushed in one day (-22%). NVDA and AMD are in bear territory. The earnings announcements from Alphabet, Microsoft and Meta would give indications on AI momentum next week...So tighten your belts (and money purses)...we are entering into interesting part of markets ride over next 4 weeks.

Israel and Iran:

These are two new "i" worrying markets. I am not going to comment on geo-political aspects of this. After nearly 4 decades of shadow war between Israel and Iran, last week, World saw first direct confrontation between these two nations. Both countries demonstrated that they can hit each other with missiles and drones. At same time, they had also shown great restraint (maybe under pressure from their "big" brothers) so that the skirmish does not lead to full fledged war...Given the impact of such war can happen to oil markets, markets are rightfully nervous till both sides finished their "tit-for-tat" show of strength for their domestic audience and World. Hopefully these two nations will go back to what they have been doing for last 4 decades and not engage in full-fledged war. And that would be one way to honor the Mother Earth!

/Shyam

Step Aside Barbenheimer - It's time for Oscarheimer!

noreply@blogger.com (Unknown) — Sat, 09 Mar 2024 05:37:00 +0000

Last summer was filled with the buzz of "Barbenheimer" with the simultaneous release of Barbie and Oppenheimer, which gave both movies tremendous box-office success. It was American and Hollywood marketing at its best. This single event revitalized the post-pandemic theatre-going experience. However, as awards season started, the Academy and other award committee members side-stepped the glitter of Barbie and heaped tons of nominations on Oppenheimer (personally, I feel that Barbie deserved nominations in at least a few categories).

Oppenheimer got 13 nominations - one of the highest-matching records of movies like Gandhi, Titanic, and Lord of the Rings. It may end up winning in 7-8 categories. As has been the tradition over the last few years, here are my predictions for the top 7 categories:

Best Picture: Oppenheimer
Best Director: Christopher Nolan (Oppenheimer) – This would be Nolan's first win despite giving some of the all-time best films like Inception, Interstellar, and the Batman series.
Best Actor: Cillian Murphy (Oppenheimer)
Best Actress: Lily Gladstone (Killers of the Flower Moon)
Best Supporting Actor: Robert Downey Jr (Oppenheimer)
Best Supporting Actress: Da’Vine Joy Randolph (The Holdovers)
Best International Picture: The Zone of Interest (UK) – Some predictions say this could be stealth surprise winner even for best picture category, but I doubt it.

In addition to these 4 wins, Oppenheimer will win in Editing, Sound, Cinematography etc. As a side-note: I am sure Taylor Swift will have her influence even at the Oscars.

For the last couple of weeks, I have been in India visiting some of the most sacred pilgrimage places for Hindus, like Kashi and Ayodhya (and a few more). India is moving fast with so much energy and self-confidence under the leadership of PM Modiji. The outcome of national elections in Apr/May 2024 seem to have already been decided, with Narendra Modi getting a historic 3rd term with an even larger margin. Given his age, this may be his last term and Modiji is working tirelessly to make sure that India comes closer to realizing her full potential by end of his third term (2029).

Now coming to markets - Exactly 15 years back on Mar 9, 2009 S&P reached its bottom (around 676) during a financial crisis. And this week S&P reached all time highs (5187). The investors who did not panic 15 years back and stayed invested will have made over 16% per annum from bottom to top. This is the best example of just staying invested and do SIP (systematic investment plan) in index funds like SPY and let markets and time do their job. Don't try to be "market savvy" and don't try to time the market of getting in and out! No one got that right.

2024 seems to be year of semiconductors led by AI champion NVDA. Even at more than a trillion $ valuation at the start of the year, it added another 80-90% just in first 2 and half months of 2024. Other semi stocks like AMD, QCOM, AVGO also joined the party (INTC being the only exception). How long will this continue? NVDA and SMCI most likely will announce stock splits in the next few weeks, which could give another bump to their stock prices. Every quarter, NVDA keeps beating loftier expectations and raises forecasts. It's already worth $100 billion per year revenue with over 40% net profit margin. The juggernaut can continue for another couple of quarters.

As predicted, the economy really got its "Goldilocks" touch with inflation cooling, growth slowing but not too much and clearly heading toward a soft landing. Fed chairman Powell has started talking about rate cuts most likely starting in June of this year. That's why markets are seeing clear signals and pulling in annual gains to the first few months of the year.

With Super Tuesday behind us, it's going to be rematch between Trump vs Biden. It's too early to predict but given the momentum Trump got during primaries, Biden has his work cut out for him. I am sure President Biden is probably wishing he had the same momentum as PM Narendra Modi!

That's all for now...see you later during March Madness season!

/Shyam

Niners and Nineties...

noreply@blogger.com (Unknown) — Sun, 11 Feb 2024 03:03:00 +0000

Finally the markets have reached the S&P 5000 milestone target last week, as predicted in my last blog "Are we there yet?". It was a forgone conclusion that it would happen sometime sooner than later. The question is what's next since many investors are feeling anxious to keep invested or get into the market (by some accounts trillions are on sidelines) but at the same time are getting FOMO (fear of missing out).

To answer this question, we would have to look at the Nineties... But before that, let's look at the biggest US sporting spectacle of Super Bowl on Feb 11. This year it is going to be the biggest event, with two of the best NFL teams (Niners vs Chiefs) playing. Each of these have storied quarterbacks (Mr. Irrelevant Brody and 2 times Super Bowl winner and MVP Mahomes). It's a rematch of the 2020 Super Bowl when Chiefs beat Niners. Here are some the records:

Record estimated TV viewership of 118 million
Record cost of $7 million for 30-second advertisements
If the Niners win, it would be their first after 29 years and their sixth Super Bowl win, joining the Steelers and Patriots
If the Chiefs win, it would be their 4th win but it will join Patriots as only other team to achieve that feat in the 21st century
Since legal betting is allowed in 39 states, this would be biggest sports betting event in the world in terms of the money involved (estimate is over $23 billion) and the combination of bets one can make (including Taylor Swift appearances... )
Yes - this Super Bowl would be special due to America's most watched couple – Taylor Swift and Chiefs TE Travis Kelce). Even non-football "Swifties" will be watching this Super Bowl just to get glimpse of these two when Kelce plays. And he is playing very well, with 1-2 touchdowns in almost every playoff game
To top it all, this game is happening in the entertainment and gambling capital of the world – Las Vegas!

Coming back to the Niners - the last time they won the Super Bowl was in 1995...and that's where the connection of Niners and Nineties comes in.

In 1995:

The internet craze just started after the IPO of Netscape (similar to current AI craze triggered by ChatGPT launch by OpenAI).
Fed rates peaked around 6% in Feb 1995 and Fed started cutting rates in July 1995 – this is exactly what the current Fed plans to do starting with rate cuts in the second half of 2024
Inflation started coming down in 1995, the same way it started coming down in 2023/2024
Clinton was dealing with a GOP-controlled house and looking forward to difficult re-election prospects for 1996
1995 was first year of double-digit gains for S&P for the next 5 years starting with 34% in 1995 (similar to 26% in 2023) - despite famous Greenspan warning of "irrational exuberance" in 1996

If you look at market returns in subsequent 4 years of 1996-99, it's possible that even a third of those returns would take S&P over 6500-7500 by the end of the decade. It is possible – if the biggest tech companies – followed by every business in the world – make AI investments.

While it will be difficult to predict who will be next NVDA or Meta of 2023 in the future, it's safe to stay invested in quality ETFs like SPY, SMH, XLK, IGV and dividend ETFs like JEPI.

Happy New Lunar Year - Gong Xi Fa Chai!

/Shyam

Are we there yet?

noreply@blogger.com (Unknown) — Sun, 28 Jan 2024 19:02:00 +0000

NFL championships games are today and first month of new year is almost over...While first week of new year was bumpy for markets, it soon recovered its footing and reached new all time highs and itching towards breaking milestone of 5000. Almost 6 weeks back I wrote about "Goldilocks economy taking S&P to 5K"...depending on mega-cap tech earnings in next two weeks, it could happen by the time America gets glued to Super Bowl...The expectations are rematch of 2012 Super Bowl between Ravens vs Niners (Ravens won that year 34-31). This game was also called "Harbaugh Bowl" since two Harbaugh brothers were head coaches of two playing teams. But one could never predict what could happen in today's games since all 4 teams are great teams and deserve to play Super Bowl. In the end it would come down to showing up and playing their best games...Only Lions is the team had not won Super Bowl yet (one of the 12 teams) even though it had won 2 pre-Super Bowl NFL championships in 1935 and 1957.

Turning to economy - it seems to be doing perfectly fine with GDP growth above 3% and inflation readings below 3% and unemployment below 4%...That should give enough confidence to Fed just to stay the course of doing nothing for next 3-4 meetings and do rate cuts in second half of the year.

When it comes to politics - the rematch between Biden vs Trump is almost certain barring health or legal issues. Given the momentum Trump is getting, Biden has to get his campaign in high gear before it's too late.

Earnings - Most of the companies are beating earnings and giving cautionary projections (just to make sure that they beat the expectations again). The companies which are raising projections (e.g. SMCI) are getting handsomely rewarded (up almost 60% this year alone) while companies like TSLA and INTC are getting punished for giving conservative projections. While most Mag-7 companies would announce earnings in next two weeks, most important earning is further out on Feb 21 when AI darling NVDA would announce its earnings. Would it become $100 B annual run-rate company by end of 2024? Markets are expecting that. Anything less would un-nerve the markets and remind them of 2000-2001...

That's all for now. Enjoy the games.. if you believe in connection between markets and Super Bowl, last rematch between Niners and Ravens in 2012 produced market returns of over 13%. Let's hope it repeats this year again!

/Shyam

2024: The year of.....

noreply@blogger.com (Unknown) — Sun, 07 Jan 2024 19:45:00 +0000

Wishing you a joyful New Year filled with laughter, love, and unforgettable moments, surrounded by cherished family and friends. May the 2024 bring similar gains as in 2023!

I had great 2 weeks break with travels to Turkey with family and then solo trip to Palm Springs. Both places are amazing and definitely worth a visit if you get chance.

Talking about gains in 2023 - Here is recap of 2023..

Inflation fallen below 4% and heading towards 3%
Unemployment firmly below 4%
Real wages growing above 4%
GDP growth around 3%
Markets: S&P notching one of the best year with 24% gains while Nasdaq doing even better with 40% gains thanks to Magnificent-7 (or TAMMANNA) many of which had triple digit gains
My personal recommendations did exceptionally well - many of which were up by high double digits (e.g. INTC) and some of them had triple digit gains (e.g. META)

All in all - 2023 was great year.

As calendar changed to 2024, what's in store for new year? This is election year in many countries - most importantly in India and USA. So I am going to start making some macro level predictions followed by some recommendations for 2024.

Geo-political:

India voters will give historic 3rd term to Modiji and his government. After all, he is the most popular and charismatic world leader and tirelessly working to make sure that India in on trajectory to become developed nation by 2047. The level of energy, passion, creativity he demonstrates even at age 73 is unmatched. "Modi ki Guarantee" has become a slogan by itself and will propel his party BJP to historic win. Indian voters have a clear choice and looks like they have already made their mind (looking at results from "semifinal" of state elections)
Elections in USA is another story....no one likes the two likely choices (even their own party members). But unless there are legal or health curve-balls, we are going to have rematch between Biden and Trump. And given that Americans like status quo (especially when alternative is unpredictable), Biden will win presidential election in Nov 2024
UK elections - most likely to happen in late 2024. Rishi Sunak is trying his best to change the fortunes of his party but UK voters may prefer change in government and bring labor party back to power
Wars - Israel/Hamas war will have some kind of cease-fire. While there is danger of expanding middle-east war, every effort would be made to avoid this and would be contained between Israel and Hamas. Russia/Ukraine war will continue in 3rd year. This is the war of attrition with no end in sight. There is chance that some level of cease-fire negotiations may start in 2024.

Economy:

There won't be recession in 2024. Instead much-talked soft landing will happen. GDP growth will be between 1-3%
Inflation will fall below 3% but Fed's target of 2% could still be evasive.
Fed will cut interest rates 3 times most of which would be backloaded in 2H2024
Unemployment will remain between 3.5 to 4.5%. Real wage growth would be around 3-4%
Corporate earnings would be positive (high single digits)

Markets:

Indexes would reach all time highs in 1H2024 before having minor correction in spring/summer.
S&P would spend year between 4200-5000. It would end year closer to higher limit of the range.
Nasdaq would end year between 16000-18000
Rally will expand from Mag-7 to rest of S&P companies - especially into healthcare, hospitality and finance.

Sectors:

Tech - this sector would continue to lead with AI investments moving up the stack (Semi, infrastructure, data, applications). 2023 was about semi (NVDA, AMD) and to some extent infrastructure (OpenAI, MSFT). INTC turnaround will gain momentum in 2024 and continues to be my favorite. 2024 could also be year of SAAS companies which hold data and will start providing meaningful AI outcomes. META will become trillion $ market cap company again in 2024
Healthcare - this sector went thru post Covid pandemic hangover (MRNA and PFE took 40-50% haircuts). Health-care found its own "AI" equivalent with weight loss drugs which benefitted only two players NOVO and Eli Lily. Investors will start looking beyond these two companies. PFE and WBA (Walgreens) are two of my picks as turnaround candidates in 2024
Finance - Markets had a scare in March 2023 due to blow-up of SVB and First republic. All regional banks took a major cut during that mini-crisis. Now that rates are coming down, regionals could start reversing their losses on book. Regional bank ETF (KRE) and XLF are good way to ride the upswing. Fin-techs would finally stop bleeding. PayPal, Square and UPST are some of the stocks to monitor
Energy - After great 2021/2022, this sector is stuck thanks to oversupply of oil and transition to non-fossil energy. We have started seeing consolidation with major deals being announced. It's also great dividend paying sector. One can consider XLE for steady growth and low risk/reward
Real Estate - everyone predicted gloom and doom for this sector due to high interest rates and workers not coming to office. But returns on few commercial real estate players (SLG, VNO, BXB, BDN) as well as home builders have proven them wrong. These companies would continue to recover their valuations and could reach price/book ratio between 1 to 2 (some of them are still below .75). In the meantime, they continue to pay high-dividends as required by REIT rules.
Crypto - despite all the excitement about Bitcoin ETF, I would recommend staying away from this. It's not worth the risk.

That's all for now...2024 would be an exciting year for sure. So enjoy the ride!

/Shyam

Will "Goldilocks" economy take S&P to 5K?

noreply@blogger.com (Unknown) — Sun, 17 Dec 2023 22:43:00 +0000

Markets are having a record breaking dream run of 7 weeks of positive returns since Nov CPI report came out. Last week's Fed meeting confirmed already well known fact that interest rates have peaked and there are at least 3 rate cuts coming in 2024. Economy feels like "Goldilocks" economy - not too hot, not too cold...it's just perfect the way Goldilocks would have liked. Let's look at some of the key economic indicators.

Unemployment dipped to 3.7% but wage growth has slowed down. Good
Inflation dipped to 3.1% and all indicators pointing to further reduction. In fact if recent declining hosing rents are taken into account, the inflation may already be closer to 2.5%. Good
Earnings were better than expected. Good
Q3 GDP report was hot but Oct/Nov trends show that there is slowdown coming but enough to cause recession. Good
Holiday shopping season had good start. Good
Interest rates coming down. Fed is indicating 3 rate cuts. Good
Small caps have finally started catching up with their big brothers (still over 10% gap in YTD performance). Good
REITs (especially commercial ones like SLG, VNO, BDN, BXP) etc may have dodged the bullet of "higher for longer" interest rates and will be able to refinance their mortgages and avoid bankruptcies. No wonder these stocks have doubled in last few months despite all the "gloom and doom" talk by pundits due to workers not coming to offices. Good
AI momentum continuing - AMD and INTC trying to join the AI gold rush with their recent announcements. Good
While China is still cold, policy makers have started talking about market friendly policy making. Chinese markets have not gone anywhere and Chinese web companies (like BABA, DIDI and others) are trading at fraction of their American counterparts. Would Chinese web companies turn around in 2024 the way magnificent 7 did in 2023? If you think it could happen, one way to invest would be thru ETF KWEB instead of individual Chinese stocks - Neutral

All of these factors feel like economy is in Goldilocks Equilibrium - not too hot and not too cold. These factors along with soft landing could take S&P to 5000 in 2024.

Indian markets are on a roll..especially after state elections in which ruling party BJP won 3 out of 5 states when expectations were 1. That bodes very well for Narendra Modi coming to power in May 2024 for record breaking third term. Around same time, Adani group got clearance from Indian courts and Americans approving loans (dis-crediting report from short seller Hindenburg) That caused tremendous rally in all of Adani group stocks. While Adani, Ambani and Indian tech stocks are well known to the investing world, there are many hidden gems in Indian markets...Here are couple of examples.

If you folks are fan of single malts and tried recent crop of Indian single malts like Rampur and Indri (Indri Diwali Collector's Edition 2023 has been awarded as the best whisky in the world at the Whiskies of the World Awards), check out stocks of companies which make these Whiskies.

Rampur is made by Radicco Khaitan - it's stock went from Rs 85 to over 1600 (almost 1800%) in 8 years since Rampur was launched.

Indri is made by Piccadilly Distilleries (subsidiary of Piccadilly Agro Industries) - it was launched in 2021 and stock of its maker has gone from Rs 12 to 220 (almost 1000% in 3 years)

And given the reception of these whiskies and potential of expansion, they may be just getting started....

(disclaimer - I wish I had done this research when I saw Rampur in Bay Area Costco and came to know about Indri few months back. I don't have any investments in these two companies)

There are many similarities in family controlled Indian companies and founder run American companies - but that's for another blog in 2024.

If you are traveling during holidays, safe travels to all of you.

Happy Holidays....

/Shyam

It was not meant to be...

noreply@blogger.com (Unknown) — Mon, 20 Nov 2023 03:19:00 +0000

I imagined today' day (Nov 19, 2023) little differently than what it turned out to be..had a watch gathering at my place with few friends for India vs Aus ICC Cricket World Cup Final. Both teams deserved to be in the final - India winning all games in this tournament and Aus winning last 8 games after initially losing 2 games at start of tournament. The match was being played at the biggest stadium in the world (over 132,000 capacity) and over billion people tuning in...maybe most watched single sports event ever. After Australia won the toss, they choose to field (that's what most likely India wanted). India started well but then wickets kept dropping and India ended with total of 240 all out. That's when all of us knew that the dream of winning third world cup is over...despite one of the best bowling squad India ever had....The score was just not enough even for the best bowling to defend against one of the most professional and mentally strong team....No wonder Australia ended up with 6th World Cup Title...They outplayed India in every field - batting, bowling and most importantly fielding...

Billion dreams were broken with this loss and given that India won last two world cups in 1983 and 2011, we instantly knew how long we may have to wait for another win...it could be a decade. But we all feel even more sorry for all Indian players...They did their best throughout the tournament winning all games convincingly...But today it was not meant to me. Most of them will be retired or may not be selected for next version of this tournament in 2027. So this was their only chance to make history (except Virat who was part of 2011 team). Hats off to all of them. While Virat Kohli deserved and won "Man of the Tournament", he was visibly saddened that India could not win today's final. I wish at least Virat and Rohit play in 2027 and get another shot at making history.

In the end....It was not meant to be...

Weekend was interesting for another major news...OpenAI changed the world with launch of ChatGPT on Nov 30, 2022. It captured the imagination of world (not only tech world) and unleashed the power of AI which can be compared only with arrival of Internet in 1990s and Smart Phones with launch of the iPhone. But in less than one year the man behind this revolution Sam Altman was fired from CEO position of OpenAI....The reasons given are not clear or convincing. And now there are rumors that OpenAI board is trying to get him back as CEO...What a drama...it's even beyond typical Silicon Valley Startup drama...and we thought Twitter drama was the peak (that's still continuing but it has become as boring and repetative as recent Marvel movies)

What does it mean to AI revolution (or as some call "hype"). The AI genie is out of the bottle and firing of Sam Altman won't change that. In fact if Sam and OpenAI employees start another AI company, it would be able to instantly raise billions of $.

Next week would be one of the most important earnings season for all of tech world - Nvidia. Can it repeat the feat of last two earnings?..Tech world is betting that it will be able to do exactly that. That would mean Nvidia would be nearly $75 Billion revenue company (from less than $25 billion) in less than one year. But now almost everyone wants a piece of Nvidia's GPU pie..Traditional competition like AMD, INTC as well cloud players like AMZN, Google, Tesla and now Microsoft. In two years there would be enough alternatives to run LLMs that Nvidia's earnings calls in 2025 would be quite different than in 2023. Till then Nvidia shareholders can enjoy the ride.

That's all for now...

Happy Thanksgiving!

/Shyam

1983, 2011 -- Will history repeat again in 2023?

noreply@blogger.com (Unknown) — Fri, 10 Nov 2023 20:51:00 +0000

If you have been following most watched tournament in the World, you would have guessed what today's title mean. Yes - it's about Cricket World Cup. India made history by beating then World Champion - West Indies in 1983. Repeated history again by beating stalwarts like Australia and England in 2011. In 2023 World Cup, India has not lost a single game (out of 8) and is sitting at top of the table. Indian batting and more importantly Indian bowling have dominated this world cup. One more league match remaining. But semifinals are already decided. India would be playing New Zealand in semi and South Africa and Australia will face each other in other semi. Final would be played on Nov 19. I am hoping and praying that India continues her dominance and win semi first and then win final to claim 3rd World Cup tille and repeat the history again in 2023!

And like SuperBowl indicator, let's look at Cricket World Cup Indicatior Last two times India won Cricket World Cup, markets had positive returns - 17% in 1983 and 3% in 2011. What would happen in 2023? (By the way there is nothing like this indicator - it's completely made up by me). Now let's talk about markets...

What a difference couple of weeks can make in changing market sentiments. All it took was change of month (seasonal factors do matter), change of tone from Fed chairman after Fed meeting and not-so-bad earnings from most of the companies - especially tech companies. All these led to biggest weekly gain for S&P (nearly 5.9% gains in one week) in 2023. Tech heavy Nasdaq also had excellent gains thanks to Magnificent Seven and semi sector. Just last week all indexes reached correction territory (10% down from recent high). Everyone started talking about recession and S&P going below 4000 and potentially ending negative for the year. Markets are in sweet spot - here are the factors due to which markets would keep marching upwards for some more weeks.

10-year tresuries have come dowm from 5% to 4.5% - clear indication that Federal Reserve may be done hiking interest rates
Earnings season has been reasonably good with no major downside surprises
AI powered tech boost is real even after one year
Employment is reaching equilibirum of not too hot and not falling apart
Inflation is grinding down lower albeit more slowly that Fed policy-makers would like to see
Seasonal factors - Nov/Dec/Jan have been one of the best months for markets
Economy is not showing any signs of recessions with consumer spending relatively strong
After 10% correction, valuations are not frothy
Semi sector is resilient. This sector is leading indicator for overall tech spending
With Biden/XI meeting scheduled next week in San Francisco, markets are expecting better relations between two economic giants (US and China). That's why today semi sector are showing biggest gains.

Overall these catalysts should keep markets around 4300-4600 for double digit return for 2023.

Happy Diwali...and Veteran's Day!

During this Diwali Festival season, Billion Indians are praying for India to win Cricket World Cup. Given my made-up Cricket World Cup Indicator, that should be another catalyst for markets to repeat the history!

/Shyam

Is 3% the new 2%?

noreply@blogger.com (Unknown) — Sat, 30 Sep 2023 20:04:00 +0000

September kept up its reputation of worst performing month for stock markets (October gets the bad press due to major crashes but its not even in top 3 worst performing months). Why Sept? It could be a good topic for Behavior Economics PhD - I am sure someone must have done some thesis on this. S&P fell by 4.9% while Nasdaq fell by 5.9%. While markets are still meaningfully up for the year thanks to performance of Magnificent Seven (new combo post FANG), what's in store for last quarter of 2023?

That would mostly depends on two factors - direction of inflation and interest rates. And continuation of AI momentum - sizzle or fizzle? For today, let's focus on first factor.

Fed Chairman Powell's in-famous comment about "Inflation is transitory" caused major credibility loss for Federal Reserve. Since then Fed is doing everything to make sure that markets get the message that they are serious on bringing down inflation. Based on latest readings they are reasonably successful with inflation coming down from 9% in summer of 2022 to mid-3% - that's steep downward shift in inflation in less than 15 months. One would think Fed would be celebrating with "Mission Accomplished"....but Fed knows that it's going to take longtime and effort to gain back trust and credibility of markets. Hence Fed is extra hawkish sending its message that we are not done yet in our fight against inflation and have not budged from their stated target of bringing down inflation to 2%. There lies the problem...

There are structural changes happening to US economy (and to some extent world economy). Here are some of those.

Population is aging across western developed countries and even in China
Labor participation has reached its peak 23 years back and continues to slide down. People who left or lost jobs during pandemic are not coming back fully
Last cohort of baby boomers are retiring with significant amount of wealth which they are willing and ready to spend - that's why travel is booming
Immigration is slow or non-existent in some parts of world
Governments do not care about deficits no matter which party is in White House
AI and technology boom is creating supply-demand mismatch for qualified labor
Even for jobs like plumbing, carpenters, electricians, mechanics and so on, there is shortage of skilled labor
Housing supply (new and existing homes) is severely constrained

So unless there is severe recession (which no one is predicting), inflation would be stubbornly high above Fed's target of 2%. Most likely it would hover around 3% for a long time despite more rate hikes. So at some point policymakers at Fed need to accept the fact that "3% is the new 2%" and adjust their policies to reflect this reality to avoid turning soft-landing into hard recession. Fed should do one more hike of 25 basis points in Nov and take pause for long time (12 months or more). The various strikes - writers strike, auto-workers strike and now possibility of projected government shutdown would reflect in employment report due next Friday. That should provide cautionary indication to Fed.

When it comes to markets - it would get adjusted to this reality post Nov and start marching upwards closing the year between 4500-4650. Q3 is closed and in 2 weeks earnings season would start. As seen in last two earnings season, one earnings report (Nvidia) would be the most influential report on entire technology industry and maybe whole market.

In meantime, enjoy the cool and breezy Fall season...I will be off to New England to enjoy the colorful Fall Foliage

/Shyam

Three "i": Inflation, Interest (Rates) and (Artificial) Intelligence

noreply@blogger.com (Unknown) — Sun, 20 Aug 2023 15:42:00 +0000

First - Happy Independence Day for India (Aug 15) and Pakistan (Aug 14).

Last week was historical week for Indian Film industry which collected over $100 M on box-office and brought in millions of people to movie theaters with releases like Gadar2, OMG2 and Jailer. I happen to see all three of them. They are decent crowd-pleasers - the main stars in all of them are over 55. In particular I liked OMG2 in the way a difficult topic such as need for sex-education in Indian schools was presented. Pankaj Tripathi's performance is outstanding.

Now onto three "i" factors

The usual pattern of markets going downwards or sideways is on display during the dog days of summer...The earnings season is about to wrap up and by most accounts earnings were quite ok as compared to expectations. The companies which beat got rewarded and companies which miss got penalized...nothing new. But despite initial reactions, many stocks gave up all their days due to continued upward march of interest rates and due to fears that Fed fight against inflation may not be over..Next week would be key to two "i" factors which could decide course of markets for rest of year. Let's look at these.

Inflation:

Latest CPI and PPI readings were good in terms of inflation trends. Headline numbers are below 4 and heading downwards albeit slowly. Compared to headline numbers above 8% last summer, this is great progress. Many factors helping good inflation trends...oil prices are down (even though recently they have been creeping up), labor costs are stabilizing (despite historically low unemployment), cost of goods including perishables (like eggs) are down. The only stubborn factor is cost of shelter (NYC apt rents are historically high). Given all these factors inflation is heading in right direction but would get stuck around 3% for long time giving enough ammunition to fed to be hawkish (and repair its credibility which it lost last year with statements like "inflation is transitory")

Interest (Rates):

10-year treasury rates are near 15 year high and inching towards 4.3. That means bond markets are giving clear indications that rates are going to be higher for longer. Fed meeting minutes also were hawkish. Next week Fed chairman Powell is going to speak at yearly conference at Jackson Hole. Last year he used this forum to start the campaign of very aggresive rate hikes. Would he use this forum to give indication that Fed is near end in the campaign (kind of "Mission Accomplished") or keep the hawkish tone that Fed has more work to do...IMO Powell will say that we have more work to do but future rate hikes would be data dependent...that means it would be back to monthly CPI/PPI numbers and "all clear" signals markets are expecting would not be given. So expect volatility based on every statement Fed officials make and monthly CPI/PPI/Employment reports.

(Artificial) Intelligence:

Next week's Nvidia's earnings call may be one of the most important and eagerly awaited call for any company, tech industry and may be all of the markets. Nvidia blew past expectations in last earnings call by raising revenue estimates by more than 50% ($11B vs expectations of $7B) which triggered the late spring/early summer rally and made Nvidia newest trillion $ market cap company. The expectations are even higher and markets could be expecting Nvidia to blow past even $11B...(whisper numbers may be closer to $12.5B) and raise forecasts for the rest of the year significantly. They are expecting company to produce $15B quarter in 2024/2025. That would be almost 4 times as what company was doing just 3-4 years back. If Nvidia is able to deliver these astronomical expectations, it would lift all tech companies with confidence that AI is still in the early cycles (like Internet in 95-96) and not just another fad/bubble (like crypto).

So get ready for some interesting moves in the markets from now till Labor Day before two of the worst months for markets (Sept and Oct) start...Watch out for potential "black swan" event. "China's Lehman Moment" given precarious situation of its real estate sector and self-induced pains on its tech industry. But that topic for another day.

In the meantime, Enjoy rest of summer days and Labor Day!

/Shyam

Roaring 20s....Again!

noreply@blogger.com (Unknown) — Sat, 03 Jun 2023 19:59:00 +0000

About 2 years back coming out of COVID pandemic, I wrote blog titled "New Roarin' 20s.." It covered what happened in 1920s and what are the factors now which would trigger new roaring 20s. Do check out the blog...almost all factors are valid even now. 2022 went sideways due to inflation pressures which triggered historical steep rate hikes by central banks which led to tech companies taking more measured approach and laying off 200,000 employees....all of that changed in Nov'22 when ChatGPT was launched...even though I had mentioned AI/ML as one of the factor in my previous blog, ChatGPT really captured the imagination of the world and changed the outlook of AI instantly similar to what Netscape did with the Internet and iPhone did with the mobile. The singular concept of "Language is the Interface" made AI accessible instantly to billions of normal people....And now without mentioning AI, no talk starts or ends in tech world..and despite onsite of most-awaited-but-not-yet-here recession and inflation/interest rates duel, market mania is back to almost same level as late 90s...

Nvidia published results in mid-May and gave guidance which was nearly 50% higher than analysts were predicting ($11B vs expectations of $7.2B) - all due to surging AI driven demand to its chips...overnight it became the most important company in the new AI world...no wonder markets pushed it's valuation over trillion $ (7th company in the world to reach this milestone). Late 90s Internet driven demand drove valuations of many companies to similar stratosphere (500Billion in 2000 is more than trillion now)....and then dot.com bubble busted...even though internet and technologies invented during those times changed the world forever....Couple of today's trillion $ companies were born during those times (Amazon and Google).

So what happens now...are we in time-period similar to 1996 when Fed chairman Greenspan made his famous "Irrational Exuberance" comment about markets when dot.com mania was in early stages. Similarities of those times are eery...

Interest rates and mortgage rates were high (similar to today's rates)
Collapse of LTCM in 1998 was similar to bust of SVB and couple of other regional banks
Optical/Networking companies were like AI/Cloud companies - doubling every year (I joined one of such company that time)
Democrat president was in White House...only difference was that President Clinton was able to manage finances to create Budget Surplus. And now President Biden is signing the debt-deal to raise debt-limit to $35 trillion....(yes that's Trillions)

Can AI momentum continue to benefit all of tech eco-system and eventually world and mankind? The short answer is YES...eventually. It will have its own journey where both good and bad outcomes would come out. Hopefully more good will come out than bad preferably by multiple factors (I wish the ratio is 99.9999 good and .0001 bad)

The hypothesis mentioned at start of year in "Tech in Vogue again.." is playing out exactly the way I predicted...And the stocks in TAMANNA are up significantly...NVDA and META up over 100%

We are in early phase of this AI driven momentum..circa mid-1990s...It's feels like we are in 2nd innings of baseball game...So despite worries of most-awaited recession, inflation, interest rate hikes, tech layoffs, mini banking crisis, upcoming blow-up of commercial real estate....markets would do ok and in fact they may reach all time high (S&P crossing 4800) in next 18-24 months...Nasdaq may reach all time high even before that....so my advice would be stay with ETF/index funds (SPY, XLK, QQQ, SMH) to ride the upswing but avoid chasing individual stocks unless you know what you are doing and willing to tolerate the volatility...

Couple of interesting quotes to wrap up the blog..

“History Doesn't Repeat Itself, but It Often Rhymes” – Mark Twain.

and new one built on "Why the Software is Eating the World - Marc Andreessen"

"Software is Eating the World...AI will Eat the Software and Change the World"

/Shyam

It's "Cloudy" out there!

noreply@blogger.com (Unknown) — Sun, 30 Apr 2023 19:41:00 +0000

Today morning I went for my usual walk to neighborhood Farmer's market - it was pleasant cool spring morning with fog/clouds on the Evergreen hills! After brisk walk rewarded by bagel and Cappuccino, started thinking of last week's flurry of earnings results by tech giants, potential seizure of First Republic by FDIC and general direction of economy...that's the premise of this blog!

Last two weeks tech giants except Apple and Nvidia have reported. Here is quick report-card

Tesla: OK but markets did not like constant price cuts to stimulate demand
Alphabet: Earnings were good especially with GCP reporting profits first time. Google Cloud is about 11-12% of revenues and 25% of cost but growing at 20-30%. Clearly established itself as 3rd option. Markets would have preferred more clarity on cost cutting and plans to get into leadership position in Generative AI. So stock reaction was muted
Microsoft: It delivered on all fronts with Azure still growing at 27%, buzz with OpenAI integration across all products and potential of BING taking market share from Google. No wonder stock reached 52 week high and could continue to grind higher
Meta: This was the best of the lot. Markets loved results from "Year of Efficiency" and even better revenue growth. Mark Z's laser focus on cost cutting, focus on "core" apps, stabilization of ad markets and use of generative AI to help small merchants create ads are the factors which doubled the stock in less than 4 months and would continue to rise higher reaching over 300 in 2024 or before.
Amazon: Markets initially liked the impact of cost cuts and AWS numbers. Being the biggest cloud provider, AWS sets the tone for overall cloud spending. Commentary during the earnings call about Apr trends reversed all the gains. Basically cloud spending is slowing down as many companies are either slowing down cloud migration or optimizing cloud spending.
Apple: Next week it would announce..Most important number would be iPhone sales (as it has been for many years) and services growth. Given Apple's track record, it would beat again but market reaction would be similar to Google's earnings
Nvidia: Generative AI have really excited the markets with this company and stock (along with Microsoft). No wonder it's up more than 70% YTD. Many analysts believe that there is no one even close to catching up with Nvidia in AI arms-race. That alone could prompt this stock to reach all time high in 2024 and could touch trillion $ market-cap.

So in summary next few months are going to be "cloudy" for companies like Amazon, Tesla and many SAAS providers. (it was evident from earnings of Cloudfare). Next few weeks, many SAAS companies would report their earnings. Stocks of companies like TWLO, DOCU, OKTA etc have given up their 2023 gains. While current stock prices are attractive for long-term there may be short term pain...it's going to be "cloudy" out there for these companies!

Now let's look at economy and other factors...

Banking - another California bank which prided itself in serving high-tech clients would bite the dust and would be seized by FDIC and sold in pieces. This would be another biggest bank failure. 3 in 2023 vs 1 during 2008-09. Are there other dominos to fall?...Quick actions by FDIC and acknowledgment by Fed about its own mistakes as regulator have created relative calm in the markets...but hey, similar calm persisted after Bear Sterns collapse in March 2008 before storms re-appeared in summer leading to collapse of Lehman in Sept 2008. So it's "cloudy" out there in financial sector!

Economy grew 1.1% in Q1- the long awaited recession is still 2 quarters away (as it has been for last 4-6 quarters). It may just skirt the recession but under 2% growth is also not very exciting...so it would muddle thru sub-optimal growth. While employment and consumer spending is still strong, getting interviewed and hired in high-tech sector is getting difficult. So for the sector which has been major economic driver for US economy, it's "cloudy" out there!

Fed would increase interest rates by 25 basis points next week and keep the door open for another 25 hike for Jun meeting with caveat that it would be decided by economic indicators like employment, CPI etc. Fed is trying to communicate "don't expect rate cuts in 2023" to avoid markets getting ahead of itself. Let's see if Powell is successful in bringing markets and Fed on same page. It's "cloudy" out there for overall direction and terminal rate and period for Fed rates!

How will markets react to all of these? Apr kept its promise as one of the best month...but that brings us to seasonal factors. Historically markets have done worse during May-Oct period than Nov-Apr period. And that seasonal period starts tomorrow.....So for markets, it's going to be "Cloudy" out there!

In the meantime, NBA playoffs are in full swing with Warriors and Kings playing their Game 7 today. Kings have played wonderfully with young players like Monk and Fox! But for me it's going to be "Go Warriors" since I would like to see Lebron-Curry Matchup!

/Shyam

The ABC....of 2023!

noreply@blogger.com (Unknown) — Sat, 08 Apr 2023 17:17:00 +0000

First quarter of 2023 is over and it was quite an interesting one with so many unexpected events...almost similar to first quarters of past few years...Markets don't like unpexcted events - so it was surprising that with so many expected events, markets did pretty well especially Nasdaq with double digit gains. What's in store for rest of 2023...for that let's look at some ABC...factors!

AI: ChatGPT and followup GPT-4 captured the imagination of world in just few months and revived the excitement around AI similar to what Netscape did for Internet and iPhone did for mobile. Those two events marked the pivotal moments and changed the world and lives of billions of people forever. It's still too early for AI to decide if this is indeed such moment...we will know that in next decade or two. But for now there is definitely lots of excitement with every company jumping onto the bandwagon of AI to project that they are not left behind...Companies which would benefit from this are:

"ARMs" dealers - companies which provide components to power AI. Biggest winners would be semiconductor companies like NVDA, AMD and to smaller extent INTC, QCOM and ARM (no pun intended)
Companies which would create useful (to millions of customers) applications using AI. Think about how bookings.com used internet to change travel industry. The winners are not obvious but VC money would flow into these to create next real companies.
Big tech companies like Microsoft, Google, Apple, META which would integrate AI in all their offerings and charge fees for APIs/Usage similar to what Apple/Google did with 30% cut for revenue from mobile apps

Banking: My last blog covered some aspects of this...this was kind of "mini" black-swan event and threatened to repeat 2008 March events. Luckily US and Swiss policymakers moved quickly and stopped the potential contagion. But going by most respected banker JP Dimon's long shareholder letter, it's not over yet. Many banks (small and big) are sitting on hundreds of billions of paper losses on their balance sheets due to aggressive moves in interest rates...If they have to sell these assets in 2023 (if there are stupid bank runs like at SVB), it could wipe out equity of many banks. The "implicit" guarantee signals Yellen/Binden and Powell have sent have calmed down the run on deposits. But the events have awakened passive holders of cash and they have started taking steps to move the money where they can get 4% (instead of 0.4% in banks). That's double whammy for banks profits. Next two weeks of earnings would tell us the real story on banking sector going forward...so watch out. This could be like 2008 if skeletons start coming out or like 2009 where stock prices were so depressed that it provided once in generation opportunity.

Cloud/Capex: Move to cloud has been driving the spending on IT for last decade producing cloud giants which would be Fortune 50 companies on their own. The trend is gaining momentum due to various factors even though there may be bumps along the way. Companies preferring one time large Capex outlays to periodic Opex model is changing the dynamics of enterprise and consumer spending. Cloud providers are also heavy Capex spenders to build the capacity...But 2023 is "Year of Efficiency" and hence we could see slowdown in Capex spend by these companies impacting growth of suppliers to cloud companies.

Data/Debt: AI is only as effective as data it's built on.We have heard the cliches like "Data is the new Oil" and to some extent I do agree with it. So companies which "own" the data and able to create useful insights from the data or monetize access to the data are going to be winners. That's why SNOW, DDOG are still trading at 20-40 times revenue.

American government is the biggest debt holder in world and if congress does not act soon to increase the debt-limit, it could create situation similar to debt-limit crisis in 2011 summer...but congress always act when it comes down to wire after lots of drama and grand-standing. Consumer seems to be in much better shape when it comes to household debt as compared to 2008-09. But with clouds of recession and high interest rates, consumer may hold back adding more debt which itself may lead to soft recession (consumer drives 2/3rd of US economy)

Economy: If you believed pundits and economists, economy should have been in recession already. But looking at March employment report - unemployment continues to be lowest in last 50+ years, economy seems to be doing just fine despite all the crisis. So is Economy heading into recession, hard-landing, soft-landing or gaining momentum? No one knows for sure...even experts at Fed or various economic think-tanks have no idea. So when it comes to predictions on economy, don't believe any tweets, news or blogs like mine. Trust your own gut-feeling and how your own economic situation is - income, expenses and debt. That's the best indicator you would have when it comes to where economy is heading.

Fed Policy: Federal reserve's campaign of rate hikes are about to end. They would do 1-2 25 basis point rate hikes in May and Summer and then hold the rates at that level thru Fall'23 and may consider small rate cuts towards end of year. Markets are already expecting rate cuts in summer and may be disappointed. It would all depend on GDP growth and data on Inflation. All economic reports would be scrutinized by markets and Fed. Bond markets and Fed are having interesting dance moves...10 year and 2 year treasury yields are suggesting that cuts are imminent while Fed officials are saying....not so soon. Let's see who blinks first.

I could go on but it's becoming little long read. So let's wrap up. What all these ABC...mean for 2023 and normal investors? That's where we take help from another cliche "History rhymes...". Here are some historical anecdotes

Markets are up 80-90% of times 6 month and 12 month after interest rate pause with double digit gains (https://monetagroup.com/blog/the-other-side-of-the-pause-market-returns-when-the-fed-stops-hiking/)
Year 3 of presidential cycle of first term has been best year (compared to rest of years). Guess what - 2023 is 3rd year of Biden presidency. (https://apnews.com/article/business-b55b1efd70e3d3a2e8ebf48111850f0e)
And if you believe in sports and markets superstition, when Chiefs won Super Bowl (1970, 2020 and 2023) or Uconn won NCAA championship (1999, 2004, 2011, 2014, 2023), markets have always been up (except one year when markets were flat)

Have a great Easter Weekend!

/Shyam

March Madness came early in Silicon Valley!

noreply@blogger.com (Unknown) — Sat, 11 Mar 2023 23:33:00 +0000

What a week of events - no one would have predicted that the 16th largest bank in USA (Silicon Valley Bank) would be no more in less than 48 hours....almost exactly 15 years after the events of Bear Sterns collapse...While one more (again California) bank failed (Silvergate) no one shed any tears due to its high-risk ties to Crypto world...But SVB was no small bank...in fact it was the "go to" bank for last 40 years for startups, VC and many Silicon Valley companies... but what started as typical course of action - upcoming rating downgrade due to loss on treasury holdings, attempt to raise funds to cover capital requirements turn into classic bank run as depicted in all time classic 1946 movie "It's wonderful life"...Only this time it was not a small town bank..it was one of the premier bank in most innovative place on the Earth...maybe that's what caused its downfall...it was bank for VCs and startups and they exited in droves with slightest doubt and moved their money at internet speed....nothing wrong in protecting their interests..but what could have been a normal capital raise to cover losses became a bank run triggered by tweets and many startups and tech companies found themselves in situation were billions of $$ are stuck and some of them will not be able to pay their employees on payroll day. They could access $250K per account on Monday morning..that's all. After that it all depends on how quickly FDIC and regulators move and unwind the mess...bank management made some wrong choices and caught off guard due to fast rising rates...regulators did not catch the red flags...and analysts (including Jim Cramer) were pumping the stock like its best bank stock to own just few weeks back. What a mess right in our own backyard...and SVB is not alone in this situation...every bank of similar size with similar exposure to bonds/treasuries could find themselves in similar situation since no one can trust any regional bank to keep amount over the FDIC_insured limit of $250K...unless of course regulators move fast and provide assurances that depositors would be made whole. The crypto mess continues with supposedly stablecoin USDC lost parity with $ and touched low of 90 cents (due to money tied in SVB)....This is the second "stable coin" which lost value and became "unstable"

This all happened in same week when Mr Powell told congress and markets to expect higher rate hikes to bring down inflation...Now Federal Reserve may have to watch out for systematic risk in financial system and un-intended consequences due to aggressive rate hikes. I expect rate hikes to be at pace of 25 basis points for next 3-4 meetings with terminal rate around 5.5 to 5.75. Based on stronger employment report, US economy seems to be doing just fine..but markets do not like good news due to fears of aggressive rate hikes...but Fed will not be able to get to goldilocks economy (not too cold, not too hot). So expect lot more volatility in markets for next few weeks/months.

It's Oscar weekend so time for predictions:

Best Picture: Everything Everywhere all at Once
Best Director: Martin Mcdonagh (The Banshees of Inisherin)
Best Actress: Cate Blanchett (Tar)
Best Actor: Austin Butler (Elvis)
Best Editing: Paul Rogers (Everything Everywhere all at Once)

Two special predictions due to its connection to India

Best Documentary (short): The Elephant Whisperers
Best original song: Natu Natu (RRR)

This Sunday is also finale for "The Last of Us"...one of the breakout new series on HBO...

Let's hope banking regulators make right calls over weekend and calm the SVB (and other bank) customers and avoid repeat of 2008-2009 financial crisis equivalent.

/Shyam

SuperBowl: Friends, Food and of course Football

noreply@blogger.com (Unknown) — Sun, 12 Feb 2023 19:34:00 +0000

It's that Sunday of the year when all of America is in party mood no matter what's happening in the nation or around the world. Super Bowl is one event which had helped Americans forgot the gloomy news of 2001 dot-com bust, 2009 great recession and recently pandemic induced lockdowns. Over 100 million Americans would be tuned to TV with family and friends and enjoying the much deserved matchup - Colts vs Chiefs. This is also significant in terms of generational shift. It's first time when the baton of quarterbacks would be passed from likes of Tom Brady/Aaron Rodgers to young, energetic African-Americans - Jalen Hurts (Age 24) and Patrick Mahomes (Age: 27). Their styles, risk-taking attitudes and running should make this an exciting matchup.

And when it comes to economic impact of Super Bowl - here are some numbers:

Boost to local economy of host city Phoenix is going to be around $600-700M
325 million gallons of beer would be consumed on Super Bowl day - that's almost 3 gallons of beer by everyone watching the Super Bowl - no wonder Beer companies spend so much on Super Bowl ads and they are always so interesting
30 seconds spot to advertise is going to cost $7M. It used to be below $3M just 15 years back
$16 Billion of betting would happen on everything from color of outfit Rihanna is going to wear during Halftime show to how long National Anthem is going to take (over or under 2 min and 7 seconds) - not to mention numerous combinations of game statistics!
Tons of pizza, chicken wings, chips and salsa would be consumed

But most importantly this is an occasion when friends can get together and just have a good time. As tradition, we are going to meet and enjoy the game, halftime show and equivalent of "Chai and everything else pe Churcha"

And how can one not mention completely un-scientific Super Bowl Indicator: if "NFC" team wins Super Bowl, markets would be up (70% accuracy) - except it has been wrong when it comes to recent wins by these two teams

- Colts (NFC team) won in 2018 and markets were down by 6%

- Chiefs (AFC team) won in 2020 and markets were up by 16%

So Super Bowl predictor has been wrong in recent years. Personally I am hoping that Mahomes is back from his leg injury and plays to his full abilities and game becomes as interesting as FIFA Soccer World Cup final.

Enjoy the Super Bowl Afternoon with Friends, Food and great Football!

/Shyam