Well it’s certainly no guarantee that just because a sector is uncrowded that it will work. But the over positioning of hedge funds, retail and leveraged players creates the tinder for unwinds in those areas. If we go into a low vol summer environment where dispersion continues but the market stays elevated, the rotations will be violent and will result in rolling pockets of outperformance, not necessarily everything down together.
Not sure what other balance sheet fortification Saylor needs to do tbh? They have $62b in bitcoin vs $6.7b in converts and $15b in prefs. You can cut btc in half from these levels and they're still sitting on $24b in bitcoin w pref dividend annual servicing cost of $1.5b.
He needs to raise more cash to increase his debt+pref servicing reserve for starters. I don’t really agree with him paying down the debt like he did but I assume he knows more than I. Moral of the story is more about BTC than it is about MSTR in that he is a much diminished buyer going forward than before.
Fair on the cash, but they raised the initial $2.25b in cash over the course of a couple weeks back in December/January so it doesn't seem like a heavy lift to do so, and the internal shift announced on their last earnings call that they will sell bitcoin to service the prefs is his version of saying they're treating bitcoin as cash, if needed, too. As a pref holder, I'd prefer a larger cash position myself.
Can't agree on the diminished buyer comment: February aside (Feb 6 crypto drawdown killed the ecosystem activity and prices) they've bought 20-40k btc every month this year and STRC demand hasn't shown any evidence of wavering. I'll believe it when I see it
Out of curiosity, why do you share your in depth thoughts with us? Does it help to get clearer thoughts by writing and sharing them, or do you try to get a feel what others think? Or something different all together?
Anyways always looking forward to reading your stuff. Have a great sunday!
I enjoy it. I like interacting with people and building relationships and community. I also believe it benefits my process and thinking.
As this space has grown and I am getting busy with a number of things I have been thinking about what to do with it more. It’s sort of at a crossroads where I can either lean into it more which would probably require a paywall to justify it or just keep as is / reduce my frequency a bit. Curious your feedback on that point.
My lean is to formalize the community and offering a bit more and add a premium tier that people can pay to be a part of under the assumption that it will create a more active and tight knit group and also make me comfortable sharing more and putting more into it.
Hard to tell what the best way going forward is for you.
If you want to lean in more into providing content here adding a paywall filters usually for people who are more interested and also more invested themselves to interact with your content. I think a community behind a paywall therefore usually is a "better" community to have in general.
On the other hand if you want to keep it as a side project and don't want to put in more time/work than I think keeping it as it is would be the way to go. Assuming that the benefit of having a tighter community behind a paywall doesnt outweight the added investment on your side to provide more content.
"I spent a lot of my earlier years in finance working in various energy and commodity sectors so this tweet from Milton resonated and is something I’ve been talking about on numerous occasions. At the end of the day semiconductors are extremely cyclical and while historically the Mag7 names haven’t been, their transition into capex heavy business models will very likely make them or at least their cash flows much more so. This has important ramifications."
This is a great lesson, and your point about the MAG7 turning into cyclical cash flow companies is interesting, but on memory and semis specifically - there are major structural differences between past cycles, and this cycle, from the magnitude of the demand, to the multi year contracts. How do you see these differences affecting this cycle compared to past cycles?
Totally agree there are differences but I still heavily believe cyclicality will remain. Thus far up only stock prices boosted by fiscal and monetary policy support have catalyzed free money and cheap financing for the AI theme to churn out endless capex that flows into earnings for the rest of the sector and higher share prices and rinse/repeat. That said, the monetization and return of this capex is still very much unknown and will need to be proven in the years to come. That plus the current government policies that leave 80% of the population in the dust are unsustainable. A hiccup in either of these many large tailwinds supporting the industry are bound to occur and reflexively cause people to start questioning the validity of the capex level and quality of earnings.
I give it max 6 months after the large IPOs are completed for this to occur. Currently Anthropic and OpenAI are keeping subscription costs low to drive user growth and post strong numbers into IPO. Their lack of monetization however is not sustainable long term and something will have to give, eg reducing pace of capex, negatively affecting the beneficiaries.
Don’t forget a second powerful force working in the background is margin compression. Profits beget competition and eventually reduce margins across industries as new entrants come for the outsized earnings potential and compete away profitability. This takes more time to play out but being we are in the 3rd or 4th year of this secular trend, it should be soon.
I agree with a lot of this. Politicians eventually have to answer to the public, OpenAI and Anthropic need money to keep expanding, and margin compression will probably do it's thing especially for a company like NVDA. There's also a tonne of risk in individual companies, as the future tech path is unknown, and current designs may be left in the dust.
All that said, this time really may be different, and I think it will be if we keep marching towards the geniuses in a datacentre vision. On the political side we just had Bernie Sanders come out saying the American taxpayers should own half of a stake in AI companies. He doesn't propose any funding (he is a socialist afterall) but this is just more evidence of both sides of the aisle becoming Situationally Aware. And on the funding side of things, Alphabet just raised 80b for AI buildout. I'm not sure what can stop this trend aside from capabilities hitting a wall. But people have been calling for that for years, and those people keep being wrong.
Quinn, you should take a look at oil again. The math ain't mathing. China and US are setting fire to their SPRs to keep the market balanced. China can sustain that. America can't. We're a month away from operational stress levels. Oil may end '26 at $85 but it's going to see $150 first.
I actually have a slightly different view in that oil can continue to be suppressed but longer-term it will have to reprice to reality. I think government and politicians have shown their willingness to rundown reserves into elections to lower gas prices many times and I expect no different here.
I am an oil bull over most time horizons, I just am patient and conservative on entries over the coming weeks to months expecting more shenanigans. Post midterms I think poses the best likelihood for price appreciation.
Excellent as always
Thanks, another great one!
"If you can find longs in unloved and uncrowded sectors that are performing well, that is the ideal setup."
Why, if correlations are at the lows now, wouldn't higher correlations during a sell off mean everything down, instead of previously shorted names up?
Well it’s certainly no guarantee that just because a sector is uncrowded that it will work. But the over positioning of hedge funds, retail and leveraged players creates the tinder for unwinds in those areas. If we go into a low vol summer environment where dispersion continues but the market stays elevated, the rotations will be violent and will result in rolling pockets of outperformance, not necessarily everything down together.
Not sure what other balance sheet fortification Saylor needs to do tbh? They have $62b in bitcoin vs $6.7b in converts and $15b in prefs. You can cut btc in half from these levels and they're still sitting on $24b in bitcoin w pref dividend annual servicing cost of $1.5b.
He needs to raise more cash to increase his debt+pref servicing reserve for starters. I don’t really agree with him paying down the debt like he did but I assume he knows more than I. Moral of the story is more about BTC than it is about MSTR in that he is a much diminished buyer going forward than before.
Fair on the cash, but they raised the initial $2.25b in cash over the course of a couple weeks back in December/January so it doesn't seem like a heavy lift to do so, and the internal shift announced on their last earnings call that they will sell bitcoin to service the prefs is his version of saying they're treating bitcoin as cash, if needed, too. As a pref holder, I'd prefer a larger cash position myself.
Can't agree on the diminished buyer comment: February aside (Feb 6 crypto drawdown killed the ecosystem activity and prices) they've bought 20-40k btc every month this year and STRC demand hasn't shown any evidence of wavering. I'll believe it when I see it
Great signal as always!
Great insights, thanks for the write up!
Out of curiosity, why do you share your in depth thoughts with us? Does it help to get clearer thoughts by writing and sharing them, or do you try to get a feel what others think? Or something different all together?
Anyways always looking forward to reading your stuff. Have a great sunday!
I enjoy it. I like interacting with people and building relationships and community. I also believe it benefits my process and thinking.
As this space has grown and I am getting busy with a number of things I have been thinking about what to do with it more. It’s sort of at a crossroads where I can either lean into it more which would probably require a paywall to justify it or just keep as is / reduce my frequency a bit. Curious your feedback on that point.
My lean is to formalize the community and offering a bit more and add a premium tier that people can pay to be a part of under the assumption that it will create a more active and tight knit group and also make me comfortable sharing more and putting more into it.
Hard to tell what the best way going forward is for you.
If you want to lean in more into providing content here adding a paywall filters usually for people who are more interested and also more invested themselves to interact with your content. I think a community behind a paywall therefore usually is a "better" community to have in general.
On the other hand if you want to keep it as a side project and don't want to put in more time/work than I think keeping it as it is would be the way to go. Assuming that the benefit of having a tighter community behind a paywall doesnt outweight the added investment on your side to provide more content.
"I spent a lot of my earlier years in finance working in various energy and commodity sectors so this tweet from Milton resonated and is something I’ve been talking about on numerous occasions. At the end of the day semiconductors are extremely cyclical and while historically the Mag7 names haven’t been, their transition into capex heavy business models will very likely make them or at least their cash flows much more so. This has important ramifications."
This is a great lesson, and your point about the MAG7 turning into cyclical cash flow companies is interesting, but on memory and semis specifically - there are major structural differences between past cycles, and this cycle, from the magnitude of the demand, to the multi year contracts. How do you see these differences affecting this cycle compared to past cycles?
Totally agree there are differences but I still heavily believe cyclicality will remain. Thus far up only stock prices boosted by fiscal and monetary policy support have catalyzed free money and cheap financing for the AI theme to churn out endless capex that flows into earnings for the rest of the sector and higher share prices and rinse/repeat. That said, the monetization and return of this capex is still very much unknown and will need to be proven in the years to come. That plus the current government policies that leave 80% of the population in the dust are unsustainable. A hiccup in either of these many large tailwinds supporting the industry are bound to occur and reflexively cause people to start questioning the validity of the capex level and quality of earnings.
I give it max 6 months after the large IPOs are completed for this to occur. Currently Anthropic and OpenAI are keeping subscription costs low to drive user growth and post strong numbers into IPO. Their lack of monetization however is not sustainable long term and something will have to give, eg reducing pace of capex, negatively affecting the beneficiaries.
Don’t forget a second powerful force working in the background is margin compression. Profits beget competition and eventually reduce margins across industries as new entrants come for the outsized earnings potential and compete away profitability. This takes more time to play out but being we are in the 3rd or 4th year of this secular trend, it should be soon.
I agree with a lot of this. Politicians eventually have to answer to the public, OpenAI and Anthropic need money to keep expanding, and margin compression will probably do it's thing especially for a company like NVDA. There's also a tonne of risk in individual companies, as the future tech path is unknown, and current designs may be left in the dust.
All that said, this time really may be different, and I think it will be if we keep marching towards the geniuses in a datacentre vision. On the political side we just had Bernie Sanders come out saying the American taxpayers should own half of a stake in AI companies. He doesn't propose any funding (he is a socialist afterall) but this is just more evidence of both sides of the aisle becoming Situationally Aware. And on the funding side of things, Alphabet just raised 80b for AI buildout. I'm not sure what can stop this trend aside from capabilities hitting a wall. But people have been calling for that for years, and those people keep being wrong.
Quinn, you should take a look at oil again. The math ain't mathing. China and US are setting fire to their SPRs to keep the market balanced. China can sustain that. America can't. We're a month away from operational stress levels. Oil may end '26 at $85 but it's going to see $150 first.
And you don't have to take my word for it. CEOs of Exxon and Chevron were both out this week blasting the horn on this.
I actually have a slightly different view in that oil can continue to be suppressed but longer-term it will have to reprice to reality. I think government and politicians have shown their willingness to rundown reserves into elections to lower gas prices many times and I expect no different here.
I am an oil bull over most time horizons, I just am patient and conservative on entries over the coming weeks to months expecting more shenanigans. Post midterms I think poses the best likelihood for price appreciation.
https://x.com/qthomp/status/2060142075748684054?s=46