Hi Multis
This is my last Overview Of The Week as a 49-year-old man. I’m turning 50 on Tuesday.
It’s funny how we look at age. When you are 16, someone of 28 is old; when you are 28, someone of 40 is old; one of my best friends is 44 years old and he still thinks of old people when he hears the age of 50, even if his best friends are all that age.
I’m about to turn 50 but I still feel young and energetic. The fact that I love what I do definitely contributes to that, so I want to thank you all for making that possible!
The upcoming week is busy, with my birthday and a conference in Bonn on Friday and Saturday.
On Thursday evening, I will be one of the speakers in Ghent at the Clash der Beleggingsstrategieën. I have three more free tickets to offer. Just comment to this article if you want to attend for free.
And please, come say hi during the reception after the debate!
Articles In The Past Week
This is the fourth article this week. Let’s look back at the three previous ones.
The first article this week was an update on Chapters Group.
I’m not often proud of an article I write. Maybe three times a year or so. But my Nu Holdings article was one of those. If you haven’t read it yet, you can do that here.
Twice a month, I buy stocks for the PM Forever Portfolio, my real-money portfolio. In this article, you can find out which stocks I bought on Friday and why.
Memes Of The Week
No memes this week.
Interesting Podcasts Or Books
This week, I listened to David Gardner’s Rule Breaker Investing podcast. Every quarter, he has a game show called the Market Cap Game Show. Two contestants have to guess a company’s market cap best. It’s light, so I often listen when I’m cooking, but it’s really fun and you still learn something. You can listen to the episode here.
The markets in the past week
So, what did the markets do this week? Let’s have a look.
We see the same pattern again. The Russell 2000 was down 0.80%, while the S&P 500 was up 1.21% and the Nasdaq even 2.06%. Smaller companies usually feel more impact from interest rates, so this is logical.
The Greed & Fear Index remained in FEAR territory, but last week, it was at 29, while it climbed to 37 this week.
Quick Facts
1. Do higher rates really help?
Bill Ackman posted an interesting thought this week. He says that the presumption is that higher interest rates reduce inflation. And that has indeed always been the underlying belief. But what if, Ackman wonders, this time, there won’t be an effect now, because the demand for AI and energy is not affected by higher interest rates.
There is something to be said about this, I think. If you look at the last 45 years, we have seen a long cycle of lower interest rates.
There were some exceptions, but you can clearly see the trend, down. During that time, there was generally deflation and asset inflation. Those are expensive words and they need nuance. There was no deflation for many things, like education, but many technological devices and services dropped in price. At the same time, stocks became more expensive. That’s asset inflation. With low interest rates, that makes sense.
We will have to see how this evolves over time. But it’s something to watch.
2. AI finances, the first cracks?
The problem with AI is that some companies have taken on deep debt to invest in infrastructure. As long as they can pay that debt, that's no problem. Once that's no longer the case, look out below.
In that context, what happened to Oracle (ORCL) is, in hindsight, hopefully not the first crack. The company sent a ‘force majeure’ notice on Project Jupiter, the huge New Mexico AI data center tied to the $400 billion Stargate project it started with OpenAI, SoftBank, Nvidia, and other partners.
The problem is power for the site. The plan is to use Bloom Energy fuel cells powered by natural gas, but the pipeline needed to provide natural gas to the data center location doesn’t get the necessary permits.
Force majeure is usually used when something disastrous happens. Think of a war, a flood, or another natural disaster. Oracle wants to delay its payment until 2028, so it gets more time to get the pipeline permit. This makes credit markets very nervous. If you look at Oracle’s balance sheet, you probably understand why.
With $156 billion in debt, $37B in cash and equivalents and negative free cash flow, Oracle looks weak. And that makes markets nervous.
I have always said that if one pin falls in the AI companies, many others would follow. I thought of OpenAI mostly, but Oracle is a weak link in the chain as well.
The opening of the data center was foreseen in 2028, but it will probably be later. Such things happen, but if this makes a company invoke the force majeure rule, that company is financially weak. And that could be dangerous.
Now, I think you all know I’m not a prophet of doom and things can work out fine. But it doesn’t mean that we have to close our eyes to potential problems.
This is where the article stops if you are a free reader. Premium readers get much more than you, obviously.
Did you know there’s a VIP subscription too? It costs $1,200 and you get my full portfolio there. I’m extending the services you get in the VIP subscription soon and the price will go to $1,500 (or even more).
But right now, until Wednesday only, you can get a free upgrade to VIP for the very last time ever for just $399. And each year, as long as you don’t cancel your subscription, you receive the VIP tier for the normal price.
If you wait, you pay $1,500.
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The offer expires on Wednesday, one minute before midnight, so don’t hesitate!