I have always considered the world of finance a fairy tale. Individuals, cultured and revered, currently claim that American equity has a zero risk premium, given that, with an S&P 500 P.E. of 22, if I calculate the reciprocal (1/22) I get about 4.5%, exactly in line with the yield of a 10-year American bond, the T-note. However, the problem is not just this: the critical point is the IPOs, initial public offerings. As in 2000, a futuristic future is bought but, numbers in hand, the companies being listed show limited revenues, reduced profits, often losses.
This summary and this language come from prestigious strategists (they want to be called that, the new rainmakers) who, since Donald Trump imposed tariffs on Europe, have been informing European readers that the mythical Bubble is about to burst. They were certain of it a year ago, when Americans would discover that they would pay the tariffs on Europe. In fact, in 90% of cases this has happened, Americans have discovered it, they are paying, but the Bubble has not burst. Not only that, the Stock Market is perpetually at its highs. Why?
The Bubble was also absolutely certain after the closure of the Strait of Hormuz, yet nothing happened. Why?
Who would have imagined that Xi Jinping would agree with Donald Trump and order Asian oil tankers to abandon the route to the Middle East to head directly to the Panama Canal and buy American oil and gas (sic!) enriching no longer the Ayatollahs but the Texan oilmen, friends of Trump. At the same time, however, Trump was blocked between Hormuz and Bab el-Mandeb, thus far from Taiwan.
This closed the circle, according to the old saying: when the market pulls, the guarantee of supply matters more than the price. And this fact, in long-term strategic terms, will be a drama for the Iran of the Ayatollahs: if you own a strategic asset but penalize your customers just to keep a gang of shady religious and bloody financiers like Hamas, Hezbollah, Houthi in power, in the long run you’re doomed. Perhaps, in ten years there will only be local traffic between Iran and Oman at Hormuz.
But the European strategists don’t give up: they have settled on the more cautious phrase: “The bubble is inflating, it will burst soon.”
So they coined the term blowofftop and, cautiously, specify that today, the factors at play are so many that it is impossible to predict the crash point, which, don’t worry, will happen anyway! In this regard, they recalled that the legendary Warren Buffet had started selling stocks in 2023, that Ray Dalio of Bridgewater, one of the most powerful hedge funds, had issued a warning for 2024-25. Now, however, Buffet has just subscribed to $10 billion of Alphabet shares which Google needs to boost its AI. How do we put it? That these people are desperate is shown by the fact that they parrot Keynes’ “markets can remain irrational for a long time.” They themselves remind us that the season of gigantic American IPOs will be a very important indicator to understand the intensity of the phenomenon. And rightly so, they do not forget the case of Cerebras System which went from being almost bankrupt to being worth over $70 billion today.
And how can we not recall the curious scene in the Vatican, where an embarrassing Christopher Olah (partner of the Amodei brothers) pontificated on the disarmament of AI (sic!) three days after signing military supply agreements with the Pentagon (sic!). And three days later the three partners of Anthropic were celebrating on Wall Street a potential company value of $965 billion (sic!). Communication marketing experts called it Vatican-washing.
Friends strategists, why don’t you reflect on your future role? Behind the Stock Market is there really the Market or has it also become a Cardboard? Will it be possible in the 21st century to still live off commissions?
Anyway, always remember: if you’re not at the AI table, you’re on the menu!
