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Cognitive Dissonance

One of the hardest things to do is to hold divergent views concurrently, and there is a good non-zero probability that markets can continue to rip higher as we are not at sentiment highs and private sector liquidity conditions are somewhat opaque and hard to judge based on lags in economic transmission. In addition, liquidity and risk-seeking these days are much less permeable due to geopolitical factions and divergent economic data in different regions (Eurozone & UK —> Weak economic data vs USA & LatAM —> Strong economic data etc.). The flow of funds appears to be patchy, and this is also a crucial phenomenon to be aware of; for example, banks have been losing a lot of deposits to money market funds (reason for SVB, First Republic collapse); hence money market funds ensuing flow is the elephant in the room that we must address. I believe that a faction of Cash & Money Market Fund campers have been flowing from their former holdings to chase the AI Narrative, leading to the essential question of whether the osmosis will continue in this direction. Because sentiment is not yet at “extremes”, the flood gates from money market funds & cash are not fully open, and the opacity of pockets of liquidity due to aggressive fiscal policy, there may be surprises in price trends even though fundamentals do not make sense. As much as we draw corollaries to 2008, 2001 and previous crises, the current Debt/GDP and the fiscal and global order is rather unprecedented; thus, it will be prudent to tread lightly on any tautological economic thesis and rely more on the fallibility of human emotions that is greed and fear which manifests itself in market sentiments.

Predicting flows to establish fundamentally strong investments.

The ensuing flow from Money Market Funds and Cash will determine where the next bull market will emerge, and bull markets usually emerge silently at the fringes. There is still a lot of liquidity sloshing around, with more to come as empires collapse (Macron is the modern-day emperor Nero – watching an Elton John convert as Paris burned) and fiscal dominance (expansive monetary policy is usually enacted to prop up the vestiges of a receding power) in the Western world takes over. The inflation tsunami is on the horizon, but markets are looking at the 5ft waves crashing ashore, as Druckemiller puts it, and when markets realise that MMFs and Cash holdings are certificates of confiscation, the floodgates will open as bag holders rush for the exits. Dogma suggests that the beneficiaries of such an environment will be hard assets and commodities, and we are confident that will not change, but we must also concurrently entertain the possibility that Artificial Intelligence has entered a secular new paradigm that makes specific components and layers of Tech a necessary new age commodity to keep this civilization going. We are talking about Network Infrastructure, Security, Chips and everything in between; however, shunning away from companies that depend on cyclical excesses due to easy monetary policies like Snapchat and Pinterest.

Value is a derivative of perception, and we must understand that perception changes across time and society’s base level of technological advancement. We must also bear in mind that the anchor for value is base-level demand, and the main cornerstone of what something is worth is the “necessity” of a particular good or service. Hence Necessity> Based-Level Demand > Cost > Perception > Value. This is not about getting into the semantics of what something means but not being siloed by what dogma references to what a “commodity” is. We are keeping this in mind as we wait for flow dislocations in the market to snap up good-value compounders for times ahead.

One of the hardest things to do is to hold divergent views concurrently, and there is a good non-zero probability that markets can continue to rip higher as we are not at sentiment highs and private sector liquidity conditions are somewhat opaque and hard to judge based on lags in economic transmission. In addition, liquidity and risk-seeking these days are much less permeable due to geopolitical factions and divergent economic data in different regions (Eurozone & UK —> Weak economic data vs USA & LatAM —> Strong economic data etc.). The flow of funds appears to be patchy, and this is also a crucial phenomenon to be aware of; for example, banks have been losing a lot of deposits to money market funds (reason for SVB, First Republic collapse); hence money market funds ensuing flow is the elephant in the room that we must address. I believe that a faction of Cash & Money Market Fund campers have been flowing from their former holdings to chase the AI Narrative, leading to the essential question of whether the osmosis will continue in this direction. Because sentiment is not yet at “extremes”, the flood gates from money market funds & cash are not fully open, and the opacity of pockets of liquidity due to aggressive fiscal policy, there may be surprises in price trends even though fundamentals do not make sense. As much as we draw corollaries to 2008, 2001 and previous crises, the current Debt/GDP and the fiscal and global order is rather unprecedented; thus, it will be prudent to tread lightly on any tautological economic thesis and rely more on the fallibility of human emotions that is greed and fear which manifests itself in market sentiments.

Predicting flows to establish fundamentally strong investments.

The ensuing flow from Money Market Funds and Cash will determine where the next bull market will emerge, and bull markets usually emerge silently at the fringes. There is still a lot of liquidity sloshing around, with more to come as empires collapse (Macron is the modern-day emperor Nero – watching an Elton John convert as Paris burned) and fiscal dominance (expansive monetary policy is usually enacted to prop up the vestiges of a receding power) in the Western world takes over. The inflation tsunami is on the horizon, but markets are looking at the 5ft waves crashing ashore, as Druckemiller puts it, and when markets realise that MMFs and Cash holdings are certificates of confiscation, the floodgates will open as bag holders rush for the exits. Dogma suggests that the beneficiaries of such an environment will be hard assets and commodities, and we are confident that will not change, but we must also concurrently entertain the possibility that Artificial Intelligence has entered a secular new paradigm that makes specific components and layers of Tech a necessary new age commodity to keep this civilization going. We are talking about Network Infrastructure, Security, Chips and everything in between; however, shunning away from companies that depend on cyclical excesses due to easy monetary policies like Snapchat and Pinterest.

Value is a derivative of perception, and we must understand that perception changes across time and society’s base level of technological advancement. We must also bear in mind that the anchor for value is base-level demand, and the main cornerstone of what something is worth is the “necessity” of a particular good or service. Hence Necessity> Based-Level Demand > Cost > Perception > Value. This is not about getting into the semantics of what something means but not being siloed by what dogma references to what a “commodity” is. We are keeping this in mind as we wait for flow dislocations in the market to snap up good-value compounders for times ahead.