Inflation break-evens over 10 years at 2.4% – too complacent. Over one year at 5% – too pessimistic. Think we get about 4% in summer then come back down based on optimistic view war peters out. 5% break-evens seem very pessimistic.
Equity markets showing complacency?
Anna
Patrick Armstrong
Definitely reacting to bad news – stagflation fears rising. A little too complacent because Fed narrative weakening, politicization. Warsh likely new chair minded to cut, Powell more hawkish.
Energy stocks only positive sector – does that continue or demand destruction?
Tom
Patrick Armstrong
Oil at 100-110 starts to squeeze profit margins or consumption. 80-100 market can shake off. At these levels with further supply disruptions, risk goes higher – have to think about consequences of higher input prices.
Market factoring too much short-term inflation because US insulated?
Tom
Patrick Armstrong
Strong dollar offsets some. US energy self-sufficient. 5% hard to see. Long-term people too complacent – populism, nationalism, trade wars, wars fuel spending, very inflationary. 10-year break-evens way too low.
Timing around conflict in portfolio?
Anna
Patrick Armstrong
Winning strategy: take profits on up days, add on dips. Cycle of Trump speaking positively then refineries damaged. Trump wants win but Iran not giving chance. Like to sell put options on stocks I'd love to own if market oversold – get paid premium for buying discipline.
Winners in AI sphere?
Tom
Patrick Armstrong
Love high-bandwidth memory stocks – Micron, Samsung, Hynix. Cyclical but picking up under 10x forward earnings with growth. Runway many quarters ahead. Demand insatiable, sold out through 2027.
Elsewhere in AI ecosystem?
Anna
Patrick Armstrong
Want to own companies receiving money from hyperscalers – 100% committed to spending. Nvidia, Micron, Samsung beneficiaries. Also electricity generators, uranium. Clear hyperscalers will spend; not clear they'll be profitable.
Leaning into Asian hardware companies?
Tom
Patrick Armstrong
Samsung and Hynix Asian – similar to Micron, oligopoly with pricing power.
Middle East sovereign wealth tech investment dry up as they rebuild energy infrastructure?
Anna
Patrick Armstrong
Makes sense – at margin, not 180 pivot but may see other aspects allocated.
Gold – safe haven?
Tom
Patrick Armstrong
Gold not safe haven – speculative asset. Source of funds when risk aversion. In stagflation you get higher yields – toxic for equities, long duration bonds, and gold. Like gold miners because gold doesn't have to go up for them to generate profit.
When did gold become speculative?
Anna
Patrick Armstrong
January – gold implied volatility high-twenties, equity volatility 26%. Equities speculative, gold more speculative than equity.