I wanted to get this post done so you all understand my POV and how I am thinking about the moves I am making and why my portfolio is positioned the way it is.
To reiterate for the people who are new to my content, I am neither a bull nor a bear. I asses the environment in front of me and like to listen to both sides to make the best decision for myself which is why I believe I have performed so well being both long and short.
A common take from bears is that AI is in a bubble and is not a useful technology (essentially just chatbots). I do not agree with this at all. AI is definitely useful as I use it in my own life and business and see companies transforming their business with AI. This is a transformational technology which we are in the early stages of. Is there overspending? Sure. I think AI won’t accelerate/integrate fast enough to justify this capex spend in the short-term, but long-term, the technology will get significantly better and completely change the world.
Where bulls get this all wrong is they boil down the entire market/economy into thinking everything’s fine because bears are wrong about the AI bubble. The fact of the matter is there are much more fundamental issues in the economy to worry about.
-The consumer is struggling, auto loan defaults & credit card defaults are skyrocketing.
-The labor market is deteriorating
-Inflation is still above target and fed has to pick between which one to worry about (they have said they are leaning towards labor market because it’s so bad)
-A recent development is Japan and the Yen carry trade start to play out (which could be a huge factor in recent sell off)
-Private credit could be a ticking time bomb and recently there have been multiple cases start to show the cracks in the system (Tricolor being the first and highest profile)
-Commercial real estate is in real trouble and regional banks have heavy exposure to it. Concerns about regional banks have started to pop up and their stocks have shown weakness KRE 0.00%↑
-Valuations in a lot of areas of the market are elevated
-Lots of bubblish behavior with retail investors
-Companies outside of big tech are struggling
-The real estate market downturn has begun. Rents & prices starting to collapse.
-Margin Debt at all time highs
-& much more which I am probably not thinking of off the top of my head
I could write individual posts on each point here and will if you guys would like me to.
To sum it all up, the red flags are too strong to ignore. I am always open to changing my view and if the data somehow starts to improve I will change my stance.
I understand going short/hedging is not for everyone, so my broad (NFA) advice is to be cautious right now and consider raising some cash and getting out leverage (margin/call options).
Thanks for reading, and if there’s something you want me to discuss on a deeper level, let me know.