🎙️ NEW PODCAST WITH CHRIS MACINTOSH

Chris joined Danny on his CapitalCosm podcast for another check in on the markets, specifically:

• Why Chris is looking at gold and gold stocks right now, with gold hovering around $4,000 per ounce… and why he wasn’t too interested in the yellow metal just a few months ago when it was hitting new records?
• How to “rig” the statistical probabilities in your favor as an investor? Chris highlights one sector where the asymmetry is as extreme as it’s been in 20 years and companies are producing record cash flows (and no, it’s not energy).
• The “art” of the geopolitical quagmire, and why the US can’t extract itself from the Middle East to protect the petrodollar
• Why Australia’s pension raid should worry you, even if you don’t live there.
• US investors currently hold less than ~0.2% of their portfolios in gold. Chris does the math on what happens if — or shall we say when — that number ticks up even slightly.
• The permissioned economy is already here: Australia, the EU (with their Chat Control push), and America next. What that actually means for your money and what Chris is doing about it.
• The Russia playbook, now aimed at Iran: why the weaponization of the dollar system (as Treasury Secretary Scott Bessent called it) is a bullet you only fire once.
• And much more.

You can listen to the entire conversation on Youtube here.

📈 THE AGE OF EXPONENTIAL

You’d be forgiven for thinking the chart below belongs to some hot AI stock — the kind of exponential curve that gets people all starry eyed, talking about “hockey sticks” and “10x growth.”

Nope. It’s the US national debt, which for the past few years has been on an exponential trajectory itself and just crossed $39 trillion.

Interest payments on this mountain of debt have now overtaken the entire defense budget. The single biggest line item in the federal budget is now just… servicing debt.

But wait, there’s more…

The debt alone would be bad enough. But the cost of refinancing it just got a whole lot uglier. Bond yields are now back at 2008 levels, and not just in the US. It’s the same story across most of the developed world.

As an aside, we think yields could run higher than most investors — accustomed to the era of “lower for longer” rates — would dare to think. In fact, we wouldn’t be surprised to see them go past their 50-year averages shown below.

Now, back to the US guvmint debt, some ⅔ of it needs to be rolled over within the next 5 years (and about ⅓ over the next year). The people who eat this bill won’t be the podium donuts who ran it up. It’ll be whoever’s holding dollars, dollar bonds, or a pension denominated in either when the bill comes due.

We can’t think of any exponential curve that hasn’t at some point ended with a correction, sometimes violent enough to be called a crash. Dot-com valuations, tulip bulbs, you name it. Debt is no different — no matter how many experts insist that debts and deficits don’t matter.

It’s why the focus with our Mavericks Project is on investing in hard assets (via private equity deals) in jurisdictions where debt levels are not as… ahem… “elevated.” Why? Because over the 500-year history of capital markets, every debt cycle has ended the same way: default — or default by inflation — with capital flowing back into hard assets.

👩‍🦳 MUM’S ALL IN, TOO

We were a little surprised to see regular folks pouring all their life savings into oil and gas stocks, specifically of the offshore drilling variety.

Just kidding, it’s AI stocks. The below Wall Street Journal headline itself is a thing of beauty:

And here’s the gist of it:

Na Se-bin has lost all sense of the value of money.

Since January, she has poured nearly all her life savings, roughly $47,000, into the stock market, lured by a global AI boom enriching tech powerhouses in South Korea, Taiwan and Japan.

Riding wild market swings, the 24-year-old South Korean software developer said she has won and lost the equivalent of a month’s salary in the span of a second. Despite the risk, she can’t resist—not after seeing some of her holdings double in price. Over the past 18 months, South Korea has been the world’s top-performing stock market.

Na, who began trading stocks only this year, estimated that more than 80% of people in her social circle are actively investing, as well as all of her co-workers. One colleague, flush from stock returns, spent tens of thousands of dollars on a wedding ring, she said.

Na has splurged on concert tickets, fancy clothes and dinners for her parents. She had planned to buy her mother a gold ring to mark her parents’ 30th wedding anniversary, but her mother declined.

“She told me to just give her the cash,” Na said, to buy stock.

Trillions of dollars are flowing into AI’s global build-out, which relies on semiconductors and chip-making technology from a handful of Asian exporters.

The worldwide surge in chip demand is swelling exports, corporate profits and the bank accounts of many investors, seemingly without end.

When your mother wants cash instead of gold so she can go buy stocks, you know you’re closer to the top than the bottom.

⚠️ BEWARE OF THE NEW BUFFETTS

Staying with AI for another second…

It seems that every time whatever fad’s current poster child gets compared to Warren Buffett in the popular press, you can set your watch by it. The whole thing’s going to unravel like a cheap IKEA folding chair… and probably sooner than anyone expects.

This stuff happens like clockwork, every couple of years. You might recall how Cathie Wood was called the next Buffett during the SPAC mania…

You probably also know how it all ended — with $14 billion in investor wealth getting fed through the woodchopper.

AI mania needed its own poster child, and it found one in 24-year-old Leopold Aschenbrenner.

A few weeks ago he was the prodigy, the whiz kid, the new Buffett — take your pick of breathless headlines. This year alone, young Leopold was up 439% with his Situational Awareness fund, sitting on $45 billion in AUM.

By now, you probably know what happened next. As AI stocks rolled over last week, his leveraged bets went with them. Within days… and right in the middle of his wedding.

To any seasoned investor, this is hardly surprising. Steve Cohen was once asked — how do you avoid blowing up? Here’s what he said:

Jawad Mian: From your early 90s lessons, were there any risk management rules that you sort of adhere to from then onwards to today? How do you avoid losses?

Steve Cohen: Oh, listen, you’re gonna lose money, okay? You gonna take risk, you’re gonna lose money. I think the three things is: liquidity, leverage, and concentration. Those are the three rules. If you’re in illiquid stuff, that’s a problem. If you’re using too much leverage, that’s a problem. And if you too concentrated, that’s a problem. So doesn’t mean that if you have one of them, maybe it works, if you have two of them, uh oh. If you got three of them, you’re whistling past the graveyard.

Young Leopold had two out of three — massively leveraged and all-in on AI — and all it took was one bad week for both forces to collide and take him out.

👕 CHECK OUT OUR MERCH

Unlike Na’s mother, we’ll take the tangible asset…

You can check out all our merch here. Have a great week!