Buying The Big Dip, Yen Intervention, Fraser's Bids For Luxury Status
Buying The Big Dip
Alphabet raised its spending targets following strong cloud earnings
Microsoft did the same.
Today, Amazon released earnings. Outsized profits in the cloud sector were the standout news item.
At the beginning of the week, I made the argument that investors were nervous about the trajectory of mega-cap spending plans.
Everyone understands that the low P/Es of the companies benefitting from the AI boom are heavily dependent on the data centre construction boom persisting.
Ahead of 1st quarter earnings, there was some concern that the spending was going to peak or even reverse.
The stock market sold off ahead of the beginning of the earnings season and bottomed at the end of March.
Heading into 2nd quarter earnings, the market’s precautionary moves were even more significant.
Several of the highest profile companies benefitting from AI infrastructure spending halved over the last six weeks.
There was news today that the darling of the AI investment boom, Leopold Aschenbrenner, was forced to sell many of his positions during this downdraft.
Here is a section from a related article:
Assets at Leopold Aschenbrenner’s hedge fund Situational Awareness have slumped to about $10 billion after Ken Griffin’s Citadel stepped in to buy the bulk of its public stock bets.
That’s down by more than half from recent months, according to a person familiar with the matter, who asked not to be named discussing non-public information. Aschenbrenner’s fund began liquidating some of its equity positions after suffering losses in the AI stock rout in recent weeks, according to people familiar with the matter.
Situational Awareness had more than $20 billion in assets as of late May, the Wall Street Journal reported at the time. Some of its biggest positions rallied further from there before plunging this month.
This week’s sales have repaid the banks for the leverage Situational Awareness used to juice its bets, one of the people said. It’s unclear what the updated returns are for investors who were in the fund from the start of the year or who may have invested more recently. Some AI stocks including CoreWeave Inc. and Bloom Energy Corp. rallied Thursday.
He might be a prodigy but he has just learned an important lesson. The market is predatory.
If you have well-publicized positions and are overleveraged, that weakness will be exploited. Refusing to sell positions in private equity positions means he was caught in a classic liquidity squeeze.
That certainly helps to explain the large volume of supply hitting the market which led to six consecutive weeks of declines.
The market response to strong mega-cap earnings, and the knowledge that much of the recent decline was due to forced selling, has encouraged traders to leap back in to buy the big dip.
So, what happens next?
