Blind Squirrel Macro paid subscriptions are paused until early June. I am unable to accept new paid subscribers until then. While I am on the road, I am continuing to publish the ‘Start the Week’ note on Sundays.
This week’s ‘Start the Week’ was sent via email to existing paid subscribers at 4.50am EST on Sunday 7th June if you want to search your inbox. It will be put back in the online archive here once subscription billing is un-paused next week.
Start the Week note will be brief again this week. A few changes to the portfolios this week that we need to go through. I will finally make it home to Melbourne mid-week when normal publishing cadence will recommence (and billing will be un-paused).
Supply!
Last weekend’s note covered the 🐿️’s JOMO (Joy Of Missing Out) philosophy as regards the prevailing feeding frenzy in the memory semis market. Last week’s rout of the leaders frankly came much sooner than I had been expecting.
In last week’s Sunday Show, Benny & I discussed the shift in the sources of funding that the hyper-scalers were employing to finance AI data center (‘AIDC’) capex.
Quick plug: the interview that we recorded with Ameesh Agarwal last week was a fascinating deep dive on on AIDC credit markets. Do at least scan the show notes if you do not have the hour to spare. We have more work to do on this space - there will certainly be trade ideas.
What initially was being covered by internal free cash flow from the tech giants soon migrated into private then public debt capital markets. I am still struggling to understand the corporate finance logic behind financing a 10-year useful life asset with a 30-year JPY/GBP bond issue.
The 🐿️’s worst ever personal macro call was to leave an ECM job in Asia in July 2003 - on the eve of a decade long Chinese IPO mega boom. On the flight back from Hong Kong to my new job in London that summer, I read Rob Buckland’s note (below) with a degree of trepidation. What looked to be great outlook for equity prices (and it was!) and for M&A bankers was decidedly a ‘no bueno’ for IPO bankers!
Since the start of the year, I have been increasingly concerned that the tailwinds that have supported US equities in the past 15 years - namely share buybacks, LBOs and 401k flows - could be about to move into reverse just as the market faces a wall of AI-related equity supply.
Back to the Sunday Show. We were discussing this very topic. I commented that “…if we start getting MAG7 common stock supply on top of these IPOs, I’d be really worried”. Less than 24 hours later, the Alphabet $80bn capital raise news hit the tape. The physics of the SpaceX IPO layout just got considerably harder.
The 🐿️ had been booked by CNBC in Hong Kong to chat about the SpaceX IPO the following morning. But for me, the Google news was probably the bigger deal to discuss (link to the relevant clip via image below).
Google’s raise certainly robs liquidity from the SpaceX deal in the near term. More importantly, it has already potentially triggered its first ‘copy cat’ deal from Zuckerberg.
Who next? Amazon? Microsoft? The age of reverse de-equitization appears to be upon us! The hyper-scalers and foundation model companies could be issuers of primary equity for the foresee-able future.
In my view, the S&P index committee has 100% made the correct call to require SpaceX, Anthropic and OpenAI to satisfy the profitability and seasoning standards before inclusion in the benchmark.
I had assumed that they would cave alongside the Nasdaq 100 and FTSE Russell compilers. Am glad that they did not.
For me, we have the makings of a really interesting long equal-weight S&P RSP 0.00%↑ versus short market-cap weighted S&P SPY 0.00%↑ (or MAGS 0.00%↑ or QQQ 0.00%↑) trade that could work for the next couple of years as the largest stocks in the index become net suppliers of paper to the market.
This may now need some further refinement following the S&P announcement. More on this to follow. The chart below from WisdomTree has been doing the rounds lately on social media. Scary right?
Because the 🐿️ is a nerd, he decided to put together the same analysis of the S&P500 equal-weight / RSP 0.00%↑:
With less than 10% exposure to paper valued at > 10x Price to Sales, I kind of know where I want to rent my beta over the next few quarters -especially if it is those most expensive and largest components of the US benchmark are are planning on being net suppliers of equity paper to the market.
