Category Macro & Cycles

The AI Earnings Mirage: Why 6-Year Depreciation Cycles Are Inflating Big Tech Profits

AI’s Big (Depreciation) Bet

Most of the Mag 7 tech giants are using an extended 5-to-6-year depreciation schedule for their massive GPU investments. Since GPUs typically have a 3-year useful life, this practice artificially inflates current earnings by reducing the reported expense. If these chips rapidly become obsolete, investors paying high multiples must question the impact on future Free Cash Flow and margins when the true depreciation expense inevitably hits. Investors are optimistic that will show very strong returns (and soon) on their half-trillion-dollar bet.

Capital Destruction: Why 23x Forward Earnings is the ‘Magnetic Center’ for the AI Bubble Capital Destruction: Why 23x Forward Earnings is the ‘Magnetic Center’ for the AI Bubble

Capital Destruction: Why 23x Forward Earnings is the ‘Magnetic Center’ for the AI Bubble

Investor enthusiasm for AI is reminiscent of the Internet boom circa 1995. Having worked at Google, I've seen AI's profound impact firsthand, from computer vision to self-driving Waymo vehicles that have achieved 10M rides. But as an investor, the focus must shift to economics: business models, monetization, and valuation. Billionaires like David Einhorn are sounding the alarm: spending hundreds of billions on AI infrastructure may lead to massive capital destruction if CapEx vastly exceeds consumption. History shows that while the technology transforms society, an oversupply creates painful market corrections. The question isn't if AI is the future—it's what price you pay for it.

The Bull Steepener Warning: What 10-Year Yields and BBB Spreads Signal The Bull Steepener Warning: What 10-Year Yields and BBB Spreads Signal

The Bull Steepener Warning: What 10-Year Yields and BBB Spreads Signal

It would not surprise me to see the market give back 10–15% over the coming weeks and months. Valuations are very full and the economic data is weakening. But something to watch is the bull-steepening of the 10-yr / 3-mth yield curve from inversions. Whilst not a great timing too - generally its 'vector' is correct. That's a warning - despite the Fed cutting rates.

The Stagflation Signal: Why the Fed Dot Plot and Misery Index Defy Rate Cut Hopes The Stagflation Signal: Why the Fed Dot Plot and Misery Index Defy Rate Cut Hopes

The Stagflation Signal: Why the Fed Dot Plot and Misery Index Defy Rate Cut Hopes

Not for the first time, the Fed is in a very difficult spot. Whilst always a dominant force in global markets, for now, Powell's team is not in the front seat. We learned this week the direction of U.S. monetary policy (over the coming months) depends heavily on developments well beyond the Fed's control. And unfortunately for investors - it could be a long (US) summer. In its latest decision, the Fed held rates steady, as expected, citing strong economic activity, low unemployment, and persistent—but slightly elevated—inflation.

The 18% Tax Ceiling: Why the $4.7 Trillion TCJA Extension is a Binary Bet for the S&P 500 The 18% Tax Ceiling: Why the $4.7 Trillion TCJA Extension is a Binary Bet for the S&P 500

The 18% Tax Ceiling: Why the .7 Trillion TCJA Extension is a Binary Bet for the S&P 500

Breaking up is always hard to do. Your dog looks at you dazed and confused... your Netflix account is no longer shared. And who gets the air fryer? The whirlwind bromance between Elon Musk and Donald Trump appears to be over. It's not a clash of gigantic egos. And like most breakups - things seemed to have moved to the second of five (breakup) phases.. anger

The TACO Trap: Why the S&P 500 Mean Reversion and the 5% Bond Yield are the Real ‘Sell in May’ The TACO Trap: Why the S&P 500 Mean Reversion and the 5% Bond Yield are the Real ‘Sell in May’

The TACO Trap: Why the S&P 500 Mean Reversion and the 5% Bond Yield are the Real ‘Sell in May’

The market is betting Trump is all bluster and no action. The acronym "Trump Always Chickens Out" (TACO) is sure to piss the President off. Now, if the TACO trade is right, then Trump's threats will lose their power as a negotiating tactic. Therefore, on the assumption Trump believes in protectionism - he may have to follow through on some of his rhetoric. Markets seem to think that won't happen...

The 2025 Growth Scare: Valuations, Retail Warnings, and the Reality of Stagflation The 2025 Growth Scare: Valuations, Retail Warnings, and the Reality of Stagflation

The 2025 Growth Scare: Valuations, Retail Warnings, and the Reality of Stagflation

Feb 15th I asked this question: "Ready for a Growth Scare?" Markets were yet to correct at the time... however fast forward ~5 weeks and the growth scare has arrived. Now investors are taking notice. The Fed warned growth is likely to slow this week - where Chair Powell said economists outside of the central bank have generally moved up their estimated chance of a recession. The Fed downgraded its economic growth outlook while raising its inflation projection. They see the U.S. economy growing at a 1.7% pace this year, down 0.4 percentage points from what it forecast in December.

Macro Volatility: Navigating Policy Disruption and Recession Macro Volatility: Navigating Policy Disruption and Recession

Macro Volatility: Navigating Policy Disruption and Recession

Fasten your seatbelts - things could get bumpy. Trump has amplified the seeds of worry stating he was willing to work through a "bit of disruption" - as it will lead to longer-term gains. And whilst a recession was not on anyone's bingo card last month - those probabilities are increasing.

Market Cycle Analysis: Mean Reversion to Identify Opportunity and Risk Market Cycle Analysis: Mean Reversion to Identify Opportunity and Risk

Market Cycle Analysis: Mean Reversion to Identify Opportunity and Risk

I made a decision to reduce my exposure to large-cap tech a few months ago. The decision wasn't an easy one... these are great stocks. For example, did I sell prematurely? The answer will be more obvious in 6-12 months when the cycle has had sufficient time to play out. For now (as was the case when I sold) - I think the downside risks meaningfully outweighed further upside gains. In this post, I explained how selling is a way of managing your risk. I was ensuring I banked the appreciable gains realized over the past few years. In light of the rotation out large-cap tech we've seen this week - I thought it was opportune to share some thoughts on (a) how I calibrate my portfolio in a changing environment; and (b) when to be aggressive and when to play defense. It all comes back to understand the economic cycle...

Inflation Analysis: Identifying Peaks and Policy Lags Inflation Analysis: Identifying Peaks and Policy Lags

Inflation Analysis: Identifying Peaks and Policy Lags

Is inflation peaking? If we knew the answer to that question - markets would be in a very different place.
The problem is - we cannot know for sure. However, there are positive developments...