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Jitendra (Jay) Patel
jpatel51@yahoo.com

  • The Giving Pledge: Warren Buffett, Bill & Melinda Gates Initiative

    I am.

    Above phrase also means “I just am” or “I exist” in a language of Consciousness.

    To expand it further, I am so and so…I am a writer, I am a professional, I am a father, I am a husband, I am a brother, I am a son, etc.

    These are the days of “festival of lights” known as Diwali as per Hindu lunar calendar reflecting light over darkness and signifying the triumph of goodness over evil. It is also celebrated by other religions such as Jain, Sikh and some Buddhists.

    What this light does is help us drop all such identifications described above, which are in sheer abundance for all of us being the binding factor for all of us. Objective or rather destination is easy to identify as to where we need to head in our lives. What is more difficult is the journey to get to that light.

    Warren Buffett, one of the richest persons on earth, saw such light back in 2006 and announced to give away 99% of his wealth during his lifetime and at his death. A few years hence, his close friends, Bill & Melinda Gates formalized the concept with the encouragement from Warren Buffett, announced the “The Giving Pledge” initiative in 2010 and pledged to give away bulk of their wealth as well. It is a pledge, not the commitment, though a fantastic start and holds so much promise, especially in light of a current political environment all over the world.

    Here is the link to the pledge letter by Warren Buffett.

    Since the initiative was launched, it has inspired more than 250 of the world’s wealthiest philanthropists from 30 different countries to pledge their wealth as well and it continues to gain more and more traction each year. One of the best examples, MacKenzie Scott, ex-wife of Jeff Bezos, Amazon founder, has already given away $19 billion of her wealth in a short few years. Another beautiful example is Chuck Feeney, the founder of Duty Free Shoppers Group, who gave away ALL of his wealth, over $8 billion, while he was living.

    Why do they do it? That is a much bigger and lot deeper question that we can only wish more people, especially the wealthy types, would understand or probe into. Most everyone understands the value of charity or ‘giving back’ in some fashion. The short answer is “gratitude” for what they have and who it is truly owed to, not just their own hard work, rather, it is owed to the entire society at large aside from their great fortune.

    Unfortunate reality or contrast is that there is an equal amount of dark or even evil forces out there on this beautiful earth, especially concentrated in the world of rich and powerful. To counter that, we need much more benevolent forces out there so that the mankind as a whole continues to progress not only on the front of material comforts, though also to evolve for the upliftment of each and every individual in this world and raise the level of collective consciousness.

    Ordinary person like you or I also have an immense amount of power and can do a lot – any tiny bit or portion – to leave the world a better place than what we inherited – in and around us. A good example of this is “Giving What We Can” that enables one to pledge 10% of their income. Over 10,000 people worldwide have signed up for the 10% of income pledge that has already donated $321 million to various charities. Money is only one way to contribute whereas the other powerful resource is giving time and at minimum, putting a smile on someone else’s face.

    The world is full of income and asset inequalities, let alone poverty and miseries induced by mankind generated evil forces such as from powerful ethos to unnecessary wars. This giving pledge is just one tiny little effort that tries to make a difference.

    As mentioned in the beginning of the note, the objective is to get to “I am” or in other words “just be”, not “just become” and drop all the identifications. “We are the problem” as Bill Gates also learned from his father as mentioned in his pledge letter. So, let us strive to remove – “We” – and more accurately “I” during, not only this reflective time period of “festival of lights” known as Diwali, though, rather throughout the year. Heaven is right here on this earth.

  • Ominous Signs & Gold Revolt – A Dollar Debasement Trade

    In a previous post, we spoke of the height of imbalances in USA and the creation of a half-trillionaire as a contrast. Now, the shutdown of federal government has completed its two weeks time period and more pain may still ensue as effectively neutering, if not dismantling, of Affordable Care Act (ACA), one of the most successful legislation pieces of a modern history as well as one of the ONLY lesson learned and/or positive outcome from the Great Financial Crisis (GFC) of 2008 is at stake. This oft tried destruction cannot materialize without much pain and of course even more brutal fighting between the two political parties – Democratic and Republican.

    There have been at least 70 Republican led attempts to repeal ACA in last 15 years since its inception in March 2010 as shown here on a wiki page and they have not been able to put any dent to it yet. So, is it rational to expect that the Republicans may succeed around this time to dismantle ACA without much repercussions after all these failed attempts? Probably not…

    What is more ominous is the revolt of a yellow metal – gold, the real money – price of which is surging at a very unusual and fast pace exhibiting a climb as if something bad were to happen. The growth in gold price is indeed explosive especially compared to its traditional pace of slow and steady rise (or even decline) for a valid reason.

    1. Gold price at over $4,200 rose about 5% from $4,000 in just last one week alone in addition to about 50% rise year-to-date and more than double the price in 3 years
    2. U.S. government missed publishing the employment data (unemployment rate) on October 3 due to shutdown
    3. U.S. government missed publishing the inflation data (consumer price index – CPI) on October 15 due to shutdown

    Hence, the net effect…businesses and governments (federal, city and state) need to fly blind without much needed data and be subject to major accident(s). In about three days, it already is on its way to be the third-longest shutdown in a recent history after the 35 and 21 days long shutdown beginning in Dec 2018 and Dec 1995 respectively as shown here.

    Cherry on the top…for the first time in 20 years, U.S. passport has lost the standing from the top 10 rankings of all countries in the world as per Henley Passport Index. It ranks 12th now in the world tied with Malaysia and behind our good old neighbor Canada who is ranked 9th as well as several eastern European countries and of course the western European countries. Since, the index assigns the same score to multiple countries, there are actually 36 countries ahead of U.S. in the list. Clearly, it shows how fast we are declining when we were #1 in 2014.

    U.S. dollar is getting weaker. Hence, the gold is getting stronger on a relative basis. Money printing is easy. Gold discovery and digging (mining) is hard. Fiat currencies have only so much value whereas gold acts like real money and keeps up with the eroding power of inflation, a major pain point of today’s consumer in USA.

    Is it 1970s all over again as it comes to hyper-inflation time period? Probably, that is what we may well end up seeing as the Federal Reserve (Fed) is gradually caving in under the political pressure from the President of the United States (POTUS), Donald J. Trump. Both, Fed well as POTUS are already in the box as covered in an earlier post.

    Both are boxed in. How exactly? Fed is fighting the specter of stagflation and POTUS fights the total collapse of U.S. economy under his watch by surging budget deficits, slowing economy from self-inflicted wounds of tariffs, debt service expense crowding out major outlays and catastrophic assaults on democracy as well as immigration.

    Interest expense alone at over $1 trillion, more than half of the U.S. budget deficit and more than the defense expenditure, is a serious matter. Add to that very fragile situation, the lethal mix of potentially higher interest rate from inflation and the entire system collapses. Monumental rise in the gold price is only a manifestation of that risk.

    While these bad things are happening, bond holders are still sleeping or rather have been sleeping for the longest time one can imagine and the stock holders are partying like anything. Though, gold? It is acting as ever-vigilant and as a good Samaritan. It is a harbinger of things to come…

    While the dollar debasement debate and slow-motion action have been in place for some time, the actual trade reflecting the same is well underway for long. Explosive rally in gold price reflects just that with well over 50% gain this year alone. Gold has literally or effectively revolted against the debauchery of dollar and is asserting its full control.

    This is a move that will end up costing USA dearly as the endless manipulation and abuse of U.S. dollar, the fiat and reserve currency of the world, is finally coming home to roost after U.S. abandoning the gold standard in 1971 under then President Richard Nixon’s watch.

    Gold preserves the value regardless of inflation whereas the fiat currency does depreciate against the crippling effects of inflation. Gold price is not tied to the banking system or any government that can directly influence, if not manipulate, the ‘price of money’.

    World’s major central banks are diversifying away gradually from U.S. dollar and into gold and other currencies to hedge and protect their holdings in light of all geopolitical events and specter of inflation in U.S.

    What all this means is that flight to safe havens shall continue and hedge against the mounting debt of U.S., currently sitting at $38 trillion dollar and increasing by $2 trillion dollars a year or 6% deficit-to-GDP ratio will be the ‘trade of the decade, if not the trade of the century’.

    Cryptocurrencies (e.g. Bitcoin) do not make the cut here since they are nothing but a ‘rat poison squared’ as the investment legends – Warren Buffett and Charlie Munger stated back in 2018. Alternatively, they can be called as the gambling play or the instruments to play into a ‘greater-fool’ theory, not the ‘real’ asset class like a fiat currency backed by the guaranty of any government (no matter how weak), stocks, bonds, real estate or precious metals – in other words, all real asset classes.

    If we were to enumerate or summarize all the reasons, not necessarily in the order of importance, for an underlying thesis, here are those main driving factors behind the revolt of gold, a safe haven asset, that comes in quite handy in the event of some sort of government failure or even a major collapse.

    1. U.S. Federal Government shutdown since Oct 1, 2025 and still counting days…
    2. Specter of stagflation much like 1970s that created one of the worst recessions in U.S. history
    3. Transformation of USA financial picture from a net creditor nation in early 1980’s to the net debtor nation with the ever-increasing debt-to-GDP ratio and inability to service the debt without painful consequences
    4. Healthcare tsunami in the making: Most everyone knows and acknowledges including congressmen that the healthcare system is in shambles and completely broken. It may implode and collapse anytime barring any major or complete reform
    5. Ill-fated, self-defeating and suicidal tariff moves since early 2025 and insanity by POTUS continues with no end in sight. Instead, U.S. needs to be more strategic much like China and many other countries making advancements on various fronts
    6. TACO trade, as known in the Wall Street and an acronym given to POTUS – ‘Trump Always Chickens Out’ since global tariffs announcement on April 2 also known as ‘Liberation Day’ only to walk back in days after seeing a major global market rout, occurred once again on Oct 10 and 13 after the repeat meeting the same fate as April – threat of additional 100% tariff for China imports on Friday, Oct 10 only to withdraw on Monday, Oct 13, after seeing another market rout. Essentially, the POTUS is hellbent on taking a country down with him like many of his prior business engagements into bankruptcy. Remember he is big on debt? Well, it is time to pay the bills. It is a major irony or unfortunate reality that the big part of the country has not yet woken up to that fact and reelected such a whining loser and is still supporting several self-destructive moves as if the mishandling of COVID crisis and adding several trillion dollars in debt was not enough under his watch during first administration
    7. Wealth Transfer is at its peak, which is in the making for the last 4 decades owing to both political parties with their much-misaligned policies that gave a rise to ‘Trumpism’ and why Trump got elected and even re-elected with one term hiatus when people voted more rationally. Wealth and income inequality is at its worst ever in the good old USA and the middle class is fast evaporating – dividing America into two parts – have’s and have-not’s. Gini coefficient measures the wealth and income inequality and U.S. has one of the worst rankings amongst the developed nations. It is essentially a rigged economy in favor of rich and powerful that gave a rise to ‘Trumpism’ and MAGA band (Make America Great Again, which consists of primarily uninformed, self-interested or plain evil) in the first place
    8. Two Americas: Due to wealth transfer as described above, part of America (relatively small portion) does phenomenally well just as the stocks have continued to march higher and higher for years making countless millionaires and billionaires, hack even half-a-trillionaire (guess who?) versus the majority that struggles even for the groceries as of late. In fact, a crowdfunding website ‘GoFundMe’ CEO just stated a couple days ago that he is seeing an alarming trend of people raising funds from his site to buy the groceries. Buy groceries? Are we really an advanced nation? Further, folks are even going into debt to purchase life essentials by putting them onto credit card carrying balances or splitting payments using BNPL (Buy Now Pay Later) methods that is also seeing fascinating growth
    9. Insanity of stock holders, namely Mag 7 and AI cool-aid drinkers, adding major contributing factor to the tail-risk (unforeseen events) potentially pushing the global economy into a major recession. AI investments are now crowding out the ‘real’ economy as it leaves very little or no growth outside of AI in the real economy. Institutional investors, certain company managements and sell-side pimps are acting like morons without any rational thinking that feasts on the money from retail and uninformed investors with an extreme level of greed. Remember Buffett’s wise words? Be fearful when everyone is greedy. As a result of it all, these super expensive financial assets, namely stocks, exhibit mega moves, completely unprecedented, in several large cap stocks including some innocent ones by these ‘Trigger Happy’ and ‘High’ investors
    10. Bond holders are pacified in slumber zone or even in a deep sleep that may one day arise and roar like a lion and drop their moron hat by demanding sharply higher interest rates. Clearly, they are complicit in the making of a current messy situation
    11. Fed Independence: Attack on the Federal Reserve and attempts to take over the control and guide its policy is so lethal that it is beyond the comprehension of our ‘man-child’ president. Hence, the U.S. dollar enjoying the status of world’s reserve currency and treasuries being the risk-free assets are under a great threat, if not a grave danger. Violent rise in the price of the yellow metal, gold, reflects precisely just that. U.S. dollar and treasuries no longer hold the safe haven status from what we can see. A gradual move for refuge from the self-harming government policy is well underway and gold price is a good proxy for that. Silver price is also at an all-time high reflecting the same trend
    12. Sheepish and weak constituency of congressmen, business CEO’s, law firms, media firms and even country heads bending their knees after being bullied by a petulant and evil ‘man-child’ President. Caving into abolition of DEI initiatives (Diversity, Equity & Inclusion) and major infringements on, if not nullifying, the rights of LGBTQ+ community regardless of the shortcomings of initiatives is one good example. Major exceptions are China, Russia, India and Brazil – the BRIC countries that are standing up to the reckless demands and whims of a madman and not giving into it regardless of their own issues
    13. Our President and the government stand for only ‘half’ of the country, alas, not even half of the country, just for their ‘MAGA’ base, unfortunately, instead of standing up for all Americans. A good government is “of, by and for all of the people” not just a few privileged ones as these wise words were uttered by the President Abe Lincoln in his Gettysburg address. Unfortunate reality is that most are unaware of this malice and pledge their ‘tribalism’ to these evil forces disguised as good ones or change makers sometimes in a sophisticated manner
    14. U.S. – China Rivalry: China has been taking all the right steps whereas U.S. has continued to shoot in its own foot and now a suicidal president shall help us get there faster into the abyss, unfortunately. It is a sheer jealousy of China that does not get us anywhere. In order to beat China be it from the economical, technological or military might, we simply need to be better than China, not just attack China. We have been ‘frenemies’ (friends with enemies) for about last 3 decades and reducing reliance on China needs to be a ‘strategic’ and ‘gradual’ move, not an abrupt and whimsical one, certainly not suicidal one
    15. Geopolitics: ‘America First’ approach with the break from the global trade order and upending the very institutions and the methods of how the business and commerce works in a highly interconnected world in 21st century is nothing short of foolish, if not outright suicidal. Unfortunately, wars and conflicts are always there between countries. We do not need any self-manufactured crisis and conflict on the economic and business side of the world on top of the man-made geographical boundaries and related struggles and strife

    In conclusion, both political parties are equally responsible for the mess that we are in, however, more so Republicans now that the party has been taken over and led by the evil forces needing ‘exorcism’ as in the famed movie ‘Exorcist’. Evil forces always need replaced by good and noble forces for the mankind to progress further. Republican party has lost its soul and need to regain it, a tall order, whereas Democratic party needs to root out any ills that the party is facing.

    Blaming and bullying by the leaders of the Republican party is not just rampant, though, pervasive or rather a life blood instead of cooperation with the Democratic party to make any tangible progress. Democrats for their part are unwilling to budge at times only contributing to a mess that has become bigger and bigger in last 4 decades. America then and now is a day and night difference

    Democrats are people too! So, are ‘illegal’ immigrants. Sending federal troops to blue (Democratic) states and harassing them is no good governance whereas the red (Republican) states are spared due to tribalism. Just because, our lame congress cannot enact a good legislation and enforce the ‘rule of law’ to efficiently govern ‘all’ people including legal and illegal immigrants, it does not mean that we can treat any party or any individual as an animal or non-human being. Alas, we are not even supposed to give that treatment to many animals. Of course, no one shall condone any criminal activities, yet, the basic fact of life is that even the hard-core criminal is a human being and deserves certain basic rights. We shall not ever forget that.

    So now what…officially, we have entered the civil war category of crisis in this once-great nation and the fullest extent of dire consequences, unfortunately, cannot be known until after few more years. As mentioned earlier, sheepish congressmen, businesses, law firms, media firms, universities and even country heads only contribute to that in the meaningful ways on top of the ignorant masses and tribalists.

    Separately, not to delve much into the concept of government shutdown itself, it is fair to think that the entire concept is so silly and appears nothing but a child’s play as opposed to serious adults or leaders engaged in solving world’s real problems. The whole concept needs to go away forever so that the U.S. population can never be held hostage to the whims of the politicians.

    We can end the note with these words from some wise men:

    “Unscrupulous and evil men and groups can usurp the power of government and use it to their own ends”

    — First line in chapter 10 “Support a Government Designed and Run for All the People” of “Way to Happiness Digest” written by L. Ron Hubbard

    “When a clown moves into a palace he doesn’t become a king, the palace instead becomes a circus”

    — Turkish proverb shared by Dan Rather

  • Height of Imbalance in USA: Federal Government Shuts Down & Creates Half a Trillionaire

    In a previous post, we discussed a trillion-dollar valuation club members of the stock market in USA. In this post, we can touch upon the height of an imbalance that we are seeing in this day and age now in many facets of our lives.

    Last Wednesday, October 1, at the beginning of the new fiscal year for U.S. federal government, it effectively shut down due to funding impasse in congress. On the very same day, S&P 500 hit another record high at over 6,700 mark and the wealthiest person on this planet earth, a mercurial CEO of Tesla ($TSLA), Elon Musk, hit a $500 billion mark for his net worth as Tesla, all hot air stock, also rose along with the market.

    S&P 500 has achieved about 15% gains for year-to-date (YTD) in 2025 – a third year in a row for a strong performance building onto more and more fluff for about 10 years now.

    CAPE ratio also known as a Shiller PE hit 40 now, already in a dangerous territory.

    Gold surpassed a $3,000 mark early this year in March and just now hit the value of $4,000 an ounce, soaring over 50% YTD 2025, an exceptionally strong performance, not a surprise, given ever-worsening fiscal and debt situation of USA.

    At the same time, MSCI ACWI (All Country World Index) ex USA Index performance is about 29% gain YTD 2025 easily surpassing S&P 500 benchmark for the U.S.

    However, U.S. Dollar index (dollar against the basket of foreign currencies) is down close to 10% for YTD 2025 – matching the reality of an emerging new world order.

    Federal Reserve (Fed) is already boxed in with the specter of stagflation (high inflation and low growth) as covered in an earlier post, now, President of the United States (POTUS) is also effectively boxed in from the political standpoint, first-time ever, an almost unthinkable position to be in for the administration, at least for now, with the standoff between democrats (liberals) and republicans (conservatives) continuing and see who blinks first.

    As a result, inherently speaking, any action by Fed or POTUS is fraught with much risk in either direction, unleashing many undesirable things.

    Writing on the wall for potentially major crash, the absolute worst-case scenario, continues to be affirmed again and again with the new developments. The best-case scenario is that everything fizzles out slowly and gradually without wreaking much havoc. We can only pray for that! However, knowing the temperaments of current investor base and knowing how fickle they are as demonstrated often in completely unprecedented mega movements of the stocks, that scenario seems highly unlikely.

    At the very first sign of trouble, most of this investor base with their unsteady hands, will undoubtedly try to exit out of a narrow exit door, as they have done for many solid as well not-so-solid company stocks in recent months, it will only compound the ugliness of a situation. Just as they have thoroughly enjoyed the ride on a way higher, they may have to go thru the same level of pain on a way down. Unfortunate effect of this is that the entire economy and populace suffer as the Wall Street and Main Street are, not always, though, often interlinked.

    As for the most important topic of the current times, when exactly the federal government shutdown ends, already one week into it, is anyone’s guess and knowing the current stance of democrats, they are going to fight hard this time around as the healthcare is central to their philosophy and political standing, so they would not want to see the hard-won Affordable Care Act (ACA), about 15 years old, be effectively dismantled by the POTUS. Hence, the longer this shutdown lasts, worse the effects will be on the economy and the financial markets. It will be quite a painful contrast to see if this becomes a catalyst to disrupt the economy as well as the markets in a brooding landscape on various fronts.

    In essence, what all of this means is that the currency debasement is well underway as flight to safe havens continue to occur for quite some time to hedge against the mounting debt of USA and not-so-small probability of some kind of a sovereign default or disruption in not too distant future. Debasement trade using gold is in vogue just as with the crypto for different reasons. Basically, we are on the way to ruins unless something changes drastically – which we have shown highly incapable of thus far for many years, if not decades already. The trajectory we are on is similar to the runaway train heading for a major crash and burn. Before it gets too late, it is a time for prudent action and wise heads to prevail in both financial as well political domains.

    Also, we just witnessed the first person ever to hit the $500 billion net worth mark… and it begs a question with some philosophical implications just as the democrats, especially the progressive wing, often bring up; shall billionaire exist? Is trillionaire even a possibility? Amen!

  • Trillion Dollar Valuation Club in U.S. Stock Market

    In an earlier post, we covered the topic of U.S. stock market building a perfect house of cards with four pillars – OpenAI (private), Nvidia (NVDA), Tesla (TSLA) & Oracle (ORCL). In this post, we shall dive into an “exclusive” club of trillion-dollar valuation of U.S. based companies!

    There are currently 9 members of this exclusive club that have crossed a trillion-dollar valuation mark or market capitalization (cap) as it is known in the U.S. stock market. They are listed here in the order from the highest to lowest market cap:

    1. Nvidia (NVDA): $4.55 trillion
    2. Microsoft (MSFT): $3.85 trillion
    3. Apple (APPL): $3.79 trillion
    4. Google parent Alphabet (GOOG): $2.95 trillion
    5. Amazon (AMZN): $2.34 trillion
    6. Facebook parent Meta (META): $1.85 trillion
    7. Broadcom (AVGO): $1.56 trillion
    8. Tesla (TSLA): $1.43 trillion
    9. Berkshire Hathaway (BRK): $1.08 trillion

    I believe that the market participants are going to have the ‘rude awakening’ soon and get the rug pulled from underneath them as we have built all these valuations in the fantasy-land.

    As an example, Nvidia alone is worth now more than the GDP of India, a country with the largest population on this earth – close to 1.5 billion population now having surpassed China. GDP of India is ranked 4th globally now for 2025 after U.S., China, Japan and Germany. Further, India is expected to overtake the GDP number of Germany in a short few years (2 or 3) and become the 3rd largest after U.S. and China.

    Does any of these companies warrant such a high valuation in terms of the multiple? Hardly a few, if any.

    Based on variety of metrics such as price to earnings, price to cash flow, price to sales, price to book and sustainable growth rate, the only company that can come remotely close to a fair valuation is the last in the list – Berkshire Hathaway.

    Even, that, too, is a bit expensive compared to its historical average – close to twice the book value versus 1 or 1.25 times the book value, yet, it is the most worthy candidate of all to command a trillion-dollar valuation. The rest of them is nothing but a fluff or even hot air in terms of valuations, which we have covered at length in our earlier posts even though many of them are having robust numbers when it comes to revenue and profitability with a few exceptions like Tesla and Amazon.

    With a different lens, there are a few worthy candidates for the trillion-dollar club such as Microsoft, Apple, Alphabet and Meta. However, they are priced at about at least twice as high compared to their ‘traditional’ and ‘deserved’ valuation. Hence, the list shrinks significantly – down from 9 to 4 if adjusted for valuations by Mr. Market. With that said, there is an excellent chance that Berkshire Hathaway may surpass all the tech companies in terms of valuation in upcoming years and even be the most valued company in the world. I am counting on that or even rooting for that. More on that a bit later…

    Clearly, Nvidia has a phony crown bestowed by mad market participants enabled by sheepish, if not evil, herd of corporate chieftains who are investing in AI like there is no tomorrow while having a total disregard for human needs and contributions. It may not be long before they come to realize their enormous and inexcusable stupidity and correct their courses which immediately will strip away the crown from the ‘temporary’ beneficiary of this madness.

    Given this extreme level of enthusiasm in a current environment, if not an outright euphoria, market madness or lunacy, we shall routinely review this list consisting of trillion-dollar valuation. Let us say every 6 months to see who remains a member of this exclusive club. As we regularly revisit this list, we may very well start noticing that the list will continue to shrink and shrink, if not outright disappear as the worst-case scenario of economic depression and remain so for the foreseeable future until many of these club members truly “earn” their spot there.

    With each passing six months period or in about 6 to 18 months the list will shrink markedly. Music can play only for so long. Mr. Market will be fortunate to even have one member in his exclusive club under a dire situation that United States is heading into. If any, perhaps, Mr. Buffett, the investment legend, may stand tall and be invited to this club, especially since he has a huge cash hoard (about $350 billion) to deploy once the market crashes and burns. The writing is on the wall now, unfortunately.

    Do expect Mr. Buffett to double his money in next 5 to 7 years, if not sooner, as he would invest in the ‘fat pitch’ deals or opportunities in the market while many investors shall be crying. It is not that far-fetched to think that Berkshire Hathaway could be the only company retaining a trillion-dollar valuation or one of the few once all the dust settles. Further, it cannot be any more timely that Mr. Buffett is exiting the investment scene, at least from the foreground, after a spectacular success (a huge understatement) in the investment world over the course of last 5 plus decades. Mr. Warren Buffett is stepping down from the CEO position at the end of 2025 at the ripe age of 95 and we must pay the greatest tribute to him and his unparalleled success.

    Clearly, the companies and economies will continue to grow and eventually some of them will truly “earn” their valuation of trillion-dollars, though, it will be a “while” before we see that on a truly sustainable basis, at least 3 to 5 years if not longer.

    As an example, Mr. Buffet in addition to his investment acumen was also a fortunate recipient of this market bonanza in terms of the extended valuation namely for Apple, one of his largest holdings. That has been his crowning achievement on top of all the great investments he made over the decades. However, Apple has been on the chopping block in his portfolio for last several quarters as Mr. Buffett has been the net seller of equities (stocks) for over two years now which generally is not the case in his investment career.

    I expected that Mr. Buffet may take his sweet time to “lighten up” on his Apple holdings given his steady hands yet to my pleasant surprise, he chopped off his Apple stake so much more aggressively than I imagined. Instead of couple years, he managed to do it only in a couple quarters. However, he still has a pretty sizeable position in Apple at over $70 billion and 23% of his investment portfolio, which appears to me still highly concentrated in an over-valued stock.

    Apple shares traditionally sold at low teens price to earnings multiple, rightfully so, given its steady, stoic and low growth model. Now, the multiple has literally tripled, close to 40 PE, when the company is much more mature and has already reached over $400 billion in revenue. Go figure!

    The law of large numbers is irrefutable and works like a universal law of gravity. Basically, growing from $1 billion revenue to $10 billion is extremely difficult and herculean task as anyone can imagine. Then growing from $10 billion to $100 billion is even more difficult…so how about growing from $100 billion to $1,000 billion, which is a trillion-dollar mark for the revenue. I think you get the idea…

    Even the gigantic revenue numbers, the highest amongst all companies, are approaching, though, have yet to crack $700 billion by Walmart and Amazon, both low margin businesses.

    Hence, it would not be surprising if Mr. Buffett halves his Apple position once again in the next few quarters. His other major holdings were American Express (AXP), a perennial holding and Bank of America (BAC) that also he is lightening up in quite a meaningful way. These 3 stocks alone currently constitute 50% of his portfolio.

    Apple, itself, not by design, but by a fortunate accident, represented close to half of Mr. Buffett’s investment portfolio as well as the company market cap in 2023, unprecedented amount of concentration even with his own standards. Now, the Apple exposure cut in half yet representing a meaningful concentration is prone to major risk if the markets were to tumble sooner than later. Hence, I would further bet that Mr. Buffett will continue to lighten up more on his Apple stake.

    Former Fed Chairman, Alan Greenspan, uttered the famous words – “irrational exuberance” back in 1996 only to fall on deaf ears of Mr. Market that peaked in March of 2000 to have the Internet bubble burst later. Hence, it took over 3 years for Mr. Market to realize his madness and see that he was on the wrong track. Such is the case now as well – once again helping form the 3rd crisis in less than 3 decades. Poor Gen Z and millennial babies! Baby boomers and Gen X have had so much fun and their share of grief as well, however.

    For anyone seeing this for the first time or needing a reminder, these crisis are enumerated here again: Internet bubble burst of 2000, housing crisis of 2008 and third one is on a count down! OpenAI unveiled ChatGPT in November 2022 and it has been about 3 years now already, so how long the AI craze may continue is anyone’s guess, though, it is reasonable to think that it will not last that long given the lessons of history and past behaviors of Mr. Market who is sometimes euphoric and at times depressed.

    History never repeats, though, it always rhymes.

    Oh well, as if all of this were not enough, the U.S. Government just shut down this morning now even inflaming the risk of flying high altitude and blind with no proper economic data! It is a wake-up call for America from complacency for sure!!

    Mr. Warren Buffett often advised that “Be fearful when others are greedy and be greedy when others are fearful”. It is a high time to become fearful now as U.S. investors continue to play with fire…Wishing the best for us all.

  • House of Cards & Four Pillars: OpenAI, Nvidia, Tesla & Oracle

    U.S. stock market has built a perfect house of cards with four pillars – that is of OpenAI (private), Nvidia (NVDA), Tesla (TSLA) & Oracle (ORCL)

    Why or rather how?

    • Open AI unveiled the ChatGPT product in November of 2022 which unleashed all the frenzy
    • Nvidia built the chips to enable or bring the OpenAI product to life and scaled the production and resultant revenue which is out-of-this world
    • In a meantime, Tesla sold the hype of robotaxi and robots (humanoids) with a spectacular success
    • Final leg now, Oracle is feasting on the build-outs of cloud infrastructure / data centers for the hungry

    Current valuations are as follows: OpenAI at $500 billion (private) as of August 2025, Nvidia at $4.3 trillion, Tesla at $1.5 trillion and Oracle flirting with $1.0 trillion magic number

    Enough of circular arrangements and customer contract announcements in recent days to pump up or at least sustain the elevated stock prices, the kind of arrangements you can only expect to see in a Banana Republic not once-great nation called United States of America. A little more details are captured below…

    • Early this month, OpenAI signed the contract with Oracle to purchase $300 billion in computing power over next 5 years. In a plain language, customer – OpenAI, in a ‘good faith’ signs a contract with the supplier – Oracle
    • Two days ago, Nvidia made an announcement to invest $100 billion in OpenAI. Once again, in a plain language, customer – OpenAI, in a ‘good faith’ sign up for the investment from its supplier – this time Nvidia, not Oracle
    • Does this remind anyone of a good ole’ saying that I scratch your back and you scratch mine?

    This is all while much is unknown or to be determined as to whether OpenAI remains a non-profit entity or how to structure the for-profit arm within the non-profit organization! Hmm! Head-scratcher, right?

    Nvidia’s growth rate is trending down materially or rather coming back down to earth now already as shared in the graphic in an earlier post – from giddying heights of several hundred percent to less than 50%, which is more human-like than super-natural being one, which Nvidia did enjoy for the time-being! If the business is so strong, why does Nvidia need to invest in its customer, especially such a large amount?

    The ilks of the Big Techs and majority of the Magnificent Seven can be “forgiven” for the time being as majority of them have numbers (including profits) that are even though stretched, they can still someday “grow” into that valuation for the very patient investor…be it after a year, 3, 5, 7 or 10 years! Much as what happened after the dot-com bust!

    Institutional mad money rush continues…on the backs of who? It is the retail investors… as they will be the ones left holding the bag once all the dust settles after having this come crashing down at some point, which is a question of ‘when’, not ‘if’ as discussed at a greater length in earlier post. Market crash, unfortunately, is impending and almost inevitable now, which was in our complete control till recent years and even avoidable.

    A rare event known as “Tail Risk” or “Black Swan” event now seems to be just around the corner and plain in sight whereas earlier it can never be predicted, even by the brightest of the bright investors by its very definition of tail risk. Writing is on the wall already now.

    Once one pillar starts crumbling or is taken out when the rubber meets the road, it will not take much to start affecting others due to this gigantic interconnectedness, monumental hypes and unrealistically high expectations. We will be waiting patiently! A smart investor certainly can heed this caution and ask a famous question “show me the money” for this “pie-in-the-sky” valuations…

    Ray Dalio of Bridgewater Associates just warned that the “very, very dark times” are ahead of us! It sends a chill to our spine and it does not appear that he is that far off.

    A bonus bonanza is a state capitalism with increased state intervention in the private enterprises, the topic that we have not even touched upon yet and it continues to increase by the day…

  • Stagflation & Misery Index: Fed-In-The-Box – What Fed would do vs. should do

    It is widely expected that the Federal Reserve, commonly referred as Fed, shall lower the interest rates by 25 basis points, i.e. a quarter percentage point after the end of a meeting today. Fed has been under the tremendous pressure or even an outright assault from the current presidential administration for lowering the rates significantly such as 175 basis points meaning bringing a 10-year treasury rate to closer to 2% than 4% currently.

    Federal Reserve independence is under a grave danger and the Fed is likely to cave into some pressure from the administration and appease the White House by lowering at least 25 basis points if not 50 basis points, relatively small likelihood. If the Fed does indeed lower the rates by 50 basis points, it will even open up the flood gates for the “Risk On” strategy and give a huge boost to the stock market, already on steroid.

    Frankly, the Fed has been put in the box now, mostly of its own making over the course of last few decades being an enabler and provider of both types of stimuli – fiscal as well as monetary policy. All the excesses of the past are gradually coming home to roost for the denizens of this once-great country called United States of America, hence, the inexcusable rise in the stability from political to economical perspective.

    What ensues next is that the ‘stagflation’ is well in the making. First off, Fed was too late to start raising the interest rates post COVID stimulus when the interest rates were brought close to zero. That unleashed the unbearable amount of inflation during 2021 and 2022, which started coming down after Fed aggressively started raising rates in March of 2022 through July of 2023.

    Hence, the stock market retracted significantly, close to 20% only to start rising again in 2023 as the Fed did not go far enough to raise rates as much as it should have gone and more importantly, AI boom came into the being as covered in an earlier post.

    To top it off, the Fed started lowering rates again in September 2024, barely a little over a year post all increases as the U.S. is so much addicted to lower interest rates. See the most recent interest rate change history here. Altogether, the Fed raised the interest rates by cumulative 5.25% only to lower by a percentage point in 2024.

    The drumbeat from the Wall Street to lower rates was so strong and frequent yet it did not materialize early enough and big enough. Why? Since, we were not out of the woods yet from inflation. Jamie Dimon was one of the first ones to sound an alarm on start raising the rates and ditto for maintaining high enough rates to combat the inflation beast. However, for the Street and Fed as usual, when addicted to cocaine so badly, it is hard to give up.

    The same drumbeat to keep lowering the rates continued all along after the Fed stopped lowering after December 2024 only to get amply magnified by the current presidential administration, especially POTUS frequently insulting the Fed chairman Jerome Powell by calling him “Too Late Powell” and “demanding” to lower the rates significantly. Finally, the first rate cut of 2025 is right around the corner with this September meeting. It is also further expected that the Fed will lower the rates 2 more times with the remaining meetings in 2025, hence totaling the rate cut close to a full percentage point.

    Is it warranted? Absolutely, yes, if we look at from the sheer labor data and economic weakening perspective. The U.S. economy does deserve the lower rates. However, if we look at it from the inflation lens then the answer is absolutely, no. Actually, the interest rates ought to be higher, much higher and need to be increased rather than decreased.

    Long stated and pursued goal of 2% inflation with the “goldilocks” economy or rather a unique gift that was accorded to the US had been exhausted out already. In fact, we have already killed the “golden goose” that brought a lot of prosperity to many though also created extreme inequalities in the society, hence, the introduction of major culture wars aside from political and economic ones in U.S.

    Even though, the inflation has been brought under control after rampant rise during COVID, it is no where near 2% that we were accustomed to in recent decades, instead it hovers around 3% to 4% with gradually creeping up owing to the major tariff effects. To soften the blow, unfortunately, the media often emphasizes the “core” inflation – without food and energy as if we can leave without them both and even “super core” inflation that excludes shelter, which we can certainly leave without, right? ☹

    No doubt, it helps to look at those “stripped off” versions of inflation, yet what matters at the end of the day is “total” and “real” inflation not the stripped-out versions like core or super core. Hence, the average Joe is suffering big time. The real wages are not keeping up, hence, we have become the society of “haves” and “have-nots”, prime result of all of the inequalities that we were wildly successful in building over the course of last 4 decades in our once-great-nation. No wonder certain elements of the society have resorted to assassinations to justify their causes.

    What follows next is precisely what Ray Dalio, founder of Bridgewater Associates, a major hedge fund, has been warning about for a long time and most recently chronicled here via his LinkedIn post. According to him and his historical studies, we are in the “Big Cycle” and unfortunately, it all is downhill from here… until it turns around. We in fact see no light at the end of the tunnel as no positive catalysts have emerged yet and the situation is only being compounded with more and more negative catalysts.

    Economic growth is stagnant owing to suicidal strategy of tariffs and self-inflicted wounds on many other fronts. On the other hand, the employment picture is already getting more and more bleaker. Hence, the ‘misery index’, which is a summation of the unemployment rate and inflation rate is only going to get worse. There is no end-in-sight to the misery from all angles. See the raw data of misery index over last 75 years here.

    Misery index in 1970s and early 80s was pretty high and made lives really miserable for a lot of people. I am afraid that we have to brace for the same for many folks in our country owing to our stupid policies at minimum from last 40 years and now an unprecedented power grab by the evil forces of current administration to enrich itself and its cronies, not an average American.

    The bottom line is that what Fed would do will be drastically different than what Fed should do, especially now that we have to service a huge debt of $37 trillion where the debt service alone is crowing out many other things in U.S. fiscal budget, even the defense expenditure.

    Unfortunately, the Big Cycle continues until we break out of a cycle once again like many great countries or civilizations have done in the past including the United States of America…

  • Much Coveted Crown of The Wealthiest Person in the World & Hot Air Balloon Transfer – From Musk to Ellison

    Indeed, we are living in strange times! Highly unusual! From political realm to investments world! Much coveted crown of the wealthiest person in the world or hot air balloon is transferred over from Elon Musk, Tesla (TSLA) CEO to Larry Ellison, Oracle (ORCL) Founder and CEO – all in just a day after we published the last post – yesterday.

    In there, we hypothesized that Musk will drop significantly from his top ranking by loosing bulk of his wealth, however, for now, he has lost his ranking by another hot air or recently minted ‘meme’ stockholder. It is essentially a race to the bottom that U.S. investors are making. No doubt there is a day and night of a difference between the two companies’ solidity and sustainability in terms of the revenue as well as a profits. Yet, it is one of those examples that defies the gravity, the universal law of physics in this world ever since it originated.

    Now, they are both likely to loose a lot of wealth and their ranking due to much bloated hot air balloon. Ellison had catapulted to second position after Musk prior to 40% move in a stock yesterday in response to decent earnings report, though, more importantly another ‘pie-in-the-sky’ revenue forecasts for the cloud infrastructure given all these enthusiasm and day-dreaming by big tech companies and their founders.

    Remember 2021? When there was a mad-rush to hire the tech talent and the big-techs went crazy. They hired like crazy only to fire them like crazy in 2022 just as when we reached the inflection point in the interest rates from zero in a dream land to rising back up again to the ground reality. The most horrible piece there is that they even rescinded the offers to the new college graduates. There is no more shameful act than that by all big tech CEO’s as they all were complicit in such a heinous crime – of crushing dreams of those young folks after misleading them to a brighter future.

    To sum it up once again, hire like crazy with unrealistic salary raises for poaching them from their competition, fire them like crazy and do not honor the promises to new college graduates who dreamed for a better life and career right out the gate with so many aspirations only to get disappointed due to such stupid and dumb decisions by these cruel and clueless big tech CEO’s and give them a bitter experience just as they start out their professional lives.

    Similar kind of madness is now occurring for hiring AI talent by offering the compensation packages in tune of hundreds of millions, yes, you read that right, it is in 100s of millions, not thousands, which clearly is not going to crush anyone’s dreams since it is a business transaction between the two business lunatics, not between two ordinary individuals.

    Back to Oracle…it is a highly leveraged company and has bought back approximately 20% of all of its outstanding shares during last 6 years causing so much additional debt (literally doubling from $52 billion to over $100 billion) to the company to support or even pump up the stock price – a bad move, a very bad move for a company with such great, solid revenue and profitability. Ellison is digging the hole for himself alongside Musk to race to the bottom of the wealthy list, unfortunately.

    Smart and shrewd companies and their founders tend to sell shares when the companies are riding high and make their position and wealth even more robust while the wrong-headed company leaders sell debt (bonds) instead of shares (equity) for the company and take on even more debt on themselves. Exact opposite of a sound financial planning! Often it makes us wonder, was it their genius or sheer luck that brought them there?

    Last genius move from a business perspective and unfortunately, quite the opposite from the societal implications perspective due to extreme right-wing ideology, Musk sold close to $40 billion of shares in Tesla to buy Twitter (now X – only a crazy dude like him can butcher such a good name and come up with a not-so-significant name or rather confusing way for a wide-spread use) and invest in his other ventures. Now, he is happy riding a hot air balloon! Let us see how far he can ride! Then again, who can forget his ill-fated DOGE efforts preceded by $300 million now defunct investment in another lunatic man?

    The same business cycle is repeating again in the name of AI and cloud with unrealistic expectations associated with them in spite of their real potential – over invest, pump up the stock prices then eventually deflate the balloon and jeopardize the countless lives of ordinary folks including new graduates. These are the kind of business leaders we have these days.

    To make the event even more interesting of Oracle shooting up by 40%, another steady-ship Synopsis (SNPS), a chip design software company, went down by 35% from close to $100 billion market cap, another one of those mega moves in such a large company – a new phenomenon we described briefly in yesterday’s post. All these events are precisely what makes us very, very nervous and we are afraid that the ‘day of reckoning’ is not that far that the entire market is now at risk, not just a few companies, and it may get punished pretty badly once something hits to all these jittery investors.

    There have been countless examples of such large moves in very large companies – up or down during the course of last 12 to 18 months that it is mind-boggling, precisely defining a character of today’s market, most recent of which we saw just yesterday for the large or mega-cap stocks, i.e. in Oracle and Synopsis. Not to mention, the noise-level whopping moves two days ago such as 1,700% upward move, yes up 17 times, not double or triple), in QMMM, a Hong Kong based company trading in U.S. catapulting from $122 million market cap to $12 billion cap only to fall 50% the very next day! Does this really sound like a well-reasoned investor behavior or rather an unhinged gambler behavior? It is an alternate universe for sure with different level and kinds of inhabitants!

    The ‘tail risk’ as coined by Naseem Taleb has been steadily shooting up since last year and now skyrocketed to a level of point of no return this year. Time to hunker down, buddy! I am really concerned what will happen to the market now whenever that Armageddon hits! Probability of a major market crash is now not a far-fetched possibility any longer, unfortunately, when the market has been effectively hijacked by the gamblers from true investors! Wishing you all the best!!

  • Poster Children of Market Mania: Nvidia (NVDA) and Tesla (TSLA)

    Stock market has turned into a full-fledged casino in a last couple of years is the phenomenon we covered in a previous post. We shall look deeper into the poster children of that in a current post, namely Nvidia (NVDA) and Tesla (TSLA).

    As we have indicated earlier, the market valuation has been steadily increasing on the backs of zero interest rate policy (ZIRP) for well over 5 years now at least or even 10 years really, if we consider the fair valuation perspective.  That is in light of a CAPE ratio or Cyclically Adjusted PE Ratio otherwise known as Shiller PE or PE10, which is an inflation adjusted price to earnings (PE) ratio over the last 10 years, not just last one year.

    However, year 2022 shall be marked as an inflection point now in a 4 decades long trend of declining interest rates eventually hitting near zero during the COVID time. Now, after having gone thru the inflection point in 2022, the interest rates are on the small yet steady rise and for the right reason. It is to basically correct the excesses of the past. Now, that is a bond market. However, the stock market has not awakened to a new reality yet similar to it’s brethren. Gold has in fact made a violent move upward to reflect the same new reality over the course of last couple years.

    The new reality is that the U.S. empire is crumbling in front of our own very eyes and the rude awakening is in the offing. The casualties cannot be overstated once the Armageddon hits us. We do not think that even bond market has fully reflected a new reality yet, it is a good start. We have no idea where actually it will settle, yet, we know that it will NOT be near zero interest rate of a COVID time that many day dreamers still eye for. They are either too ignorant of the history of interest rates or too arrogant to think they can manipulate the interest rates for ever.

    In an earlier post, we have briefly touched upon the great invention cycle of a last couple decades starting with 1) personal computer or PC revolution of 1980s 2) Internet in 1990s 3) Wireless or Mobile Phones in early 2000s followed by smart phones in late 2000s 4) Artificial Intelligence (AI) in 2020s. As we all know it very well and bulk of the world fully benefited from it, the world has changed entirely due to these inventions with the basics of life such as electricity and light bulb, telephone (wired), radio, television, and transportation (steam engine, automobile, airplane).

    During each of these invention waves, clearly the world alongside inventors goes crazy to make the best out of it. Some succeed wildly whereas others fail miserably to make the world a better place and/or make a buck out it. Such is the time now that the world has gone crazy again – this time in the name of AI.

    Ever since the ChatGPT product was unveiled in November of 2022, the world is not the same. There is so much talk that the AI will take all the jobs away and we need a concept such as universal basic income (UBI) guaranteeing an income for everyone. Clearly, the reality lies somewhere in between from the wildly optimistic or unrealistic dream talks or hyperbole and AI not disrupting the world.

    Clearly, the disruption is here like any other disruptive technology and it is here to stay until the world adapts to the new technology driven standards. That in fact is the job of any technology – automate things, make things easy and efficient for all and disrupt the labor force as a side effect. In turn, society adapts and enjoys the fruits of its hard labor.

    This brings us to the heart of the discussion as to how Nvidia and Tesla became the poster children of a current mania. If we take these two out-of-the mix or roll back the clock to prior to 2022, the meme stock mania of early 2021 (post COVID or just as we were emerging out of it) surrounding GameStop (GME) and AMC Entertainment (AMC) stocks. While most everyone was imprisoned in four walls of his/her home, the retail traders started investing in the market like playing games on their phones and catapulted the market to unprecedented heights. Zoom, the market darling, was selling at 100 times price to sales ratio, which has come back down to earth now.

    Had it not been for the AI invention then the market would have lacked any real catalyst to be where it is today! However, enter AI in the game in November of 2022 and voila, now we have a new market dynamic. Since then, it is like a gold rush of 1848-55 in California. Nvidia is in the thick of that gold rush (unlike black gold that is oil) for the power-hungry big techs such as Magnificent 7 also known as Mag 7 as briefly covered in an earlier post. These big tech companies want to maintain their stranglehold on the market and consumer and rushing to buy as many Nvidia chips as they can with their plump profit margins.

    As a result, Nvidia sales boomed from just under $27 billion in both calendar years 2021 and 2022 skyrocketed to over $165 billion in last 12 months. Unbelievable feat, no company has ever done it since it is inconceivable in light of any grand success. One can propel the business rocket to increase the sales from millions to billions, though, from such high number of billions to be on track of increasing to almost 10 times run rate, annually $200 to $250 billion within the next year or two (at the current pace of investments) is akin to having only one Warren Buffett in this world. He is called a legend for a reason.

    Just as if we ever will see another Warren Buffett in this world remains to be seen, can another company ever achieve a feat of Nvidia remains to be seen. In all likelihood, the answer is no. Even if it were to happen, it takes centuries, not years or even decades for that matter. Just as there is only one Warren Buffett in the investment world, in the religious world, there is only one Jesus, one Buddha, one Muhammad, one Lord Rama and one Lord Krishna. They were there for a reason – they all descended upon this earth to make the world a better place.

    Clearly, Nvidia is a pure play of business and there is no comparison with the religion, so anecdote is strictly for comparison of how often such rare events can occur in the history of a mankind.

    In fact, the growth rate of Nvidia has started slowing significantly, just as expected with the law of large numbers, as shown in the following graph. Accordingly, the price to sales ratio has started to come back down to earth as well now to around 25 from well over 50 just as it did for Zoom in a meme stock mania during the COVID time.

    What this means is that the investors in Nvidia have to do the real math to arrive at a proper valuation so do all the stock market investors, rather participants, since they are not investors anymore. As covered in the earlier posts, these participants are uninformed or rather misinformed, ignorants, speculators or gamblers.

    Nvidia may well have a competition in the future and that can only dent the growth and profit margins further. If and when that does hit the market, the market cap of over $4 trillion that Nvidia wields can cut down easily by half, if not much more.

    Current market participants have literally hijacked the market from true investors as one can easily and quite frequently see, unfortunately, the mega-moves in the market for certain upside or downside surprises that never existed before. One cannot ever imagine a move of 20% to 30% up or down in a day for large cap companies or certainly not the kind of frequencies we see these days. Given that market psyche, it will not take much for these trigger-happy market participants to punish Nvidia by 20%, 30% or even 50% as well.

    Anyways, that is a sad-state of the market these days. Just as America is crumbling in front of our very eyes in the political realm, stock market is crumbling in terms of it’s very foundation and rule of the game. The only rule now is that there are no rules whereas before it operated within certain boundaries and set of rules with rare exceptions.

    Enter Tesla and the game gets even worse. Company is selling at over $1 trillion market cap, which is nothing but a hot air with all “pie in the sky” back of the envelope math. It’s automobile business is barely worth one tenth of the market cap that Mr. Market has accorded to Tesla currently. Even the largest automaker in the world, Toyota, commands just one fourth of it. Even if every single car in the world, which it will not be, is made by Tesla, it will not command anywhere near the market cap it currently has. Now, the competition in the electric vehicle (EV) space is heating up big time and the numbers show all over the world including Europe and China aside from United States. That bodes very poorly for Tesla’s automotive business.

    That leaves Tesla with the two other pieces for which the investors are day dreaming – Robots and Robotaxis. It is one thing to dream, though, an entirely different to pay for it. Mere concepts or even successful pilots can mean only so much, certainly not an over trillion-dollar market cap without an ounce of a revenue on that front.

    Add on that madness, the ‘masala’ of a trillion-dollar incentive package for Elon Musk as a chief executive, it perfectly rounds out the current set and perfect unhinged combination of market, investors (participants) and corporate governance gone rogue, not to mention our political leaders. I have a Brooklyn bridge and Taj Mahal to sell. Anyone would like to buy?

    In fact, Elon Musk is a genius of an extraordinary proportion, no doubt, to have achieved two great things for the mankind and deserves a lot of credit for that: 1) Creating a mass market for EV’s and 2) Creating a serious competitor or rather complement to NASA via SpaceX. However, in spite of all that, here is my prognosis: He is going to loose a lot of his wealth, in tune of 50% easily just as all the hot air of Tesla stock goes to bust. In turn, he may well loose his place from the world’s wealthiest person and drop out of top 5 or even 10. It is such a fall from grace that we normally do not witness from these most wealthy folks as bulk of that wealth is pretty solid. We have not seen it in the past due to rock solid companies. However, Elon Musk is an exception on many fronts and this might as well be one of them!

    Frankly, it surprises me that he has not gradually sold out of Tesla and taken advantage of this market madness. In fact, he is pumping it up even more with a trillion dollar package – the exact opposite action one would expect from a shrewd businessman. Instead of getting out quietly and cashing out with a solid gold from all this hot air, he seems content with all that the hot air balloon has to offer. Though, he did do that to a fair degree in the past couple years, so he did use some of his genius traits there to cash out. Who knows? That is precisely what he wants to do or even more with all the media attention of late with a trillion dollar package.

    However, he is up against the time and swimming upstream. The window of opportunity is very limited and before the “fools of the market” realize, he has to realize to cash out a good portion of his wealth. As of now, he owns close to 20% of Tesla which I think is a lot to own in the hot air stock, meaning roughly half of his net worth is tied to Tesla or about $200 billion, much of it is at mega-risk.

    Big tech stocks including Mag 7 similarly are in stratosphere, hence, once the reality dawns on the market participants, they all will be punished accordingly.

  • World’s First Trillion-Dollar Incentive Package for the Chief Executive

    World’s first trillion-dollar incentive package has arrived here for the chief executive in the corporate world of USA!

    Guess who it is for? It is an easy answer…it is for Tesla (TSLA) CEO, Elon Musk!

    Capitalism is great. Isn’t it? I love capitalism! In it’s true form only, though, unfortunately, it is not! That is a sad state of our once-great-nation!

    It has been a sad and gradual descent from pure capitalism here in the U.S. into crony capitalism over the last 4 decades and into worse yet, capitalism run amok and now it is squarely in a “Wild Wild West” territory!

    “Democracy is the worst form of Government, except for all those other forms that have been tried from time to time” Winston Churchill.

    Similarly, capitalism is the worst form of economic system except for all others (read socialism and worse yet communism).

    Of course, this incentive package means nothing or not much until all the targets (12 of them to be exact) are hit!

    On the one hand, folks are having trouble making a “livable” wage with no increase in the federal minimum wage rate since 2009 at $7.25. In case, if you read it wrong, yes, it is $7.25. Of course, many states have done their part, however, small, to soften the blow, yet, it is not anywhere near enough for many. I always wonder when do people wake up?

    On the other hand, there are these lavish packages that are being granted by the board (rather cronies) at the company in the U.S. that their counterparts in Europe and other developed economies would feel disgusted to even conceive of.

    To make it easy for cronies, even more worrisome factor is a 3% limit set for the shareholding in order for the shareholders to file the lawsuit and challenge any of it. How can we forget that the prior lavish package of $56 billion (yes, it is a ‘b’ in billion, not ‘m’ in million) was challenged and invalidated by the Delaware court that is still being contested by Tesla and it’s eccentric at best CEO, Elon Musk.

    Clearly, the valuation of TSLA is an entirely different matter, which I will address in a coming post, hence, what that $56 billion package or even a freshly minted package of $1T truly means. Regardless of what it means, one thing is certain…in a meantime, Musk is certainly enriching himself with the wealth of out-of-proportion that the board is working even harder towards the goal of ‘bestowing’ him with the world’s first trillionaire status.

    No wonder he has already reached the world’s richest man status for quite some time now and will remain there until something hits, a topic of discussion for another time. Did I even mention that the worst ever investment he ever made – investing in tune of close to $300 million by helping an extreme right and crazy, evil, lunatic win the highest office of the land on the face of this mother earth – only to back fire in a short few months!

  • Casino Nation: Stock Market turned into a Giant Gambling Machine instead of a true Wealth Generating Machine

    Earlier, we covered different types of investors, rather market participants, in the U.S. financial markets such as 1) investors, which are rather risk managers and true investors 2) traders that trade based on the opportunities they see, generally short term 3) speculators/gamblers and lastly 4) uninformed/ignorants. As of late, a great majority of participants in the U.S. financial markets have ventured into the last two categories, knowingly or unknowingly.

    In a way, it is also conceivable to collapse the other 2 categories outside of true investors and traders into one category – catch all, which includes speculators/gamblers and uninformed/ignorants.

    What it means is that without any justifiable calculations of risk-reward ratios, it is simply a hogwash for the third and fourth category. Investors invest based on their calculations that make some sense to others. Traders invest based on some thesis, whether someone else agrees with it or not. Whereas for the other two categories, it is hard to come up with any rational investment thesis outside of it is either hot or someone else is doing it. Hence, it can be summed up as three categories as well for the investor types.

    In terms of the asset classes, there are seven different types of asset classes or financial assets trading in markets including cash or cash equivalents such as follows: 1) equities, primarily known as stocks 2) fixed income, primarily known as bonds 3) real estate 4) commodities 5) alternative investments, includes private equity or private credit, new buzz word of late 6) cryptocurrencies and 7) cash or cash equivalents

    Any amount of wealth needs to be generated and/or stored into one or more of the above asset classes where each one of them carries its pertinent risk profile and accordingly rewards or punishes the asset holder depending on the choice they made at the time of an investment. Depending on one’s asset class preference and risk appetite, one would invest in one or more of these asset classes. Clearly, the diversification is the key and well-balanced diversification using “super-diversifiers” strategy is the wisest choice one can make across many different asset classes.

    As it is known in the investment world, well over 90% of the returns are pre-determined based on the asset class selection alone, let alone the individual components within any given asset class. What it means is that if we put 100% money into cash account then after let us say 50 years, a really long-term time horizon, the account grows only at the rate of low single digit percents. That may barely keep up with the inflation, at best, if not even under-perform the inflation rate.

    On the other hand, if 100% of money is placed in the stock market (regardless of which stocks) for 50 years, one is bound to have returns in high single digits if not low double digit returns or even higher in spite of the major markets tantrums or even lost decades along the way. In reality, the returns can be anywhere in between these two ranges such as for the balanced portfolios as most folks tend to diversify across different asset classes and have different levels of risk appetite, patience and tolerance.

    This brings us to the central theme of today’s topic: where we are really versus where should we be. We shall be investing in a generally well-functioning stock market barring its manic-depressive behaviors for short term time periods. What we normally do not see is that such manic-depressive time periods do not last long outside of some rare exceptions. Such is an exception scenario occurring right now and appears to have crossed all its prior limits, unfortunately, to surprise, shock and even greatly disappoint many investors of the current age in not-so-distant future.

    Mr. Warren Buffett says that the market is a “voting machine” in a short run whereas it is a “weighing machine” in the long run. As a result, stock market rewards nicely for the wise decisions made by investors, yet at the same time, it can ruthlessly punish the investors who made unwise decisions. We have it seen it all – good, bad and ugly and it spares no one, really no one, as it is indiscriminate when it comes to whiplashing someone.

    I vaguely remember in late 1990’s or early 2000’s that U.S. was dubbed as a “Prozac Nation” given its increasing rates of mental depression for the young adults in the society and looking back it seems no stretch at all. We all know what has transpired since then with the Opioid crisis. Now, the time has come to dub this nation as a “Casino Nation”, unfortunately, where most everyone wants to gamble away their future without much thinking.

    Back to the asset classes…in terms of the size, the first four market types (stocks, bonds, real estate and commodities) are the largest in size in tune of approximately $50 to $80 trillion in terms of the market value whereas the other three asset classes (alternative investments, cryptocurrency and cash) are relatively small yet growing, in single digit trillions.

    The global cryptocurrency market recently broke $4 trillion market value for what it is worth, a whole different discussion as it is about the alternate reality! Rather, it is the only asset class, where there is no inherent value assigned to the underlying asset as there is none. Hence, the investment legends Warren Buffet and his pal Charlie Munger dubbed it as a rat poison squared.

    For stocks, one can assign some value based on its sales, earnings and cashflow and of course, the balance sheet strength – it is an ownership in the underlying business, hence it is called the equity. For bonds, one can assign the value based on its income stream, hence, it is called the fixed income. Ditto for the next three asset classes – real estate, commodities and alternative investments, there are underlying assets.

    The next one is a trouble child – crypto. How do you assign a value to it? Other than simply a hope that someone else will pay more for it someday than what you paid for it. Between the two twin-horse engines of the crypto bandwagon – Bitcoin and Ethereum (aka ether), one can make some argument about ether at least being used for the block chain technology. However, for the Bitcoin or any other cryptocurrency, it is hard to conceive the need if not for the belief that the fiat currencies of the central governments are completely worthless and shall not exist or one fine day, we shall move away from the fiat currencies and adopt only the cryptocurrencies.

    As an alternate, if the coexistence is required between the fiat currencies printed by the central banks of the world and crypto then again, the question arises, how do you value them? The dollar is still a dollar; euro is still a euro, so on and so forth. However, what is the value of a given cryptocurrency? How do we assign a value to it?

    The last asset class, cash, is of course a solid store of value only gradually eroding with the not-so-small effects, even brutal, of inflation. It often is contrasted with gold, a commodity, which fantastically retains or stores the value in spite of any major effects of inflation.

    Now, the heart of the matter…the speculative fever pitch has reached such extremes that it defies all odds and bluntly forces us into disbelief. The most recent stock mania, dot com bubble in late 90s and especially 1999 that burst in March 2000, seems like a child’s play now given what has gone on with the recent manic behavior of the investors. Just to do the basic math, it was about 25 years ago!

    As a result of the current investors behavior, it is fair to characterize that our nation has turned into a nation of gamblers, gambling with their future without any regards to reality or history. History never repeats, though, it does rhyme for sure. A “greater fool theory” is in full vogue with most investors reveling in the delusion that they will come out of this unscathed and even well rewarded.

    Little do they realize that they are playing with fire, one of the largest, if not THE largest, financial bubble in the modern history. To be more anecdotal, Mr. Jeremy Grantham, of GMO LLC, very large investment firm, opines that it is a super bubble or mother of all bubbles citing simultaneous occurrences of bubbles in multiple asset classes, not just one asset class. His warnings, now for quite some time, may sound like a broken record as they send alarms well ahead of times, though, such warnings if not heeded, can only bring one’s peril, if not a catastrophe.

    As an example, the dot com bubble was a bubble in the stock market, only one asset class – stocks. Then came the housing bubble of 2000s, again, only one asset class, that burst in 2008 and yet wreaked the havoc in the stock market with 50% drawdown – from peak to trough. Meaning, that the bubble was only in one asset class category – housing yet, it decimated the stock portfolios. It took a giant economic rescue package named TARP by U.S. congress, close to trillion dollars, which was unthinkable at the time, yet it took close to a decade to come out of the hump for U.S.

    All other asset classes except for one were mere foot notes in these two mega bubbles of 21st century. Fast forward to now and we find bubbles in multiple, I repeat, multiple, asset class categories – stock market, housing market and cryptocurrency market. Cryptocurrency market did not even exist in 2008 during the womb of this Great Recession of 2008 as it was later dubbed, which was a tomb of the prior housing mania of 2000 to 2007. In fact, the Bitcoin was born right in the thick of the financial market collapse, January, 2009, out of a sheer distrust of the central banks and fiat currencies.

    It is entirely justified now that that Mr. Grantham is so much concerned about this as a mother of all bubbles due to its simultaneous occurrence.

    Frankly, bonds were in a bubble category with the trend of steadily declining interest rates over the course of last 4 decades or 40 long years, only to get to near zero interest rate during the COVID time in 2020-21 and then start reversing the trend in 2022, which has for now settled in around 4-5% range, a lot more realistic range of interest rates or rather a “true price of money” than recent memories of most.

    For bonds, that is not so much of a bubble category, though, the next stop for the interest rates is much more likely to hang out in the neighborhood of high single digits than hover around low single digits as some fanatics in the current presidential administration expects or rather demands with all their strong arming or even outright threatening of the independent body of Federal Reserve, which would have been completely unthinkable until recently in such a civilized society otherwise known as United States of America. Oh, well, that is yet another topic for some time in future. Low interest rates once again are only a pipedream that can hardly be fulfilled unless we steep so much into the depression.

    Super low interest rates, near zero, is not something we shall aspire to have, either by means of depression or to unleash the inflation like what we have done in our very recent memory – 2021-22. Central banks and countries in the advanced economies (read U.S. and Europe) have already paid a huge price for it and we need not pay more any longer. There shall be a fair price of money (i.e. interest rates), whatever the market sets (such as above or below 5%), not the price that the central banks determine via market manipulation only to accomplish the wealth transfer from the poor and middle class to rich and privileged.

    Rather, high single digit interest rates may become justified by the interest rate markets and well prevail not only to cure the excesses of the last 40 years in terms of the fiscal debt and deficits, though, even more importantly to pay for the sheer suicidal steps of tariffs, which are nothing but the self-inflicted wounds as of late out of sheer stupidities and whims of our current president surrounded by sycophants. There is no limit to the greed and number of bootlickers in this day and age that it is so hard to believe our own eyes and certainly not in this “once-so-civilized” society.

    Like Mahatma Gandhi said: “There is enough for everyone’s need, though, not enough for one person’s greed”.

    What it means is that this will be a third bubble to burst in a very short span – the early part of the 21st century – 2000, 2008 and now counting as to when exactly – completely unprecedented in the U.S. financial markets. It is not a question of ‘if’, it is only a question of ‘when’ the third bubble of modern history will burst. Imagine the amount of pain all investors including the young adults and soon to be retirees may have to go through who have made big dreams about the retirement, all in about less than 3 decades or their typical investment time horizon as discussed in a previous post.

    Imagine again… getting hit by the lightening, not once, not twice, but thrice in a very short time. Highly improbable, correct? Yet, it may well unveil just that way – same as before, bringing catastrophic consequences to the economy and peoples’ lives. We can only hope that it does not happen. So, let us hope for the best, yet prepare for the worst.

    Up next in a future post, we can address the root cause of this bubble – artificial intelligence (AI). At a high level for now, we all know that AI is real, though, few know that the expectations are unreal. It is a gold rush and for the right reasons there is a need for the picks and shovels to mine the gold, though, what is missing is that there is not an unlimited need for that. Nvidia (NVDA) and Tesla (TSLA) are the poster children for this recent bubble that was kicked off by top technology stocks otherwise known as Magnificent Seven (Mag 7) back in 2021. We need not even delve into the meme stocks by discounting it as a side-show for fun!

    In case, if you are still wondering and/or not following the markets closely, here is the list of Mag 7 stocks:

    • Alphabet (GOOG and GOOGL)
    • Amazon (AMZN)
    • Apple (AAPL)
    • Meta Platforms (META)
    • Microsoft (MSFT)
    • Nvidia (NVDA)
    • Tesla (TSLA)

    What is truly surprising that this bubble has lasted this long! Though, to be fair, even the dot com mania lasted several years thru mid to late 1990s, only culminating into its feverish pitch in 1999 later to burst in March of 2000.

    Basically, current market is completely unhinged and may fall off the precipitous cliff anytime now as it has done so historically during times like these. Bigger the bubble, worse it gets later. The following quote is generally attributed, though (not confirmed) to the famous British economist John Maynard Keynes: “Markets can remain irrational longer than you can remain solvent”.

    Hence, the bottom line is that this is not a place for the wise investors’ playground anymore. It is a high time to take the timeout and take some rest. It is much wiser to cede the playground to the fools and greedy ones out there to see their games playout however way it does. The market has gradually morphed from ‘excited’ to ‘broken’ to ‘sick’ to ‘needing surgery’ category in recent years that unless and until the patient has had a transformative surgery to cure the illness, the “hijacked” market will remain the domain of fool’s grounds or giant casino.

    Institutional investors at the cost of retail investors are happy to oblige and they deserve equal amount of blame as an uninformed investor. They should know better, yet they do not. Such is the saga of this day and age.

    How exactly we can say that we are near the top if not at the top? That is due to multiple factors as outlined in the previous posts and most importantly, the “mega moves” in stocks. The “alley of successful stocks” is getting smaller and smaller or rather narrower and narrower. Hence, the rise of stocks in 2023 and 2024 was not about the broader market participation of S&P 500 constituents, rather, it was about Mag 7 only, which means “Excluding S&P 493”. Now, even Nvidia fails to lift the market with its earnings results. That has been the phenomenon for last couple quarters. A classic sign of top! When general stops marching, the foot soldiers can go only so far in a war zone.

    Above all, the investors are so fidgety that the big swings in certain stock prices or wild gyrations of even 20% to 40% in a day is a common occurrence now which was unthinkable before for the large cap or mega stocks. Such behavior was captive to only small and speculative stocks. It shows how fidgety the market participants are!

    The moment someone yells a fire, let alone the actual fire in an uncharacteristically crowded nightclub, aka stock market, where everyone is having so much fun and party like there is no tomorrow, will try to exit out at the same time using a single skinny door then we can easily imagine the tragedy that may ensue with the crowd behavior. Large moves of 30-50% for certain large stocks will not be a stretch of an imagination. We already got a very good glimpse of it all post the so called “Liberation Day”, April 2, 2025 in a matter of few days. This is exactly the psyche of a casino investor, not a cold, calculative and rational investor!

Street Analysis

Intersection of Main Street and Wall Street

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