📊 VALUATION, BE DAMNED!

If you only get one thing from today’s missive, watch this interview with investing great Joel Greenblatt.

Buying what’s cheap and shunning what’s expensive sounds easy enough in theory. In practice? Not so much, otherwise we wouldn’t have just witnessed $86 billion get poured into SpaceX at 107x sales (that’s sales, not earnings).

The video’s some 15 years old. But in a world obsessed with chasing the biggest stocks in the market, valuation be damned, it’s as relevant as ever.

🤖 INFL-AI-TION

It wasn’t that long ago when the pointy shoes kept telling us that AI would be — to use their own words — “massively disinflationary.”

We were skeptical, simply because the numbers behind AI data centers (specifically the enormous amounts of energy required to power them) struck us as anything but disinflationary.

First, it was the utility bills with electricity prices climbing well above headline inflation in regions with heavy data center buildout.

And now, this wave of AI-driven inflation is starting to spill across consumer goods as well — thanks to soaring costs of memory chips and other parts also gobbled up by AI data centers.

Apple just hiked prices across the board, with the company admitting: “We have never seen a component price increase this much, this quickly.“

Pretty telling when a company that has for decades dominated the entire supply chain is now telling the world it’s been blindsided.

Then there’s Microsoft, who followed suit, citing — you guessed it — memory chip costs.

We’ll have more on those pesky memory chips in a second. But we can’t shake off this nagging feeling that this AI inflation is not as transitory as the pointy shoes would now like us to think.

💸 EASY MONEY? NOT SO FAST!

Speaking of AI and memory chips, we have semiconductor stocks seeing dot-com era moves (h/t @charliebilello)…

Shorting “semis” here might seem like easy money. Admittedly, we lack the testicular fortitude required to short this chart, as we explained in our latest Insider member Q&A call.

Here’s our thinking…

Shorting semiconductors (via the VanEck Semiconductor ETF) outright here strikes us as dangerous. What’s overvalued can become even more overvalued (to paraphrase Keynes).

Here’s that same overvaluation through some 30 years of market history…

Now, you might say, “How about using options to express your bearish view?”

It makes sense in theory, but the cost of long-dated options on the semiconductor ETF is currently near all-time highs… while the potential upside has already been shrunk down to a minimum.

In other words, the risk/reward profile is upside-down from what you actually want (a small, known risk against a large, unknown reward).

Folks buying semiconductor stocks at these levels might be idiots. But the traders writing semiconductor options are not. They know exactly what they’re selling you, and they’ve priced it accordingly.

Being right about a bubble and being right about timing are two entirely different things. We’ll pass!

📅 FIVE YEARS OF NOTHING

While on the topic of getting caught on the wrong side of a mania trend, did you see this?

Quite a departure from a guy who had just a few years ago been telling you to mortgage your house to buy Bitcoin and to NEVER sell it.

But stepping back from crypto shills, what to make of Bitcoin here?

We got out of Bitcoin back in 2021, after it ran to $60,000 — pretty much the same level it’s sitting at today. Five years of headlines, halvings, ETF approvals, and a sitting president cheerleading it from the White House lawn… and nothing to show for it.

One thing that has changed since then, however, is how heavily financialised the whole thing has become.

Strip away Saylor, the crypto bros, and the entire circus built on top, and the underlying value is exactly what it’s been from day one…

The ability to hold your own wealth with no counterparty, transferable anywhere. That part’s genuinely useful, and we’ve never argued otherwise.

But everything layered on top of that makes the price action about as predictable as a dice roll. Not to mention that the whole thing is priced in USD — a benchmark that’s itself being quietly debased and mismanaged, which is its own special kind of joke.

Which makes Bitcoin nearly impossible to value the way we’d value a stock like Exxon, where you can pull apart exploration, capex cycles, replacement costs, and arrive at a number.

Bitcoin is too abstract for that kind of work.

Circling back to the man from the headline above: we thought he was a charlatan from the start. Fifteen minutes of sophisticated-sounding jargon to answer a simple question, every time. But strip away the theatre, and it’s all self-promotion dressed up as conviction.

But our problem with the whole thing was this: If you want exposure to Bitcoin, why not just buy the bloody Bitcoin?

Not that you needed a reminder, but rampant speculation always ends in tears. It’s just a question of how long it takes.

🤣 WEEKLY HUMOUR

Here’s the broken-window fallacy playing out in real time… with a side of Keynesian logic, where breaking things and fixing them again apparently counts as economic growth.

Have a great weekend!