Let’s All Go Back to Bed... (Money Printer Pro)Reading the news this morning is like reading a hurricane forecast
Slides are Right Here…
Good morning: So, the CEO of Nvidia had an affair with an alleged Chinese spy? Okay… So, we might not need to revisit this war with Iran? Okay… So, we are now getting increasing calls for a real bear market? Okay… So, Chamath Palihapitiya is finally understanding why people are upset after… I dunno… 55 years of this… the very things that broke our economy and compounded over time?
Can I go back to bed now? The AI Trade Remains a State Matter.As I said last week, the surprise in the election was the Texas governorship, as the odds came in that Republicans would hold that seat at around 2 in 3… But now, the Democratic sweep takes the power of the AI data center out of the financing rooms across the country, and puts it into the room of a man or woman who oversees permitting and environmental reviews. Between Texas, Georgia, and Ohio, about 40% of planned data center capacity is impacted, and we should see delays of six to 12 months in all three states. I think it’s very difficult right now to look at the neocloud players and feel much optimism, given their financing costs and timing delays. Recall the video I did on Energy Transfer: delays have the biggest impact on a data center's life-cycle value. They could increase the cost of natural gas by 100%, and it wouldn’t matter much. But a six-month delay would eat about 3.6% of the value of a 100 MW data center, based on numbers from the Carnegie Endowment.
This isn’t a recommendation to short the long term, as I wonder if some sort of cavalry will come out of D.C. on the matter via executive order. But I would say that NBIS earnings this week will set the tone. I’d be more interested in going long and short IREN (IREN) on individual days based on volume-weighted average price (VWAP) and previous-day anchors or anchored events like earnings. Oh Great…So, the biggest name in the world for the markets has to open an investigation into its CEO for reportedly having an affair with an alleged Chinese spy. My bingo card for 2026 is just missing all of the WTH moments… Jensen Huang says that he has been targeted by a foreign intelligence operation, which is what I tell my wife when a stranger interrupts me to ask if they’ve seen me before… Huang said he is sorry… and some investors worry he'll be ousted. Of course, that largely will come down to clauses and agreements with the company… I’ll spare you my personal views on these matters linked to corporate leaders and politicians, but wouldn’t some of the ethical ETFs and anything that has “values” in it technically have to dump the stock… or is that all just another thing that will be exposed in how the financial markets work these days? Shares are down 4.5% today… And, it’s a VWAP trade on a day like this… The Big QuestionThe big question in this market is whether any forced selling remains. It showed up hard last week… and it’s a reminder of all the mechanical buying and selling and where some of this is hidden… Momentum crowding had gone from the 99th percentile to around the 75th… Leveraged ETFs, which are purely mechanical, sold $35 billion two Fridays ago, and another $60 billion on Thursday. Goldman said that ETFs were 32% of the overall tape on Thursday… Can we take a moment to appreciate how massive that is… and how mechanical that is… and how much our system now moves on rules instead of fundamentals? Commodity Trading Advisors (a name that doesn’t even make sense anymore) flipped short and could have tens of billions more to sell. Dealer gamma is very low… Volatility control funds The positive is that we have about $1.2 trillion in buybacks currently authorized. But I think this is the time companies should hold cash cushions and look to take capital out of the Treasury market. It’s hard to find a real market bottom when 61% of stocks are above their 200-day moving average. What's really getting me is a report from Goldman Sachs calling Thursday’s selling a 4.9% standard deviation move for the Nasdaq, in a normal distribution, that would theoretically happen only once every 8,281 years. Now, consider a standard 2-deviation move. In a normal distribution, that’s happening once every 44 years. But financial markets are different because they have fat tails, or kurtosis. This means extreme events are more likely to happen than traditional statistical predictions suggest. But… I could have over 12 of these events this year… for the Nasdaq alone. Seven up… and five down. Now, I did this using full volatility… under a normal distribution, maybe 10 of these days would be expected. The point is this… I think this equity system is increasingly creating more extreme price movements because its evolving structure creates the conditions for them. In particular, these mechanical feedback loops feed upon each other…... Continue reading this post for free in the Substack app
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