DOGE - Govt Efficiencies Are Everywhere

There’s been alot of talk about Elon Musk and the government efficiencies that COULD be captured over time. We all know the government is about the most inefficient of any organization in this country. Our politicians and staffers spend like drunkin sailors and they lean on the USD being the reserve currency and our ability to print money at will. No more DC. Interest rates will not go down unless we either go into a deep economic downturn (not a compelling outcome), or get very serious about balancing the budget and cutting all the wasteful spend. Now that we have outsiders involved, those that have only 1 endgame, savings, we have a nbetter opportunity to make real headway than ever before. To be sure, it will not be easy. Bad muscle memory in the form of waste runs deep in DC but when you make these decisions and the waste very public, the abusers tend to scurry away and hide. That’s what we want. Bottom line: the market is NOT priced for proper efficiencies being accomplished. Any success on this topic will be well rewarded in the equity markets, bond markets, and rates should fall which would stimulate the housing sector which is a big employer in America. IMO, one has to have some “shelter” exposure that’s correlated to falling rates, for the good reasons. This would be home improvement brands like HD, LOW, SHW, BLDR and home builders like DHI, LEN, home furnishing brands RH, WSM, ARHS, and private equity brands BX, KKR, APO and even BLK and GS now getting more focused on their alts divisions. Blackstone has almost $300B in real estate assets so any fall of rates for the good reasons would make that stock really get some giddy-up!

The above is a great chart from Brad Gerstner’s Altimeter Capital highlighting the benefits of reducing spending while keeping the normal revenue growth trajectory we are used to. It’s absolutely doable and for the first time in my life, it’s an actual policy goal with high motivation. Bond Vigilantes beware!

Futures Tank on Trump Tariffs

Well, futures have opened and the sellers are back on the continued news of sweeping tariffs across Mexico, Canada, China, and the EU is surely coming. Trump just loves to be a bull in a china shop. Let’s hope the smart folks around him remind him sentiment is a fickle thing and so are his approval ratings. His ego needs to be stroked and he uses the stock market as his score card for success. So far, he’s starting off with a D-.

The three largest trading partners of the U.S. are: Canada, Mexico, and China. The proposed tariffs will affect trade worth about $1.3 trillion, or 43% of US imports. Again, the result of all this lunacy is likely A)high market volatility, B) slowing economic growth, C) higher persistent inflation, D) wild volatility in currency markets, E) added retaliation against the US from these countries, which simply creates a wicked negative feedback loop. Get your trading cap on and keep it close for the next 4 years, thats where the most money will be made. This is what markets will look like 4 years looking backward.

Tariff-Man Strikes Again: Canada, Mexico, China, EU; "We Comin"

Who wins most when Tariff-Man pushes every leader the US is connected to? Algo’s & Volatility. You can be VOL’s girlfriend or you can use VOL to line your pockets with cash. I know which one I prefer. Everyone knows by now what Trump’s playbook looks like. For this reason, I expect more friction between Trump and other world leaders and countries. If I was the leader of a country being tormented with Trump, I would probably torment him back and call his bluff ALOT. Trump, the man who is happy to push too hard, is playing a dangerous game. Friction, volatility and noise causes uncertainty and that causes businesses and consumers to flinch at times, which can cause economic slowdowns. Those are tied directly to stock prices so Trump, who uses the stock market as his barometer for success, is risking the positive wealth effect and markets to line the governments pockets with tariff cash so he can push tax cuts to consumers and companies. It’s like creating a ton of volatility so he can steal money from our left pocket and put it back in our right pocket. The whole thing is idiotic but consider the source!

There is sure to be plenty of tariff news this weekend and the degenerates trading futures for 5 ticks will be licking their chops come Sunday. We should all expect inflation to continue to stay elevated and volatile month to month. For now, the consumer is spending well and the industrial economy is slowing beginning to wake up. There’s alot more to be excited and positive about than you are seeing in the news. Remember, fear mongering is always an effective tactic to get you glued to the media. Once they have you captive, they can monetize your fear into more ad dollars. Don’t get sucked into the FUD (fear, uncertainty, doubt). We’ve seen this Trump movie before, we know his playbook, we know what he cares about (our admiration and stocks), and we know he wants his legacy to be viewed as positive. It will all work in the end, until then, buckle up for a wild ride.

The AI Bubble is Leaking

If you’re an Eagles and Chiefs fan, it was a great weekend. I am in fact an Eagles fan, they always keep us on the edge of our seats but wow did they look good Sunday! Over the weekend we started hearing more and more information about the Deep Seek Chinese AI models that where supposedly cheap to build ($6m), and just as effective as the best American models. Color me skeptical about the cost and how many Nvidia chips were required but with such a massive crowded trade across the chip, power, datacenter, and memory universe, I was expecting a rough day for tech today and largely that’s what happened. What was most interesting to me today: NVDA was -17%, Vistra (energy) -28%, XLK -4.9% and yet 2/3 of the market was green on the day. Massive and positive moves happened outside the blast zone as money rotated out of the most crowed names and moved into other tech via AI beneficiaries as well as companies that would benefit from cheaper costs to deploy AI tools. The brands portfolio held up like a champ today because we are massively underweight tech because of our view it was too crowded. Remember, there’s about $2.8 TRILLION in tech sector ETF’s, about $13 trillion that’s benchmarked to the S&P 500 with tech being the top weighting at 35%, and trillions more across the active fund complex and growth style boxes. As I’ve written many times over the last 12 months, when crowded trades unwind, even a little, they can be disruptive and unsettling for a period of time. Imagine the positive benefits to high quality company shares if they get just a fraction of the flows from the world’s largest and most crowded trade. That’s a large wave coming to a very small shore where the “rest of the market” is concerned. I sincerely hope this is a warning sign investors will heed as a reminder to make sure they have proper diversification. The momentum factor is a good one but it crashes on occasion, particularly when it gets wildly crowded like tech and semiconductors are today. There will surely be opportunities in many of these names in the coming days but for now, I want to watch how the most popular stocks trade and what kind of volume they show. For now, the group is a trading vehicle for us.

Did Stargate, Sam Altman and Masa from Softbank ring the bell with the idiotic $500B+ AI spend announcement? It sure feels like a headline that marks at least a short-term top. Masa being aggressive in anything continues to be a wonderful contrarian signal.

Here’s how the Brands portfolio looked at the close today. I’m anxious to add to the Alts basket and COIN along with more American Express, and some pure retail.

Trump is Back!

My job is to make money for clients. Full stop. In order to accomplish my goals, I have to navigate through economic data, macro data, and corporate micro data, aka company earnings and trends. Ultimately, its earnings and growth that drive equity prices but prices of all assets can fluctuate wildly during short periods of time. As we start 2025, we must all remind ourselves that algo’s and other systematic investors drive the day to day volume on exchanges. This reality is just as important to consider as the other factors I stated above. When I got into this business 30 years ago, investors drove markets. Today, trading and very short-term thinking drives markets. We live in an A.D.D. world where a new get rich quick theme seems to develop daily. These are distraction folks, do not lose sight of the real price: having a solid nest-egg for retirement. My daily mantra is: “we trade the market we have, not the one we want”, this will forever be true. A few days before the inauguration, the reality of Trump became completely clear; their camp intends to be in the news daily and fully intends to monetize their power like no other politician has in history. Welcome to the meme coin mania folks, the daily dose of Trump is akin to our daily vitamins, we don’t want them but we are going to get them! In crypto, the Trump & Melanie meme coins are backed by air, fart coins air is particularly foul, and more meme coins for every one of Trumps family are incoming. Will the Barron coin smile? I mean the kid needs to smile once in a while. He’s got the world by the short-hairs!

This week, we had the AI revolution get a big boost by, you guessed it, a Trump announcement. It’s these kinds of announcements that get the algo’s moving aggressively, I enjoyed jumping on the ORCL train and selling the stock the next morning at the open +13%. That’s how we make money in an ago-driven world! Sam Altman of OpenAI could be this generations biggest cheerleader of a new era in tech. We shall see how it all ends but the dude knows how to tell a story and get massive amounts of funding. AI will cure disease, solve every problem, do everything humans do today, never takes a vacation, and never asks for a raise. AI will change the world and everything in it…Now how much money would you like to pledge to invest in the new revolution designed to put us all out of work? Here’s the details on Project Stargate: The Stargate Project is a new company which intends to invest $500 billion over the next four years building new AI infrastructure for OpenAI in the United States. We will begin deploying $100 billion immediately. This infrastructure will secure American leadership in AI, create hundreds of thousands of American jobs, and generate massive economic benefit for the entire world. This project will not only support the re-industrialization of the United States but also provide a strategic capability to protect the national security of America and its allies.

The initial equity funders in Stargate are SoftBank, OpenAI, Oracle, and MGX. SoftBank and OpenAI are the lead partners for Stargate, with SoftBank having financial responsibility and OpenAI having operational responsibility. Masayoshi Son will be the chairman.

Arm, Microsoft, NVIDIA, Oracle, and OpenAI are the key initial technology partners. The buildout is currently underway, starting in Texas, and we are evaluating potential sites across the country for more campuses as we finalize definitive agreements. Color me skeptical on the ability to raise $500B but crazier things have happened. I’m the consumer brands guy so thankfully, I can generally watch from the sidelines while focusing on brands that will have massive productivity gains by implementing AI and tools to drive sustainably higher margins and better profitability. All of this allows a stock to have solid multiple expansion. So maybe stocks in general aren’t as expensive as they appear today?